E-Z-GO 2004 Annual Report Download - page 40

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19
Textron Inc.
The Finance segment’s revenues decreased $12 million in 2003, compared with 2002, primarily due to lower finance charges and
discounts of $9 million from lower average finance receivables and a decline in syndication income due to a nonrecurring gain in
2002 of $9 million on the sale of a franchise finance portfolio.
Finance Segment Profit
Segment profit increased $17 million in 2004, compared with 2003, primarily due to a $23 million decrease in the provision for
loan losses, reflecting an improvement in portfolio quality, partially offset by lower net interest margin of $10 million.
Segment profit increased $4 million in 2003, compared with 2002, primarily due to a lower provision for loan losses of $30 mil-
lion ($81 million in 2003 vs. $111 million in 2002), partially offset by higher operating expense of $26 million. The 27% decrease
in the provision for loan losses reflects an improvement in portfolio quality as measured by improvements in nonperforming
assets as discussed below and, to a lesser extent, declining 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.
Finance Portfolio Quality
The following table presents information about the credit quality of the Finance segment’s portfolio:
(In millions, except for ratios)
2004 2003 2002
Provision for loan losses $ 58 $ 81 $ 111
Nonperforming assets $ 140 $ 162 $ 214
Ratio of nonperforming assets to total finance assets 2.18% 2.80% 3.41%
Allowance for losses on finance receivables recorded on balance sheet $ 99 $ 119 $ 145
Ratio of allowance for losses on receivables to nonaccrual finance receivables 83.7% 78.4% 81.7%
Net charge-offs $ 79 $ 117 $ 103
60+ days contractual delinquency as a percentage of finance receivables 1.47% 2.39% 2.86%
During the last two years, the Finance segment has experienced improvements in portfolio quality as indicated by improved credit
quality measures and a lower provision for losses. The improvements in credit quality were evident through lower nonperforming
asset levels and 60+ days contractual delinquency.
Textron Finance’s nonperforming assets include nonaccrual accounts that are not guaranteed by Textron Manufacturing, for which
interest has been suspended, and repossessed assets. Nonperforming assets for each of the last three year-ends by business are
as follows:
(In millions)
2004 2003 2002
Resort finance $ 53 $ 55 $ 45
Aircraft finance 12 26 34
Golf finance 26 22 15
Distribution finance 5 11 21
Asset-based lending 7 6 13
Other 37 42 86
Total nonperforming assets $ 140 $ 162 $ 214
We believe that nonperforming assets will generally be in the range of 2% to 4% of finance assets depending on economic condi-
tions. Textron Finance experienced significant improvement in total nonperforming assets with a $22 million decrease in 2004 and
a $52 million decrease in 2003. The decrease in 2004 was primarily attributable to the core businesses, including $14 million in
aircraft finance and $6 million in distribution finance, largely related to improved general economic conditions. Excluding an
increase of $13 million in nonperforming assets related to one customer within its golf mortgage portfolio, the golf finance busi-
ness experienced improvements of $7 million in its golf mortgage portfolio and $2 million in its golf equipment finance portfolio.
The non-core businesses within the other line continued to decrease with a $5 million reduction in telecommunications, $10 mil-
lion in media finance and $7 million in other liquidating portfolios, partially offset by a $22 million increase in franchise finance
primarily related to one customer. These non-core businesses continue to compose a disproportionate amount of Textron
Finance’s nonperforming assets accounting for 27% of total nonperforming assets, while composing only 7% of the total finance
assets at January 1, 2005. Overall, we expect continued modest improvement as these portfolios liquidate.