E-Z-GO 2008 Annual Report Download - page 41

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
Borrowing Group Presentation
Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with all of
its majority-owned subsidiaries that operate in the Cessna, Bell, Textron Systems and Industrial segments, except for Textron Financial
Corporation. The Finance group consists of Textron Financial Corporation consolidated with its subsidiaries. We designed this framework to
enhance our borrowing power by separating the Finance group. Our Manufacturing group operations include the development, production and
delivery of tangible goods and services, while our Finance group provides financial services. Due to the fundamental differences between each
borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. To support
those evaluations, we present balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements.
Recent Developments
Historically, the principal source of liquidity for the Manufacturing group has been operating cash flows, and we have had additional short-term
liquidity available to us through the commercial paper market, while for our long-term capital needs, we have been able to access the public
capital markets. Our Finance group has historically funded its operations through commercial paper borrowings, issuances of medium-term
notes and other term debt securities, and syndication and securitization of receivables.
Due to unprecedented levels of volatility and disruption in the credit markets beginning in the second half of 2008, we experienced difficulty in
accessing the commercial paper markets at favorable rates and terms. On several days in early 2009, we were unable to place sufficient amounts
of commercial paper to meet our Finance group’s needs, resulting in our Finance group borrowing on its bank line of credit. The adverse impact
that the credit market deterioration has had on us has been exacerbated by the recent downgrades of our credit ratings, which have adversely
impacted our ability to access the term debt market.
Given the current economic environment and the risks associated with the capital markets in general, including the current unavailability to us of
public unsecured term debt and difficulty in accessing sufficient commercial paper on a daily basis, on February 3, 2009, we drew down on the
balance of the $3.0 billion committed bank credit lines available to Textron and Textron Financial Corporation. After repayment of all commercial
paper outstanding, this provides us with an aggregate amount of added cash liquidity of approximately $1.2 billion. Together with the proceeds of
planned liquidations and cash flow from our Manufacturing group, we expect that this amount will be more than sufficient to repay the Finance
group’s maturing term debt during 2009.
Early in the fourth quarter of 2008, in order to reduce our reliance on short term funding, our Board of Directors approved the recommendation of
management to downsize the Finance segment. The plan approved at that time entailed exiting the Finance group’s Asset-Based Lending and
Structured Capital businesses, as well as several additional product lines, and limiting new originations in the Distribution Finance, Golf Finance
and Resort Finance businesses. As conditions continued to worsen, on December 22, 2008, our Board of Directors approved a plan to exit all of
the commercial finance business of the Finance segment, other than that portion of the business supporting customer purchases of Textron-
manufactured products. We made the decision to exit this business due to continued weakness in the economy and in order to address our long-
term liquidity position in light of continuing disruption and instability in the capital markets.
In total, the exit plan will impact approximately $7.3 billion of the Finance segment’s $10.8 billion managed receivable portfolio as of the end of
2008. The exit plan will be effected through a combination of orderly liquidation and selected sales and is expected to be substantially complete
over the next two to four years. Under this exit plan, we expect to liquidate at least $2.6 billion of managed finance receivables, net of originations,
in 2009, of which approximately $2.0 billion will be used to pay down off-balance sheet securitized debt. The remainder of the planned
liquidations will be utilized to repay a portion of the term debt issued by the Finance group that is maturing in 2009.
In the fourth quarter of 2008, we approved a restructuring plan to reduce costs and improve productivity across the company. The restructuring
program, along with other volume-related reductions in workforce during the fourth quarter of 2008 and in January 2009, eliminates
approximately 6,300 positions worldwide, representing approximately 15% of our global workforce.