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xbrli:shares xbrli:pure xbrli:shares
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
OR
|
|
|
☐
|
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)
|
|
|
|
|
|
NY
|
|
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
☐
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” in Rule 12b-2
of the Exchange Act. (Check one):
|
|
|
|
|
Large accelerated
filer
|
☒
|
Accelerated
filer
|
☐
|
Non-accelerated
filer
|
☐
|
Smaller reporting
company
|
☐
|
|
|
Emerging growth
company
|
☐
|
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the
extended transition period for 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
was:
Class A common
stock, 32,503,359
shares
Class B common
stock, 2,434,033
shares
Moog
Inc.
QUARTERLY
REPORT ON FORM 10-Q
TABLE OF
CONTENTS
PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements
Consolidated
Condensed Statements of Earnings
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(dollars in thousands, except
share and per share data)
|
|
June 29,
2019
|
|
June 30,
2018
|
|
June 29,
2019
|
|
June 30,
2018
|
Net sales
|
|
$
|
740,969
|
|
|
$
|
692,018
|
|
|
$
|
2,139,456
|
|
|
$
|
2,008,602
|
|
Cost of sales
|
|
529,050
|
|
|
491,959
|
|
|
1,530,634
|
|
|
1,423,897
|
|
Inventory write-down -
restructuring
|
|
—
|
|
|
2,398
|
|
|
—
|
|
|
9,727
|
|
Gross profit
|
|
211,919
|
|
|
197,661
|
|
|
608,822
|
|
|
574,978
|
|
Research and
development
|
|
31,298
|
|
|
30,953
|
|
|
94,518
|
|
|
97,282
|
|
Selling, general and
administrative
|
|
103,655
|
|
|
101,722
|
|
|
299,841
|
|
|
295,006
|
|
Interest
|
|
9,780
|
|
|
8,850
|
|
|
29,401
|
|
|
26,585
|
|
Restructuring
|
|
—
|
|
|
(1,549
|
)
|
|
—
|
|
|
22,509
|
|
Other
|
|
5,466
|
|
|
2,730
|
|
|
9,540
|
|
|
5,138
|
|
Earnings before income
taxes
|
|
61,720
|
|
|
54,955
|
|
|
175,522
|
|
|
128,458
|
|
Income taxes
|
|
14,255
|
|
|
14,205
|
|
|
41,629
|
|
|
72,444
|
|
Net earnings attributable to
Moog and noncontrolling interest
|
|
47,465
|
|
|
40,750
|
|
|
133,893
|
|
|
56,014
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.36
|
|
|
$
|
1.14
|
|
|
$
|
3.84
|
|
|
$
|
1.56
|
|
Diluted
|
|
$
|
1.35
|
|
|
$
|
1.13
|
|
|
$
|
3.80
|
|
|
$
|
1.55
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
per share
|
|
$
|
0.25
|
|
|
$
|
—
|
|
|
$
|
0.75
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
Average common shares
outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
34,904,487
|
|
|
35,762,918
|
|
|
34,869,021
|
|
|
35,768,471
|
|
Diluted
|
|
35,239,834
|
|
|
36,143,367
|
|
|
35,202,519
|
|
|
36,174,759
|
|
See accompanying Notes to
Consolidated Condensed Financial Statements.
|
Consolidated
Condensed Statements of Comprehensive Income (Loss)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(dollars in
thousands)
|
|
June 29,
2019
|
|
June 30,
2018
|
|
June 29,
2019
|
|
June 30,
2018
|
Net earnings attributable to
Moog and noncontrolling interest
|
|
$
|
47,465
|
|
|
$
|
40,750
|
|
|
$
|
133,893
|
|
|
$
|
56,014
|
|
Other comprehensive income
(loss), net of tax:
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustment
|
|
(996
|
)
|
|
(40,788
|
)
|
|
(9,277
|
)
|
|
(10,127
|
)
|
Retirement liability
adjustment
|
|
4,264
|
|
|
7,080
|
|
|
13,760
|
|
|
16,018
|
|
Change in accumulated income
(loss) on derivatives
|
|
559
|
|
|
(747
|
)
|
|
1,144
|
|
|
(92
|
)
|
Other comprehensive income
(loss), net of tax
|
|
3,827
|
|
|
(34,455
|
)
|
|
5,627
|
|
|
5,799
|
|
Tax Cuts and Jobs Act,
reclassification from AOCIL to retained earnings
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(47,077
|
)
|
Comprehensive income
(loss)
|
|
51,292
|
|
|
6,295
|
|
|
139,520
|
|
|
14,736
|
|
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.
|
Consolidated
Condensed Balance Sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
|
(dollars in
thousands)
|
|
June 29,
2019
|
|
September 29,
2018
|
ASSETS
|
|
|
|
|
Current assets
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
89,045
|
|
|
$
|
125,584
|
|
Receivables
|
|
922,853
|
|
|
793,911
|
|
Inventories
|
|
515,055
|
|
|
512,522
|
|
Prepaid expenses and other
current assets
|
|
44,239
|
|
|
44,404
|
|
Total current
assets
|
|
1,571,192
|
|
|
1,476,421
|
|
Property, plant and equipment,
net of accumulated depreciation of $825,426 and $816,837,
respectively
|
|
582,105
|
|
|
552,865
|
|
Goodwill
|
|
791,678
|
|
|
797,217
|
|
Intangible assets,
net
|
|
84,629
|
|
|
95,537
|
|
Deferred income
taxes
|
|
15,736
|
|
|
17,328
|
|
Other assets
|
|
20,799
|
|
|
24,680
|
|
Total assets
|
|
$
|
3,066,139
|
|
|
$
|
2,964,048
|
|
LIABILITIES AND
SHAREHOLDERS’ EQUITY
|
|
|
|
|
Current liabilities
|
|
|
|
|
Short-term
borrowings
|
|
$
|
93
|
|
|
$
|
3,623
|
|
Current installments of
long-term debt
|
|
292
|
|
|
365
|
|
Accounts payable
|
|
227,600
|
|
|
208,823
|
|
Accrued
compensation
|
|
134,015
|
|
|
147,765
|
|
Contract advances
|
|
147,677
|
|
|
151,687
|
|
Contract loss and
contract-related reserves
|
|
57,556
|
|
|
47,417
|
|
Other accrued
liabilities
|
|
108,541
|
|
|
120,944
|
|
Total current
liabilities
|
|
675,774
|
|
|
680,624
|
|
Long-term debt, excluding
current installments
|
|
825,965
|
|
|
858,836
|
|
Long-term pension and retirement
obligations
|
|
119,269
|
|
|
117,471
|
|
Deferred income
taxes
|
|
56,664
|
|
|
46,477
|
|
Other long-term
liabilities
|
|
32,810
|
|
|
35,654
|
|
Total liabilities
|
|
1,710,482
|
|
|
1,739,062
|
|
Shareholders’
equity
|
|
|
|
|
Common stock - Class
A
|
|
43,789
|
|
|
43,785
|
|
Common stock - Class
B
|
|
7,491
|
|
|
7,495
|
|
Additional paid-in
capital
|
|
525,962
|
|
|
502,257
|
|
Retained earnings
|
|
2,096,174
|
|
|
1,973,514
|
|
Treasury shares
|
|
(750,326
|
)
|
|
(738,494
|
)
|
Stock Employee Compensation
Trust
|
|
(124,128
|
)
|
|
(118,449
|
)
|
Supplemental Retirement Plan
Trust
|
|
(76,751
|
)
|
|
(72,941
|
)
|
Accumulated other comprehensive
loss
|
|
(366,554
|
)
|
|
(372,181
|
)
|
Total shareholders’
equity
|
|
1,355,657
|
|
|
1,224,986
|
|
Total liabilities and
shareholders’ equity
|
|
$
|
3,066,139
|
|
|
$
|
2,964,048
|
|
See accompanying Notes to
Consolidated Condensed Financial Statements.
|
|
|
|
|
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
|
|
Consolidated
Statements of Shareholders’ Equity, Shares
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(share data)
|
|
June 29, 2019
|
|
June 30, 2018
|
|
June 29, 2019
|
|
June 30, 2018
|
COMMON STOCK - CLASS
A
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
43,785,435
|
|
|
43,735,558
|
|
|
43,784,489
|
|
|
43,704,286
|
|
Conversion of Class B to Class
A
|
|
3,612
|
|
|
44,679
|
|
|
4,558
|
|
|
75,951
|
|
End of period
|
|
43,789,047
|
|
|
43,780,237
|
|
|
43,789,047
|
|
|
43,780,237
|
|
COMMON STOCK - CLASS
B
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
7,494,278
|
|
|
7,544,155
|
|
|
7,495,224
|
|
|
7,575,427
|
|
Conversion of Class B to Class
A
|
|
(3,612
|
)
|
|
(44,679
|
)
|
|
(4,558
|
)
|
|
(75,951
|
)
|
End of period
|
|
7,490,666
|
|
|
7,499,476
|
|
|
7,490,666
|
|
|
7,499,476
|
|
TREASURY SHARES - CLASS A COMMON
STOCK
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
(10,882,780
|
)
|
|
(10,891,108
|
)
|
|
(10,872,575
|
)
|
|
(10,933,003
|
)
|
Class A shares issued related to
compensation
|
|
31,369
|
|
|
3,514
|
|
|
103,232
|
|
|
83,193
|
|
Class A shares
purchased
|
|
(13,430
|
)
|
|
(806
|
)
|
|
(95,498
|
)
|
|
(38,590
|
)
|
End of period
|
|
(10,864,841
|
)
|
|
(10,888,400
|
)
|
|
(10,864,841
|
)
|
|
(10,888,400
|
)
|
TREASURY SHARES - CLASS B COMMON
STOCK
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
(3,347,250
|
)
|
|
(3,327,853
|
)
|
|
(3,323,996
|
)
|
|
(3,333,927
|
)
|
Class B shares issued related to
compensation
|
|
6,136
|
|
|
221
|
|
|
104,465
|
|
|
28,460
|
|
Class B shares
purchased
|
|
(4,000
|
)
|
|
(304
|
)
|
|
(125,583
|
)
|
|
(22,469
|
)
|
End of period
|
|
(3,345,114
|
)
|
|
(3,327,936
|
)
|
|
(3,345,114
|
)
|
|
(3,327,936
|
)
|
SECT - CLASS A COMMON
STOCK
|
|
|
|
|
|
|
|
|
Beginning and end of
period
|
|
(425,148
|
)
|
|
(425,148
|
)
|
|
(425,148
|
)
|
|
(425,148
|
)
|
SECT - CLASS B COMMON
STOCK
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
(846,527
|
)
|
|
(723,963
|
)
|
|
(983,772
|
)
|
|
(654,753
|
)
|
Issuance of shares
|
|
6,490
|
|
|
—
|
|
|
227,816
|
|
|
21,871
|
|
Purchase of shares
|
|
(67,712
|
)
|
|
(6,774
|
)
|
|
(151,793
|
)
|
|
(97,855
|
)
|
End of period
|
|
(907,749
|
)
|
|
(730,737
|
)
|
|
(907,749
|
)
|
|
(730,737
|
)
|
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
|
)
|
Consolidated
Condensed Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
(dollars in
thousands)
|
|
June 29,
2019
|
|
June 30,
2018
|
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:
|
|
|
|
|
Depreciation
|
|
53,744
|
|
|
54,693
|
|
Amortization
|
|
10,364
|
|
|
13,628
|
|
Deferred income
taxes
|
|
3,764
|
|
|
35,549
|
|
Equity-based compensation
expense
|
|
5,130
|
|
|
4,394
|
|
Impairment of long-lived assets
and inventory write-down associated with restructuring
|
|
—
|
|
|
24,246
|
|
Other
|
|
2,550
|
|
|
4,743
|
|
Changes in assets and
liabilities providing (using) cash:
|
|
|
|
|
Receivables
|
|
(42,267
|
)
|
|
(27,597
|
)
|
Inventories
|
|
(68,519
|
)
|
|
(27,840
|
)
|
Accounts payable
|
|
19,412
|
|
|
12,778
|
|
Contract advances
|
|
(4,670
|
)
|
|
(165
|
)
|
Accrued expenses
|
|
(9,450
|
)
|
|
11,709
|
|
Accrued income
taxes
|
|
(5,564
|
)
|
|
(1,817
|
)
|
Net pension and post retirement
liabilities
|
|
20,486
|
|
|
(130,135
|
)
|
Other assets and
liabilities
|
|
10,222
|
|
|
16,150
|
|
Net cash provided by operating
activities
|
|
129,095
|
|
|
46,350
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES
|
|
|
|
|
Acquisitions of businesses, net
of cash acquired
|
|
—
|
|
|
(47,947
|
)
|
Purchase of property, plant and
equipment
|
|
(91,083
|
)
|
|
(70,759
|
)
|
Other investing
transactions
|
|
2,518
|
|
|
(3,448
|
)
|
Net cash used by investing
activities
|
|
(88,565
|
)
|
|
(122,154
|
)
|
CASH FLOWS FROM FINANCING
ACTIVITIES
|
|
|
|
|
Net short-term (borrowings)
repayments
|
|
(3,560
|
)
|
|
1,357
|
|
Proceeds from revolving lines of
credit
|
|
570,200
|
|
|
301,500
|
|
Payments on revolving lines of
credit
|
|
(604,513
|
)
|
|
(411,610
|
)
|
Proceeds from long-term
debt
|
|
—
|
|
|
11,216
|
|
Payments on long-term
debt
|
|
(255
|
)
|
|
(21,849
|
)
|
Payment of
dividends
|
|
(26,156
|
)
|
|
(8,941
|
)
|
Proceeds from sale of treasury
stock
|
|
2,443
|
|
|
2,451
|
|
Purchase of outstanding shares
for treasury
|
|
(17,986
|
)
|
|
(5,210
|
)
|
Proceeds from sale of stock held
by SECT
|
|
10,036
|
|
|
1,941
|
|
Purchase of stock held by
SECT
|
|
(13,327
|
)
|
|
(8,444
|
)
|
Proceeds from sale of SERP
stock
|
|
4,293
|
|
|
—
|
|
Other financing
transactions
|
|
—
|
|
|
484
|
|
Net cash used by financing
activities
|
|
(78,825
|
)
|
|
(137,105
|
)
|
Effect of exchange rate changes
on cash
|
|
(366
|
)
|
|
2,266
|
|
Decrease in cash, cash
equivalents and restricted cash
|
|
(38,661
|
)
|
|
(210,643
|
)
|
Cash, cash equivalents and
restricted cash at beginning of period
|
|
127,706
|
|
|
386,969
|
|
Cash, cash equivalents and
restricted cash at end of period
|
|
$
|
89,045
|
|
|
$
|
176,326
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW
INFORMATION
|
|
|
|
|
Treasury shares issued as
compensation
|
|
$
|
11,795
|
|
|
$
|
—
|
|
Equipment acquired through
financing
|
|
148
|
|
|
—
|
|
See accompanying Notes to
Consolidated Condensed Financial Statements.
|
Notes to
Consolidated Condensed Financial Statements
Nine Months
Ended Ended
June 29,
2019
(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 months
ended June 29, 2019
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
. 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.
|
|
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
|
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 standard
using the modified retrospective method without adjusting prior
comparative periods. We expect to record a material right-of-use
asset and lease liability on the Consolidated Condensed Balance
Sheet. We have identified, and are in the process of implementing,
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.
|
Planned date of
adoption:
Q1 2020
|
ASU no. 2017-12
Targeted
Improvements to Accounting for Hedging Activities
|
|
The standard expands the hedging
strategies eligible for hedge accounting, while simplifying
presentation and disclosure by eliminating separate measurement and
reporting of hedge ineffectiveness. The provisions of the standard
are effective for fiscal years beginning after December 15, 2018
and interim periods within those fiscal years. Early adoption is
permitted.
|
|
We are currently evaluating the
effect on our financial statements and related
disclosures.
|
Planned date of
adoption:
Q1 2020
|
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
|
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.
Impact of
Recent Accounting Pronouncements Adopted
On September 30,
2018, we adopted ASC 606: Revenue from
Contracts with Customers and the related amendments (ASC
606), using the modified retrospective method, as described above.
ASC 606 was applied to contracts that were not completed as of
September 29, 2018. Prior periods have not been restated and
continue to be reported under the accounting standard in effect for
those periods. Previously, we recognized revenue under ASC
605: Revenue
Recognition (ASC 605).
The cumulative
effect from the adoption of ASC 606 as of September 30, 2018 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
The tables below
represent the impact of the adoption of ASC 606 on the Consolidated
Condensed Statement of Earnings for the three and nine months
ended June 29, 2019
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
The table below
represents the impact of the adoption of ASC 606 on the
Consolidated Condensed Balance Sheet as of June 29, 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
|
|
The tables below
represent the impact of the adoption of ASU 2017-07:
Presentation
of Net Periodic Pension Cost and Net Periodic Postretirement
Benefit Cost , on the Consolidated Condensed
Statement of Earnings 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
|
|
The tables below
represent the impact of the adoption of ASU 2017-07 on operating
profit and deductions from operating profit 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
|
|
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.
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.
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 method of accounting
was 64%
for the
three and nine
months ended June 29, 2019
. 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 accounting as our
performance does not create an asset with an alternative use and we
have an enforceable right to payment for performance completed to
date. Our over time contracts are primarily firm fixed
price.
Revenue
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 the
three
and nine months ended June 29,
2019 , we
recognized revenues of $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
months ended June 29, 2019
.
As of June 29, 2019
, we had contract
loss and contract-related reserves of $57,556
. 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.
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.
Revenue recognized
at the point in time control was transferred to the customer
was 36%
for the
three and nine
months ended June 29, 2019
. 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
|
Unbilled
receivables
|
|
$
|
444,762
|
|
|
$
|
405,610
|
|
Contract advances
|
|
147,677
|
|
|
152,608
|
|
Net contract assets
|
|
$
|
297,085
|
|
|
$
|
253,002
|
|
The increase in
contract assets reflects the net impact of additional unbilled
revenues recorded in excess of revenue recognized during the
period. The decrease in contract liabilities reflects the net
impact of revenue recognized in excess of additional deferred
revenues recorded during the period. For the three and nine months
ended June 29, 2019
, we
recognized $17,446
and
$111,032
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
, 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
. We expect to
recognize approximately 74%
of that amount as
sales over the next twelve
months and the balance
thereafter.
Disaggregation
of Revenue
See Note 17,
Segments, for disclosures related to disaggregation of
revenue.
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
|
Accounts receivable
|
|
$
|
230,474
|
|
|
$
|
295,180
|
|
Long-term contract
receivables:
|
|
|
|
|
Billed receivables
|
|
232,600
|
|
|
156,414
|
|
Unbilled
receivables
|
|
444,762
|
|
|
316,489
|
|
Total long-term contract
receivables
|
|
677,362
|
|
|
472,903
|
|
Other
|
|
20,123
|
|
|
30,787
|
|
Less allowance for doubtful
accounts
|
|
(5,106
|
)
|
|
(4,959
|
)
|
Receivables
|
|
$
|
922,853
|
|
|
$
|
793,911
|
|
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,
Indebtedness, for additional disclosures related to the
Securitization Program.
Note 5 -
Inventories
Inventories, net of
reserves, consist of:
|
|
|
|
|
|
|
|
|
|
|
|
June 29,
2019
|
|
September 29,
2018
|
Raw materials and purchased
parts
|
|
$
|
187,167
|
|
|
$
|
197,071
|
|
Work in progress
|
|
261,903
|
|
|
240,885
|
|
Finished goods
|
|
65,985
|
|
|
74,566
|
|
Inventories
|
|
$
|
515,055
|
|
|
$
|
512,522
|
|
There are
no
material
inventoried costs relating to long-term contracts where revenue is
accounted for using the cost-to-cost method of accounting as
of June 29, 2019
or
September 29,
2018 .
Note 6 -
Goodwill and Intangible Assets
The changes in the
carrying amount of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft
Controls
|
Space and
Defense
Controls
|
Industrial
Systems
|
Total
|
Balance at September 29,
2018
|
$
|
179,907
|
|
$
|
261,732
|
|
$
|
355,578
|
|
$
|
797,217
|
|
Divestitures
|
—
|
|
—
|
|
(1,237
|
)
|
(1,237
|
)
|
Foreign currency
translation
|
(1,351
|
)
|
(22
|
)
|
(2,929
|
)
|
(4,302
|
)
|
Balance at June 29,
2019
|
$
|
178,556
|
|
$
|
261,710
|
|
$
|
351,412
|
|
$
|
791,678
|
|
Goodwill in our
Space and Defense Controls segment is net of a $4,800
accumulated
impairment loss at June 29, 2019
.
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
.
The components of
intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2019
|
|
September 29,
2018
|
|
|
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
|
)
|
Technology-related
|
|
9
|
|
69,771
|
|
|
(51,731
|
)
|
|
69,393
|
|
|
(49,731
|
)
|
Program-related
|
|
19
|
|
64,955
|
|
|
(37,088
|
)
|
|
64,988
|
|
|
(33,740
|
)
|
Marketing-related
|
|
8
|
|
23,418
|
|
|
(19,819
|
)
|
|
23,489
|
|
|
(18,868
|
)
|
Other
|
|
10
|
|
4,164
|
|
|
(3,644
|
)
|
|
4,305
|
|
|
(3,588
|
)
|
Intangible assets
|
|
12
|
|
$
|
296,432
|
|
|
$
|
(211,803
|
)
|
|
$
|
297,554
|
|
|
$
|
(202,017
|
)
|
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
.
Note 7 - 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
|
U.S. revolving credit
facility
|
|
$
|
391,889
|
|
|
$
|
430,000
|
|
SECT revolving credit
facility
|
|
4,000
|
|
|
—
|
|
Senior notes
|
|
300,000
|
|
|
300,000
|
|
Securitization
program
|
|
130,000
|
|
|
130,000
|
|
Obligations under capital
leases
|
|
804
|
|
|
918
|
|
Senior debt
|
|
826,693
|
|
|
860,918
|
|
Less deferred debt issuance
cost
|
|
(436
|
)
|
|
(1,717
|
)
|
Less current
installments
|
|
(292
|
)
|
|
(365
|
)
|
Long-term debt
|
|
$
|
825,965
|
|
|
$
|
858,836
|
|
Our U.S. revolving
credit facility matures on June 28, 2021
. Our U.S.
revolving credit facility has a capacity of $1,100,000
and provides an
expansion option, which permits us to request an increase of up
to $200,000
to the credit
facility upon satisfaction of certain conditions. The credit
facility is secured by substantially all of our U.S. assets. The
loan agreement contains various covenants which, among others,
specify interest coverage and maximum leverage. 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. 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,
2019 , we
had $300,000
principal amount
of 5.25%
senior notes
due December 1, 2022
with interest paid
semiannually on June 1 and December 1 of each year. The senior notes
are unsecured obligations, guaranteed on a senior unsecured basis
by certain subsidiaries and contain normal incurrence-based
covenants and limitations such as the ability to incur additional
indebtedness, pay dividends, make other restricted payments and
investments, create liens and certain corporate acts such as
mergers and consolidations.
The Securitization
Program, effectively increasing our borrowing capacity by up
to $130,000
, was extended on
October 30, 2018 and now matures on October 30, 2020
. 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
, our minimum
borrowing requirement was $104,000
.
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
|
|
|
June 29,
2019
|
|
June 30,
2018
|
|
June 29,
2019
|
|
June 30,
2018
|
Warranty accrual at beginning of
period
|
|
$
|
24,217
|
|
|
$
|
28,255
|
|
|
$
|
25,537
|
|
|
$
|
25,848
|
|
Warranties issued during current
period
|
|
6,666
|
|
|
3,451
|
|
|
12,691
|
|
|
11,488
|
|
Adjustments to pre-existing
warranties
|
|
(125
|
)
|
|
(80
|
)
|
|
(523
|
)
|
|
(325
|
)
|
Reductions for settling
warranties
|
|
(5,275
|
)
|
|
(3,219
|
)
|
|
(12,144
|
)
|
|
(9,141
|
)
|
Foreign currency
translation
|
|
(102
|
)
|
|
(701
|
)
|
|
(180
|
)
|
|
(164
|
)
|
Warranty accrual at end of
period
|
|
$
|
25,381
|
|
|
$
|
27,706
|
|
|
$
|
25,381
|
|
|
$
|
27,706
|
|
Note 9 -
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
, we had interest
rate swaps with notional amounts totaling $105,000
. The interest rate
swaps effectively convert this amount of variable-rate debt to
fixed-rate debt at 2.99%
, including the
applicable margin of 1.63%
as of
June 29,
2019 . 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
at
June 29,
2019 . These
contracts mature at various times through February 26, 2021
.
We use forward
currency contracts to hedge our net investment in certain foreign
subsidiaries. As of June 29, 2019
, we had
no
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 months
of
2019
or
2018
.
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
at
June 29,
2019 . 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
|
)
|
Summary
of derivatives
The fair value and
classification of derivatives is summarized
as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
June 29,
2019
|
|
September 29,
2018
|
Derivatives designated as
hedging instruments:
|
|
|
|
|
|