E-Z-GO 2003 Annual Report Download - page 25

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measured by improvements in nonperforming assets as discussed below and, to a lesser extent, declin-
ing portfolio growth. The higher operating expense includes $12 million in higher legal and collection
expense primarily related to the continued resolution of nonperforming accounts and the accrual of set-
tlement costs associated with litigation during 2003.
Segment profit decreased $85 million in 2002, due to a higher provision for loan losses of $42 million
($111 million in 2002 vs. $69 million in 2001), reflecting higher net charge-offs and the strengthening of
the allowance for losses on receivables, lower interest margin of $28 million and higher operating
expenses of $15 million. The lower interest margin was primarily due to lower prepayment income of $15
million and higher relative borrowing costs of $13 million.
The Finance segment’s nonperforming assets include nonaccrual accounts that are not guaranteed by
Textron Manufacturing, for which interest has been suspended, and repossessed assets. Nonperform-
ing assets totaled $162 million in 2003, $214 million in 2002 and $131 million in 2001, representing 2.8%,
3.4% and 2.2% of finance assets, respectively. The most significant component of the decrease in 2003
relates to a $43 million decline in liquidating portfolios. Textron Finance estimates that nonperforming
assets will generally be in the range of 2% to 4% of finance assets depending on economic conditions
and expects modest improvements in portfolio quality as it continues to liquidate certain portfolios. The
allowance for losses on receivables as a percentage of nonaccrual finance receivables was 78% at Jan-
uary 3, 2004, compared with 82% at December 28, 2002 and 113% at December 29, 2001. The
decrease in the percentages in 2003 and 2002 reflects decreases in undercollateralized loans with
identified reserve requirements.
The Finance segment expects segment profit to increase primarily as a result of improved interest mar-
gin, due to lower relative borrowing costs anticipated in 2004. In addition, management has taken action
to reverse the trend of increasing operating expenses through a restructuring project implemented at
the end of 2003 to consolidate operations within its corporate headquarters and within each of two of its
core divisions, and through initiatives related to improvements of information systems and processes.
Special charges of $159 million in 2003, $135 million in 2002 and $143 million in 2001 are more fully
discussed on page 17 and are summarized below by segment:
(In millions)
Bell $2$—$—$—$2$—$2
Cessna 8 — 1 — 9 — 9
Fastening Systems 34 — 34 7 75 — 75
Industrial 20 2 12 15 49 — 49
Finance 4 — 2 — 6 — 6
Corporate 3 — — — 3 15 18
$71 $ 2 $49 $22 $144 $15 $159
Bell $4$—$1$1$6$—$6
Cessna 23 — 2 4 29 — 29
Fastening Systems 12 2 4 4 22 — 22
Industrial 15 2 9 13 39 — 39
Finance — — — — — — —
Corporate 1 — — — 1 38 39
$55 $ 4 $16 $22 $97 $38 $135
Bell $ 9 $ — $ — $ 12 $ 21 $ — $ 21
Cessna — — — — — — —
Fastening Systems 22 2 18 8 50 2 52
Industrial 28 1 10 12 51 — 51
Finance 2 1 — — 3 — 3
Corporate 7 — — — 7 9 16
$68 $ 4 $28 $32 $132 $11 $143
23