E-Z-GO 2003 Annual Report Download - page 49

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As a part of the disposition, certain operating leases were transferred to C&A. Textron has guaranteed
C&A’s payments under these operating leases up to an aggregate remaining amount of $17 million. Tex-
tron is required to make payments under these guarantees upon a default by C&A under the lease
agreements. These guarantees expire along with the underlying lease agreements. Textron believes it
has sufficient recourse against C&A under the indemnity provisions of the purchase and sale agreement
should it be required to make any payments under these guarantees.
In 2002, pursuant to a settlement of post-closing obligations under the purchase and sale agreement for
the sale of the Automotive Trim business, Textron received $110 million from C&A and recorded an addi-
tional gain of $25 million. The transaction included the repurchase of C&A preferred shares and the set-
tlement of all other matters under the purchase and sale agreement. In conjunction with this transaction
and following C&A’s recapitalization through a share offering, the carrying value of the C&A common
stock held by Textron was revised. The C&A common stock was subsequently written down and sold as
discussed in Note 14.
In January 2003, Textron sold its remaining 50% interest in an Italian joint venture to C&A for a $12 million
after-tax gain.
Textron utilizes the purchase method of accounting for its acquisitions. During 2001, Textron Manufac-
turing acquired four companies at a total net cost of $209 million and also made a $40 million capital
contribution to Textron Finance in support of its acquisition of a $387 million loan portfolio. During the
past three years, the pro forma results of operations have not been presented for any of these acquisi-
tions since they are not considered to be material.
Textron Finance provides financial services primarily to the aircraft, golf, vacation interval resort, dealer
floorplan and middle market industries under a variety of financing vehicles with various contractual
maturities.
Installment contracts and finance leases have initial terms ranging from two to 20 years, and are primari-
ly secured by the financed equipment. Finance leases include residual values expected to be realized
at contractual maturity. Distribution finance and revolving loans generally mature within one to five years.
Distribution finance receivables are generally secured by the inventory of the financed distributor, while
revolving loans are secured by trade receivables, inventory, plant and equipment, and pools of vacation
interval notes receivables, pools of residential and recreational land lots, and the underlying real proper-
ty. Golf course mortgages have initial terms ranging from five to seven years with amortization periods
from 15 to 25 years. Resort mortgages generally represent construction and inventory loans with terms
up to two years. Golf course and resort mortgages are secured by real property and are generally limit-
ed to 75% or less of the property’s appraised market value at loan origination. Leveraged leases are
secured by the ownership of the leased equipment and real property and have initial terms up to
approximately 30 years.
At the end of fiscal 2003 and 2002, Textron Finance had nonaccrual finance receivables, excluding
receivables with recourse to the Manufacturing group, totaling $152 million and $177 million, respective-
ly. Of these respective amounts $99 million and $122 million were considered impaired, which excludes
finance leases and homogeneous loan portfolios. The allowance for losses on finance receivables relat-
ed to impaired loans was $18 million and $33 million at the end of fiscal 2003 and 2002, respectively.
The average recorded investment in impaired loans during 2003 was $123 million, compared with $97
million in 2002. No interest income was recognized on these loans using the cash basis method.
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 repayment or refinancing of
receivables prior to contractual maturity. Cash collections of finance receivables, excluding proceeds
from receivable sales or securitizations, were $8.8 billion and $7.5 billion in 2003 and 2002, respectively.
The ratio of cash collections (net of finance charges) to average net receivables, excluding distribution
finance receivables and revolving loans, was approximately 57% in 2003 and 54% in 2002.