OSK » Topics » Interest Rate Risk

These excerpts taken from the OSK 10-K filed Nov 14, 2008.

Interest Rate Risk

        The Company’s earnings exposure related to adverse movements in interest rates is primarily derived from outstanding floating rate debt instruments that are indexed to short-term market interest rates. The Company, as needed, uses interest rate swaps to modify its exposure to interest rate movements. In January 2007, the Company entered into an interest rate swap to reduce the risk of interest rate changes associated with the Company’s variable rate debt issued to finance the acquisition of JLG. The swap effectively fixes the variable portion of the interest rate on debt in the amount of the notional amount of the swap at 5.105% plus the applicable spread based on the terms of the Credit Agreement. The notional amount of the swap at September 30, 2008 was $2.0 billion and reduces in varying amounts annually each December until its termination on December 6, 2011. Under the terms of the swap agreement, the notional amount of the swap will decline to $1.25 billion in December 2008.

        The portion of the Company’s interest expense not effectively fixed in the interest rate swap remains sensitive to changes in the interest rates in the U.S. and off-shore markets. In this regard, changes in U.S. and off-shore interest rates affect interest payable on the Company’s borrowings under its Credit Agreement. A 100 basis point increase or decrease in the average cost of the Company’s variable rate debt, including outstanding swaps, would result in a change in forecasted fiscal 2009 pre-tax interest expense of approximately $13.7 million. These amounts are determined on an annual basis by considering the impact of the hypothetical interest rates on average forecasted borrowings during fiscal 2009, after consideration of the interest rate swap, but do not consider the effects of the reduced level of overall economic activity that could exist in such an environment.

Expected maturity date
September 30,
2009
2010
2011
2012
2013
Thereafter
Total
Fair
Value

Liabilities
Long-term debt                                    
   Variable rate ($US)   $ 25.0   $ 50.0   $ 50.0   $ 262.5   $ --   $ 2,314.0   $ 2,701.5   $ 2,337.1  
         Average interest rate    4.5800 %  4.9291 %  5.6738 %  5.9391 %  --    6.3500 %  6.2549 %    

Interest Rate Derivatives
Interest rate swaps:  
   Variable to fixed ($US)   $ 26.7   $ 14.1   $ 3.2   $ 0.4   $ --   $ --   $ 44.4   $ 44.4  
         Average pay rate    5.1050 %  5.1050 %  5.1050 %  5.1050 %  --    --    5.1050 %    
         Average receive rate    3.0423 %  3.4291 %  4.1738 %  4.4391 %  --    --    3.3514 %    

Interest Rate Risk




        The
Company’s earnings exposure related to adverse movements in interest rates is
primarily derived from outstanding floating rate debt instruments that are indexed to
short-term market interest rates. The Company, as needed, uses interest rate swaps to
modify its exposure to interest rate movements. In January 2007, the Company entered into
an interest rate swap to reduce the risk of interest rate changes associated with the
Company’s variable rate debt issued to finance the acquisition of JLG. The swap
effectively fixes the variable portion of the interest rate on debt in the amount of the
notional amount of the swap at 5.105% plus the applicable spread based on the terms of the
Credit Agreement. The notional amount of the swap at September 30, 2008 was $2.0 billion
and reduces in varying amounts annually each December until its termination on December 6,
2011. Under the terms of the swap agreement, the notional amount of the swap will decline
to $1.25 billion in December 2008.




        The
portion of the Company’s interest expense not effectively fixed in the interest rate
swap remains sensitive to changes in the interest rates in the U.S. and off-shore markets.
In this regard, changes in U.S. and off-shore interest rates affect interest payable on
the Company’s borrowings under its Credit Agreement. A 100 basis point increase or
decrease in the average cost of the Company’s variable rate debt, including
outstanding swaps, would result in a change in forecasted fiscal 2009 pre-tax interest
expense of approximately $13.7 million. These amounts are determined on an annual basis by
considering the impact of the hypothetical interest rates on average forecasted borrowings
during fiscal 2009, after consideration of the interest rate swap, but do not consider the
effects of the reduced level of overall economic activity that could exist in such an
environment.















































































































































Expected maturity date
September 30,
2009
2010
2011
2012
2013
Thereafter
Total
Fair

Value

Liabilities
Long-term debt                                    
   Variable rate ($US)   $ 25.0   $ 50.0   $ 50.0   $ 262.5   $ --   $ 2,314.0   $ 2,701.5   $ 2,337.1  
         Average interest rate    4.5800 %  4.9291 %  5.6738 %  5.9391 %  --    6.3500 %  6.2549 %    

Interest Rate Derivatives
Interest rate swaps:  
   Variable to fixed ($US)   $ 26.7   $ 14.1   $ 3.2   $ 0.4   $ --   $ --   $ 44.4   $ 44.4  
         Average pay rate    5.1050 %  5.1050 %  5.1050 %  5.1050 %  --    --    5.1050 %    
         Average receive rate    3.0423 %  3.4291 %  4.1738 %  4.4391 %  --    --    3.3514 %    






This excerpt taken from the OSK 10-K filed Nov 21, 2007.

Interest Rate Risk

        The Company’s earnings exposure related to adverse movements in interest rates is primarily derived from outstanding floating rate debt instruments that are indexed to short-term market interest rates. The Company, as needed, uses interest rate swaps to modify its exposure to interest rate movements. In January 2007, the Company entered into an interest rate swap to reduce the risk of interest rate changes associated with the Company’s variable rate debt issued to finance the acquisition of JLG. The swap effectively fixes the variable portion of the interest rate on debt in the amount of the notional amount of the swap at 5.105% plus the applicable spread based on the terms of the Credit Agreement. The initial notional amount of the swap was $2.5 billion and is reduced in varying amounts annually each December until its termination on December 6, 2011. Under the terms of the swap agreement, the notional amount of the swap will decline to $2.0 billion in December 2007.

        The portion of the Company’s interest expense not effectively fixed in the interest rate swap remains sensitive to changes in the interest rates in the U.S. and off-shore markets. In this regard, changes in U.S. and off-shore interest rates affect interest payable on the Company’s borrowings under its Credit Agreement. A 100 basis point increase or decrease in the average cost of the Company’s variable rate debt, including outstanding swaps, would result in a change in pre-tax interest expense of approximately $5.5 million. These amounts are determined on an annual basis by considering the impact of the hypothetical interest rates on borrowings at September 30, 2007, taking into account the interest rate swap, but do not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to mitigate the Company’s exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the foregoing sensitivity analysis assumes no changes in the Company’s financial structure other than as noted.

This excerpt taken from the OSK 10-Q filed Aug 2, 2007.

Interest Rate Risk

        In January 2007, the Company entered into an interest rate swap to reduce the risk of interest rate changes associated with the Company’s variable rate debt issued to finance the acquisition of JLG. The swap effectively fixes the variable portion of the interest rate on debt in the amount of the notional amount of the swap at 5.105% plus the applicable spread based on the terms of the Credit Agreement. The initial notional amount of the swap is $2.5 billion and is reduced in varying amounts annually each December until its termination on December 6, 2011.

        The portion of the Company’s interest expense not effectively fixed in the interest rate swap remains sensitive to changes in the interest rates in the U.S. and off-shore markets. In this regard, changes in U.S. and off-shore interest rates affect interest payable on the Company’s borrowings under its Credit Agreement. If short-term interest rates increased 100 basis points, then the Company’s interest expense would increase, and pre-tax income would decrease by approximately $5.7 million. These amounts are determined on an annual basis by considering the impact of the hypothetical interest rates on the Company’s borrowing cost on borrowings at June 30, 2007, taking into account the interest rate swap, but does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to mitigate the Company’s exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the foregoing sensitivity analysis assumes no changes in the Company’s financial structure other than as noted.

This excerpt taken from the OSK 10-Q filed May 3, 2007.

Interest Rate Risk

        In January 2007, the Company entered into an interest rate swap to reduce the risk of interest rate changes associated with the Company’s variable rate debt issued to finance the acquisition of JLG. The swap effectively fixes the variable portion of the interest rate on debt in the amount of the notional amount of the swap at 5.105% plus the applicable spread based on the terms of the Credit Agreement. The initial notional amount of the swap is $2.5 billion and is reduced in varying amounts annually each December until its termination on December 6, 2011.

        The portion of the Company’s interest expense not effectively fixed in the interest rate swap remains sensitive to changes in the interest rates in the U.S. and off-shore markets. In this regard, changes in U.S. and off-shore interest rates affect interest payable on the Company’s borrowings under its Credit Agreement. If short-term interest rates increased 100 basis points, then the Company’s interest expense would increase, and pre-tax income would decrease by approximately $5.0 million. These amounts are determined on an annual basis by considering the impact of the hypothetical interest rates on the Company’s borrowing cost on borrowings at March 31, 2007, taking into account the interest rate swap, but does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to mitigate the Company’s exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the foregoing sensitivity analysis assumes no changes in the Company’s financial structure other than as noted.



39



This excerpt taken from the OSK 10-Q filed Feb 8, 2007.

Interest Rate Risk

        The Company’s interest expense is sensitive to changes in the interest rates in the U.S. and off-shore markets. In this regard, changes in U.S. and off-shore interest rates affect interest payable on the Company’s borrowings under its Credit Agreement. If short-term interest rates increased 200 basis points, then the Company’s interest expense would increase, and pre-tax income would decrease by approximately $16.2 million. These amounts are determined on an annual basis by considering the impact of the hypothetical interest rates on the Company’s borrowing cost on borrowings at December 31, 2006, but do not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to mitigate the Company’s exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the foregoing sensitivity analysis assumes no changes in the Company’s financial structure other than as noted.

        In January 2007, the Company entered into an interest rate swap to reduce the risk of interest rate changes associated with the Company’s variable rate debt issued to finance the acquisition of JLG. The swap effectively fixes the variable portion of the interest rate on debt in the amount of the notional amount of the swap at 5.105% plus the applicable spread based on the terms of the Credit Agreement. The initial notional amount of the swap is $2.5 billion and is reduced in varying amounts annually each December until its termination on December 6, 2011.

This excerpt taken from the OSK 10-K filed Nov 16, 2006.

Interest Rate Risk

        The Company’s interest expense is sensitive to changes in the interest rates in the U.S. and off-shore markets. In this regard, changes in U.S. and off-shore interest rates affect interest payable on the Company’s borrowings under its revolving credit facility. The Company has not historically utilized derivative securities to fix variable rate interest obligations or to make fixed-rate interest obligations variable. If short-term interest rates averaged two percentage points higher in fiscal 2007 than in fiscal 2006, then the Company’s interest expense would increase, and pre-tax income would decrease by approximately $0.5 million. These amounts are determined by considering the impact of the hypothetical interest rates on the Company’s borrowing cost, but do not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to mitigate the Company’s exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the foregoing sensitivity analysis assumes no changes in the Company’s financial structure other than as noted.

This excerpt taken from the OSK 10-K filed Nov 22, 2005.

Interest Rate Risk

        The Company’s interest expense is sensitive to changes in the interest rates in the U.S. and off-shore markets. In this regard, changes in U.S. and off-shore interest rates affect interest payable on the Company’s borrowings under its revolving credit facility. The Company has not historically utilized derivative securities to fix variable rate interest obligations or to make fixed-rate interest obligations variable. If short-term interest rates averaged two percentage points higher in fiscal 2006 than in fiscal 2005, then the Company’s interest expense would increase, and pre-tax income would decrease by approximately $1.1 million. These amounts are determined by considering the impact of the hypothetical interest rates on the Company’s borrowing cost, but do not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to mitigate the Company’s exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the foregoing sensitivity analysis assumes no changes in the Company’s financial structure other than as noted.

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