E-Z-GO 2003 Annual Report Download - page 23

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In 2002, segment profit increased $32 million, primarily due to the favorable impact of $68 million related
to the expiration of lower introductory pricing on certain business jet models and higher pricing of $29
million, partially offset by inflation of $59 million.
Textron’s commercial backlog primarily represents backlog related to Cessna of $4.4 billion in 2003 and
$4.9 billion in 2002. A significant portion of Cessna’s backlog represents orders from fractional aircraft
operators, including a major fractional jet customer and CitationShares. Orders from these fractional air-
craft operators are included in backlog when the customer enters into a definitive master agreement
and has established preliminary delivery dates for the aircraft. Preliminary delivery dates are subject to
change through amendment to the master agreement. Final delivery dates are established approxi-
mately 12 to 18 months prior to delivery. Orders from other customers are included in backlog upon the
customer entering into a definitive purchase order and receipt of required deposits.
The decrease in Cessna’s backlog from 2002 was driven by aircraft shipments of $1.7 billion and the
cancellation of $0.8 billion in aircraft orders, partially offset by new orders of $2.0 billion, including $0.5
billion in Mustang orders. The cancellations included $0.6 billion from the major fractional jet customer
primarily for Citation X and CJ3 aircraft.
The 2003 year-end backlog with the major fractional jet customer was approximately $1.1 billion, of
which final delivery dates have been established for $0.4 billion. The backlog with CitationShares was
approximately $0.5 billion, of which final delivery dates have been established for $0.2 billion. These
amounts include $0.8 billion in orders for the new Sovereign and CJ3 aircraft that are scheduled to
begin their first deliveries to customers in 2004.
Both CitationShares and the major fractional jet customer have options to acquire 50 additional aircraft
each, which will be placed into backlog upon execution of a definitive master agreement and establish-
ment of preliminary delivery dates.
The remaining $2.8 billion of backlog at the end of 2003 is with other commercial customers covering a
wide spectrum of industries. This backlog includes $1.4 billion in orders for the new Sovereign, CJ3 and
Mustang aircraft that are scheduled to begin their first deliveries to customers in 2004 and in 2006.
For 2004, Cessna expects revenue to decrease as a result of expected sales of between 165 and 170
business jets, compared with the 197 business jets in 2003. Despite the lower revenue, margins are
expected to be comparable to 2003 as a result of a better mix of aircraft and cost reduction and restruc-
turing initiatives. At the same time, Cessna plans to continue its investment in new products such as the
Sovereign, CJ3, XLS and Mustang, broadening its product line to take advantage of the jet market when
it rebounds.
Textron Fastening Systems is one of the world’s largest providers of integrated fastening systems solu-
tions offering a wide variety of fastening systems technology to customers in the market for threaded
fasteners, engineered products, blind fasteners and automation systems. Major markets served include
aerospace, automotive, construction, electronics and industrial equipment. These markets are highly
competitive, and suppliers are often required to make price concessions to win new business and main-
tain existing customers. Consequently, significant cost reductions are required to not only offset inflation
and price concessions but also to improve margins.
The Fastening Systems segment’s revenues increased $87 million in 2003 primarily due to a favorable
foreign exchange impact of $128 million, reflecting a weak U.S. dollar, partially offset by higher pricing
concessions of $13 million in 2003 and lower volume primarily in the European industrial markets. In
2002, revenues decreased $29 million primarily due to the divestiture of non-core product lines.
Segment profit remained relatively flat with some deterioration in 2003, reflecting the soft demand for the
segment’s products and higher pricing concessions of $13 million. During this period, Fastening Sys-
tems has undertaken significant restructuring in its businesses to reduce its cost structure and improve
margins when the demand for its products improves.
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