Textron Reports First Quarter 2002 Earnings Per Share of $0.47 Before Special Charges and Costs Related to Restructuring
PROVIDENCE, R.I.--April 18, 2002--Textron Inc. today reported first quarter diluted earnings per share of $0.47 and net income of $66 million before special charges and costs related to restructuring, compared to last year's diluted earnings per share of $1.00 and net income of $143 million before special charges and costs related to restructuring.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 earnings for the first quarter of 2002 were $57 million or $0.40 per share. This reflects a deduction of $14 million in pretax special charges and costs related to restructuring.
First quarter revenues were $2.4 billion, down from $3.0 billion in 2001, primarily due to the divestitures of Automotive Trim and a number of other businesses and soft sales across most of Textron's segments, partially offset by higher sales in the Aircraft segment. For the quarter, Textron recorded a use of free cash flow before restructuring of $207 million compared to a use of $377 million in 2001. The company continued to make excellent progress on its restructuring program, with year-over-year savings of about $42 million.
Textron Chairman, President and Chief Executive Officer Lewis B. Campbell said, "Excellent cash management and delivering earnings in line with our plan were noteworthy accomplishments despite the continuing challenges of a weak economy. We were able to substantially improve our cash results during the quarter even on lower revenues due to our enterprise-wide emphasis on supply chain management, our progress with restructuring and our management's focus on improving return on invested capital. We are making excellent progress in strengthening Textron for a healthier future."
Outlook
Textron said that it expects earnings per share of approximately $0.77 in the second quarter and continues to expect earnings per share of approximately $3.00 for the full year, both before special charges and costs related to restructuring. The company also continues to expect free cash flow before restructuring for the year will be approximately $325 million.
First Quarter Segment Analysis
Due to the company's adoption of Statement of Financial Accounting Standards (SFAS) No. 142 (see Goodwill and Other Intangible Assets section below), 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 $25 million, while profit decreased $28 million.
Cessna revenues increased $56 million primarily due to higher pricing on Citation business jets, higher used aircraft sales and increased spare parts and service sales. This was partially offset by lower sales of single engine piston aircraft, which have been adversely affected by the weak economy. Profit increased as a result of higher prices for business jets, partially offset by a write-down of used aircraft inventory to reflect lower prices in the current weak used aircraft market.
Lycoming revenues decreased $10 million due to lower OEM volumes, while profit decreased as a result of the lower volumes and a higher warranty reserve.
Bell Helicopter revenues decreased $21 million primarily due to lower foreign military sales, lower commercial aircraft volumes and lower sales of kits used to modernize older model Huey helicopters. These decreases were partially offset by higher revenue on the V-22 program and higher spares and service revenue. Bell's profit decreased primarily due to the following factors: lower volumes and an unfavorable mix of commercial sales, lower margins on the V-22 program, increased reserves for international receivables, and lower income from our joint venture partner related to the BA 609 commercial tiltrotor program. These decreases were partially offset by lower product development expenses associated with the BA 609 program and higher spares and service revenue.
Fastening Systems
Fastening Systems revenues decreased $70 million and profit decreased $32 million.
The revenue decrease was primarily due to lower volume and customer price reductions, as well as the unfavorable impact of foreign exchange. Profit decreased primarily due to lower sales, manufacturing inefficiencies associated with smaller production lots and customer price reductions, partially offset by the benefit of restructuring and other cost reduction activities.
Industrial Products
Industrial Products revenues decreased $81 million and profit decreased $31 million.
Revenues decreased in most of the segment's businesses due to depressed markets and the divestiture of non-core product lines during 2001, partially offset by higher revenues in our aerospace and defense businesses. Profit decreased primarily due to lower volumes and an increase in reserves for receivables, partially offset by the benefit of restructuring activities.
Industrial Components
Industrial Components revenues decreased $470 million and profit decreased $57 million.
The divestitures of Automotive Trim and Turbine Engine Components Textron, as well as several small product lines in 2001 contributed $439 million and $38 million to the decreases in revenues and profit, respectively. Excluding the divestitures, revenues decreased $31 million and profit decreased $19 million. Revenues decreased primarily due to depressed market demand, the unfavorable impact of foreign exchange and lower pricing. Profit decreased primarily due to the decline in volume and lower pricing, partially offset by the benefit of restructuring activities.
Finance
Finance segment revenues decreased $26 million and profit decreased $27 million.
Revenues decreased due to a lower average yield reflecting the lower interest rate environment, partially offset by higher pricing. Profit decreased primarily due to a higher provision for loan losses and higher operating expenses primarily related to growth in managed receivables and higher expenses in service-related operations, partially offset by higher interest margin.
Goodwill and Other Intangible Assets
On December 30, 2001, Textron adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which requires companies to stop amortizing goodwill and certain intangible assets with indefinite useful lives, and requires an annual review for impairment. Upon adoption, Textron discontinued the amortization of goodwill. The elimination of goodwill amortization will contribute about $0.62 earnings per share to 2002 results compared to 2001.
Management is currently assessing the impact the new standard will have on its goodwill in accordance with the transition provision of the standard. Preliminary review indicates that application of the standard, which tests for impairment based on current market values, may result in impairment of goodwill related to the company's telecommunications and certain other industrial businesses. Total goodwill related to these particular businesses is approximately $400 million and $250 million, respectively. The exact goodwill adjustment will depend on the extent of the impairment and the tax-deductibility of the impaired amounts. Any goodwill impairment will be recorded as a cumulative effect of a change in accounting principle.
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 (800) 230-1085 in the U.S. or (612) 288-0329 outside of the U.S. (request the Textron Earnings Conference). The call will be available for playback beginning at 1:30 p.m. Eastern time on Thursday, April 18th by dialing (320) 365-3844 -- Access Code 614532.
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, (c) 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) successful implementation of supply chain and other cost-reduction programs, (g) the timing of certifications of new aircraft products, (h) the occurrence of further downturns in customer markets to which Textron products are sold or supplied, (i) Textron's ability to offset, through cost reductions, raw material price increases and pricing pressure brought by OEM customers and (j) Textron Financial's ability to maintain credit quality and control costs.
(Unaudited) TEXTRON INC. REVENUES AND INCOME BY BUSINESS SEGMENT FIRST QUARTER (In millions except per share amounts) March 30, 2002 March 31, 2001 As As As As Reported Adjusted(a) Reported Adjusted(a) REVENUES MANUFACTURING: (b) Aircraft $ 1,047 $ 1,047 $ 1,022 $ 1,022 Fastening Systems 396 396 466 466 Industrial Products 468 468 549 549 Industrial Components 362 362 832 832 2,273 2,273 2,869 2,869 FINANCE 145 145 171 171 Total revenues 2,418 2,418 3,040 3,040 PROFIT MANUFACTURING: (b) (c) Aircraft $ 79 $ 79 $ 107 107 Fastening Systems 8 10 42 42 Industrial Products 30 31 60 62 Industrial Components 22 23 79 80 139 143 288 291 FINANCE (c) 22 22 49 49 Segment profit 161 165 337 340 Special charges (d) (10) - (42) - Goodwill amortization (c) - - (24) (24) Corporate expenses and other, net (29) (29) (42) (42) Interest expense, net (30) (30) (44) (44) Income before income taxes 92 106 185 230 Income taxes (29) (34) (66) (81) Distribution on preferred securities of manufacturing subsidiary trust, net of income taxes (6) (6) (6) (6) Net income $ 57 $ 66 $ 113 $ 143 Diluted earnings per share $ 0.40 $ 0.47 $ 0.79 $ 1.00 Average diluted shares outstanding 141,961,000 141,961,000 142,752,000 142,752,000 (Unaudited) TEXTRON INC. REVENUES AND INCOME BY BUSINESS SEGMENT FIRST QUARTER (In millions except per share amounts) (a) The "As Adjusted" column excludes costs related to restructuring recorded in segment profit and expenses recorded in special charges. A reconciliation of net income as reported under generally accepted accounting principles to net income "as adjusted" is as follows: First Quarter 2002 2001 Net income, as reported $ 57 $113 Adjustments: Costs related to restructuring included in segment profit 4 3 Special charges: Restructuring 8 29 Fixed asset impairments 2 10 E-business losses - 3 Tax impact of excluded costs (5) (15) Net income, as adjusted $ 66 $143 (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 restated 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) Special charges include restructuring expenses and fixed asset impairment write-downs associated with reducing overhead and closing, consolidating and downsizing manufacturing facilities. In addition, special charges in 2001 included e-business investment losses. (Unaudited) TEXTRON INC. Condensed Consolidated Balance Sheets (In millions) March 30, December 29, 2002 2001 Assets Cash and cash equivalents $ 343 $ 241 Accounts receivable, net 1,147 1,149 Inventories 1,836 1,727 Other current assets 486 900 Net property 1,991 2,044 Other assets 3,544 3,527 Investment in Trim -- -- Textron Finance assets 6,680 6,464 Total Assets $16,027 $16,052 Liabilities and Shareholders' Equity Current portion of long-term debt and short-term debt $ 627 $ 673 Other current liabilities 2,237 2,402 Other liabilities 1,810 1,842 Long-term debt 1,280 1,261 Textron Finance liabilities 5,680 5,427 Total Liabilities 11,634 11,605 Obligated mandatorily redeemable preferred securities 512 513 Total Shareholders' Equity 3,881 3,934 Total Liabilities and Shareholders' Equity $16,027 $16,052