E-Z-GO 2005 Annual Report Download - page 41

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21
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cessna Revenues
The Cessna segment’s revenues increased $1.0 billion in 2005, compared with 2004, primarily due to higher Citation business jet volume of $737
million, higher pricing of $82 million and a benefit from the consolidation of CitationShares of $78 million. Citation business jet customer deliv-
eries were 252 in 2005, compared with 179 jets in 2004.
The Cessna segment’s revenues increased $174 million in 2004, compared with 2003, primarily due to the $76 million increase from the consoli-
dation of CitationShares, $39 million of higher pricing and a $12 million benefit from lower used aircraft overtrade allowances. Citation business
revenue jet deliveries were 179 in 2004, compared with 194 jets in 2003.
Cessna Segment Profit
Segment profit increased $190 million in 2005, compared with 2004, largely due to the $229 million impact of higher volume across all product
lines and $82 million of higher pricing, partially offset by $99 million of inflation. Additionally, Cessna was able to significantly improve profit
margins and overcome the challenges associated with ramping up production and increasing research and development expenses.
Segment profit increased $68 million in 2004, compared with 2003, largely due to $85 million of improved cost performance, $39 million of
higher pricing, $18 million of lower used aircraft valuation adjustments, a $12 million benefit from lower used aircraft overtrade allowances and
an $8 million benefit related to the expiration of prior year residual value guarantees, partially offset by $70 million of inflation and the unfavorable
impact of lower business jet volume and unfavorable mix of $20 million. The benefit from lower used aircraft overtrade allowances and valuation
adjustments was primarily due to fewer trade-ins and a stabilization in market values for used jets in 2004.
Cessna Outlook
Cessna anticipates another strong year of business jet deliveries in 2006 with total revenues expected to increase significantly. Indications are that
2007 will be a strong delivery year as well. In 2006, profit margins are expected to rise, primarily driven by the increase in revenue. Cessna will
continue to invest in new products such as the Encore+ and the Mustang, broadening our product line to take advantage of the improving busi-
ness jet market.
Industrial
(Dollars in millions)
2005 2004 2003
Revenues $ 3,054 $ 3,046 $ 2,836
Segment profit $ 150 $ 194 $ 150
Profit margin 5% 6% 5%
The Industrial segment is composed of five businesses, including E-Z-GO, Jacobsen, Kautex, Greenlee and Fluid & Power. Through these busi-
nesses, the segment provides its customers with innovative solutions and services, including golf cars and turf-care equipment, plastic fuel sys-
tems, wire and cable installation equipment, and industrial pumps and gears. These markets are highly competitive and price sensitive.
Consequently, significant cost reductions are required not only to offset inflation and price concessions, primarily at Kautex, but also to improve
margins.
Industrial Revenues
The Industrial segment’s revenues increased $8 million in 2005, compared with 2004, as higher pricing of $36 million and favorable foreign
exchange of $31 million were largely offset by lower volume of $63 million. The lower sales volume primarily reflects decreases of $80 million at
Kautex, largely due to product model changeovers, and $39 million at Jacobsen, primarily related to the strategic realignment of its North Ameri-
can commercial distribution network. These decreases were partially offset by higher volume of $31 million at Greenlee.
The Industrial segment’s revenues increased $210 million in 2004, compared with 2003, primarily due to a favorable foreign exchange impact of
$167 million and higher sales volume of $61 million, partially offset by $17 million related to the divestiture of a non-core product line during the
second quarter of 2004. The higher sales volume primarily reflects an increase of $44 million at Kautex, largely due to new product launches and
growth in its international markets, and to a lesser degree increases of $18 million and $12 million at E-Z-GO and Jacobsen, respectively.