E-Z-GO 2000 Annual Report Download - page 29

owned commercial finance subsidiary, Textron Financial Corporation, consolidated with its sub-
sidiaries. 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 differences 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 2000. During 2000, cash flows from
operations was the primary source of funds for operating needs and capital expenditures of Textron
Manufacturing. The Statements of Cash Flows for each borrowing group detailing the changes in
cash balances are on pages 36-37. 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 Manufacturing’s debt to total capital ratio was 32% at December 30, 2000 up from 27% at
January 1, 2000. The increase is consistent with Textron’s financial target of maintaining its debt to
capital ratio in the low to mid-30% range. Consistent with the analytical methodology used by mem-
bers of the financial community, 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 (Textron Manufacturing: A Long-Term; A1 Short-Term. Textron
Finance: A- Long-Term; A2 Short-Term) and Fitch (A Long-Term; F1 Short-Term) provide flexibility in
obtaining funds on competitive terms. The Company’s credit facilities are summarized on page 45.
During 2000, Textron Manufacturing established a two billion Euro Medium-Term Note facility (EMTN),
which provides for the issuance of debt securities denominated in the Euro or other currencies. Under
the EMTN, Textron issued 300 million Euro-denominated ($273 million U.S. dollar-equivalent as of
December 30, 2000) 5.63% medium-term notes which mature in 2005 and 150 million British Pound
Sterling-denominated ($221 million U.S. dollar-equivalent as of December 30, 2000) 6.63% notes which
mature in 2020. The proceeds from the sale of these notes were used to reduce existing short-term
debt and for general corporate purposes.
During 2000, Textron Finance increased its medium-term note facility by $300 million and issued $415
million of one-year variable rate notes. The related proceeds were used to refinance maturing com-
mercial paper. The medium-term note facility was fully utilized as of year-end 2000. Textron Finance
also issued $73 million in variable-rate notes that mature in 2003 through 2004, and $75 million
Canadian dollar-denominated ($50 million U.S. dollar equivalent as of December 30, 2000) notes
through private placements that mature in 2003. In April 2000, Textron Finance issued $750 million in
variable rate notes under its shelf registration statement facility of which $275 million matures in 2001
and $475 million matures in 2002. The proceeds from these notes were used to refinance maturing
commercial paper and terminate $220 million of other variable rate debt, which was prepaid at par.
During 2000, Textron Finance securitized approximately $763 million of general aviation receivables,
$275 million of equipment loans and leases, $70 million of franchise loans and $69 million of land lot
loans. In connection with the securitizations, Textron Finance terminated $300 million notional interest
27 TEXTRON 2000 ANNUAL REPORT