E-Z-GO 2007 Annual Report Download - page 74

Textron Inc.
Operating agreements specify that our Finance group has recourse to our Manufacturing group for certain uncollected amounts related to these
transactions. Our Manufacturing group has established reserves for losses on its balance sheet within accrued and other liabilities for the
receivables it guarantees. These reserves are established for amounts that potentially are uncollectible or if the collateral values are considered
insuffi cient to cover the outstanding receivable. If an account is deemed uncollectible and the collateral is repossessed by our Finance group,
our Manufacturing group is charged for the defi ciency. If the collateral is not repossessed, the receivable is transferred from the Finance group’s
balance sheet to the Manufacturing group’s balance sheet. The Manufacturing group then is responsible for any additional collection efforts.
When this occurs, any related reserve previously established by the Manufacturing group is reclassifi ed from accrued or other liabilities and
netted against the receivable or asset transferred from the Finance group.
In 2007, 2006 and 2005, our Finance group paid the Manufacturing group $1.2 billion, $1.0 billion and $0.8 billion, respectively, related to the
sale of Textron-manufactured products that were fi nanced by the Finance group. Our Manufacturing group also received proceeds in those years
of $27 million, $63 million and $41 million, respectively, from the sale of equipment to the Finance group for use under operating lease agree-
ments. At the end of 2007 and 2006, the amounts guaranteed by the Manufacturing group totaled $254 million and $335 million, respectively.
The Manufacturing group has total reserves for losses on these of $22 million at the end of 2007 and $39 million at the end of 2006.
Impairment
Nonaccrual fi nance 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 fi nance receivables represent loans with original loan terms that have been
signifi cantly modifi ed to refl ect deferred principal payments, generally at market interest rates, for which collection of principal and interest is not
doubtful. Past due loans for which the Finance group has recourse to the Manufacturing group are not considered impaired in the table below;
these loans totaled $3 million and $2 million at the end of 2007 and 2006, respectively. The average recorded investment in impaired fi nance
receivables during 2007 was $84 million, compared with $142 million in 2006. The impaired fi nance receivables and related reserves at the end
of 2007 and 2006 are as follows:
December 29, December 30,
(In millions) 2007 2006
Impaired nonaccrual fi nance receivables $ 59 $ 60
Impaired accrual fi nance receivables 143 101
Total impaired fi nance receivables $ 202 $ 161
Impaired nonaccrual fi nance receivables with identifi ed reserve requirements $ 40 $ 36
Allowance for losses on impaired nonaccrual fi nance receivables $ 15 $ 17
Securitizations
Our Finance group sells primarily its distribution fi nance receivables and general aviation loans to qualifi ed special purpose trusts through
securitization transactions. Distribution fi nance receivables represent loans secured by dealer inventories that typically are collected upon the sale
of the underlying product. Through a revolving securitization, the proceeds from collection of the principal balance of these loans are used by the
trust to purchase additional distribution fi nance receivables from us each month. This revolving securitization accounted for approximately 93%
of our securitization gains in 2007.
We received proceeds from securitizations of $731 million in 2007, $50 million in 2006 and $361 million in 2005. For the revolving securitization,
these proceeds include only amounts received related to incremental increases in the level of receivables sold into the securitization. Gains from
securitizations were approximately $62 million in 2007, $42 million in 2006 and $49 million in 2005. At the end of 2007, $2.5 billion in
securitized loans were outstanding, with $17 million in past-due loans.
Generally, we retain an interest in the assets sold in the form of servicing responsibilities and subordinated interests, including interest-only
securities, seller certifi cates and cash reserves. At the end of 2007, we had $203 million in retained interest recorded in other assets, which
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