E-Z-GO 2000 Annual Report Download - page 43

Dispositions
On August 11, 1998, Textron announced that it had reached an agreement to sell Avco Financial
Services (AFS) to Associates First Capital Corporation for $3.9 billion in cash. The sale was com-
pleted on January 6, 1999. Net after-tax proceeds were approximately $2.9 billion, resulting in an
after-tax gain of $1.65 billion. Textron has presented AFS as a discontinued operation in these finan-
cial statements.
Fuel Systems Textron was sold to Woodward Governor Company for $160 million in cash in 1998,
at a pretax gain of $97 million ($54 million after-tax).
Interest income is recognized in revenues using the interest method to provide a constant rate of
return over the terms of the receivables. Direct loan origination 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 delinquent by more than three months. Accrual of interest resumes
and suspended interest income is recognized when loans become contractually current.
Provisions for losses on finance receivables are charged to income in amounts sufficient to main-
tain the allowance at a level considered adequate to cover losses in the existing receivable portfolio.
Management evaluates the allowance by examining current delinquencies, the characteristics of
the existing accounts, historical loss experience, the value of the underlying collateral, and general
economic conditions and trends.
Finance receivables are written-off when they are determined to be uncollectible. Finance receiv-
ables 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 man-
agement 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.
Finance Receivables
Commercial installment contracts have initial terms ranging from one to 15 years. Golf course and
resort mortgages have initial terms ranging from three to seven years. Finance leases have initial
terms up to 15 years. Leveraged leases have initial terms up to approximately 30 years. Floorplan
and revolving receivables generally mature within one to three years.
At the end of 2000 and 1999, Textron Finance had nonaccrual loans and leases totaling $102 million
and $84 million, respectively. Approximately $76 million and $65 million of these respective
amounts were considered impaired, which excludes finance leases and homogeneous loan portfo-
lios. The allowance for losses on receivables related to impaired loans was $34 million and $21 million
at the end of 2000 and 1999. The average recorded investment in impaired loans during 2000 and
1999 were $76 million and $47 million, respectively. The percentage of net write-offs to average
finance receivables was 0.7% in 2000, and 0.5% in both 1999 and 1998.
The following table displays the contractual maturity of the finance receivables. It does not neces-
sarily 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 and
portfolio sales, were $5.2 billion and $3.8 billion in 2000 and 1999, respectively. In the same periods, the
ratio of cash collections to average net receivables was approximately 91% and 89%, respectively.
Less Finance Receivables
Contractual Maturities Finance Outstanding
(In millions) 2001 2002 After 2002 Charges 2000 1999
Installment contracts $ 402 $308 $1,410 $(135) $1,985 $2,227
Floorplan receivables 810 77 8 (1) 894 657
Revolving loans 615 65 641 (16) 1,305 1,216
Finance leases 97 87 274 (97) 361 509
Golf course and resort mortgages 144 150 393 (4) 683 621
Leveraged leases 15 11 613 (278) 361 348
$2,083 $698 $3,339 $(531) 5,589 5,578
Less allowance for credit losses 116 113
$5,473 $5,465
Finance Receivables and Securitizations3
41 TEXTRON 2000 ANNUAL REPORT