E-Z-GO 2003 Annual Report Download - page 57

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The carrying amounts and estimated fair values of Textron’s financial instruments that are not reflected in
the financial statements at fair value as a matter of accounting policy are as follows:
December 28, 2002
Estimated
Carrying Fair
(In millions) Value Value
Debt $ (2,027) $ (2,177) $ (1,708) $ (1,836)
Finance receivables 4,313 4,274 4,729 4,708
Debt (4,407) (4,552) (4,840) (4,935)
Finance receivables exclude the fair value of finance and leveraged leases totaling $822 million at Janu-
ary 3, 2004 and $805 million at December 28, 2002, as these leases are recorded at fair value in the bal-
ance sheet.
Prior to Textron Finance’s acquisition of Litchfield Financial Corporation (Litchfield) in 1999, a trust, spon-
sored and wholly owned by Litchfield, issued to the public $26 million of mandatorily redeemable pre-
ferred securities. The trust subsequently invested the proceeds in $26 million aggregate principal
amount of Litchfield 10% Series A Junior Subordinated Debentures, due 2029. The debentures are the
sole asset of the trust. The preferred securities were recorded by Textron Finance at the fair value of $29
million as of the acquisition date and the fair value adjustment is being amortized through 2004. The
amounts due to the trust under the debentures and the related income statement amounts have been
eliminated in Textron’s consolidated financial statements. The preferred securities accrue and pay cash
distributions quarterly at a rate of 10% per annum.
The trust’s obligation under the preferred securities is fully and unconditionally guaranteed by Litchfield.
The trust will redeem all of the outstanding preferred securities when the debentures are paid at maturity
on June 30, 2029, or otherwise become due. Litchfield has the right to redeem 100% of the principal
plus accrued and unpaid interest on or after June 30, 2004. As a result of its acquisition of Litchfield,
Textron Finance has agreed to make payments to the holders of the preferred securities, when due, to
the extent not paid by or on behalf of the trust or subsidiary.
In July 2003, Textron redeemed its 7.92% Junior Subordinated Deferrable Interest Debentures due
2045. The debentures were held by Textron’s wholly owned trust, and the proceeds from their redemp-
tion were used to redeem all of the $500 million Textron Capital I trust preferred securities with a 7.92%
dividend yield. Upon the redemption, $15 million in unamortized issuance costs were written off and
recorded in Special Charges.
In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Charac-
teristics of Both Liabilities and Equity,” that became effective for Textron at the beginning of the third
quarter of 2003. SFAS No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of liabilities and equity. Financial instruments within its scope
that were previously classified as equity, such as mandatorily redeemable shares, must be classified as
a liability. Upon adoption of SFAS No. 150 in July 2003, Textron Finance classified its obligated mandato-
rily redeemable preferred securities as a liability. In addition, Textron and Textron Finance began to
prospectively classify the distributions on trust preferred securities as interest expense. Subsequent to
adoption, in November 2003, the FASB issued FSP 150-3 which indefinitely deferred SFAS No. 150 for
these obligated mandatorily redeemable preferred securities. See Recently Issued Accounting Pro-
nouncements in Note 1 for more details.