E-Z-GO 2012 Annual Report Download - page 21

Textron Inc. Annual Report ● 2012 9
• Our ability to keep pace with our competitors in the introduction of new products and upgrades with features and
technologies desired by our customers;
• Increases in pension expense or employee and retiree medical benefits;
• Difficult conditions in the financial markets which may adversely impact our customers’ ability to fund or finance
purchases of our products; and
• Continued demand softness or volatility in the markets in which we do business.
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 to our
business.
We have customer concentration with the U.S. Government; reduction in U.S. Government defense spending may adversely
affect our results of operations and financial condition.
During 2012, we derived approximately 29% of our revenues from sales to a variety of U.S. Government entities. Our revenues
from the U.S. Government largely result from contracts awarded to us under various U.S. Government 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. If we incur costs in excess of funds committed on a contract, we are
more at risk for non-reimbursement of those costs until additional funds are appropriated. The reduction or termination of funding,
or changes in the timing of funding, for U.S. Government programs in which we currently provide, or propose to provide, products
or services would result in a reduction or loss of anticipated future revenues and could materially and adversely impact our results
of operations and financial condition. 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.
Mounting pressure for U.S. Government deficit reduction and reduced national spending have created an environment where
national security spending is being closely examined. In August 2011, Congress passed the Budget Control Act of 2011 which
committed the U.S. Government to significantly reduce the federal deficit over ten years. Under this Act, very substantial
automatic spending cuts, known as “sequestration,” including approximately $600 billion in cuts to the U.S. defense budget over a
nine year period, are scheduled to be triggered beginning in 2013. In addition, the nation's debt ceiling is currently expected to be
reached during the first half of 2013. Congress and the Administration continue to debate how the nation should proceed on these
issues. The outcome of that debate could have a significant impact on future defense spending plans. As a result, long-term
funding for various programs in which we participate, as well as future purchasing decisions by our U.S. Government customers,
could be reduced, delayed or cancelled. In addition, these cuts could adversely affect the viability of the suppliers and
subcontractors under our programs.
There are many variables in how the sequester could be implemented that make it difficult to determine specific impacts; however,
we expect that sequestration, as currently provided for under the Budget Control Act, would result in lower revenues, profits and
cash flows for our company. Such circumstances may also result in an impairment of our goodwill and intangible assets. Because
our Government contracts generally require us to continue to perform even if the U.S. Government is unable to make timely
payments; if the debt ceiling is not raised, and, as a result, the U.S. Government does not pay us on a timely basis, we would need
to finance our continued performance of the impacted contracts from our available cash resources, credit facilities and/or access to
the capital markets, if available. An extended delay in the timely payment by the U.S. Government could result in a material
adverse effect on our cash flows, earnings 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. In the event of termination for the U.S. Government’s convenience,
contractors are generally protected by provisions covering reimbursement for costs incurred on the contracts and profit on those
costs but not the anticipated profit that would have been earned had the contract been completed. A termination arising out of our
default for failure to perform could expose us to liability, including but not limited to, liability for re-procurement costs in excess