(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 and an Inventory charge, net of taxes, related to the restructuring plan initiated in the second quarter of 2020. We consider items recorded in Special charges such as enterprise-wide restructuring, certain asset impairment charges and acquisition-related restructuring, integration and transaction costs, to be of a non-recurring nature that is not indicative of ongoing operations. The inventory charge is also excluded as it relates to the write-down of inventory in connection with an action taken under the restructuring plan at our TRU Simulation + Training (TRU) business. Due to the substantial decline in demand and order cancellations for flight simulators resulting from the impact of the pandemic on the commercial air transportation business, we ceased manufacturing at TRU’s facility in Montreal, Canada, resulting in the production suspension of its commercial air transport simulators. As a result of this action and current market conditions, the related inventory was written-down to its net realizable value.
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 an insurance recovery and 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:
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Three Months Ended
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Nine Months Ended
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Diluted EPS |
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Diluted EPS |
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Net Income - GAAP |
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$ |
115 |
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$ |
0.50 |
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$ |
73 |
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$ |
0.32 |
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Add: Special charges, net of taxes |
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6 |
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0.03 |
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|
103 |
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|
|
0.45 |
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| Inventory charge, net of taxes |
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— |
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— |
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55 |
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0.24 |
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| Adjusted Net Income - Non-GAAP |
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$ |
121 |
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$ |
0.53 |
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$ |
231 |
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$ |
1.01 |
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