E-Z-GO 1998 Annual Report Download - page 49

Textron Finance’s interest rate exchange agreements were designated against specific
long-term variable-rate notes. These agreements effectively adjusted the average rate of
interest on variable-rate notes to 6.03% from 5.96%.
During 1998, Textron Manufacturing entered into $435 million variable-pay interest rate
exchange agreements. Agreements that have the effect of varying the rate of interest on
fixed-rate borrowings are summarized as follows:
January 2, 1999 January 3, 1998
Variable-pay interest rate exchange agreements
Weighted Weighted
Weighted average Weighted average
Notional average remaining Notional average remaining
(Dollars in millions) amount interest rate term amount interest rate term
Textron Manufacturing $635 8.26% 5.5 $200 6.19% 9.9
Textron Finance
(expires in 1999) 50 5.22% 0.5 50 5.94% 1.5
$685 8.04% 5.1 $250 6.14% 8.2
Textron Manufacturing’s interest rate exchange agreements were designated against spe-
cific long-term fixed-rate debt. These agreements effectively adjusted the average rate of
interest on designated fixed-rate debt from 8.37% to 8.33%. The variable-pay interest rate
exchange agreements in effect at the end of 1998 expire as follows: $62 million (9.73%) in
1999, $124 million (9.89%) in 2001, and $449 million (7.70%) through 2020. Textron Finance’s
interest rate exchange agreements were designated against specific long-term fixed-rate
debt. These agreements effectively adjusted the average rate of interest on long-term fixed-
rate debt to 6.79% from 6.89%.
Textron had minimal exposure to loss from nonperformance by the counterparties to its
interest rate exchange agreements at the end of 1998, and does not anticipate nonperfor-
mance by counterparties in the periodic settlements of amounts due. Textron currently mini-
mizes this potential for risk by entering into contracts exclusively with major, financially
sound counterparties having no less than a long-term bond rating of “A,” by continuously
monitoring the counterparties’ credit ratings, and by limiting exposure with any one finan-
cial institution. The credit risk generally is limited to the amount by which the counterpar-
ties’ contractual obligations exceed Textron’s obligations to the counterparty.
In January 1999, Textron Manufacturing retired $479 million of fixed-rate debt and $479
million of variable-pay swaps.
Translation of foreign currencies, foreign exchange transactions and
foreign currency exchange contracts
Foreign currency denominated assets and liabilities are translated into U.S. dollars
with the adjustments from the currency rate changes being recorded in the currency
translation adjustment account in shareholders’ equity until the related foreign entity
is sold or substantially liquidated. Non-U.S. dollar financing transactions, including
currency swaps, are used to effectively hedge long-term investments in foreign opera-
tions with the same corresponding currency. Foreign currency gains and losses on the
hedge of the long-term investments are recorded in the currency translation adjustment
with the offset recorded as an adjustment to the non-U.S. dollar financing liability.
Forward exchange contracts are used to hedge certain foreign currency transactions
and certain firm sales and purchase commitments denominated in foreign currencies.
Gains and losses from currency rate changes on hedges of foreign currency transactions
are recorded currently in income. Gains and losses relating to the hedge of firm sales and
purchase commitments are included in the measurement of the underlying transactions
when they occur. Foreign exchange gains and losses included in income have not been material.
The table on the following page summarizes by major currency Textron’s forward
exchange contracts and currency swaps in U.S. dollars. The buy amounts represent the
U.S. dollar equivalent of commitments to purchase foreign currencies and the sell amounts
represent the U.S. dollar equivalent of commitments to sell foreign currencies. The foreign
currency amounts have been translated into a U.S. dollar equivalent using the exchange
rate at the balance sheet date.
1998 TEXTRON ANNUAL REPORT 45