Textron 10-Q 2024-03-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

For the quarterly period ended March 30, 2024

OR

For the transition period from ______ to ______.

Commission File Number 1-5480

Textron Inc.

(Exact name of registrant as specified in its charter)

(401) 421-2800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of April 12, 2024, there were 190,698,993 shares of common stock outstanding.

TEXTRON INC.

Index to Form 10-Q

For the Quarterly Period Ended March 30, 2024

PART I. FINANCIAL INFORMATION

TEXTRON INC.

Consolidated Statements of Operations (Unaudited)

See Notes to the Consolidated Financial Statements.

TEXTRON INC.

Consolidated Statements of Comprehensive Income (Unaudited)

See Notes to the Consolidated Financial Statements.

TEXTRON INC.

Consolidated Balance Sheets (Unaudited)

See Notes to the Consolidated Financial Statements.

TEXTRON INC.

Consolidated Statements of Cash Flows (Unaudited)

For the Three Months Ended March 30, 2024 and April 1, 2023, respectively

Showing the first 8K of 65K characters. Open the full section

Consolidated Results of Operations

An analysis of our consolidated operating results is set forth below. A more detailed analysis of our segments’ operating results is provided in the Segment Analysis section on pages 20 to 24.

Revenues

Revenues increased $111 million, 4%, in the first quarter of 2024, compared with the first quarter of 2023. The revenue increase primarily included the following factors:

• Higher Bell revenues of $106 million, largely reflecting higher military volume of $95 million, primarily related to the FLRAA program, partially offset by lower volume on the V-22 and H-1 programs.

• Higher Textron Aviation revenues of $39 million, reflecting higher pricing of $48 million, partially offset by lower volume and mix of $9 million.

• Lower Industrial revenues of $40 million, due to lower volume and mix of $51 million, principally in the Specialized Vehicles product line, partially offset by higher pricing of $16 million.

Cost of Sales and Selling and Administrative Expense

Cost of sales includes cost of products and services sold for the Manufacturing group. In the first quarter of 2024, cost of sales increased $83 million, 3%, compared with the first quarter of 2023, largely due to the impact of higher net volume and mix described above and $52 million of inflation.

Selling and administrative expense increased $11 million, 4%, in the first quarter of 2024, compared with the first quarter of 2023, primarily reflecting higher share-based compensation expense, partially offset by a gain on a legal settlement and a recovery of amounts that were previously written off related to one customer relationship in the Finance segment.

Special Charges

Special charges include restructuring activities and asset impairment charges as described in Note 12 to the Consolidated Financial Statements in Item 1. Financial Statements.

Income Taxes

Our effective tax rate for the first quarter of 2024 and 2023 was 15.2% and 15.9%, respectively. In the first quarter of 2024, the effective tax rate was lower than the U.S. federal statutory rate of 21%, largely due to the recognition of excess tax benefits related to share-based compensation, the favorable impact of research and development credits, and tax deductions for foreign-derived intangible income. In the first quarter of 2023, the effective tax rate was lower than the U.S. federal statutory rate of 21%, largely due to the favorable impact of research and development credits and tax deductions for foreign-derived intangible income.

Backlog

Our backlog is summarized below:

Segment Analysis

We operate in, and report financial information for, the following six operating segments: Textron Aviation, Bell, Textron Systems, Industrial, Textron eAviation and Finance. Segment profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the manufacturing segments excludes the non-service components of pension and postretirement income, net; LIFO inventory provision; intangible asset amortization; interest expense, net for Manufacturing group; certain corporate expenses; gains/losses on major business dispositions; and special charges. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense. Operating expenses for the Manufacturing segments include cost of sales and selling and administrative expense, while excluding certain corporate expenses, LIFO inventory provision, intangible asset amortization and special charges.

In our discussion of comparative results for the Manufacturing group, changes in revenues and segment profit for our commercial businesses typically are expressed in terms of volume and mix, pricing, foreign exchange, acquisitions and dispositions, inflation and performance. For revenues, volume and mix represents changes in revenues from increases or decreases in the number of units delivered or services provided and the composition of products and/or services sold. For segment profit, volume and mix represents a change due to the number of units delivered or services provided and the composition of products and/or services sold at different profit margins. Pricing represents changes in unit pricing. Foreign exchange is the change resulting from translating foreign-denominated amounts into U.S. dollars at exchange rates that are different from the prior period. Revenues generated by acquired businesses are reflected in Acquisitions for a twelve-month period, while reductions in revenues and segment profit from the sale of businesses are reflected as Dispositions. Inflation represents higher material, wages, benefits, pension service cost or other costs. Performance reflects an increase or decrease in research and development, depreciation, selling and administrative costs, warranty, product liability, quality/scrap, labor efficiency, overhead, product line profitability, start-up, ramp up and cost-reduction initiatives or other manufacturing inputs.

Approximately 21% of our 2023 revenues were derived from contracts with the U.S. Government, including those under the U.S. Government-sponsored foreign military sales program. For our segments that contract with the U.S. Government, changes in revenues related to these contracts are expressed in terms of volume. Changes in segment profit for these contracts are typically expressed in terms of volume and mix and performance; these include cumulative catch-up adjustments associated with a) revisions to the transaction price that may reflect contract modifications or changes in assumptions related to award fees and other variable consideration or b) changes in the total estimated costs at completion due to improved or deteriorated operating performance.

Textron Aviation

Textron Aviation Revenues and Operating Expenses

The following factors contributed to the change in Textron Aviation’s revenues from the prior year quarter:

Textron Aviation’s revenues increased $39 million, 3%, in the first quarter of 2024, compared with the first quarter of 2023, reflecting higher pricing of $48 million, partially offset by lower volume and mix of $9 million. The decrease in volume and mix includes lower commercial turboprop volume, partially offset by higher Citation jet volume. We delivered 36 Citation jets and 20 commercial turboprops in the first quarter of 2024, compared with 35 Citation jets and 34 commercial turboprops in the first quarter of 2023.

Textron Aviation’s operating expenses increased $21 million, 2%, in the first quarter of 2024, compared with the first quarter of 2023, largely reflecting inflation.

Textron Aviation Segment Profit

The following factors contributed to the change in Textron Aviation’s segment profit from the prior year quarter:

Segment profit at Textron Aviation increased $18 million, 14%, in the first quarter of 2024, compared with the first quarter of 2023, primarily due to favorable pricing, net of inflation of $14 million.

Bell

Bell’s military aircraft and support programs include a development contract for the U.S. Army's FLRAA program, as well as production, upgrade, and support contracts for the V-22 tiltrotor aircraft and H-1 helicopters. The FLRAA program has begun to represent an increasing portion of Bell’s revenues as development activities have ramped. We continue to receive production, upgrade and support orders for the V-22 and H-1 programs, however, these programs are expected to represent a lower portion of Bell’s military revenue in the future. In the first quarter of 2024, Bell received a foreign military sale award for the production and delivery of 12 AH-1Z helicopters.

Bell Revenues and Operating Expenses

The following factors contributed to the change in Bell’s revenues from the prior year quarter:

Bell’s revenues increased $106 million, 17%, in the first quarter of 2024, compared with the first quarter of 2023, reflecting higher volume and mix of $89 million and higher pricing of $17 million. Volume and mix included higher military volume of $95 million, primarily related to the FLRAA program, partially offset by lower volume on the V-22 and H-1 programs. Commercial volume and mix decreased $6 million, as we delivered 18 commercial helicopters in the first quarter of 2024, compared with 22 commercial helicopters in the first quarter of 2023.

Bell’s operating expenses increased $86 million, 15% in the first quarter of 2024, compared with the first quarter of 2023, primarily due to higher volume and mix described above.

Bell Segment Profit

The following factors contributed to the change in Bell’s segment profit from the prior year quarter:

Bell’s segment profit increased $20 million, 33%, in the first quarter of 2024, compared with the first quarter of 2023, largely due to a favorable impact from performance of $30 million, which included $13 million of lower research and development costs, partially offset by lower volume and mix, reflecting the mix of products and services sold in the period.

Textron Systems

Textron Systems Revenues and Operating Expenses

The following factors contributed to the change in Textron Systems’ revenues from the prior year quarter:

Textron Systems' revenues were unchanged in the first quarter of 2024, compared with the first quarter of 2023, as higher pricing of $4 million was offset by lower volume of $4 million.

Textron Systems’ operating expenses decreased $4 million in the first quarter of 2024, compared with the first quarter of 2023, largely related to lower volume.

Textron Systems Segment Profit

The following factors contributed to the change in Textron Systems’ segment profit from the prior year quarter:

Textron Systems’ segment profit increased $4 million, 12%, in the first quarter of 2024, compared with the first quarter of 2023, primarily due to higher pricing, net of inflation of $2 million.

Industrial

Industrial Revenues and Operating Expenses

The following factors contributed to the change in Industrial’s revenues from the prior year quarter:

Industrial segment revenues decreased $40 million, 4%, in the first quarter of 2024, compared with the first quarter of 2023, largely due to lower volume and mix of $51 million, principally in the Specialized Vehicles product line, partially offset by higher pricing of $16 million in the segment.

Industrial's operating expenses decreased $28 million, 3%, in the first quarter of 2024, compared with the first quarter of 2023, principally reflecting the impact of lower volume and mix described above.

Industrial Segment Profit

The following factors contributed to the change in Industrial’s segment profit from the prior year quarter:

Segment profit for the Industrial segment decreased $12 million, 29%, in the first quarter of 2024, compared with the first quarter of 2023, largely due to lower volume and mix of $14 million as described above.

Textron eAviation

Textron eAviation Revenues and Operating Expenses

The following factors contributed to the change in Textron eAviation’s revenues from the prior year quarter:

Textron eAviation segment revenues increased $3 million, in the first quarter of 2024, compared with the first quarter of 2023, primarily reflecting higher volume and mix.

Textron eAviation's operating expenses increased $12 million, in the first quarter of 2024, compared with the first quarter of 2023, primarily related to higher research and development costs.

Textron eAviation Segment Loss

The following factors contributed to the change in Textron eAviation’s segment loss from the prior year quarter:

Textron eAviation's segment loss increased $9 million in the first quarter of 2024, compared with the first quarter of 2023, largely due to an unfavorable impact from performance and other, primarily reflecting higher research and development costs.

Finance

Finance segment revenues increased $3 million in the first quarter of 2024, compared with the first quarter of 2023, and segment profit increased $10 million. The increase in segment profit was largely due to an $8 million recovery of amounts that were previously written off related to one customer relationship. The following table reflects information about the Finance segment’s credit performance related to finance receivables.

We believe our allowance for credit losses adequately covers our exposure on these loans as our estimated collateral values largely exceed the outstanding loan amounts. Key portfolio quality indicators are discussed in Note 2 to the Consolidated Financial Statements.

Liquidity and Capital Resources

Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron consolidated with its majority-owned subsidiaries that operate in the Textron Aviation, Bell, Textron Systems, Industrial and Textron eAviation segments. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation and its consolidated subsidiaries. We designed this framework to enhance our borrowing power by separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible goods and services, while our Finance group provides financial services. Due to the fundamental differences between each borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements.

Key information that is utilized in assessing our liquidity is summarized below:

We believe that our calculations of debt to capital and net debt to capital are useful measures as they provide a summary indication of the level of debt financing (i.e., leverage) that is in place to support our capital structure, as well as to provide an indication of the capacity to add further leverage. We expect to have sufficient cash to meet our needs based on our existing cash balances, the cash we expect to generate from our manufacturing operations and the availability of our existing credit facility.

Credit Facilities and Other Sources of Capital

Textron has a senior unsecured revolving credit facility for an aggregate principal amount of $1.0 billion, of which $100 million is available for the issuance of letters of credit. We may elect to increase the aggregate amount of commitments under the facility to up to $1.3 billion by designating an additional lender or by an existing lender agreeing to increase its commitment. The facility expires in October 2027 and provides for two one-year extensions at our option with the consent of lenders representing a majority of the commitments under the facility. At March 30, 2024 and December 30, 2023, there were no amounts borrowed against the facility and there were $9 million of outstanding letters of credit issued under the facility.

We also maintain an effective shelf registration statement filed with the Securities and Exchange Commission that allows us to issue an unlimited amount of public debt and other securities. On March 1, 2024, we repaid our $350 million 4.30% Notes due March 2024.

Manufacturing Group Cash Flows

Cash flows for the Manufacturing group as presented in our Consolidated Statements of Cash Flows are summarized below:

In the first quarter of 2024, the net cash outflow from operating activities was $30 million, compared with a net cash inflow of $153 million in the first quarter of 2023. The $183 million decrease in cash flows was largely due to changes in working capital, primarily due to the timing of payments on accounts payable. We expect positive cash flows from operating activities for the full year.

Cash flows used in investing activities in the first quarter of 2024 included $66 million of capital expenditures. Investing activities in the first quarter of 2023 included $62 million of capital expenditures, partially offset by $20 million of net proceeds from corporate-owned life insurance policies.

Cash flows used in financing activities in the first quarter of 2024 included $352 million of payments on long-term debt and $317 million of cash paid to repurchase an aggregate of 3.6 million shares of our common stock. In the first quarter of 2023, cash flows used in financing activities included $377 million of cash paid to repurchase an aggregate of 5.2 million shares of our common stock.

Finance Group Cash Flows

Cash flows for the Finance group as presented in our Consolidated Statements of Cash Flows are summarized below:

The Finance group’s cash flows from investing activities included collections on finance receivables totaling $47 million and $35 million in the first quarter of 2024 and 2023, respectively, partially offset by finance receivable originations of $28 million and $17 million, respectively. In the first quarter of 2024 and 2023, financing activities included payments on long-term and nonrecourse debt of $13 million and $15 million, respectively.

Consolidated Cash Flows

The consolidated cash flows after elimination of activity between the borrowing groups, are summarized below:

In the first quarter of 2024, the net cash outflow from operating activities was $7 million, compared with a net cash inflow of $163 million in the first quarter of 2023. The $170 million decrease in cash flows was largely due to changes in working capital, primarily due to the timing of payments on accounts payable.

Cash flows used in investing activities in the first quarter of 2024 included $66 million of capital expenditures. Investing activities in the first quarter of 2023 included $62 million of capital expenditures, partially offset by $20 million of net proceeds from corporate-owned life insurance policies.

Cash flows used in financing activities in the first quarter of 2024 included $365 million of payments on long-term debt and $317 million of cash paid to repurchase shares of our outstanding common stock. In the first quarter of 2023, cash flows used in financing activities included $377 million of cash paid to repurchase shares of our outstanding common stock.

Captive Financing and Other Intercompany Transactions

The Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters manufactured by our Manufacturing group, otherwise known as captive financing. In the Consolidated Statements of Cash Flows, cash received from customers is reflected as operating activities when received from third parties. However, in the cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected based on the operations of each group. For example, when product is sold by our Manufacturing group to a customer and is financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. Although cash is transferred between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of the original financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or eliminated from the Consolidated Statements of Cash Flows.

Reclassification adjustments included in the Consolidated Statements of Cash Flows are summarized below:

Critical Accounting Estimates Update

Our Consolidated Financial Statements are prepared in conformity with U.S. generally accepted accounting principles, which require us to make estimates and assumptions that affect the amounts reported in the financial statements. The accounting estimates that we believe are most critical to the portrayal of our financial condition and results of operations are reported in Item 7 of our Annual Report on Form 10-K for the year ended December 30, 2023. The following section provides an update of the year-end disclosure.

Revenue Recognition

A substantial portion of our revenues is related to long-term contracts with the U.S. Government, including those under the U.S. Government-sponsored foreign military sales program, for the design, development, manufacture or modification of aerospace and defense products as well as related services. We generally use the cost-to-cost method to measure progress for these contracts because it best depicts the transfer of control to the customer that occurs as we incur costs on our contracts. Under this measure, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the estimated costs at completion of the performance obligation, and revenue is recorded proportionally as costs are incurred.

Changes in our estimate of the total expected cost or in the transaction price for a contract typically impact our profit booking rate. We utilize the cumulative catch-up method of accounting to recognize the impact of these changes on our profit booking rate for a contract. Under this method, the inception-to-date impact of a profit adjustment on a contract is recognized in the period the adjustment is identified. The impact of our cumulative catch-up adjustments on segment profit recognized in prior periods is presented below:

Forward-Looking Information

Certain statements in this Quarterly Report on Form 10-Q and other oral and written statements made by us from time to time are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which may describe strategies, goals, outlook or other non-historical matters, or project revenues, income, returns or other financial measures, often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “guidance,” “project,” “target,” “potential,” “will,” “should,” “could,” “likely” or “may” and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update or revise any forward-looking statements. In addition to those factors described in our 2023 Annual Report on Form 10-K under “Risk Factors,” among the factors that could cause actual results to differ materially from past and projected future results are the following:

• Interruptions in the U.S. Government’s ability to fund its activities and/or pay its obligations;

• Changing priorities or reductions in the U.S. Government defense budget, including those related to military operations in foreign countries;

• Our ability to perform as anticipated and to control costs under contracts with the U.S. Government;

• The U.S. Government’s ability to unilaterally modify or terminate its contracts with us for the U.S. Government’s convenience or for our failure to perform, to change applicable procurement and accounting policies, or, under certain circumstances, to withhold payment or suspend or debar us as a contractor eligible to receive future contract awards;

• Changes in foreign military funding priorities or budget constraints and determinations, or changes in government regulations or policies on the export and import of military and commercial products;

• Volatility in the global economy or changes in worldwide political conditions that adversely impact demand for our products;

• Volatility in interest rates or foreign exchange rates and inflationary pressures;

• Risks related to our international business, including establishing and maintaining facilities in locations around the world and relying on joint venture partners, subcontractors, suppliers, representatives, consultants and other business partners in connection with international business, including in emerging market countries;

• Our Finance segment’s ability to maintain portfolio credit quality or to realize full value of receivables;

• Performance issues with key suppliers or subcontractors;

• Legislative or regulatory actions, both domestic and foreign, impacting our operations or demand for our products;

• Our ability to control costs and successfully implement various cost-reduction activities;

• The efficacy of research and development investments to develop new products or unanticipated expenses in connection with the launching of significant new products or programs;

• The timing of our new product launches or certifications of our new aircraft products;

• Our ability to keep pace with our competitors in the introduction of new products and upgrades with features and technologies desired by our customers;

• Pension plan assumptions and future contributions;

• Demand softness or volatility in the markets in which we do business;

• Cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption;

• Difficulty or unanticipated expenses in connection with integrating acquired businesses;

• The risk that acquisitions do not perform as planned, including, for example, the risk that acquired businesses will not achieve revenue and profit projections;

• The impact of changes in tax legislation;

• The risk of disruptions to our business and the business of our suppliers, customers and other business partners due to unexpected events, such as pandemics, natural disasters, acts of war, strikes, terrorism, social unrest or other societal or political conditions; and

• The ability of our businesses to hire and retain the highly skilled personnel necessary for our businesses to succeed.

There has been no significant change in our exposure to market risk during the fiscal quarter ended March 30, 2024. For discussion of our exposure to market risk, refer to Item 7A. Quantitative and Qualitative Disclosures about Market Risk contained in Textron’s 2023 Annual Report on Form 10-K.

We performed an evaluation of the effectiveness of our disclosure controls and procedures as of March 30, 2024. The evaluation was performed with the participation of senior management of each business segment and key Corporate functions, under the supervision of our Chairman, President and Chief Executive Officer (CEO) and our Executive Vice President and Chief Financial Officer (CFO). Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were operating and effective as of March 30, 2024.

There were no changes in our internal control over financial reporting during the fiscal quarter ended March 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following provides information about our first quarter of 2024 repurchases of equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended:

** These shares were purchased pursuant to a plan authorizing the repurchase of up to 35 million shares of Textron common stock that was approved on July 24, 2023 by our Board of Directors. This share repurchase plan has no expiration date.*

(c) None of our directors or executive officers adopted or terminated a “Rule 10b5-1 trading arrangement” or adopted or terminated a “non-Rule 10b5-1 trading arrangement” (as such terms are defined in Item 408 of Regulation S-K) during the quarter ended March 30, 2024.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.