Textron Reports Fourth Quarter 2019 Results; Announces 2020

Textron Reports Fourth Quarter 2019 Results; Announces 2020 Financial Outlook

TEXTRON INC. Revenues by Segment and Reconciliation of Segment Profit to Net Income (Dollars in millions, except per share amounts) (Unaudited)
	Three Months Ended								Twelve Months Ended
	January 4, 2020				December 29, 2018				January 4, 2020				December 29, 2018
REVENUES
MANUFACTURING:
Textron Aviation		$	1,729			$	1,552			$	5,187			$	4,971
Bell			961				827				3,254				3,180
Textron Systems			399				345				1,325				1,464
Industrial			927				1,008				3,798				4,291
			4,016				3,732				13,564				13,906

FINANCE			19				18				66				66
Total revenues		$	4,035			$	3,750			$	13,630			$	13,972

SEGMENT PROFIT
MANUFACTURING:
Textron Aviation		$	134			$	170			$	449			$	445
Bell			118				108				435				425
Textron Systems			33				37				141				156
Industrial			44				73				217				218
			329				388				1,242				1,244

FINANCE			11				9				28				23
Segment Profit			340				397				1,270				1,267

Corporate expenses and other, net			(22	)			(12	)			(110	)			(119	)
Interest expense, net for Manufacturing group			(36	)			(34	)			(146	)			(135	)
Special charges (a)			(72	)			(73	)			(72	)			(73	)
Gain on business disposition (b)			-				-				-				444
Income before income taxes			210				278				942				1,384
Income tax expense (c)			(11	)			(32	)			(127	)			(162	)
Net Income		$	199			$	246			$	815			$	1,222

Earnings Per Share		$	0.87			$	1.02			$	3.50			$	4.83

Diluted average shares outstanding			229,790,000				242,569,000				232,709,000				253,237,000

Net Income and Diluted Earnings Per Share GAAP to Non-GAAP Reconciliation:

	Three Months Ended								Twelve Months Ended
	January 4, 2020				December 29, 2018				January 4, 2020				December 29, 2018
Net income - GAAP		$	199			$	246			$	815			$	1,222
Special charges, net of income taxes of $17 million for each period (a)			55				56				55				56
Gain on business disposition, net of income tax expense (benefit) of
$(9) million and $25 million, respectively (b)			-				(9	)			-				(419	)
Income tax benefit resulting from the Tax Cuts and Jobs Act (c)			-				(14	)			-				(14	)
Adjusted net income - Non-GAAP (d)		$	254			$	279			$	870			$	845

Earnings per share:
Net income - GAAP		$	0.87			$	1.02			$	3.50			$	4.83
Special charges, net of income taxes			0.24				0.23				0.24				0.22
Gain on business disposition, net of income taxes			-				(0.04	)			-				(1.65	)
Income tax benefit resulting from the Tax Cuts and Jobs Act			-				(0.06	)			-				(0.06	)
Net income - Non-GAAP (d)		$	1.11			$	1.15			$	3.74			$	3.34

(a)

In the fourth quarter of 2019, we recorded special charges of $72 million under a restructuring plan, principally impacting the Industrial and Textron Aviation segments. Special charges of $73 million were recorded in the fourth quarter of 2018 under a restructuring plan for the Textron Specialized Vehicles businesses within our Industrial segment.

(b)

On July 2, 2018, Textron completed the sale of the Tools & Test Equipment product line which resulted in an after tax gain of $419 million.

(c)

In the fourth quarter of 2018, we completed our analysis of the tax reform legislation enacted in 2017, known as the Tax Cuts and Jobs Act, and recorded a $14 million income tax benefit.

(d)

Adjusted net income and adjusted diluted earnings per share are non-GAAP financial measures as defined in "Non-GAAP Financial Measures" attached to this release.

Textron Inc.
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited)


		January 4, 2020		December 29, 2018
Assets
Cash and equivalents		$	1,181	$	987
Accounts receivable, net			921		1,024
Inventories			4,069		3,818
Other current assets			894		785
Net property, plant and equipment			2,527		2,615
Goodwill			2,150		2,218
Other assets			2,312		1,800
Finance group assets			964		1,017
	Total Assets	$	15,018	$	14,264


Liabilities and Shareholders' Equity
Current portion of long-term debt		$	561	$	258
Current liabilities			3,285		3,248
Other liabilities			2,288		1,932
Long-term debt			2,563		2,808
Finance group liabilities			803		826
	Total Liabilities		9,500		9,072

Total Shareholders' Equity			5,518		5,192
	Total Liabilities and Shareholders' Equity	$	15,018	$	14,264

TEXTRON INC.
MANUFACTURING GROUP
Condensed Schedule of Cash Flows
(In millions)
(Unaudited)


		Three Months Ended		Twelve Months Ended
		January 4,	December 29,	January 4,	December 29,
		2020	2018	2020	2018
Cash flows from operating activities:
Income from continuing operations		$ 190	$ 239	$ 793	$ 1,198
Depreciation and amortization		113	113	410	429
Changes in working capital		460	1	(380)	(203)
Changes in other assets and liabilities and non-cash items		(8)	40	87	97
Gain on business disposition		-	-	-	(444)
Dividends received from TFC		-	-	50	50
Net cash from operating activities of continuing operations		755	393	960	1,127
Cash flows from investing activities:
Capital expenditures		(123)	(136)	(339)	(369)
Net proceeds from business disposition		-	-	-	807
Net cash (used)/proceeds from corporate-owned life insurance policies		(2)	12	2	110
Proceeds from the sale of property, plant and equipment		3	2	9	14
Net cash used in acquisitions		(2)	(20)	(2)	(23)
Other investing activities, net		1	-	1	-
Net cash from investing activities		(123)	(142)	(329)	539
Cash flows from financing activities:
Decrease in short-term debt		(118)	-	-	-
Net proceeds from long-term debt		4	-	301	-
Principal payments on long-term debt		(252)	(1)	(252)	(5)
Purchases of Textron common stock		(33)	(400)	(503)	(1,783)
Other financing activities, net		7	(3)	15	50
Net cash from financing activities		(392)	(404)	(439)	(1,738)
Total cash flows from continuing operations		240	(153)	192	(72)
Total cash flows from discontinued operations		-	(1)	(2)	(2)
Effect of exchange rate changes on cash and equivalents		10	(9)	4	(18)
Net change in cash and equivalents		250	(163)	194	(92)
Cash and equivalents at beginning of period		931	1,150	987	1,079
Cash and equivalents at end of period		$ 1,181	$ 987	$ 1,181	$ 987

Manufacturing Cash Flow GAAP to Non-GAAP Reconciliation:

Net cash from operating activities of continuing operations - GAAP		$ 755	$ 393	$ 960	$ 1,127
Less:	Capital expenditures	(123)	(136)	(339)	(369)
	Dividends received from TFC	-	-	(50)	(50)
Plus:	Total pension contributions	15	15	51	52
	Taxes paid on gain on business disposition	-	10	11	10
	Proceeds from the sale of property, plant and equipment	3	2	9	14
Manufacturing cash flow before pension contributions - Non-GAAP (a)		$ 650	$ 284	$ 642	$ 784

(a)	Manufacturing cash flow before pension contributions is a non-GAAP financial measure as defined in "Non-GAAP Financial Measures" attached to this release.

	TEXTRON INC.
	Condensed Consolidated Schedule of Cash Flows
	(In millions)
	(Unaudited)

		Three Months Ended						Twelve Months Ended
		January 4,			December 29,			January 4,			December 29,
		2020			2018			2020			2018
Cash flows from operating activities:
Income from continuing operations		$	199		$	246		$	815		$	1,222
Depreciation and amortization			114			115			416			437
Changes in working capital			490			12			(297	)		(202	)
Changes in other assets and liabilities and non-cash items			(12	)		39			82			96
Gain on business disposition			-			-			-			(444	)
Net cash from operating activities of continuing operations			791			412			1,016			1,109
Cash flows from investing activities:
Capital expenditures			(123	)		(136	)		(339	)		(369	)
Net proceeds from business disposition			-			-			-			807
Net cash (used)/proceeds from corporate-owned life insurance policies			(2	)		12			2			110
Finance receivables repaid			28			2			48			27
Net cash used in acquisitions			(2	)		(20	)		(2	)		(23	)
Other investing activities, net			16			28			25			68
Net cash from investing activities			(83	)		(114	)		(266	)		620
Cash flows from financing activities:
Decrease in short-term debt			(118	)		-			-			-
Net proceeds from long-term debt			4			-			301			-
Principal payments on long-term debt and nonrecourse debt			(261	)		(71	)		(303	)		(131	)
Purchases of Textron common stock			(33	)		(400	)		(503	)		(1,783	)
Other financing activities, net			(6	)		(3	)		3			50
Net cash from financing activities			(414	)		(474	)		(502	)		(1,864	)
Total cash flows from continuing operations			294			(176	)		248			(135	)
Total cash flows from discontinued operations			-			(1	)		(2	)		(2	)
Effect of exchange rate changes on cash and equivalents			10			(9	)		4			(18	)
Net change in cash and equivalents			304			(186	)		250			(155	)
Cash and equivalents at beginning of period			1,053			1,293			1,107			1,262
Cash and equivalents at end of period		$	1,357		$	1,107		$	1,357		$	1,107

TEXTRON INC.

Non-GAAP Financial Measures

(Dollars in millions, except per share amounts)

We supplement the reporting of our financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial measures. These non-GAAP financial measures exclude certain significant items that may not be indicative of, or are unrelated to, results from our ongoing business operations. We believe that these non-GAAP measures may be useful for period-over-period comparisons of underlying business trends and our ongoing business performance, however, they should be used in conjunction with GAAP measures. Our non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define similarly named measures differently. We encourage investors to review our financial statements and publicly-filed reports in the entirety and not to rely on any single financial measure. We utilize the following definition for the non-GAAP financial measure included in this release:

Adjusted net income and adjusted diluted earnings per share

Adjusted net income and adjusted diluted earnings per share both exclude Special charges, net of taxes, Gain on business disposition, net of taxes, and the income tax benefit resulting from the Tax Cuts and Jobs Act (the "Tax Act"). We consider items recorded in Special charges such as enterprise-wide restructuring and acquisition-related restructuring, integration and transaction costs, to be of a non-recurring nature that is not indicative of ongoing operations. The Gain on business disposition is not considered indicative of ongoing operations as it is a significant one-time transaction related to the sale of our Tools and Test product line. In addition, the impact from the Tax Act is not considered to be indicative of ongoing operations since it represents a one-time adjustment related to a significant tax reform of a non-recurring nature.

Manufacturing cash flow before pension contributions

Manufacturing cash flow before pension contributions adjusts net cash from operating activities (GAAP) for the following:

Deducts capital expenditures and includes proceeds from the sale of property, plant and equipment to arrive at the net capital investment required to support ongoing manufacturing operations;
Excludes dividends received from Textron Financial Corporation (TFC) and capital contributions to TFC provided under the Support Agreement and debt agreements as these cash flows are not representative of manufacturing operations;
Adds back pension contributions as we consider our pension obligations to be debt-like liabilities. Additionally, these contributions can fluctuate significantly from period to period and we believe that they are not representative of cash used by our manufacturing operations during the period.
Excludes taxes paid related to the gain realized in 2018 on the Tools and Test business disposition. We have made this adjustment to the non-GAAP measure because we believe this use of cash is not representative of cash used by our manufacturing operations.

While we believe this measure provides a focus on cash generated from manufacturing operations, before pension contributions, and may be used as an additional relevant measure of liquidity, it does not necessarily provide the amount available for discretionary expenditures since we have certain non-discretionary obligations that are not deducted from the measure.


Net Income and Diluted Earnings Per Share (EPS) GAAP to Non-GAAP Reconciliation:

			Three Months Ended								Twelve Months Ended
			January 4, 2020				December 29, 2018				January 4, 2020					December 29, 2018
Net Income - GAAP				$	199			$	246			$	815				$	1,222
	Special charges, net of income taxes of $17 million for each period				55				56				55					56
	Gain on business disposition, net of income tax expense (benefit)
	of $(9) million and $25 million, respectively				-				(9	)			-					(419	)
	Income tax benefit resulting from the Tax Cuts and Jobs Act				-				(14	)			-					(14	)
	Adjusted Net Income - Non-GAAP			$	254			$	279			$	870				$	845

Earnings per share:
	Net Income - GAAP			$	0.87			$	1.02			$	3.50				$	4.83
	Special charges, net of income taxes				0.24				0.23				0.24					0.22
	Gain on business disposition, net of income taxes				-				(0.04	)			-					(1.65	)
	Income tax benefit resulting from the Tax Cuts and Jobs Act				-				(0.06	)			-					(0.06	)
	Adjusted Net Income - Non-GAAP			$	1.11			$	1.15			$	3.74				$	3.34




	Manufacturing Cash Flow Before Pension Contributions GAAP to Non-GAAP Reconciliation and 2020 Outlook:

			Three Months Ended								Twelve Months Ended
			January 4, 2020				December 29, 2018				January 4, 2020					December 29, 2018
	Net cash from operating activities of continuing operations - GAAP			$	755			$	393			$	960				$	1,127
	Less:	Capital expenditures			(123	)			(136	)			(339	)				(369	)
		Dividends received from TFC			-				-				(50	)				(50	)
	Plus:	Total pension contributions			15				15				51					52
		Taxes paid on gain on business disposition			-				10				11					10
		Proceeds from the sale of property, plant and equipment			3				2				9					14
	Manufacturing cash flow before pension contributions - Non-GAAP			$	650			$	284			$	642				$	784




											2020 Outlook
	Net cash from operating activities of continuing operations - GAAP											$	1,010		-		$	1,110
	Less:	Capital expenditures									(360)
	Plus:	Total pension contributions									50
	Manufacturing cash flow before pension contributions - Non-GAAP											$	700		-		$	800

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