E-Z-GO 2008 Annual Report Download - page 22

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Textron Inc.
geographic or industry concentrations, the ability of our customers to obtain alternative financing as our Finance segment exits certain lines of
business, as well as the recent deterioration of the financial markets. Current financial market conditions have resulted in significant writedowns
of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. These
writedowns, initially of mortgage-backed securities but spreading to credit default swaps and other derivative securities, have caused many
financial institutions to seek additional capital, to merge with larger and stronger institutions, and, in some cases, to fail. Many lenders and
institutional investors have reduced and, in some cases, ceased to provide funding to borrowers, including other financial institutions. This
market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies and defaults, lack of consumer
confidence, increased market volatility and widespread reduction of business activity. In addition, our credit risk may be exacerbated when our
collateral cannot be realized or is liquidated at prices not sufficient to recover the full amount of our finance receivable portfolio. Further
deterioration of our Finance segment’s ability to successfully collect its finance receivable portfolio and to resolve problem accounts may
adversely affect our cash flow, profitability and financial condition. As these current market conditions persist or worsen, we could experience
continuing or increased adverse effects on our financial condition and results of operations.
The soundness of our suppliers, customers and business partners could affect our business and results of operations.
All of our segments are exposed to risks associated with the creditworthiness of our key suppliers, customers and business partners, including
automobile manufacturers and other industrial customers, customers of our Bell and Cessna products, home improvement retailers and original
equipment manufacturers, many of which may be adversely affected by the volatile conditions in the financial markets. These conditions could
result in financial instability or other adverse effects at any of our suppliers, customers or business partners. The consequences of such adverse
effects could include the interruption of production at the facilities of our customers or suppliers, the reduction, delay or cancellation of customer
orders, delays in or the inability of customers to obtain financing to purchase our products, and bankruptcy of customers or other creditors. Any
of these events may adversely affect our cash flow, profitability and financial condition.
The soundness of financial institutions could adversely affect us.
We have relationships with many financial institutions, and, from time to time, we execute transactions with counterparties in the financial
services industry. As a result, defaults by, or even rumors or questions about, financial institutions or the financial services industry
generally, could result in losses or defaults by these institutions. In the event that the volatility of the financial markets adversely affects these
financial institutions or counterparties, we or other parties to the transactions with us may be unable to complete transactions as intended,
including divestitures that may be subject to funding requirements on the part of the buyer, which could adversely affect our business and
results of operations.
We have customer concentration with the U.S. Government.
During 2008, we derived approximately 24% of our revenues from sales to a variety of U.S. Government entities. Our U.S. Government revenues
have continued to grow both organically and through acquisitions. Our ability to compete successfully for and retain U.S. Government business is
highly dependent on technical excellence, management proficiency, strategic alliances, cost-effective performance, and the ability to recruit and
retain key personnel. Our revenues from the U.S. Government largely result from contracts awarded to us under various U.S. Government
programs, primarily defense-related programs. The funding of these programs is subject to congressional appropriation decisions. Although
multiple-year contracts may be planned in connection with major procurements, Congress generally appropriates funds on a fiscal year basis
even though a program may continue for several years. Consequently, programs often are only partially funded initially, and additional funds are
committed only as Congress makes further appropriations. The reduction or termination of funding, or changes in the timing of funding, for a U.S.
Government program in which we provide products or services would result in a reduction or loss of anticipated future revenues attributable to
that program and could have a negative impact on our results of operations. While the overall level of U.S. defense spending has increased in
recent years for numerous reasons, including increases in funding of operations in Iraq and Afghanistan and the U.S. Department of Defense’s
military transformation initiatives, we can give no assurance that such spending will continue to grow or not be reduced. Significant changes in
national and international priorities for defense spending could impact the funding, or the timing of funding, of our programs, which could
negatively impact our results of operations and financial condition.
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. 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