E-Z-GO 2002 Annual Report Download - page 33

ment is calculated based upon a number of shares multiplied by the difference between the strike price
and the prevailing Textron common stock price. In 2002, Textron Manufacturing’s primary forward con-
tract was for approximately two million shares with a strike price of $49.09. In December 2002, Textron
Manufacturing paid $12 million in advance of the settlement date for this contract of January 9, 2003.
This prepayment reduced the remaining liability for this contract to approximately $3 million at Decem-
ber 28, 2002. In January 2003, Textron Manufacturing entered into a new forward contract for approxi-
mately 2.4 million shares at a strike price of $44.88.
Dispositions
In December 2001, Textron Manufacturing received approximately $582 million in after-tax proceeds
from the sale of the Automotive Trim business, along with other consideration as described in Note 2 to
the consolidated financial statements. An additional $110 million was received in 2002 pursuant to the
settlement of post-closing obligations and the repurchase of C&A preferred shares. The proceeds from
this sale were primarily used to repurchase Textron common stock and reduce debt.
In December 2002, Textron Manufacturing sold the Snorkel product line of its OmniQuip business unit
and the capital stock of the OmniQuip Textron Inc. holding company for a pre-tax loss of $20 million with
a tax benefit of $54 million. The tax benefit was primarily due to the write-off of OmniQuip goodwill in the
third quarter of 2001 at which time only a portion of the tax benefit was realized. Approximately $100 mil-
lion is expected to be collected in 2003 due to this transaction, and the cash will be used for general
operating purposes.
Uses of Capital
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 fifteen companies, acquired the minority interest of two entities and
entered into one joint venture for an aggregate cost of $333 million and assumed debt of $38 million.
Acquisitions by Textron Finance are evaluated on the basis of the amount of Textron Manufacturing capi-
tal that Textron would have to set aside so that the acquisition could be leveraged at a debt-to-tangible
equity ratio with Textron Finance of 7.5 to 1. During the past three years, Textron Finance acquired one
significant loan portfolio for $387 million.
Capital spending in 2002 decreased to $319 million, which includes $23 million of expenditures pur-
chased through capital leases, from $532 million in 2001. This decrease was primarily due to the sale of
the Automotive Trim business in 2001 along with a planned decrease in capital spending. Aggregate
capital spending for the past three years totaled $1.4 billion.
In fiscal 2002, Textron repurchased 5,734,000 shares of common stock under its Board authorized share
repurchase program for a total cash payment of $248 million.
Textron’s Board of Directors approved the annual dividend per common share of $1.30 in 2002. Divi-
dend payments to shareholders in 2002 of $182 million were $2 million less than amounts paid in 2001,
primarily due to share repurchases.
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 swap 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 between the rates Textron Manufacturing received and the
rates it paid on interest rate swap agreements did not significantly impact interest expense in 2002 or
2001.
Textron Finance’s strategy of matching interest-sensitive assets with interest-sensitive liabilities limits its
risk to changes in interest rates and includes entering into interest rate swap agreements. At December
28, 2002, interest-sensitive assets in excess of interest-sensitive liabilities were $629 million, net of $1.4
billion of interest rate swap agreements on long-term debt and $219 million of interest rate swap agree-
ments on finance receivables. Interest-sensitive assets in excess of interest-sensitive liabilities were
$410 million at December 29, 2001, net of $370 million of interest rate swap agreements on long-term
debt and $97 million of interest rate swap agreements on finance receivables. The increase in interest
Financial Risk
Management
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