E-Z-GO 2003 Annual Report Download - page 33

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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 2003, 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 Manufacturing
enters into foreign 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, for-
eign currency options and currency swaps was approximately $519 million at the end of 2003 and $721
million at the end of 2002.
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
l Hypothetical
Carrying Fair Change in
(In millions) Value* Value* Fair Value
Textron Manufacturing:
Debt $(2,027) $(2,177) $ (38) $(1,708) $(1,836) $ (31)
Interest rate swaps (1) (1) 5443
Textron Finance:
Finance receivables 4,313 4,274 49 4,729 4,708 20
Interest rate swaps -
receivables (15) (15) (6) (21) (21) (5)
Debt (4,407) (4,552) (48) (4,840) (4,935) (62)
Interest rate swaps - debt 22 22 7 67 67 9
Textron Manufacturing:
Debt (683) (751) (75) (631) (662) (66)
Foreign currency exchange
contracts 20 20 48 (4) (4) (21)
Textron Manufacturing:
Available for sale securities 24 24 (2) 30 30 (3)
Marketable security price
forward contracts 25 25 (12) (3) (3) (9)
* Asset or (liability)
As with other industrial enterprises engaged in similar businesses, Textron is involved in a number of
remedial actions under various federal and state laws and regulations relating to the environment that
impose liability on companies to clean up, or contribute to the cost of cleaning up, sites on which haz-
ardous wastes or materials were disposed or released. Expenditures to evaluate and remediate contam-
inated sites approximated $6 million, $16 million and $14 million in 2003, 2002 and 2001, respectively.
Textron currently projects that expenditures for remediation will range between $9 million and $13 million
for each of the years 2004 and 2005.
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