150170.forPDF 3/11/05 7:44 AM Page FC1 The Power to Grow Annual Report 2004 150170.forPDF 3/11/05 7:44 AM Page FC2 In the last few years, Textron has been transforming... strengthening the power of our brands, the power of our processes and the power of our people. This transformation positions us to lead our markets in exciting and sustainable ways. Indeed, it is giving us the power to grow. 150170.P 3/11/05 7:36 AM Page 1 Bell Helicopter is a world leader in vertical takeoff and landing aircraft for military and commercial segments. The pioneer of tiltrotor technology, Bell also has the largest and highest-rated customer support network in the industry. All of which may explain why every third helicopter flying is a Bell. We’re revolutionizing flight. 1 150170.P 3/11/05 7:36 AM Page 2 Cessna is the world’s leading designer and manufacturer of light and mid-size business jets, utility turboprops and single-engine piston aircraft. Its Citation business jet fleet is the largest and most comprehensive in the world. And the Citation X is the world’s fastest business jet. Now that’s leadership. We’re leading in the skies. 2 150170.P 3/11/05 7:36 AM Page 3 At Textron Fastening Systems, some of our most exciting products are hidden. Miniature fasteners for electronic applications, “blind” fasteners for aircraft – even fasteners with microchips driven by remote devices. These new Intevia “intelligent” fasteners are even replacing traditional lock and key, enhancing both access and security. Isn’t that “smart”? We’re making fasteners smart. 3 150170.P 3/11/05 7:37 AM Page 4 At Textron, we’re pros at golf. E-Z-GO is the world leader in golf cars and utility vehicles. Groundskeepers around the world look to Jacobsen to keep their turf in tournament condition. And Textron Financial finances golf equipment as well as some of the world’s top golf developments. When it comes to golf, Textron has the landscape covered. We’re covering the greens. 4 150170.P 3/11/05 7:38 AM Page 5 Textron Financial helps thousands of businesses realize their dreams. Distribution finance, loans for timeshare resorts, golf courses and equipment, and Textron products such as Cessna jets, Bell helicopters, E-Z-GO golf cars and Jacobsen turf equipment. With more than $8 billion in managed assets, we’re making things happen. We’re making the deal happen. 5 150170.P 3/11/05 7:38 AM Page 6 And we’re leveraging our networked enterprise. To Our Shareowners, Employees and Customers: 2004 was a very good year for Textron. The majority of our end markets experienced notable recovery as the economy continued to rebound. This, combined with the successful and accelerating execution of our transformation strategy, enabled us to deliver solid financial performance and superior shareholder returns while continuing to build an even stronger platform for future growth and profitability. We exceeded our earnings and cash flow targets as we continued to invest in market-leading products, services and technologies. We substantially completed our multi-year restructuring program, reducing headcount from continuing operations by approximately 11,000 and generating savings of approximately $450 million per year. In addition, our transformational efforts are dramatically enhancing our long-term earnings growth potential. Since our transformation journey began four years ago, we’ve taken strategic and decisive steps that have fundamentally changed the very core and culture of the company. Through our Enterprise Management initiatives, focused on making customers successful, attracting and developing talented people and deploying world-class processes, we are strengthening and leveraging our networked enterprise to create sustained competitive advantage. These efforts – combined with our strong businesses – have formed a solid foundation for the future, and are giving us the power to grow. Successful Customers We know that financial performance and shareholder returns are a barometer of how effective and efficient we are at creating sustainable customer value. Profitable growth – particularly organic growth – is a top priority. In 2004 alone, $2.1 billion – or 20 percent – of our sales were derived from new products and services launched since we began our transformation in 2001. For example, Cessna continued to delight customers with the world’s broadest lineup of light and mid-size business jets as we began deliveries of three new models and introduced two brand new jets in 2004. 6 150170.P 3/11/05 7:38 AM Page 7 2004 was a very good year for Textron. We exceeded our earnings and cash flow targets as we continued to invest in market-leading products, services and technologies. We delivered shareholder returns that rank among the highest in our category. And through the strategic, decisive steps we’ve taken in the four years since our transformation journey began, we’ve fundamentally changed the very core and culture of the company. For the 11th consecutive year, Bell Helicopter was named the industry Textron Six Sigma We have achieved substantial savings through our leader in customer support in ProPilot magazine’s annual survey. We’ve Black Belt and Green Belt programs since the initiative’s inception in further cultivated our customer focus through programs such as our February 2002. As we create a fully engaged Textron Six Sigma Chairman’s Award for Innovation, which celebrates employees whose cre- culture, we’ve trained nearly 700 Black Belts and more than 2,200 ativity will directly impact Textron’s growth. In just four years since the Green Belts, and have repatriated nearly 200 Black Belts into the program’s inception, we have recognized more than 120 employees Textron workforce. Our Black Belts have helped us implement our New around the world for their innovative products that will generate nearly Product & Service Introduction process under which all new products are $100 million in near-term sales. being brought to market. We continue to strengthen our marketing competencies and deepen our We continue to master the elements of Textron Six Sigma and in 2005 customer partnerships. Our integrated effort to build both customer will broaden the use of Lean tools to further accelerate our efforts. relationships and growth capabilities includes comprehensive customer We expect to make significant progress as we work to rapidly drive out satisfaction and loyalty measurement processes. In addition, we have waste and reallocate resources toward growth opportunities. implemented – and continue to enhance – our rigorous new approach to Supply Chain Management customer segmentation. Together, these enable us to better understand We are aggressively managing the supply and manage the total customer experience. chain, optimizing our global footprint in order to improve efficiencies, drive savings and propel growth. We also established enterprise-wide Talent Development Textron’s highly talented workforce makes it commodity teams focused on areas such as steel, plastics, castings, possible for us to drive future growth and help customers win. forgings, machined parts and electrical supplies. We redesigned our talent assessment processes to elevate performance We deployed in-country sourcing centers in Poland, China and Mexico and facilitate talent mobility, career pathing and succession planning – and last year launched our new Global Technology Center (GTC) in from technical and supervisory positions through our most senior levels. India staffed with local engineers who provide extensions to our U.S. In addition, we unveiled a variety of new enterprise-wide programs and and European business unit design and engineering teams. Through the tools to help our employees better manage their careers. These tools also increased “uptime” enabled by our teams at the GTC, we are able to help our current and aspiring managers develop competencies that are bring products to market more quickly and efficiently. critical to the advancement of our strategic priorities well into the future. Shared Services We’ve created internal Shared Service organizations in We have revamped our Performance Management Process to help develop Information Technology, Finance and Human Resources to address crit- the skills required to achieve our vision and ensure that our people are ical business needs more efficiently and cost effectively than ever before. focusing on – and accountable for – the activities that matter most as they grow and advance within the enterprise. We are currently executing an enterprise IT consolidation effort, which has already yielded annual savings of well over $40 million. World-Class Processes We are systematically developing and We’ve integrated all Textron IT networks, enabling us to share informa- deploying world-class processes to drive performance improvements tion systems to drive business results – including the deployment and inspire future growth. of enterprise-wide solutions such as PeopleSoft, SAP, Hyperion and Captura. As one of our most critical investments over the coming 7 150170.P 3/11/05 7:39 AM Page 8 Financial Highlights (Dollars in millions, except per share amounts) 2004 2003 Operating Results(1) Revenues $ 10,242 $ 9,792 Segment profit(2) $ 903 $ 771 Segment profit margin(2) 9% 8% Income from continuing operations(3) $ 528 $ 417 Free cash flow(4) $ 752 $ 494 Return on invested capital (ROIC)(5) 10.4% 8.6% Common Share Data(1) Diluted earnings per share: From continuing operations $ 2.66 $ 2.13 From continuing operations before special items(6) $ 3.35 $ 2.83 Dividends per share $ 1.33 $ 1.30 Footnotes to this table can be found on the inside back cover of this annual report. decade, we recently established an extensive IT infrastructure sourcing strategy; our increased stake to 75 percent ownership in the partnership with Computer Sciences Corporation designed to generate CitationShares joint venture to expand participation in the growing further long-term savings across Textron.