Textron Announces Plan to Exit All Non-Captive Financial Businesses
PROVIDENCE, R.I. December 22, 2008: Textron Inc. today announced that its Board of Directors has approved a plan to exit all of Textron Financial Corporation’s (TFC) commercial finance business through a combination of orderly liquidation and selected sales, other than that portion of the business supporting the financing of customer purchases of Textron-manufactured products.
The company previously indicated that TFC would be exiting its Asset Based Lending and Structured Capital segments, as well as several additional product lines, representing about $2 billion in managed receivables. The revised plan now applies to approximately $7.9 billion of TFC’s $11.4 billion managed receivable portfolio.
The company has also extended the revolving period for its $550 million aircraft finance securitization facility, so that it will remain available through December 2009 to finance new receivables as existing receivables are repaid.
Textron Chairman, President and CEO Lewis B. Campbell commented, “Executing this new strategic direction for TFC is expected to significantly enhance our long-term liquidity position in light of continuing disruption and instability in the capital markets.”
Approximately $3.5 billion of the liquidating receivables are now designated for sale or transfer, of which about $1.3 billion are securitized receivables managed by TFC and $2.2 billion are owned assets classified as held for sale. Accordingly, Textron will record an approximate $250 - $300 million pre-tax fourth quarter, mark-to-market adjustment against owned assets held for sale, as noted above. Because the exit plan also creates a change in investment status of TFC’s Canadian subsidiary, the company will also recognize non-cash tax charges of about $31 million. These adjustments are in addition to the previously announced $169 million non-cash, pre-tax impairment charge to eliminate TFC’s goodwill.
Also, as a result of continued market stress and the impact of the exit plan, Textron intends to increase TFC’s reserves in the quarter, which is expected to result in a fourth quarter pre-tax segment loss in Finance of about $130 million.
Segment profit (loss) is an important measure used for evaluating performance and for decision-making purposes. The measurement for the Finance segment excludes restructuring charges and certain other charges, such as initial mark-to-market adjustments upon the change in investment classification and goodwill impairment charges.
In order to remain compliant with its support obligations to TFC, Textron plans to make an approximate $600 million capital contribution to TFC during the fourth quarter of 2008. This amount is based on the additional losses and charges described above and is in lieu of the estimated $200 million the company previously indicated it would contribute in the first quarter of 2009. The contribution will not result in any increase in the consolidated amount of Textron and TFC debt outstanding.
Continued Economic Weakness Impacting Outlook
Campbell added, “Continued weakening in economic conditions is also impacting customers of our manufacturing segments, especially at Cessna and Industrial, although we expect that better performance at Bell and Defense & Intelligence will partially offset the weakness.” As a result, Textron now expects fourth quarter manufacturing segment profit to be $300 - $330 million, compared to the company’s previous expectation of about $400 million.
Textron will also record a foreign tax credit benefit of about $30 million, primarily in conjunction with foreign cash repatriated during the quarter to improve liquidity.
Given the further decline in economic activity, the company has expanded its previously announced overhead cost reduction and productivity improvement plan and now expects restructuring charges of about $65 million to be recorded in the fourth quarter 2008 with expected cost savings of about $100 million in 2009. The program, along with other volume-related reductions in workforce, eliminates approximately 2,200 positions worldwide. Approximately $20 million of the restructuring costs are non-cash, relating primarily to asset impairment charges for facilities to be closed. The company anticipates that further headcount reductions and other actions could lead to additional restructuring costs beyond those incurred in 2008.
Textron is now expecting a fourth quarter GAAP loss in the range of $0.91 to $0.81 per share. Excluding the TFC mark-to-market adjustment and tax impact of the change in TFC’s Canadian investment status, TFC goodwill impairment and Textron restructuring charges, the company expects fourth quarter 2008 adjusted earnings from continuing operations will be between $0.30 and $0.40 per share, compared to its previous estimate of $0.80 to $0.90. (See attached GAAP Reconciliation Schedule.)
Campbell continued, “In concert with the exit of our non-captive financial business and restructuring activities, managers across Textron are aggressively reducing our cost structure and working capital requirements while simultaneously preserving key competitive advantages that drive revenue growth. Our manufacturing businesses continue to generate positive cash flow and I am confident that our team is executing with discipline and dedication to ensure that we are acting aggressively within the current unprecedented market environment.”
“Looking ahead to 2009, we continue to believe that losses at TFC will be manageable. While we expect manufacturing revenues will be down next year, we believe our cost reduction plans will contribute to our operating performance as we focus to offset the impact of slowing demand,” Campbell concluded.
2008 Year-End Earnings Release
Textron will release financial results for its fiscal year ending January 3, 2009 on Thursday, January 29, 2009.
The company will also host a conference call at 9:00 a.m. Eastern time on January 29, 2009 to discuss results and the company's outlook. The call will be available via webcast at TEXTRON or by direct dial at (800) 288-8975 in the U.S. or (612) 332-0418 outside of the U.S. (request the Textron Earnings Call).
In addition, the call will be recorded and available for playback beginning at 12:30 p.m. Eastern time on Thursday, January 29, 2009 by dialing (320) 365-3844; Access Code: 896349.