E-Z-GO 2009 Annual Report Download - page 32

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Textron Inc.
In 2008, Bell’s segment profit increased $134 million, compared with 2007, primarily due to favorable cost performance of $78 million, higher
pricing in excess of inflation of $32 million and $21 million in increased royalty revenues, primarily related to the Model A139. Cost performance
included:
• Improved performance for the H-1 Low-Rate Initial Production (LRIP) program of $46 million, primarily resulting from a $30 million net
charge recorded in the fourth quarter of 2007 to reflect higher costs estimates due to supplier delays and an estimated loss resulting from our
price commitment under one contract. In 2008, production efciencies improved resulting in $6 million in favorability;
• Lower net charges of $32 million for the ARH program due to estimated contract losses related to supplier obligations for long-lead
components;
• Costs of $26 million incurred in 2007 related to our exit of certain commercial models;
• The $14 million impact of improved commercial aircraft margins, primarily due to improved production efciencies for the 412 and 407
models; and
• Improvement in the V-22 program of $11 million, primarily due to manufacturing efciencies; partially offset by
• Increased selling and administrative expenses of $20 million due to higher project-related consulting expenses and
• Higher research and development expense of $14 million.
ARH Program Termination
On October 16, 2008, we received notication from the U.S. Department of Defense that it would not certify the continuation of the ARH
program to Congress under the Nunn-McCurdy Act, resulting in the termination of the program for the convenience of the government. The
ARH program included a development phase, covered by the System Development and Demonstration (SDD) contract, and a production phase.
We submitted our claim for the termination costs for the SDD contract in October 2009 and believe that these costs are fully recoverable from
the U.S. Government.
Prior to termination of the program, we obtained inventory and incurred vendor obligations for long-lead time materials related to the anticipated
LRIP contracts to maintain the program schedule based on our belief that the LRIP contracts would be awarded. We have since terminated our
vendor contracts and are negotiating to settle our termination obligations. In October 2009, we led a claim with the U.S. Government to request
reimbursement of costs expended in support of the LRIP program. On December 17, 2009, we received a decision from the Contracting Ofcer of
the Department of the Army that denied this claim in its entirety. We plan to appeal this decision in the rst quarter of 2010. At January 2, 2010,
our reserves related to this program totaled $50 million, which we believe are adequate to cover our exposure.
Textron Systems
(Dollars in millions) 2009 2008 2007
Revenues $ 1,899 $ 1,880 $ 1,114
Segment prot $ 240 $ 251 $ 174
Prot margin 13% 13% 16%
Backlog $ 1,664 $ 2,190 $ 2,144
Textron Systems Revenues
Revenues at Textron Systems increased $19 million in 2009, compared with 2008, primarily due to higher defense volumes, including $83
million for Shadow Unmanned Aircraft Systems, $45 million for Sensor Fused Weapons and $34 million for Armored Security Vehicles. These
increases were partially offset by lower aircraft engine volume of $73 million largely due to a decline in aircraft production as aircraft
manufacturers cut production levels in response to lower demand, lower Armored Security Vehicle aftermarket volume of $45 million and a $33
million impact largely due to the completion of programs related to laser and missile technology development.
Backlog at Textron Systems decreased $526 million in 2009, primarily due to deliveries on existing government contracts for Shadow Unmanned
Aircraft Systems and Armored Security Vehicles.