Textron Reports Third Quarter Results In Line with Prior Estimates
PROVIDENCE, R.I.--Oct. 18, 2001--Textron Inc. today reported a loss before special charges and restructuring-related expenses of $35 million, or $0.25 per share, for the third quarter ended September 29, 2001, in line with the company's previously announced estimate. This compares to earnings of $158 million or diluted earnings per share of $1.08 in the third quarter of last year.Textron reported a net loss of $330 million for the third quarter of 2001. This reflects $349 million (pre-tax) of special charges and restructuring related expenses, including the previously announced impairment charge to reduce goodwill and intangibles related to its OmniQuip business of $318 million ($275 million after-tax).
Third quarter revenues were $2.8 billion, down from $3.2 billion in 2000, primarily due to softening sales in most short cycle businesses, pricing pressures and delayed deliveries in the Aircraft segment as a result of flight restrictions related to the September 11 attacks.
Operating results were negatively impacted by lower sales volumes, pricing pressures and the economic disruptions resulting from the terrorist actions, as well as profitability adjustments on certain programs at Bell Helicopter and a write-down of used equipment at Cessna and Golf & Turf to reflect lower prices prevailing in their current markets. Offsetting these items during the quarter were cost savings of approximately $48 million attributable to Textron's ongoing restructuring program, bringing the year-to-date savings from the program to about $97 million.
Textron Chairman, President and Chief Executive Officer Lewis B. Campbell said, "We are aggressively reducing costs and resizing our business to maximize our success in these continuing difficult economic times. As announced on September 26, we have also taken immediate actions to improve the management process and business structure at Textron to address the operating issues identified during the third quarter.
"We remain committed to our three strategic initiatives of restructuring the business, re-engineering our business model to leverage the full capabilities of the enterprise and reconfiguring our portfolio as we focus on strong brands in attractive, higher growth industries. We are confident that our progress along these fronts will create a more resilient business model with a significantly improved cost structure that will provide accelerated earnings growth when the economy recovers."
Fourth Quarter Outlook
Textron said that economic pressures continue to impact its businesses across the board. Its customers and dealers are also being negatively impacted by the slow economy, putting further pressure on Textron's free cash flow, which is expected to total approximately $200 million for the year, before restructuring costs. As previously announced, Textron expects fourth quarter earnings before special charges and restructuring-related expenses to be in the range of $0.40 to $0.60 per share.
TEXTRON SEGMENT ANALYSIS
AIRCRAFT
Aircraft segment revenues and profits before restructuring-related expenses decreased $107 million and $157 million, respectively.
Cessna revenues decreased due to lower sales of single-engine piston aircraft driven by the slower economy, and delayed deliveries of business jets and Caravans following the September 11 tragedy. Specifically, shipments and flight tests were suspended while there was a complete prohibition on flying. A continued prohibition for most internationally-registered general aviation aircraft also prevented production flight test activities and delivery to non-U.S. customers. Profit decreased as a result of the lower sales, used aircraft inventory write-downs taken to reflect lower prices, and higher engineering expense related to the development of the Sovereign business jet. These decreases were partially offset by improved operating performance.
-- Total backlog at Cessna was $5.8 billion at the end of the third quarter.
Bell Helicopter revenues decreased due to lower sales of commercial helicopters and spares and lower foreign military sales, partially offset by higher revenue on the V-22 tiltrotor aircraft production contract. Bell profit decreased primarily due to the previously announced program review adjustments to reflect reduced profitability expectations on certain development and production contracts, including the V-22, the H-1, and Model 412 and 427 programs. These adjustments reflect the clarification of several matters including extended development schedules and design changes on a number of programs. Profit was also less due to lower income related to retirement benefits and lower income from a joint venture partner for the BA609 program.
-- Total backlog at Bell Helicopter was $1.2 billion at the end of the third quarter.
AUTOMOTIVE
Automotive segment revenues and profit before restructuring-related expenses decreased $75 million and $24 million, respectively.
Trim revenues decreased primarily due to North American automotive OEM production decreases, customer price reductions and the unfavorable impact of foreign exchange. Profit decreased primarily due to the lower sales volume and customer price reductions, partially offset by the benefit of restructuring and other cost containment activities.
Fuel Systems and Components revenues decreased primarily as a result of the divestiture of non-core product lines in the fourth quarter of 2000 and in the first half of 2001, customer price reductions and lower volume. Profit decreased primarily due to customer price reductions, the lower volume, and lower income related to retirement benefits, partially offset by the benefit of cost reduction activities.
FASTENING SYSTEMS
The Advanced Solutions Group, previously part of Textron Fastening Systems, is now managed within the Tempo business unit and reported as part of the Industrial Products segment. Prior periods have been restated to reflect this change.
Fastening Systems segment revenues and profit before restructuring-related expenses decreased $80 million and $42 million, respectively.
The revenue and profit decreases were primarily due to lower volume, customer price reductions and the unfavorable impact of foreign exchange. The unfavorable profit impact from the lower sales, operating inefficiencies, customer price reductions and a loss on the divestiture of a non-core product line were partially offset by the benefit of restructuring and other cost reduction activities.
INDUSTRIAL PRODUCTS
Industrial Products segment revenues and profit before restructuring-related expenses decreased $130 million and $82 million, respectively.
Revenue decreased primarily due to the unfavorable impact of the depressed economy on most of the segment's businesses plus reduced sales due to the divestiture of Turbine Engine Components, partially offset by the contribution from the acquisition of Tempo Research, Opto-Electronics and Industrial Technology. Profit decreased as a result of the lower sales volume, pricing pressures, operating inefficiencies, a write-down of used equipment inventories at Golf & Turf and lower income related to retirement benefits. These reductions were partially offset by the benefit of restructuring activities.
FINANCE
Finance segment revenues decreased $6 million due to a lower average yield reflecting a lower interest rate environment. Interest margin increased, reflecting higher fee income and higher average receivables. The higher interest margin more than offset the decrease in revenues. However, profit decreased $1 million as higher expenses related to new initiatives and a higher provision for loan losses offset the benefit of higher interest margin.
Conference Call Information
Textron will host a conference call at 10:00 a.m. Eastern time today to discuss third quarter results and the company's outlook. This conference call will be accessible via webcast at www.textron.com or by direct dial at (800) 230-1096 in the U.S. or (612) 288-0340 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 October 18 by dialing (320) 365-3844 - Access Code 603145.
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.
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) the extent to which Textron is able to successfully integrate 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) cost and delivery performance under various program and development contracts, (g) successful implementation of supply chain and e-procurement strategies, (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 OEM customers, (k) Textron Financial's ability to maintain credit quality and control costs and (l) the completion of the previously-announced sale of Textron's Automotive Trim unit.
Unaudited
TEXTRON INC.
REVENUES AND INCOME BY BUSINESS SEGMENT
THIRD QUARTER AND NINE MONTHS
(In millions except per share amounts)
Third Quarter
Sept. 29, 2001 Sept. 30,
As Reported As Adjusted(a) 2000
REVENUES
MANUFACTURING:
Aircraft $ 1,064 $ 1,064 $ 1,171
Automotive 579 579 654
Fastening Systems (b) 389 389 469
Industrial Products (b) 600 600 730
2,632 2,632 3,024
FINANCE 178 178 184
Total revenues $ 2,810 $ 2,810 $ 3,208
PROFIT
MANUFACTURING:
Aircraft $ (31) $ (30) $ 127
Automotive 14 16 40
Fastening Systems (b) 1 4 46
Industrial Products (b) (16) (11) 71
(32) (21) 284
FINANCE 48 48 49
Segment Profit 16 27 333
Gain on Sale of Division 3 3 -
Special charges, net (c) (338) - -
Corporate expenses and
other - net (33) (33) (34)
Interest expense (41) (41) (42)
Income (loss) before income
taxes $ (393) $ (44) $ 257
Income taxes 69 15 (93)
Distribution on preferred
securities of manufacturing
subsidiary trust, net of
income taxes (6) (6) (6)
Income (loss) from continuing
operations (330) (35) 158
Cumulative effect of change
in accounting principle,
net of income taxes (d) - - -
Net income (loss) $ (330) $ (35) $ 158
Earnings per share: (e)
Income (loss) from continuing
operations (2.34) (0.25) 1.08
Cumulative effect of change
in accounting principle,
net of income taxes (d) - - -
Net income (loss) $ (2.34) $ (0.25) $ 1.08
Average shares outstanding (e) 141,196,000 141,196,000 145,325,000
Nine Months
Sept. 29, 2001 Sept. 30,
As Reported As Adjusted(a) 2000
REVENUES
MANUFACTURING:
Aircraft $ 3,273 $ 3,273 $ 3,143
Automotive 1,972 1,972 2,253
Fastening Systems (b) 1,306 1,306 1,546
Industrial Products (b) 2,074 2,074 2,330
8,625 8,625 9,272
FINANCE 513 513 506
Total revenues $ 9,138 $ 9,138 $ 9,778
PROFIT
MANUFACTURING:
Aircraft $ 179 $ 188 $ 312
Automotive 135 139 190
Fastening Systems (b) 69 74 138
Industrial Products (b) 131 140 267
514 541 907
FINANCE 134 134 134
Segment Profit 648 675 1,041
Gain on Sale of Division 3 3 -
Special charges, net (c) (415) - -
Corporate expenses and
other - net (114) (114) (121)
Interest expense (125) (125) (116)
Income (loss) before income
taxes $ (3) $ 439 $ 804
Income taxes (69) (155) (290)
Distribution on preferred
securities of manufacturing
subsidiary trust, net of
income taxes (19) (19) (19)
Income (loss) from continuing
operations (91) 265 495
Cumulative effect of change
in accounting principle,
net of income taxes (d) - - (59)
Net income (loss) $ (91) $ 265 $ 436
Earnings per share: (e)
Income (loss) from continuing
operations (0.65) 1.85 3.37
Cumulative effect of change
in accounting principle,
net of income taxes (d) - - (0.40)
Net income (loss) $ (0.65) $ 1.85 $ 2.97
Average shares outstanding 140,985,000 143,093,000 146,911,000
(a) The "As Adjusted" column excludes restructuring-related
expenses recorded in the segments as well as expenses recorded in
special charges.
(b) Textron reorganized management responsibility for one of its
divisions previously reported in the Fastening Systems segment to the
Industrial Products segment. Prior periods have been restated to
reflect this change.
(c) Special charges, net for 2001 includes goodwill and
intangibles impairment write-downs in the third quarter, accruable
restructuring expenses associated with a) reducing overhead and
closing, consolidating and downsizing manufacturing facilities, b)
consolidating operations and exiting non-core product lines within the
Finance segment and c) corporate and segment personnel reductions and
e-business investment losses.
(d) In January 2000, Textron adopted the Emerging Issues Task
Force consensus EITF 99-5 which requires certain pre-production
engineering costs to be expensed as incurred. Textron recorded the
cumulative effect of this accounting change in January 2000.
(e) The diluted EPS average share base for the third quarter 2001
excludes potential common shares (convertible preferred stock and
stock options). The nine months "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
loss from continuing operations. Additionally, the earnings available
for common shareholders has been reduced by dividends on convertible
preferred securities.
Unaudited
TEXTRON INC.
Condensed Consolidated Balance Sheets
(In millions)
Sept. 29, Dec. 30, Sept. 30,
2001 2000 2000
Assets
Cash and cash equivalents $ 261 $ 282 $ 134
Accounts receivable, net 1,500 1,318 1,482
Inventories 2,018 1,871 2,032
Other current assets 443 443 302
Net property 2,560 2,568 2,507
Other assets 3,731 3,757 4,203
Textron Finance assets 6,625 6,131 6,116
Total Assets $17,138 $16,370 $16,776
Liabilities and Shareholders' Equity
Current portion of long-term
debt and short-term debt $ 1,353 $ 615 $ 825
Other current liabilities 2,583 2,648 2,562
Other liabilities 1,876 1,939 1,937
Long-term debt 1,475 1,469 1,457
Textron Finance liabilities 5,608 5,193 5,186
Total Liabilities 12,895 11,864 11,967
Obligated mandatorily redeemable
preferred securities 513 512 512
Total Shareholders' Equity 3,730 3,994 4,297
Total Liabilities and
Shareholders' Equity $17,138 $16,370 $16,776