Textron Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended January 1, 2022. Although the request metadata says “2020 Q4,” this filing is the annual report for FY2021; comparisons below are primarily with FY2020. Amounts are in U.S. dollars.
Business context
Textron is a diversified manufacturer and captive finance provider operating through Textron Aviation, Bell, Textron Systems, Industrial and Finance. Its products include aircraft, helicopters, defense systems, automotive components and specialized vehicles. Approximately 26% of FY2021 revenue came from U.S. Government contracts; approximately 31% came from international business, including U.S. exports.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $12.382 billion | $11.651 billion |
| Gross margin as % of manufacturing revenue | 16.5% | 13.0% |
| Income from continuing operations | $747 million | $309 million |
| Net income | $746 million | $309 million |
| Diluted EPS from continuing operations | $3.30 | $1.35 |
| Consolidated operating cash flow | $1.599 billion | $769 million |
| Capital expenditures | $375 million | $317 million |
- Revenue rose 6% and total segment profit increased to $1.134 billion from $751 million. Higher volume, pricing and performance improvements contributed to the recovery.
- Manufacturing-group cash from operations was $1.469 billion, up $636 million, mainly on stronger earnings and improved working capital. Consolidated cash at year-end was $2.117 billion.
- Manufacturing-group debt was $3.185 billion and Finance-group debt was $582 million. Manufacturing net debt to capital improved to 16% from 21%; the $1.0 billion revolving credit facility was undrawn.
- Textron repurchased 13.5 million shares for $921 million and paid $18 million in dividends. Shareholders’ equity was $6.815 billion, versus $5.845 billion a year earlier.
- Finance receivables were $630 million, with a $25 million allowance. Nonaccrual receivables rose to 14.92% of the portfolio from 11.94%, while receivables 60+ days delinquent fell to 0.16% from 3.72%.
Material changes versus FY2020
- Textron Aviation: Revenue increased 15% to $4.566 billion and segment profit rose to $378 million from $16 million. Aircraft and aftermarket demand improved; backlog increased 157% to $4.120 billion.
- Bell: Revenue increased 2% to $3.364 billion, but segment profit fell 12% to $408 million amid lower military revenue, higher development spending and an unfavorable sales mix. Backlog declined 28% to $3.871 billion, chiefly as contract revenue exceeded new awards.
- Textron Systems: Revenue declined 3% to $1.273 billion, while segment profit rose 24% to $189 million. Backlog fell 16% to $2.144 billion.
- Industrial: Revenue increased 4% to $3.130 billion and segment profit rose 26% to $140 million. Pricing more than offset lower volume, while material inflation and supply constraints remained pressures.
- Finance: Segment profit increased to $19 million from $10 million, primarily due to lower loan-loss provision; revenue declined to $49 million.
- Total backlog increased to $10.135 billion from $9.501 billion. Management expects approximately 82% of remaining performance obligations to be recognized through 2023.
Outlook, commentary and risks
- Management said most commercial businesses had not returned to 2019 pre-pandemic levels, but demand rebounded in 2021, particularly for Textron Aviation aircraft. It cited persistent pandemic-related supply-chain delays and inflation, especially in Industrial.
- The filing provides no specific consolidated revenue or earnings guidance. Management expects existing cash, manufacturing cash generation and available credit to be sufficient for needs.
- Important stated cash requirements include manufacturing debt and interest payments of $117 million in 2022 and $3.2 billion thereafter, and manufacturing purchase obligations of $2.5 billion in 2022. Management estimated that tax payments could increase by about $300 million in 2022 because R&D costs must be amortized under then-current tax law.
- Product and program milestones include continued certification work on the Cessna SkyCourier and Denali, development of Bell’s Future Vertical Lift prototypes, and an expected 2022 U.S. Army FLRAA award decision. Timing, certification, cost and customer acceptance remain uncertainties.
- Key risks include COVID-19 effects, supplier shortages and inflation, cyclical aircraft demand, U.S. Government funding and contract termination risks, fixed-price contract cost overruns, Finance portfolio collectability, cybersecurity, foreign-exchange exposure, and regulatory or certification delays.
- FY2021 special charges were $25 million, compared with $147 million in FY2020. The COVID-19 restructuring plan was substantially completed in Q4 2021; $28 million of restructuring reserve remained, mostly expected to be paid in 2022. FY2021 also included a $17 million after-tax gain on the sale of TRU Canada.
- A shareholder securities lawsuit concerning the Arctic Cat acquisition was narrowed on appeal; one claim was remanded for further proceedings. Textron said it would continue to defend the case. Environmental liabilities were estimated at $40 million to $140 million, with $75 million reserved; the company said existing claims were not expected to materially affect its financial position or results.
Most important facts for investors to verify
- Whether the aviation demand recovery and the $4.120 billion Textron Aviation backlog convert into deliveries, revenue and cash as expected.
- Whether Bell’s declining backlog and transition in H-1 production are offset by future program awards and support work, including the FLRAA decision.
- How supply constraints, material inflation and pricing affect Industrial margins and production volumes.
- The trend in Finance nonaccrual receivables and the adequacy of the $25 million credit-loss allowance, including outcomes for pandemic-modified loans.
- Liquidity and refinancing capacity around debt maturities, 2022 purchase commitments and the estimated $300 million tax-payment increase.
- Potential financial effects of the remanded securities claim, environmental remediation and other litigation or government-contract contingencies.
- The filing reports unqualified audit opinions on the financial statements and internal controls; the auditor identified long-term contract cost estimates and defined-benefit pension obligations as critical audit matters.