E-Z-GO 2007 Annual Report Download - page 39

Download and view the complete annual report

Please find page 39 of the 2007 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
Bell Helicopter is in the early stages of development or production for a number of government and commercial programs that are anticipated
to signifi cantly drive revenue and profi t growth in future years. Government programs generally follow a three-phase cycle consisting of:
development, transition to production and full-rate production. Each phase has specifi c risks and operational challenges. Over the next few years,
the segment’s major government programs will be transitioning through various phases of this cycle. Bell Helicopter programs with the U.S.
Government include the V-22 tiltrotor, the H-1 and the ARH. Bell Helicopter’s commercial business has invested in the commercial version of the
tiltrotor aircraft and the new Model 429 during 2007; we expect to receive FAA certifi cation of the Model 429 in the 2008-2009 time-frame. Major
programs at Textron Systems include the ASV and unmanned aircraft systems.
In the past two years, we have made signifi cant investments to conduct research and development, transition development contracts to
production, increase our production capacity and implement improved operational systems to manage anticipated growth in Bell Helicopter’s
government programs and commercial product lines. The costs of investing in improved operational systems resulted in higher overhead
expenses during 2006. Due to the shorter production cycle for our commercial business, the higher overhead costs in 2006 were refl ected in
lower earnings in that year; however, since our government business has a longer production cycle, a portion of these costs was also absorbed
into work-in-progress inventory, particularly for the V-22. Accordingly, as V-22 aircraft were delivered in 2007, the overhead expenses refl ected in
inventory resulted in lower margins. While overhead expenses moderated in 2007, we expect higher overhead costs in the future largely due to
costs incurred to support signifi cant ramp-up to full-rate production of the V-22 aircraft.
During 2007, Textron Systems successfully integrated its fourth quarter 2006 acquisition, Overwatch Systems, into its business and completed
the acquisition of AAI. As a leading provider of intelligent aerospace and defense systems, including unmanned aircraft and ground control
stations, aircraft and satellite test equipment, training systems and countersniper devices, AAI signifi cantly augments our product offering to
the U.S. Government.
Bell Revenues
U.S. Government Business
Revenues increased $388 million in 2007 for the U.S. Government business, compared with 2006, primarily due to higher volume and mix of
$253 million and revenues from newly acquired businesses of $122 million. The volume increase is primarily due to the following:
• $161 million in higher H-1 program revenue, principally due to delivery of the fi rst 10 production units;
• $78 million in higher ASV revenue due to a 21% increase in deliveries to 576 units;
• A $70 million increase in V-22 program revenue, primarily due to higher spares revenues;
• $56 million in higher revenue for Intelligent Battlefi eld Systems; and
• A $16 million increase from Sensor Fused Weapon deliveries.
These increases were partially offset by:
• Lower spares and service sales of $74 million for military helicopters other than the V-22 and
• Lower Joint Direct Attack Munitions volume of $63 million.
In 2006, revenues increased $376 million, compared with 2005, primarily due to higher net volume and mix of $343 million and the benefi t from
acquisitions of $28 million. The volume increase is primarily due to higher ASV deliveries of $286 million, higher ARH SDD development
revenues of $94 million, increased spares and service sales of $37 million, and additional Intelligent Battlefi eld Systems volume of $22 million,
partially offset by lower V-22 volume of $80 million and lower H-1 revenue of $18 million.
Commercial Business
In 2007, revenues for the commercial business increased $119 million, compared with 2006, primarily due to higher pricing of $94 million and
revenues from newly acquired businesses of $43 million, partially offset by lower volume of $17 million. Volume decreased as higher helicopter
deliveries of $50 million were more than offset by lower Huey II kit deliveries of $44 million and lower spares and service volume of $18 million.
In 2006, revenues increased $151 million for our commercial business, compared with 2005, due to higher volume of $105 million and pricing of
$46 million. The volume increase is primarily due to higher civil aircraft deliveries of $176 million, higher spares and service sales of $53 million,
and additional deliveries of Huey II kits of $10 million, partially offset by lower international military deliveries of $116 million.