E-Z-GO 2010 Annual Report Download - page 48

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36
Foreign Exchange Risks
Our financial results are affected by changes in foreign currency exchange rates and economic conditions in the foreign markets in
which our products are manufactured and/or sold. The impact of foreign exchange rate changes for 2010 and 2009 from the prior year
for each period is provided below:
(In millions)
2010 2009
Impact of foreign exchange rates increased (decreased):
Revenues
$ (34)
$ (51)
Segment profit
(7)
(2)
For our manufacturing operations, we manage exposures to foreign currency assets and earnings primarily by funding certain foreign
currency-denominated assets with liabilities in the same currency so that certain exposures are naturally offset. We primarily use
borrowings denominated in euro and British pound sterling for these purposes. In managing our foreign currency transaction
exposures, we also enter into foreign currency forward exchange and option contracts. These contracts generally are used to fix the
local currency cost of purchased goods or services or selling prices denominated in currencies other than the functional currency.
The notional amount of outstanding foreign exchange contracts and foreign currency options was approximately $0.6 billion and
$1.0 billion at the end of 2010 and 2009, respectively.
Quantitative Risk Measures
In the normal course of business, we enter into financial instruments for purposes other than trading. To quantify the market risk
inherent in our financial instruments, we utilize a sensitivity analysis. The financial instruments that are subject to market risk
(interest rate risk, foreign exchange rate risk and equity price risk) include finance receivables (excluding lease receivables), debt
(excluding lease obligations), interest rate exchange agreements and foreign currency exchange contracts.
Presented below is a sensitivity analysis of the fair value of financial instruments outstanding at year-end. We estimate the fair value
of the financial instruments using discounted cash flow analysis and indicative market pricing as reported by leading financial news
and data providers. This sensitivity analysis is most likely not indicative of actual results in the future. The following table illustrates
the sensitivity to a hypothetical change in the fair value of the financial instruments assuming a 10% decrease in interest rates and a
10% strengthening in exchange rates against the U.S. dollar:
2010
2009
(In millions)
Carrying
Value*
Fair
Value*
Sensitivity of
Fair Value
to a 10%
Change
Carrying
Value*
Fair
Value*
Sensitivity of
Fair Value
to a 10%
Change
Manufacturing group
Foreign exchange rate risk
Debt
$ (549)
$ (549)
$ (55)
$ (589)
$ (545)
$ (55)
Foreign currency exchange contracts
42
42
39
58
58
46
$ (507)
$ (507)
$ (16)
$ (531)
$ (487)
$ (9)
Interest rate risk
Debt
$ (2,172)
$ (2,698)
$ (22)
$ (3,474)
$ (3,762)
$ (37)
Finance group
Interest rate risk
Finance receivables $ 3,758 $ 3,544 $ 114 $ 5,952 $ 5,494 $ 135
Debt, including intergroup
(3,975)
(3,843)
(47)
(6,115)
(5,887)
(54)
Interest rate exchanges — debt
34
34
1
58
58
4
Interest rate exchanges — receivables
(8)
(8)
(2)
(1)
(1)
(1)
$ (191)
$ (273)
$ 66
$ (106)
$ (336)
$ 84
* The value represents an asset or (liability).