E-Z-GO 2006 Annual Report Download - page 27

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Item 1A. Risk Factors
Item 1A. Risk Factors
Our business, financial condition and results of operations are subject to various risks, including those discussed below, which may affect the
value of our securities. The risks discussed below are those that we believe currently are the most significant, although additional risks not
presently known to us or that we currently deem less significant also may impact our business, financial condition and results of operations, per-
haps materially.
We may be unable to effectively mitigate pricing pressures.
In some markets, particularly where we deliver component products and services to original equipment manufacturers, we face ongoing customer
demands for price reductions, which sometimes are contractually obligated. In some cases, we are able to offset these reductions through techno-
logical advances or by lowering our cost base through improved operating and supply chain efficiencies. However, if we are unable to effectively
mitigate future pricing pressures, our financial results of operations could be adversely affected.
Delays in aircraft delivery schedules or cancellation of orders may adversely affect our financial results.
Aircraft customers, including sellers of fractional share interests, may respond to weak economic conditions by delaying delivery of orders or
canceling orders. Weakness in the economy also may result in fewer hours flown on existing aircraft and, consequently, lower demand for spare
parts and maintenance. Weak economic conditions also may cause reduced demand for used business jets or helicopters. We may accept used
aircraft on trade-in that would be subject to fluctuations in the fair market value of the aircraft while in inventory. Reduced demand for new and
used aircraft, spare parts and maintenance can have an adverse effect on our financial results of operations.
Developing new products and technologies entails significant risks and uncertainties.
Delays or cost overruns in the development and acceptance of new products, or certification of new aircraft products and other products, could
affect our financial results of operations. These delays could be caused by unanticipated technological hurdles, production changes to meet cus-
tomer demands, coordination with joint venture partners or failure on the part of our suppliers to deliver components as agreed. We also could be
adversely affected if the general efficacy of our research and development investments to develop products is less than expected.
We have customer concentration with the U.S. Government.
During 2006, we derived approximately 19% of our revenues from sales to a variety of U.S. Government entities. Our ability to compete success-
fully for and retain this business is highly dependent on technical excellence, management proficiency, strategic alliances, cost-effective perfor-
mance, and the ability to recruit and retain key personnel. U.S. Government programs are subject to uncertain future funding levels, which can
result in the extension or termination of programs. Our business also is 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, in accordance with contract terms, by the expected
value of the remaining work under 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 products and services as a subcontractor.
In addition to these termination provisions, our U.S. Government contracts contain provisions that allow the U.S. Government to unilaterally sus-
pend 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