Company Quick10K Filing
Quick10K
Moog
10-Q 2018-12-29 Quarter: 2018-12-29
10-K 2018-09-29 Annual: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-30 Quarter: 2017-12-30
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-10-01 Annual: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-Q 2016-01-02 Quarter: 2016-01-02
8-K 2019-02-12 Shareholder Vote
8-K 2019-01-25 Earnings, Other Events, Exhibits
8-K 2019-01-25 Earnings, Other Events, Exhibits
8-K 2018-11-02 Earnings, Other Events, Exhibits
8-K 2018-07-27 Earnings, Other Events, Exhibits
8-K 2018-05-08 Amend Bylaw, Exhibits
8-K 2018-03-15 Other Events, Exhibits
8-K 2018-02-14 Amend Bylaw, Shareholder Vote, Exhibits
NOVC Novation Companies
TEAR Tearlab
INCT InCapta
SPRS Surge Components
TSIF Terra Secured Income Fund 5
C004 Chugach Electric Association
CPLA Capella Education
VINO Algodon
BROG Black Ridge Oil & Gas
ZGSI Zero Gravity Solutions
MOG 2018-12-29
Part I Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation
Note 2 - Revenue From Contracts with Customers
Note 3 - Acquisitions, Divestitures and Equity Method Investments
Note 4 - Receivables
Note 5 - Inventories
Note 6 - Goodwill and Intangible Assets
Note 7 - Indebtedness
Note 8 - Product Warranties
Note 9 - Derivative Financial Instruments
Note 10 - Fair Value
Note 11 - Employee Benefit Plans
Note 12 - Restructuring
Note 13 - Income Taxes
Note 14 - Accumulated Other Comprehensive Income (Loss)
Note 15 - Stock Employee Compensation Trust and Supplemental Retirement Plan Trust
Note 16 - Earnings per Share and Dividends
Note 17 - Segment Information
Note 18 - Related Party Transactions
Note 19 - Commitments and Contingencies
Note 20 - Subsequent Event
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits.
EX-31.1 exhibit311jan2519wconf.htm
EX-31.2 exhibit312jan2519wconf.htm
EX-32.1 exhibit321jan2519wconf.htm

Moog Earnings 2018-12-29

MOG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________
FORM 10-Q
___________________________________________
(Mark One)
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 29, 2018

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
_________________________________________
moogimagea02.jpg
(Exact name of registrant as specified in its charter)
__________________________________________
New York State
16-0757636
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
East Aurora, New York
14052-0018
(Address of principal executive offices)
(Zip Code)
        (716) 652-2000
 (Telephone number including area code)
__________________________________________________________
Former name, former address and former fiscal year, if changed since last report.

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý    No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý     Accelerated filer ¨     Non-accelerated filer ¨ (Do not check if smaller reporting company) Smaller reporting company ¨    Emerging growth company ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨    No ý

The number of shares outstanding of each class of common stock as of January 22, 2019 was:
Class A common stock, $1.00 par value, 32,445,022 shares
Class B common stock, $1.00 par value, 2,405,689 shares



Table of Contents




Moog Inc.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Table of Contents


PART I FINANCIAL INFORMATION
Item 1. Financial Statements
moogimage2a01.jpg
Consolidated Condensed Statements of Earnings
(Unaudited)
 
 
Three Months Ended
(dollars in thousands, except share and per share data)
 
December 29,
2018
 
December 30,
2017
Net sales
 
$
679,676

 
$
627,535

Cost of sales
 
480,174

 
443,150

Gross profit
 
199,502

 
184,385

Research and development
 
31,876

 
32,334

Selling, general and administrative
 
96,326

 
94,619

Interest
 
9,682

 
8,646

Other
 
3,434

 
952

Earnings before income taxes
 
58,184

 
47,834

Income taxes
 
14,115

 
46,535

Net earnings
 
$
44,069

 
$
1,299

 
 
 
 
 
Net earnings per share
 
 
 
 
Basic
 
$
1.27

 
$
0.04

Diluted
 
$
1.25

 
$
0.04

 
 
 
 
 
Average common shares outstanding
 
 
 
 
Basic
 
34,815,255

 
35,772,406

Diluted
 
35,125,829

 
36,201,054

See accompanying Notes to Consolidated Condensed Financial Statements.



3

Table of Contents


moogimage2a01.jpg
Consolidated Condensed Statements of Comprehensive Income (Loss)
(Unaudited)
 
 
Three Months Ended
(dollars in thousands)
 
December 29,
2018
 
December 30,
2017
Net earnings
 
$
44,069

 
$
1,299

Other comprehensive income (loss), net of tax:
 
 
 
 
Foreign currency translation adjustment
 
(9,387
)
 
10,364

Retirement liability adjustment
 
4,819

 
4,256

Change in accumulated income (loss) on derivatives
 
664

 
1,234

Other comprehensive income (loss), net of tax
 
(3,904
)
 
15,854

Comprehensive income (loss)
 
$
40,165

 
$
17,153

See accompanying Notes to Consolidated Condensed Financial Statements.



4

Table of Contents


moogimage2a01.jpg
Consolidated Condensed Balance Sheets
(Unaudited)
(dollars in thousands)
 
December 29,
2018
 
September 29,
2018
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
110,759

 
$
125,584

Receivables
 
867,415

 
793,911

Inventories
 
467,811

 
512,522

Prepaid expenses and other current assets
 
45,505

 
44,404

Total current assets
 
1,491,490

 
1,476,421

Property, plant and equipment, net of accumulated depreciation of $819,733 and $816,837, respectively
 
554,725

 
552,865

Goodwill
 
791,200

 
797,217

Intangible assets, net
 
90,591

 
95,537

Deferred income taxes
 
15,902

 
17,328

Other assets
 
23,596

 
24,680

Total assets
 
$
2,967,504

 
$
2,964,048

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Short-term borrowings
 
$
2,126

 
$
3,623

Current installments of long-term debt
 
326

 
365

Accounts payable
 
199,435

 
213,982

Accrued compensation
 
128,763

 
147,765

Contract advances
 
183,855

 
151,687

Contract and contract-related loss reserves
 
42,683

 
42,258

Other accrued liabilities
 
119,622

 
120,944

Total current liabilities
 
676,810

 
680,624

Long-term debt, excluding current installments
 
815,107

 
858,836

Long-term pension and retirement obligations
 
117,887

 
117,471

Deferred income taxes
 
49,333

 
46,477

Other long-term liabilities
 
35,103

 
35,654

Total liabilities
 
1,694,240

 
1,739,062

Commitments and contingencies (Note 19)
 

 

Shareholders’ equity
 
 
 
 
Common stock - Class A
 
43,786

 
43,785

Common stock - Class B
 
7,494

 
7,495

Additional paid-in capital
 
487,284

 
502,257

Retained earnings
 
2,023,803

 
1,973,514

Treasury shares
 
(743,239
)
 
(738,494
)
Stock Employee Compensation Trust
 
(102,182
)
 
(118,449
)
Supplemental Retirement Plan Trust
 
(67,597
)
 
(72,941
)
Accumulated other comprehensive loss
 
(376,085
)
 
(372,181
)
Total shareholders’ equity
 
1,273,264

 
1,224,986

Total liabilities and shareholders’ equity
 
$
2,967,504

 
$
2,964,048

See accompanying Notes to Consolidated Condensed Financial Statements.
 
 
 
 

5

Table of Contents


moogimage2a01.jpg
Consolidated Condensed Statements of Shareholders' Equity
(Unaudited)
  
 
Three Months Ended
(dollars in thousands)
 
December 29, 2018
 
December 30, 2017
COMMON STOCK
 
 
 
 
Beginning and end of period
 
$
51,280

 
$
51,280

ADDITIONAL PAID-IN CAPITAL
 
 
 
 
Beginning of period
 
502,257

 
492,246

Issuance of treasury shares
 
(2,201
)
 
(1,633
)
Equity-based compensation expense
 
2,008

 
2,001

Adjustment to market - SECT, SERP and other
 
(14,780
)
 
6,085

End of period
 
487,284

 
498,699

RETAINED EARNINGS
 
 
 
 
Beginning of period
 
1,973,514

 
1,847,819

Net earnings
 
44,069

 
1,299

Dividends
 
(8,703
)
 

Adoption of ASC 606
 
14,923

 

End of period
 
2,023,803

 
1,849,118

TREASURY SHARES AT COST
 
 
 
 
Beginning of period
 
(738,494
)
 
(739,157
)
Class A and B shares issued related to compensation
 
5,796

 
2,681

Class A and B shares purchased
 
(10,541
)
 
(2,734
)
End of period
 
(743,239
)
 
(739,210
)
STOCK EMPLOYEE COMPENSATION TRUST (SECT)
 
 
 
 
Beginning of period
 
(118,449
)
 
(89,919
)
Issuance of shares
 
8,761

 

Purchase of shares
 
(1,930
)
 
(3,823
)
Adjustment to market
 
9,436

 
(5,248
)
End of period
 
(102,182
)
 
(98,990
)
SUPPLEMENTAL RETIREMENT PLAN (SERP) TRUST
 
 
 
 
Beginning of period
 
(72,941
)
 
(12,474
)
Adjustment to market
 
5,344

 
(837
)
End of period
 
(67,597
)
 
(13,311
)
ACCUMULATED OTHER COMPREHENSIVE LOSS
 
 
 
 
Beginning of period
 
(372,181
)
 
(335,491
)
Other comprehensive income (loss)
 
(3,904
)
 
15,854

End of period
 
(376,085
)
 
(319,637
)
TOTAL SHAREHOLDERS’ EQUITY
 
$
1,273,264

 
$
1,227,949



6

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moogimage2a01.jpg
Consolidated Statements of Shareholders’ Equity, Shares
(Unaudited)
  
 
Three Months Ended
(share data)
 
December 29, 2018
 
December 30, 2017
COMMON STOCK - CLASS A
 
 
 
 
Beginning of period
 
43,784,489

 
43,704,286

Conversion of Class B to Class A
 
946

 
11,300

End of period
 
43,785,435

 
43,715,586

COMMON STOCK - CLASS B
 
 
 
 
Beginning of period
 
7,495,224

 
7,575,427

Conversion of Class B to Class A
 
(946
)
 
(11,300
)
End of period
 
7,494,278

 
7,564,127

TREASURY SHARES - CLASS A COMMON STOCK
 
 
 
 
Beginning of period
 
(10,872,575
)
 
(10,933,003
)
Class A shares issued related to compensation
 
23,741

 
64,486

Class A shares purchased
 
(48,573
)
 
(33,020
)
End of period
 
(10,897,407
)
 
(10,901,537
)
TREASURY SHARES - CLASS B COMMON STOCK
 
 
 
 
Beginning of period
 
(3,323,996
)
 
(3,333,927
)
Class B shares issued related to compensation
 
58,793

 
5,878

Class B shares purchased
 
(83,296
)
 
(15
)
End of period
 
(3,348,499
)
 
(3,328,064
)
SECT SHARES - CLASS A COMMON STOCK
 
 
 
 
Beginning and end of period
 
(425,148
)
 
(425,148
)
SECT SHARES - CLASS B COMMON STOCK
 
 
 
 
Beginning of period
 
(983,772
)
 
(654,753
)
Issuance of shares
 
107,577

 

Purchase of shares
 
(23,669
)
 
(44,662
)
End of period
 
(899,864
)
 
(699,415
)
SERP TRUST SHARES - CLASS B COMMON STOCK
 
 
 
 
Beginning and end of period
 
(876,170
)
 
(150,000
)


7

Table of Contents


moogimage2a01.jpg
Consolidated Condensed Statements of Cash Flows
(Unaudited)

 
 
Three Months Ended
(dollars in thousands)
 
December 29,
2018
 
December 30,
2017
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net earnings
 
$
44,069

 
$
1,299

Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
 
 
 
 
Depreciation
 
17,848

 
17,487

Amortization
 
3,746

 
4,674

Deferred income taxes
 
92

 
37,617

Equity-based compensation expense
 
2,008

 
2,001

Other
 
1,020

 
1,563

Changes in assets and liabilities providing (using) cash:
 
 
 
 
Receivables
 
12,810

 
(10,350
)
Inventories
 
(24,399
)
 
(22,236
)
Accounts payable
 
(13,774
)
 
(14,393
)
Contract advances
 
31,531

 
19,888

Accrued expenses
 
(17,898
)
 
(27,233
)
Accrued income taxes
 
511

 
6,965

Net pension and post retirement liabilities
 
7,068

 
(4,562
)
Other assets and liabilities
 
(394
)
 
31,450

Net cash provided by operating activities
 
64,238

 
44,170

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Purchase of property, plant and equipment
 
(24,375
)
 
(21,084
)
Other investing transactions
 
2,785

 
(506
)
Net cash (used) by investing activities
 
(21,590
)
 
(21,590
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Net short-term borrowings (repayments)
 
(1,490
)
 

Proceeds from revolving lines of credit
 
131,100

 
103,500

Payments on revolving lines of credit
 
(175,200
)
 
(108,610
)
Proceeds from long-term debt
 

 
10,000

Payments on long-term debt
 
(85
)
 
(44
)
Payment of dividends
 
(8,703
)
 

Proceeds from sale of treasury stock
 

 
1,048

Purchase of outstanding shares for treasury
 
(9,450
)
 
(2,734
)
Proceeds from sale of stock held by SECT
 
6,636

 

Purchase of stock held by SECT
 
(1,930
)
 
(3,823
)
Net cash (used) by financing activities
 
(59,122
)
 
(663
)
Effect of exchange rate changes on cash
 
(473
)
 
5,021

Increase (decrease) in cash, cash equivalents and restricted cash
 
(16,947
)
 
26,938

Cash, cash equivalents and restricted cash at beginning of period
 
127,706

 
386,969

Cash, cash equivalents and restricted cash at end of period
 
$
110,759

 
$
413,907

 
 
 
 
 
SUPPLEMENTAL CASH FLOW INFORMATION
 
 
 
 
Treasury shares issued as compensation
 
$
5,720

 
$

See accompanying Notes to Consolidated Condensed Financial Statements.

8

Table of Contents


moogimage2a01.jpg
Notes to Consolidated Condensed Financial Statements
Three Months Ended December 29, 2018
(Unaudited)
(dollars in thousands, except per share data)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting of normal recurring adjustments considered necessary for the fair presentation of results for the interim period have been included. The results of operations for the three months ended December 29, 2018 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.
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
    

9

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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 are currently evaluating the effect 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 minimal 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.


10

Table of Contents


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 and contract-related loss reserves
 
42,258

 
2,430

 
44,688

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 table below represents the impact of the adoption of ASC 606 on the Consolidated Condensed Statement of Earnings for the three months ended December 29, 2018.


 
Under ASC 605
 
Effect of ASC 606
 
As Reported Under ASC 606
Net sales
 
$
677,334

 
$
2,342

 
$
679,676

Cost of sales
 
477,879

 
2,295

 
480,174

Gross profit
 
199,455

 
47

 
199,502

Earnings before income taxes
 
58,137

 
47

 
58,184

Income taxes
 
14,103

 
12

 
14,115

Net earnings
 
$
44,034

 
$
35

 
$
44,069




11

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The table below represents the impact of the adoption of ASC 606 on the Consolidated Condensed Balance Sheet as of December 29, 2018.

 
Under ASC 605
 
Effect of ASC 606
 
As Reported Under ASC 606
ASSETS
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
Receivables
 
$
773,865

 
$
93,550

 
$
867,415

Inventories
 
536,364

 
(68,553
)
 
467,811

Total current assets
 
1,466,493

 
24,997

 
1,491,490

Deferred income taxes
 
16,005

 
(103
)
 
15,902

Total assets
 
2,942,610

 
24,894

 
2,967,504

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
Contract advances
 
$
180,967

 
$
2,888

 
$
183,855

Contract and contract-related loss reserves
 
40,312

 
2,371

 
42,683

Other accrued liabilities
 
118,477

 
1,145

 
119,622

Total current liabilities
 
670,406

 
6,404

 
676,810

Deferred income taxes
 
46,020

 
3,313

 
49,333

Total liabilities
 
1,684,523

 
9,717

 
1,694,240

Shareholders’ equity
 
 
 
 
 
 
Retained earnings
 
2,008,845

 
14,958

 
2,023,803

Accumulated other comprehensive loss
 
(376,304
)
 
219

 
(376,085
)
Total shareholders’ equity
 
1,258,087

 
15,177

 
1,273,264

Total liabilities and shareholders’ equity
 
2,942,610

 
24,894

 
2,967,504



The table below represents the impact of the adoption of ASU 2017-07 on the Consolidated Condensed Statement of Earnings for the three months ended December 30, 2017.

 
As Reported,
December 30, 2017
 
Impact of Adoption
 
As Adjusted,
December 30, 2017
Cost of sales
 
$
443,426

 
$
(276
)
 
$
443,150

Gross profit
 
184,109

 
276

 
184,385

Research and development
 
32,420

 
(86
)
 
32,334

Selling, general and administrative
 
95,950

 
(1,331
)
 
94,619

Other
 
(741
)
 
1,693

 
952




The table below represents the impact of the adoption of ASU 2017-07 on operating profit and deductions from operating profit for the three months ended December 30, 2017.
 
 
As Reported,
December 30, 2017
 
Impact of Adoption
 
As Adjusted,
December 30, 2017
Operating profit:
 

 

 

Aircraft Controls
 
$
30,768

 
$
275

 
$
31,043

Space and Defense Controls
 
16,289

 
184

 
16,473

Industrial Systems
 
19,246

 
665

 
19,911

Total operating profit
 
$
66,303

 
$
1,124

 
$
67,427

Deductions from operating profit:
 
 
 
 
 
 
Non-service pension expense
 
$

 
$
1,693

 
$
1,693

Corporate and other expenses, net
 
$
7,822

 
$
(569
)
 
$
7,253




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Note 2 - Revenue from Contracts with Customers

We recognize revenue from contracts with customers using the five-step model prescribed in ASC 606. This 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, 63% of revenue was recognized over time for the three months ended December 29, 2018, 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 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 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.

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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. We recognized $11,759 in revenue for the three months ended December 29, 2018 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 months ended December 29, 2018.

As of December 29, 2018, we had contract and contract-related loss reserves of $42,683. 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.

For the three months ended December 29, 2018, 37% of revenue was recognized at the point in time control transferred to the customer. This method of revenue recognition is used most significantly 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.

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Total contract assets and contract liabilities as of December 29, 2018 are as follows:
 
 
December 29, 2018
 
September 30, 2018
Unbilled receivables
 
$
420,093

 
$
405,610

Contract advances
 
183,855

 
152,608

Net contract assets
 
$
236,238

 
$
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 increase in contract liabilities reflects the net impact of additional deferred revenues recorded in excess of revenue recognized during the period. For the period ended December 29, 2018, we recognized $47,508 of revenue that was included in the contract liability balance at the beginning of the period.
Remaining Performance Obligations
As of December 29, 2018, the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied), also known as backlog, was approximately $2,100,000. We expect to recognize approximately 67% 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
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 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 customized electric motors, generators and solutions. 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. 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.
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. At December 29, 2018, we have made total contributions of $5,100. This operation is included in our Aircraft Controls segment.
In the first quarter of 2019, we sold a non-core business of our Industrials Systems segment for $4,191 in cash and recorded a gain in other income of $2,641.

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Note 4 - Receivables
Receivables consist of:
 
 
December 29,
2018
 
September 29,
2018
Accounts receivable
 
$
233,118

 
$
295,180

Long-term contract receivables:
 
 
 
 
Billed receivables
 
202,000

 
156,414

Unbilled receivables
 
420,093

 
316,489

Total long-term contract receivables
 
622,093

 
472,903

Other
 
17,055

 
30,787

Less allowance for doubtful accounts
 
(4,851
)
 
(4,959
)
Receivables
 
$
867,415

 
$
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:
 
 
December 29,
2018
 
September 29,
2018
Raw materials and purchased parts
 
$
190,249

 
$
197,071

Work in progress
 
210,962

 
240,885

Finished goods
 
66,600

 
74,566

Inventories
 
$
467,811

 
$
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 December 29, 2018 or September 29, 2018.

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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
(1,339
)
(22
)
(3,419
)
(4,780
)
Balance at December 29, 2018
$
178,568

$
261,710

$
350,922

$
791,200


Goodwill in our Space and Defense Controls segment is net of a $4,800 accumulated impairment loss at December 29, 2018.
Goodwill in our Medical Devices reporting unit, included in our Industrial Systems segment, is net of a $38,200 accumulated impairment loss at December 29, 2018.
The components of intangible assets are as follows:
 
 
 
 
December 29, 2018
 
September 29, 2018
  
 
Weighted-
Average
Life (years)
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Customer-related
 
11
 
$
134,356

 
$
(97,123
)
 
$
135,379

 
$
(96,090
)
Technology-related
 
9
 
69,172

 
(50,351
)
 
69,393

 
(49,731
)
Program-related
 
19
 
63,646

 
(33,909
)
 
64,988

 
(33,740
)
Marketing-related
 
8
 
23,351

 
(19,194
)
 
23,489

 
(18,868
)
Other
 
10
 
4,238

 
(3,595
)
 
4,305

 
(3,588
)
Intangible assets
 
12
 
$
294,763

 
$
(204,172
)
 
$
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 $3,683 for the three months ended December 29, 2018 and $4,600 for the three months ended December 30, 2017. Based on acquired intangible assets recorded at December 29, 2018, amortization is expected to be approximately $13,100 in 2019, $11,400 in 2020, $9,500 in 2021, $8,000 in 2022 and $7,200 in 2023.                                     

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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:
 
 
December 29,
2018
 
September 29,
2018
U.S. revolving credit facility
 
$
379,900

 
$
430,000

Other revolving credit facility
 
6,000

 

Senior notes
 
300,000

 
300,000

Securitization program
 
130,000

 
130,000

Obligations under capital leases
 
823

 
918

Senior debt
 
816,723

 
860,918

Less deferred debt issuance cost
 
(1,290
)
 
(1,717
)
Less current installments
 
(326
)
 
(365
)
Long-term debt
 
$
815,107

 
$
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 entered into a revolving credit facility with a borrowing capacity of $35,000, maturing on July 26, 2020. Interest for the revolving credit facility is based on LIBOR plus an applicable margin. A commitment fee is also charged based on a percentage of the unused amounts available and is not material.
At December 29, 2018, 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 December 29, 2018, our minimum borrowing requirement was $104,000.


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Table of Contents


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
 
 
December 29,
2018
 
December 30,
2017
Warranty accrual at beginning of period
 
$
25,537

 
$
25,848

Warranties issued during current period
 
3,365

 
4,757

Adjustments to pre-existing warranties
 
(91
)