E-Z-GO 2004 Annual Report Download - page 68

Textron completed the sale of its Automotive Trim business to various operating subsidiaries of Collins & Aikman Corporation
(collectively “C&A”) in December 2001. The proceeds from the sale included 326,400 shares of non-marketable preferred stock of
Collins & Aikman Products Company, a subsidiary of C&A, valued at $147 million. In addition to the proceeds received from
C&A, prior to completing the sale, the Automotive Trim business entered into an $87 million lease agreement whereby equipment
used by the business was retained by Textron and leased back to the business through Textron Finance. See Note 4 to the consoli-
dated financial statements under the caption “Transactions between Finance and Manufacturing Groups” for more details. In addi-
tion, Textron guaranteed certain other operating lease payments transferred to C&A as described in Note 16 under the caption
“Guarantees.”
The purchase and sale agreement provided for an adjustment to the selling price based on an audit of the closing balance sheet in
2002. Pursuant to the audit and final settlement of the post-closing obligations under the purchase and sale agreement, Textron
received $110 million from C&A. The final negotiated settlement provided C&A the ability to repurchase a portion of its preferred
stock in advance of the original terms, and C&A repurchased those preferred shares in June 2002. As of January 1, 2005, Textron
had 200,000 shares remaining of the original preferred stock valued at $90 million. In conjunction with this transaction and fol-
lowing C&A’s recapitalization through a share offering, the carrying value of the C&A common stock held by Textron was revised.
An additional gain of $25 million was recorded in 2002 upon the final settlement of the post-closing obligations and valuation of
the common stock received from C&A. The C&A common stock was subsequently written down and sold as discussed in Note 14.
Note 3 Accounts Receivable
Accounts receivable is composed of the following:
January 1, January 3,
(In millions) 2005 2004
Commercial and customers $ 1,055 $ 966
U.S. Government contracts 220 224
1,275 1,190
Less allowance for doubtful accounts 64 66
$ 1,211 $ 1,124
Unbillable receivables on U.S. Government contracts arise when the revenues based on performance attainment, though appropri-
ately recognized, cannot be billed yet under terms of the contract. Unbillable receivables within accounts receivable totaled $133
million at January 1, 2005 and $126 million at January 3, 2004. Long-term contract receivables due from the U.S. Government do
not include significant amounts billed but unpaid due to contractual retainage provisions or subject to collection uncertainty.
Note 4 Finance Receivables and Securitizations
Finance Receivables
Textron Finance provides financial services primarily to the aircraft, golf, vacation interval resort, dealer floorplan and middle mar-
ket industries under a variety of financing vehicles with various contractual maturities.
Installment contracts generally require the customer to pay a significant down payment, along with periodic scheduled principal
payments that reduce the outstanding balance through the term of the loan. Finance leases include residual values expected to be
realized at contractual maturity. Finance leases with no significant residual value at the end of the contractual term are classified as
installment contracts, as their legal and economic substance is more equivalent to a secured borrowing than a finance lease with a
significant residual value. Installment contracts and finance leases have initial terms ranging from two to 20 years and are primar-
ily secured by the financed equipment.
Distribution finance receivables are generally secured by the inventory of the financed distributor and include floor plan financing
for third party dealers for inventory sold by E-Z-GO and Jacobsen businesses. Revolving loans are secured by trade receivables,
inventory, plant and equipment, pools of vacation interval notes receivables, pools of residential and recreational land loans, and
the underlying property. Distribution finance and revolving loans generally mature within one to five years.
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Textron Inc.