E-Z-GO 2011 Annual Report Download - page 21

associated materials. A number of our U.S. Government contracts contain provisions that require us to make disclosure to the
Inspector General of the agency that is our customer if we have credible evidence that we have violated U.S. criminal laws
involving fraud, conflict of interest, or bribery; the U.S. civil False Claims Act; or received a significant overpayment under a U.S.
Government contract. Failure to properly and timely disclose may result in a termination for default or cause, suspension and/or
debarment, and potential fines.
The DoD has issued guidance to its acquisition workforce to obtain greater efficiency and productivity in defense spending by
undertaking actions in five major areas (known as the “Better Buying Power Initiative”): target affordability and control cost
growth; incentivize productivity and innovation; promote competition; improve tradecraft in services acquisition; and reduce non-
productive processes and bureaucracy. This initiative is expected to significantly affect the contracting environment in which we
do business with our DoD customers and 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.
As a U.S. Government contractor, our businesses and systems are subject to audit and review by the Defense Contract Audit
Agency (DCAA) and the Defense Contract Management Agency (DCMA).
We operate in a highly regulated environment and are routinely audited and reviewed by the U.S. Government and its agencies
such as DCAA and DCMA. These agencies review our performance under our contracts, our cost structure and our compliance
with laws and regulations applicable to U.S. Government contractors. Systems that are subject to review include, but are not
limited to, our accounting systems, estimating systems, material management and accounting systems, earned value management
systems, purchasing systems and government property systems. If an audit uncovers improper or illegal activities we may be
subject to civil and criminal penalties and administrative sanctions that may include the termination of our contracts, forfeiture of
profits, suspension of payments, fines, and, under certain circumstances, suspension or debarment from future contracts for a
period of time. Whether or not illegal activities are alleged, the U.S. Government also has the ability to decrease or withhold
certain payments when it deems systems subject to its review to be inadequate. These laws and regulations affect how we do
business with our customers and, in some instances, impose added costs on our business.
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 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 pre-owned jets and helicopters
could persist and could continue to adversely impact the pricing of new aircraft and the valuation of used aircraft. Concerns
regarding the financial stability of certain Eurozone countries, the overall stability of the euro and the suitability of the euro as a
single currency may have an adverse impact on financial institutions and capital markets in Europe and globally which could
impede the ability of our customers to obtain financing to purchase our aircraft and further reduce demand for our products. 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 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.
Difficult economic conditions could continue to affect the performance of our Finance segment and our credit 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 general economic conditions on our customers’
businesses. The performance of our liquidating non-captive finance receivable portfolios may be adversely affected by other
variables, including changes in our liquidation strategy, the loss of personnel and changes in external factors affecting the value
and/or marketability of our assets. Valuations of the types of collateral securing our Golf Mortgage portfolio, which we are
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10 Textron Inc. Annual Report • 2011