Providence, Rhode Island - October 17, 2002 - Textron Inc.(NYSE: TXT) today reported third quarter diluted earnings per share of $0.68 and net income of $95 million before special charges and costs related to restructuring, compared to last year's diluted loss per share of $0.25 and net loss of $35 million before special charges and costs related to restructuring. The company also announced an expansion of its restructuring program as part of a strategic effort to improve operating efficiencies.
Results before non-recurring items are useful in analyzing operating performance, but should be used only in conjunction with results reported in accordance with generally accepted accounting principles. Reported third quarter 2002 earnings per share were $0.51 and net income was $71 million, compared with last year's reported loss per share of $2.34 and net loss of $330 million. These results include pre-tax special charges and costs related to restructuring in the third quarter 2002 and the third quarter 2001 of $34 million and $349 million, respectively. Last year's results included $26 million of goodwill amortization.
Third quarter revenues were $2.6 billion, down from $2.8 billion in 2001, due to the divestitures of Automotive Trim and a number of other businesses and lower revenue in the Finance segment, partially offset by higher revenue in the Aircraft, Industrial Components and Fastening Systems segments. For the quarter, Textron recorded free cash flow before restructuring of $6 million compared to a use of cash of $67 million during the third quarter a year ago. The company continued to make progress on its restructuring program, with incremental savings over the prior-year quarter of $25 million.
The industrial environment continued to be sluggish and we had a number of challenges to overcome, said Lewis B. Campbell, Textron chairman, president and CEO. During the quarter, we initiated a customer care program in connection with a product recall in our aircraft engine business and addressed non-performing telecommunications loans in our commercial finance business. Meeting our targets was largely the result of our continued success in improving operating efficiencies across the enterprise through our restructuring program and other cost reduction activities.
Restructuring Expanded
Textron announced that it is expanding its restructuring program as part of a strategic effort to improve operating efficiencies, primarily in its industrial businesses. The expanded restructuring program, which will include further reductions of about 2,000 employees, is expected to result in additional special charges and restructuring-related expenses of about $150 million. The charges and expenses will be taken as they are incurred and should be substantially completed by the end of 2004. The $150 million in costs will be in addition to the $325 million previously announced.
With the expanded program, the company now expects a total reduction of 9,500 employees, representing approximately 16% of Textron's global workforce since the restructuring program was first announced. Annual ongoing restructuring savings are now estimated to total $250 million in 2002, $325 million in 2003 and at least $400 million in 2004. To date, the company has incurred $225 million of the total restructuring costs, with a cumulative reduction of about 6,400 employees.
Full-Year 2002 Outlook
Textron said that it continues to expect full-year earnings per share of approximately $3.00, before special charges, costs related to restructuring, the gain from transactions related to the divested Automotive Trim business and the transitional goodwill impairment charge. The company expects free cash flow before restructuring for the year of approximately $300 million.
Looking forward, we do not see any near-term improvement in the general industrial manufacturing environment. However, we are encouraged by our ability to continue to take out costs, while also building a foundation for future growth, Campbell said.
Third Quarter Year-Over-Year Segment Analysis
Due to the company's adoption of SFAS No. 142, this year's net income excludes goodwill amortization. The company no longer includes amortization of goodwill in its internal evaluation of segment performance. Therefore, the company has recast its prior year segment results for comparability by reclassifying goodwill amortization and treating this expense as a below-segment profit item. Segment profits and margins discussed below for both periods also reflect amounts before deducting special charges and costs related to restructuring.
Aircraft
Aircraft segment revenues increased $60 million and profit increased $117 million.
Cessna's revenues increased $43 million, primarily due to higher Caravan sales, higher used aircraft sales volume, higher spare parts and service sales and pricing. These were partially offset by lower sales volume of single engine piston aircraft and aircraft engines that have been affected by the weak economy. Profit decreased $4 million as the benefits of higher sales and mix were more than offset by the $31 million in cost related to the recall and customer care program at the aircraft engine business, a write-down for used aircraft valuations, and start-up costs related to the new Sovereign business jet. Backlog at Cessna was $4.6 billion at the end of the quarter, excluding orders for the recently launched Citation Mustang.
Bell Helicopter's revenues increased $17 million as higher revenues from the U.S. Government, primarily on the V-22 program, and higher foreign military sales were partially offset by lower commercial sales. Sales in the commercial business primarily reflected lower commercial aircraft sales and lower Huey II retrofit kits, partially offset by higher commercial spares and service sales. Profit increased $121 million primarily due to $115 million in unfavorable profit adjustments in 2001. The remaining $6 million in profit improvement was the result of higher profits in both the commercial and U.S. Government businesses. Backlog at Bell was $1.4 billion at the end of the quarter.
Fastening Systems
Fastening Systems revenues increased $22 million and profit increased $13 million.
Revenues increased primarily due to higher sales volume and the favorable impact from foreign exchange, partially offset by customer price reductions and the divestiture of non-core product lines in 2001. Profit increased primarily due to the higher sales volume, the benefit from restructuring activities and the loss on the sale of a non-core product line in the third quarter 2001, partially offset by customer price reductions.
Industrial Products
Industrial Products revenues decreased $2 million, while profit increased $33 million.
Revenues decreased in most of the segment's businesses primarily due to lower sales volume from depressed markets and the divestiture of non-core product lines during 2001, partially offset by higher sales volume and higher pricing in the golf car and turf care businesses. Profit increased primarily due to stronger cost performance, which included restructuring savings, and the higher pricing, partially offset by an unfavorable sales mix.
Industrial Components
Industrial Components revenues decreased $314 million, while profit increased $2 million.
Revenues and profit declined $364 million and $8 million, respectively, due to the divestitures of Trim, TECT and several small product lines in 2001. Excluding the divestitures, revenues increased $50 million and profit increased $10 million. The revenue increase was due to higher volume at Kautex as a result of new product launches, a stronger automotive market and the favorable impact of foreign exchange, partially offset by lower volume in the other industrial businesses as a result of soft markets and customer price reductions. Excluding the divestitures, the profit increase was primarily due to the higher sales, improved performance at Kautex and the benefit from restructuring activities, partially offset by customer price reductions.
Finance
Finance segment revenues decreased $22 million and profit decreased $32 million.
Revenues decreased primarily due to a lower average yield, reflecting the current interest rate environment. Profit decreased primarily due to a higher provision for loan losses and lower interest margin, primarily resulting from higher relative borrowing costs. The increase in the provision for losses reflected higher net charge-offs in syndicated bank loans primarily in the telecommunications industry, and in the franchise and aircraft finance groups.
Conference Call Information
Textron will host a conference call at 10:00 a.m. Eastern time today to discuss results and the company's outlook. This conference call will be accessible via webcast at www.textron.com or by direct dial at (888) 428-4473 in the U.S. or (612) 288-0329 outside of the U.S. (request the Textron Earnings Conference). The call will be recorded and available for playback beginning at 1:30 p.m. Eastern time on Thursday, October 17th by dialing (320) 365-3844 - Access Code 639113. The recording will be available until 12:00 a.m. Eastern time on October 24, 2002.
Textron Inc. is a $12 billion multi-industry company with more than 51,000 employees in 40 countries. The company leverages its global network of businesses to provide customers with innovative solutions and services in industries such as aircraft, fastening systems, industrial products, industrial components, and finance. We are known around the world for our powerful brands such as Bell Helicopter, Cessna Aircraft, Kautex, Lycoming, E-Z-GO and Greenlee, among others. More information is available at www.textron.com.
Forward-looking Information: Certain statements in this release and other oral and written statements made by Textron from time to time are forward-looking statements, including those that discuss strategies, goals, outlook or other non-historical matters; or project revenues, income, returns or other financial measures. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the statements, including the following: (a) the extent to which Textron is able to achieve savings from its restructuring plans, (b) changes in worldwide economic and political conditions that impact interest and foreign exchange rates, © the occurrence of work stoppages and strikes at key facilities of Textron or Textron's customers or suppliers, (d) government funding and program approvals affecting products being developed or sold under government programs, (e) cost and delivery performance under various program and development contracts, (f) the adequacy of cost estimates for various customer care programs including servicing warranties, (g) successful implementation of supply chain and other cost reduction programs, (h) the timing of certifications of new aircraft products, (i) the occurrence of further downturns in customer markets to which Textron products are sold or supplied, (j) Textron's ability to offset, through cost reductions, raw material price increases and pricing pressure brought by original equipment manufacturer customers, (k) the availability and cost of insurance, (l) pension plan income falling below current forecasts, (m) Textron Financial's ability to maintain credit quality and control costs; and (n) uncertainty in estimating contingent liabilities and establishing reserves tailored to address such contingencies.
TEXTRON INC.
REVENUES AND INCOME BY BUSINESS SEGMENT
THREE MONTHS ENDED SEPTEMBER 28, 2002 AND SEPTEMBER 29, 2001
(In millions except per share amounts)
(Unaudited)
September 28, 2002 September 29, 2001
As As As As
Reported Adjusted(a) Reported Adjusted(a)
REVENUES
MANUFACTURING: (b)
Aircraft $ 1,156 $ 1,156 $ 1,096 $ 1,096
Fastening Systems 411 411 389 389
Industrial Products 432 432 434 434
Industrial Components 399 399 713 713
2,398 2,398 2,632 2,632
FINANCE 156 156 178 178
Total revenues $ 2,554 $ 2,554 $ 2,810 $ 2,810
PROFIT (LOSS)
MANUFACTURING: (b) (c)
Aircraft $ 90 $ 93 $ (25) $ (24)
Fastening Systems 21 21 5 8
Industrial Products 21 24 (12) (9)
Industrial Components 29 29 23 27
161 167 (9) 2
FINANCE (c) 19 19 51 51
Segment profit 180 186 42 53
Gain on sale of division - - 3 3
Special charges (e) (28) - (338) -
Goodwill amortization (c) - - (26) (26)
Corporate expenses and
other - net (26) (26) (33) (33)
Interest expense, net (30) (30) (41) (41)
Income (loss) before
income taxes 96 130 (393) (44)
Income taxes (19) (29) 69 15
Distribution on preferred
securities of manufacturing
subsidiary trust, net of
income taxes (6) (6) (6) (6)
Net income (loss) (c) $ 71 $ 95 $ (330) $ (35)
Earnings per share: (g)
Net income (loss) (c) $ 0.51 $ 0.68 $ (2.34) $ (0.25)
Average diluted shares
outstanding (g) 139,145,000 139,145,000 141,196,000 141,196,000
TEXTRON INC.
REVENUES AND INCOME BY BUSINESS SEGMENT
NINE MONTHS ENDED SEPTEMBER 28, 2002 AND SEPTEMBER 29, 2001
(In millions except per share amounts)
(Unaudited)
September 28, 2002 September 29, 2001
As As As As
Reported Adjusted(a) Reported Adjusted(a)
REVENUES
MANUFACTURING: (b)
Aircraft $ 3,526 $ 3,526 $ 3,376 $ 3,376
Fastening Systems 1,238 1,238 1,306 1,306
Industrial Products 1,405 1,405 1,524 1,524
Industrial Components 1,178 1,178 2,419 2,419
7,347 7,347 8,625 8,625
FINANCE 449 449 513 513
Total revenues $ 7,796 $ 7,796 $ 9,138 $ 9,138
PROFIT
MANUFACTURING: (b) (c)
Aircraft $ 316 $ 319 $ 202 $ 211
Fastening Systems 49 52 82 86
Industrial Products 63 68 113 119
Industrial Components 75 77 183 191
503 516 580 607
FINANCE (c) 70 70 143 143
Segment profit 573 586 723 750
Gain on sale of
division (d) 25 - 3 3
Special charges (e) (64) - (415) -
Goodwill amortization (c) - - (75) (75)
Corporate expenses and
other - net (86) (86) (114) (114)
Interest expense, net (85) (85) (125) (125)
Income (loss) before
income taxes 363 415 (3) 439
Income taxes (111) (119) (69) (155)
Distribution on preferred
securities of manufacturing
subsidiary trust, net of
income taxes (19) (19) (19) (19)
Income (loss) before
cumulative effect of change
in accounting principle 233 277 (91) 265
Cumulative effect of a change
in accounting principle, net
of income taxes (f) (488) - - -
Net income (loss) (c) $ (255) $ 277 $ (91) $ 265
Earnings per share: (g)
Income (loss) before
cumulative effect of change
in accounting principle 1.66 1.97 (0.65) 1.85
Cumulative effect of a
change in accounting principle,
net of income taxes (f) (3.47) - - -
Net income (loss) (c) $ (1.81) $ 1.97 $ (0.65) $ 1.85
Average diluted shares
outstanding (g) 140,820,000 140,820,000 140,985,000 143,093,000
TEXTRON INC.
REVENUES AND INCOME BY BUSINESS SEGMENT
THREE AND NINE MONTHS ENDED SEPTEMBER 28, 2002 AND SEPTEMBER 29, 2001
(In millions except per share amounts)
(a) The "As Adjusted" column excludes costs related to restructuring
recorded in segment profit, expenses recorded in special charges,
the gain on transactions related to the divestiture of the
Automotive Trim business and the cumulative effect of the change
in accounting principle. A reconciliation of income as reported
to income as adjusted is as follows:
Third Quarter Nine Months
2002 2001 2002 2001
Net income, as reported $ 71 $ (330) $ (255) $ (91)
Adjustments:
Gain on sale of division - - (25) -
Costs related to restructuring 6 11 13 27
Special charges:
Restructuring 25 10 49 63
Fixed asset impairment 3 4 15 24
Intangible impairment - 318 - 319
E-business losses - 6 - 9
Tax impact of excluded costs (10) (54) (8) (86)
Cumulative effect of a change
in accounting principle, net
of income taxes - - 488 -
Net income, as adjusted $ 95 $ (35) $ 277 $ 265
(b) In January 2002, Textron reorganized to reflect the sale of the
Automotive Trim business and now reports under the following new
segments: Aircraft, Fastening Systems, Industrial Products,
Industrial Components and Finance. Prior periods have been recast
to reflect this change.
(c) Pursuant to SFAS No. 142, beginning on December 30, 2001, goodwill
is no longer amortized. To reflect the adoption of this Statement
and the fact that the Company does not include amortization of
goodwill in its internal evaluation of segment performance, the
Company has recast its segment data for comparability by
reclassifying goodwill amortization from segment profit in prior
periods.
(d) In the second quarter 2002, Textron recorded an adjustment to the
gain on the divestiture of the Automotive Trim business as a
result of transactions associated with the divestiture. The
Automotive Trim business was sold to Collins & Aikman Products Co.
in the fourth quarter 2001.
(e) Special charges include restructuring expenses and fixed asset
impairment write-downs associated with reducing overhead and
closing, consolidating and downsizing manufacturing facilities,
reducing corporate and segment personnel, consolidating
operations and exiting non-core product lines.
(f) With the implementation of SFAS No. 142, Textron recorded a $488
million after-tax transitional goodwill impairment charge
comprised of $274 million in the Industrial Products segment,
$111 million in the Industrial Components segment, $88 million in
the Fastening Systems segment and $15 million in the Finance
segment. As required by the Statement, these charges were
recorded retroactively to the beginning of fiscal year 2002 as a
cumulative effect of a change in accounting principle.
(g) The diluted EPS average share base for the third quarter 2001
excludes potential common shares (convertible preferred stock and
stock options). The first nine months of 2001 "As Reported"
amount also excludes potential common shares. These shares are
excluded due to their antidilutive effect resulting from the
third quarter and nine months losses from continuing operations.
Additionally, the earnings available for common shareholders has
been reduced by dividends on convertible preferred securities.
TEXTRON INC.
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited)
September 28, December 29,
2002 2001
Assets
Cash and cash equivalents $ 184 $ 241
Accounts receivable, net 1,325 1,149
Inventories 1,773 1,727
Other current assets 434 900
Net property 1,979 2,044
Other assets 3,078 3,527
Textron Finance assets 7,029 6,464
Total Assets $ 15,802 $ 16,052
Liabilities and
Shareholders' Equity
Current portion of long-term
debt and short-term debt $ 216 $ 673
Other current liabilities 2,267 2,402
Other liabilities 1,762 1,842
Long-term debt 1,663 1,261
Textron Finance liabilities 6,014 5,427
Total Liabilities 11,922 11,605
Obligated mandatorily
redeemable preferred
securities 512 513
Total Shareholders' Equity 3,368 3,934
Total Liabilities and
Shareholders' Equity $ 15,802 $ 16,052