E-Z-GO 2000 Annual Report Download - page 30

rate exchange agreements that were entered in 2000 to hedge the cash receipts associated with the
securitization. The proceeds from the securitization sales were used to retire existing commercial
paper. Realized gains recognized on these securitizations during 2000 was $22 million. The securitiza-
tions provided Textron Finance with an alternate source of financing while maintaining desired debt to
capital ratios. Textron Finance anticipates that it will enter additional securitization transactions in 2001.
At year-end 2000, Textron Manufacturing had $1.5 billion available under its existing shelf registration
filed with the Securities Exchange Commission (SEC) and approximately $1.3 billion U.S. dollar-equiva-
lent available under the EMTN. Also at year-end 2000, Textron Finance had $1.25 billion available under its
shelf registration filed with the SEC. The Company believes that both borrowing groups, individually and
in the aggregate, have adequate credit facilities and have available access to capital markets to meet
their long-term financing needs.
Uses of Capital
Textron measures its existing businesses, and evaluates proposed capital projects and acquisitions
on the basis of their ability to achieve a return on invested capital (ROIC) of at least 15 percent. ROIC
measures the ability of a business or project to achieve an acceptable return on its capital irrespec-
tive of how it is financed. Textron sets rigorous financial criteria for evaluating potential acquisitions.
Potential acquisitions must:
Have a capability to achieve an ROIC of at least 15 percent (18% for Textron Finance).
Achieve “economic profit” – earnings over and above the cost of capital, which approximates 10
percent after tax for domestic manufacturing (13 percent for domestic finance) – within a three-
year time period. If an acquisition cannot produce an economic profit within this time frame, it
must have a sound strategic justification (such as protecting an existing business with acceptable
returns on capital) or the capital is better returned to shareholders.
Nondilutive to EPS in the first twelve months and contribute to EPS thereafter.
Acquisitions by Textron Manufacturing are evaluated on an enterprise basis, so that the capital
employed is equal to the price paid for the target company’s equity plus any debt assumed. During
the past three years, Textron acquired 32 companies, acquired the minority interest of two entities
and entered into three joint ventures in the Manufacturing segments for an aggregate cost of $2.4
billion, including notes issued for approximately $164 million, treasury stock issued for $32 million
and $529 million of debt assumed. In December 2000, Textron agreed to acquire Tempo Research
Corporation to further expand its growing presence in the telecommunications test equipment mar-
ket. This transaction closed in early 2001.
Acquisitions of Textron Finance are evaluated on the basis of the amount of Textron Manufacturing
capital that Textron would have to set aside so that the acquisition could be levered at a debt to tangi-
ble equity ratio with Textron Finance of 7.5 to 1. During the past three years, Textron Finance acquired
six companies. The capital required for these acquisitions was $387 million. The actual cost of the
acquisitions was $1.5 billion, including debt assumed of $595 million.
Textron has invested approximately $100 million in Safeguard Scientifics, Inc. common stock as part of
a strategic alliance with this Internet holding and operating company. Under the alliance, Textron is
working with Safeguard partner companies to develop and execute global e-commerce strategies.
Also, Textron invested approximately $8 million in the common stock of a Safeguard partner company
and purchased $25 million of EqualFooting.com, Inc. convertible preferred stock in support of the
Company’s e-business initiative. These investments were made to accelerate the application of critical
new technology across all of the Company’s businesses. While this remains an important strategic
objective for Textron, the value of the Company’s investments has fallen substantially over the last several
months of 2000. As a result, Textron has taken a charge in December 2000 of $117 million ($76 million
after tax) to write down the Company’s e-business investment portfolio to its current value. At year-end
2000, Textron’s equity investments in its e-business portfolio had a carrying value of $17 million with no
unrealized gain or loss in accumulated other comprehensive loss.
TEXTRON 2000 ANNUAL REPORT 28