E-Z-GO 2009 Annual Report Download - page 38

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Textron Inc.
Credit Ratings
The major rating agencies regularly evaluate both borrowing groups, and their ratings of our debt are based on a number of factors, including our
financial strength and factors outside our control such as conditions affecting the financial services industry generally. At the beginning of 2009,
our credit ratings were downgraded, and the rating agencies cited concerns about Textron Financial Corporation, including execution risks
associated with our plan to exit portions of our commercial finance business and the need for Textron Inc. to make capital contributions to Textron
Financial Corporation, as well as lower expected earnings, the increase in outstanding debt resulting from the borrowing under our bank lines of
credit, weak economic conditions and liquidity and funding constraints.
On February 2, 2010, Moody’s Investors Service affirmed its ratings of both borrowing groups and changed its rating outlook to stable from
negative, reflecting improved liquidity at Textron Inc. and better than expected progress in the ongoing liquidation of TFC’s non-captive assets.
The credit ratings and outlooks of the debt-rating agencies at the date of this filing were as follows:
Fitch Ratings Moody’s Standard & Poor’s
Long-term ratings:
Manufacturing BB+ Baa3 BBB-
Finance BB+ Baa3 BB+
Short-term ratings:
Manufacturing B P3 A3
Finance B P3 B
Outlook:
Manufacturing Negative Stable Negative
Finance Negative Stable Developing
Our current credit ratings may adversely affect the cost and other terms upon which we are able to obtain other financing and access the
capital markets.
Manufacturing Group Cash Flows
Free cash flow is a measure generally used by investors, analysts and management to gauge a company’s ability to generate cash from operations
in excess of that necessary to be reinvested to sustain and grow the business. Our definition of Manufacturing free cash flow uses net cash from
operating activities of continuing operations and subtracts dividends received from the Finance group and capital expenditures, then adds back
capital contributions provided under a Support Agreement with TFC, as discussed below, plus proceeds from the sale of plant, property and
equipment. We believe that our Manufacturing free cash flow calculation provides a relevant measure of liquidity and a useful basis for assessing
our ability to fund operations. This measure is not a financial measure under generally accepted accounting principles (GAAP) and should be
used in conjunction with GAAP cash measures provided in our Consolidated Statement of Cash Flows. Our Manufacturing free cash flow measure
may not be comparable with similarly titled measures reported by other companies as there is no definitive accounting standard on how the
measure should be calculated.
A reconciliation of net cash from operating activities of continuing operations as presented in our Consolidated Statement of Cash Flows to
Manufacturing free cash flow is provided below.
(In millions) 2009 2008 2007
Net cash from operating activities of continuing operations – GAAP $ 738 $ 407 $ 1,144
Less: Dividends received from the Finance group (349) (142) (135)
Plus: Capital contributions paid to Finance group 270 625 —
Less: Capital expenditures (238) (537) (369)
Plus: Proceeds on sale of property, plant and equipment 3 9 6
Manufacturing free cash flow – Non-GAAP $ 424 $ 362 $ 646
Our Manufacturing group’s free cash flow improved by $62 million in 2009, compared with 2008, as lower capital expenditures of $299 million
and working capital improvements offset lower earnings and an increase in cash paid for restructuring activities. Cash used for restructuring
activities totaled $132 million in 2009, compared with $3 million in 2008 and none in 2007. In 2008, free cash flow decreased $284 million
largely due to a higher investment in inventories related to increased production levels and inventory build at Bell and Cessna and a $168 million
increase in capital expenditures in connection with the ramp up of production.