E-Z-GO 2002 Annual Report Download - page 34

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rate swap agreements was directly related to the conversion of fixed-rate debt to variable-rate debt at
the time of issuance. The change in net position does not reflect a change in management’s match fund-
ing strategy.
Foreign Exchange Risks
Textron’s financial results are affected by changes in foreign currency exchange rates and economic
conditions in the foreign markets in which products are manufactured and/or sold. Textron Manufactur-
ing’s primary currency exposures are the European Common Currency (Euro) and the British Pound
Sterling. Textron’s results of operations were not materially affected by foreign exchange exposures in
2002 or 2001.
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. During 2002, Textron Manufacturing primarily used borrowings
denominated in Euro and British Pound Sterling for these purposes.
In addition, as part of managing its foreign currency transaction exposures, Textron enters into foreign
currency forward exchange and option contracts. These contracts are generally used to fix the local cur-
rency 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 $721 million at the end of 2002 and $605 million at the
end of 2001.
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 (exclud-
ing lease obligations), interest rate swap agreements, foreign exchange contracts, marketable equity
securities and marketable security price forward 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%
strengthening 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 sensi-
tivity analysis is most likely not indicative of actual results in the future.
2002 2001
Hypothetical Hypothetical
Carrying Fair Change in Carrying Fair Change in
(In millions) Value* Value* Fair Value Value* Value* Fair Value
Interest Rate Risk
Textron Manufacturing:
Debt $(1,711) $(1,839) $ (31) $(1,934) $(1,972) $(29)
Interest rate swaps 4 4 3 — — —
Textron Finance:
Finance receivables 4,809 4,943 21 4,795 4,884 4
Interest rate swaps -
receivables (21) (21) (5) (8) (8) (1)
Debt (4,840) (4,935) (62) (4,188) (4,208) (36)
Interest rate swaps - debt 67 67 9 3 3 1
Foreign Exchange Rate Risk
Textron Manufacturing:
Debt (631) (662) (66) (661) (655) (66)
Foreign currency exchange
contracts (4) (4) (21) (7) (7) (26)
Equity Price Risk
Textron Manufacturing:
Available for sale securities 30 30 (3) 90 90 (9)
Marketable security price
forward contracts (3) (3) (9) (11) (11) (8)
* Asset or (liability)
32