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62Textron Inc. Annual Report • 2013
The following table represents the fair value adjustments recorded for each asset class measured at fair value on a non-recurring
basis during 2013 and 2012.
Gain (Loss)
(In millions) 2013 2012
Finance receivables held for sale $ 31 $ 76
Im
p
aired finance receivables
(
7
)
(
11
)
Other assets
(
14
)
(
51
)
Finance receivables held for sale are recorded at fair value on a nonrecurring basis during periods in which the fair value is lower
than the cost value. There are no active, quoted market prices for these finance receivables. At December 28, 2013, our finance
receivables held for sale included the non-captive loan portfolio. Fair values of each loan in this portfolio were determined based
on a combination of discounted cash flow models and recent third-party offers to estimate the price we expect to receive in the
principal market for each loan, in an orderly transaction. The gains on finance receivables held for sale during 2013 and 2012 were
primarily the result of the payoff of loans in amounts, and sale of loans at prices, in excess of the values established in previous
periods.
Impaired nonaccrual finance receivables represent assets recorded at fair value on a nonrecurring basis since the measurement of
required reserves on our impaired finance receivables is significantly dependent on the fair value of the underlying collateral. For
impaired nonaccrual finance receivables secured by aviation assets, the fair values of collateral are determined primarily based on
the use of industry pricing guides. Fair value measurements recorded on impaired finance receivables resulted in charges to
provision for loan losses and primarily related to initial fair value adjustments.
Other assets in the table above primarily include aviation assets and repossessed golf and hotel properties. The fair value of our
aviation assets was largely determined based on the use of industry pricing guides. The fair value of our golf and hotel properties
was determined based on the use of discounted cash flow models, bids from prospective buyers or inputs from market participants.
If the carrying amount of these assets is higher than their estimated fair value, we record a corresponding charge to income for the
difference.
Assets and Liabilities Not Recorded at Fair Value
The carrying value and estimated fair values of our financial instruments that are not reflected in the financial statements at fair
value are as follows:
December 28, 2013 December 29, 2012
(In millions)
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
Manufacturing group
Long-term debt, excluding leases $ (1,854) $ (2,027) $ (2,225) $ (2,636)
Finance group
Finance receivables held for investment, excluding leases 1,231 1,290 1,625 1,653
Debt (1,256) (1,244) (1,686) (1,678)
Fair value for the Manufacturing group debt is determined using market observable data for similar transactions or Level 2 inputs.
At December 28, 2013 and December 29, 2012, approximately 30% and 46%, respectively, of the fair value of term debt for the
Finance group was determined based on observable market transactions (Level 1). The remaining Finance group debt was
determined based on discounted cash flow analyses using observable market inputs from debt with similar duration, subordination
and credit default expectations (Level 2). Fair value estimates for finance receivables held for investment were determined based
on internally developed discounted cash flow models primarily utilizing significant unobservable inputs (Level 3), which include
estimates of the rate of return, financing cost, capital structure and/or discount rate expectations of current market participants
combined with estimated loan cash flows based on credit losses, payment rates and expectations of borrowers’ ability to make
payments on a timely basis.
Note 9. Shareholders’ Equity
Capital Stock
We have authorization for 15 million shares of preferred stock with a par value of $0.01 and 500 million shares of common stock
with a par value of $0.125. Outstanding common stock activity for the three years ended December 28, 2013 is presented below: