Joel Rosen, et al., v. Textron, Inc., et al. 02-CV-190 ...

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UNITED STATES DISTRICT COURTDISTRICT OF RHODE ISLAND

X 0 1JOEL ROSEN-, Individually And On Behalf of : C/VIL ACTION NO.

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Ali Others Similarly Situated,

Plaintiff, •CLASS ACTION COMPLAINT

V5 . FOR VIOLATIONS OF•FEDERAL SECURITIES LAWS

TEXTRON, INC., LEWIS B. CAMPBELL,JOHN k JANITZ AND THEODORE R.FRENCH and TERRY D. STINSON, JURY TRIAL DEMANDED

Defendants. •

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Plaintiff has alleged the following based upon the investigation of plaintiffs counsel,

which included a review of United States Securities and Exchange Commission ("SEC") filings

by Textron, Inc., as well as regulatory filings and reports, securities analysts' reports and

advisories about the Company, press releases and other public statements issued by the

Company, and media reports about the Company, and plaintiff believes that substantial

additional evidentiary support will exist for the allegations set forth herein after a reasonable

opportunity for discovery.

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NATURE OF THE ACTION

1. This is a securities fraud class action on behalf of purchasers of the common stock

of Textron, Inc. ("Textron") between October 19, 2000 and September 26, 2001 inclusive (the

"C)ass Period"), seeking to pursue remedies under the Securities Exchange Act of 1934 (the

"Exchange Act").

JURISDICTION AND VENUE

2. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of

the Exchange Act [15 1.1_S.C. §§ 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by

the Securities and Exchange Commission ("SEC") (17 § 240.10b-5].

3. This Court has jurisdiction over the subject matter of this action pursuant to 28

U.S.C. §§ 1331 and 1_337 and Section 27 of the Exchange Act [15 U.S.C. § 78aa].

4. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28

U.S.C. § 1391(b) because Textron's place of business is in this District and many of the acts and

practices complained of herein occurred in substantial part in this District.

5. In connection with the acts alleged in this complaint, defendants, directly or

indirectly, used the means and instrurnentalitics of interitate commerce, including, but not

limited to, the mails, interstate telephone communications and the facilities of the national

securities markets.

PARTIES

6. Plaintiff Joel Rosen, as set forth in the accompanying certification, incorporated

by reference herein, purchased the conunon stock of Textron dining the Class Period and has

been damaged thereby.

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7. Defendant Textron is a Delaware corporation with its principal place of business

at 40 Westminster Street, Providence, Rhode Island. Textron is a global, multi-industry company

with five business segments: Aircraft; Automotive; Fastening Systems; and Industrial Products

and Finance. The Company's products include commercial and military helicopters, light and

mid-size business jots, plastic fuel tanks, golf carts and utility vehicles and other industrial

products.

8. Defendant Lewis B. Campbell ("Campbell") was at all relevant times Chairman of

Textron's Board of Directors and Chief Executive Officer.

9, Theodore R. French ("French") was Textron's Executive Vice President and Chief

Financial Officer since December 2000.

10_ (a) John A. Janitz ("Janitz") was, at all relevant times, Textron's President and

Chief Operating Officer.L:

(b) Defendant Terry D. Stinson ("Stinson') was, at all relevant times, Chairman

and Chief Executive Officer of Bell Helicopter Textron.

(c) Stinson and Janitz resigned their positions on or about September 26, 2001.

At that time, as described herein, Textron announced a reduction in third and fourth quarter 2001

earnings outlook and CEO Campbell stated that he was going to be "resuming direct

responsibility for Textron's businesses" because the situation "demands immediate and forceful

action."

11_ The defendants referenced above in 8-10 are referred to herein as the

"Individual Defendants."

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12. Because of the Individual Defendants positions with the Company, they

had access to the adverse undisclosed information about its business, operations,

products, operational trends, technologies, financial statements, markets and present

and future business prospects via access to internal corporate documents (including the

Company's operating plans, budgets and forecasts and reports of actual operations

compared thereto), conversations and connections with other corporate officers and

employees, attendance at management and Board of Directors meetings and

committees thereof and via reports and other information provided to them in

connection therewith.

13. It is appropriate to treat the Individual Defendants as a group for

pleading purposes and to presume that the false, misleading and incomplete

information conveyed in the Company's public filings, press releases and other

publications as alleged herein are the collective actions of the narrowly defined group

of defendants identified above_ Each of the above officers of Textron, by virtue of their

high-level positions with the Company, directly participated in the management of the

Company, was directly involved in the day-to-day operations of the Company at the

highest levels and was privy to confidential proprietary information concerning the

Company and its business, operations, products, growth, technologies, financial

statements, and financial condition, as alleged herein. Said defendants were involved

drafting, producing, reviewing and/or disseminating the false and misleading

statements and information alleged herein, were aware, or recklessly disregarded, that

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the false and misleading statements were being issued regarding the Company, and

approved or ratified these statements, in violation of the federal securities laws_

14. As officers and controlling persons of a publicly-held cornpan.y whose

common stock was, and is, registered with the SEC pursuant to the Exchange Act, and

was traded on the New York Stock Exchange (the "NYSE"), and governed by the

provisions of the federal securities laws, the Individual Defendants each had a duty to

disseminate promptly, accurate and truthful information. with respect to the Company's

financial condition and performance, growth, operations, financial statements, business,

products, markets, management, earnings and present and future business prospects,

and to correct any previously-issued statements that had become materially misleading

or untrue, so that the market price of the Company's publicly-traded securities would

be based upon truthful. and accurate information. The Individual Defendants' •

misrepresentations and omissions during the Class Period violated these specific

requirements and obligations.

15. The Individual Defendants participated in the drafting, preparation,

and/or approval of the various public and shareholder and investor reports and other

communications complained of herein and were aware of, or recldessly disregarded, the

misstatements contained therein and omissions therefrom, and were aware of their

materially false and misleading nature. Because of their Board membership and/or

executive and managerial positions with Textron, each of the Individual Defendants

had access to the adverse undisclosed information about Textron's business prospects

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and financial condition and performance as particularized herein and knew (or

recklessly disregarded) that these adverse facts rendered the positive representations

made by or about Textron and its business issued or adopted by the Company

materially false and misleading.

16. The Individual Defendants, because of their positions of control and

authority as officers and/or directors of the Company, were able to and did control the

content of the various SEC filings, press releases and other public statements pertaining

to the Company during the Class Period. Each individual Defendant was provided

with copies of the documents alleged herein to be misleading prior to or shortly after

their issuance and/or had the ability and/or opportunity to prevent their issuance or

cause them to be corrected. Accordingly" each of the Individual Defendants is

responsible for the accuracy of the public reports and releases detailed herein and is

therefore primarily liable for the representations contained therein.

17. Each of the defendants is liable as a participant in a fraudulent scheme

and course of business that operated as a fraud or deceit on purchasers of Textron

common stock by disseminating materially false and misleading statements and/or

concealing material adverse facts_ The scheme: (i) deceived the investing public

regarding Textron's business, operations, management and the intrinsic value of

Textron common stock and (a) caused plaintiffs and other members of the Class to

purchase Textron securities at artificially inflated prices.

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PLAINTTh'F'S CLASS ACTION ALLEGATIONS

18_ Plaintiff brings this action as a class action pursuant to Federal Rule of

Civil Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who

purchased or otherwise acquired the securities of Textron between October 19, 2000 and

September 26, 2001, inclusive (the "'Class Period") and who were damaged thereby.

Excluded from the Class are defendants, the officers and directors of the Company, at

all relevant times, members of their immediate families and their legal representatives,

heirs„ successors or assins and any entity in which defendants have or had a control-

ling interest.

19. The members of the Class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, Textron common shares were actively

traded on the NYSE. While the exact number Of Class members is unknown to

plaintiffs at this time and can only be ascertained through appropriate discovery,

plaintiff believes that there are hundreds or thousands of members in the proposed

Class. Record owners and other members of the Class may be identified from records

maintained by Textron or its transfer agent and may be notified of the pendency of this

action by mail, using the form of notice similar to that customarily used in securities

class actions.

20. Plaintiffs claims are typical of the claims cif the members of the Class as all

members of the Class are similarly affected by defendants' wrongful conduct in

violation of federal law that is complained of herein.

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21_ Plaintiff will fairly and adequately protect the interests of the members of

the Class and has retained counsel competent and experienced in class and securities

litiga don.

77 Common questions of law and fact e,xist as to all members of the Class and

predurnina.te over any questions solely affecting individual members of the Class.

Among the questions of law and fact common to the Class are:

(a) whether the federal securities laws were violated by defendants acts

as alleged herein;

(b) whether statements made by defendants to the investing public

during the Class Period misrepresented material facts about the business, operations,

technologies, and management of Textron; and

(c) to what extent the members of the Class have sustained damages and

the proper measure of damages.

23. A class action is superior to all other available methods for the fair and

efficient adjudication of this controversy since joinder of all members is impracticable.

• Furthermore, as the damages suffered by individual Class members may be relatively

small, the expense and burden of individual litigation make it impossible for members

of the Class to individually redress the wrongs done to them_ There will be no

difficulty in the management of this action as a class action.

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SUBSTANTIVF, ALLEGATIONS

Back2round Facts

24. Textron's Aircraft segment consists of the Cessna Aircraft Company and Bell

Helicopter Textron_ Bell Helicopter Textron ("Bell") supplies helicopters, spare parts and

helicopter-related services to military and civilian customers. Bell's revenues accounted for

approximately 12%, 13°A and 14% of Textron's total revenues in 2000, 1999 and 1998, according

to Textron's Form / OK for the period ended December 30, 2000.

25. Before and during the Class Period, Bell was teamed with the Boeing Company as

prime contractors in the development and production of the V-22 Osprey tiltrotor aircraft (the

"Osprey" or "V-22") for the U.S. Department of Defense_ The Company claimed that tiltrotor

technology would allow the Osprey to take off and land like a helicopter and then fly like a

conventional airplane, at speeds up to 300 miles per hour.

26. The V-22 Osprey program contributed $432 million to Textron's $13.1 billion in

revenue in the year 2000. TeXtr011 has been developing the Osprey for more than two decades..

The Osprey has been the subject of intense lobbying efforts by the Company, including

substantial "soft" campaign contributions to both major Political parties, and consequently, at the

commencement of the Class Period, Textron had a huge vested interest in the ultimate success of

the program. Moreover, the V-22 Program was expected to be worth $19 billion in

procurement, and almost that much in aftennarket support during the next several years.

27. By December 2000, 19 complete V-22 aircraft had been manufactured under

contract with the U.S. Department of Defense and the U.S. Department of Defense had been

scheduled to approve full production of what was then a $30 billion program within a matter of

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weeks, including altennarket support. However, on December 11, 2000, an Osprey MV-22

crashed during a routine nighl training flight in Jacksonville, North Carolina, killing all four

marines on board and, consequently, the decision on fun production was halted pending an

investi gation of the incident. It was the second V-22 Osprey crash of the year; in April 2000, an

Osprey crashed near Tucson, Arizona, killing 19 marines_ The crashes subjected the V-22

program to heightened criticism and increased the likelihood of its being canceled.

28. In February 2001, the General Accounting Office stated its finding that the V-22

Osprey had been pushed into production despite inadequate testing and unresolved concerns over

its stability and accountability. On May 8, 2001, in its I0-Q for the period ended March 31,

2001, Textron reported that an Independent Review Panel chattered by the Department of

Defense had concluded that, "the mishap was not a result of the tiltrotor technology but caused

by a series of events including a ruptured hydraulic line and an anomaly in the control logic of

the aircraft's computer software. These factors are in the process of being resolved."

29. Throughout the Class Period, Textron failed to disclose that the V-22 Osprey also

suffered from structural defects that required a. complete redesign of the tiltrotor technology and

other aspects of the aircraft that would delay full-scale Production of the Osprey for years and

cost hundreds of millions of dollars in excess of the costs allocated to the project for the purpose

of calculating profit and loss. Defendants concealed these facts because they were afraid that, if

they became known, the T.J.S. Department of Defense would cancel the project, which would

have a material adverse effect on the Company, both in terms of lost revenue and earnings and

harm to its reputation_

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30_ Bell purported to utilize "contract accounting methodology" for significant

contracts such as the V-22 Osprey program, whereby costs are estimated at the commencement

or the project and profit is spread over the contract life, if the contract performance deviates

from original estimates, adjustments must he made to correct profit expectations or recognize

expected losses. Atthough defendants knew that the estimated costs of the V-22 Osprey contract

had materially increased during the Class Period, as the extent and severity of the engineering

and structural flaws became increasingly apparent to the defendants, Textron did not announce

the necessary adjustments to V-22 Program revenues and earnings until September 26, 2001. On

that date the Company issued a release over the Business Wire in which it reduced its guidance

for the third and fourth quarters of 2001, and announced that it expected a third-quarter loss of

$025 per share, compared to the consensus forecast of earnings of $031 cents per share. The

Company attempted to blame its poor performance on "the slowdown in the U.S. economy" and

"the impact of events on September 11." However, Textron was also forced to admit that its

reduced earnings were resulting from "a number of significant adjustments at Bell Helicopter and

other Textron businesses,' including a special charge of approximately $0.52 per share resulting

from "stretched out production schedules and additional costs to make design changes in the V-

. 22 and H-1 government programs." The 1-1-1 government program is a $4 billion program to

upgrade 280 Super Huey attack helicopters with better software, improved transmissions and

rotors and more powerful engines. In the same press release, the Company announced the abrupt

departures of defendant Janitz as Textron Chief Operating Officer, and Terry Stinson as Chief

Executive Officer of Bell Helicopter. The Company characterized the executive changes as

"setting the stage for more extensive and aggressive cost controls and operational improvement

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across the enterprise." On this news, Textron shares dropped to a year-low of $33.04, down

23% from the previous day's closing price of $43 on relatively heavy trading of- 4,393,200 shares.

Materially False And MisleadingStatements Issued Durinz The Class Period

31. The Class Period commences on October 19, 2000. On that date, Textron issued a

news release over the Business Wire in which it announced third-quarter diluted earnings per

share of $1.08, up 14% from reported earnings per share of $0.95 for the third quarter of 1999,

marking the Company's 44th consecutive quarter, or eleven years, of earnings improvement (the

"October 19th Release"). However, in the October 19th Release, the Company reported "a

slowdown" in certain of its Industrial markets, particularly the construction equipment market,

and stated that it planned to close or consolidate "a number of manufacturing sites." The

Company assured investors that by accelerating the "cost improvement activities of our TQlvl

["Textron Quality Management"] process" through a restructuring plan, the Company could

"continue to post double-digit operating earnings per share growth and position us for even

stronger growth beyond 2001."

32. Textron contrasted the lackluster performance of its industrial segrrient with

positive reports concerning the Aircraft segment. Specifically, with regard 'to the Aircraft

segment, in the October 19th Release the Company reported "significant strengthening in the

organic growth of our marquee-branded businesses, such as Cessna, Bell, Kautex, E-Z-GO and

Greenleaf," The Company also claimed that the V-22 program was "on track." In this regard,

and with regard to the Aircraft segment, the October 19th Release stated, in pertinent part, as

fellows:

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Earlier this month, Marine Corps officials announced that the MV-22 Osprey has beenjudged operationally suitable for land-based operation; validating eight months ofcomprehensive evaluation aml moving the tiltrotor a major step closer to full-rateproduction. Bell remains on track to deli per eight V-22 tiltrotors this year. Thecurrent total requirement among Marines, Navy and Air Force is for 458 V-22 Ospreysfor production through 2014. [Emphasis added.]

-- Textron's Aircraft Segment expects full-year Rarc [return on invested capital]improvement of 200-250 basis points to the 17% level this year.

With regard. to the Company's 2000 and 2001 outlook, the release stated:

The Company now expects fulT-year 2000 earnings per share will be within therange of $4.65 to $4.68, reflecting a full-year increase in earnings per share ofapproximately 15% before possible restructuring charges that may be taken during thefourth quarter. Textron estimates 2001 earnings will be up 13% to 15% beforerestructuring charges that may be taken in 2001. [Emphasis added.]

33. The statements referenced above in 32 were each materially false and

misleading when made as they misrepresented and/or omitted the following adverse

facts which then existed and disclosure of which was necessary to make the statements

made not false and/or misleading, including:

a. The MV-22 Osprey was not yet operationally suitable for land-based

operations;

b. Textron knew of or recklessly disregarded major flaws in the tiltrotor design of

the V-22 Osprey that it failed to report to the US. Department of Defense and which rendered the

aircraft unstable and unsafe, and which, even if remediable, would require a substantial

additional investment in time and money;

c. Textron was required to make major design changes in its 1-1-1 Program that

would significantly delay the production schedule and add to the Program's costs, thereby

reducing revenue and income;

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d. Based on the foregoing, defendants lacked a reasonable basis for their estimate

that Textron's 2001 earnings would be up 13% to 15% before restructuring charges; and

e. Textron was required to report a loss on the Osprey contract because of

accelerating costs that were in excess of estimated revenues and fees that would be generated

under the contract_

34. On November I, 2000, Textron issued a release over the PR Newswire to

announce Bell Helicopter's plans to construct "the world's first commercial tiltrotor training

center in Fort Worth, Texas to develop and manufacture the BA609, which Bell claimed would

be the first commercially available tiltrotor commercial aircraft. With regard to the BA609, the

release stated:

"This opens up a brand new era in aviation. It is an exciting day for Bell Helicopter, forour partners at Agusta, and for the City of Fort Worth_ Indeed this is an exciting day forall of aviation," Mr. Stinson [Chairman and CEO of Bell Helicopter Textron] stated. . . .

Mr. Stinson explained, "There is enormous worldwide interest in this unique aircraftwhich can take-off, hover and land like a helicopter and yet fly with the speed and rangeof a fixed wing turboprop airplane. The possibilities are endless_ The BA 609 is thcperfect aircraft for city center to city center tcaus-portation, offshore oil exploration andsearch-and-rescue to mention just a few."

35. On November 28, 2000, the Wall Street Transcript Corporation published an

interview with defendant Campbell. During the interview, Campbell [Chairman and CEO]

claimed that Bell Helicopter and, in particular, tiltrotor technology, represented a growth

opportunity for the Company. In this regard, Campbell stated, according to the interview

transcript, as follows:

TWST:

As you look at those four segments, which one of those seems tooffer you the most opportunity over the next couple of years?

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Mr, Campbell: Ow- global Iletwork- of powerful market leading brands providesopportunities for growth across all of our segments. For example,Boll is already the recognized leader in helicopters around theworld, however, they are also the leader in a technology that theworld has yet to fully appreciate. It's called tiltrotor technology.It's a revolutionary aircraft that can lift like a helicopter and thenfly like a turboprop. The V-22, which is the military version, isright on schedule to deliver eight tiltrotors this year and we havecurrent requirements from the U.S. armed forces to deliver atleast 458 by 2014. This is approximately a S.15 billion contractfor BelL

In addition, we have 80 orders for the commercial tiltrotor, knownas the BA 609. It is a revolutionary machine that will capture theimagination of the world. I. .

TWST: What kind of growth should investors expect from you over thenext two or three years?

Mr. Campbell: We will continue to create value by delivering high performance,double digit earnings growth as far out as we can see. We arecomfortable with our consensus estimates for earnings per sharerepresenting 15% growth this year and double digit earningsgrowth again next year. I see an even stronger organic growthstory as we move forward because our businesses have gained a lotof momentum. The products I mentioned earlier, when theycome to fruition, should increase our organic growth from 5% to6% historically, to 7%, 8% and beyond. [Emphasis added..1

36. The statements referenced above in1134 and 35 were each materially false

and misleading when made as they misrepresented and/or omitted the following

•adverse facts which then existed and disclosure of which was necessary to make the

statements made not false and/or misleading, including:

a. Contrary to the assertions made by defendant Stinson as quoted in paragraph

34, the BA 609 was not the perfect aircraft for city center to city center transportation, offshore

oil exploration and search-and-rescue because of fundamental design flaws in the tiltrotor

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technology which rendered the BA 609 unstable and wisafe and which, if remediable, would

require a substantial investment in time and money;

b. Contrary to the assertion of defendant Campbell quoted in paragra.ph 35, the V-

22 was not "right on schedule" but rather, production was subject to substantial delays due to the

need for costly and time consuming redesign of fundamental aspects of the aircraft; and

c. In addition, Textron was required to make major design changes in its H-1

program that would significantly delay the production schedule and add to the H-1 program's

costs, thereby further reducing overall revenue and income, contrary to the Company's bullish

forecast_

37. The next day, November 29, 2000, defendants announced over the Business Wire

that Textron and its senior managers were going to hold meetings with analysts and investors

over the next two days to detail the Company's new strategic investment and reaffirm its

expectations for continued strong financial results. The Company stated that it intended to

"highlight return on invested capital (ROIC) as its central strategic financial target to drive

continued strong earrings growth." Textron simultaneously announced the appointment of

defendant French as Textron's executive vice president and chief financial officer.

38. On. November 30, 2000, Textron announced that assembly of the V-22 Osprey had

moved from the Arlington-Dallas Fort Worth area to a new $40 million assembly plant in

Amarillo. Texas_

39. Analysts reacted positively to these developments_ For example, Harriet Baldwin,

Vice President of Deutsche Bank Alex. Brown stated in a Wall Street Transcript Conference

Issue:

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On the positive side for Textron, the Aircraft segment, which includes Cessna and Bell, isvery strong. Sales growth is 20%-plus and the backlog continues to grow. Aircraft is anarea where things are going to continue to get even stronger quarter after quarter, whenmany investors thought it was as good as it could get.

40. On December 11, 2000, an V-22 Osprey plunged from the sky during a routine,

90-minute night-time training mission over North Carolina and crashed in a fireball, killing all

four marines on board, the second such major disaster within the same year. The Marine Corps. .

grounded its fleet of eight V-22 Ospreys and the Pentagon announced that it was going put off

approving full production of the Osprey and appointed a blue-ribbon panel of aviation experts to

review the entire Osprey program. A Bell spokesperson referred questions about the crash to the

Marines, according to an article in The Wall Street Journal dated December 13, 2000. Lt. Fred

McCorkle, head of Marine Aviation, said, don't think this will be a showstopper. No one has

ever questioned the safety of this aircraft."

41. On January 23, 2001, Textron announced its fourth-quarter and year-end financial

results in a release issued over the Business Wire, commenting positively on the Bel/ Textron

Division and, in particular, the "increased demand and improved productivity- in Bell

Helicopter's business. The Company reported fourth-quarter earnings per share from continuing

operations before special charges of $1.28 up 14% from $112 per share in the fourth-quarter of

1999. The Company reported income from continuing operations before special charges of $185

million versus $170 million reported in 1999. For the year, the Company reported earnings per

share from continuing operations before special charges of $4.65, up 15% from $4.05 per share

in 1999. The Company reported income from continuing operations before special charges of

$680 million versus $623 million reported in 1999.

With regard. to Bell, the Company stated:

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--- Bell Helicopter continued to see an improvement to commercial helicopter sales andorders, increasing its backlog for commercial helicopters by approximately $100 millionfrom a year ago.r. .]

Bell Helicopter's revenues increased as higher foreign military sales, high commercialspares sales and higher revenues on the V-22 production contract were partially offsetby lower sales of other military helicopters. Bell's income increased due to higherrevenues and higher income related to retirement benefits, partially offset by the lowerrecognition into income of cash received from a joint venture partner in the fourth quarterof 1998 on the formation of the BA609 program. [Emphasis added.]

42. On January 30, 2001, Textron held a meeting of analysts in Ncw York City.

Based on the meeting, Merrill Lynch Capital Markets issued a Company report which reiterated

defendants' positive statements regarding the V-22 program and, as represented by Company

officials, that production delays in 2001 could he offset by an accelerated schedule in 2002 and

2003. In this regard the report stated:

The company remains very confident regarding the long term prospects of theV-22 and expects the project to get clearance by the end of 2001. Scheduledelays resulting from the current grounding could potentially be offset by anaccelerated schedule in 2002-2003. [Emphasis added.]

43. On March 1, 2001, the Company issued. a release over the Business Wire in which

it announced estimates of first-quarter earnings per share, before restructuring charges, of $1.00,

and its expectation that earnings per share before restructuring charges would be up by 5% for

the year 2001.

44. On April 6, 2001, The New York Times published an article reporting on the

findings of the U.S. Marine Corps investigation into the December crash_ The Marine Corps

concluded that "malfunctioning software caused the aircraft to swerve out of control before

plummeting to the ground and bursting into flames" but "did not call for any fundamental

changes to the innovative tilt-rotor aircraft. " However, on April 19, 2001, the federal panel

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appointed after the December 2000 crash recommended that the program be continued. An

article in The Wall Street .Toutnal, published on that day, commented on the importance of the

decision to Textron and Boeing:

For Ospreys manufacturers, Boeing Co., Seattle, and the Bell Helicopter Unit ofTextron, Inc., Providence, R.1_, the recommendations come at a critical juncture. Criticshave seized on the North Carolina accident and three previous crashes to press Congressto drop the Osprey, which is primarily a troop-transport vehicle. But the Marines, as wellas the Navy and Air Force, have insisted that Osprey's tilt-rotor technology — whichallows it to fly like an airplane but land like a helicopter — is an essential part of themilitary's strategy.

The Osprey contributed just $432 million of Textron's $13.1 billion in revenuelast year, and was worth a similar amount to Boeing, according to regulatory filings Butthe companies stand to win far more if the program, which originally carried a $30 billionprice tag but has grown to at least $40 billion, moves to full production.

Susan Bishop, a Textron spokeswoman, said the company was "very pleased"with the panel's recommendations, and added that the company "will do everythingpossible to meet the requirements" outlined.

45. On April 19, 2001, Textron issued a release over the Business Wire reporting net

irlconie of $113 million, or $1.00 per share, for the first quarter, after restructuring-related

expenses and special charges of $45 mil/ion. The Company projected full year earnings per

share, before special charges and restructuring-related expenses, to be approximately $4.65, flat

with 2000 levels, and second-quarter earnings per share, before special charges and restructuring-

related expenses, to be $1.10. Commenting on the results, defendant Campbell stated, in

pertinent part, as follows:

While some of our businesses experienced slower sales, our Aircraft and Financesegments achieved solid revenue and income growth. L. .

Bell Helicopter's revenues were unchanged as higher sales of kits used tomodernize older model Huey helicopters and higher sales of commercial spares offsetlower revenues on the H-1 upgrade contracts and lower foreign military sales. Bell's profitincreased clue to higher commercial sales and lower product development costs, primarily

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due to lower speridin,g On the model 427 helicopter and the BA609 commercial tiltrotoraircraft, partially offset by lower profit on U.S. government business arid lower incomefor a joint venture partner related to the 13A609 program. Bell's backlog was $1.4 billionat thc end of the first quarter.

46, On May 8, 2001, Textrou filed its Form 10-Q for the quarter ended March 31,

2001 with the SEC, which was signed by R. L. Yates, Textron's Vice President and ControLer

("Yates"). The Form 10-Q contained the following statement regarding the Department of

Defenses investigation of the December crash:

The Department of Defense has been investigating the December 2000 mishap of a V-22tiltrotor aircraft. An Independent Review Panel (the Panel), chartered by the Secretary ofDefense, has concluded that the mishap was not a result of the tiltrotor technology, butcaused by a series of events including a ruptured hydraulic line and an anomaly in thecontrol logic of the aircraft's compT.iter software. These factors are in the process of beingresolved. The Panel has recommended, after a thorough investigation, that the V-22program should continue. but production should be temporarily reduced to a minimumsustaining level until both the aircraft design and manufacturing processes mature.Although the V-22 program is subject to further government review. Textron expects thelow rate production to continue for one to two years and that upon completing thedevelopment maturity phase, full rate production will be approved.

47. On July 18, 2001, Textron issued a release over the Business Wire in which it

announced second-quarter earnings per share of $1.10, before special charges and restructuring

expenses, in line with projections, and an increase of Aircraft segment revenue and profit before

restructuring-related expenses of $210 million and $13 million respectively. With regard to Bell

Helicopter, the press release stated in pertinent part as follows:

Bell Helicopter's revenues increased due to higher sales of commercial helicopters andhigher revenue on the V-22 production cootract, partially offset by lower foreigni military

• sales and lower revenue on H-1 upgrade contracts. Bell's profit decreased primarily dueto higher net product development expense related to the I3A609 commercial tilt-otor andan unfavorable profit adjustment related to an international contract, partially offset byhigher sales of commercial helicopters and a favorable mix of commercial spares.

1 20

a

)

The Department of Defense requested funds for production of eleven V-22 aircraftfor government fiscal year 2001 and twelve aircraft for 2002 Tim restructured programaddresses modifications recommended by the Blue Ribbon Panel.

48. The statements referenced above in 41, 43, 45, 46, 47 were each materially

false and misleading when made as they misrepresented and/or omitted ti-ke following

adverse iacts which then existed and disclosure of which was necessary to make the

statements made not false and/or misleading, including:

a. The MV-22 Osprey was not yet operationally suitable for land-based

operations;

b, Textron knew of or recklessly disregarded major flaws in the tiltrotor design of

the V-22 Osprey that it failed to report to the US. Department of Defense and which rendered the

aircraft unstable and unsafe, and which, even if remediable, would require a substantial

additional investment in time and money;

e. Textron was required to make major design changes in its I-1-1 Program that

would significantly delay the production schedule and add to the Program's costs, thereby

reducing revenue and income; and

6. Textron was required to report a loss on the Osprey contract because of

accelerating costs that were in excess of estimated revenues and fees that would be generated

under the contract.

The Truth Begins To Emerges

49. The truth began to emerge on September 26, 2001, the end of the Class Period.

On that date Textron issued a press release over the Business Wire in which it reduced its

guidance for the third and fourth quarters of 2001, and announced that it expected a third-quarter

21

411.1' Li

loss of 50.25 per share. The Company attempted to blame its poor performance on "the

slowdown in the U.S. economy" and "the impact of events on September 11." However, Textron

was also forced to admit in that announcement that the reduced earnings additionally resulted

from "a number of significant adjustments at Bell Helicopter and other Textron businesses,"

including a special charge of approximately $0.52 resulting from "stretched out production

schedules and additional costs to make design changes in the V-22 and H-1 government

programs." Li the same release, the Company announced the abrupt departures of janitz as

Textron Chief Operating Officer and Stinson as Chief Executive Officer of Bell Helicopter. The

Company characterized the executive changes as "setting the stage for more extensive and,

aggressive cost controls and operational improvement across the enterprise." On this news,

Textron shares dropped to a year-tow of $33.04, down 23% from the previous day's closing price

of $43 on relatively heavy trading of 4,393,200 shares.

50_ On September 26, 2001, the Bloomberg News Service published an article on the

Companys announcement. With regard to the impact of the V-22 Program delays, the article

stated in pertinent part as follows:

Textron expects a third-quarter loss of 25 cents a share before charges_ The company wasexpected to cam 71 cents, the average forecast of analysts surveyed by ThomsonFinancial/First CalI, Textron expects profit of 40 cents to 60 cents before charges in thefourth quarter. It was expected to earn $1.05, according to First Call."The company's portfolio of businesses is showing more cracks than I would havethought possible even in the current worst case scenario," said lames Bitter, an analystwith Wilmington Trust Co. . .

"If you were making earnings projections based on (the V-22) going forward, youcould find yourself having to revise those numbers pretty substantially," said ChristopherHellman, an analyst with the Center for Defense Information in Washington, D.C., whichtracks military programs.

The company now expects a "long-term" shipment rate of 9 to 12 Ospreys a yearrather than the 36 originally projected.

22

AIM)

The production delays and other problems at Bell account for 52 cents a share, orabout half, of the third-quarter earnings shortfall,

51. Subsequently, in its Foam 10-Q for the third-quarter ended September 29, 2001,

Textron stated:

Bell's profit decreased primarily due to reduced profitability expectations or losses oncertain development and production contracts including the V-22 contract, the H-Iupgrade contracts and the Model 412 and 427 commercial helicopters. The reducedprofitability expectations and contract lasses were based on third quarter 2001 programreviews and reflect the classification of several matters including extended developmentschedules and planned design changes on a number of programs. Profit also decreaseddue to lower income related to retirement plans and lower income from a joint venturepartner related to the 13A609 prograrit

The Detartmet of has approvedntinued_rate production for the V-22 toallow time for incorporation of the Independent Review Panel's recommendations tomake s .eciiic chan . es to the so w c and h draulic s tans_ While the exact rate ofproduction has pçjt yet been det expected that the uanti ircrafF them e

t N12_pj-oction contract he decreased from 16 to 11. A firm contract is expectedbv December 2.001. [Emp has is added.]

52. On October 10, 2001, The New York Times published an article in which it

reported that Textron and Boeing had agreed to pay "substantially more" than $1 million to the

family of a Marine pilot killed in an Osprey crash after a mediation session.

53. The market for Textron's securities was open, well-developed and efficient at all

relevant times. As a result of these materially false and misleading statements and failures to

disclose, Textron's common stock traded at artificially inflated prices during the Class Period.

Plaintiff and other members of the Class purchased or otherwise acquired Textron securities

relying upon the integrity of the market price of Textron's securities and market information

relating to Textron, and have been damaged thereby.

23

I ),

54 During the Class Period, defendants materially misled the investing public,

thereby inflating the price of Textron's common stock, by publicly issuing false and misleading

statements and omitting to disclose material facts necessary to make defendants' stateolents, as

set forth herein, not false and misleading. Said statements and omissions were materially false

and misleading in that they failed to disclose material adverse information and misrepresented

the truth about the Company, its business and operations, as alleged herein_

55 At all relevant times, the material misrepresentations and. omissions particularized

in this Complaint directly or proximately caused or were a substantial contributing cause of the

damages sustained by plaintiffs and other members of the Class. As described herein, durin g the

Class Period, defendants made or caused to be made a series of materially false or misleading

statements about Textron's business, prospects and operations. These material misstatements

and omissions had the cause and effect of creating in the market an unrealistically positive

assessment of Textron and its business, prospects and operations, thus causing the Company's

securities to be overvalued and artificially inflated at all relevant times. Defendants' materially

false and misleading statements during the Class Period resulted in plaintiff and other members

of the Class purchasing the Company's securities at artificially inflated prices, thus eansing the

damages complained of herein.

Additional Scienter Allegations

56 As alleged herein, defendants acted with soienter in that defendants knew that the

public documents and statements issued or disseminated in the name of the Company were

materially false and misleading; knew that such statements or documents would be issued or

disseminated to the investing public; and knowingly and substantially participated or acquiesced.

24

, . . .

;

in the issuance or dissemination of such statements or documents as primary violations of the

federal securities laws. As set forth elsewhere herein in detail, defendants, by virtue of their

receipt of infomiation reflecting the true facts regarding Textron, their control over and/or

receipt and/or modiZcation of Textron's allegedly materially misleading misstatements and/or

their associations with the Company which made them privy to confidential proprietary in

concerning Textron, participated in the fraudulent scheme alleged herein.

57 Defendants scienter is further evidenced by the fact that defendants were highly

motivated to conceal fundamental structural flaws in the V-22 Osprey aircraft, and other aircraft

under contract with the U.S. Department of Defense, to avoid cancellation of the programs and

the loss of revenue and earnings that would ensue. Following the crash of a V-22 Osprey

defendants' were even more highly motivated to conceal the true facts about the V-22 Program,

because heightened public scrutiny of the program increased the probability that the Osprey

program would be canceled.

• Applicability Of Presumption Of Reliance:Frau d-On-The-lViarket Doctrine

58 At all relevant times, the market for Textron's securities was an efficient market

for the following reasons, among others:

(a) Textron's stock met the requirements for listing, and was listed and actively

traded on the NYSE, a highly efficient and automated market;

• (b) As a regulated issuer, Textron filed periodic public reports with the SEC and

the NYSE;

(c) Textron regular!), communicated with public investors via established market

communication mechanisms, including through regular disseminations of press releases on the

25

. . .

national circuits of major newswire services and through other wide-ranging public disclosures,

such as communications with the financial press and other similar reporting services; and

(d) Textron was followed by several securities analysts employed by major

brokerage firms who wrote reports which were distributed to the sales force and certain

customers of their respective brokerage firms. Each of these reports was publicly available and

catered the public marketplace,

59 As a result of the foregoing, the market for Textron's 8efuritiQs promptly digested

current information regarding Textron from all publicly available 8011ICCS and reflected such

information in Textron's stock price, Under these circumstances, all purchasers of Textron's

securities during the Class Period suffered similar injury through their purchase of Textron's

securities at artificially inflated prices and a presumption of reliance applies.

NO SAFE HARBOR

60 The statutory safe harbor provided for forward-looking statements under certain

circumstances does not apply to any of the allegedly false statements pleaded in this complaint.

Many of the specific statements pleaded herein, were not identified as "forward-looking

statements" when made. To the extent there were any forward-looking statements, there were no

meaningful cautionary statements identifying important factors that cook/ cause actual results to

differ materially from those in the purportedly forward-looking statements. Alternatively, to the

extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein,

defendants are liable for those false forward-looking statements because at the time each of those

forward-looking statements was made, the particular speaker knew that the particular forward-

looking statement was false, and/or the forward-looking statement was authorized and/or

26

••

approved by an executive officer of Textron who knew that those statements were false when

made.

FIRST CLAIMViolation Of Section 10(b) Of

The Exchange Act And Rule 10b-5Promulated Thereunder Against All Defendants

61 Plainti ff repeats and manages each. and every allegation contained above as if fully

set forth herein.

62 During the Class Period, defendants carried out a plan, scheme and course of

conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing

public, including plaintiff and other Class members, as alleged herein and (ii) cause plaintiff and

ether members of the Class to purchase Textron's securities at artificially inflated prices. In

furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them,

took the actions set forth herein.

63 Defendants (a) employed devices, schemes, and artifices to defraud; (b) made

untrue statements of material fact and/or omitted to state material facts necessary to make the

statements not misleading; and (c) engaged in acts, practices, and a course of business which

operated as a fraud and deceit upon the purchasers of the Company's securities in an effort to

maintain artificially high market prices for Textron's securities in violation of Section 10(b) of

the Exchange Act and Rule 10b-5, All defendants are sued either as primary participants in the

wTongfid and illegal conduct charged herein or as controlling persons as alleged below.

64 Defendants, individually and in concert, directly and indirectly, by the use, means

or instrumentalities of interstate COMB-IMO and/or of the mails, engaged and participated in a•

continuous course of conduct to conceal adverse material information about the business,

27

)

operations and future prospects of Textron as specified herein. 65

These defendants employed devices, schemes and artifices to defraud, while in possession

of materia/ adverse non-public information and engaged in acts, practices, and a course of

conduct as alleged herein in an effort to assure investors of Textron's value and performance and

continued substantial growth, which included the making of, or the participation in the making

of, untrue statements of material facts and omitting to state material facts necessary in order to

make the statements made about Textron and its business operations and future prospects in the

light of the circumstances under which they were made, not misleading, as Set forth more

particularly herein, and engaged in transactions, practices and a course of business which

operated as a fraud and deceit upon the purchasers of Textron securities during the Class Period.

66 bach of the Individual Defendants' primary liability, and controlling person

liability, arises from the following facts: (i) the Individual Defendants were high-level executives

and/or directors at the Company during the Class Period and members of the Company's man-

agement team or had control thereof; (ii) each of these defendants, by virtue of his

responsibilities and activities as 2. senior officer and/or director of the Company was privy to and

participated in the creation, development and reporting of the Companys internal budgets, plans,

projections and/or reports; (iii) each of these defendants enjoyed significant personal contact and

familiarity with the other defendants and was advised of and had access to other members of the

Company's management team, internal reports and other data and information about the Corn-

pany's finances , operations, and sales at all relevant times; and (iv) each of these defendants was

aware of the Company's dissemination of information to the investing public which they knew or

reckl ess ly disregarded was materially false and misleading.

28

I

67 The defendants had actual knowledge of the misrepresentations and omissions of

material facts set forth herein, or acted with reckless disregard for the truth in that they failed to

ascertain and to disclose such facts, even though such facts were available to them. Such

defendants material misrepresentations and/or omissions were done knowingly or recklessly and

for the purpose and effect of concealing Textron's operating condition and future business

prospects from the investing public and supporting, the artificially in flated price of its securities.

As demonstrated by defendants' overstatements and misstatements of the Company's business,

operations and earnings throughout the Class Period, defendants, if they did not have actual

knowledge of the misrepresentations and omissions allege.d, were reckless in failing to obtain

such knowledge by deliberately refraining from taking those steps necessary to discover whether

those statements were fa/se or mis/eading,

68 As a result of the dissemination of the materially false and misleading information

and failure to disclose material facts, as set forth above, the market price of Textron's securities

was artificially inflated during the Class Period. In ignorance of the fact that market prices of

Textron's publicly-traded securities were artificially inflated, and relying directly or indirectly on

the false and misleading statements made by defendants, or upon the integrity of the market in

• which the securities trade, and/or on the absence of material adverse information that was known

to or recklessly disregarded by defendants but not disclosed in public statements by defendants

during the Class Period, plaintiff and the other members of the Class acquired Textron securities

during the Class Period at artificially high prices and were damaged. thereby.

69 At the time of said misrepresentations and omissions, plaintiff and other members

of the Class were ignorant of their falsity, and believed them to be true. Had plaintiff and the

29

• . .

other members of the Class and the marketplace known the truth regarding the problems that

Textron was experiencing, which were not disclosed by defendants, plaintiff and other members

of the Class would not have purchased or otherwise acquired their Textron securities, or, if they

had acquired such securities during the Class Period, they wouid not have done so at the

artificially inflated prices which they paid.

70 By virtue of the foregoing, defendants have violated Section 10(b) of the

Exchange Act, and Rtile I Ob-5 promulgated thereunder.

71 As a direct and proximate result of defendants' wrongful conduct, plaintiff and the

other members of the Class suffered damages in connection with their respective purchases and

sales of the Company's securities during the Class Period,

SECOND CLAIMViolation Of Section 20(a) Of

Thexeitan Act Against_thicEdants

72 Plaintiff repeats and malleges each and every allegation contained above as if fully

set forth herein.

73 The Individual Defendants acted as controlling persons of Textron within the

meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level

positions, and their ownership and contractual rights, participation in and/or awareness of the

Companys operations and/or intimate knowledge of the false financial statements filed by the

Company with the SEC and disseminated to the investing public, the Individual Defendants had

the power to influence and control and did influence and control, directly or indirectly, the

decision-making of the Company, including the content and dissemination of the various

statements which plaintiff contends are false and misleading. The Individual Defendants were

30

nn"'

provided with O F had unlimited access to copies of the Company's reports. press releases, public

filings and other staternents alleged by plaintiff to be misleading prior to and/or shortly after

these statements were issued and had the ability to prevent the issuance of the statements or

cause the statements to bc corrected.

74 In particular, each of these defendants had direct and supervisory involvement in

the day-to-dav operations of the Company and, therefore, is presumed to have had the power to

control or influence the particular transactions giving rise to the securities violations as alleged

herein, and exercised the same.

75 As Set forth above. Textron and the Individual Defendants each violated Section

10(b) and Rule lOb-5 by their acts and omissions as alleged in this Complaint. By virtue of their

positions as controlling persons, the individual Dc daub are liable pursuant to Section. 20(a) of

the Exchange Act. As a direct and proximate result of defendants' wrongful conduct, plaintiff

and other members of the Class suffered damages in connection with their purchases of the

Company's securities during the Class Period.

WHEREFORE, plaintiff prays for relief and judgment, as follows:

(a) Determining that this action is a proper class action, designating plaintiff as

Lead Plaintiff and certifying plaintiff as a class representative under Rule 23 of the Federal Rules

of Civil Procedure and plaintiffs counsel as Lead Counsel;

(b) Awarding compensatory damages in favor of plaintiff and the other Class

members against all defendants, _jointly and severally, for all damages sustained as a result of

defendants wrongdoing, in at amount to be proven at trial, including interest thereon;

31

. . .

I •

(c) Awarding plaintiff and the Class their reasonable costs and expenses incurred

in this action, including counsel fees and expert fees; and

(d) Such other and further relief as the Court may deem just and proper.

JURY TRIAL DEMANDED

Plaintiff hereby demands a trial by jury.

Dated: April 26, 2002•

By: Alb

Barry Agirtirz (No. 1404)LAW OFF1 ES OF BARRY J. 1CUSINITZ155 South Main StreetProvidence, R1 02903(401) 831-4200

MILBERG- WEISS BERSHADBYNES & LERACH LLP

Steven G_ SchulmanSamuel H. RudmanPeter E. SeidmanOne Pennsylvania Plaza -49th FloorNew York, NY 10119(212) 594-5300

FARUQI & FARUQINacle ern Farugi320 East 39th StreetNew York, NY 10016(212) 983-9330

Attorneys for Plaintiff

9_0133

s,N4tcv.\7)

••

32 ,

CMTIFTcATION OF JOEL RONp_i_gai±pe -P CTASS ACTION COMPLAINT

JOel Rosen ( A plaintift") decLares, as to the claims

assrted imder the federal securities laws, that!1. plaintiff has reviewed the complaint prepared by

counsel and hAs authorized its fiilna-

2. PIeintiff did not purchase the security that isthe sub]ect of the complaint at the direction of plaintitia'

counsel or in order to participate in any private action arising

umder the federal securities laws.

3. Maintiff is willing to serve as a representativeparty on behalf of a class, including providing testimony atdeposition and trial, if necessary.

4. During the proposed C1as8 Period, plaintief

executed the following tz-ansactions relating to Textron Inc.;Purchase of 100 shares at ”6.375 per shaxe on 03/0-7101

5. In the past three years, plaintiff has not sought

to serve as a representative party on behalf of a ClasS in an

action filed under the federal securities laws,

Plaintiff will not accept any paymart for serving

as ' a representative party on behalf of a class beyond plaintiff's

P° rata share Of any recovery, except such reasonable costs and

• expenses [including 2ost waves) directly relating to the

reprenentation of the Class as ordered or approved by the Court.

04-23-122 /225 To l MWE-LFAsf= PROM:121298Z49234 POO

,

_

)

The foregoing are, tn the best of my knowledge Axla belief.

zrue and correct statements.

April 22, 2002

t34-23-2 1226 TO:MWE-LEASING FROM:12129U38234 po4

_

mmn