E-Z-GO 2007 Annual Report Download - page 77

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Notes to the Consolidated Financial Statements
56
Our primary committed credit facilities at December 29, 2007 include the following:
Amount Not
Reserved as
Support for
Commercial Letters of Commercial
Facility Paper Credit Paper and
(In millions) Amount Outstanding Outstanding Letters of Credit
Manufacturing group – multi-year facility expiring in 2012* $ 1,250 $ — $ 22 $ 1,228
Finance group – multi-year facility expiring in 2012 1,750 1,447 13 290
* Our Finance group is permitted to borrow under this multi-year facility.
Lending agreements limit our Finance group’s net assets available for dividends and other payments to the Manufacturing group to approximately
$249 million of the Finance group’s net assets of $1.1 billion at the end of 2007. These lending agreements also contain various restrictive
provisions regarding additional debt (not to exceed 800% of consolidated net worth and qualifying subordinated obligations), minimum net
worth ($200 million), the creation of liens and the maintenance of a fi xed charges coverage ratio (no less than 125%).
The following table shows required payments during the next fi ve years on debt outstanding at the end of 2007. The payment schedule excludes
amounts that are payable under or supported by the primary revolving credit facilities or revolving lines of credit:
(In millions) 2008 2009 2010 2011 2012
Manufacturing group $ 355 $ 5 $ 257 $ 22 $ 306
Finance group 1,259 1,551 1,913 592 42
$ 1,614 $ 1,556 $ 2,170 $ 614 $ 348
Under a support agreement, our Manufacturing group has agreed to ensure that the Finance group maintains certain minimum levels of fi nancial
performance. No payments have ever been required to meet these standards.
Note 9. Derivatives and Other Financial Instruments
Fair Value Interest Rate Hedges
We manage interest cost for our Manufacturing group using a mix of fi xed- and variable-rate debt. To manage this mix in a cost-effi cient manner,
we periodically enter into interest rate exchange agreements to swap, at specifi ed intervals, the difference between fi xed and variable interest
amounts calculated by reference to an agreed-upon notional principal amount. Generally, these hedges are considered perfectly effective since the
critical terms of the debt and the interest rate exchange match and the other conditions of SFAS No. 133, “Accounting for Derivative Instruments
and Hedging Activities,” are met. The mark-to-market values of both the fair value hedge instruments and underlying debt obligations are
recorded as equal and offsetting amounts in interest expense. In December 2007, our Manufacturing group terminated all outstanding interest rate
exchange agreements with a fair value liability of $2 million. The mark-to-market adjustment to the carrying value of the underlying debt
instrument will be amortized over the remaining life. These agreements had a fair value liability of $8 million at the end of 2006.
Our Finance group enters into interest rate exchange agreements to mitigate exposure to changes in the fair value of its fi xed-rate receivables and
debt due to fl uctuations in interest rates. By using these agreements, we are able to convert our fi xed-rate cash fl ows to fl oating-rate cash fl ows.
At December 29, 2007, the Finance group had interest rate exchange agreements with a fair value asset of $18 million designated as fair value
hedges, compared with a $45 million liability at December 30, 2006.