E-Z-GO 2004 Annual Report Download - page 27

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6
Item 1. Business of Textron
Backlog
U.S. Government backlog was $3.3 billion and $1.9 billion at the end of 2004 and 2003, respectively, including backlog at Bell
Helicopter of $2.5 billion in 2004 and $1.2 billion in 2003. The increase in U.S. Government backlog is primarily related to
approximately $1 billion of increased production contracts for the V-22. Approximately 97% of the 2004 backlog was funded at
January 1, 2005. Unfunded backlog represents the award value of U.S. Government contracts received, generally related to cost-
plus type contracts, in excess of the funding formally appropriated by the U.S. Government. The U.S. Government is obligated only
up to the funded amount of the contract. Additional funding is appropriated as the contract progresses.
Commercial backlog from unaffiliated customers was $6.8 billion and $5.0 billion at the end of 2004 and 2003, respectively,
including backlog at Cessna of $5.3 billion in 2004 and $3.9 billion in 2003. The increase in Cessna’s backlog is primarily related
to increased orders for recently introduced Citation jet models, including XLS, CJ1+ and CJ2+ models. A significant portion of
Cessna’s backlog represents orders from a major fractional jet customer. Orders from this fractional aircraft operator are included
in backlog when the customer enters into a definitive master agreement and has established preliminary delivery dates for the air-
craft. Preliminary delivery dates are subject to change through amendment to the master agreement. Final delivery dates are estab-
lished approximately 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 2004 year-end backlog with the major fractional jet customer was approximately $1.3 billion. The major fractional jet customer
also has an option to acquire 50 additional aircraft, which will be placed into backlog upon execution of a definitive master agree-
ment and establishment of preliminary delivery dates. The remaining $4 billion of Cessna’s backlog at the end of 2004 is with other
commercial customers covering a wide spectrum of industries. This backlog includes $0.6 billion in orders for the new Mustang
aircraft that is scheduled to begin its first deliveries to customers in 2006.
Approximately 49% of our total backlog of $10.1 billion at January 1, 2005 represents orders which are not expected to be filled
within our 2005 fiscal year.
U.S. Government Contracts
In 2004, 12% of our consolidated revenues were generated by or resulted from contracts with the U.S. Government. U.S. Govern-
ment business is subject to competition, changes in procurement policies and regulations, the continuing availability of Congres-
sional appropriations, world events, and the size and timing of programs in which we may participate.
Our contracts with the U.S. Government generally may be terminated by the U.S. Government for convenience or default in whole
or in part. If the U.S. Government terminates a contract for convenience, we normally will be entitled to payment for the cost of con-
tract work performed before the effective date of termination plus reasonable profit on such work, adjusted to reflect any rate of loss
had the contract been completed, plus reasonable costs of settlement of the work terminated. If, however, the U.S. Government ter-
minates a contract for default, generally: (a) we will be paid the contract price for completed supplies delivered and accepted, an
agreed upon amount for manufacturing materials delivered and accepted and for the protection and preservation of property, and
for partially completed products accepted by the U.S. Government; (b) the U.S. Government will not be liable for our costs with
respect to unaccepted items and will be entitled to repayment of advance payments and progress payments related to the termi-
nated portions of the contract; and (c) we may be liable for excess costs incurred by the U.S. Government in procuring undelivered
items from another source.
Research and Development
Information regarding our research and development expenditures is contained in Note 17 to the consolidated financial statements
on page 67 of this Annual Report on Form 10-K.
Patents and Trademarks
We own, or are licensed under, numerous patents throughout the world relating to products, services and methods of manufactur-
ing. Patents have been of value in the past and are expected to be of value in the future. However, the loss of any single patent or
group of patents would not, in our opinion, materially affect the conduct of our business.