E-Z-GO 2006 Annual Report Download - page 35

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Outlook
Looking ahead, we expect 2007 revenues in excess of $12 billion, with growth led by our aerospace and defense businesses. We expect strong
growth in business jet deliveries as we deliver against our record backlog and respond to increasing global demand. We also are preparing to
deliver more commercial helicopters in 2007 as we execute against backlog in this market. Our defense businesses are expected to remain strong
as we continue to support the U.S. Government’s efforts in Iraq and elsewhere. We expect segment profit to increase reflecting improvements in
each of the manufacturing segments.
Consolidated Results of Operations
Revenues
In 2006, our revenues increased $1.5 billion primarily due to higher manufacturing sales volume of $1.0 billion, higher pricing of $274 million
and higher revenues in the Finance segment of $170 million. In 2005, revenues increased $1.7 billion primarily due to higher manufacturing
sales volume of $1.3 billion, higher pricing of $159 million, additional revenues of $115 million from acquisitions and higher revenues in the
Finance segment of $83 million.
Segment Profit
In 2006, our segment profit increased $121 million primarily due to higher pricing of $274 million, higher sales volume of $198 million,
improved cost performance of $54 million in the Industrial segment, favorable warranty performance at Cessna of $39 million and higher profit in
the Finance segment of $39 million. These increases were partially offset by inflation of $272 million, higher spending for engineering and new
product development of $74 million, higher overhead of $55 million in Bell’s commercial business and increased charges related to the H-1 Low
Rate Initial Production (“LRIP”) contracts of $68 million. In 2005, segment profit increased $296 million primarily due to higher sales volume of
$319 million, higher pricing of $159 million and higher profit in the Finance segment of $26 million. These increases were partially offset by
inflation of $227 million.
Special Charges
Special charges totaled $118 million for 2005 and included $112 million in charges related to the 2001 disposition of the Automotive Trim busi-
ness (“Trim”) and $6 million in restructuring expense in the Industrial segment. In 2004, special charges totaled $59 million and included $71
million in restructuring expense principally in the Industrial segment, partially offset by a $12 million gain on the sale of common stock acquired
in connection with the Trim disposition.
In connection with the disposition of Trim to subsidiaries of Collins & Aikman Corporation (“C&A”), we acquired preferred stock in C&A Products
Co. (“C&A Products”) and C&A common stock. In the first quarter of 2005, we recorded a $52 million impairment charge to write down the pre-
ferred stock based on an agreement to sell the stock to a third party. In the second quarter of 2005, based on C&A Products’ filing for Chapter 11
bankruptcy protection and relevant market considerations, we wrote off the remaining book value of the preferred stock of $39 million.
In connection with the Trim disposition, our Finance group has recourse to our Manufacturing group for equipment leases with the subsidiaries of
C&A. The outstanding balance on these leases totaled approximately $61 million at December 30, 2006. Based on uncertainties related to these
leases, our Manufacturing group recorded a $10 million reserve to special charges in the fourth quarter of 2005.
Certain other operating leases were transferred and assigned to subsidiaries of C&A upon the sale of Trim. As discussed in Note 17 to the consol-
idated financial statements, we guaranteed C&A’s payments under these operating leases and for an environmental matter. In the fourth quarter of
2005, based on C&A’s failure to pay certain leases, as well as the negotiations entered into at the time for the sale of C&A’s European operations,
we recorded an $11 million charge to special charges to cover our exposure under these leases, along with certain environmental and workers’
compensation matters.
We substantially completed our company-wide restructuring program at the end of 2005. See Note 14 to the consolidated financial statements for
more information about this program. In 2005, we recorded $6 million in restructuring expense under the program for severance and other associ-
ated costs. In 2004, we recorded $71 million in restructuring expense under the program with $37 million in contract termination costs, $28 mil-
lion in severance costs and $6 million in other associated costs. We have approximately $30 million in restructuring reserves remaining at the end
of 2006 primarily related to contract termination costs for one lease in the Industrial segment which will be paid out over the next 13 years.
Corporate Expenses and Other, net
Corporate expenses and other, net increased $3 million in 2006 principally due to $7 million of higher share-based compensation expense and
$4 million of higher incentive compensation, partially offset by $8 million of lower expenses related to corporate initiatives.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations