E-Z-GO 1999 Annual Report Download - page 35

segments, whose financial results are a reflection of the ability to manage and finance the
development, production and delivery of tangible goods and services. Textron Finance
consists of Textron’s wholly-owned commercial finance subsidiary, Textron Financial
Corporation, consolidated with its subsidiaries. Textron Finance’s financial results are a
reflection of its ability to provide financial services in a competitive marketplace, at the
appropriate pricing, while managing the associated financial risks. The fundamental differ-
ences between each borrowing group’s activities result in different measures used by
investors, rating agencies and analysts.
Operating Cash Flows
Textron’s financial position continued to be strong at the end of 1999. During 1999, cash
flows from operations was the primary source of funds for operating needs and capital
expenditures of Textron Manufacturing. Operating activities have generated increased cash
flow in each of the past three years. The Statements of Cash Flows for each borrowing group
detailing the changes in cash balances are on pages 42-43. Textron Manufacturing’s operating
cash flow includes dividends received from Textron Finance. Beginning in early 1999, the
methodology used by Textron Finance to determine the amount of dividends to be paid to
Textron Manufacturing changed from payments based on Textron Finance maintaining a
leverage ratio of 6.5 to 1 to payments based on maintaining a leverage ratio of 7.5 to 1.
Financing
Textron has a financial target of maintaining its debt to capital ratio in the low to mid-30%
range. Consistent with the analytical methodology used by members of the financial com-
munity, leverage of the manufacturing operations excludes the debt of Textron Finance for
the purposes of calculating leverage pursuant to Textron’s financial targets. In turn, Textron
Finance evaluates its leverage by limiting borrowing so that its leverage will not exceed a
ratio of debt to tangible equity of 7.5 to 1. As a result, surplus capital of Textron Finance will
be returned to Textron, and additional capital required for growth will be infused or left in
the business, assuming Textron Finance’s returns are consistent with Textron’s standards.
Borrowings have historically been a secondary source of funds for Textron Manufacturing
and, along with the collection of finance receivables, are a primary source of funds for
Textron Finance. Both Textron Manufacturing and Textron Finance utilize a broad base of
financial sources for their respective liquidity and capital requirements. The Company’s
strong credit ratings from Moody’s (A2 – Long-Term; P1 – Short-Term), Standard & Poor’s
(A – Long-Term; A1 – Short-Term) and Duff & Phelps (A – Long-Term; D1 – Short-Term)
provide flexibility in obtaining funds on competitive terms. The Company’s credit
facilities are summarized on pages 49-50.
During 1999, Textron retired $553 million of long-term high coupon debt and
terminated $479 million of interest rate exchange agreements designated as hedges
of the retired borrowings. As a result, Textron recorded, as an extraordinary item, an
after-tax loss of $43 million.
During 1999, Textron issued $300 million of 6.375% senior notes which mature in 2004.
The proceeds from the sale of notes will be used for general corporate purposes. Textron
entered into two $300 million interest rate swaps in connection with these notes. The first
swap effectively converts the fixed rate notes to floating rate. The second swap was to insu-
late Textron against potentially higher floating rate interest rates around year-end 1999.
In 1999, Textron filed a shelf registration statement with the Securities and Exchange
Commission registering up to $2 billion in common stock, preferred stock and debt securities
of Textron and preferred securities of trusts sponsored by Textron. During the third quarter of
1999, Textron issued $500 million of 6.75% senior notes due 2002 under this registration.
During the fourth quarter of 1999, Textron Finance filed a Form S-3 registration state-
ment with the Securities and Exchange Commission under the Securities Act of 1933.
Under this shelf registration, Textron Finance may issue debt securities in one or more
offerings up to a total maximum offering price of $3 billion. In December 1999, Textron
Finance issued $600 million of fixed rate notes and $400 million of variable rate notes
under this facility, the proceeds of which were used to refinance maturing commercial
paper and long-term debt.
At year-end 1999, Textron and Textron Finance have $1.5 billion and $2 billion,
respectively, available for the issuance of unsecured debt securities under shelf-registra-
tion statements with the Securities and Exchange Commission. In early 2000, Textron
1999 Textron Annual Report 33