Textron Michael Lee ACG2021 Section 004

Executive Summary Due to its diversity of products and services which range from aviation to business, Textron looks to be a very strong company with a bright future. Despite posting a smaller net income in 2005 as opposed to 2004, Textron looks like it will have a very strong year in 2006 due in part to the acquisition of government aviation contracts as well as growth in many of the other markets which Textron serves Annual Report for Textron 2005 Annual Report for Textron

Part A. Introduction  Lewis B. Cambell, CEO  Home Office: 40 Westminster St. Providence, Rhode Island  Ending Date of Fiscal Year: 12/31/2005  Manufacture aircraft and rotorcraft as well as provide services and solutions to Industrial and Finance businesses.  Operated Globally in 33 countries.

Part A. Audit Report  Audited by Ernst & Young, LLP  The auditors stated that TEXTRON maintained an effective amount of internal control of its financial statements as of Dec. 31, 2005.

Part A. Stock Market Information  Recent Stock Price: $84.82  Ranged from $98.96 to $67.51 (12 months)  $ in Dividends per share  Information as of 9/27/2006  After review stock trend information and noticing a steady increase in stock price over the past three years, I recommend holding.

Part B. Industry Situation and Company Plans Due to its diversity of brands, TEXTRON benefits from a strong outlook in its many industries. In 2005, Bell Helicopters, Cessna Aircraft, Greenlee, Fluid & Power, and E-Z-GO all reported either increases in orders, government contract acquisitions, or increases in revenue. Read more from the Letter to Shareholders. Letter to ShareholdersLetter to Shareholders TEXTRON was also named, for the 4 th year in a row, to the InformationWeek 500, which recognizes leading corporate implementers of business technology within the United States. See the whole story at the TEXTRON Newsroom. TEXTRON was also named, for the 4 th year in a row, to the InformationWeek 500, which recognizes leading corporate implementers of business technology within the United States. See the whole story at the TEXTRON Newsroom. TEXTRON Newsroom TEXTRON Newsroom

Part C. Income Statement  Single-Step Consolidated Statement of Operations (in millions) Gross Profit 2,5792,112 Income from Operations Net Income Despite increases in Gross Profit, and Income from Operations from 2004 to 2005, Net Income experienced a decrease of $162 million.

Part C. Balance Sheet (in millions) Assets = Liabilities + Stockholders Equity Both assets and liabilities increased from 2004 to 2005, while stockholders equity saw a slight decrease. This demonstrates company growth which was likely funded by taking out more loans.

Part C. Statement of Cash Flows  In 2004, cash flows from operating activities exceeded net income by $585 million.  In 2005, cash flows from operating activities exceeded net income by $833 million.  Textron invests the largest amount of money on finance receivables, which attribute to its growth.  Textron is primarily financed by long-term loans.  From 2004 to 2005, cash increased from $697 million to $796 million.

Part D. Accounting Policies  Revenue Recognition  When products are delivered and/or services are rendered.  Cash and Cash Equivalents  Cash and short-term, highly liquid investments with original maturities in 3 months or less.  Short Term Investments  Recorded at fair value as a component of other assets.  Inventories  70% of inventories cost is determined using the last-in first out method. The remaining 30% determined using the first-in first out method.  Property and Equipment.  Recorded at cost and primarily depreciated using the straight-line method.

Part D. Accounting Policies (contd.)  Topics of the Notes to Financial Statement  Summary of Significant Accounting Policies  Nature of Operations  Principles of Consolidation and Financial Statement Preparation  Use of Estimates  Cash and Cash Equivalents  Revenue Recognition  Losses on Finance Receivables  Loan Impairment  Securitized Transactions  Investments  Inventories  Property, Plant, and Equipment  Impairment of Long-Lived Assets  Goodwill  Derivative Financial Instruments  Fair Values of Financial Instruments  Product and Environmental Liabilities  Research and Development Costs  Income Taxes  Discontinued Operations

Part E. Financial Analysis Liquidity Ratios Working Capital 1828 (million) 1947 (million) Current Ratio Receivable Turnover 11.6 times 8.8 times Average Days Sales Uncollected 31.5 days 41.5 days Inventory Turnover 4.6 times 4.9 times Average days inventory on hand 79.3 days 74.5 days

Part E. Financial Analysis Liquidity Ratios (contd.)  Short term, debt paying ability decreased (current ratio).  Receivable turnover and average days sales uncollected showed improving trends.  Inventory turnover and average days inventory on hand showed slightly deteriorating trends.

Part E. Financial Analysis Profitability Ratios Profit Margin 2.0%4.4% Asset Turnover 0.6 times 0.5 times Return on Assets 1.3%2.3% Return on Equity 5.9%9.9% From 2004 to 2005, everything but Asset Turnover experienced decreases. Even though Asset Turnover slightly increased, Return on Assets went down 1% and Return on equity saw a 4% reduction. Profit Margin experienced a 2.4% reduction from 2004 to 2005.

Part E. Financial Analysis Solvency Ratio Debt to Equity There was an increase of over 20% in Debt to Equity from 2004 to 2005, meaning that Textron became even further controlled by it creditors, who have 4 times as much money invested in the company as compared to the stockholders.

Part E. Financial Analysis Market Strength Ratios Price/Earnings Per Share Dividend Yield 1.8%1.8% Price/Earnings Per Share almost doubled from 2004 to 2005, while Dividend Yield remained unchanged. This clearly shows that investors have an increased level of confidence with Textron in 2005 as compared to 2004.