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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 December 31, 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 January 23, 2023 was:
Class A common stock, 28,715,563 shares
Class B common stock, 3,130,993 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 Ended
(dollars in thousands, except share and per share data)December 31,
2022		January 1,
2022
Net sales$760,103 $724,086 
Cost of sales556,417 529,706 
Inventory write-down— 1,500 
Gross profit203,686 192,880 
Research and development23,862 27,708 
Selling, general and administrative113,165 111,797 
Interest13,132 7,982 
Restructuring1,078 — 
Gain on sale of businesses— (16,146)
Gain on sale of buildings(9,503)— 
Other1,651 116 
Earnings before income taxes60,301 61,423 
Income taxes14,285 15,158 
Net earnings$46,016 $46,265 
Net earnings per share
Basic$1.45 $1.44 
Diluted$1.44 $1.44 
Average common shares outstanding
Basic31,746,001 32,057,399 
Diluted31,874,718 32,188,158 
See accompanying Notes to Consolidated Condensed Financial Statements.


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Consolidated Condensed Statements of Comprehensive Income
(Unaudited)
Three Months Ended
(dollars in thousands)December 31,
2022		January 1,
2022
Net earnings$46,016 $46,265 
Other comprehensive income (loss) ("OCI"), net of tax:
Foreign currency translation adjustment50,735 (6,560)
Retirement liability adjustment1,199 4,090 
Change in accumulated income on derivatives1,919 135 
Other comprehensive income (loss), net of tax53,853 (2,335)
Comprehensive income$99,869 $43,930 
See accompanying Notes to Consolidated Condensed Financial Statements.


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Consolidated Condensed Balance Sheets
(Unaudited)
(dollars in thousands)December 31,
2022		October 1,
2022
ASSETS
Current assets
Cash and cash equivalents$143,069 $103,895 
Restricted cash22,842 15,338 
Receivables, net1,066,340 990,262 
Inventories, net648,160 588,466 
Prepaid expenses and other current assets52,772 60,349 
Total current assets1,933,183 1,758,310 
Property, plant and equipment, net689,339 668,908 
Operating lease right-of-use assets68,653 69,072 
Goodwill822,901 805,320 
Intangible assets, net85,396 85,410 
Deferred income taxes9,300 8,630 
Other assets49,273 36,191 
Total assets$3,658,045 $3,431,841 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Current installments of long-term debt$822 $916 
Accounts payable226,188 232,104 
Accrued compensation76,770 93,141 
Contract advances372,262 296,899 
Accrued liabilities and other209,624 215,376 
Total current liabilities885,666 838,436 
Long-term debt, excluding current installments916,058 836,872 
Long-term pension and retirement obligations146,919 140,602 
Deferred income taxes65,385 63,527 
Other long-term liabilities118,836 115,591 
Total liabilities2,132,864 1,995,028 
Shareholders’ equity
Common stock - Class A43,807 43,807 
Common stock - Class B7,473 7,473 
Additional paid-in capital550,511 516,123 
Retained earnings2,397,814 2,360,055 
Treasury shares(1,055,735)(1,047,012)
Stock Employee Compensation Trust(89,689)(73,602)
Supplemental Retirement Plan Trust(71,811)(58,989)
Accumulated other comprehensive loss(257,189)(311,042)
Total shareholders’ equity1,525,181 1,436,813 
Total liabilities and shareholders’ equity$3,658,045 $3,431,841 
See accompanying Notes to Consolidated Condensed Financial Statements.

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Consolidated Condensed Statements of Shareholders' Equity
(Unaudited)

  Three Months Ended
(dollars in thousands)December 31,
2022		January 1,
2022
COMMON STOCK
Beginning and end of period$51,280 $51,280 
ADDITIONAL PAID-IN CAPITAL
Beginning of period516,123 509,622 
Issuance of treasury shares2,228 1,755 
Equity-based compensation expense2,443 2,405 
Adjustment to market - SECT and SERP29,717 5,075 
End of period550,511 518,857 
RETAINED EARNINGS
Beginning of period2,360,055 2,237,848 
Net earnings46,016 46,265 
Dividends (1)
(8,257)(8,031)
End of period2,397,814 2,276,082 
TREASURY SHARES AT COST
Beginning of period(1,047,012)(1,007,506)
Class A and B shares issued related to compensation1,724 1,077 
Class A and B shares purchased(10,447)(16,657)
End of period(1,055,735)(1,023,086)
STOCK EMPLOYEE COMPENSATION TRUST ("SECT")
Beginning of period(73,602)(79,776)
Issuance of shares2,561 2,075 
Purchase of shares(1,753)(2,275)
Adjustment to market(16,895)(2,745)
End of period(89,689)(82,721)
SUPPLEMENTAL RETIREMENT PLAN ("SERP") TRUST
Beginning of period(58,989)(63,764)
Adjustment to market(12,822)(2,330)
End of period(71,811)(66,094)
ACCUMULATED OTHER COMPREHENSIVE LOSS
Beginning of period(311,042)(247,560)
Other comprehensive income (loss)53,853 (2,335)
End of period(257,189)(249,895)
TOTAL SHAREHOLDERS’ EQUITY$1,525,181 $1,424,423 
See accompanying Notes to Consolidated Condensed Financial Statements.
(1) Cash dividends were $0.26 per share for the three months ended December 31, 2022 and $0.25 per share for three months ended January 1, 2022.
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Consolidated Condensed Statements of Shareholders’ Equity, Shares
(Unaudited)
  Three Months Ended
(share data)December 31,
2022		January 1,
2022
COMMON STOCK - CLASS A
Beginning and end of period43,806,835 43,803,236 
COMMON STOCK - CLASS B
Beginning and end of period7,472,878 7,476,477 
TREASURY SHARES - CLASS A COMMON STOCK
Beginning of period(14,614,444)(14,157,721)
Class A shares issued related to compensation35,550 22,042 
Class A shares purchased(87,614)(190,439)
End of period(14,666,508)(14,326,118)
TREASURY SHARES - CLASS B COMMON STOCK
Beginning of period(3,020,291)(3,179,055)
Class B shares issued related to compensation72,740 58,338 
Class B shares purchased(44,350)(33,550)
End of period(2,991,901)(3,154,267)
SECT - CLASS A COMMON STOCK
Beginning and end of period(425,148)(425,148)
SECT - CLASS B COMMON STOCK
Beginning of period(611,942)(600,880)
Issuance of shares30,069 25,000 
Purchase of shares(20,727)(27,827)
End of period(602,600)(603,707)
SERP - CLASS B COMMON STOCK
Beginning and end of period(826,170)(826,170)
See accompanying Notes to Consolidated Condensed Financial Statements.

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Consolidated Condensed Statements of Cash Flows
(Unaudited)

Three Months Ended
(dollars in thousands)December 31,
2022		January 1,
2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings$46,016 $46,265 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation18,392 19,290 
Amortization2,992 3,402 
Deferred income taxes(1,342)7,895 
Equity-based compensation expense2,974 2,658 
Gain on sale of businesses— (16,146)
Gain on sale of buildings(9,503)— 
Inventory write-down— 1,500 
Other1,145 699 
Changes in assets and liabilities providing (using) cash:
Receivables(53,957)38,941 
Inventories(44,435)7,179 
Accounts payable(9,679)(20,833)
Contract advances72,889 105,548 
Accrued expenses(35,186)(26,914)
Accrued income taxes12,632 5,173 
Net pension and post retirement liabilities 3,988 4,501 
Other assets and liabilities1,157 (21,973)
Net cash provided by operating activities8,083 157,185 
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment(30,125)(37,059)
Net proceeds from businesses sold1,124 38,611 
Net proceeds from buildings sold7,432 — 
Other investing transactions(3,724)(1,275)
Net cash provided (used) by investing activities(25,293)277 
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving lines of credit241,000 215,200 
Payments on revolving lines of credit(160,300)(263,476)
Payments on long-term debt(93)(80,060)
Payments on finance lease obligations(884)(505)
Payment of dividends (8,257)(8,031)
Proceeds from sale of treasury stock1,869 2,144 
Purchase of outstanding shares for treasury(12,721)(16,657)
Proceeds from sale of stock held by SECT2,561 2,075 
Purchase of stock held by SECT(1,753)(2,275)
Other financing transactions(2,026)— 
Net cash provided (used) by financing activities59,396 (151,585)
Effect of exchange rate changes on cash4,492 (65)
Increase in cash, cash equivalents and restricted cash46,678 5,812 
Cash, cash equivalents and restricted cash at beginning of period119,233 100,914 
Cash, cash equivalents and restricted cash at end of period$165,911 $106,726 
SUPPLEMENTAL CASH FLOW INFORMATION
Treasury shares issued as compensation$1,532 $688 
Equipment and property acquired through lease financing5,970 8,755 
See accompanying Notes to Consolidated Condensed Financial Statements.
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Notes to Consolidated Condensed Financial Statements
Three Months Ended December 31, 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 months ended December 31, 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 1, 2022. All references to years in these financial statements are to fiscal years.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year's presentation, which management does not consider to be material.
Recent Accounting Pronouncements Adopted

There have been no accounting pronouncements adopted for the three months ended December 31, 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 the 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 months ended December 31, 2022 and January 1, 2022, we recognized lower revenue of $4,300 and additional revenue of $10,978, 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 months ended December 31, 2022.

As of December 31, 2022, we had contract reserves of $43,739. 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:
December 31,
2022		October 1, 2022
Unbilled receivables$645,234 $614,760 
Contract advances372,262 296,899 
Net contract assets$272,972 $317,861 

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 months ended December 31, 2022, we recognized $88,799 of revenue, that was included in the contract liability balance at the beginning of the period.

Remaining Performance Obligations
As of December 31, 2022, the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) was $5,200,000. 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 20 - 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 $14,885, consisting of $11,832 in cash and contingent consideration with an initial fair value of $3,053. TEAM specializes in Maintenance, Repair and Overhaul 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.
Divestitures
On September 30, 2022, we sold a sonar business based in the United Kingdom previously included in our Industrial Systems segment. We have cumulatively received net proceeds of $13,075 and recorded a loss of $15,246, net of transaction costs. An immaterial adjustment to the loss was recorded during the three months ended December 31, 2022.
On September 20, 2022, we sold assets of a security business based in Northbrook, Illinois previously included in our Space and Defense Controls segment. We have cumulatively received net proceeds of $9,273 and recorded a loss of $4,112, net of transaction costs. The loss is subject to adjustments associated with amounts currently held in escrow.
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 have cumulatively received net proceeds of $36,550 and recorded a gain of $16,146, net of transaction costs. The gain is subject to adjustments associated with amounts currently held in escrow.

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Note 4 - Receivables
Receivables consist of:
December 31,
2022		October 1,
2022
Accounts receivable$399,705 $363,137 
Unbilled receivables645,234 614,760 
Other26,149 16,973 
Less allowance for credit losses(4,748)(4,608)
Receivables, net$1,066,340 $990,262 
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 and cash collections under the RPA were both $115,042 for the three months ended December 31, 2022. 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 December 31, 2022, the amount sold to the Purchasers was $100,000, which was derecognized from the Consolidated Condensed Balance Sheets. As collateral against sold receivables, the Receivables Subsidiary maintains a certain level of unsold receivables, which was $730,504 at December 31, 2022.
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:
December 31,
2022		October 1,
2022
Raw materials and purchased parts$250,228 $219,893 
Work in progress325,718 305,328 
Finished goods72,214 63,245 
Inventories, net$648,160 $588,466 
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 December 31, 2022 and October 1, 2022.
Note 6 - Property, Plant and Equipment
Property, plant and equipment consists of:
December 31,
2022		October 1,
2022
Land$29,714 $32,164 
Buildings and improvements515,862 502,050 
Machinery and equipment816,689 786,562 
Computer equipment and software211,985 201,960 
Property, plant and equipment, at cost1,574,250 1,522,736 
Less accumulated depreciation and amortization(884,911)(853,828)
Property, plant and equipment, net$689,339 $668,908 
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.





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

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

The components of lease expense were as follows:
Three Months Ended
December 31,
2022		January 1,
2022
Operating lease cost$7,395 $6,940 
Finance lease cost:
Amortization of right-of-use assets$972 $587 
Interest on lease liabilities364 217 
Total finance lease cost$1,336 $804 
Supplemental cash flow information related to leases was as follows:
Three Months Ended
December 31,
2022		January 1,
2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow for operating leases$7,531 $7,239 
Operating cash flow for finance leases364 217 
Financing cash flow for finance leases884 505 
Assets obtained in exchange for lease obligations:
Operating leases$1,086 $6,008 
Finance leases4,884 2,747 



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Supplemental balance sheet information related to leases was as follows:
December 31,
2022		October 1,
2022
Operating Leases:
Operating lease right-of-use assets$68,653 $69,072 
Accrued liabilities and other$12,939 $13,002 
Other long-term liabilities65,800 66,167 
Total operating lease liabilities$78,739 $79,169 
Finance Leases:
Property, plant, and equipment, at cost$36,115 $30,614 
Accumulated depreciation(6,728)(5,606)
Property, plant, and equipment, net$29,387 $25,008 
Accrued liabilities and other$3,903 $3,244 
Other long-term liabilities27,352 23,529 
Total finance lease liabilities$31,255 $26,773 
Weighted average remaining lease term in years:
Operating leases7.67.7
Finance leases15.616.7
Weighted average discount rates:
Operating leases5.1 %5.0 %
Finance leases5.1 %4.8 %
Maturities of lease liabilities were as follows:
 December 31, 2022
Operating LeasesFinance Leases
2023$12,602 $4,021 
202414,525 5,348 
202512,339 5,167 
202611,291 4,884 
202710,074 4,131 
Thereafter36,953 29,346 
Total lease payments97,784 52,897 
Less: imputed interest(19,045)(21,642)
Total$78,739 $31,255 


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Note 8 - 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 October 1, 2022$199,519 $259,407 $346,394 $805,320 
Foreign currency translation3,825 62 13,694 17,581 
Balance at December 31, 2022$203,344 $259,469 $360,088 $822,901 
Goodwill in our Space and Defense Controls segment is net of a $4,800 accumulated impairment loss at December 31, 2022. Goodwill in our Medical Devices reporting unit, included in our Industrial Systems segment, is net of a $38,200 accumulated impairment loss at December 31, 2022.
The components of intangible assets are as follows:
December 31, 2022October 1, 2022
  Weighted-
Average
Life (years)		Gross Carrying
Amount		Accumulated
Amortization		Gross Carrying
Amount		Accumulated
Amortization
Customer-related11$139,068 $(91,325)$135,899 $(88,179)
Technology-related971,334 (54,811)69,856 (52,951)
Program-related2337,250 (20,296)35,305 (18,817)
Marketing-related822,328 (18,371)21,925 (17,833)
Other101,848 (1,629)1,693 (1,488)
Intangible assets12$271,828 $(186,432)$264,678 $(179,268)
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 is as follows:
Three Months Ended
December 31, 2022January 1, 2022
Acquired intangible asset amortization$2,987 $3,398 
Based on acquired intangible assets recorded at December 31, 2022, amortization is estimated to be approximately:
20232024202520262027
Estimated future amortization of acquired intangible assets$11,700 $10,900 $9,800 $9,600 $8,600 


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Note 9 - Equity Method Investments and Joint Ventures
Investments and operating results in which we do not have a controlling interest, however we do have the ability to exercise significant influence over operations are accounted for using the equity method of accounting. Equity method investments and joint ventures consists of:

December 31, 2022
Net investment balanceIncome (loss) for the three months ended
Moog Aircraft Service Asia$1,056 $(128)
NOVI LLC609 — 
Suffolk Technologies Fund 1, L.P.851 (77)
Total$2,516 $(205)

Net investment balances are included as Other assets in the Consolidated Condensed Balance Sheets. Income (loss) from equity method investments and joint ventures is included in Other in the Consolidated Condensed Statements of Earnings.
Moog Aircraft Services Asia ("MASA") is a joint venture included in our Aircraft Controls segment in which we currently hold a 51% ownership share. MASA is intended to provide maintenance, repair and overhaul services for our manufactured flight control systems.
We hold a 42.5% ownership interest in NOVI LLC ("NOVI") that is included in our Space and Defense Controls segment. NOVI specializes in applying machine learning algorithms to space situational awareness.
Suffolk Technologies Fund 1, L.P., is a limited partnership included in our Industrial Systems segment that invests in startups to transform the construction, real estate and property maintenance industries in the U.S. We have a remaining on-call capital commitment of up to $6,976.
Hybrid Motion Solutions (“HMS”) is a joint venture in our Industrial Systems segment in which we hold a 50% ownership interest. HMS specializes in hydrostatic servo drives and leverages synergies to enter new markets. The joint venture focuses on research and development, design and assembly as well as service. Our share of cumulative losses to date has exceeded our initial investment, and as such, we had no net investment balance recorded as of December 31, 2022. In addition to the investment, we have also loaned HMS $2,654 that is included as Other assets in the Consolidated Condensed Balance Sheet.
Investments in, and the operating results of, entities in which we do not have a controlling financial interest or the ability to exercise significant influence over the operations are accounted for using the cost method of accounting. As of December 31, 2022 we had cost method investments of $9,730, which are included as Other assets in the Consolidated Condensed Balance Sheets.


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Note 10 - 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 31,
2022		October 1,
2022
U.S. revolving credit facility$399,000 $321,300 
SECT revolving credit facility23,000 20,000 
Senior notes 4.25%500,000 500,000 
Other long-term debt822 916 
Senior debt922,822 842,216 
Less deferred debt issuance cost(5,942)(4,428)
Less current installments(822)(916)
Long-term debt$916,058 $836,872 
On October 27, 2022, we amended our U.S. revolving credit facility, which extended the maturity date of the credit facility from October 15, 2024 to October 27, 2027. The credit facility has a capacity of $1,100,000 and provides an expansion option, which permits us to request an increase of up to $400,000 to the credit facility upon satisfaction of certain conditions. Interest on the majority of our outstanding borrowings is principally based on SOFR plus the applicable margin. 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, 2024. Interest is based on LIBOR plus an applicable margin. A commitment fee is also charged based on a percentage of the unused amounts available and is not material.
We have $500,000 aggregate principal amount of 4.25% senior notes due December 15, 2027 with interest paid semiannually on June 15 and December 15 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. We are in compliance with all covenants.



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Note 11 - Other Accrued Liabilities
Other accrued liabilities consists of:
December 31,
2022		October 1, 2022
Employee benefits$54,090 $56,136 
Contract reserves43,739 46,547 
Warranty accrual 22,429 23,072 
Accrued income taxes24,223 17,776 
Other65,143 71,845 
Other accrued liabilities$209,624 $215,376 
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 31,
2022		January 1,
2022
Warranty accrual at beginning of period$23,072 $26,602 
Warranties issued during current period1,958 565 
Adjustments to pre-existing warranties(214)(24)
Reductions for settling warranties(2,805)(1,715)
Divestiture adjustment— (330)
Foreign currency translation418 (72)
Warranty accrual at end of period$22,429 $25,026 
Note 12 - Derivative Financial Instruments
We principally use derivative financial instruments to manage foreign exchange risk related to foreign operations and foreign currency transactions and interest rate risk associated with long-term debt. We enter into derivative financial instruments with a number of major financial institutions to minimize counterparty credit risk.
Derivatives designated as hedging instruments
We use foreign currency contracts as cash flow hedges to effectively fix the exchange rates on future payments and revenue. To mitigate exposure in movements between various currencies, including the Philippine peso and the British pound, we had outstanding foreign currency contracts with notional amounts of $22,572 at December 31, 2022. These contracts mature at various times through March 1, 2024.
We use forward currency contracts to hedge our net investment in certain foreign subsidiaries. As of December 31, 2022, we had no outstanding net investment hedges.
Interest rate swaps are used to adjust the proportion of total debt that is subject to variable and fixed interest rates. The interest rate swaps are designated as hedges of the amount of future cash flows related to interest payments on variable-rate debt that, in combination with the interest payments on the debt, convert a portion of the variable-rate debt to fixed-rate debt. At December 31, 2022, we had no outstanding interest rate swaps.
Foreign currency contracts, net investment hedges and interest rate swaps 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 foreign currency contracts and interest rate swaps 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 three months of 2023 or 2022.


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Derivatives not designated as hedging instruments
We also have foreign currency exposure on balances, primarily intercompany, that are denominated in a foreign currency 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 have foreign currency contracts with notional amounts of $89,000 at December 31, 2022. 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 and 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
Statements of Earnings locationDecember 31,
2022		January 1,
2022
Net gain (loss)
Foreign currency contractsOther$3,955 $(1,904)
Summary of derivatives
The fair value and classification of derivatives is summarized as follows:
Balance Sheets locationDecember 31,
2022		October 1,
2022
Derivatives designated as hedging instruments:
Foreign currency contractsOther current assets$693 $562 
Foreign currency contractsOther assets97 165 
 Total asset derivatives$790 $727 
Foreign currency contractsAccrued liabilities and other$1,991 $3,877 
Foreign currency contractsOther long-term liabilities190 751