Textron Reports Third Quarter GAAP EPS of $0.01; $0.12 EPS from Continuing Operations before Special Charges

http://www.businesswire.com/news/home/20091027005328/en

Further Reduces Finance Managed Receivables by $700 Million

Generates $327 Million Manufacturing Free Cash Flow
PROVIDENCE, R.I.--(Business Wire)--
Textron Inc. (NYSE: TXT) today reported third quarter 2009 net income of $0.01
per share. Excluding special charges, income from continuing operations was
$0.12 per share. Revenues in the quarter were $2.5 billion, down 27 percent from
the third quarter of 2008. Managed receivables at the company`s finance business
were further reduced by $700 million and third quarter manufacturing free cash
flow was $327 million.

Textron recorded third quarter pre-tax, special charges of $42 million
associated with its restructuring program. Full-year restructuring charges are
now expected to be approximately $240 million.

"Third quarter results reflect continued stabilization in most of our commercial
markets," said Textron Chairman and CEO Lewis B. Campbell. "We have made good
progress this year generating cash through the process of winding down TFC`s
non-captive business, as well as improving cost productivity in our
manufacturing businesses. With a positive long-term outlook for our company,
this is an excellent time to transfer executive leadership to Scott Donnelly, as
announced last month."

Outlook

The company expects full-year earnings per share from continuing operations
excluding special charges will be in the upper end of its guidance range of
$0.33 to $0.63 per share on expected revenues of about $10.6 billion. The
company also continues to expect full-year manufacturing free cash flow will be
in the range of $300 - $400 million.

Scott Donnelly, Textron President, COO and CEO-elect concluded, "Our businesses
have reduced costs in reaction to the dramatic market slow-down that we
experienced over the past year and that was evident in our third quarter
operating results."

"The demand environment for our commercial products continues to show signs of
stabilization, but we believe that market recovery likely will be slow and
modest. Therefore, we will maintain our focus on improving operating and working
capital productivity, while investing in new product development to spur future
growth," added Donnelly.

Third Quarter Segment Results

Cessna

Cessna`s revenues decreased $593 million from the same period last year,
primarily reflecting the delivery of 68 Citation jets in the third quarter of
2009, compared to 124 jets last year and lower aftermarket volumes, partially
offset by an increase in used aircraft volume.

Segment profit decreased $206 million primarily due to the lower sales volumes
and related costs associated with idle capacity and temporary plant shutdowns.
The impact of lower volume was partially offset by lower engineering, selling
and administrative expenses, which included the net impact of employee furloughs
taken during the quarter and customer deposit forfeitures.

Cessna backlog at the end of the third quarter was $6.9 billion, a decline of
$1.3 billion from the second quarter.

Bell

Bell`s revenues decreased $74 million from last year`s third quarter largely due
to lower commercial helicopter revenues.

Bell`s segment profit increased by $16 million due to lower selling and
administrative expenses, a gain from the termination of a foreign exchange hedge
contract, higher customer-funding of research and development costs and pricing
in excess of inflation. These increases were partially offset by lower volume
and an unfavorable mix.

Bell backlog at the end of the third quarter was $5.6 billion, down $250 million
from the end of last quarter.

Textron Systems

Textron Systems` revenue increased $61 million compared to the third quarter of
2008, primarily due to higher volume of Unmanned Aircraft Systems (UAS),
partially offset by lower aircraft engine volume.

Segment profit increased by $1 million, as profits from higher defense volumes
were offset by the impact of lower volumes of aircraft engines and an intangible
impairment charge.

Backlog at the end of the third quarter was $1.8 billion, down $130 million from
the second quarter.

Industrial

Revenues for the Industrial segment decreased $203 million compared to last
year`s third quarter due to lower volumes.

Industrial segment profit was unchanged from last year, as the impact of lower
volumes was offset by significantly improved cost performance and lower
inflation.

Finance

Finance revenues decreased $113 million and segment profit was down $82 million
compared to third quarter 2008, primarily due to higher portfolio losses, lower
other income and securitization gains and the impact of lower average finance
receivables. These items were partially offset by the accretion from previous
mark-to-market adjustments and gains on early debt extinguishment. Revenue was
also impacted by lower market interest rates, while segment loss reflected
higher loan loss provisions.

Sixty-day plus delinquencies of finance receivables held for investment
decreased to $440 million from $447 million at the end of the second quarter
2009, although the sixty-day plus delinquencies percentage increased to 7.3%
from 6.6% due to lower finance receivables. Nonaccrual finance receivables to
total finance receivables held for investment increased to 13.7% from 10.0% last
quarter. Charge-offs in the third quarter were $23 million, flat with
charge-offs in the second quarter.

Managed receivables ended the quarter at $7.9 billion, down from $8.6 billion at
the end of last quarter and $10.8 billion at the beginning of the year.

GAAP Measures

Income from continuing operations, excluding special charges and manufacturing
free cash flow are non-GAAP measures that are defined in attachments to this
release.

Conference Call Information

Textron will host its conference call today, October 27, 2009 at 9:00 a.m.,
Eastern to discuss its results and outlook. The call will be available via
webcast at www.textron.com or by direct dial at (888) 423-3275 in the U.S. or
(612) 332-0725 outside of the U.S. (request the Textron Earnings Call).

In addition, the call will be recorded and available for playback by 11:30 a.m.,
Eastern time on Tuesday, October 27, 2009 by dialing (320) 365-3844; Access
Code: 991796.

A package containing key data that will be covered on today`s call can be found
in the Investor Relations section of the company`s website at www.textron.com.

About Textron Inc.

Textron Inc. is a multi-industry company that leverages its global network of
aircraft, defense, industrial and finance businesses to provide customers with
innovative solutions and services. Textron is known around the world for its
powerful brands such as Bell Helicopter, Cessna Aircraft Company, Jacobsen,
Kautex, Lycoming, E-Z-GO, Greenlee, and Textron Systems. More information is
available at www.textron.com.

Forward-looking Information

Certain statements in this press release and other oral and written statements
made by us 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 speak only as of the date on which they are made, and
we undertake no obligation to update or revise any forward-looking statements.
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 risk factors contained in our Annual Report on Form
10-K, our Quarterly Reports on Form 10-Q and the following: (a) changes in
worldwide economic or political conditions that impact demand for our products,
interest rates and foreign exchange rates; (b) the interruption of production at
our facilities or our customers or suppliers; (c) performance issues with key
suppliers, subcontractors and business partners; (d) our ability to perform as
anticipated and to control costs under contracts with the U.S. Government; (e)
the U.S. Government`s ability to unilaterally modify or terminate its contracts
with us for the U.S. Government`s convenience or for our failure to perform, to
change applicable procurement and accounting policies, and, under certain
circumstances, to suspend or debar us as a contractor eligible to receive future
contract awards; (f) changing priorities or reductions in the U.S. Government
defense budget, including those related to Operation Iraqi Freedom, Operation
Enduring Freedom and the Overseas Contingency Operations; (g) changes in
national or international funding priorities, U.S. and foreign military budget
constraints and determinations, and government policies on the export and import
of military and commercial products; (h) legislative or regulatory actions
impacting our operations or demand for our products; (i) the ability to control
costs and successful implementation of various cost-reduction programs,
including the enterprise-wide restructuring program; (j) the timing of new
product launches and certifications of new aircraft products; (k) the occurrence
of slowdowns or downturns in customer markets in which our products are sold or
supplied or where Textron Financial Corporation (TFC) offers financing; (l)
changes in aircraft delivery schedules, or cancellation or deferral of orders;
(m) the impact of changes in tax legislation; (n) the extent to which we are
able to pass raw material price increases through to customers or offset such
price increases by reducing other costs; (o) our ability to offset, through cost
reductions, pricing pressure brought by original equipment manufacturer
customers; (p) our ability to realize full value of receivables; (q) the
availability and cost of insurance; (r) increases in pension expenses and other
postretirement employee costs; (s) TFC`s ability to maintain portfolio credit
quality and certain minimum levels of financial performance required under its
committed bank lines of credit and under Textron`s support agreement with TFC;
(t) TFC`s access to financing, including securitizations, at competitive rates;
(u) our ability to successfully exit from TFC`s commercial finance business,
other than the captive finance business, including effecting an orderly
liquidation or sale of certain TFC portfolios and businesses; (v) uncertainty in
estimating market value of TFC`s receivables held for sale and reserves for
TFC`s receivables to be retained; (w) uncertainty in estimating contingent
liabilities and establishing reserves to address such contingencies; (x) risks
and uncertainties related to acquisitions and dispositions, including
difficulties or unanticipated expenses in connection with the consummation of
acquisitions or dispositions, the disruption of current plans and operations, or
the failure to achieve anticipated synergies and opportunities; (y) the efficacy
of research and development investments to develop new products; (z) the
launching of significant new products or programs which could result in
unanticipated expenses; (aa) bankruptcy or other financial problems at major
suppliers or customers that could cause disruptions in our supply chain or
difficulty in collecting amounts owed by such customers; (bb) difficult
conditions in the financial markets which may adversely impact our customers`
ability to fund or finance purchases of our products; and (cc) continued
volatility in the economy resulting in a prolonged downturn in the markets in
which we do business.

TEXTRON INC.

REVENUES BY SEGMENT AND RECONCILIATION OF SEGMENT PROFIT TO NET INCOME

THREE AND NINE MONTHS ENDED OCTOBER 3, 2009 AND SEPTEMBER 27, 2008

(Dollars in millions, except per share amounts)

(Unaudited)

Three Months Ended Nine Months Ended
October 3, 2009 September 27, 2008 October 3, 2009 September 27, 2008

REVENUES
MANUFACTURING:
Cessna $ 825 $ 1,418 $ 2,465 $ 4,165
Bell 628 702 2,040 1,974
Textron Systems 502 441 1,397 1,427
Industrial 523 726 1,506 2,320
2,478 3,287 7,408 9,886
FINANCE 71 184 279 575
Total revenues $ 2,549 $ 3,471 $ 7,687 $ 10,461

SEGMENT PROFIT
MANUFACTURING:
Cessna (a) $ 32 $ 238 $ 170 $ 707
Bell 79 63 220 184
Textron Systems 68 67 175 194
Industrial 6 6 9 91
185 374 574 1,176
FINANCE (64 ) 18 (229 ) 73
Segment profit 121 392 345 1,249
Special charges (b) (42 ) - (203 ) -
Corporate expenses and other, net (44 ) (39 ) (124 ) (123 )
Interest expense, net for Manufacturing group (40 ) (32 ) (102 ) (91 )
Income (loss) from continuing operations
before income taxes (5 ) 321 (84 ) 1,035
Income tax benefit (expense) 11 (116 ) 71 (355 )
Income (loss) from continuing operations 6 205 (13 ) 680
Discontinued operations, net of income taxes (c) (2 ) 1 45 15
Net income $ 4 $ 206 $ 32 $ 695
Earnings per share:
Income (loss) from continuing operations $ 0.02 $ 0.83 $ (0.05 ) $ 2.70
Discontinued operations, net of income taxes (c) (0.01 ) - 0.17 0.06
Net income $ 0.01 $ 0.83 $ 0.12 $ 2.76
Average shares outstanding (d) 278,429,000 247,182,000 260,099,000 251,752,000

(a) During the first quarter of 2009, we sold the assets of CESCOM, Cessna`s aircraft maintenance tracking service line, resulting in a pre-tax gain of $50 million.

(b) For the three months and nine months ended October 3, 2009, special charges include $42 million and $203 million, respectively, in restructuring costs, primarily for severance, asset impairments and a pension plan curtailment charge.

(c) During the first quarter of 2009, we sold HR Textron, an operating unit within the Textron Systems segment, resulting in an after-tax gain of $8 million. This business has been reflected in discontinued operations for all periods presented.

(d) For the nine months ended October 3, 2009, the diluted EPS average shares base excludes potential common shares (convertible preferred stock, convertible debt and related warrants, stock options and restricted stock units). These shares are excluded due to their antidilutive effect resulting from the loss from continuing operations. For all other periods presented, fully diluted shares were used to calculate EPS.

TEXTRON INC.
Condensed Consolidated Balance Sheets
(Unaudited)

(In millions) October 3, January 3,
2009 2009
Assets
Cash and cash equivalents $ 2,037 $ 531
Accounts receivable, net 926 894
Inventories 2,716 3,093
Other current assets 493 584
Net property, plant and equipment 1,988 2,088
Other assets 3,604 3,163
Assets of discontinued operations 60 334
Textron Finance assets 8,134 9,344
Total Assets $ 19,958 $ 20,031

Liabilities and Shareholders' Equity
Current portion of long-term and short-term debt $ 134 $ 876
Other current liabilities 2,869 3,710
Other liabilities 2,991 2,926
Long-term debt 3,624 1,693
Liabilities of discontinued operations 122 195
Textron Finance liabilities 7,256 8,265
Total Liabilities 16,996 17,665

Total Shareholders` Equity 2,962 2,366
Total Liabilities and Shareholders` Equity $ 19,958 $ 20,031

TEXTRON INC.

MANUFACTURING GROUP

Condensed Schedule of Cash Flows and Free Cash Flow GAAP to Non-GAAP Reconciliation

(Unaudited)

For the Three For the Nine
Months Ended Months Ended
(In millions) Oct. 3, Sept. 27, Oct. 3, Sept. 27,
2009 2008 2009 2008
Cash flows from operating activities:
Income from continuing operations $ 50 $ 191 $ 149 $ 631
Dividends received from the Finance group 100 - 284 142
Capital contributions paid to Finance group (109 ) - (197 ) -
Depreciation and amortization 92 82 270 262
Asset impairments and other non-cash items (6 ) 15 66 50
Changes in working capital 223 (73 ) (308 ) (463 )
Other operating activities, net 19 5 53 33
Net cash from operating activities of continuing operations 369 220 317 655
Cash flows from investing activities:
Capital expenditures (52 ) (122 ) (165 ) (310 )
Net cash used in acquisitions - (9 ) - (109 )
Other investing activities, net (30 ) 3 (46 ) 4
Net cash from investing activities of continuing operations (82 ) (128 ) (211 ) (415 )
Cash flows from financing activities:
Increase (decrease) in short-term debt and intergroup borrowings - 158 (736 ) 240
Borrowing under line of credit facilities, net (30 ) - 1,172 -
Proceeds from issuance of convertible notes, net - - 582 -
Purchase of convertible note hedge - - (140 ) -
Proceeds from issuance of common stock and warrants - - 333 -
Proceeds from issuance of long-term debt 595 - 595 -
Principal payments on long-term debt (182 ) 3 (212 ) (44 )
Payments on borrowings against officers life insurance policies (1 ) - (411 ) -
Dividends paid (6 ) (66 ) (16 ) (172 )
Proceeds and excess tax benefits from option exercises - 12 - 50
Purchases of Textron common stock - (399 ) - (533 )
Net cash from financing activities of continuing operations 376 (292 ) 1,167 (459 )
Total cash flows from continuing operations 663 (200 ) 1,273 (219 )
Total cash flows from discontinued operations (27 ) 6 222 (33 )
Effect of exchange rate changes on cash and cash equivalents 5 (9 ) 11 2
Net change in cash and cash equivalents 641 (203 ) 1,506 (250 )
Cash and cash equivalents at beginning of period 1,396 424 531 471
Cash and cash equivalents at end of period $ 2,037 $ 221 $ 2,037 $ 221

Manufacturing Free Cash Flow GAAP to Non-GAAP Reconciliations:
Net cash from operating activities of continuing operations - GAAP $ 369 $ 220 $ 317 $ 655
Less: Dividends received from the Finance group (100 ) - (284 ) (142 )
Plus: Capital contributions paid to Finance group 109 - 197 -
Less: Capital expenditures (52 ) (122 ) (165 ) (310 )
Plus: Proceeds on sale of property, plant and equipment 1 3 3 4
Manufacturing free cash flow - Non-GAAP $ 327 $ 101 $ 68 $ 207

Full Year 2009 Outlook
Net cash from operating activities of continuing operations - GAAP $ 590 - $ 690
Less: Dividends received from the Finance group (315)
Plus: Capital contributions paid to Finance group 270
Less: Capital expenditures (250)
Plus: Proceeds on sale of property, plant and equipment 5
Manufacturing free cash flow - Non-GAAP $ 300 - $ 400

Free cash flow is a measure generally used by investors, analysts and management
to gauge a company`s ability to generate cash from operations in excess of that
necessary to be reinvested to sustain and grow the business. Our definition of
Manufacturing free cash flow uses net cash from operating activities of
continuing operations, less dividends received from TFC, capital contributions
provided under the Support Agreement and capital expenditures, net of proceeds
from the sale of plant, property and equipment. We believe that our
Manufacturing free cash flow calculation provides a relevant measure of
liquidity and a useful basis for assessing our ability to fund operations. This
measure is not a financial measure under GAAP and should be used in conjunction
with GAAP cash measures provided in our Consolidated Statement of Cash Flows.
Our Manufacturing free cash flow measure may not be comparable to similarly
titled measures reported by other companies, as there is no definitive
accounting standard on how the measure should be calculated.

TEXTRON INC.

Condensed Consolidated Schedule of Cash Flows

(Unaudited)

For the Three For the Nine
Months Ended Months Ended
(In millions) Oct. 3, Sept. 27, Oct. 3, Sept. 27,
2009 2008 2009 2008
Cash flows from operating activities:
Income (loss) from continuing operations $ 6 $ 205 $ (13 ) $ 680
Depreciation and amortization 100 94 297 293
Provision for losses on finance receivables 47 34 206 101
Asset impairments and other non-cash items 46 29 16 23
Changes in working capital 329 (112 ) (29 ) (472 )
Other operating activities, net 19 9 78 28
Net cash from operating activities of continuing operations 547 259 555 653
Cash flows from investing activities:
Finance receivables originated or purchased (663 ) (2,948 ) (2,613 ) (8,766 )
Finance receivables repaid 745 2,743 3,250 8,000
Proceeds on receivables sales and securitization sales 18 126 202 633
Capital expenditures (52 ) (124 ) (165 ) (318 )
Proceeds from sale of repossessed assets and properties 49 (5 ) 176 4
Purchase of marketable securities - - - (100 )
Net cash used in acquisitions - (9 ) - (109 )
Other investing activities, net 86 30 152 30
Net cash from investing activities of continuing operations 183 (187 ) 1,002 (626 )
Cash flows from financing activities:
Increase (decrease) in short-term debt (9 ) 236 (1,637 ) 270
Borrowing under line of credit facilities, net (30 ) - 2,912 -
Proceeds from issuance of convertible notes, net - - 582 -
Purchase of convertible note hedge - - (140 ) -
Proceeds from issuance of common stock and warrants - - 333 -
Proceeds from issuance of long-term debt 625 339 641 1,461
Principal payments on long-term debt (600 ) (312 ) (2,035 ) (1,245 )
Payments on borrowings against officers life insurance policies (1 ) - (411 ) -
Dividends paid (6 ) (66 ) (16 ) (172 )
Proceeds and excess tax benefits from option exercises - 12 - 50
Purchases of Textron common stock - (399 ) - (533 )
Net cash from financing activities of continuing operations (21 ) (190 ) 229 (169 )
Total cash flows from continuing operations 709 (118 ) 1,786 (142 )
Total cash flows from discontinued operations (27 ) 6 222 (33 )
Effect of exchange rate changes on cash and cash equivalents 9 (11 ) 21 1
Net change in cash and cash equivalents 691 (123 ) 2,029 (174 )
Cash and cash equivalents at beginning of period 1,885 480 547 531
Cash and cash equivalents at end of period $ 2,576 $ 357 $ 2,576 $ 357

Textron Inc.

GAAP to Non-GAAP Reconciliations

Reconciliations of income from continuing operations, excluding special charges,
per share on a non-GAAP (Generally Accepted Accounting Principles) basis to
income (loss) from continuing operations per share in accordance with GAAP for
the three and nine months ended October 3, 2009 and September 27, 2008 and for
the full year 2009 outlook are provided below.

For the Three For the Nine
Months Ended Months Ended
October 3, September 27, October 3, September 27,
2009 2008 2009 2008
Income from continuing operations, excluding $ 0.12 $ 0.83 $ 0.44 $ 2.70
special charges - Non-GAAP
Special charges, net of taxes (0.10 ) - (0.49 ) -
Income (loss) from continuing operations - GAAP 0.02 0.83 (0.05 ) 2.70
Discontinued operations (0.01 ) - 0.17 0.06
Net income - GAAP $ 0.01 $ 0.83 $ 0.12 $ 2.76

Full Year 2009 Outlook
Income from continuing operations, excluding $ 0.33 - $ 0.63
special charges - Non-GAAP
Special charges, net of taxes (0.56 )
Income (loss) from continuing operations - GAAP (0.23 ) - 0.07
Discontinued operations 0.16
Net income - GAAP $ (0.07 ) - $ 0.23

Income from continuing operations, excluding special charges, on a per share
basis is a non-GAAP financial measure. Special charges include items that are
either isolated or temporary in nature and are excluded from segment profit.
Results before special charges are also the basis for measuring operating
performance for management compensation purposes. It is helpful to understand
results without these charges, especially when comparing results to previous
periods. However, analysis of the company`s results before special charges
should be used only in conjunction with data presented in accordance with GAAP.

Textron
Investor Contacts:
Doug Wilburne, 401-457-2288
or
Bill Pitts, 401-457-2288
or
Media Contact:
Michael Maynard, 401-457-2474

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