E-Z-GO 2004 Annual Report Download - page 70

impaired. In addition, Textron Finance had impaired accrual finance receivables totaling $58 million at January 1, 2005 and $137
million at January 3, 2004. The allowance for losses on finance receivables related to impaired loans is determined using assump-
tions related to the fair market value of the underlying collateral, and totaled $16 million and $18 million at the end of 2004 and
2003, respectively. The average recorded investment in impaired loans during 2004 was $123 million, compared with $201 mil-
lion in 2003. No interest income was recognized on these loans using the cash basis method.
Textron Finance manages and services finance receivables for a variety of investors, participants and third-party portfolio owners.
The total managed and serviced finance receivable portfolio, including owned finance receivables, was $9.3 billion at the end of
2004 and $8.8 billion at the end of 2003. Managed receivables include owned finance receivables and finance receivables sold in
securitizations and private transactions where Textron Finance has retained some element of credit risk and continues to service
the portfolio.
At January 1, 2005, Textron Finance’s receivables were primarily diversified geographically across the United States, along with
13% in other countries. The most significant collateral concentration was in general aviation aircraft, which accounted for 20% of
managed receivables. Textron Finance also has industry concentrations in the golf and vacation interval industries, which each
accounted for 18% and 14%, respectively, of managed receivables at January 1, 2005.
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 Bell, Cessna and Industrial segments.The captive finance receivables for these inventory
sales included in Textron Finance’s balance sheet are composed of the following:
January 1, January 3,
(In millions) 2005 2004
Installment contracts $ 628 $ 627
Distribution finance 42 31
Finance leases 279 139
Total $ 949 $ 797
Operating agreements specify that Textron Finance has recourse to Textron Manufacturing for outstanding balances from some of
these transactions. For those receivables for which collection has been guaranteed by Textron Manufacturing, reserves have been
established for losses on Textron Manufacturing’s balance sheet and are recorded in current or long-term liabilities. These
reserves are established for amounts that are potentially uncollectible or if the collateral values may be insufficient to cover the
outstanding receivable. If an account is deemed uncollectible and the collateral is repossessed, Textron Finance will charge Tex-
tron Manufacturing for any deficiency. In some cases, the collateral is not repossessed by Textron Finance, and the receivable is
transferred to Textron Manufacturing’s balance sheet for additional collection efforts. When this occurs, any related reserve previ-
ously established is reclassified from Textron Manufacturing’s current or long-term liabilities and is netted against either accounts
receivable or notes receivable within other assets.
In 2004, 2003 and 2002, Textron Finance paid Textron Manufacturing $0.9 billion, $0.9 billion and $1.0 billion, respectively, relat-
ing to the sale of manufactured products to third parties that were financed by Textron Finance, and $77 million, $56 million and
$104 million, respectively, for the purchase of operating lease equipment. At the end of 2004 and 2003, the amounts guaranteed by
Textron Manufacturing totaled $384 million and $467 million, respectively. In addition, at the end of 2004 and 2003, Textron
Finance had recourse to Textron Manufacturing for a lease with C&A totaling $82 million and $87 million, respectively.
Included in the finance receivables guaranteed by Textron Manufacturing are past due loans of $31 million and $41 million at the
end of 2004 and 2003, respectively, that meet the nonaccrual criteria but are not classified as nonaccrual 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 Manufacturing has established reserves for losses related to these guarantees that are included in other current lia-
bilities. Textron Manufacturing’s reserves for these recourse liabilities to Textron Finance totaled $48 million and $64 million at the
end of 2004 and 2003, respectively.
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Textron Inc.