E-Z-GO 2005 Annual Report Download - page 42

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22
Textron Inc.
Industrial Segment Profit
Segment profit decreased $44 million in 2005, compared with 2004, largely due to inflation of $84 million and the impact of lower volume and an
unfavorable mix of $21 million, partially offset by higher pricing of $36 million and improved cost performance of $24 million, primarily at Kautex.
Segment profit increased $44 million in 2004, compared with 2003, primarily due to $92 million of improved cost performance, improved credit
performance of $16 million, the favorable foreign exchange impact of $13 million, the $10 million impact of higher volume and lower fair market
value adjustments of $8 million for used golf cars. These increases were partially offset by inflation of $59 million and lower profit of $24 million
at a North American Kautex plant due to increased costs from manufacturing inefficiencies.
Industrial Outlook
Industrial revenues are expected to decrease in 2006, while segment margins are forecasted to improve slightly. The forecasted decrease in rev-
enues reflects a decline at Kautex, primarily as a result of model changeovers and the divestiture of a product line in 2005, which is expected to be
partially offset by growth at Greenlee and, to a lesser extent, increases for the remaining businesses.
Finance
(Dollars in millions)
2005 2004 2003
Revenues $ 628 $ 545 $ 572
Segment profit $ 171 $ 139 $ 122
Profit margin 27% 26% 21%
The Finance segment is a diversified commercial finance business with core operations in aircraft finance, asset-based lending, distribution
finance, golf finance, resort finance and structured capital. Its financing activities are confined almost exclusively to secured lending and leasing
to commercial markets. Within these core operations, this segment also provides financing programs for products manufactured by Textron. In
2005, management continued its focus on growing its core business while liquidating non-core assets.
Finance Revenues
The Finance segment’s revenues increased $83 million in 2005, compared with 2004. The increase was primarily due to higher finance charges
and discounts of $95 million, partially offset by lower prepayment income of $10 million. The increase in finance charges and discounts was
largely due to a higher interest rate environment, which accounted for $98 million of the increase, and $62 million related to higher average
finance receivables of $855 million, partially offset by lower relative receivable pricing of $65 million. The increase in average finance receivables
was primarily related to growth in distribution, golf and aircraft finance and asset-based lending, partially offset by reductions in the liquidating
non-core portfolios.
The Finance segment’s revenues decreased $27 million in 2004, compared with 2003. The decrease was primarily due to lower finance charges
and discounts of $35 million, largely due to the continued liquidation of non-core assets resulting in lower average finance receivables of $269
million, and a reduction of discount earnings in the distribution finance business. The decrease was partially offset by higher securitization gains
of $13 million, primarily due to improved yield, and $20 million from an increase in average finance receivables sold to the distribution finance
revolving conduit, partially offset by a $6 million reduction in resort finance gains.
Finance Segment Profit
Segment profit increased $32 million in 2005, compared with 2004, primarily due to a $29 million decrease in the provision for loan losses as a
result of sustained improvements in portfolio quality, and an $18 million increase in net interest margin, which was partially offset by higher sell-
ing and administrative expenses of $15 million. The increase in net interest margin was primarily attributable to portfolio growth. Selling and
administrative expenses increased primarily due to $9 million in higher variable compensation associated with portfolio growth and $5 million
related to improved profitability and increased pension and benefits cost.
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.