E-Z-GO 2006 Annual Report Download - page 42

Download and view the complete annual report

Please find page 42 of the 2006 E-Z-GO annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 108

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108

21
Textron Inc.
Nonperforming assets include nonaccrual finance receivables and repossessed assets that are not guaranteed by our Manufacturing group. We
believe that nonperforming assets generally will be in the range of 1% to 4% of finance assets depending on economic conditions. In 2006, the
$16 million increase in golf finance is primarily the result of two delinquent golf course mortgage loans whose operations were affected by the
prolonged effects of Hurricane Katrina, while the $10 million increase in asset-based lending is the result of two loans in unrelated industries. The
$27 million improvement in resort finance and the liquidating portfolios in 2006, principally reflected charge-offs against existing reserves and
remedial collection activity. In 2005, nonperforming assets decreased primarily due to resort and golf finance, reflecting improvement in general
economic conditions, partially offset by an increase in our liquidating portfolios due to two loans. The non-core liquidating portfolios continue to
compose a disproportionate amount of the nonperforming assets accounting for 29% of total nonperforming assets while comprising less than
2% of the total finance assets at December 30, 2006.
Liquidity and Capital Resources
Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc., consolidated with the
entities that operate in the Bell, Cessna and Industrial segments, while the Finance group consists of the Finance segment, comprised of Textron
Financial Corporation and its subsidiaries. We designed this framework to enhance our borrowing power by separating the Finance group. Our
Manufacturing group operations include the development, production and delivery of tangible goods and services, while our Finance group pro-
vides financial services. Due to the fundamental differences between each borrowing group’s activities, investors, rating agencies and analysts
use different measures to evaluate each group’s performance. To support those evaluations, we present balance sheet and cash flow information
for each borrowing group within the consolidated financial statements.
Through our Finance group, we provide diversified commercial financing to third parties. In addition, this group finances retail purchases and
leases for new and used aircraft and equipment manufactured by our Manufacturing group, otherwise known as captive financing. In the consoli-
dated statements of cash flows, cash received from customers or from securitizations is reflected as operating activities when received. However,
in the cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected based on
the operations of each group. For example, when product is sold by our Manufacturing group to a customer that is financed by the Finance group,
the origination of the finance receivable is recorded within investing activities as a cash outflow on our Finance group’s statement of cash flows.
Meanwhile, the Manufacturing group records the cash received from the Finance group on the customer’s behalf within operating cash flows as a
cash inflow on our Manufacturing group’s statement of cash flows. Although cash is transferred between the two borrowing groups, there is no
cash transaction reported in the consolidated cash flows at the time of the original financing. These captive financing activities, along with all sig-
nificant intercompany transactions, are reclassified or eliminated from the consolidated statements of cash flows, as detailed below in the operat-
ing cash flows of continuing operations section.
Under a support agreement, Textron Inc. is required to maintain 100% ownership of Textron Financial Corporation. The agreement also requires
Textron Inc. to ensure that Textron Financial Corporation maintains fixed charge coverage of no less than 125% and consolidated shareholder’s
equity of no less than $200 million.
Operating Cash Flows of Continuing Operations
(In millions)
2006 2005 2004
Manufacturing group $ 1,119 $ 894 $ 973
Finance group 338 247 161
Reclassifications and elimination adjustments (440) (189) (185)
Consolidated $ 1,017 $ 952 $ 949
Cash flows from operations are the primary source of funds for our operating needs, dividends and capital expenditures. We analyze operating
cash flows for our Manufacturing group by tracking free cash flow. We calculate free cash flow using net cash provided by operating activities,
adding back proceeds on the sale of property, plant and equipment, then subtracting capital expenditures, including those financed with
capital leases.