E-Z-GO 2006 Annual Report Download - page 72

Download and view the complete annual report

Please find page 72 of the 2006 E-Z-GO annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 108

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108

In 2006, 2005 and 2004, our Finance group paid the Manufacturing group $1.0 billion, $0.8 billion and $0.9 billion, respectively, related to the
sale of Textron-manufactured products that were financed by the Finance group. Our Manufacturing group also received proceeds in those years
of $63 million, $41 million and $77 million, respectively, from the sale of equipment to the Finance group for use under operating lease agree-
ments. At the end of 2006 and 2005, the amounts guaranteed by the Manufacturing group totaled $335 million and $414 million, respectively,
which included equipment leases with Collins & Aikman Corporation (“C&A”) that had an outstanding balance of $61 million at the end of 2006
and $70 million at the end of 2005.
Impairment
Nonaccrual finance receivables include accounts that are contractually delinquent by more than three months for which the accrual of interest
income is suspended. These receivables are considered impaired when it is probable that we will be unable to collect all amounts due according
to the contractual terms of the loan agreement. Impaired accrual finance receivables represent loans with original loan terms that have been signif-
icantly modified to reflect deferred principal payments, generally at market interest rates, for which collection of principal and interest is not
doubtful. The impaired finance receivables and related reserves at the end of 2006 and 2005 are as follows:
December 30, December 31,
(In millions)
2006 2005
Impaired nonaccrual finance receivables $ 60 $ 67
Impaired accrual finance receivables 101 36
Total impaired finance receivables $ 161 $ 103
Impaired nonaccrual finance receivables with identified reserve requirements $ 36 $ 53
Allowance for losses on finance receivables related to impaired loans $ 17 $ 18
The average recorded investment in impaired finance receivables during 2006 was $142 million, compared with $106 million in 2005. The
increase primarily reflects one restructured loan in golf finance for which payments are being made.
The table above excludes finance receivables for which the Finance group has recourse to the Manufacturing group. The Finance group continues
to recognize income on past-due receivables that meet the nonaccrual criteria that are guaranteed by the Manufacturing group. On a consolidated
basis, there are no earnings for these receivables since the Manufacturing group is charged for its obligation to the Finance group. At the end of
2006 and 2005, these past-due loans totaled $2 million and $8 million, respectively. In addition, while C&A continues to make payments on its
equipment leases, these leases are considered impaired since C&A currently is under bankruptcy protection and the lease terms have expired.
The Manufacturing group has total reserves for losses for its guarantees to the Finance group of $39 million at the end of 2006 and $40 million at
the end of 2005.
Securitizations
We received proceeds from the securitization and sale (with servicing rights retained) of finance receivables of $50 million in 2006, $361 million
in 2005 and $394 million in 2004. Gains from securitized trust sales were approximately $42 million in 2006, $49 million in 2005 and $56 mil-
lion in 2004. For securitizations in 2006, key economic assumptions used in measuring the retained interests at the date of securitization included
a weighted-average life of three months, expected annual credit losses of 0.2% and a residual cash flows discount rate of 10%.
We retain subordinated interests in the trusts, which are approximately 2% to 10% of the total trust. Servicing fees range from 75 to 150 basis
points. At the end of 2006, $2.1 billion in securitized loans were outstanding, with $13 million in past-due loans. Our Finance group has securi-
tized certain receivables for which it has retained full recourse to our Manufacturing group.
At the end of 2006, we had $179 million in retained interest recorded in other assets, which primarily included $111 million in distribution finance
receivables and $56 million in general aviation loans. In comparison, retained interest totaled $208 million at the end of 2005. Cash flows
received on these retained interests totaled $63 million in 2006, $64 million in 2005 and $70 million in 2004. At the end of 2006, key economic
assumptions used in measuring our retained interests were as follows: for the distribution finance receivables: weighted-average life of three
months, expected annual credit loss rate of 0.2% and residual cash flow discount rate of 10.2%; and for general aviation loans: weighted-average
life of 1.7 years, annual prepayment speed of 25%, expected annual credit loss rate of 0.3% and residual cash flow discount rate of 5.5%.
51
Textron Inc.