Textron Online Annual Report

Making strides and measuring progress
Total revenues for the year, excluding 2001 divestitures, were essentially flat. Growth was strong at Cessna and in certain other businesses, but was stagnant in our industrial and financial segments. However, some positive trends emerged. We met our earnings-per-share target and made progress in increasing our ROIC (return on invested capital). And, manufacturing profit margins began to show year-over-year improvements as our cost initiatives gained traction during the second half of the year.

In addition to the obvious economic issues, there were other challenges that we surmounted to meet our plan in 2002. While Textron Financial’s core businesses performed well, we experienced abnormally high charge-offs in our non-core portfolios, particularly in telecommunications. In 2003 Textron Financial will continue to refocus on its core businesses. Our 2002 earnings were also impacted by a supplier component quality problem that emerged at our Lycoming aircraft engine unit. We launched an unprecedented Customer Care program and dedicated over $30 million to replace these specific components and to compensate customers who were affected by the recalls. Most importantly, we identified the cause of the defects and have instituted corrective processes and controls. We continue to work with the appropriate regulatory agencies to ensure the reliability and safety of all engines that may have been affected by this problem.

Overcoming these challenges only strengthened our commitment to our strategic priorities and reaffirmed our confidence in reaching these goals by 2006:

> ROIC at least 400 basis points higher than our weighted average cost of capital
> Revenue growth, excluding acquisitions, averaging 5 percent per year
> Segment profit margins greater than 12 percent
> Earnings-per-share growth averaging at least 10 percent per year