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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 July 2, 2022

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)
New York16-0757636
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
400 Jamison RoadEast Aurora,New York14052-0018
(Address of Principal Executive Offices)
(Zip Code)
(716) 652-2000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stockMOG.ANew York Stock Exchange
Class B common stockMOG.BNew 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 every Interactive Data File required to be submitted 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 such files).     Yes     No   



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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 Exchange Act).     Yes       No  

The number of shares outstanding of each class of common stock as of July 25, 2022 was:
Class A common stock, 28,961,475 shares
Class B common stock, 3,019,313 shares



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QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS




PART I FINANCIAL INFORMATION
Item 1. Financial Statements
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Consolidated Condensed Statements of Earnings
(Unaudited)
Three Months EndedNine Months Ended
(dollars in thousands, except share and per share data)July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
Net sales$772,911 $707,352 $2,267,784 $2,127,708 
Cost of sales560,966 516,750 1,646,742 1,547,554 
Inventory write-down202  3,407  
Gross profit211,743 190,602 617,635 580,154 
Research and development25,890 33,095 84,318 91,556 
Selling, general and administrative113,886 100,597 336,702 305,331 
Interest9,131 8,239 25,376 25,288 
Asset impairment692  15,928  
Restructuring576  8,369  
Gain on sale of business  (16,146) 
Other1,759 76 3,143 (3,115)
Earnings before income taxes59,809 48,595 159,945 161,094 
Income taxes9,400 12,473 34,184 38,442 
Net earnings$50,409 $36,122 $125,761 $122,652 
Net earnings per share
Basic$1.58 $1.12 $3.93 $3.82 
Diluted$1.57 $1.12 $3.91 $3.80 
Average common shares outstanding
Basic31,922,377 32,125,524 31,988,150 32,115,400 
Diluted32,067,431 32,355,238 32,125,438 32,305,834 
See accompanying Notes to Consolidated Condensed Financial Statements.


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Consolidated Condensed Statements of Comprehensive Income
(Unaudited)
Three Months EndedNine Months Ended
(dollars in thousands)July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
Net earnings$50,409 $36,122 $125,761 $122,652 
Other comprehensive income (loss) ("OCI"), net of tax:
Foreign currency translation adjustment(43,954)4,549 (68,797)25,111 
Retirement liability adjustment5,438 3,259 14,066 9,177 
Change in accumulated loss on derivatives(1,533)(731)(1,693)(1,335)
Other comprehensive income (loss), net of tax(40,049)7,077 (56,424)32,953 
Comprehensive income$10,360 $43,199 $69,337 $155,605 
See accompanying Notes to Consolidated Condensed Financial Statements.


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Consolidated Condensed Balance Sheets
(Unaudited)
(dollars in thousands)July 2,
2022
October 2,
2021
ASSETS
Current assets
Cash and cash equivalents$93,912 $99,599 
Restricted cash1,952 1,315 
Receivables, net973,771 945,929 
Inventories, net592,358 613,095 
Prepaid expenses and other current assets60,693 58,842 
Total current assets1,722,686 1,718,780 
Property, plant and equipment, net673,620 645,778 
Operating lease right-of-use assets68,800 60,355 
Goodwill826,307 851,605 
Intangible assets, net98,375 106,095 
Deferred income taxes15,010 17,769 
Other assets34,258 32,787 
Total assets$3,439,056 $3,433,169 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Current installments of long-term debt$1,008 $80,365 
Accounts payable219,428 200,602 
Accrued compensation86,593 112,703 
Contract advances293,794 263,686 
Accrued liabilities and other211,769 212,005 
Total current liabilities812,592 869,361 
Long-term debt, excluding current installments856,097 823,355 
Long-term pension and retirement obligations153,277 162,728 
Deferred income taxes71,799 64,642 
Other long-term liabilities113,866 112,939 
Total liabilities2,007,631 2,033,025 
Shareholders’ equity
Common stock - Class A43,806 43,803 
Common stock - Class B7,474 7,477 
Additional paid-in capital528,571 509,622 
Retained earnings2,338,956 2,237,848 
Treasury shares(1,031,904)(1,007,506)
Stock Employee Compensation Trust(85,565)(79,776)
Supplemental Retirement Plan Trust(65,929)(63,764)
Accumulated other comprehensive loss(303,984)(247,560)
Total shareholders’ equity1,431,425 1,400,144 
Total liabilities and shareholders’ equity$3,439,056 $3,433,169 
See accompanying Notes to Consolidated Condensed Financial Statements.

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Consolidated Condensed Statements of Shareholders' Equity
(Unaudited)

  Three Months EndedNine Months Ended
(dollars in thousands)July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
COMMON STOCK
Beginning and end of period$51,280$51,280$51,280 $51,280 
ADDITIONAL PAID-IN CAPITAL
Beginning of period543,292 519,006 509,622 472,645 
Issuance of treasury shares1,578 (104)9,187 6,435 
Equity-based compensation expense1,707 1,623 5,706 5,990 
Adjustment to market - SECT and SERP(18,006)(889)4,056 34,566 
End of period528,571 519,636 528,571 519,636 
RETAINED EARNINGS
Beginning of period2,296,849 2,183,218 2,237,848 2,112,734 
Net earnings50,409 36,122 125,761 122,652 
Dividends (1)
(8,302)(8,035)(24,653)(24,081)
End of period2,338,956 2,211,305 2,338,956 2,211,305 
TREASURY SHARES AT COST
Beginning of period(1,028,414)(1,000,389)(1,007,506)(990,783)
Class A and B shares issued related to compensation514 478 6,087 8,920 
Class A and B shares purchased(4,004)(7,843)(30,485)(25,891)
End of period(1,031,904)(1,007,754)(1,031,904)(1,007,754)
STOCK EMPLOYEE COMPENSATION TRUST ("SECT")
Beginning of period(94,548)(85,034)(79,776)(64,242)
Issuance of shares12 405 7,586 679 
Purchase of shares(1,088)(976)(11,484)(3,535)
Adjustment to market10,059 291 (1,891)(18,216)
End of period(85,565)(85,314)(85,565)(85,314)
SUPPLEMENTAL RETIREMENT PLAN ("SERP") TRUST
Beginning of period(73,876)(70,047)(63,764)(53,098)
Adjustment to market7,947 599 (2,165)(16,350)
End of period(65,929)(69,448)(65,929)(69,448)
ACCUMULATED OTHER COMPREHENSIVE LOSS
Beginning of period(263,935)(259,577)(247,560)(285,453)
Other comprehensive income (loss)(40,049)7,077 (56,424)32,953 
End of period(303,984)(252,500)(303,984)(252,500)
TOTAL SHAREHOLDERS’ EQUITY$1,431,425 $1,367,205 $1,431,425 $1,367,205 
See accompanying Notes to Consolidated Condensed Financial Statements.
(1) Cash dividends were $0.26 and $0.77 per share for the three and nine months ended July 2, 2022, respectively. Cash dividends were $0.25 and $0.75 per share for three and nine months ended July 3, 2021, respectively.
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Consolidated Condensed Statements of Shareholders’ Equity, Shares
(Unaudited)
  Three Months EndedNine Months Ended
(share data)July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
COMMON STOCK - CLASS A
Beginning of period43,803,861 43,802,229 43,803,236 43,799,229 
Conversion of Class B to Class A 2,004 35 2,629 3,035 
End of period43,805,865 43,802,264 43,805,865 43,802,264 
COMMON STOCK - CLASS B
Beginning of period7,475,852 7,477,484 7,476,477 7,480,484 
Conversion of Class B to Class A (2,004)(35)(2,629)(3,035)
End of period7,473,848 7,477,449 7,473,848 7,477,449 
TREASURY SHARES - CLASS A COMMON STOCK
Beginning of period(14,377,074)(14,111,891)(14,157,721)(13,959,998)
Class A shares issued related to compensation8,678 11,749 37,707 29,309 
Class A shares purchased(53,291)(1,722)(301,673)(171,175)
End of period(14,421,687)(14,101,864)(14,421,687)(14,101,864)
TREASURY SHARES - CLASS B COMMON STOCK
Beginning of period(3,082,267)(3,191,331)(3,179,055)(3,344,877)
Class B shares issued related to compensation26,530 8,926 225,702 255,979 
Class B shares purchased(160)(86,482)(102,544)(179,989)
End of period(3,055,897)(3,268,887)(3,055,897)(3,268,887)
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(632,060)(585,584)(600,880)(557,543)
Issuance of shares136 4,548 93,899 8,683 
Purchase of shares(12,827)(11,163)(137,770)(43,339)
End of period(644,751)(592,199)(644,751)(592,199)
SERP - CLASS B COMMON STOCK
Beginning and end of period(826,170)(826,170)(826,170)(826,170)
See accompanying Notes to Consolidated Condensed Financial Statements.

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Consolidated Condensed Statements of Cash Flows
(Unaudited)

Nine Months Ended
(dollars in thousands)July 2,
2022
July 3,
2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings$125,761 $122,652 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation56,169 56,806 
Amortization9,998 10,000 
Deferred income taxes7,644 4,161 
Equity-based compensation expense6,747 6,420 
Gain on sale of business(16,146) 
Asset impairment and Inventory write-down19,335  
Other4,960 (2,781)
Changes in assets and liabilities providing (using) cash:
Receivables(58,668)(21,329)
Inventories(6,778)9,509 
Accounts payable27,184 (17,530)
Contract advances35,867 54,414 
Accrued expenses(24,066)3,503 
Accrued income taxes7,692 14,776 
Net pension and post retirement liabilities 13,490 8,380 
Other assets and liabilities(24,925)(18,401)
Net cash provided by operating activities184,264 230,580 
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses, net of cash acquired(11,837)(77,600)
Purchase of property, plant and equipment(106,713)(88,573)
Other investing transactions33,283 3,615 
Net cash used by investing activities(85,267)(162,558)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving lines of credit661,675 653,500 
Payments on revolving lines of credit(629,251)(651,986)
Proceeds from long-term debt 42,300 
Payments on long-term debt(80,273)(55,891)
Payments on finance lease obligations(1,779)(1,588)
Payment of dividends (24,653)(24,081)
Proceeds from sale of treasury stock10,792 4,603 
Purchase of outstanding shares for treasury(30,485)(26,702)
Proceeds from sale of stock held by SECT7,586 679 
Purchase of stock held by SECT(11,484)(3,535)
Net cash used by financing activities(97,872)(62,701)
Effect of exchange rate changes on cash(6,175)1,265 
Increase (decrease) in cash, cash equivalents and restricted cash(5,050)6,586 
Cash, cash equivalents and restricted cash at beginning of period100,914 85,072 
Cash, cash equivalents and restricted cash at end of period$95,864 $91,658 
SUPPLEMENTAL CASH FLOW INFORMATION
Treasury shares issued as compensation$4,482 $10,751 
Equipment and property acquired through lease financing32,000 9,878 
See accompanying Notes to Consolidated Condensed Financial Statements.
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Notes to Consolidated Condensed Financial Statements
Nine Months Ended July 2, 2022
(Unaudited)
(dollars in thousands, except per share data)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting of normal recurring adjustments considered necessary for the fair presentation of results for the interim period have been included. The results of operations for the three and nine months ended July 2, 2022 are not necessarily indicative of the results expected for the full year. The accompanying unaudited consolidated condensed financial statements should be read in conjunction with the financial statements and notes thereto included in our Form 10-K for the fiscal year ended October 2, 2021. All references to years in these financial statements are to fiscal years.
COVID-19 Impacts On Our Business
On March 11, 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic. The spread of the COVID-19 pandemic disrupted businesses on a global scale, led to significant volatility in financial markets and affected the aviation and industrial industries. Substantially all of our operations and production activities have, to-date, remained operational. However, the impacts of the pandemic have placed labor and supply chain pressures on our business and we have been impacted by localized lockdowns in China. While our backlog continues to grow across our end markets, ongoing COVID-19 disruptions continue to challenge our business. As economic activity continues to recover, we will continue to monitor the situation, assessing further possible implications on our operations, supply chain, liquidity, cash flow and customer orders. The impact of COVID-19 is discussed in more detail throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Impairment of Assets
Long-lived assets, including acquired intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. We use undiscounted cash flows to determine whether impairment exists and measure any impairment loss by comparing the fair value, typically calculated using discounted cash flows, to the carrying value.
In 2022, we recorded impairment charges on long-lived assets in our Aircraft Controls segment. These charges relate to property, plant and equipment that experienced a significant decline in value due to a slower than expected recovery of our commercial aircraft business. In addition, we have recorded impairment charges on receivables and inventories associated with Russian actions in Ukraine in all three of our segments. These charges are included in asset impairment in the Consolidated Condensed Statement of Earnings.
See Note 4 - Receivables, Note 5 - Inventories, Note 6 - Property, Plant and Equipment and Note 12 - Fair Value for additional disclosures relating to impairment charges recorded.
Recent Accounting Pronouncements Adopted

There have been no accounting pronouncements adopted for the nine months ended July 2, 2022.

Recent Accounting Pronouncements Not Yet Adopted

We consider the applicability and impact of all Accounting Standard Updates ("ASU"). ASUs not listed 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.

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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. 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.

Revenue is recognized either over time using an input method that uses costs incurred to date to measure progress toward completion ("cost-to-cost") method, or point in time method. The over-time method of revenue recognition is predominantly used in Aircraft 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.

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Revenue recognized at the point in time control is transferred to the customer 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 significant risks and rewards of ownership; and the customer has accepted the asset. When control has transferred to the customer, profit is generated as cost of sales is recorded and as revenue is recognized. Inventory costs include all product manufacturing costs such as direct material, direct labor, other direct costs and indirect overhead cost allocations. Shipping and handling costs are considered costs to fulfill a contract and not considered performance obligations. They are included in cost of sales as incurred.

Revenue is recognized on contracts using the 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 July 2, 2022 we recognized lower revenue of $8,615 and additional revenue of $124, respectively, for adjustments made to performance obligations satisfied (or partially satisfied) in previous periods. For the three and nine months ended July 3, 2021 we recognized additional revenue of $1,962 and $14,497, 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 July 2, 2022.

As of July 2, 2022, we had contract reserves of $44,126. For contracts with anticipated losses at completion, a provision for the entire amount of the estimated remaining loss is charged against income in the period in which the loss becomes known. Contract losses are determined considering all direct and indirect contract costs, exclusive of any selling, general or administrative cost allocations that are treated as period expenses. Loss reserves are more common on firm fixed-price contracts that involve, to varying degrees, the design and development of new and unique controls or control systems to meet the customers’ specifications. In accordance with ASC 606, we calculate contract losses at the contract level, versus the performance obligation level. Recall reserves are recorded when additional work is needed on completed products for them to meet contract specifications. Contract-related loss reserves are recorded for the additional work needed on completed and delivered products in order for them to meet contract specifications.

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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:
July 2,
2022
October 2, 2021
Unbilled receivables$621,128 $546,764 
Contract advances293,794 263,686 
Net contract assets$327,334 $283,078 

The increase in contract assets reflects the net impact of additional unbilled revenues recorded in excess of revenue recognized during the period. The increase in contract liabilities reflects the net impact of additional deferred revenues recorded in excess of revenue recognized during the period. For the three and nine months ended July 2, 2022, we recognized $38,050 and $169,215 of revenue, respectively, that was included in the contract liability balance at the beginning of the period.

Remaining Performance Obligations
As of July 2, 2022, the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) was $5,000,000. We expect to recognize approximately 44% of that amount as sales over the next twelve months and the balance thereafter.

Disaggregation of Revenue
See Note 19 - Segments, for disclosures related to disaggregation of revenue.
Note 3 - Acquisitions and Divestitures

Acquisitions

On February 21, 2022, we acquired TEAM Accessories Limited ("TEAM") based in Dublin, Ireland for a purchase price, net of acquired cash, of $14,890, consisting of $11,837 in cash and contingent consideration with an initial fair value of $3,053. TEAM specializes in Maintenance, Repair and Overhaul ("MRO") of engine and airframe components. This operation is included in our Aircraft Controls segment. The purchase price allocation is subject to adjustments as we obtain additional information for our estimates during the measurement period.
On December 18, 2020, we acquired Genesys Aerosystems Group, Inc. ("Genesys"), headquartered in Mineral Wells, Texas for a purchase price of $77,600, net of acquired cash. Genesys designs and manufactures a full suite of electronic flight instrument systems and autopilot solutions. This operation is included in our Aircraft Controls segment.
Divestitures
On December 3, 2021, we sold the assets of our Navigation Aids ("NAVAIDS") business based in Salt Lake City, Utah previously included in our Aircraft Controls segment to THALES USA Inc. We received net proceeds of $35,550, which are included in other investing transactions on the Consolidated Condensed Statements of Cash Flows and recorded a gain of $16,146, net of transaction costs. The gain is subject to adjustments associated with amounts currently held in escrow.
In the first quarter of 2021, we sold a non-core business in our Aircraft Controls segment for $2,081 in net consideration in other investing transactions and recorded a loss of $683.
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Note 4 - Receivables
Receivables consist of:
July 2,
2022
October 2,
2021
Accounts receivable$345,117 $395,674 
Unbilled receivables621,128 546,764 
Other11,835 7,842 
Less allowance for credit losses(4,309)(4,351)
Receivables, net$973,771 $945,929 
Net receivables disclosed above reflects the non-cash write-down of $642 recorded for the nine months ended July 2, 2022 associated with Russian actions in Ukraine.
On November 4, 2021, Moog Receivables LLC (the "Receivables Subsidiary"), a wholly owned bankruptcy remote special purpose subsidiary of Moog Inc. (the "Company"), as seller, the Company, as master servicer, Wells Fargo Bank, N.A., as administrative agent (the "Agent") and certain purchasers (collectively, the "Purchasers") entered into an Amended and Restated Receivables Purchase Agreement (the "RPA"). The RPA matures on November 4, 2024 and is subject to customary termination events related to transactions of this type.
Under the RPA, the Receivables Subsidiary may sell receivables to the Purchasers in amounts up to a $100,000 limit. The receivables will be sold to the Purchasers in consideration for the Purchasers making payments of cash, which is referred to as "capital" for purposes of the RPA, to the Receivables Subsidiary in accordance with the terms of the RPA. The Receivables Subsidiary may sell receivables to the Purchasers so long as certain conditions are satisfied, including that, at any date of determination, the aggregate capital paid to the Receivables Subsidiary does not exceed a "capital coverage amount", equal to an adjusted net receivables pool balance minus a required reserve. Each Purchaser's share of capital accrues yield at a variable rate plus an applicable margin.
The parties intend that the conveyance of receivables to the Agent, for the ratable benefit of the Purchasers will constitute a purchase and sale of receivables and not a pledge for security. The Receivables Subsidiary has guaranteed to each Purchaser and Agent the prompt payment of sold receivables, and to secure the prompt payment and performance of such guaranteed obligations, the Receivables Subsidiary has granted a security interest to the Agent, for the benefit of the Purchasers, in all assets of the Receivables Subsidiary. The assets of the Receivables Subsidiary are not available to pay our creditors or any affiliate thereof. In our capacity as master servicer under the RPA, we are responsible for administering and collecting receivables and have made customary representations, warranties, covenants and indemnities. We also provided a performance guarantee for the benefit of the Purchaser.
The proceeds of the RPA are classified as operating activities in our Consolidated Condensed Statement of Cash Flows and were used to pay off the outstanding balance of the Securitization Program. Cash received from collections of sold receivables is used by the Receivables Subsidiary to fund additional purchases of receivables on a revolving basis or to return all or any portion of outstanding capital of the Purchaser. Subsequent collections on the pledged receivables, which have not been sold, will be classified as operating cash flows at the time of collection. Total receivables sold under the RPA were $105,308 and $361,024 for the three and nine months ended July 2, 2022, respectively. Total cash collections under the RPA were $116,214 and $271,930 for the three and nine months ended July 2, 2022, respectively. The fair value of the sold receivables approximated book value due to their credit quality and short-term nature, and as a result, no gain or loss on sale of receivables was recorded.
As of July 2, 2022, the amount sold to the Purchasers was $89,094, which was derecognized from the Consolidated Condensed Balance Sheets. As collateral against sold receivables, the Receivables Subsidiary maintains a certain level of unsold receivables, which was $624,812 as of July 2, 2022.
Previously we securitized certain trade receivables in transactions that were accounted for as secured borrowings (the "Securitization Program"). We maintained a subordinated interest in a portion of the pool of trade receivables that were 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 9 - Indebtedness, for additional disclosures related to the Securitization Program.
The allowance for credit losses is based on our assessment of the collectability of customer accounts. The allowance is determined by considering factors such as historical experience, credit quality, age of the accounts receivable, current economic conditions and reasonable forecasted financial information that may affect a customer’s ability to pay.
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Note 5 - Inventories
Inventories, net of reserves, consist of:
July 2,
2022
October 2,
2021
Raw materials and purchased parts$222,215 $231,406 
Work in progress305,678 315,762 
Finished goods64,465 65,927 
Inventories, net$592,358 $613,095 
There are no material inventoried costs relating to over-time contracts where revenue is accounted for using the cost-to-cost method of accounting as of July 2, 2022 and October 2, 2021.
We have recorded impairment charges on inventory of $202 and $1,907 for the three and nine months ended July 2, 2022, respectively, associated with Russian actions in Ukraine.
Note 6 - Property, Plant and Equipment
Property, plant and equipment consists of:
July 2,
2022
October 2,
2021
Land$36,037 $35,762 
Buildings and improvements513,177 506,450 
Machinery and equipment807,369 791,984 
Computer equipment and software199,709 179,066 
Property, plant and equipment, at cost1,556,292 1,513,262 
Less accumulated depreciation and amortization(882,672)(867,484)
Property, plant and equipment, net$673,620 $645,778 
We have recorded impairment charges on property, plant and equipment totaling $454 and $15,048 for the three and nine months ended July 2, 2022, respectively, based on expected cash flows over the remaining life of the assets. These charges are associated with a slower than expected recovery of our commercial aircraft business.


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Note 7 - Leases

We lease certain manufacturing facilities, office space and machinery and equipment globally. At inception we evaluate whether a contractual arrangement contains a lease. Specifically, we consider whether we control the underlying asset and have the right to obtain substantially all the economic benefits or outputs from the asset. If the contractual arrangement contains a lease, we then determine the classification of the lease, operating or finance, using the classification criteria described in ASC 842. We then determine the term of the lease based on terms and conditions of the contractual arrangement, including whether the options to extend or terminate the lease are reasonably certain to be exercised. We have elected to not separate lease components from non-lease components, such as common area maintenance charges and instead, account for the lease and non-lease components as a single component.

Our lease right-of-use ("ROU") assets represent our right to use an underlying asset for the lease term and our lease liabilities represent our obligation to make lease payments. Operating lease ROU assets are included in Operating lease right-of-use assets and operating lease liabilities are included in Accrued liabilities and other and Other long-term liabilities on the Consolidated Condensed Balance Sheets. Finance lease ROU assets are included in Property, plant and equipment and finance lease liabilities are included in Accrued liabilities and other and Other long-term liabilities on the Consolidated Condensed Balance Sheets. Operating lease cost is included in Cost of sales and Selling, general and administrative on the Consolidated Condensed Statements of Earnings. Finance lease cost is included in Cost of sales, Selling, general and administrative and Interest on the Consolidated Condensed Statements of Earnings.

The ROU assets and lease liabilities for both operating and finance leases are recognized as of the commencement date at the net present value of the fixed minimum lease payments over the term of the lease, using the discount rate described below. Variable lease payments are recorded in the period in which the obligation for the payment is incurred. Variable lease payments based on an index or rate are initially measured using the index or rate as of the commencement date of the lease and included in the fixed minimum lease payments. For short-term leases that have a term of 12 months or less as of the commencement date, we do not recognize a ROU asset or lease liability on our balance sheet; we recognize expense as the lease payments are made over the lease term.

The discount rate used to calculate the present value of our leases is the rate implicit in the lease. If the information necessary to determine the rate implicit in the lease is not available, we use our incremental borrowing rate for collateralized debt, which is determined using our credit rating and other information available as of the lease commencement date.


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The components of lease expense were as follows:
Three Months EndedNine Months Ended
July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
Operating lease cost$7,601 $7,546 $21,759 $22,638 
Finance lease cost:
Amortization of right-of-use assets$791 $622 $2,050 $1,673 
Interest on lease liabilities289 193 753 520 
Total finance lease cost$1,080 $815 $2,803 $2,193 
Supplemental cash flow information related to leases was as follows:
Nine Months Ended
July 2,
2022
July 3,
2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow for operating leases$22,167 $21,929 
Operating cash flow for finance leases753 520 
Financing cash flow for finance leases1,779 1,588 
Assets obtained in exchange for lease obligations:
Operating leases21,793 6,139 
Finance leases10,207 3,739 
Supplemental balance sheet information related to leases was as follows:
July 2,
2022
October 2,
2021
Operating Leases
Operating lease right-of-use assets$68,800 $60,355 
Accrued liabilities and other$13,328 $14,176 
Other long-term liabilities65,751 57,277 
Total operating lease liabilities$79,079 $71,453 
Finance Leases
Property, plant, and equipment, at cost$29,040 $19,861 
Accumulated depreciation(4,862)(3,375)
Property, plant, and equipment, net$24,178 $16,486 
Accrued liabilities and other$3,033 $2,014 
Other long-term liabilities22,836 15,904 
Total finance lease liabilities$25,869 $17,918 
Weighted average remaining lease term in years
Operating leases7.8