E-Z-GO 2007 Annual Report Download - page 44

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Textron Inc.
• Higher borrowing costs of $11 million relative to the Federal Funds rate;
• A reduction in leveraged lease earnings of $8 million from the adoption of a new accounting standard; and
• Lower leveraged lease earnings of $7 million due to a gain in 2006 on the sale of an option related to a leveraged lease asset.
Segment profi t in the Finance segment increased $39 million in 2006, compared with 2005, due to an increase in net interest margin. The growth
in average fi nance receivables generated $54 million of higher net margin, which was partially offset by an $18 million decrease in other income.
Finance Portfolio Quality
The following table presents information about the Finance segment’s portfolio quality:
(In millions, except for ratios) 2007 2006 2005
Finance receivables $ 8,603 $ 8,310 $ 6,763
Allowance for losses on fi nance receivables $ 89 $ 93 $ 96
Nonperforming assets $ 123 $ 113 $ 111
Provision for loan losses $ 33 $ 26 $ 29
Net charge-offs $ 37 $ 29 $ 32
Ratio of nonperforming assets to total fi nance assets 1.34% 1.28% 1.53%
Ratio of allowance for losses on receivables to nonaccrual fi nance receivables 111.7% 123.1% 108%
60+ days contractual delinquency as a percentage of fi nance receivables 0.43% 0.77% 0.79%
The Finance segment’s portfolio quality continues to be strong as indicated by low rates of delinquency and nonperforming assets. Net
charge-offs as a percentage of average fi nance receivables also remain stable and relatively low at 0.45% during 2007 as compared with
0.38% and 0.51% during 2006 and 2005, respectively.
Nonperforming assets by business, and as a percentage of the owned fi nance assets for each business, are as follows:
(Dollars in millions) 2007 2006 2005
Asset-based lending $ 23 2.31% $ 16 1.81% $ 6 0.81%
Distribution fi nance 23 1.20% 7 0.28% 2 0.11%
Golf fi nance 21 1.24% 29 1.89% 13 0.99%
Aviation fi nance 20 0.89% 12 0.70% 14 1.07%
Resort fi nance 9 0.57% 16 1.22% 31 2.67%
Liquidating portfolios 27 24.73% 33 19.74% 45 13.64%
Total nonperforming assets $ 123 1.34% $ 113 1.28% $ 111 1.53%
Nonperforming assets include nonaccrual fi nance 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 fi nance assets, depending on economic conditions.
In 2007, the increases in nonperforming assets as a percentage of owned fi nance assets for asset-based lending and distribution fi nance,
compared with 2006, relate to weakening U.S. economic conditions, which began to have a negative impact on borrowers in certain industries.
In 2006, the $16 million increase in golf fi nance was 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.
Liquidity and Capital Resources
Our fi nancings 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
provides fi nancial 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 fl ow information
for each borrowing group within the Consolidated Financial Statements.