Textron Inc. 10-Q Summary
Period note: The supplied filing is for the quarter ended March 31, 2012, compared with the quarter ended April 2, 2011. This does not match the requested “2011 Q1” period.
Business context and reporting period
Textron reported unaudited first-quarter 2012 results for its Cessna, Bell, Textron Systems, Industrial and Finance segments. The company separates its Manufacturing and Finance borrowing groups. Interim results are not necessarily indicative of full-year performance.
Financial performance and liquidity
| Metric | Q1 2012 | Comparable 2011 period |
|---|---|---|
| Total revenue | $2.856 billion | $2.479 billion |
| Income before tax | $177 million | $46 million |
| Continuing-operations income | $120 million | $31 million |
| Net income | $118 million | $29 million |
| Diluted EPS | $0.40 | $0.09 |
| Operating cash flow | $(253) million | $55 million |
- Manufacturing gross margin rose to 17.3% from 16.2%, reflecting favorable Bell mix and improved volume leverage at Bell, Cessna and Industrial.
- Consolidated cash and equivalents were $646 million at quarter-end, down from $885 million at year-end 2011. Total reported debt across the Manufacturing and Finance groups was $4.314 billion, versus $4.433 billion at year-end.
- Manufacturing-group net debt to capital was 38.8%, up from 36.6%; debt to capital was 45.9%, down from 47.3%. Textron had no borrowings under its $1.0 billion revolving credit facility, which expires in March 2015.
- Operating cash use reflected higher pension contributions, working-capital needs, timing of Bell H-1 receipts, and Finance-group taxes. The Finance group paid $111 million in taxes, primarily related to an IRS settlement concerning prior-year leveraged-lease deductions.
Material changes versus the prior comparable period
- Revenue increased 15%. Bell revenue rose $245 million, Cessna $113 million and Industrial $52 million; Finance rose $35 million. Textron Systems revenue fell $68 million.
- Segment profit improved at Cessna, Bell, Industrial and Finance, but declined at Textron Systems. Bell profit increased to $145 million from $91 million; Cessna narrowed its loss to $6 million from $38 million. Textron Systems profit fell to $35 million from $53 million.
- Finance segment profit improved to $12 million from a $44 million loss, helped by valuation adjustments, lower portfolio losses and expenses, and resolution of a Timeshare account.
- Net favorable long-term contract estimate adjustments were $4 million, compared with $14 million in Q1 2011.
Outlook, risks and unusual items
- Management expects continued progress over several years in liquidating the remaining $779 million non-captive Finance portfolio, subject to market conditions. No formal earnings or revenue guidance is provided in the supplied filing text.
- Finance credit indicators improved modestly from year-end: nonaccrual receivables were 12.55% of held-for-investment receivables versus 12.96%, and 60-plus-day delinquencies were 6.19% versus 6.70%. Management cautioned that nonaccrual levels are expected to remain high during portfolio liquidation.
- A bankruptcy trustee sued Textron Financial Corporation and others, alleging fraudulent transfers and related claims tied to Fair Finance Company. The complaint seeks $316 million in transfer recovery and $223 million in damages, plus potential treble damages. Textron intends to defend the case; it could not estimate a possible loss range.
- Convertible notes with $215 million principal were convertible at holders’ option through June 30, 2012. Depending on settlement choice and related instruments, conversion could require cash, shares or both.
- Management stated that existing legal proceedings were not expected to materially affect financial position or results, based on information then available. Disclosure controls were considered effective, and no significant change in market-risk exposure was reported.
Important facts for investors to verify
- Confirm the intended reporting period: this filing covers Q1 2012, not Q1 2011.
- Review the remaining non-captive portfolio, liquidation pace, valuation assumptions and credit losses, especially for Aviation and Timeshare exposures.
- Monitor the Fair Finance litigation, including any later estimate of potential loss or change in claim status.
- Assess the sustainability of improved earnings against negative operating cash flow, elevated inventory and pension-related cash contributions.
- Check the convertible-note settlement outcome and any resulting cash use or share dilution.