Textron

"ship of the company for which they worked. In our case, the plan provided that the employee could put in up to 10 percent of his sal- ary and the company would match up to 50 percent of the em- ployee's contribution. In addition, any employee could put up an additional 10 percent of his salary without the company matching it if he wished to have a larger interest in the company. The beauty of this program is that the trustees have to invest the funds in the open market in Textron common stock as fast as the money comes in. They are given no discretion to try to out- guess the swings in the market. In effect, the employee is dollar averaging his purchases of Textron stock at two-thirds of the mar- ket over the entire period in which he is employed and participates. The other feature that makes this plan attractive is that all of the dividends received are reinvested in Textron common stock. The company gets a tax deduction on its federal tax return for all of the contributions made for the benefit of its employees, but the em- ployee pays no tax on that contribution, nor on the dividends re- ceived for his benefit in the plan until he retires."

"Josten would have been an ideal acquisition for Textron since it fitted our basic concept of being a leader in a relatively small in- dustry. Today Josten is the undisputed leader in the school ring business, and their performance is so superb that their shares are selling at a price/earnings multiple of 12, whereas Textron stock has recently been selling at only 6 times. In retrospect, of the many situations that Textron missed by being too conservative in the price we were willing to pay, the outstanding examples have got to be Tupperware and Josten."

"alone credit is due for bringing it from its humble beginnings to its pres- ent size, and, acknowledging his quite exceptional mental powers, the fact remains that except for those years in which conditions were abnormally favourable he has never been able to translate his brilliance into anything commensurate in the way of earnings; but for the shareholders these, in the long run, far transcend in importance the pleasure they may derive from witnessing feats of virtuosity on the part of the Chairman. Mr. Little, in fact, has the defects of his qualities. To the same extent that he is bold and imaginative, he is impulsive and unpredictable. He moves with great speed and determination, and on many occasions the Directors have been presented with what were, in effect, faits accomplis which they have accepted through acquiescence rather than conviction. The resultant mistakes have been on such a scale that they have more than outweighed the successes, and this has been repeated so regularly that it has formed a pattern. The moral of the tale is that the Directors must take a more positive and critical attitude towards the conduct of the business. They must not assume that because a new project is recommended to them in persuasive terms that all is for the best in the best of worlds. It should be an invari- able rule that no proposal be adopted without the unanimous consent of the Board, and if any single member expresses disapproval, or even doubt, it should be immediately dropped. This does not mean that Textron will ever be a quality Company for its limitations are becoming increasingly clear, but at least it should be possible to avoid a repetition of such farci- cal situations as the S.S. LEILANI. What is suggested above is only a defensive measure. If anything of a more constructive nature could be devised that would be an additional source of strength to the Company."

"ADVICE: Don't make a large investment to make a single specialty product, which may become obsolete. One of the reasons that Textron failed in its ef- forts to develop a completely integrated textile operation from raw material through to the finished garment was that, with our big plant investment, we were always committed to make fabrics that our garment operations no longer required. In other words, our competitors in the garment business had more flexibility and, of course, far less capital tied up in productive equipment. They were able to switch the design of garments to the fabrics most popular with the consumer, while we were stuck with production that was no longer in demand."

"paid off, he said to me, "Roy, don't ever buy another company on an incentive basis and put a top dollar limit on the price." I said, "Why not, Tim?" He said, "I never took any chances in building up a bigger business for you. I just played it safe, to be sure to get my three million dollars. As a result, that division is not nearly as big and as important as it could have been. I had no incentive to work hard after we had our three million dollars in the bag. If Textron's contingent payout had been open-ended for ten years, Dalmo Victor would have been a far more profitable division.""

"ADVICE: Ifyou have an opportunity to purchase a company as outstanding as Josten, don't let a mere $500,000 stand in the way. If a business such as Josten's with its tremendous future potential is worth $12,500,000 it cer- tainly is worth $ 1j,000,000. Refusing to meet the firm offering price in this case was one of the worst mistakes I ever made at Textron."

"equity, I set that rate of return in 1953 as Textron's goal for the future."

"ADVICE: I am convinced that it is most important for business executives to take at least four weeks' vacation every year. This is vital in my opinion—to get away from the telephone and any contact from the office. Ifyou can find something exciting, so much the better. It will take your mind offbusiness. To show how important this idea is, since igji , Bill Miller of Textron has re- quired every division head and every principal officer of the company to take a three-month sabbatical every five years. If a busy executive is going to be able to work at a high performance level for many years, it is most important that he take a diversionary vacation of this sort."

"Many years ago, Textron felt that stock options should be re- stricted to the top officers in the company. Many companies were spreading them throughout the organization but we felt that was not wise. We also had discovered that deferred profit sharing, while particularly good for the high-salaried older executives, was not motivating for the rest of the employees since the need for cash was more immediate and they discounted the value of something that might be received twenty or thirty years hence."

"The disparity between the forecasts of Textron's earnings and the re- sults actually achieved is a subject which must be of concern to the Direc- tors. The figures for the first quarter of the current year reveal how over-optimistic we were a year ago. The earnings for 1956—again after high hopes—amounted to only $6,502,592. In the years 1949 to 1956 in- clusive, the average earnings per year on the Common Stock were 60 cents. There must be a reason why a Company which engenders so much ex- citement as Textron, and which so confidently proclaims the wonders it is about to perform, so invariably fails to meet expectations. In the opinion of the writer of this memorandum the explanation of this unhappy record is that too much is expected of the Chairman. Granted that he is the creator of the Company and the person to whom"

"We believed that with a tax-free pension fund it was far better to get immediate high cash flow than to invest in common stocks in competition with millions of others. Why hope that a very low divi- dend cash flow plus possible future appreciation in market value might make up the difference? This policy worked so well that whenever Textron took over a company they not only had no fu- ture cost for their salaried employees' pensions, but the actuaries were willing to give us credit for a 6 percent return on some twenty-nine other nonsalaried pension plans that we inherited when acquiring businesses."