UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~June 29, 2019~~March 28, 2020



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

For the transition period from _________ to _________

Commission file number 1-05129

MOOG Inc.

(Exact name of registrant as specified in its charter)



NYNew York			16-0757636
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

400 Jamison Rd	East Aurora,	New York	14052-0018
(Address of Principal Executive Offices)			(Zip Code)

(716) 652-2000

Registrant's telephone number, including area code

~~(Former name, former address and former fiscal year, if changed since last report)~~

Securities registered pursuant to Section 12(b) of the Act:



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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 ☐

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



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

~~Table of Contents~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for 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 Act). Yes ☐ No ☒

The number of shares outstanding of each class of common stock as of ~~July 22, 2019~~April 20, 2020 was:

Class A common stock, ~~32,503,359~~30,003,471 shares

Class B common stock, ~~2,434,033~~2,580,775 shares

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Moog Inc.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS





PART I	FINANCIAL INFORMATION		PAGE

	Item 1	Financial Statements:

		Consolidated Condensed Statements of Earnings ~~for the Three and Nine Months Ended June 29, 2019 and June 30, 2018~~	4

		Consolidated Condensed Statements of Comprehensive Income (Loss) ~~for the Three and Nine Months Ended June 29, 2019 and June 30, 2018~~	5

		Consolidated Condensed Balance Sheets ~~as of June 29, 2019 and September 29, 2018~~	6

		Consolidated Condensed Statements of Shareholders' Equity ~~for the Three and Nine Months Ended June 29, 2019 and June 30, 2018~~	7

		Consolidated Condensed Statements of Cash Flows ~~for the Nine Months Ended June 29, 2019 and June 30, 2018~~	9

		Notes to Consolidated Condensed Financial Statements	10

	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3033

	Item 3	Quantitative and Qualitative Disclosures about Market Risk	4546

	Item 4	Controls and Procedures	4546


PART II	OTHER INFORMATION

	Item 1A	Risk Factors	47

	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	4648

	Item 6	Exhibits	4749

SIGNATURES			4850

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PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Condensed Statements of Earnings

(Unaudited)


	Three Months Ended					Nine Months Ended					Three Months Ended				Six Months Ended
(dollars in thousands, except share and per share data)	June 29, 2019		June 30, 2018			June 29, 2019		June 30, 2018			March 28, 2020		March 30, 2019 (1)		March 28, 2020		March 30, 2019 (1)
Net sales	$	740,969	$	692,018		$	2,139,456	$	2,008,602		$	765,277	$	718,811	$	1,520,120	$	1,398,487
Cost of sales	529,050		491,959			1,530,634		1,423,897			557,223		521,410		1,100,809		1,001,584
Inventory write-down - restructuring	—		2,398			—		9,727
Gross profit	211,919		197,661			608,822		574,978			208,054		197,401		419,311		396,903
Research and development	31,298		30,953			94,518		97,282			26,688		31,344		54,896		63,220
Selling, general and administrative	103,655		101,722			299,841		295,006			107,251		99,860		205,618		196,186
Interest	9,780		8,850			29,401		26,585			10,251		9,939		20,483		19,621
Restructuring	—		(1,549		)	—		22,509
Other	5,466		2,730			9,540		5,138			2,333		2,342		9,879		7,477
Earnings before income taxes	61,720		54,955			175,522		128,458			61,531		53,916		128,435		110,399
Income taxes	14,255		14,205			41,629		72,444			11,786		12,857		28,663		26,571
Net earnings attributable to Moog and noncontrolling interest	47,465		40,750			133,893		56,014
Net earnings											$	49,745	$	41,059	$	99,772	$	83,828

Net earnings attributable to noncontrolling interest	—		67			—		67

Net earnings attributable to Moog	$	47,465	$	40,683		$	133,893	$	55,947

Net earnings per share attributable to Moog
Net earnings per share
Basic	$	1.36	$	1.14		$	3.84	$	1.56		$	1.49	$	1.18	$	2.94	$	2.41
Diluted	$	1.35	$	1.13		$	3.80	$	1.55		$	1.48	$	1.17	$	2.91	$	2.38

Dividends declared per share	$	0.25	$	—		$	0.75	$	0.25		$	0.25	$	0.25	$	0.50	$	0.50

Average common shares outstanding
Basic	34,904,487		35,762,918			34,869,021		35,768,471			33,434,420		34,886,541		33,972,635		34,850,898
Diluted	35,239,834		36,143,367			35,202,519		36,174,759			33,685,395		35,241,113		34,236,399		35,183,471
See accompanying Notes to Consolidated Condensed Financial Statements.
See accompanying Notes to Consolidated Condensed Financial Statements. (1) As adjusted, see Note 1 - Basis of Presentation.										See accompanying Notes to Consolidated Condensed Financial Statements. (1) As adjusted, see Note 1 - Basis of Presentation.

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Consolidated Condensed Statements of Comprehensive Income (Loss)

(Unaudited)


	Three Months Ended						Nine Months Ended							Three Months Ended						Six Months Ended
(dollars in thousands)	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018				March 28, 2020			March 30, 2019 (1)			March 28, 2020			March 30, 2019 (1)
Net earnings attributable to Moog and noncontrolling interest	$	47,465		$	40,750		$	133,893		$	56,014
Net earnings														$	49,745		$	41,059		$	99,772		$	83,828
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	(996		)	(40,788		)	(9,277		)	(10,127		)		(23,418		)	1,106			(1,885		)	(8,281		)
Retirement liability adjustment	4,264			7,080			13,760			16,018				6,116			5,977			10,479			12,096
Change in accumulated income (loss) on derivatives	559			(747		)	1,144			(92		)		(1,163		)	(79		)	239			585
Other comprehensive income (loss), net of tax	3,827			(34,455		)	5,627			5,799				(18,465		)	7,004			8,833			4,400
Tax Cuts and Jobs Act, reclassification from AOCIL to retained earnings	—			—			—			(47,077		)
Comprehensive income (loss)	51,292			6,295			139,520			14,736				$	31,280		$	48,063		$	108,605		$	88,228
Comprehensive income (loss) attributable to noncontrolling interest	—			41			—			41
Comprehensive income (loss) attributable to Moog	$	51,292		$	6,254		$	139,520		$	14,695
See accompanying Notes to Consolidated Condensed Financial Statements.
See accompanying Notes to Consolidated Condensed Financial Statements. (1) As adjusted, see Note 1 - Basis of Presentation.													See accompanying Notes to Consolidated Condensed Financial Statements. (1) As adjusted, see Note 1 - Basis of Presentation.

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Consolidated Condensed Balance Sheets

(Unaudited)


(dollars in thousands)	June 29, 2019			September 29, 2018			March 28, 2020			September 28, 2019 (1)
ASSETS
Current assets
Cash and cash equivalents	$	89,045		$	125,584		$	115,984		$	89,702
Restricted cash							3,281			2,846
Receivables	922,853			793,911			1,007,730			957,287
Inventories	515,055			512,522
Inventories, net							589,493			534,974
Prepaid expenses and other current assets	44,239			44,404			44,002			44,164
Total current assets	1,571,192			1,476,421			1,760,490			1,628,973
Property, plant and equipment, net of accumulated depreciation of $825,426 and $816,837, respectively	582,105			552,865
Property, plant and equipment, net							617,369			586,767
Operating lease right-of-use assets							66,193			—
Goodwill	791,678			797,217			810,354			784,240
Intangible assets, net	84,629			95,537			96,742			79,646
Deferred income taxes	15,736			17,328			19,651			19,992
Other assets	20,799			24,680			14,174			14,619
Total assets	$	3,066,139		$	2,964,048		$	3,384,973		$	3,114,237
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term borrowings	$	93		$	3,623
Current installments of long-term debt	292			365			$	—		$	249
Accounts payable	227,600			208,823			244,708			257,677
Accrued compensation	134,015			147,765			111,280			143,765
Contract advances	147,677			151,687			182,822			137,242
Contract loss and contract-related reserves	57,556			47,417
Other accrued liabilities	108,541			120,944
Accrued liabilities and other							206,800			188,725
Total current liabilities	675,774			680,624			745,610			727,658
Long-term debt, excluding current installments	825,965			858,836			1,093,966			832,984
Long-term pension and retirement obligations	119,269			117,471			161,973			160,034
Deferred income taxes	56,664			46,477			50,259			40,528
Other long-term liabilities	32,810			35,654			87,487			30,552
Total liabilities	1,710,482			1,739,062			2,139,295			1,791,756
Shareholders’ equity
Common stock - Class A	43,789			43,785			43,800			43,795
Common stock - Class B	7,491			7,495			7,480			7,485
Additional paid-in capital	525,962			502,257			449,720			510,546
Retained earnings	2,096,174			1,973,514			2,211,462			2,128,739
Treasury shares	(750,326		)	(738,494		)	(957,082		)	(769,569		)
Stock Employee Compensation Trust	(124,128		)	(118,449		)	(60,386		)	(111,492		)
Supplemental Retirement Plan Trust	(76,751		)	(72,941		)	(42,672		)	(71,546		)
Accumulated other comprehensive loss	(366,554		)	(372,181		)	(406,644		)	(415,477		)
Total shareholders’ equity	1,355,657			1,224,986			1,245,678			1,322,481
Total liabilities and shareholders’ equity	$	3,066,139		$	2,964,048		$	3,384,973		$	3,114,237
See accompanying Notes to Consolidated Condensed Financial Statements.
See accompanying Notes to Consolidated Condensed Financial Statements. (1) As adjusted, see Note 1 - Basis of Presentation.

Table of Contents

Consolidated Condensed Statements of Shareholders' Equity

(Unaudited)

Three Months Ended Nine Months Ended
(dollars in thousands) June 29, 2019 June 30, 2018 June 29, 2019 June 30, 2018
COMMON STOCK
Beginning and end of period $ 51,280
$ 51,280
$ 51,280
$ 51,280
ADDITIONAL PAID-IN CAPITAL
Beginning of period 510,538
490,055
502,257
492,246
Issuance of treasury shares (1,186 ) (141 ) (116 ) (2,874 )
Equity-based compensation expense 1,439
894
5,130
4,394
Adjustment to market - SECT, SERP and other 15,171
(4,298 ) 18,691
(7,256 )
End of period 525,962
486,510
525,962
486,510
RETAINED EARNINGS
Beginning of period 2,057,435
1,901,182
1,973,514
1,847,819
Net earnings attributable to Moog 47,465
40,683
133,893
55,947
Dividends (8,726 ) 37
(26,156 ) (8,941 )
Adoption of ASC 606 —
—
14,923
—
Tax Cuts and Jobs Act, reclassification from AOCIL to retained earnings —
—
—
47,077
End of period 2,096,174
1,941,902
2,096,174
1,941,902
TREASURY SHARES AT COST
Beginning of period (749,845 ) (739,091 ) (738,494 ) (739,157 )
Class A and B shares issued related to compensation 1,186
141
6,154
5,325
Class A and B shares purchased (1,667 ) (92 ) (17,986 ) (5,210 )
End of period (750,326 ) (739,042 ) (750,326 ) (739,042 )
STOCK EMPLOYEE COMPENSATION TRUST (SECT)
Beginning of period (109,506 ) (93,330 ) (118,449 ) (89,919 )
Issuance of shares 557
—
18,236
1,941
Purchase of shares (5,973 ) (530 ) (13,327 ) (8,444 )
Adjustment to market (9,206 ) 3,956
(10,588 ) 6,518
End of period (124,128 ) (89,904 ) (124,128 ) (89,904 )
SUPPLEMENTAL RETIREMENT PLAN (SERP) TRUST
Beginning of period (75,079 ) (12,078 ) (72,941 ) (12,474 )
Issuance of shares 4,293
—
4,293
—
Adjustment to market (5,965 ) 342
(8,103 ) 738
End of period (76,751 ) (11,736 ) (76,751 ) (11,736 )
ACCUMULATED OTHER COMPREHENSIVE LOSS
Beginning of period (370,381 ) (342,314 ) (372,181 ) (335,491 )
Other comprehensive income (loss) 3,827
(34,429 ) 5,627
5,825
Tax Cuts and Jobs Act, reclassification from AOCIL to retained earnings —
—
—
(47,077 )
End of period (366,554 ) (376,743 ) (366,554 ) (376,743 )
TOTAL MOOG SHAREHOLDERS’ EQUITY $ 1,355,657
$ 1,262,267
$ 1,355,657
$ 1,262,267
NONCONTROLLING INTEREST
Beginning of period —
—
—
—
Net earnings attributable to noncontrolling interest —
67
—
67
Foreign currency translation adjustment —
(26 ) —
(26 )
Acquisition of noncontrolling interest —
485
—
485
End of period —
526
—
526
TOTAL SHAREHOLDERS’ EQUITY $ 1,355,657
$ 1,262,793
$ 1,355,657
$ 1,262,793



	Three Months Ended						Six Months Ended
(dollars in thousands)	March 28, 2020 (1)			March 30, 2019 (1)			March 28, 2020 (1)			March 30, 2019 (1)
COMMON STOCK
Beginning and end of period	$	51,280		$	51,280		$	51,280		$	51,280
ADDITIONAL PAID-IN CAPITAL
Beginning of period	518,822			491,945			510,546			502,257
Issuance of treasury shares	(722		)	(1,390		)	3,767			1,070
Equity-based compensation expense	890			1,683			3,271			3,691
Adjustment to market - SECT, SERP and other	(69,270		)	18,300			(67,864		)	3,520
End of period	449,720			510,538			449,720			510,538
RETAINED EARNINGS
Beginning of period	2,170,105			2,023,114			2,128,739			1,974,125
Net earnings	49,745			41,059			99,772			83,828
Dividends	(8,388		)	(8,727		)	(17,049		)	(17,430		)
Adoption of ASC 606	—			—			—			14,923
End of period	2,211,462			2,055,446			2,211,462			2,055,446
TREASURY SHARES AT COST
Beginning of period	(828,453		)	(747,900		)	(769,569		)	(738,494		)
Class A and B shares issued related to compensation	3,921			3,833			4,448			4,968
Class A and B shares purchased	(132,550		)	(5,778		)	(191,961		)	(16,319		)
End of period	(957,082		)	(749,845		)	(957,082		)	(749,845		)
STOCK EMPLOYEE COMPENSATION TRUST (SECT)
Beginning of period	(115,503		)	(102,182		)	(111,492		)	(118,449		)
Issuance of shares	18,325			8,918			18,325			17,679
Purchase of shares	(3,769		)	(5,424		)	(6,209		)	(7,354		)
Adjustment to market	40,561			(10,818		)	38,990			(1,382		)
End of period	(60,386		)	(109,506		)	(60,386		)	(109,506		)
SUPPLEMENTAL RETIREMENT PLAN (SERP) TRUST
Beginning of period	(71,381		)	(67,597		)	(71,546		)	(72,941		)
Adjustment to market	28,709			(7,482		)	28,874			(2,138		)
End of period	(42,672		)	(75,079		)	(42,672		)	(75,079		)
ACCUMULATED OTHER COMPREHENSIVE LOSS
Beginning of period	(388,179		)	(375,396		)	(415,477		)	(372,792		)
Other comprehensive income (loss)	(18,465		)	7,004			8,833			4,400
End of period	(406,644		)	(368,392		)	(406,644		)	(368,392		)
TOTAL SHAREHOLDERS’ EQUITY	$	1,245,678		$	1,314,442		$	1,245,678		$	1,314,442
See accompanying Notes to Consolidated Condensed Financial Statements. (1) As adjusted, see Note 1 - Basis of Presentation.

Table of Contents

Consolidated Condensed Statements of Shareholders’ Equity, Shares

(Unaudited)


	Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
(share data)	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018			March 28, 2020		March 30, 2019		March 28, 2020		March 30, 2019
COMMON STOCK - CLASS A
Beginning of period	43,785,435		43,735,558		43,784,489		43,704,286			43,796,335		43,785,435		43,794,935		43,784,489
Conversion of Class B to Class A	3,612		44,679		4,558		75,951			2,894		—		4,294		946
End of period	43,789,047		43,780,237		43,789,047		43,780,237			43,799,229		43,785,435		43,799,229		43,785,435
COMMON STOCK - CLASS B
Beginning of period	7,494,278		7,544,155		7,495,224		7,575,427			7,483,378		7,494,278		7,484,778		7,495,224
Conversion of Class B to Class A	(3,612	)	(44,679	)	(4,558	)	(75,951	)		(2,894	)	—		(4,294	)	(946	)
End of period	7,490,666		7,499,476		7,490,666		7,499,476			7,480,484		7,494,278		7,480,484		7,494,278
TREASURY SHARES - CLASS A COMMON STOCK
Beginning of period	(10,882,780	)	(10,891,108	)	(10,872,575	)	(10,933,003	)		(11,767,540	)	(10,897,407	)	(11,101,512	)	(10,872,575	)
Class A shares issued related to compensation	31,369		3,514		103,232		83,193			14,521		48,122		17,599		71,863
Class A shares purchased	(13,430	)	(806	)	(95,498	)	(38,590	)		(1,617,591	)	(33,495	)	(2,286,697	)	(82,068	)
End of period	(10,864,841	)	(10,888,400	)	(10,864,841	)	(10,888,400	)		(13,370,610	)	(10,882,780	)	(13,370,610	)	(10,882,780	)
TREASURY SHARES - CLASS B COMMON STOCK
Beginning of period	(3,347,250	)	(3,327,853	)	(3,323,996	)	(3,333,927	)		(3,260,602	)	(3,348,499	)	(3,345,489	)	(3,323,996	)
Class B shares issued related to compensation	6,136		221		104,465		28,460			44,217		39,536		138,784		98,329
Class B shares purchased	(4,000	)	(304	)	(125,583	)	(22,469	)		(128,492	)	(38,287	)	(138,172	)	(121,583	)
End of period	(3,345,114	)	(3,327,936	)	(3,345,114	)	(3,327,936	)		(3,344,877	)	(3,347,250	)	(3,344,877	)	(3,347,250	)
SECT - CLASS A COMMON STOCK
Beginning and end of period	(425,148	)	(425,148	)	(425,148	)	(425,148	)		(425,148	)	(425,148	)	(425,148	)	(425,148	)
SECT - CLASS B COMMON STOCK
Beginning of period	(846,527	)	(723,963	)	(983,772	)	(654,753	)		(914,896	)	(899,864	)	(886,300	)	(983,772	)
Issuance of shares	6,490		—		227,816		21,871			221,256		113,749		221,256		221,326
Purchase of shares	(67,712	)	(6,774	)	(151,793	)	(97,855	)		(40,966	)	(60,412	)	(69,562	)	(84,081	)
End of period	(907,749	)	(730,737	)	(907,749	)	(730,737	)		(734,606	)	(846,527	)	(734,606	)	(846,527	)
SERP - CLASS B COMMON STOCK
Beginning of period	(876,170	)	(150,000	)	(876,170	)	(150,000	)
Issuance of shares	50,000		—		50,000		—
Beginning and end of period	(826,170	)	(150,000	)	(826,170	)	(150,000	)		(826,170	)	(876,170	)	(826,170	)	(876,170	)
See accompanying Notes to Consolidated Condensed Financial Statements.									See accompanying Notes to Consolidated Condensed Financial Statements.

Table of Contents

Consolidated Condensed Statements of Cash Flows

(Unaudited)


	Nine Months Ended							Six Months Ended
(dollars in thousands)	June 29, 2019			June 30, 2018				March 28, 2020			March 30, 2019 (1)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings attributable to Moog and noncontrolling interest	$	133,893		$	56,014
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net earnings								$	99,772		$	83,828
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
Depreciation	53,744			54,693				36,962			36,074
Amortization	10,364			13,628				6,676			7,212
Deferred income taxes	3,764			35,549				(1,346		)	2,182
Equity-based compensation expense	5,130			4,394				3,271			3,691
Impairment of long-lived assets and inventory write-down associated with restructuring	—			24,246
Other	2,550			4,743				5,674			1,331
Changes in assets and liabilities providing (using) cash:
Receivables	(42,267		)	(27,597		)		(43,910		)	(16,621		)
Inventories	(68,519		)	(27,840		)		(49,467		)	(44,428		)
Accounts payable	19,412			12,778				(14,891		)	10,208
Contract advances	(4,670		)	(165		)		46,468			17,127
Accrued expenses	(9,450		)	11,709				(9,920		)	(6,075		)
Accrued income taxes	(5,564		)	(1,817		)		(12,338		)	(1,767		)
Net pension and post retirement liabilities	20,486			(130,135		)		15,785			15,639
Other assets and liabilities	10,222			16,150				(2,032		)	447
Net cash provided by operating activities	129,095			46,350				80,704			108,848
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses, net of cash acquired	—			(47,947		)		(54,265		)	—
Purchase of property, plant and equipment	(91,083		)	(70,759		)		(53,463		)	(59,971		)
Other investing transactions	2,518			(3,448		)		(3,706		)	2,447
Net cash used by investing activities	(88,565		)	(122,154		)		(111,434		)	(57,524		)
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term (borrowings) repayments	(3,560		)	1,357
Net short-term repayments								—			(3,560		)
Proceeds from revolving lines of credit	570,200			301,500				829,000			327,300
Payments on revolving lines of credit	(604,513		)	(411,610		)		(758,500		)	(361,300		)
Proceeds from long-term debt	—			11,216				4,300			—
Payments on long-term debt	(255		)	(21,849		)		(4,300		)	(167		)
Proceeds from senior notes, net of issuance costs								491,769			—
Payments on senior notes								(300,000		)	—
Payments on finance lease obligations								(412		)	—
Payment of dividends	(26,156		)	(8,941		)		(17,049		)	(17,430		)
Proceeds from sale of treasury stock	2,443			2,451				3,199			2,443
Purchase of outstanding shares for treasury	(17,986		)	(5,210		)		(191,961		)	(16,319		)
Proceeds from sale of stock held by SECT	10,036			1,941				14,278			9,479
Purchase of stock held by SECT	(13,327		)	(8,444		)		(6,209		)	(7,354		)
Proceeds from sale of SERP stock	4,293			—
Other financing transactions	—			484				(5,877		)	—
Net cash used by financing activities	(78,825		)	(137,105		)
Net cash provided (used) by financing activities								58,238			(66,908		)
Effect of exchange rate changes on cash	(366		)	2,266				(791		)	(50		)
Decrease in cash, cash equivalents and restricted cash	(38,661		)	(210,643		)
Increase (decrease) in cash, cash equivalents and restricted cash								26,717			(15,634		)
Cash, cash equivalents and restricted cash at beginning of period	127,706			386,969				92,548			127,706
Cash, cash equivalents and restricted cash at end of period	$	89,045		$	176,326			$	119,265		$	112,072

SUPPLEMENTAL CASH FLOW INFORMATION
Treasury shares issued as compensation	$	11,795		$	—			$	9,063		$	11,795
Equipment acquired through financing	148			—
See accompanying Notes to Consolidated Condensed Financial Statements.
Equipment acquired through lease financing								13,090			148
See accompanying Notes to Consolidated Condensed Financial Statements. (1) As adjusted, see Note 1 - Basis of Presentation.							See accompanying Notes to Consolidated Condensed Financial Statements. (1) As adjusted, see Note 1 - Basis of Presentation.

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Notes to Consolidated Condensed Financial Statements

~~Nine~~Six Months Ended ~~Ended June 29, 2019~~March 28, 2020

(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 ~~nine~~six months ended ~~June 29, 2019~~March 28, 2020 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 ~~29, 2018.~~28, 2019. All references to years in these financial statements are to fiscal years.

Certain prior year amounts have been reclassified to conform to current year's presentation. Management does not consider the amounts reclassified to be material.

Recent Accounting Pronouncements ~~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 adopted this standard using the modified retrospective method, under which prior years' results are not restated, but supplemental information is provided in our disclosures to present 2019 results before effect of the standard. In addition, a cumulative adjustment was made to shareholders' equity at the beginning of 2019. Supplemental information is provided in our disclosures to present 2019 results before effect of the standard.
		Date adopted: Q1 2019
~~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 adopted this standard retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the Consolidated Condensed Statement of Earnings. Supplemental information is provided in our disclosures to present 2018 results before effect of the standard.
		Date adopted: Q1 2019

~~Table of Contents~~

~~Recent Accounting Pronouncements Not Yet~~ Adopted



Standard	Description	Financial Statement Effect or Other Significant Matters
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 ~~plan to adopt the~~adopted this standard using the modified retrospective method, without adjusting prior comparative periods. We ~~expect to record~~recorded a ~~material~~initial right-of-use ~~asset~~(ROU) assets of $68,126 and lease ~~liability~~liabilities of $71,776, which included reclassifying deferred rent as a component of the ROU asset on the Consolidated Condensed Balance ~~Sheet.~~Sheets. There were no material changes to our Consolidated Condensed Statements of Earnings or Consolidated Condensed Statements of Cash Flows. We have ~~identified, and are in~~completed the ~~process of implementing,~~necessary changes to our financial statements and related disclosures, internal controls, financial policies and information ~~technology~~ systems. Upon adoption, we do not anticipate material changes to our Consolidated Condensed Statement of Earnings or Consolidated Condensed Statement of Cash Flows. We have not yet fully quantified the impact on our financial statements and related disclosures.
ASU no. 2016-02 Leases (and all related ASUs)		~~Planned date of adoption:~~ ~~Q1 2020~~See Note 7 - Leases, for additional disclosure.
Date adopted: Q1 2020

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Recent Accounting Pronouncements Not Yet Adopted

~~ASU no. 2017-12~~

~~Targeted Improvements to Accounting for Hedging Activities~~



Standard	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.Description	~~We are currently evaluating the effect on our financial statements and related disclosures.~~
~~Planned date of adoption:~~ ~~Q1 2020~~ Financial Statement Effect or Other Significant Matters
ASU no. 2018-15 Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract	The standard amends ASC 350 to include in its scope implementation costs of a Cloud Computing Arrangement (CCA) that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract. The ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The amendments should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.	We are currently evaluating the effect on our financial statements and related disclosures.
		Planned date of adoption: Q1 2021
ASU no. 2016-13 Measurement of Credit Losses on Financial Instruments	The standard replaces the incurred loss model with the current expected credit loss (CECL) model to estimate credit losses for financial assets measured at amortized cost and certain off-balance sheet credit exposures. The CECL model requires a Company to estimate credit losses expected over the life of the financial assets based on historical experience, current conditions and reasonable and supportable forecasts. The provisions of the standard are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The amendment requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.	We are currently evaluating the effect on our financial statements and related disclosures.
		Planned date of adoption: Q1 2021

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

In accordance with SEC Final Rule Release No. 33-10532, we have adopted Rule 3-04 of Regulation S-X during the first quarter of 2019 and have disclosed changes in the Consolidated Condensed Statement of Shareholders' Equity and the amount of dividends per share for each class of shares for all periods presented. Refer to Note 16, Earnings per Share and Dividends.

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Impact of ~~Recent~~Change in Accounting ~~Pronouncements Adopted~~Principle

OnBeginning in the first quarter of 2020, we changed our method of accounting for the determination of the market-related value of assets for a class of assets within the qualified U.S. defined benefit plan (the plan). This class of assets is currently comprised solely of the fixed income funds asset class held in the portfolio for the plan and provides a natural hedge (liability-hedging assets) against the changes in the recorded amount of net periodic pension cost. Refer to Note 13 - Employee Benefit Plans, in our Form 10-K for the fiscal year ended September ~~30, 2018, we adopted ASC 606:~~ ~~Revenue from Contracts with Customers~~28, 2019, for our fair value disclosure by asset classification. Our previous method of accounting was to calculate the market-related value of assets for all the plan’s assets recognizing investment gains and losses ratably over a five-year period. We have elected to use the ~~related amendments (ASC 606), using~~fair value of our liability-hedging assets, which represent approximately 80% of the ~~modified retrospective method,~~plan’s assets, to determine the market-related value of the assets beginning in the first quarter of 2020. This change in accounting principle is preferable as ~~described above. ASC 606 was applied~~the recognition of the gains and losses on this class of assets will affect net periodic pension cost in the period in which they occur. No change is being made to ~~contracts that were not completed as~~the accounting principle for the other classes of ~~September 29, 2018. Prior periods have not been restated~~pension assets, which represent the remaining 20% of the pension asset portfolio for the plan. The gains and losses for these other plan assets will continue to be ~~reported under~~amortized into earnings over a five-year period.

The change in accounting principle requires retrospective application and prospective disclosure. The tables below represent the impact of this change on the Consolidated Condensed Statements of Earnings and the Consolidated Condensed Statements of Comprehensive Income (Loss) for the three and six months ended March 28, 2020, the Consolidated Condensed Balance Sheets for the period ended March 28, 2020, the Consolidated Condensed Statements of Earnings and the Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended March 30, 2019 and the Consolidated Condensed Balance Sheets for the periods ended March 30, 2019, September 28, 2019 and September 29, 2018, respectively. The change in accounting ~~standard in effect~~principle had no impact on the Consolidated Condensed Statements of Cash Flows for ~~those~~these periods. ~~Previously, we recognized revenue under ASC 605:~~ ~~Revenue Recognition~~ ~~(ASC 605).~~

The ~~cumulative effect from~~tables below represent the ~~adoption~~impact of ~~ASC 606~~the change in accounting principle on the Consolidated Condensed Statements of Earnings and the Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended March 28, 2020.



	Three Months Ended									Six Months Ended
	As Reported (With Change), March 28, 2020			Impact of Change			Without Change, March 28, 2020			As Reported (With Change), March 28, 2020		Impact of Change			Without Change, March 28, 2020
Other	$	2,333		$	2,875		$	5,208		$	9,879	$	5,751		$	15,630
Earnings before income taxes	61,531			(2,875		)	58,656			128,435		(5,751		)	122,684
Income taxes	11,786			(678		)	11,108			28,663		(1,357		)	27,306
Net earnings	$	49,745		$	(2,197	)	$	47,548		$	99,772	$	(4,394	)	$	95,378

Net earnings per share
Basic	$	1.49		$	(0.07	)	$	1.42		$	2.94	$	(0.13	)	$	2.81
Diluted	$	1.48		$	(0.07	)	$	1.41		$	2.91	$	(0.12	)	$	2.79

Retirement liability adjustment	$	6,116		$	2,197		$	8,313		$	10,479	$	4,394		$	14,873
Other comprehensive income (loss), net of tax	$	(18,465	)	$	2,197		$	(16,268	)	$	8,833	$	4,394		$	13,227
Comprehensive income (loss)	$	31,280		$	—		$	31,280		$	108,605	$	—		$	108,605

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The table below represents the impact of the change in accounting principle on the Consolidated Condensed Balance Sheet as of ~~September 30, 2018 was as follows:~~

March 28, 2020.

September 29, 2018 Adjustments due to adoption of ASC 606 September 30, 2018
ASSETS
Receivables $ 793,911
$ 89,121
$ 883,032
Inventories 512,522
(65,991 ) 446,531
Deferred income taxes 17,328
134
17,462
LIABILITIES AND SHAREHOLDERS’ EQUITY
Contract advances $ 151,687
$ 921
$ 152,608
Contract loss and contract-related reserves 47,417
2,430
49,847
Other accrued liabilities 120,944
1,139
122,083
Deferred income taxes 46,477
3,851
50,328
Retained earnings 1,973,514
14,923
1,988,437



	As Reported (With Change), March 28, 2020			Impact of Change			Without Change, March 28, 2020
Shareholders’ equity
Retained earnings	$	2,211,462		$	195		$	2,211,657
Accumulated other comprehensive loss	(406,644		)	(195		)	(406,839		)
Total shareholders’ equity	$	1,245,678		$	—		$	1,245,678

The tables below represent the impact of the ~~adoption of ASC 606~~change in accounting principle on the Consolidated Condensed ~~Statement~~Statements of Earnings and the Consolidated Condensed Statements of Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~June 29,~~March 30, 2019.



	Three Months Ended							Six Months Ended
	As Previously Reported, March 30, 2019		Impact of Change			As Reported (With Change), March 30, 2019		As Previously Reported, March 30, 2019		Impact of Change			As Reported (With Change), March 30, 2019
Other	$	640	$	1,702		$	2,342	$	4,074	$	3,403		$	7,477
Earnings before income taxes	55,618		(1,702		)	53,916		113,802		(3,403		)	110,399
Income taxes	13,259		(402		)	12,857		27,374		(803		)	26,571
Net earnings	$	42,359	$	(1,300	)	$	41,059	$	86,428	$	(2,600	)	$	83,828

Net earnings per share
Basic	$	1.21	$	(0.03	)	$	1.18	$	2.48	$	(0.07	)	$	2.41
Diluted	$	1.20	$	(0.03	)	$	1.17	$	2.46	$	(0.08	)	$	2.38

Retirement liability adjustment	$	4,677	$	1,300		$	5,977	$	9,496	$	2,600		$	12,096
Other comprehensive income (loss), net of tax	$	5,704	$	1,300		$	7,004	$	1,800	$	2,600		$	4,400
Comprehensive income	$	48,063	$	—		$	48,063	$	88,228	$	—		$	88,228

Three Months Ended

Under ASC 605 Effect of ASC 606 As Reported Under ASC 606
Net sales $ 737,887
$ 3,082
$ 740,969
Cost of sales 531,952
(2,902 ) 529,050
Gross profit 205,935
5,984
211,919
Earnings before income taxes 55,736
5,984
61,720
Income taxes 12,735
1,520
14,255
Net earnings $ 43,001
$ 4,464
$ 47,465
The table below represents the impact of the change in accounting principle on the Consolidated Condensed Balance Sheet as of March 30, 2019.

Nine Months Ended
Under ASC 605 Effect of ASC 606 As Reported Under ASC 606
Net sales $ 2,119,821
$ 19,635
$ 2,139,456
Cost of sales 1,521,720
8,914
1,530,634
Gross profit 598,101
10,721
608,822
Earnings before income taxes 164,801
10,721
175,522
Income taxes 38,863
2,766
41,629
Net earnings $ 125,938
$ 7,955
$ 133,893



	As Previously Reported, March 30, 2019			Impact of Change			As Reported (With Change), March 30, 2019
Shareholders’ equity
Retained earnings	$	2,057,435		$	(1,989	)	$	2,055,446
Accumulated other comprehensive loss	(370,381		)	1,989			(368,392		)
Total shareholders’ equity	$	1,314,442		$	—		$	1,314,442

1213

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The table below represents the impact of the ~~adoption of ASC 606~~change in accounting principle on the Consolidated Condensed Balance Sheet as of ~~June 29,~~September 28, 2019.

Under ASC 605 Effect of ASC 606 As Reported Under ASC 606
ASSETS
Current assets
Receivables $ 813,187
$ 109,666
$ 922,853
Inventories 592,925
(77,870 ) 515,055
Total current assets 1,539,396
31,796
1,571,192
Deferred income taxes 15,783
(47 ) 15,736
Total assets 3,034,390
31,749
3,066,139
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Contract advances $ 148,393
$ (716 ) $ 147,677
Contract loss and contract-related reserves 55,755
1,801
57,556
Other accrued liabilities 104,656
3,885
108,541
Total current liabilities 670,804
4,970
675,774
Deferred income taxes 53,054
3,610
56,664
Total liabilities 1,701,902
8,580
1,710,482
Shareholders’ equity
Retained earnings 2,073,296
22,878
2,096,174
Accumulated other comprehensive loss (366,845 ) 291
(366,554 )
Total shareholders’ equity 1,332,488
23,169
1,355,657
Total liabilities and shareholders’ equity 3,034,390
31,749
3,066,139



	As Previously Reported, September 28, 2019			Impact of Change			As Reported (With Change), September 28, 2019
Shareholders’ equity
Retained earnings	$	2,133,328		$	(4,589	)	$	2,128,739
Accumulated other comprehensive loss	(420,066		)	4,589			(415,477		)
Total shareholders’ equity	$	1,322,481		$	—		$	1,322,481

~~The tables below represent the impact of the adoption of ASU 2017-07:~~ ~~Presentation of Net Periodic Pension Cost~~See Note 13 - Employee Benefit Plans and ~~Net Periodic Postretirement Benefit Cost, on the Consolidated Condensed Statement of Earnings~~Note 16 - Accumulated Other Comprehensive Income (Loss) for ~~the three and nine months ended June 30, 2018.~~

Three Months Ended

As Reported,
June 30, 2018 Impact of Adoption As Adjusted,
June 30, 2018
Cost of sales $ 492,234
$ (275 ) $ 491,959
Gross profit 197,386
275
197,661
Research and development 31,040
(87 ) 30,953
Selling, general and administrative 103,053
(1,331 ) 101,722
Other 1,037
1,693
2,730

Nine Months Ended
As Reported,
June 30, 2018 Impact of Adoption As Adjusted,
June 30, 2018
Cost of sales $ 1,424,731
$ (834 ) $ 1,423,897
Gross profit 574,144
834
574,978
Research and development 97,545
(263 ) 97,282
Selling, general and administrative 299,002
(3,996 ) 295,006
Other 45
5,093
5,138

~~Table of Contents~~

~~The tables below represent the impact of the adoption of ASU 2017-07 on operating profit and deductions from operating profit~~adjusted reporting for ~~the three and nine months ended June 30, 2018.~~

Three Months Ended
As Reported,
June 30, 2018 Impact of Adoption As Adjusted,
June 30, 2018
Operating profit:

Aircraft Controls $ 33,342
$ 259
$ 33,601
Space and Defense Controls 16,513
176
16,689
Industrial Systems 24,283
689
24,972
Total operating profit $ 74,138
$ 1,124
$ 75,262
Deductions from operating profit:
Non-service pension expense $ —
$ 1,693
$ 1,693
Corporate and other expenses, net $ 9,439
$ (569 ) $ 8,870

Nine Months Ended
As Reported,
June 30, 2018 Impact of Adoption As Adjusted,
June 30, 2018
Operating profit:
Aircraft Controls $ 97,590
$ 847
$ 98,437
Space and Defense Controls 49,643
561
50,204
Industrial Systems 37,479
1,976
39,455
Total operating profit $ 184,712
$ 3,384
$ 188,096
Deductions from operating profit:
Non-service pension expense $ —
$ 5,093
$ 5,093
Corporate and other expenses, net $ 25,275
$ (1,709 ) $ 23,566

prior periods.

Note 2 - Revenue 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 obligations 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.

Contracts are sometimes modified to account for changes in contract specifications and requirements. When this occurs, we assess the modification as prescribed in ASC 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.

~~Table of Contents~~

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 customers 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 typical timing of payment.

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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.

Under ASC 606, revenue recognized over time using ~~the cost-to-cost~~an input method ~~of accounting was 64%~~that uses costs incurred to date to measure progress toward completion ("cost-to-cost") for the three and ~~nine~~six months ended ~~June 29, 2019.~~March 28, 2020 was 65% and 64%, respectively. The over time method of revenue recognition is predominantly used in 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 as the assets are being created or enhanced. In addition, many of our large commercial contracts qualify for ~~over time~~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~~over-time contracts are primarily firm fixed price.

Revenue is recognized on contracts using the 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 thethree and six months ended March 28, 2020 we recognized lower revenues of $4,941 and higher revenues of $9,678, respectively for adjustments made to performance obligations satisfied (or partially satisfied) in previous periods. For the three and ~~nine~~six months ended ~~June 29,~~March 30, 2019 we recognized lower revenues of $1,321 and higher revenue of $10,438, respectively ~~$3,898 and $14,336, respectively,~~ for adjustments made to performance obligations satisfied (or partially satisfied) in previous periods.

Contract costs include only allocable, allowable and reasonable 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 ~~nine~~six months ended ~~June 29, 2019.~~

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March 28, 2020.

As of ~~June 29, 2019,~~March 28, 2020, we had contract ~~loss and contract-related~~ reserves of ~~$57,556.~~$65,409. 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. ~~In accordance with ASC 606, we calculate contract losses at the contract level, versus the performance obligation level.~~

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Revenue recognized at the point in time control was transferred to the customer was 35% and 36%, respectively for the three and ~~nine~~six months ended ~~June 29, 2019.~~March 28, 2020. This method of revenue recognition is used most frequently in Industrial 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 - the entity has a present right to payment; the customer has legal title; the customer has physical possession; the customer has the 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.

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 industry.

Total contract assets and contract liabilities are as follows:


	June 29, 2019		September 30, 2018		March 28, 2020		September 28, 2019
Unbilled receivables	$	444,762	$	405,610	$	510,760	$	468,824
Contract advances	147,677		152,608		182,822		137,242
Net contract assets	$	297,085	$	253,002	$	327,938	$	331,582

The increase in contract assets reflects the net impact of additional unbilled revenues recorded in excess of revenue recognized during the period. The ~~decrease~~increase in contract liabilities reflects the net impact of ~~revenue recognized~~additional deferred revenues recorded in excess of ~~additional deferred revenues recorded~~revenue recognized during the period. For the three and ~~nine~~six months ended ~~June 29, 2019,~~March 28, 2020, we recognized ~~$17,446~~$25,780 and ~~$111,032~~$61,540 of revenue, respectively, that was included in the contract liability balance at the beginning of the period.

Remaining Performance Obligations

As of ~~June 29, 2019,~~March 28, 2020, the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied), also known as backlog, was approximately ~~$2,150,000.~~$2,603,000. We expect to recognize approximately ~~74%~~69% of that amount as sales over the next twelve months and the balance thereafter.

Disaggregation of Revenue

See Note ~~17,~~19, Segments, for disclosures related to disaggregation of revenue.

Note 3 - Acquisitions and Divestitures

On November 28, 2019, we acquired Gesellschaft für Antriebstechnik mbH and GAT Inc. (GAT), headquartered in Geisenheim, Germany for a purchase price of $54,265, net of acquired cash. GAT designs and manufactures high-end fluid rotating unions and slip rings. This operation is included in our Industrial Systems segment. The purchase price allocation is subject to adjustments as we obtain additional information for our estimates during the measurement period.

In the first quarter of 2020, we sold a non-core business of our Industrial Systems segment for $1,775 in net consideration and recorded a gain in other income of $169.

In the first quarter of 2019, we sold a non-core business of our Industrial Systems segment for $4,191 in cash and recorded a gain in other income of $2,641.

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Note ~~3 - Acquisitions, Divestitures and Equity Method Investments~~

~~In the first quarter of 2019, we sold a non-core business of our Industrial Systems segment for~~ ~~$4,191~~ ~~in cash and recorded a gain in other income of~~ ~~$2,641~~.

On April 30, 2018, we acquired Electro-Optical Imaging, a designer and manufacturer of video trackers and imaging products, located in Florida, for a purchase price, net of acquired cash, of $5,442. This operation is included in our Space and Defense Controls segment.

On March 29, 2018, we acquired a 100% ownership interest in VUES Brno s.r.o ("Vues") located in the Czech Republic, which included a 74% ownership interest in a subsidiary located in Germany. The purchase price, net of acquired cash, was $64,140, consisting of $42,961 in cash and $21,179 of assumed debt. VUES designs and manufactures electric motors and generators, and provides customized solutions. On September 6, 2018, we acquired the remaining 26% noncontrolling interest for $1,843 in cash. The difference between the cash paid and the adjustment to the noncontrolling interest is reflected in additional paid-in capital. This operation is included in our Industrial Systems segment.

On October 3, 2017, we, in collaboration with SIA Engineering Company, announced the joint venture company, Moog Aircraft Services Asia ("MASA"), in Singapore, of which we currently hold a 51% ownership. MASA is intended to provide maintenance, repair and overhaul services for our manufactured flight control systems. As we hold a majority ownership in MASA, but share voting control, we are accounting for this investment using the equity method. As of June 29, 2019, we have made total contributions of $5,100. This operation is included in our Aircraft Controls segment.

~~Note~~ 4 - Receivables

Receivables consist of:


	June 29, 2019			September 29, 2018			March 28, 2020			September 28, 2019
Accounts receivable	$	230,474		$	295,180		$	489,069		$	477,154
Long-term contract receivables:
Billed receivables	232,600			156,414
Unbilled receivables	444,762			316,489			510,760			468,824
Total long-term contract receivables	677,362			472,903
Other	20,123			30,787			13,265			16,711
Less allowance for doubtful accounts	(5,106		)	(4,959		)	(5,364		)	(5,402		)
Receivables	$	922,853		$	793,911		$	1,007,730		$	957,287

We securitize certain trade receivables in transactions that are accounted for as secured borrowings (Securitization Program). We maintain a subordinated interest in a portion of the pool of trade receivables that are securitized. The retained interest, which is included in Receivables in the consolidated condensed balance sheets, is recorded at fair value, which approximates the total amount of the designated pool of accounts receivable. Refer to Note 7,9, Indebtedness, for additional disclosures related to the Securitization Program.

Note 5 - Inventories

Inventories, net of reserves, consist of:


	June 29, 2019		September 29, 2018		March 28, 2020		September 28, 2019
Raw materials and purchased parts	$	187,167	$	197,071	$	221,736	$	189,875
Work in progress	261,903		240,885		305,725		276,538
Finished goods	65,985		74,566		62,032		68,561
Inventories	$	515,055	$	512,522	$	589,493	$	534,974

There are no material inventoried costs relating to ~~long-term~~over-time contracts where revenue is accounted for using the cost-to-cost method of accounting as of ~~June 29, 2019 or~~March 28, 2020 and September ~~29, 2018.~~28, 2019.

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Note 6 - Property, Plant and Equipment

Property, plant and equipment consists of:



	March 28, 2020			September 28, 2019
Land	$	36,591		$	33,111
Buildings and improvements	482,869			469,867
Machinery and equipment	814,828			775,378
Computer equipment and software	144,305			137,221
Property, plant and equipment, at cost	1,478,593			1,415,577
Less accumulated depreciation and amortization	(861,224		)	(828,810		)
Property, plant and equipment, net	$	617,369		$	586,767

Note 7 - Leases

On September 29, 2019, we adopted ASC 842: Leases, and the related amendments (ASC 842), using the modified retrospective method, as described in Note 1, Basis of Presentation, without adjusting prior comparative periods.

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 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 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 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 March 28, 2020		Six Months Ended March 28, 2020
	Three Months Ended March 28, 2020		Six Months Ended March 28, 2020
Operating lease cost	$	5,956	$	12,116

Finance lease cost:
Amortization of right-of-use assets	$	336	$	412
Interest on lease liabilities	80		128
Total finance lease cost	$	416	$	540

Supplemental cash flow information related to leases was as follows:



	Six Months Ended March 28, 2020
	Six Months Ended March 28, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow for operating leases	$	11,731
Operating cash flow for finance leases	128
Financing cash flow for finance leases	412
Assets obtained in exchange for lease obligations:
Operating leases	8,848
Finance leases	4,242

Supplemental balance sheet information related to leases was as follows:



	March 28, 2020
Operating Leases
Operating lease right-of-use assets	$	66,193

Accrued liabilities and other	$	13,194
Other long-term liabilities	54,966
Total operating lease liabilities	$	68,160

Finance Leases
Property, plant, and equipment, at cost	$	7,966
Accumulated depreciation	(694		)
Property, plant, and equipment, net	$	7,272

Accrued liabilities and other	$	929
Other long-term liabilities	6,385
Total finance lease liabilities	$	7,314

Weighted average remaining lease term in years
Operating leases	7.6
Finance leases	17.7

Weighted average discount rate
Operating leases	4.7		%
Finance leases	4.9		%

Maturities of lease liabilities were as follows:



	March 28, 2020
	Operating Leases			Finance Leases
2020	$	7,895		$	608
2021	16,432			1,187
2022	13,961			1,033
2023	10,178			955
2024	6,993			899
Thereafter	35,498			7,584
Total lease payments	90,957			12,266
Less: imputed interest	(22,797		)	(4,952		)
Total	$	68,160		$	7,314

Note 68 - Goodwill and Intangible Assets

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


	Aircraft Controls			Space and Defense Controls			Industrial Systems			Total			Aircraft Controls		Space and Defense Controls		Industrial Systems			Total
Balance at September 29, 2018	$	179,907		$	261,732		$	355,578		$	797,217
Balance at September 28, 2019													$	176,939	$	261,684	$	345,617		$	784,240
Acquisitions													—		—		25,034			25,034
Divestitures	—			—			(1,237		)	(1,237		)	—		—		(635		)	(635		)
Foreign currency translation	(1,351		)	(22		)	(2,929		)	(4,302		)	668		11		1,036			1,715
Balance at June 29, 2019	$	178,556		$	261,710		$	351,412		$	791,678
Balance at March 28, 2020													$	177,607	$	261,695	$	371,052		$	810,354

Goodwill in our Space and Defense Controls segment is net of a $4,800 accumulated impairment loss at ~~June 29, 2019.~~March 28, 2020.

Goodwill in our Medical Devices reporting unit, included in our Industrial Systems segment, is net of a $38,200 accumulated impairment loss at ~~June 29, 2019.~~March 28, 2020.

The components of intangible assets are as follows:


		June 29, 2019					September 29, 2018						March 28, 2020					September 28, 2019
	Weighted- Average Life (years)	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization			Weighted- Average Life (years)	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Customer-related	11	$	134,124	$	(99,521	)	$	135,379	$	(96,090	)	11	$	141,843	$	(100,430	)	$	132,697	$	(100,091	)
Technology-related	9	69,771		(51,731		)	69,393		(49,731		)	9	77,471		(52,042		)	69,220		(52,192		)
Program-related	19	64,955		(37,088		)	64,988		(33,740		)	19	62,684		(37,937		)	62,015		(35,680		)
Marketing-related	8	23,418		(19,819		)	23,489		(18,868		)	8	25,222		(20,390		)	23,139		(19,899		)
Other	10	4,164		(3,644		)	4,305		(3,588		)	10	4,134		(3,813		)	4,061		(3,624		)
Intangible assets	12	$	296,432	$	(211,803	)	$	297,554	$	(202,017	)	12	$	311,354	$	(214,612	)	$	291,132	$	(211,486	)

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 $3,088 and $10,173 for the three and nine months ended June 29, 2019 and $4,127 and $13,398 for the three and nine months ended June 30, 2018. Based on acquired intangible assets recorded at June 29, 2019, amortization is expected to be approximately $13,200 in 2019, $11,500 in 2020, $9,600 in 2021, $8,100 in 2022 and $7,200 in 2023.

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Amortization of acquired intangible assets is as follows:



	Three Months Ended				Six Months Ended
	March 28, 2020		March 30, 2019		March 28, 2020		March 30, 2019
Acquired intangible asset amortization	$	3,330	$	3,402	$	6,553	$	7,085

Based on acquired intangible assets recorded at March 28, 2020, amortization is estimated to be approximately:



	2020		2021		2022		2023		2024
Estimated future amortization of acquired intangible assets	$	13,200	$	12,200	$	10,800	$	9,900	$	9,500

Note 79 - 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:


	June 29, 2019			September 29, 2018			March 28, 2020			September 28, 2019
U.S. revolving credit facility	$	391,889		$	430,000		$	464,439		$	395,712
SECT revolving credit facility	4,000			—			9,000			7,000
Senior notes	300,000			300,000
Senior notes 4.25%							500,000			—
Senior notes 5.25%							—			300,000
Securitization program	130,000			130,000			130,000			130,000
Obligations under capital leases	804			918			—			679
Senior debt	826,693			860,918			1,103,439			833,391
Less deferred debt issuance cost	(436		)	(1,717		)	(9,473		)	(158		)
Less current installments	(292		)	(365		)	—			(249		)
Long-term debt	$	825,965		$	858,836		$	1,093,966		$	832,984

~~Our~~On October 15, 2019, we amended and restated our U.S. revolving credit facility, which matures on ~~June 28, 2021.~~October 15, 2024. Our U.S. revolving credit facility has a capacity of $1,100,000 and provides an expansion option, which permits us to request an increase of up to ~~$200,000~~$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. 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, ~~2020.~~2022. 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 June 29,~~On December 13, 2019, we ~~had $300,000~~completed the sale of $500,000 aggregate principal amount of ~~5.25%~~4.25% senior notes due December ~~1, 2022~~15, 2027 with interest paid semiannually on June 115 and December 115 of each ~~year.~~year, which will commence 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 of $491,769 were used to repay indebtedness under our U.S. revolving credit facility, thereby increasing the unused portion of our U.S. revolving credit facility.

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On December 13, 2019, we issued a notice of redemption to the holders of our 5.25% senior notes due on December 1, 2022, to redeem and retire all of the outstanding notes. The notes were redeemed on January 13, 2020 at 101.313% pursuant to an early redemption right. We redeemed the aggregate principal amount of $300,000 using proceeds drawn from our U.S. revolving credit facility. The associated loss on the redemption includes $3,939 of call premium paid to external bondholders.

The Securitization Program was extended on October 16, 2019 and matures on October 29, 2021 and effectively ~~increasing~~increases our borrowing capacity by up to ~~$130,000, was extended on October 30, 2018 and now matures on October 30, 2020.~~$130,000. Under the Securitization Program, we sell certain trade receivables and related rights to an affiliate, which in turn sells an undivided variable percentage ownership interest in the trade receivables to a financial institution, while maintaining a subordinated interest in a portion of the pool of trade receivables. Interest for the Securitization Program is based on 30-day LIBOR plus an applicable margin. A commitment fee is also charged based on a percentage of the unused amounts available and is not material. The agreement governing the Securitization Program contains restrictions and covenants which include limitations on the making of certain restricted payments, creation of certain liens, and certain corporate acts such as mergers, consolidations and sale of substantially all assets. The Securitization Program has a minimum borrowing requirement equal to the lesser of either 80% of our borrowing capacity or 100% of our borrowing base, which is a subset of the trade receivables sold under this agreement. As of ~~June 29, 2019,~~March 28, 2020, our minimum borrowing requirement was $104,000.

Note 10 - Other Accrued Liabilities

Other accrued liabilities consists of:



	March 28, 2020		September 28, 2019
Contract reserves	$	65,409	$	60,914
Employee benefits	38,304		37,040
Warranty accrual	28,386		28,061
Accrued income taxes	13,613		26,532
Other	61,088		36,178
Other accrued liabilities	$	206,800	$	188,725

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~~Note 8 - Product Warranties~~

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


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018			March 28, 2020			March 30, 2019			March 28, 2020			March 30, 2019
Warranty accrual at beginning of period	$	24,217		$	28,255		$	25,537		$	25,848		$	29,369		$	24,256		$	28,061		$	25,537
Additions from acquisitions													202			—			744			—
Warranties issued during current period	6,666			3,451			12,691			11,488			3,194			4,055			7,037			6,025
Adjustments to pre-existing warranties	(125		)	(80		)	(523		)	(325		)	(1,003		)	(307		)	(1,184		)	(398		)
Reductions for settling warranties	(5,275		)	(3,219		)	(12,144		)	(9,141		)	(3,199		)	(3,892		)	(6,371		)	(6,869		)
Foreign currency translation	(102		)	(701		)	(180		)	(164		)	(177		)	105			99			(78		)
Warranty accrual at end of period	$	25,381		$	27,706		$	25,381		$	27,706		$	28,386		$	24,217		$	28,386		$	24,217

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Note 911 - Derivative Financial Instruments

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

Derivatives designated as hedging instruments

Interest rate swaps are used to adjust the proportion of total debt that is subject to variable and fixed interest rates. The interest rate swaps are designated as hedges of the amount of future cash flows related to interest payments on variable-rate debt that, in combination with the interest payments on the debt, convert a portion of the variable-rate debt to fixed-rate debt. At ~~June 29, 2019,~~March 28, 2020, we had interest rate swaps with notional amounts totaling ~~$105,000.~~$30,000. The interest rate swaps effectively convert this amount of variable-rate debt to fixed-rate debt at ~~2.99%~~3.20%, including the applicable margin of ~~1.63%~~1.50% as of ~~June 29, 2019.~~March 28, 2020. 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, the British pound and the Czech koruna, we had outstanding foreign currency forwards with notional amounts of ~~$62,126~~$60,195 at ~~June 29, 2019.~~March 28, 2020. These contracts mature at various times through ~~February~~November 26, 2021.

We use forward currency contracts to hedge our net investment in certain foreign subsidiaries. As of ~~June 29, 2019,~~March 28, 2020, we had no0 outstanding net investment hedges.

These interest rate swaps, foreign currency contracts and net investment hedges are recorded in the Consolidated Condensed Balance Sheets at fair value and the related gains or losses are deferred in Shareholders’ Equity as a component of Accumulated Other Comprehensive Income (Loss) (AOCIL). These deferred gains and losses are reclassified into the Consolidated Condensed Statements of Earnings, as necessary, during the periods in which the related payments or receipts affect earnings. However, to the extent the interest rate swaps and foreign currency contracts are not perfectly effective in offsetting the change in the value of the payments and revenue being hedged, the ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was not material in the first ~~nine~~six months of ~~2019~~2020 or ~~2018.~~2019.

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Derivatives not designated as hedging instruments

We also have foreign currency exposure on balances, primarily intercompany, that are denominated in foreign currencies and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in the Consolidated Condensed Statements of Earnings. To minimize foreign currency exposure, we had foreign currency contracts with notional amounts of ~~$137,634~~$77,687 at ~~June 29, 2019.~~March 28, 2020. The foreign currency contracts are recorded in the Consolidated Condensed Balance Sheets at fair value and resulting gains or losses are recorded in the Consolidated Condensed Statements of Earnings. We recorded the following gains or losses on foreign currency contracts which are included in other income or expense and generally offset the gains or losses from the foreign currency adjustments on the intercompany balances that are also included in other income or expense:

Three Months Ended Nine Months Ended
June 29,
2019 June 30,
2018 June 29,
2019 June 30,
2018
Net gain (loss) $ (574 ) $ (1,028 ) $ 195
$ (4,037 )



		Three Months Ended					Six Months Ended
	Statements of Earnings location	March 28, 2020			March 30, 2019		March 28, 2020			March 30, 2019
Net gain (loss)
Foreign currency contracts	Other	$	(2,342	)	$	2,419	$	(771	)	$	769

Summary of derivatives

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


		June 29, 2019		September 29, 2018		Balance Sheets location	March 28, 2020		September 28, 2019
Derivatives designated as hedging instruments:
Foreign currency contracts	Other current assets	$	1,302	$	659	Other current assets	$	873	$	1,060
Foreign currency contracts	Other assets	477		41		Other assets	—		261
Interest rate swaps	Other current assets	203		1,444		Other current assets	—		57
Interest rate swaps	Other assets	—		322
	Total asset derivatives	$	1,982	$	2,466	Total asset derivatives	$	873	$	1,378
Foreign currency contracts	Other accrued liabilities	$	391	$	1,842	Accrued liabilities and other	$	824	$	736
Foreign currency contracts	Other long-term liabilities	—		464		Other long-term liabilities	165		152
Interest rate swaps						Accrued liabilities and other	35		—
	Total liability derivatives	$	391	$	2,306	Total liability derivatives	$	1,024	$	888
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:					Derivatives not designated as hedging instruments:
Foreign currency contracts	Other current assets	$	244	$	285	Other current assets	$	1,293	$	93
Foreign currency contracts	Other accrued liabilities	$	454	$	87	Accrued liabilities and other	$	1,036	$	359

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Note 1012 - Fair Value

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

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

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

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

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

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


	Classification	June 29, 2019		September 29, 2018		Balance Sheets location	March 28, 2020		September 28, 2019
Foreign currency contracts	Other current assets	$	1,546	$	944	Other current assets	$	2,166	$	1,153
Foreign currency contracts	Other assets	477		41		Other assets	—		261
Interest rate swaps	Other current assets	203		1,444		Other current assets	—		57
Interest rate swaps	Other assets	—		322
	Total assets	$	2,226	$	2,751	Total assets	$	2,166	$	1,471
Foreign currency contracts	Other accrued liabilities	$	845	$	1,929	Accrued liabilities and other	$	1,860	$	1,095
Foreign currency contracts	Other long-term liabilities	—		464		Other long-term liabilities	165		152
Interest rate swaps						Accrued liabilities and other	35		—
	Total liabilities	$	845	$	2,393	Total liabilities	$	2,060	$	1,247

Our only financial instrument for which the carrying value differs from its fair value is long-term debt. At ~~June 29, 2019,~~March 28, 2020, the fair value of long-term debt was ~~$831,381~~$1,047,841 compared to its carrying value of ~~$826,693.~~$1,103,439. The fair value of long-term debt is classified as Level 2 within the fair value hierarchy and was estimated based on quoted market prices.

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Note 1113 - Employee Benefit Plans

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


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018			March 28, 2020			March 30, 2019			March 28, 2020			March 30, 2019
U.S. Plans
Service cost	$	5,251		$	5,634		$	15,753		$	16,901		$	5,758		$	5,251		$	11,517		$	10,502
Interest cost	9,231			8,073			27,693			24,219			7,649			9,231			15,298			18,462
Expected return on plan assets	(11,771		)	(13,575		)	(35,313		)	(40,726		)	(11,021		)	(11,264		)	(22,042		)	(22,528		)
Amortization of prior service cost (credit)	47			46			140			140			34			47			67			93
Amortization of actuarial loss	5,465			6,903			16,397			20,707			6,329			6,661			12,658			13,321
Pension expense for U.S. defined benefit plans	$	8,223		$	7,081		$	24,670		$	21,241		$	8,749		$	9,926		$	17,498		$	19,850
Non-U.S. Plans
Service cost	$	1,237		$	1,486		$	3,731		$	4,475		$	1,666		$	1,248		$	3,337		$	2,494
Interest cost	1,091			1,066			3,293			3,213			695			1,101			1,392			2,202
Expected return on plan assets	(1,290		)	(1,260		)	(3,891		)	(3,793		)	(1,135		)	(1,303		)	(2,274		)	(2,601		)
Amortization of prior service cost (credit)	(4		)	(15		)	(13		)	(44		)	—			(4		)	—			(9		)
Amortization of actuarial loss	630			630			1,908			1,902			1,212			638			2,428			1,278
Pension expense for non-U.S. defined benefit plans	$	1,664		$	1,907		$	5,028		$	5,753		$	2,438		$	1,680		$	4,883		$	3,364

Pension expense for our defined contribution plans consists of:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018		March 28, 2020		March 30, 2019		March 28, 2020		March 30, 2019
U.S. defined contribution plans	$	5,468	$	4,374	$	14,795	$	12,482	$	7,206	$	4,713	$	12,604	$	9,327
Non-U.S. defined contribution plans	1,301		1,094		3,837		3,664		1,388		1,340		2,790		2,536
Total pension expense for defined contribution plans	$	6,769	$	5,468	$	18,632	$	16,146	$	8,594	$	6,053	$	15,394	$	11,863

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Note 1214 - Restructuring

In the second quarter of 2018, we initiated restructuring actions in conjunction with exiting the wind pitch controls business within our Industrial Systems segment. These actions resulted in workforce reductions, principally in Germany and China. The restructuring charge in 2018 consisted of $12,198 of non-cash inventory reserves, $12,316 of non-cash charges for the impairment of intangible assets, $2,162 of non-cash charges, primarily for the impairment of other long-lived assets, $7,969 for severance, $3,130 for facility closure and $3,217 for other costs.

Restructuring activity for severance and other costs is as follows:


	Aircraft Controls			Space and Defense Controls			Industrial Systems			Corporate			Total			Space and Defense Controls			Industrial Systems			Total
Balance at September 29, 2018	$	626		$	64		$	6,994		$	429		$	8,113
Balance at September 28, 2019																$	27		$	4,096		$	4,123
Adjustments to provision	13			9			—			17			39			(1		)	(969		)	(970		)
Cash payments - 2016 plan	—			—			—			(446		)	(446		)
Cash payments - 2018 plan	(635		)	(27		)	(2,503		)	—			(3,165		)	(26		)	(414		)	(440		)
Foreign currency translation	(4		)	—			(114		)	—			(118		)	—			48			48
Balance at June 29, 2019	$	—		$	46		$	4,377		$	—		$	4,423
Balance at March 28, 2020																$	—		$	2,761		$	2,761

As of ~~June 29, 2019,~~March 28, 2020, the restructuring accrual consists of ~~$4,423~~$2,761 for the 2018 plan. Restructuring is expected to be paid within a year, except for the non-current portion of the facility closure accrual, which is classified as a long-term liability.

Note 1315 - Income Taxes

The effective tax rate for the three and ~~nine~~six months ended ~~June 29, 2019~~March 28, 2020 were ~~23.1%~~19.2% and ~~23.7%~~22.3%, respectively. The effective tax rate for ~~this period~~the three months ended March 28, 2020 is lower than expected due to the reduction in tax rate associated with taxes accrued on accumulated earnings in one of our foreign jurisdictions. Additionally, legal entity restructuring resulted in reduced withholding taxes previously accrued in another foreign jurisdiction. The effective tax rate for the six months ended March 28, 2020 is higher than expected due to tax on earnings generated outside the U.S.

The effective tax rate for the three and six months ended March 30, 2019 were 23.8% and 24.1%, respectively. The effective tax rate for all periods is higher than would be expected by applying the U.S. federal statutory tax rate of 21% to earnings before income taxes primarily due to tax on earnings generated outside of the U.S.

The effective tax rate for the three and nine months ended June 30, 2018 were 25.8% and 56.4%, respectively. The effective tax rate for the nine months ended June 30, 2018 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 reduced the U.S. federal corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign sourced earnings. In 2018, we recorded provisional amounts by applying the guidance in SAB 118, as we had not yet completed the accounting for the tax effects of enactment of the Act. For the year ended September 29, 2018, we recorded tax expense related to the Act of $30,795 for the one-time transition tax on undistributed foreign earnings deemed to be repatriated and a tax charge of $10,383 as an additional provision for taxes on undistributed earnings not considered to be permanently reinvested. These charges were partially offset by a $10,946 benefit due to the remeasurement of deferred tax assets and liabilities arising from the lower U.S. corporate tax rate. 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.

~~Upon filing our fiscal 2018 federal consolidated tax return, we finalized our calculations of the transition tax liability with minor adjustments.~~

Some of the provisions of the Act became effective for us in 2019. One of these provisions was a Global Intangible Low-Taxed Income (GILTI) provision that imposes U.S. tax on certain foreign subsidiary income in the year it is earned. Our accounting policy is to treat tax on the GILTI as a current period cost included in income tax expense in the year incurred.

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Note 1416 - Accumulated Other Comprehensive Income (Loss)

The changes in AOCIL, net of tax, by component for the ~~nine~~six months ended ~~June 29, 2019~~March 28, 2020 are as follows:


	Accumulated foreign currency translation			Accumulated retirement liability			Accumulated gain (loss) on derivatives			Total			Accumulated foreign currency translation (1)			Accumulated retirement liability			Accumulated gain (loss) on derivatives			Total
AOCIL at September 29, 2018	$	(99,415	)	$	(272,317	)	$	(449	)	$	(372,181	)
AOCIL at September 28, 2019													$	(129,399	)	$	(285,734	)	$	(344	)	$	(415,477	)
Other comprehensive income (loss) before reclassifications	(5,794		)	553			1,060			(4,181		)	(1,392		)	(717		)	444			(1,665		)
Amounts reclassified from AOCIL	(3,483		)	13,207			84			9,808			(493		)	11,196			(205		)	10,498
Other comprehensive income (loss)	(9,277		)	13,760			1,144			5,627			(1,885		)	10,479			239			8,833
AOCIL at June 29, 2019	$	(108,692	)	$	(258,557	)	$	695		$	(366,554	)
AOCIL at March 28, 2020													$	(131,284	)	$	(275,255	)	$	(105	)	$	(406,644	)


⁽¹⁾	Net gains and losses on net investment hedges are recorded as cumulative translation adjustments in AOCIL 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						Nine Months Ended								Three Months Ended						Six Months Ended
		Statement of earnings classification	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018				Statements of Earnings location	March 28, 2020			March 30, 2019			March 28, 2020			March 30, 2019
Retirement liability:
Prior service cost (credit)			$	(75	)	$	(86	)	$	(226	)	$	(257	)			$	(31	)	$	(75	)	$	(63	)	$	(151	)
Actuarial losses			5,918			7,405			17,771			22,224					7,388			7,627			14,782			15,256
Reclassification from AOCIL into earnings ~~(1)~~(2)	Reclassification from AOCIL into earnings ~~(1)~~(2)		5,843			7,319			17,545			21,967			Reclassification from AOCIL into earnings ~~(1)~~(2)		7,357			7,552			14,719			15,105
Tax effect			(1,445		)	(1,791		)	(4,338		)	(6,279		)			(1,761		)	(1,848		)	(3,523		)	(3,696		)
Net reclassification from AOCIL into earnings	Net reclassification from AOCIL into earnings		$	4,398		$	5,528		$	13,207		$	15,688		Net reclassification from AOCIL into earnings		$	5,596		$	5,704		$	11,196		$	11,409
Derivatives:
Foreign currency contracts		Sales	$	25		$	(122	)	$	(75	)	$	(378	)		Sales	$	5		$	(67	)	$	7		$	(100	)
Foreign currency contracts		Cost of sales	302			428			1,197			1,626				Cost of sales	(274		)	235			(234		)	895
Interest rate swaps		Interest	(291		)	(259		)	(1,008		)	(375		)		Interest	—			(317		)	(41		)	(717		)
Reclassification from AOCIL into earnings	Reclassification from AOCIL into earnings		36			47			114			873			Reclassification from AOCIL into earnings		(269		)	(149		)	(268		)	78
Tax effect			(8		)	(18		)	(30		)	(325		)			63			35			63			(22		)
Net reclassification from AOCIL into earnings	Net reclassification from AOCIL into earnings		$	28		$	29		$	84		$	548		Net reclassification from AOCIL into earnings		$	(206	)	$	(114	)	$	(205	)	$	56

⁽¹⁾~~The reclassifications are included in the computation of non-service pension expense, which is included in Other on the Consolidated Condensed Statement of Earnings.~~


⁽²⁾	The reclassifications are included in the computation of non-service pension expense, which is included in Other on the Consolidated Condensed Statement of Earnings.

The amounts deferred in AOCIL are as follows:


	Net deferral in AOCIL - effective portion												Net deferral in AOCIL - effective portion
	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018			March 28, 2020			March 30, 2019			March 28, 2020			March 30, 2019
Foreign currency contracts	$	909		$	(1,246	)	$	1,958		$	(2,073	)	$	(1,162	)	$	150		$	632		$	1,049
Interest rate swaps	(195		)	223			(537		)	1,470			(36		)	(107		)	(40		)	(342		)
Net gain (loss)	714			(1,023		)	1,421			(603		)	(1,198		)	43			592			707
Tax effect	(183		)	247			(361		)	(37		)	241			(8		)	(148		)	(178		)
Net deferral in AOCIL of derivatives	$	531		$	(776	)	$	1,060		$	(640	)	$	(957	)	$	35		$	444		$	529

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Note 1517 - Stock Employee Compensation Trust and Supplemental Retirement Plan Trust

The Stock Employee Compensation Trust (SECT) assists in administering and provides funding for equity-based compensation plans and benefit programs, including the Moog Inc. Retirement Savings Plan (RSP) and the Employee Stock Purchase Plan (ESPP). The Supplemental Retirement Plan (SERP) Trust provides funding for benefits under the SERP provisions of the Moog Inc. 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 1618 - Earnings per Share and Dividends

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


	Three Months Ended		Nine Months Ended		Three Months Ended		Six Months Ended
	June 29, 2019	June 30, 2018	June 29, 2019	June 30, 2018	March 28, 2020	March 30, 2019	March 28, 2020	March 30, 2019
Basic weighted-average shares outstanding	34,904,487	35,762,918	34,869,021	35,768,471	33,434,420	34,886,541	33,972,635	34,850,898
Dilutive effect of equity-based awards	335,347	380,449	333,498	406,288	250,975	354,572	263,764	332,573
Diluted weighted-average shares outstanding	35,239,834	36,143,367	35,202,519	36,174,759	33,685,395	35,241,113	34,236,399	35,183,471

For the three and ~~nine~~six months ended ~~June 29, 2019,~~March 28, 2020, there were ~~18,857~~77,414 and ~~31,451~~ 53,521common shares from equity-based awards, respectively, excluded from the calculation of diluted earnings per share as they would be anti-dilutive. For the three and ~~nine~~six months ended ~~June~~March 30, ~~2018,~~2019, there were ~~25,570~~ 29,839and ~~19,780~~38,132 common shares from equity-based awards, respectively, excluded from the calculation of diluted earnings per share as they would be anti-dilutive.

We declared and paid cash dividends of $0.25 per share on our Class A and Class B common stock in ~~each of~~ the ~~three~~first and second quarters of ~~2019. We declared a cash dividend of $0.25 per share on our Class A~~2020 and ~~Class B common stock in the second quarter of~~ ~~2018~~2019~~, which was paid in the third quarter of 2018.~~.

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Note 1719 - Segment Information

~~Below are~~Disaggregation of net sales by segment for the three and ~~nine~~six months ended ~~June 29,~~March 28, 2020 and March 30, 2019 ~~and June 30, 2018 disaggregated by type of good or service and market or type of customer.~~

Three Months Ended Nine Months Ended
June 29,
2019 June 30,
2018 June 29,
2019 June 30,
2018
Net sales:
Military $ 162,285
$ 143,963
$ 464,102
$ 423,822
Commercial 174,450
155,643
497,305
465,757
Aircraft Controls 336,735
299,606
961,407
889,579
Space 55,737
54,599
159,262
161,801
Defense 117,308
95,216
334,676
264,934
Space and Defense Controls 173,045
149,815
493,938
426,735
Energy 30,413
43,097
89,687
122,077
Industrial Automation 113,784
114,703
339,283
319,471
Simulation and Test 28,123
28,880
88,418
91,758
Medical 58,869
55,917
166,723
158,982
Industrial Systems 231,189
242,597
684,111
692,288
Net sales $ 740,969
$ 692,018
$ 2,139,456
$ 2,008,602

~~Sales by customer~~ are as follows:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Market Type									March 28, 2020		March 30, 2019		March 28, 2020		March 30, 2019
Net sales:
Military									$	175,784	$	155,016	$	349,478	$	301,817
Commercial	$	174,450	$	155,643	$	497,305	$	465,757	165,623		165,611		331,883		322,855
U.S. Government (including OEM)	125,387		118,474		365,347		331,357
Other	36,898		25,489		98,755		92,465
Aircraft Controls	336,735		299,606		961,407		889,579		341,407		320,627		681,361		624,672
Commercial	35,457		28,615		97,698		85,836
U.S. Government (including OEM)	129,266		111,155		365,552		310,340
Other	8,322		10,045		30,688		30,559
Space									73,564		53,349		136,304		103,525
Defense									119,446		111,476		242,946		217,368
Space and Defense Controls	173,045		149,815		493,938		426,735		193,010		164,825		379,250		320,893
Commercial	220,796		234,969		658,258		671,859
U.S. Government (including OEM)	7,430		6,257		18,383		16,832
Other	2,963		1,371		7,470		3,597
Energy									36,772		29,977		66,711		59,274
Industrial Automation									106,177		116,369		213,008		225,499
Simulation and Test									25,647		31,245		54,115		60,295
Medical									62,264		55,768		125,675		107,854
Industrial Systems	231,189		242,597		684,111		692,288		230,860		233,359		459,509		452,922
Commercial	430,703		419,227		1,253,261		1,223,452
U.S. Government (including OEM)	262,083		235,886		749,282		658,529
Other	48,183		36,905		136,913		126,621
Net sales	$	740,969	$	692,018	$	2,139,456	$	2,008,602	$	765,277	$	718,811	$	1,520,120	$	1,398,487



	Three Months Ended				Six Months Ended
Customer Type	March 28, 2020		March 30, 2019		March 28, 2020		March 30, 2019
Net sales:
Commercial	$	165,623	$	165,611	$	331,883	$	322,855
U.S. Government (including OEM)	140,677		122,779		272,886		239,960
Other	35,107		32,237		76,592		61,857
Aircraft Controls	341,407		320,627		681,361		624,672
Commercial	34,184		32,188		68,336		62,241
U.S. Government (including OEM)	141,735		121,821		276,422		236,286
Other	17,091		10,816		34,492		22,366
Space and Defense Controls	193,010		164,825		379,250		320,893
Commercial	223,128		226,894		443,647		437,462
U.S. Government (including OEM)	5,022		4,511		11,443		10,953
Other	2,710		1,954		4,419		4,507
Industrial Systems	230,860		233,359		459,509		452,922
Commercial	422,935		424,693		843,866		822,558
U.S. Government (including OEM)	287,434		249,111		560,751		487,199
Other	54,908		45,007		115,503		88,730
Net sales	$	765,277	$	718,811	$	1,520,120	$	1,398,487

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~~Below is operating profit by segment for the three and nine months ended June 29, 2019 and June 30, 2018 and a reconciliation of segment operating profit to earnings before income taxes.~~ Operating profit is net sales less cost of sales and other operating expenses, excluding interest expense, equity-based compensation expense and other corporate expenses. Cost of sales and other operating expenses are directly identifiable to the respective segment or allocated on the basis of sales, number of employees or profit. Operating profit by segment for the three and six months ended March 28, 2020 and March 30, 2019 and a reconciliation of segment operating profit to earnings before income taxes are as follows:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018		March 28, 2020		March 30, 2019		March 28, 2020		March 30, 2019
Operating profit:
Aircraft Controls	$	34,484	$	33,601	$	94,805	$	98,437	$	34,701	$	27,122	$	73,293	$	60,321
Space and Defense Controls	24,133		16,689		63,110		50,204		24,652		20,504		49,934		38,977
Industrial Systems	25,495		24,972		83,428		39,455		24,775		30,228		51,574		57,933
Total operating profit	84,112		75,262		241,343		188,096		84,128		77,854		174,801		157,231
Deductions from operating profit:
Interest expense	9,780		8,850		29,401		26,585		10,251		9,939		20,483		19,621
Equity-based compensation expense	1,439		894		5,130		4,394		890		1,683		3,271		3,691
Non-service pension expense	3,182		1,693		9,562		5,093		3,598		4,889		7,199		9,783
Corporate and other expenses, net	7,991		8,870		21,728		23,566		7,858		7,427		15,413		13,737
Earnings before income taxes	$	61,720	$	54,955	$	175,522	$	128,458	$	61,531	$	53,916	$	128,435	$	110,399

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Note 1820 - Related Party Transactions

~~On November 20, 2017,~~ John Scannell, Moog's Chairman of the Board and Director and Chief Executive Officer, ~~was elected to~~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 ~~nine~~six months ended ~~June 29, 2019~~March 28, 2020 totaled ~~$5,540~~$4,220 and ~~$15,899,~~$8,794, respectively. Credit extension for the three and ~~nine~~six months ended ~~June~~March 30, ~~2018~~2019 totaled ~~$5,237~~$5,070 and ~~$14,856,~~$10,359, respectively. At ~~June 29, 2019,~~March 28, 2020, we held ~~a $15,000 interest rate swap with M&T Bank and~~ outstanding leases with a total original cost of ~~$28,035.~~$26,021. M&T Bank also maintains an interest of approximately 12% in our U.S. revolving credit facility. Further details of the U.S. revolving credit facility can be found in Note 7,9, Indebtedness.

Note 1921 - Commitments and Contingencies

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

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

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

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We lease certain facilities and equipment under operating lease arrangements. These arrangements may include fair market renewal or purchase options. Rent expense under operating leases amounted to $25,510 at September 28, 2019 and $26,594 at September 29, 2018. As of September 28, 2019, future minimum rental payments required under non-cancellable operating leases are $20,993 in 2020, $19,118 in 2021, $15,636 in 2022, $11,344 in 2023, $7,151 in 2024 and $41,670 thereafter.

We are contingently liable for ~~$34,524~~$35,511 of standby letters of credit issued to third parties on our behalf at ~~June 29, 2019.~~March 28, 2020.

Note 2022 - Subsequent Event

On ~~July 25, 2019,~~March 11, 2020, the ~~Board~~World Health Organization classified the COVID-19 outbreak as a pandemic. The pandemic did not have a material impact on our financial statements for the three and six months ended March 28, 2020. We have implemented actions to maintain our financial health and liquidity. We are also monitoring the impacts of ~~Directors declared~~COVID-19 on the fair value of assets. We do not currently anticipate any material impairments on assets as a ~~$0.25 per share quarterly dividend payable on issued~~result of COVID-19. Future changes in sales, earnings and ~~outstanding shares~~cash flows related to long-lived assets to be held and used and goodwill could cause these assets to become impaired. COVID-19 is discussed in more detail throughout “Management’s Discussion and Analysis of ~~our Class A~~Financial Condition and ~~Class B common stock on September 3, 2019 to shareholders~~Results of ~~record at the close of business on August 15, 2019.~~Operations.”

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

The following should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report filed on Form 10-K for the fiscal year ended September ~~29, 2018.~~28, 2019. All references to years in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are to fiscal years and amounts may differ from reported values due to rounding.

OVERVIEW

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

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

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

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

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

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

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

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

Energy market - power generation and oil and gas exploration.

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 and Lithuania.

Under ASC 606, ~~64%~~65% of revenue was recognized over time for the quarter ended ~~June 29, 2019,~~March 28, 2020, using the cost-to-cost method of accounting. The over time method of revenue recognition is predominantly used in 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 ~~June 29, 2019, 36%~~March 28, 2020, 35% 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. 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 cost of sales is recorded and as 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^®." By capitalizing on these core foundational strengths, we believe we have achieved a leadership position in the high performance, precision controls market. 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 their most demanding technical problems, we have been able to expand our control product franchise ~~from one market~~ to ~~another,~~multiple markets; organically growing from a high-performance components manufacturer to a high-performance systems designer, manufacturer and systems integrator. In addition, we continue expanding our content positions on our current platforms, seeking to be the dominant supplier in the niche markets we serve. We also look for innovation in all aspects of our business, employing new technologies to improve productivity and operational performance.

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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 ~~company~~Company 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^®,"

continuing to invest in talent development to strengthen employee performance, 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 base and geographic presence.

We focus on improving shareholder value through strategic revenue growth, both acquired and organic, through improving operating efficiencies and manufacturing initiatives and through utilizing low cost manufacturing facilities without compromising quality. ~~Additionally,~~Historically, we ~~take~~have taken a balanced approach to capital deployment in order to maximize shareholder returns over the long-term. Our activities ~~may include~~have included strategic acquisitions, ~~further~~ share buybacks and dividend payments. In the current COVID-19 environment, we have shifted our capital deployment strategies from a long-term perspective that balances growth and capital returns with one that focuses on liquidity and leverage in the near-term. We are committed to ensuring that we have adequate liquidity during this crisis, protecting the long-term health of the Company and emerging financially strong and ready to capitalize on opportunities once this situation passes.

Acquisitions, Divestitures and Equity Method Investments

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 condensed statements of earnings from the respective dates of acquisition. Under purchase accounting, we record assets and liabilities at fair value and such amounts are reflected in the respective captions on the consolidated 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.

On November 28, 2019, we acquired Gesellschaft für Antriebstechnik mbH and GAT Inc. (GAT), headquartered in Geisenheim, Germany for a purchase price of $54 million, net of acquired cash. GAT designs and manufactures high-end fluid rotating unions and slip rings. This operation is included in our Industrial Systems segment. The purchase price allocation is subject to adjustments as we obtain additional information for our estimates during the measurement period.

In the first quarter of 2020, we sold a non-core business in our Industrial Systems segment for $2 million in net consideration and recorded a minimal gain in other income.

In the first quarter of 2019, we sold a non-core business ofin our ~~Industrials~~Industrial Systems segment for $4 million in cash and recorded a gain in other income of $3 million.

On April 30, 2018, we acquired Electro-Optical Imaging, a designer and manufacturer of video trackers and imaging products, located in Florida, for $5 million. This operation is included in our Space and Defense Controls segment.

On March 29, 2018, we acquired a 100% ownership interest in VUES Brno s.r.o ("Vues") located in the Czech Republic, which included a 74% ownership interest in a subsidiary located in Germany, for $64 million. VUES designs and manufactures electric motors and generators, and provides customized solutions. On September 6, 2018, we acquired the remaining 26% noncontrolling interest for $2 million in cash. This operation is included in our Industrial Systems segment.

On October 3, 2017, we, in collaboration with SIA Engineering Company, announced the joint venture company, Moog Aircraft Services Asia ("MASA"), in Singapore, of which we currently hold a 51% ownership. MASA is intended to provide maintenance, repair and overhaul services for our manufactured flight control systems. As we hold a majority ownership in MASA, but share voting control, we are accounting for this investment using the equity method. As of June 29, 2019, we have made total contributions of $5 million to MASA. This operation is included in our Aircraft Controls segment.

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 ~~loss and contract-related~~ reserves, reserves for inventory valuation, reviews for impairment of goodwill, reviews for impairment of long-lived assets, pension assumptions and income taxes. ~~See Note 1 of the Consolidated Condensed Financial Statements included in Item 1, Financial Statements of this report for the impact of the adoption of ASC 606.~~

~~Other than the adoption of ASC 606, there have been no material changes in critical accounting policies in the current year from those disclosed in our 2018 Annual Report on Form 10-K.~~

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RECENT ACCOUNTING PRONOUNCEMENTS

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

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COVID-19 IMPACTS ON OUR BUSINESS

The 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, been operational. Many are considered essential and are exempt from closure directives. However, such directives could change at any time. We have implemented changes in our work practices maintaining a safe working environment for production employees at our facilities, while enabling other employees to productively work from home.

Recognizing the unprecedented nature, scope and uncertainty associated with this global health crisis, the duration and extent of the ongoing impact cannot be reasonably estimated at this time. We have suspended our practice of providing an outlook for fiscal 2020. Our businesses are facing varying levels of pressure depending on the markets they serve. Specifically, we believe defense and space businesses may only face modest pressures associated with supply chain risks and productivity levels as government funding remains stable. Also, demand for our medical applications may increase in response to this pandemic. Together, these businesses represent over half of our sales. However, we believe our industrial business may see supply chain, productivity and demand challenges from the macroeconomic slowdown, while our commercial aircraft business will be impacted the most with dramatic reductions in air travel. This suggests sales across the second half of 2020 could decline between 10% and 20% as compared to the first half of 2020. Additionally, given the time required to align our business with the expected lower demand, we could experience a marginal loss on the reduced sales in a range between 30% and 40% in the second half of 2020.

In response to this situation, we have implemented short term actions to maintain the financial health and liquidity of the Company including:

temporarily suspending dividend payments,

temporarily suspending share buyback activities,

minimizing capital spend,

reducing discretionary spending,

implementing hiring and salary freezes,

aligning company resources and incoming inventory to be in line with expected customer demand,

optimizing the timing of cash flow and

implementing vendor financing programs.

We will continue to monitor the situation, assessing further possible implications on our operations, supply chain, liquidity, cash flow and customer orders, and will take action in an effort to mitigate adverse consequences. We believe that our existing financial arrangements, along with the actions we are taking to mitigate the business pressures we are facing will be sufficient to meet our operating needs over the short-term. We have available borrowings under short and long-term arrangements that could provide relief should the situation become more stressed.

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CONSOLIDATED RESULTS OF OPERATIONS	CONSOLIDATED RESULTS OF OPERATIONS																					CONSOLIDATED RESULTS OF OPERATIONS

	Three Months Ended										Nine Months Ended											Three Months Ended											Six Months Ended
(dollars and shares in millions, except per share data)	June 29, 2019			June 30, 2018			$ Variance		% Variance		June 29, 2019			June 30, 2018			$ Variance			% Variance		March 28, 2020			March 30, 2019			$ Variance			% Variance		March 28, 2020			March 30, 2019			$ Variance			% Variance
Net sales	$	741		$	692		$	49	7	%	$	2,139		$	2,009		$	131		7	%	$	765		$	719		$	46		6	%	$	1,520		$	1,398		$	122		9	%
Gross margin	28.6		%	28.6		%					28.5		%	28.6		%						27.2		%	27.5		%						27.6		%	28.4		%
Research and development expenses	$	31		$	31		$	—	1	%	$	95		$	97		$	(3	)	(3	%)	$	27		$	31		$	(5	)	(15	%)	$	55		$	63		$	(8	)	(13	%)
Selling, general and administrative expenses as a percentage of sales	14.0		%	14.7		%					14.0		%	14.7		%						14.0		%	13.9		%						13.5		%	14.0		%
Interest expense	$	10		$	9		$	1	11	%	$	29		$	27		$	3		11	%	$	10		$	10		$	—		3	%	$	20		$	20		$	1		4	%
Restructuring expense	$	—		$	(2	)	$	2	(100	%)	$	—		$	23		$	(23	)	(100	%)
Other	$	5		$	3		$	3	100	%	$	10		$	5		$	4		86	%	$	2		$	2		$	—		—	%	$	10		$	7		$	2		32	%
Effective tax rate	23.1		%	25.8		%					23.7		%	56.4		%						19.2		%	23.8		%						22.3		%	24.1		%
Net earnings	$	47		$	41		$	7	17	%	$	134		$	56		$	78		139	%	$	50		$	41		$	9		21	%	$	100		$	84		$	16		19	%
Diluted earnings per share	$	1.35		$	1.13		$	0.22	19	%	$	3.80		$	1.55		$	2.25		145	%	$	1.48		$	1.17		$	0.31		26	%	$	2.91		$	2.38		$	0.53		22	%
Total backlog											$	2,150		n/a			n/a			n/a													$	2,603		$	2,230		$	373		17	%
Twelve month backlog											$	1,583		$	1,475		$	108		7	%
Twelve-month backlog																																	$	1,793		$	1,636		$	157		10	%

Net sales increased in the ~~third~~second quarter and in the first ~~three quarters~~half of ~~2019~~2020 compared to the ~~third~~second quarter and first ~~three quarters of 2018. Sales increased with Aircraft Controls and Space and Defense Controls, while Industrial Systems declined.~~

~~Gross margin was unchanged in the third quarter~~half of 2019, ~~compared~~largely attributable to ~~the third quarter of 2018. We had improved~~higher defense sales ~~mix and higher sales volume in~~within Space and Defense Controls and ~~we had an improved sales mix~~Aircraft Controls.

Gross margin declined in the first half of 2020 compared to the first half of 2019. Gross profit in the second quarter of 2019 included a $10 million charge associated with a supplier quality issue within Aircraft Controls. Excluding this charge, gross profit in the first half of 2020 would have declined further as compared to the first half of 2019. In the first half of 2020, gross margin declined in Industrial ~~Systems. However, this was offset~~Systems, driven by ~~lower gross margins~~a less favorable sales mix; and in Aircraft Controls due to higher operating ~~costs.~~

Also, gross margin in the first three quarters of 2019 was similar to gross margin in the first three quarters of 2018. Gross margin declined in Aircraft Controls due to the same factors as in the third quarter of 2019,costs and due to a ~~$10 million charge related to~~charges on a supplier quality issue in the second quarter of 2019. Mostly offsetting the decline was increased gross margin in Industrial Systems, due partly to the absence of the low-margin wind pitch controls business.development program.

Research and development expenses declined in both the second quarter and the first ~~three quarters~~half of ~~2019~~2020 compared to the same periods of ~~2018.~~2019. Lower activity, ~~across~~primarily in our major commercial OEM programs, in Aircraft Controls reduced expenses $6$4 million ~~while increased~~during the second quarter of 2020 and $7 million in the first half of 2020. Also lower activity in ~~our other segments partially offset~~Industrial Systems reduced research and development expenses $2 million in the ~~decline.~~first half of 2020.

Selling, general and administrative expenses as a percentage of sales decreased in the ~~third quarter and in the~~ first ~~three quarters~~half of ~~2019~~2020 compared to the ~~same periods~~first half of ~~2018. The decrease relates primarily to higher sales in~~2019. Within Space and Defense Controls, ~~and Aircraft Controls.~~the incremental sales growth offset slightly higher expenses.

Interest expense increased in the third quarter and the first three quarters of 2019 compared to the third quarter and the first three quarters of 2018 due to higher interest rates on outstanding debt.

~~In 2018, we decided to exit our wind pitch controls business and incurred $32 million of restructuring expense in Industrial Systems. Of the total~~Other expense in the ~~second and third quarters~~first half of ~~2018, the charges consisted of $10~~2020 includes a $4 million ~~of non-cash inventory reserves, $14~~call premium as we redeemed our $300 million ~~of non-cash charges, primarily for the impairment of long-lived assets, $6 million for severance and~~aggregate principal 5.25% senior notes, partially offset by a $2 million ~~for other costs.~~

Other expense increased in the first three quarters of 2019 compared to the first three quarters of 2018. Non-service pension expense increased $4 million due to lower expected return on assets related to a lower risk investment strategy.gain associated with foreign currencies.

The effective tax rate in ~~2018 was impacted by limited tax~~the second quarter of 2020 included benefits associated with ~~the restructuring charges taken~~changes in ~~foreign jurisdictions of our Industrial Systems segment. In addition, the effective~~enacted tax ~~rate in 2018 was significantly impacted by the enactment of the Tax Cuts~~rates and ~~Jobs Act of 2017. Excluding the one-time special impacts due to the Act, the effective tax rate~~assumptions for ~~the first three quarters of 2018 was 26.8%.~~withholding taxes on accumulated offshore earnings.

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Other comprehensive income in the third quarter of 2019 includes $1 million of foreign currency translation loss, whereas other comprehensive income in the third quarter of 2018 includes $41 million of foreign currency translation loss. The change in ~~foreign currency translation was primarily attributable to the appreciation of the Euro and the British Pound relative to the U.S. Dollar.~~

~~The~~ twelve-month backlog at ~~June 29, 2019~~March 28, 2020 compared to ~~June~~March 30, ~~2018 increased~~2019 was driven by increases in both our aerospace and defense ~~business.~~business and in our industrial businesses. Within Aircraft Controls, backlog increased due to the timing of orders of the F-35 program, additional military development program orders, as well as higher military aftermarket orders. Partially offsetting these aircraft increases are lower orders for legacy Boeing and 787 programs. Within Space and Defense Controls, backlog increased supporting the expected incremental sales for launch vehicles ~~defense components~~ and ~~missiles. Also within Aircraft Controls, backlog increased due to the timing of orders~~ for ~~military fighter aircraft.~~satellites. The twelve-month backlog ~~for our industrial business decreased as we had lower orders for industrial components~~increased in ~~addition~~Industrial Systems due to ~~lost energy orders related to the decision to exit the wind pitch controls business. Partly offsetting the lower orders was~~ higher orders for our medical products.

Other comprehensive loss in the second quarter of 2020 includes $23 million of foreign currency translation loss, whereas other comprehensive income in 2019 includes $1 million of foreign currency translation gain. The change in foreign currency translation in the second quarter 2020 compared to the second quarter of 2019 was primarily attributable to the depreciation of the British Pound relative to the U.S. Dollar. Other comprehensive income in the first half of 2020 includes $2 million of foreign currency translation loss, whereas other comprehensive income in the first half of 2019 includes $8 million of foreign currency translation loss. The change in foreign currency translation in the first half of 2020 compared to the first half of 2019 was primarily attributable to the appreciation of the Euro offset by the depreciation of other foreign currencies relative to the U.S. Dollar.

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SEGMENT RESULTS OF OPERATIONS

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 1719 of the Notes to Consolidated Condensed Financial Statements included in this report.

Aircraft Controls


	Three Months Ended										Nine Months Ended											Three Months Ended										Six Months Ended
(dollars in millions)	June 29, 2019			June 30, 2018			$ Variance		% Variance		June 29, 2019			June 30, 2018			$ Variance			% Variance		March 28, 2020			March 30, 2019			$ Variance		% Variance		March 28, 2020			March 30, 2019			$ Variance		% Variance
Net sales - military aircraft	$	162		$	144		$	18	13	%	$	464		$	424		$	40		10	%	$	176		$	155		$	21	13	%	$	349		$	302		$	48	16	%
Net sales - commercial aircraft	174			156			19		12	%	497			466			32			7	%	166			166			—		—	%	332			323			9		3	%
	$	337		$	300		$	37	12	%	$	961		$	890		$	72		8	%	$	341		$	321		$	21	6	%	$	681		$	625		$	57	9	%
Operating profit	$	34		$	34		$	1	3	%	$	95		$	98		$	(4	)	(4	%)	$	35		$	27		$	8	28	%	$	73		$	60		$	13	22	%
Operating margin	10.2		%	11.2		%					9.9		%	11.1		%						10.2		%	8.5		%					10.8		%	9.7		%

The increase in Aircraft Controls' net sales in the ~~third~~second quarter ~~of 2019~~ and in the first ~~three quarters~~half of 2020 compared to the second quarter and the first half of 2019 was driven by increases in ~~commercial OEM,~~our military OEM and ~~military~~ aftermarket ~~programs compared to the same periods of 2018.~~

~~In the third quarter of 2019,~~programs. Additionally, commercial OEM sales increased ~~$21 million~~slightly in the first half of 2020 compared to the ~~third~~first half of 2019.

In the second quarter of ~~2018. Sales to Airbus increased $11 million and sales to Boeing increased $7 million, driven by higher volumes related~~2020 compared to the A350 and 787 programs, respectively. Additionally in commercial OEM, sales for business jets increased $5 million, driven by rate increases on Gulfstream programs. Partially offsetting the commercial OEM sales increase was a $3 million decline in commercial aftermarket sales, driven by lower initial provisioning sales for the Airbus A350 program. In military aircraft in the thirdsecond quarter of 2019, military OEM sales increased ~~$11~~$13 million and military aftermarket sales increased $8 million. Within military OEM, higher volumes due ~~primarily~~ to the ~~timing~~ramp up of ~~foreign~~the F-35 program increased sales $8 million. Additionally, military ~~sales.~~OEM sales increased $5 million on the Black Hawk helicopter and KC-46 programs. Also, military aftermarket sales ~~increased $7 million, driven by higher V-22 and~~for F-35 spares ~~sales.~~and for the F-15 program increased sales $4 million and $1 million, respectively. Within commercial OEM, sales were unchanged as higher activity on the Boeing 787 program was offset by lower orders for the Boeing 737 Max and Airbus A350 programs.

In the first ~~three quarters~~half of ~~2019~~2020 compared to the first three quarters of 2018, commercial OEM sales increased $37 million. Similar to the third quarter of 2019, higher sales to Boeing and Airbus increased sales $14 million and $10 million, respectively, as higher volumes of the new programs offset declines in legacy programs. Also sales for business jets increased $13 million. Partially offsetting the commercial OEM sales increase was a $6 million decline in commercial aftermarket sales, driven mostly by the timing for initial provisioning orders for the Airbus A350 program. In military aircraft in the first three quartershalf of 2019, military OEM sales increased ~~$22 million. Higher production rates increased sales $15~~$32 million ~~for the F-35 program, while sales for foreign military programs increased $10 million. Also~~and military aftermarket sales increased ~~$18~~$16 million. Within military OEM, sales increased $11 million ~~due~~on foreign military programs, $6 million on the F-35 program, $5 million on funded development programs, in addition to increases on helicopters and KC-46 programs. The sales increase in military aftermarket was mostly driven by higher spares sales on the F-35 program. Within commercial OEM, sales for Boeing programs increased $9 million as higher activity on the Boeing 787 was partially offset by lower sales for the Boeing 737 Max.

Operating margin increased in the second quarter of 2020 compared to the ~~same impacts as in the quarter.~~

~~The decline in operating margin in the third~~second quarter of 2019 ~~compared~~due mostly to the ~~third quarter~~absence of 2018 is primarily related to higher operating costs. We had higher internal and external costs as production volumes have increased in both commercial and military programs. These higher costs offset incremental margin from higher amounts of foreign military sales.

~~Additionally, operating margin in the first three quarters of 2019 included a~~last year's $10 million charge related to a supplier quality issue. ~~Partially offsetting these~~Excluding this charge, operating margin decreased in the second quarter of 2020, as we recorded a $4 million charge on a development program. After excluding last year's supplier quality charge in the first half of 2019, operating margin in the first half of 2020 also decreased. The same factors in the second quarter as well as higher ~~expenses was $6~~operating costs offset the incremental margin from higher foreign military sales and $7 million of lower research and development ~~expenses across our major programs in the first three quarters of 2019 compared to the first three quarters of 2018, as well as higher amounts of foreign military sales.~~

expenses.

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Space and Defense Controls


	Three Months Ended										Nine Months Ended										Three Months Ended										Six Months Ended
(dollars in millions)	June 29, 2019			June 30, 2018			$ Variance		% Variance		June 29, 2019			June 30, 2018			$ Variance		% Variance		March 28, 2020			March 30, 2019			$ Variance		% Variance		March 28, 2020			March 30, 2019			$ Variance		% Variance
Net sales	$	173		$	150		$	23	16	%	$	494		$	427		$	67	16	%	$	193		$	165		$	28	17	%	$	379		$	321		$	58	18	%
Operating profit	$	24		$	17		$	7	45	%	$	63		$	50		$	13	26	%	$	25		$	21		$	4	20	%	$	50		$	39		$	11	28	%
Operating margin	13.9		%	11.1		%					12.8		%	11.8		%					12.8		%	12.4		%					13.2		%	12.1		%

The increase in Space and Defense Controls' net sales growth in the ~~third~~second quarter and in the first ~~three quarters~~half of ~~2019~~2020 compared to the ~~third~~second quarter and the first ~~three quarters~~half of ~~2018~~2019 was ~~mostly~~ driven by ~~increases in~~our space and our defense ~~market.~~markets.

In the ~~third~~second quarter of 2020 compared to the second quarter of 2019, ~~compared to the third quarter of 2018,~~ sales increased $20 million in our ~~defense market increased $22 million across most of our major programs.~~space market. Sales for ~~missile applications~~launch vehicle programs increased ~~$11~~$15 million due to higher amounts of development work and higher NASA activity. Sales also increased $4 million for satellite controls, due mostly to higher satellite engine and space avionics activity. Within our defense market, sales increased $8 million. Increased sales across our defense controls, naval and missile programs offset a $6 million sales decrease for our security programs as planned shipments were delayed.

In the first half of 2020 compared to the first half of 2019, sales in our space market increased $33 million. Sales increased $23 million and $7 million for launch vehicles and satellite controls, respectively, due to the same factors in the second quarter. Within our defense market, sales increased $26 million. Sales for defense controls applications across our components and foreign programs increased $10 million. In addition, higher volumes ~~for~~on both legacy and funded development ~~programs. Also defense controls~~missile applications increased sales $9 million. Additionally, sales increased $7$6 million ~~driven in part by higher~~across a variety of our defense components programs and sales increased $5 million for ~~our new turret system and by the increased volume~~naval applications. These increases offset an $8 million sales decline for ~~slip ring components. Additionally, we had $7 million of higher defense component sales; however, that was offset by $7 million of lower~~ security sales due to timing delays. In the third quarter of 2019, sales increased in our space market $1 million compared to the third quarter of 2018. Sales for launch vehicles increased $5 million due to the higher level of work across a variety of platforms. However, this increase was mostly offset by lower space avionics sales due to contract delays.

~~In the first three quarters of 2019 compared to the first three quarters of 2018, sales in our defense market increased $70 million across all of our major programs, driven by~~ the same ~~factors in~~factor as the third quarter of 2019. Sales increased $26 million in missile applications, $17 million in defense controls, $14 million for components and $9 million for naval systems. These defense market increases were slightly offset by lower space sales through the first three quarters of 2019.second quarter.

Operating margin increased in the ~~third quarter~~first half of 2020 compared to first half of 2019 ~~compared to the third quarter 2018,~~ due primarily to higher sales volumes ~~as well as improved~~for our defense and our components products. Also, the sales ~~mix across~~growth contributed to incremental margins beyond our ~~products. Slightly offsetting the increase was $3 million of combined higher~~ selling and research and development expenses in pursuit of new space and defense opportunities. Operating margin increased in the first three quarters of 2019 compared to the first three quarters of 2018 due to higher sales volume.administrative expenses.

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Industrial Systems


	Three Months Ended											Nine Months Ended											Three Months Ended											Six Months Ended
(dollars in millions)	June 29, 2019			June 30, 2018			$ Variance			% Variance		June 29, 2019			June 30, 2018			$ Variance			% Variance		March 28, 2020			March 30, 2019			$ Variance			% Variance		March 28, 2020			March 30, 2019			$ Variance			% Variance
Net sales	$	231		$	243		$	(11	)	(5	%)	$	684		$	692		$	(8	)	(1	%)	$	231		$	233		$	(2	)	(1	%)	$	460		$	453		$	7		1	%
Operating profit (loss)	$	25		$	25		$	1		2	%	$	83		$	39		$	44		111	%
Operating profit																							$	25		$	30		$	(5	)	(18	%)	$	52		$	58		$	(6	)	(11	%)
Operating margin	11.0		%	10.3		%						12.2		%	5.7		%						10.7		%	13.0		%						11.2		%	12.8		%

The decline in Industrial Systems' net sales in the ~~third~~second quarter of 2020 compared to the second quarter of 2019 ~~compared to~~was driven by the ~~third quarter of 2018 was due to lost~~macroeconomic factors on our legacy industrial products, but were mostly offset by acquired sales ~~associated with our decision to exit a business~~ and ~~due to weaker foreign currencies. The decline in net~~by increased sales infor medical devices. In the first ~~three quarters~~half of ~~2019~~2020 compared to the first ~~three quarters~~half of ~~2018 was due to weaker foreign currencies, as~~2019, the increased medical device and acquired sales offset the lost sales of the exited business. Weaker foreign currencies, primarily the Euro relative to the U.S. dollar, decreased sales $5 million in the third quarter and $14 million in the first three quarters of 2019.legacy industrial product declines.

In the ~~third~~second quarter of 2020 compared to the second quarter of 2019, ~~compared to the third quarter of 2018,~~ sales ~~decreased $9~~declined $16 million in our ~~energy~~industrial automation market, in part due to the continued slowdown of capital investments and lower sales to China due to the COVID-19 effects. Also, sales decreased $6 million in our simulation and test market due to lower automobile and aerospace test orders. Mostly offsetting these sales declines was the $12 million of incremental sales from our ~~decision to exit the wind pitch controls business in 2018. Also, energy generation~~GAT acquisition. Medical product sales ~~declined $3~~increased $6 million due to ~~lower~~higher demand ~~in Japan~~ for ~~large turbines. Partly offsetting the decline was an increase of $3 million in~~our medical ~~device sales, driven by higher levels of enteral pump sales.~~pumps.

In the first ~~three quarters~~half of ~~2019~~2020 compared to the first ~~three quarters~~half of ~~2018,~~2019, sales ~~decreased $32 million~~ in our ~~energy~~medical market increased $18 million. Sales for medical devices increased $16 million as we had higher demand for our enteral and IV products, and sales for medical components products increased $2 million. Acquired sales for GAT in the first half of 2020 were $15 million. These increases offset sales declines in our industrial automation and simulation and test markets, driven by the same factors as in the third quarter of 2019. Mostly offsetting the decline was a sales increase of $20 million in our industrial automation market, due primarily to the acquisition of Vues Brno s.r.o. Sales also increased $8 million in our medical market due to higher enteral pump and sets sales.second quarter.

Operating margin increased in the third quarter of 2019 compared to the third quarter of 2018, driven by the absence of the low-margin wind pitch controls business. This benefit was partially offset by $2 million of higher research and development expenses, primarily related to activity with medical devices products, and by higher selling, general and administrative expenses as a percentage of sales.

Operating margin increased in the first three quarters of 2019 compared to the same periods of 2018, due to the absence of the restructuring expense related to the decision to exit the wind pitch controls business. Excluding the effect of this expense in 2018, operating margin also increased in the first three quarters of 2019, driven by the lack of the low-margin wind pitch controls business. Additionally, in the first quarter of 2019, a $3 million gain on the sale of a small non-core business increased operating margin. Partly offsetting the increase was higher selling, general and administrative expenses as a percentage of sales.

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CONSOLIDATED AND SEGMENT OUTLOOK

2019 vs. 2018
(dollars in millions, except per share data ) 2019 Outlook 2018 $ Variance % Variance
Net sales:
Aircraft Controls $ 1,289
$ 1,194
$ 95
8 %
Space and Defense Controls 669
581
88
15 %
Industrial Systems 919
935
(16 ) (2 %)
$ 2,877
$ 2,709
$ 167
6 %
Operating profit:
Aircraft Controls $ 128
$ 130
$ (1 ) (1 %)
Space and Defense Controls 85
68
17
26 %
Industrial Systems 110
65
45
70 %
$ 324
$ 262
$ 61
23 %
Operating margin:
Aircraft Controls 10.0 % 10.9 %
Space and Defense Controls 12.7 % 11.6 %
Industrial Systems 12.0 % 6.9 %
11.3 % 9.7 %

Net earnings $ 178
$ 97
$ 82
84 %
Diluted earnings per share $4.95 - $5.15
$ 2.68
$ 2.37
88 %

~~2019 Outlook~~ – We expect higher amounts of defense sales within both Space and Defense Controls and Aircraft Controls to drive the increased 2019 sales. We also expect commercial aircraft sales growth driven by the major OEM program ramp-ups. We expect the 2019 operating margin will increase due to the absence of the 2018 charges associated with exiting the wind pitch controls business, as well as incremental margin from higher sales. Net earnings in 2019 will benefit due to a more normal effective tax rate, whereas the effective tax rate in 2018 was affected by the Tax Cuts and Jobs Act of 2017. Excluding the impacts from both the wind charge and the one-time special impacts from the Tax Act in 2018, we expect net earnings to increase 8% to $178 million from an adjusted net earnings in 2018 of $165 million. We expect diluted earnings per share will range between $4.95 and $5.15, with a midpoint of $5.05.

~~2019 Outlook for Aircraft Controls~~ – We expect 2019 sales in Aircraft Controls will increase primarily due to the continued ramp ups of the Airbus A350, the Boeing 787 and the F-35 programs. Partially offsetting the increases is an expected sales decline of commercial aftermarket programs, driven mostly by the timing for initial provisioning orders. We expect 2019 operating margin will decrease compared to 2018 due to higher operating costs as well as the supplier quality chargedecreased in the second quarter and in the first half of ~~2019.~~

~~2019 Outlook for Space~~2020 compared to the second quarter and ~~Defense Controls –~~ ~~We expect~~the first half of 2019 ~~sales in Space and Defense Controls will increase~~ due to ~~higher~~unfavorable sales ~~volumes~~mix on missile programs, and due to higher sales volumes on existing and new product offerings for defense controls programs. We expect 2019 operating margin will increase due to incremental margin from the higher sales volume.

~~2019 Outlook for Industrial Systems –~~ ~~We expect 2019 sales in Industrial Systems will decrease compared with 2018 sales. We expect~~ lower sales involume, first year accounting impacts from our ~~energy market, driven mostly by the lost sales associated with the 2018 decision to exit the wind pitch controls business. Partly offsetting the decline is an increase due to the~~GAT acquisition ~~of Vues. We expect 2019 operating margin will increase due to~~and the absence of ~~2018's charges~~last year's gain associated with ~~exiting the wind pitch controls~~selling a non-core business. ~~Excluding the impact of these charges, 2019 operating margin will increase from an adjusted 2018 operating margin of 10.9%, driven by the absence of the low-margin wind pitch controls business.~~

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FINANCIAL CONDITION AND LIQUIDITY


	Nine Months Ended										Six Months Ended
(dollars in millions)	June 29, 2019			June 30, 2018			$ Variance		% Variance		March 28, 2020			March 30, 2019			$ Variance
Net cash provided (used) by:
Operating activities	$	129		$	46		$	83	179	%	$	81		$	109		$	(28	)
Investing activities	(89		)	(122		)	34		(27	%)	(111		)	(58		)	(54		)
Financing activities	(79		)	(137		)	58		(43	%)	58			(67		)	125

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

At ~~June 29, 2019,~~March 28, 2020, our cash balances were ~~$89~~$119 million, which was 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.

Operating activities

Net cash provided by operating activities ~~increased~~decreased in the first ~~three quarters~~half of 2019 compared to the same period of 2018. In 2019, pension contributions decreased $151 million. This was partially offset by higher inventory levels, primarily in Aircraft Controls and Industrial Systems, which used $41 million more cash in the first three quarters of 20192020 compared to the first ~~three quarters~~half of ~~2018. Additionally, higher accounts receivable balances~~2019. In the first half of 2020, receivables activity used ~~$15~~$27 million more cash, driven primarily by customer activity within our Aircraft Controls segment and by the timing of tax payments. Also, accounts payable used $25 million more cash, due to the timing of vendor receipts. Partially offsetting the uses of cash was cash provided by customer advances, which increased $29 million, driven by growth in Aircraft ~~Controls and Space and Defense~~ Controls.

Investing activities

Net cash used by investing activities in the first ~~three quarters~~half of ~~2018~~2020 included ~~$48~~$54 million for ~~the~~our acquisition ~~in our Industrial Systems segment.~~ of GAT and $53 million for capital expenditures.

Net cash used by investing activities in the first ~~three quarters of~~half 2019 included ~~$20~~$60 million for capital expenditures.

Financing activities

Net cash provided by financing activities in the first half of 2020 included the net proceeds of issuing our $500 million aggregate principal 4.25% senior notes, which were used to repay a portion of our outstanding borrowings. Additionally, financing activities in the first half of 2020 included $179 million to fund our stock repurchase program, and $17 million of ~~higher capital expenditures than the first three quarters of 2018.~~

We expect our 2019 capital expenditures to be approximately $120 million, due to facilities investments supporting the increased production of the F-35 program as well as engine propulsion testing, and due to investments in machinery and equipment.

~~Financing activities~~cash dividends.

Net cash used by financing activities in first ~~three quarters~~half of 2019 included $38 million of net payments on our credit facilities, whereas net cash used by financing activities in the first three quarters of 2018 included $119 million of payments on our credit facilities. Net cash used by financing activities in the first three quarters of 2019 also included $26$17 million of cash dividends ~~whereas net cash used by financing activities in the first three quarters of 2018 included $9~~and $4 million ~~of cash dividends.~~to fund our stock repurchase program.

Off Balance Sheet Arrangements

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

Contractual Obligations and Commercial Commitments

Our contractual obligations and commercial commitments have not changed materially from the disclosures in our ~~2018~~2019 Annual Report on Form 10-K.

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CAPITAL STRUCTURE AND RESOURCES

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

~~Our~~On October 15, 2019, we amended and restated our U.S. revolving credit facility, which matures on ~~June 28, 2021. The~~October 15, 2024. Our U.S. revolving credit facility has a capacity of $1.1 billion and also provides an expansion option, which permits us to request an increase of up to ~~$200~~$400 million to the credit facility upon satisfaction of certain conditions. The U.S. revolving credit facility had an outstanding balance of ~~$392~~$464 million at ~~June 29, 2019.~~March 28, 2020. The weighted-average interest rate on primarily all of the outstanding credit facility borrowings was ~~4.04%~~2.52% and is ~~principally~~ based on LIBOR plus the applicable margin, which was ~~1.63%~~1.50% at ~~June 29, 2019.~~March 28, 2020. The credit facility is secured by substantially all of our U.S. assets.

The U.S. revolving credit facility contains various covenants. The covenant for minimum interest coverage ratio, defined as the ratio of EBITDA to interest expense for the most recent four quarters, is 3.0. The covenant for the maximum leverage ratio, defined as the ratio of net debt ~~including letters of credit,~~ to EBITDA for the most recent four quarters, is ~~3.5.~~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.

The SECT has a revolving credit facility with a borrowing capacity of $35 million, maturing on July 26, ~~2020.~~2022. Interest was ~~4.56%~~3.11% as of ~~June 29, 2019~~March 28, 2020 and is based on LIBOR plus a margin of 2.13%. As of ~~June 29, 2019,~~March 28, 2020, there was $4$9 million of outstanding borrowings.

~~We have $300~~On December 13, 2019, we completed the sale of $500 million aggregate principal amount of ~~5.25%~~4.25% senior notes due December ~~1, 2022~~15, 2027 with interest paid semiannually on June 115 and December 115 of each ~~year.~~year, which will commence 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 of $492 million were used to repay indebtedness under our U.S. bank facility, thereby increasing the unused portion of our U.S. revolving credit facility.

On December 13, 2019, we issued a notice of redemption to the holders of our 5.25% senior notes due on December 1, 2022, to redeem and retire all of the outstanding notes. The notes were redeemed on January 13, 2020 at 101.313%, pursuant to an early redemption right. We redeemed the aggregate principal amount of $300 million using proceeds drawn from our U.S. revolving credit facility. The associated loss on the redemption includes $4 million of call premium paid to external bondholders. We had a total outstanding balance on our senior notes of $500 million at March 28, 2020.

We have a trade receivables securitization facility (the "Securitization Program"), which was extended on October 16, 2019 and matures on October ~~30, 2020.~~29, 2021. The Securitization Program provides up to $130 million of borrowing capacity and lowers our cost to borrow funds as compared to the U.S. revolving credit facility. Under the Securitization Program, we sell certain trade receivables and related rights to an affiliate, which in turn sells an undivided variable percentage ownership interest in the trade receivables to a financial institution, while maintaining a subordinated interest in a portion of the pool of trade receivables. We had an outstanding balance of $130 million at ~~June 29, 2019.~~March 28, 2020. The Securitization Program has a minimum borrowing requirement, which was $104 million at ~~June 29, 2019.~~March 28, 2020. Interest on the secured borrowings under the Securitization Program was ~~3.22%~~1.86% at ~~June 29, 2019~~March 28, 2020 and is based on 30-day LIBOR plus an applicable margin.

At ~~June 29, 2019, we had $717 million of unused borrowing capacity, including $674 million from the U.S. revolving credit facility after considering standby letters of credit. However,~~March 28, 2020, our leverage ratio covenant limits our ~~total~~unused borrowing capacity to ~~$507~~$536 million as of ~~June 29, 2019.~~March 28, 2020.

Net debt to capitalization was ~~35%~~44% at ~~June 29, 2019~~March 28, 2020 and ~~38%~~36% at September ~~29, 2018.~~28, 2019. The ~~decrease~~increase in net debt to capitalization is primarily due to our ~~net earnings.~~share repurchases.

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

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We declared and paid cash dividends of $0.25 per share on our Class A and Class B common stock in ~~each of~~ the ~~three~~first and second quarters of ~~2019.~~

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2020.

The Board of Directors has authorized a share repurchase program. This program has been amended from time to time to authorize additional repurchases that includes both Class A and Class B common stock, and allows us to buy up to an aggregate 13 million common shares. Under this program, we have purchased approximately ~~9.7~~12.2 million shares for ~~$655~~$852 million as of ~~June 29, 2019.~~March 28, 2020.

In response to the COVID-19 situation, we have implemented short term actions to maintain the financial health and liquidity of the Company including temporarily suspending dividend payments and share buyback activities.

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ECONOMIC CONDITIONS AND MARKET TRENDS

We operate within the aerospace and defense and industrial markets. Our businesses are facing varying levels of pressure from the COVID-19 pandemic.

Within our aerospace and defense markets, our defense and space businesses represent approximately half of our sales through the first half of 2020. We expect these businesses may face modest supply chain and production level risks, as they are more directly affected by ~~market conditions and~~ program funding levels ~~while~~which, to-date, are stable. However, our commercial aircraft market, which represents less than 25% of our first half 2020 sales, will face the greatest pressures with the dramatic reductions in air travel.

Within our industrial markets, ~~are influenced by general~~our industrial automation, simulation and test and energy niche markets, which represents less than 25% of our sales through the first half of 2020, may face supply chain, productivity and demand challenges from the macroeconomic slowdown and reduced capital ~~investment trends and economic conditions.~~ investments. However, our medical business, which represents less than 10% of our sales in the first half of 2020, has seen increased demand for our medical applications essential in the fight against the pandemic.

A common factor throughout our markets is the continuing demand for technologically advanced products.

Aerospace and Defense

~~Approximately two-thirds of our 2018 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.~~programs, which to-date, have not been impacted by the COVID-19 pandemic. We have a growing development program order book for future generation aircraft and hypersonic missiles. We hope 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 to capacity needs and future revenues. We maintain positions on numerous high priority programs, including the Lockheed Martin F-35 Joint Strike Fighter, FA-18E/F Super Hornet and V-22 Osprey. The large installed base of our products ~~leads~~led 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. At times when there are perceived threats to national security, U.S. Defense spending can increase; at other times, defense spending can decrease. Future levels of defense spending are uncertain, subject to congressional debate and could be reduced if the pandemic is extended. Our security and surveillance product line is dependent on government funding at federal and local levels, as well as private sector ~~demand.~~

~~The 2011 Budget Control Act reduced~~demand, which may face pressures as governments shift their funding to support the Department of Defense spending (or sequestration) by approximately $500 billion. The Bipartisan Budget Act of 2013 and the Bipartisan Budget Act of 2015 provided stability and modest growth in the Department of Defense spending through 2017. After operating under continuing resolutions, which restrict new program starts, the U.S. Government signed the 2019 defense appropriations budget in September 2018, with moderate growth in defense spending. However, future budgeted levels of defense spending beyond 2019 are uncertain and subject to debate. Currently, we expect approximately $875 million of U.S. defense sales in 2019.COVID-19 pandemic.

The commercial aircraft market ~~is dependent~~has depended on a number of factors, including the last decade's increasing global demand for air travel and increasing fuel prices. Both factors contributed to the demand for new, more fuel-efficient aircraft with lower operating costs that lead to large production backlogs for Boeing and Airbus. However, the impact of the COVID-19 pandemic has drastically reduced air traffic as travel restrictions and social distancing measures were implemented to help control the spread of the virus. The reduced air traffic has applied financial pressures on airlines, which ~~generally follows underlying economic growth. As such,~~have in turn dramatically reduced flight hours and delayed the purchases of new aircraft in order to preserve cash and liquidity. Given the uncertain length of this pandemic, the commercial market may shift away from wide-body aircraft ~~market has historically exhibited cyclical swings which tend~~ to ~~track~~longer range narrow-body aircraft. Additionally, given the ~~overall economy. In recent years,~~abruptly stalled global economies and social pauses, global oil production is now over-supplied, creating drastic reductions in the ~~development~~prices of oil. The lower prices for jet fuel mitigates the advantage of new, more fuel-efficient ~~commercial~~aircraft that created record backlogs for the OEMs. Furthermore, as companies and employees become accustomed to working remotely, business travel and the associated flight hours may not reach the pre-crisis levels. As such, we believe Boeing and Airbus will directionally match their production rates with the reduced air ~~transports has helped drive increased~~traffic volume, which will lower their demand infor our flight control systems. We believe the commercial ~~aircraft~~OEM market ~~as airlines replace older, less fuel-efficient aircraft with newer models in an effort to reduce operating costs.~~ will face these pressures for a prolonged period of time.

The commercial aftermarket is driven by usage and 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 affect~~which drives the need for maintenance and repairs. Given the dramatic reductions in flight hours and the cash preservation measures by the airlines due to the impacts of COVID-19, we believe the demand volume for our maintenance services and spare parts ~~impacting aftermarket sales. Boeing and Airbus have historically adjusted production in line~~will decrease substantially over the short-term. Also, with ~~air traffic volume. Demand for our commercial aircraft products is in large part dependent on~~fewer expected new aircraft ~~production, which~~deliveries, we would see lower initial provisioning and spares sales. However, as domestic and international travel begins to recover, we expect a faster recovery in this market.

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The space market is ~~increasing~~comprised of four customer markets: the civil market, namely NASA, the department of defense market, the commercial space market and the new space market. The civil market is driven by investment for commercial and exploration activities, including NASA's return to the moon. The department of defense market is driven by governmental-authorized levels of funding for satellite communications, as ~~Boeing and Airbus work to fulfill large backlogs of unfilled orders.~~

well as funding for hypersonic defense technologies. 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 ~~replacement~~replacements and global navigation needs. The new space market is ~~also partially dependent on~~driven by investments to increase the ~~governmental-authorized levels of~~speed and access to space through smaller satellites, at reduced cost. Similar to the defense market, the funding for ~~satellite communications, as well as investment for commercial and exploration activities.~~these markets have not been impacted by the COVID-19 pandemic to-date.

Industrial

~~Approximately one-third of our 2018 sales were generated in~~Within the industrial ~~markets. Within industrial,~~market, we serve ~~four end markets: energy,~~ industrial automation, energy, simulation and test and ~~medical.~~medical niche markets.

~~The~~In general, the industrial automation market we serve is influenced by several factors including capital investment, product innovation, economic ~~growth,~~conditions, cost-reduction efforts and technology upgrades. ~~We experience challenges from the need to react~~Due to the ~~demands~~COVID-19 pandemic and governments around the world implementing increasingly stringent measures to help control the spread of the virus, the subsequent economic downturn will constrain capital investment and slow investments in product innovation. These unfavorable economic conditions have, and could for an extended period of time, affected our supply chain, productivity and customer demand. Our customers ~~who~~ are ~~in large part sensitive to~~also impacted by international and domestic economic conditions. ~~The~~

Our simulation and test products operate in a market ~~we serve~~that is largely affected by these same factors and ~~challenges.~~investment challenges stemming from the COVID-19 pandemic. Reduced air travel and the subsequent reduction in new commercial aircraft will reduce the need for flight simulator training, for which we supply motion control products. Similarly, lower capital spend will reduce the need for our automotive testing products.

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~~The~~Our energy generation and exploration products operate in a market ~~we serve~~that is affected 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, ~~after~~ the ~~significant decline in~~COVID-19 pandemic has led to reduced oil prices, which reduces the ~~price of crude oil from 2014 through 2016,~~economic feasibility for these investments ~~in exploration activities have been reduced.~~and explorations.

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. ~~Advances in medical technology and medical treatments have had~~The outbreak of the ~~effect of extending average life spans, in turn resulting in greater need~~COVID-19 virus has created unprecedented demand for medical ~~services. These same technology~~equipment and ~~treatment advances also drive~~has shifted the way hospitals optimize their capacity. Our medical components products are critical motion control components for life saving medical equipment, including ventilators, oxygen concentrators and continuous positive airway pressure (CPAP) machines, among others. The COVID-19 pandemic has 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 ventilators. Our products are a key component of the industry's supply chain. Additionally, our medical ~~services.~~devices products including infusion and enteral feeding pumps, and their corresponding disposable sets, are used primarily in the home healthcare environment. Since the COVID-19 pandemic has altered the way hospitals provide care by asking non-critical patients to recuperate at home and by creating temporary hospitals to treat the surge in demand, our medical devices products have seen an increase in orders.

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-fifth of our ~~2018~~2019 sales were denominated in foreign currencies. During the first ~~nine~~six months of ~~2019,~~2020, average foreign currency rates generally weakened against the U.S. dollar compared to ~~2018.~~2019. The translation of the results of our foreign subsidiaries into U.S. dollars decreased sales by ~~$18~~$5 million compared to the same period one year ago.

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Cautionary Statement

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

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

we face various risks related to health epidemics 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;

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

we depend heavily on government contracts that may not be fully funded or may be terminated, and the failure to receive funding or the termination of one or more of these contracts could reduce our sales and increase our costs;

we make estimates in accounting for 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;

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

if our subcontractors or suppliers fail to perform their contractual obligations, our prime contract performance and our ability to obtain future business could be materially and adversely impacted;

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

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

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

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

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

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

the potential 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;

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;

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

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

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

~~Table of Contents~~

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Refer to the Company’s Annual Report on Form 10-K for the year ended September ~~29, 2018~~28, 2019 for a complete discussion of our market risk. There have been no material changes in the current year regarding this market risk information.

Item 4. Controls and Procedures.

(a)

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


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

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PART II OTHER INFORMATION

Item 1A. Risk Factors.

Refer to the Company’s Annual Report on Form 10-K for the year ended September 28, 2019 for a complete discussion of our risk factors. There have been no material changes in the current year regarding our risk factors, other than the addition of the following:

We face various risks related to health epidemics 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. We face adverse effects related to the global COVID-19 pandemic, including disruption and volatility in the global capital markets, disruption in our global supply chain and a net reduction in our overall manufacturing activities. We would expect the COVID-19 pandemic to adversely affect our operations if significant portions of our workforce are unable to work effectively due to illness, quarantines, government actions, facility closures, or other restrictions in connection with the COVID-19 pandemic. Additionally, our financial position, supply chain, liquidity, cash flow and customer orders would also face pressures for at least the balance of this fiscal year.

Substantially all of our operations and production activities in the U.S. and globally have remained operational during the COVID-19 pandemic. Many of our facilities are considered essential activities (including work for the U.S. military and the supply of medical devices and sub-assemblies) exempt from closure directives. However, they are subject to various local and national directives curtailing operations, requiring work from home and social distancing which otherwise could impact the efficiency of our operations. Such directives could change at any time.

We continue to monitor the situation, assess further possible implications to our operations, supply chain, liquidity, cash flow and customer orders, and take actions in an effort to mitigate adverse consequences.

Recognizing the unprecedented nature, scale and uncertainty associated with this global health crisis, the duration and extent of the on-going impact cannot be reasonably estimated at this time.

The potential phase out of LIBOR may negatively impact our debt agreements and financial position, results of operations and liquidity. On July 27, 2017, the United Kingdom’s Financial Conduct Authority announced that it intends to phase out LIBOR by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established or whether different benchmark rates used to price indebtedness will develop. If LIBOR ceases to exist, we may need to renegotiate our debt agreements that extend beyond 2021 that utilize LIBOR as a factor in determining the interest rate, which may negatively impact the terms of such indebtedness. In addition, the overall financial markets may be disrupted as a result of the phase out or replacement of LIBOR. Disruption in the financial markets could have an adverse effect on our financial position, results of operations, and liquidity.

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


(c)	The following table summarizes our purchases of our common stock for the quarter ended ~~June 29, 2019.~~March 28, 2020.

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)
March 31, 2019 - April 30, 2019 20,287
$ 96.89
549
3,289,355
May 1, 2019 - May 31, 2019 62,870
87.47
443
3,288,912
June 1, 2019 - June 29, 2019 1,985
88.20
266
3,288,646
Total 85,142
$ 89.73
1,258
3,288,646



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)
December 29, 2019 - February 1, 2020	564,058	$	90.16	507,011	1,871,350
February 2, 2020 - February 29, 2020	535,257	87.91		418,612	1,452,738
March 1, 2020 - March 28, 2020	687,734	55.85		687,418	765,320
Total	1,787,049	$	76.28	1,613,041	765,320

(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") and the Employee Stock Purchase Plan (ESPP) at average prices as follows: ~~7,426~~12,976 shares at ~~$96.29~~$88.23 per share during ~~April; 9,901~~January; 27,674 shares at ~~$94.19~~$93.89 per share during ~~May;~~February and ~~385~~316 shares at ~~$86.71~~$81.18 per ~~share. We~~share during March. In connection with the issuance of shares to the ESPP, we purchased ~~50,000~~43,214 Class B shares at ~~$85.85~~$88.49 per share from the ~~Supplemental Retirement Plan ("SERP") Trust.~~SECT in January. In connection with the issuance of equity-based awards, we purchased 84,974 Class B shares at $92.62 per share from the SECT in February.

(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 ~~April,~~January, we accepted delivery of ~~12,312~~857 Class A shares at ~~$97.44~~$87.82 per share and in ~~May,~~February, we accepted delivery of ~~2,526~~3,997 shares at ~~$92.92 per share and in June, we accepted delivery of 1,334 shares at $88.59~~$94.66 per share in connection with the exercise of equity-based awards.

(3)

The Board of Directors has authorized a share repurchase program. This program has been amended from time to time to authorize additional repurchases up to an aggregate 13 million common shares. The program permits the purchase of shares of Class A or Class B common stock in open market or privately negotiated transactions at the discretion of management. In ~~April,~~January, we purchased ~~549~~507,011 Class BA shares at an average price of ~~$92.92~~$90.36 per ~~share, in May,~~share. In February, we purchased ~~443~~418,612 Class BA shares at an average price of ~~$88.89~~$86.49 per share, and in ~~June,~~March, we purchased ~~266~~687,418 Class BA shares at an average price of ~~$88.40~~$55.83 per share.

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Item 6. Exhibits.



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



(101.INS)	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

(101.SCH)	XBRL Taxonomy Extension Schema Document

(101.CAL)	XBRL Taxonomy Extension Calculation Linkbase Document

(101.DEF)	XBRL Taxonomy Extension Definition Linkbase Document

(101.LAB)	XBRL Taxonomy Extension Label Linkbase Document

(101.PRE)	XBRL Taxonomy Extension Presentation Linkbase Document

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

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SIGNATURES

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



			Moog Inc.

			(Registrant)

Date:	~~July 26, 2019~~April 24, 2020	By	/s/ John R. Scannell
			John R. Scannell
			Chairman of the Board and Director Chief Executive Officer (Principal Executive Officer)

Date:	~~July 26, 2019~~April 24, 2020	By	/s/ ~~Donald R. Fishback~~Jennifer Walter
			~~Donald R. Fishback~~Jennifer Walter
			~~Director~~ Vice President and Chief Financial Officer (Principal Financial Officer)

Date:	~~July 26, 2019~~April 24, 2020	By	/s/ Michael J. Swope
			Michael J. Swope
			Controller (Principal Accounting Officer)

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	September 29, 2018		Adjustments due to adoption of ASC 606			September 30, 2018
ASSETS
Receivables	$	793,911	$	89,121		$	883,032
Inventories	512,522		(65,991		)	446,531
Deferred income taxes	17,328		134			17,462
LIABILITIES AND SHAREHOLDERS’ EQUITY
Contract advances	$	151,687	$	921		$	152,608
Contract loss and contract-related reserves	47,417		2,430			49,847
Other accrued liabilities	120,944		1,139			122,083
Deferred income taxes	46,477		3,851			50,328
Retained earnings	1,973,514		14,923			1,988,437



	Three Months Ended
	Under ASC 605		Effect of ASC 606			As Reported Under ASC 606
Net sales	$	737,887	$	3,082		$	740,969
Cost of sales	531,952		(2,902		)	529,050
Gross profit	205,935		5,984			211,919
Earnings before income taxes	55,736		5,984			61,720
Income taxes	12,735		1,520			14,255
Net earnings	$	43,001	$	4,464		$	47,465



	Three Months Ended
	As Reported, June 30, 2018		Impact of Adoption			As Adjusted, June 30, 2018
Cost of sales	$	492,234	$	(275	)	$	491,959
Gross profit	197,386		275			197,661
Research and development	31,040		(87		)	30,953
Selling, general and administrative	103,053		(1,331		)	101,722
Other	1,037		1,693			2,730



CONSOLIDATED AND SEGMENT OUTLOOK

							2019 vs. 2018
(dollars in millions, except per share data )	2019 Outlook			2018			$ Variance			% Variance
Net sales:
Aircraft Controls	$	1,289		$	1,194		$	95		8	%
Space and Defense Controls	669			581			88			15	%
Industrial Systems	919			935			(16		)	(2	%)
	$	2,877		$	2,709		$	167		6	%
Operating profit:
Aircraft Controls	$	128		$	130		$	(1	)	(1	%)
Space and Defense Controls	85			68			17			26	%
Industrial Systems	110			65			45			70	%
	$	324		$	262		$	61		23	%
Operating margin:
Aircraft Controls	10.0		%	10.9		%
Space and Defense Controls	12.7		%	11.6		%
Industrial Systems	12.0		%	6.9		%
	11.3		%	9.7		%

Net earnings	$	178		$	97		$	82		84	%
Diluted earnings per share	$4.95 - $5.15			$	2.68		$	2.37		88	%