E-Z-GO 1999 Annual Report Download - page 38

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Quantitative Risk Measures
Textron has used a sensitivity analysis to quantify the market risk inherent in its financial
instruments. Financial instruments held by the Company that are subject to market risk
(interest rate risk and foreign exchange rate risk) include finance receivables (excluding
lease receivables), debt, interest rate exchange agreements, foreign exchange contracts
and currency swaps.
Presented below is a sensitivity analysis of the fair value of Textron’s financial instru-
ments at year-end. The following table illustrates the hypothetical change in the fair
value of the Company’s financial instruments at year-end assuming a 10% decrease in
interest rates and a 10% strengthening in exchange rates against the U.S. dollar. The
estimated fair value of the financial instruments was determined by discounted cash
flow analysis and by independent investment bankers. This sensitivity analysis is most
likely not indicative of actual results in the future.
1999 1998
Hypothetical Hypothetical
Carrying Fair Change Carrying Fair Change
(In millions) Value Value In Fair Value Value Value In Fair Value
Interest Rate Risk
Textron Manufacturing:
Debt $1,745 $1,740 $ 22 $2,615 $2,706 $ 27
Interest rate
exchange agreements –7 (10) –(11) (18)
Textron Finance:
Finance receivables 4,647 4,665 57 2,774 2,837 28
Debt 4,551 4,535 38 2,829 2,836 12
Interest rate
exchange agreements –(2) 1 –11
Foreign Exchange Rate Risk
Textron Manufacturing:
Debt 285 286 23 319 334 33
Foreign exchange contracts –(6) (22) –9 (23)
Currency swaps (21) (25) 88 14 10 84
Interest rate
exchange agreements – 1 – –– –
Environmental
As with other industrial enterprises engaged in similar businesses, Textron is involved in
a number of remedial actions under various federal and state laws and regulations relating
to the environment which impose liability on companies to clean up, or contribute to the
cost of cleaning up, sites on which their hazardous wastes or materials were disposed
or released. Expenditures to evaluate and remediate contaminated sites approximated
$16 million, $10 million and $10 million in 1999, 1998, and 1997, respectively. Textron
currently projects that expenditures for remediation will range between $10 million and
$15 million for each of the years 2000 and 2001.
Textron’s accrued estimated environmental liabilities are based on assumptions which
are subject to a number of factors and uncertainties. Circumstances which can affect the
accruals’ reliability and precision include identification of additional sites, environmental
regulations, level of cleanup required, technologies available, number and financial con-
dition of other contributors to remediation, and the time period over which remediation
may occur. Textron believes that any changes to the accruals that may result from these
factors and uncertainties will not have a material effect on Textron’s net income or finan-
cial condition. Textron estimates that its accrued environmental remediation liabilities
will likely be paid over the next five to ten years.
Other Matters
36 Consistent Growth