E-Z-GO 2011 Annual Report Download - page 47

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Finance Group
The following table summarizes the known contractual obligations, as defined by reporting regulations, of our Finance group as of
December 31, 2011:
Payments Due by Period
(In millions)
Total
Less than 1
Year
1-3 Years
4-5 Years
More Than 5
Years
Liabilities reflected in balance sheet:
Term debt
$ 1,183
$ 106
$ 604
$ 162
$ 311
Securitized debt (1)
469
90
89
70
220
Subordinated debt
300
—
—
—
300
Interest on borrowings (2)
243
60
46
36
101
Total Finance group
$ 2,195
$ 256
$ 739
$ 268
$ 932
(1) Securitized debt payments do not represent contractual obligations of the Finance group, and we do not provide legal
recourse to investors who purchase interests in the securitizations beyond the credit enhancement inherent in the retained
subordinate interests.
(2) Interest payments reflect the current interest rate paid on the related debt. They do not include anticipated changes in market
interest rates, which could have an impact on the interest rate according to the terms of the related debt.
On December 31, 2011, the Finance group also had $316 million in other liabilities, primarily accounts payable and accrued
expenses, that are payable within the next 12 months.
Critical Accounting Estimates
To prepare our Consolidated Financial Statements to be in conformity with generally accepted accounting principles, we must
make complex and subjective judgments in the selection and application of accounting policies. The accounting policies that we
believe are most critical to the portrayal of our financial condition and results of operations are listed below. We believe these
policies require our most difficult, subjective and complex judgments in estimating the effect of inherent uncertainties. This
section should be read in conjunction with Note 1 to the Consolidated Financial Statements, which includes other significant
accounting policies.
Allowance for Losses on Finance Receivables Held for Investment
Finance receivables held for investment are generally recorded at the amount of outstanding principal less allowance for losses.
We maintain the allowance for losses on finance receivables at a level considered adequate to cover inherent losses in the portfolio
based on management’s evaluation and analysis by product line. For larger balance accounts specifically identified as impaired,
including large accounts in homogeneous portfolios, a reserve is established based on comparing the carrying value with either a)
the expected future cash flows, discounted at the finance receivable’s effective interest rate; or b) the fair value, if the finance
receivable is collateral dependent. The expected future cash flows consider collateral value; financial performance and liquidity of
our borrower; existence and financial strength of guarantors; estimated recovery costs, including legal expenses; and costs
associated with the repossession/foreclosure and eventual disposal of collateral. When there is a range of potential outcomes, we
perform multiple discounted cash flow analyses and weight the outcomes based on their relative likelihood of occurrence.
The evaluation of our portfolios is inherently subjective, as it requires estimates, including the amount and timing of future cash
flows expected to be received on impaired finance receivables and the underlying collateral, which may differ from actual results.
While our analysis is specific to each individual account, certain critical factors are included in this analysis for each product line,
which are discussed in detail in Note 4 to the Consolidated Financial Statements. We also establish an allowance for losses by
product line to cover probable but specifically unknown losses existing in the portfolio. For homogeneous portfolios, including
Aviation and Golf Equipment, the allowance is established as a percentage of non-recourse finance receivables, which have not
been identified as requiring specific reserves. The percentage is based on a combination of factors including historical loss
experience, current delinquency and default trends, collateral values and both general economic and specific industry trends. For
non-homogeneous portfolios, such as Timeshare, the allowance is established as a percentage of watchlist balances, which
represents a combination of assumed default likelihood and loss severity based on historical experience, industry trends and
collateral values. We classify accounts as watchlist based on credit quality indicators discussed in Note 4 to the Consolidated
Financial Statements.
36
36 Textron Inc. Annual Report • 2011