E-Z-GO 2008 Annual Report Download - page 79

Notes to the Consolidated Financial Statements
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and/or net proceeds from the sale of certain replacement capital securities at specified amounts. Interest on the notes is fixed at 6% until February
15, 2017 and floats at the three-month London Interbank Offered Rate + 1.735% thereafter.
Our aggregate $3 billion in committed bank lines of credit have historically been in support of commercial paper and letters of credit issuances
only. There were no borrowings outstanding related to the Manufacturing group’s $1.25 billion facility or the Finance group’s $1.75 billion facility
at the end of 2008 or 2007. In February 2009, due to the unavailability of term debt and difficulty in accessing sufficient commercial paper on a
daily basis, we drew the available balance from these credit facilities. Amounts borrowed under the credit facilities will not be due until April 2012.
A portion of the proceeds will be used to repay all of our outstanding commercial paper as it comes due.
Under a support agreement, Textron Inc. is required to ensure that Textron Financial Corporation maintains fixed charge coverage of no less than
125% and consolidated shareholder’s equity of no less than $200 million. In addition, Textron Financial Corporation has lending agreements that
contain provisions restricting additional debt, which is not to exceed nine times consolidated net worth and qualifying subordinated obligations.
Due to certain charges as discussed in Note 12, Special Charges, on December 29, 2008, Textron Inc. made a cash payment of $625 million to
Textron Financial Corporation, which was reflected as a capital contribution, to maintain compliance with the fixed charge coverage ratio required
by the support agreement and to maintain the leverage ratio required by its credit facility.
The following table shows required payments during the next five years on debt outstanding at the end of 2008. The payment schedule excludes
amounts that are payable under or supported by the primary revolving credit facilities or revolving lines of credit:
(In millions) 2009 2010 2011 2012 2013
Manufacturing group $ 9 $ 256 $ 20 $ 305 $ 434
Finance group 1,728 2,520 861 141 644
$ 1,737 $ 2,776 $ 881 $ 446 $ 1,078
Note 9. Derivatives
Fair Value Hedges
Our Finance group enters into interest rate exchange contracts to mitigate exposure to changes in the fair value of its fixed-rate receivables and
debt due to fluctuations in interest rates. By using these contracts, we are able to convert our fixed-rate cash flows to floating-rate cash flows.
Cash Flow Hedges
We experience variability in the cash flows we receive from our Finance group’s investments in interest-only securities due to fluctuations in
interest rates. To mitigate our exposure to this variability, our Finance group enters into interest rate exchange, cap and floor agreements. The
combination of these instruments converts net residual floating-rate cash flows expected to be received by our Finance group to fixed-rate cash
flows. Changes in the fair value of these instruments are recorded net of the income tax effect in other comprehensive income (OCI).
Our exposure to loss from nonperformance by the counterparties to our derivative agreements at the end of 2008 is minimal. We do not anticipate
nonperformance by counterparties in the periodic settlements of amounts due. We have historically minimized this potential for risk by entering
into contracts exclusively with major, financially sound counterparties having no less than a long-term bond rating of A. The recent uncertainty in
the financial markets has negatively affected the bond ratings of all of our counterparties, and we continuously monitor our exposures to ensure
that we limit our risks. The credit risk generally is limited to the amount by which the counterparties’ contractual obligations exceed our
obligations to the counterparty.
We manufacture and sell our products in a number of countries throughout the world, and, therefore, we are exposed to movements in foreign
currency exchange rates. The primary purpose of our foreign currency hedging activities is to manage the volatility associated with foreign
currency purchases of materials, foreign currency sales of products, and other assets and liabilities created in the normal course of business. We
primarily utilize forward exchange contracts and purchased options with maturities of no more than 18 months that qualify as cash flow hedges.
These are intended to offset the effect of exchange rate fluctuations on forecasted sales, inventory purchases and overhead expenses. This is
generally expected to be reclassified to earnings in the next 18 months as the underlying transactions occur.
Net Investment Hedges
We hedge our net investment position in major currencies and generate foreign currency interest payments that offset other transactional
exposures in these currencies. To accomplish this, we borrow directly in foreign currency and designate a portion of foreign currency debt as a