Textron Inc. — Form 10-K Summary
Reporting period: Fiscal year ended January 2, 2021. The request metadata says “2019 Q4,” but the supplied filing is Textron’s 2020 Form 10-K; it reports annual results and includes quarterly data.
Business context
Textron is a diversified manufacturer and captive finance company operating through Textron Aviation, Bell, Textron Systems, Industrial and Finance. Its businesses span aircraft, helicopters, defense systems, automotive components and specialized vehicles. U.S. Government customers generated about 30% of 2020 revenue; international business, including U.S. exports, generated about 32%.
Financial performance and liquidity
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $11.651 billion | $13.630 billion | Down 15% |
| Net income | $309 million | $815 million | Down 62% |
| Diluted EPS | $1.35 | $3.50 | Down 61% |
| Gross margin as a percentage of manufacturing revenue | 13.0% | 15.9% | Down 2.9 percentage points |
| Consolidated operating cash flow from continuing operations | $769 million | $1.016 billion | Down $247 million |
| Cash and equivalents | $2.254 billion | $1.357 billion | Up $897 million |
| Manufacturing group debt | $3.707 billion | $3.124 billion | Up $583 million |
| Finance group debt | $662 million | $686 million | Down $24 million |
| Total assets | $15.443 billion | $15.018 billion | Up $425 million |
| Shareholders’ equity | $5.845 billion | $5.518 billion | Up $327 million |
Manufacturing group net debt to capital was 21%, compared with 26% in 2019; debt to capital rose to 39% from 36%. Textron reported $2.146 billion of manufacturing cash and a $1.0 billion revolving credit facility with no borrowings at year-end. The declared annual dividend was $0.08 per share.
Segment results and material changes
- Textron Aviation: Revenue fell 23% to $3.974 billion and segment profit dropped 96% to $16 million. The pandemic reduced aircraft deliveries and aftermarket activity; the segment recorded substantial idle-facility costs and inventory valuation charges.
- Bell: Revenue increased 2% to $3.309 billion and segment profit rose 6% to $462 million, driven chiefly by military support and spares. Backlog declined 23% to $5.342 billion as revenue recognized on U.S. Government contracts exceeded new awards.
- Textron Systems: Revenue was down 1% to $1.313 billion, while segment profit increased 8% to $152 million. Backlog more than doubled to $2.556 billion, primarily due to new contract awards.
- Industrial: Revenue declined 21% to $3.000 billion and segment profit fell 49% to $111 million, reflecting lower automotive and specialized-vehicle demand and pandemic-related disruptions.
- Finance: Revenue decreased to $55 million from $66 million and segment profit fell to $10 million from $28 million, mainly due to higher loan-loss provision.
In fourth-quarter 2020, revenue was $3.667 billion and net income was $236 million, versus $4.035 billion and $199 million, respectively, in fourth-quarter 2019. Quarterly revenue improved sequentially from the first three quarters of 2020.
Outlook, risks and unusual items
- Management said commercial businesses were recovering gradually in the second half of 2020, but demand remained below pre-pandemic levels. It could not estimate when demand would return to pre-pandemic levels. The filing provides no specific consolidated financial guidance.
- COVID-19-related effects included facility closures, supply-chain disruption, lower commercial demand, workforce restrictions and elevated operating costs. The company initiated cost reductions and restructuring and estimated a reduction of about 2,700 positions; it expected the plan to be substantially complete in the first half of 2021.
- 2020 special charges totaled $147 million, including $108 million of restructuring charges and $39 million of intangible-asset impairments. A separate $55 million charge wrote down TRU Simulation + Training inventory. Management anticipated a further $20 million to $30 million in restructuring-related charges in 2021.
- The effective tax rate was negative 9.6%, principally reflecting a $52 million state tax audit settlement benefit and research credits.
- Finance receivables increased to $779 million; nonaccrual receivables rose to $93 million, or 11.94% of the portfolio, from $39 million, or 5.52%, a year earlier. Textron cited pandemic-related payment relief and delinquencies, while management said collateral values supported the allowance for credit losses.
- Key risks include commercial aviation cyclicality, reliance on government programs and appropriations, fixed-price contract cost overruns, supplier performance, aircraft certification and product development, cybersecurity, international operations, pension assumptions and pandemic uncertainty.
- Environmental reserves were $76 million against estimated potential liabilities of $40 million to $150 million. The company said existing legal proceedings were not expected to materially affect its financial position or results, while noting appeals remained pending in a securities class action and a separate Finance subsidiary case.
- Textron sold TRU Simulation + Training Canada Inc. on January 25, 2021, after year-end, and expected an after-tax gain of about $10 million in the first quarter of 2021.
Important facts for investors to verify
- Whether commercial aircraft and Industrial demand, deliveries and margins recover, and how quickly pandemic-related costs unwind.
- Bell and Textron Systems contract awards, backlog conversion and dependence on government funding.
- Finance portfolio credit quality, including nonaccrual balances, loan modifications, delinquencies and adequacy of reserves.
- Restructuring execution, remaining charges and the expected savings from workforce and facility reductions.
- Manufacturing debt maturities, liquidity and cash generation; the filing lists $509 million of manufacturing debt due in 2021.
- Long-term contract cost estimates and the effect of cumulative catch-up adjustments, which increased 2020 segment profit by $72 million.