10-K FY 2022 FINAL MOOG Inc - Flipbook - Page 13
Table of Contents
OPERATIONAL RISKS
A reduced supply, as well as inflated prices, across various raw materials and third-party provided
components and sub-assemblies within our supply chain could have a material impact on our ability to
manufacture and ship our products, in addition to adversely impacting our operating profit and balance
sheet. Constraints in our supply chain, due both to worldwide demand for electronics and components across several
end markets and the continued impacts of the COVID-19 pandemic, has affected our business. We are occasionally
experiencing shortages and delays in materials and components necessary in our manufacturing processes,
preventing us from completing and shipping our final products on time. As a result of these interruptions and long lead
times that we expect to continue, we are selectively purchasing, in advance, certain raw materials and third-party
provided components and sub-assemblies that we are concerned might otherwise be delayed. Additionally, the prices
for materials and components used in our products has increased, adding additional pressures to our operating
margins. We may be unable to raise our prices for our products equal to the rate of inflation, and if our constrained
supply chain continues, our operating profit and balance sheet may be negatively impacted.
We face various risks related to health pandemics, such as the COVID-19 pandemic, which have had material
adverse consequences on our operations, financial position, cash flows, and those of our customers and
suppliers. The spread of the COVID-19 pandemic, and the associated pandemic-related responses, disrupted
businesses on a global scale, led to significant volatility in financial markets and affected the aviation and industrial
industries. As a result, we experienced, and may continue to experience, lower levels of customer demand for our
products, particularly in our commercial aircraft market. To-date, substantially all of our operations and production
activities have remained operational. However, the impacts of the pandemic have placed labor and supply chain
pressures on our business and we have been impacted by localized lockdowns. While our backlog continues to grow
across our end markets as economic activity recovers, ongoing COVID-19 disruptions continue to challenge our
business. We will continue to monitor the situation, assessing further possible implications on our operations, labor
force, supply chain, liquidity, cash flow and customer orders, and will continue taking actions in an effort to mitigate
adverse consequences.
If our subcontractors or suppliers fail to perform their contractual obligations, our prime contract
performance and our ability to obtain future business could be materially and adversely impacted. With
respect to many of our contracts, we rely on other companies to perform portions of the manufacturing process of our
products. While we actively manage our supply chain establishing alternate sources, some business conditions cause
us to obtain certain components and sub-assemblies from a single supplier or a limited group of suppliers. There are
risks that we may have disputes with our subcontractors regarding the quality and timeliness of work performed by the
subcontractor, customer concerns about the subcontractor, our failure to extend existing task orders or issue new task
orders under a subcontract or our hiring of personnel of a subcontractor. Failure by our sole-sourced or group of
subcontractors to satisfactorily provide on a timely basis the agreed-upon, defect-free supplies, or perform the agreedupon services, may materially and adversely impact our ability to perform our obligations as the prime contractor.
Subcontractor performance deficiencies could result in a customer terminating our contract for default, which could
expose us to liability and substantially impair our ability to compete for future orders.
We face, and may continue to face risks related to information systems interruptions, intrusions and or new
software implementations, which may adversely affect our business operations. We rely extensively on various
information technologies throughout our company supporting nearly every business activity. In doing so, we work with
sensitive data types including proprietary business information, intellectual property and confidential employee data.
Handling and storage of this data, either onsite or managed by authorized third parties, may be subject to privacy,
security, or other regulatory requirements. Business operations face risks, and may continue to face risks, due to
information system errors, equipment failures, or ever-evolving cyber-attacks. Unauthorized access or tampering via
cybersecurity incidents may result in potential data corruption, exposure of proprietary or confidential information and
work stoppages. Our vulnerability to cybersecurity risks may have also increased after adopting a hybrid working
policy in response to the COVID-19 pandemic, empowering employees to work productively outside of the office when
appropriate. Additionally, we have and expect to incur additional costs to comply with our customers' increased
cybersecurity protections and standards, including those of the U.S. Government. We have embarked on multi-year
business information system transformation and standardization projects. These endeavors are complex and
company-wide, involving new technologies and may introduce risk to our cybersecurity infrastructure. While we are
investing significant resources throughout the planning, project managing and deployment processes, unanticipated
delays could occur and could adversely affect our financial results. Any of these cybersecurity issues may cause
operational stoppages, increased operational costs, fines, penalties and diminished competitive advantages through
reputational damages.
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