Textron Inc. (TXT) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Textron Inc. 2020 Annual Shareholders' Meeting. I would now like to hand the conference to your speaker today, Scott C. Donnelly, Chairman and CEO of Textron. Please go ahead, sir.

All right. Thank you very much, and good morning. On behalf of the Board of Directors and our management team, welcome to Textron's 2020 Annual Shareholders' Meeting, which is being held virtually this year due to restrictions on public gatherings necessitated by the COVID-19 pandemic. Due to the business disruptions caused by the pandemic, we recently revised the date of our first quarter earnings release to tomorrow, April 30. Accordingly, I will not be providing a business update at today's meeting. Our quarterly investors' call will be held tomorrow morning beginning at 8:00 a.m. Eastern Time. Instructions for joining the call can be found on the investor page of our website, www.textron.com. I would like to begin this morning's meeting by first covering some housekeeping items concerning the shareholder virtual meeting web page. The meeting agenda is posted in the box located in the top right-hand corner of the web page. Shareholders may cast their votes at any time until voting has been completed on all matters on the agenda, at which time the polls will be closed. Please use the box labeled Vote Here located in the bottom right-hand corner of the web page to cast your votes if you have not already done so. Shareholders may ask questions by typing their questions in the box labeled Ask a Question located in the bottom left-hand corner of the web page. Audio can be adjusted using the controls located in the box located in the top left corner of the web page. Additional materials, including our annual report and proxy statement, the rules of conduct for the meeting and the registered shareholders lists, are available in the meeting materials box directly beneath the Vote Here box located in the bottom right-hand corner of the web page. This meeting is being recorded, and the webcast will be posted on the Investors page of our website, www.textron.com, within 3 business days after the meeting and will remain available for 6 months thereafter. I would now like to introduce the independent directors who, in addition to me, comprise the full Board of Directors. Each of the independent directors is present today by telephone: Kathleen M. Bader, retired President and CEO of NatureWorks LLC; R. Kerry Clark, retired Chairman and Chief Executive Officer of Cardinal Health, Inc.; James T. Conway, retired general of the United States Marine Corps and 34th commandant of the marine corps; Lawrence K. Fish, retired Chairman and Chief Executive Officer of Citizens Financial Group, Inc.; Paul E. Gagné, retired Chairman of Wajax Corporation; Ralph D. Heath, retired Executive Vice President, Aeronautics, of Lockheed Martin Corporation; Deborah Lee James, retired 23rd Secretary of the United States Air Force; Lionel L. Nowell III, retired Senior Vice President and Treasurer of PepsiCo, Inc.; Lloyd G. Trotter, Managing Partner of GenNx360 Capital Partners; James L. Ziemer, retired President and Chief Executive Officer of Harley-Davidson, Inc.; and Maria T. Zuber, Vice President for Research and the E. A. Griswold Professor of Geophysics at the Massachusetts Institute of Technology. I would like to take this opportunity to acknowledge that following the meeting, Larry Fish and Lloyd Trotter will be retiring from the Board, and we want to thank them both for their years of service to Textron. They have been excellent directors and valued colleagues and their judgment and experience will be missed. Also present today via telephone are Frank Connor, Executive Vice President and Chief Financial Officer; Julie Duffy, Executive Vice President and -- Human Resources; Bob Lupone, Executive Vice President, General Counsel and Secretary; David Glinka, a representative from Ernst & Young LLP, Textron's independent registered public accounting firm. The Inspector of Election appointed for this meeting is [ Douglas Czarnecki ], a representative of Broadridge Financial Solutions, Inc. Mr. [ Czarnecki ] is also present via telephone. As stated in the 2020 proxy statement and notice of annual meeting previously made available to our shareholders, the record date for voting at this meeting was the close of business on March 2, 2020. The Secretary has delivered an affidavit of distribution establishing that notice of this meeting was given. Our first order of business is to determine whether the shares represented at the meeting, either voted during the meeting or by proxy, are sufficient to constitute a quorum. The Inspector of Election has informed us that a quorum is present, with 92% of the outstanding shares entitled to vote represented at this proxy meeting -- at this meeting by proxy, sorry. This meeting is now duly convened for the purpose of transacting business properly before it. I hereby declare that the polls are now open and will close following the completion of voting on the 3 matters noted on the agenda. If you have already voted online or returned a signed proxy card, your vote has been counted according to your instructions, and you do not need to vote today unless you wish to change your vote. If you have not yet voted or wish to change your vote, please cast your vote using the box labeled Vote Here located in the bottom right-hand corner of the meeting web page. The next order of business is a description of the matters to be voted on at today's meeting. The first proposal before the shareholders today is the election of directors to serve until the next Annual Meeting of the Shareholders in 2021 and until their successors are duly elected and qualified. Nine independent members of the Board of Directors and I have been nominated for election as directors as set forth in the proxy statement. Messrs. Fish and Trotter are not [ named for ] election because they are retiring. The Board recommends a vote for each of the directors on the ballot. The next proposal, #2, is an advisory nonbinding vote to approve the compensation of Textron's named executive officers as disclosed in the proxy statement. The Board recommends approval of the proposal. The next proposal, #3, is the ratification of the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for 2020. The Board recommends approval of the proposal. Are there any questions relating to any of the proposals? If so, please type your question in the box labeled Ask a Question located in the bottom left-hand corner of the meeting web page.

We do have a question, if I could go ahead and read that. I will need to read the question, obviously. The question is, "Mr. Chairman, the carpenters union pension funds with combined assets of $70 billion have a collective ownership position of 141,200 shares of Textron common stock. As long-term shareholders, we appreciate the efforts of the company to address the difficulties faced by employees, customers and other important stakeholders during the COVID-19 pandemic. The Compensation Committee has developed a plan that contains a thoughtful blend of performance metrics and compensation vehicles that targets market competitiveness compensation levels for named executive officers. Could you explain the rationale for the change in compensation consultants and whether it indicates significant changes are coming?" So thank you for the question. So we did change compensation consultants last year. The committee felt that we had, had the same consultants for quite a number of years and that the new look would provide a new perspective from the compensation consultant. I think that the way -- I wouldn't think about a lot of change coming, but I do think that what you saw in the proxy this year was a pretty significant change in our compensation structure, particularly, again as indicated in the proxy, going from a series of 1-year plans to 3-year plans, some changes in those metrics around ROIC and cash generation and TSR. So both the structure and metrics were modified. And frankly, that was an activity in which the new compensation consultant was integral to that process, along with our Board committee members and HR group. So I think that the -- and in terms of your expectations, those changes have been reflected in what you see today in that proxy statement. We do have another question. "When you give the results of the voting, please include percent voting in favor for directors. A range for all is sufficient." Sure, I can do that. So if I look at the tallied votes -- and again, this is the vote status coming into the meeting. So I don't know that, that would be affected, probably not likely to be affected materially in any changes in votes or new votes during the course of the meeting. But the vote range typically goes from the mid-90s to around 80. That's for the directors.

[ The directors ]...

That's the overall range.

[indiscernible]

The other matters, it looks like the advisory say on pay was approximately 67% and in favor.

[ In favor ].

And the ratification of auditors was approximately 96% in favor. Are there any other questions?

No...

Okay. Okay. There being no other questions, the discussion of matters for shareholder consideration is now closed. I will pause for a moment to permit any shareholder attending the meeting today who has not yet cast his or her vote to do so at this time. [Voting]

Okay. That constitutes a pause. Since it appears that all of those desiring to vote have now done so, I hereby declare the polls closed. As I stated earlier, the vast majority of Textron shareholders are represented today by proxy. Based on those proxies, preliminary report of the Inspector of Election shows that each of the 10 persons nominated for election as a director has been elected. Textron's executive compensation has been approved on an advisory basis and the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for 2020 has been ratified. The Inspector will prepare a report documenting the final vote totals and the voting results will be reported in a filing made with the SEC in the next 4 business days. Since we've completed the business of the meeting, the meeting is now adjourned. On behalf of the Board of Directors and our management team and employees, thank you for continued support of Textron.