E-Z-GO 2009 Annual Report Download - page 74

Textron Inc.
For our fair value hedges, the effect of the derivative instruments is recorded in the Consolidated Statements of Operations, and the gain (loss) for
each respective period is provided in the following table:
(In millions) Gain (Loss) Location 2009 2008
Finance group
Interest rate exchange contracts Interest expense $ (13) $ 120
Interest rate exchange contracts Finance charges 10 (7)
For our cash flow hedges, the amount of gain (loss) recognized in OCI and the amount reclassified from accumulated other comprehensive loss
into income during each period is provided in the following table:
Effective Portion of Derivative
Amount of Gain(Loss) Reclassified from Accumulated
Recognized in OCI Other Comprehensive Loss
(Effective Portion) into Income
(In millions) 2009 2008 Gain(Loss) Location 2009 2008
Manufacturing group
Foreign currency exchange contracts $ 65 $ (67) Cost of sales $ 3 $ 8
Forward contracts for Textron Inc. stock 6 (21) Selling and administrative 6 9
Finance group
Interest rate exchange contracts (4) (5) Interest expense (4) (2)
The amount of ineffectiveness on our fair value hedges is insignificant. During the third quarter of 2009, certain foreign currency exchange
contracts no longer were deemed to be effective cash flow hedges resulting in a gain of $11 million. These contracts were unwound through the
purchase of forward contracts directly offsetting the terms of the undesignated hedges.
We also enter into certain other foreign currency derivative instruments that do not meet hedge accounting criteria and primarily are intended to
protect against exposure related to intercompany financing transactions. For these instruments, the Manufacturing group reported in selling and
administrative expenses a gain of $14 million in 2009 and a loss of $49 million in 2008. Our Finance group reported a loss of $107 million and
$6 million in selling and administrative expenses in 2009 and 2008, respectively, which were largely offset by gains resulting from the translation
of foreign currency denominated assets and liabilities.
Note 10. Fair Values of Assets and Liabilities
We measure fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The assumptions that market participants would use in pricing the asset or liability (the “inputs”) are
prioritized into a three-tier fair value hierarchy. This fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for
identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in which little or no market data exist, requiring companies to
develop their own assumptions. Observable inputs that do not meet the criteria of Level 1, and include quoted prices for similar assets or
liabilities in active markets or quoted prices for identical assets and liabilities in markets that are not active, are categorized as Level 2. Level 3
inputs are those that reflect our estimates about the assumptions market participants would use in pricing the asset or liability, based on the best
information available in the circumstances. Valuation techniques for assets and liabilities measured using Level 3 inputs may include
methodologies such as the market approach, the income approach or the cost approach and may use unobservable inputs such as projections,
estimates and management’s interpretation of current market data. These unobservable inputs are utilized only to the extent that observable inputs
are not available or cost-effective to obtain.
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