10-K FY 2022 FINAL MOOG Inc - Flipbook - Page 12
Table of Contents
MARKET CONDITION RISKS
The markets we serve are cyclical and sensitive to domestic and foreign economic conditions and events,
which may cause our operating results to fluctuate. The markets we serve are sensitive to fluctuations in general
business cycles, global pandemics, domestic and foreign governmental tariffs, trade and monetary policies and
economic conditions and events, and are facing varying levels of pressure from the COVID-19 pandemic. The
COVID-19 pandemic drastically reduced air traffic as travel restrictions and social distancing measures were
implemented to help control the spread of the virus. While U.S. domestic air travel has recovered, international travel
utilizing wide-body aircraft will take longer to fully recover. Furthermore, as companies and employees become
accustomed to working remotely, business travel and the associated flight hours may not reach the pre-pandemic
levels. As such, we believe The Boeing Company, or Boeing, and Airbus may continue to directionally match their
wide-body aircraft production rates with the reduced, albeit recovering, air traffic volume, which has lowered their
demand for our flight control systems. Other factors influencing our business, including our defense and our space
programs, are largely contingent on U.S. Department of Defense investment funding, which can fluctuate. Our
industrial product demand depends upon several factors including levels of capital investment, the pace of product
innovations and technology upgrades, changing economic conditions and the current and forecasted price of oil and
natural gas. If the COVID-19 pandemic and related economic uncertainties deteriorate, our operations could be
negatively impacted through declines in our sales, profitability and cash flows as a result of lower orders, payment
delays and price pressures for our products.
We depend heavily on government contracts that may not be fully funded or may be terminated, and the
failure to receive funding or the termination of one or more of these contracts could reduce our sales and
increase our costs. Sales to the U.S. Government and its prime contractors and subcontractors represent a
significant portion of our business. In 2022, sales under U.S. Government contracts represented 42% of our total
sales, primarily within Aircraft Controls and Space and Defense Controls. Sales to foreign governments represented
8% of our total sales. Funding for government programs can be structured into a series of individual contracts and
depend on cyclical annual congressional appropriations. At times when there are perceived threats to national
security, U.S. Defense spending can increase; at other times, defense spending can decrease. Future levels of
defense spending are uncertain and subject to congressional debate and spending prioritization. Any reduction in
future Department of Defense spending levels could adversely impact our sales, operating profit and our cash flow.
We have resources applied to specific government contracts and if any of those contracts are rescheduled or
terminated, we may incur substantial costs redeploying those resources.
The loss of The Boeing Company or Lockheed Martin as a customer or a significant reduction in sales to
either company could adversely impact our operating results. We provide Boeing with controls for both military
and commercial applications, as well as controls for space and defense applications, which totaled 11% of our 2022
sales. We provide Lockheed Martin similar products for military, space and defense applications, which totaled 9% of
our 2022 sales. Sales to Boeing's commercial airplane group are generally made under long-term supply agreements.
Boeing operates in a competitive environment and continues to evaluate the size, scope and cost of their supplier
base. Also, Boeing continues to match their commercial production rates to the resized global air traffic volume due to
the residual impacts of the COVID-19 pandemic. As a portion of our sales to Boeing and Lockheed Martin is tied to
varying levels of government defense spending, a reduction in future Department of Defense spending levels could
adversely impact our sales, operating profit and cash flow. Furthermore, a loss of Boeing or Lockheed Martin as a
customer could reduce our sales and earnings.
We may not realize the full amounts reflected in our backlog as revenue, which could adversely affect our
future revenue and growth prospects. As of October 1, 2022, our total backlog was $5.2 billion, which represents
confirmed orders we believe will be recognized as revenue. There is no assurance that our customers will purchase
all the orders represented in our backlog. A significant portion of our backlog relates to commercial aircraft programs.
We believe Boeing and Airbus will continue to directionally match their wide-body aircraft production rates with the
resized international air traffic volume in response to the COVID-19 impacts, which have lowered their demand for our
flight control systems and may cause us to never realize the full amounts included in our commercial backlog. Also,
given the uncertain nature of our contracts with the U.S. Government and other foreign governments, in part due to
governments' abilities to modify, curtail or terminate major programs, we may not realize the full revenue value of the
orders included in our backlog. If this occurs, our future revenue and growth prospects may be adversely affected.
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