E-Z-GO 2006 Annual Report Download - page 91

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Guaranteed Minimum Resale Contracts
We have a number of guaranteed minimum resale value contracts associated with certain past aircraft sales. If the fair value of an aircraft falls
below a minimum guaranteed amount, we may be required to make a future payment to the customer or provide a minimum trade-in value toward
a new aircraft. These agreements generally include operating restrictions such as maximum usage over the contract period or minimum mainte-
nance requirements. We also have guaranteed the minimum resale value of certain customer-owned aircraft anticipated to be traded in upon com-
pletion of a model currently under development. These contracts expire as follows: $2 million in 2008, $3 million in 2009, $3 million in 2010, $3
million in 2011 and $19 million in 2012.
Guarantees Related to Dispositions
We have guaranteed payment on certain credit facilities and bank-issued letters of credit and guarantees of the Fastening Systems business,
where the total guarantee is capped at approximately $9 million, for which the buyer has provided a letter of credit of approximately $4 million as
collateral. We also have guaranteed payment and performance on certain other credit facilities and leases of the Fastening Systems business
totaling approximately $14 million, where we also are liable for unpaid interest, fees and other costs associated with claims that may arise from
these guarantees. While potential interest and fees are not capped, we have monitoring provisions that mitigate the exposure to these additional
costs. The buyer has provided a letter of credit of approximately $9 million as collateral on these guarantees.
We also have indemnified the purchaser of the Fastening Systems business for remediation costs related to pre-existing environmental condi-
tions to the extent they exist at the sold locations. We have estimated the fair value of these indemnifications at approximately $12 million. Poten-
tial payments under these obligations are not capped, and as a result the maximum potential obligation cannot be determined.
In connection with the disposition of Trim to subsidiaries of C&A, certain equipment and operating leases were transferred and assigned to sub-
sidiaries of C&A. We guaranteed C&A’s payments under these leases and for an environmental matter.
We also have obligations arising from sales of certain other businesses, including representations and warranties and related indemnities for
environmental, health and safety, and tax and employment matters. The maximum potential payment related to these obligations is not a specified
amount as a number of the obligations do not contain financial caps.
Loss-Sharing Agreements
In connection with the sale of a note receivable in 2005, our Finance group has indemnified the purchaser against potential losses in limited cir-
cumstances. The maximum potential exposure of the indemnity is estimated to be $29 million, but due to the extremely low probability of occur-
rence and several other mitigating factors, including a specific indemnification from the original note issuer, no significant fair value has been
attributed to the indemnity.
In connection with the sale of the Small Business Direct financing business in 2003, our Finance group entered into a loss-sharing agreement.
This agreement required us to reimburse the purchaser for 50% of losses incurred on the portfolio above a 4% annual level. A liability of $14 mil-
lion was originally recorded representing the estimated fair value of the guarantee. During the fourth quarter of 2006, we entered into a settlement
agreement with the purchaser, which terminated our obligation to reimburse the purchaser for future losses. The settlement resulted in a $1 mil-
lion loss, net of tax, from discontinued operations in 2006.
At December 31, 2005, our Finance group had a contingent liability related to the sale of equipment lease streams with a maximum liability of $42
million. These lease streams were sold in 2006, and we had no remaining liability at the end of 2006.
Software Indemnifications
With the acquisition of Overwatch Systems in 2006, we now are a party to software license agreements with customers. These software license
agreements generally include certain provisions for indemnifying customers against liabilities if our software products infringe a third party’s
intellectual property rights. To date, we have not incurred any material costs as a result of such indemnifications and have not accrued any liabili-
ties related to such obligations in our consolidated financial statements.
Forward Contract
We enter into a forward contract in our common stock on an annual basis. The contract is intended to hedge the earnings and cash volatility of
stock-based incentive compensation indexed to our stock. The forward contract requires annual cash settlement between the counterparties based
upon a number of shares multiplied by the difference between the strike price and the prevailing common stock price. As of December 30, 2006,
the contract was for approximately 1.5 million shares with a strike price of $77.62. The market price of the stock was $93.77 at December 30,
2006, resulting in a receivable of $24 million, compared with a receivable of $10 million at December 31, 2005.
Notes to the Consolidated Financial Statements