Textron delivers Consistent Growth
by leveraging its present strengths,
building upon its past accomplishments,
and focusing on a clear vision
for the future.
Balanced Mix of
Innovative New Products
that Delivers Results
Strong Financial Discipline
that Meet Customers’ Needs
Committed Workforce that is
Partnering for Growth
Textron is a $10 billion, global, multi-industry
company with market-leading businesses in Aircraft,
Automotive, Industrial and Finance. Textron has
achieved an impressive nine-year track record of
consistent growth in earnings and superior returns to
shareholders. Textron is committed to repeating this
performance well into the future.
1998 1997 change
Operating Results ($ in millions)
Revenues $8,683 12%
Operating income $ 917 13%
continuing operations $ 372 19%
Common Share Data
Earnings per share from
continuing operations $ 2.19 22%
Dividends per share $ 1.00 14%
Key Performance Ratios
Operating margin 10.6%
Return on average
shareholders’ equity 17.5%
Return on invested capital 13.4%
Debt to total capital
(Textron Manufacturing) 25%
1998 Revenues by Business Segment
AIRCRAFT Aircraft: Commercial and military helicopters,
$3,189 (33%) tiltrotor aircraft, business jets, single-engine
piston aircraft and utility turboprops
AUTOMOTIVE Automotive: Interior and exterior trim, fuel
$2,405 (25%) systems and functional components
INDUSTRIAL Industrial: Fastening systems, fluid and
$3,722 (38%) power systems, golf, turf-care and specialty
products, and industrial components
FINANCE Finance: Diversified commercial financing
To Our Shareholders:
1998 was a defining year for Textron. Against a backdrop of
significant global economic volatility and industry consolidations,
we continued to position the company for long-term success while
delivering on our promise of consistent growth. We achieved:
22 percent increase in earnings per share – our sixth consecutive
year of double-digit increases, and our ninth consecutive year of
12 percent increase in revenue – our third successive year of
Return on equity of 19.6 percent
13.7 percent return on invested capital
Free cash flow of $348 million, up from $234 million in 1997
Most importantly, our shareholders realized total returns of
24 percent. Over the past nine years, total annual returns to Textron
shareholders have averaged 26 percent, compared to 18 percent for
Textron has reported
the S&P 500. nine consecutive $2.68
years of earnings
These financial achievements are especially impressive when you
consider that in 1998, we acquired and integrated nine companies,
announced two divestitures and put in place the leadership team to in each of the
guide our company into the 21st century. last six years.
Textron’s outstanding performance was driven by the underlying
strengths of our businesses combined with strategic actions that
demonstrate our discipline in making tough decisions in the best
interests of our shareholders. Most significant among these was
the decision to sell Avco Financial Services, which enables us to
redeploy capital to higher-growth opportunities.
Strategic Divestiture —
Managing the Mix for Higher Growth
In early 1999, we completed the sale of Avco to The Associates First
Capital Corporation for $3.9 billion, arguably one of the most impor-
tant strategic moves in Textron’s 75-year history. Driving this critical
decision was the continued consolidation of the consumer finance
industry, the high premiums placed on successful consumer finance
franchises, and our realization that significant capital investment would
have been needed to generate the required returns from Avco. 89 90 91 92 93 94 95 96 97 98
EPS From Continuing Operations
Acquisition Criteria We have started to redeploy the $2.9 billion in after-tax proceeds by allocat-
ing 40% to share buyback and 60% to acquisitions. Between the announcement
Textron applies rigorous
of the deal in August and year-end, we repurchased 10.2 million shares — the
financial and strategic
balance to be completed by mid-1999 — and spent $570 million on acquisi-
standards when evaluating
acquisitions. Our philosophy tions. At our present pace, we expect full redeployment of this capital by 2000.
is to “buy good businesses
Our disciplined approach to acquisitions has served us well over the past
and make them better.”
five years, and our rigorous criteria will be our guidepost as we intensify
activity in 1999. We will maintain a keen focus on making strategic, “bolt-on”
Strategically “fit” with
acquisitions that complement our existing businesses and meet our well-
other Textron businesses
defined financial requirements.
It is important to note that by repurchasing shares prior to the actual
Offer clear, long-term
growth prospects while closing of the transaction, our debt-to-capital ratio and return on equity
were temporarily inflated. Return on invested capital, which is not affected
by leverage, is a more consistent measure and will therefore become our
primary benchmark for how effectively we invest capital and create value
Contribute to EPS for our shareholders.
immediately, or have
Market-leading Businesses Fuel Growth
Our established goal of 8-11 percent top-line growth continues to be one of
the key drivers of our performance. In 1998, revenues increased 12 percent,
Achieve economic profit
supported equally by strategic acquisitions and internal growth — a balance
within three years
we plan to maintain going forward.
Have the potential to Last year, our company spent $1.1 billion on nine acquisitions. We expect
reach or exceed
to sustain this level of acquisition activity through 2001, complemented by
aggressive internal growth focused on developing innovative products and
technologies, and penetrating new markets.
Our Aircraft segment delivered a 5 percent increase in revenue and
8 percent improvement in operating profit, reflecting the continued strength
of Cessna Aircraft. The introduction of four new aircraft highlights the power
of Cessna’s internal growth strategy, a cornerstone to this segment’s future
success. Bell Helicopter continues to invest in the development of break-
through tiltrotor technology, which promises to be a key growth driver early
in the next century. Thanks to its impressive array of new products and tech-
nologies, the Aircraft segment now enjoys an unprecedented backlog of $5.9
billion – an indicator of the tremendous future that lies ahead.
Automotive posted a strong year, with revenue increasing 13 percent and
operating profit up 19 percent, led by Kautex’s outstanding growth and
improving margins in our trim business. Looking ahead, our focus remains
on developing technology-driven, integrated solutions as we continue to
globalize this business and achieve sustained operating improvements. To
meet our objectives in this very challenging environment, we will work to
Textron actively manages
further expand our presence in higher-growth market segments through its business mix to deliver
strategic partnerships, selected acquisitions and by leveraging key customer consistent growth and
excellent returns to
The Industrial segment achieved an impressive 17 percent growth in
revenues and 19 percent increase in operating profit, resulting from the A carefully implemented
strategy of internal
introduction of innovative products, penetration of new markets and six
strategic acquisitions in the U.S. and Europe which strengthened our
divestitures and joint
geographic, product and customer balance. As we look to the future, the ventures — combined with
an operating management
Industrial segment will continue to lead the company through acquisitions,
process that focuses on
new products and operational synergies supported by our global capabilities.
results — positions our
The four groups within the Industrial segment contributed to 1998’s company for sustained,
outstanding performance and are positioned for significant expansion.
Textron Fastening Systems, this segment’s flagship group, is the global
leader in its industry and is targeted to double in size over the next
The Fluid and Power Systems group reached an important milestone in
1998 with the acquisition of David Brown Group plc, which propelled the
group’s annualized revenues to $1 billion and provides an important
platform for the future.
The Golf, Turf-Care and Specialty Products group is maximizing internal
synergies while generating a steady stream of new products.
In Industrial Components, new technologies are being developed that
support rapidly-expanding end-user markets such as the data, voice and CORE REVENUES
telecommunications industries. ($ in billions)
In the Finance segment, Textron Financial Corporation (TFC) is a well- AIRCRAFT
established niche player in the commercial finance market. 1998 marked
TFC’s 20th consecutive year of continuous earnings improvement. We are FINANCE
committed to this business and, going forward, will strategically invest in
growth opportunities. TFC will maintain its focus on developing business in
faster-growing niche markets while sustaining its excellent operating perfor-
mance and strong credit quality.
Anticipating increased global economic volatility, we have never been $4.5
more confident that our balanced, diverse mix of market-leading businesses
1992 1998 2003
is a strategic advantage that will continue to benefit our shareholders year Target
after year, in a variety of economic conditions. Our performance in 1998 is a * Including non-core businesses, 1992 revenues
were $8.3 billion. Grey area represents those busi-
testimony to this strength. nesses that were divested between 1992 and 1998.
Financial Goals It is indeed a challenging time, and we have taken our contingency
planning efforts very seriously. Our systematic, disciplined multi-year
Setting and achieving
planning process, comprehensive Y2K program and Euro strategy are
ambitious financial goals is
examples of how we are actively preparing for future events to ensure
fundamental to Textron’s
management process. consistent performance.
In 1998, we continued to
Seamless Leadership Transition
deliver on our five financial
In 1998, we successfully completed our internal leadership transition, affirm-
ing the company’s well-defined succession planning process. President and
Chief Operating Officer John Janitz and I are dedicated to the vision estab-
per Share Growth
lished for the company in 1993, and to the principles of operating excellence
gains in each of the last six
and continuous improvement that have become a way of life at Textron.
years, 22% in 1998
One of my first priorities after becoming CEO was to create the Executive
Annual Revenue Growth Leadership Team, comprised of the top 10 leaders at Textron. In today’s rapidly
evolving business environment, it is imperative that we make decisions quickly
Performance: 14% annual
and in complete alignment with the company’s strategic direction. The forma-
growth rate in core revenues
over last six years, 12%
tion of this group signals the increased teamwork and cooperation we expect
increase in 1998
from every person in the organization to more effectively leverage our
strengths and achieve the efficiencies demanded in today’s marketplace.
People Make the Difference
Performance: 10.7% in 1998,
up from 9.2% in 1992
A company is only as strong as the performance of its people. Through the
diligence and dedication of our 64,000 employees, Textron has been able to
ROIC Exceeding 15%
realize its impressive, nine-year record of achievement while building the
Performance: 13.7% in 1998,
up from 11% in 1992
foundation for future growth. As the global business environment contin-
ues to evolve, success will require more ingenuity, speed and commitment
Debt-to-Capital Ratio in
Mid-30% Range than ever before. Our people provide the competitive edge that will drive
Performance: 43% in 1998 Textron to achieve its vision and earn its place among the finest companies
in the world.
After nine years with Textron, Jim Hardymon retired this past January.
Jim made a tremendous contribution to Textron. Through his leadership,
we developed an operating discipline and a company-wide focus on business
fundamentals, which are essential to the foundation of our operations
management process and our focus on quarterly earnings improvement.
Together, we established a vision, a management team and a record of
performance that will serve us well for years to come.
Looking Ahead Vision
As we approach the new millennium, Textron is a company poised for greatness.
Textron’s Vision is to be:
We are confident that we will deliver another year of solid, double-digit revenue
One of the World’s Best
and earnings-per-share growth in 1999.
Our strategy is clear. We have a mix of businesses with significant global
growth potential. Our management team is strong. Our leadership transition is Excellent Managers
complete. Importantly, we have the infrastructure and processes in place to
help us realize our goals.
Underlying all of these critical elements is our relentless commitment
to continuous improvement and operating excellence. With a strong Company with Global
Leadership Positions in
balance sheet and the additional financial resources from the sale of Avco,
Each of Our Businesses
we are very well-positioned to pursue opportunities that support Textron’s
I look forward to leading Textron into the next century. Our company has
never been stronger, our people never more committed. Together with your
support and confidence, we will continue to grow our company, build futures
for our people and add value for our shareholders.
89 90 91 92 93 94 95 96 97 98
(year-end value of $100 invested at year-end 1989)
Lewis B. Campbell
Textron: 26% average annual return
Chairman and Chief Executive Officer
S&P 500: Index 18% average annual return
Actively managing the mix...
1992 1993 1994 1995
($ in millions)
$850 $320 $190 $310
( pro forma revenues)
Aircraft Automotive Industrial Industrial
Cessna Aircraft . . . . . . . . . .$770 Acustar Plastics . . . . . . . . . .$320 Avdel plc, U.K. . . . . . . . . . . .$180 Elco Industries . . . . . . . . . . .$260
Automotive ORAG International, Ltd, Friedr. Boesner GmbH,
Switzerland . . . . . . . . . . . . . .$10 Germany . . . . . . . . . . . . . . . . .$50
Van Dresser . . . . . . . . . . . . . .$50
Fairmount Hydraulics . . . . . .$10
Wolverine . . . . . . . . . . . . . . . .$20
Cessna Aircraft Acustar Plastics Avdel plc Elco Industries
( pro forma revenues)
Textron Filtration Systems sold Homelite Textron sold to
to ESCO Electronics Deere & Co.
Corporation Systems and Components
Textron Lycoming Turbine
Engine sold to AlliedSignal, Inc.
$629 $741 $885 $914
Research and Research and Research and Research and
Development . . . . . . . . . . .$430 Development . . . . . . . . . . .$514 Development . . . . . . . . . . .$611 Development . . . . . . . . . . .$656
Capital Expenditures . . . . . .$199 Capital Expenditures . . . . . .$227 Capital Expenditures . . . . . .$274 Capital Expenditures . . . . . .$258
...to deliver consistent growth.
1996 1997 1998 TOTAL
$490 $695 $1,020 30 Acquisitions $4,900
Automotive Automotive Automotive Since 1992, Textron has acquired
Washer Systems business Kautex Group, Germany . . . .$500 Midland Industrial
30 market-leading businesses
of Valeo Wiper Systems Plastics, U.K. . . . . . . . . . . . . .$80
Kaywood Products Corp. . . . . .$5
totaling $3.9 billion in revenues.
Ltd., U.K. . . . . . . . . . . . . . . . . .$20 Industrial
Industrial Because of the tremendous
Ransomes plc, U.K. . . . . . . .$240
Goods, U.K. . . . . . . . . . . . . . . .$20
Klauke, Germany . . . . . . . . . .$40 Sükosim, Germany . . . . . . . . .$60 organic growth achieved during
Valois Industries, Burkland Inc. . . . . . . . . . . . . .$20 Ring Screw Works . . . . . . . .$190 this time period, these businesses
France . . . . . . . . . . . . . . . . . .$400
Mapri Industries, S.A., Peiner Umformtechnik now represent over $4.9 billion in
Xact Products . . . . . . . . . . . . .$20 Brazil . . . . . . . . . . . . . . . . . . . .$90 GmbH, Germany . . . . . . . . . .$40
revenues, or 51 percent of
The Bunton Company . . . . . .$10 Maag Pump Systems, David Brown
Switzerland and Group plc, U.K. . . . . . . . . . . .$370
Maag Italia SpA, Italy . . . . . . .$60 Datacom Technologies . . . . .$10
Systran . . . . . . . . . . . . . . . . . .$10
Business Leasing Group . . . .$20
Valois Industries Kautex Ransomes plc David Brown Group plc
$170 $1,590 $2,020 8 Divestitures $4,700
Systems and Components Insurance Industrial During the last seven years,
Textron Aerostructures sold Paul Revere Corporation sold to Speidel Textron sold to Hermann
Textron has divested eight
to Carlyle Group Provident Companies, Inc. Hirsch USA, Inc.
businesses totaling $4.7 billion
Textron Fuel Systems sold to
Woodward Governor Company
Textron agrees to sell Avco
Financial Services to The
Associates First Capital
Corporation. Sale completed
$888 $976 $1,088 $6,121
Research and Research and Research and Research and
Development . . . . . . . . . . . .$576 Development . . . . . . . . . . . .$602 Development . . . . . . . . . . . .$613 Development . . . . . . . . . . .$4,002
Capital Expenditures . . . . . . .$312 Capital Expenditures . . . . . . .$374 Capital Expenditures . . . . . . .$475 Capital Expenditures . . . . .$2,119
2 Joint Ventures
Textron enters into strategic joint
Bell Helicopter Textron
ventures that expand global
and Agusta of Italy
capabilities, add new markets
Textron Fastening Systems and customers, and complement
and Taiwan’s San Shing
existing product lines.
Hardware Co. Ltd.
New Technologies Bell Helicopter is the lead-
ing helicopter manufacturer in the world because of its unparalleled product
reliability and responsive customer service. But to stay number one in this
competitive industry, Bell must stay at the forefront of new technology. Bell
is employing new tiltrotor technology in its commercial Bell Agusta BA 609
Helicopter and military Bell Boeing V-22 tiltrotor aircraft. These aircraft will meet the
needs of air travelers around the world by combining the speed and range
of a fixed-wing aircraft with the flexibility of a helicopter.
To our customers in search and rescue, oil exploration and government
support roles, the BA 609 offers cost-effective, point-to-point transportation
and excellent passenger comfort. These benefits are also attracting foreign
government orders, particularly in remote areas of the world where ground
transportation is difficult. We have nearly 70 commitments from over 40 cus-
tomers around the globe for this aircraft, scheduled for first delivery in 2002.
The BA 609 program is a joint partnership with Agusta, Italy’s leading
helicopter manufacturer. Agusta complements Bell’s strengths with its
European marketing, engineering and manufacturing capabilities.
In 1999, we will begin shipments of the military V-22 to the United States
Marines. We expect to deliver 53 aircraft to the military over the next five
Bell 430 years and more than 458 aircraft over the next 15 years, for a total contract
value to Bell and Boeing of $15 billion.
Bell continues to build its leadership position in the commercial helicopter
industry, most recently with the introduction of the Bell 427, a light-twin
helicopter that incorporates many of the same features found on the highly
successful 407 — reliability, performance and value. Customers have placed
BA 609 over 70 orders for the 427, scheduled for first delivery in 1999.
TOTAL AIRCRAFT (dollars in millions) 1998 1997 % CHANGE
6% $3,189 $3,025 5%
65% 8% $ 338 $ 313 8%
Bell Helicopter Geographic
2% 10.6% 10.3%
Revenue by Destination
Bell Helicopter’s military V-22 and commercial
BA 609 tiltrotor aircraft have the potential to
redefine the way we fly.
The Bell 427, the newest member in Bell’s family
of commercial helicopters, is well equipped for a
variety of applications including executive and
commuter transport, cargo missions and
emergency medical service.
New Products With a record backlog of $4 billion
— a level that exceeds twice the company’s annual aircraft delivery rate —
Cessna Aircraft continues to enjoy unprecedented growth and market accep-
Product Line tance. Recognized as the worldwide leader in the light- and mid-size business
jet industry, Cessna will deliver its 3,000th Citation in 1999 — almost twice as
many aircraft as any of its competitors.
Cessna earned this leadership by offering a broad line of high-quality, reliable
Citation business jets to meet customers’ needs and by providing factory-direct
support through company-owned Citation Service Centers.
In 1998, Cessna expanded its family of business jets from six models to
eight with the announcement of two all-new aircraft — the Citation CJ2 and
the Citation Sovereign. Cessna also announced the Citation CJ1 as the suc-
cessor to the popular CitationJet, and the Citation Ultra Encore as the next
generation of the Ultra, the best-selling business jet of the ’90s.
Combining proven systems with jet performance, the Citation CJ2 offers higher
speeds, greater range and a larger cabin while maintaining the desirable charac-
teristics of its predecessor, the CitationJet. First deliveries are expected in 2001.
The Citation Sovereign is an all-new, mid-size business jet that delivers greater
capability and comfort than its competitors, at a traditional mid-size price. The
Sovereign combines versatility and excellent performance with many of the
same features that have made other members of the Citation family so popular.
With extraordinarily positive market response to these two new products,
Cessna has received more than 117 orders valued at $775 million.
Cessna’s strategy of developing reliable, quality products extends to its family of
single-engine piston aircraft. In 1996, Cessna officially reentered this important
market segment. With five models already in production, Cessna is once again the
number one single-engine piston aircraft manufacturer in the world.
TOTAL AIRCRAFT (dollars in millions)
3% 1998 1997 % CHANGE
7% $3,189 $3,025 5%
$ 338 $ 313 8%
Cessna Aircraft 2%
Geographic Revenue by Destination
A new addition to Cessna’s product lineup, the
Citation Sovereign offers the largest cabin of any
traditional mid-size business jet, great versatility
and excellent performance.
Growth Outpacing the Market.
Global Balance. With its growth exceeding the
automotive market, Textron Automotive Company (TAC) increased its revenues
13 percent in 1998. A cornerstone of this growth is customer satisfaction,
evidenced by numerous awards received from DaimlerChrysler, General Motors,
Ford, Audi and Volkswagen for quality, on-time delivery and technology.
Achievements like these require a strategy that delivers results despite the
challenges of a modest 2-3 percent overall automotive unit growth rate, customer
pricing pressures and supplier consolidation. TAC meets these challenges by:
• Developing proprietary technologies where the growth outpaces the market,
Textron Automotive Company
by Product Line
• Enhancing our customer, geographic and product balance, illustrated by our
recent acquisition of U.K.-based Midland Industrial Plastics,
• Supplying complete systems, such as cockpit modules and fuel systems.
Germany-based Kautex, the leader in the worldwide plastic fuel tank market,
drives TAC toward continued global growth. Kautex incorporates a co-extruded,
plastic-forming technology that creates a high integrity, lightweight and more
environmentally friendly fuel tank. Kautex expects production to increase from
5.5 million units in 1998 to 8.1 million units in 2003.
TAC’s Trim division is achieving success through innovative, proprietary
technology evidenced by its 1998 Materials Category Award presented by the
Automotive Division of the Society of Plastics Engineers. Trim’s Thermoplastic
Urethane (TPU) instrument panel cover material offers a lighter weight and
softer touch product over conventional instrument panel coverings. Used in
DaimlerChrysler’s new ‘98 LH Series, instrument panels incorporating this
material are sequenced to our customer as complete modular systems.
Within the Functional Components Group, McCord Winn incorporates its
award-winning innovative RITec™ technology, which integrates the fan shroud,
washer fluid and radiator overflow reservoirs into a single molded unit.
15% (dollars in millions) 1998 1997 % CHANGE
24% $2,405 $2,127 13%
$ 179 $ 150 19%
Automotive Geographic Revenue 6%
Textron Automotive Company develops break-
through technologies to achieve growth. Innovations
include a better-performing instrument panel, a
RITec™ fan shroud that saves space under the
hood and a more environmentally friendly plastic
fuel tank. (clockwise, from top)
industrial Global Acquisitions.
Innovative Products and
Processes. Best Practices.
Over the last three years, Textron’s Industrial segment has grown at a strong
14 percent rate, expanded into 19 new countries and significantly increased
its customer base while improving operating margins. Textron achieves this
impressive growth by developing innovative new products and processes,
employing best practices and making strategic acquisitions.
Acquisitions are central to our Industrial growth strategy, given the tremen-
Revenues from dous opportunities within our target markets. Since 1992, we have acquired
20 market-leading industrial businesses that complement our product lines,
($ in millions)
extend our global reach and offer opportunities for synergies in four targeted
areas for growth.
Within Textron Fastening Systems (TFS), a $2 billion leader in the
engineered fastening systems market, recent acquisitions include Ring Screw
Works, a $200 million supplier of automotive specialty threaded fasteners and
winner of DaimlerChrysler’s Platinum Pentastar Award in 1997 and 1998. Ring
Screw brings an excellent reputation with the automotive OEMs and superb
manufacturing processes. Germany-based Sükosim and Peiner — also
acquired in 1998 — offer market leadership and greater access to the
European automotive and industrial markets.
TFS is also partnering with Taiwan’s San Shing Hardware Co. Ltd., which
adds a low-cost manufacturing base and a wide array of competitively priced
products to TFS’ global capabilities.
Fluid and Power Systems, a $1 billion business focused on mechanical
power, fluid handling and motion control products, is building a strong global
platform with the acquisition of David Brown, a leading manufacturer of
92 93 94 95 96 97 98
power transmission and fluid handling systems.
In Golf, Turf-Care and Specialty Products, newly acquired Ransomes
of the U.K. adds reputable brands like Cushman, Ryan, Steiner and Brouwer
to our well-recognized brand names of E-Z-GO, Bunton and Jacobsen.
Within Industrial Components, Germany-based Klauke and U.S.-based
Datacom Technologies expand Greenlee’s product line, global reach and
capabilities within the electrical equipment and cable testing markets.
David Brown products include industrial gears,
fluid handling pumps and mechanical and
hydraulic transmission systems used in a wide
range of applications — from industrial machinery,
such as conveyors (pictured here), to transportation
applications, such as rail traction gears.
Sükosim offers innovative stamping capabilities to
its customers in the European automotive and
But acquisitions are just the first step. Our ability to share best practices
and develop innovative products and processes is a core competency — one
that will continue to fuel growth in the years ahead.
Together, we are:
Sharing best practices through groups like the TFS Electronics Team —
a multinational, cross-divisional group focused on how to best serve our global
customers in the electronics industry. This teaming process capitalizes on
Industrial Revenues by the entire TFS organization and allows us to more effectively develop new
business. Avdel Cherry’s established relationship with Intel led to Elco being
named one of two licensed fastener manufacturers on Intel’s next-generation
Developing innovative products and processes that meet customers’
expectations. Within Turf-Care and Specialty Products, our facilities operate
as centers of excellence by focusing on core technologies, products or
processes. At our Johnson Creek, WI facility, for example, we excel in rotary
mowing technology supported by an innovative paperless manufacturing
process. Throughout our entire Turf-Care and Specialty Product organization,
we are also consolidating product lines, engineering and manufacturing to
achieve greater operating efficiencies. Through process improvement and
innovative thinking, we now offer a full range of successful products that
service our customers from tee to green.
Supporting each of these growth efforts is our intense focus on
operational excellence and continuous improvement. Employees mea-
sure their performance in cost, quality, speed, greatness, people and market
share, as well as shareholder and customer satisfaction.
This focus on operational excellence, combined with internal growth
initiatives and a disciplined acquisition process, positions the Industrial
segment to deliver strong double-digit annual revenue growth over the next
3% (dollars in millions) 1998 1997 % CHANGE
25% $3,722 $3,181 17%
$ 410 $ 346 18%
Industrial Geographic Revenue 3%
Avdel Cherry’s strong customer relationship
with Intel, combined with superb manufacturing
capabilities at Elco, led to new business at Elco,
now one of two licensed fastener manufacturers
on Intel’s next-generation Pentium® II processor.
Turf-Care and Specialty Products’ Johnson Creek
facility excels in rotary mowing technology and
employs an innovative paperless manufacturing
process to achieve success.
Knowledge. 1998 marks Textron Financial Corporation’s
(TFC’s) 20th consecutive year of continuous earnings improvement — an
impressive record for a business known for delivering innovative commercial
TFC’s success begins with a long-standing commitment to provide competi-
Textron Financial Corporation
Total Receivables - $3.6 billion
tive financing to Textron customers for the purchase of Bell helicopters, Cessna
aircraft, E-Z-GO golf cars, and Jacobsen and Ransomes turf-care equipment.
Since the mid-eighties, this success has extended into transactions outside of
Textron’s family of products, which now represent two-thirds of TFC’s portfolio.
Our strategy focuses on finding under-served niche markets and designing
innovative, customized lending solutions. In TFC’s Golf Finance division, for
example, we offer industry-specific knowledge necessary for an effective loan,
as well as the flexibility to create a package that fits customers’ business needs.
(16%) Our lending experience extends to a broad range of industries — from truck-
ing and commercial printing to franchise businesses and timeshare resorts. The
product knowledge we possess within TFC’s 15 divisions is unparalleled. Our
ISO 9001-certified information systems technology helps us keep pace with
rapid changes in the marketplace. This fast response time and our outstanding
customer service are attributes that our competitors strive to replicate.
At TFC, our reputation as a solid business institution gives us access to a
large network of financial institutions with which we partner to meet the
financial needs of a wide range of customers. And with strong credit quality
as the fundamental tenet in our successful lending strategy, we are well posi-
tioned to achieve many more years of excellent performance.
20 Consecutive Years of
($ in millions)
FINANCE (dollars in millions) 1998 1997 % CHANGE
$ 367 $ 350 5%
$3,612 $3,069 18%
$ 113 $ 108
OPERATING MARGIN 30.8% 30.9%
RETURN ON EQUITY
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98
Product expertise and quality service are corner-
stones to every TFC lending transaction — from
the financing of golf courses and related Textron
products to the refinancing of a Dunkin’ Donuts®
the work force
Textron’s commitment to excellence extends beyond our businesses
to our charitable giving program. In this area, we direct special attention
to educating the work force of tomorrow.
the ADVANCEMENT of Successful partnerships include the Textron Chamber of Commerce
WOMEN and MINORITIES
Academy, a Rhode Island-based school-to-work program for at-risk youths.
HEALTHCARE Adopt-a-School tutors from Bell Helicopter are volunteering at a Fort Worth,
Texas high school, while employees from Textron Automotive Company
are helping students from the city of Detroit compete in a national robotics
In the coming year, as a member of the Welfare-to-Work Partnership,
Textron will build on the successful example of Cessna’s model 21st Street
Campus to create additional opportunities for individuals seeking employment.
Business Segment Data 22
Management’s Discussion and Analysis 23
Report of Management,
Report of Independent Auditors 33
Consolidated Financial Statements 34
Quarterly Data 56
Selected Financial Information 57
Management Team 58
Textron Business Directory 60
1998 TEXTRON ANNUAL REPORT 21
Business Segment Data
For a description of the businesses comprising each segment, see pages 60 through 62.
Revenues Operating Income Income Margins
1998 1997 1996 1998 1997 1996 1998 1997 1996
Aircraft $3,025 $2,593 $ 313 $ 261 10.3% 10.1%
$3,189 $ 338 10.6%
Automotive 2,127 1,627 150 146 7.1 9.0
2,405 179 7.4
Industrial 3,181 2,959 346 300 10.9 10.1
3,722 410 11.0
Finance 350 327 108 96 30.9 29.4
367 113 30.8
$8,683 $7,506 917 803 10.6% 10.7%
$9,683 1,040 10.7%
Gain on sale of division – –
Special charges – –
Corporate expenses and other – net (140) (115)
Interest expense – net (129) (148)
Income from continuing operations
before income taxes* $ 648 $ 540
* Before distributions on preferred securities of subsidiary trust.
Prior year amounts have been reclassified to conform to the current year’s segment presentation.
1998 Revenues – $9.7 billion 1998 Operating Income – $1.040 billion
Identifiable Assets Capital Expenditures Depreciation
(In millions) 1998
Aircraft $ 0
$ 0$ 0 $ 0
AUTOMOTIVE $ 0$ 0 0%
INDUSTRIAL 00 0
Industrial 0 $113 (11%)
Finance 0 0 0 0 0 0 0
Corporate, including investment
in discontinued operation
in 1996 and 1995 0 0 0 0 0 0 0
Eliminations (0) (0) – – – –
(0) – –
$0 $0 $0 $0 $0 $0
$0 $0 $0
Prior year amounts have been reclassified to conform to the current year’s segment presentation.
1998 TEXTRON ANNUAL REPORT
Management’s Discussion and Analysis
Results of Operations Textron Inc.
1998 vs. 1997
Diluted earnings per share from continuing operations for 1998 were $2.68 per
share, up 22% from the 1997 amount of $2.19. Income from continuing operations in
1998 of $443 million was up 19% from $372 million for 1997. Revenues increased 12%
to $9.7 billion in 1998 from $8.7 billion in 1997. Net income including the results of
AFS which is a discontinued operation was $608 million vs. $558 million in 1997.
Operating income of Textron’s four business segments aggregated $1.040 billion in
1998, up 13% from 1997, as a result of continued improved financial results across all
96 97 98
11% 16% 12%
Total segment margins increased to 10.7% in 1998 from 10.6% in 1997.
Corporate expenses and other – net decreased $13 million due primarily to 1997 costs
associated with the termination of interest rate swap agreements no longer qualifying as
accounting hedges and 1997 litigation expenses related to a divested operation.
The higher Textron manufacturing interest expense – net – $160 million in 1998 vs.
$129 million in 1997 – was due to higher average debt resulting from the incremental debt
associated with acquisitions and share repurchases, partially offset by the payment of
debt with proceeds in 1997 from the divestiture of Paul Revere.
96 97 98
24% 23% 22%
*Income from continuing operations - diluted
1997 vs. 1996
Diluted earnings per share from continuing operations for 1997 were $2.19, up 23% from
the 1996 amount of $1.78. Income from continuing operations in 1997 of $372 million was
up 22% from $306 million for 1996. Revenues increased 16% to $8.7 billion in 1997 from
$7.5 billion in 1996. Net income in 1997 was $558 million versus $253 million in 1996,
which reflected the impact of a $245 million loss from a discontinued operation (Paul
Revere) that was disposed of early in 1997.
Operating income of Textron’s four business segments aggregated $917 million in 1997,
up 14% from 1996, as a result of continued improved financial results in the Aircraft,
Industrial and Finance segments. Operating income in the Automotive segment was
Total segment margins decreased to 10.6% in 1997 from 10.7% in 1996, due primarily to
lower margins associated with the Kautex acquisition.
Corporate expenses and other – net increased in 1997 by $25 million due to 1997 litiga-
tion expenses related to a divested operation, higher 1997 expenses related to organiza-
tional changes and higher support costs related to international expansion, and 1997
costs associated with the termination of interest rate swap agreements no longer qualify-
ing as accounting hedges.
The lower Textron manufacturing interest – $129 million in 1997 vs. $148 million in 1996 –
was due to lower average debt, resulting from the payment of debt with proceeds from
the divestiture of Paul Revere, partially offset by the incremental debt associated with
1998 vs. 1997
The Aircraft segment’s revenues increased $164 million (5%) and income before special
charges increased $25 million (8%) due to higher results at Cessna Aircraft.
Cessna Aircraft’s revenues increased $301 million, primarily as a result of higher sales
of business jets, single-engine aircraft and Caravans. Income increased as a result of the
higher sales combined with improved results in the single-engine piston aircraft business.
96 97 98
7% 17% 5%
1998 TEXTRON ANNUAL REPORT 23
Bell Helicopter’s revenues decreased $137 million, due primarily to the completion in
1997 of the Canadian Forces contract ($180 million), partially offset by higher commercial
spares sales ($23 million) and higher revenues to the U.S. Government ($29 million). The
higher U.S. Government revenues were due to higher revenues on the V-22 program and
the Huey and Cobra upgrade contracts ($140 million), partially offset by lower foreign
military sales and lower revenues on other U.S. Government aircraft and spares ($111
million). Bell’s income decreased due to the lower revenues and a change in product mix,
primarily resulting from lower margins on U.S. Government contracts. This unfavorable
impact was partially offset by the benefit on the 609 program from a joint venture with an
96 97 98
international partner and a lower level of product development expense in 1998.
10% 20% 8%
Under the joint venture agreement, Bell has received $100 million in cash and its
partner has assumed a significant portion of product development effort for joint ven-
ture aircraft. The benefit from the joint venture contribution in the fourth quarter 1998
($10 million) has been recognized in relation to total projected product development
spending. The quarter also benefited by $7 million for development spending that will
be reimbursed by the venture partner.
1997 vs. 1996
The Aircraft segment’s revenues and income increased $432 million (17%) and $52 million
(20%), respectively, due primarily to higher results at Cessna Aircraft.
Bell Helicopter’s revenues increased $27 million primarily as a result of higher U.S.
Government and commercial aircraft sales ($91 million) and higher revenues on the Huey
upgrade contract for the U.S. Marines ($28 million), partially offset by lower revenues on
the V-22 program ($80 million) and lower foreign military sales ($23 million). Bell’s com-
mercial aircraft sales included the completion of the three-year contract for model 412
helicopters with the Canadian Forces. Its income increased slightly as a result of the high-
er revenues, partially offset by higher product development expenses primarily related to
its new commercial aircraft models.
Cessna Aircraft’s revenues increased $405 million as a result of higher sales of
business jets, including the Citation X and Bravo. Its income increased as a result of
the higher revenues, partially offset by an increased level of expenses due to the intro-
duction and support of new products.
1998 vs. 1997
The Automotive segment’s revenues increased $278 million (13%), while income before
special charges increased $29 million (19%). The revenue increase was due to higher
volume at Kautex associated with capacity expansion in North America and higher
sales at the Trim operations, due primarily to increased Chrysler production (which
was depressed in 1997 by a strike at Chrysler in the second quarter of 1997) and the
contribution from acquisitions. These revenue increases were partially offset by the
96 97 98
impact of a strike at General Motors in 1998 and the impact of customer price reductions.
6% 31% 13%
The increase in income reflected the above factors and improved performance at Trim.
1997 vs. 1996
The Automotive segment’s revenues increased $500 million (31%), primarily as a result of
the first quarter 1997 acquisition of Kautex, the third quarter 1997 acquisition of the
General Rubber Goods division of Pirelli Tyres, Ltd., and the 1996 acquisitions of Valeo
Wiper Systems and the remaining 50% of a joint venture in Born, Netherlands. The benefit
of the higher sales from the acquisitions was partially offset by the unfavorable impact of
a strike at a Chrysler engine plant in the second quarter 1997 and the timing of replace-
ment business and new model launches. Income approximated last year’s level, reflecting
the above factors, increased costs related to new model launches and the impact of a
96 97 98
restructuring effort which began in the second quarter 1997.
8% 3% 19%
1998 TEXTRON ANNUAL REPORT
1998 vs. 1997
The Industrial segment’s revenues and income before special charges increased $541 mil-
lion (17%) and $64 million (18%), respectively. These increases reflect the contribution
from acquisitions, primarily Ransomes, Ring Screw Works, David Brown, Sükosim and
Peiner, and internal growth combined with ongoing margin improvement. Internal growth
was driven by higher sales in the Golf and Turf and Fluid & Power Systems businesses.
These benefits were partially offset by the divestitures of Speidel in the fourth quarter
96 97 98
1997 and Fuel Systems in the second quarter 1998, the impact of a strike at General Motors
18% 8% 17%
on Textron Fastening Systems and a one-month strike at a Textron Turf-Care & Specialty
Products plant in 1998. Margins, although slightly higher than last year, were adversely
impacted by the lower margins of acquisitions, the divestiture of higher margin businesses
and unfavorable contract adjustments related to certain Industrial Component products.
1997 vs. 1996
The Industrial segment’s revenues increased $222 million (8%). Income increased $46
million (15%), reflecting higher sales from both acquisitions and organic growth, and
improved operating margins, principally in industrial components and fastening systems.
The revenue and income increases were due primarily to higher sales in the fastening
systems business ($143 million), including the second quarter 1996 acquisition of Textron
96 97 98
20% 15% 18%
Industries S.A.S. In addition, results benefited from the 1997 acquisitions of Maag Pump
Systems, Maag Italia, S.p.A., and Burkland Holding, Inc., an increase in demand for aero-
space components and higher revenues on the sensor fuzed weapon contract, partially
offset by the third quarter 1996 divestiture of Textron Aerostructures and lower revenues
in marine and land systems products.
1998 vs. 1997
The Finance segment’s revenues increased $17 million (5%), as a result of a higher level
of average receivables ($3.190 billion in 1998 vs. $3.128 billion in 1997) and an increase in
residual, prepayment and portfolio servicing income. Income increased $5 million (5%) as
the benefit of the higher revenues and a lower provision for losses was partially offset by
higher expenses related to growth in managed receivables and growth in businesses with
higher operating expense ratios. Both years included a gain of approximately $3 million
96 97 98
5% 7% 5%
on the securitization of Textron-related receivables.
1997 vs. 1996
The Finance Segment’s revenues increased $23 million (7%), due to a higher level of
average receivables ($3.128 billion in 1997 vs. $3.036 billion in 1996) and increases in
other income, due primarily to the securitization of $401 million of Textron-related
receivables and increased syndication fee income. Income increased $12 million (13%),
due to the higher revenues and a lower provision for loan losses related to the real
estate portfolio, partially offset by growth in businesses with higher operating expense
96 97 98
9% 13% 5%
To enhance the competitiveness and profitability of its core businesses, Textron recorded
a pretax charge of $87 million in the second quarter 1998 ($54 million after-tax or $0.32
per diluted share). This charge was recorded to cover asset impairments ($28 million),
severance costs ($40 million), and other exit-related costs ($9 million) associated with its
decision to exit several small, nonstrategic product lines in Automotive and the former
Systems and Components divisions which did not meet Textron’s return criteria, and to
realign certain operations in the Industrial segment. The pretax charges associated with
the Automotive and Industrial segments were $25 million and $52 million, respectively,
and also included the cost of a litigation settlement of $10 million associated with the
1998 TEXTRON ANNUAL REPORT 25
Operations In August 1998, Textron announced that it had reached an agreement to sell Avco
Financial Services (AFS) to Associates First Capital Corporation. The sale was completed
on January 6, 1999. AFS has been classified as a discontinued operation for all periods.
1998 vs. 1997
Income from discontinued operations of $165 million was $21 million lower than 1997’s
income from discontinued operations of $186 million. The decrease was due to (a)
lower earnings in the U.S. Finance business as a result of an increase in the provision
for receivables (receivables increased in 1998 while receivables decreased in 1997) and
a decrease in the gain on sales of receivables, (b) lower earnings in Hong Kong due to a
weakening economy and (c) the unfavorable impact of foreign exchange rates primarily
in Australia and Canada. This unfavorable impact was partially offset by an increase in
insurance earnings due to improved loss experience and an increase in capital gains.
1997 vs. 1996
Income from discontinued operations of $186 million was $6 million lower than 1996’s
income from discontinued operations of $192 million. The decrease reflects first quarter
1996 income of $16 million related to Paul Revere which was disposed of in early 1997.
Income from Avco Financial Services increased $10 million reflecting the benefit from
the gains on the sale of certain underperforming branches, a higher level of finance
receivables outstanding, improved independent insurance operations, and a decrease in
the average cost of borrowed funds. These benefits were offset by an increase in the pro-
vision for net credit losses, a decrease in the yields on finance receivables, and higher
operating expenses related to international expansion and the start-up of centralized
sales processing centers in the U.S. and Canada.
Liquidity & The liquidity and capital resources of Textron’s (Textron or the Company) operations are
best understood by separately considering its independent borrowing groups (Textron
Manufacturing and Textron Finance). Textron Manufacturing consists of Textron’s manu-
facturing businesses, whose financial results are a reflection of the ability to manage and
finance the development, production and delivery of tangible goods and services. Textron
Finance business involves commercial financing activities. Textron Finance’s financial
results are a reflection of its ability to provide financial services in a competitive mar-
ketplace, at the appropriate pricing, while managing the associated financial risks. The
fundamental differences between each borrowing group’s activities result in different
measures used by investors, rating agencies and analysts.
Operating Cash Flows
Textron’s financial position continued to be strong at the end of 1998. During 1998, cash
flows from operations was the primary source of funds for operating needs and capital
expenditures of Textron Manufacturing. Operating activities have generated increased
cash flow in each of the past three years. The Statement of Cash Flows for each borrow-
ing group detailing the changes in cash balances are on page 36. Textron Manufacturing’s
operating cash flow includes dividends received from Textron Finance and from AFS
which is a discontinued operation. In addition, 1998 operating cash flow includes $100
million received from a joint venture partner. Beginning in late 1997, the methodology
used to determine the amount of dividends to be paid to Textron Manufacturing
changed from payments based on a percentage of net income to payments based on
Textron Finance maintaining a leverage ratio of 6.5 to 1. Now that Textron’s finance
operations no longer include consumer finance, this leverage ratio will be re-evaluated
Borrowings have historically been a secondary source of funds for Textron
Manufacturing and, along with the collection of finance receivables, are a primary source
of funds for Textron Finance. Both Textron Manufacturing and Textron Finance have
1998 TEXTRON ANNUAL REPORT