UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,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 | | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 30, 2017April 2, 2022
OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | | | | | |
☐ | 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: file number 1-05129
INC.MOOG 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.) | |
| |
400 Jamison Road | East Aurora, | New York | 14052-0018 | |
(Address of principal executive offices)Principal Executive Offices) | (Zip Code) | |
(716) 652-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
(716) 652-2000
| | | | | | | | |
(Telephone number including area code)Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A common stock | MOG.A | New York Stock Exchange |
Class B common stock | MOG.B | New York Stock Exchange |
Former name, former address and former fiscal year, if changed since last report.
Indicate by check mark whether the registrantregistrant: (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 ☒ No ☐
Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting 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 ¨ | | | | | | | | | | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | 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 ☒
Yes ¨ No ý
The number of shares outstanding of each class of common stock as of January 23, 2018April 25, 2022 was:
Class A common stock, $1.00 par value, 32,397,457stock, 29,001,639 shares
Class B common stock, $1.00 par value, 3,380,6362,932,822 shares
Moog Inc.QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Moog Inc.Consolidated Condensed Statements of Earnings
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
(dollars in thousands, except share and per share data) | | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
Net sales | | $ | 770,787 | | | $ | 736,402 | | | $ | 1,494,873 | | | $ | 1,420,356 | |
Cost of sales | | 556,070 | | | 536,493 | | | 1,085,776 | | | 1,030,804 | |
Inventory write-down | | 1,705 | | | — | | | 3,205 | | | — | |
Gross profit | | 213,012 | | | 199,909 | | | 405,892 | | | 389,552 | |
Research and development | | 30,720 | | | 30,453 | | | 58,428 | | | 58,461 | |
Selling, general and administrative | | 111,019 | | | 105,131 | | | 222,816 | | | 204,734 | |
Interest | | 8,263 | | | 8,629 | | | 16,245 | | | 17,049 | |
Asset impairment | | 15,236 | | | — | | | 15,236 | | | — | |
Restructuring | | 7,793 | | | — | | | 7,793 | | | — | |
Gain on sale of business | | — | | | — | | | (16,146) | | | — | |
Other | | 1,268 | | | (6,432) | | | 1,384 | | | (3,191) | |
Earnings before income taxes | | 38,713 | | | 62,128 | | | 100,136 | | | 112,499 | |
Income taxes | | 9,626 | | | 13,440 | | | 24,784 | | | 25,969 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Net earnings | | $ | 29,087 | | | $ | 48,688 | | | $ | 75,352 | | | $ | 86,530 | |
| | | | | | | | |
Net earnings per share | | | | | | | | |
Basic | | $ | 0.91 | | | $ | 1.51 | | | $ | 2.35 | | | $ | 2.69 | |
Diluted | | $ | 0.91 | | | $ | 1.51 | | | $ | 2.34 | | | $ | 2.68 | |
| | | | | | | | |
Average common shares outstanding | | | | | | | | |
Basic | | 31,984,674 | | | 32,146,247 | | | 32,021,036 | | | 32,110,365 | |
Diluted | | 32,120,726 | | | 32,325,494 | | | 32,154,442 | | | 32,281,158 | |
See accompanying Notes to Consolidated Condensed Financial Statements. |
|
| | | | | | | | |
| | Three Months Ended |
(dollars in thousands, except per share data) | | December 30, 2017 | | December 31, 2016 |
Net sales | | $ | 627,535 |
| | $ | 589,670 |
|
Cost of sales | | 443,426 |
| | 417,164 |
|
Gross profit | | 184,109 |
| | 172,506 |
|
Research and development | | 32,420 |
| | 34,564 |
|
Selling, general and administrative | | 95,950 |
| | 85,063 |
|
Interest | | 8,646 |
| | 8,486 |
|
Other | | (741 | ) | | 7,905 |
|
Earnings before income taxes | | 47,834 |
| | 36,488 |
|
Income taxes | | 46,535 |
| | 6,430 |
|
Net earnings attributable to Moog and noncontrolling interest | | 1,299 |
| | 30,058 |
|
| | | | |
Net earnings (loss) attributable to noncontrolling interest | | — |
| | (506 | ) |
| | | | |
Net earnings attributable to Moog | | $ | 1,299 |
| | $ | 30,564 |
|
| | | | |
Net earnings per share attributable to Moog | | | | |
Basic | | $ | 0.04 |
| | $ | 0.85 |
|
Diluted | | $ | 0.04 |
| | $ | 0.84 |
|
| | | | |
Average common shares outstanding | | | | |
Basic | | 35,772,406 |
| | 35,869,052 |
|
Diluted | | 36,201,054 |
| | 36,272,767 |
|
See accompanying Notes to Consolidated Condensed Financial Statements. |
MoogInc.Consolidated Condensed Statements of Comprehensive Income (Loss)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
(dollars in thousands) | | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
Net earnings | | $ | 29,087 | | | $ | 48,688 | | | $ | 75,352 | | | $ | 86,530 | |
Other comprehensive income (loss) ("OCI"), net of tax: | | | | | | | | |
Foreign currency translation adjustment | | (18,283) | | | (12,935) | | | (24,843) | | | 20,562 | |
Retirement liability adjustment | | 4,538 | | | 4,322 | | | 8,628 | | | 5,918 | |
Change in accumulated loss on derivatives | | (295) | | | (702) | | | (160) | | | (604) | |
Other comprehensive income (loss), net of tax | | (14,040) | | | (9,315) | | | (16,375) | | | 25,876 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Comprehensive income | | $ | 15,047 | | | $ | 39,373 | | | $ | 58,977 | | | $ | 112,406 | |
See accompanying Notes to Consolidated Condensed Financial Statements. |
|
| | | | | | | | |
| | Three Months Ended |
(dollars in thousands) | | December 30, 2017 | | December 31, 2016 |
Net earnings attributable to Moog and noncontrolling interest | | $ | 1,299 |
| | $ | 30,058 |
|
Other comprehensive income (loss), net of tax: | | | | |
Foreign currency translation adjustment | | 10,364 |
| | (41,509 | ) |
Retirement liability adjustment | | 4,256 |
| | 8,572 |
|
Change in accumulated income (loss) on derivatives | | 1,234 |
| | 574 |
|
Other comprehensive income (loss), net of tax | | 15,854 |
| | (32,363 | ) |
Comprehensive income (loss) | | 17,153 |
| | (2,305 | ) |
Comprehensive income (loss) attributable to noncontrolling interest | | — |
| | (506 | ) |
Comprehensive income (loss) attributable to Moog | | $ | 17,153 |
| | $ | (1,799 | ) |
See accompanying Notes to Consolidated Condensed Financial Statements. |
Moog Inc.Consolidated Condensed Balance Sheets
(Unaudited)
| | | | | | | | | | | | | | |
(dollars in thousands) | | April 2, 2022 | | October 2, 2021 |
ASSETS | | | | |
Current assets | | | | |
Cash and cash equivalents | | $ | 120,395 | | | $ | 99,599 | |
Restricted cash | | 1,736 | | | 1,315 | |
Receivables, net | | 931,297 | | | 945,929 | |
Inventories, net | | 591,601 | | | 613,095 | |
Prepaid expenses and other current assets | | 67,802 | | | 58,842 | |
Total current assets | | 1,712,831 | | | 1,718,780 | |
Property, plant and equipment, net | | 668,602 | | | 645,778 | |
Operating lease right-of-use assets | | 61,659 | | | 60,355 | |
Goodwill | | 842,203 | | | 851,605 | |
Intangible assets, net | | 104,608 | | | 106,095 | |
Deferred income taxes | | 16,022 | | | 17,769 | |
Other assets | | 35,568 | | | 32,787 | |
Total assets | | $ | 3,441,493 | | | $ | 3,433,169 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | |
Current liabilities | | | | |
| | | | |
Current installments of long-term debt | | $ | 372 | | | $ | 80,365 | |
Accounts payable | | 222,986 | | | 200,602 | |
Accrued compensation | | 79,709 | | | 112,703 | |
Contract advances | | 321,594 | | | 263,686 | |
| | | | |
Accrued liabilities and other | | 217,780 | | | 212,005 | |
Total current liabilities | | 842,441 | | | 869,361 | |
Long-term debt, excluding current installments | | 832,391 | | | 823,355 | |
Long-term pension and retirement obligations | | 157,962 | | | 162,728 | |
Deferred income taxes | | 70,636 | | | 64,642 | |
Other long-term liabilities | | 107,415 | | | 112,939 | |
Total liabilities | | 2,010,845 | | | 2,033,025 | |
| | | | |
| | | | |
Shareholders’ equity | | | | |
Common stock - Class A | | 43,804 | | | 43,803 | |
Common stock - Class B | | 7,476 | | | 7,477 | |
Additional paid-in capital | | 543,292 | | | 509,622 | |
Retained earnings | | 2,296,849 | | | 2,237,848 | |
Treasury shares | | (1,028,414) | | | (1,007,506) | |
Stock Employee Compensation Trust | | (94,548) | | | (79,776) | |
Supplemental Retirement Plan Trust | | (73,876) | | | (63,764) | |
Accumulated other comprehensive loss | | (263,935) | | | (247,560) | |
Total shareholders’ equity | | 1,430,648 | | | 1,400,144 | |
| | | | |
| | | | |
Total liabilities and shareholders’ equity | | $ | 3,441,493 | | | $ | 3,433,169 | |
See accompanying Notes to Consolidated Condensed Financial Statements. | | | | |
|
| | | | | | | | |
(dollars in thousands) | | December 30, 2017 | | September 30, 2017 |
ASSETS | | | | |
Current assets | | | | |
Cash and cash equivalents | | $ | 394,980 |
| | $ | 368,073 |
|
Receivables | | 739,731 |
| | 727,740 |
|
Inventories | | 511,653 |
| | 489,127 |
|
Prepaid expenses and other current assets | | 38,800 |
| | 41,499 |
|
Total current assets | | 1,685,164 |
| | 1,626,439 |
|
Property, plant and equipment, net of accumulated depreciation of $791,388 and $771,160, respectively | | 527,356 |
| | 522,991 |
|
Goodwill | | 776,156 |
| | 774,268 |
|
Intangible assets, net | | 104,914 |
| | 108,818 |
|
Deferred income taxes | | 11,395 |
| | 26,558 |
|
Other assets | | 33,510 |
| | 31,518 |
|
Total assets | | $ | 3,138,495 |
| | $ | 3,090,592 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | |
Current liabilities | | | | |
Short-term borrowings | | $ | 89 |
| | $ | 89 |
|
Current installments of long-term debt | | 259 |
| | 295 |
|
Accounts payable | | 156,967 |
| | 170,878 |
|
Accrued compensation | | 122,763 |
| | 148,406 |
|
Customer advances | | 179,598 |
| | 159,274 |
|
Contract loss reserves | | 41,786 |
| | 43,214 |
|
Other accrued liabilities | | 112,072 |
| | 107,278 |
|
Total current liabilities | | 613,534 |
| | 629,434 |
|
Long-term debt, excluding current installments | | 962,006 |
| | 956,653 |
|
Long-term pension and retirement obligations | | 260,741 |
| | 271,272 |
|
Deferred income taxes | | 40,782 |
| | 13,320 |
|
Other long-term liabilities | | 33,483 |
| | 5,609 |
|
Total liabilities | | 1,910,546 |
| | 1,876,288 |
|
Commitments and contingencies (Note 18) | | — |
| | — |
|
Shareholders’ equity | | | | |
Common stock - Class A | | 43,716 |
| | 43,704 |
|
Common stock - Class B | | 7,564 |
| | 7,576 |
|
Additional paid-in capital | | 498,699 |
| | 492,246 |
|
Retained earnings | | 1,849,118 |
| | 1,847,819 |
|
Treasury shares | | (739,210 | ) | | (739,157 | ) |
Stock Employee Compensation Trust | | (98,990 | ) | | (89,919 | ) |
Supplemental Retirement Plan Trust | | (13,311 | ) | | (12,474 | ) |
Accumulated other comprehensive loss | | (319,637 | ) | | (335,491 | ) |
Total Moog shareholders’ equity | | 1,227,949 |
| | 1,214,304 |
|
Total liabilities and shareholders’ equity | | $ | 3,138,495 |
| | $ | 3,090,592 |
|
See accompanying Notes to Consolidated Condensed Financial Statements. | | | | |
MoogInc.Consolidated Condensed Statements of Shareholders' Equity
(Unaudited)
| | | | | | | | | | | | | Three Months Ended | | Six Months Ended |
| | | | Number of Shares | |
(dollars in thousands, except per share data) | | Amount | | Class A Common Stock | | Class B Common Stock | |
(dollars in thousands) | | (dollars in thousands) | | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
COMMON STOCK | | | | | | | COMMON STOCK | |
Beginning of period | | $ | 51,280 |
| | 43,704,286 |
| | 7,575,427 |
| |
Conversion of Class B to Class A | | — |
| | 11,300 |
| | (11,300 | ) | |
End of period | | 51,280 |
| | 43,715,586 |
| | 7,564,127 |
| |
Beginning and end of period | | Beginning and end of period | | $ | 51,280 | | $ | 51,280 | | $ | 51,280 | | | $ | 51,280 | |
ADDITIONAL PAID-IN CAPITAL | | | | | | | ADDITIONAL PAID-IN CAPITAL | | |
Beginning of period | | 492,246 |
| | | | | Beginning of period | | 518,857 | | | 505,038 | | | 509,622 | | | 472,645 | |
Issuance of treasury shares | | (1,633 | ) | | | | | Issuance of treasury shares | | 5,854 | | | 3,421 | | | 7,609 | | | 6,539 | |
Equity-based compensation expense | | 2,001 |
| | | | | Equity-based compensation expense | | 1,594 | | | 1,955 | | | 3,999 | | | 4,367 | |
Adjustment to market - SECT, SERP and other | | 6,085 |
| | | | | |
| Adjustment to market - SECT and SERP | | Adjustment to market - SECT and SERP | | 16,987 | | | 8,592 | | | 22,062 | | | 35,455 | |
End of period | | 498,699 |
| | | | | End of period | | 543,292 | | | 519,006 | | | 543,292 | | | 519,006 | |
RETAINED EARNINGS | | | | | | | RETAINED EARNINGS | | |
Beginning of period | | 1,847,819 |
| | | | | Beginning of period | | 2,276,082 | | | 2,142,566 | | | 2,237,848 | | | 2,112,734 | |
Net earnings attributable to Moog | | 1,299 |
| | | | | |
Net earnings | | Net earnings | | 29,087 | | | 48,688 | | | 75,352 | | | 86,530 | |
Dividends (1) | | Dividends (1) | | (8,320) | | | (8,036) | | | (16,351) | | | (16,046) | |
| End of period | | 1,849,118 |
| | | | | End of period | | 2,296,849 | | | 2,183,218 | | | 2,296,849 | | | 2,183,218 | |
TREASURY SHARES AT COST | | | | | | | TREASURY SHARES AT COST | | |
Beginning of period | | (739,157 | ) | | (10,933,003 | ) | | (3,333,927 | ) | Beginning of period | | (1,023,086) | | | (1,000,795) | | | (1,007,506) | | | (990,783) | |
Class A and B shares issued related to equity awards | | 2,681 |
| | 64,486 |
| | 5,878 |
| |
| Class A and B shares issued related to compensation | | Class A and B shares issued related to compensation | | 4,496 | | | 7,592 | | | 5,573 | | | 8,442 | |
Class A and B shares purchased | | (2,734 | ) | | (33,020 | ) | | (15 | ) | Class A and B shares purchased | | (9,824) | | | (7,186) | | | (26,481) | | | (18,048) | |
End of period | | (739,210 | ) | | (10,901,537 | ) | | (3,328,064 | ) | End of period | | (1,028,414) | | | (1,000,389) | | | (1,028,414) | | | (1,000,389) | |
STOCK EMPLOYEE COMPENSATION TRUST (SECT) | | | | | | | |
STOCK EMPLOYEE COMPENSATION TRUST ("SECT") | | STOCK EMPLOYEE COMPENSATION TRUST ("SECT") | | |
Beginning of period | | (89,919 | ) | | (425,148 | ) | | (654,753 | ) | Beginning of period | | (82,721) | | | (78,597) | | | (79,776) | | | (64,242) | |
Issuance of shares | | Issuance of shares | | 5,499 | | | — | | | 7,574 | | | 274 | |
Purchase of shares | | (3,823 | ) | | — |
| | (44,662 | ) | Purchase of shares | | (8,121) | | | (1,904) | | | (10,396) | | | (2,559) | |
Adjustment to market | | (5,248 | ) | | — |
| | — |
| Adjustment to market | | (9,205) | | | (4,533) | | | (11,950) | | | (18,507) | |
End of period | | (98,990 | ) | | (425,148 | ) | | (699,415 | ) | End of period | | (94,548) | | | (85,034) | | | (94,548) | | | (85,034) | |
SUPPLEMENTAL RETIREMENT PLAN (SERP) TRUST | | | | | | | |
SUPPLEMENTAL RETIREMENT PLAN ("SERP") TRUST | | SUPPLEMENTAL RETIREMENT PLAN ("SERP") TRUST | | |
Beginning of period | | (12,474 | ) | | | | (150,000 | ) | Beginning of period | | (66,094) | | | (65,986) | | | (63,764) | | | (53,098) | |
| Adjustment to market | | (837 | ) | | | | — |
| Adjustment to market | | (7,782) | | | (4,061) | | | (10,112) | | | (16,949) | |
End of period | | (13,311 | ) | | | | (150,000 | ) | End of period | | (73,876) | | | (70,047) | | | (73,876) | | | (70,047) | |
ACCUMULATED OTHER COMPREHENSIVE LOSS | | | | | | | ACCUMULATED OTHER COMPREHENSIVE LOSS | | |
Beginning of period | | (335,491 | ) | | | | | Beginning of period | | (249,895) | | | (250,262) | | | (247,560) | | | (285,453) | |
Other comprehensive income (loss) | | 15,854 |
| | | | | Other comprehensive income (loss) | | (14,040) | | | (9,315) | | | (16,375) | | | 25,876 | |
| End of period | | (319,637 | ) | | | | | End of period | | (263,935) | | | (259,577) | | | (263,935) | | | (259,577) | |
TOTAL MOOG SHAREHOLDERS’ EQUITY | | $ | 1,227,949 |
| | 32,388,901 |
| | 3,386,648 |
| |
TOTAL SHAREHOLDERS’ EQUITY | | TOTAL SHAREHOLDERS’ EQUITY | | $ | 1,430,648 | | | $ | 1,338,457 | | | $ | 1,430,648 | | | $ | 1,338,457 | |
See accompanying Notes to Consolidated Condensed Financial Statements. | | See accompanying Notes to Consolidated Condensed Financial Statements. |
(1) Cash dividends were $0.26 and $0.51 per share for the three and six months ended April 2, 2022, respectively. Cash dividends were $0.25 and $0.50 per share for three and six months ended April 3, 2021, respectively.
Moog Inc.Consolidated Condensed Statements of Shareholders’ Equity, Shares
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
(share data) | | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
COMMON STOCK - CLASS A | | | | | | | | |
Beginning of period | | 43,803,236 | | | 43,802,229 | | | 43,803,236 | | | 43,799,229 | |
Conversion of Class B to Class A | | 625 | | | — | | | 625 | | | 3,000 | |
End of period | | 43,803,861 | | | 43,802,229 | | | 43,803,861 | | | 43,802,229 | |
COMMON STOCK - CLASS B | | | | | | | | |
Beginning of period | | 7,476,477 | | | 7,477,484 | | | 7,476,477 | | | 7,480,484 | |
Conversion of Class B to Class A | | (625) | | | — | | | (625) | | | (3,000) | |
End of period | | 7,475,852 | | | 7,477,484 | | | 7,475,852 | | | 7,477,484 | |
TREASURY SHARES - CLASS A COMMON STOCK | | | | | | | | |
Beginning of period | | (14,326,118) | | | (14,018,121) | | | (14,157,721) | | | (13,959,998) | |
| | | | | | | | |
Class A shares issued related to compensation | | 6,987 | | | 3,108 | | | 29,029 | | | 17,560 | |
Class A shares purchased | | (57,943) | | | (96,878) | | | (248,382) | | | (169,453) | |
End of period | | (14,377,074) | | | (14,111,891) | | | (14,377,074) | | | (14,111,891) | |
TREASURY SHARES - CLASS B COMMON STOCK | | | | | | | | |
Beginning of period | | (3,154,267) | | | (3,366,679) | | | (3,179,055) | | | (3,344,877) | |
Class B shares issued related to compensation | | 140,834 | | | 175,994 | | | 199,172 | | | 247,053 | |
Class B shares purchased | | (68,834) | | | (646) | | | (102,384) | | | (93,507) | |
End of period | | (3,082,267) | | | (3,191,331) | | | (3,082,267) | | | (3,191,331) | |
SECT - CLASS A COMMON STOCK | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Beginning and end of period | | (425,148) | | | (425,148) | | | (425,148) | | | (425,148) | |
SECT - CLASS B COMMON STOCK | | | | | | | | |
Beginning of period | | (603,707) | | | (561,951) | | | (600,880) | | | (557,543) | |
Issuance of shares | | 68,763 | | | — | | | 93,763 | | | 4,135 | |
Purchase of shares | | (97,116) | | | (23,633) | | | (124,943) | | | (32,176) | |
End of period | | (632,060) | | | (585,584) | | | (632,060) | | | (585,584) | |
SERP - CLASS B COMMON STOCK | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Beginning and end of period | | (826,170) | | | (826,170) | | | (826,170) | | | (826,170) | |
See accompanying Notes to Consolidated Condensed Financial Statements. |
Consolidated Condensed Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | | | | |
| | Six Months Ended |
(dollars in thousands) | | April 2, 2022 | | April 3, 2021 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
Net earnings | | $ | 75,352 | | | $ | 86,530 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | |
Depreciation | | 38,316 | | | 37,622 | |
Amortization | | 6,735 | | | 6,436 | |
Deferred income taxes | | 4,834 | | | (1,187) | |
Equity-based compensation expense | | 4,578 | | | 4,629 | |
| | | | |
Gain on sale of business | | (16,146) | | | — | |
Asset impairment and Inventory write-down | | 18,441 | | | — | |
Other | | 2,692 | | | (3,115) | |
Changes in assets and liabilities providing (using) cash: | | | | |
Receivables | | (4,223) | | | (47,697) | |
Inventories | | 6,951 | | | 9,301 | |
Accounts payable | | 24,388 | | | (5,088) | |
Contract advances | | 60,392 | | | 51,349 | |
Accrued expenses | | (28,324) | | | (1,799) | |
Accrued income taxes | | 8,217 | | | 12,691 | |
Net pension and post retirement liabilities | | 8,927 | | | 3,846 | |
Other assets and liabilities | | (30,933) | | | (16,151) | |
Net cash provided by operating activities | | 180,197 | | | 137,367 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | |
Acquisitions of businesses, net of cash acquired | | (11,837) | | | (77,600) | |
Purchase of property, plant and equipment | | (74,087) | | | (58,019) | |
Other investing transactions | | 37,776 | | | 1,895 | |
Net cash used by investing activities | | (48,148) | | | (133,724) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | |
| | | | |
Proceeds from revolving lines of credit | | 463,950 | | | 503,200 | |
Payments on revolving lines of credit | | (455,476) | | | (467,700) | |
Proceeds from long-term debt | | — | | | 39,800 | |
Payments on long-term debt | | (80,181) | | | (39,903) | |
| | | | |
| | | | |
| | | | |
Payments on finance lease obligations | | (1,085) | | | (1,042) | |
Payment of dividends | | (16,351) | | | (16,046) | |
Proceeds from sale of treasury stock | | 8,701 | | | 4,230 | |
Purchase of outstanding shares for treasury | | (26,481) | | | (18,844) | |
Proceeds from sale of stock held by SECT | | 7,574 | | | 274 | |
Purchase of stock held by SECT | | (10,396) | | | (2,559) | |
| | | | |
| | | | |
| | | | |
| | | | |
Net cash (used) provided by financing activities | | (109,745) | | | 1,410 | |
Effect of exchange rate changes on cash | | (1,087) | | | 887 | |
Increase in cash, cash equivalents and restricted cash | | 21,217 | | | 5,940 | |
Cash, cash equivalents and restricted cash at beginning of period | | 100,914 | | | 85,072 | |
Cash, cash equivalents and restricted cash at end of period | | $ | 122,131 | | | $ | 91,012 | |
| | | | |
SUPPLEMENTAL CASH FLOW INFORMATION | | | | |
| | | | |
| | | | |
Treasury shares issued as compensation | | $ | 4,482 | | | $ | 10,751 | |
Equipment and property acquired through lease financing | | 17,648 | | | 9,433 | |
See accompanying Notes to Consolidated Condensed Financial Statements. |
|
| | | | | | | | |
| | Three Months Ended |
(dollars in thousands) | | December 30, 2017 | | December 31, 2016 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
Net earnings attributable to Moog and noncontrolling interest | | $ | 1,299 |
| | $ | 30,058 |
|
Adjustments to reconcile net earnings to net cash provided (used) by operating activities: | | | | |
Depreciation | | 17,487 |
| | 17,918 |
|
Amortization | | 4,674 |
| | 4,541 |
|
Deferred income taxes | | 37,617 |
| | 1,371 |
|
Equity-based compensation expense | | 2,001 |
| | 2,168 |
|
Other | | 1,563 |
| | 9,868 |
|
Changes in assets and liabilities providing (using) cash: | | | | |
Receivables | | (10,350 | ) | | (11,012 | ) |
Inventories | | (22,236 | ) | | 6,996 |
|
Accounts payable | | (14,393 | ) | | 6,737 |
|
Customer advances | | 19,888 |
| | 8,287 |
|
Accrued expenses | | (27,233 | ) | | (17,479 | ) |
Accrued income taxes | | 6,965 |
| | (8,885 | ) |
Net pension and post retirement liabilities | | (4,562 | ) | | (1,295 | ) |
Other assets and liabilities | | 31,450 |
| | 1,309 |
|
Net cash provided by operating activities | | 44,170 |
| | 50,582 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | | | | |
Purchase of property, plant and equipment | | (21,084 | ) | | (14,849 | ) |
Other investing transactions | | (537 | ) | | (976 | ) |
Net cash (used) by investing activities | | (21,621 | ) | | (15,825 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | |
Proceeds from revolving lines of credit | | 103,500 |
| | 62,400 |
|
Payments on revolving lines of credit | | (108,610 | ) | | (67,400 | ) |
Proceeds from long-term debt | | 10,000 |
| | — |
|
Payments on long-term debt | | (44 | ) | | (50 | ) |
Proceeds from sale of treasury stock | | 1,048 |
| | 2,135 |
|
Purchase of outstanding shares for treasury | | (2,734 | ) | | (5,211 | ) |
Proceeds from sale of stock held by SECT | | — |
| | 867 |
|
Purchase of stock held by SECT | | (3,823 | ) | | (5,709 | ) |
Net cash (used) by financing activities | | (663 | ) | | (12,968 | ) |
Effect of exchange rate changes on cash | | 5,021 |
| | (15,253 | ) |
Increase in cash and cash equivalents | | 26,907 |
| | 6,536 |
|
Cash and cash equivalents at beginning of period | | 368,073 |
| | 325,128 |
|
Cash and cash equivalents at end of period | | $ | 394,980 |
| | $ | 331,664 |
|
See accompanying Notes to Consolidated Condensed Financial Statements. |
Moog Inc.Notes to Consolidated Condensed Financial Statements
ThreeSix Months Ended December 30, 2017April 2, 2022
(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 and six months ended December 30, 2017April 2, 2022 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 September 30, 2017.October 2, 2021. All references to years in these financial statements are to fiscal years.
COVID-19 Impacts On Our Business
Certain prior year amountsThe spread of the COVID-19 outbreak has disrupted businesses on a global scale. On March 11, 2020, the World Health Organization classified the outbreak as a pandemic. As we entered this crisis, the Company established two clear priorities: first and foremost the health and safety of our employees and their families, and second, continuing to meet the needs of our customers and secure the financial well-being of the Company. Substantially all of our operations and production activities have, to-date, remained operational. COVID-19 is discussed in more detail throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Impairment of Assets
Long-lived assets, including acquired intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. We estimate fair value using undiscounted cash flows to determine whether impairment exists and measure any impairment loss using discounted cash flows, or with another comparable method.
In 2022, we recorded impairment charges on long-lived assets in our Aircraft Controls segment. These charges relate to property, plant and equipment that experienced a significant decline in value due to a slower than expected recovery of our commercial aircraft business. In addition, we have recorded impairment charges on receivables and inventories associated with Russian actions in Ukraine. These charges are included in asset impairment in the Consolidated Condensed Statement of Earnings.
See Note 4 - Receivables, Note 5 - Inventories, Note 6 - Property, Plant and Equipment and Note 12 - Fair Value for additional disclosures relating to impairment charges recorded.
Recent Accounting Pronouncements Adopted
There have been reclassified to conform to current year's presentation. During 2018, we made a change to our segment reporting structure and merged our former Components segment into Space and Defense Controls and Industrial Systems. The Goodwill and Segment footnotes have been restated to reflect these changes.no accounting pronouncements adopted for the six months ended April 2, 2022.
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. 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 not restated, but supplemental information will be provided in our disclosures that will present fiscal 2019 results before adoption of the standard. In addition, a cumulative adjustment will be necessary to Shareholder's Equity at the beginning of 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 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.Accounting Standard Updates ("ASU"). ASUs not listed above were assessed and determined to be either not applicable, or had or are expected to have minimalan immaterial impact on our financial statements and related disclosures.
Note 2 - Acquisitions, DivestituresRevenue from Contracts with Customers
We recognize revenue from contracts with customers using the five-step model prescribed in ASC 606. The first step is identifying the contract. The identification of a contract with a customer requires an assessment of each party’s rights and Equity Method Investmentsobligations regarding the products or services to be transferred, including an evaluation of termination clauses and presently enforceable rights and obligations. Each party’s rights and obligations and the associated terms and conditions are typically determined in purchase orders. For sales that are governed by master supply agreements under which provisions define specific program requirements, purchase orders are issued under these agreements to reflect presently enforceable rights and obligations for the units of products and services being purchased.
On October 3, 2017,
Contracts are sometimes modified to account for changes in contract specifications and requirements. When this occurs, we assess the modification as prescribed in collaborationASC 606 and determine whether the existing contract needs to be modified (and revenue cumulatively caught up), whether the existing contract needs to be terminated and a new contract needs to be created, or whether the existing contract remains and a new contract needs to be created. This is determined based on the rights and obligations within the modification as well as the associated transaction price.
The next step is identifying the performance obligations. A performance obligation is a promise to transfer goods or services to a customer that is distinct in the context of the contract, as defined by ASC 606. We identify a performance obligation for each promise in a contract to transfer a distinct good or service to the customer. As part of our assessment, we consider all goods and/or services promised in the contract, regardless of whether they are explicitly stated or implied by customary business practices. The products and services in our contracts are typically not distinct from one another due to their complexity and reliance on each other or, in many cases, we provide a significant integration service. Accordingly, many of our contracts are accounted for as one performance obligation. In limited cases, our contracts have more than one distinct performance obligation, which occurs when we perform activities that are not highly complex or interrelated or involve different product life cycles. Warranties are provided on certain contracts, but do not typically provide for services beyond standard assurances and are therefore not distinct performance obligations under ASC 606.
The third step is determining the transaction price, which represents the amount of consideration we expect to be entitled to receive from a customer in exchange for providing the goods or services. There are times when this consideration is variable, for example a volume discount, and must be estimated. Sales, use, value-added, and excise taxes are excluded from the transaction price, where applicable.
The fourth step is allocating the transaction price. The transaction price must be allocated to the performance obligations identified in the contract based on relative stand-alone selling prices when available, or an estimate for each distinct good or service in the contract when standalone prices are not available. Our contracts with SIA Engineering Company, announcedcustomers generally require payment under normal commercial terms after delivery. Payment terms are typically within 30 to 60 days of delivery. The timing of satisfaction of our performance obligations does not significantly vary from the joint venture company, Moogtypical timing of payment.
The final step is the recognition of revenue. We recognize revenue as the performance obligations are satisfied. ASC 606 provides guidance to help determine if we are satisfying the performance obligation at a point in time or over time. In determining when performance obligations are satisfied, we consider factors such as contract terms, payment terms and whether there is an alternative use of the product or service. In essence, we recognize revenue when, or as control of, the promised goods or services transfer to the customer.
Revenue is recognized either over time using an input method that uses costs incurred to date to measure progress toward completion ("cost-to-cost") method, or point in time method. The over-time method of revenue recognition is predominantly used in Aircraft Services Asia ("MASA"), in Singapore, of which we currently hold a 51% ownership. MASA is intended to provide maintenance,Controls and Space and Defense Controls. We use this method for U.S. Government contracts and repair and overhaul services for our manufactured flight control systems. As we hold a majority ownership in MASA, but share voting control,arrangements as we are creating or enhancing assets that the customer controls as the assets are being created or enhanced. In addition, many of our large commercial contracts qualify for over-time accounting as our performance does not create an asset with an alternative use and we have an enforceable right to payment for performance completed to date. Our over-time contracts are primarily firm fixed price.
Revenue recognized at the point in time control is transferred to the customer is used most frequently in Industrial Systems. We use this investmentmethod for commercial contracts in which the asset being created has an alternative use. We determine the point in time control transfers to the customer by weighing the five indicators provided by ASC 606 - the entity has a present right to payment; the customer has legal title; the customer has physical possession; the customer has significant risks and rewards of ownership; and the customer has accepted the asset. When control has transferred to the customer, profit is generated as cost of sales is recorded and as revenue is recognized. Inventory costs include all product manufacturing costs such as direct material, direct labor, other direct costs and indirect overhead cost allocations. Shipping and handling costs are considered costs to fulfill a contract and not considered performance obligations. They are included in cost of sales as incurred.
Revenue is recognized on contracts using the equity method. At December 30, 2017, cost-to-cost method of accounting as work progresses toward completion as determined by the ratio of cumulative costs incurred to date to estimated total contract costs at completion, multiplied by the total estimated contract revenue, less cumulative revenue recognized in prior periods. We believe that cumulative costs incurred to date as a percentage of estimated total contract costs at completion is an appropriate measure of progress toward satisfaction of performance obligations as this measure most accurately depicts the progress of our work and transfer of control to our customers. Changes in estimates affecting sales, costs and profits are recognized in the period in which the change becomes known using the cumulative catch-up method of accounting, resulting in the cumulative effect of changes reflected in the period. Estimates are reviewed and updated quarterly for substantially all contracts. For the three and six months ended April 2, 2022 we haverecognized lower revenue of $2,238 and additional revenue of $8,740, respectively, for adjustments made total contributionsto performance obligations satisfied (or partially satisfied) in previous periods. For the three and six months ended April 3, 2021 we recognized additional revenue of $1,541$10,563 and $12,535, respectively, for adjustments made to MASAperformance obligations satisfied (or partially satisfied) in previous periods.
Contract costs include only allocable, allowable and intend to make two additional contributions during 2018. This operation isreasonable costs which are included in cost of sales when incurred. For applicable U.S. Government contracts, contract costs are determined in accordance with the Federal Acquisition Regulations and the related Cost Accounting Standards. The nature of these costs includes development engineering costs and product manufacturing costs such as direct material, direct labor, other direct costs and indirect overhead costs. Contract profit is recorded as a result of the revenue recognized less costs incurred in any reporting period. Variable consideration and contract modifications, such as performance incentives, penalties, contract claims or change orders are considered in estimating revenues, costs and profits when they can be reliably estimated and realization is considered probable. Revenue recognized on contracts for unresolved claims or unapproved contract change orders was not material for the three and six months ended April 2, 2022.
As of April 2, 2022, we had contract reserves of$47,380. For contracts with anticipated losses at completion, a provision for the entire amount of the estimated remaining loss is charged against income in the period in which the loss becomes known. Contract losses are determined considering all direct and indirect contract costs, exclusive of any selling, general or administrative cost allocations that are treated as period expenses. Loss reserves are more common on firm fixed-price contracts that involve, to varying degrees, the design and development of new and unique controls or control systems to meet the customers’ specifications. In accordance with ASC 606, we calculate contract losses at the contract level, versus the performance obligation level. Recall reserves are recorded when additional work is needed on completed products for them to meet contract specifications. Contract-related loss reserves are recorded for the additional work needed on completed and delivered products in order for them to meet contract specifications.
Contract Assets and Liabilities
Unbilled receivables (contract assets) primarily represent revenues recognized for performance obligations that have been satisfied but for which amounts have not been billed. These are included as Receivables on the Consolidated Condensed Balance Sheets. Contract advances (contract liabilities) relate to payments received from customers in advance of the satisfaction of performance obligations for a contract. We do not consider contract advances to be significant financing components as the intent of these payments in advance are for reasons other than providing a significant financing benefit and are customary in our Aircraft Controls segment.industry.
In 2017,Total contract assets and contract liabilities are as follows:
| | | | | | | | | | | | | | |
| | April 2, 2022 | | October 2, 2021 |
Unbilled receivables | | $ | 590,416 | | | $ | 546,764 | |
Contract advances | | 321,594 | | | 263,686 | |
Net contract assets | | $ | 268,822 | | | $ | 283,078 | |
The increase in contract assets reflects the net impact of additional unbilled revenues recorded in excess of revenue recognized during the period. The increase in contract liabilities reflects the net impact of additional deferred revenues recorded in excess of revenue recognized during the period. For the three and six months ended April 2, 2022, we sold non-core businessesrecognized $56,481 and $131,165 of our Spacerevenue, respectively, that was included in the contract liability balance at the beginning of the period.
Remaining Performance Obligations
As of April 2, 2022, the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) was $5,100,000. We expect to recognize approximately 45% of that amount as sales over the next twelve months and Defense Controls segmentthe balance thereafter.
Disaggregation of Revenue
See Note 19 - Segments, for $7,210 in cash and recorded losses in other expense of $13,119disclosures related to the sales.disaggregation of revenue.
Note 3 - Acquisitions and Divestitures
Acquisitions
On April 2, 2017,February 21, 2022, we acquired Rotary Transfer Systems, a manufacturer of electromechanical systems, locatedTEAM Accessories Limited ("TEAM") based in Germany and FranceDublin, Ireland for a purchase price, net of acquired cash, of $42,593,$14,890, consisting of $40,545$11,837 in cash and $2,048contingent consideration with an initial fair value of $3,053. TEAM specializes in assumed pension obligations.Maintenance, Repair and Overhaul ("MRO") of engine and airframe components. This operation is included in our Industrial SystemsAircraft Controls segment. The purchase price allocation is subject to adjustments as we obtain additional information for our estimates during the measurement period.
On December 18, 2020, we acquired Genesys Aerosystems Group, Inc. ("Genesys"), headquartered in Mineral Wells, Texas for a purchase price of $77,600, net of acquired cash. Genesys designs and manufactures a full suite of electronic flight instrument systems and autopilot solutions. This operation is included in our Aircraft Controls segment.
Divestitures
On December 3, 2021, we sold the assets of our Navigation Aids ("NAVAIDS") business based in Salt Lake City, Utah previously included in our Aircraft Controls segment to THALES USA Inc. We received proceeds at closing of $38,611, which are included in other investing transactions on the Consolidated Condensed Statements of Cash Flows and recorded a gain of $16,146, net of transaction costs. The sale is subject to customary post closing working capital and other adjustments, including amounts currently held in escrow.
In the first quarter of 2021, we sold a non-core business in our Aircraft Controls segment for $2,081 in net consideration in other investing transactions and recorded a loss of $683.
Note 34 - Receivables
|
| | | | | | | | |
| | December 30, 2017 | | September 30, 2017 |
Accounts receivable | | $ | 275,939 |
| | $ | 286,773 |
|
Long-term contract receivables: | | | | |
Amounts billed | | 130,452 |
| | 148,087 |
|
Unbilled recoverable costs and accrued profits | | 289,784 |
| | 282,154 |
|
Total long-term contract receivables | | 420,236 |
| | 430,241 |
|
Other | | 48,139 |
| | 15,077 |
|
Total receivables | | 744,314 |
| | 732,091 |
|
Less allowance for doubtful accounts | | (4,583 | ) | | (4,351 | ) |
Receivables | | $ | 739,731 |
| | $ | 727,740 |
|
| | | | | | | | | | | | | | | |
| | April 2, 2022 | | October 2, 2021 | |
Accounts receivable | | $ | 335,755 | | | $ | 395,674 | | |
| | | | | |
| | | | | |
Unbilled receivables | | 590,416 | | | 546,764 | | |
| | | | | |
Other | | 9,536 | | | 7,842 | | |
Less allowance for credit losses | | (4,410) | | | (4,351) | | |
Receivables, net | | $ | 931,297 | | | $ | 945,929 | | |
Net receivables disclosed above reflects the non-cash write-down of $642 recorded for the three months ended April 2, 2022 associated with Russian actions in Ukraine.
On November 4, 2021, Moog Receivables LLC (the "Receivables Subsidiary"), a wholly owned bankruptcy remote special purpose subsidiary of Moog Inc. (the "Company"), as seller, the Company, as master servicer, Wells Fargo Bank, N.A., as administrative agent (the "Agent") and certain purchasers (collectively, the "Purchasers") entered into an Amended and Restated Receivables Purchase Agreement (the "RPA"). The RPA matures on November 4, 2024 and is subject to customary termination events related to transactions of this type.
Under the RPA, the Receivables Subsidiary may sell receivables to the Purchasers in amounts up to a $100,000 limit. The receivables will be sold to the Purchasers in consideration for the Purchasers making payments of cash, which is referred to as "capital" for purposes of the RPA, to the Receivables Subsidiary in accordance with the terms of the RPA. The Receivables Subsidiary may sell receivables to the Purchasers so long as certain conditions are satisfied, including that, at any date of determination, the aggregate capital paid to the Receivables Subsidiary does not exceed a "capital coverage amount", equal to an adjusted net receivables pool balance minus a required reserve. Each Purchaser's share of capital accrues yield at a floating rate plus an applicable margin.
The parties intend that the conveyance of receivables to the Agent, for the ratable benefit of the Purchasers will constitute a purchase and sale of receivables and not a pledge for security. The Receivables Subsidiary has guaranteed to each Purchaser and Agent the prompt payment of sold receivables, and to secure the prompt payment and performance of such guaranteed obligations, the Receivables Subsidiary has granted a security interest to the Agent, for the benefit of the Purchasers, in all assets of the Receivables Subsidiary. The assets of the Receivables Subsidiary are not available to pay our creditors or any affiliate thereof. In our capacity as master servicer under the RPA, we are responsible for administering and collecting receivables and have made customary representations, warranties, covenants and indemnities. We securitizealso provided a performance guarantee for the benefit of the Purchaser.
The proceeds of the RPA are classified as operating activities in our Consolidated Condensed Statement of Cash Flows and were used to pay off the outstanding balance of the Securitization Program. Cash received from collections of sold receivables is used by the Receivables Subsidiary to fund additional purchases of receivables on a revolving basis or to return all or any portion of outstanding capital of the Purchaser. Subsequent collections on the pledged receivables, which have not been sold, will be classified as operating cash flows at the time of collection. Total receivables sold under the RPA were $122,947 and $255,716 for the three and six months ended April 2, 2022, respectively. Total cash collections under the RPA were $112,518 and $155,716 for the three and six months ended April 2, 2022, respectively. The fair value of the sold receivables approximated book value due to their credit quality and short-term nature, and as a result, no gain or loss on sale of receivables was recorded.
As of April 2, 2022, the amount sold to the Purchasers was $100,000, which was derecognized from the Consolidated Condensed Balance Sheets. As collateral against sold receivables, the Receivables Subsidiary maintains a certain level of unsold receivables, which was $596,419 as of April 2, 2022.
Previously we securitized certain trade receivables in transactions that arewere accounted for as secured borrowings (Securitization Program)(the "Securitization Program"). We maintainmaintained a subordinated interest in a portion of the pool of trade receivables that arewere securitized. The retained interest, which is included in Receivables in the consolidated condensed balance sheets,Consolidated Condensed Balance Sheets, is recorded at fair value, which approximates the total amount of the designated pool of accounts receivable. Refer to Note 6,9 - Indebtedness, for additional disclosures related to the Securitization Program.
The allowance for credit losses is based on our assessment of the collectability of customer accounts. The allowance is determined by considering factors such as historical experience, credit quality, age of the accounts receivable, current economic conditions and reasonable forecasted financial information that may affect a customer’s ability to pay.
Note 45 - Inventories
Inventories, net of reserves, consist of:
| | | | December 30, 2017 | | September 30, 2017 | | April 2, 2022 | | October 2, 2021 |
Raw materials and purchased parts | | $ | 201,228 |
| | $ | 189,517 |
| Raw materials and purchased parts | | $ | 232,046 | | | $ | 231,406 | |
Work in progress | | 239,875 |
| | 229,202 |
| Work in progress | | 300,687 | | | 315,762 | |
Finished goods | | 70,550 |
| | 70,408 |
| Finished goods | | 58,868 | | | 65,927 | |
Inventories | | $ | 511,653 |
| | $ | 489,127 |
| |
Inventories, net | | Inventories, net | | $ | 591,601 | | | $ | 613,095 | |
There are no material inventoried costs relating to long-termover-time contracts where revenue is accounted for using the percentage of completion, cost-to-cost method of accounting as of December 30, 2017April 2, 2022 and October 2, 2021.
We have recorded impairment charges on inventory of $1,705 for the three months ended April 2, 2022 associated with Russian actions in Ukraine.
Note 6 - Property, Plant and Equipment
Property, plant and equipment consists of:
| | | | | | | | | | | | | | | | |
| | April 2, 2022 | | October 2, 2021 | | |
Land | | $ | 37,194 | | | $ | 35,762 | | | |
Buildings and improvements | | 513,316 | | | 506,450 | | | |
Machinery and equipment | | 809,641 | | | 791,984 | | | |
Computer equipment and software | | 193,818 | | | 179,066 | | | |
Property, plant and equipment, at cost | | 1,553,969 | | | 1,513,262 | | | |
Less accumulated depreciation and amortization | | (885,367) | | | (867,484) | | | |
Property, plant and equipment, net | | $ | 668,602 | | | $ | 645,778 | | | |
We have recorded impairment charges on property, plant and equipment totaling $14,594 for the three months ended April 2, 2022, based on expected cash flows over the remaining life of the assets in relation to the impairment taken by the Company associated with a slower than expected recovery of our commercial aircraft business.
Note 7 - Leases
We lease certain manufacturing facilities, office space and machinery and equipment globally. At inception we evaluate whether a contractual arrangement contains a lease. Specifically, we consider whether we control the underlying asset and have the right to obtain substantially all the economic benefits or September 30, 2017.outputs from the asset. If the contractual arrangement contains a lease, we then determine the classification of the lease, operating or finance, using the classification criteria described in ASC 842. We then determine the term of the lease based on terms and conditions of the contractual arrangement, including whether the options to extend or terminate the lease are reasonably certain to be exercised. We have elected to not separate lease components from non-lease components, such as common area maintenance charges and instead, account for the lease and non-lease components as a single component.
Our lease right-of-use ("ROU") assets represent our right to use an underlying asset for the lease term and our lease liabilities represent our obligation to make lease payments. Operating lease ROU assets are included in Operating lease right-of-use assets and operating lease liabilities are included in Accrued liabilities and other and Other long-term liabilities on the Consolidated Condensed Balance Sheets. Finance lease ROU assets are included in Property, plant and equipment and finance lease liabilities are included in Accrued liabilities and other and Other long-term liabilities on the Consolidated Condensed Balance Sheets. Operating lease cost is included in Cost of sales and Selling, general and administrative on the Consolidated Condensed Statements of Earnings. Finance lease cost is included in Cost of sales, Selling, general and administrative and Interest on the Consolidated Condensed Statements of Earnings.
The ROU assets and lease liabilities for both operating and finance leases are recognized as of the commencement date at the net present value of the fixed minimum lease payments over the term of the lease, using the discount rate described below. Variable lease payments are recorded in the period in which the obligation for the payment is incurred. Variable lease payments based on an index or rate are initially measured using the index or rate as of the commencement date of the lease and included in the fixed minimum lease payments. For short-term leases that have a term of 12 months or less as of the commencement date, we do not recognize a ROU asset or lease liability on our balance sheet; we recognize expense as the lease payments are made over the lease term.
The discount rate used to calculate the present value of our leases is the rate implicit in the lease. If the information necessary to determine the rate implicit in the lease is not available, we use our incremental borrowing rate for collateralized debt, which is determined using our credit rating and other information available as of the lease commencement date.
The components of lease expense were as follows:
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
April 2, 2022 | April 3, 2021 | April 2, 2022 | April 3, 2021 |
Operating lease cost | $ | 7,218 | | $ | 8,208 | | $ | 14,158 | | $ | 15,092 | |
| | | | |
Finance lease cost: | | | | |
Amortization of right-of-use assets | $ | 672 | | $ | 557 | | $ | 1,259 | | $ | 1,051 | |
Interest on lease liabilities | 247 | | 166 | | 464 | | 327 | |
Total finance lease cost | $ | 919 | | $ | 723 | | $ | 1,723 | | $ | 1,378 | |
Supplemental cash flow information related to leases was as follows:
| | | | | | | | |
| Six Months Ended |
April 2, 2022 | April 3, 2021 |
Cash paid for amounts included in the measurement of lease liabilities: | | |
Operating cash flow for operating leases | $ | 14,615 | | $ | 14,194 | |
Operating cash flow for finance leases | 464 | | 327 | |
Financing cash flow for finance leases | 1,085 | | 1,042 | |
Assets obtained in exchange for lease obligations: | | |
Operating leases | 9,744 | | 5,893 | |
Finance leases | 7,904 | | 3,540 | |
Supplemental balance sheet information related to leases was as follows:
| | | | | | | | |
| April 2, 2022 | October 2, 2021 |
Operating Leases | | |
Operating lease right-of-use assets | $ | 61,659 | | $ | 60,355 | |
| | |
Accrued liabilities and other | $ | 13,204 | | $ | 14,176 | |
Other long-term liabilities | 58,986 | | 57,277 | |
Total operating lease liabilities | $ | 72,190 | | $ | 71,453 | |
| | |
Finance Leases | | |
Property, plant, and equipment, at cost | $ | 27,345 | | $ | 19,861 | |
Accumulated depreciation | (4,159) | | (3,375) | |
Property, plant, and equipment, net | $ | 23,186 | | $ | 16,486 | |
| | |
Accrued liabilities and other | $ | 2,783 | | $ | 2,014 | |
Other long-term liabilities | 22,013 | | 15,904 | |
Total finance lease liabilities | $ | 24,796 | | $ | 17,918 | |
| | |
Weighted average remaining lease term in years | | |
Operating leases | 7.4 | 7.4 |
Finance leases | 18.7 | 15.5 |
| | |
Weighted average discount rate | | |
Operating leases | 4.6 | % | 4.7 | % |
Finance leases | 4.6 | % | 5.0 | % |
Maturities of Contentslease liabilities were as follows:
| | | | | | | | | | | | | | |
| | April 2, 2022 |
| | Operating Leases | | Finance Leases |
2022 | | $ | 8,360 | | | $ | 1,878 | |
2023 | | 14,871 | | | 3,728 | |
2024 | | 11,715 | | | 3,691 | |
2025 | | 9,741 | | | 3,510 | |
2026 | | 8,512 | | | 3,226 | |
Thereafter | | 33,972 | | | 29,283 | |
Total lease payments | | 87,171 | | | 45,316 | |
Less: imputed interest | | (14,981) | | | (20,520) | |
Total | | $ | 72,190 | | | $ | 24,796 | |
Note 58 - Goodwill and Intangible Assets
The changes in the carrying amount of goodwill are as follows:
|
| | | | | | | | | | | | |
| 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. | | | | | | | | | | | | | | |
| Aircraft Controls | Space and Defense Controls | Industrial Systems | Total |
Balance at October 2, 2021 | $ | 210,779 | | $ | 261,767 | | $ | 379,059 | | $ | 851,605 | |
Acquisition | 6,367 | | — | | — | | 6,367 | |
| | | | |
Divestiture | (6,961) | | — | | — | | (6,961) | |
Foreign currency translation | (1,729) | | (28) | | (7,051) | | (8,808) | |
Balance at April 2, 2022 | $ | 208,456 | | $ | 261,739 | | $ | 372,008 | | $ | 842,203 | |
Goodwill in our Space and Defense Controls segment is net of a $4,800 accumulated impairment loss at December 30, 2017.
April 2, 2022. Goodwill in our Medical Devices reporting unit, included in our Industrial Systems segment, is net of a $38,200 accumulated impairment loss at December 30, 2017.April 2, 2022.
The components of intangible assets are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | April 2, 2022 | | October 2, 2021 |
| | Weighted- Average Life (years) | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Customer-related | | 12 | | $ | 167,896 | | | $ | (110,915) | | | $ | 163,215 | | | $ | (108,844) | |
Technology-related | | 9 | | 81,757 | | | (59,571) | | | 82,716 | | | (58,119) | |
Program-related | | 23 | | 39,331 | | | (20,140) | | | 40,211 | | | (19,707) | |
Marketing-related | | 8 | | 28,662 | | | (22,638) | | | 28,590 | | | (22,212) | |
Other | | 10 | | 1,873 | | | (1,647) | | | 1,963 | | | (1,718) | |
Intangible assets | | 12 | | $ | 319,519 | | | $ | (214,911) | | | $ | 316,695 | | | $ | (210,600) | |
|
| | | | | | | | | | | | | | | | | | |
| | | | December 30, 2017 | | September 30, 2017 |
| | Weighted- Average Life (years) | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Customer-related | | 11 | | $ | 177,239 |
| | $ | (131,433 | ) | | $ | 175,872 |
| | $ | (128,019 | ) |
Technology-related | | 9 | | 72,215 |
| | (56,018 | ) | | 71,924 |
| | (55,069 | ) |
Program-related | | 19 | | 66,889 |
| | (31,876 | ) | | 66,458 |
| | (30,675 | ) |
Marketing-related | | 9 | | 26,659 |
| | (19,727 | ) | | 26,552 |
| | (19,251 | ) |
Other | | 10 | | 4,445 |
| | (3,479 | ) | | 4,379 |
| | (3,353 | ) |
Intangible assets | | 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. is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
Acquired intangible asset amortization | $ | 3,329 | | | $ | 3,586 | | | $ | 6,727 | | | $ | 6,419 | |
Based on acquired intangible assets recorded at December 30, 2017,April 2, 2022, amortization is expectedestimated to be approximately $18,400 in 2018, $17,300 in 2019, $15,100 in 2020, $9,400 in 2021 and $7,200 in 2022. approximately:
| | | | | | | | | | | | | | | | | |
| 2022 | 2023 | 2024 | 2025 | 2026 |
Estimated future amortization of acquired intangible assets | $ | 13,500 | | $ | 13,100 | | $ | 12,300 | | $ | 11,200 | | $ | 11,000 | |
Note 69 - Indebtedness
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 30, 2017 | | September 30, 2017 | | April 2, 2022 | | October 2, 2021 |
U.S. revolving credit facility | | $ | 535,000 |
| | $ | 540,110 |
| U.S. revolving credit facility | | $ | 320,100 | | | $ | 321,886 | |
Senior notes | | 300,000 |
| | 300,000 |
| |
SECT revolving credit facility | | SECT revolving credit facility | | 17,000 | | | 7,000 | |
Senior notes 4.25% | | Senior notes 4.25% | | 500,000 | | | 500,000 | |
Securitization program | | 130,000 |
| | 120,000 |
| Securitization program | | — | | | 80,000 | |
Obligations under capital leases | | 263 |
| | 306 |
| |
Other long-term debt | | Other long-term debt | | 1,100 | | | 1,280 | |
Senior debt | | 965,263 |
| | 960,416 |
| Senior debt | | 838,200 | | | 910,166 | |
Less deferred debt issuance cost | | (2,998 | ) | | (3,468 | ) | Less deferred debt issuance cost | | (5,437) | | | (6,446) | |
Less current installments | | (259 | ) | | (295 | ) | Less current installments | | (372) | | | (80,365) | |
Long-term debt | | $ | 962,006 |
| | $ | 956,653 |
| Long-term debt | | $ | 832,391 | | | $ | 823,355 | |
Our U.S. revolving credit facility, which matures on June 28, 2021. Our U.S. revolving credit facilityOctober 15, 2024, has a capacity of $1,100,000 and provides an expansion option, which permits us to request an increase of up to $200,000$400,000 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.leverage. We are in compliance with all covenants.
The SECT has a revolving credit facility with a borrowing capacity of $35,000, maturing on July 26, 2024. Interest is based on LIBOR plus an applicable margin. A commitment fee is also charged based on a percentage of the unused amounts available and is not material.
At December 30, 2017,April 2, 2022, we had $300,000$500,000 aggregate principal amount of 5.25%4.25% senior notes due December 1, 202215, 2027 with interest paid semiannually on June 115 and December 115 of each year.year, which commenced on June 15, 2020. 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 aggregate net proceeds were used to repay indebtedness under our U.S. revolving credit facility, thereby increasing the unused portion of our U.S. revolving credit facility.
The Securitization Program was extended on October 23, 2017 and now matures on October 23, 2019. The Securitization Program provides29, 2021, effectively increasing our borrowing capacity by up to $130,000 of borrowing capacity.$80,000. Under the Securitization Program, we sellsold certain trade receivables and related rights to an affiliate, which in turn sellssold 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 iswas based on 30-day LIBOR plus an applicable margin. A commitment fee iswas also charged based on a percentage of the unused amounts available and iswas not material. The agreement governing the Securitization Program containscontained restrictions and covenants which includeincluded 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 hashad a minimum borrowing requirement equal to the lesser of either 80% of our borrowing capacity or 100% of our borrowing base, which iswas a subset of the trade receivables sold under this agreement. As of December 30, 2017, our minimum borrowing requirement was $104,000.See Note 4 - Receivables, for information related to the amended and restated RPA, which replaced the Securitization Program.
Note 710 - Product WarrantiesOther Accrued Liabilities
Other accrued liabilities consists of:
| | | | | | | | | | | | | | |
| | April 2, 2022 | | October 2, 2021 |
Contract reserves | | $ | 47,380 | | | $ | 58,857 | |
Employee benefits | | 61,345 | | | 54,146 | |
Warranty accrual | | 24,471 | | | 26,602 | |
Accrued income taxes | | 17,412 | | | 12,908 | |
Other | | 67,172 | | | 59,492 | |
Other accrued liabilities | | $ | 217,780 | | | $ | 212,005 | |
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 | | Six Months Ended | | | | | | | | | | | | | | | | |
| | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 | | | | | | | | | | | | | | | | |
Warranty accrual at beginning of period | | $ | 25,026 | | | $ | 29,338 | | | $ | 26,602 | | | $ | 27,707 | | | | | | | | | | | | | | | | | |
Additions from acquisitions | | — | | | — | | | — | | | 990 | | | | | | | | | | | | | | | | | |
Warranties issued during current period | | 2,835 | | | 3,724 | | | 3,400 | | | 7,788 | | | | | | | | | | | | | | | | | |
Adjustments to pre-existing warranties | | (42) | | | (249) | | | (66) | | | (213) | | | | | | | | | | | | | | | | | |
Reductions for settling warranties | | (3,139) | | | (3,363) | | | (4,854) | | | (7,146) | | | | | | | | | | | | | | | | | |
Divestiture adjustment | | (38) | | | — | | | (368) | | | — | | | | | | | | | | | | | | | | | |
Foreign currency translation | | (171) | | | (212) | | | (243) | | | 112 | | | | | | | | | | | | | | | | | |
Warranty accrual at end of period | | $ | 24,471 | | | $ | 29,238 | | | $ | 24,471 | | | $ | 29,238 | | | | | | | | | | | | | | | | | |
|
| | | | | | | | |
| | Three Months Ended |
| | December 30, 2017 | | December 31, 2016 |
Warranty accrual at beginning of period | | $ | 25,848 |
| | $ | 21,363 |
|
Warranties issued during current period | | 4,757 |
| | 3,414 |
|
Adjustments to pre-existing warranties | | (70 | ) | | (265 | ) |
Reductions for settling warranties | | (2,915 | ) | | (1,044 | ) |
Foreign currency translation | | 128 |
| | (585 | ) |
Warranty accrual at end of period | | $ | 27,748 |
| | $ | 22,883 |
|
Note 811 - 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.transactions and interest rate risk associated with long-term debt. We enter into derivative financial instruments with a number of major financial institutions to minimize counterparty credit risk.
Derivatives designated as hedging instruments
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 contracts with notional amounts of $51,047 at April 2, 2022. These contracts mature at various times through September 1, 2023.
We use forward currency contracts to hedge our net investment in certain foreign subsidiaries. As of April 2, 2022, we had no outstanding net investment hedges.
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 30, 2017,April 2, 2022, we had no outstanding interest rate swaps.
Foreign currency contracts, net investment hedges and interest rate swaps with notional amounts totaling $150,000. The interest rate swaps effectively convert this amount of variable-rate debt to fixed-rate debt at 2.62%, including the applicable margin of 1.38% as of December 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 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 $51,608 at December 30, 2017. These contracts mature at various times through November 29, 2019.
These interest rate swaps and foreign currency contracts are recorded in the consolidated condensed balance sheetsConsolidated Condensed Balance Sheets at fair value and the related gains or losses are deferred in shareholders’ equityShareholders’ Equity as a component of Accumulated Other Comprehensive Income (Loss) (AOCIL)("AOCIL"). These deferred gains and losses are reclassified into the consolidated condensed statementsConsolidated Condensed Statements of earningsEarnings, as necessary, during the periods in which the related payments or receipts affect earnings. However, to the extent the foreign currency contracts and 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 threesix months of 20182022 or 2017.
2021.
Derivatives not designated as hedging instruments
We also have foreign currency exposure on balances, primarily intercompany, that are denominated in a foreign currenciescurrency and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in the consolidated condensed statementsConsolidated Condensed Statements of earnings.Earnings. To minimize foreign currency exposure, we had foreign currency contracts with notional amounts of $107,528$101,673 at December 30, 2017.April 2, 2022. The foreign currency contracts are recorded in the consolidated condensed balance sheetsConsolidated Condensed Balance Sheets at fair value and resulting gains or losses are recorded in the consolidated condensed statementsConsolidated Condensed Statements of earnings.Earnings. We recorded the following gains orand 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 30, 2017 | | December 31, 2016 |
Net gain (loss) | | $ | (628 | ) | | $ | 1,394 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended |
Statements of Earnings location | | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
Net gain (loss) | | | | | | | | | |
Foreign currency contracts | Other | | $ | (2,134) | | | $ | (1,795) | | | $ | (4,038) | | | $ | 3,093 | |
Summary of derivatives
The fair value and classification of derivatives is summarized as follows:
| | | | | | | | | | | | | | | | | |
| Balance Sheets location | | April 2, 2022 | | October 2, 2021 |
Derivatives designated as hedging instruments: | | | | | |
Foreign currency contracts | Other current assets | | $ | 559 | | | $ | 325 | |
Foreign currency contracts | Other assets | | 414 | | | 104 | |
| | | | | |
| | | | | |
| | | | | |
| Total asset derivatives | | $ | 973 | | | $ | 429 | |
Foreign currency contracts | Accrued liabilities and other | | $ | 1,610 | | | $ | 1,235 | |
Foreign currency contracts | Other long-term liabilities | | 270 | | | 537 | |
| | | | | |
| | | | | |
| | | | | |
| Total liability derivatives | | $ | 1,880 | | | $ | 1,772 | |
Derivatives not designated as hedging instruments: | | | | |
Foreign currency contracts | Other current assets | | $ | 587 | | | $ | 226 | |
Foreign currency contracts | Accrued liabilities and other | | $ | 595 | | | $ | 480 | |
| | | | | |
|
| | | | | | | | | |
| | | December 30, 2017 | | September 30, 2017 |
Derivatives designated as hedging instruments: | | | | | |
Foreign currency contracts | Other current assets | | $ | 639 |
| | $ | 551 |
|
Foreign currency contracts | Other assets | | 298 |
| | 50 |
|
Interest rate swaps | Other current assets | | 989 |
| | 552 |
|
Interest rate swaps | Other assets | | 471 |
| | 314 |
|
| Total asset derivatives | | $ | 2,397 |
| | $ | 1,467 |
|
Foreign currency contracts | Other accrued liabilities | | $ | 601 |
| | $ | 1,434 |
|
Foreign currency contracts | Other long-term liabilities | | — |
| | 244 |
|
Interest rate swaps | Other accrued liabilities | | — |
| | 10 |
|
Interest rate swaps | Other long-term liabilities | | — |
| | 15 |
|
| Total liability derivatives | | $ | 601 |
| | $ | 1,703 |
|
Derivatives not designated as hedging instruments: | | | | | |
Foreign currency contracts | Other current assets | | $ | 314 |
| | $ | 95 |
|
Foreign currency contracts | Other accrued liabilities | | $ | 515 |
| | $ | 383 |
|
Note 912 - 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 2.2, except for the acquisition contingent consideration, which is classified as Level 3:
| | | | | | | | | | | | | | | | | | | | |
| | Balance Sheets location | | April 2, 2022 | | October 2, 2021 |
Foreign currency contracts | | Other current assets | | $ | 1,146 | | | $ | 551 | |
Foreign currency contracts | | Other assets | | 414 | | | 104 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | Total assets | | $ | 1,560 | | | $ | 655 | |
Foreign currency contracts | | Accrued liabilities and other | | $ | 2,205 | | | $ | 1,715 | |
Foreign currency contracts | | Other long-term liabilities | | 270 | | | 537 | |
| | | | | | |
| | | | | | |
| | | | | | |
Acquisition contingent consideration | | Accrued liabilities and other | | 989 | | | — | |
Acquisition contingent consideration | | Other long-term liabilities | | 2,095 | | | — | |
| | Total liabilities | | $ | 5,559 | | | $ | 2,252 | |
|
| | | | | | | | | | |
| | Classification | | December 30, 2017 | | September 30, 2017 |
Foreign currency contracts | | Other current assets | | $ | 953 |
| | $ | 646 |
|
Foreign currency contracts | | Other assets | | 298 |
| | 50 |
|
Interest rate swaps | | Other current assets | | 989 |
| | 552 |
|
Interest rate swaps | | Other assets | | 471 |
| | 314 |
|
| | Total assets | | $ | 2,711 |
| | $ | 1,562 |
|
Foreign currency contracts | | Other accrued liabilities | | $ | 1,116 |
| | $ | 1,817 |
|
Foreign currency contracts | | Other long-term liabilities | | — |
| | 244 |
|
Interest rate swaps | | Other accrued liabilities | | — |
| | 10 |
|
Interest rate swaps | | Other long-term liabilities | | — |
| | 15 |
|
| | Total liabilities | | $ | 1,116 |
| | $ | 2,086 |
|
The changes in financial liabilities classified as Level 3 within the fair value hierarchy are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
Balance at beginning of period | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Additions from acquisitions | | 3,053 | | | — | | | 3,053 | | | — | |
Increase in discounted future cash flows recorded as interest expense | | 31 | | | — | | | 31 | | | — | |
| | | | | | | | |
| | | | | | | | |
Balance at end of period | | $ | 3,084 | | | $ | — | | | $ | 3,084 | | | $ | — | |
Our only financial instrument for which the carrying value differs from its fair value is long-term debt. At December 30, 2017,April 2, 2022, the fair value of long-term debt was $974,451$816,825 compared to its carrying value of $965,263.$838,200. 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.
Property, plant and equipment, inventories and receivables have been measured at fair values on a nonrecurring basis using future discounted cash flows and other observable inputs (Level 3) and are not included in the fair value tables above. Impairment losses of $16,941 for the three months ended April 2, 2022, are recorded as a result of these measurements and are described in Note 4 - Receivables, Note 5 - Inventories and Note 6 - Property, Plant and Equipment.
Note 13 - Restructuring
In 2022, we initiated restructuring actions in relation to portfolio shaping activities in our Space and Defense and Industrial Systems segments and for slower than expected business recovery in our Aircraft Controls segment. These actions have and will result in workforce reductions, principally in the U.S., U.K. and Europe. The 2022 restructuring charge consists of non-cash charges related to an inventory write-down of $1,500, equipment of $969 and severance of $6,824 for businesses we are no longer pursuing. 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 | | Total |
Balance at October 2, 2021 | $ | 179 | | $ | — | | $ | 5,486 | | | $ | 5,665 | |
| | | | | |
| | | | | |
Charged to expense - 2022 plan | 4,232 | | 3,337 | | 1,724 | | | 9,293 | |
Non-cash charges - 2022 plan | — | | (2,469) | | — | | | (2,469) | |
| | | | | |
| | | | | |
| | | | | |
Cash payments - 2022 plan | — | | (305) | | (43) | | | (348) | |
Cash payments - 2020 plan | — | | — | | (444) | | | (444) | |
Cash payments - 2018 plan | — | | — | | (198) | | | (198) | |
Foreign currency translation | — | | — | | (14) | | | (14) | |
Balance at April 2, 2022 | $ | 4,411 | | $ | 563 | | $ | 6,511 | | | $ | 11,485 | |
As of April 2, 2022, the restructuring accrual consists of $6,477 for the 2022 plan, $3,177 for the 2020 plan and $1,831 for the 2018 plan. Restructuring is expected to be paid within a year, except portions classified as long-term liabilities based on the nature of the reserve.
Note 1014 - Employee Benefit Plans
Pension expense for our defined contribution plans consists of:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
U.S. defined contribution plans | | $ | 11,169 | | | $ | 8,918 | | | $ | 21,714 | | | $ | 17,491 | |
Non-U.S. defined contribution plans | | 2,386 | | | 2,340 | | | 4,538 | | | 3,934 | |
Total expense for defined contribution plans | | $ | 13,555 | | | $ | 11,258 | | | $ | 26,252 | | | $ | 21,425 | |
Net periodic benefit costs for our defined benefit pension plans are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
U.S. Plans | | | | | | | | |
Service cost | | $ | 4,956 | | | $ | 5,622 | | | $ | 9,913 | | | $ | 11,244 | |
Interest cost | | 4,561 | | | 4,276 | | | 9,123 | | | 8,552 | |
Expected return on plan assets | | (7,450) | | | (7,636) | | | (14,901) | | | (15,272) | |
| | | | | | | | |
Amortization of actuarial loss | | 3,897 | | | 3,431 | | | 7,793 | | | 6,861 | |
Expense for U.S. defined benefit plans | | $ | 5,964 | | | $ | 5,693 | | | $ | 11,928 | | | $ | 11,385 | |
Non-U.S. Plans | | | | | | | | |
Service cost | | $ | 1,107 | | | $ | 1,219 | | | $ | 2,229 | | | $ | 2,887 | |
Interest cost | | 627 | | | 526 | | | 1,261 | | | 1,231 | |
Expected return on plan assets | | (886) | | | (990) | | | (1,783) | | | (2,133) | |
Amortization of prior service cost | | 15 | | | 16 | | | 30 | | | 14 | |
Amortization of actuarial loss | | 1,004 | | | 1,403 | | | 2,026 | | | 2,790 | |
Curtailment gain | | — | | | (5,830) | | | — | | | (5,830) | |
| | | | | | | | |
Expense for non-U.S. defined benefit plans | | $ | 1,867 | | | $ | (3,656) | | | $ | 3,763 | | | $ | (1,041) | |
|
| | | | | | | | |
| | Three Months Ended |
| | December 30, 2017 | | December 31, 2016 |
U.S. Plans | | | | |
Service cost | | $ | 5,634 |
| | $ | 6,022 |
|
Interest cost | | 8,073 |
| | 7,636 |
|
Expected return on plan assets | | (13,576 | ) | | (13,628 | ) |
Amortization of prior service cost (credit) | | 47 |
| | 47 |
|
Amortization of actuarial loss | | 6,902 |
| | 8,419 |
|
Pension expense for U.S. defined benefit plans | | $ | 7,080 |
| | $ | 8,496 |
|
Non-U.S. Plans | | | | |
Service cost | | $ | 1,470 |
| | $ | 1,532 |
|
Interest cost | | 1,055 |
| | 751 |
|
Expected return on plan assets | | (1,243 | ) | | (1,131 | ) |
Amortization of prior service cost (credit) | | (14 | ) | | (27 | ) |
Amortization of actuarial loss | | 624 |
| | 1,120 |
|
Pension expense for non-U.S. defined benefit plans | | $ | 1,892 |
| | $ | 2,245 |
|
Pension expense for our defined contribution plans consists of:
|
| | | | | | | | |
| | Three Months Ended |
| | December 30, 2017 | | December 31, 2016 |
U.S. defined contribution plans | | $ | 3,972 |
| | $ | 3,670 |
|
Non-U.S. defined contribution plans | | 1,709 |
| | 1,360 |
|
Total pension expense for defined contribution plans | | $ | 5,681 |
| | $ | 5,030 |
|
In 2018, expected contributions for our U.S. defined benefit pension plans is approximately $149,000.
Note 11 - Restructuring
Restructuring activity for severance and other costs is as follows:
|
| | | |
| Total |
Balance at September 30, 2017 | $ | 1,168 |
|
Cash payments - 2016 plan | (254 | ) |
Balance at December 30, 2017 | $ | 914 |
|
Restructuring is expected to be paid by July 1, 2019 and is classified as current or long-term liabilities based on payment arrangements.
Note 1215 - Income Taxes
The effective tax rate for the three months endedDecember 30, 2017 was 97.3%. The effective rate for this period was significantly impacted by the enactment of the Tax Cuts and 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 previously tax deferred and 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 and six months ended December 31, 2016 was 17.6%.April 2, 2022 were 24.9% and 24.8%, respectively. The effective tax rate for this periodthe three and six months ended April 2, 2022 is lowerhigher than would be expected byfrom applying the U.S. federal statutory tax rate of 21% to earnings before income taxes primarilydue to tax on earnings generated outside the U.S.
The effective tax rate for the three and six months ended April 3, 2021 were 21.6% and 23.1%, respectively. The effective tax rate for the three and six months ended April 3, 2021 is higher than expected from applying the U.S. federal statutory tax benefitsrate of 21% to earnings before income taxes due to tax on earnings generated outside the U.S., partially offset by the benefit of a curtailment gain associated with selling our European space businesses.the termination of a foreign defined benefit pension plan with no associated tax expense in the second quarter.
Note 1316 - Accumulated Other Comprehensive Income (Loss)
The changes in AOCIL, net of tax, by component for the threesix months ended December 30, 2017April 2, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Accumulated foreign currency translation | | Accumulated retirement liability | | Accumulated gain (loss) on derivatives | | Total |
AOCIL at October 2, 2021 | | $ | (92,989) | | | $ | (153,210) | | | $ | (1,361) | | | $ | (247,560) | |
OCI before reclassifications | | (24,798) | | | 1,598 | | | (624) | | | (23,824) | |
Amounts reclassified from AOCIL | | (45) | | | 7,030 | | | 464 | | | 7,449 | |
OCI, net of tax | | (24,843) | | | 8,628 | | | (160) | | | (16,375) | |
AOCIL at April 2, 2022 | | $ | (117,832) | | | $ | (144,582) | | | $ | (1,521) | | | $ | (263,935) | |
|
| | | | | | | | | | | | | | | | |
| | Accumulated foreign currency translation | | Accumulated retirement liability | | Accumulated gain (loss) on derivatives | | Total |
AOCIL at September 30, 2017 | | $ | (83,166 | ) | | $ | (251,865 | ) | | $ | (460 | ) | | $ | (335,491 | ) |
Other comprehensive income (loss) before reclassifications | | 10,364 |
| | (363 | ) | | 905 |
| | 10,906 |
|
Amounts reclassified from AOCIL | | — |
| | 4,619 |
| | 329 |
| | 4,948 |
|
Other comprehensive income (loss) | | 10,364 |
| | 4,256 |
| | 1,234 |
| | 15,854 |
|
AOCIL at December 30, 2017 | | $ | (72,802 | ) | | $ | (247,609 | ) | | $ | 774 |
| | $ | (319,637 | ) |
Net gains and losses on net investment hedges are recorded in Accumulated foreign currency translation to the extent that the instruments are effective in hedging the designated risk.The amounts reclassified from AOCIL into earnings are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | Six Months Ended |
| | Statements of Earnings location | | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
Retirement liability: | | | | | | | | | | |
Prior service cost | | | | $ | 15 | | | $ | 16 | | | $ | 30 | | | $ | 14 | |
| | | | | | | | | | |
Actuarial losses | | | | 4,583 | | | 4,705 | | | 9,183 | | | 9,394 | |
Curtailment gain | | | | — | | | (5,830) | | | — | | | (5,830) | |
| | | | | | | | | | |
Reclassification from AOCIL into earnings | | 4,598 | | | (1,109) | | | 9,213 | | | 3,578 | |
Tax effect | | | | (1,090) | | | (1,121) | | | (2,183) | | | (2,239) | |
Net reclassification from AOCIL into earnings | | $ | 3,508 | | | $ | (2,230) | | | $ | 7,030 | | | $ | 1,339 | |
Derivatives: | | | | | | | | | | |
Foreign currency contracts | | Sales | | $ | 176 | | | $ | (80) | | | $ | 244 | | | $ | (52) | |
Foreign currency contracts | | Cost of sales | | 299 | | | (548) | | | 349 | | | (1,105) | |
| | | | | | | | | | |
Reclassification from AOCIL into earnings | | 475 | | | (628) | | | 593 | | | (1,157) | |
Tax effect | | | | (105) | | | 145 | | | (129) | | | 271 | |
Net reclassification from AOCIL into earnings | | $ | 370 | | | $ | (483) | | | $ | 464 | | | $ | (886) | |
|
| | | | | | | | | | |
| | | | Three Months Ended |
| | Statement of earnings classification | | December 30, 2017 | | December 31, 2016 |
Retirement liability: | | | | | | |
Prior service cost (credit) | | | | $ | (85 | ) | | $ | 19 |
|
Actuarial losses | | | | 7,396 |
| | 9,417 |
|
Reclassification from AOCIL into earnings (1) | | 7,311 |
| | 9,436 |
|
Tax effect | | | | (2,692 | ) | | (3,427 | ) |
Net reclassification from AOCIL into earnings | | $ | 4,619 |
| | $ | 6,009 |
|
Derivatives: | | | | | | |
Foreign currency contracts | | Sales | | $ | (118 | ) | | $ | 1,297 |
|
Foreign currency contracts | | Cost of sales | | 696 |
| | 467 |
|
Interest rate swaps | | Interest | | (14 | ) | | 115 |
|
Reclassification from AOCIL into earnings | | 564 |
| | 1,879 |
|
Tax effect | | | | (235 | ) | | (591 | ) |
Net reclassification from AOCIL into earnings | | $ | 329 |
| | $ | 1,288 |
|
(1) The reclassificationsReclassification from AOCIL into earnings for the Retirement liability are included in the computation of net periodicnon-service pension cost and postretirement benefit cost.expense, which is included in Other on the Consolidated Condensed Statement of Earnings.
The effective portion of amounts deferred in AOCIL are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
Foreign currency contracts | | $ | (857) | | | $ | (283) | | | $ | (802) | | | $ | 348 | |
| | | | | | | | |
Net gain (loss) | | (857) | | | (283) | | | (802) | | | 348 | |
Tax effect | | 192 | | | 64 | | | 178 | | | (66) | |
Net deferral in AOCIL of derivatives | | $ | (665) | | | $ | (219) | | | $ | (624) | | | $ | 282 | |
|
| | | | | | | | | | |
| | | | Net deferral in AOCIL - effective portion |
| | | | Three Months Ended |
| | | | December 30, 2017 | | December 31, 2016 |
Foreign currency contracts | | | | $ | 828 |
| | $ | (1,786 | ) |
Interest rate swaps | | | | 617 |
| | 694 |
|
Net gain (loss) | | | | 1,445 |
| | (1,092 | ) |
Tax effect | | | | (540 | ) | | 378 |
|
Net deferral in AOCIL of derivatives | | $ | 905 |
| | $ | (714 | ) |
Note 1417 - Stock Employee Compensation Trust and Supplemental Retirement Plan Trust
The Stock Employee Compensation Trust (SECT)SECT assists in administering and provides funding for equity-based compensation plans and benefit programs, including the Moog Inc. Retirement Savings Plan (RSP)("RSP") and the Employee Stock Purchase Plan ("ESPP"). The Supplemental Retirement Plan (SERP)SERP Trust provides funding for benefits under the SERP provisions of the Moog Inc. SERP.Plan to Equalize Retirement Income and Supplemental Retirement Income. Both the SECT and the SERP Trust hold Moog 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 1518 - Earnings per Share
Basic and diluted weighted-average shares outstanding, as well as shares considered to be anti-dilutive, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
Basic weighted-average shares outstanding | | 31,984,674 | | | 32,146,247 | | | 32,021,036 | | | 32,110,365 | |
Dilutive effect of equity-based awards | | 136,052 | | | 179,247 | | | 133,406 | | | 170,793 | |
Diluted weighted-average shares outstanding | | 32,120,726 | | | 32,325,494 | | | 32,154,442 | | | 32,281,158 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
Anti-dilutive shares from equity-based awards | | 54,057 | | | 57,751 | | | 58,204 | | | 72,940 | |
|
| | | | | | |
| | Three Months Ended |
| | December 30, 2017 | | December 31, 2016 |
Basic weighted-average shares outstanding | | 35,772,406 |
| | 35,869,052 |
|
Dilutive effect of equity-based awards | | 428,648 |
| | 403,715 |
|
Diluted weighted-average shares outstanding | | 36,201,054 |
| | 36,272,767 |
|
For the three months ended December 30, 2017 and December 31, 2016, there were 13,530 and 111,574 common shares from equity-based awards, respectively, excluded from the calculation of diluted earnings per share as they would be anti-dilutive.
Note 1619 - Segment InformationSegments
Effective October 1, 2017, we made changes to our segment reporting structure that resulted in three reporting segments. Our former Components segment has been separated and merged into Space and Defense Controls and Industrial Systems. All amounts have been restated to reflect this change.
Below areDisaggregation of net sales and operating profit by segment for the three and six months ended December 30, 2017April 2, 2022 and December 31, 2016 and a reconciliationApril 3, 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
Market Type | | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
Net sales: | | | | | | | | |
Military | | $ | 192,089 | | | $ | 201,520 | | | $ | 378,038 | | | $ | 407,218 | |
Commercial | | 119,179 | | | 102,841 | | | 236,547 | | | 183,917 | |
Aircraft Controls | | 311,268 | | | 304,361 | | | 614,585 | | | 591,135 | |
Space | | 87,074 | | | 87,837 | | | 174,657 | | | 165,648 | |
Defense | | 136,275 | | | 118,331 | | | 256,548 | | | 228,682 | |
Space and Defense Controls | | 223,349 | | | 206,168 | | | 431,205 | | | 394,330 | |
Energy | | 32,316 | | | 28,247 | | | 63,782 | | | 56,891 | |
Industrial Automation | | 110,411 | | | 111,206 | | | 212,554 | | | 206,437 | |
Simulation and Test | | 29,625 | | | 19,774 | | | 51,800 | | | 39,900 | |
Medical | | 63,818 | | | 66,646 | | | 120,947 | | | 131,663 | |
Industrial Systems | | 236,170 | | | 225,873 | | | 449,083 | | | 434,891 | |
Net sales | | $ | 770,787 | | | $ | 736,402 | | | $ | 1,494,873 | | | $ | 1,420,356 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
Customer Type | | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
Net sales: | | | | | | | | |
Commercial | | $ | 119,179 | | | $ | 102,841 | | | $ | 236,547 | | | $ | 183,917 | |
U.S. Government (including OEM) | | 138,026 | | | 151,479 | | | 281,905 | | | 308,156 | |
Other | | 54,063 | | | 50,041 | | | 96,133 | | | 99,062 | |
Aircraft Controls | | 311,268 | | | 304,361 | | | 614,585 | | | 591,135 | |
Commercial | | 28,554 | | | 37,019 | | | 52,877 | | | 68,153 | |
U.S. Government (including OEM) | | 180,109 | | | 157,955 | | | 350,124 | | | 296,127 | |
Other | | 14,686 | | | 11,194 | | | 28,204 | | | 30,050 | |
Space and Defense Controls | | 223,349 | | | 206,168 | | | 431,205 | | | 394,330 | |
Commercial | | 235,165 | | | 218,052 | | | 442,400 | | | 420,005 | |
U.S. Government (including OEM) | | 153 | | | 4,428 | | | 3,939 | | | 10,749 | |
Other | | 852 | | | 3,393 | | | 2,744 | | | 4,137 | |
Industrial Systems | | 236,170 | | | 225,873 | | | 449,083 | | | 434,891 | |
Commercial | | 382,898 | | | 357,912 | | | 731,824 | | | 672,075 | |
U.S. Government (including OEM) | | 318,288 | | | 313,862 | | | 635,968 | | | 615,032 | |
Other | | 69,601 | | | 64,628 | | | 127,081 | | | 133,249 | |
Net sales | | $ | 770,787 | | | $ | 736,402 | | | $ | 1,494,873 | | | $ | 1,420,356 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
Revenue Recognition Method | | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
Net sales: | | | | | | | | |
Over-time | | $ | 239,720 | | | $ | 241,935 | | | $ | 486,369 | | | $ | 472,055 | |
Point in time | | 71,548 | | | 62,426 | | | 128,216 | | | 119,080 | |
Aircraft Controls | | 311,268 | | | 304,361 | | | 614,585 | | | 591,135 | |
Over-time | | 207,309 | | | 189,434 | | | 399,755 | | | 363,745 | |
Point in time | | 16,040 | | | 16,734 | | | 31,450 | | | 30,585 | |
Space and Defense Controls | | 223,349 | | | 206,168 | | | 431,205 | | | 394,330 | |
Over-time | | 40,287 | | | 29,367 | | | 69,312 | | | 57,101 | |
Point in time | | 195,883 | | | 196,506 | | | 379,771 | | | 377,790 | |
Industrial Systems | | 236,170 | | | 225,873 | | | 449,083 | | | 434,891 | |
Over-time | | 487,316 | | | 460,736 | | | 955,436 | | | 892,901 | |
Point in time | | 283,471 | | | 275,666 | | | 539,437 | | | 527,455 | |
Net sales | | $ | 770,787 | | | $ | 736,402 | | | $ | 1,494,873 | | | $ | 1,420,356 | |
Operating profit is net sales less cost of sales and other operating expenses, excluding interest expense, equity-based compensation expense, non-service pension 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 employeesmanpower or profit.
|
| | | | | | | | |
| | Three Months Ended |
| | December 30, 2017 | | December 31, 2016 |
Net sales: | | | | |
Aircraft Controls | | $ | 278,534 |
| | $ | 268,450 |
|
Space and Defense Controls | | 133,393 |
| | 122,590 |
|
Industrial Systems | | 215,608 |
| | 198,630 |
|
Net sales | | $ | 627,535 |
| | $ | 589,670 |
|
Operating profit: | | | | |
Aircraft Controls | | $ | 30,768 |
| | $ | 23,111 |
|
Space and Defense Controls | | 16,289 |
| | 9,088 |
|
Industrial Systems | | 19,246 |
| | 20,163 |
|
Total operating profit | | 66,303 |
| | 52,362 |
|
Deductions from operating profit: | | | | |
Interest expense | | 8,646 |
| | 8,486 |
|
Equity-based compensation expense | | 2,001 |
| | 2,168 |
|
Corporate and other expenses, net | | 7,822 |
| | 5,220 |
|
Earnings before income taxes | | $ | 47,834 |
| | $ | 36,488 |
|
The amounts reclassified for net sales and operating Operating profit as a result of the revisedby segment reporting structure for the three and six months ended December 31, 2016April 2, 2022 and April 3, 2021 and a reconciliation of segment operating profit to earnings before income taxes are as follows:
| | | | | | Three Months Ended | | Six Months Ended |
| | December 31, 2016 | | April 2, 2022 | | April 3, 2021 | | April 2, 2022 | | April 3, 2021 |
Net sales: | | | |
Operating profit: | | Operating profit: | |
Aircraft Controls | | Aircraft Controls | | $ | 12,441 | | | $ | 22,018 | | | $ | 54,356 | | | $ | 49,940 | |
Space and Defense Controls | | $ | 29,660 |
| Space and Defense Controls | | 24,075 | | | 26,652 | | | 45,374 | | | 49,698 | |
Industrial Systems | | 86,231 |
| Industrial Systems | | 20,723 | | | 23,813 | | | 37,914 | | | 43,711 | |
Total | | $ | 115,891 |
| |
Total operating profit | | Total operating profit | | 57,239 | | | 72,483 | | | 137,644 | | | 143,349 | |
Deductions from operating profit: | | Deductions from operating profit: | |
Interest expense | | Interest expense | | 8,263 | | | 8,629 | | | 16,245 | | | 17,049 | |
Equity-based compensation expense | | Equity-based compensation expense | | 1,920 | | | 2,127 | | | 4,578 | | | 4,629 | |
Non-service pension expense (income) | | Non-service pension expense (income) | | 1,472 | | | (4,901) | | | 2,957 | | | (3,981) | |
Corporate and other expenses, net | | Corporate and other expenses, net | | 6,871 | | | 4,500 | | | 13,728 | | | 13,153 | |
Earnings before income taxes | | Earnings before income taxes | | $ | 38,713 | | | $ | 62,128 | | | $ | 100,136 | | | $ | 112,499 | |
|
| | | | |
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.
Note 1720 - Related Party Transactions
On November 20, 2017, John Scannell, was elected toMoog's Chairman of the Board of Directors and Chief Executive Officer, is a member of 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 and six months ended December 30, 2017April 2, 2022 totaled $5,459.$4,220 and $7,863, respectively. Credit extension for the three and six months ended April 3, 2021 totaled $3,521 and $6,950, respectively. At December 30, 2017,April 2, 2022, we held a $15,000 interest rate swap with M&T Bank and outstanding leases with a total original cost of $27,955.$16,925. At April 2, 2022, outstanding deposits on our behalf for future equipment leases totaled $2,419. M&T BankBank also maintains an interest of approximatelyapproximately 12% in our U.S. revolving credit facility. Further details of the U.S. revolving credit facility can be found in Note 6,9 - Indebtedness. Wilmington Trust, a subsidiary of M&T Bank, is the trustee of the pension assets for our qualified U.S. defined benefit plan.
Note 1821 - 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 mayis still be significant effort required to complete the ultimate deliverable. Future variability in internal cost as well asand 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 liableliable for $48,793 of$24,109 of standby letters of credit issued by a bank to third parties on our behalf at December 30, 2017.April 2, 2022.
Note 22 - Subsequent Event
On April 28, 2022, we declared a $0.26 per share quarterly dividend payable on issued and outstanding shares of our Class A and Class B common stock on May 31, 2022 to shareholders of record at the close of business on May 13, 2022.
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 September 30, 2017.October 2, 2021. In addition, the following should be read in conjunction with our Consolidated Financial Statements and Notes to Consolidated Condensed Financial Statements contained herein. 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, turreted weapon systems, 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, foras well as integrated space launch vehicles.
In the industrial market, our products are used in a wide range of applications including:
•Industrial automation market - components and systems for injection and blow molding machinery, heavy industry applications for steel and aluminum production, metal forming heavy industry,presses, flight simulation motion control systems and material and automotive structural and fatigue testing and pilot training simulators.systems.
Energy•Medical market - power generation, oilcomponents and gas exploration and wind energy.
Medical market -systems for enteral clinical nutrition and infusion therapy pumps, CT scan medical equipment, ultrasonic sensors and surgical handpieces and CT scanners.sleep apnea equipment.
•Energy market - control and safety components for steam and gas power generation turbines and oil and gas exploration components and systems.
We operate under three segments, Aircraft Controls, Space and Defense Controls and Industrial Systems. Our principal manufacturing facilities are located in the United States, Philippines, United Kingdom, Germany, Czech Republic, Italy, Costa Rica, China, Netherlands, Luxembourg, Japan, Canada, India China, Japan, Italy, Netherlands, Canada, Ireland and Luxembourg.Lithuania.
We have long-term contracts with someUnder ASC 606, 63% of our customers. These contracts are predominantly within Aircraft Controls and Space and Defense Controls and represent 38%, 34% and 33% of our sales in 2017, 2016 and 2015, respectively. We recognize revenue on these contractswas recognized over time for the quarter ended April 2, 2022, using the percentage of completion, cost-to-cost method of accounting as work progresses toward completion.accounting. 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. Thisover-time method of revenue recognition is predominantly used withinin Aircraft Controls and Space and Defense Controls. We use this method for U.S. Government contracts and repair and overhaul arrangements as we are creating or enhancing assets that the customer controls. In addition, many of our large commercial contracts qualify for over-time accounting as our performance does not create an asset with an alternative use and we have an enforceable right to payment for performance completed to date.
For the quarter ended April 2, 2022, 37% of revenue was recognized at the point in time control transferred to the customer. This method of revenue recognition is used most frequently in Industrial Systems segment,Systems. We use this method for commercial contracts in which the asset being created has an alternative use. We determine the point in time control transfers to the customer by weighing the five indicators provided by ASC 606. When control has transferred to the customer, profit is generated as wellcost of sales is recorded and as with aftermarket activity.revenue is recognized.
We concentrate on providing our customers with products designed and manufactured to the highest quality standards. Our technical experts work collaboratively around the world, delivering capabilities for mission-critical solutions. These core operational principles are necessary as our products are applied in demanding applications, "When Performance Really Matters®Matters®." WeBy capitalizing on these core foundational strengths, we believe we have achieved a leadership position in the high performance, precision controls market, by capitalizing on our core foundational strengths, which are our technical experts working collaboratively around the world and the capabilities we deliver for mission-critical solutions. Thesemarket. Additionally, these strengths yield a broad control product portfolio, across a diverse base of customers and end markets.
By focusing on customer intimacy and commitment to solving theirour customers' most demanding technical problems, we have been able to innovateexpand our control product franchise from one market to another,multiple markets; organically growing from a high-performance components suppliermanufacturer to a high-performance systems supplier.designer, manufacturer and systems integrator. In addition, we continue achieving substantialexpanding our content positions on theour current platforms, on which we currently participate, seeking to be the dominantmarket-leading 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 innovative business models.
operational performance.
Our fundamental long-term strategies to achieve our goals center around talent, lean and innovation and include:
•a strong leadership team that has positioned the companyCompany for growth,
•utilizing our global capabilities and strong engineering heritage to innovate,
| |
• | maintaining our technological excellence by solving our customers’ most demanding technical problems in applications "When Performance Really Matters®,"
|
•maintaining our technological excellence by solving our customers’ most demanding technical problems in applications "When Performance Really Matters®,"
•continuing to invest in talent development to strengthen employee performance, and
and •maximizing customer value by implementing lean enterprise 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 basebases and geographic presence.
We focus on improving shareholder value through strategic revenue growth, both acquiredorganic and organic,acquired, through improving operating efficiencies and manufacturing initiatives and through utilizing low cost manufacturing facilities without compromising quality. Additionally,Historically, we takehave taken 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. These activities have included strategic acquisitions, share buybacks and dividend payments. We are well positioned to invest in our business. By accelerating the pace of internal investments, both in terms of capital expenditures as well as investments in new market opportunities, we believe we can create more long term value for our shareholders. We will also continue to explore opportunities to make strategic acquisitions and return capital to shareholders.
Acquisitions and 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 statementsConsolidated Condensed Statements of earningsEarnings 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.Consolidated Condensed 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 2017,Acquisitions
On February 21, 2022, we acquired Rotary Transfer Systems,TEAM Accessories Limited ("TEAM") based in Dublin, Ireland for a manufacturerpurchase price, net of electromechanical systems, locatedacquired cash of $15 million, consisting of $12 million in Germanycash and France for $43contingent consideration with an initial fair value of $3 million. TEAM specializes in Maintenance, Repair and Overhaul ("MRO") of engine and airframe components. This acquisitionoperation is included in our Industrial SystemsAircraft Controls segment. We also sold non-core businesses
On December 18, 2020, we acquired Genesys Aerosystems Group, Inc. ("Genesys"), headquartered in Mineral Wells, Texas for a purchase price of $78 million. Genesys designs and manufactures a full suite of electronic flight instrument systems and autopilot solutions. This operation is included in our SpaceAircraft Controls segment.
Divestitures
On December 3, 2021, we sold the assets of our Navigation Aids ("NAVAIDS") business based in Salt Lake City, Utah previously included in our Aircraft Controls segment to Thales. We received proceeds of $39 million at closing and Defenserecorded a gain of $16 million, net of transaction costs. The sale is subject to customary post closing working capital and other adjustments, including amounts currently held in escrow.
In the first quarter of 2021, we sold a non-core business in our Aircraft Controls segment for $7$2 million in net consideration and recorded losses in other expensea minimal loss.
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, reviews for impairment of long-lived assets, pension assumptions and 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.
Other than that described below, there have been no material changes in critical accounting policies in the current year from those disclosed in our 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.
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 - Basis of Presentation in 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").ASU.
COVID-19 IMPACTS ON OUR BUSINESS
On March 11, 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic. The spread of the COVID-19 pandemic disrupted businesses on a global scale, led to significant volatility in financial markets and affected the aviation and industrial industries. Substantially all of our operations and production activities have, to-date, remained operational. However, the impacts of the pandemic have placed labor and supply chain pressures on our business and we have been impacted by customer demand variability. Although we saw stable and growing backlogs during the first half of 2022 across a number of our end markets, COVID-19 related disruptions are ongoing and continue to adversely challenge our business. The demand variability is most notable in our commercial aircraft business. While we remain bullish about the commercial aircraft business, we believe the recovery to pre-pandemic activity will take longer than originally anticipated. As economic activity continues to recover, we will continue to monitor the situation, assessing further possible implications on our operations, supply chain, liquidity, cash flow and customer orders.
| | CONSOLIDATED RESULTS OF OPERATIONS | | | CONSOLIDATED RESULTS OF OPERATIONS | |
| | | | | | |
| Three Months Ended | | Three Months Ended | | Six Months Ended |
(dollars and shares in millions, except per share data) | December 30, 2017 | December 31, 2016 | $ Variance | % Variance | (dollars and shares in millions, except per share data) | April 2, 2022 | April 3, 2021 | $ Variance | % Variance | | April 2, 2022 | April 3, 2021 | $ Variance | % Variance |
Net sales | $ | 628 |
| $ | 590 |
| $ | 38 |
| 6 | % | Net sales | $ | 771 | | $ | 736 | | $ | 34 | | 5 | % | | $ | 1,495 | | $ | 1,420 | | $ | 75 | | 5 | % |
Gross margin | 29.3 | % | 29.3 | % | | | Gross margin | 27.6 | % | 27.1 | % | | 27.2 | % | 27.4 | % | |
Research and development expenses | $ | 32 |
| $ | 35 |
| $ | (2 | ) | (6 | %) | Research and development expenses | $ | 31 | | $ | 30 | | $ | — | | 1 | % | | $ | 58 | | $ | 58 | | $ | — | | — | % |
Selling, general and administrative expenses as a percentage of sales | 15.3 | % | 14.4 | % | | | Selling, general and administrative expenses as a percentage of sales | 14.4 | % | 14.3 | % | | 14.9 | % | 14.4 | % | |
Interest expense | $ | 9 |
| $ | 8 |
| $ | — |
| 2 | % | Interest expense | $ | 8 | | $ | 9 | | $ | — | | (4 | %) | | $ | 16 | | $ | 17 | | $ | (1) | | (5 | %) |
Asset impairment | | Asset impairment | $ | 15 | | $ | — | | $ | 15 | | — | % | | $ | 15 | | $ | — | | $ | 15 | | — | % |
Restructuring expense | | Restructuring expense | $ | 8 | | $ | — | | $ | 8 | | — | % | | $ | 8 | | $ | — | | $ | 8 | | — | % |
Gain on sale of business | | Gain on sale of business | $ | — | | $ | — | | $ | — | | — | % | | $ | (16) | | $ | — | | $ | (16) | | n/a |
Other | $ | (1 | ) | $ | 8 |
| $ | (9 | ) | (109 | %) | Other | $ | 1 | | $ | (6) | | $ | 8 | | (120 | %) | | $ | 1 | | $ | (3) | | $ | 5 | | (143 | %) |
Effective tax rate | 97.3 | % | 17.6 | % | | | Effective tax rate | 24.9 | % | 21.6 | % | | 24.8 | % | 23.1 | % | |
Net earnings attributable to Moog | $ | 1 |
| $ | 31 |
| $ | (29 | ) | (96 | %) | |
Diluted average common shares outstanding | 36 |
| 36 |
| — |
| — | % | |
Diluted earnings per share attributable to Moog | $ | 0.04 |
| $ | 0.84 |
| $ | (0.80 | ) | (95 | %) | |
| Net earnings | | Net earnings | $ | 29 | | $ | 49 | | $ | (20) | | (40 | %) | | $ | 75 | | $ | 87 | | $ | (11) | | (13 | %) |
| Diluted earnings per share | | Diluted earnings per share | $ | 0.91 | | $ | 1.51 | | $ | (0.60) | | (40 | %) | | $ | 2.34 | | $ | 2.68 | | $ | (0.34) | | (13 | %) |
| Twelve-month backlog | | Twelve-month backlog | | $ | 2,300 | | $ | 1,900 | | $ | 400 | | 21 | % |
Net sales increased in the second quarter and in the first half of 2022 compared to the same periods of 2021 across all of our segments, particularly in our defense and commercial aftermarket programs.
Gross margin in the second quarter of 2022 increased compared to the second quarter of 2021. The increase was driven by a more favorable sales mix within both Aircraft Controls and Industrial Systems. Gross margin decreased in the first half of 2022 compared to the first half of 2021. The second quarter's favorable sales mix was offset by operational inefficiencies across our segments in the first quarter of 2018 compared to the first quarter of 2017.2022.
Gross margin was unchanged in the first quarter of 2018 compared to the same period of 2017. Aircraft Controls' gross margin increased due primarily to a more favorable sales mix from foreign military sales; however, Space and Defense Controls' gross margin decreased due to the reduced amount of last year's favorable defense controls sales.
Research and development expenses decreasedin the second quarter and in the first quarterhalf of 2018 compared to2022 were in line with the same periodperiods of 2017. Within Aircraft Controls, research and development expenses decreased $4 million, as we had lower2021. Higher investment activity across our major commercial OEM programs. The reduced spendin Industrial Systems was offset by increasesreduced spending in researchAircraft Controls and development activities across our remaining two segments.Space and Defense Controls.
Selling,
During the first half of 2022, selling, general and administrative expenses as a percentage of sales increased in the first quarter of 2018as compared to the first half of 2021. These increases were attributable to increased investments in operations to support the current business environment.
The first quarter of 2017. Administrative expense increased $32022 included a $16 million benefit from the sale of our NAVAIDS business. Our portfolio shaping activities, primarily due to the timingNAVAIDS business sale, contributed a net $0.33 of expenses indiluted earnings per share. In the prior year's quarter, and we had higher planned selling expense in select growth markets.
Other expense in the firstsecond quarter of 2017 includes $92022, we incurred $15 million of lossesasset impairments and $8 million of restructuring expenses, primarily in Aircraft Controls, due to business resizing and continued portfolio shaping activities. In addition, we recognized $2 million in asset impairments and inventory write-down charges associated with selling our European space businesses.Russian actions in Ukraine. These charges had an impact of $0.59 on diluted earnings per share. We expect the second quarter's restructuring and impairment benefits to average $4 million per quarter for the next four quarters.
The effective tax ratechange in twelve-month backlog at April 2, 2022 as compared with the first quarter of 2018twelve-month backlog at April 3, 2021 was impacteddriven by the enactment of the Tax Cutsincreases in all segments. Twelve-month backlog increased in Industrial Systems due to recovering demand for our core industrial products. The increase in backlog within Space and Jobs Act of 2017. We recorded a $31 million, one-time transition tax on undistributed foreign earnings deemedDefense Controls was due to be repatriatedincreases in space satellite programs and a tax charge of $15 million as an additional provisionby higher orders 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 subjectdefense control programs. Backlog also increased in Aircraft Controls due 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 amountreceipt 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 arecommercial OEM orders, which was 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 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 divesting our European space businesses. 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 2018 includes $10 million of foreign currency translation income. Other comprehensive loss in the first quarter of 2017 includes $42 million of foreign currency translation loss. Foreign currency translation adjustments increased $52 million during this period, primarily attributable to changes in the Euro and the British Pound.
various military programs.
SEGMENT RESULTS OF OPERATIONS
Effective October 1, 2017, we changed our segment reporting structure to three reporting segments. Our former Components segment has been separated and merged into Space and Defense Controls and Industrial Systems. All amounts have been restated to 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 of19 - Segments in the Notes to Consolidated Condensed Financial Statements included in this report.
Aircraft Controls
| | | Three Months Ended | | Three Months Ended | | Six Months Ended |
(dollars in millions) | December 30, 2017 | December 31, 2016 | $ Variance | % Variance | (dollars in millions) | April 2, 2022 | April 3, 2021 | $ Variance | % Variance | | April 2, 2022 | April 3, 2021 | $ Variance | % Variance |
Net sales - military aircraft | $ | 124 |
| $ | 128 |
| $ | (4 | ) | (3 | %) | Net sales - military aircraft | $ | 192 | | $ | 202 | | $ | (9) | | (5 | %) | | $ | 378 | | $ | 407 | | $ | (29) | | (7 | %) |
Net sales - commercial aircraft | 154 |
| 141 |
| 14 |
| 10 | % | Net sales - commercial aircraft | 119 | | 103 | | 16 | | 16 | % | | 237 | | 184 | | 53 | | 29 | % |
| $ | 279 |
| $ | 268 |
| $ | 10 |
| 4 | % | | $ | 311 | | $ | 304 | | $ | 7 | | 2 | % | | $ | 615 | | $ | 591 | | $ | 23 | | 4 | % |
Operating profit | $ | 31 |
| $ | 23 |
| $ | 8 |
| 33 | % | Operating profit | $ | 12 | | $ | 22 | | $ | (10) | | (43 | %) | | $ | 54 | | $ | 50 | | $ | 4 | | 9 | % |
Operating margin | 11.0 | % | 8.6 | % | | | Operating margin | 4.0 | % | 7.2 | % | | 8.8 | % | 8.4 | % | |
Backlog | $ | 590 |
| $ | 610 |
| $ | (20 | ) | (3 | %) | |
Aircraft Controls' net sales increased in commercial aircraft programsthe second quarter of 2022 and in the first quarterhalf of 20182022 as compared to the first quartersame periods of 2017, but were partially offset by military aircraft sales declines.
Commercial OEM and2021. These increases are attributed to stronger commercial aftermarket sales, eachsomewhat offset by a decrease in military OEM program sales.
In the second quarter of 2022 compared to the second quarter of 2021, sales increased $7$16 million in commercial aftermarket, with $12 million on the 787. The 787 aftermarket growth reflects recovering international travel and one-time test equipment sales. Our commercial OEM programs were up marginally in the second quarter, as increased sales across our business jets and legacy Boeing programs were mostly offset by lower 787 OEM sales.
Military OEM sales decreased $16 million from the second quarter of 2021. The timing of orders and material receipts affecting F-35 and foreign military programs decreased sales $16 million. The prior year's quarter included $5 million of sales from our NAVAIDS business, which we divested in the first quarter of 20182022. These decreases were partially offset by $7 million of increased sales across our helicopter programs. Within military aftermarket, sales increased $7 million. Higher repair volume increased V-22 and F-15 sales $3 million each.
The sales increases in the first half of 2022 compared to the first quarterhalf of 2017. OEM sales for the Airbus A350 increased $5 million2021 were largely due to the program's production volume ramp up, while aftermarketsame factors as the second quarter. As we continue to see recovery within the commercial aircraft market, OEM sales forincreased $28 million. OEM sales to Airbus, primarily driven by the A350, increased $4$14 million, due to higher initial provisioning. Additionally, aftermarketbusiness jet sales increased $12 million and sales for legacy BoeingGenesys programs increased $4 million. Commercial aftermarket sales also increased $25 million across all of our programs. Somewhat offsetting these increases was a $29 million decrease in military OEM sales, primarily on the F-35 and foreign military programs.
Operating margin increased slightly through the first half of 2022 compared to the same period of 2021. Included in this increase was the divestiture of our NAVAIDS business completed as part of our portfolio shaping activities, resulting in a $16 million gain. Offsetting this increase in the second quarter of 2022 was $15 million of impairment and $4 million of restructuring expenses. We made adjustments to our staffing and asset base due to higher repair activity.
Military aftermarket sales declined $5delays in our major customers' expected volume recoveries. The benefits from these actions are expected to average $3 million per quarter for the next four quarters. Excluding the charges in the second quarter, adjusted operating margin was 10.0%. Adjusted operating margin for the first half of 2022 was 9.3% excluding both the second quarter of 2018charges and the gain from the NAVAIDS sale. The adjusted operating margin increase, as compared to the first quarterhalf of 2017 due primarily to production delays on the V-22 program. Military OEM2021, was driven by a more favorable sales were relatively flat, as higher foreign military sales were mostly offset by lower 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 2018 compared to the first quarter of 2017. Research and development expenses decreased $4 million, as we had lower activity on our major commercial OEM programs. Additionally, operating profit benefitedmix from higher amounts of foreign military and commercial aftermarket sales.
The decrease of twelve-month backlog for Aircraft Controls at December 30, 2017 compared to December 31, 2016 is primarily due to the timing of orders for the F-35.
Space and Defense Controls
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
(dollars in millions) | April 2, 2022 | April 3, 2021 | $ Variance | % Variance | | April 2, 2022 | April 3, 2021 | $ Variance | % Variance |
Net sales | $ | 223 | | $ | 206 | | $ | 17 | | 8 | % | | $ | 431 | | $ | 394 | | $ | 37 | | 9 | % |
Operating profit | $ | 24 | | $ | 27 | | $ | (3) | | (10 | %) | | $ | 45 | | $ | 50 | | $ | (4) | | (9 | %) |
Operating margin | 10.8 | % | 12.9 | % | | | | 10.5 | % | 12.6 | % | | |
|
| | | | | | | | | | | |
| Three Months Ended |
(dollars in millions) | December 30, 2017 | December 31, 2016 | $ Variance | % Variance |
Net sales | $ | 133 |
| $ | 123 |
| $ | 11 |
| 9 | % |
Operating profit | $ | 16 |
| $ | 9 |
| $ | 7 |
| 79 | % |
Operating margin | 12.2 | % | 7.4 | % | | |
Backlog | $ | 411 |
| $ | 365 |
| $ | 46 |
| 13 | % |
Space and Defense Controls' net sales increased in the second quarter of 2022 compared to the second quarter of 2021, due to continued growth in our defense market. In the first half of 2022 compared to the first half of 2021, net sales increased as a result of continued growth within both our space and our defense markets inmarkets.
In the firstsecond quarter of 20182022 compared towith the same periodsecond quarter of 2017. Partially offsetting the2021, 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 $18 million, as strong growth of our RIwP SHORAD program increased sales $19 million. The defense increase was marginally offset by a $1 million sales decrease in our space market. The timing of hypersonic development activity and the completion of orders across our heritage space components business decreased sales $12 million. Mostly offsetting these declines was an $11 million sales increase from our satellite business.
The sales increases in the first half of 2022 compared to the first half of 2021 were largely due to the same factors as the second quarter. Through the first half of the year, sales in our defense market increased $28 million, led by a $30 million sales increase in our RIwP program. In addition, sales for our space programs increased $9 million as development work, including our satellite business, was partially offset by the timing of hypersonic activity and satellite controls.
The second quarter of 2022 included $2 million of restructuring charges as we continued our portfolio refinement activities and resized our business. Excluding these charges, adjusted operating margin for the second quarter of 2022 was 11.6%. Combined with the inventory write-down charge in the first quarter, adjusted operating margin for the first half of 20182022 was 11.3%. Continued COVID-19 related direct labor inefficiencies contributed to the lower margins.
Industrial Systems
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
(dollars in millions) | April 2, 2022 | April 3, 2021 | $ Variance | % Variance | | April 2, 2022 | April 3, 2021 | $ Variance | % Variance |
Net sales | $ | 236 | | $ | 226 | | $ | 10 | | 5 | % | | $ | 449 | | $ | 435 | | $ | 14 | | 3 | % |
Operating profit | $ | 21 | | $ | 24 | | $ | (3) | | (13 | %) | | $ | 38 | | $ | 44 | | $ | (6) | | (13 | %) |
Operating margin | 8.8 | % | 10.5 | % | | | | 8.4 | % | 10.1 | % | | |
Net sales in Industrial Systems increased in the second quarter and in the first half of 2022 compared to the second quarter and the first quarterhalf of 2017. Spares sales for controls for domestic and European defense vehicles increased $6 million, and sales for defense components increased $4 million. Sales2021. These increases were driven by recoveries in our space market increased $2 million in the first quarter of 2018 compared to the first quarter of 2017. New satellite avionics programssimulation and new launch vehicle programs increased sales by $7 million, but were offset by the lost sales associated with the divestitures.
Operating margin increased in the first quarter of 2018 compared to the first quarter of 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 14.7% in the first quarter of 2017, reflecting a more favorable sales mix in our defensetest and energy markets.
Twelve-month backlog for Space and Defense Controls at December 30, 2017 compared to December 31, 2016 increased as growth in satellite avionics and launch vehicles was partially offset by completing defense controls programs.
Industrial Systems
|
| | | | | | | | | | | |
| Three Months Ended |
(dollars in millions) | December 30, 2017 | December 31, 2016 | $ Variance | % Variance |
Net sales | $ | 216 |
| $ | 199 |
| $ | 17 |
| 9 | % |
Operating profit | $ | 19 |
| $ | 20 |
| $ | (1 | ) | (5 | %) |
Operating margin | 8.9 | % | 10.2 | % | | |
Backlog | $ | 272 |
| $ | 216 |
| $ | 55 |
| 25 | % |
Industrial Systems' net sales increased across our four markets in the first quarter of 2018 compared to the first quarter of 2017. Stronger Weaker foreign currencies, primarily the Euro relative to the U.S. Dollar, increaseddecreased sales $6 million and $8 million, respectively, in the recent acquisitionsecond quarter of Rotary Transfer Systems also2022 and the first half relative to the same periods of 2021.
In the second quarter of 2022 compared to the second quarter of 2021, sales within our simulation and test market increased $10 million. This reflects demand recovery in flight training activity. Also, sales $6increased $4 million primarily in our industrial automation market.energy market, driven by higher on-shore and off-shore generation and exploration activity. Partially offsetting these increases was a $3 million sales decline in our medical market from lower component sales for ventilator applications.
Excluding the currency effects on
The sales increases in the first quarterhalf of 20182022 compared to the first quarterhalf of 2017, sales2021 were largely due to the same factors as the second quarter. Sales increased $12 million in our simulation and test market dueand $7 million in our energy market. In addition, within our industrial automation market, sales increased $6 million as customers continued to build capacity to meet recovering demand. For the timingfirst half of shipments of our auto test and entertainment applications. Sales also increased2022, sales in our medical market decreased $11 million, due to higher sales volumes for IV pumpsboth lower component and sets as well as medical components. In addition, shipments for energy exploration products increased for on-shore drilling applications.device sales.
Operating margin decreased in the first quarterhalf of 20182022 compared to the first half of 2021. In the second quarter of 2017. We had higher2022, we incurred a $2 million impairment charge on assets associated with Russian actions in Ukraine, and an additional $2 million of restructuring charges related to our portfolio refinement activities. Excluding these charges, adjusted operating margin was 10.5% for the second quarter and 9.3% for the first half of 2022. In the first quarter of 2022, as part of our continued portfolio refinement activities, we incurred moving expenses including increased investmentsand production disruptions as we consolidated facilities in researchEurope and development and selling, whose increases offset the incremental margin from the higher sales volume.
The higher level of twelve-month backlog in Industrial Systems at December 31, 2017 compared to December 31, 2016 is mostly due to higher orders inUS. These activities further reduced our simulation and test market.
operating margin.
|
| | | | | | | | | | | | | | |
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 | % | | | | |
CONSOLIDATED SEGMENT OUTLOOK2018 | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2022 vs. 2021 |
(dollars in millions) | 2022 Outlook | | 2021 | | $ Variance | | % Variance |
Net sales: | | | | | | | |
Aircraft Controls | $ | 1,245 | | | $ | 1,161 | | | $ | 84 | | | 7 | % |
Space and Defense Controls | 880 | | | 799 | | | 81 | | | 10 | % |
Industrial Systems | 910 | | | 892 | | | 18 | | | 2 | % |
| $ | 3,035 | | | $ | 2,852 | | | $ | 183 | | | 6 | % |
Operating profit: | | | | | | | |
Aircraft Controls | $ | 123 | | | $ | 97 | | | $ | 27 | | | 28 | % |
Space and Defense Controls | 98 | | | 88 | | | 10 | | | 11 | % |
Industrial Systems | 82 | | | 86 | | | (4) | | | (5 | %) |
| $ | 303 | | | $ | 271 | | | $ | 32 | | | 12 | % |
Operating margin: | | | | | | | |
Aircraft Controls | 9.9 | % | | 8.3 | % | |
| |
|
Space and Defense Controls | 11.1 | % | | 11.1 | % | |
| |
|
Industrial Systems | 9.0 | % | | 9.6 | % | |
| |
|
| 10.0 | % | | 9.5 | % | | | |
|
| | | | | | | |
Net earnings | $ | 169 | | | $ | 157 | | | | | |
Diluted earnings per share | $5.04 - $5.44 | | $ | 4.87 | | | | | |
2022 Outlook – We expect that all three segments will contribute to higher sales across all segments in 2018, driven primarily by industrial automation sales in Industrial Systems and military OEM sales for the F-35 program in Aircraft Controls.2022. We expect 2018 operating margin will increase due to the absence of 2017's losses associated with divesting non-core businesses,gain on the NAVAIDS sale, as well as incrementaloperational improvements within Aircraft Controls and Space and Defense Controls. A portion of this margin from higher sales. However,improvement will be offset by charges associated with continued portfolio shaping activities and resizing the business. As a result, we expect thatour earnings per share range to be between $5.04 and $5.44, with a midpoint of $5.24. Excluding the impact of$16 million NAVAIDS gain and the Tax Cutsfirst half charges, which include $15 million in impairment charges, $8 million in restructuring charges and Jobs Act will result$2 million in an unusually high effective tax rate of 42%charges from Russian actions in 2018. This will result in a 12% decrease in net earnings attributable to common shareholders to $124 million, and dilutedUkraine, we expect our adjusted earnings per share will range between $3.23$5.30 and $3.63$5.70, with a midpoint of $3.43. Excluding all$5.50. This adjusted outlook is unchanged from the prior quarter's outlook. Management believes that the adjusted outlook may be useful in evaluating the financial condition and results of operations 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.Company.
2018
2022Outlook for Aircraft Controls– We expect 20182022 sales in Aircraft Controls willwithin commercial aircraft to increase primarily due to the continued ramp ups of thehigher activity in our OEM programs, combined with general recoveries within business jets and strong commercial aftermarket sales. We also expect that military sales will decrease marginally. Lower F-35 programOEM activity, foreign military sales and the Airbus A350 program. Partially offsettingsales from the NAVAIDS business we divested in the first quarter of 2022, will be partially offset by increases is an expected sales decline of legacy Boeing OEMfrom helicopters and funded development programs. We expect 2018 operating margin will increase comparedin 2022 due to 2017. We expect that researchimprovement in labor utilization 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.productivity rates.
2018
2022Outlook for Space and Defense Controls – We expect 20182022 sales in Space and Defense Controls will increase due to sales growth from launch vehicles and satellite programs. Also, withinin both markets. Within our defense market, we expect higher missile systemssales from the ramp up of our RIwP program, and security sales will offset a decline in defense controlshigher component sales. We expect 2018the sales increase in our space market to be driven by higher sales from advanced missions and satellites, partially offset by timing on hypersonic program activity. We expect operating margin will increase,to remain in line with 2021 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, lead primarily by growth in our industrial automation products. We expect 2018 operating margin will increase as we benefit from incremental margin on higher sales, volumes.primarily in our defense market, is offset by our performance in the first half of the year.
2022 Outlook for Industrial Systems – We expect an increase in Industrial Systems' sales in 2022 when compared to 2021. We anticipate strong sales within our simulation and test market as flight simulation activity recovers. We also expect a modest sales increase within our energy business. We expect operating margin will decrease in 2022 as compared to 2021, as our ongoing portfolio shaping activities will offset the benefit of our growing backlog.
FINANCIAL CONDITION AND LIQUIDITY
| | | Three Months Ended | | Six Months Ended |
(dollars in millions) | December 30, 2017 | December 31, 2016 | $ Variance | % Variance | (dollars in millions) | April 2, 2022 | April 3, 2021 | $ Variance |
Net cash provided (used) by: | | | Net cash provided (used) by: | |
Operating activities | $ | 44 |
| $ | 51 |
| $ | (6 | ) | (13 | %) | Operating activities | $ | 180 | | $ | 137 | | $ | 43 | |
Investing activities | (22 | ) | (16 | ) | (6 | ) | 37 | % | Investing activities | (48) | | (134) | | 86 | |
Financing activities | (1 | ) | (13 | ) | 12 |
| (95 | %) | Financing activities | (110) | | 1 | | (111) | |
Our available borrowing capacity and our cash flow from operations providehave provided us with the financial resources needed to run our operations, reinvest in our businessmake organic investments, fund acquisitive growth and make strategic acquisitions.return capital to shareholders.
At December 30, 2017,April 2, 2022, our cash balances were $395$122 million, which iswere 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. Due to provisions in the Tax Cuts and Jobs Act, we plan to repatriate substantial amounts of our existing offshore cash and future earnings back to the U.S.
Operating activities
Net cash provided by operating activities decreasedincreased in the first quarterhalf of 20182022 compared to the same periodfirst half of 2017. Operationally, increases in inventory, primarily in Aircraft Controls and Industrial Systems,2021. The first half of 2022 included $100 million from our receivables purchase agreement. Excluding this benefit, cash provided by operating activities decreased. In accounts receivable, we used $29$56 million more in cash, andexclusive of the unfavorablereceivables purchasing agreement. This is due, in part, to the timing of payments across all of our segments used $21 million. These uses were principally offset byinvoicing from strong cash collections fromsales late in the second quarter. Also, accounts receivable and customer advancesincreased in Space and Defense Controls and Aircraft Controls.commercial aircraft programs where our production level was higher than the rate at which our customers took deliveries.
Investing activities
Net cash used by investing activities in the first quarterhalf of 20182022 included $21$74 million for capital expenditures, while netas we increased investments in facilities to support growth and provide next generation manufacturing capabilities. Also, the first half of 2022 included $12 million for the acquisition of TEAM Accessories. These cash outflows were partially offset by the proceeds from the sale of the NAVAIDS business.
Net cash used by investing activities in 2017the first half of 2021 included $15$78 million for our acquisition of Genesys and $58 million for capital expenditures.
We expect our 2018 capital Capital expenditures in 2021 were constrained in response to be approximately $95 million, due to facilities investments supporting the increased production of the F-35 program, as well as engine propulsion testing.COVID-19 uncertainty.
Financing activities
CashNet cash used by financing activities in the first quartershalf of 2018 and 2017 both include2022 included $72 million of net paymentspaydown on our credit facility.facilities. Additionally, financing activities in the first half of 2022 included $17 million of share repurchases and $16 million of cash dividends.
Net cash provided by financing activities in the first half of 2021 included $35 million of net proceeds on our credit facilities. Additionally, financing activities in the first half of 2021 included $18 million to fund our stock repurchase program and $16 million of cash dividends.
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 financial condition, results of operations or financial condition.cash flows.
Contractual Obligations and Commercial Commitments
Our contractual obligations and commercial commitments have not changed materially from the disclosures in our 2017 Annual Report on Form 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.
year ended October 2, 2021.
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, which matures on June 28, 2021. The U.S. revolving credit facilityOctober 15, 2024, has a capacity of $1.1 billion and also provides an expansion option, which permits us to request an increase of up to $200$400 million to the credit facility upon satisfaction of certain conditions. The U.S. revolving credit facility had an outstanding balance of $535$320 million at December 30, 2017.April 2, 2022. The weighted-average interest rate on allthe majority of the outstanding credit facility borrowings was 2.89%1.92% and is principally based on LIBOR plus the applicable margin, which was 1.38%1.50% at December 30, 2017.April 2, 2022. The credit facility is secured by substantially all of our U.S. assets.
The U.S. revolving credit facility contains various covenants. The covenantminimum for minimumthe interest coverage ratio, defined as the ratio of EBITDA to interest expense for the most recent four quarters, is 3.0. The covenantmaximum 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 3.5.4.0. 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 30, 2017, we had $529 million of unused capacity, including $516 million from the U.S.The SECT has a revolving credit facility after considering standby letterswith a borrowing capacity of credit.$35 million, maturing on July 26, 2024. Interest was 2.54% as of April 2, 2022 and is based on LIBOR plus a margin of 2.13%. As of April 2, 2022, there were $17 million of outstanding borrowings.
We have $300$500 million aggregate principal amount of 5.25%4.25% senior notes due December 1, 202215, 2027 with interest paid semiannually on June 115 and December 115 of each year.year, which commenced on June 15, 2020. 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 aggregate net proceeds were used to repay indebtedness under our U.S. bank facility, thereby increasing the unused portion of our U.S. revolving credit facility.
On November 4, 2021, the Receivables Subsidiary, a wholly owned bankruptcy remote special purpose subsidiary of the Company, as seller, the Company, as master servicer, Wells Fargo Bank, N.A., as the Agent and the Purchasers entered into an Amended and Restated RPA. The RPA matures on November 4, 2024 and is subject to customary termination events related to transactions of this type.
Under the RPA, the Receivables Subsidiary may sell receivables to the Purchasers in amounts up to a $100 million limit. The receivables will be sold to the Purchasers in consideration for the Purchasers making payments of cash, which is referred to as "capital" for purposes of the RPA, to the Receivables Subsidiary in accordance with the terms of the RPA. The Receivables Subsidiary may sell receivables to the Purchasers so long as certain conditions are satisfied, including that, at any date of determination, the aggregate capital paid to the Receivables Subsidiary does not exceed a "capital coverage amount", equal to an adjusted net receivables pool balance minus a required reserve. Each Purchaser's share of capital accrues yield at a floating rate plus an applicable margin, which totaled 1.34% as of April 2, 2022.
The parties intend that the conveyance of receivables to the Agent, for the ratable benefit of the Purchasers will constitute a purchase and sale of receivables and not a pledge for security. The Receivables Subsidiary has guaranteed to each Purchaser and Agent the prompt payment of sold receivables, and to secure the prompt payment and performance of such guaranteed obligations, the Receivables Subsidiary has granted a security interest to the Agent, for the benefit of the Purchasers, in all assets of the Receivables Subsidiary. The assets of the Receivables Subsidiary are not available to pay our creditors or any affiliate thereof. In our capacity as master servicer under the RPA, we are responsible for administering and collecting receivables and have made customary representations, warranties, covenants and indemnities. We havealso provided a performance guarantee for the benefit of the Purchaser.
Cash received from collections of sold receivables is used by the Receivables Subsidiary to fund additional purchases of receivables on a revolving basis or to return all or any portion of outstanding capital of the Purchaser. As of April 2, 2022, the amount sold to the Purchasers and derecognized was $100 million.
Previously, we securitized certain trade receivables securitization facilitythat were accounted for as secured borrowings (the "Securitization Program"“Securitization Program”), which. The Securitization Program was extended on October 23, 2017 and now matures on October 23, 2019. The Securitization Program provides29, 2021, providing up to $130$80 million of borrowing capacity and lowerslowered our cost to borrow funds as compared to the U.S. revolving credit facility. Under the Securitization Program, we sellsold certain trade receivables and related rights to an affiliate, which in turn sellssold 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. We had an outstanding balance of $130 million at December 30, 2017. The Securitization Program hashad a minimum borrowing requirement equal to the lesser of either 80% of our borrowing capacity or 100% of our borrowing base, which was $104 million at December 30, 2017.a subset of the trade receivables sold under this agreement. Interest on the secured borrowings under the Securitization Program was 2.39% at December 30, 2017 and is based on 30-day LIBOR plus an applicable margin.
At April 2, 2022, we had $785 million of unused capacity, including $756 million from the U.S. revolving credit facility after considering standby letters of credit. Our leverage ratio covenant limits our ability to increase net debt by $581 million as of April 2, 2022.
Net debt to capitalization was 32% at December 30, 2017 and 33% at September 30, 2017.April 2, 2022 and 36% at October 2, 2021. The decrease in net debt to capitalization is primarily due to positivethe repayment of outstanding borrowings.
We declared and paid cash flow.
dividends of $0.25 and $0.26per share on our Class A and Class B common stock in the first and second quarters of 2022, respectively. We believe thatdeclared and paid cash dividends of $0.25per share on our cash on hand, cash flows from operationsClass A and available borrowings under shortClass B common stock in the first and long-term arrangements will continue to be sufficient to meet our operating needs.second quarters of 2021.
The Board of Directors has authorized a share repurchase program. This program has been amended from time to time to authorize additionalthat authorizes repurchases that includesfor both Class A and Class B common shares,stock, and allows us to buy up to an aggregate 133 million common shares. Under this program, since inception we have purchased approximately 9.7 million482,000 shares for $650 million$37 million.
We are well positioned to invest in our business and by accelerating the pace of internal investments, both in terms of capital expenditures as of December 30, 2017.
well as investments in new market opportunities, we believe we can create more long term value for our shareholders. We will also continue to explore opportunities to make strategic acquisitions and return capital to shareholders.
ECONOMIC CONDITIONS AND MARKET TRENDS
We operate within the aerospace and defense and industrial markets. Our businesses continue to face varying levels of supply chain and production level pressures from the COVID-19 pandemic.
Our defense and aerospace andbusinesses represented 69% of our 2021 sales. Within the defense marketsmarket, our programs are directly affected by market conditions and program funding levels, whilewhich have remained relatively stable. Our commercial aircraft market, which represented less than 15% of our 2021 sales, continues to face the greatest pressure due to dramatic reductions in air travel throughout the past two years. While domestic travel has recovered, international travel remains below pre-pandemic levels.
Within our industrial markets, which represented 31% of our 2021 sales, we have seen recent signs of recovery within industrial automation, simulation and test and energy markets. However, as customer demand increases, we are influenced by general capital investment trendsnow experiencing supply chain pressures and economic conditions. direct labor inefficiencies. Our medical business, which represented less than 10% of our 2021 sales, experienced a surge in demand for our medical applications essential in the fight against the pandemic. This surge in demand has waned, as our customers have resized their inventory levels.
A common factor throughout our markets is the continuing demand for technologically advanced products.
Aerospace and Defense
Approximately two-thirds of our 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. We have a growing development program order book for future generation aircraft and hypersonic missiles, and we strive to embed our technologies within these high-performance military programs of the future. Aircraft production programs are typically long-term in nature, offering predictability as topredictable capacity needs and future revenues. We maintain positions on numerous high priority programs, including the Lockheed Martin F-35 Joint Strike Fighter,Lightning II, 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. OurAt times when there are perceived threats to national security, and surveillance product line is dependent on government fundingU.S. defense spending can increase; at federal and local levels, as well as private sector demand.
Reductions in theother times, defense spending can decrease. The enacted U.S. Department of Defense's mandatory and discretionary budgetedDefense budget for the government's fiscal year 2022 included an increase in defense spending which became effective on March 1, 2013, resulting from the Budget Control Act of 2011, has had ramifications for the domestic aerospace and defense 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 Department of Defense spending through 2017. However, future budgets beyond 2017 are uncertain with respect to the overallprior year. Future levels of defense spending. Currently, we expect approximately $720 million of U.S. defense salesspending are uncertain, subject to presidential and congressional approval, and could increase in 2018.the near-term given the current global tensions.
The commercial OEM aircraft market is dependenthas depended on a number of factors, including both the last decade's increasing global demand for air travel which generally follows underlying economic growth. As such,and increasing fuel prices. Both factors contributed to the commercial aircraft market has historically exhibited cyclical swings which tend to track the overall economy. In recent years, the development ofdemand for new, more fuel-efficient commercialaircraft with lower operating costs that led to large production backlogs for Boeing and Airbus. However, the impact of the COVID-19 pandemic drastically reduced air transportstraffic as travel restrictions were implemented to help control the spread of the virus. Although U.S. domestic air travel has helped driverecently increased, demand ininternational travel has not yet fully recovered. Given the uncertain length of this pandemic and associated restrictions to long distance travel, the commercial wide-body aircraft market will take longer to recover. Furthermore, as airlines replace older, less fuel-efficientcompanies and employees become accustomed to working remotely, business travel and the associated flight hours may not reach the pre-pandemic levels. As such, we believe Boeing and Airbus will continue to directionally match their wide-body aircraft production rates with newer models in an effortthe reduced air traffic volume, which has lowered their demand for our flight control systems. We believe the commercial OEM market's recovery is heavily dependent on the return to reduce operating costs. pre-COVID-19 air traffic activity levels and therefore will face pressures for a prolonged period of time.
The commercial aftermarket is driven by usage and the age 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 affectwhich drives the need for maintenance and spare parts impacting aftermarket sales. Boeingrepairs. While there were initial dramatic reductions in flight hours and Airbusairlines took cash preservation measures due to the impacts of COVID-19, we have historically adjusted productionseen a recovery in line with air traffic volume. Demandthe demand volume for our maintenance services and spare parts.
The space market is comprised of four customer markets: the civil market, the U.S. Department of Defense market, the commercial aircraft productsspace market and the new space market. The civil market, namely NASA, is in large part dependentdriven by investment for commercial and exploration activities, including NASA's return to the moon. The U.S. Department of Defense market is driven by governmental-authorized levels of defense spending, including funding for hypersonic defense technologies. Levels of U.S. defense spending could increase as there is growing emphasis on new aircraft production, which is increasingspace as Boeing and Airbus work to fulfill large backlogsthe next frontier of unfilled orders.
potential future conflicts. The commercial space market is comprised of large satellite customers, which traditionally sell to 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 replacementreplacements and global navigation needs. The new space market is also partially dependent ondriven by investments to increase the governmental-authorized levels of funding for satellite communications, as well as investment for commercialspeed and exploration activities.
access to space through smaller satellites at reduced cost.
Industrial
Approximately one-third of our 2017 sales were generated in industrial markets. Within industrial, we serve threetwo end markets: industrial, consisting of industrial automation products, simulation and test products and energy generation and exploration products; and medical.
The industrial automation market we serve with our industrial automation products is influenced by several factors including capital investment levels, the pace of product innovation, economic growth,conditions, cost-reduction efforts, technology upgrades and technology upgrades.the subsequent effects of the COVID-19 pandemic. The industrial market remains on the path to recovery, with benchmark indices showing continued strong expansion. As our industrial market continues to recover, ongoing supply chain constraints continue to impact our operations. We experienceare unable to predict the extent to which the pandemic and related impacts will continue to affect our business.
Our simulation and test products operate in markets that were largely affected by the same factors and investment challenges stemming from the need to react toCOVID-19 pandemic. However, we are seeing stronger order demand for flight simulation systems as the demands of our customers, who areairline market recovers beyond the pandemic-related constrained spending.
Our energy generation and exploration products operate in large part sensitive to international and domestic economic conditions.
The energya market we servethat is affectedinfluenced by changing oil and natural gas prices, global urbanization and 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.energy. 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 declineRecently, we have seen oil prices rise above pre-pandemic levels due, in the price of crude oil has reduced investment in exploration activities. This reduced investment has directly affected our energy business. Currently, we expect approximately $34 million of oil exploration-related sales in 2018, down from approximately $100 million in 2014.part, to global disruptions.
The medical market we serve, in general, 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. AdvancesWhen the COVID-19 pandemic altered the way hospitals provided care by asking non-critical patients to recuperate at home, our medical devices products saw an increase in medical technology and medical treatmentsorders. This surge in demand has waned, as our customers have had the effect of extending 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.resized their inventory levels.
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-quarterone-fifth of our 20172021 sales were denominated in foreign currencies. During the first threesix months of 2018,2022, average foreign currency rates generally strengthenedweakened against the U.S. dollar compared to 2017.2021. The translation of the results of our foreign subsidiaries into U.S. dollars increaseddecreased sales by $8$9 million compared to the same period one year ago.
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 forward-looking 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 importantIn evaluating these forward-looking statements, you should carefully consider the factors set forth below.
Although it is not possible to create a comprehensive list of all factors that may cause actual results to differ from the results expressed or implied by our forward-looking statements or that may affect our future results, some of these factors and other risks and uncertainties include:that arise from time to time are described in Item 1A “Risk Factors” of our Annual Report on Form 10-K and in our other periodic filings with the SEC and include the following:
COVID-19 PANDEMIC RISKS
▪ We face various risks related to health pandemics such as the global COVID-19 pandemic, which may have material adverse consequences on our operations, financial position, cash flows, and those of our customers and suppliers.
STRATEGIC RISKS
▪ We operate in highly competitive markets with competitors who may have greater resources than we possess;
▪ Our new products and technology research and development efforts are substantial and 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; and
▪ Our sales and earnings may be affected if we cannot identify, acquire or integrate strategic acquisitions, or as we conduct divestitures.
MARKET CONDITION RISKS
▪ The markets we serve are cyclical and sensitive to domestic and foreign economic conditions and events, which may cause our operating results to fluctuate;
we operate in highly competitive markets with competitors who may have greater resources than we possess;
we▪ 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▪ The loss of The Boeing Company or Lockheed Martin as a customer or a significant reduction in accounting for long-term contracts,sales to either company could adversely impact our operating results; 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▪ We may not realize the full amounts reflected in our backlog as revenue, which could adversely affect our future revenue and growth prospects;prospects.
if
OPERATIONAL RISKS
▪ Our business operations may be adversely affected by information systems interruptions, intrusions or new software implementations;
▪ We may not be able to prevent, or timely detect, issues with our products and our manufacturing processes which may adversely affect our operations and our earnings;
▪ 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; and
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;damages.
future
FINANCIAL RISKS
▪ We make estimates in accounting for over-time 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;
▪ Our indebtedness and restrictive covenants under our credit facilities could limit our operational and financial flexibility;
▪ The phase out of LIBOR may negatively impact our debt agreements and financial position, results of operations and liquidity;
▪ 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; and
▪ Unforeseen exposure to additional income tax liabilities may affect our operating results.
LEGAL AND COMPLIANCE RISKS
▪ Contracting on government programs is subject to significant regulation, including rules related to bidding, billing and accounting standards, and any false claims or non-compliance could subject us to fines, penalties or possible debarment;
▪ Our operations in foreign countries expose us to currency, political and trade risks and adverse changes in local legal and regulatory environments could impact our results of operations;
▪ Government regulations could limit our ability to sell our products outside the United States and otherwise adversely affect our business;
▪ We are involved in various legal proceedings, the outcome of which may be unfavorable to us; and
▪ Our operations are subject to environmental laws, and complying with those laws may cause us to incur significant costs.
GENERAL RISKS
▪ 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
▪ Our performance could suffer if we are involved in various legal proceedings,cannot maintain our culture as well as attract, retain and engage our employees.
While we believe we have identified and discussed above the outcome of whichmaterial risks affecting our business, there may be unfavorable to us.
These factors are not exhaustive. Newadditional factors, risks and uncertainties may emerge from timenot currently known to timeus or that we currently consider immaterial 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. WeAny forward-looking statement speaks only as of the date on which it is made, and we disclaim any obligation to update theany forward-looking statementsstatement made in this report.report, except as required by law.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Refer to the Company’s Annual Report on Form 10-K for the year ended September 30, 2017October 2, 2021 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.
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(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. |
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(b) | Changes in Internal Control over Financial Reporting. There have been no changes during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. |
(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 April 2, 2022 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 during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1A. Risk Factors.
Refer to the Company’s Annual Report on Form 10-K for the year ended October 2, 2021 for a complete discussion of our risk factors. There have been no material changes in the current year regarding our risk factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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(c) | The following table summarizes our purchases of our common stock for the quarter ended December 30, 2017. |
(c)The following table summarizes our purchases of our common stock for the quarter ended April 2, 2022.
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Period | | (a) Total Number of Shares Purchased (1) (2)(3) | | (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) |
January 2, 2022 - January 29, 2022 | | 136,188 | | | $ | 77.81 | | | 52,169 | | | 2,521,030 | |
January 30, 2022 - February 26, 2022 | | 4,991 | | | 75.36 | | | 3,105 | | | 2,517,925 | |
February 27, 2022 - April 2, 2022 | | 82,714 | | | 84.31 | | | — | | | 2,517,925 | |
Total | | 223,893 | | | $ | 80.16 | | | 55,274 | | | 2,517,925 | |
(1)Reflects purchases by the SECT of shares of Class B common stock from the ESPP, the RSP and from equity-based compensation award recipients under right of first refusal terms at average prices as follows: 15,684 shares at $81.34 in January; 1,886 shares at $76.56 in February and 79,546 shares at $84.25 in March.
(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 at average prices as follows: In January, we accepted delivery of 221 Class A shares at $80.46. In March, we accepted delivery of 2,448 Class A shares at $88.23 and 71 Class B shares at $86.22. In connection with the issuance of shares to the ESPP, we purchased 68,114 Class B shares at $80.00 per share from the SECT in January. In connection with the issuance of equity-based awards, we purchased 649 Class B shares at $77.05 per share from the SECT in March.
(3)The Board of Directors has authorized a share repurchase program that permits the purchase of up to 3 million common shares of Class A or Class B common stock in open market or privately negotiated transactions at the discretion of management. In January we purchased 52,169 Class A shares at an average price of $73.88 and in February we purchased 3,105 Class A shares at an average price of $74.63.
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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 |
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November 1, 2017 - November 30, 2017 | | 54,388 |
| | 83.17 |
| | — |
| | 3,349,819 |
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December 1, 2017 - December 30, 2017 | | 3,850 |
| | 87.68 |
| | — |
| | 3,349,819 |
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Total | | 77,697 |
| | $ | 84.39 |
| | — |
| | 3,349,819 |
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(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: 17,494 shares at $87.00 per share during October; and 27,168 shares at $84.69 per share during November. |
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(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 27,220 shares at $81.65 per share and in December, we accepted delivery of 3,850 shares at $87.68 per share, in connection with the exercise of equity-based awards. |
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(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. |
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(a) | Exhibits | |
| | 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. |
| | 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. |
| | 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) |
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(101.INS) | (101.INS) | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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(101.SCH) | | | (101.SCH) | XBRL Taxonomy Extension Schema Document |
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(101.CAL) | | | (101.CAL) | XBRL Taxonomy Extension Calculation Linkbase Document |
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(101.DEF) | | | (101.DEF) | XBRL Taxonomy Extension Definition Linkbase Document |
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(101.LAB) | | | (101.LAB) | XBRL Taxonomy Extension Label Linkbase Document |
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(101.PRE) | | | (101.PRE) | XBRL Taxonomy Extension Presentation Linkbase Document |
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| 104 | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document and are contained within Exhibit 101. |
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.
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.
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| | | | Moog Inc. | |
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| | | | Moog Inc.(Registrant) | |
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| | | | (Registrant) | |
Date: | April 29, 2022 | | By | | |
Date: | January 26, 2018 | | By | /s/ John R. Scannell | |
| | | | John R. Scannell | |
| | | | Chairman of the Board and Director Chief Executive Officer (Principal Executive Officer) |
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Date: | January 26, 2018 | | By | /s/ Donald R. Fishback | |
Date: | April 29, 2022 | | By | Donald R. Fishback/s/ Jennifer Walter | |
| | | | Jennifer Walter | |
| | | | Vice President and Chief Financial Officer (Principal Financial Officer) |
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Date: | January 26, 2018 | | By | /s/ Jennifer Walter | |
Date: | April 29, 2022 | | By | Jennifer Walter/s/ Michael J. Swope | |
| | | | Vice President - Finance
Michael J. Swope | |
| | | | Controller (Principal Accounting Officer) | |
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