E-Z-GO 2000 Annual Report Download - page 31

Capital spending in 2000 continued at a level consistent with 1999, decreasing only slightly to $527
million. Combined capital spending for the past three years totaled $1.5 billion.
On February 23, 2000, Textron announced that its Board of Directors had authorized a new ten million
share repurchase program. In 2000, Textron repurchased 6.6 million shares of common stock under its
Board authorized share repurchase program at an aggregate cost of $353 million. Textron’s Board of
Directors approved the annual dividend per common share of $1.30 in 2000. Dividend payments to share-
holders in 2000 amounted to $189 million, a decrease of $3 million from 1999.
Interest Rate Risks
Textron’s financial results are affected by changes in U.S. and foreign interest rates. As part of managing
this risk, the Company enters into interest rate exchange agreements to convert certain variable-rate
debt to long-term fixed-rate debt and vice versa. The overall objective of Textron’s interest rate risk man-
agement is to achieve a prudent balance between floating and fixed-rate debt. The Company’s mix of
fixed and floating rate debt is continuously monitored by management and is adjusted, as necessary,
based on evaluation of internal and external factors. The difference between the rates Textron
Manufacturing received and the rates it paid on interest rate exchange agreements did not significantly
impact interest expense in 2000 or 1999.
Textron Finance’s strategy is to match interest-sensitive assets with interest-sensitive liabilities to
limit the Company’s exposure to changes in interest rates. As part of managing this matching strat-
egy, Textron Finance has entered into interest rate exchange agreements, including basis swaps, to
lock-in desired spreads between certain interest-earning assets and certain interest-bearing liabili-
ties. During 2000, Textron Finance entered into interest rate exchange agreements to hedge the
$750 million of variable-pay medium term notes issued under its shelf registration statement. These
included interest rate swaps with an aggregate notional amount of $150 million to fix the interest
rates on a corresponding amount of the new notes. Further, an aggregate $600 million notional of
basis swaps were entered to convert the variable interest rate payments on $600 million of the new
debt from LIBOR based payments to Prime based payments. Textron Finance terminated fixed-pay
interest rate exchange agreements with an aggregate notional amount of $150 million that were
hedging existing variable rate debt. Textron Finance has entered forward starting interest rate
exchange agreements with an aggregate notional amount of $200 million to fix interest rates on debt
expected to be issued in the first quarter of fiscal 2001. The net impact of these agreements was
immaterial in 2000 and increased reported interest expense by $2 million in both 1999 and 1998.
Foreign Exchange Risks
Textron’s financial results are affected by changes in foreign currency exchange rates or weak eco-
nomic conditions in the foreign markets in which products are manufactured and/or sold. Textron
Manufacturing’s primary currency exposures are the European Common Currency (Euro), British
Pound and Canadian Dollar.
Textron Manufacturing manages its exposures to foreign currency assets and earnings primarily by
funding certain foreign currency denominated assets with liabilities in the same currency and, as
such, certain exposures are naturally offset. Prior to 2000, Textron Manufacturing had primarily used
synthetic foreign borrowings to manage foreign currency exposures, however, during 2000, Textron
Manufacturing primarily used actual foreign currency borrowings for these purposes.
In addition, as part of managing its foreign currency transaction exposures, Textron enters into for-
eign currency forward exchange and option contracts. These contracts are generally used to fix the
local currency cost of purchased goods or services or selling prices denominated in currencies other
than the functional currency. The notional amount of outstanding foreign exchange contracts, foreign
currency options and currency swaps was approximately $841 million at year-end 2000 and $1.3 billion
at year-end 1999.
Financial Risk Management
29 TEXTRON 2000 ANNUAL REPORT