citigroup industrial manufacturing...

Company Confidential 1

Ted French EVP & Chief Financial Officer

Citigroup Industrial Manufacturing Conference

March 05, 2008

2

Forward-Looking Information

Certain statements in today’s discussion will be 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 materiallyfrom those contained in the statements, including the risks and uncertainties set forth under our full disclosure located at theend of this presentation.

3

2007 PerformanceAnother Outstanding Year

•Revenue increased 15%; 13% organically

•Segment profit increased 29%

–Record year at Cessna, Systems, TFC

•EPS from Continuing Ops increased 32%

•Free cash flow increased 15%

4


Significant operational improvements

• Bell segment margins: Up 130 bps

• Cessna margins: Up 180 bps

• Industrial segment margins: Up 110 bps

• TFC operating efficiency: Improved 50 bps

5

Return on Invested Capital

Significantly exceeding original target of 400 bps > WACC

2006 Top Quartile (23.4%)2006 Top Quartile (23.4%)

2007 WACC (9.8%)2007 WACC (9.8%)

+1500 bps

9.0% 9.6%8.8%

10.6%

13.2%

16.8%

24.8%

0%

5%

10%

15%

20%

25%

2001 2002 2003 2004 2005 2006 2007

6


Strategic portfolio acquisitions

• Cav-Air: Bell Helicopter aftermarket

• Paladin Tools: Greenlee telecom tools

• Columbia Aircraft: Cessna propeller product line

• McTurbine: Bell Helicopter aftermarket

• AAI: Textron Systems precision engagement

7


Expanding Capacity

• Citation Deliveries up 26%

• Commercial Helicopter Deliveries up 14%

• Delivered 14-V-22’s & first 10-H-1’s

• ASV production up 22%

• Kautex Fuel Systems up 850K units (8%)

8

Transforming Textron –Our Ongoing Journey to Premier

A Simpler, More Focused Portfolio of Leading, Branded Businesses in

Attractive Industries

A Simpler, More Focused Portfolio of Leading, Branded Businesses in

Attractive Industries

NETWORKED ENTERPRISE

EnterpriseManagementEnterprise

ManagementHow We Manage

What We Own

PortfolioManagement

PortfolioManagement

WhatWe Own

VISION:To be the premier multi-industry company, recognized

for our network of powerful brands, world-class enterprise processes and talented people

VISION:To be the premier multi-industry company, recognized

for our network of powerful brands, world-class enterprise processes and talented people

9

Textron Financial

Cessna

2007 Revenue: ~$13.2 Billion2007 Revenue: ~$13.2 Billion2010 Revenue: ~$16.5 2010 Revenue: ~$16.5 -- $18.8 Billion$18.8 Billion

CessnaCessna

38%

IndustrialIndustrial

E-Z-GO

Fluid & Power

Greenlee

Jacobsen

Kautex

26%

FinanceFinance

7%

BellBell

Bell Helicopter

Textron Systems

29%

Textron –Leading Branded Businesses inAttractive Growth Markets

10

Bell Helicopter

Textron Systems

66% 34%

Bell Segment2007 Revenues: $3.9 Billion, Up ~15% YOY

11

Military 54%

Com'l 46%

~$1.0 Billion; 38%

V-22 - OspreyAH-1Z – Super CobraUH-1Y - YankeeOH-58D - KiowaTH-67 – TrainerARH – Armed ReconVH-71 - PresidentialEagle Eye - UAV

206

407

412

429

609

SparesAccessoriesCompletionsRepair & OverhaulTraining AcademyField ServicesDepot Maintenance

Installed Base: 13,000

~$650 Million; 25% ~$950 Million; 37%

Com’l AircraftMilitary AircraftMilitary Aircraft Cust. SupportCust. Support

Balanced Business ... Complementing Each Other

Bell Helicopter$2.6 Billion in Revenues (’07)

Installed Base: 10,500Installed Base: 2,500

12

• “First-ever” Technologies from Bell’s Modular Affordable Product Line (MAPL)– Unprecedented Cabin and Cockpit

Features– New High Performance Rotor

Technology

• Successful Flight Test – 600 Hours Completed– Pre-production 429 flies for the

first time in Jan. ‘08– No “Show Stoppers”

• Target Certification 2008• $1.1 billion of order interest,

270 Units

Redefining the Light Twin Segment

Bell 429 Global Ranger Light Twin

13

30

55

80

105

130

155

180

2002 2003 2004 2005 2006 2007

Commercial Business GrowingDeliveries

159

181

123

111

92

105

Commercial Business Growing

14

Revenue* ($M)

Growing the Support & Services Business

CAGR = 15%

Approaching $1 Billion

MilitaryCAGR = 24%

Com’lCAGR = 10%

* Excludes Huey II kit sales.

$0

$250

$500

$750

$1,000

2004 2005 2006 2007

15

V-22 Program

• Amphibious Support• Sustained Land

Operations• Self-Deployment

USMC• Special Operations• Insertion/Extraction• WMD Warfare

USSOCOM• Personnel Recovery• Fleet Logistics

Support • Special Warfare

Production Ramping from 14 A/C in Production Ramping from 14 A/C in ’’07 to ~36 A/C in 07 to ~36 A/C in ’’1111

360 MVs 50 CVs 48 MVs

$20BProgram

USN

16

$5.6BProgram

100 UH-1YsUtility

180 AH-1ZsAttack

H-1 Upgrade Program

Brings Increased Capability and Lethality to the Fight

•Fully Marinized and Shipboard Capable

•84% Commonality

•Delivered First 10 Production Units

•Op-Eval Phase I Complete: Phase II Underway

•Full-Rate Production Decision Year-end 2008

17

• Militarized Derivative of Bell 407

• New Engine, Common Avionics and Targeting System are Integrated

• Over 1,100 Total ARH Flight Hours

• Limited User Test Complete

• Full Rate Production Decision by Mid-Year

• Substantial Foreign Military Potential

Armed Reconnaissance Helicopter$4+B

Program

U.S. Army PlansFor 512 Aircraft

Rapid Production and Delivery Schedule to Support the Warfighter

18

Textron Systems$1.3 Billion in Revenues (’07)

Product Performance Driving Growth

Intelligent Battlefield Systems

Air Launched Weapons

Textron Defense Systems

Overwatch

Intelligence Solutions

Tactical Operations

Geospatial Operations

25%*

Combat Vehicles

Marine Craft

Textron Marine &

Land Systems

8%*

Lycoming

Aircraft Engines

Cylinders & Parts

11%*

HR Textron

Aircraft & Weapon

Subsystems

AAI

Unmanned Systems

Training & Test Systems

* Revenue percentages reflect 2008 estimates

56%*Battlefield Precision Engagement

19

Armored Security Vehicles (ASV) -High Growth Opportunity

• U.S. Army ASV Requirement

– 3,172 — Total Program of Record

– 2,063 — Current Contract

– 1,246 — Delivered through 12/31/07

• Additional Opportunities

– U.S. Army Transportation Corps

– Foreign Militaries

– Reset Programs

– Aftermarket Support

• 580 — Estimated ’08 Production

20

CaravanSingle EngineCitations 5%

14%

3%

Used Aircraft

Parts, Service& Other3%

5% CitationShares

70%

Cessna Aircraft2007 Revenues: $5.0 Billion, Up ~20% YOY

21

Cessna Is Well-positioned for Continued LeadershipSource: B&CA and company press releases

0

5

10

15

20

25

30

35

Ecl

ipse

50

0Business Jet Competitive Landscape

Pri

ce $

Millio

ns

CJ1

+C

J2+

Pre

mie

r 1

A

CJ4

*

CJ3

Lear

40

XR

H-4

00

XP

En

core

+

Lear

45

XR

Haw

ker

75

0*

So

vere

ign

Ch

all

en

ger

30

0C

itati

on

XG

20

0

Lear

60

XR

Haw

ker

40

00

* In development

Haw

ker

90

0X

P

Leg

acy

60

0

Ph

en

om

30

0 *

Ph

en

om

10

0 *

Mu

stan

g

G1

50

XLS

(+*

)

Embraer DassaultGulfstreamBombardierHawker BeechcraftCessnaEclipse Embraer DassaultGulfstreamBombardierHawker BeechcraftCessnaEclipse

Co

lum

bu

s*C

hall

en

ger

60

5Falc

on

20

00

EX

(LX

*)

G3

50

Lear

85

*

22

• Intercontinental travel; large, comfortable cabin

– High speed cruise (Mach 0.80)

– Target range of 4,000 nautical miles at cruise speed

– Best-in-class seated headroom and cabin length

• Fully-integrated Collins Pro Line Fusion advanced avionics system

• New Pratt & Whitney PW810 engine

• Expect > 70 orders by YE

Customer Confidence in New Product Promises – Sure Thing™

Base price: $27 millionFAA Certification: 2H131st Delivery: 2014

23

Business Jet IndustryDevelopment Criteria - The “4As”

• Affluence– Economic development

– Business and personal wealth distribution

• Airports / air traffic control– Infrastructure and support

• Airspace access– Political climate and regulatory environment

• Affordability / acceptance– Alternatives and relative cost of operations

Several Key Factors Affect the Pace of Development

24

Growth Drivers – Cessna• International Markets Expanding

• Current Demand:– 773 orders FY’07

– 164 orders in Q4’07

– Sold out for 470 deliveries in ’08

– Expect at least 570 orders in ’08

– $12.6B backlog + $0.4B CitationShares

19%’02

53%’07

48%41%35%35%

International Citation Orders

’06’05 ’04’03

25

Industrial

$3.4 Billion in Revenues (’07)

E-Z-GO~$410 million

Fluid & Power~$610 million

Greenlee~$425 million

Jacobsen~$260 million

Kautex~$1.7 billion

Low-Mid Single Digit Organic GrowthContinual Margin Improvement

26

Textron Financial Corporation$11.1B Managed Finance Receivables (12/29/07)

9%

Asset-BasedLending

DistributionFinance

AviationFinance

Golf Finance

ResortFinance

22% 15%

14%

Structured Capital & Other6%

Growing ~10%/Year

34%

(% of Managed Finance Receivables as of 12/29/07)

27

Key Credit Quality Indicators

Outstanding Credit Quality (2007)

NPA: 1.34 %60+ Delinquency: 0.43 %Charge-offs: 0.45 %

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

NPA60+ DelinquencyCharge-offs

28

Textron - Strong Organic GrowthInvesting in ER&D and CAPEX to SupportAbove-Average Growth2007 - 2010 Investments -• Engineering,

Research & Development:

$2.4 Billion

• CAPEX: $2.2 Billion

Creating Value

29

Record Aerospace & Defense BacklogIndicates solid, continued growth

$19.9BCustomer Orders$ 1.1BBell 429

$ 3.8BBell$12.6BCessna$ 2.4BSystems$18.8BTotal Backlog

Excellent Visibility

30

Strong Organic Revenue GrowthNecessary Talent and Capabilities in Place

$13.0

$15.0

$17.0

$19.0

2007 2008 2009 2010

$, Billions12% CAGR –Possible Case

8% CAGR –Conservative Case

31

Managing the Growth;Executing on the Opportunities

•Strong organic growth– Up to $19B of revenue in 2010

•Execution– 12% to 13%

manufacturing margin in 2010

•Building Intrinsic Value

•Premier growth of shareholder value

32

Forward Looking InformationForward-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 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 following: [a] changes in worldwide economic and political conditions that impact demand for our products, interest rates and foreign exchange rates; [b] the interruption of production at Textron facilities or Textron’s customers or suppliers; [c] performance issues with key suppliers, subcontractors and business partners; [d] Textron's 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 Textron for the Government's convenience or for Textron's failure to perform, to change applicable procurement and accounting policies, and, under certain circumstances, to suspend or debar Textron 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 Global War on Terrorism; [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 defense operations; [i] the ability to control costs and successful implementation of various cost reduction programs; [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 Textron products are sold or supplied or where Textron Financial offers financing; [l] changes in aircraft delivery schedules or cancellation of orders; [m] the impact of changes in tax legislation; [n] the extent to which Textron is able to pass raw material price increases through to customers or offset such price increases by reducing other costs; [o] Textron’s ability to offset, through cost reductions, pricing pressure brought by original equipment manufacturer customers; [p] Textron's ability to realize full value of receivables; [q] the availability and cost of insurance; [r] increases in pension expenses and other post-retirement employee costs; [s] Textron Financial’s ability to maintain portfolio credit quality; [t] Textron Financial’s access to debt financing at competitive rates; [u] uncertainty in estimating contingent liabilities and establishing reserves to address such contingencies; [v] risks and uncertainties related to acquisitions and dispositions; [w] the efficacy of research and development investments to develop new products; [x] the launching of significant new products or programs which could result in unanticipated expenses; [y] bankruptcy or other financial problems at major suppliers or customers that could cause disruptions in Textron’s supply chain or difficulty in collecting amounts owed by such customers; and [z] difficulties or unanticipated expenses in connection with the consummation or integration of acquisitions, potential difficulties in employee retention following acquisitions and risks that acquisitions do not perform as planned or disrupt our current plans and operations or that anticipated synergies and opportunities will not be realized.

33

2007 Textron ROICROIC Income 2007

Income from continuing operations 915

Interest expense for Manufacturing group 56

Operating income from 2007 acquisitions (2)

ROIC Income 969

Invested Capital at end of year

Total Shareholders' equity 3,507

Total Manufacturing group debt 2,148

Cash and cash equivalents for Manufacturing group (471)

Net cash used in 2007 by Manufacturing group for acquisitions (1,092)

Invested Capital at end of year, as adjusted 4,092

Invested Capital at beginning of year 3,716

Average Invested Capital 3,904

Return on Invested Capital 24.8%

34

2006 & 2007 Free Cash Flow

Year-to-Date 2007 2006

Net cash provided by operating activities of continuing operations $ 1,186 $ 1,119

Less: capital expenditures (391) (419) Plus: proceeds on sale of property, plant and equipment 23 7 Less: capital expenditures financed through capital leases (22) (16)

Free cash flow $ 796 $ 691

citigroup industrial manufacturing...

Documents