E-Z-GO 1999 Annual Report Download - page 52

January 1, January 2,
(In millions) 2000 1999
Textron Finance:
Senior:
Borrowings under or supported by credit facilities* $1,339 $1,425
7.01% average rate debt; due 2000 to 2004 1,507 472
6.39% average rate variable notes; due 2000 to 2002 1,705 932
Total Textron Finance debt $4,551 $2,829
*The weighted average interest rates on these borrowings, before the effect of interest rate exchange agreements, were 6.4%, 6.3%,
and 6.1% at year-end 1999, 1998, and 1997, respectively. Comparable rates during the years 1999, 1998, and 1997 were 5.4%,
5.8%, and 5.8%, respectively.
Textron Finance has lines of credit with various banks aggregating $1.2 billion at
year-end 1999, of which $196 million was not used or reserved as support for commercial
paper or bank borrowings. Lending agreements limit Textron Finance’s net assets avail-
able for cash dividends and other payments to Textron Manufacturing to approximately
$332 million of Textron Finance’s net assets of $869 million at year-end 1999. Textron
Finance’s loan agreements also contain provisions regarding additional debt, creation of
liens or guarantees, and the making of investments.
The following table shows required payments during the next five years on debt out-
standing at the end of 1999. The payments schedule excludes amounts that are payable
under credit facilities and revolving credit agreements.
(In millions) 2000 2001 2002 2003 2004
Textron Manufacturing $ 62 $ 56 $ 510 $ 38 $305
Textron Finance 508 833 1,040 213 618
$570 $889 $1,550 $251 $923
Textron Manufacturing has agreed to cause Textron Finance to maintain certain
minimum levels of financial performance. No payments from Textron Manufacturing
were necessary in 1999, 1998, or 1997 for Textron Finance to meet these standards.
Extraordinary Loss from Debt Retirement
During 1999, Textron retired $168 million of 6.625% debentures originally due 2007,
$165 million of 8.75% debentures originally due 2022, $146 million of medium term
notes with interest rates ranging from 9.375% to 10.01%, and other debt totaling
$74 million with effective interest rates ranging from 8.25% to 10.04%. In connection
with the retirement of this long-term high coupon debt, Textron terminated $479 million
of interest rate exchange agreements designated as hedges of the retired borrowings. As a
result of these transactions, Textron recorded an after-tax loss of $43 million, which has
been reflected as an extraordinary item.
8. Interest rate exchange agreements
Textron is exposed to adverse movements in domestic and foreign interest rates. Interest
rate exchange agreements are used to help manage interest rate risk by converting cer-
tain variable-rate debt to fixed-rate debt and vice versa. These agreements involve the
exchange of fixed-rate interest for variable-rate amounts over the life of the agreement
without the exchange of the notional amount. Interest rate exchange agreements are
accounted for on the accrual basis with the differential to be paid or received recorded currently
as an adjustment to interest expense. Premiums paid to terminate agreements designated as
hedges are deferred and amortized to expense over the remaining term of the original life of the
contract. If the underlying debt is then paid early, unamortized premiums are recognized as an
adjustment to the gain or loss associated with the debt’s extinguishment.
Some agreements that require the payment of fixed-rate interest are designated against specific
long-term variable-rate borrowings, while the balance is designated against existing short-term
borrowings through maturity and their anticipated replacements. Textron continuously monitors
variable-rate borrowings to maintain the level of borrowings above the notional amount of the
designated agreements. If it is probable that variable-rate borrowings will not continuously
exceed the notional amount of the designated agreements, the excess interest rate exchange
agreements are marked to market and the associated gain or loss is recorded in income.
Derivatives and
Foreign Currency
Transactions
50 Consistent Growth