Recent Accounting Pronouncements Adopted
|
|
|
|
|
|
Standard
|
|
Description
|
|
Financial Statement Effect or Other Significant Matters
|
ASU no. 2014-09
Revenue from Contracts with Customers
(and all related ASUs)
|
|
The standard requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The provisions of the standard, as well as all subsequently issued clarifications to the standard, are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The standard can be adopted using either a full retrospective or modified retrospective approach.
|
|
We adopted this standard using the modified retrospective method, under which prior years' results are not restated, but supplemental information is provided in our disclosures to present 2019 results before effect of the standard. In addition, a cumulative adjustment was made to shareholders' equity at the beginning of 2019. Supplemental information is provided in our disclosures to present 2019 results before effect of the standard.
|
|
ASU no. 2017-07
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
|
|
The standard amends existing guidance on the presentation of net periodic benefit cost in the income statement and what qualifies for capitalization on the balance sheet. The provisions of the standard are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual period. The amendment requires income statement presentation provisions to be applied retrospectively and capitalization in assets provisions to be applied prospectively.
|
|
We adopted this standard retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the Consolidated Condensed Statement of Earnings. Supplemental information is provided in our disclosures to present 2018 results before effect of the standard.
|
|
Date adopted:
Q1 2019
|
Recent Accounting Pronouncements Not Yet Adopted
|
|
|
|
|
|
Standard
|
|
Description
|
|
Financial Statement Effect or Other Significant Matters
|
ASU no. 2016-02
Leases
(and all related ASUs)
|
|
The standard requires most lease arrangements to be recognized in the balance sheet as lease assets and lease liabilities. The standard also requires additional disclosures about the leasing arrangements. The provisions of the standard are effective for fiscal years beginning after December 15, 2018 and interim periods within those years. Early adoption is permitted.
|
|
We 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.
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 tables below represent the impact of the adoption of ASC 606 on the Consolidated Condensed Statement of Earnings for the
three and six months ended
March 30, 2019
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Under ASC 605
|
|
Effect of ASC 606
|
|
As Reported Under ASC 606
|
Net sales
|
|
$
|
704,600
|
|
|
$
|
14,211
|
|
|
$
|
718,811
|
|
Cost of sales
|
|
511,889
|
|
|
9,521
|
|
|
521,410
|
|
Gross profit
|
|
192,711
|
|
|
4,690
|
|
|
197,401
|
|
Earnings before income taxes
|
|
50,928
|
|
|
4,690
|
|
|
55,618
|
|
Income taxes
|
|
12,025
|
|
|
1,234
|
|
|
13,259
|
|
Net earnings
|
|
$
|
38,903
|
|
|
$
|
3,456
|
|
|
$
|
42,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Under ASC 605
|
|
Effect of ASC 606
|
|
As Reported Under ASC 606
|
Net sales
|
|
$
|
1,381,934
|
|
|
$
|
16,553
|
|
|
$
|
1,398,487
|
|
Cost of sales
|
|
989,768
|
|
|
11,816
|
|
|
1,001,584
|
|
Gross profit
|
|
392,166
|
|
|
4,737
|
|
|
396,903
|
|
Earnings before income taxes
|
|
109,065
|
|
|
4,737
|
|
|
113,802
|
|
Income taxes
|
|
26,128
|
|
|
1,246
|
|
|
27,374
|
|
Net earnings
|
|
$
|
82,937
|
|
|
$
|
3,491
|
|
|
$
|
86,428
|
|
The table below represents the impact of the adoption of ASC 606 on the Consolidated Condensed Balance Sheet as of
March 30, 2019
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under ASC 605
|
|
Effect of ASC 606
|
|
As Reported Under ASC 606
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Receivables
|
|
$
|
792,124
|
|
|
$
|
106,677
|
|
|
$
|
898,801
|
|
Inventories
|
|
568,287
|
|
|
(79,220
|
)
|
|
489,067
|
|
Total current assets
|
|
1,519,712
|
|
|
27,457
|
|
|
1,547,169
|
|
Deferred income taxes
|
|
15,776
|
|
|
(105
|
)
|
|
15,671
|
|
Total assets
|
|
3,005,605
|
|
|
27,352
|
|
|
3,032,957
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Contract advances
|
|
$
|
169,349
|
|
|
$
|
487
|
|
|
$
|
169,836
|
|
Contract and contract-related loss reserves
|
|
47,223
|
|
|
2,160
|
|
|
49,383
|
|
Other accrued liabilities
|
|
114,728
|
|
|
2,366
|
|
|
117,094
|
|
Total current liabilities
|
|
683,079
|
|
|
5,013
|
|
|
688,092
|
|
Deferred income taxes
|
|
49,658
|
|
|
3,614
|
|
|
53,272
|
|
Total liabilities
|
|
1,709,888
|
|
|
8,627
|
|
|
1,718,515
|
|
Shareholders’ equity
|
|
|
|
|
|
|
Retained earnings
|
|
2,039,021
|
|
|
18,414
|
|
|
2,057,435
|
|
Accumulated other comprehensive loss
|
|
(370,692
|
)
|
|
311
|
|
|
(370,381
|
)
|
Total shareholders’ equity
|
|
1,295,717
|
|
|
18,725
|
|
|
1,314,442
|
|
Total liabilities and shareholders’ equity
|
|
3,005,605
|
|
|
27,352
|
|
|
3,032,957
|
|
The tables below represent the impact of the adoption of ASU 2017-07 on the Consolidated Condensed Statement of Earnings for the
three and six months ended
March 31, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
As Reported,
March 31, 2018
|
|
Impact of Adoption
|
|
As Adjusted,
March 31, 2018
|
Cost of sales
|
|
$
|
489,071
|
|
|
$
|
(283
|
)
|
|
$
|
488,788
|
|
Gross profit
|
|
192,649
|
|
|
283
|
|
|
192,932
|
|
Research and development
|
|
34,085
|
|
|
(90
|
)
|
|
33,995
|
|
Selling, general and administrative
|
|
99,999
|
|
|
(1,334
|
)
|
|
98,665
|
|
Other
|
|
(251
|
)
|
|
1,707
|
|
|
1,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
As Reported,
March 31, 2018
|
|
Impact of Adoption
|
|
As Adjusted,
March 31, 2018
|
Cost of sales
|
|
$
|
932,497
|
|
|
$
|
(559
|
)
|
|
$
|
931,938
|
|
Gross profit
|
|
376,758
|
|
|
559
|
|
|
377,317
|
|
Research and development
|
|
66,505
|
|
|
(176
|
)
|
|
66,329
|
|
Selling, general and administrative
|
|
195,949
|
|
|
(2,665
|
)
|
|
193,284
|
|
Other
|
|
(992
|
)
|
|
3,400
|
|
|
2,408
|
|
The tables below represent the impact of the adoption of ASU 2017-07 on operating profit and deductions from operating profit for the
three and six months ended
March 31, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
As Reported,
March 31, 2018
|
|
Impact of Adoption
|
|
As Adjusted,
March 31, 2018
|
Operating profit (loss):
|
|
|
|
|
|
|
Aircraft Controls
|
|
$
|
33,480
|
|
|
$
|
313
|
|
|
$
|
33,793
|
|
Space and Defense Controls
|
|
16,841
|
|
|
201
|
|
|
17,042
|
|
Industrial Systems
|
|
(6,050
|
)
|
|
622
|
|
|
(5,428
|
)
|
Total operating profit
|
|
$
|
44,271
|
|
|
$
|
1,136
|
|
|
$
|
45,407
|
|
Deductions from operating profit:
|
|
|
|
|
|
|
Non-service pension expense
|
|
$
|
—
|
|
|
$
|
1,707
|
|
|
$
|
1,707
|
|
Corporate and other expenses, net
|
|
$
|
8,014
|
|
|
$
|
(571
|
)
|
|
$
|
7,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
As Reported,
March 31, 2018
|
|
Impact of Adoption
|
|
As Adjusted,
March 31, 2018
|
Operating profit (loss):
|
|
|
|
|
|
|
Aircraft Controls
|
|
$
|
64,248
|
|
|
$
|
588
|
|
|
$
|
64,836
|
|
Space and Defense Controls
|
|
33,130
|
|
|
385
|
|
|
33,515
|
|
Industrial Systems
|
|
13,196
|
|
|
1,287
|
|
|
14,483
|
|
Total operating profit
|
|
$
|
110,574
|
|
|
$
|
2,260
|
|
|
$
|
112,834
|
|
Deductions from operating profit:
|
|
|
|
|
|
|
Non-service pension expense
|
|
$
|
—
|
|
|
$
|
3,400
|
|
|
$
|
3,400
|
|
Corporate and other expenses, net
|
|
$
|
15,836
|
|
|
$
|
(1,140
|
)
|
|
$
|
14,696
|
|
Note 2 - Revenue from Contracts with Customers
We recognize revenue from contracts with customers using the five-step model prescribed in ASC 606. The first step is identifying the contract. The identification of a contract with a customer requires an assessment of each party’s rights and obligations regarding the products or services to be transferred, including an evaluation of termination clauses and presently enforceable rights and obligations. Each party’s rights and obligations and the associated terms and conditions are typically determined in purchase orders. For sales that are governed by master supply agreements under which provisions define specific program requirements, purchase orders are issued under these agreements to reflect presently enforceable rights and obligations for the units of products and services being purchased.
Contracts are sometimes modified to account for changes in contract specifications and requirements. When this occurs, we assess the modification as prescribed in ASC 606 and determine whether the existing contract needs to be modified (and revenue cumulatively caught up), whether the existing contract needs to be terminated and a new contract needs to be created, or whether the existing contract remains and a new contract needs to be created. This is determined based on the rights and obligations within the modification as well as the associated transaction price.
The next step is identifying the performance obligations. A performance obligation is a promise to transfer goods or services to a customer that is distinct in the context of the contract, as defined by ASC 606. We identify a performance obligation for each promise in a contract to transfer a distinct good or service to the customer. As part of our assessment, we consider all goods and/or services promised in the contract, regardless of whether they are explicitly stated or implied by customary business practices. The products and services in our contracts are typically not distinct from one another due to their complexity and reliance on each other or, in many cases, we provide a significant integration service. Accordingly, many of our contracts are accounted for as one performance obligation. In limited cases, our contracts have more than one distinct performance obligation, which occurs when we perform activities that are not highly complex or interrelated or involve different product life cycles. Warranties are provided on certain contracts, but do not typically provide for services beyond standard assurances and are therefore not distinct performance obligations under ASC 606.
The third step is determining the transaction price, which represents the amount of consideration we expect to be entitled to receive from a customer in exchange for providing the goods or services. There are times when this consideration is variable, for example a volume discount, and must be estimated. Sales, use, value-added, and excise taxes are excluded from the transaction price, where applicable.
The fourth step is allocating the transaction price. The transaction price must be allocated to the performance obligations identified in the contract based on relative stand-alone selling prices when available, or an estimate for each distinct good or service in the contract when standalone prices are not available. Our contracts with customers generally require payment under normal commercial terms after delivery. Payment terms are typically within
30
to
60 days
of delivery. The timing of satisfaction of our performance obligations does not significantly vary from the typical timing of payment.
The final step is the recognition of revenue. We recognize revenue as the performance obligations are satisfied. ASC 606 provides guidance to help determine if we are satisfying the performance obligation at a point in time or over time. In determining when performance obligations are satisfied, we consider factors such as contract terms, payment terms and whether there is an alternative use of the product or service. In essence, we recognize revenue when or as control of the promised goods or services transfer to the customer.
Under ASC 606, revenue recognized over time using the cost-to-cost method of accounting for the
three and six months ended
March 30, 2019
was
65%
and
64%
, respectively. The over time method of revenue recognition is predominantly used in Aircraft Controls and Space and Defense Controls. We use this method for U.S. Government contracts and repair and overhaul arrangements as we are creating or enhancing assets that the customer controls as the assets are being created or enhanced. In addition, many of our large commercial contracts qualify for over time 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. 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 six months ended
March 30, 2019
, we recognized lower revenues of
$1,321
and higher revenues of
$10,438
, 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 six months ended
March 30, 2019
.
As of
March 30, 2019
, we had contract and contract-related loss reserves of
$49,383
. 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 and six months ended
March 30, 2019
,
35%
and
36%
of revenue, respectively, was recognized at the point in time control transferred to the customer. This method of revenue recognition is used most frequently in Industrial Systems. We use this method for commercial contracts in which the asset being created has an alternative use. We determine the point in time control transfers to the customer by weighing the five indicators provided by ASC 606 - the entity has a present right to payment; the customer has legal title; the customer has physical possession; the customer has the significant risks and rewards of ownership; and the customer has accepted the asset. When control has transferred to the customer, profit is generated as cost of sales is recorded and as revenue is recognized. Inventory costs include all product manufacturing costs such as direct material, direct labor, other direct costs and indirect overhead cost allocations. Shipping and handling costs are considered costs to fulfill a contract and not considered performance obligations. They are included in cost of sales as incurred.
Contract Assets and Liabilities
Unbilled receivables (contract assets) primarily represent revenues recognized for performance obligations that have been satisfied but for which amounts have not been billed. These are included as Receivables on the Consolidated Condensed Balance Sheets. Contract advances (contract liabilities) relate to payments received from customers in advance of the satisfaction of performance obligations for a contract. We do not consider contract advances to be significant financing components as the intent of these payments in advance are for reasons other than providing a significant financing benefit and are customary in our industry.
Total contract assets and contract liabilities as of
March 30, 2019
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
March 30, 2019
|
|
September 30, 2018
|
Unbilled receivables
|
|
$
|
430,901
|
|
|
$
|
405,610
|
|
Contract advances
|
|
169,836
|
|
|
152,608
|
|
Net contract assets
|
|
$
|
261,065
|
|
|
$
|
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
three and six months ended
March 30, 2019
, we recognized
$46,078
and
$93,586
of revenue, respectively, that was included in the contract liability balance at the beginning of the period.
Remaining Performance Obligations
As of
March 30, 2019
, the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied), also known as backlog, was approximately
$2,230,000
. We expect to recognize approximately
73%
of that amount as sales over the next
twelve months
and the balance thereafter.
Disaggregation of Revenue
See Note 17, Segments, for disclosures related to disaggregation of revenue.
Note 3 - Acquisitions, Divestitures and Equity Method Investments
In the first quarter of 2019, we sold a non-core business of our Industrial Systems segment for
$4,191
in cash and recorded a gain in other income of
$2,641
.
On April 30, 2018, we acquired Electro-Optical Imaging, a designer and manufacturer of video trackers and imaging products, located in Florida, for a purchase price, net of acquired cash, of
$5,442
. This operation is included in our Space and Defense Controls segment.
On March 29, 2018, we acquired a
100%
ownership interest in VUES Brno s.r.o ("Vues") located in the Czech Republic, which included a
74%
ownership interest in a subsidiary located in Germany. The purchase price, net of acquired cash, was
$64,140
, consisting of
$42,961
in cash and
$21,179
of assumed debt. VUES designs and manufactures electric motors and generators, and provides customized solutions. On September 6, 2018, we acquired the remaining
26%
noncontrolling interest for
$1,843
in cash. The difference between the cash paid and the adjustment to the noncontrolling interest is reflected in additional paid-in capital. This operation is included in our Industrial Systems segment. The purchase price allocations for this acquisition are complete.
On October 3, 2017, we, in collaboration with SIA Engineering Company, announced the joint venture company, Moog Aircraft Services Asia ("MASA"), in Singapore, of which we currently hold a
51%
ownership. MASA is intended to provide maintenance, repair and overhaul services for our manufactured flight control systems. As we hold a majority ownership in MASA, but share voting control, we are accounting for this investment using the equity method. As of
March 30, 2019
, we have made total contributions of
$5,100
. This operation is included in our Aircraft Controls segment.
Note 4 - Receivables
Receivables consist of:
|
|
|
|
|
|
|
|
|
|
|
|
March 30,
2019
|
|
September 29,
2018
|
Accounts receivable
|
|
$
|
240,180
|
|
|
$
|
295,180
|
|
Long-term contract receivables:
|
|
|
|
|
Billed receivables
|
|
210,464
|
|
|
156,414
|
|
Unbilled receivables
|
|
430,901
|
|
|
316,489
|
|
Total long-term contract receivables
|
|
641,365
|
|
|
472,903
|
|
Other
|
|
21,900
|
|
|
30,787
|
|
Less allowance for doubtful accounts
|
|
(4,644
|
)
|
|
(4,959
|
)
|
Receivables
|
|
$
|
898,801
|
|
|
$
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
March 30,
2019
|
|
September 29,
2018
|
Raw materials and purchased parts
|
|
$
|
173,916
|
|
|
$
|
197,071
|
|
Work in progress
|
|
244,948
|
|
|
240,885
|
|
Finished goods
|
|
70,203
|
|
|
74,566
|
|
Inventories
|
|
$
|
489,067
|
|
|
$
|
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
March 30, 2019
or
September 29, 2018
.
Note 6 - Goodwill and Intangible Assets
The changes in the carrying amount of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft
Controls
|
Space and
Defense
Controls
|
Industrial
Systems
|
Total
|
Balance at September 29, 2018
|
$
|
179,907
|
|
$
|
261,732
|
|
$
|
355,578
|
|
$
|
797,217
|
|
Divestitures
|
—
|
|
—
|
|
(1,237
|
)
|
(1,237
|
)
|
Foreign currency translation
|
(32
|
)
|
(1
|
)
|
(4,549
|
)
|
(4,582
|
)
|
Balance at March 30, 2019
|
$
|
179,875
|
|
$
|
261,731
|
|
$
|
349,792
|
|
$
|
791,398
|
|
Goodwill in our Space and Defense Controls segment is net of a
$4,800
accumulated impairment loss at
March 30, 2019
.
Goodwill in our Medical Devices reporting unit, included in our Industrial Systems segment, is net of a
$38,200
accumulated impairment loss at
March 30, 2019
.
The components of intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 30, 2019
|
|
September 29, 2018
|
|
|
Weighted-
Average
Life (years)
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
Customer-related
|
|
11
|
|
$
|
134,124
|
|
|
$
|
(98,531
|
)
|
|
$
|
135,379
|
|
|
$
|
(96,090
|
)
|
Technology-related
|
|
9
|
|
69,771
|
|
|
(51,081
|
)
|
|
69,393
|
|
|
(49,731
|
)
|
Program-related
|
|
19
|
|
64,955
|
|
|
(35,627
|
)
|
|
64,988
|
|
|
(33,740
|
)
|
Marketing-related
|
|
8
|
|
23,418
|
|
|
(19,518
|
)
|
|
23,489
|
|
|
(18,868
|
)
|
Other
|
|
10
|
|
4,164
|
|
|
(3,586
|
)
|
|
4,305
|
|
|
(3,588
|
)
|
Intangible assets
|
|
12
|
|
$
|
296,432
|
|
|
$
|
(208,343
|
)
|
|
$
|
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
$3,402
and
$7,085
for the
three and six months ended
March 30, 2019
and
$4,671
and
$9,271
for the
three and six months ended
March 31, 2018
. Based on acquired intangible assets recorded at
March 30, 2019
, amortization is expected to be approximately
$13,300
in
2019
,
$11,600
in
2020
,
$9,700
in
2021
,
$8,100
in
2022
and
$7,300
in
2023
.
Note 7 - Indebtedness
We maintain short-term line of credit facilities with banks throughout the world that are principally demand lines subject to revision by the banks.
Long-term debt consists of:
|
|
|
|
|
|
|
|
|
|
|
|
March 30,
2019
|
|
September 29,
2018
|
U.S. revolving credit facility
|
|
$
|
392,000
|
|
|
$
|
430,000
|
|
SECT revolving credit facility
|
|
4,000
|
|
|
—
|
|
Senior notes
|
|
300,000
|
|
|
300,000
|
|
Securitization program
|
|
130,000
|
|
|
130,000
|
|
Obligations under capital leases
|
|
870
|
|
|
918
|
|
Senior debt
|
|
826,870
|
|
|
860,918
|
|
Less deferred debt issuance cost
|
|
(863
|
)
|
|
(1,717
|
)
|
Less current installments
|
|
(315
|
)
|
|
(365
|
)
|
Long-term debt
|
|
$
|
825,692
|
|
|
$
|
858,836
|
|
Our U.S. revolving credit facility matures on
June 28, 2021
. Our U.S. revolving credit facility has a capacity of
$1,100,000
and provides an expansion option, which permits us to request an increase of up to
$200,000
to the credit facility upon satisfaction of certain conditions. The credit facility is secured by substantially all of our U.S. assets. The loan agreement contains various covenants which, among others, specify interest coverage and maximum leverage. We are in compliance with all covenants.
The SECT has a revolving credit facility with a borrowing capacity of
$35,000
, maturing on July 26, 2020. Interest is based on LIBOR plus an applicable margin. A commitment fee is also charged based on a percentage of the unused amounts available and is not material.
At
March 30, 2019
, we had
$300,000
principal amount of
5.25%
senior notes due
December 1, 2022
with interest paid semiannually on
June 1
and
December 1
of each year. The senior notes are unsecured obligations, guaranteed on a senior unsecured basis by certain subsidiaries and contain normal incurrence-based covenants and limitations such as the ability to incur additional indebtedness, pay dividends, make other restricted payments and investments, create liens and certain corporate acts such as mergers and consolidations.
The Securitization Program, effectively increasing our borrowing capacity by up to
$130,000
, was extended on October 30, 2018 and now matures on
October 30, 2020
. Under the Securitization Program, we sell certain trade receivables and related rights to an affiliate, which in turn sells an undivided variable percentage ownership interest in the trade receivables to a financial institution, while maintaining a subordinated interest in a portion of the pool of trade receivables. Interest for the Securitization Program is based on 30-day LIBOR plus an applicable margin. A commitment fee is also charged based on a percentage of the unused amounts available and is
not material
. The agreement governing the Securitization Program contains restrictions and covenants which include limitations on the making of certain restricted payments, creation of certain liens, and certain corporate acts such as mergers, consolidations and sale of substantially all assets. The Securitization Program has a minimum borrowing requirement equal to the lesser of either
80%
of our borrowing capacity or
100%
of our borrowing base, which is a subset of the trade receivables sold under this agreement. As of
March 30, 2019
, our minimum borrowing requirement was
$104,000
.
Note 8 - Product Warranties
In the ordinary course of business, we warrant our products against defects in design, materials and workmanship typically over periods ranging from
twelve
to
sixty
months. We determine warranty reserves needed by product line based on historical experience and current facts and circumstances. Activity in the warranty accrual is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
March 30,
2019
|
|
March 31,
2018
|
Warranty accrual at beginning of period
|
|
$
|
24,256
|
|
|
$
|
27,748
|
|
|
$
|
25,537
|
|
|
$
|
25,848
|
|
Warranties issued during current period
|
|
4,055
|
|
|
3,280
|
|
|
6,025
|
|
|
8,037
|
|
Adjustments to pre-existing warranties
|
|
(307
|
)
|
|
(175
|
)
|
|
(398
|
)
|
|
(245
|
)
|
Reductions for settling warranties
|
|
(3,892
|
)
|
|
(3,007
|
)
|
|
(6,869
|
)
|
|
(5,922
|
)
|
Foreign currency translation
|
|
105
|
|
|
409
|
|
|
(78
|
)
|
|
537
|
|
Warranty accrual at end of period
|
|
$
|
24,217
|
|
|
$
|
28,255
|
|
|
$
|
24,217
|
|
|
$
|
28,255
|
|
Note 9 - Derivative Financial Instruments
We principally use derivative financial instruments to manage interest rate risk associated with long-term debt and foreign exchange risk related to foreign operations and foreign currency transactions. We enter into derivative financial instruments with a number of major financial institutions to minimize counterparty credit risk.
Derivatives designated as hedging instruments
Interest rate swaps are used to adjust the proportion of total debt that is subject to variable and fixed interest rates. The interest rate swaps are designated as hedges of the amount of future cash flows related to interest payments on variable-rate debt that, in combination with the interest payments on the debt, convert a portion of the variable-rate debt to fixed-rate debt. At
March 30, 2019
, we had interest rate swaps with notional amounts totaling
$105,000
. The interest rate swaps effectively convert this amount of variable-rate debt to fixed-rate debt at
2.99%
, including the applicable margin of
1.63%
as of
March 30, 2019
. The interest will revert back to variable rates based on LIBOR plus the applicable margin upon the maturity of the interest rate swaps. These interest rate swaps mature at various times through
June 23, 2020
.
We use foreign currency contracts as cash flow hedges to effectively fix the exchange rates on future payments and revenue. To mitigate exposure in movements between various currencies, including the Philippine peso, the British pound and the Czech koruna, we had outstanding foreign currency forwards with notional amounts of
$69,048
at
March 30, 2019
. These contracts mature at various times through
February 26, 2021
.
We use forward currency contracts to hedge our net investment in certain foreign subsidiaries. As of
March 30, 2019
, we had
no
outstanding net investment hedges.
These interest rate swaps, foreign currency contracts and net investment hedges are recorded in the Consolidated Condensed Balance Sheets at fair value and the related gains or losses are deferred in Shareholders’ Equity as a component of Accumulated Other Comprehensive Income (Loss) (AOCIL). These deferred gains and losses are reclassified into the Consolidated Condensed Statements of Earnings, as necessary, during the periods in which the related payments or receipts affect earnings. However, to the extent the interest rate swaps and foreign currency contracts are not perfectly effective in offsetting the change in the value of the payments and revenue being hedged, the ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was
not material
in the first
six months
of
2019
or
2018
.
Derivatives not designated as hedging instruments
We also have foreign currency exposure on balances, primarily intercompany, that are denominated in foreign currencies and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in the Consolidated Condensed Statements of Earnings. To minimize foreign currency exposure, we had foreign currency contracts with notional amounts of
$78,359
at
March 30, 2019
. The foreign currency contracts are recorded in the Consolidated Condensed Balance Sheets at fair value and resulting gains or losses are recorded in the Consolidated Condensed Statements of Earnings. We recorded the following gains or losses on foreign currency contracts which are included in other income or expense and generally offset the gains or losses from the foreign currency adjustments on the intercompany balances that are also included in other income or expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
March 30,
2019
|
|
March 31,
2018
|
|
March 30,
2019
|
|
March 31,
2018
|
Net gain (loss)
|
|
$
|
2,419
|
|
|
$
|
(2,381
|
)
|
|
$
|
769
|
|
|
$
|
(3,009
|
)
|
Summary of derivatives
The fair value and classification of derivatives is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 30,
2019
|
|
September 29,
2018
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
|
$
|
690
|
|
|
$
|
659
|
|
Foreign currency contracts
|
Other assets
|
|
178
|
|
|
41
|
|
Interest rate swaps
|
Other current assets
|
|
673
|
|
|
1,444
|
|
Interest rate swaps
|
Other assets
|
|
24
|
|
|
322
|
|
|
Total asset derivatives
|
|
$
|
1,565
|
|
|
$
|
2,466
|
|
Foreign currency contracts
|
Other accrued liabilities
|
|
$
|
703
|
|
|
$
|
1,842
|
|
Foreign currency contracts
|
Other long-term liabilities
|
|
63
|
|
|
464
|
|
|
Total liability derivatives
|
|
$
|
766
|
|
|
$
|
2,306
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
|
$
|
376
|
|
|
$
|
285
|
|
Foreign currency contracts
|
Other accrued liabilities
|
|
$
|
477
|
|
|
$
|
87
|
|
Note 10 - Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate fair value. The definition of the fair value hierarchy is as follows:
Level 1 – Quoted prices in active markets for identical assets and liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for similar assets and liabilities.
Level 3 – Inputs for which significant valuation assumptions are unobservable in a market and therefore value is based on the best available data, some of which is internally developed and considers risk premiums that a market participant would require.
Our derivatives are valued using various pricing models or discounted cash flow analyses that incorporate observable market data, such as interest rate yield curves and currency rates, and are classified as Level 2 within the valuation hierarchy.
The following table presents the fair values and classification of our financial assets and liabilities measured on a recurring basis, all of which are classified as Level 2.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
March 30,
2019
|
|
September 29,
2018
|
Foreign currency contracts
|
|
Other current assets
|
|
$
|
1,066
|
|
|
$
|
944
|
|
Foreign currency contracts
|
|
Other assets
|
|
178
|
|
|
41
|
|
Interest rate swaps
|
|
Other current assets
|
|
673
|
|
|
1,444
|
|
Interest rate swaps
|
|
Other assets
|
|
24
|
|
|
322
|
|
|
|
Total assets
|
|
$
|
1,941
|
|
|
$
|
2,751
|
|
Foreign currency contracts
|
|
Other accrued liabilities
|
|
$
|
1,180
|
|
|
$
|
1,929
|
|
Foreign currency contracts
|
|
Other long-term liabilities
|
|
63
|
|
|
464
|
|
|
|
Total liabilities
|
|
$
|
1,243
|
|
|
$
|
2,393
|
|
Our only financial instrument for which the carrying value differs from its fair value is long-term debt. At
March 30, 2019
, the fair value of long-term debt was
$826,120
compared to its carrying value of
$826,870
. The fair value of long-term debt is classified as Level 2 within the fair value hierarchy and was estimated based on quoted market prices.
Note 11 - Employee Benefit Plans
Net periodic benefit costs for our defined benefit pension plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
March 30,
2019
|
|
March 31,
2018
|
U.S. Plans
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
5,251
|
|
|
$
|
5,633
|
|
|
$
|
10,502
|
|
|
$
|
11,267
|
|
Interest cost
|
|
9,231
|
|
|
8,073
|
|
|
18,462
|
|
|
16,146
|
|
Expected return on plan assets
|
|
(11,771
|
)
|
|
(13,575
|
)
|
|
(23,542
|
)
|
|
(27,151
|
)
|
Amortization of prior service cost (credit)
|
|
47
|
|
|
47
|
|
|
93
|
|
|
94
|
|
Amortization of actuarial loss
|
|
5,466
|
|
|
6,902
|
|
|
10,932
|
|
|
13,804
|
|
Pension expense for U.S. defined benefit plans
|
|
$
|
8,224
|
|
|
$
|
7,080
|
|
|
$
|
16,447
|
|
|
$
|
14,160
|
|
Non-U.S. Plans
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1,248
|
|
|
$
|
1,519
|
|
|
$
|
2,494
|
|
|
$
|
2,989
|
|
Interest cost
|
|
1,101
|
|
|
1,092
|
|
|
2,202
|
|
|
2,147
|
|
Expected return on plan assets
|
|
(1,303
|
)
|
|
(1,290
|
)
|
|
(2,601
|
)
|
|
(2,533
|
)
|
Amortization of prior service cost (credit)
|
|
(4
|
)
|
|
(15
|
)
|
|
(9
|
)
|
|
(29
|
)
|
Amortization of actuarial loss
|
|
638
|
|
|
648
|
|
|
1,278
|
|
|
1,272
|
|
Pension expense for non-U.S. defined benefit plans
|
|
$
|
1,680
|
|
|
$
|
1,954
|
|
|
$
|
3,364
|
|
|
$
|
3,846
|
|
Pension expense for our defined contribution plans consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
March 30,
2019
|
|
March 31,
2018
|
U.S. defined contribution plans
|
|
$
|
4,713
|
|
|
$
|
4,136
|
|
|
$
|
9,327
|
|
|
$
|
8,108
|
|
Non-U.S. defined contribution plans
|
|
1,340
|
|
|
1,353
|
|
|
2,536
|
|
|
2,570
|
|
Total pension expense for defined contribution plans
|
|
$
|
6,053
|
|
|
$
|
5,489
|
|
|
$
|
11,863
|
|
|
$
|
10,678
|
|
Note 12 - Restructuring
In the second quarter of 2018, we initiated restructuring actions in conjunction with exiting the wind pitch controls business within our Industrial Systems segment. These actions have resulted in workforce reductions, principally in Germany and China. The restructuring charge in 2018 consisted of
$12,198
of non-cash inventory reserves,
$12,316
of non-cash charges for the impairment of intangible assets,
$2,162
of non-cash charges, primarily for the impairment of other long-lived assets,
$7,969
for severance,
$3,130
for facility closure and
$3,217
for other costs.
Restructuring activity for severance and other costs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft Controls
|
Space and Defense Controls
|
Industrial Systems
|
Corporate
|
Total
|
Balance at September 29, 2018
|
$
|
626
|
|
$
|
64
|
|
$
|
6,994
|
|
$
|
429
|
|
$
|
8,113
|
|
Adjustments to provision
|
20
|
|
—
|
|
—
|
|
—
|
|
20
|
|
Cash payments - 2016 plan
|
—
|
|
—
|
|
—
|
|
(297
|
)
|
(297
|
)
|
Cash payments - 2018 plan
|
(650
|
)
|
(23
|
)
|
(2,298
|
)
|
—
|
|
(2,971
|
)
|
Foreign currency translation
|
4
|
|
—
|
|
(95
|
)
|
—
|
|
(91
|
)
|
Balance at March 30, 2019
|
$
|
—
|
|
$
|
41
|
|
$
|
4,601
|
|
$
|
132
|
|
$
|
4,774
|
|
As of
March 30, 2019
, the restructuring accrual consists of
$132
for the 2016 plan and
$4,642
for the 2018 plan. Restructuring for all plans is expected to be paid by
September 28, 2019
, except for the non-current portion of the facility closure accrual, which is classified as a long-term liability.
Note 13 - Income Taxes
The effective tax rate for the
three and six months ended
March 30, 2019
were
23.8%
and
24.1%
, respectively. The effective tax rate for this period is higher than would be expected by applying the U.S. federal statutory tax rate of
21%
to earnings before income taxes primarily due to tax on earnings generated outside of the U.S.
The effective tax rate for the
three and six months ended
March 31, 2018
were
45.6%
and
79.2%
, respectively. The effective tax rate for this period was significantly impacted by the enactment of the Tax Cuts and Jobs Act (the "Act") of 2017.
The Act was enacted on December 22, 2017. It reduced the U.S. federal corporate tax rate from
35%
to
21%
, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign sourced earnings. In 2018, we recorded provisional amounts by applying the guidance in SAB 118, as we had not yet completed the accounting for the tax effects of enactment of the Act. For the year ended September 29, 2018, we recorded tax expense related to the Act of
$30,795
for the one-time transition tax on undistributed foreign earnings deemed to be repatriated and a tax charge of
$10,383
as an additional provision for taxes on undistributed earnings not considered to be permanently reinvested. These charges were partially offset by a
$10,946
benefit due to the remeasurement of deferred tax assets and liabilities arising from the lower U.S. corporate tax rate. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities is not practicable.
Upon further analysis of the Act and notices and regulations issued and proposed by the U.S. Department of the Treasury and the Internal Revenue Service, we finalized our calculations of the transition tax liability with
no
further amounts recorded in the six months ended March 30, 2019.
Some of the provisions of the Act become effective for us in 2019, which include a Global Intangible Low-Taxed Income (GILTI) provision that imposes U.S. tax on certain foreign subsidiary income in the year it is earned. Our accounting policy is to treat tax on the GILTI as a current period cost included in income tax expense in the year incurred.
Note 14 - Accumulated Other Comprehensive Income (Loss)
The changes in AOCIL, net of tax, by component for the
six months ended
March 30, 2019
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated foreign currency translation
|
|
Accumulated retirement liability
|
|
Accumulated gain (loss) on derivatives
|
|
Total
|
AOCIL at September 29, 2018
|
|
$
|
(99,415
|
)
|
|
$
|
(272,317
|
)
|
|
$
|
(449
|
)
|
|
$
|
(372,181
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
(4,650
|
)
|
|
687
|
|
|
529
|
|
|
(3,434
|
)
|
Amounts reclassified from AOCIL
|
|
(3,631
|
)
|
|
8,809
|
|
|
56
|
|
|
5,234
|
|
Other comprehensive income (loss)
|
|
(8,281
|
)
|
|
9,496
|
|
|
585
|
|
|
1,800
|
|
AOCIL at March 30, 2019
|
|
$
|
(107,696
|
)
|
|
$
|
(262,821
|
)
|
|
$
|
136
|
|
|
$
|
(370,381
|
)
|
The amounts reclassified from AOCIL into earnings are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
Statement of earnings classification
|
|
March 30,
2019
|
|
March 31,
2018
|
|
March 30,
2019
|
|
March 31,
2018
|
Retirement liability:
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (credit)
|
|
|
|
$
|
(75
|
)
|
|
$
|
(86
|
)
|
|
$
|
(151
|
)
|
|
$
|
(171
|
)
|
Actuarial losses
|
|
|
|
5,925
|
|
|
7,423
|
|
|
11,853
|
|
|
14,819
|
|
Reclassification from AOCIL into earnings (1)
|
|
5,850
|
|
|
7,337
|
|
|
11,702
|
|
|
14,648
|
|
Tax effect
|
|
|
|
(1,446
|
)
|
|
(1,796
|
)
|
|
(2,893
|
)
|
|
(4,488
|
)
|
Net reclassification from AOCIL into earnings
|
|
$
|
4,404
|
|
|
$
|
5,541
|
|
|
$
|
8,809
|
|
|
$
|
10,160
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Sales
|
|
$
|
(67
|
)
|
|
$
|
(138
|
)
|
|
$
|
(100
|
)
|
|
$
|
(256
|
)
|
Foreign currency contracts
|
|
Cost of sales
|
|
235
|
|
|
502
|
|
|
895
|
|
|
1,198
|
|
Interest rate swaps
|
|
Interest
|
|
(317
|
)
|
|
(102
|
)
|
|
(717
|
)
|
|
(116
|
)
|
Reclassification from AOCIL into earnings
|
|
(149
|
)
|
|
262
|
|
|
78
|
|
|
826
|
|
Tax effect
|
|
|
|
35
|
|
|
(72
|
)
|
|
(22
|
)
|
|
(307
|
)
|
Net reclassification from AOCIL into earnings
|
|
$
|
(114
|
)
|
|
$
|
190
|
|
|
$
|
56
|
|
|
$
|
519
|
|
(1)
The reclassifications are included in the computation of non-service pension expense, which is included in Other on the Consolidated Condensed Statement of Earnings.
The amounts deferred in AOCIL are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferral in AOCIL - effective portion
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
March 30,
2019
|
|
March 31,
2018
|
Foreign currency contracts
|
|
$
|
150
|
|
|
$
|
(1,655
|
)
|
|
$
|
1,049
|
|
|
$
|
(827
|
)
|
Interest rate swaps
|
|
(107
|
)
|
|
630
|
|
|
(342
|
)
|
|
1,247
|
|
Net gain (loss)
|
|
43
|
|
|
(1,025
|
)
|
|
707
|
|
|
420
|
|
Tax effect
|
|
(8
|
)
|
|
256
|
|
|
(178
|
)
|
|
(284
|
)
|
Net deferral in AOCIL of derivatives
|
|
$
|
35
|
|
|
$
|
(769
|
)
|
|
$
|
529
|
|
|
$
|
136
|
|
Note 15 - Stock Employee Compensation Trust and Supplemental Retirement Plan Trust
The Stock Employee Compensation Trust (SECT) assists in administering and provides funding for equity-based compensation plans and benefit programs, including the Moog Inc. Retirement Savings Plan (RSP) and the Employee Stock Purchase Plan (ESPP). The Supplemental Retirement Plan (SERP) Trust provides funding for benefits under the SERP provisions of the Moog Inc. Plan to Equalize Retirement Income and Supplemental Retirement Income. Both the SECT and the SERP Trust hold Moog shares as investments. The shares in the SECT and SERP Trust are not considered outstanding for purposes of calculating earnings per share. However, in accordance with the trust agreements governing the SECT and SERP Trust, the trustees vote all shares held by the SECT and SERP Trust on all matters submitted to shareholders.
Note 16 - Earnings per Share and Dividends
Basic and diluted weighted-average shares outstanding are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
March 30,
2019
|
|
March 31,
2018
|
Basic weighted-average shares outstanding
|
|
34,886,541
|
|
|
35,770,089
|
|
|
34,850,898
|
|
|
35,771,247
|
|
Dilutive effect of equity-based awards
|
|
354,572
|
|
|
409,769
|
|
|
332,573
|
|
|
419,208
|
|
Diluted weighted-average shares outstanding
|
|
35,241,113
|
|
|
36,179,858
|
|
|
35,183,471
|
|
|
36,190,455
|
|
For the
three and six months ended
March 30, 2019
, there were
29,839
and
38,132
common shares from equity-based awards, respectively, excluded from the calculation of diluted earnings per share as they would be anti-dilutive. For the
three and six months ended
March 31, 2018
, there were
21,887
and
17,432
common shares from equity-based awards, respectively, excluded from the calculation of diluted earnings per share as they would be anti-dilutive.
We declared and paid cash dividends of
$0.25
per share on our Class A and Class B common stock in the first and second quarters of
2019
. We declared a cash dividend of
$0.25
per share on our Class A and Class B common stock in the second quarter of
2018
.
Note 17 - Segment Information
Below are net sales by segment for the
three and six months ended
March 30, 2019
and
March 31, 2018
disaggregated by type of good or service and market or type of customer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
March 30,
2019
|
|
March 31,
2018
|
Net sales:
|
|
|
|
|
|
|
|
|
Military
|
|
$
|
155,016
|
|
|
$
|
155,659
|
|
|
$
|
301,817
|
|
|
$
|
279,859
|
|
Commercial
|
|
165,611
|
|
|
155,780
|
|
|
322,855
|
|
|
310,114
|
|
Aircraft Controls
|
|
320,627
|
|
|
311,439
|
|
|
624,672
|
|
|
589,973
|
|
Space
|
|
53,349
|
|
|
57,789
|
|
|
103,525
|
|
|
107,202
|
|
Defense
|
|
111,476
|
|
|
85,738
|
|
|
217,368
|
|
|
169,718
|
|
Space and Defense Controls
|
|
164,825
|
|
|
143,527
|
|
|
320,893
|
|
|
276,920
|
|
Energy
|
|
29,977
|
|
|
40,878
|
|
|
59,274
|
|
|
78,980
|
|
Industrial Automation
|
|
116,369
|
|
|
108,323
|
|
|
225,499
|
|
|
204,768
|
|
Simulation and Test
|
|
31,245
|
|
|
32,041
|
|
|
60,295
|
|
|
62,878
|
|
Medical
|
|
55,768
|
|
|
52,841
|
|
|
107,854
|
|
|
103,065
|
|
Industrial Systems
|
|
233,359
|
|
|
234,083
|
|
|
452,922
|
|
|
449,691
|
|
Net sales
|
|
$
|
718,811
|
|
|
$
|
689,049
|
|
|
$
|
1,398,487
|
|
|
$
|
1,316,584
|
|
Sales by customer are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
March 30,
2019
|
|
March 31,
2018
|
Net sales:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
165,611
|
|
|
$
|
155,780
|
|
|
$
|
322,855
|
|
|
$
|
310,114
|
|
U.S. Government (including OEM)
|
|
122,779
|
|
|
116,886
|
|
|
239,960
|
|
|
212,883
|
|
Other
|
|
32,237
|
|
|
38,773
|
|
|
61,857
|
|
|
66,976
|
|
Aircraft Controls
|
|
320,627
|
|
|
311,439
|
|
|
624,672
|
|
|
589,973
|
|
Commercial
|
|
32,188
|
|
|
33,300
|
|
|
62,241
|
|
|
57,221
|
|
U.S. Government (including OEM)
|
|
121,821
|
|
|
102,721
|
|
|
236,286
|
|
|
199,185
|
|
Other
|
|
10,816
|
|
|
7,506
|
|
|
22,366
|
|
|
20,514
|
|
Space and Defense Controls
|
|
164,825
|
|
|
143,527
|
|
|
320,893
|
|
|
276,920
|
|
Commercial
|
|
226,894
|
|
|
228,277
|
|
|
437,462
|
|
|
436,890
|
|
U.S. Government (including OEM)
|
|
4,511
|
|
|
5,081
|
|
|
10,953
|
|
|
10,575
|
|
Other
|
|
1,954
|
|
|
725
|
|
|
4,507
|
|
|
2,226
|
|
Industrial Systems
|
|
233,359
|
|
|
234,083
|
|
|
452,922
|
|
|
449,691
|
|
Commercial
|
|
424,693
|
|
|
417,357
|
|
|
822,558
|
|
|
804,225
|
|
U.S. Government (including OEM)
|
|
249,111
|
|
|
224,688
|
|
|
487,199
|
|
|
422,643
|
|
Other
|
|
45,007
|
|
|
47,004
|
|
|
88,730
|
|
|
89,716
|
|
Net sales
|
|
$
|
718,811
|
|
|
$
|
689,049
|
|
|
$
|
1,398,487
|
|
|
$
|
1,316,584
|
|
Below is operating profit by segment for the
three and six months ended
March 30, 2019
and
March 31, 2018
and a reconciliation of segment operating profit to earnings before income taxes. Operating profit is net sales less cost of sales and other operating expenses, excluding interest expense, equity-based compensation expense and other corporate expenses. Cost of sales and other operating expenses are directly identifiable to the respective segment or allocated on the basis of sales, number of employees or profit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
March 30,
2019
|
|
March 31,
2018
|
Operating profit (loss):
|
|
|
|
|
|
|
|
|
Aircraft Controls
|
|
$
|
27,122
|
|
|
$
|
33,793
|
|
|
$
|
60,321
|
|
|
$
|
64,836
|
|
Space and Defense Controls
|
|
20,504
|
|
|
17,042
|
|
|
38,977
|
|
|
33,515
|
|
Industrial Systems
|
|
30,228
|
|
|
(5,428
|
)
|
|
57,933
|
|
|
14,483
|
|
Total operating profit
|
|
77,854
|
|
|
45,407
|
|
|
157,231
|
|
|
112,834
|
|
Deductions from operating profit:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
9,939
|
|
|
9,089
|
|
|
19,621
|
|
|
17,735
|
|
Equity-based compensation expense
|
|
1,683
|
|
|
1,499
|
|
|
3,691
|
|
|
3,500
|
|
Non-service pension expense
|
|
3,187
|
|
|
1,707
|
|
|
6,380
|
|
|
3,400
|
|
Corporate and other expenses, net
|
|
7,427
|
|
|
7,443
|
|
|
13,737
|
|
|
14,696
|
|
Earnings before income taxes
|
|
$
|
55,618
|
|
|
$
|
25,669
|
|
|
$
|
113,802
|
|
|
$
|
73,503
|
|
Note 18 - Related Party Transactions
On November 20, 2017, John Scannell was elected to the Board of Directors of M&T Bank Corporation and M&T Bank. We currently engage with M&T Bank in the ordinary course of business for various financing activities, all of which were initiated prior to the election of Mr. Scannell to the Board. M&T Bank provides credit extension for routine purchases, which for the
three and six
months ended
March 30, 2019
totaled
$6,726
and
$11,078
, respectively. Credit extension for the
three and six
months ended
March 31, 2018
totaled
$5,759
and
$11,218
, respectively. At
March 30, 2019
, we held a
$15,000
interest rate swap with M&T Bank and outstanding leases with a total original cost of
$27,678
. M&T Bank also maintains an interest of approximately
12%
in our U.S. revolving credit facility. Further details of the U.S. revolving credit facility can be found in Note 7, Indebtedness.
Note 19 - Commitments and Contingencies
From time to time, we are involved in legal proceedings. We are not a party to any pending legal proceedings which management believes will result in a material adverse effect on our financial condition, results of operations or cash flows.
We are engaged in administrative proceedings with governmental agencies and legal proceedings with governmental agencies and other third parties in the normal course of our business, including litigation under Superfund laws, regarding environmental matters. We believe that adequate reserves have been established for our share of the estimated cost for all currently pending environmental administrative or legal proceedings and do not expect that these environmental matters will have a material adverse effect on our financial condition, results of operations or cash flows.
In the ordinary course of business we could be subject to ongoing claims or disputes from our customers, the ultimate settlement of which could have a material adverse impact on our consolidated results of operations. While the receivables and any loss provisions recorded to date reflect management's best estimate of the projected costs to complete a given project, there may still be significant effort required to complete the ultimate deliverable. Future variability in internal cost as well as future profitability is dependent upon a number of factors including deliveries, performance and government budgetary pressures. The inability to achieve a satisfactory contractual solution, further unplanned delays, additional developmental cost growth or variations in any of the estimates used in the existing contract analysis could lead to further loss provisions. Additional losses could have a material adverse impact on our financial condition, results of operations or cash flows in the period in which the loss may be recognized.
We are contingently liable for
$35,285
of standby letters of credit issued to third parties on our behalf at
March 30, 2019
.
Note 20 - Subsequent Event
On April 25, 2019, the Board of Directors declared a
$0.25
per share quarterly dividend payable on issued and outstanding shares of our Class A and Class B common stock on June 3, 2019 to shareholders of record at the close of business on May 15, 2019.