Financial Performance - Net sales for the three months ended March 30, 2024, were $930.3 million, a 11.2% increase from $836.8 million for the same period in 2023[10] - Gross profit for the six months ended March 30, 2024, was $500.0 million, up 17.5% from $425.0 million in the prior year[10] - Net earnings for the three months ended March 30, 2024, were $60.0 million, representing a 39.6% increase compared to $43.0 million for the same period in 2023[10] - Basic net earnings per share for the three months ended March 30, 2024, were $1.88, up from $1.35 in the same period last year, reflecting a 39.1% increase[10] - For the six months ended March 30, 2024, net sales reached $1.787 billion, up from $1.597 billion in the prior year, reflecting a growth of about 11.9%[108] - Total operating profit for the three months ended March 30, 2024, was $112,012 million, an increase of 34% compared to $83,766 million for the same period in 2023[110] - Net earnings for the three months ended March 30, 2024, were $60 million, a 39% increase from $43 million in the same quarter of 2023[133] - Diluted earnings per share rose to $1.86 for the quarter ended March 30, 2024, up 39% from $1.34 in the same quarter of 2023[133] Assets and Liabilities - Total assets as of March 30, 2024, were $4.04 billion, an increase from $3.81 billion as of September 30, 2023[15] - Total liabilities increased to $2.29 billion as of March 30, 2024, compared to $2.17 billion as of September 30, 2023[15] - Cash and cash equivalents decreased to $59.1 million as of March 30, 2024, down from $69.0 million as of September 30, 2023[15] - Long-term debt as of March 30, 2024, was $948,615 million, an increase from $863,092 million as of September 30, 2023, representing an increase of 9.9%[80] - The fair value of long-term debt was estimated at $915,743 as of March 30, 2024, compared to a carrying value of $952,000, indicating a fair value discount of approximately 3.8%[94] Cash Flow and Investments - Operating cash flow for the six months ended March 30, 2024, was $16,389 thousand, compared to a cash outflow of $33,016 thousand in the prior year[23] - The company reported a net cash used by investing activities of $83,956 thousand for the six months ended March 30, 2024, compared to $74,200 thousand in the same period of 2023[23] - The company incurred $5,911 thousand in cash outflows for acquisitions of businesses during the six months ended March 30, 2024[23] - Capital expenditures in the first half of 2024 totaled $78 million, down from $90 million in the same period of 2023[169] Research and Development - Research and development expenses for the six months ended March 30, 2024, were $59.0 million, an increase of 16.4% from $50.6 million in the same period of 2023[10] - Research and development expenses for the quarter were $28 million, a 6% increase from $27 million in the same quarter of 2023[133] - Research and development expenses rose by $11 million in the first half of 2024, driven by new growth programs in Space and Defense[135] Dividends and Shareholder Returns - The company declared cash dividends of $0.28 per share for the three months ended March 30, 2024, compared to $0.27 per share for the same period in 2023[19] - The company declared a quarterly dividend of $0.28 per share, payable on May 28, 2024[116] Segment Performance - The Space and Defense segment generated net sales of $266.8 million for the three months ended March 30, 2024, compared to $245.9 million in the same period of 2023, marking an increase of approximately 8.5%[107] - The Military Aircraft segment reported net sales of $202.5 million for the three months ended March 30, 2024, up from $182.8 million in the same period of 2023, indicating a growth of about 10.0%[107] - Space and Defense net sales increased by 9% in Q2 2024, driven by higher demand for defense applications, with operating profit rising by 54%[140] - Military Aircraft net sales increased by 11% in Q2 2024, with OEM sales up by $15 million and aftermarket sales up by $5 million[145] - Commercial Aircraft net sales increased by 26% in Q2 2024, with OEM sales up by $29 million and aftermarket sales up by $14 million[151] - Industrial net sales increased by 4% in Q2 2024, with significant growth in simulation and test markets, despite a decline in industrial automation sales[156] Backlog and Future Projections - Twelve-month backlog increased to $2,500 million, a 9% rise from $2,300 million in the previous year[133] - Net sales for 2024 are projected to be $3,550 million, a 7% increase from $3,319 million in 2023[162] - Operating profit is expected to rise to $422 million in 2024, reflecting a 23% increase from $343 million in 2023[162] - Adjusted diluted earnings per share for 2024 are forecasted to range between $7.05 and $7.45, with a midpoint of $7.25, compared to $6.15 in 2023[162] Market Conditions and Trends - The space market consists of three customer segments: civil (NASA), U.S. Department of Defense, and commercial space, with increasing investments expected in satellite technologies and launch vehicles[200] - The industrial market is influenced by capital investment levels, product innovation pace, economic conditions, and the effects of the COVID-19 pandemic, leading to changing customer demands[202] - Stronger order demand for flight simulation systems has been observed as the airline training market recovers, aligning with increased domestic and foreign flight hours[203] - The energy generation and exploration market is affected by fluctuating oil and natural gas prices, global urbanization, and investments in power generation infrastructure[204] - The medical market is driven by economic conditions, regulatory environments, and advancements in medical technology, increasing the demand for medical devices and components[205] Currency and Risk Management - Approximately one-sixth of the company's 2023 sales were in foreign currencies, with a $5 million increase in sales due to favorable currency translation compared to the previous year[206] - The company had no outstanding foreign currency contracts or interest rate swaps as of March 30, 2024, indicating a shift in risk management strategy[86][87]

Financial Performance - Net sales for Q2 2024 reached $930 million, an 11% increase compared to $837 million in Q2 2023[4] - Adjusted diluted earnings per share rose 54% to $2.19, compared to $1.42 in Q2 2023, reflecting higher sales and the Employee Retention Credit[4] - Net earnings for the three months ended March 30, 2024, were reported at $60.0 million, a significant increase from $43.0 million in the prior year, marking a growth of 39.6%[20] - Diluted net earnings per share for the three months ended March 30, 2024, increased to $1.86, up from $1.34, representing a growth of 38.8%[20] - Net earnings for the six months ended March 30, 2024, increased to $107,815 thousand from $89,029 thousand in the same period last year, representing a growth of approximately 21%[25] Operating Performance - Operating margin improved to 12.0%, up 200 basis points from 10.0% in the prior year, driven by performance across all segments[4] - Operating profit for the same period rose to $112.0 million, compared to $83.8 million, reflecting a margin improvement from 10.0% to 12.0%[20] - The company reported an adjusted total operating profit of $126.4 million for the three months ended March 30, 2024, compared to $87.1 million in the prior year, an increase of 45.1%[21] - The Space and Defense segment's operating margin increased by 460 basis points to 15.8% due to improved program performance[6] - The Space and Defense segment's operating profit margin improved to 15.9% for the three months ended March 30, 2024, compared to 11.7% in the same period last year[21] Sales and Backlog - Commercial Aircraft sales surged 26% to $208 million, attributed to growth in widebody aircraft[5] - Twelve-month backlog increased 9% to a record $2.5 billion, indicating strong demand in aerospace and defense sectors[8] - Fiscal year 2024 guidance projects net sales of $3.55 billion, a 7% increase from the previous year[9] Cash Flow and Investments - Free cash flow improved by $17 million year-over-year, with a cash use of $84 million in Q2 2024[4] - Net cash provided by operating activities for the six months ended March 30, 2024, was $16,389 thousand, a significant improvement compared to a net cash used of $33,016 thousand in the prior year[25] - Free cash flow for the six months ended March 30, 2024, was $(61,141) thousand, an improvement from $(122,759) thousand in the same period last year, indicating a reduction in cash outflow[26] - The company invested $77,530 thousand in property, plant, and equipment during the six months ended March 30, 2024, compared to $89,743 thousand in the same period last year, reflecting a decrease of approximately 13.6%[25] Assets and Liabilities - Total assets as of March 30, 2024, increased to $4.04 billion, compared to $3.81 billion as of September 30, 2023, indicating a growth of 5.9%[23] - Current assets rose to $2.16 billion, up from $1.99 billion, reflecting an increase of 8.5%[23] - Long-term debt, excluding current installments, increased to $948.6 million from $863.1 million, representing a rise of 9.9%[23] Restructuring and Charges - Restructuring and impairment charges in Q2 2024 totaled $14 million, primarily affecting Military Aircraft and Industrial segments[7] Tax and Cash Equivalents - The effective income tax rate for the six months ended March 30, 2024, was 23.7%, consistent with the prior year rate of 23.6%[20] - Cash, cash equivalents, and restricted cash at the end of the period were $59,731 thousand, down from $109,654 thousand at the end of the same period last year, a decrease of approximately 45.5%[25]

PART I FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents Moog Inc.'s unaudited Q1 FY2024 consolidated financial statements, including earnings, balance sheets, cash flows, and notes [Consolidated Condensed Statements of Earnings](index=4&type=section&id=Consolidated%20Condensed%20Statements%20of%20Earnings) For the three months ended December 30, 2023, Moog Inc. reported an increase in net sales and net earnings compared to the prior year period, with gross profit also showing improvement | Metric (in thousands) | Dec 30, 2023 | Dec 31, 2022 | | :-------------------- | :----------- | :----------- | | Net sales | $856,850 | $760,103 | | Cost of sales | $623,651 | $556,417 | | Gross profit | $233,199 | $203,686 | | Net earnings | $47,812 | $46,016 | | Basic EPS | $1.50 | $1.45 | | Diluted EPS | $1.48 | $1.44 | [Consolidated Condensed Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Condensed%20Statements%20of%20Comprehensive%20Income) Comprehensive income for the three months ended December 30, 2023, decreased compared to the prior year, primarily due to a lower foreign currency translation adjustment, despite an increase in net earnings | Metric (in thousands) | Dec 30, 2023 | Dec 31, 2022 | | :-------------------- | :----------- | :----------- | | Net earnings | $47,812 | $46,016 | | Foreign currency translation adjustment | $31,013 | $50,735 | | Other comprehensive income, net of tax | $33,009 | $53,853 | | Comprehensive income | $80,821 | $99,869 | [Consolidated Condensed Balance Sheets](index=6&type=section&id=Consolidated%20Condensed%20Balance%20Sheets) As of December 30, 2023, total assets and total liabilities increased compared to September 30, 2023, with significant increases in cash and cash equivalents, unbilled receivables, and inventories. Shareholders' equity also saw an increase | Metric (in thousands) | Dec 30, 2023 | Sep 30, 2023 | | :-------------------- | :----------- | :----------- | | Total current assets | $2,116,615 | $1,985,332 | | Total assets | $3,987,955 | $3,808,036 | | Total current liabilities | $1,009,831 | $965,473 | | Total liabilities | $2,280,738 | $2,171,949 | | Total shareholders' equity | $1,707,217 | $1,636,087 | - Cash and cash equivalents increased from **$68,959 thousand** to **$126,398 thousand**[18](index=18&type=chunk) - Unbilled receivables increased from **$706,601 thousand** to **$760,561 thousand**[18](index=18&type=chunk) [Consolidated Condensed Statements of Shareholders' Equity](index=7&type=section&id=Consolidated%20Condensed%20Statements%20of%20Shareholders'%20Equity) Shareholders' equity increased to $1,707,217 thousand as of December 30, 2023, driven by net earnings and increases in additional paid-in capital and retained earnings, partially offset by adjustments to treasury shares and trusts | Metric (in thousands) | Dec 30, 2023 | Dec 31, 2022 | | :-------------------- | :----------- | :----------- | | Total Shareholders' Equity | $1,707,217 | $1,525,181 | | Retained Earnings (End of period) | $2,536,172 | $2,397,814 | | Net earnings | $47,812 | $46,016 | | Dividends | $(8,619) | $(8,257) | - Cash dividends were **$0.27 per share** for the three months ended **December 30, 2023**, up from **$0.26 per share** in the prior year[21](index=21&type=chunk) [Consolidated Condensed Statements of Shareholders' Equity, Shares](index=8&type=section&id=Consolidated%20Condensed%20Statements%20of%20Shareholders'%20Equity,%20Shares) The number of Class A common shares outstanding increased, while Class B common shares decreased due to conversions. Treasury shares for both classes saw minor changes, reflecting compensation-related issuances and purchases | Share Class | Dec 30, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Common Stock - Class A (End of period) | 43,825,917 | 43,806,835 | | Common Stock - Class B (End of period) | 7,453,796 | 7,472,878 | | Treasury Shares - Class A (End of period) | (14,647,019) | (14,666,508) | | Treasury Shares - Class B (End of period) | (2,891,694) | (2,991,901) | [Consolidated Condensed Statements of Cash Flows](index=9&type=section&id=Consolidated%20Condensed%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly increased to $60,391 thousand for the three months ended December 30, 2023, compared to $8,083 thousand in the prior year, primarily driven by changes in receivables. Investing activities used more cash due to acquisitions and increased capital expenditures, while financing activities provided less cash due to lower net borrowings | Cash Flow Activity (in thousands) | Dec 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Net cash provided by operating activities | $60,391 | $8,083 | | Net cash used by investing activities | $(43,107) | $(25,293) | | Net cash provided by financing activities | $38,905 | $59,396 | | Increase in cash, cash equivalents and restricted cash | $57,684 | $46,678 | | Cash, cash equivalents and restricted cash at end of period | $126,828 | $164,006 | - Receivables provided **$58,887 thousand** in cash in Q1 **2024**, a significant improvement from using **$(27,387) thousand** in Q1 **2023**[26](index=26&type=chunk) - Acquisitions of businesses, net of cash acquired, used **$5,212 thousand** in Q1 **2024**, compared to none in Q1 **2023**[26](index=26&type=chunk) [Notes to Consolidated Condensed Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Condensed%20Financial%20Statements) The notes provide detailed explanations of the company's accounting policies, significant transactions, and financial statement line items, including changes in segment reporting, revenue recognition methods, acquisitions, debt, and employee benefit plans [Note 1 - Basis of Presentation](index=10&type=section&id=Note%201%20-%20Basis%20of%20Presentation) The unaudited consolidated condensed financial statements are prepared in accordance with U.S. GAAP for interim financial information. Effective October 1, 2023, the company changed its segment reporting structure, separating the former Aircraft Controls segment into Military Aircraft and Commercial Aircraft, with restatements applied to relevant footnotes - Segment reporting structure changed effective **October 1, 2023**, separating Aircraft Controls into Military Aircraft and Commercial Aircraft[29](index=29&type=chunk) - No new accounting pronouncements were adopted for the three months ended **December 30, 2023**[31](index=31&type=chunk) Recent Accounting Pronouncements Not Yet Adopted | Standard | Description | Planned Date of Adoption | | :--------- | :---------- | :----------------------- | | ASU 2023-07 (Segment Reporting) | Requires disclosure of significant segment expenses and other segment items, CODM title/position, and CODM's use of segment profit/loss measures. | FY **2025** | | ASU 2023-09 (Income Taxes) | Expands annual income tax disclosures, requiring specific categories in rate reconciliation table using percentages and currency amounts, and additional info for reconciling items. | FY **2026** | [Note 2 - Revenue from Contracts with Customers](index=11&type=section&id=Note%202%20-%20Revenue%20from%20Contracts%20with%20Customers) The company recognizes revenue using the five-step model of ASC 606, with a significant portion recognized over time, particularly in Space and Defense, Military Aircraft, and Commercial Aircraft segments, using the cost-to-cost method. Revenue recognized at a point in time is more frequent in the Industrial segment - Revenue is recognized using either the over-time or point-in-time method, with the over-time method predominantly used in Space and Defense, Military Aircraft, and Commercial Aircraft segments for U.S. Government contracts and repair/overhaul[39](index=39&type=chunk) - The point-in-time method is most frequently used in the Industrial segment for commercial contracts where the asset has an alternative use[40](index=40&type=chunk) - For the three months ended **December 30, 2023**, the company recognized lower revenue of **$95 thousand** due to adjustments to performance obligations satisfied in previous periods[41](index=41&type=chunk) [Contract Assets and Liabilities](index=13&type=section&id=Contract%20Assets%20and%20Liabilities) Contract assets (unbilled receivables) increased, while net contract assets decreased due to a larger increase in contract advances and progress billings (contract liabilities). The company recognized $97,705 thousand of revenue from beginning-of-year contract liabilities | Metric (in thousands) | Dec 30, 2023 | Sep 30, 2023 | | :-------------------- | :----------- | :----------- | | Unbilled receivables | $760,561 | $706,601 | | Contract advances and progress billings | $445,706 | $377,977 | | Net contract assets | $314,855 | $328,624 | - For the three months ended **December 30, 2023**, **$97,705 thousand** of revenue was recognized from the contract liability balance at the beginning of the year[48](index=48&type=chunk) [Remaining Performance Obligations](index=13&type=section&id=Remaining%20Performance%20Obligations) As of December 30, 2023, the aggregate transaction price allocated to unsatisfied performance obligations was $5.3 billion, with approximately 47% expected to be recognized as sales over the next twelve months - Aggregate transaction price for unsatisfied performance obligations was **$5,300,000 thousand** as of **December 30, 2023**[49](index=49&type=chunk) - Approximately **47%** of the remaining performance obligations are expected to be recognized as sales over the next **twelve months**[49](index=49&type=chunk) [Disaggregation of Revenue](index=13&type=section&id=Disaggregation%20of%20Revenue) Disclosures related to the disaggregation of revenue are provided in Note 20 - Segments - Revenue disaggregation details are provided in Note **20** - Segments[50](index=50&type=chunk) [Note 3 - Acquisitions and Divestitures](index=14&type=section&id=Note%203%20-%20Acquisitions%20and%20Divestitures) On October 20, 2023, Moog Inc. acquired Data Collection Limited (DCL) for $5,882 thousand, net of acquired cash, integrating it into the Military Aircraft segment. The company also noted prior divestitures of a sonar business in 2022 and the NAVAIDS business in 2021 - Acquired Data Collection Limited (DCL) on **October 20, 2023**, for approximately **$5,882 thousand** (net of acquired cash), specializing in pavement surveying equipment, included in the Military Aircraft segment[51](index=51&type=chunk) - Sold a sonar business in the UK on **September 30, 2022**, for net proceeds of **$13,075 thousand**, recording a loss of **$15,246 thousand**[52](index=52&type=chunk) - Sold NAVAIDS business assets on **December 3, 2021**, for net proceeds of **$36,550 thousand**, recording a gain of **$15,242 thousand**[53](index=53&type=chunk) [Note 4 - Receivables](index=15&type=section&id=Note%204%20-%20Receivables) Receivables, net, decreased to $381,609 thousand as of December 30, 2023. The company amended its Receivables Purchase Agreement (RPA), increasing capacity to $125,000 thousand and extending maturity to December 11, 2026, with $125,000 thousand sold to purchasers and derecognized from the balance sheet | Metric (in thousands) | Dec 30, 2023 | Sep 30, 2023 | | :-------------------- | :----------- | :----------- | | Accounts receivable | $369,853 | $426,804 | | Receivables, net | $381,609 | $434,723 | | Allowance for credit losses | $(3,711) | $(4,010) | - The Receivables Purchase Agreement (RPA) capacity increased from **$100,000 thousand** to **$125,000 thousand**, and its maturity extended to **December 11, 2026**[55](index=55&type=chunk) - As of **December 30, 2023**, **$125,000 thousand** of receivables were sold to purchasers and derecognized, with **$583,838 thousand** in unsold receivables held as collateral[59](index=59&type=chunk) [Note 5 - Inventories](index=16&type=section&id=Note%205%20-%20Inventories) Inventories, net of reserves, increased to $788,040 thousand as of December 30, 2023, primarily driven by increases in raw materials and work in progress | Metric (in thousands) | Dec 30, 2023 | Sep 30, 2023 | | :-------------------- | :----------- | :----------- | | Raw materials and purchased parts | $292,483 | $270,305 | | Work in progress | $405,599 | $368,277 | | Finished goods | $89,958 | $85,420 | | Inventories, net | $788,040 | $724,002 | [Note 6 - Property, Plant and Equipment](index=16&type=section&id=Note%206%20-%20Property,%20Plant%20and%20Equipment) Property, plant and equipment, net, increased to $842,682 thousand as of December 30, 2023, reflecting additions to buildings and improvements, and machinery and equipment | Metric (in thousands) | Dec 30, 2023 | Sep 30, 2023 | | :-------------------- | :----------- | :----------- | | Property, plant and equipment, at cost | $1,783,287 | $1,733,037 | | Less accumulated depreciation and amortization | $(940,605) | $(918,341) | | Property, plant and equipment, net | $842,682 | $814,696 | [Note 7 - Leases](index=16&type=section&id=Note%207%20-%20Leases) The company leases manufacturing facilities, office space, and equipment, recognizing ROU assets and lease liabilities for both operating and finance leases. Operating lease costs were $6,970 thousand and total finance lease costs were $3,058 thousand for the three months ended December 30, 2023 Lease Expense (in thousands) | Metric | Dec 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :----------- | :----------- | | Operating lease cost | $6,970 | $7,395 | | Amortization of ROU assets | $1,826 | $972 | | Interest on lease liabilities | $1,232 | $364 | | Total finance lease cost | $3,058 | $1,336 | Lease Liabilities (in thousands) | Metric | Dec 30, 2023 (in thousands) | Sep 30, 2023 (in thousands) | | :-------------------------- | :----------- | :----------- | | Total operating lease liabilities | $70,993 | $67,681 | | Total finance lease liabilities | $79,629 | $76,846 | - Weighted average remaining lease term for operating leases is **6.7 years** and for finance leases is **23.0 years** as of **December 30, 2023**[69](index=69&type=chunk) [Note 8 - Goodwill and Intangible Assets](index=19&type=section&id=Note%208%20-%20Goodwill%20and%20Intangible%20Assets) Goodwill increased to $833,413 thousand as of December 30, 2023, primarily due to foreign currency translation and the DCL acquisition. Following the segment reporting change, goodwill was reassigned and impairment tests showed no impairment. Acquired intangible assets are amortized, with estimated future amortization of $10,900 thousand for 2024 - Goodwill increased to **$833,413 thousand** as of **December 30, 2023**, from **$821,301 thousand** at **September 30, 2023**, driven by foreign currency translation and the DCL acquisition[71](index=71&type=chunk) - Following the segment reporting change, quantitative goodwill impairment tests were performed on the new Military Aircraft and Commercial Aircraft reporting units, showing fair value exceeded carrying value, thus no impairment[70](index=70&type=chunk) Estimated Future Amortization of Acquired Intangible Assets (in thousands) | Year | Estimated Amortization (in thousands) | | :--- | :--------------------- | | **2024** | $10,900 | | **2025** | $9,800 | | **2026** | $9,600 | | **2027** | $8,300 | | **2028** | $7,500 | [Note 9 - Equity Method Investments and Joint Ventures](index=20&type=section&id=Note%209%20-%20Equity%20Method%20Investments%20and%20Joint%20Ventures) Net investment balances for equity method investments and joint ventures totaled $3,093 thousand as of December 30, 2023, including interests in Moog Aircraft Service Asia (MASA), NOVI LLC, and Suffolk Technologies Fund 1, L.P. Losses from these investments were $67 thousand for the three months ended December 30, 2023 | Investment (in thousands) | Dec 30, 2023 | Sep 30, 2023 | | :------------------------ | :----------- | :----------- | | Moog Aircraft Service Asia | $1,511 | $1,302 | | NOVI LLC | $325 | $325 | | Suffolk Technologies Fund 1, L.P. | $1,257 | $1,180 | | Net investment balance | $3,093 | $2,807 | - Losses from equity method investments and joint ventures were **$67 thousand** for the three months ended **December 30, 2023**, down from **$204 thousand** in the prior year[74](index=74&type=chunk) - The company holds a **51%** ownership in MASA (Commercial Aircraft segment) and a **20%** interest in NOVI LLC (Space and Defense segment)[75](index=75&type=chunk) [Note 10 - Indebtedness](index=21&type=section&id=Note%2010%20-%20Indebtedness) Long-term debt increased to $920,103 thousand as of December 30, 2023, primarily due to increased borrowings on the U.S. revolving credit facility. The company remains in compliance with all covenants for its credit facilities and senior notes | Debt Type (in thousands) | Dec 30, 2023 | Sep 30, 2023 | | :----------------------- | :----------- | :----------- | | U.S. revolving credit facility | $423,000 | $334,500 | | SECT revolving credit facility | $1,000 | $33,000 | | Senior notes 4.25% | $500,000 | $500,000 | | Long-term debt | $920,103 | $863,092 | - The U.S. revolving credit facility has a capacity of **$1,100,000 thousand**, maturing **October 27, 2027**, and is secured by substantially all U.S. assets[80](index=80&type=chunk) - The company has **$500,000 thousand** in **4.25%** senior notes due **December 15, 2027**, which are unsecured obligations[82](index=82&type=chunk) [Note 11 - Other Accrued Liabilities](index=22&type=section&id=Note%2011%20-%20Other%20Accrued%20Liabilities) Other accrued liabilities increased to $238,871 thousand as of December 30, 2023, primarily due to increases in employee benefits, contract reserves, and accrued income taxes | Liability (in thousands) | Dec 30, 2023 | Sep 30, 2023 | | :----------------------- | :----------- | :----------- | | Employee benefits | $57,677 | $47,653 | | Contract reserves | $54,553 | $45,257 | | Warranty accrual | $24,096 | $22,939 | | Accrued income taxes | $42,011 | $29,631 | | Other accrued liabilities | $238,871 | $211,769 | - Warranty accrual activity for the three months ended **December 30, 2023**, included **$3,319 thousand** in new warranties issued and **$(1,876) thousand** in reductions for settling warranties[84](index=84&type=chunk) [Note 12 - Derivative Financial Instruments](index=22&type=section&id=Note%2012%20-%20Derivative%20Financial%20Instruments) The company uses derivative financial instruments, primarily foreign currency contracts, to manage foreign exchange risk. As of December 30, 2023, outstanding foreign currency contracts designated as cash flow hedges had notional amounts of $2,792 thousand, while those not designated as hedges had notional amounts of $149,110 thousand - Outstanding foreign currency contracts designated as cash flow hedges had notional amounts of **$2,792 thousand** at **December 30, 2023**, maturing through **March 1, 2024**[86](index=86&type=chunk) - Foreign currency contracts not designated as hedging instruments had notional amounts of **$149,110 thousand** at **December 30, 2023**, with a net gain of **$4,452 thousand** recorded in earnings[90](index=90&type=chunk) Fair Value and Classification of Derivatives (in thousands) | Derivative Type | Balance Sheets location | Dec 30, 2023 (in thousands) | Sep 30, 2023 (in thousands) | | :------------------------ | :---------------------- | :----------- | :----------- | | Designated foreign currency contracts | Other current assets | $123 | $295 | | Designated foreign currency contracts | Accrued liabilities and other | $176 | $581 | | Non-designated foreign currency contracts | Other current assets | $968 | $93 | | Non-designated foreign currency contracts | Accrued liabilities and other | $145 | $324 | [Note 13 - Fair Value](index=24&type=section&id=Note%2013%20-%20Fair%20Value) The company's financial assets and liabilities measured on a recurring basis are primarily classified as Level 2, with acquisition contingent consideration classified as Level 3. The fair value of long-term debt was $893,656 thousand, differing from its carrying value of $924,000 thousand as of December 30, 2023 - Derivatives are valued using pricing models or discounted cash flow analyses, classified as **Level 2** within the valuation hierarchy[93](index=93&type=chunk) - Acquisition contingent consideration is classified as **Level 3**, with a balance of **$3,172 thousand** at **December 30, 2023**[93](index=93&type=chunk) - The fair value of long-term debt was **$893,656 thousand** at **December 30, 2023**, compared to its carrying value of **$924,000 thousand**[93](index=93&type=chunk) [Note 14 - Restructuring](index=25&type=section&id=Note%2014%20-%20Restructuring) Restructuring activities initiated in 2023, primarily for portfolio shaping, resulted in a total accrual of $9,978 thousand as of December 30, 2023. Charges to expense for the 2023 plan were $1,889 thousand for the three months ended December 30, 2023 - Restructuring actions initiated in **2023** are expected to incur additional costs of up to approximately **$10,400 thousand** through **2027**[95](index=95&type=chunk) Restructuring Accrual by Segment (in thousands) | Segment | Balance at Oct 1, 2023 (in thousands) | Charged to expense - 2023 plan (in thousands) | Cash payments - 2023 plan (in thousands) | Balance at Dec 30, 2023 (in thousands) | | :---------------- | :--------------------- | :----------------------------- | :------------------------ | :---------------------- | | Space and Defense | $1,622 | — | $(727) | $740 | | Military Aircraft | $347 | — | $(72) | $275 | | Industrial | $8,208 | $1,889 | $(1,238) | $8,963 | | Total | $10,177 | $1,889 | $(2,037) | $9,978 | [Note 15 - Employee Benefit Plans](index=25&type=section&id=Note%2015%20-%20Employee%20Benefit%20Plans) Total expense for defined contribution plans increased to $14,350 thousand for the three months ended December 30, 2023. Net periodic benefit costs for U.S. defined benefit plans were $5,922 thousand, and for non-U.S. plans were $1,038 thousand Defined Contribution Plan Expense (in thousands) | Plan Type | Dec 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :----------- | :----------- | | U.S. defined contribution plans | $12,052 | $10,185 | | Non-U.S. defined contribution plans | $2,298 | $2,065 | | Total expense for defined contribution plans | $14,350 | $12,250 | Net Periodic Benefit Costs for Defined Benefit Plans (in thousands) | Plan Type | Dec 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :----------- | :----------- | | Expense for U.S. defined benefit plans | $5,922 | $6,471 | | Expense for non-U.S. defined benefit plans | $1,038 | $1,037 | [Note 16 - Income Taxes](index=26&type=section&id=Note%2016%20-%20Income%20Taxes) The effective tax rate for the three months ended December 30, 2023, was 23.6%, slightly lower than the 23.7% in the prior year, and higher than the U.S. federal statutory rate due to taxes on foreign earnings | Metric | Dec 30, 2023 | Dec 31, 2022 | | :---------------- | :----------- | :----------- | | Effective tax rate | **23.6%** | **23.7%** | - The effective tax rate was higher than the U.S. federal statutory tax rate of **21%** due to tax on earnings generated outside the U.S[98](index=98&type=chunk) [Note 17 - Accumulated Other Comprehensive Income (Loss)](index=26&type=section&id=Note%2017%20-%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) Accumulated other comprehensive loss (AOCIL) decreased to $(221,600) thousand as of December 30, 2023, primarily due to a positive foreign currency translation adjustment and retirement liability adjustment Changes in AOCIL (in thousands) | Component | AOCIL at Sep 30, 2023 (in thousands) | OCI, net of tax (in thousands) | AOCIL at Dec 30, 2023 (in thousands) | | :-------------------------------- | :-------------------- | :-------------- | :-------------------- | | Accumulated foreign currency translation | $(140,486) | $31,013 | $(109,473) | | Accumulated retirement liability | $(113,605) | $1,678 | $(111,927) | | Accumulated gain (loss) on derivatives | $(518) | $318 | $(200) | | Total | $(254,609) | $33,009 | $(221,600) | Net Reclassification from AOCIL into Earnings (in thousands) | Item | Dec 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :----------- | :----------- | | Retirement liability | $2,044 | $2,212 | | Derivatives | $225 | $991 | [Note 18 - Stock Employee Compensation Trust and Supplemental Retirement Plan Trust](index=27&type=section&id=Note%2018%20-%20Stock%20Employee%20Compensation%20Trust%20and%20Supplemental%20Retirement%20Plan%20Trust) The Stock Employee Compensation Trust (SECT) and Supplemental Retirement Plan (SERP) Trust assist in administering equity-based compensation and benefit programs, holding Moog shares as investments that are not considered outstanding for EPS calculations - SECT and SERP Trust hold Moog shares as investments, which are **not considered outstanding** for earnings per share calculations[102](index=102&type=chunk) - The SECT assists in funding equity-based compensation plans (RSP, RSP(+), ESPP), and the SERP Trust funds benefits under the SERP provisions[102](index=102&type=chunk) [Note 19 - Earnings per Share](index=27&type=section&id=Note%2019%20-%20Earnings%20per%20Share) Basic weighted-average shares outstanding increased to 31,902,101 for the three months ended December 30, 2023, with diluted shares at 32,249,313, reflecting the dilutive effect of equity-based awards | Metric | Dec 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Basic weighted-average shares outstanding | 31,902,101 | 31,746,001 | | Dilutive effect of equity-based awards | 347,212 | 128,717 | | Diluted weighted-average shares outstanding | 32,249,313 | 31,874,718 | [Note 20 - Segments](index=27&type=section&id=Note%2020%20-%20Segments) Net sales increased across all segments for the three months ended December 30, 2023, compared to the prior year, driven by commercial aircraft recovery and higher product demand. Operating profit also increased across most segments, with Commercial Aircraft showing the largest sales growth Net Sales by Segment (in thousands) | Segment | Dec 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------ | :----------- | :----------- | | Space and Defense | $230,128 | $217,785 | | Military Aircraft | $186,244 | $177,800 | | Commercial Aircraft | $194,222 | $132,459 | | Industrial | $246,256 | $232,059 | | Total Net sales | $856,850 | $760,103 | Operating Profit by Segment (in thousands) | Segment | Dec 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------ | :----------- | :----------- | | Space and Defense | $25,297 | $20,294 | | Military Aircraft | $19,589 | $15,201 | | Commercial Aircraft | $20,626 | $14,517 | | Industrial | $29,024 | $36,751 | | Total operating profit | $94,536 | $86,763 | - Effective **October 1, 2023**, the former Aircraft Controls segment was separated into Military Aircraft and Commercial Aircraft, with all prior period amounts restated[106](index=106&type=chunk) [Note 21 - Related Party Transactions](index=30&type=section&id=Note%2021%20-%20Related%20Party%20Transactions) The company engages in ordinary course business with M&T Bank Corporation and M&T Bank, where John Scannell, Moog's Non-Executive Chairman, serves on the Board. Transactions for financing routine purchases and leases totaled $3,707 thousand for the three months ended December 30, 2023 - Transactions with M&T Bank, where Moog's Non-Executive Chairman is a board member, totaled **$3,707 thousand** for the three months ended **December 30, 2023**[108](index=108&type=chunk) - M&T Bank maintains an interest of approximately **12%** in Moog's U.S. revolving credit facility[108](index=108&type=chunk) [Note 22 - Commitments and Contingencies](index=30&type=section&id=Note%2022%20-%20Commitments%20and%20Contingencies) The company is involved in various legal and administrative proceedings, including environmental matters, but management believes these will not have a material adverse effect on financial condition. Contingent liabilities for standby letters of credit totaled $19,285 thousand at December 30, 2023 - Management believes current legal and environmental proceedings will **not result in a material adverse effect** on financial condition, results of operations, or cash flows[109](index=109&type=chunk)[110](index=110&type=chunk) - Contingent liabilities for standby letters of credit amounted to **$19,285 thousand** at **December 30, 2023**[112](index=112&type=chunk) [Note 23 - Subsequent Event](index=30&type=section&id=Note%2023%20-%20Subsequent%20Event) On January 25, 2024, the company declared a quarterly dividend of $0.28 per share, payable on February 27, 2024 - A quarterly dividend of **$0.28 per share** was declared on **January 25, 2024**, payable on **February 27, 2024**[113](index=113&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=31&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management's discussion of Moog Inc.'s Q1 FY2024 financial condition, operations, outlook, and key risks [OVERVIEW](index=31&type=section&id=OVERVIEW) Moog Inc. is a global designer, manufacturer, and systems integrator of high-performance precision motion and fluid controls for aerospace and defense and industrial markets. The company operates under four segments: Space and Defense, Military Aircraft, Commercial Aircraft, and Industrial, with a focus on strategic growth, operational efficiencies, and capital deployment to maximize shareholder returns - Moog Inc. operates in aerospace and defense (Military Aircraft, Commercial Aircraft, Space, Defense) and industrial markets (Industrial Automation, Simulation and Test, Energy, Medical)[116](index=116&type=chunk)[119](index=119&type=chunk) - **63%** of revenue for the quarter ended **December 30, 2023**, was recognized over time using the cost-to-cost method, primarily in aerospace and defense segments[117](index=117&type=chunk) - Key long-term strategies include pricing initiatives for fair value recognition and simplification initiatives such as utilizing **80/20** processes, portfolio shaping, footprint rationalization, factory focus, and investment in automation[121](index=121&type=chunk)[125](index=125&type=chunk) [Acquisitions and Divestitures](index=32&type=section&id=Acquisitions%20and%20Divestitures) In October 2023, Moog Inc. acquired Data Collection Limited (DCL) for approximately $6 million, integrating it into the Military Aircraft segment. This follows prior divestitures of a sonar business in 2022 and the NAVAIDS business in 2021 - Acquired Data Collection Limited (DCL) on **October 20, 2023**, for approximately **$6 million**, included in the Military Aircraft segment[122](index=122&type=chunk) - Sold a sonar business in the UK on **September 30, 2022**, for net proceeds of **$13 million**, resulting in a **$15 million** loss[123](index=123&type=chunk) - Sold NAVAIDS business assets on **December 3, 2021**, for net proceeds of **$37 million**, resulting in a **$15 million** gain[124](index=124&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=33&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) The company regularly evaluates critical accounting policies, including revenue recognition on long-term contracts, contract reserves, inventory valuation, impairment reviews for goodwill and long-lived assets, pension assumptions, and income taxes - Critical accounting policies include revenue recognition on long-term contracts, contract reserves, inventory valuation, goodwill impairment, long-lived asset impairment, pension assumptions, and income taxes[126](index=126&type=chunk) [RECENT ACCOUNTING PRONOUNCEMENTS](index=33&type=section&id=RECENT%20ACCOUNTING%20PRONOUNCEMENTS) Information regarding recent accounting pronouncements issued by the Financial Accounting Standards Board (FASB) is detailed in Note 1 - Basis of Presentation - Further information on recent accounting pronouncements is available in Note **1** - Basis of Presentation[127](index=127&type=chunk) [CONSOLIDATED RESULTS OF OPERATIONS](index=34&type=section&id=CONSOLIDATED%20RESULTS%20OF%20OPERATIONS) For the first quarter of 2024, consolidated net sales increased by 13% to $857 million, driven by commercial aircraft recovery and higher demand across all segments. Gross margin improved to 27.2%, and diluted EPS increased by 3% to $1.48. The twelve-month backlog also grew by 9% to $2.5 billion | Metric (in millions, except per share) | Dec 30, 2023 | Dec 31, 2022 | $ Variance | % Variance | | :------------------------------------- | :----------- | :----------- | :--------- | :--------- | | Net sales | $857 | $760 | $97 | **13%** | | Gross margin | **27.2%** | **26.8%** | | | | Research and development expenses | $31 | $24 | $7 | **28%** | | Interest expense | $17 | $13 | $4 | **27%** | | Net earnings | $48 | $46 | $2 | **4%** | | Diluted earnings per share | $1.48 | $1.44 | $0.04 | **3%** | | Twelve-month backlog | $2,500 | $2,300 | $200 | **9%** | - Net sales increased across all segments due to continued commercial aircraft recovery and higher product demand[129](index=129&type=chunk) - Research and development expenses increased by **28%** due to higher activity supporting new growth programs in Space and Defense and Industrial[130](index=130&type=chunk) [SEGMENT RESULTS OF OPERATIONS](index=35&type=section&id=SEGMENT%20RESULTS%20OF%20OPERATIONS) Segment operating profit is calculated as net sales less cost of sales and other operating expenses, excluding interest, equity-based compensation, non-service pension, and other corporate expenses. All segments, except Industrial, saw an increase in operating profit for the first quarter of 2024 compared to the prior year [Space and Defense](index=35&type=section&id=Space%20and%20Defense) Space and Defense net sales increased by 6% to $230 million, driven by higher demand in both defense and space applications. Operating profit grew by 25% to $25 million, with operating margin improving to 11.0% due to production efficiencies and pricing initiatives, partially offset by higher R&D expenses | Metric (in millions) | Dec 30, 2023 | Dec 31, 2022 | $ Variance | % Variance | | :------------------- | :----------- | :----------- | :--------- | :--------- | | Net sales | $230 | $218 | $12 | **6%** | | Operating profit | $25 | $20 | $5 | **25%** | | Operating margin | **11.0%** | **9.3%** | | | - Sales increased **$9 million** in defense programs and **$4 million** in space programs[137](index=137&type=chunk) - Operating margin benefited from production efficiencies and pricing initiatives, but was partially offset by **$3 million** higher R&D expense[138](index=138&type=chunk) [Military Aircraft](index=35&type=section&id=Military%20Aircraft) Military Aircraft net sales increased by 5% to $186 million, primarily due to expanding demand in OEM programs, particularly the V-280 program. Operating profit rose by 29% to $20 million, with operating margin improving to 10.5% due to increased activity and a more favorable sales mix | Metric (in millions) | Dec 30, 2023 | Dec 31, 2022 | $ Variance | % Variance | | :------------------- | :----------- | :----------- | :--------- | :--------- | | Net sales | $186 | $178 | $8 | **5%** | | Operating profit | $20 | $15 | $4 | **29%** | | Operating margin | **10.5%** | **8.5%** | | | - Military OEM sales increased **$9 million**, driven by higher activity on the V-280 program, partially offset by lower funded development program activity[140](index=140&type=chunk) - Operating margin increased due to increased activity on the V-280 program as staffing levels approached full capacity, and a more favorable sales mix[140](index=140&type=chunk) [Commercial Aircraft](index=36&type=section&id=Commercial%20Aircraft) Commercial Aircraft net sales surged by 47% to $194 million, driven by market recoveries across all programs, with significant increases in commercial OEM and aftermarket sales. Operating profit increased by 42% to $21 million, though operating margin slightly decreased to 10.6% due to the absence of prior year's favorable retrofit activity | Metric (in millions) | Dec 30, 2023 | Dec 31, 2022 | $ Variance | % Variance | | :------------------- | :----------- | :----------- | :--------- | :--------- | | Net sales | $194 | $132 | $62 | **47%** | | Operating profit | $21 | $15 | $6 | **42%** | | Operating margin | **10.6%** | **11.0%** | | | - Commercial OEM sales increased **$49 million**, with over half from Boeing and Airbus widebody programs, and aftermarket sales increased **$13 million**[142](index=142&type=chunk) - Operating margin decreased due to the non-recurrence of favorable retrofit activity from the prior year, offsetting pricing initiative benefits[143](index=143&type=chunk) [Industrial](index=36&type=section&id=Industrial) Industrial net sales increased by 6% to $246 million, driven by higher demand in simulation and test, and industrial automation markets. However, operating profit decreased by 21% to $29 million, and operating margin fell to 11.8%, primarily due to a $10 million gain from building sales in the prior year and restructuring charges | Metric (in millions) | Dec 30, 2023 | Dec 31, 2022 | $ Variance | % Variance | | :------------------- | :----------- | :----------- | :--------- | :--------- | | Net sales | $246 | $232 | $14 | **6%** | | Operating profit | $29 | $37 | $(8) | (**21%**) | | Operating margin | **11.8%** | **15.8%** | | | - Sales increased **$9 million** in simulation and test, and **$5 million** in industrial automation[145](index=145&type=chunk) - Operating margin decreased due to a **$10 million** gain from building sales in the prior year and restructuring charges (**$2 million** in Q1 **2024** vs. **$1 million** in Q1 **2023**)[146](index=146&type=chunk) [CONSOLIDATED SEGMENT OUTLOOK](index=37&type=section&id=CONSOLIDATED%20SEGMENT%20OUTLOOK) Moog Inc. projects higher consolidated sales in 2024, driven by aerospace and defense market recovery, but anticipates a slowdown in Industrial. Overall operating margin is expected to increase due to pricing and simplification initiatives, with adjusted diluted EPS projected between $6.70 and $7.10 | Metric (in millions, except per share) | 2024 Outlook | 2023 | $ Variance | % Variance | | :------------------------------------- | :----------- | :--- | :--------- | :--------- | | Net sales | $3,500 | $3,319 | $181 | **5%** | | Operating profit | $418 | $343 | $75 | **22%** | | Operating margin | **12.0%** | **10.3%** | | | | Net earnings | $222 | $171 | | | | Diluted earnings per share | $6.86 | $5.34 | | | - Overall **2024 sales growth** is expected to be **5%**, driven by aerospace and defense, but offset by anticipated lower sales in Industrial[147](index=147&type=chunk) - Adjusted diluted earnings per share for **2024** are expected to range between **$6.70** and **$7.10**, with a midpoint of **$6.90**[147](index=147&type=chunk) [2024 Outlook – Overall](index=37&type=section&id=2024%20Outlook%20%E2%80%93%20Overall) The company expects higher sales in 2024, driven by aerospace and defense market recovery, but anticipates reduced sales in Industrial due to an expected slowdown in orders. Operating margin is projected to increase due to pricing and simplification initiatives, despite higher interest expense and tax rates - Higher sales expected in **2024**, driven by aerospace and defense market recovery, but Industrial sales will reduce due to anticipated slowdown of orders[147](index=147&type=chunk) - Operating margin is expected to increase due to pricing and simplification initiatives, partially offset by higher interest expense and tax rate[147](index=147&type=chunk) [2024 Outlook for Space and Defense](index=37&type=section&id=2024%20Outlook%20for%20Space%20and%20Defense) Space and Defense expects 7% sales growth in 2024, driven by increased defense spending. Operating margin is projected to increase significantly to 13.5% due to the absence of prior year charges and benefits from pricing initiatives | Metric (in millions) | 2024 Outlook | 2023 | $ Variance | % Variance | | :------------------- | :----------- | :--- | :--------- | :--------- | | Net sales | $1,015 | $947 | $68 | **7%** | | Operating profit | $137 | $96 | $41 | **43%** | | Operating margin | **13.5%** | **10.1%** | | | - Sales growth expected across both space and defense markets, primarily driven by increased investment in defense spending[147](index=147&type=chunk) - Operating margin increase due to absence of prior year's charges associated with space vehicle programs and benefits of pricing initiatives[147](index=147&type=chunk) [2024 Outlook for Military Aircraft](index=37&type=section&id=2024%20Outlook%20for%20Military%20Aircraft) Military Aircraft anticipates 3% sales growth in 2024, driven by OEM programs, particularly the V-280, but expects a decline in aftermarket sales due to a shift in defense funding. Operating margin is projected to increase significantly to 11.6% due to full-year V-280 activity and winding down of funded development contracts | Metric (in millions) | 2024 Outlook | 2023 | $ Variance | % Variance | | :------------------- | :----------- | :--- | :--------- | :--------- | | Net sales | $745 | $720 | $25 | **3%** | | Operating profit | $87 | $60 | $26 | **43%** | | Operating margin | **11.6%** | **8.4%** | | | - Sales growth expected in OEM programs, especially **V-280**, but offset by expected sales decline in military aftermarket programs[148](index=148&type=chunk) - Operating margin increase due to full year of **V-280** program activity and lower charges from winding down funded development contracts[148](index=148&type=chunk) [2024 Outlook for Commercial Aircraft](index=37&type=section&id=2024%20Outlook%20for%20Commercial%20Aircraft) Commercial Aircraft forecasts 22% sales growth in 2024, primarily from widebody OEM programs as build rates increase. However, lower aftermarket sales due to non-recurring retrofit activity from the prior year are expected to reduce operating margin to 10.2% | Metric (in millions) | 2024 Outlook | 2023 | $ Variance | % Variance | | :------------------- | :----------- | :--- | :--------- | :--------- | | Net sales | $815 | $669 | $146 | **22%** | | Operating profit | $83 | $84 | $(1) | (**2%**) | | Operating margin | **10.2%** | **12.6%** | | | - Sales growth expected from widebody OEM programs as build rates ramp up[149](index=149&type=chunk) - Lower sales in commercial aftermarket due to non-recurring prior year retrofit activity will reduce operating margin[149](index=149&type=chunk) [2024 Outlook for Industrial](index=37&type=section&id=2024%20Outlook%20for%20Industrial) Industrial expects a 6% decrease in sales in 2024 due to lower orders in industrial automation and lost sales from footprint and portfolio initiatives. Despite this, operating margin is projected to increase to 12.1% due to pricing initiatives and savings from simplified operations | Metric (in millions) | 2024 Outlook | 2023 | $ Variance | % Variance | | :------------------- | :----------- | :--- | :--------- | :--------- | | Net sales | $925 | $983 | $(58) | (**6%**) | | Operating profit | $112 | $102 | $10 | **9%** | | Operating margin | **12.1%** | **10.4%** | | | - Sales decrease expected due to lower orders in industrial automation market and lost sales from footprint and portfolio initiatives[150](index=150&type=chunk) - Operating margin increase due to benefits of pricing initiatives and savings from simplified operations[150](index=150&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=38&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company's liquidity is supported by cash flows from operations and various financing arrangements, which are deemed sufficient for current and future cash requirements. Net cash provided by operating activities significantly increased in Q1 2024, while investing activities used more cash due to acquisitions and capital expenditures, and financing activities provided less cash [Consolidated Statement of Cash Flows](index=38&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) Net cash provided by operating activities increased significantly to $60 million in Q1 2024. Investing activities used $43 million, primarily for acquisitions and capital expenditures. Financing activities provided $39 million, mainly from net borrowings on credit facilities | Cash Flow Activity (in millions) | Dec 30, 2023 | Dec 31, 2022 | $ Variance | | :------------------------------- | :----------- | :----------- | :--------- | | Net cash provided by operating activities | $60 | $8 | $52 | | Net cash used by investing activities | $(43) | $(25) | $(18) | | Net cash provided by financing activities | $39 | $59 | $(20) | [Operating activities](index=38&type=section&id=Operating%20activities) Net cash provided by operating activities increased by $52 million in Q1 2024, primarily due to an $86 million increase from accounts receivable collections, partially offset by increased cash usage from inventories and unbilled receivables - Net cash provided by operating activities increased by **$52 million** in Q1 **2024** compared to Q1 **2023**[152](index=152&type=chunk) - Accounts receivable provided **$86 million** more cash, driven by strong collections, primarily in aircraft segments[152](index=152&type=chunk) - Inventories and unbilled receivables combined used **$27 million** more cash to support business growth in aerospace and defense[152](index=152&type=chunk) [Investing activities](index=38&type=section&id=Investing%20activities) Net cash used by investing activities increased by $18 million in Q1 2024, totaling $43 million, due to $37 million in capital expenditures and $5 million for the DCL acquisition - Net cash used by investing activities was **$43 million** in Q1 **2024**, including **$37 million** for capital expenditures and **$5 million** for the DCL acquisition[153](index=153&type=chunk) - In Q1 **2023**, investing activities used **$30 million** for capital expenditures, partially offset by proceeds from a building sale[153](index=153&type=chunk) [Financing activities](index=38&type=section&id=Financing%20activities) Net cash provided by financing activities decreased by $20 million in Q1 2024, totaling $39 million, primarily from $57 million in net borrowings on credit facilities and $9 million in cash dividends - Net cash provided by financing activities was **$39 million** in Q1 **2024**, including **$57 million** of net borrowings on credit facilities and **$9 million** of cash dividends[154](index=154&type=chunk) - In Q1 **2023**, financing activities provided **$59 million**, including **$81 million** of net borrowings, **$8 million** of share repurchases, and **$8 million** of cash dividends[154](index=154&type=chunk) [General](index=39&type=section&id=General) The company believes its cash flows from operations and financing arrangements are sufficient to meet cash requirements for the foreseeable future. As of December 30, 2023, cash balances were $127 million, with $106 million held by foreign operations - Cash flows from operations and financing arrangements are expected to be sufficient for cash requirements for the next **12 months** and foreseeable future[155](index=155&type=chunk) - As of **December 30, 2023**, cash balances totaled **$127 million**, with **$106 million** held outside the U.S. by foreign operations[156](index=156&type=chunk) [Financing Arrangements](index=39&type=section&id=Financing%20Arrangements) The company utilizes bank credit facilities and an accounts receivable financing program, including a $1.1 billion U.S. revolving credit facility and $500 million in 4.25% senior notes. As of December 30, 2023, the company had $656 million of unused capacity and was in compliance with all financing covenants - The U.S. revolving credit facility has a **$1.1 billion** capacity, matures **October 27, 2027**, and had a weighted-average interest rate of **6.84%** at **December 30, 2023**[160](index=160&type=chunk) - The company has **$500 million** aggregate principal amount of **4.25%** senior notes due **December 15, 2027**[163](index=163&type=chunk) - As of **December 30, 2023**, the company had **$656 million** of unused capacity, including **$622 million** from the U.S. revolving credit facility, and was in compliance with all covenants[164](index=164&type=chunk)[166](index=166&type=chunk) [Dividends and Common Stock](index=40&type=section&id=Dividends%20and%20Common%20Stock) The company aims to create long-term shareholder value through business investments, strategic acquisitions, and returning capital via quarterly cash dividends and a share repurchase program. Approximately 2.2 million common shares remain under the current repurchase authorization - The company expects to continue paying quarterly cash dividends on Class A and Class B common stock[168](index=168&type=chunk) - A share repurchase program authorizes buying up to **3 million** common shares, with approximately **2.2 million** shares remaining under authorization[169](index=169&type=chunk) [Off Balance Sheet Arrangements](index=40&type=section&id=Off%20Balance%20Sheet%20Arrangements) The company does not have any material off-balance sheet arrangements that are reasonably likely to have a material future effect on its financial condition, results of operations, or cash flows - No material off-balance sheet arrangements exist that are reasonably likely to have a material future effect on financial condition, results of operations, or cash flows[171](index=171&type=chunk) [Contractual Obligations and Commercial Commitments](index=40&type=section&id=Contractual%20Obligations%20and%20Commercial%20Commitments) Contractual obligations and commercial commitments have not materially changed from the disclosures in the Annual Report on Form 10-K for the year ended September 30, 2023 - Contractual obligations and commercial commitments have not materially changed from the prior annual report[172](index=172&type=chunk) [ECONOMIC CONDITIONS AND MARKET TRENDS](index=41&type=section&id=ECONOMIC%20CONDITIONS%20AND%20MARKET%20TRENDS) The company's performance is influenced by economic conditions and market trends in aerospace and defense (70% of 2023 sales) and industrial markets (30% of 2023 sales). Aerospace and defense markets are benefiting from increased defense funding and commercial aircraft recovery, while industrial markets see increased demand in automation, simulation, and energy. Foreign currency movements also impact sales [Aerospace and Defense](index=41&type=section&id=Aerospace%20and%20Defense) The aerospace and defense market, representing 70% of 2023 sales, is driven by military spending, commercial aircraft demand, and space investments. Defense spending has increased due to global tensions, commercial OEM aircraft production rates are expected to rise, and the space market benefits from investments in small satellites and launch vehicles - Defense market is dependent on military spending, which has recently increased due to global tensions[179](index=179&type=chunk) - Commercial OEM aircraft market is recovering, with Boeing and Airbus expected to increase widebody aircraft production rates[180](index=180&type=chunk) - Space market is driven by civil, U.S. Department of Defense, and commercial space investments, with growing emphasis on space as a frontier for potential conflicts[182](index=182&type=chunk) [Industrial](index=42&type=section&id=Industrial) The industrial market, comprising 30% of 2023 sales, includes industrial automation, simulation and test, energy, and medical products. This market is influenced by capital investment levels, economic conditions, and technological advancements, with strong order demand in flight simulation and industrial automation - Industrial market is influenced by capital investment levels, product innovation, economic conditions, and technology upgrades[184](index=184&type=chunk) - Stronger order demand observed for flight simulation systems and industrial automation products[185](index=185&type=chunk) - Medical market is influenced by economic conditions, regulatory environments, hospital spending, and patient demands for precision control components[187](index=187&type=chunk) [Foreign Currencies](index=42&type=section&id=Foreign%20Currencies) Foreign currency movements, particularly against the U.S. dollar, impact the company, with about one-sixth of 2023 sales denominated in foreign currencies. In Q1 2024, strengthening foreign currency rates increased sales by $6 million compared to the prior year - Approximately **one-sixth of 2023 sales** were denominated in foreign currencies[188](index=188&type=chunk) - Strengthening foreign currency rates against the U.S. dollar increased sales by **$6 million** in Q1 **2024** compared to the prior year[188](index=188&type=chunk) [Cautionary Statement](index=43&type=section&id=Cautionary%20Statement) Outlines risks and uncertainties that could cause actual results to differ from forward-looking statements, covering strategic, market, operational, financial, legal, and general risks - Forward-looking statements are subject to factors, risks, and uncertainties that could cause actual results to differ materially[189](index=189&type=chunk) - Key risk categories include strategic, market condition, operational, financial, legal and compliance, and general risks[190](index=190&type=chunk)[191](index=191&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk) [STRATEGIC RISKS](index=43&type=section&id=STRATEGIC%20RISKS) Strategic risks include intense market competition, potential failure of R&D efforts, inability to protect intellectual property, and challenges in identifying, acquiring, or integrating strategic acquisitions or conducting portfolio shaping initiatives - Operating in highly competitive markets with potentially greater-resourced competitors[192](index=192&type=chunk) - Risk that R&D and innovation efforts may not be successful, potentially reducing sales and earnings[192](index=192&type=chunk) - Challenges in identifying, acquiring, or integrating strategic acquisitions, or conducting portfolio shaping and footprint rationalization initiatives[192](index=192&type=chunk) [MARKET CONDITION RISKS](index=43&type=section&id=MARKET%20CONDITION%20RISKS) Market condition risks involve cyclical and sensitive markets, heavy reliance on government contracts that may not be fully funded or terminated, potential adverse impact from the loss of The Boeing Company as a customer, and the possibility of not realizing full backlog amounts as revenue - Markets are cyclical and sensitive to domestic and foreign economic conditions and events[192](index=192&type=chunk) - Heavy dependence on government contracts that may not be fully funded or could be terminated[192](index=192&type=chunk) - Risk of adverse impact from the loss of The Boeing Company as a customer or a significant reduction in sales to them[192](index=192&type=chunk) [OPERATIONAL RISKS](index=43&type=section&id=OPERATIONAL%20RISKS) Operational risks include a constrained supply chain and inflated prices impacting manufacturing and profit, subcontractor/supplier failure, information systems interruptions or new software implementation issues, inability to prevent or detect product/manufacturing process issues, and potential damage to reputation or claims from product failure/misuse - Constrained supply chain and inflated prices for raw materials and components could impact manufacturing, operating profit, and balance sheet[192](index=192&type=chunk) - Risks related to information systems interruptions, intrusions, or new software implementations[192](index=192&type=chunk) - Inability to prevent or timely detect issues with products and manufacturing processes, potentially affecting operations and earnings[192](index=192&type=chunk) [FINANCIAL RISKS](index=44&type=section&id=FINANCIAL%20RISKS) Financial risks encompass significant impacts from changes in estimates for over-time contracts, potential losses from fixed-price contracts due to cost overruns, limitations from indebtedness and restrictive covenants, adverse effects from changes in pension assumptions, goodwill impairment, and unforeseen income tax liabilities - Changes in estimates for over-time contracts may have significant impacts on earnings[197](index=197&type=chunk) - Fixed-price contracts could lead to losses if cost overruns occur[197](index=197&type=chunk) - Indebtedness and restrictive covenants under credit facilities and senior notes could limit operational and financial flexibility[197](index=197&type=chunk) [LEGAL AND COMPLIANCE RISKS](index=44&type=section&id=LEGAL%20AND%20COMPLIANCE%20RISKS) Legal and compliance risks include significant regulation on government programs, exposure to currency/political/trade risks in foreign operations, government regulations limiting product sales outside the U.S., unfavorable outcomes from legal proceedings, environmental compliance costs, sustainability goal failures, and the impact of facility security clearance invalidation - Government programs are subject to significant regulation, with non-compliance potentially leading to fines, penalties, or debarment[197](index=197&type=chunk) - Operations in foreign countries expose the company to currency, political, and trade risks, and adverse changes in local legal/regulatory environments[197](index=197&type=chunk) - The recently received invalidation of facility security clearance by DCSA could impact potential future business and operating results[197](index=197&type=chunk) [GENERAL RISKS](index=44&type=section&id=GENERAL%20RISKS) General risks include potential negative impacts from terror attacks, war, natural disasters, or other catastrophic events beyond control, and the risk of suffering if the company cannot maintain its culture, attract, retain, and engage employees - Future terror attacks, war, natural disasters, or other catastrophic events beyond control could negatively impact the business[197](index=197&type=chunk) - Performance could suffer if the company cannot maintain its culture, attract, retain, and engage employees[197](index=197&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) There have been no material changes in the company's quantitative and qualitative disclosures about market risk during the current year, as detailed in the Annual Report on Form 10-K for the year ended September 30, 2023 - No material changes in market risk information during the current year[196](index=196&type=chunk) - Refer to the Annual Report on Form **10-K** for the year ended **September 30, 2023**, for a complete discussion of market risk[196](index=196&type=chunk) [Item 4. Controls and Procedures](index=45&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 30, 2023. There have been no material changes in internal control over financial reporting during the most recent fiscal quarter - Disclosure controls and procedures were effective as of **December 30, 2023**[199](index=199&type=chunk) - No material changes in internal control over financial reporting during the most recent fiscal quarter[199](index=199&type=chunk) PART II OTHER INFORMATION [Item 1A. Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes in the company's risk factors during the current year, as previously discussed in the Annual Report on Form 10-K for the year ended September 30, 2023 - No material changes in risk factors during the current year[200](index=200&type=chunk) - Refer to the Annual Report on Form **10-K** for the year ended **September 30, 2023**, for a complete discussion of risk factors[200](index=200&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=46&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company's purchases of common stock for the quarter ended December 30, 2023, totaled 96,425 shares at an average price of $131.53. These purchases were primarily related to the SECT acquiring Class B shares and the company accepting shares for equity-based compensation exercises and tax withholding | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :-------------------------------- | :----------------------------- | :--------------------------- | | **October 1, 2023** - **October 28, 2023** | 6,732 | **$114.38** | | **October 29, 2023** - **December 2, 2023** | 72,498 | **$130.36** | | **December 3, 2023** - **Decembe

Financial Performance - Net sales for the fiscal year ended September 30, 2023, were $3,319.1 million, an increase of 9.4% from $3,035.8 million in the previous year[217]. - Gross profit for the same period was $891.5 million, representing a gross margin of approximately 26.8%, up from $820.8 million in the prior year[217]. - Net earnings increased to $171.0 million, a rise of 10.5% compared to $155.2 million in the previous year, resulting in diluted earnings per share of $5.34[217]. - The company reported comprehensive income of $227.4 million for the fiscal year, significantly higher than $91.7 million in the previous year[219]. - The company reported net cash provided by operating activities of $135,935,000 for the fiscal year ended September 30, 2023, a decrease from $246,802,000 in the prior year[231]. Sales and Market Segmentation - Aerospace and defense OEM customers accounted for 58% of total sales in 2023, while industrial market sales represented 30%[42]. - Sales under U.S. Government contracts constituted 39% of total sales in 2023, primarily within Aircraft Controls and Space and Defense Controls segments[44]. - Net sales to the five largest customers represented approximately 32% of total sales in 2023[43]. - Aftermarket sales accounted for 13% of total sales in 2023[42]. - Sales to The Boeing Company constituted 11% of total sales in 2023, with a significant portion tied to government defense spending[62]. Research and Development - Research and development expenses were at least $107 million in each of the last three years, representing approximately 3% of sales in 2023[21]. - The company has incurred substantial expenses associated with research and development to maintain a leadership position in the high-performance, precision controls market[56]. - Research and development expenses were $106.6 million, slightly down from $109.5 million in the previous year, indicating a focus on cost management[217]. - Research and development costs are expensed as incurred, including salaries, benefits, consulting, material costs, depreciation, and amortization[241]. Backlog and Future Revenue - The twelve-month backlog as of September 30, 2023, was $2.4 billion, reflecting a 4% increase compared to October 1, 2022[17]. - As of September 30, 2023, the total backlog was $5.1 billion, representing confirmed orders expected to be recognized as revenue[63]. - The aggregate amount of transaction price allocated to unsatisfied performance obligations was $5,100,000, with an expectation to recognize approximately 47% as sales over the next twelve months[279]. - The company may not realize the full revenue value of orders in its backlog due to uncertainties in government contracts[63]. Employment and Workforce - The company hired over 2,000 new regular employees globally in 2023[25]. - The average voluntary attrition rate over the last five years was approximately 6%[33]. Financial Position and Assets - Total assets increased to $3,808.0 million from $3,431.8 million year-over-year, reflecting growth in the company's financial position[223]. - Shareholders' equity rose to $1,636.1 million, up from $1,436.8 million, indicating improved financial health and retained earnings[223]. - As of September 30, 2023, the company reported goodwill of $821 million and other intangible assets of $72 million, representing a significant portion of total assets of $3.8 billion[75]. Risks and Challenges - The company experienced supply chain constraints and inflated prices for raw materials, impacting manufacturing and operating profit[64]. - Future levels of defense spending are uncertain and subject to congressional debate, which could adversely impact sales and operating profit[61]. - The company faces risks from competitors with greater resources, which may impact sales and operating margins[55]. - The company relies on subcontractors and suppliers for manufacturing, which poses risks to contract performance and future business opportunities[65]. - The company faces potential liabilities from product defects, which could lead to recalls and significant damages, impacting financial results and reputation[69]. Environmental and Governance - The company is assessing its environmental, social, and governance impact across 25 countries to establish sustainability goals[39]. - Compliance with environmental laws may require significant capital expenditures, especially if new regulations are introduced[81]. Debt and Liabilities - The company had $368 million in borrowings subject to variable interest rates as of September 30, 2023, with an average borrowing of $481 million during the year[211]. - Long-term debt increased from $836,872 million on October 1, 2022, to $863,092 million on September 30, 2023, an increase of about 3.1%[316]. - The weighted-average interest rate on outstanding credit facility borrowings was 6.93% as of September 30, 2023[316]. Pension and Benefits - Changes in pension assumptions could adversely affect earnings and funding requirements, despite the largest pension plan being well funded[74]. - The projected benefit obligation for U.S. plans decreased from $530,946 in 2022 to $494,876 in 2023, a reduction of approximately 6.5%[339]. - The funded status for U.S. plans worsened, with a deficit of $102,432 in 2023 compared to a deficit of $85,223 in 2022, indicating a deterioration of approximately 20.2%[339]. - The company recognized a one-time settlement charge of $12,542 due to the lump sum payment made in the U.S. defined benefit pension plan[339].

Financial Performance - Net sales for the three months ended July 1, 2023, were $850,176 thousand, a 10% increase from $772,911 thousand for the same period in 2022[11] - Gross profit for the nine months ended July 1, 2023, was $647,634 thousand, compared to $617,635 thousand for the same period in 2022, reflecting a 4.9% increase[11] - Net earnings for the three months ended July 1, 2023, were $42,387 thousand, down 16% from $50,409 thousand in the same period of 2022[11] - Basic net earnings per share for the three months ended July 1, 2023, were $1.33, compared to $1.58 for the same period in 2022, representing a 15.8% decrease[11] - Comprehensive income for the nine months ended July 1, 2023, was $207,624 thousand, significantly higher than $69,337 thousand for the same period in 2022[14] - Net earnings for the nine months ended July 1, 2023, were $131,416,000, compared to $125,761,000 for the same period in 2022, reflecting an increase of approximately 5.2%[24] - Operating profit for the three months ended July 1, 2023, was $84.5 million, compared to $79.3 million for the same period in 2022, reflecting an increase of 6%[104] - Total operating profit for the nine months ended July 1, 2023, was $255.0 million, an increase from $216.9 million in the same period of 2022[104] Assets and Liabilities - Total assets as of July 1, 2023, were $3,882,243 thousand, an increase from $3,431,841 thousand as of October 1, 2022, indicating a growth of 13.1%[17] - Total liabilities as of July 1, 2023, were $2,261,059 thousand, up from $1,995,028 thousand as of October 1, 2022, reflecting a 13.3% increase[17] - Long-term debt as of July 1, 2023, was $1,012,080 million, an increase from $836,872 million as of October 1, 2022[77] - Total finance lease liabilities as of July 1, 2023, were $75,736 million, up from $26,773 million as of October 1, 2022[67] Cash Flow and Investments - Cash flows from operating activities for the nine months ended July 1, 2023, were $(17,097,000), a significant decrease from $184,264,000 in the prior year[24] - The company reported a net cash used by investing activities of $(113,895,000) for the nine months ended July 1, 2023, compared to $(85,267,000) in the prior year[24] - Net cash provided by financing activities of $133,213,000, a significant improvement compared to $(97,872,000) in the prior year[24] - Net cash used by operating activities was $(17) million in the first three quarters of 2023, a decrease of $201 million compared to the same period in 2022[158] Research and Development - Research and development expenses for the three months ended July 1, 2023, were $26,502 thousand, slightly up from $25,890 thousand in the same period of 2022[11] - Research and development expenses were $27 million for the third quarter of 2023, a slight increase from $26 million in the same quarter of 2022, but decreased by 9% to $77 million for the first three quarters of 2023 compared to $84 million in the same period of 2022[128][130] Dividends and Shareholder Returns - Cash dividends declared were $0.27 per share for the three months ended July 1, 2023, compared to $0.26 per share for the same period in 2022[20] - The company declared a quarterly dividend of $0.27 per share, payable on August 28, 2023, to shareholders of record as of August 11, 2023[110] Market and Sales Performance - The twelve-month backlog increased to $2.3 billion, up from $2.2 billion in the previous year, driven by higher orders in Aircraft Controls and Space and Defense Controls[128][134] - Aircraft Controls' net sales for military aircraft decreased by $10 million (6%) in Q3 2023 compared to Q3 2022, while commercial aircraft sales increased by $47 million (34%) in the same period[136] - Space and Defense Controls' net sales increased by $19 million (8%) in Q3 2023 compared to Q3 2022, driven by growth in defense and space programs[142] - Total company net sales for 2023 are projected to be $3,250 million, an increase of $214 million (7%) compared to 2022[154] Strategic Acquisitions and Divestitures - The company acquired TEAM Accessories Limited for a purchase price of $14,394, enhancing its capabilities in Maintenance, Repair and Overhaul services[49] - The company sold a sonar business for net proceeds of $13,075, incurring a loss of $15,246, reflecting strategic divestitures to streamline operations[50] Risks and Challenges - The company operates in highly competitive markets, facing risks from competitors with greater resources[204] - Significant reliance on government contracts, which may not be fully funded or could be terminated, potentially reducing sales and increasing costs[204] - Supply chain issues, including reduced supply and inflated prices of raw materials, could materially affect manufacturing and operating profit[204] - Risks related to health pandemics, such as COVID-19, have had material adverse consequences on operations and financial position[204] Tax and Compliance - The effective tax rate for the three months ended July 1, 2023, was 15.8%, lower than the U.S. federal statutory tax rate of 21% due to beneficial adjustments related to the U.S. research and development tax credit[95] - The effective tax rate for the third quarter of 2023 was 15.8%, relatively unchanged from 15.7% in the same quarter of 2022[128][133]

PART I FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated condensed financial statements for Moog Inc., including statements of earnings, comprehensive income, balance sheets, shareholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, revenue recognition, acquisitions, and various financial accounts [Consolidated Condensed Statements of Earnings](index=4&type=section&id=Consolidated%20Condensed%20Statements%20of%20Earnings) This table provides key financial performance metrics for the three and six months ended April 1, 2023, and April 2, 2022 **Consolidated Condensed Statements of Earnings (Unaudited) - Key Figures (dollars in millions)** | Metric | Three Months Ended April 1, 2023 | Three Months Ended April 2, 2022 | Six Months Ended April 1, 2023 | Six Months Ended April 2, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net sales | $836.8 | $770.8 | $1,596.9 | $1,494.9 | | Gross profit | $221.3 | $213.0 | $425.0 | $405.9 | | Earnings before income taxes | $56.3 | $38.7 | $116.6 | $100.1 | | Net earnings | $43.0 | $29.1 | $89.0 | $75.4 | | Basic Net earnings per share | $1.35 | $0.91 | $2.80 | $2.35 | | Diluted Net earnings per share | $1.34 | $0.91 | $2.79 | $2.34 | [Consolidated Condensed Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Condensed%20Statements%20of%20Comprehensive%20Income) This table details the components of comprehensive income, including net earnings and other comprehensive income (loss), for the specified interim periods **Consolidated Condensed Statements of Comprehensive Income (Unaudited) - Key Figures (dollars in millions)** | Metric | Three Months Ended April 1, 2023 | Three Months Ended April 2, 2022 | Six Months Ended April 1, 2023 | Six Months Ended April 2, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net earnings | $43.0 | $29.1 | $89.0 | $75.4 | | Other comprehensive income (loss), net of tax | $14.7 | $(14.0) | $68.5 | $(16.4) | | Comprehensive income | $57.7 | $15.0 | $157.5 | $59.0 | [Consolidated Condensed Balance Sheets](index=6&type=section&id=Consolidated%20Condensed%20Balance%20Sheets) This table presents the company's financial position, including assets, liabilities, and shareholders' equity, as of April 1, 2023, and October 1, 2022 **Consolidated Condensed Balance Sheets (Unaudited) - Key Figures (dollars in millions)** | Metric | April 1, 2023 | October 1, 2022 | | :-------------------------------- | :-------------- | :-------------- | | Total current assets | $1,933.2 | $1,758.3 | | Total assets | $3,699.6 | $3,431.8 | | Total current liabilities | $842.9 | $838.4 | | Total liabilities | $2,119.8 | $1,995.0 | | Total shareholders' equity | $1,579.8 | $1,436.8 | [Consolidated Condensed Statements of Shareholders' Equity](index=7&type=section&id=Consolidated%20Condensed%20Statements%20of%20Shareholders'%20Equity) This section outlines changes in shareholders' equity, including retained earnings and dividends, for the six-month periods ended April 1, 2023, and April 2, 2022 **Consolidated Condensed Statements of Shareholders' Equity (Unaudited) - Key Figures (dollars in millions)** | Metric | April 1, 2023 (Six Months) | April 2, 2022 (Six Months) | | :-------------------------------- | :------------------------- | :------------------------- | | Beginning Retained Earnings | $2,360.1 | $2,237.8 | | Net earnings | $89.0 | $75.4 | | Dividends | $(16.9) | $(16.4) | | End Retained Earnings | $2,432.2 | $2,296.8 | | Total Shareholders' Equity | $1,579.8 | $1,430.6 | - Cash dividends were **$0.27 per share** for the three months ended April 1, 2023, and **$0.53 per share** for the six months ended April 1, 2023, representing an increase from **$0.26** and **$0.51 per share** for the corresponding periods in 2022[19](index=19&type=chunk) [Consolidated Condensed Statements of Cash Flows](index=9&type=section&id=Consolidated%20Condensed%20Statements%20of%20Cash%20Flows) This table summarizes the cash flows from operating, investing, and financing activities for the six months ended April 1, 2023, and April 2, 2022 **Consolidated Condensed Statements of Cash Flows (Unaudited) - Key Figures (dollars in millions)** | Metric | Six Months Ended April 1, 2023 | Six Months Ended April 2, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided (used) by operating activities | $(33.0) | $180.2 | | Net cash used by investing activities | $(74.2) | $(48.1) | | Net cash provided (used) by financing activities | $92.2 | $(109.7) | | Increase (decrease) in cash, cash equivalents and restricted cash | $(9.6) | $21.2 | | Cash, cash equivalents and restricted cash at end of period | $109.7 | $122.1 | [Notes to Consolidated Condensed Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Condensed%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the consolidated condensed financial statements, covering accounting policies, specific accounts, and significant events [Note 1 - Basis of Presentation](index=10&type=section&id=Note%201%20-%20Basis%20of%20Presentation) The financial statements are unaudited, prepared in accordance with U.S. GAAP for interim information, and include normal recurring adjustments, with interim results not indicative of the full year - In 2023, a **$1,000 impairment charge** was recorded on long-lived assets in the Aircraft Controls segment due to the U.S. Air Force's KC-10 tanker retirement announcement, and a **$219 impairment charge** on receivables in the Space and Defense Controls segment due to an expected contract cancellation[27](index=27&type=chunk) - In 2022, impairment charges were recorded on long-lived assets in the Aircraft Controls segment due to a slower commercial aircraft business recovery, and on receivables and inventories due to Russian actions in Ukraine[28](index=28&type=chunk) [Note 2 - Revenue from Contracts with Customers](index=11&type=section&id=Note%202%20-%20Revenue%20from%20Contracts%20with%20Customers) The company recognizes revenue using the five-step model of ASC 606, with most contracts accounted for as one performance obligation, recognized either over time or at a point in time - Revenue is recognized over time using the cost-to-cost method for U.S. Government contracts and repair/overhaul arrangements, and for many large commercial contracts where performance does not create an asset with an alternative use and there's an enforceable right to payment[38](index=38&type=chunk) - Revenue is recognized at a point in time for commercial contracts in Industrial Systems where the asset has an alternative use, determined by factors like right to payment, legal title, physical possession, risks/rewards, and customer acceptance[39](index=39&type=chunk) **Contract Assets and Liabilities (dollars in millions)** | Metric | April 1, 2023 | October 1, 2022 | | :----------------- | :-------------- | :-------------- | | Unbilled receivables | $685.4 | $614.8 | | Contract advances | $317.3 | $296.9 | | Net contract assets | $368.1 | $317.9 | - As of April 1, 2023, the aggregate transaction price allocated to unsatisfied performance obligations was **$5.2 billion**, with approximately **44%** expected to be recognized as sales over the next twelve months[46](index=46&type=chunk) [Note 3 - Acquisitions and Divestitures](index=13&type=section&id=Note%203%20-%20Acquisitions%20and%20Divestitures) The company completed one acquisition in February 2022 and three divestitures in late 2021 and 2022, impacting its Aircraft Controls, Industrial Systems, and Space and Defense Controls segments - On February 21, 2022, Moog acquired TEAM Accessories Limited for **$14.394 million** (net of cash), specializing in Maintenance, Repair and Overhaul of engine and airframe components, integrated into the Aircraft Controls segment[48](index=48&type=chunk) - In September 2022, Moog sold a sonar business (Industrial Systems segment) for **$13.075 million** net proceeds, recording a **$15.246 million loss**, and a security business (Space and Defense Controls segment) for **$9.108 million** net proceeds, recording a **$4.324 million loss**[49](index=49&type=chunk)[50](index=50&type=chunk) - In December 2021, Moog sold its Navigation Aids (NAVAIDS) business (Aircraft Controls segment) for **$36.550 million** net proceeds, recording a **$16.146 million gain**[51](index=51&type=chunk) [Note 4 - Receivables](index=14&type=section&id=Note%204%20-%20Receivables) Receivables increased significantly from October 2022 to April 2023, primarily driven by unbilled receivables, with $100 million sold and derecognized through a Receivables Purchase Agreement **Receivables Composition (dollars in millions)** | Metric | April 1, 2023 | October 1, 2022 | | :---------------------- | :-------------- | :-------------- | | Accounts receivable | $382.1 | $363.1 | | Unbilled receivables | $685.4 | $614.8 | | Receivables, net | $1,080.0 | $990.3 | | Allowance for credit losses | $(4.1) | $(4.6) | - Under the RPA, Moog Receivables LLC may sell receivables up to a **$100 million** limit; as of April 1, 2023, **$100 million** was sold and derecognized from the balance sheet, with **$731.26 million** in unsold receivables held as collateral[53](index=53&type=chunk)[56](index=56&type=chunk) [Note 5 - Inventories](index=15&type=section&id=Note%205%20-%20Inventories) Inventories, net of reserves, increased across all categories from October 2022 to April 2023, with work in progress being the largest component **Inventories, net of reserves (dollars in millions)** | Metric | April 1, 2023 | October 1, 2022 | | :-------------------------- | :-------------- | :-------------- | | Raw materials and purchased parts | $260.2 | $219.9 | | Work in progress | $339.5 | $305.3 | | Finished goods | $79.3 | $63.2 | | Inventories, net | $679.0 | $588.5 | [Note 6 - Property, Plant and Equipment](index=15&type=section&id=Note%206%20-%20Property,%20Plant%20and%20Equipment) Net property, plant and equipment increased from October 2022 to April 2023, primarily driven by increases in buildings and improvements, and machinery and equipment **Property, Plant and Equipment (dollars in millions)** | Metric | April 1, 2023 | October 1, 2022 | | :-------------------------------- | :-------------- | :-------------- | | Property, plant and equipment, at cost | $1,636.3 | $1,522.7 | | Less accumulated depreciation and amortization | $(898.7) | $(853.8) | | Property, plant and equipment, net | $737.6 | $668.9 | [Note 7 - Leases](index=15&type=section&id=Note%207%20-%20Leases) The company leases manufacturing facilities, office space, and equipment, classifying them as operating or finance leases, with weighted average remaining lease terms of 7.8 years for operating and 14.5 years for finance leases **Components of Lease Expense (dollars in millions)** | Metric | Three Months Ended April 1, 2023 | Three Months Ended April 2, 2022 | Six Months Ended April 1, 2023 | Six Months Ended April 2, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Operating lease cost | $7.6 | $7.2 | $15.0 | $14.2 | | Total finance lease cost | $1.6 | $0.9 | $2.9 | $1.7 | **Supplemental Balance Sheet Information Related to Leases (April 1, 2023)** | Metric | Operating Leases (dollars in millions) | Finance Leases (dollars in millions) | | :-------------------------------- | :------------------------------- | :----------------------------- | | Right-of-use assets (net) | $62.6 | $32.9 | | Total lease liabilities | $72.3 | $34.9 | | Weighted average remaining lease term (years) | 7.8 | 14.5 | | Weighted average discount rates | 5.1% | 5.3% | [Note 8 - Goodwill and Intangible Assets](index=18&type=section&id=Note%208%20-%20Goodwill%20and%20Intangible%20Assets) Goodwill increased across all segments, primarily due to foreign currency translation adjustments, reaching $826.5 million as of April 1, 2023, while intangible assets are amortized over their estimated useful lives **Goodwill by Segment (dollars in millions)** | Segment | Balance at October 1, 2022 | Adjustments to prior year acquisitions | Foreign currency translation | Balance at April 1, 2023 | | :---------------------- | :------------------------- | :----------------------------------- | :--------------------------- | :----------------------- | | Aircraft Controls | $199.5 | $0.1 | $4.8 | $204.4 | | Space and Defense Controls | $259.4 | — | $0.1 | $259.5 | | Industrial Systems | $346.4 | — | $16.2 | $362.6 | | Total | $805.3 | $0.1 | $21.1 | $826.5 | **Intangible Assets (April 1, 2023, dollars in millions)** | Type | Weighted Average Life (years) | Gross Carrying Amount | Accumulated Amortization | | :------------------ | :---------------------------- | :-------------------- | :----------------------- | | Customer-related | 11 | $138.9 | $(92.9) | | Technology-related | 9 | $71.6 | $(55.8) | | Program-related | 23 | $37.7 | $(21.0) | | Marketing-related | 8 | $22.4 | $(18.7) | | Other | 10 | $1.8 | $(1.6) | | Total | 12 | $272.4 | $(190.0) | - Estimated future amortization of acquired intangible assets is approximately **$11.7 million** for 2023, **$10.9 million** for 2024, **$9.8 million** for 2025, **$9.6 million** for 2026, and **$8.7 million** for 2027[69](index=69&type=chunk) [Note 9 - Equity Method Investments and Joint Ventures](index=19&type=section&id=Note%209%20-%20Equity%20Method%20Investments%20and%20Joint%20Ventures) The company holds equity method investments in joint ventures like Moog Aircraft Services Asia (MASA) and NOVI LLC, and a limited partnership, Suffolk Technologies Fund 1, L.P., with varying ownership interests and capital commitments **Equity Method Investments and Joint Ventures (April 1, 2023, dollars in millions)** | Entity | Net Investment Balance | Income (Loss) Three Months Ended | Income (Loss) Six Months Ended | | :-------------------------- | :--------------------- | :------------------------------- | :----------------------------- | | Moog Aircraft Service Asia | $1.2 | $0.1 | $(0.1) | | NOVI LLC | $0.6 | — | — | | Suffolk Technologies Fund 1, L.P. | $1.0 | $0.2 | $0.1 | | Total | $2.9 | $0.2 | $0.03 | - Moog holds a **51% ownership** in MASA (Aircraft Controls segment) for MRO services, a **42.5% interest** in NOVI LLC (Space and Defense Controls segment) for machine learning in space situational awareness, and a limited partnership interest in Suffolk Technologies Fund 1, L.P. (Industrial Systems segment) with a remaining capital commitment of up to **$6.751 million**[71](index=71&type=chunk)[72](index=72&type=chunk) [Note 10 - Indebtedness](index=20&type=section&id=Note%2010%20-%20Indebtedness) The company's long-term debt primarily consists of a U.S. revolving credit facility, SECT revolving credit facility, and senior notes, with the U.S. facility amended in October 2022 to extend maturity and increase capacity **Long-term Debt Composition (dollars in millions)** | Metric | April 1, 2023 | October 1, 2022 | | :-------------------------- | :-------------- | :-------------- | | U.S. revolving credit facility | $435.8 | $321.3 | | SECT revolving credit facility | $28.0 | $20.0 | | Senior notes 4.25% | $500.0 | $500.0 | | Long-term debt | $958.4 | $836.9 | - The U.S. revolving credit facility was amended on October 27, 2022, extending its maturity to October 27, 2027, and increasing its capacity to **$1.1 billion** with an expansion option of up to **$400 million**[76](index=76&type=chunk) - The company has **$500 million** in **4.25% senior notes** due December 15, 2027, and is in compliance with all covenants for its financing arrangements[78](index=78&type=chunk) [Note 11 - Other Accrued Liabilities](index=21&type=section&id=Note%2011%20-%20Other%20Accrued%20Liabilities) Other accrued liabilities primarily include employee benefits, contract reserves, warranty accruals, and accrued income taxes, with warranty accrual activity showing new warranties issued and reductions for settling existing ones **Other Accrued Liabilities (dollars in millions)** | Metric | April 1, 2023 | October 1, 2022 | | :---------------------- | :-------------- | :-------------- | | Employee benefits | $47.0 | $56.1 | | Contract reserves | $45.6 | $46.5 | | Warranty accrual | $22.1 | $23.1 | | Accrued income taxes | $24.8 | $17.8 | | Other accrued liabilities | $212.3 | $215.4 | **Warranty Accrual Activity (dollars in millions)** | Metric | Six Months Ended April 1, 2023 | Six Months Ended April 2, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Beginning of period | $23.1 | $26.6 | | Issued during current period | $5.0 | $3.4 | | Reductions for settling warranties | $(6.0) | $(4.9) | | End of period | $22.1 | $24.5 | [Note 12 - Derivative Financial Instruments](index=21&type=section&id=Note%2012%20-%20Derivative%20Financial%20Instruments) The company uses derivative financial instruments, primarily foreign currency contracts, to manage foreign exchange risk for operations and transactions, with some designated as cash flow hedges and others not - As of April 1, 2023, the company had **$14.124 million** in notional foreign currency contracts designated as cash flow hedges, maturing through March 1, 2024, to fix exchange rates on future payments and revenue[82](index=82&type=chunk) - The company also had **$122.789 million** in notional foreign currency contracts not designated as hedging instruments, used to minimize foreign currency exposure on intercompany balances[86](index=86&type=chunk) **Fair Value of Derivatives (dollars in millions)** | Metric | April 1, 2023 | October 1, 2022 | | :-------------------------------- | :-------------- | :-------------- | | Total asset derivatives (hedging) | $0.5 | $0.7 | | Total liability derivatives (hedging) | $0.9 | $4.6 | | Asset derivatives (non-hedging) | $0.03 | $0.7 | | Liability derivatives (non-hedging) | $0.1 | $0.7 | [Note 13 - Fair Value](index=23&type=section&id=Note%2013%20-%20Fair%20Value) The company classifies its financial assets and liabilities into a fair value hierarchy, with derivatives primarily Level 2 and acquisition contingent consideration Level 3, and the fair value of long-term debt differing from its carrying value - Derivatives are valued using pricing models or discounted cash flow analyses incorporating observable market data, classifying them as **Level 2** within the valuation hierarchy[91](index=91&type=chunk) - Acquisition contingent consideration is classified as **Level 3**, with its balance decreasing from **$3.272 million** at October 1, 2022, to **$2.954 million** at April 1, 2023[91](index=91&type=chunk) - As of April 1, 2023, the fair value of long-term debt was **$920.817 million**, compared to its carrying value of **$964.574 million**, classified as **Level 2**[91](index=91&type=chunk) [Note 14 - Restructuring](index=24&type=section&id=Note%2014%20-%20Restructuring) Restructuring accruals, primarily for severance and other costs, increased from October 2022 to April 2023, with the majority related to the 2022 plan, and most costs expected to be paid within a year **Restructuring Accrual by Segment (dollars in millions)** | Segment | Balance at October 1, 2022 | Charged to expense - 2022 plan | Cash payments - 2022 plan | Balance at April 1, 2023 | | :---------------------- | :------------------------- | :----------------------------- | :------------------------ | :----------------------- | | Aircraft Controls | $0.2 | — | $(0.2) | — | | Space and Defense Controls | $0.2 | $0.7 | $(0.4) | $0.5 | | Industrial Systems | $6.7 | $2.4 | $(0.3) | $8.8 | | Total | $7.1 | $3.1 | $(1.0) | $9.3 | - As of April 1, 2023, the restructuring accrual included **$5.263 million** for the 2022 plan, **$2.707 million** for the 2020 plan, and **$1.301 million** for the 2018 plan[92](index=92&type=chunk) [Note 15 - Employee Benefit Plans](index=24&type=section&id=Note%2015%20-%20Employee%20Benefit%20Plans) The company incurs expenses for both defined contribution and defined benefit pension plans, with total expense for defined contribution plans slightly increasing and net periodic benefit costs for defined benefit plans also rising in the first half of 2023 **Total Expense for Defined Contribution Plans (dollars in millions)** | Metric | Three Months Ended April 1, 2023 | Three Months Ended April 2, 2022 | Six Months Ended April 1, 2023 | Six Months Ended April 2, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | U.S. defined contribution plans | $12.0 | $11.2 | $22.2 | $21.7 | | Non-U.S. defined contribution plans | $2.0 | $2.4 | $4.1 | $4.5 | | Total expense | $14.1 | $13.6 | $26.3 | $26.3 | **Expense for Defined Benefit Plans (Six Months Ended, dollars in millions)** | Metric | April 1, 2023 | April 2, 2022 | | :-------------------------------- | :-------------- | :-------------- | | U.S. defined benefit plans | $12.9 | $11.9 | | Non-U.S. defined benefit plans | $2.1 | $3.8 | [Note 16 - Income Taxes](index=24&type=section&id=Note%2016%20-%20Income%20Taxes) The effective tax rate for the three and six months ended April 1, 2023, was 23.6%, a decrease from the prior year, primarily due to the incremental benefit from share exercises - The effective tax rate for the three and six months ended April 1, 2023, was **23.6%**, lower than the **24.9%** and **24.8%** for the corresponding periods in 2022, mainly due to the incremental benefit from share exercises[94](index=94&type=chunk) [Note 17 - Accumulated Other Comprehensive Income (Loss)](index=25&type=section&id=Note%2017%20-%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) Accumulated Other Comprehensive Income (Loss) (AOCIL) improved significantly, moving from a loss of $(311.0) million at October 1, 2022, to $(242.5) million at April 1, 2023, driven by positive foreign currency translation adjustments and retirement liability adjustments **Changes in AOCIL (Six Months Ended April 1, 2023, dollars in millions)** | Component | AOCIL at October 1, 2022 | OCI, net of tax | AOCIL at April 1, 2023 | | :-------------------------------- | :------------------------- | :-------------- | :----------------------- | | Accumulated foreign currency translation | $(182.0) | $62.3 | $(119.7) | | Accumulated retirement liability | $(125.2) | $3.2 | $(122.0) | | Accumulated gain (loss) on derivatives | $(3.8) | $3.0 | $(0.8) | | Total | $(311.0) | $68.5 | $(242.5) | **Net Reclassification from AOCIL into Earnings (Six Months Ended, dollars in millions)** | Metric | April 1, 2023 | April 2, 2022 | | :-------------------------------- | :-------------- | :-------------- | | Retirement liability | $4.4 | $7.0 | | Derivatives | $1.7 | $0.5 | [Note 18 - Stock Employee Compensation Trust and Supplemental Retirement Plan Trust](index=26&type=section&id=Note%2018%20-%20Stock%20Employee%20Compensation%20Trust%20and%20Supplemental%20Retirement%20Plan%20Trust) The Stock Employee Compensation Trust (SECT) and Supplemental Retirement Plan (SERP) Trust hold Moog shares to fund equity-based compensation and retirement benefits, with these shares not considered outstanding for EPS calculations - The SECT assists in administering and funding equity-based compensation plans (RSP, RSP+, ESPP), while the SERP Trust funds benefits under the SERP provisions[98](index=98&type=chunk) - Shares held by the SECT and SERP Trust are not considered outstanding for earnings per share calculations, but their trustees vote them on shareholder matters[98](index=98&type=chunk) [Note 19 - Earnings per Share](index=26&type=section&id=Note%2019%20-%20Earnings%20per%20Share) Basic and diluted weighted-average shares outstanding decreased slightly in the first half of 2023 compared to 2022, while anti-dilutive shares from equity-based awards also decreased **Weighted-Average Shares Outstanding (Shares)** | Metric | Three Months Ended April 1, 2023 | Three Months Ended April 2, 2022 | Six Months Ended April 1, 2023 | Six Months Ended April 2, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Basic weighted-average shares outstanding | 31,848,140 | 31,984,674 | 31,797,071 | 32,021,036 | | Diluted weighted-average shares outstanding | 32,043,910 | 32,120,726 | 31,959,315 | 32,154,442 | | Anti-dilutive shares from equity-based awards | 3,425 | 54,057 | 12,576 | 58,204 | [Note 20 - Segments](index=27&type=section&id=Note%2020%20-%20Segments) The company operates in three segments: Aircraft Controls, Space and Defense Controls, and Industrial Systems, all of which saw increased net sales for both the three and six months ended April 1, 2023 **Net Sales by Segment (dollars in millions)** | Segment | Three Months Ended April 1, 2023 | Three Months Ended April 2, 2022 | Six Months Ended April 1, 2023 | Six Months Ended April 2, 2022 | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Aircraft Controls | $347.0 | $311.3 | $657.3 | $614.6 | | Space and Defense Controls | $245.9 | $223.3 | $463.6 | $431.2 | | Industrial Systems | $243.9 | $236.2 | $476.0 | $449.1 | | Total Net sales | $836.8 | $770.8 | $1,596.9 | $1,494.9 | **Operating Profit by Segment (dollars in millions)** | Segment | Three Months Ended April 1, 2023 | Three Months Ended April 2, 2022 | Six Months Ended April 1, 2023 | Six Months Ended April 2, 2022 | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Aircraft Controls | $31.9 | $12.4 | $61.6 | $54.4 | | Space and Defense Controls | $27.5 | $24.1 | $47.8 | $45.4 | | Industrial Systems | $24.4 | $20.7 | $61.1 | $37.9 | | Total operating profit | $83.8 | $57.2 | $170.5 | $137.6 | [Note 21 - Related Party Transactions](index=29&type=section&id=Note%2021%20-%20Related%20Party%20Transactions) Moog Inc. engages in ordinary course business with M&T Bank Corporation and M&T Bank, where its Non-Executive Chairman also serves on the board, including credit extensions and an interest in the U.S. revolving credit facility - Moog Inc. has ongoing financing activities with M&T Bank, including credit extensions totaling **$7.054 million** for the six months ended April 1, 2023, and M&T Bank holds approximately **12% interest** in Moog's U.S. revolving credit facility[102](index=102&type=chunk) - Wilmington Trust, a subsidiary of M&T Bank, acts as the trustee for the pension assets of Moog's qualified U.S. defined benefit plan[102](index=102&type=chunk) [Note 22 - Commitments and Contingencies](index=29&type=section&id=Note%2022%20-%20Commitments%20and%20Contingencies) The company is involved in various legal and administrative proceedings, including environmental matters, but does not expect them to have a material adverse effect, and is contingently liable for standby letters of credit - Moog is involved in legal and administrative proceedings, including environmental matters, but management believes adequate reserves are established and no material adverse effect on financial condition, results of operations, or cash flows is expected[103](index=103&type=chunk)[104](index=104&type=chunk) - The company is contingently liable for **$22.027 million** related to standby letters of credit issued by a bank to third parties as of April 1, 2023[106](index=106&type=chunk) [Note 23 - Subsequent Event](index=29&type=section&id=Note%2023%20-%20Subsequent%20Event) On April 27, 2023, the company declared a quarterly dividend of $0.27 per share for Class A and Class B common stock, payable on May 30, 2023 - On April 27, 2023, Moog declared a **$0.27 per share** quarterly dividend for Class A and Class B common stock, payable on May 30, 2023, to shareholders of record on May 12, 2023[107](index=107&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and future outlook, covering consolidated results, segment-specific performance, liquidity, capital resources, and market trends [OVERVIEW](index=30&type=section&id=OVERVIEW) Moog Inc. is a global designer and manufacturer of high-performance precision motion and fluid controls for aerospace and defense and industrial markets, operating through three segments - Moog Inc. operates in aerospace and defense (primary/secondary flight controls, weapon systems, satellite positioning) and industrial markets (industrial automation, medical, energy)[110](index=110&type=chunk)[113](index=113&type=chunk) - For the quarter ended April 1, 2023, **64% of revenue** was recognized over time (predominantly Aircraft Controls and Space and Defense Controls) and **36%** at a point in time (most frequently Industrial Systems)[111](index=111&type=chunk)[112](index=112&type=chunk) - The company aims to improve shareholder value through strategic revenue growth (organic and acquired), enhanced operating efficiencies, manufacturing productivity, and capital deployment including acquisitions, share buybacks, and dividends[116](index=116&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=32&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) The company regularly evaluates critical accounting policies, including revenue recognition on long-term contracts, contract reserves, inventory valuation, impairment reviews for goodwill and long-lived assets, pension assumptions, and income taxes - Critical accounting policies include revenue recognition on long-term contracts, contract reserves, inventory valuation, impairment reviews of goodwill and long-lived assets, pension assumptions, and income taxes[122](index=122&type=chunk) [RECENT ACCOUNTING PRONOUNCEMENTS](index=32&type=section&id=RECENT%20ACCOUNTING%20PRONOUNCEMENTS) There have been no new accounting pronouncements adopted for the six months ended April 1, 2023, and other ASUs are assessed to be either not applicable or to have an immaterial impact - No new accounting pronouncements were adopted for the six months ended April 1, 2023; other ASUs were assessed and deemed either not applicable or to have an immaterial impact[30](index=30&type=chunk)[31](index=31&type=chunk)[123](index=123&type=chunk) [CONSOLIDATED RESULTS OF OPERATIONS](index=33&type=section&id=CONSOLIDATED%20RESULTS%20OF%20OPERATIONS) Consolidated net sales increased across all segments in Q2 and H1 2023, despite negative impacts from foreign currency and divested businesses, with net earnings and diluted EPS seeing significant growth **Consolidated Results of Operations (dollars in millions, except per share data)** | Metric | Three Months Ended April 1, 2023 | Three Months Ended April 2, 2022 | % Variance | Six Months Ended April 1, 2023 | Six Months Ended April 2, 2022 | % Variance | | :-------------------------------- | :------------------------------- | :------------------------------- | :--------- | :------------------------------- | :------------------------------- | :--------- | | Net sales | $837 | $771 | 9% | $1,597 | $1,495 | 7% | | Gross margin | 26.4% | 27.6% | | 26.6% | 27.2% | | | Research and development expenses | $27 | $31 | (13%) | $51 | $58 | (13%) | | Selling, general and administrative expenses as a percentage of sales | 13.9% | 14.4% | | 14.4% | 14.9% | | | Interest expense | $15 | $8 | 81% | $28 | $16 | 73% | | Asset impairment | $1 | $15 | (92%) | $1 | $15 | (92%) | | Restructuring expense | $2 | $8 | (74%) | $3 | $8 | (60%) | | Net earnings | $43 | $29 | 48% | $89 | $75 | 18% | | Diluted earnings per share | $1.34 | $0.91 | 47% | $2.79 | $2.34 | 19% | - Net sales increased **11% in Q2 2023** and **10% in H1 2023**, excluding negative impacts of **$10 million** (Q2) and **$26 million** (H1) from weaker foreign currencies and **$8 million** (Q2) and **$20 million** (H1) from divested businesses[125](index=125&type=chunk) - Gross margin decreased in Q2 and H1 2023 due to unfavorable sales mix in Aircraft Controls, contract-related charges in Space and Defense Controls, and operational charges in Industrial Systems, partially offset by higher sales volumes[126](index=126&type=chunk) - Twelve-month backlog remained relatively unchanged in Q2 2023, with higher orders in Industrial Systems (simulation, test, core industrial) offsetting slight decreases in Aircraft Controls (military development work-down) and Space and Defense Controls (divested security business, timing of missile orders)[131](index=131&type=chunk) [SEGMENT RESULTS OF OPERATIONS](index=35&type=section&id=SEGMENT%20RESULTS%20OF%20OPERATIONS) Segment operating profits show varied performance, with Aircraft Controls seeing significant growth, Space and Defense Controls facing development charges, and Industrial Systems benefiting from market recoveries and asset sales [Aircraft Controls](index=35&type=section&id=Aircraft%20Controls) Aircraft Controls net sales increased due to commercial aircraft market recovery, particularly in OEM and aftermarket programs, despite lower military sales, leading to improved operating margin **Aircraft Controls Segment Performance (dollars in millions)** | Metric | Three Months Ended April 1, 2023 | Three Months Ended April 2, 2022 | % Variance | Six Months Ended April 1, 2023 | Six Months Ended April 2, 2022 | % Variance | | :-------------------------- | :------------------------------- | :------------------------------- | :--------- | :------------------------------- | :------------------------------- | :--------- | | Net sales - military aircraft | $176 | $192 | (9%) | $347 | $378 | (8%) | | Net sales - commercial aircraft | $171 | $119 | 44% | $310 | $237 | 31% | | Total Net sales | $347 | $311 | 11% | $657 | $615 | 7% | | Operating profit | $32 | $12 | 156% | $62 | $54 | 13% | | Operating margin | 9.2% | 4.0% | | 9.4% | 8.8% | | - Commercial OEM sales increased **$43 million in Q2 2023**, with wide-body programs up **$20 million** and business jets/Genesys programs up **$14 million**; commercial aftermarket sales increased **$9 million**, driven by spares and repair volume for the A350 program[135](index=135&type=chunk) - Military aftermarket sales declined **$10 million**, and military OEM programs decreased **$6 million**, partially offset by a **$7 million increase** in the F-35 program[136](index=136&type=chunk) - Adjusted operating margin for Q2 2023 was **9.5%** (vs. 10.0% in Q2 2022) and for H1 2023 was **9.5%** (vs. 9.3% in H1 2022), reflecting an unfavorable sales mix from higher commercial OEM sales, partially offset by lower R&D expenses and incremental sales volumes[138](index=138&type=chunk)[139](index=139&type=chunk) [Space and Defense Controls](index=36&type=section&id=Space%20and%20Defense%20Controls) Space and Defense Controls experienced net sales growth driven by both space and defense markets, with operating margin increasing in Q2 2023 but declining in H1 2023 on an adjusted basis due to development program costs **Space and Defense Controls Segment Performance (dollars in millions)** | Metric | Three Months Ended April 1, 2023 | Three Months Ended April 2, 2022 | % Variance | Six Months Ended April 1, 2023 | Six Months Ended April 2, 2022 | % Variance | | :-------------------------- | :------------------------------- | :------------------------------- | :--------- | :------------------------------- | :------------------------------- | :--------- | | Net sales | $246 | $223 | 10% | $464 | $431 | 8% | | Operating profit | $28 | $24 | 14% | $48 | $45 | 5% | | Operating margin | 11.2% | 10.8% | | 10.3% | 10.5% | | - Space market sales increased **$18 million in Q2 2023** (excluding product shift) due to accelerated activity on satellite avionics and space vehicle programs; defense market sales increased **$5 million**, driven by an **$11 million increase** from the RIwP turret program reaching full-rate production, partially offset by the absence of sales from a divested security business[141](index=141&type=chunk) - Adjusted operating margin for Q2 2023 was **11.7%** (vs. 11.6% in Q2 2022), benefiting from higher sales but offset by nearly **300 basis points** of development charges on space vehicle programs; adjusted operating margin for H1 2023 was **10.6%** (vs. 11.3% in H1 2022) due to cost growth on space vehicle development programs[143](index=143&type=chunk)[144](index=144&type=chunk) [Industrial Systems](index=37&type=section&id=Industrial%20Systems) Industrial Systems net sales increased due to general market recoveries, despite negative impacts from weaker foreign currencies and a divested sonar business, with operating margin improving significantly in H1 2023 **Industrial Systems Segment Performance (dollars in millions)** | Metric | Three Months Ended April 1, 2023 | Three Months Ended April 2, 2022 | % Variance | Six Months Ended April 1, 2023 | Six Months Ended April 2, 2022 | % Variance | | :-------------------------- | :------------------------------- | :------------------------------- | :--------- | :------------------------------- | :------------------------------- | :--------- | | Net sales | $244 | $236 | 3% | $476 | $449 | 6% | | Operating profit | $24 | $21 | 18% | $61 | $38 | 61% | | Operating margin | 10.0% | 8.8% | | 12.8% | 8.4% | | - Excluding weaker foreign currencies (**$7 million Q2**, **$18 million H1**) and divested sonar business sales (**$3 million Q2**, **$6 million H1**), sales increased **8% in Q2 2023** and **12% in H1 2023**[146](index=146&type=chunk) - Industrial automation market sales increased **$15 million in Q2 2023**; in H1 2023, sales increased **$24 million** for industrial automation, **$5 million** in medical, **$1 million** in simulation and test, and **$3 million** in energy (excluding divested business)[147](index=147&type=chunk)[148](index=148&type=chunk) - Operating margin in H1 2023 included a **$10 million gain** from the sale of three buildings; adjusted operating margin for H1 2023 was **11.3%** (vs. 9.3% in H1 2022), driven by incremental margin from higher sales volumes[150](index=150&type=chunk) [CONSOLIDATED SEGMENT OUTLOOK](index=38&type=section&id=CONSOLIDATED%20SEGMENT%20OUTLOOK) Moog Inc. anticipates higher sales and operating margins in 2023, driven by commercial and industrial market recoveries and increased demand for space and defense programs, with net earnings and diluted EPS also expected to increase **2023 Outlook vs. 2022 (dollars in millions, except per share data)** | Metric | 2023 Outlook | 2022 | $ Variance | % Variance | | :-------------------------- | :------------- | :--- | :--------- | :--------- | | Net sales | $3,190 | $3,036 | $154 | 5% | | Operating profit | $354 | $283 | $71 | 25% | | Operating margin | 11.1% | 9.3% | | | | Net earnings | $186 | $155 | | | | Diluted earnings per share | $5.81 | $4.83 | | | - Total company sales growth is expected to be **7% in 2023**, excluding impacts from 2022 divestitures and weaker foreign currencies; adjusted operating margin is projected to increase to **11.0%** from **10.2% in 2022**[152](index=152&type=chunk) - Aircraft Controls expects sales increases in commercial OEM programs and a slight operating margin increase due to improved factory utilization[153](index=153&type=chunk) - Space and Defense Controls anticipates sales growth in space and defense programs and increased operating margin from higher sales volume and absence of prior charges[154](index=154&type=chunk) - Industrial Systems projects sales increases across markets and an improved operating margin from building sales gain, lower charges, and portfolio shaping[155](index=155&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=39&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company experienced a shift from cash provided by operating activities to cash used in H1 2023, primarily due to increased inventory and receivables, while financing activities provided cash through net borrowings **Net Cash Provided (Used) by Activities (Six Months Ended, dollars in millions)** | Metric | April 1, 2023 | April 2, 2022 | $ Variance | | :-------------------------- | :-------------- | :-------------- | :--------- | | Operating activities | $(33) | $180 | $(213) | | Investing activities | $(74) | $(48) | $(26) | | Financing activities | $92 | $(110) | $202 | - Operating activities used **$33 million in H1 2023**, a **$213 million decrease** from H1 2022, primarily due to **$79 million more cash used by inventory**, **$72 million more by accounts receivable**, and **$43 million less from customer advances**[157](index=157&type=chunk) - Investing activities used **$74 million in H1 2023**, including **$90 million in capital expenditures** (with a **$28 million building purchase**), partially offset by **$20 million** from sales of buildings and businesses; capital expenditures are projected to be **$165 million in 2023**[159](index=159&type=chunk)[160](index=160&type=chunk) - Financing activities provided **$92 million in H1 2023**, including **$122 million of net borrowings** on credit facilities, partially offset by **$17 million** for dividend payments and **$8 million** for share repurchases[161](index=161&type=chunk) - As of April 1, 2023, the company had **$663 million of unused capacity**, including **$645 million** from the U.S. revolving credit facility, and was in compliance with all financing covenants[174](index=174&type=chunk) [ECONOMIC CONDITIONS AND MARKET TRENDS](index=42&type=section&id=ECONOMIC%20CONDITIONS%20AND%20MARKET%20TRENDS) The company's businesses operate in aerospace and defense and industrial markets, facing varying supply chain pressures, with defense spending increasing, commercial aircraft recovering, and industrial markets showing increased order demand - Aerospace and defense businesses accounted for **70% of 2022 sales**, with defense market funding increasing and commercial aircraft market (less than **18% of 2022 sales**) still recovering, especially international travel[184](index=184&type=chunk) - Industrial markets (**30% of 2022 sales**) benefited from increased order demand in industrial automation, simulation and test, and energy, but are now experiencing supply chain pressures[185](index=185&type=chunk) - Weaker foreign currencies, primarily the Euro and British Pound, against the U.S. dollar decreased sales by **$26 million** in the first six months of 2023 compared to the prior year[125](index=125&type=chunk)[197](index=197&type=chunk) [Cautionary Statement](index=44&type=section&id=Cautionary%20Statement) This section outlines various strategic, market condition, operational, financial, legal, compliance, and general risks that could cause actual results to differ materially from forward-looking statements - Forward-looking statements are subject to factors, risks, and uncertainties, including competitive markets, R&D success, intellectual property protection, acquisition/divestiture integration, cyclical markets, government contract dependency, customer concentration (Boeing, Lockheed Martin), backlog realization, supply chain issues, health pandemics, information systems risks, product quality, and product failure[198](index=198&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) - Additional risks include accounting estimates for over-time contracts, fixed-price contract losses, indebtedness covenants, pension funding, goodwill impairment, income tax liabilities, foreign operations risks, government regulations, legal proceedings, environmental laws, sustainability goals, catastrophic events, and employee retention[202](index=202&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) There have been no material changes in the company's market risk disclosures since the Annual Report on Form 10-K for the fiscal year ended October 1, 2022 - No material changes in market risk information have occurred in the current year compared to the disclosures in the Annual Report on Form 10-K for the fiscal year ended October 1, 2022[206](index=206&type=chunk) [Item 4. Controls and Procedures](index=45&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of April 1, 2023, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of April 1, 2023[208](index=208&type=chunk) - No material changes to internal control over financial reporting occurred during the most recent fiscal quarter[208](index=208&type=chunk) PART II OTHER INFORMATION [Item 1A. Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the company's risk factors since the Annual Report on Form 10-K for the fiscal year ended October 1, 2022 - No material changes in risk factors have occurred in the current year compared to the disclosures in the Annual Report on Form 10-K for the fiscal year ended October 1, 2022[209](index=209&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=46&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company's share repurchase program allows for the purchase of up to 3 million common shares, with approximately 2.2 million shares remaining under authorization as of April 1, 2023 **Common Stock Purchases for the Quarter Ended April 1, 2023** | Period | Total Number of Shares Purchased | Average Price Paid Per Share (dollars) | Maximum Number of Shares that May Yet Be Purchased Under Plans or Programs | | :----------------------------------- | :------------------------------- | :----------------------------------- | :----------------------------------------------------------------------- | | January 1, 2023 - January 28, 2023 | 92,322 | $87.13 | 2,198,081 | | January 29, 2023 - February 25, 2023 | 28,745 | $97.79 | 2,198,081 | | February 26, 2023 - April 1, 2023 | 23,421 | $100.30 | 2,198,081 | | Total | 144,488 | $91.39 | 2,198,081 | - The Board of Directors authorized a share repurchase program for up to **3 million common shares** (Class A or Class B), with approximately **2.2 million shares** remaining under this authorization[212](index=212&type=chunk) - Purchases included shares by the SECT from the ESPP, RSP, and equity-based compensation award recipients, as well as shares accepted/withheld for exercise price and tax obligations related to equity-based awards[212](index=212&type=chunk) [Item 6. Exhibits](index=47&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including employment agreements, certifications from the CEO and CFO, and XBRL interactive data files - Exhibits include Form of Employment Termination Benefits Agreement, Certifications of Chief Executive Officer and Chief Financial Officer (pursuant to Exchange Act Rule 13a-14(a) and 18 U.S.C. Section 1350), and Interactive Data Files (XBRL)[213](index=213&type=chunk)[214](index=214&type=chunk) SIGNATURES This section confirms the official signing of the report by the Chief Executive Officer, Chief Financial Officer, and Controller on April 28, 2023 - The report was signed on **April 28, 2023**, by Pat Roche (Chief Executive Officer), Jennifer Walter (Vice President and Chief Financial Officer), and Michael J. Swope (Controller)[216](index=216&type=chunk)

Financial Performance - Net sales for the three months ended December 31, 2022, were $760.1 million, an increase of 5% from $724.1 million for the same period in 2021[10] - Gross profit for the same period was $203.7 million, up from $192.9 million, reflecting a gross margin increase[10] - Net earnings for the three months ended December 31, 2022, were $46.0 million, slightly down from $46.3 million in the prior year[10] - Earnings before income taxes decreased to $60.3 million from $61.4 million year-over-year[10] - Operating profit for the three months ended December 31, 2022, was $86.8 million, compared to $80.4 million for the same period in 2021, reflecting an increase of about 8%[97] - The effective tax rate for the three months ended December 31, 2022, was 23.7%, slightly lower than 24.7% for the same period in 2021[90] - Net earnings for the three months ended December 31, 2022, were $46,016, compared to $46,265 for the same period in 2021, reflecting a decrease of 0.5%[24] - The company reported a total pension expense for defined contribution plans of $12.25 million for the three months ended December 31, 2022, down from $12.70 million in the prior year[89] Assets and Liabilities - Total assets increased to $3.66 billion as of December 31, 2022, compared to $3.43 billion at the end of the previous quarter[16] - Total liabilities increased to $2.13 billion from $1.99 billion, primarily due to higher long-term debt[16] - Shareholders' equity grew to $1.53 billion from $1.44 billion, reflecting retained earnings and additional paid-in capital[16] - Current assets rose to $1,933,183 thousand, compared to $1,758,310 thousand, marking an increase of about 9.9%[16] - The long-term debt as of December 31, 2022, was $916,058,000, an increase from $836,872,000 on October 1, 2022[75] - The fair value of long-term debt was estimated at $884,378,000 compared to its carrying value of $922,822,000 as of December 31, 2022[87] Cash Flow and Investments - Net cash provided by operating activities was $8,083, significantly lower than $157,185 in the prior year, indicating a decline of approximately 94.9%[24] - The company reported a net cash used in investing activities of $25,293, compared to a net cash provided of $277 in the same period last year[24] - Cash and cash equivalents rose to $143.1 million from $103.9 million, indicating improved liquidity[16] - The company has $709 million of unused capacity in its credit facilities as of December 31, 2022, indicating strong liquidity[160] Dividends and Shareholder Information - The company declared cash dividends of $0.26 per share for the three months ended December 31, 2022, compared to $0.25 per share in the prior year[19] - The company declared a quarterly dividend of $0.27 per share payable on March 6, 2023[103] - Basic weighted-average shares outstanding decreased to 31,746,001 for the three months ended December 31, 2022, from 32,057,399 for the same period in 2021[95] - The total number of Class A common stock treasury shares increased to (14,666,508) as of December 31, 2022, from (14,614,444) at the beginning of the period[21] Research and Development - Research and development expenses were $23.9 million, down from $27.7 million, indicating a focus on cost management[10] - Research and development expenses decreased by 14% to $24 million compared to $28 million in the previous year[121] Market Performance and Outlook - The company expects 2023 net sales to reach $3.175 billion, a 5% increase from 2022, with operating profit projected to rise by 26% to $356 million[139] - Adjusted diluted earnings per share for 2023 are expected to range between $5.50 and $5.90, with a midpoint of $5.70[139] - Aerospace and defense businesses accounted for 70% of 2022 sales, with defense programs benefiting from stable funding levels[170] - The commercial aircraft market represented less than 18% of 2022 sales and is still recovering from COVID-19 impacts, particularly in international travel[170] - Industrial markets, comprising 30% of 2022 sales, are experiencing increased order demand but face supply chain pressures[171] Acquisitions and Divestitures - The company acquired TEAM Accessories Limited for a total purchase price of $14,885, enhancing its capabilities in Maintenance, Repair, and Overhaul services[47] - The company sold a sonar business for net proceeds of $13,075, incurring a loss of $15,246, net of transaction costs[48] - The company also sold assets of a security business for net proceeds of $9,273, recording a loss of $4,112, net of transaction costs[49] - The company sold its Navigation Aids business to THALES USA Inc. for net proceeds of $36,550, recording a gain of $16,146 after transaction costs[50] Inventory and Receivables - Inventories, net of reserves, totaled $648,160 as of December 31, 2022, up from $588,466 on October 1, 2022, with raw materials at $250,228 and work in progress at $325,718[57] - As of December 31, 2022, total receivables amounted to $1,066,340, an increase from $990,262 on October 1, 2022, with accounts receivable at $399,705 and unbilled receivables at $645,234[51] - The amount sold to purchasers under the Receivables Purchase Agreement was $100,000, which was derecognized from the balance sheet, with unsold receivables at $730,504[55] Other Financial Metrics - The company’s accumulated other comprehensive income (loss) at December 31, 2022, was $(257.2) million, a decrease from $(311.0) million at October 1, 2022[91] - The warranty accrual at the end of the period was $22,429,000, down from $23,072,000 at the beginning of the period[78] - The restructuring accrual as of December 31, 2022, totaled $7.6 million, with $3.3 million related to the 2022 plan, expected to be paid within a year[88]

Financial Performance - Net sales for the fiscal year ended October 1, 2022, were $3,035,783, an increase of 6.4% compared to $2,851,993 in the previous year [221]. - Gross profit for the same period was $820,801, representing a gross margin of approximately 27.0% [221]. - Net earnings decreased slightly to $155,177 from $157,220 in the prior year, reflecting a decline of 1.3% [221]. - Research and development expenses were $109,527, down from $125,528 in the previous year, indicating a reduction of 12.8% [221]. - Net cash provided by operating activities was $246,802 thousand, down from $293,226 thousand in the prior year [235]. - The company incurred a loss on the sale of businesses amounting to $3,346 thousand in the current fiscal year, compared to $1,536 thousand in the previous year [235]. - Cash dividends were $1.03 per share for the fiscal year ended October 1, 2022, compared to $1.00 per share in the previous year [230]. Backlog and Sales - The twelve-month backlog was $2.3 billion as of October 1, 2022, representing a 10% increase compared to October 2, 2021 [17]. - As of October 1, 2022, the total backlog was $5.2 billion, representing confirmed orders expected to be recognized as revenue [62]. - Aerospace and defense OEM customers represented 58% of total sales in 2022, while industrial OEM sales accounted for 30% [43]. - Aftermarket sales, which include spare parts and repair services, accounted for 12% of total sales in 2022 [43]. - In 2022, sales under U.S. Government contracts represented 42% of total sales, with foreign government sales accounting for 8% [60]. - Sales to Boeing accounted for 11% of total sales in 2022, while sales to Lockheed Martin represented 9% [61]. Employment and Workforce - In 2022, the company hired 1,792 new regular employees globally [25]. - The average voluntary attrition rate over the last four years was just below 8% [33]. - The company actively seeks to attract diverse talent and has expanded its Diversity, Equity, and Inclusion strategy, including the establishment of Employee Resource Groups [26]. Research and Development - Research and development expenses were at least $110 million in each of the last three years, accounting for approximately 4% of sales in 2022 [21]. - The company’s research and development efforts are critical for maintaining a leadership position in the high-performance, precision controls market [55]. - The company maintains a patent portfolio related to various technologies, including medical devices, which is significant for future revenue opportunities [20]. Environmental and Sustainability Initiatives - The company is assessing its environmental, social, and governance impact across 25 countries to establish sustainability goals [39]. - The Wolverhampton site in the UK transitioned 90% of its electric lighting to LED bulbs, saving over 13,000 kWh annually [41]. - The company is pursuing sustainability goals, but failure to achieve these could negatively impact reputation and operational results [80]. Financial Position and Liabilities - Total assets as of October 1, 2022, were $3,431,841, a slight decrease from $3,433,169 in the previous year [227]. - Total liabilities decreased to $1,995,028 from $2,033,025, reflecting a reduction of 1.9% [227]. - The company had $341 million in borrowings subject to variable interest rates as of October 1, 2022, with an average of $366 million during the year [216]. - The company has incurred significant indebtedness, which may limit operational and financial flexibility, especially in response to changes in capital availability and interest rates [71]. - Long-term debt as of October 1, 2022, totals $836,872 million, an increase from $823,355 million in 2021, with a weighted-average interest rate of 4.16% [318]. Risks and Challenges - The company experienced shortages and delays in materials and components, impacting manufacturing and shipping capabilities [63]. - The COVID-19 pandemic significantly reduced air traffic, affecting demand for flight control systems and leading to a cautious recovery in international travel [59]. - Future levels of defense spending are uncertain and subject to congressional debate, which could adversely impact sales and operating profit [60]. - The company faces competitive pressures from larger, more diversified competitors in industrial and medical markets [54]. - The company relies on subcontractors and suppliers for manufacturing processes, which poses risks to contract performance and future business opportunities [65]. - The company faces risks related to cybersecurity, including potential data breaches and increased operational costs due to compliance with enhanced cybersecurity standards [66]. - Legal proceedings and compliance with government regulations could result in fines or penalties, adversely affecting the company's reputation and financial condition [75]. Acquisitions and Investments - The company plans to pursue additional acquisition opportunities to expand into new markets and enhance its position in existing markets [57]. - The company acquired TEAM Accessories Limited for a purchase price of $14,885, enhancing its Aircraft Controls segment [283]. Inventory and Receivables - Inventories, net of reserves, decreased to $588,466 at October 1, 2022, from $613,095 at October 2, 2021 [301]. - Unbilled receivables of $614,760 as of October 1, 2022, an increase from $546,764 in the previous year [280]. - Receivables from Boeing were $235,405 at October 1, 2022, up from $209,653 at October 2, 2021 [300]. - Receivables from Lockheed Martin were $99,707 at October 1, 2022, compared to $88,744 at October 2, 2021 [300]. Pension and Benefits - Changes in pension assumptions could adversely affect earnings and funding requirements, despite the largest pension plan being essentially fully funded [72]. - The projected benefit obligation for U.S. defined benefit plans decreased to $530,946 in 2022 from $704,989 in 2021, while the fair value of plan assets dropped to $445,723 from $640,513 [343]. - The company’s contributions to defined contribution plans totaled $51,707 in 2022, up from $45,021 in 2021 and $33,663 in 2020 [341].

Financial Performance - Net sales for the three months ended July 2, 2022, were $772,911 thousand, an increase of 9.2% compared to $707,352 thousand for the same period in 2021[11] - Gross profit for the nine months ended July 2, 2022, was $617,635 thousand, up from $580,154 thousand in the prior year, reflecting a growth of 6.5%[11] - Net earnings for the three months ended July 2, 2022, were $50,409 thousand, representing a 39.5% increase from $36,122 thousand in the same period of 2021[11] - Basic net earnings per share for the three months ended July 2, 2022, were $1.58, compared to $1.12 for the same period in 2021, marking an increase of 41.1%[11] - Operating profit for the three months ended July 2, 2022, was $79.3 million, compared to $64.9 million for the same period in 2021, reflecting an increase of about 22.1%[103] - The total operating profit for the nine months ended July 2, 2022, was $216.9 million, compared to $208.2 million for the same period in 2021, reflecting an increase of approximately 4.0%[103] - Net earnings for the quarter were $50 million, a 40% increase from $36 million in the same quarter of 2021[128] - Diluted earnings per share rose to $1.57, a 40% increase compared to $1.12 in the same quarter of 2021[128] Assets and Liabilities - Total assets as of July 2, 2022, were $3,439,056 thousand, slightly up from $3,433,169 thousand as of October 2, 2021[17] - Total liabilities decreased to $2,007,631 thousand as of July 2, 2022, from $2,033,025 thousand as of October 2, 2021[17] - Cash and cash equivalents were $93,912 thousand as of July 2, 2022, compared to $99,599 thousand as of October 2, 2021[17] - Long-term debt increased to $856,097 million as of July 2, 2022, compared to $823,355 million on October 2, 2021[75] - Other accrued liabilities totaled $211,769 million as of July 2, 2022, slightly down from $212,005 million on October 2, 2021[79] Cash Flow - Net cash provided by operating activities decreased to $184,264,000 for the nine months ended July 2, 2022, down from $230,580,000 in the prior year, a decline of 20%[24] - Net cash provided by operating activities decreased by $90 million in the first three quarters of 2022 compared to the same period in 2021, with accounts receivable using $127 million more in cash[159] - Net cash used by investing activities included $107 million for capital expenditures and $12 million for the acquisition of TEAM Accessories in the first three quarters of 2022[160] - Net cash used by financing activities included $48 million of net paydowns on credit facilities, $25 million in cash dividends, and $21 million in share repurchases in the first three quarters of 2022[162] Research and Development - Research and development expenses for the three months ended July 2, 2022, were $25,890 thousand, down from $33,095 thousand in the same period of 2021, a decrease of 21.5%[11] - Research and development expenses decreased by 22% to $26 million in the third quarter of 2022 compared to $33 million in the same quarter of 2021[130] Dividends - Cash dividends declared were $0.26 per share for the three months ended July 2, 2022, compared to $0.25 per share for the same period in 2021[20] - The company declared and paid cash dividends of $0.25 per share in Q1 2022 and $0.26 per share in Q2 and Q3 2022, compared to $0.25 per share in the first three quarters of 2021[175] Impairments and Charges - The company recorded impairment charges of $19,335,000 related to asset impairment and inventory write-downs due to the impact of the COVID-19 pandemic and geopolitical factors[29] - The company reported an asset impairment of $692,000 for the three months ended July 2, 2022, compared to no impairment in the same period of 2021[11] - The restructuring charge for 2022 included non-cash charges of $1,500 million for inventory write-downs, $946 million for equipment, and $7,423 million for severance[93] Market Performance - The Aircraft Controls segment reported net sales of $318.0 million for the three months ended July 2, 2022, up from $272.1 million in the prior year, marking a growth of approximately 16.9%[102] - The Space and Defense Controls segment achieved net sales of $223.6 million for the three months ended July 2, 2022, compared to $204.9 million in the same period of 2021, indicating an increase of about 9.1%[102] - The Industrial Systems segment generated net sales of $231.3 million for the three months ended July 2, 2022, slightly up from $230.3 million in the previous year, showing a marginal growth of 0.4%[102] - Aircraft Controls' net sales for the third quarter of 2022 were $272 million, a decrease of 17% compared to $318 million in the same period of 2021[136] - Commercial aircraft net sales decreased by 43% to $96 million in Q3 2022, while military aircraft sales decreased by 3% to $176 million[136] Taxation - The effective tax rate for the three months ended July 2, 2022, was 15.7%, lower than the U.S. federal statutory tax rate of 21% due to beneficial provisions related to the U.S. research and development tax credit[95] - The effective tax rate for the third quarter of 2022 was 15.7%, down from 25.7% in the same quarter of 2021[133] Future Outlook - The company expects total net sales for 2022 to reach $3,035 million, an increase of 6% from $2,852 million in 2021[153] - Operating profit for 2022 is projected to be $302 million, an 11% increase from $271 million in 2021[153] - The diluted earnings per share for 2022 is expected to be between $5.21 and $5.51, with a midpoint of $5.36[153] - The company anticipates an increase in Aircraft Controls' sales driven by recoveries in commercial OEM and aftermarket programs, despite a decline in military sales[154] - Space and Defense Controls is expected to see sales growth in both defense and space markets, with operating margins remaining in line with 2021 levels[155]

Financial Performance - Net sales for the three months ended April 2, 2022, were $770.8 million, an increase of 4.7% compared to $736.4 million for the same period in 2021[10] - Gross profit for the three months ended April 2, 2022, was $213.0 million, representing a gross margin of 27.6%, compared to $199.9 million and a gross margin of 27.1% in the prior year[10] - Net earnings for the three months ended April 2, 2022, were $29.1 million, a decrease of 40.4% from $48.7 million in the same period of 2021[10] - Basic net earnings per share for the three months ended April 2, 2022, were $0.91, down from $1.51 in the prior year[10] - Comprehensive income for the three months ended April 2, 2022, was $15.0 million, down from $39.4 million in the prior year[13] - Operating profit for the three months ended April 2, 2022, was $57.24 million, down from $72.48 million in the same period of 2021, indicating a decline of about 21%[102] - The company’s total operating profit for the six months ended April 2, 2022, was $137.64 million, compared to $143.35 million for the same period in 2021, a decrease of approximately 4%[102] - The company reported a net reclassification from AOCIL into earnings of $3.51 million for the three months ended April 2, 2022, compared to a negative reclassification of $2.23 million in the same period of 2021[97] Assets and Liabilities - Total assets as of April 2, 2022, were $3.44 billion, slightly up from $3.43 billion as of October 2, 2021[16] - Total liabilities decreased to $2.01 billion as of April 2, 2022, from $2.03 billion as of October 2, 2021[16] - Cash and cash equivalents increased to $120.4 million as of April 2, 2022, compared to $99.6 million as of October 2, 2021[16] - Goodwill balance as of April 2, 2022, was $842,203, down from $851,605 as of October 2, 2021, representing a decrease of 1.1%[70] - The company had $832,391 in long-term debt as of April 2, 2022, an increase from $823,355 as of October 2, 2021[73] Cash Flow and Investments - Net cash provided by operating activities increased to $180,197,000 for the six months ended April 2, 2022, compared to $137,367,000 for the same period in 2021, reflecting a growth of 31.1%[23] - Cash flow from operating activities for the first half of 2022 was $180 million, an increase of $43 million compared to the same period in 2021[153] - Net cash used by investing activities in the first half of 2022 included $74 million for capital expenditures and $12 million for the acquisition of TEAM Accessories[156] - Net cash used by financing activities in the first half of 2022 included $72 million of net paydown on credit facilities, $17 million of share repurchases, and $16 million of cash dividends[158] Research and Development - Research and development expenses for the three months ended April 2, 2022, were $30.7 million, consistent with $30.5 million in the same period of 2021[10] - Research and development expenses for the six months ended April 2, 2022, were $58.4 million, slightly down from $58.5 million in the same period in 2021[10] Dividends and Shareholder Returns - The company declared cash dividends of $0.26 per share for the three months ended April 2, 2022, compared to $0.25 per share in the same period of 2021[19] - The company declared and paid cash dividends of $0.25 and $0.26 per share on Class A and Class B common stock in the first and second quarters of 2022, respectively[174] Market and Segment Performance - Military segment net sales were $192.09 million for the three months ended April 2, 2022, down from $201.52 million in the same period of 2021, a decrease of about 4.7%[101] - Aircraft Controls net sales for military aircraft decreased by $9 million (5%) in Q2 2022 compared to Q2 2021, while commercial aircraft sales increased by $16 million (16%) in the same period[134] - Space and Defense Controls net sales increased by $17 million (8%) in Q2 2022 compared to Q2 2021, driven by growth in the defense market[139] - Industrial Systems net sales increased by $10 million (5%) in Q2 2022 compared to Q2 2021, supported by recoveries in simulation and test markets[144] Impairments and Charges - The company recorded impairment charges on long-lived assets in the Aircraft Controls segment due to a slower than expected recovery in the commercial aircraft business[28] - The company recorded impairment charges on inventory of $1,705 for the three months ended April 2, 2022, associated with Russian actions in Ukraine[60] - The company recognized impairment charges on property, plant, and equipment totaling $14,594 for the three months ended April 2, 2022[61] - The company incurred $15 million in asset impairments and $8 million in restructuring expenses in the second quarter of 2022, primarily in Aircraft Controls[131] Foreign Currency and Risks - The company reported a foreign currency translation adjustment loss of $18.3 million for the three months ended April 2, 2022, compared to a loss of $12.9 million in the same period in 2021[13] - The average foreign currency rates weakened against the U.S. dollar compared to 2021, impacting sales negatively[192] - The company faced various risks related to health pandemics, including the ongoing COVID-19 pandemic, which could adversely affect operations and financial position[194] Taxation - The effective tax rate for the three months ended April 2, 2022, was 24.9%, higher than the U.S. federal statutory tax rate of 21% due to taxes on foreign earnings[94] - The effective tax rate for the quarter was 24.9%, compared to 21.6% in the same quarter of 2021[128] Future Outlook - The company expects total net sales for 2022 to reach $3,035 million, an increase of $183 million (6%) compared to 2021[149] - Operating profit for Aircraft Controls is projected to increase by $27 million (28%) in 2022, reaching $123 million[149] - The adjusted operating margin for Aircraft Controls is expected to improve to 9.9% in 2022, up from 8.3% in 2021[149] - The company anticipates adjusted earnings per share to range between $5.30 and $5.70 for 2022, with a midpoint of $5.50[149]