Textron Reduces Third and Fourth Quarter Earnings Outlook
PROVIDENCE, R.I.--Sept. 26, 2001--| - | COO John Janitz Exits; CEO Lewis Campbell Resumes Direct Responsibility for Operations |
| - | John Murphey Named Bell Helicopter CEO, Replacing Terry Stinson |
| - | Company-Wide Restructuring Program Expanded and Accelerated |
Lewis B. Campbell, chairman and chief executive officer of Textron Inc., announced today that as a result of the slowdown in the U.S. economy, the impact of events on September 11, and a number of significant adjustments at Bell Helicopter and other Textron businesses, the company is reducing its guidance for the third and fourth quarters of 2001. Textron said it is also expanding its restructuring program and curtailing production throughout many of its businesses to rebalance inventory with current demand.
In addition, Campbell announced several executive changes, setting the stage for more extensive and aggressive cost controls and operational improvement across the enterprise. These include the departure of Textron's Chief Operating Officer John Janitz and the installation of a new chief executive officer at Bell Helicopter, John Murphey, replacing Terry Stinson. Campbell will assume the additional title of President and take on direct operational responsibility for all Textron businesses.
For the third quarter, Textron now expects a loss before special charges and restructuring-related expenses of approximately $0.25 per share. In addition, Textron will take a special after-tax charge of $275 million to reduce goodwill and intangibles related to its OmniQuip business.
The company also expects continued softness in its markets during the fourth quarter. As a result, Textron estimates that fourth quarter earnings per share before special charges and restructuring-related expenses will be in the range of $0.40 to $0.60. The expanded restructuring program, which will include further plant closings and reductions in workforce, is expected to result in additional special charges and restructuring-related expenses of $125 million. The charges and expenses will be taken as they are incurred over the next six quarters.
"This situation demands immediate and forceful action," Campbell said. "First, I am resuming direct responsibility for Textron's businesses, a role I had when I was chief operating officer of the company from 1992 to 1998. Second, all business unit chief financial officers will now report directly to Textron Chief Financial Officer Ted French. Third, we have named a new, hands-on CEO at Bell Helicopter charged with significantly reducing the cost structure of its major programs. Fourth, we are expanding our previously announced restructuring program to further address our fundamental cost competitiveness. Fifth, we are reducing production levels to rebalance our inventories with expected demand."
Economic Slowdown and September 11-Related Issues
As the economy has continued to soften, a wide range of Textron's businesses have been impacted, including Automotive, Fastening Systems, Industrial Products, Bell commercial helicopters and Cessna single engine aircraft. In response, Textron is reducing production so that it is in a position to rebound strongly when the economy recovers.
The September 11 tragedy and the impact of subsequent events have also negatively affected Textron. Specifically, shipments at Cessna and Bell were suppressed as flight tests and aircraft deliveries were suspended during the four days during which there was a complete prohibition on flying. Flights of most internationally-registered general aviation aircraft continue to be prohibited, preventing production flight test activities and delivery to non-U.S. customers. Visual Flight Rules (VFR) flights were not permitted until late on September 21, which greatly inhibited the testing and delivery of single engine piston aircraft at Cessna and VFR helicopters at Bell. Volumes at other Textron businesses were also affected during September due to border closings and other transportation and supply chain disruptions and customer plant closings.
Business Unit-Specific Issues
Bell periodically reviews cost expectations, engineering progress and production schedules on its development and production programs. A third quarter review indicated reduced profitability expectations or losses on certain development and production activities, requiring significant adjustments. These adjustments will result in a one-time charge of approximately $0.52 in the third quarter, which is included in the $0.25 third quarter expected loss per share. Bell utilizes "contract accounting methodology" for significant contracts, whereby costs are estimated at commencement and profit is spread over the contract life. If contract performance is expected to deviate from original estimates, adjustments must be made to correct profit expectations or recognize expected losses. The third quarter adjustments recognize what will now clearly be stretched-out production schedules and additional costs to make design changes in the V-22 and H-1 government programs. Adjustments were also made to reflect development issues and lower volume expectations for a 412 program and the model 427.
At Cessna and Golf & Turf, charges of about $0.12 per share are expected, primarily to write down used equipment to reflect lower prices prevailing in the current market slowdown. These charges are also included in the expected $0.25 third quarter loss per share.
Expanded Restructuring Program
As a result of the expanded restructuring program, the company expects to incur additional special charges and restructuring-related expenses of $125 million in addition to the previously announced $200 million. The new program, which includes a further workforce reduction of approximately 2,500, should be substantially completed by the end of 2002. Excluding projects at Textron Automotive Trim, which is scheduled to be sold to Collins & Aikman under a previously announced definitive agreement, restructuring savings are expected to be $120 million in 2001, $200 million in 2002 and $225 million in 2003. Also excluding Textron Automotive Trim, the company expects a total reduction of 7,300 employees, representing approximately 12% of Textron's global workforce since the restructuring was first announced in October 2000.
Campbell added, "While an already tough economic outlook has become even tougher, these moves further position Textron for cost competitiveness, profitability, and accelerated growth. They are consistent with - and accelerate - our three strategic initiatives of restructuring the business, redesigning our business model to leverage the full capabilities of the enterprise, and reconfiguring our portfolio for higher growth in attractive industries. Moreover, we continue to be committed to achieving best-in-class margins and returns in each of our businesses.
"Over the past year, we have pursued a deliberate and focused effort to adopt a strong enterprise-wide business model - emphasizing return on invested capital, demanding purchasing and information technology synergies between business units, and imposing stringent asset purchase and divestiture criteria as we focus on strong brands in attractive industries. The new actions we have announced today are a major step forward along that continuum."
At 9:00 a.m. Eastern time today, Textron will host a conference call, accessible via webcast at www.textron.com through the investor relations link on the home page or by dialing 800-553-0351 in the U.S. or 612-332-0530 outside of the U.S. (request Textron meeting). The call will be recorded and available for playback beginning at 1:00 p.m. Eastern time by dialing 320-365-3844 (access code 605186). The playback will be active until 5:00 p.m. Eastern time on October 3.
Textron Inc. (www.textron.com) is a $13 billion, global, multi-industry company with market-leading businesses in Aircraft, Automotive, Industrial Products, Fastening Systems and Finance. Textron has a workforce of 68,000 employees and major manufacturing facilities in 30 countries. Textron is among Fortune magazine's "Global Most Admired Companies" and Industry Week magazine's "Best Managed Companies."
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 implement and complete its restructuring plans (b) the extent to which Textron is able to successfully integrate recent acquisitions, (c) changes in worldwide economic and political conditions that impact interest and foreign exchange rates, (d) the occurrence of work stoppages and strikes at key facilities of Textron or Textron's customers or suppliers, (e) government funding and program approvals affecting products being developed or sold under government programs, (f) successful implementation of supply chain and e-procurement strategies, (g) the timing of certifications of new aircraft products, (h) the occurrence of a severe downturn in the economies in which Textron operates that could reduce demand for its products (i) the level of consumer demand for the vehicle models for which Textron supplies parts to automotive original equipment manufacturers ("OEMs"), (j) Textron's ability to offset, through cost reductions, raw material price increases and pricing pressure brought by OEM customers, and (k) Textron Financial's ability to maintain credit quality and control costs when entering new markets.