E-Z-GO 2010 Annual Report Download - page 40

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Liquidity and Capital Resources
Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated
with its majority-owned subsidiaries that operate in the Cessna, Bell, Textron Systems and Industrial segments. The Finance group,
which also is the Finance segment, consists of TFC, its consolidated subsidiaries and three other finance subsidiaries owned by
Textron Inc. 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.
Key information that is utilized in assessing our liquidity is summarized below:
(In millions)
January 1,
2011
January 2,
2010
Manufacturing group
Cash and equivalents
$ 898
$ 1,748
Debt
2,302
3,584
Shareholders’ equity
2,972
2,826
Capital (debt plus shareholders’ equity)
5,274
6,410
Net debt (net of cash and equivalents) to capital
32.1%
39.4%
Debt to capital
43.6%
55.9%
Finance group
Cash and equivalents
$ 33
$ 144
Debt
3,660
5,667
We believe that our calculations of debt to capital and net debt to capital are useful measures as they provide a summary indication of
the level of debt financing (i.e., leverage) that is in place to support our capital structure, as well as to provide an indication of the
capacity to add further leverage. We believe that with our existing cash balances, coupled with the continued successful execution of
the exit plan for the non-captive portion of the commercial finance business, and cash we expect to generate from our manufacturing
operations, we will have sufficient cash to meet our future needs.
We maintain an effective shelf registration statement filed with the Securities and Exchange Commission that allows us to issue an
unlimited amount of public debt and other securities. We also have credit line facilities available for the Manufacturing group of
$1.25 billion and for the Finance group of $1.75 billion, which both expire in April 2012. At January 1, 2011, there were no amounts
outstanding under the Manufacturing group’s facility and $1.4 billion outstanding under the Finance group’s facility.
During 2010, we liquidated $2.4 billion of the Finance group’s finance receivables, net of originations. These finance receivable
reductions occurred in both the non-captive and captive finance portfolios but were primarily driven by the non-captive portfolio in
connection with our exit plan, including $956 million in the distribution finance product line and $408 million in the timeshare
product line. These reductions resulted from the combination of scheduled finance receivable collections, sales, discounted payoffs,
repossession of collateral, charge-offs and impairment charges recorded as portfolio losses, net of gains in our Consolidated
Statements of Operations. In addition, the reduction in finance receivables included $620 million in the captive finance portfolio,
primarily as a result of reduced loan and lease originations and the sale of $84 million of finance receivables. We measure the success
of the exit plan based on the percentage of total finance receivable and other finance asset reductions converted to cash. In 2010, we
had a cash conversion ratio of 93%, compared with 95% in 2009, on our non-captive finance receivables. We expect the cash
conversion ratio to continue to decline over the duration of the exit plan due to the change in mix from shorter term assets in the
distribution finance product line to longer term assets in the timeshare, golf mortgage and structured finance product lines and the
existence of a higher concentration of nonaccrual finance receivables. At the end of 2010, $2.3 billion of finance receivables
remained in the non-captive portfolio.
On May 5, 2009, we issued $600 million of 4.5% Convertible Senior Notes with a maturity date of May 1, 2013 as discussed in Note
8 to the Consolidated Financial Statements. For at least 20 trading days during the 30 consecutive trading days ended December 31,
2010, our common stock price exceeded the conversion threshold price set forth for these Convertible Notes of $17.06 per share.
Accordingly, the notes are convertible at the holder’s option through March 31, 2011. We may deliver shares of common stock, cash
or a combination of cash and shares of common stock in satisfaction of our obligations upon conversion of the Convertible Notes. We
intend to settle the face value of the Convertible Notes in cash. We have continued to classify these Convertible Notes as long term
based on our intent and ability to maintain the debt outstanding for at least one year through the use of various funding sources
available to us.