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56Textron Inc. Annual Report • 2013
We classify finance receivables as nonaccrual if credit quality indicators suggest full collection of principal and interest is
doubtful. In addition, we automatically classify accounts as nonaccrual once they are contractually delinquent by more than three
months unless collection of principal and interest is not doubtful. Recognition of interest income is suspended for these accounts
and all cash collections are used 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 that do not meet the watchlist or nonaccrual categories are
classified as performing.
A summary of finance receivables categorized based on the credit quality indicators discussed above is as follows:
(In millions)
December 28,
2013
December 29,
2012
Performing $ 1,285 $ 1,661
Watchlist 93 130
N
onaccrual 105 143
Total $ 1,483 $ 1,934
N
onaccrual as a percentage of total finance receivables 7.08% 7.39%
We measure delinquency based on the contractual payment terms of our loans and leases. In determining the delinquency aging
category of an account, any/all principal and interest received is applied to the most past-due principal and/or interest amounts due.
If a significant portion of the contractually due payment is delinquent, the entire finance receivable balance is reported in
accordance with the most past-due delinquency aging category.
Finance receivables by delinquency aging category are summarized in the table below:
(In millions)
December 28,
2013
December 29,
2012
Less than 31 days past due $ 1,295 $ 1,757
31-60 days past due 108 87
61-90 days past due 37 56
Over 90 days past due 43 34
Total $ 1,483 $ 1,934
Accrual status loans that were greater than 90 days past due totaled $5 million at December 28, 2013. There were no accrual status
loans that were greater than 90 days past due at December 29, 2012. At December 28, 2013 and December 29, 2012, 60+ days
contractual delinquency as a percentage of finance receivables was 5.39% and 4.65%, respectively.
Loan Modifications
Troubled debt restructurings occur when we have either modified the contract terms of finance receivables for borrowers
experiencing financial difficulties or accepted a transfer of assets in full or partial satisfaction of the loan balance. The types of
modifications we typically make include extensions of the original maturity date of the contract, extensions of revolving borrowing
periods, delays in the timing of required principal payments, deferrals of interest payments, advances to protect the value of our
collateral and principal reductions contingent on full repayment prior to the maturity date. The changes effected by modifications
made during 2013 and 2012 to finance receivables held for investment were not material.
Impaired Loans
On a quarterly basis, we evaluate individual finance receivables for impairment in non-homogeneous portfolios and larger
accounts in homogeneous loan portfolios. A finance receivable is considered impaired when it is probable that we will be unable
to collect all amounts due according to the contractual terms of the loan agreement based on our review of the credit quality
indicators discussed above. Impaired finance receivables include both nonaccrual accounts and accounts for which full collection
of principal and interest remains probable, but the account’s original terms have been, or are expected to be, significantly
modified. If the modification specifies an interest rate equal to or greater than a market rate for a finance receivable with
comparable risk, the account is not considered impaired in years subsequent to the modification. There was no significant interest
income recognized on impaired loans in 2013 or 2012.