E-Z-GO 2003 Annual Report Download - page 26

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24
The liquidity and capital resources of Textron’s operations are best understood by separately consider-
ing its independent borrowing groups: Textron Manufacturing and Textron Finance. Textron Manufactur-
ing consists of Textron Inc., the parent company, consolidated with the entities that operate in the Bell,
Cessna, Fastening Systems and Industrial business segments, whose financial results are a reflection of
the ability to manage and finance the development, production and delivery of tangible goods and ser-
vices. Textron Finance consists of Textron’s wholly owned commercial finance subsidiary, Textron Finan-
cial Corporation, consolidated with its subsidiaries. The financial results of Textron Finance are a reflec-
tion of its ability to provide financial services in a competitive marketplace, at appropriate pricing, while
managing the associated financial risks. The fundamental differences between each borrowing group’s
activities result in different measures used by investors, rating agencies and analysts.
Textron Inc. provides a support agreement to Textron Finance that requires Textron Inc. to maintain
100% ownership of Textron Finance. The agreement also requires Textron Finance to maintain fixed
charge coverage of no less than 125% and consolidated shareholder’s equity of no less than $200 mil-
lion. Textron Finance’s bank agreements prohibit the termination of the support agreement.
Textron Manufacturing’s financial position continued to be strong at the end of 2003 and included cash
and cash equivalents of $486 million, compared with $286 million at the end of 2002. During 2003, cash
flows from operations were the primary source of funds for the operating needs, restructuring activities,
dividends and capital expenditures of Textron Manufacturing. Management analyzes operating cash
flows by tracking free cash flow, which is calculated using net cash provided by operating activities,
adding back after-tax cash used for restructuring activities and proceeds on the sale of fixed assets,
then subtracting capital expenditures, including those financed with capital leases.
Cash provided by operating activities for Textron Manufacturing totaled $681 million in 2003, $495 mil-
lion in 2002 and $756 million in 2001. This includes after-tax cash used to finance Textron’s restructuring
program totaling $57 million in 2003, $58 million in 2002 and $60 million in 2001. The increase in cash
provided in 2003 was primarily due to a $109 million tax refund received in 2003 along with improved
working capital management.
Cash provided by operating activities for Textron Finance totaled $242 million in 2003, $198 million in
2002 and $275 million in 2001. The increase in cash provided in 2003 and the decrease in 2002 were
primarily due to the timing of payments of accrued interest and other liabilities.
Cash provided (used) by investing activities for Textron Manufacturing totaled $(214) million in 2003,
$319 million in 2002 and $(441) million in 2001. The decrease in 2003 was primarily due to the receipt in
2002 of a $510 million repayment by Textron Finance of an advance made in 2001. Excluding this invest-
ment activity, Textron Manufacturing’s cash provided (used) by investing activities was $(214) million in
2003, $(191) million in 2002 and $69 million in 2001. The decrease in 2002 was largely due to the receipt
of after-tax proceeds of $582 million in 2001 upon the sale of Automotive Trim.
Cash provided (used) by investing activities for Textron Finance, excluding the $510 million advance
discussed above, totaled $272 million in 2003, $(498) million in 2002 and $(389) million in 2001. The sig-
nificant increase in 2003 was primarily due to a $389 million increase in finance receivable repayments
relative to new finance receivable originations and $196 million in higher proceeds from receivable
sales. Proceeds received from securitization trusts totaled $706 million in 2003, $707 million in 2002 and
$1.3 billion in 2001.
Capital expenditures for Textron Manufacturing totaled $310 million in 2003, $301 million in 2002 and
$510 million in 2001. This includes expenditures purchased through capital leases of $26 million in 2003
and $23 million in 2002. The decline in 2003 and 2002 from the 2001 level was primarily due to a
planned decrease in capital spending and the sale of the Trim business in 2001.
There were no significant acquisitions made in 2003, 2002 or 2001. In 2001, Textron Manufacturing
acquired four companies for an aggregate cost of $211 million, plus assumed debt of $2 million, and
Textron Finance acquired a small business direct portfolio for $387 million.