E-Z-GO 2009 Annual Report Download - page 73

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Notes to the Consolidated Financial Statements
64
These are intended to offset the effect of exchange rate fluctuations on forecasted sales, inventory purchases and overhead expenses. At the end of
2009, we had a net deferred gain of $27 million in OCI related to these cash flow hedges. As the underlying transactions occur, we expect to
reclassify a $4 million gain into earnings in the next 12 months and $23 million of gains in the following 12-month period.
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
hedge of net investments. We also may utilize currency forwards as hedges of our related foreign net investments. Currency effects on the effective
portion of these hedges, which are reflected in the cumulative translation adjustment account within OCI, produced a $15 million after-tax loss in
2009, resulting in an accumulated net loss balance of $12 million at the end of 2009. The ineffective portion of these hedges was insignificant.
Stock-Based Compensation Hedges
We historically have managed the expense related to certain stock-based compensation awards using cash settlement forward contracts on our
common stock. The use of these forward contracts modifies compensation expense exposure to changes in the stock price with the intent to
reduce potential variability. Cash received or paid on the contract settlement is included in cash flows from operating activities, consistent with the
classification of the cash flows on the underlying hedged compensation expense. In January 2010, we discontinued hedging our stock-based
compensation awards and did not enter into any new forward contracts.
Fair Values of Derivative Instruments
The fair values of derivative instruments for the Manufacturing group are included in either other current assets or accrued liabilities in our
balance sheet. For the Finance group, derivative instruments are included in either other assets or other liabilities. The notional and fair value
amounts of our derivative instruments are provided below:
Notional Amount Asset (Liability)
(In millions) 2009 2008 2009 2008
Derivatives designated as hedging instruments
Assets
Finance group
Interest rate exchange contracts $ 1,333 $ 2,055 $ 43 $ 112
Cross-currency interest rate exchange contracts 161 140 18 21
Manufacturing group
Foreign currency exchange contracts 696 30 54 2
Forward contracts for Textron Inc. stock 22 — 7 —
Total included in other current or other assets $ 2,212 $ 2,225 $ 122 $ 135
Liabilities
Finance group
Interest rate exchange contracts $ 32 $ 32 $ (3) $ (7)
Cross-currency interest rate exchange contracts 4 5 (1) (1)
Manufacturing group
Foreign currency exchange contracts 80 839 (5) (41)
Forward contracts for Textron Inc. stock — 130 — (98)
Commodity contracts — 54 — (4)
Total included in accrued or other liabilities $ 116 $ 1,060 $ (9) $ (151)
Derivatives not designated as hedging instruments
Finance group
Foreign currency exchange contracts $ 531 $ 536 $ (13) $ —
Interest rate exchange contracts — 336 — (13)
Manufacturing group
Foreign currency exchange contracts 224 170 3 (43)
Total derivatives not designated as hedging instruments $ 755 $ 1,042 $ (10) $ (56)