E-Z-GO 2005 Annual Report Download - page 92

For 2005, AWB LLC’s maximum obligation is 20% of the total contract value, which equates to $232 million based on the current contract value of
$1.2 billion. In 2006, AWB LLC’s maximum obligation increases to 40%, or $464 million, and thereafter increases to 50%, or $580 million.
Accordingly, the maximum amount of Bell Helicopter’s liability under the guarantee is $114 million at December 31, 2005 and will be $227 mil-
lion in 2006 and $284 million thereafter through completion.
In the ordinary course of business, Textron enters into standby letters of credit and surety bonds with financial institutions, principally to guaran-
tee payment or performance to certain third parties in accordance with specified terms and conditions. At December 31, 2005, there were $155
million of standby letters of credit outstanding and $91 million of surety bonds outstanding. Management knows of no event of default that would
require Textron to satisfy these guarantees at the end of 2005.
Textron has a number of guaranteed minimum resale value contracts associated with certain past aircraft sales. These guarantees require Textron
to make possible future payments to a customer in the event that the fair value of an aircraft falls below a minimum guaranteed amount or to stipu-
late a minimum trade-in value. The agreements generally include operating restrictions such as maximum usage over the guarantee period or
minimum maintenance requirements. In addition, Textron has guaranteed the minimum resale value of certain customer-owned aircraft antici-
pated to be traded in upon completion of a model currently under development. Textron has recorded a $3 million liability related to the estimated
fair value of the guarantee under these agreements. The total amount of resale value guaranteed under these agreements at December 31, 2005
was approximately $31 million. Based on the estimated fair values of the guaranteed aircraft prevailing at December 31, 2005, there was no addi-
tional liability related to Textron’s obligation under these agreements. The guarantee contracts expire as follows: $3 million in 2006, $2 million in
2008, $3 million in 2009, $2 million in 2010, $2 million in 2011 and $19 million in 2012.
Textron Finance sells receivables in whole-loan sales where limited credit enhancement is typically provided in the form of a contingent liability
related to finance receivable credit losses and, to a lesser extent, prepayment risk. Textron Finance has a contingent liability related to the sale of
equipment lease rental streams in 2003 and 2001. The maximum liability at December 31, 2005 was $42 million. Textron Finance has valued this
recourse liability based on assumptions for annual credit losses and prepayment rates of 0.25% and 7.50%, respectively.
In connection with the sale of a note receivable in 2005, Textron Finance indemnified the purchaser against potential losses in limited circum-
stances. The maximum potential exposure of the indemnity is estimated to be $29 million, but due to the extremely low probability of occurrence
and several other mitigating factors, including a specific indemnification from the original note issuer, no significant fair value has been attributed
to the indemnity.
In connection with the disposition of Trim, certain operating leases were transferred and assigned to subsidiaries of C&A. Textron has guaranteed
C&A’s payments under these operating leases and an environmental matter up to an aggregate remaining amount of approximately $24 million.
Textron has an indemnification agreement with C&A for Textron’s guarantee to a third party related to a specific environmental matter. As dis-
cussed in Note 16, C&A’s filing for bankruptcy protection has effectively reduced Textron’s ability to seek recourse from C&A under the indemnity
provisions of the purchase and sale agreement, should a default occur. In the third quarter of 2005, Textron received a demand notice from the
third party related to the specific environmental matter. Textron will seek indemnification from C&A for any amounts it is required to pay for this
matter. Textron is required to make payments under the other guarantees upon default by C&A. Textron has not received any significant default
notices related to these leases, and management believes C&A will continue to make payments. As part of C&A’s announced plan to sell its Euro-
pean operations, management anticipates ongoing negotiations related to the guarantee of a leased European facility. Management will continue
to monitor C&A’s performance and Textron’s reserves related to these matters. Textron has reserved $8 million based on management’s best esti-
mate of Textron’s exposure under these guarantees.
Leases
Rental expense approximated $89 million, $89 million and $86 million in 2005, 2004 and 2003, respectively. Future minimum rental commit-
ments for noncancelable operating leases in effect at the end of 2005 approximated $57 million for 2006, $42 million for 2007, $33 million for
2008, $30 million for 2009, $26 million for 2010 and a total of $120 million thereafter.
Loan Commitments
At December 31, 2005, Textron Finance had unused commitments to fund new and existing customers under $1.2 billion of committed revolving
lines of credit, compared with $1.0 billion at January 1, 2005. Generally, interest rates on these commitments are not set until the loans are funded
so Textron Finance is not exposed to interest rate changes. Since many of the agreements will not be used to the extent committed or will expire
unused, the total commitment amount does not necessarily represent future cash requirements.
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Textron Inc.