E-Z-GO 2008 Annual Report Download - page 35

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22
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
from 2009 deliveries and cancellations, as discussed in the Backlog section on page 5, Cessna has reduced its 2009 production plan from 2008
levels. As a result of reduced production levels, Cessna announced reductions in workforce by approximately 750 employees in the fourth quarter
of 2008 and an additional 4,100 employees in January 2009.
Cessna’s backlog increased $1.9 billion, primarily due to $2.3 billion in orders received for the wide-body, long-range Citation Columbus jet,
which began a multi-year development period in 2008.
In 2007, Cessna’s revenues increased $844 million, compared with 2006, due to higher volume of $631 million, primarily due to higher Citation
business jet deliveries, and improved pricing of $212 million.
Cessna Segment Profit
Cessna’s segment profit increased $40 million in 2008, compared with 2007, primarily due to the impact of higher volume of $110 million,
pricing in excess of inflation of $82 million and favorable warranty performance of $14 million, partially offset by increased engineering and
product development expense of $45 million, which includes costs related to the development of new Citation models, CJ4 and Columbus,
inventory writedowns of $51 million, largely related to used aircraft, and increased overhead costs of $19 million. Favorable warranty performance
is primarily related to lower estimated warranty costs for aircraft sold in 2008. Segment profit also includes other favorable warranty performance
of $28 million in both 2008 and 2007.
In 2007, Cessna’s segment profit increased $220 million, compared with 2006, primarily due to improved pricing of $212 million, along with the
$139 million impact of higher volume and favorable warranty performance of $14 million, partially offset by inflation of $106 million and
increased engineering and product development expense of $41 million. Favorable warranty performance included the $19 million impact of
lower estimated warranty costs for aircraft sold in 2007 related to initial model launches as discussed below, partially offset by a lower benefit of
$5 million from other favorable warranty performance (a $28 million benefit in 2007, compared with $33 million in 2006).
During initial model launches, Cessna typically incurs higher warranty-related costs until the production process matures, at which point
warranty costs generally moderate. For the Sovereign and CJ3 models, production lines had reached this maturity level based on historical
production and warranty patterns, resulting in lower estimated warranty costs than earlier production aircraft. Accordingly, Cessna has had
favorable warranty performance in the past three years primarily due to the lower point-of-sale warranty costs for Sovereign and CJ3 aircraft sold.
Bell
(Dollars in millions) 2008 2007 2006
Revenues $ 2,827 $ 2,581 $ 2,347
Segment profit $ 278 $ 144 $ 108
Profit margin 10% 6% 5%
Backlog $ 6,192 $ 3,809 $ 3,119
Bell Revenues
Bell’s revenues increased $246 million in 2008, compared with 2007, primarily due to higher volume of $134 million, higher pricing of
$87 million and revenues from newly acquired businesses of $26 million. The increase in volume relates primarily to higher V-22 volume of
$125 million (largely due to delivery of 18 aircraft in 2008, compared with 14 in 2007), higher H-1 volume of $47 million (principally due to
delivery of 12 aircraft in 2008, compared with 10 in 2007), and an increase in spares and service sales volume of $28 million. These volume
increases were partially offset by lower commercial helicopter volume of $54 million and lower ARH program revenues of $19 million as a result
of the program’s termination in October 2008.
Backlog at Bell increased $2.4 billion in 2008, largely due to funding under the V-22 multi-year contract approved in March 2008.
Bell’s revenues increased $234 million in 2007, compared with 2006, primarily due to higher volume and mix of $141 million and higher pricing
of $90 million. The increase in volume relates primarily to an increase in H-1 program revenues of $161 million, principally due to delivery of the
first 10 production units, an increase in V-22 program revenues of $70 million, primarily due to higher spares revenues, and higher commercial
helicopter deliveries of $50 million. These increases were partially offset by $92 million in lower spares and service sales for aircraft other than
the V-22 and $44 million in lower Huey II kit deliveries.