E-Z-GO 2009 Annual Report Download - page 26

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Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The global economic recession in 2009 significantly impacted many of our businesses as consumers and businesses reduced spending and
investment. The lower demand resulting from this environment contributed to a decline in revenue of $3.5 billion to $10.5 billion and a decline in
segment profit of $976 million to $475 million. These declines were largely due to lower volume in the Cessna and Industrial segments. The
impact of lower volume was partially offset by improved cost performance as we aligned our workforce and production levels with demand
through our restructuring program, employee furloughs and temporary plant shutdowns. Revenue and segment profit also were adversely
impacted by lower earnings and resulting operating losses in the Finance segment largely due to an increase in portfolio losses, lower market
interest rates and lower securitization income.
Since our restructuring program was initiated at the end of 2008, we have improved our cost structure by reducing our workforce by
approximately 10,400 employees, representing approximately 24% of our workforce, and by closing 23 leased and owned facilities and plants.
This program has contributed to significant cost improvements in most of our businesses.
During the year, we continued to execute our plan to exit the non-captive portion of the commercial finance business of our Finance segment,
while retaining the captive portion of the business that supports customer purchases of products that we manufacture. We reduced our managed
finance receivables by $3.8 billion in 2009 through discounted payoffs, portfolio sales and finance receivable amortization and had a cash
conversion ratio of 94%. This reduction included approximately $450 million in finance receivables from our captive finance business. The
Finance segment’s on-and off-balance sheet debt was reduced by an aggregate of $3.8 billion largely due to securitization payoffs and debt
maturities. We expect the Finance segment to continue to contribute operating losses in 2010 as it liquidates the non-captive portfolio.
Our defense businesses continue to perform well, reflecting strong program performance. At Textron Systems, revenues have been favorably
impacted by higher volume largely due to higher Shadow Unmanned Aircraft System and Sensor Fused Weapon deliveries, partially offset by
lower aircraft engine volume as aircraft manufacturers cut production levels in response to lower market demand. At Bell, higher military volumes
from the V-22 and other programs have been partially offset by the impact of the 2008 Armed Reconnaissance Helicopter (ARH) program
cancellation and lower commercial helicopter deliveries.
Backlog for our aircraft and defense businesses at the end of 2009 totaled $13.5 billion, a 41% decline from the prior year, primarily due to a
66% decrease in backlog at Cessna. The decline in backlog at Cessna reflects the cancellation of numerous business jet orders largely due to the
economic recession and includes a $2.1 billion impact from our decision to cancel the development of the Citation Columbus aircraft and a
$1.3 billion impact due to cancellations by one customer. We expect ongoing volatility in our backlog at Cessna until economic conditions
stabilize. Backlog increased in the Bell segment largely related to the multi-year contract for the V-22.
During 2009, we took several actions to ensure adequate liquidity and capital resources in light of the turmoil in the capital markets as
summarized below:
• In February 2009, drew down on the balance of our $3.0 billion committed bank credit lines given the risks associated with the capital
markets at the time.
• Issued $600 million of Convertible Notes and $600 million of senior notes in May and September, respectively.
• In May 2009, concurrent with the Convertible Note offering, offered and sold to the public 23,805,000 shares of our common stock for net
proceeds of approximately $238 million.
• Extinguished $1.3 billion of our outstanding debt securities with maturity dates ranging from 2009 to 2013 through open market repurchases
and tender offers, resulting in a net gain of $53 million.
We believe that, with the continued successful execution of the exit plan for the non-captive business and the cash we expect to generate from our
manufacturing operations, we will have sufficient cash to meet our future needs.
Results of Operations
In our discussion of comparative results for the Manufacturing group, changes in revenue and segment prot typically are expressed in terms of
volume, pricing, foreign exchange and acquisitions. Additionally, changes in segment profit may be expressed in terms of mix, inflation and cost
performance. Volume represents changes in the number of units delivered or services provided. Pricing represents changes in unit pricing.
Foreign exchange is the change resulting from translating foreign-denominated amounts into U.S. dollars at exchange rates that are different from
the prior period. Acquisitions refer to the results generated from businesses that were acquired within the previous 12 months. For segment profit,