E-Z-GO 2001 Annual Report Download - page 32

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Textron M anufacturing manages its exposures to foreign currency assets and earnings primarily by funding
certain foreign currency denominated assets w ith liabilities in the same currency and, as such, certain
exposures are naturally offset. During 2001, 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 foreign
currency forw ard 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 sw aps w as approximately $605 million at year-end 2001 and $840 million at year-end 2000.
Quantitative Risk Measures
Textron utilizes a sensitivity analysis to quantify the market risk inherent in its financial instruments.
Financial instruments held by Textron that are subject to market risk (interest rate risk, foreign exchange
rate risk and equity price risk) include finance receivables (excluding lease receivables), debt (excluding
lease obligations), interest rate exchange agreements, foreign exchange contracts, marketable equity
securities and marketable security price forw ard contracts.
Presented below is a sensitivity analysis of the fair value of Textron’s financial instruments entered into for
purposes other than trading at year-end. The following table illustrates the hypothetical change in the fair
value of the financial instruments at year-end assuming a 10% decrease in interest rates, a 10% strength-
ening in exchange rates against the U.S. dollar and a 10% decrease in the quoted market prices of
applicable marketable equity securities. The estimated fair value of the financial instruments was
determined by discounted cash flow analysis and by independent investment bankers. This sensitivity
analysis is most likely not indicative of actual results in the future.
2001 2000
Hypothetical Hypothetical
Carrying Fair Change Carrying Fair Change
(In millions) Value Value in Fair Value Value Value in Fair Value
Interest Rate Risk
Textron M anufacturing:
Debt $(1,934) $ (1,972) $(29) $(2,061) $ (2,105) $ (31)
Interest rate swaps ––– –89
Textron Finance:
Finance receivables 4,795 4,884 4 4,767 4,840 31
Interest rate swaps – receivables (8) (8) 1 –65
Debt (4,188) (4,208) (36) (4,667) (4,688) (33)
Interest rate swaps – debt 331 –(17) (10)
Foreign Exchange Rate Risk
Textron M anufacturing:
Debt (661) (655) (66) (1,101) (1,113) (111)
Foreign exchange contracts (7) (7) (26) 3322
Textron Finance:
Debt (32) (32) (3) (32) (32) (5)
Equity Price Risk
Textron M anufacturing:
Available for sale securities 90 90 (9) 16 16 (2)
Marketable security price
forw ard contracts (11) (11) (8) (26) (26) (8)
30 Textron Annual Report