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POWERFUL PERFORMANCE: POWERFUL FUTURE Annual Report 2007 OUR YEAR OF POWERFUL PERFORMANCE WAS FUELED BY THE 44,000 PEOPLE OF TEXTRON. WE RECOGNIZE THAT GREATNESS STARTS WITH THE EVERYDAY CONTRIBUTIONS OF INDIVIDUALS ALONG OUR JOURNEY TO BECOME THE PREMIER MULTI-INDUSTRY COMPANY. Textron employees pictured here and throughout the annual report are identifi ed on the last page. POWERFUL PERFORMANCE INCREASE IN EPS FROM CONTINUING OPERATIONS RETURN ON INVESTED CAPITAL 54% RETURN TO SHAREHOLDERS 1 POWERFUL FUTURE IT TRULY WAS A YEAR OF POWERFUL PERFORMANCE FOR TEXTRON. THE NUMBERS SPEAK FOR THEMSELVES, BUT THEY DON’T TELL THE WHOLE STORY. 2 $796 million FREE CASH FLOW* To Our Shareholders, Employees and Customers: $391 million in new capital expenditures for continued future growth. And we’re seeing the results, with return on invested I’m extremely proud of Textron’s powerful performance in 2007, as capital growing to 24.8 percent. We’re making prudent investments evidenced by a range of fi nancial indicators. But what’s most im- in capacity, new product research and development, and market portant to me is the story behind the numbers – how we achieved development that both drive and support organic growth. Our record them and how this positions us well for a powerful future. $18.8 billion aircraft and defense backlog is proof that these investments are paying off. We made great strides in leveraging resources, talent and technology across our business units. Textron Six Sigma has given us more Textron provided owners a total market return of 54 percent in 2007, than a common operational language: It has provided us a com- far surpassing the fi ve percent return of the S&P 500 Index. This mon approach to improve every business. At the heart of it all, our performance refl ects the strength of returns for our end markets and more than 44,000 employees demonstrate each day that company advancements in our businesses across the enterprise. greatness really does start with people. Knowing this, a key focus of our business is to increase employee engagement as we advance Bell Helicopter on Long-Term Upswing; Textron Systems toward our vision of becoming the premier multi-industry company, Broadens Its Precision Engagement Capabilities recognized for our network of powerful brands, world-class Our Bell segment, composed of Bell Helicopter and Textron Systems, processes and talented people. posted revenues of $3.9 billion in 2007. Based on current projec- tions, we expect segment revenues to exceed $5 billion by 2010. A Broad Range of Financial Indicators Refl ects a Year of Powerful Performance Bell Helicopter’s business is clearly on a long-term upswing, with Revenues in 2007 increased 15 percent to $13.2 billion. Earnings signifi cant demand coming from both the military and commercial per share (EPS) from continuing operations rose 32 percent to $3.59, sectors at the same time. In fact, we delivered 181 commercial with manufacturing margins expanding by 160 basis points. That’s helicopters during the year, up from 159 in 2006. signifi cant, and for this we can point to the successful implemen- tation across the enterprise of our Textron Six Sigma business There are a number of factors at play here. The helicopter industry improvement process. We certifi ed 153 Six Sigma Black Belts and is entering its fi rst signifi cant replacement cycle, with 40 percent 1,429 Green Belts during the year, bringing our totals to nearly 900 of today’s fl eet more than 25 years old. We are also seeing a rise in Black Belts and more than 4,200 Green Belts since the inception of exploration and production for oil and other natural resources in our transformation. Moreover, 95 percent of our 186-member Global increasingly remote areas, where helicopters play an important role. Leadership Team has attained Green Belt certifi cation. Additionally, helicopter sales are benefi ting from rising demand in Asia and from an increase in use for emergency medical services, Operating cash fl ow from continuing operations for our manufac- law enforcement, disaster relief and the global war on terror. turing businesses totaled $1.2 billion, allowing us to invest *Free Cash Flow is defi ned in footnote (2) on page 18. 3 15% REVENUE GROWTH At Bell Helicopter, we continue to enhance our ability to meet Textron Systems also delivered a record 576 Armored Security delivery commitments. We have strengthened the talent on the Vehicles (ASV) in 2007. I can’t overstate the importance of the ASV operations side of the business, invested in new machine tools and and the pride we take in it. We are deeply moved by the men and information technology systems, streamlined the business and women in military service and their families who continue to write design processes and launched an employee engagement initiative. letters thanking us for the ASVs that protect them and their loved As a result, Bell Helicopter has been able to expand commercial ones. ship deliveries by a 20 percent compounded annual growth rate (CAGR) over the past two years and overall support/service Cessna Enjoys Another Year of Strong Growth revenues by a 15 percent CAGR over the past four years. and Changes the Rules in the Light Jet Segment Cessna Aircraft celebrated its 80th anniversary in 2007 by deliver- 2007 marked the fi rst deployment of the V-22, as the U.S. military ing a record 387 jets. Its sales totaled $5 billion, up 20 percent from began using this innovative aircraft in Iraq. The V-22 combines the the previous year. Textron’s Six Sigma Lean initiative played a key vertical lift capability of a helicopter with the speed and range of role, helping Cessna manufacture and deliver more aircraft than a turboprop airplane. Early feedback on its performance has been ever before. positive, with the U.S. Marine Corps performing missions that otherwise would not have been possible. Last year we delivered a There are so many developments we can point to with pride. total of 14 V-22s to the U.S. Marine Corps and U.S. Air Force. Among them, the business ramped up production of the new Citation Mustang, with 45 delivered in 2007 and 100 scheduled for Additionally, during the year we delivered the fi rst 10 of an antici- delivery in 2008. A game changer in the light jet segment, the pated 280 H-1 attack and utility helicopters. Mustang brings jet ownership within reach of an entirely new customer base. Then there’s the Cessna 162 SkyCatcher, a new It has been a busy and productive year at Textron Systems, our light sport aircraft unveiled in July. Not only is this an exciting new most active unit on the acquisition front. After the purchase of market for Cessna, it marks the fi rst time that a Cessna-branded Overwatch Systems in 2006 and United Industrial Corporation product will be assembled in China. Launched at the very competi- (which owns AAI Corporation) in late 2007, Textron Systems is now tive introductory price of $109,500, the SkyCatcher will be available projected to be a $2 billion business in 2008. These acquisitions in 2009. We’ve already taken more than 900 orders. move Textron Systems toward its goal of becoming a stronger, more strategic player in precision engagement systems. We continue to invest in expanding capacity. For example, Cessna broke ground in 2007 on a manufacturing expansion in Columbus, Georgia, and on a Citation Service Center in Mesa, Arizona. Cessna also introduced a new maintenance capability that allows the company to service an aircraft directly at the customer’s facility in many cases. With an active fl eet of about 5,000 Citations, fi nding new ways to enhance customer service will be critical to long-term success. 4 Financial Highlights (Dollars in millions, except per share data) 2007 2006 Operating Results Revenues $ 13,225 $ 11,490 Segment profi t(1) $ 1,640 $ 1,267 Segment profi t margin 12.4% 11.0% Income from continuing operations $ 915 $ 706 Net cash provided by operating activities of continuing operations $ 1,186 $ 1,119 Free cash fl ow(2) $ 796 $ 691 ROIC(3) 24.8% 16.8% Common Share Data * Diluted EPS from continuing operations $ 3.59 $ 2.71 Dividends per share $ 0.85 $ 0.78 * 2006 Common Share Data are adjusted for the two-for-one stock split in 2007. Additional footnotes to this table are on page 18. Concentration on global expansion should generate positive E-Z-GO also accelerated its journey to premier in 2007 by besting results for Cessna in the coming years, complementing a strong previous internal production records. In fact, for the second straight North American base. With many emerging markets increasing in year, this business captured the top Textron Six Sigma (TSS) award affl uence, developing their infrastructures and opening up more for leading the enterprise in TSS deployment. E-Z-GO’s Six Sigma airspace, we expect growing demand for private jets to follow. In successes have been so impressive that they have served as a fact, 53 percent of 2007 Citation orders came from outside the model for other units across the company. United States. Kautex underscored its product and technology leadership in the A year-end backlog of $12.6 billion, with very few delivery slots fuel tank business with its innovative next generation fuel system, available until 2010, gives Cessna reason to look to the future which is expected to accelerate revenue growth by the end of the with a great deal of confi dence and optimism. Additionally, the decade.

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