To Our Shareowners, Employees and Customers: 2001 was a challenging year. It was also a year marked by decisive, strategic steps forward. |
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In many ways, 2001 was the most challenging chapter in Textron's 80-year history.
The U.S. economy entered its first recession since 1991, and the impact of the weakening
economy was evident in the results of many global corporations. At Textron, these events,
compounded by operational issues at several of our business units, resulted in a
disappointing year.
Despite these challenges, we took decisive steps to advance the strategic framework we outlined in last year's report and are actively transforming our company into a networked enterprise of globally strong businesses and powerful brands in attractive industries. Our businesses also implemented operational improvements, cost reductions, and new product innovations. Notable achievements of 2001 included:
Customers Always Come First At the very heart of Textron's transformation is our continued - indeed heightened - commitment to our customers. Each and every Textron business is intensely focused on activities that deliver real value to customers - premier service and support, innovative products, increased quality, fully integrated solutions, and more. Our ability to deliver enhanced value to customers, and ultimately compelling growth to our shareholders, calls for a change in Textron's basic DNA: Who we are, what we own, what we do with it, and how we measure our success. Paving the way for this change, we're initially focusing on our "Four Rs": Restructuring, Reconfiguring, Reengineering, and ROIC (Return on Invested Capital). These actions will provide the foundation for long-term growth and success in the future. Restructuring: First-Year Savings of $124 Million Our restructuring effort has three primary objectives: right-size our businesses to better reflect market demand; capitalize on the synergies that exist among the companies we've acquired in recent years; and position the enterprise to better meet the rising expectations of customers and to grow as economies begin to rebound. We've completed the first full year of our multi-year restructuring program, significantly enhancing operating efficiencies and permanently taking out costs. We ended 2001 with restructuring savings of about $124 million (excluding Textron Automotive Trim), which exceeded our original savings projection of $50 to $70 million. Through our restructuring effort, we reduced our global workforce by about 5,000 - nearly 9 percent. By the end of 2002, we plan to close a total of 59 facilities, including 30 manufacturing plants, and achieve a total workforce reduction of 7,300 employees. Looking ahead to 2003, we expect annual restructuring savings to be at least $250 million. Reconfiguring: Strengthening Our Business Mix We are reconfiguring and strengthening our portfolio to align it with our strategic direction - strong global businesses and powerful brands in attractive industries. To ensure that every Textron business fits this direction, we have developed new criteria to rigorously evaluate our existing businesses and future acquisition targets. This comprehensive analysis compares business characteristics across several categories, such as customer loyalty, brand strength, industry growth rates, cyclicality and financial performance. With these criteria as our guide, in 2001 we lessened our dependence on cyclical businesses with declining future growth rates by divesting our Textron Automotive Trim and Turbine Engine Components businesses, which together contributed $1.6 billion in annual revenues. Divestitures like these create new opportunities for us to buy down debt, repurchase shares and reinvest in future growth platforms. Reengineering: Unleashing the Power of the Enterprise For many decades, Textron's business model has been to buy and grow strong companies, providing each business with the financial resources to operate independently. Today, our business model calls for an additional step: tap into the know-how, talent and resources found at the individual businesses and leverage these assets across our $12 billion organization. We call this enterprise excellence. During 2001, we deployed more than 20 cross-functional teams as just one tool in our quest for enterprise excellence. Case in point: Our Supply Chain Initiative, driven by manufacturing and purchasing professionals from across the company, is an excellent example of where we are using councils to develop an integrated and holistic approach to drive out costs and achieve complete customer satisfaction. As we set the Supply Chain Management wheel in motion, we are already realizing impressive efficiency gains. Just one year into our strategic sourcing program, we achieved savings exceeding $100 million in 2001. This is just the beginning. We expect our supply chain efforts to contribute significantly to our customer satisfaction and financial performance going forward. Other initiatives range from dramatically improving our worldwide IT infrastructure to creating a more cost - effective, company-wide medical plan for our employees. Collectively, our reengineering initiatives will drive increased shareholder value as we become a more coordinated, efficient network of companies. ROIC: Our Key Financial Management Metric Last year, we adopted ROIC as our primary financial measure of growth and value for our shareholders. Unfortunately, during 2001 our ROIC slipped to 9 percent, slightly below our weighted cost of capital. Obviously, this performance is unacceptable and we are committed to improving ROIC in 2002 through many of the initiatives mentioned in this letter. Looking forward, we are confident that we will maintain our strong balance sheet and achieve other key financial objectives by 2006:
As we continue along the path we've charted, these goals are realistic and achievable. Textron Six Sigma: The Next Step We've done much to transform our company in 2001, but 2002 will be a year of wider and deeper change. As part of our 2002 reengineering effort, each of our business segments will implement Textron Six Sigma - a rigorous application of the best elements of the Six Sigma programs developed by many Fortune 100 companies. Textron has the advantage of learning from those companies that have already traveled this path - we've learned from their successes and missteps, and have created a customized program that substantially integrates the proven techniques of Lean Manufacturing into the core methodologies of Six Sigma. This unique approach to business improvement has three key objectives: eliminate waste, reduce variability, and accelerate growth and innovation. Textron Six Sigma will become an integral part of the way we do business, and will result in productivity gains, margin improvement, cost reduction, higher ROIC, quality enhancements, and higher levels of customer satisfaction. 2002: A Year of Focus and Execution Our entire management team is focused on executing a defined set of individual initiatives that are already beginning to fundamentally transform our company. These steps - the first of many - have positioned Textron for a new era of growth as the economy rebounds. Our vision is clear, and although we have not yet arrived at our destination, it is beginning to come into view: a networked enterprise of globally strong businesses and powerful brands in attractive industries. I am grateful for the support of our shareowners, customers and employees in facing the major challenges of 2001 and helping us create a much stronger Textron in 2002.
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