E-Z-GO 2006 Annual Report Download - page 39

Download and view the complete annual report

Please find page 39 of the 2006 E-Z-GO annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 108

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108

18
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In the fourth quarter of 2006, we completed certain phases of the critical design review under the ARH SDD contract and determined the initial
production configuration of the aircraft, which includes aircraft configuration changes required by the U.S. Government. Our cost estimates based
on this configuration, which include anticipated transition to production costs, exceed the fixed pricing contained in the options. We currently are
in discussions with the U.S. Government related to the possible reinstatement of the ARH Lot 1 option, extension of the options, delivery sched-
ule, number of units to be exercised under the options and possible additional aircraft to be contracted, in addition to those under the options, at
revised pricing. We also are reviewing our ability to claim equitable adjustment recovery from the U.S. Government related to certain costs that
potentially could be incurred related to the exercise of these options.
Depending on the results of the SDD contract, our cost-containment efforts, the availability of U.S. Government funding, the number of aircraft
exercised or ultimately contracted for, and the resolution of our discussions with the U.S. Government, we currently estimate that it is reasonably
possible that our exposure could be in the range of no loss to a possible loss of $4 million per aircraft. This estimate excludes the impact of dis-
cussions with the U.S. Government or any potential recoveries including claims for equitable adjustment under the contracts. Due to the uncer-
tainty of this exposure and the ultimate outcome of our discussions, we do not believe that a loss is probable under the guidelines established by
Statement of Financial Accounting Standards (“SFAS”) No.5, “Accounting for Contingencies.” Accordingly, we have not established a reserve at
December 30, 2006.
Commercial Business
In 2006, commercial profit decreased $94 million, compared with 2005 primarily due to unfavorable cost performance of $140 million and infla-
tion of $28 million, partially offset by higher pricing of $46 million and the impact of increased volume and mix of $42 million. The unfavorable
cost performance reflected increased overhead costs of $55 million, the impact of the $30 million gain on the sale of our interest in the Model
AB139 program in 2005, higher net research and development expense of $29 million and the $13 million prior year impact of the resolution of
uncertainties and receipt of cash related to a collaborative research and development agreement, partially offset by $18 million in additional
reserves recorded by Lycoming in 2005 for a crankshaft retirement program and related service bulletins.
In 2005, commercial profit increased $85 million, compared with 2004 primarily due to the $30 million gain on the sale of our interest in the
Model AB139 helicopter program, the $29 million impact of higher international military volume and improved performance, higher spares vol-
ume of $22 million and a $13 million impact upon resolution of uncertainties and receipt of cash related to a prior year collaborative research and
development sharing agreement. In addition, commercial profit reflected a $16 million decrease in net research and development, as higher gross
research and development expenses of $28 million were more than offset by the commercial share of reimbursements related to risk-sharing
agreements from codevelopment partners. These increases were partially offset by $28 million of higher selling and administrative expense and
$18 million in additional reserves recorded by Lycoming in 2005 for a crankshaft retirement program and related service bulletins.
Cessna
(Dollars in millions)
2006 2005 2004
Revenues $ 4,156 $ 3,480 $ 2,473
Segment profit $ 645 $ 457 $ 267
Profit margin 16% 13% 11%
Backlog $ 8,467 $ 6,342 $ 5,352
Demand in the business jet market continued to strengthen in 2006, which was reflected in a 34% increase in our backlog, despite a 22%
increase in business jet deliveries. Over the past three years, Cessna has increased its annual production rate and has continued to focus on
improving margins while investing in engineering, research and development in Cessna’s continual effort to bring new technology and products
to market. Citation business jets are the largest component of Cessna’s revenues. We delivered 307, 252 and 179 Citation business jets in 2006,
2005 and 2004, respectively, representing 77%, 76% and 72% of Cessna’s total revenues.
Cessna Revenues
Revenues at Cessna increased $676 million in 2006, compared with 2005 due to higher volume of $493 million, primarily related to Citation
business jets, and favorable pricing of $183 million. In 2005, Cessna’s revenues increased $1.0 billion, 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.