E-Z-GO 2005 Annual Report Download - page 28

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Textron Inc.
result in the extension or termination of programs. Our business is also highly sensitive to changes in national and international priorities and
U.S. Government budgets.
U.S. Government contracts may be terminated at any time and may contain other unfavorable provisions.
The U.S. Government typically can terminate or modify any of its contracts with us either for its convenience or if we default by failing to perform
under the terms of the applicable contract. A termination arising out of our default could expose us to liability and have an adverse effect on our
ability to compete for future contracts and orders.
If any of our contracts are terminated by the U.S. Government, our backlog would be reduced by the expected value of the remaining terms of such
contracts, and our financial condition and results of operations could be adversely affected. In addition, on those contracts for which we are
teamed with others and are not the prime contractor, the U.S. Government could terminate a prime contract under which we are a subcontractor,
irrespective of the quality of our services as a subcontractor.
In addition to unfavorable termination provisions, our U.S. Government contracts contain provisions that allow the U.S. Government to unilater-
ally suspend us from receiving new contracts pending resolution of alleged violations of procurement laws or regulations, reduce the value of
existing contracts, issue modifications to a contract, and control and potentially prohibit the export of our products, services and associated
materials.
Cost overruns on U.S. Government contracts could subject us to losses or adversely affect our future business.
Contract and program accounting require judgment relative to assessing risks, estimating contract revenues and costs, and making assumptions
for schedule and technical issues. Due to the size and nature of many of our contracts, the estimation of total revenues and cost at completion is
complicated and subject to many variables. Assumptions have to be made regarding the length of time to complete the contract because costs
include expected increases in wages and prices for materials. Incentives or penalties related to performance on contracts are considered in esti-
mating sales and profit rates and are recorded when there is sufficient information for us to assess anticipated performance. Estimates of award
fees are also used in estimating sales and profit rates based on actual and anticipated awards.
Because of the significance of the estimates described above, it is likely that different amounts could be recorded if we used different assumptions
or if the underlying circumstances were to change. Changes in underlying assumptions, circumstances or estimates may adversely affect our
future financial results of operations.
Under fixed-price contracts, we receive a fixed price irrespective of the actual costs we incur, and consequently, any costs in excess of the fixed
price are absorbed by us. Under time and materials contracts, we are paid for labor at negotiated hourly billing rates and for certain expenses.
Under cost reimbursement contracts, which are subject to a contract-ceiling amount, we are reimbursed for allowable costs and paid a fee, which
may be fixed or performance based. However, if our costs exceed the contract ceiling or are not allowable under the provisions of the contract or
applicable regulations, we may not be able to obtain reimbursement for all such costs. Under each type of contract, if we are unable to control
costs we incur in performing under the contract, our financial condition and results of operations could be adversely affected. Cost overruns also
may adversely affect our ability to sustain existing programs and obtain future contract awards.
We may make acquisitions that increase the risks of our business.
We may enter into acquisitions in the future in an effort to enhance shareholder value. Acquisitions involve a certain amount of risks and uncer-
tainties that could result in our not achieving expected benefits. Such risks include difficulties in integrating newly acquired businesses and oper-
ations in an efficient and cost-effective manner; challenges in achieving expected strategic objectives, cost savings and other benefits; the risk
that the acquired businesses’ markets do not evolve as anticipated and that the technologies acquired do not prove to be those needed to be suc-
cessful in those markets; the risk that we pay a purchase price that exceeds what the future results of operations would have merited; the potential
loss of key employees of the acquired businesses; and the risk of diverting the attention of senior management from our existing operations.
Our operations could be adversely affected by interruptions of production that are beyond our control.
Our business and financial results may be affected by certain events that we cannot anticipate or that are beyond our control, such as natural dis-
asters and national emergencies, that could curtail production at our facilities and cause delayed deliveries and cancelled orders. In addition, we
purchase components and raw materials from numerous suppliers, and even if our facilities are not directly affected by such events, we could be
affected by interruptions of production at such suppliers. Such suppliers may be less likely than our own facilities to be able to quickly recover
from such events, and may be subject to additional risks such as financial problems that limit their ability to conduct their operations.