E-Z-GO 2009 Annual Report Download - page 37

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We believe that with our existing cash balances, coupled with the continued successful execution of the exit plan for the non-captive portion of
the commercial finance business, and cash we expect to generate from our manufacturing operations, we will have sufficient cash to meet our
future needs.
During 2009, we proceeded with our plan to exit the non-captive commercial finance business in our Finance segment. We made the decision to
exit this business in the fourth quarter of 2008 in order to address our long-term liquidity position in light of disruption and instability in the
capital markets. The plan is being effected through a combination of orderly liquidation and selected sales and is expected, depending on market
conditions, to be substantially complete over the next two to three years. We reduced our managed finance receivables by $3.8 billion in 2009
through discounted payoffs, portfolio sales and finance receivable amortization, which included approximately $450 million in finance
receivables from our captive finance business. Managed finance receivables include owned finance receivables that are recorded on our balance
sheets and finance receivables sold in securitizations where we have retained credit risk to the extent of our subordinated interest, which may or
may not be recorded on our balance sheets. The reduction in managed finance receivables was primarily driven by the accelerated pace of
liquidations in the distribution finance product line. Distribution finance receivables typically have short duration associated with the sales pace of
equipment dealer inventory and this natural liquidation pattern was accelerated by asset sales, discounted payoff programs and the transfer of
borrowers with revolving credit lines to new lenders.
We measure the progress of the exit plan, in part, based on the percentage of managed finance receivable and other finance asset reductions
converted to cash. In 2009, we had a cash conversion ratio of 94%. We expect the cash conversion ratio to decline over the duration of our exit
plan due to the change in mix from shorter term assets in the distribution finance and asset-based lending product lines to longer term assets in
our timeshare, golf mortgage and structured finance product lines and the existence of a higher concentration of nonaccrual finance receivables.
At the end of 2009, the exit plan applied to the remaining $4.1 billion of the Finance segment’s non-captive managed finance receivables portfolio.
In 2010, we expect a total reduction in managed finance receivables of approximately $1.6 billion, net of originations, which includes non-captive
finance receivables, as well as captive finance receivables. In connection with the liquidation of our managed finance receivables, we have
reduced our Finance group’s on- and off-balance sheet debt portfolio by an aggregate of $3.8 billion largely due to the payoff of the distribution
finance and golf securitizations and debt maturities.
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 our aggregate $3.0 billion in committed bank lines of credit. Amounts borrowed under the credit facilities are due in April
2012. A portion of the proceeds was used to repay our outstanding commercial paper. These facilities historically have been in support of
commercial paper and letters of credit issuances only, and, at the end of 2008, there were no borrowings outstanding related to the Manufacturing
group’s $1.25 billion facility or the Finance group’s $1.75 billion facility.
During 2009, the capital markets improved, and we were able to successfully access these markets to strengthen our current and future liquidity
profile. We maintain an effective shelf registration statement filed with the Securities and Exchange Commission that allows us to issue an
unlimited amount of public debt and other securities. On May 5, 2009, we issued $600 million of 4.50% Convertible Senior Notes (Convertible
Notes) under our registration statement. See Note 8 to the Consolidated Financial Statement for more information on these Convertible Notes.
Concurrently with the offering and sale of the Convertible Notes, we also offered and sold to the public under our registration statement
23,805,000 shares of our common stock for net proceeds of approximately $238 million. To further lengthen the maturity profile of our
indebtedness, on September 14, 2009, we issued $600 million of senior notes under our registration statement, comprised of $350 million of
6.20% notes due 2015 and $250 million of 7.25% notes due 2019.
Both borrowing groups extinguished through open market repurchases an aggregate of $745 million in outstanding debt securities prior to
maturity during 2009, resulting in gains of $54 million. Also in 2009, both borrowing groups completed separate cash tender offers for up to a
$650 million aggregate principal amount of five separate series of outstanding debt securities with maturity dates ranging from November 2009 to
June 2012. In completing these tender offers, we extinguished an aggregate of $587 million of outstanding debt securities with maturity dates
ranging from 2009 to 2012 and recognized a loss of $1 million in 2009.
We also have pursued new funding sources and transfers of existing funding obligations to new financing providers. In July 2009, we entered into
a credit agreement with the Export-Import Bank of the United States that established a $500 million credit facility to provide funding to finance
purchases of Cessna and Bell aircraft by non-U.S. customers who take delivery of new aircraft by December 2010. During the second quarter, we
transferred the rights to financing programs with two large manufacturers of lawn and garden products in the distribution finance business, which
will reduce future originations. Similarly, in early April, we entered into a three-year agreement with a financial service company that now provides
financing to third parties for a portion of our sales of E-Z-GO golf cars.