E-Z-GO 1998 Annual Report Download - page 45

3. Interest income is recognized in revenues using the interest method. Direct loan origina-
tion costs and fees received are deferred and amortized over the loans’ contractual lives.
The accrual of interest income is suspended for accounts which are contractually delin-
quent by more than three months. Accrual of interest on commercial loans resumes and
suspended interest income is recognized when loans become contractually current.
Finance receivables are written-off when they are determined to be uncollectible. Finance
receivables are written down to the fair value of the related collateral (less estimated costs to
sell) when the collateral is repossessed or when no payment has been received for six months,
unless management deems the loans collectible. Foreclosed real estate loans and repossessed
assets are transferred from finance receivables to other assets at the lower of fair value (less
estimated costs to sell) or the outstanding loan balance.
Provisions for losses on finance receivables are charged to income in amounts sufficient
to maintain the allowance at a level considered adequate to cover losses in the existing
receivable portfolio. Management evaluates the allowance by examining current delinquen-
cies, the characteristics of the existing accounts, historical loss experience, the value of the
underlying collateral, and general economic conditions and trends.
Commercial installment contracts have initial terms ranging from one to 12 years.
Commercial real estate and golf course mortgages have initial terms ranging from three to
seven years. Finance leases have initial terms up to 12 years. Leveraged leases have initial terms
up to approximately 30 years. Floorplan and revolving receivables generally mature within one
year. At the end of 1998 and 1997, Textron had nonaccrual loans and leases totaling $70 million
and $86 million, respectively. Approximately, $46 million and $64 million of these respective
amounts were considered impaired, which excludes finance leases and homogeneous loan
portfolios. The allowance for losses on receivables related to impaired loans was $15 million
and $14 million at the end of 1998 and 1997. The average recorded investment in impaired loans
during 1998 and 1997 were $51 million and $68 million, respectively. The percentage of net write-
offs to average finance receivables was 0.5% in 1998, 0.6% in 1997 and 0.9% in 1996.
The following table displays the contractual maturity of the finance receivables. It does
not necessarily reflect future cash collections because of various factors including the
refinancing of receivables and repayments prior to maturity. Cash collections from
receivables, excluding finance charges, were $3.5 billion and $2.3 billion in 1998 and
1997, respectively. In the same periods, the ratio of cash collections to average net
receivables was approximately 108% and 76%, respectively.
Less Finance receivables
Contractual maturities finance outstanding
(In millions) 1999 2000 After 2000 charges 1998 1997
Installment contracts $ 375 $272 $ 894 $202 $1,339 $1,141
Floorplan receivables 437 105 31 1 572 409
Revolving loans 378 21 161 4 556 452
Finance leases 134 119 264 93 424 392
Real estate and golf course
mortgages 42 66 269 2 375 345
Leveraged leases 18 25 586 283 346 330
$1,384 $608 $2,205 $585 3,612 3,069
Less allowance for credit losses 84 77
$3,528 $2,992
The net investment in finance leases and leveraged leases were as follows:
(In millions) 1998 1997
Finance and leveraged lease receivables $ 590 $ 537
Estimated residual values on equipment and assets 559 556
1,149 1,093
Unearned income (379) (371)
Investment in leases 770 722
Deferred income taxes arising from leveraged leases (256) (256)
Net investment in leases $ 514 $ 466
Finance
Receivables
1998 TEXTRON ANNUAL REPORT 41