E-Z-GO 2009 Annual Report Download - page 35

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26
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
portfolio largely due to the liquidation of 68% of its managed finance receivables in 2009. In 2008, the increase in provision for loan losses was
primarily a result of an $81 million increase in defaults in the marine and recreational vehicles distribution finance portfolios, a $21 million
increase for the resort finance portfolio, a $19 million reserve established for one account in the golf mortgage finance portfolio and a $16 million
reserve for one account in the asset-based lending portfolio.
Borrowing costs increased relative to the target Federal Funds rate as credit market volatility significantly impacted the historical relationships
between market indices. The increase was primarily driven by an increase in the spread between the London Interbank Offered Rate (LIBOR) and
the target Federal Funds rate and from increased borrowing spreads on issuances of commercial paper in comparison with 2007. These increases
were partially offset by increased receivable pricing as a result of variable-rate receivables with interest rate floors.
Finance Portfolio Quality
The following table reflects information about the Finance segment’s credit performance related to finance receivables held for investment.
Finance receivables held for sale are reflected at fair value on the Consolidated Balance Sheets. As a result, finance receivables held for sale are
not included in the credit performance statistics below.
January 2, January 3,
(Dollars in millions) 2010 2009
Finance receivables $ 6,206 $ 6,915
Nonaccrual finance receivables $ 1,040 $ 277
Allowance for losses $ 341 $ 191
Ratio of nonaccrual finance receivables to finance receivables held for investment 16.75% 4.01%
Ratio of allowance for losses on finance receivables to nonaccrual finance receivables held for investment 32.80% 68.90%
Ratio of allowance for losses on finance receivables to finance receivables held for investment 5.49% 2.76%
60+ days contractual delinquency as a percentage of finance receivables 9.23% 2.59%
Repossessed assets and properties $ 119 $ 70
Operating assets received in satisfaction of troubled finance receivables $ 112 $ 84
Our nonaccrual finance receivables include impaired finance receivables, as well as accounts in homogeneous loan portfolios that are not
considered to be impaired but are contractually delinquent by more than three months. We believe that the percentage of nonaccrual finance
receivables generally will remain high as we execute our liquidation plan under the current economic conditions. The liquidation plan is also
likely to result in a slower pace of liquidations for nonaccrual finance receivables.
The ratio of allowance for losses to nonaccrual finance receivables held for investment decreased primarily as a result of certain nonaccrual
timeshare and aviation accounts for which specific reserves were either not established due to sufficient collateral values and other
considerations, or were established at a percentage of the outstanding balance based on the expectation of partial recovery. This reflects our best
estimate of loss based on a detailed review of our workout strategy and estimates of collateral value.
The increase in operating assets received in satisfaction of troubled finance receivables primarily reflects an increase in the number of golf
courses for which ownership was transferred to us from the borrower in 2009. We intend to operate and improve the performance of these
properties prior to their eventual disposition.