E-Z-GO 2006 Annual Report Download - page 52

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Quantitative Risk Measures
In the normal course of business, we enter into financial instruments for purposes other than trading. To quantify the market risk inherent in our
financial instruments, we utilize a sensitivity analysis. The financial instruments 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 currency exchange contracts and marketable security price forward contracts.
Presented below is a sensitivity analysis of the fair value of financial instruments outstanding at year-end. We estimate the fair value of the finan-
cial instruments using discounted cash flow analysis and independent investment bankers. This sensitivity analysis is most likely not indicative of
actual results in the future. The following table illustrates the sensitivity to a hypothetical change in the fair value of the financial instruments
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 mar-
ket price of the marketable equity security.
2006 2005
Sensitivity of Sensitivity of
Fair Value Fair Value
Carrying Fair to a 10% Carrying Fair to a 10%
(In millions)
Value* Value* Change Value* Value* Change
Interest rate risk
Manufacturing group:
Debt $ (1,800) $ (1,833) $ (36) $ (1,934) $ (2,012) $ (36)
Interest rate exchanges (8) (8) 2 (10) (10) 3
Finance group:
Finance receivables 7,019 6,982 27 5,589 5,515 32
Interest rate exchanges – receivables 111883
Debt (6,862) (6,868) (82) (5,420) (5,423) (92)
Interest rate exchanges – debt (52) (52) 31 (47) (47) 32
Foreign exchange rate risk
Manufacturing group:
Debt (741) (756) (76) (932) (974) (97)
Foreign currency exchange contracts 12 12 58 23 23 56
Equity price risk
Manufacturing group:
Marketable security price forward contracts 24 24 (14) 10 10 (13)
* The value represents an asset or (liability).
Forward-Looking Information
Certain statements in this Annual Report on Form 10-K and other oral and written statements made by Textron from time to time are forward-look-
ing statements, including those that discuss strategies, goals, outlook or other non-historical matters; or project revenues, income, returns or
other financial measures. These forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to
update or revise any forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual
results to differ materially from those contained in the statements, including the following: [a] changes in worldwide economic and political con-
ditions that impact demand for our products, interest rates and foreign exchange rates; [b] the interruption of production at Textron facilities or
Textron’s customers or suppliers; [c] Textron’s ability to perform as anticipated and to control costs under contracts with the U.S. Government; [d]
the U.S. Government’s ability to unilaterally modify or terminate its contracts with Textron for the U.S. Government’s convenience or for Textron’s
failure to perform, to change applicable procurement and accounting policies, and, under certain circumstances, to suspend or debar Textron as a
contractor eligible to receive future contract awards; [e] changes in national or international funding priorities and government policies on the
export and import of military and commercial products; [f] the ability to control costs and successful implementation of various cost-reduction
programs; [g] the timing of new product launches and certifications of new aircraft products; [h] the occurrence of slowdowns or downturns in
customer markets in which Textron products are sold or supplied or where Textron Financial Corporation offers financing; [i] changes in aircraft
31
Textron Inc.