UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December ~~31, 2016~~30, 2017

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _________

Commission File Number: 1-05129

INC.

(Exact name of registrant as specified in its charter)



New York State	16-0757636
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
East Aurora, New York	14052-0018
(Address of principal executive offices)	(Zip Code)
(716) 652-2000
(Telephone number including area code)

Former name, former address and former fiscal year, if changed since last report.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, ~~or a~~ smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer” and~~filer,” “smaller reporting ~~company”~~company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if smaller reporting company)Smaller reporting company¨Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for the complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No ý

The number of shares outstanding of each class of common stock as of January 23, ~~2017~~2018 was:

Class A common stock, $1.00 par value, ~~32,236,629~~32,397,457 shares

Class B common stock, $1.00 par value, ~~3,634,435~~3,380,636 shares

Moog Inc.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS





PART I	FINANCIAL INFORMATION		PAGE

	Item 1	Financial Statements:

		Consolidated Condensed Statements of Earnings for the Three Months Ended December ~~31, 2016~~30, 2017 and ~~January 2,~~December 31, 2016	3

		Consolidated Condensed Statements of Comprehensive Income (Loss) for the Three Months Ended December ~~31, 2016~~30, 2017 and ~~January 2,~~December 31, 2016	4

		Consolidated Condensed Balance Sheets as of December ~~31, 2016~~30, 2017 and ~~October 1, 2016~~September 30, 2017	5

		Consolidated Condensed Statements of Shareholders' Equity as of December ~~31, 2016~~30, 2017 and ~~October 1, 2016~~September 30, 2017	6

		Consolidated Condensed Statements of Cash Flows for the Three Months Ended December ~~31, 2016~~30, 2017 and ~~January 2,~~December 31, 2016	7

		Notes to Consolidated Condensed Financial Statements	8

	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

	Item 3	Quantitative and Qualitative Disclosures about Market Risk	35

	Item 4	Controls and Procedures	35


PART II	OTHER INFORMATION

	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	36

	Item 6	Exhibits	37

SIGNATURES			38

Table of Contents

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Moog Inc.

Consolidated Condensed Statements of Earnings

(Unaudited)


	Three Months Ended						Three Months Ended
(dollars in thousands, except per share data)	December 31, 2016			January 2, 2016			December 30, 2017			December 31, 2016
Net sales	$	589,670		$	568,457		$	627,535		$	589,670
Cost of sales	417,164			406,997			443,426			417,164
Gross profit	172,506			161,460			184,109			172,506
Research and development	34,564			34,798			32,420			34,564
Selling, general and administrative	85,063			82,994			95,950			85,063
Interest	8,486			8,322			8,646			8,486
Other	7,905			(309		)	(741		)	7,905
Earnings before income taxes	36,488			35,655			47,834			36,488
Income taxes	6,430			9,495			46,535			6,430
Net earnings attributable to Moog and noncontrolling interest	30,058			26,160			1,299			30,058

Net earnings (loss) attributable to noncontrolling interest	(506		)	(81		)	—			(506		)

Net earnings attributable to Moog	$	30,564		$	26,241		$	1,299		$	30,564

Net earnings per share attributable to Moog
Basic	$	0.85		$	0.71		$	0.04		$	0.85
Diluted	$	0.84		$	0.71		$	0.04		$	0.84

Average common shares outstanding
Basic	35,869,052			36,713,949			35,772,406			35,869,052
Diluted	36,272,767			37,028,331			36,201,054			36,272,767
See accompanying Notes to Consolidated Condensed Financial Statements.

Table of Contents

Moog Inc.

Consolidated Condensed Statements of Comprehensive Income (Loss)

(Unaudited)


	Three Months Ended						Three Months Ended
(dollars in thousands)	December 31, 2016			January 2, 2016			December 30, 2017		December 31, 2016
Net earnings attributable to Moog and noncontrolling interest	$	30,058		$	26,160		$	1,299	$	30,058
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	(41,509		)	(23,199		)	10,364		(41,509		)
Retirement liability adjustment	8,572			5,332			4,256		8,572
Change in accumulated income (loss) on derivatives	574			438			1,234		574
Other comprehensive income (loss), net of tax	(32,363		)	(17,429		)	15,854		(32,363		)
Comprehensive income (loss)	(2,305		)	8,731			17,153		(2,305		)
Comprehensive income (loss) attributable to noncontrolling interest	(506		)	(81		)	—		(506		)
Comprehensive income (loss) attributable to Moog	$	(1,799	)	$	8,812		$	17,153	$	(1,799	)
See accompanying Notes to Consolidated Condensed Financial Statements.

Table of Contents

Moog Inc.

Consolidated Condensed Balance Sheets

(Unaudited)


(dollars in thousands)	December 31, 2016			October 1, 2016			December 30, 2017			September 30, 2017
ASSETS
Current assets
Cash and cash equivalents	$	331,664		$	325,128		$	394,980		$	368,073
Receivables	677,841			688,388			739,731			727,740
Inventories	464,402			479,040			511,653			489,127
Prepaid expenses and other current assets	39,659			34,688			38,800			41,499
Total current assets	1,513,566			1,527,244			1,685,164			1,626,439
Property, plant and equipment, net of accumulated depreciation of $726,615 and $725,809, respectively	508,656			522,369
Property, plant and equipment, net of accumulated depreciation of $791,388 and $771,160, respectively							527,356			522,991
Goodwill	730,271			740,162			776,156			774,268
Intangible assets, net	104,940			113,560			104,914			108,818
Deferred income taxes	69,039			75,800			11,395			26,558
Other assets	26,707			25,839			33,510			31,518
Total assets	$	2,953,179		$	3,004,974		$	3,138,495		$	3,090,592
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term borrowings	$	1,366		$	1,379		$	89		$	89
Current installments of long-term debt	144			167			259			295
Accounts payable	148,253			144,450			156,967			170,878
Accrued salaries, wages and commissions	115,081			126,319
Accrued compensation							122,763			148,406
Customer advances	171,530			167,514			179,598			159,274
Contract loss reserves	30,045			32,543			41,786			43,214
Other accrued liabilities	99,843			116,577			112,072			107,278
Total current liabilities	566,262			588,949			613,534			629,434
Long-term debt, excluding current installments	1,000,338			1,004,847			962,006			956,653
Long-term pension and retirement obligations	385,962			401,747			260,741			271,272
Deferred income taxes	10,157			11,026			40,782			13,320
Other long-term liabilities	4,454			4,343			33,483			5,609
Total liabilities	1,967,173			2,010,912			1,910,546			1,876,288
Commitments and contingencies (Note 17)	—			—
Redeemable noncontrolling interest	5,145			5,651
Commitments and contingencies (Note 18)							—			—
Shareholders’ equity
Common stock - Class A	43,688			43,667			43,716			43,704
Common stock - Class B	7,592			7,613			7,564			7,576
Additional paid-in capital	469,971			465,762			498,699			492,246
Retained earnings	1,737,103			1,706,539			1,849,118			1,847,819
Treasury shares	(740,838		)	(741,700		)	(739,210		)	(739,157		)
Stock Employee Compensation Trust	(59,307		)	(49,463		)	(98,990		)	(89,919		)
Supplemental Retirement Plan Trust	(9,924		)	(8,946		)	(13,311		)	(12,474		)
Accumulated other comprehensive loss	(467,424		)	(435,061		)	(319,637		)	(335,491		)
Total Moog shareholders’ equity	980,861			988,411			1,227,949			1,214,304
Total liabilities and shareholders’ equity	$	2,953,179		$	3,004,974		$	3,138,495		$	3,090,592
See accompanying Notes to Consolidated Condensed Financial Statements.

Table of Contents

Moog Inc.

Consolidated Condensed Statements of Shareholders' Equity

(Unaudited)


				Number of Shares							Number of Shares
(dollars in thousands, except per share data)	Amount			Class A Common Stock		Class B Common Stock		Amount			Class A Common Stock		Class B Common Stock
COMMON STOCK
Beginning of period	$	51,280		43,666,801		7,612,912		$	51,280		43,704,286		7,575,427
Conversion of Class B to Class A	—			20,917		(20,917	)	—			11,300		(11,300	)
End of period	51,280			43,687,718		7,591,995		51,280			43,715,586		7,564,127
ADDITIONAL PAID-IN CAPITAL
Beginning of period	465,762							492,246
Issuance of treasury shares	(3,941		)					(1,633		)
Equity-based compensation expense	2,168							2,001
Adjustment to market - SECT, SERP and other	5,982							6,085
End of period	469,971							498,699
RETAINED EARNINGS
Beginning of period	1,706,539							1,847,819
Net earnings attributable to Moog	30,564							1,299
End of period	1,737,103							1,849,118
TREASURY SHARES AT COST
Beginning of period	(741,700		)	(11,110,087	)	(3,323,926	)	(739,157		)	(10,933,003	)	(3,333,927	)
Class A and B shares issued related to equity awards	6,076			146,784		6,696		2,681			64,486		5,878
Class A and B shares purchased	(5,214		)	(62,638	)	(15,412	)	(2,734		)	(33,020	)	(15	)
End of period	(740,838		)	(11,025,941	)	(3,332,642	)	(739,210		)	(10,901,537	)	(3,328,064	)
STOCK EMPLOYEE COMPENSATION TRUST (SECT)
Beginning of period	(49,463		)	(425,148	)	(404,919	)	(89,919		)	(425,148	)	(654,753	)
Issuance of shares	867			—		15,000
Purchase of shares	(5,709		)	—		(84,441	)	(3,823		)	—		(44,662	)
Adjustment to market	(5,002		)	—		—		(5,248		)	—		—
End of period	(59,307		)	(425,148	)	(474,360	)	(98,990		)	(425,148	)	(699,415	)
SUPPLEMENTAL RETIREMENT PLAN (SERP) TRUST
Beginning of period	(8,946		)			(150,000	)	(12,474		)			(150,000	)
Adjustment to market	(978		)			—		(837		)			—
End of period	(9,924		)			(150,000	)	(13,311		)			(150,000	)
ACCUMULATED OTHER COMPREHENSIVE LOSS
Beginning of period	(435,061		)					(335,491		)
Other comprehensive income (loss)	(32,363		)					15,854
End of period	(467,424		)					(319,637		)
TOTAL MOOG SHAREHOLDERS’ EQUITY	$	980,861		32,236,629		3,634,993		$	1,227,949		32,388,901		3,386,648
REDEEMABLE NONCONTROLLING INTEREST
Beginning of period	$	5,651
Net loss attributable to redeemable noncontrolling interest	(506		)
End of period	$	5,145

Table of Contents

Moog Inc.

Consolidated Condensed Statements of Cash Flows

(Unaudited)


	Three Months Ended						Three Months Ended
(dollars in thousands)	December 31, 2016			January 2, 2016			December 30, 2017			December 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings attributable to Moog and noncontrolling interest	$	30,058		$	26,160		$	1,299		$	30,058
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
Depreciation	17,918			19,208			17,487			17,918
Amortization	4,541			5,877			4,674			4,541
Deferred income taxes	1,371			3,532			37,617			1,371
Equity-based compensation expense	2,168			936			2,001			2,168
Other	9,868			804			1,563			9,868
Changes in assets and liabilities providing (using) cash:
Receivables	(11,012		)	5,221			(10,350		)	(11,012		)
Inventories	6,996			(11,131		)	(22,236		)	6,996
Accounts payable	6,737			(22,522		)	(14,393		)	6,737
Customer advances	8,287			(498		)	19,888			8,287
Accrued expenses	(17,479		)	(17,114		)	(27,233		)	(17,479		)
Accrued income taxes	(8,885		)	(2,685		)	6,965			(8,885		)
Net pension and post retirement liabilities	(1,295		)	(5,709		)	(4,562		)	(1,295		)
Other assets and liabilities	1,309			(2,534		)	31,450			1,309
Net cash provided (used) by operating activities	50,582			(455		)
Net cash provided by operating activities							44,170			50,582
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses, net of cash acquired	—			(11,016		)
Purchase of property, plant and equipment	(14,849		)	(12,305		)	(21,084		)	(14,849		)
Other investing transactions	(976		)	1,021			(537		)	(976		)
Net cash (used) by investing activities	(15,825		)	(22,300		)	(21,621		)	(15,825		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving lines of credit	62,400			148,605			103,500			62,400
Payments on revolving lines of credit	(67,400		)	(93,605		)	(108,610		)	(67,400		)
Proceeds from long-term debt							10,000			—
Payments on long-term debt	(50		)	(9,540		)	(44		)	(50		)
Proceeds from sale of treasury stock	2,135			2,230			1,048			2,135
Purchase of outstanding shares for treasury	(5,211		)	(3,034		)	(2,734		)	(5,211		)
Proceeds from sale of stock held by SECT	867			—			—			867
Purchase of stock held by SECT	(5,709		)	(1,020		)	(3,823		)	(5,709		)
Excess tax benefits from equity-based payment arrangements	—			580
Net cash provided (used) by financing activities	(12,968		)	44,216
Net cash (used) by financing activities							(663		)	(12,968		)
Effect of exchange rate changes on cash	(15,253		)	(7,996		)	5,021			(15,253		)
Increase in cash and cash equivalents	6,536			13,465			26,907			6,536
Cash and cash equivalents at beginning of period	325,128			309,853			368,073			325,128
Cash and cash equivalents at end of period	$	331,664		$	323,318		$	394,980		$	331,664
See accompanying Notes to Consolidated Condensed Financial Statements.

Table of Contents

Moog Inc.

Notes to Consolidated Condensed Financial Statements

Three Months Ended December ~~31, 2016~~30, 2017

(Unaudited)

(dollars in thousands, except per share data)

Note 1 - Basis of Presentation

The accompanying unaudited consolidated condensed financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting of normal recurring adjustments considered necessary for the fair presentation of results for the interim period have been included. The results of operations for the three months ended December ~~31, 2016~~30, 2017 are not necessarily indicative of the results expected for the full year. The accompanying unaudited consolidated condensed financial statements should be read in conjunction with the financial statements and notes thereto included in our Form 10-K for the fiscal year ended ~~October 1, 2016.~~September 30, 2017. All references to years in these financial statements are to fiscal years.

Certain prior year amounts have been reclassified to conform to current year's presentation. ~~Refer to the table below for a summary of ASUs we have adopted during 2017 and the related financial statement impact.~~ During ~~2016,~~2018, we made a change to our segment reporting ~~to include Medical Devices within~~structure and merged our former Components segment ~~and Linear within~~into Space and Defense ~~Controls.~~Controls and Industrial Systems. The Goodwill and Segment ~~footnote has~~footnotes have been restated to reflect these changes.

~~Recent Accounting Pronouncements Adopted~~



~~Standard~~	~~Description~~	~~Financial Statement Effect or Other Significant Matters~~
~~ASU no. 2015-03~~ ~~Presentation of Debt Issuance Costs~~ ~~(And All Related ASUs)~~	This standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The provisions of this standard and all subsequently issued guidance are effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. Early adoption is permitted and retrospective application is required.	We adopted this standard on a retrospective basis, resulting in the reclassification of $5,457 of debt issuance costs as of October 1, 2016 previously reported as Other Assets in our balance sheet to Long Term Debt, excluding current installments.
		~~Date adopted:~~ ~~Q1 2017~~
~~ASU no. 2015-17~~ ~~Balance Sheet Classification of Deferred Taxes~~	The standard amends existing guidance to require presentation of deferred tax assets and liabilities as noncurrent within the balance sheet. The provisions of the standard are effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted and may be applied either prospectively or retrospectively.	We adopted this standard on a retrospective basis, resulting in the reclassification of a net $92,620 of previously reported current deferred income tax assets and liabilities as of October 1, 2016 to the appropriate long term deferred income tax classification based upon the net tax position within each of our relevant taxing jurisdictions.
		~~Date early adopted:~~ ~~Q1 2017~~
~~ASU no. 2016-09~~ ~~Improvements to Employee Shared Based Payment Accounting~~	This standard simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, statement of cash flows classifications, share repurchases relating to tax withholdings and forfeiture accounting. The provisions of this standard are effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years.	We adopted this standard on a prospective basis and as a result prior periods have not been adjusted. Going forward, recognized excess tax benefits previously reported as part of additional paid-in capital in our balance sheet will be included as part of income tax expense in our income statement. Additionally, cash flow relating to these excess tax benefits previously reported as a financing activity will be included as an operating activity.
		~~Date early adopted:~~ ~~Q1 2017~~

Table of Contents

Recent Accounting Pronouncements Not Yet Adopted



Standard	Description	Financial Statement Effect or Other Significant Matters
ASU no. 2014-09 Revenue from Contracts with Customers (And All Related ASUs)	The standard requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer ~~contracts, including significant judgments and assets recognized from costs incurred to obtain or fulfill a contract.~~contracts. The provisions of the standard, as well as all subsequently issued clarifications to the standard, are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The standard can be adopted using either a full retrospective or modified retrospective approach.	We plan to adopt the standard using the modified retrospective method, under which prior years' results are ~~currently evaluating~~not restated, but supplemental information will be provided in our disclosures that will present fiscal 2019 results before adoption of the ~~alternative methods~~standard. In addition, a cumulative adjustment will be necessary to Shareholder's Equity at the beginning of ~~adoption~~fiscal 2019. We are assessing the impact of the standard on our financial statements and related disclosures, internal controls and financial policies and information technology systems. We have not yet quantified the ~~effect~~impact on our financial statements and related disclosures.
		Planned date of adoption: Q1 2019
ASU no. 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities	The standard requires most equity investments to be measured at fair value, with subsequent changes in fair value recognized in net income. The amendment also impacts the measurement of financial liabilities under the fair value option as well as certain presentation and disclosure requirements for financial instruments. The provisions of the standard are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted for some, but not all, provisions. The amendment requires certain provisions to be applied prospectively and others to be applied by means of a cumulative-effect adjustment.	We are currently evaluating the effect on our financial statements and related disclosures.
		Planned date of adoption: Q1 2019
ASU no. 2016-02 Leases (And All Related ASUs)	The standard requires most lease arrangements to be recognized in the balance sheet as lease assets and lease liabilities. The standard also requires additional disclosures about the leasing arrangements. The provisions of the standard are effective for fiscal years beginning after December 15, 2018 and interim periods within those years. Early adoption is permitted.	We are currently evaluating the effect on our financial statements and related disclosures.
		Planned date of adoption: Q1 2020
ASU no. 2017-07 Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost	The standard amends existing guidance on the presentation of net periodic benefit cost in the income statement and what qualifies for capitalization on the balance sheet. The provisions of the standard are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual period. The amendment requires income statement presentation provisions to be applied retrospectively and capitalization in assets provisions to be applied prospectively.	We are currently evaluating the effect on our financial statements and related disclosures.
		Planned date of adoption: Q1 2019
ASU no. 2017-12 Targeted Improvements to Accounting for Hedging Activities	The standard expands the hedging strategies eligible for hedge accounting, while simplifying presentation and disclosure by eliminating separate measurement and reporting of hedge ineffectiveness. The provisions of the standard are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted.	We are currently evaluating the effect on our financial statements and related disclosures.
		Planned date of adoption: Q1 2020

We consider the applicability and impact of all ASUs. ASUs not listed above were assessed and determined to be either not applicable, or had or are expected to have minimal impact on our financial statements and related disclosures.

Table of Contents

Note 2 - ~~Acquisition, Divestiture~~Acquisitions, Divestitures and ~~Assets Held~~Equity Method Investments

On October 3, 2017, we, in collaboration with SIA Engineering Company, announced the joint venture company, Moog Aircraft Services Asia ("MASA"), in Singapore, of which we currently hold a 51% ownership. MASA is intended to provide maintenance, repair and overhaul services for ~~Sale~~

~~In 2016,~~our manufactured flight control systems. As we ~~acquired~~hold a ~~70%~~majority ownership in ~~Linear Mold~~MASA, but share voting control, we are accounting for this investment using the equity method. At December 30, 2017, we have made total contributions of $1,541 to MASA and ~~Engineering, a Livonia, Michigan-based company specializing in metal additive manufacturing that provides engineering, manufacturing and production consulting services~~intend to customers across a wide range of industries, including aerospace, defense, energy and industrial. The purchase price, net of acquired cash, was $22,765 consisting of $11,016 in cash, issuance of a $1,280 unsecured note and assumption of $10,469 of debt. The acquisition also includes a redeemable noncontrolling interest in the remaining 30%.make two additional contributions during 2018. This ~~acquisition~~operation is included in our ~~Space and Defense~~Aircraft Controls segment. ~~On January 25, 2017, we acquired the remaining 30% redeemable noncontrolling interest for $1,656 in cash, which will also be reflected in additional paid-in capital.~~

In 2017, we ~~recorded losses in other expense of $8,936 related to selling the European space~~sold non-core businesses of our Space and Defense Controls ~~segment. We received $1,307~~segment for $7,210 in cash and ~~reclassified $7,213~~recorded losses in other ~~current assets~~expense of $13,119 related to the sales.

On April 2, 2017, we acquired Rotary Transfer Systems, a manufacturer of electromechanical systems, located in Germany and ~~$2,751~~France for a purchase price, net of acquired cash, of $42,593, consisting of $40,545 in ~~other current liabilities~~cash and $2,048 in assumed pension obligations. This operation is included in our Industrial Systems segment. The purchase price allocation is subject to adjustments as ~~held~~we obtain additional information for ~~sale. We expect~~our estimates during the ~~sale of the held for sale portion of these businesses to be completed during 2017.~~measurement period.

Note 3 - Receivables

Receivables consist of:


	December 31, 2016			October 1, 2016			December 30, 2017			September 30, 2017
Accounts receivable	$	281,728		$	306,469		$	275,939		$	286,773
Long-term contract receivables:
Amounts billed	128,904			130,429			130,452			148,087
Unbilled recoverable costs and accrued profits	260,469			245,376			289,784			282,154
Total long-term contract receivables	389,373			375,805			420,236			430,241
Other	10,924			10,652			48,139			15,077
Total receivables	682,025			692,926			744,314			732,091
Less allowance for doubtful accounts	(4,184		)	(4,538		)	(4,583		)	(4,351		)
Receivables	$	677,841		$	688,388		$	739,731		$	727,740

We securitize certain trade receivables in transactions that are accounted for as secured borrowings (Securitization Program). We maintain a subordinated interest in a portion of the pool of trade receivables that are securitized. The retained interest, which is included in Receivables in the consolidated condensed balance sheets, is recorded at fair value, which approximates the total amount of the designated pool of accounts receivable. Refer to Note 6, Indebtedness, for additional disclosures related to the Securitization Program.

Note 4 - Inventories

Inventories, net of reserves, consist of:


	December 31, 2016		October 1, 2016		December 30, 2017		September 30, 2017
Raw materials and purchased parts	$	169,515	$	174,331	$	201,228	$	189,517
Work in progress	231,193		235,258		239,875		229,202
Finished goods	63,694		69,451		70,550		70,408
Inventories	$	464,402	$	479,040	$	511,653	$	489,127

There are no material inventoried costs relating to long-term contracts where revenue is accounted for using the percentage of completion, cost-to-cost method of accounting as of December ~~31, 2016~~30, 2017 or ~~October 1, 2016.~~September 30, 2017.

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Note 5 - Goodwill and Intangible Assets

The changes in the carrying amount of goodwill are as follows:

Aircraft
Controls Space and
Defense
Controls Industrial
Systems Components Total
Balance at October 1, 2016 $ 179,694
$ 174,514
$ 106,318
$ 279,636
$ 740,162
Divestiture and held for sale —
(1,012 ) —
—
(1,012 )
Foreign currency translation (2,618 ) (510 ) (3,934 ) (1,817 ) (8,879 )
Balance at December 31, 2016 $ 177,076
$ 172,992
$ 102,384
$ 277,819
$ 730,271



	Aircraft Controls		Space and Defense Controls		Industrial Systems		Total
Balance at September 30, 2017	$	181,375	$	259,951	$	332,942	$	774,268
Foreign currency translation	430		111		1,347		1,888
Balance at December 30, 2017	$	181,805	$	260,062	$	334,289	$	776,156

In 2018, we changed our segment reporting structure as our former Components segment was separated and merged into Space and Defense Controls and Industrial Systems. As a result, the September 30, 2017 balances for those segments were restated to reflect this change. Goodwill for Space and Defense Controls and Industrial Systems increased by $86,995 and $224,194, respectively, than what was previously reported.

Goodwill in our Space and Defense Controls segment is net of a $4,800 accumulated impairment loss at December ~~31, 2016.~~30, 2017.

Goodwill in our Medical Devices reporting unit, included in our ~~Components~~Industrial Systems segment, is net of a $38,200 accumulated impairment loss at December ~~31, 2016.~~30, 2017.

The components of intangible assets are as follows:


		December 31, 2016					October 1, 2016						December 30, 2017					September 30, 2017
	Weighted- Average Life (years)	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization			Weighted- Average Life (years)	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Customer-related	11	$	160,092	$	(115,978	)	$	165,445	$	(117,434	)	11	$	177,239	$	(131,433	)	$	175,872	$	(128,019	)
Technology-related	9	68,014		(51,380		)	70,277		(52,060		)	9	72,215		(56,018		)	71,924		(55,069		)
Program-related	19	62,152		(25,754		)	64,774		(26,018		)	19	66,889		(31,876		)	66,458		(30,675		)
Marketing-related	9	24,462		(17,725		)	25,031		(17,649		)	9	26,659		(19,727		)	26,552		(19,251		)
Other	10	3,977		(2,920		)	4,269		(3,075		)	10	4,445		(3,479		)	4,379		(3,353		)
Intangible assets	12	$	318,697	$	(213,757	)	$	329,796	$	(216,236	)	12	$	347,447	$	(242,533	)	$	345,185	$	(236,367	)

Substantially all acquired intangible assets other than goodwill are being amortized. Customer-related intangible assets primarily consist of customer relationships. Technology-related intangible assets primarily consist of technology, patents, intellectual property and software. Program-related intangible assets consist of long-term programs represented by current contracts and probable follow on work. Marketing-related intangible assets primarily consist of trademarks, trade names and non-compete agreements.

Amortization of acquired intangible assets was $4,600 for the three months ended December 30, 2017 and $4,477 for the three months ended December 31, ~~2016 and $5,811 for the three months ended January 2,~~ 2016. Based on acquired intangible assets recorded at December ~~31, 2016,~~30, 2017, amortization is expected to be approximately $18,400 in 2018, $17,300 in ~~2017, $16,300 in 2018, $14,800 in~~ 2019, ~~$12,900~~$15,100 in 2020, $9,400 in 2021 and ~~$7,600~~$7,200 in ~~2021.~~2022.

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Note 6 - Indebtedness

~~Short-term borrowings consist of:~~

December 31,
2016 October 1,
2016
Lines of credit $ 86
$ 99
Other short-term debt 1,280
1,280
Short-term borrowings $ 1,366
$ 1,379

We maintain short-term line of credit facilities with banks throughout the world that are principally demand lines subject to revision by the banks.

Long-term debt consists of:


	December 31, 2016			October 1, 2016			December 30, 2017			September 30, 2017
U.S. revolving credit facility	$	585,000		$	590,000		$	535,000		$	540,110
Senior notes	300,000			300,000			300,000			300,000
Securitization program	120,000			120,000			130,000			120,000
Obligations under capital leases	417			471			263			306
Senior debt	1,005,417			1,010,471			965,263			960,416
Less deferred debt issuance cost	(4,935		)	(5,457		)	(2,998		)	(3,468		)
Less current installments	(144		)	(167		)	(259		)	(295		)
Long-term debt	$	1,000,338		$	1,004,847		$	962,006		$	956,653

Our U.S. revolving credit facility matures on June 28, 2021. Our U.S. revolving credit facility has a capacity of $1,100,000 and provides an expansion option, which permits us to request an increase of up to $200,000 to the credit facility upon satisfaction of certain conditions. The credit facility is secured by substantially all of our U.S. assets. The loan agreement contains various covenants which, among others, specify interest coverage and maximum leverage and capital expenditures. We are in compliance with all covenants.

At December ~~31, 2016,~~30, 2017, we had $300,000 aggregate principal amount of 5.25% senior notes due December 1, 2022 with interest paid semiannually on June 1 and December 1 of each year. The senior notes are unsecured obligations, guaranteed on a senior unsecured basis by certain subsidiaries and contain normal incurrence-based covenants and limitations such as the ability to incur additional indebtedness, pay dividends, make other restricted payments and investments, create liens and certain corporate acts such as mergers and consolidations.

The Securitization Program was extended on October 23, 2017 and now matures on ~~April 13, 2018 and effectively increases our borrowing capacity by~~October 23, 2019. The Securitization Program provides up to ~~$120,000.~~$130,000 of borrowing capacity. Under the Securitization Program, we sell certain trade receivables and related rights to an affiliate, which in turn sells an undivided variable percentage ownership interest in the trade receivables to a financial institution, while maintaining a subordinated interest in a portion of the pool of trade receivables. Interest for the Securitization Program is based on 30-day LIBOR plus an applicable margin. A commitment fee is also charged based on a percentage of the unused amounts available and is not material. The agreement governing the Securitization Program contains restrictions and covenants which include limitations on the making of certain restricted payments, creation of certain liens, and certain corporate acts such as mergers, consolidations and sale of substantially all assets. The Securitization Program has a minimum borrowing requirement equal to the lesser of either 80% of our borrowing capacity or 100% of our borrowing base, which is a subset of the trade receivables sold under this agreement. As of December ~~31, 2016,~~30, 2017, our minimum borrowing requirement was ~~$96,000.~~$104,000.

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Note 7 - Product Warranties

In the ordinary course of business, we warrant our products against defects in design, materials and workmanship typically over periods ranging from twelve to sixty months. We determine warranty reserves needed by product line based on historical experience and current facts and circumstances. Activity in the warranty accrual is summarized as follows:


	Three Months Ended						Three Months Ended
	December 31, 2016			January 2, 2016			December 30, 2017			December 31, 2016
Warranty accrual at beginning of period	$	21,363		$	18,660		$	25,848		$	21,363
Warranties issued during current year	3,414			2,418
Warranties issued during current period							4,757			3,414
Adjustments to pre-existing warranties	(265		)	(134		)	(70		)	(265		)
Reductions for settling warranties	(1,044		)	(1,253		)	(2,915		)	(1,044		)
Foreign currency translation	(585		)	(300		)	128			(585		)
Warranty accrual at end of period	$	22,883		$	19,391		$	27,748		$	22,883

Note 8 - Derivative Financial Instruments

We principally use derivative financial instruments to manage interest rate risk associated with long-term debt and foreign exchange risk related to foreign operations and foreign currency transactions. We enter into derivative financial instruments with a number of major financial institutions to minimize counterparty credit risk.

Derivatives designated as hedging instruments

Interest rate swaps are used to adjust the proportion of total debt that is subject to variable and fixed interest rates. The interest rate swaps are designated as hedges of the amount of future cash flows related to interest payments on variable-rate debt that, in combination with the interest payments on the debt, convert a portion of the variable-rate debt to fixed-rate debt. At December ~~31, 2016,~~30, 2017, we had interest rate swaps with notional amounts totaling ~~$135,000.~~$150,000. The interest rate swaps effectively convert this amount of variable-rate debt to fixed-rate debt at ~~2.47%~~2.62%, including the applicable margin of ~~1.63%~~1.38% as of December ~~31, 2016.~~30, 2017. The interest will revert back to variable rates based on LIBOR plus the applicable margin upon the maturity of the interest rate swaps. These interest rate swaps mature at various times through ~~July 8, 2019.~~June 23, 2020.

We use foreign currency contracts as cash flow hedges to effectively fix the exchange rates on future payments and revenue. To mitigate exposure in movements between various currencies, including the Philippine peso and the British pound, we had outstanding foreign currency forwards with notional amounts of ~~$56,537~~$51,608 at December ~~31, 2016.~~30, 2017. These contracts mature at various times through November 29, ~~2018.~~2019.

These interest rate swaps and foreign currency contracts are recorded in the consolidated condensed balance sheets at fair value and the related gains or losses are deferred in shareholders’ equity as a component of Accumulated Other Comprehensive Income (Loss) (AOCIL). These deferred gains and losses are reclassified into the consolidated condensed statements of earnings during the periods in which the related payments or receipts affect earnings. However, to the extent the interest rate swaps and foreign currency contracts are not perfectly effective in offsetting the change in the value of the payments and revenue being hedged, the ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was not material in the first three months of ~~2017~~2018 or ~~2016.~~2017.

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Derivatives not designated as hedging instruments

We also have foreign currency exposure on balances, primarily intercompany, that are denominated in foreign currencies and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in the consolidated condensed statements of earnings. To minimize foreign currency exposure, we had foreign currency contracts with notional amounts of ~~$121,302~~$107,528 at December ~~31, 2016.~~30, 2017. The foreign currency contracts are recorded in the consolidated condensed balance sheets at fair value and resulting gains or losses are recorded in the consolidated condensed statements of earnings. We recorded the following gains or losses on foreign currency contracts which are included in other income or expense and generally offset the gains or losses from the foreign currency adjustments on the intercompany balances that are also included in other income or expense:

Three Months Ended
December 31,
2016 January 2,
2016
Net gain $ 1,394
$ 890



	Three Months Ended
	December 30, 2017			December 31, 2016
Net gain (loss)	$	(628	)	$	1,394

Summary of derivatives

The fair value and classification of derivatives is summarized as follows:


		December 31, 2016		October 1, 2016			December 30, 2017		September 30, 2017
Derivatives designated as hedging instruments:
Foreign currency contracts	Other current assets	$	280	$	379	Other current assets	$	639	$	551
Foreign currency contracts	Other assets	1		56		Other assets	298		50
Interest rate swaps	Other current assets	387		52		Other current assets	989		552
Interest rate swaps	Other assets	419		69		Other assets	471		314
	Total asset derivatives	$	1,087	$	556	Total asset derivatives	$	2,397	$	1,467
Foreign currency contracts	Other accrued liabilities	$	3,994	$	4,080	Other accrued liabilities	$	601	$	1,434
Foreign currency contracts	Other long-term liabilities	668		448		Other long-term liabilities	—		244
Interest rate swaps	Other accrued liabilities	59		201		Other accrued liabilities	—		10
Interest rate swaps						Other long-term liabilities	—		15
	Total liability derivatives	$	4,721	$	4,729	Total liability derivatives	$	601	$	1,703
Derivatives not designated as hedging instruments:
Foreign currency contracts	Other current assets	$	1,124	$	422	Other current assets	$	314	$	95
Foreign currency contracts	Other accrued liabilities	$	398	$	76	Other accrued liabilities	$	515	$	383

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Note 9 - Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate fair value. The definition of the fair value hierarchy is as follows:

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Observable inputs other than quoted prices in active markets for similar assets and liabilities.

Level 3 – Inputs for which significant valuation assumptions are unobservable in a market and therefore value is based on the best available data, some of which is internally developed and considers risk premiums that a market participant would require.

Our derivatives are valued using various pricing models or discounted cash flow analyses that incorporate observable market data, such as interest rate yield curves and currency rates, and are classified as Level 2 within the valuation hierarchy.

The following table presents the fair values and classification of our financial assets and liabilities measured on a recurring basis, all of which are classified as Level 2.


	Classification	December 31, 2016		October 1, 2016		Classification	December 30, 2017		September 30, 2017
Foreign currency contracts	Other current assets	$	1,404	$	801	Other current assets	$	953	$	646
Foreign currency contracts	Other assets	1		56		Other assets	298		50
Interest rate swaps	Other current assets	387		52		Other current assets	989		552
Interest rate swaps	Other assets	419		69		Other assets	471		314
	Total assets	$	2,211	$	978	Total assets	$	2,711	$	1,562
Foreign currency contracts	Other accrued liabilities	$	4,392	$	4,156	Other accrued liabilities	$	1,116	$	1,817
Foreign currency contracts	Other long-term liabilities	668		448		Other long-term liabilities	—		244
Interest rate swaps	Other accrued liabilities	59		201		Other accrued liabilities	—		10
Interest rate swaps						Other long-term liabilities	—		15
	Total liabilities	$	5,119	$	4,805	Total liabilities	$	1,116	$	2,086

~~The~~Our only financial instrument for which the carrying value ~~of our financial instruments approximate their~~differs from its fair value ~~with the exception of our outstanding senior notes included in~~is long-term debt. At December ~~31, 2016,~~30, 2017, the fair value of long-term debt was ~~$1,010,105~~$974,451 compared to its carrying value of ~~$1,005,417.~~$965,263. The fair value of long-term debt is classified as Level 2 within the fair value hierarchy and was estimated based on quoted market prices.

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Note 10 - Employee Benefit Plans

Net periodic benefit costs for our defined benefit pension plans are as follows:


	Three Months Ended						Three Months Ended
	December 31, 2016			January 2, 2016			December 30, 2017			December 31, 2016
U.S. Plans
Service cost	$	6,022		$	5,909		$	5,634		$	6,022
Interest cost	7,636			9,415			8,073			7,636
Expected return on plan assets	(13,628		)	(12,596		)	(13,576		)	(13,628		)
Amortization of prior service cost (credit)	47			47			47			47
Amortization of actuarial loss	8,419			6,542			6,902			8,419
Pension expense for U.S. defined benefit plans	$	8,496		$	9,317		$	7,080		$	8,496
Non-U.S. Plans
Service cost	$	1,532		$	1,313		$	1,470		$	1,532
Interest cost	751			1,240			1,055			751
Expected return on plan assets	(1,131		)	(1,229		)	(1,243		)	(1,131		)
Amortization of prior service cost (credit)	(27		)	(19		)	(14		)	(27		)
Amortization of actuarial loss	1,120			650			624			1,120
Pension expense for non-U.S. defined benefit plans	$	2,245		$	1,955		$	1,892		$	2,245

Pension expense for ~~the~~our defined contribution plans consists of:


	Three Months Ended				Three Months Ended
	December 31, 2016		January 2, 2016		December 30, 2017		December 31, 2016
U.S. defined contribution plans	$	3,670	$	3,441	$	3,972	$	3,670
Non-U.S. defined contribution plans	1,360		1,638		1,709		1,360
Total pension expense for defined contribution plans	$	5,030	$	5,079	$	5,681	$	5,030

~~Actual~~In 2018, expected contributions for ~~the three months ended December 31, 2016 and anticipated additional 2017 contributions to~~ our U.S. defined benefit pension plans ~~are as follows:~~is approximately $149,000.

U.S. Plans Non-U.S. Plans Total
Actual $ 10,857
$ 1,179
$ 12,036
Anticipated 52,671
6,091
58,762
Total expected contributions $ 63,528
$ 7,270
$ 70,798

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Note 11 - Restructuring

In 2016, we initiated restructuring actions in conjunction with exiting a product line within Aircraft Controls in the U.S. and a facility in the U.K. We have also taken actions as a result of the business outlook in specific markets and locations in Components and Industrial Systems. Those actions have resulted in workforce reductions in Canada, Europe and the U.S. for Components and will result in workforce reductions primarily in Europe for Industrial Systems.

Restructuring activity for severance and other costs ~~by segment and reconciliation to consolidated amounts~~ is as follows:

Aircraft Controls Space and Defense Controls Industrial Systems Components Corporate Total
Balance at October 1, 2016 $ 1,474
$ 665
$ 3,611
$ 369
$ 1,727
$ 7,846
Adjustments to provision —
(44 ) (20 ) —
—
(64 )
Cash payments - 2014 plan —
(125 ) —
—
—
(125 )
Cash payments - 2015 plan (110 ) —
(91 ) —
—
(201 )
Cash payments - 2016 plan (52 ) —
(347 ) (281 ) (86 ) (766 )
Foreign currency translation (58 ) (3 ) (98 ) —
—
(159 )
Balance at December 31, 2016 $ 1,254
$ 493
$ 3,055
$ 88
$ 1,641
$ 6,531



	Total
Balance at September 30, 2017	$	1,168
Cash payments - 2016 plan	(254		)
Balance at December 30, 2017	$	914

~~As of December 31, 2016, the restructuring accrual consists of $433 for the 2014 plan, $421 for the 2015 plan and $5,677 for the 2016 plan.~~ Restructuring ~~for all plans~~ is expected to be paid by ~~September 30, 2017, except portions~~July 1, 2019 and is classified as current or long-term liabilities based on payment arrangements.

Note 12 - Income Taxes

The effective tax ~~rates~~rate for the three months endedDecember ~~31, 2016~~30, 2017 was 97.3%. The effective rate for this period was significantly impacted by the enactment of the Tax Cuts and ~~January 2, 2016~~Jobs Act (the "Act") of 2017.

The Act was enacted on December 22, 2017. It reduces the US federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were ~~17.6%~~previously tax deferred and ~~26.6%, respectively.~~ creates new taxes on certain foreign sourced earnings. As of December 30, 2017, we have not completed the accounting for the tax effects of enactment of the Act; however, as described below, we have made a reasonable estimate of the effects on the one-time transition tax, withholding taxes deemed to be repatriated and existing deferred tax balances. These amounts are provisional and subject to change as the determination of the impact of the income tax effects will require additional analysis of historical records, annual data and further interpretation of the Act from yet to be issued U.S. Treasury regulations.

During the three months ended December 30, 2017 we recorded a $31,000, one-time transition tax on undistributed foreign earnings deemed to be repatriated and a tax charge of $15,250 as an additional provision for withholding taxes on undistributed earnings not considered to be permanently reinvested. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities is not practicable. These charges are partially offset by a $12,225 benefit due to the remeasurement of deferred tax assets and liabilities arising from a lower U.S. corporate tax rate, which took into account our decision to accelerate pension contributions into our 2017 pension plan year. This allows the pension contribution tax deduction to be taken in our 2017 federal income tax return which is taxed at the 35% federal rate.

The effective tax rate for the three months ended December 31, 2016 was 17.6%. The effective tax rate for this period is lower than would be expected by applying the U.S. federal statutory tax rate to earnings before income taxes primarily from ~~the~~ tax benefits associated with selling our European space businesses. The effective tax rate for the three months ended January 2, 2016 is lower than would be expected by applying the U.S. federal statutory tax rate to earnings before income taxes primarily due to a significant portion of our earnings that come from foreign operations with lower tax rates and included the benefit from the enactment of legislation reinstating the research and development tax credit in the U.S.

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Note 13 - Accumulated Other Comprehensive Income (Loss)

The changes in AOCIL, net of tax, by component for the three months ended December ~~31, 2016~~30, 2017 are as follows:


	Accumulated foreign currency translation			Accumulated retirement liability			Accumulated gain (loss) on derivatives			Total			Accumulated foreign currency translation			Accumulated retirement liability			Accumulated gain (loss) on derivatives			Total
AOCIL at October 1, 2016	$	(110,626	)	$	(321,094	)	$	(3,341	)	$	(435,061	)
AOCIL at September 30, 2017													$	(83,166	)	$	(251,865	)	$	(460	)	$	(335,491	)
Other comprehensive income (loss) before reclassifications	(40,538		)	2,563			(714		)	(38,689		)	10,364			(363		)	905			10,906
Amounts reclassified from AOCIL	(971		)	6,009			1,288			6,326			—			4,619			329			4,948
Other comprehensive income (loss)	(41,509		)	8,572			574			(32,363		)	10,364			4,256			1,234			15,854
AOCIL at December 31, 2016	$	(152,135	)	$	(312,522	)	$	(2,767	)	$	(467,424	)
AOCIL at December 30, 2017													$	(72,802	)	$	(247,609	)	$	774		$	(319,637	)

The amounts reclassified from AOCIL into earnings are as follows:


			Three Months Ended								Three Months Ended
		Statement of earnings classification	December 31, 2016			January 2, 2016				Statement of earnings classification	December 30, 2017			December 31, 2016
Retirement liability:
Prior service cost			$	19		$	28
Prior service cost (credit)											$	(85	)	$	19
Actuarial losses			9,417			7,045					7,396			9,417
Reclassification from AOCIL into earnings(1)	Reclassification from AOCIL into earnings(1)		9,436			7,073			Reclassification from AOCIL into earnings(1)		7,311			9,436
Tax effect			(3,427		)	(2,597		)			(2,692		)	(3,427		)
Net reclassification from AOCIL into earnings	Net reclassification from AOCIL into earnings		$	6,009		$	4,476		Net reclassification from AOCIL into earnings		$	4,619		$	6,009
Derivatives:
Foreign currency contracts		Sales	$	1,297		$	78			Sales	$	(118	)	$	1,297
Foreign currency contracts		Cost of sales	467			476				Cost of sales	696			467
Interest rate swaps		Interest	115			301				Interest	(14		)	115
Reclassification from AOCIL into earnings	Reclassification from AOCIL into earnings		1,879			855			Reclassification from AOCIL into earnings		564			1,879
Tax effect			(591		)	(294		)			(235		)	(591		)
Net reclassification from AOCIL into earnings	Net reclassification from AOCIL into earnings		$	1,288		$	561		Net reclassification from AOCIL into earnings		$	329		$	1,288

⁽¹⁾The reclassifications are included in the computation of net periodic pension cost and postretirement benefit cost.

The amounts deferred in AOCIL are as follows:


			Net deferral in AOCIL - effective portion							Net deferral in AOCIL - effective portion
			Three Months Ended							Three Months Ended
		Statement of earnings classification	December 31, 2016			January 2, 2016				December 30, 2017			December 31, 2016
Foreign currency contracts		Sales	$	(762	)	$	(234	)		$	828		$	(1,786	)
Foreign currency contracts		Cost of sales	(1,024		)	(268		)
Interest rate swaps		Interest	694			447				617			694
Net loss			(1,092		)	(55		)
Net gain (loss)										1,445			(1,092		)
Tax effect			378			(68		)		(540		)	378
Net deferral in AOCIL of derivatives	Net deferral in AOCIL of derivatives		$	(714	)	$	(123	)	Net deferral in AOCIL of derivatives	$	905		$	(714	)

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Note 14 - Stock Employee Compensation Trust and Supplemental Retirement Plan Trust

The Stock Employee Compensation Trust (SECT) assists in administering and provides funding for equity-based compensation plans and benefit programs, including the Moog Inc. Retirement Savings Plan (RSP). The Supplemental Retirement Plan (SERP) Trust provides funding for benefits under the Moog Inc. SERP. Both the SECT and the SERP Trust hold shares as investments. The shares in the SECT and SERP Trust are not considered outstanding for purposes of calculating earnings per share. However, in accordance with the trust agreements governing the SECT and SERP Trust, the trustees vote all shares held by the SECT and SERP Trust on all matters submitted to shareholders.

Note 15 - Earnings per Share

Basic and diluted weighted-average shares outstanding are as follows:


	Three Months Ended		Three Months Ended
	December 31, 2016	January 2, 2016	December 30, 2017	December 31, 2016
Basic weighted-average shares outstanding	35,869,052	36,713,949	35,772,406	35,869,052
Dilutive effect of equity-based awards	403,715	314,382	428,648	403,715
Diluted weighted-average shares outstanding	36,272,767	37,028,331	36,201,054	36,272,767

For the three months ended December ~~31, 2016~~30, 2017 and ~~January 2,~~December 31, 2016, there were ~~111,574~~13,530 and ~~31,819~~111,574 common shares ~~subject to~~from equity-based awards, respectively, excluded from the calculation of diluted ~~earning~~earnings per share as they would be anti-dilutive.

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Note 16 - Segment Information

~~During 2016,~~Effective October 1, 2017, we made changes to our segment ~~reporting.~~reporting structure that resulted in three reporting segments. Our former Components ~~now includes the Medical Devices product lines, which we previously reported as a separate segment.~~segment has been separated and merged into Space and Defense Controls ~~now includes Linear, which we previously included in the Aircraft Controls segment.~~and Industrial Systems. All amounts have been restated to ~~present Medical Devices within Components, and Linear within Space and Defense Controls.~~reflect this change.

Below are sales and operating profit by segment for the three months ended December ~~31, 2016~~30, 2017 and ~~January 2,~~December 31, 2016 and a reconciliation of segment operating profit to earnings before income taxes. Operating profit is net sales less cost of sales and other operating expenses, excluding interest expense, equity-based compensation expense and other corporate expenses. Cost of sales and other operating expenses are directly identifiable to the respective segment or allocated on the basis of sales, number of employees or profit.


	Three Months Ended				Three Months Ended
	December 31, 2016		January 2, 2016		December 30, 2017		December 31, 2016
Net sales:
Aircraft Controls	$	268,450	$	253,957	$	278,534	$	268,450
Space and Defense Controls	92,930		83,518		133,393		122,590
Industrial Systems	112,399		125,179		215,608		198,630
Components	115,891		105,803
Net sales	$	589,670	$	568,457	$	627,535	$	589,670
Operating profit:
Aircraft Controls	$	23,111	$	18,432	$	30,768	$	23,111
Space and Defense Controls	7,096		11,515		16,289		9,088
Industrial Systems	10,701		13,633		19,246		20,163
Components	11,454		7,979
Total operating profit	52,362		51,559		66,303		52,362
Deductions from operating profit:
Interest expense	8,486		8,322		8,646		8,486
Equity-based compensation expense	2,168		936		2,001		2,168
Corporate and other expenses, net	5,220		6,646		7,822		5,220
Earnings before income taxes	$	36,488	$	35,655	$	47,834	$	36,488

The amounts reclassified for net sales and operating profit as a result of the revised segment reporting structure for the three months ended December 31, 2016 are as follows:



	December 31, 2016
Net sales:
Space and Defense Controls	$	29,660
Industrial Systems	86,231
Total	$	115,891



Operating profit:
Space and Defense Controls	$	1,992
Industrial Systems	9,462
Total	$	11,454

Segment assets for Space and Defense Controls and Industrial Systems are approximately $613,000 and $1,142,000, respectively, as of December 30, 2017 as a result of the change to our segment reporting structure.

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Note 17 - Related Party Transactions

On November 20, 2017, John Scannell was elected to the Board of Directors of M&T Bank Corporation and M&T Bank. We currently engage with M&T Bank in the ordinary course of business for various financing activities, all of which were initiated prior to the election of Mr. Scannell to the Board. M&T Bank provides credit extension for routine purchases, which for the three months ended December 30, 2017 totaled $5,459. At December 30, 2017, we held a $15,000 interest rate swap with M&T Bank and outstanding leases with a total original cost of $27,955. M&T Bank also maintains an interest of approximately 12% in our U.S. revolving credit facility. Further details of the U.S. revolving credit facility can be found in Note 6, Indebtedness.

Note 1718 - Commitments and Contingencies

From time to time, we are involved in legal proceedings. We are not a party to any pending legal proceedings which management believes will result in a material adverse effect on our financial condition, results of operations or cash flows.

We are engaged in administrative proceedings with governmental agencies and legal proceedings with governmental agencies and other third parties in the normal course of our business, including litigation under Superfund laws, regarding environmental matters. We believe that adequate reserves have been established for our share of the estimated cost for all currently pending environmental administrative or legal proceedings and do not expect that these environmental matters will have a material adverse effect on our financial condition, results of operations or cash flows.

In the ordinary course of business we could be subject to ongoing claims or disputes from our customers, the ultimate settlement of which could have a material adverse impact on our consolidated results of operations. While the receivables and any loss provisions recorded to date reflect management's best estimate of the projected costs to complete a given project, there may still be significant effort required to complete the ultimate deliverable. Future variability in internal cost as well as future profitability is dependent upon a number of factors including deliveries, performance and government budgetary pressures. The inability to achieve a satisfactory contractual solution, further unplanned delays, additional developmental cost growth or variations in any of the estimates used in the existing contract analysis could lead to further loss provisions. Additional losses could have a material adverse impact on our financial condition, results of operations or cash flows in the period in which the loss may be recognized.

We are contingently liable for ~~$19,959~~$48,793 of standby letters of credit issued by a bank to third parties on our behalf at December ~~31, 2016.~~30, 2017.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report filed on Form 10-K for the fiscal year ended ~~October 1, 2016.~~September 30, 2017. All references to years in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are to fiscal years and amounts may differ from reported values due to rounding.

OVERVIEW

We are a worldwide designer, manufacturer and systems integrator of high performance precision motion and fluid controls and control systems for a broad range of applications in aerospace and defense and industrial markets.

Within the aerospace and defense market, our products and systems include:

Defense market - primary and secondary flight controls for military aircraft, stabilization and automatic ammunition loading controls for armored combat vehicles, tactical and strategic missile steering controls and gun aiming controls.

Commercial aircraft market - primary and secondary flight controls for commercial aircraft.

Commercial space market - satellite positioning controls and thrust vector controls for space launch vehicles.

In the industrial market, our products are used in a wide range of applications including:

Industrial automation market - injection molding, metal forming, heavy industry, material and automotive testing and pilot training simulators.

Energy market - ~~wind energy,~~ power generation, ~~and~~ oil and gas ~~exploration.~~exploration and wind energy.

Medical market - enteral clinical nutrition and infusion therapy pumps, ~~CT scanners and~~ ultrasonic sensors and surgical ~~handpieces.~~handpieces and CT scanners.

We operate under ~~four~~three segments, Aircraft Controls, Space and Defense Controls and Industrial ~~Systems and Components.~~Systems. Our principal manufacturing facilities are located in the United States, Philippines, United Kingdom, Germany, ~~India,~~ Costa Rica, India, China, Japan, Italy, Netherlands, Canada, Ireland and Luxembourg.

We have long-term contracts with some of our customers. These contracts are predominantly within Aircraft Controls and Space and Defense Controls and represent ~~34%~~38%, ~~33%~~34% and ~~34%~~33% of our sales in 2017, 2016 ~~2015~~ and ~~2014,~~2015, respectively. We recognize revenue on these contracts using the percentage of completion, cost-to-cost method of accounting as work progresses toward completion. The remainder of our sales are recognized when the risks and rewards of ownership and title to the product are transferred to the customer, principally as units are delivered or as service obligations are satisfied. This method of revenue recognition is predominantly used within the Industrial Systems ~~and Components segments,~~segment, as well as with aftermarket activity.

We concentrate on providing our customers with products designed and manufactured to the highest quality standards. Our products are applied in demanding applications, "When Performance Really Matters^®." We believe we have achieved a leadership position in the high performance, precision controls market, by capitalizing on our core foundational strengths, which ~~include:~~

~~superior~~are our technical ~~competence in delivering~~experts working collaboratively around the world and the capabilities we deliver for mission-critical ~~solutions,~~

solutions. These strengths yield a ~~focused customer-intimacy approach,~~

broad control product portfolio, across a diverse base of customers and end ~~markets served by a broad product portfolio,~~markets.

By focusing on customer intimacy and

~~a well-established international presence serving customers worldwide.~~

~~These strengths afford us the ability~~ commitment to solving their most demanding technical problems, we have been able to innovate ~~our current solutions into new, complimentary technologies. They also provide us the opportunity to expand~~ our control product franchise from one market to another, organically growing us from a high-performance components supplier to a high-performance systems supplier. In addition, we ~~continually strive to achieve~~continue achieving substantial content positions on the platforms on which we currently participate, seeking to be the dominant supplier in the current niche markets we serve. We also look for innovation in all aspects of our business, employing new technologies to improve productivity and to develop ~~new~~innovative business models.

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These activities will help us achieve our financial objectives of increasing our revenue base and improving our long term profitability and cash flow from operations. In doing so, we expect to maintain a balanced, diversified portfolio in terms of markets served, product applications, customer bases and geographic presence. Our fundamental strategies to achieve our goals center around talent, lean and innovation and include:

a strong leadership team that has positioned the company for growth,

utilizing our global capabilities and strong engineering heritage to innovate,


•	maintaining our technological excellence by ~~building upon our systems integration capabilities while~~ solving our customers’ most demanding technical problems in applications "When Performance Really Matters^®,"

~~utilizing our global capabilities~~ continuing to invest in talent development to strengthen employee performance

and ~~strong engineering heritage to expand our product offerings,~~

maximizing customer value by implementing lean enterprise ~~principles,~~principles.

These activities will help us achieve our financial objective of increasing shareholder value with sustainable competitive advantages across our segments. In doing so, we expect to maintain a balanced, diversified portfolio in terms of markets served, product applications, customer base and

~~investing in talent development to strengthen our leadership capability and employee performance.~~ geographic presence.

We focus on improving shareholder value through strategic revenue growth, both acquired and organic, through improving operating efficiencies and manufacturing initiatives and through utilizing low cost manufacturing facilities without compromising quality. Additionally, we take a balanced approach to capital deployment, which may include strategic acquisitions or further share buyback activity, in order to maximize shareholder returns over the long-term. ~~We face numerous challenges to improving shareholder value. These include, but are not limited to, adjusting to dynamic global economic conditions that are influenced by governmental, industrial~~

Acquisitions and commercial factors, pricing pressures from customers, strong competition, foreign currency fluctuations and increases in employee benefit costs. We may also engage in restructuring and divesting activities, including reducing overhead, consolidating facilities and exiting some product lines if we deem the operations as non-strategic or underperforming.

~~Acquisition and Divestiture~~Divestitures

All of our acquisitions are accounted for under the purchase method and, accordingly, the operating results for the acquired companies are included in the consolidated statements of earnings from the respective dates of acquisition. Under purchase accounting, we record assets and liabilities at fair value and such amounts are reflected in the respective captions on the consolidated balance sheets. The purchase price described for each acquisition below is net of any cash acquired, includes debt issued or assumed and the fair value of contingent consideration.

In ~~2016,~~2017, we acquired Rotary Transfer Systems, a ~~70% ownership~~manufacturer of electromechanical systems, located in ~~Linear Mold~~Germany and Engineering ("Linear"), a Livonia, Michigan-based company specializing in metal additive manufacturing that provides engineering, manufacturing and production consulting services to customers across a wide range of industries, including aerospace, defense, energy and industrial. We acquired our share in Linear Mold and EngineeringFrance for ~~$23~~$43 million. ~~The acquisition also includes a redeemable noncontrolling interest in the remaining 30%.~~ This acquisition is included in our Industrial Systems segment. We also sold non-core businesses in our Space and Defense Controls ~~segment. On January 25, 2017, we acquired the remaining 30% redeemable noncontrolling interest~~segment for $2$7 million ~~in cash, which will also be reflected in additional paid-in capital.~~

~~In 2017, we~~and recorded losses in other expense of $9$13 million related to ~~selling~~ the European space businesses of our Space and Defense Controls segment. We received $1 million in cash and reclassified $7 million in other current assets and $3 million in other current liabilities as held for sale. We expect the sale of the held for sale portion of these businesses to be completed during 2017.sales.

CRITICAL ACCOUNTING POLICIES

On a regular basis, we evaluate the critical accounting policies used to prepare our consolidated financial statements, including, but not limited to, revenue recognition on long-term contracts, contract and contract-related loss reserves, reserves for inventory valuation, reviews for impairment of goodwill, ~~purchase price allocations~~reviews for ~~business combinations,~~impairment of long-lived assets, pension assumptions and ~~deferred tax asset valuation allowances.~~income taxes. See Note 12 of the Consolidated Condensed Financial Statements included in Item 1, Financial Statements of this report for the impact of the enactment of the Tax Cuts and Jobs Act of 2017.

~~There~~Other than that described below, there have been no material changes in critical accounting policies in the current year from those disclosed in our ~~2016~~2017 Annual Report on Form 10-K.

Reviews for Impairment of Goodwill

Interim Test

Effective October 1, 2017, we changed our segment reporting structure from four to three reporting segments. The former Components reporting segment has been divided and merged into the Space and Defense Controls and Industrial Systems reporting segments. This change also impacted the reporting units we use to review goodwill for impairment. Based on the accounting rules that require aggregation of components with similar economic characteristics, we have changed the number of reporting units from five to four - Aircraft Controls, Space and Defense Controls, Industrial Systems and Medical Devices.

We transferred or allocated the assets and liabilities of the former Components business including the proportionate share of goodwill based on the relative fair value of the business to the new respective reporting units - Space and Defense Controls and Industrial Systems. We then compared the fair values to the carrying values of the reporting units and the resulting fair values exceeded the carrying values, so we determined that goodwill was not impaired.

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The fair value of each of these two reporting units exceeded the carrying amounts by over 100%. While any individual assumption could differ from those that we used, we believe the overall fair values of these reporting units are reasonable, as the values are derived from a mix of reasonable assumptions. Had we used discount rates that were 100 basis points higher or a terminal growth rate that was 100 basis points lower than those we assumed, the fair values of each of these reporting units would have continued to exceed their carrying amounts by at least 80%.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1 of the Consolidated Condensed Financial Statements included in Item 1, Financial Statements of this report for further information regarding Financial Accounting Standards Board issued Accounting Standards Updates ("ASU").

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CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK
CONSOLIDATED RESULTS OF OPERATIONS

	Three Months Ended											Three Months Ended
(dollars and shares in millions, except per share data)	December 31, 2016			January 2, 2016			$ Variance			% Variance		December 30, 2017			December 31, 2016			$ Variance			% Variance
Net sales	$	590		$	568		$	21		4	%	$	628		$	590		$	38		6	%
Gross margin	29.3		%	28.4		%						29.3		%	29.3		%
Research and development expenses	$	35		$	35		$	—		(1	%)	$	32		$	35		$	(2	)	(6	%)
Selling, general and administrative expenses as a percentage of sales	14.4		%	14.6		%						15.3		%	14.4		%
Interest expense	$	8		$	8		$	—		2	%	$	9		$	8		$	—		2	%
Other	$	8		$	—		$	8		n/a		$	(1	)	$	8		$	(9	)	(109	%)
Effective tax rate	17.6		%	26.6		%						97.3		%	17.6		%
Net earnings attributable to Moog	$	31		$	26		$	4		16	%	$	1		$	31		$	(29	)	(96	%)
Diluted average common shares outstanding	36			37			(1		)	(2	%)	36			36			—			—	%
Diluted earnings per share attributable to Moog	$	0.84		$	0.71		$	0.13		18	%	$	0.04		$	0.84		$	(0.80	)	(95	%)

Net sales increased across all of our segments in the first quarter of ~~2017~~2018 compared to the first quarter of 2016. Sales increased in Aircraft Controls, Components and Space and Defense Controls, and decreased in Industrial Systems. Weaker foreign currencies, primarily the British Pound relative to the U.S. Dollar, decreased sales $8 million.2017.

Gross margin ~~increased~~was unchanged in the first quarter of ~~2017~~2018 compared to the same period of ~~2016. We benefited from~~2017. Aircraft Controls' gross margin increased due primarily to a more favorable sales mix ~~primarily in~~from foreign military sales; however, Space and Defense ~~Controls and Components,~~Controls' gross margin decreased due to ~~higher~~the reduced amount of last year's favorable defense controls ~~and medical program sales, respectively. In addition, the restructuring benefits from actions taken in 2016 increased profitability $1 million from reduced costs.~~sales.

Research and development expenses ~~were unchanged~~decreased in the first quarter of ~~2017~~2018 compared to the same period of ~~2016.~~2017. Within Aircraft Controls, research and development expenses decreased $2$4 million, as we had lower activity ~~on the Embraer E-2 and the Airbus A350~~across our major commercial OEM programs. The reduced spend was offset by ~~small~~ increases in research and development activities across our remaining ~~three~~two segments.

~~In the first quarter of 2017 compared to the first quarter of 2016, selling,~~Selling, general and administrative expenses as a percentage of sales ~~decreased slightly. Most~~increased in the first quarter of 2018 compared to the ~~decline is attributable~~first quarter of 2017. Administrative expense increased $3 million due to ~~our continued focus on~~the timing of expenses in the prior year's quarter, and we had higher planned selling expense ~~reduction, primarily~~ in ~~Aircraft Controls. Additionally, we benefited $2 million from our 2016 restructuring activities.~~select growth markets.

Other expense in the first quarter of 2017 includes $9 million of losses associated with selling our European space businesses.

~~Our effective tax rates in both 2017 and 2016 are lower than the U.S. statutory tax rate.~~ The effective tax rate in the first quarter of 2018 was impacted by the enactment of the Tax Cuts and Jobs Act of 2017. We recorded a $31 million, one-time transition tax on undistributed foreign earnings deemed to be repatriated and a tax charge of $15 million as an additional provision for withholding taxes on undistributed earnings not considered to be permanently reinvested. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities is not practicable. These charges are partially offset by a $12 million benefit due to the remeasurement of deferred tax assets and liabilities arising from a lower U.S. corporate tax rate, which took into account our decision to accelerate pension contributions into our 2017 ~~includes~~pension plan year. This allows the pension contribution tax deduction to be taken in our 2017 federal income tax return which is taxed at the 35% federal rate. Excluding all of the impacts due to the Act, the effective tax rate for the first quarter of 2018 was 29.6%.

Our effective tax rate in 2017 is lower than the U.S. statutory tax rate, as it included the tax benefits associated with ~~selling~~divesting our European space businesses. ~~The~~Excluding the impact of the divestiture, the effective tax rate for the first quarter of 2017 was 28.7%.

Other comprehensive income in the first quarter of ~~2016 included the benefit from the enactment~~2018 includes $10 million of ~~legislation reinstating the research and development tax credit in the U.S.~~

Average common shares outstanding decreased in the first quarter of 2017 compared to the same period of 2016 due to our share buyback program. Since the Board of Directors amended the program in January 2014, we have repurchased ten million shares, and have three million additional shares available for repurchase under this program.

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foreign currency translation income. Other comprehensive loss in the first quarter of 2017 includes $42 million of foreign currency translation loss. ~~In the first quarter of 2016, other comprehensive loss included $23 million of foreign currency translation loss.~~ Foreign currency translation adjustments ~~decreased $18~~increased $52 million during this period, primarily attributable to ~~the~~ changes in the Euro and the British ~~Pound and the Japanese Yen.~~

~~2017 Outlook~~ – We expect sales in 2017 to increase 1% from fiscal 2016 to $2.4 billion, driven primarily by higher OEM sales for the Airbus A350 program in Aircraft Controls. We also expect sales in Components will increase due to higher medical pump sales. Partially offsetting the sales growth is an expected decline in Industrial Systems across our major markets. We expect operating margin will remain flat at 10.0% in 2017 compared with 9.9% in 2016. The absence of the 2016 restructuring expense and goodwill impairment charge, as well as the associated restructuring benefits, will help drive margin expansion. These will be offset by an unfavorable sales mix and the losses associated with selling our European space businesses. We expect net earnings attributable to Moog will remain flat with 2016 at $127 million. Average diluted shares outstanding will decrease 1% to 36 million due to shares already repurchased under our current share buyback program. We expect diluted earnings per share will range between $3.30 and $3.70, with a midpoint of $3.50, an increase of 1% compared to 2016.Pound.

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SEGMENT RESULTS OF OPERATIONS ~~AND OUTLOOK~~

~~During 2016,~~Effective October 1, 2017, we ~~made changes to~~changed our segment ~~reporting.~~reporting structure to three reporting segments. Our former Components ~~now includes the Medical Devices product lines, which we previously reported as a separate segment.~~segment has been separated and merged into Space and Defense Controls ~~now includes Linear, which we previously included in the Aircraft Controls segment.~~and Industrial Systems. All amounts have been restated to ~~present Medical Devices within Components, and Linear within Space and Defense Controls.~~conform to the current presentation.

Operating profit, as presented below, is net sales less cost of sales and other operating expenses, excluding interest expense, equity-based compensation expense and other corporate expenses. Cost of sales and other operating expenses are directly identifiable to the respective segment or allocated on the basis of sales, manpower or profit. Operating profit is reconciled to earnings before income taxes in Note 16 of the Notes to Consolidated Condensed Financial Statements included in this report.

Aircraft Controls


	Three Months Ended											Three Months Ended
(dollars in millions)	December 31, 2016			January 2, 2016			$ Variance			% Variance		December 30, 2017			December 31, 2016			$ Variance			% Variance
Net sales - military aircraft	$	128		$	120		$	8		6	%	$	124		$	128		$	(4	)	(3	%)
Net sales - commercial aircraft	141			134			7			5	%	154			141			14			10	%
	$	268		$	254		$	14		6	%	$	279		$	268		$	10		4	%
Operating profit	$	23		$	18		$	5		25	%	$	31		$	23		$	8		33	%
Operating margin	8.6		%	7.3		%						11.0		%	8.6		%
Backlog	$	610		$	639		$	(29	)	(5	%)	$	590		$	610		$	(20	)	(3	%)

Aircraft Controls' net sales increased in ~~both military and~~ commercial aircraft programs the first quarter of ~~2017~~2018 compared to the first quarter of ~~2016. Weaker foreign currencies, primarily the British Pound relative to the U.S. Dollar, decreased~~2017, but were partially offset by military aircraft sales ~~$5 million.~~declines.

InCommercial OEM and commercial aftermarket sales each increased $7 million in the first quarter of ~~2017~~2018 compared to the first quarter of 2016, military OEM sales increased $9 million while military aftermarket sales declined $2 million. Military OEM sales for the F-35 increased $5 million due to higher production volumes. Also, higher levels of military funded development jobs offset lower foreign military sales. The decreased military aftermarket sales was driven primarily by lower B-2 spares purchases. Additionally in the first quarter of 2017, commercial OEM sales increased $8 million while commercial aftermarket sales decreased $1 million. Commercial2017. OEM sales for the Airbus A350 ~~program~~ increased ~~$10~~$5 million due to the program's production volume ramp ~~up. The decreased commercial~~up, while aftermarket sales ~~was~~for the A350 increased $4 million due to higher initial provisioning. Additionally, aftermarket sales for legacy Boeing programs increased $4 million due to higher repair activity.

Military aftermarket sales declined $5 million in the first quarter of 2018 compared to the first quarter of 2017 due primarily to production delays on the V-22 program. Military OEM sales were relatively flat, as higher foreign military sales were mostly offset by lower ~~Boeing 787 and A350 initial provisioning~~F-35 sales. In the first quarter of 2017, F-35 sales were high due to a production increase ahead of an upcoming milestone delivery.

Operating margin increased in the first quarter of ~~2017~~2018 compared to the first quarter of ~~2016.~~2017. Research and development expenses decreased $2$4 million, as we had lower activity on ~~the Embraer E-2 and the Airbus A350~~our major commercial OEM programs. Additionally, operating profit benefited ~~$1 million~~ from ~~the restructuring benefits associated with exiting a product line in the second quarter~~higher amounts of ~~2016, and are in line with our total expected return.~~foreign military sales.

The decrease of twelve-month backlog for Aircraft Controls at December ~~31, 2016~~30, 2017 compared to ~~January 2,~~December 31, 2016 is primarily due to ~~lower orders for legacy commercial OEM programs, but is partially offset by higher~~the timing of orders for the F-35.

~~2017 Outlook for Aircraft Controls~~– We expect sales in Aircraft Controls to increase 4% from 2016 driven primarily by the continued ramp up of the Airbus A350 program. Partially offsetting the growth is expected lower commercial aftermarket sales on lower initial provisioning for the Boeing 787 program. We expect military sales will increase marginally, as higher F-35 sales are mostly offset by lower sales in other military programs. We expect operating margin will increase to 9.5% in 2017 from 9.3% in 2016. We expect that research and development costs will decrease $10 million, our restructuring expenses will not repeat and we will continue to realize the benefits of cost saving activities. However, partially offsetting these positive effects on operating margin is an expected negative sales mix. Sales from our newer military cost plus development jobs and higher sales on newer, lower margin commercial OEM platforms are replacing sales from higher-margin foreign military programs, and we expect lower commercial aftermarket sales.

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Space and Defense Controls


	Three Months Ended											Three Months Ended
(dollars in millions)	December 31, 2016			January 2, 2016			$ Variance			% Variance		December 30, 2017			December 31, 2016			$ Variance		% Variance
Net sales	$	93		$	84		$	9		11	%	$	133		$	123		$	11	9	%
Operating profit	$	7		$	12		$	(4	)	(38	%)	$	16		$	9		$	7	79	%
Operating margin	7.6		%	13.8		%						12.2		%	7.4		%
Backlog	$	278		$	238		$	41		17	%	$	411		$	365		$	46	13	%

Space and Defense Controls' net sales increased in our space and our defense markets in the first quarter of ~~2017~~2018 compared to the same period of ~~2016.~~2017. Partially offsetting the sales growth was a decline of $6 million due to lost sales associated the 2017 divestitures of non-core businesses.

Sales in our defense market increased $9 million in the first quarter of 2018 compared to the first quarter of 2017. Spares sales for controls for domestic and European defense vehicles increased $6 million, and sales for defense components increased $4 million. Sales in our space market increased $5$2 million in the first quarter of ~~2017~~2018 compared to the first quarter of ~~2016, due in part to~~2017. New satellite avionics programs and new ~~satellite propulsion customers. Within our defense market,~~launch vehicle programs increased sales by $7 million, but were offset by the lost sales associated with the divestitures.

Operating margin increased ~~$4 million~~ in the first quarter of ~~2017, driven by higher LAV turret upgrade program sales in defense controls and by higher naval program sales.~~

~~Operating margin decreased in the first quarter of 2017~~2018 compared to the first quarter of ~~2016,~~2017 due to the absence of last year's losses associated with selling our European space businesses. Operating margin excluding the losses would have been ~~17.3%~~14.7% in the first quarter of 2017, reflecting a more favorable sales mix in our defense markets.

~~The higher level of twelve-month~~Twelve-month backlog for Space and Defense Controls at December 30, 2017 compared to December 31, 2016 ~~compared to January 2, 2016 is due to higher orders for~~increased as growth in satellite avionics and launch vehicles was partially offset by completing defense controls ~~programs and satellites~~ programs.

~~2017 Outlook for Space and Defense Controls~~ –We expect sales in Space and Defense Controls to remain flat from fiscal 2016. We expect sales in our space market will remain flat as higher satellite component sales are offset by slightly lower launch vehicle sales. Additionally, we expect sales in our defense market will remain flat as higher sales for products on U.S. defense vehicles are offset by lower missile sales. We expect operating margin will decrease to 10.7% in 2017 from 11.3% in 2016, due to the impact of losses associated with selling our European space businesses. Excluding these losses, we expect operating margin to increase to 13.2% in 2017. This increase is driven by the lack of the prior year's goodwill impairment charge and by the continued realized savings from our cost containment actions.

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Industrial Systems


	Three Months Ended											Three Months Ended
(dollars in millions)	December 31, 2016			January 2, 2016			$ Variance			% Variance		December 30, 2017			December 31, 2016			$ Variance			% Variance
Net sales	$	112		$	125		$	(13	)	(10	%)	$	216		$	199		$	17		9	%
Operating profit	$	11		$	14		$	(3	)	(22	%)	$	19		$	20		$	(1	)	(5	%)
Operating margin	9.5		%	10.9		%						8.9		%	10.2		%
Backlog	$	134		$	166		$	(31	)	(19	%)	$	272		$	216		$	55		25	%

Industrial Systems' net sales ~~decreased~~increased across our ~~three~~four markets in the first quarter of ~~2017~~2018 compared to the first quarter of ~~2016.~~

In2017. Stronger foreign currencies, primarily the Euro relative to the U.S. Dollar, increased sales $6 million, and the recent acquisition of Rotary Transfer Systems also increased sales $6 million, primarily in our industrial automation ~~market,~~market.

Excluding the currency effects on sales ~~decreased $6 million~~ in the first quarter of ~~2017~~2018 compared to the first quarter of ~~2016. The decrease is~~2017, sales increased in our simulation and test market due to ~~lower U.S.~~the timing of shipments of our auto test and entertainment applications. Sales also increased in our medical market due to higher sales ~~primarily related to lower levels of aftermarket support activity,~~volumes for IV pumps and sets as well as the absence of prior year's orders. Also, sales in our test and simulation market decreased $5 million, due to the absence of last year's large sales volumes in material testing and simulation programs. Additionally, sales in ourmedical components. In addition, shipments for energy ~~market decreased $2 million, mainly as a result of lost sales to a key customer in Brazil who was acquired.~~exploration products increased for on-shore drilling applications.

Operating margin decreased in the first quarter of ~~2017~~2018 compared to the first quarter of ~~2016, due in part to lower sales volumes across our three markets. Also,~~2017. We had higher operating expenses, including increased investments in research and development and selling, ~~general and administrative, increased $1 million. Partly offsetting these impacts was $1 million of benefits~~whose increases offset the incremental margin from ~~our 2016 restructuring activities, which are in line with our total expected return.~~the higher sales volume.

The ~~lower~~higher level of twelve-month backlog in Industrial Systems at December 31, ~~2016~~2017 compared to ~~January 2,~~December 31, 2016 is mostly due to ~~lower energy~~higher orders ~~related to the decline~~ in ~~that market and the completion of simulation orders.~~

~~2017 Outlook for Industrial Systems~~ –~~We expect sales in Industrial Systems to decline 9% from 2016 across all of~~ our major markets. Approximately half of the decline is due to lower demand. Specifically, we expect that wind energy sales will decrease as a result of lost sales to a key customer who was acquired. Also, we expect that simulation and test sales will decrease from the high level of sales in 2016. Additionally, we expect lower industrial automation sales as the global economic conditions continue to negatively impact our sales. The other half of the expected sales decline is due to the strengthening U.S. Dollar relative to our other currencies. We expect operating margin will increase to 10.4% in 2017 from 9.4% in 2016, as we will benefit from both our restructuring actions in 2016 and our continued cost containment actions.market.

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~~Components~~

Three Months Ended
(dollars in millions) December 31, 2016 January 2, 2016 $ Variance % Variance
Net sales $ 116
$ 106
$ 10
10 %
Operating profit $ 11
$ 8
$ 3
44 %
Operating margin 9.9 % 7.5 %
Backlog $ 168
$ 171
$ (3 ) (2 %)



CONSOLIDATED AND SEGMENT OUTLOOK

							2018 vs. 2017
(dollars in millions)	2018			2017			$ Variance		% Variance
Net sales:
Aircraft Controls	$	1,175		$	1,125		$	50	4	%
Space and Defense Controls	547			529			18		3	%
Industrial Systems	894			843			51		6	%
	$	2,617		$	2,498		$	119	5	%
Operating profit:
Aircraft Controls	$	125		$	114		$	11	9	%
Space and Defense Controls	63			49			14		30	%
Industrial Systems	100			88			13		14	%
	$	288		$	250		$	38	15	%
Operating margin:
Aircraft Controls	10.6		%	10.1		%
Space and Defense Controls	11.5		%	9.2		%
Industrial Systems	11.2		%	10.4		%
	11.0		%	10.0		%

~~Components'~~2018 Outlook – We expect that all three segments will contribute to higher sales in 2018, driven primarily by industrial automation sales in Industrial Systems and military OEM sales for the F-35 program in Aircraft Controls. We expect 2018 operating margin will increase due to the absence of 2017's losses associated with divesting non-core businesses, as well as incremental margin from higher sales. However, we expect that the impact of the Tax Cuts and Jobs Act will result in an unusually high effective tax rate of 42% in 2018. This will result in a 12% decrease in net earnings attributable to common shareholders to $124 million, and diluted earnings per share will range between $3.23 and $3.63 with a midpoint of $3.43. Excluding all of the impacts due to the Act, we expect an effective tax rate of 31%, net earnings attributable to common shareholders of $148 million and diluted earnings per share will range between $3.90 and $4.30, with a midpoint of $4.10, an increase of 5% compared to 2017.

2018 Outlook for Aircraft Controls – We expect 2018 sales ~~increased~~in Aircraft Controls will increase primarily due to the continued ramp ups of the F-35 program and the Airbus A350 program. Partially offsetting the increases is an expected sales decline of legacy Boeing OEM programs. We expect 2018 operating margin will increase compared to 2017. We expect that research and development costs will decrease $6 million and that we will continue to realize the benefits of cost saving activities. However, we expect a negative sales mix, as sales on our mature commercial programs are replaced with sales growth on newer commercial programs.

2018 Outlook for Space and Defense Controls – We expect 2018 sales in Space and Defense Controls will increase due to sales growth from launch vehicles and satellite programs. Also, within our defense market, we expect higher missile systems and security sales will offset a decline in defense controls sales. We expect 2018 operating margin will increase, as the losses associated with divesting non-core businesses do not repeat.

2018 Outlook for Industrial Systems – We expect 2018 sales in Industrial Systems to increase across all of our major markets, ~~in the first quarter of 2017 compared to the first quarter of 2016.~~

~~Sales~~lead primarily by growth in our medical market increased $5 million in the first quarter of 2017 compared to the same period of 2016, as we had higher sales on medical pumps, sets and sensors and handpieces. Also, sales increased $4 million in our aerospace and defense market, primarily related to higher shipments on the Guardian program.

Operating margin increased in the first quarter of 2017 compared to the same period of 2016. In the first quarter of 2017, we benefited from an improved sales mix, primarily in our medical market. Additionally, we had $1 million of restructuring benefits associated with the 2016 restructuring activities, which are in line with our total expected return.

~~The twelve-month backlog at December 31, 2016 is comparable to the level at January 2, 2016, as lower orders for our defense and marine energy products are offset by higher orders for our medical and~~ industrial automation products.

~~2017 Outlook for Components –~~ We expect sales in Components to increase 2% from 2016. We expect that our medical market will contribute all of the growth due to higher sales volumes of pumps and sets. We expect that our aerospace and defense sales and our industrial sales will remain flat. We expect2018 operating margin will ~~decrease to 10.4% in 2017 from 10.7% in 2016,~~increase as we ~~continue to be affected by the negative~~benefit from incremental margin on higher sales ~~mix in our industrial and our aerospace and defense markets.~~volumes.

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FINANCIAL CONDITION AND LIQUIDITY


	Three Months Ended											Three Months Ended
(dollars in millions)	December 31, 2016			January 2, 2016			$ Variance			% Variance		December 30, 2017			December 31, 2016			$ Variance			% Variance
Net cash provided (used) by:
Operating activities	$	51		$	—		$	51		n/a		$	44		$	51		$	(6	)	(13	%)
Investing activities	(16		)	(22		)	6			(29	%)	(22		)	(16		)	(6		)	37	%
Financing activities	(13		)	44			(57		)	(129	%)	(1		)	(13		)	12			(95	%)

Our available borrowing capacity and our cash flow from operations provide us with the financial resources needed to run our operations, reinvest in our business and make strategic acquisitions.

At December ~~31, 2016,~~30, 2017, our cash ~~balance was $332~~balances were $395 million, which is primarily held outside of the U.S. Cash flow from our U.S. operations, together with borrowings on our credit facility, fund on-going activities, debt service requirements and future growth investments. ~~We reinvest the cash generated from foreign operations locally and such international balances are not available~~Due to ~~pay down debt~~provisions in the ~~U.S. unless~~Tax Cuts and Jobs Act, we ~~decide~~plan to repatriate ~~such amounts. During 2016, we repatriated $91 million~~substantial amounts of our existing offshore cash and future earnings ~~from various foreign subsidiaries and used~~back to the ~~funds to pay down our~~ U.S. ~~revolving credit facility. If we determine further repatriation of foreign funds is necessary, we would then be required to pay U.S. income taxes on those funds.~~

Operating activities

Net cash provided by operating activities ~~increased~~decreased in the first quarter of ~~2017~~2018 compared to the same period of ~~2016. Cash provided by accounts payable increased~~2017. Operationally, increases in inventory, primarily in Aircraft Controls and Industrial Systems, used $29 million ~~due to favorable~~more in cash, and the unfavorable timing of payments across all of our ~~segments. Also,~~segments used $21 million. These uses were principally offset by strong cash ~~provided by inventory increased $18 million, primarily~~collections from accounts receivable and customer advances in Space and Defense Controls and Aircraft ~~Controls across a variety of programs. In addition, cash increased $9 million due to higher net earnings adjusted for non-cash losses.~~Controls.

Investing activities

Net cash used by investing activities in the first quarter of 2018 included $21 million for capital expenditures, while net cash used by investing activities in 2017 included $15 million for capital expenditures. ~~Net cash used by investing activities in the first quarter of 2016 included $12 million for capital expenditures and $11 million as partial payment for the Linear acquisition.~~

We expect our ~~2017~~2018 capital expenditures to be approximately ~~$80~~$95 million, ~~as we support~~due to facilities investments supporting the increased production of ~~commercial aircraft.~~the F-35 program, as well as engine propulsion testing.

Financing activities

Cash used by financing activities in the first ~~quarter~~quarters of 2018 and 2017 ~~includes~~both include net payments on our credit ~~facility, while cash provided by financing activities in the first quarter of 2016 includes net proceeds from our credit~~ facility.

Off Balance Sheet Arrangements

We do not have any material off balance sheet arrangements that have or are reasonably likely to have a material future effect on our results of operations or financial condition.

Contractual Obligations and Commercial Commitments

Our contractual obligations and commercial commitments have not changed materially from the disclosures in our ~~2016~~2017 Annual Report on Form ~~10-K.~~10-K, with the exception of tax payments required as a result of the Tax Cuts and Jobs Act of 2017 and accelerated pension contributions into our 2017 pension plan year. See Notes 10 and 12 of the Consolidated Condensed Financial Statements included in Item 1, Financial Statements of this report for the impact.

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CAPITAL STRUCTURE AND RESOURCES

We maintain bank credit facilities to fund our short and long-term capital requirements, including for acquisitions. From time to time, we also sell debt and equity securities to fund acquisitions or take advantage of favorable market conditions.

Our U.S. revolving credit facility matures on June 28, 2021. The U.S. revolving credit facility has a capacity of $1.1 billion and also provides an expansion option, which permits us to request an increase of up to $200 million to the credit facility upon satisfaction of certain conditions. The U.S. revolving credit facility had an outstanding balance of ~~$585~~$535 million at December ~~31, 2016. Interest~~30, 2017. The weighted-average interest rate on all of the outstanding credit facility borrowings was 2.89% and is based on LIBOR plus the applicable margin, which was ~~1.63%~~1.38% at December ~~31, 2016.~~30, 2017. The credit facility is secured by substantially all of our U.S. assets.

The U.S. revolving credit facility contains various covenants. The covenant for minimum interest coverage ratio, defined as the ratio of EBITDA to interest expense for the most recent four quarters, is 3.0. The covenant for the maximum leverage ratio, defined as the ratio of net debt, including letters of credit, to EBITDA for the most recent four quarters, is 3.5. We are in compliance with all covenants. EBITDA is defined in the loan agreement as (i) the sum of net income, interest expense, income taxes, depreciation expense, amortization expense, other non-cash items reducing consolidated net income and non-cash equity-based compensation expenses minus (ii) other non-cash items increasing consolidated net income.

We are generally not required to obtain the consent of lenders of the U.S. revolving credit facility before raising significant additional debt financing; however, certain limitations and conditions may apply that would require consent to be obtained. In recent years, we have demonstrated our ability to secure consents to access debt markets. We have also been successful in accessing equity markets from time to time. We believe that we will be able to obtain additional debt or equity financing as needed.

At December ~~31, 2016,~~30, 2017, we had ~~$506~~$529 million of unused capacity, including ~~$495~~$516 million from the U.S. revolving credit facility after considering standby letters of credit. ~~However, our leverage ratio covenant limits our total borrowing capacity to $459 million as of December 31, 2016.~~

We have $300 million aggregate principal amount of 5.25% senior notes due December 1, 2022 with interest paid semiannually on June 1 and December 1 of each year. The senior notes are unsecured obligations, guaranteed on a senior unsecured basis by certain subsidiaries and contain normal incurrence-based covenants and limitations such as the ability to incur additional indebtedness, pay dividends, make other restricted payments and investments, create liens and certain corporate acts such as mergers and consolidations.

We have a trade receivables securitization facility (the "Securitization Program"), which ~~terminates~~was extended on ~~April 13, 2018.~~October 23, 2017 and now matures on October 23, 2019. The Securitization Program provides up to $130 million of borrowing capacity and lowers our cost to borrow funds as compared to the U.S. revolving credit facility. Under the Securitization Program, we sell certain trade receivables and related rights to an affiliate, which in turn sells an undivided variable percentage ownership interest in the trade receivables to a financial institution, while maintaining a subordinated interest in a portion of the pool of trade receivables. ~~The Securitization Program effectively increases our borrowing capacity by up to $120 million and lowers our cost to borrow funds as compared to the U.S. revolving credit facility.~~ We had an outstanding balance of ~~$120~~$130 million at December ~~31, 2016.~~30, 2017. The Securitization Program has a minimum borrowing requirement, which was ~~$96~~$104 million at December ~~31, 2016.~~30, 2017. Interest on the secured borrowings under the Securitization Program was ~~1.65%~~2.39% at December ~~31, 2016~~30, 2017 and is based on 30-day LIBOR plus an applicable margin.

Net debt to capitalization was ~~41%~~32% at ~~both~~ December ~~31, 2016~~30, 2017 and ~~October 1, 2016.~~33% at September 30, 2017. The decrease in net debt to capitalization is primarily due to positive cash flow.

We believe that our cash on hand, cash flows from operations and available borrowings under short and long-term arrangements will continue to be sufficient to meet our operating needs.

The Board of Directors has authorized a share repurchase program. This program has been amended from time to time to authorize additional repurchases that includes both Class A and Class B common shares, and allows us to buy up to an aggregate 13 million common shares. Under this program, we have purchased approximately ~~9.6~~9.7 million shares for $650 million as of December ~~31, 2016.~~30, 2017.

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ECONOMIC CONDITIONS AND MARKET TRENDS

We operate within the aerospace and defense and industrial markets. Our aerospace and defense markets are affected by market conditions and program funding levels, while our industrial markets are influenced by general capital investment trends and economic conditions. A common factor throughout our markets is the continuing demand for technologically advanced products.

Aerospace and Defense

Approximately ~~65%~~two-thirds of our ~~2016~~2017 sales were generated in aerospace and defense markets. Within aerospace and defense, we serve three end markets: defense, commercial aircraft and space.

The defense market is dependent on military spending for development and production programs. Aircraft production programs are typically long-term in nature, offering predictability as to capacity needs and future revenues. We maintain positions on numerous high priority programs, including the Lockheed Martin F-35 Joint Strike Fighter, FA-18E/F Super Hornet and V-22 Osprey. The large installed base of our products leads to attractive aftermarket sales and service opportunities. The tactical and strategic missile, missile defense and defense controls markets are dependent on many of the same market conditions as military aircraft, including overall military spending and program funding levels. Our security and surveillance product line is dependent on government funding at federal and local levels, as well as private sector demand.

Reductions in the U.S. Department of Defense's mandatory and discretionary budgeted spending, which became effective on March 1, 2013, resulting from the Budget Control Act of 2011, has had ~~and will continue to have ongoing~~ ramifications for the domestic aerospace and defense ~~market for the near future.~~market. As originally passed, the Budget Control Act provided that, in addition to an initial significant reduction in future domestic defense spending, further automatic cuts to defense spending authorization (which is generally referred to as sequestration) of approximately $500 billion through the Federal Government's 2021 fiscal year would be triggered by the failure of Congress to produce a deficit reduction bill. The sequestration spending cuts were intended to be uniform by category for programs, projects and activities within accounts. The Bipartisan Budget Act of 2013 and the Bipartisan Budget Act of 2015 provided stability and modest growth in ~~the~~ Department of Defense spending through 2017. However, future budgets beyond 2017 are uncertain with respect to the overall levels of defense spending. As a result of this uncertainty, we expect we will continue to face significant challenges over the next decade. We believe that our military sales remain likely to be most affected due to lower defense spending. Currently, we expect approximately ~~$670~~$720 million of U.S. defense sales in ~~2017.~~2018.

The commercial aircraft market is dependent on a number of factors, including global demand for air travel, which generally follows underlying economic growth. As such, the commercial aircraft market has historically exhibited cyclical swings which tend to track the overall economy. In recent years, the development of new, more fuel-efficient commercial air transports has helped drive increased demand in the commercial aircraft market, as airlines replace older, less fuel-efficient aircraft with newer models in an effort to reduce operating costs. The aftermarket is driven by usage of the existing aircraft fleet and the age of the installed fleet, and is impacted by fleet re-sizing programs for passenger and cargo aircraft. Changes in aircraft utilization rates affect the need for maintenance and spare parts ~~and impact~~impacting aftermarket sales. Boeing and Airbus have historically adjusted production in line with air traffic volume. Demand for our commercial aircraft products is in large part dependent on new aircraft production, which is increasing as Boeing and Airbus work to fulfill large backlogs of unfilled orders.

The commercial space market is comprised of large satellite customers, traditionally communications companies. Trends for this market, as well as for commercial launch vehicles, follow demand for increased capacity. This, in turn tends to track with underlying demand for increased consumption of telecommunication services, satellite replacement and global navigation needs. The space market is also partially dependent on the governmental-authorized levels of funding for satellite communications, as well as investment for commercial and exploration activities.

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Industrial

Approximately ~~35%~~one-third of our ~~2016~~2017 sales were generated in industrial markets. Within industrial, we serve three end markets: industrial automation, energy and medical.

The industrial automation market we serve is influenced by several factors including capital investment, product innovation, economic growth, cost-reduction efforts and technology upgrades. We experience challenges from the need to react to the demands of our customers, who are in large part sensitive to international and domestic economic conditions.

The energy market we serve is affected by changing oil and natural gas prices, global urbanization, the resulting change in supply and demand for global energy and the political climate and corresponding public support for investments in renewable energy generation capacity. Historically, drivers for global growth include investments in power generation infrastructure, including renewable energy, and exploration in search of new oil and gas resources. However, the significant decline in the price of crude oil has reduced investment in exploration activities. This reduced investment has directly affected our energy ~~business in Components and in Industrial Systems.~~business. Currently, we expect approximately ~~$33~~$34 million of oil exploration-related sales in ~~2017,~~2018, down from approximately $100 million in 2014.

The medical market we serve is influenced by economic conditions, regulatory environments, hospital and outpatient clinic spending on equipment, population demographics, medical advances, patient demands and the need for precision control components and systems. Advances in medical technology and medical treatments have had the effect of extending ~~the~~ average life spans, in turn resulting in greater need for medical services. These same technology and treatment advances also drive increased demand from the general population as a means to improve quality of life. Access to medical insurance, whether through government funded health care plans or private insurance, also affects the demand for medical services.

Foreign Currencies

We are affected by the movement of foreign currencies compared to the U.S. dollar, particularly in Aircraft Controls and Industrial Systems. About one-quarter of our ~~2016~~2017 sales were denominated in foreign currencies. During the first three months of ~~2017,~~2018, average foreign currency rates generally ~~weakened~~strengthened against the U.S. dollar compared to ~~2016.~~2017. The translation of the results of our foreign subsidiaries into U.S. dollars ~~decreased~~increased sales by $8 million compared to the same period one year ago.

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Cautionary Statement

Information included or incorporated by reference in this report that does not consist of historical facts, including statements accompanied by or containing words such as “may,” “will,” “should,” “believes,” “expects,” “expected,” “intends,” “plans,” “projects,” “approximate,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume” and “assume,” are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to several factors, risks and uncertainties, the impact or occurrence of which could cause actual results to differ materially from the expected results described in the forward-looking statements. These important factors, risks and uncertainties include:

the markets we serve are cyclical and sensitive to domestic and foreign economic conditions and events, which may cause our operating results to fluctuate;

we operate in highly competitive markets with competitors who may have greater resources than we possess;

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;

we make estimates in accounting for long-term contracts, and changes in these estimates may have significant impacts on our earnings;

we enter into fixed-price contracts, which could subject us to losses if we have cost overruns;

we may not realize the full amounts reflected in our backlog as revenue, which could adversely affect our future revenue and growth prospects;

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;

contracting on government programs is subject to significant regulation, including rules related to bidding, billing and accounting kickbacks and false claims, and any non-compliance could subject us to fines and penalties or possible debarment;

the loss of The Boeing Company as a customer or a significant reduction in sales to The Boeing Company could adversely impact our operating results;

our new product research and development efforts may not be successful which could reduce our sales and earnings;

our inability to adequately enforce and protect our intellectual property or defend against assertions of infringement could prevent or restrict our ability to compete;

our business operations may be adversely affected by information systems interruptions, intrusions or new software implementations;

our indebtedness and restrictive covenants under our credit facilities could limit our operational and financial flexibility;

significant changes in discount rates, rates of return on pension assets, mortality tables and other factors could adversely affect our earnings and equity and increase our pension funding requirements;

a write-off of all or part of our goodwill or other intangible assets could adversely affect our operating results and net worth;

our sales and earnings may be affected if we cannot identify, acquire or integrate strategic acquisitions, or if we engage in divesting activities;

our operations in foreign countries expose us to political and currency risks and adverse changes in local legal and regulatory environments;

unforeseen exposure to additional income tax liabilities may affect our operating results;

government regulations could limit our ability to sell our products outside the United States and otherwise adversely affect our business;

governmental regulations and customer demands related to conflict minerals may adversely impact our operating results;

the failure or misuse of our products may damage our reputation, necessitate a product recall or result in claims against us that exceed our insurance coverage, thereby requiring us to pay significant damages;

future terror attacks, war, natural disasters or other catastrophic events beyond our control could negatively impact our business;

our operations are subject to environmental laws, and complying with those laws may cause us to incur significant costs; and

we are involved in various legal proceedings, the outcome of which may be unfavorable to us.

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These factors are not exhaustive. New factors, risks and uncertainties may emerge from time to time that may affect the forward-looking statements made herein. Given these factors, risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictive of future results. We disclaim any obligation to update the forward-looking statements made in this report.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Refer to the Company’s Annual Report on Form 10-K for the year ended ~~October 1, 2016~~September 30, 2017 for a complete discussion of our market risk. There have been no material changes in the current year regarding this market risk information.

Item 4. Controls and Procedures.

(a)

Disclosure Controls and Procedures. We carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures are effective as of the end of the period covered by this report, to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.


(b)	Changes in Internal Control over Financial Reporting. There have been no changes ~~in our internal control over financial reporting~~ during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.


(c)	The following table summarizes our purchases of our common stock for the quarter ended December ~~31, 2016.~~30, 2017.

Period (a) Total
Number of
Shares
Purchased (1)(2) (b) Average
Price Paid
Per Share (c) Total number
of Shares
Purchased as
Part of Publicly
Announced Plans
or Programs (3) (d) Maximum
Number (or Approx.
Dollar Value) of
Shares that May
Yet Be Purchased
Under Plans or
Programs (3)
October 2, 2016 - October 31, 2016 9,808
$ 57.50
—
3,352,009
November 1, 2016 - November 30, 2016 126,972
67.86
—
3,352,009
December 1, 2016 - December 31, 2016 25,711
67.77
412
3,351,597
Total 162,491
$ 67.22
412
3,351,597



Period	(a) Total Number of Shares Purchased (1)(2)	(b) Average Price Paid Per Share		(c) Total number of Shares Purchased as Part of Publicly Announced Plans or Programs (3)	(d) Maximum Number (or Approx. Dollar Value) of Shares that May Yet Be Purchased Under Plans or Programs (3)
October 1, 2017 - October 31, 2017	19,459	$	87.15	—	3,349,819
November 1, 2017 - November 30, 2017	54,388	83.17		—	3,349,819
December 1, 2017 - December 30, 2017	3,850	87.68		—	3,349,819
Total	77,697	$	84.39	—	3,349,819

(1)

Reflects purchases by the Moog Inc. Stock Employee Compensation Trust Agreement ("SECT") of shares of Class B common stock from the Moog Inc. Retirement Savings Plan ("RSP") at average prices as follows: ~~9,808~~17,494 shares at ~~$57.50~~$87.00 per share during October; ~~64,522~~and 27,168 shares at ~~$69.33~~$84.69 per share during ~~November; and 10,111 shares at $66.44 per share during December.~~November.

(2)

In connection with the exercise of equity-based compensation awards, we accept delivery of shares to pay for the exercise price and withhold shares for tax withholding obligations. In October, we accepted delivery of 1,965 shares at $88.49 per share, in November, we accepted delivery of ~~47,450~~27,220 shares at ~~$69.04~~$81.65 per share and in December, we accepted delivery of ~~15,188~~3,850 shares at ~~$68.69~~$87.68 per share, in connection with the exercise of equity-based awards. ~~To administratively accommodate equity awards issued in November, we purchased 15,000 Class B shares from the SECT at $57.82 per share.~~

(3)

The Board of Directors has authorized a share repurchase program. This program has been amended from time to time to authorize additional repurchases up to an aggregate 13 million common shares. The program permits the purchase of shares of Class A or Class B common stock in open market or privately negotiated transactions at the discretion of management. ~~In December, we purchased 412 Class B shares at an average price of $66.57 per share.~~

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Item 6. Exhibits.



(a)	Exhibits
	31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101	Interactive Date files (submitted electronically herewith)



(101.INS)	XBRL Instance Document

(101.SCH)	XBRL Taxonomy Extension Schema Document

(101.CAL)	XBRL Taxonomy Extension Calculation Linkbase Document

(101.DEF)	XBRL Taxonomy Extension Definition Linkbase Document

(101.LAB)	XBRL Taxonomy Extension Label Linkbase Document

(101.PRE)	XBRL Taxonomy Extension Presentation Linkbase Document

In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section and shall not be part of any registration or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			Moog Inc.

			(Registrant)

Date:	January ~~31, 2017~~26, 2018	By	/s/ John R. Scannell
			John R. Scannell
			Chairman Chief Executive Officer (Principal Executive Officer)

Date:	January ~~31, 2017~~26, 2018	By	/s/ Donald R. Fishback
			Donald R. Fishback
			Vice President Chief Financial Officer (Principal Financial Officer)

Date:	January ~~31, 2017~~26, 2018	By	/s/ Jennifer Walter
			Jennifer Walter
			Vice President - Finance Controller (Principal Accounting Officer)



	December 31, 2016		October 1, 2016
Lines of credit	$	86	$	99
Other short-term debt	1,280		1,280
Short-term borrowings	$	1,366	$	1,379