E-Z-GO 2009 Annual Report Download - page 68

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Textron Inc.
In 2009, 2008 and 2007, our Finance group paid our Manufacturing group $0.6 billion, $1.0 billion and $1.2 billion, respectively, related to the
sale of Textron-manufactured products to third parties that were financed by the Finance group. Our Cessna and Industrial segments also received
proceeds in those years of $13 million, $18 million and $27 million, respectively, from the sale of equipment from their manufacturing operations
to our Finance group for use under operating lease agreements. At January 2, 2010 and January 3, 2009, the amounts guaranteed by the
Manufacturing group totaled $216 million and $206 million, respectively, on which the Manufacturing group had reserves for losses of
$17 million and $21 million, respectively.
During the fourth quarter of 2008, the Manufacturing group utilized its commercial paper borrowings to lend cash to the Finance group, and in
2009, the Manufacturing group agreed to lend the Finance group, with interest, funds to pay down maturing debt. The interest rate on these
borrowings at January 2, 2010 and January 3, 2009 was 7.00% and 4.03%, respectively. As of January 2, 2010 and January 3, 2009, the
outstanding balance due to the Manufacturing group was $447 million and $133 million, respectively. These amounts are included in other
current assets for the Manufacturing group and other liabilities for the Finance group in the Consolidated Balance Sheets.
Finance Receivables Held for Sale
As a result of the plan to reduce finance receivables, $1.7 billion of the owned finance receivables were classified as held for sale in December
2008. During 2009, we reclassified $878 million of finance receivables, net of a $188 million valuation allowance, from held for sale to held for
investment following efforts to market the portfolios and progress made through orderly liquidation. We also reclassified $421 million of other
finance receivable portfolios, net of a $43 million valuation allowance, from held for investment to held for sale as a result of unanticipated
purchase inquiries. Due to the nature of these inquiries, we determined a sale of these portfolios would be consistent with our goal to maximize
the economic value of our portfolio and accelerate cash collections. During the fourth quarter of 2009, we recorded certain finance receivables
previously sold to the Distribution Finance securitization in our balance sheet as discussed in the “Securitizations” section below. In connection
with these finance receivables, $359 million were classified as held for sale and were sold during the quarter.
As of January 2, 2010, $819 million of owned finance receivables were classified as held for sale. Finance receivable sales accounted for a
significant portion of the reduction in finance receivables held for sale, primarily related to the distribution finance and asset-based lending
portfolios. We received proceeds approximating our carrying value for each of these transactions. The remaining finance receivables held for sale
primarily are comprised of assets in the distribution finance, golf mortgage and asset-based lending portfolios and include $84 million of finance
receivables in the golf equipment portfolio. Subsequent to year-end, in January 2010, we completed another sale of distribution finance
receivables that further reduced these finance receivables by approximately $200 million and generated proceeds in excess of our carrying value.
Securitizations
During 2009, we had one significant off-balance sheet financing arrangement. The distribution finance revolving securitization trust was a master
trust that purchased inventory finance receivables from the Finance group and issued asset-backed notes to investors. Approximately $1.4 billion
of the outstanding notes issued by the distribution finance securitization trust were repaid through finance receivable collections. During the
fourth quarter of 2009, a reduction in the pace of finance receivable collections triggered a corresponding change in required cash distributions,
which provided us the ability to repurchase the finance receivables resulting in the consolidation of the securitization trust on our balance sheet.
As a result, the finance receivables held by the securitization trust were recorded at their fair value of $720 million, $635 million of debt issued by
the securitization trust was recorded on our balance sheet and $85 million of retained interests were removed from the balance sheet. TFC then
made a capital contribution to the trust sufficient to repay its $635 million of outstanding debt; following the repayment, the remaining receivables
were legally conveyed to TFC and the trust was dissolved.
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