E-Z-GO 2010 Annual Report Download - page 21

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organized in five major areas: affordability and cost growth; productivity and innovation; competition; services acquisition; and
processes and bureaucracy. These new initiatives are expected to impact significantly the contracting environment in which we do
business with our DoD customers, and they could have a significant impact on current programs, as well as new business
opportunities. Changes to the DoD acquisition system and contracting models could affect whether and, if so, how we pursue certain
opportunities and the terms under which we are able to do so.
Cost overruns on U.S. Government contracts could subject us to losses or adversely affect our future business.
Under fixed-price contracts, as a general rule, 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. Changes in underlying assumptions, circumstances or estimates used in
developing the pricing for such contracts may adversely affect our results of operations. 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.
Weak demand for our aircraft products may continue to adversely affect our financial results.
As a result of the recent worldwide economic downturn, over the past several years we have experienced weak demand for our new
and used aircraft, a tightening of credit availability for potential purchasers of our aircraft, and a substantial number of cancellations of
orders and customer requests for delayed delivery of ordered aircraft. Soft demand for new and used business jets and helicopters
could persist and could continue to adversely impact the pricing of new aircraft and the valuation of used aircraft. In addition, both
U.S. and foreign governments and government agencies regulate the aviation industry; they may impose new regulations with
additional aircraft security or other requirements or restrictions, including, for example, restrictions and/or fees related to carbon
emissions levels that may adversely impact demand for business jets and/or helicopters. A prolonged weakness in the markets for our
commercial aircraft products could adversely impact our results of operations and our future prospects.
We may not be able to continue to execute the liquidation of our Finance segment’s non-captive commercial finance business at a
favorable pace and level of recovery.
In the fourth quarter of 2008, we announced a 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. The
exit plan is being effected through a combination of orderly liquidation and selected sales. We cannot be certain that we will be able
to continue to accomplish the orderly liquidation of our portfolio on a timely or successful basis or in a manner that will generate cash
sufficient to service our Finance segment’s debt. We may encounter delays and difficulties in effecting the continued orderly
liquidation of our various receivable portfolios as a result of many factors, including the inability of our customers to find alternative
financing, which could expose us to increased credit losses. We may have greater difficulty in selling the remaining receivables that
have been designated for sale or transfer, assets that have been acquired upon foreclosure of receivables and/or other non-operating
assets at the pricing that we anticipate or in the time frame that we anticipate. We may be required to make additional mark-to-market
or other adjustments against assets that we intend to sell or to take additional reserves against assets that we intend to retain. We may
change our current strategy based on either our performance and liquidity position or changes in external factors affecting the value
and/or marketability of our assets, which could result in changes in the classification of assets we intend to hold for investment and
additional mark-to-market adjustments. We may incur higher costs than anticipated as a result of this exit plan or be subject to claims
made by third parties, and the exit plan may result in increased credit losses. We expect that our portfolio quality will continue to
deteriorate as we proceed through the liquidation and the asset mix changes and that our cash conversion ratio on liquidation will
decrease; this deterioration could be more severe and the cash conversion ratio lower than we anticipate, resulting in greater losses.
Significant delay or difficulty in executing the continued liquidation and/or substantial losses could result in the failure of our portfolio
to generate the cash necessary to service our Finance segment’s indebtedness, resulting in continuing or increased adverse effects on
our financial condition and results of operations.
Difficult conditions in the financial markets have adversely affected the quality of our Finance segment’s finance asset portfolios,
and our losses may increase if we are unable to successfully collect our finance receivables or realize sufficient value from
collateral.
The financial performance of our Finance segment depends on the quality of loans, leases and other assets in its finance asset
portfolios. Portfolio quality may be adversely affected by several factors, including finance receivable underwriting procedures,
collateral quality, geographic or industry concentrations, and the effect of the recent economic downturn on our customers’ businesses,
as well as the broader deterioration of the financial markets. As a result of the tumultuous conditions in the financial markets over the
past two years, many lenders and institutional investors have reduced, and, in some cases, ceased, to provide funding to borrowers.
These conditions have led to an increased level of commercial and consumer delinquencies and defaults, lack of consumer confidence,
increased market volatility, widespread reduction of business activity, and bankruptcy filings. Valuations of the types of collateral
securing our timeshare and other portfolios have been and may continue to be adversely affected by increased consumer
delinquencies, the reduction in business activity and bankruptcy proceedings involving our borrowers. Valuations of the types of
collateral securing our captive finance portfolio, particularly valuations of used aircraft, have decreased significantly over the past two
years and may continue to decrease if weak economic conditions continue. Declining collateral values could result in greater