E-Z-GO 2012 Annual Report Download - page 26

14 Textron Inc. Annual Report ● 2012
business. The inability to enforce these intellectual property rights may have an adverse effect on our results of operations.
Additionally, our intellectual property could be at risk due to various cyber threats.
Certain of our products are subject to laws regulating consumer products and could be subject to repurchase or recall as a
result of safety issues.
As a distributor of consumer products in the U.S., certain of our products also are subject to the Consumer Product Safety Act,
which empowers the U.S. Consumer Product Safety Commission (CPSC) to exclude from the market products that are found to be
unsafe or hazardous. Under certain circumstances, the CPSC could require us to repair, replace or refund the purchase price of one
or more of our products, or potentially even discontinue entire product lines, or we may voluntarily do so, but within strictures
recommended by the CPSC. The CPSC also can impose fines or penalties on a manufacturer for non-compliance with its
requirements. Furthermore, failure to timely notify the CPSC of a potential safety hazard can result in significant fines being
assessed against us. Any repurchases or recalls of our products or an imposition of fines or penalties could be costly to us and
could damage the reputation or the value of our brands. Additionally, laws regulating certain consumer products exist in some
states, as well as in other countries in which we sell our products, and more restrictive laws and regulations may be adopted in the
future.
The increasing costs of certain employee and retiree benefits could adversely affect our results.
Our earnings and cash flow may be adversely impacted by the amount of income or expense we expend or record for employee
benefit plans. This is particularly true for our defined benefit pension plans, where required contributions to those plans and related
expenses are driven by, among other things, our assumptions of the expected long-term rate of return on plan assets, the discount
rate used for future payment obligations and the rates of future cost growth. Additionally, as part of our annual evaluation of these
plans, significant changes in our assumptions, due to changes in economic, legislative and/or demographic experience or
circumstances, or changes in our actual investment returns could negatively impact the funded status of our plans requiring us to
substantially increase our pension liability with a resulting decrease in shareholders’ equity. Changes in the funded status of
defined benefit pension plans are recognized in other comprehensive income (loss) in the year in which they occur. Also, changes
in pension legislation and regulations could increase the cost associated with our defined benefit pension plans.
In addition, medical costs are rising at a rate faster than the general inflation rate. Continued medical cost inflation in excess of the
general inflation rate would increase the risk that we will not be able to mitigate the rising costs of medical benefits. Moreover, we
expect that some of the requirements of the new comprehensive healthcare law will increase our future costs. Increases to the costs
of pension and medical benefits could have an adverse effect on our results of operations.
Our business could be adversely affected by strikes or work stoppages and other labor issues.
Approximately 6,400 of our U.S. employees, or 26% of our total U.S. employees, are unionized, and approximately 2,800 of our
non-U.S. employees, or 33% of our total non-U.S. employees, are represented by organized councils. As a result, we may
experience work stoppages, which could negatively impact our ability to manufacture our products on a timely basis, resulting in
strain on our relationships with our customers and a loss of revenues. The presence of unions also may limit our flexibility in
responding to competitive pressures in the marketplace. In addition, the workforces of many of our suppliers and customers are
represented by labor unions. Work stoppages or strikes at the plants of our key suppliers could disrupt our manufacturing
processes; similar actions at the plants of our customers could result in delayed or canceled orders for our products. Any of these
events could adversely affect our results of operations.
Currency, raw material price and interest rate fluctuations may adversely affect our results.
We are exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates, raw material
prices and interest rates. In particular, the uncertainty with respect to the ability of certain European countries to continue to
service their sovereign debt obligations and the related European financial restructuring efforts may cause the value of the euro to
fluctuate. Currency variations also contribute to variations in sales of products and services in impacted jurisdictions. For example,
in the event that one or more European countries were to replace the euro with another currency, our sales into such countries, or
into Europe generally, would likely be adversely affected until stable exchange rates are established. Accordingly, fluctuations in
foreign currency rates could adversely affect our profitability in future periods. We monitor and manage these exposures as an
integral part of our overall risk management program. In some cases, we purchase derivatives or enter into contracts to insulate our
results of operations from these fluctuations. Nevertheless, changes in currency exchange rates, raw material prices and interest
rates can have substantial adverse effects on our results of operations.
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. However, if we are unable to
effectively mitigate future pricing pressures through technological advances or by lowering our cost base through improved
operating and supply chain efficiencies, our results of operations could be adversely affected.