E-Z-GO 2001 Annual Report Download - page 31

At year-end 2001, Textron Finance had unused commitments to fund new and existing customers under
$1.3 billion and $599 million of committed and uncommitted, respectively, revolving lines of credit. Since
many of the agreements w ill not be used to the extent committed or w ill expire unused, the total commit-
ment amount does not necessarily represent future cash requirements.
Textron Finance has certain contracts that contemplate a capital commitment or the requirement to
provide letters of credit should its credit rating drop below a middle to low BBB. The aggregate of the
exposure is approximately $55 million.
Textron Manufacturing has entered into an equity forw ard contract in Textron stock. The contract is
intended to hedge the earnings and cash volatility of compensation granted in Textron stock. The forw ard
contract requires annual cash settlement between the counterparties. Settlement is calculated based
upon a number of shares multiplied by the difference between the strike price and the actual Textron
common stock price. Currently, Textron’s forw ard contract is for approximately tw o million shares w ith a
strike price of $48.20.
Uses of Capital
Acquisitions by Textron M anufacturing 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 29 companies, acquired the minority interest of two entities and entered into
three joint ventures for an aggregate cost of $1.5 billion, including treasury stock issued for $32 million
and $344 million of debt assumed.
Acquisitions of Textron Finance are evaluated on the basis of the amount of Textron M anufacturing capital
that Textron w ould have to set aside so that the acquisition could be levered at a debt to tangible equity
ratio w ith Textron Finance of 7.5 to 1. During the past three years, Textron Finance acquired five companies.
The capital required for these acquisitions w as $377 million. The actual cost of the acquisitions w as $1.6
billion, including debt assumed of $547 million.
Capital spending in 2001 continued at a level consistent with 2000, increasing only slightly to $532 million.
Combined capital spending for the past three years totaled $1.6 billion.
In 2001, Textron repurchased 738,000 shares of common stock under its Board authorized share repurchase
program for a total cash payment of $47 million.
Textron’s Board of Directors approved the annual dividend per common share of $1.30 in 2001. Dividend
payments to shareholders in 2001 amounted to $184 million, a decrease of $5 million from 2000.
Interest Rate Risks
Textron’s financial results are affected by changes in U.S. and foreign interest rates. As part of managing
this risk, Textron 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 management
is to achieve a prudent balance between floating- and fixed-rate debt. Textron’s mix of floating- and fixed-rate
debt is continuously monitored by management and is adjusted, as necessary, based on evaluation of
internal and external factors. The difference betw een the rates Textron M anufacturing received and the rates
it paid on interest rate exchange agreements did not significantly impact interest expense in 2001 or 2000.
Textron Finance’s strategy of matching interest-sensitive assets w ith interest-sensitive liabilities limits its
risk to changes in interest rates and includes entering into interest rate exchange agreements as part of
this matching strategy. At year-end 2001, Textron Finance’s interest-sensitive assets in excess of interest-
sensitive liabilities were $410 million, net of $370 million of variable-rate interest rate exchange agreements
on long-term debt and $97 million of variable-rate interest rate exchange agreements on finance receivables.
Interest-sensitive assets in excess of interest-sensitive liabilities w ere $415 million at year-end 2000, net
of $150 million of fixed-rate interest rate exchange agreements on long-term debt and $100 million of
variable-rate interest rate exchange agreements on finance receivables. The change in net position does
not reflect a change in management’s match funding strategy. The net impact of these agreements w as
immaterial in 2001, 2000 and 1999.
Foreign Exchange Risks
Textron’s financial results are affected by changes in foreign currency exchange rates or weak economic
conditions in the foreign markets in w hich products are manufactured and/or sold. Textron M anufacturing’s
primary currency exposures are the European Common Currency (Euro) and the British Pound.
Financial Risk
Management
Textron Annual Report 29