E-Z-GO 2002 Annual Report Download - page 50

The activity in the allowance for credit losses on finance receivables was as follows:
(In millions) 2002 2001 2000
Balance at the beginning of the year $ 144 $ 116 $ 113
Provision for losses 139 82 37
Charge-offs (139) (82) (45)
Recoveries 11 8 7
Acquisitions and other 12 20 4
Balance at the end of the year $ 167 $ 144 $ 116
At December 28, 2002, Textron Finance had unused commitments to fund new and existing customers
under $1.5 billion of committed revolving lines of credit and $1.0 billion of uncommitted revolving lines of
credit. Generally, interest rates on these commitments are not set until the loans are funded; therefore,
Textron Finance is not exposed to interest rate changes.
Textron Finance manages finance receivables for a variety of investors, participants and third-party port-
folio owners. The total managed and serviced finance receivable portfolio, including owned finance
receivables, was $9.4 billion at the end of 2002 and $9.3 billion at the end of 2001.
Owned and securitized finance receivables are primarily diversified geographically across the United
States, along with 4% held in South America and 9% in other international countries. At December 28,
2002, Textron Finance’s most significant collateral concentration was general aviation aircraft, which
accounted for 21% of owned and securitized receivables. Textron Finance also has industry concentra-
tions in the golf and vacation interval industries, which each accounted for 15% of owned and securi-
tized receivables at December 28, 2002.
Transactions Between Finance and Manufacturing Groups
A portion of Textron Finance’s business involves financing retail purchases and leases for new and used
aircraft and equipment manufactured by Textron Manufacturing’s Aircraft and Industrial Products seg-
ments. In 2002, 2001 and 2000, Textron Finance paid Textron Manufacturing $1.1 billion, $1.3 billion,
and $1.4 billion, respectively, relating to the sale of manufactured products to third-parties that were
financed by Textron Finance and $104 million, $62 million and $50 million, respectively, for the purchase
of operating lease equipment. Operating agreements specify that Textron Finance has recourse to Tex-
tron Manufacturing for outstanding balances from these transactions. At year-end 2002 and 2001, the
amounts guaranteed by Textron Manufacturing totaled $562 million and $652 million, respectively. In
addition, Textron Finance has recourse to Textron Manufacturing for an $87 million lease with C&A and
on $70 million in retained interests in securitizations at the end of 2002 and 2001. Included in the finance
receivables guaranteed by Textron Manufacturing are past due loans of $85 million at the end of 2002
($90 million at the end of 2001) that meet the non-accrual criteria but are not classified as non-accrual
by Textron Finance due to the guarantee. Textron Finance continues to recognize income on these
loans. Concurrently, Textron Manufacturing is charged for their obligation to Textron Finance under the
guarantee so that there are no net interest earnings for the loans on a consolidated basis. Textron Manu-
facturing has established reserves for losses related to these guarantees which are included in other
current liabilities.
Securitizations
Textron Finance received proceeds of $0.9 billion in 2002 and $1.3 billion in 2001 from the securitization
and sale (with servicing rights retained) of finance receivables. Gains from securitized trust sales were
approximately $54 million in 2002 and $43 million in 2001. At the end of 2002, $2.6 billion in securitized
loans were outstanding with $78 million in past due loans. Textron Finance has securitized certain
receivables generated by Textron Manufacturing for which it has retained full recourse to Textron Manu-
facturing.
Textron Finance retained subordinated interests in the trusts which are approximately 2% to 10% of the
total trust. Servicing fees range from 50 to 200 basis points. During 2002, key economic assumptions
used in measuring the retained interests at the date of each securitization included prepayment speeds
ranging from 7% to 23%, weighted average lives ranging from 0.3 to 5 years, expected credit losses
ranging from 0.3% to 4.5%, and residual cash flows discount rates ranging from 4.7% to 11.5%. At
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