Textron Annual Report 2006 Textron Textron Annual Report 2006 Building and Growing Textron Inc. 40 Westminster Street Providence, RI 02903 (401) 421-2800 www.textron.com 2006 was a strong year for Textron. We delivered superb fi nancial performance while building our capacity for sustained growth. Our focus on transforming the enterprise continued. We enriched learning and career opportunities for our people. We developed products with relevance and value to customers. Our powerful brands grew stronger, as effi cient processes helped us achieve success in robust global markets. 1 We’re building on today’s achievements . We’ve focused on transforming Textron into a networked enterprise that shares talent and best practices among our powerful brands. 2 We all have reason to be optimistic about our prospects for 2007 and beyond. To Our Shareholders, Employees and Customers: tion to select acquisitions that complement our core businesses 2006 was a milestone year on Textron’s “journey to premier.” As I and generate profi table growth. refl ect on our many accomplishments, I’m proud of and humbled by the tremendous efforts that have made our progress possible. At the outset of this letter, I highlighted the strong cash fl ow we generated in 2006. It has allowed us to invest in ventures that Since 2001, we’ve focused on transforming Textron into a net- build Textron’s competitive position through customer-oriented worked enterprise that shares talent and best practices among our products, advanced technology and global expansion. Enterprise- powerful brands. By doing so, we’ve been learning and evolving wide initiatives such as Textron Six Sigma, Talent Development at an accelerated pace. As we’ve transformed our business model and Integrated Supply Chain continued to be critical in support- and culture, we’ve simultaneously made strategic divestitures and ing Textron in these ventures. complementary acquisitions to strengthen our portfolio. In 2006, we trained more than 1,390 Textron Six Sigma (TSS) Last year, our commitment to building and growing Textron Green Belts and 190 Black Belts, bringing the number of certi- helped generate strong earnings per share from continuing fi ed employees to 2,900 as of year end. TSS Lean is helping us operations, which rose 44 percent to $5.43 based on 15 percent increase productivity while sharpening our businesses’ focus on organic revenue growth. Return on invested capital reached an customer needs. outstanding 16.8 percent. Meanwhile, manufacturing cash fl ows from continuing operations reached $1.1 billion, with free cash Talent Development is vital to maintaining a highly capable fl ow of $691 million. workforce that anticipates and responds to customer needs. Numerous factors contributed to our 2006 success, led by solid Textron University helped us meet this high standard last year. performance at several key businesses. Cessna delivered over 300 Over 4,800 employees participated in over 150,000 hours of jets for the third time in its history, indicative of the company’s instructor-led classes, while nearly 25,000 people logged more superior products and strong demand. Bell Helicopter delivered than 129,000 hours of online training hours during 2006. This 160 commercial units in 2006, an increase of 30 percent over training offered employees critical skills and knowledge to help 2005. Textron Systems delivered over 470 Armored Security us win in fi ercely competitive global markets. Vehicles this year in a remarkable achievement after the devasta- tion caused by Hurricane Katrina. Textron Financial Corporation Our Integrated Supply Chain teams were equally valuable in ended the year with a record $10 billion in managed fi nance helping us manage material costs and product availability more receivables. Greenlee also performed well, with more than a 12 effi ciently. We’re learning to leverage resources and expertise percent increase in sales over 2005. while building and growing important customer relationships. Transforming Textron: Building and Growing toward Premier Today’s Achievements Built on Performance, Since 2001, we have divested non-core manufacturing businesses Tomorrow’s Growth Energized by Innovation representing more than $4.5 billion in annual revenues. The sale Bell Segment of Fastening Systems in August 2006 was a signifi cant step for- In 2006, Bell delivered 16 V-22s, with sales from this program ward with our value-enhancing strategy. Portfolio management anticipated to reach $1 billion annually by 2010. Bell Helicopter will remain a focus as we strive to ensure that our assets generate saw continued strong demand for their products, with a year-end the greatest possible long-term value for shareholders. Our 2006 $2.4 billion U.S. Government backlog. Demand for commercial purchase of two exciting companies – Overwatch Systems and products also remains high with backlog growing to 260 units Innovative Survivability Technologies – demonstrates our inten- worth over $600 million at the end of 2006. 3 ... and preparing In a challenging aerospace and defense market, Bell worked to resolve logistical issues, setting the stage for future growth. In for tomorrow’s growth. early 2007, Richard J. (Dick) Millman was named the new presi- dent and CEO of Bell Helicopter and head of the Bell segment to help take Bell to this next level of growth. Dick has a 20-year record of excellence in growth and operations management at Textron, combined with deep expertise and familiarity with our government customers. Frank Tempesta was promoted to replace Dick as president of Textron Systems. In 2007 and beyond, research and development will put Bell at the forefront of the vertical lift industry. We are exploring acci- dent avoidance technologies, which will enhance operator safety. Investments in development and delivery at our Mirabel, Canada facility will enable production of aircraft used in high-demand commercial applications. Our defense products are poised for a leadership role in U.S. military strategy, which increasingly relies on technology to mini- mize casualties. Our purchase of Overwatch Systems demon- strates our portfolio strategy in action at Textron Systems. Their expertise complements our existing intelligent munitions systems and will create signifi cant growth in that area. Going forward, we will provide products for the entire chain of precision engage- ment: collecting information securely, understanding the data gathered and neutralizing a threat with limited risk. Cessna Segment Cessna delivered the fi rst Citation Mustang in 2006, bringing jet ownership comfortably within reach of a new segment of custom- ers. The Mustang leads the new entry-level business jet class as the fi rst to achieve full FAA Type Certifi cation and fi rst customer delivery. We’ve taken orders for more than 250 of this competi- tively priced jet and expect to deliver 40 units in 2007. We delivered the 100th Citation Sovereign this year, demonstrating Textron’s ability to anticipate and manage Cessna’s strong competitive position. According to industry owner- ship data, our presence in the mid-size jet segment has grown to 35 percent since the popular Sovereign was introduced in 2003. change will demonstrate the true Other 2006 milestones include the 500th XLS delivery and the 100th delivery of the Citation CJ3, another best-selling Cessna jet. power of our networked enterprise to create In 2007, Cessna will celebrate its 80th year and deliver the enduring value. 5,000th Citation. This is a testament to Cessna’s leadership role 4 in customer-focused aviation research and development. Going exclusive dealer fi nance contracts. Our acquisition strategy at forward, Cessna will continue to expand the fl eet, starting with Textron Financial echoed the enterprise portfolio strategy – we the Citation Mustang now and the CJ4 in 2010. In addition, acquired the assets of companies such as Electrolux Financial we’re evaluating other aircraft that will welcome an ever-wider Corporation’s inventory fi nance business, which share our quality audience to the Cessna family. and service commitment while providing a channel to enter related, profi table industries. We also selected well-run partners in viable Industrial Segment industries and built mutually benefi cial relationships with them. Our diverse industrial segment made notable progress in 2006, from products to opportunities to business relationships. This Using effi cient TSS methods, Textron Financial will continue year, Greenlee used Textron Six Sigma to increase revenues in to tap into complementary markets and adjacent geographies to existing lines and develop more than 30 new products to be ensure growing value. introduced in 2007. E-Z-GO excelled at custom-fi tting specialty products to unique customer needs and launched a factory 40,000 Reasons for Optimism showroom with full sales and service capacity. Jacobsen estab- Refl ecting on the enthusiastic reception to our products and valu- lished a 10-year exclusive relationship as offi cial turf equipment able contracts won during 2006, I believe we all have reason to be supplier to The PGA of America, and a similar agreement with optimistic about our prospects for 2007 and beyond. the PGA in Europe. That said, ours is a journey that will never truly end. The world Industry-leading engineering provided meaningful competi- and our customers will continue to change rapidly – and will tive advantage in fuel system evolution at Kautex, while strong require us to make a stronger, more integrated effort than ever business relationships yielded signifi cant production contracts for before. Textron’s ability to anticipate and manage these changes several plants in the United States and Brazil. Fluid & Power’s will demonstrate the true power of our networked enterprise to fi nancial performance in 2006 refl ected their integration of TSS create enduring value. processes at global facilities and an enthusiastic commitment to growth through R&D. An exceptionally well-informed and active Board of Directors, a deeply committed management team, industry-leading custom- In coming years, we will continue to expand our global manu- ers and truly dedicated employees around the globe have helped facturing footprint.