E-Z-GO 2000 Annual Report Download - page 44

The net investment in finance leases and leveraged leases were as follows:
(In millions) 2000 1999
Finance and leveraged lease receivables $ 508 $ 656
Estimated residual values on equipment and assets 589 589
1,097 1,245
Unearned income (375) (388)
Investment in leases 722 857
Deferred income taxes arising from leveraged leases (265) (260)
Net investment in leases $ 457 $ 597
The activity in the allowance for credit losses on finance receivables is as follows:
(In millions) 2000 1999 1998
Balance at the beginning of the year $113 $ 84 $ 77
Provision for losses 37 32 20
Charge-offs (45) (28) (21)
Recoveries 755
Acquisitions and other 420 3
Balance at the end of the year $116 $113 $ 84
Textron had both fixed-rate and variable-rate loan commitments totaling $1,531 million at year-
end 2000. Because interest rates on these commitments are not set until the loans are funded,
Textron is not exposed to interest rate changes.
A portion of Textron Finance’s business involves financing the sale and lease of Textron products.
In 2000, 1999 and 1998, Textron Finance paid Textron $1,429 million, $1,260 million, and $980 million,
respectively, for receivables and operating lease equipment. Operating agreements with Textron
specify that Textron Finance generally has recourse to Textron with respect to these purchases. At
year-end 2000, finance receivables and operating lease equipment of $834 million and $69 million,
respectively, ($841 million and $69 million, respectively, at year-end 1999) were due from Textron or
subject to recourse to Textron. Included in the finance receivables balance guaranteed by Textron are
past due loans of $105 million at the end of 2000 ($72 million at year-end 1999) that meet the non-
accrual criteria but are not classified as non-accrual by Textron Finance due to the guarantee from
Textron Manufacturing units. Textron Finance continues to recognize income on these loans.
Concurrently, Textron Manufacturing is charged for their obligation to Textron Finance under the guar-
antee so that there are no net interest earnings for the loans on a consolidated basis.
Textron Finance manages finance receivables for a variety of investors, participants and third
party portfolio owners. The total managed finance receivable portfolio, including owned finance
receivables, was $7,965 million and $6,802 million, respectively for 2000 and 1999.
Textron Finance’s finance receivables are diversified geographically across the United States.
There are no significant industry or collateral concentrations at the end of 2000.
Securitizations
Textron Finance securitized and sold without recourse (and servicing rights retained) $1.2 billion
and $273 million of finance receivables in 2000 and 1998, respectively. Gains from securitized trust
sales were approximately $22 million and $3 million in 2000 and 1998, respectively. Textron Finance
retained subordinated interests in the trusts which are approximately 2% to 10% of the total trust.
Servicing fees range from 30 to 75 basis points. Principal amounts sold and assumptions used in
these securitization sales for 2000 were as follows:
General Equipment Loans Land
(Dollars in millions) Aviation and Leases Franchise Lots
Principal balance $763 $275 $70 $69
Weighted-average life (in years) 2.5 1.7 7.6 5.9
Prepayment speed (annual rate) 20%-23% 15%-20% 8% 20%
Expected credit losses (annual rate) 0.06%-0.35% 0.20% 0.25% 1.50%
Residual cash flows discounted at 10% 10% 10% 11%
At December 30, 2000 the carrying amount of Textron Finance’s retained interests in securitized
trusts was approximately $130 million. Hypothetical adverse changes of 10% and 20% to the pre-
payment speed, expected credit losses and residual cash flows discount rates assumptions would
not have a material impact on the current fair value of the residual cash flows associated with the
retained interests.
TEXTRON 2000 ANNUAL REPORT 42