Building and Growing Douglas R. Wilburne Vice President, Investor Relations Merrill Lynch 9 th Annual Global Industries May 9, 2007 1
Forward-Looking Information Certain statements in today s discussion will be forwardlooking 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 risks and uncertainties set forth under our full disclosure located at the end of this presentation. 2
2006 Outstanding Year Transformation Strategy Readily Apparent Revenue up 15%, organically Segment profit up 10.6% EPS from continuing operations up 44% ROIC: 16.8% - Up 360 basis points vs. 2005 730 bps > WACC Record Aircraft Backlog: $11.6B + $0.8B Bell 429 + $0.5B CitationShares 3
Q1 2007 Outstanding Quarter Transformation Momentum Continues Revenue up 12.6% Segment profit up 26.1% Manufacturing margins up 150 bps EPS from continuing operations up 30% Record Aircraft Backlog: $12.9B + $0.8B Bell 429 + $0.5B CitationShares 4
Transforming Textron Our Ongoing Journey to Premier VISION: To be the premier multi-industry company, recognized for our network of powerful brands, world-class enterprise processes and talented people NETWORKED ENTERPRISE A Simpler, More Focused Portfolio of Leading, Branded Businesses in Attractive Industries Enterprise Management How We Manage What We Own Portfolio Management What We Own 5
Textron Leading Branded Businesses & Attractive Growth Markets Bell 30% Cessna 36% Industrial 27% Finance 7% Bell Helicopter Textron Systems Cessna E-Z-GO Fluid & Power Greenlee Jacobsen Kautex Textron Financial 2006 Revenue: $11.5 Billion 2010 Revenue: $15 - $17 Billion 6
Bell Segment $3.4 Billion in Revenues ( 06) Bell Helicopter Textron Systems 68% 32% 7
Bell Helicopter $2.3 Billion in Revenues ( 06) 52% 48% U.S. Military Commercial Aircraft Support Aircraft Support ~ $850 Million ~ $380 Million ~ $550 Million ~ $560 Million V-22 - Osprey Spares 206 Spares AH-1Z Super Cobra UH-1Y - Yankee OH-58D - Kiowa TH-67 Trainer ARH Armed Recon Eagle Eye - UAV Overhaul & Repair Technical Data Support Equipment Field Services Training Systems Depot Maintenance 210 407 412 427 430 Huey II Accessories/Completions Repair & Overhaul Rotor Blade Repair Training Academy Technical Support Installed Base: 2,440 Installed Base: 10,280 Balanced Business... Complementing Each Other 8
Commercial Business Aircraft Support 206B3/L4 427 407 430 412 210 429 609 Installed Base: 10,280 Commercial Business Growing Spares Repair &Overhaul Aircraft Completions Refurbishment Training Systems Field Services Technical Data Support Equipment 9
New Introduction from Bell Bell 429 Global Ranger Light Twin First-ever Technologies from Bell s Modular Affordable Product Line (MAPL) Unprecedented Cabin and Cockpit Features New High Performance Rotor Technology First Delivery 2008/2009 Over 185 Orders 10
Commercial Business Growing 180 ~180 155 159 130 123 105 92 105 111 80 55 30 2002 2003 2004 2005 2006 2007 Commercial Deliveries 11
Rotorcraft Industry - Strong Growth Outlook Global War On Terrorism DOD Rotorcraft Spend Increasing From 4.8% To 6.4% Of Procurement Budget: FY05 To FY11 Flight Hours Have Increased 2-4x Previous Levels Rotorcraft Survivability Essential To DOD Homeland Security Increasing Border Protection: Domestic And International Offshore/Utility Segments 80% Of Fleet: 20 Years Or Older Regulatory/Insurance/Safety Issues Driving Fleet Replacement High Oil Prices Driving Offshore Exploration EMS & National Disaster Efforts Asia Tsunami Disaster; Pakistan Earthquake Relief Hurricane Katrina / Rita / Wilma Growing International Demand Asia-Pacific Significant Opportunity Industry Growth Continues Across the Board 12
Government Business Aircraft Support V-22 Osprey AH-1Z/ UH-1Y SuperCobra/Huey OH-58D Kiowa Warrior TH-67 Creek II Spares Overhaul & Repair Technical Data Support Equipment USCG Eagle Eye VH-71 Marine One ARH-70A Bell 407 USAF CSAR-X Potential Field Services Training Systems Depot Maintenance Installed Base: 2,440 Government Business Growing 13
V-22 Program $19B Program Twice the Speed... Five Times the Range Marine Corps Air Force Navy 360 Aircraft Combat Assault Assault Support External Load Operations 50 Aircraft Special Operations Insertion/Extraction WMD Warfare Total program: 458 units Additional future demand 48 Aircraft Combat SAR Fleet Logistics Special Warfare Aerial Tanker 14
H-1 Upgrade Program Low Cost/High Performance $5.6B Program Delivered first 3 Aircraft Q1 2007 Improving line productivity Operational evaluation, phase II UH-1Y 100 Units Resolve helmet issue Achieve full-rate decision AH-1Z 180 Units Critically important to customer 15
Armed Reconnaissance Helicopter Militarized Commercial Derivative Of 407 368 Units + 144 in President s Budget Proposal Initial Delivery Under Review Significant Future Foreign Military Potential Completed Critical Design Review 16
Textron Systems 2006 Revenues: $1.1 Billion 13% Aircraft Products Precision Engagement Marine & Land 36% 38% 13% Aircraft Engines Intelligent Battlefield Sys Combat Vehicles Air Launched Weapons Marine Systems Product Performance Driving Growth 17
Armed Vehicles High Growth Opportunity U.S. Army Armed Security Vehicle requirement: Total Program of Record: 2,850 Current contract: 1,350 Additional requirements: Air Force: 95 Army Convoy Protection: 700 Army Knight: 381 MRAP? Foreign Military? Aftermarket Support? Current 07 production plan: ~530 18
Cessna 2006 Revenues: $4.2 Billion 67% Citations 6% Single Engine 3% Caravan 3% Used Aircraft 15% Parts, Service & Other 6% CitationShares Continued Growth Expected 19
Corporate Profits A Key Driver of Jet Demand $B Units 1,400 Real Corporate Profits (8 Q Shift) 1,400 1,200 Jet Shipments 1,200 1,000 1,000 800 800 600 600 400 400 200 200 0 0 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 Source: Global Insight, Cessna estimates 20
New Products Drive Growth Certified in 2004-2006 Citation Mustang $2.5M Citation CJ1+ $4.2M Citation CJ2+ $5.7M Citation CJ3 $6.7M Backlog: ~$750M Backlog: ~$230M Backlog: ~$525M Backlog: ~$950M Citation Encore+ $8.1M Citation XLS $11.6M Citation Sovereign $15.5M Backlog: ~$150M Backlog: ~$2.2B Backlog: ~$2.1B 21
Citation CJ4 Fully integrated Collins Pro Line 21 avionics Advanced avionics diagnostic system New standard integrated cabin management system Newly engineered, moderately swept wing New Williams International FJ44-4A electronically controlled (FADEC) engines Over 120 orders as of Q1 2007 $7.995 million First Flight: 1H08 Deliveries: 1H10 Upward Extension to the Single-pilot-certified Citation Family 22
Growth Drivers Cessna International Markets Expanding International Citation Orders 02 03 04 05 06 19% 35% 35% 41% 48% Current Demand: 496 Orders in 2006 122 Orders in Q1 2007 Sold out for 375 deliveries in 07 >400 orders for 08 delivery $9.0B backlog + $0.5B CitationShares Order activity remains strong 23
Aftermarket Services Revenues (in millions) $700 $600 $500 $400 $300 $200 $100 $0 10.4% CAGR 1999 2000 2001 2002 2003 2004 2005 2006 24
Value Drivers Cessna Segment Leveraging demand through operational excellence Productivity strides Lean (e.g. combined CJ production line) Combined CJ1+, CJ2+ and CJ3 Production Line 25
NOP Margin Cessna Jet Deliveries and Margins Leveraging Top Line Growth 16% 15% 14% 13% 12% 11% 10% 9% 8% 7% 9.3% Jet Deliveries 10.5% 11.1% 11.8% 8.4% 10.7% 13.1% 15.5% ~16% '99 '00 '01 '02 '03 '04 '05 '06 '07E ROIC 14% 19% 22% 23% 13% 17% 33% 49% ~50% 400 350 300 250 200 150 Unit Deliveries 26
Industrial Revenues ( 06)( $3.1 Billion E-Z-GO ~$395 million Fluid & Power ~$520 million Greenlee ~$375 million Jacobsen ~$300 million Kautex ~$1.5 billion Low-Mid Single Digit Organic Growth Continual Margin Improvement 27
Value Drivers - Industrial Segment Steady operational improvements across the segment Lean implementation continuing Good growth; China expansion Significant new product introductions 28
Textron Financial Corporation 2006 Managed Finance Receivables: $10.2B 37% Distribution Finance Aviation 19% Finance 15% Golf Finance Resort 13% Finance 7% Structured Capital 8% Asset-Based Lending Non-Core 1% Liquidating (% of Managed Finance Receivables as of 12/31/06) Growing ~10%/Year 29
Textron Financial Corporation Strategic to aircraft, golf & turf Excellent core business Good growth Strength in underwriting Leveraging assets and capabilities 30
Textron - Strong Organic Growth Investing in ER&D and CAPEX to Support Above-Average Growth 2005-2009 Investments - Engineering, Research & Development: $2.2 Billion CAPEX: $2.0 Billion Creating Value 31
Strong Organic Growth Investing in ER&D and CAPEX to Support Above-Average Growth $, Billions $17.0 10% CAGR Optimistic $15.0 $13.0 7% CAGR Probable $11.0 2006 2007 2008 2009 2010 32
Textron ROIC & Share Price ROIC 25.0% +$100 Share Price 105.00 20.0% Peer Group First Quartile 85.00 Peer Group Mean (14.7%) 65.00 15.0% 16.8% 13.2% 45.00 10.0% 9.0% 9.6% 8.8% 10.6% 25.00 5.0% 5.00 0.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 (15.00) Improved Returns Driving Share Price 33
Textron Transformation Strategy Driving & Leveraging Growth Strong organic growth Double digit earnings growth Expanding ROIC Premier growth of shareholder value Grow & Innovate Eliminate Waste Reduce Variability 34
Forward Looking Information Forward-looking Information: Certain statements in this report 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] Textron's ability to perform as anticipated and to control costs under contracts with the U.S. Government; [d] 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; [e] changes in national or international funding priorities and government policies on the export and import of military and commercial products; [f] the ability to control costs and successful implementation of various cost reduction programs; [g] the timing of new product launches and certifications of new aircraft products; [h] the occurrence of slowdowns or downturns in customer markets in which Textron products are sold or supplied or where Textron Financial offers financing; [i] changes in aircraft delivery schedules or cancellation of orders; [j] the impact of changes in tax legislation; [k] 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; [l] Textron s ability to offset, through cost reductions, pricing pressure brought by original equipment manufacturer customers; [m] Textron's ability to realize full value of receivables; [n] the availability and cost of insurance; [o] increases in pension expenses and other postretirement employee costs; [p] Textron Financial s ability to maintain portfolio credit quality; [q] Textron Financial s access to debt financing at competitive rates; [r] uncertainty in estimating contingent liabilities and establishing reserves to address such contingencies; [s] performance of acquisitions; [t] the efficacy of research and development investments to develop new products; [u] the launching of significant new products or programs which could result in unanticipated expenses; and [v] 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. 35