E-Z-GO 2011 Annual Report Download - page 68

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Timeshare includes pools of timeshare interval resort notes receivable and revolving loans that are secured by pools of timeshare
interval resort notes receivable. The timeshare interval notes receivable typically have terms of 10 to 20 years. Timeshare also
includes construction/inventory mortgages secured by timeshare interval inventory, by real property and, in many instances, by the
personal guarantee of the principals. Construction/inventory mortgages are typically cross-collateralized with revolving notes
receivable loans to the same borrower; loans in this portfolio typically have initial revolving terms of one to three years and final
maturity terms of an additional one to five years. Structured Capital primarily includes leveraged leases secured by the ownership
of the leased equipment and real property.
Our finance receivables are diversified across geographic region, borrower industry and type of collateral. At December 31, 2011,
54% of our finance receivables were distributed throughout the U.S. compared with 67% at the end of 2010. Finance receivables
held for investment are composed of the following types of financing vehicles:
(In millions)
December 31,
2011
January 1,
2011
Installment contracts
$ 1,816
$ 2,130
Revolving loans
216
501
Leveraged leases
208
279
Finance leases
123
262
Mortgage loans
60
859
Distribution finance receivables
54
182
$ 2,477
$ 4,213
At December 31, 2011 and January 1, 2011, these finance receivables included approximately $559 million and $635 million,
respectively, of receivables that have been legally sold to special purpose entities (SPE), which are consolidated subsidiaries of
TFC. The assets of the SPEs are pledged as collateral for their debt, which is reflected as securitized on-balance sheet debt in Note
8. Third-party investors have no legal recourse to TFC beyond the credit enhancement provided by the assets of the SPEs.
We received total proceeds of $476 million and $655 million from the sale of finance receivables in 2011 and 2010, respectively,
resulting in total gains of $4 million and $31 million, respectively.
Credit Quality Indicators and Nonaccrual Finance Receivables
We internally assess the quality of our finance receivables held for investment portfolio based on a number of key credit quality
indicators and statistics such as delinquency, loan balance to estimated collateral value, the liquidity position of individual
borrowers and guarantors and default rates of our notes receivable collateral in the Timeshare product line. For Golf Mortgage, we
also utilized debt service coverage prior to the transfer discussed below. Because many of these indicators are difficult to apply
across an entire class of receivables, we evaluate individual loans on a quarterly basis and classify these loans into three categories
based on the key credit quality indicators for the individual loan. These three categories are performing, watchlist and nonaccrual.
We classify finance receivables held for investment as nonaccrual if credit quality indicators suggest full collection is doubtful. In
addition, we automatically classify accounts as nonaccrual that are contractually delinquent by more than three months unless
collection is not doubtful. Cash payments on nonaccrual accounts, including finance charges, generally are applied to reduce the
net investment balance. We resume the accrual of interest when the loan becomes contractually current through payment
according to the original terms of the loan or, if a loan has been modified, following a period of performance under the terms of the
modification, provided we conclude that collection of all principal and interest is no longer doubtful. Previously suspended
interest income is recognized at that time.
Accounts are classified as watchlist when credit quality indicators have deteriorated as compared with typical underwriting
criteria, and we believe collection of full principal and interest is probable but not certain. All other finance receivables held for
investment that do not meet the watchlist or nonaccrual categories are classified as performing.
57
Textron Inc. Annual Report • 2011 57