Moog(MOG_A) - 2020 Q4 - Annual Report

PART I This section provides an overview of Moog Inc.'s business, risk factors, properties, and legal proceedings Business Overview Moog Inc. is a global designer, manufacturer, and systems integrator of high-performance precision motion and fluid controls for aerospace, defense, and industrial markets, operating through three segments: Aircraft Controls, Space and Defense Controls, and Industrial Systems - Moog operates in three segments: Aircraft Controls, Space and Defense Controls, and Industrial Systems, providing high-performance precision motion and fluid controls[11] - Sales under U.S. Government contracts represented 41% of total sales in 2020, primarily within Aircraft Controls and Space and Defense Controls segments[14] Key Business Metrics (2020) | Metric | Value | | :----------------------- | :---------- | | Twelve-month backlog | $1.7 billion | | Backlog increase (YoY) | 10% | | R&D expense (2020) | $110 million | | R&D expense as % of sales (2020) | 4% | | Total employees (Oct 3, 2020) | 12,623 | | Average employee tenure | 11 years | - The company maintains a global patent portfolio focusing on motion control and actuation systems, with specific significance in medical devices[19] - Moog's human capital strategy emphasizes attracting diverse talent, fostering a unique culture, and investing in employee well-being, engagement, and leadership development[20][21][24][26][29][33][35] Customer Sales Breakdown (2020) | Customer Type | % of Total Sales | | :---------------------- | :--------------- | | Aerospace & Defense OEM | 56% | | Industrial OEM | 32% | | Aftermarket sales | 12% | Risk Factors Moog Inc. faces a range of significant risks, including those related to the COVID-19 pandemic, intense market competition, and the success of new product development - The COVID-19 pandemic poses risks to operations, supply chain, liquidity, cash flows, and customer orders, though most operations are deemed essential[50] - Moog operates in highly competitive markets, with some competitors having greater resources, and relies on continuous investment in product quality, reliability, and engineering capabilities[51] - Dependence on government contracts (41% of 2020 sales) and a single major customer, Boeing (14% of 2020 sales), creates significant market condition risks, especially with potential reductions in defense spending and commercial aircraft orders[57][58] Backlog and Associated Risks (as of Oct 3, 2020) | Metric | Value | | :---------------- | :---------- | | Total backlog | $2.6 billion | | Risk | No assurance customers will purchase all orders, especially due to government termination rights and COVID-19 impact on commercial aircraft | - Operational risks include information system interruptions, cybersecurity threats, product quality issues, and reliance on subcontractor performance[61][62][63][64] - Financial risks include significant impacts from changes in estimates for over-time contracts, potential losses on fixed-price contracts, and limitations imposed by indebtedness and restrictive covenants[65][66][67] Goodwill and Intangible Assets (as of Oct 3, 2020) | Asset Type | Value | | :-------------------- | :---------- | | Goodwill | $822 million | | Other intangible assets | $85 million | | Total assets | $3.2 billion | | Risk | Potential write-off if value becomes impaired, affecting operating results and net worth | - Legal and compliance risks include stringent government contract regulations, foreign country operations (political, currency, regulatory risks), and environmental laws[73][74][75][77] - General risks encompass the adverse impacts of Brexit, escalating tariffs, catastrophic events, and the challenge of maintaining company culture and retaining employees[78][80][81][82] Unresolved Staff Comments There are no unresolved staff comments to report Properties Moog Inc. occupies 5,549,000 square feet of space globally, with principal manufacturing facilities in the U.S., Europe, and Asia Property Square Footage by Segment (as of Oct 3, 2020) | Segment | Owned (sq ft) | Leased (sq ft) | Total (sq ft) | | :----------------------- | :-------------- | :------------- | :-------------- | | Aircraft Controls | 1,475,000 | 359,000 | 1,834,000 | | Space and Defense Controls | 912,000 | 424,000 | 1,336,000 | | Industrial Systems | 1,709,000 | 650,000 | 2,359,000 | | Corporate Headquarters | 20,000 | — | 20,000 | | Total | 4,116,000 | 1,433,000 | 5,549,000 | - Principal manufacturing facilities are located in the U.S., Philippines, United Kingdom, Germany, Czech Republic, Italy, Costa Rica, China, Netherlands, Luxembourg, Japan, Canada, India, and Lithuania[88] Legal Proceedings Moog Inc. is involved in various legal proceedings in the normal course of business but does not believe any pending proceedings will have a material adverse effect on its financial condition, results of operations, or cash flows - Management believes no pending legal proceedings will result in a material adverse effect on financial condition, results of operations, or cash flows[85] Mine Safety Disclosures This item is not applicable to Moog Inc PART II This section covers Moog Inc.'s market for common equity, selected financial data, management's discussion and analysis, and market risk disclosures Market for Common Equity, Stockholder Matters and Issuer Purchases Moog Inc.'s Class A and Class B common stocks are traded on the NYSE, with the company engaging in share repurchases and illustrating stock performance against relevant indices - Moog Inc. Class A and Class B common stocks are traded on the NYSE under ticker symbols MOG.A and MOG.B[89] Issuer Purchases of Equity Securities (Quarter Ended Oct 3, 2020) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Publicly Announced Plans | Max Shares Yet Be Purchased Under Plans | | :-------------------------------- | :----------------------- | :--------------------------- | :------------------------------------------------- | :-------------------------------------- | | June 28, 2020 - August 1, 2020 | 83,866 | $52.92 | — | 765,320 | | August 2, 2020 - August 29, 2020 | 225,524 | $60.66 | 224,456 | 540,864 | | August 30, 2020 - October 3, 2020 | 380,305 | $61.93 | 374,673 | 166,191 | | Total | 689,695 | $60.42 | 599,129 | 166,191 | Stock Performance ($100 Investment on Sep 30, 2015) | Index | 9/15 | 9/16 | 9/17 | 9/18 | 9/19 | 9/20 | | :----------------------------- | :----- | :----- | :----- | :----- | :----- | :----- | | Moog Inc. - Class A Common Stock | $100.00 | $110.12 | $154.30 | $159.99 | $152.78 | $120.79 | | NYSE Composite - Total Return Index | $100.00 | $112.35 | $131.16 | $144.02 | $146.94 | $147.15 | | S&P Aerospace & Defense Index | $100.00 | $117.87 | $169.18 | $209.29 | $222.91 | $159.87 | Selected Financial Data This section provides a five-year summary of Moog Inc.'s selected financial data, including results from operations, financial position, and supplemental financial data, highlighting key trends and metrics Selected Financial Data (2016-2020) | (dollars in thousands, except per share data) | 2020 | 2019 | 2018 | 2017 | 2016 | | :------------------------------------------ | :--------- | :--------- | :--------- | :--------- | :--------- | | RESULTS FROM OPERATIONS | | | | | | | Net sales | $2,884,554 | $2,904,663 | $2,709,468 | $2,497,524 | $2,411,937 | | Net earnings | $9,205 | $174,548 | $95,240 | $143,157 | $126,745 | | Net earnings per share - Diluted | $0.28 | $4.96 | $2.64 | $3.95 | $3.47 | | Dividends declared per share | $0.75 | $1.00 | $0.50 | $— | $— | | FINANCIAL POSITION | | | | | | | Cash and cash equivalents | $84,583 | $89,702 | $125,584 | $368,073 | $325,128 | | Total assets | $3,225,831 | $3,114,237 | $2,964,048 | $3,090,592 | $3,004,974 | | Indebtedness - total | $930,332 | $833,233 | $862,824 | $957,037 | $1,006,393 | | Shareholders' equity | $1,243,083 | $1,322,481 | $1,224,986 | $1,214,304 | $988,411 | | SUPPLEMENTAL FINANCIAL DATA | | | | | | | Capital expenditures | $88,284 | $118,422 | $94,517 | $75,798 | $67,208 | | Research and development | $110,865 | $126,453 | $129,838 | $144,157 | $147,336 | | Total backlog | $2,555,129 | $2,232,605 | n/a | n/a | n/a | | Twelve-month backlog | $1,658,344 | $1,502,028 | $1,481,230 | $1,211,797 | $1,224,878 | | RATIOS | | | | | | | Net return on sales | 0.3% | 6.0% | 3.5% | 5.7% | 5.3% | | Return on shareholders' equity | 0.7% | 13.4% | 7.7% | 13.4% | 12.6% | | Net debt to capitalization | 40% | 36% | 38% | 33% | 41% | Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an in-depth analysis of Moog Inc.'s financial performance, condition, and operational results, focusing on fiscal year 2020 compared to 2019 Overview Moog Inc. is a global designer and manufacturer of high-performance precision controls for aerospace, defense, and industrial markets, focusing on strategic growth and shareholder value - Moog Inc. is a worldwide designer, manufacturer, and systems integrator of high-performance precision motion and fluid controls for aerospace and defense and industrial markets[99] - 65% of 2020 revenue was recognized over time using the cost-to-cost method, primarily in Aircraft Controls and Space and Defense Controls, for U.S. Government and large commercial contracts[101] - Long-term strategies include strengthening leadership, innovating through global capabilities and engineering heritage, investing in talent development, and maximizing customer value through lean enterprise principles[106] - Capital deployment strategies shifted in 2020 to focus on cash preservation and cost management due to COVID-19, while opportunistically resuming investments[107] - In November 2019, Moog acquired GAT for $54 million, integrating it into the Industrial Systems segment; in 2020, a non-core Industrial Systems business was sold for $2 million[109] Critical Accounting Policies Moog Inc.'s critical accounting policies involve significant estimates and judgments, particularly in revenue recognition, contract reserves, inventory valuation, goodwill impairment, and pension assumptions - Revenue recognition for over-time contracts (65% of 2020 revenue) uses the cost-to-cost method, with estimates reviewed and updated quarterly[113] Contract Reserves (as of Oct 3, 2020) | Reserve Type | Amount | | :-------------------- | :---------- | | Total Contract Reserves | $72 million | | Components | Contract loss reserves, recall reserves, contract-related reserves | | Recognition | Charged against income when loss is probable and estimable | Inventory Valuation (as of Oct 3, 2020) | Metric | Value | | :-------------------- | :---------- | | Net Inventories | $623 million | | % of Current Assets | 39% | | Reserves for Inventory | $153 million | | % of Gross Inventories | 20% | | Valuation Method | Lower of cost or net realizable value (FIFO), formula-based for aging, specific circumstances | - Goodwill (25% of total assets at $822 million in 2020) is tested for impairment annually or more frequently, using qualitative and quantitative assessments; no impairment charges were recorded in 2020[117][121][125] - In 2020, $38 million of impairment charges were recorded for property, plant and equipment, right-of-use assets, and intangible assets[128] - Pension costs and obligations rely on critical assumptions like discount rates (U.S. plan 2020: 3.5% service cost, 2.9% interest cost) and expected return on assets (U.S. plan 2020: 4.50%); a $121 million non-cash pension settlement charge was incurred in 2020[129][130][132] - Income tax rate determination involves significant judgment, including valuation allowances for deferred tax assets; at October 3, 2020, gross deferred tax assets were $171 million with $15 million in valuation allowances[134][137][138] COVID-19 Impacts on Our Business The COVID-19 pandemic significantly impacted Moog Inc.'s business, leading to short-term actions for financial health and liquidity, with varied market recovery expectations - Moog implemented short-term actions in response to COVID-19, focusing on employee health and safety, meeting customer needs, and securing financial well-being[140][141] - Defense, space, and medical markets are expected to remain strong in fiscal 2021, but industrial markets are not expected to recover, and commercial OEM aircraft production schedules face considerable uncertainty[143] - The company's immediate financial focus is on cash preservation and cost management, with existing financial arrangements believed to be sufficient for short-term operating needs[141][144] Consolidated Results of Operations Moog Inc. experienced a 1% decrease in net sales in 2020, with gross margin decline and a significant 95% decrease in net earnings due to pension settlement and impairment charges Consolidated Financial Performance (2020 vs. 2019) | Metric | 2020 | 2019 | $ Variance (2020 vs 2019) | % Variance (2020 vs 2019) | | :------------------------------------------------- | :--------- | :--------- | :------------------------ | :------------------------ | | Net sales (in millions) | $2,885 | $2,905 | $(20) | (1%) | | Gross margin | 25.8% | 28.1% | - | - | | Research and development expenses (in millions) | $111 | $126 | $(16) | (12%) | | Selling, general and administrative as % of sales | 13.8% | 13.9% | - | - | | Interest expense (in millions) | $39 | $39 | $— | (1%) | | Restructuring expense (in millions) | $11 | $— | $11 | 100% | | Long-lived asset impairment (in millions) | $38 | $— | $38 | 100% | | Pension settlement (in millions) | $121 | $— | $121 | 100% | | Net earnings attributable to Moog (in millions) | $9 | $175 | $(165) | (95%) | | Diluted earnings per share | $0.28 | $4.96 | $(4.68) | (94%) | | Total backlog (in millions) | $2,555 | $2,233 | $323 | 14% | | Twelve-month backlog (in millions) | $1,658 | $1,502 | $156 | 10% | - Net sales decreased by 1% in 2020 due to COVID-19 impacts on commercial aircraft and industrial automation, partially offset by military, space, and medical growth[147] - Gross margin decreased in 2020, including $23 million in inventory write-downs and negative impacts from facility under-utilization due to lower sales volumes[148] - Net earnings were significantly impacted by a $121 million non-cash pension settlement charge, $38 million in long-lived asset impairments, and $11 million in restructuring expenses[151][152] - Twelve-month backlog increased by 10% to $1.66 billion, driven by military aircraft programs and medical products, partially offset by timing of space and defense orders[155] Segment Results of Operations Segment results show varied performance in 2020, with Aircraft Controls declining, Space and Defense Controls growing, and Industrial Systems experiencing mixed results due to market shifts Aircraft Controls Segment Performance (2020 vs. 2019) | Metric | 2020 | 2019 | $ Variance | % Variance | | :---------------------- | :--------- | :--------- | :--------- | :--------- | | Net sales - military aircraft | $721 | $622 | $99 | 16% | | Net sales - commercial aircraft | $485 | $681 | $(196) | (29%) | | Total Net sales | $1,206 | $1,303 | $(97) | (7%) | | Operating profit | $35 | $123 | $(88) | (72%) | | Operating margin | 2.9% | 9.4% | - | - | - Aircraft Controls' commercial OEM and aftermarket programs declined by $169 million and $27 million respectively due to COVID-19, while military OEM and aftermarket sales increased by $55 million and $44 million[159] - Aircraft Controls' operating margin decreased due to sales decline, $57 million in COVID-19 related impairments and restructuring, and negative adjustments to development contracts[160] Space and Defense Controls Segment Performance (2020 vs. 2019) | Metric | 2020 | 2019 | $ Variance | % Variance | | :---------------- | :--------- | :--------- | :--------- | :--------- | | Net sales | $770 | $683 | $87 | 13% | | Operating profit | $102 | $89 | $13 | 14% | | Operating margin | 13.2% | 13.0% | - | - | - Space and Defense Controls' sales increased by $75 million in the space market (driven by launch vehicle programs and satellite controls) and $11 million in the defense market, partially offset by a $15 million decline in security sales[163] Industrial Systems Segment Performance (2020 vs. 2019) | Metric | 2020 | 2019 | $ Variance | % Variance | | :---------------- | :--------- | :--------- | :--------- | :--------- | | Net sales | $909 | $918 | $(10) | (1%) | | Operating profit | $80 | $109 | $(29) | (27%) | | Operating margin | 8.8% | 11.9% | - | - | - Industrial Systems' sales declined by $42 million in industrial automation and $20 million in simulation and test, but were partially offset by a $46 million increase in medical product sales and $34 million from the GAT acquisition[167] - Industrial Systems' operating margin decreased due to sales declines, $14 million in COVID-19 related impairments and restructuring, a less favorable sales mix, and factory inefficiencies[168] Financial Condition and Liquidity Moog Inc.'s liquidity is supported by available borrowing capacity and cash flow from operations, with increased operating cash flow and significant share repurchases in 2020 Cash Flow Summary (2020 vs. 2019) | Cash Flow Type (in millions) | 2020 | 2019 | $ Variance | % Variance | | :--------------------------- | :--------- | :--------- | :--------- | :--------- | | Operating activities | $279 | $181 | $98 | 54% | | Investing activities | $(146) | $(116) | $(30) | 26% | | Financing activities | $(143) | $(99) | $(44) | 45% | - Net cash provided by operating activities increased by $98 million in 2020, driven by $191 million more cash from receivables and $80 million from customer advances[172] - Net cash used by investing activities included $54 million for the GAT acquisition and $88 million for capital expenditures, with capital spend actively managed due to COVID-19[173] - Net cash used by financing activities included $215 million for share repurchases, $95 million of net payments on long-term debt, and $25 million in cash dividends[174] Capital Structure and Resources Moog Inc. maintains a robust capital structure with bank credit facilities and access to debt and equity markets, including new senior notes and a trade receivables securitization facility Credit Facilities and Debt (as of Oct 3, 2020) | Facility | Capacity | Outstanding Balance | Interest Rate | Maturity | | :-------------------------------- | :--------- | :------------------ | :------------ | :--------- | | U.S. revolving credit facility | $1.1 billion | $362 million | 2.25% (LIBOR + 1.5%) | Oct 15, 2024 | | SECT revolving credit facility | $35 million | $6 million | 2.28% (LIBOR + 2.13%) | July 26, 2022 | | Senior notes 4.25% | $500 million | $500 million | 4.60% effective | Dec 15, 2027 | | Securitization Program | $130 million | $69 million | 1.02% (30-day LIBOR + margin) | Oct 29, 2021 | - Moog redeemed $300 million of 5.25% senior notes in January 2020, incurring a $4 million call premium[183] - Unused borrowing capacity was $738 million at October 3, 2020, with a leverage ratio covenant limiting it to $552 million[185] Capitalization and Shareholder Returns (2020 vs. 2019) | Metric | 2020 | 2019 | Change | | :-------------------------- | :--- | :--- | :----- | | Net debt to capitalization | 40% | 36% | +4% | | Dividends declared per share | $0.25 | $0.25 | No change | | Shares repurchased (2020) | 2.88 million | - | - | | Value of shares repurchased (2020) | $215.78 million | - | - | Off Balance Sheet Arrangements Moog Inc. 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 likely to have a material future effect on financial condition, results of operations, or cash flows[191] Contractual Obligations and Commercial Commitments Moog Inc.'s significant contractual obligations totaled $1,768 million at October 3, 2020, primarily comprising long-term debt, interest, lease liabilities, and purchase obligations Contractual Obligations (as of Oct 3, 2020) | Obligation Type | Total (in millions) | 2021 (in millions) | 2022-2023 (in millions) | 2024-2025 (in millions) | After 2025 (in millions) | | :-------------------------- | :------------------ | :----------------- | :---------------------- | :---------------------- | :--------------------- | | Long-term debt | $939 | $— | $76 | $362 | $500 | | Interest on long-term debt | $153 | $21 | $43 | $42 | $47 | | Right-of-use lease liabilities | $117 | $20 | $33 | $20 | $43 | | Purchase obligations | $560 | $421 | $113 | $8 | $18 | | Total contractual obligations | $1,768 | $463 | $265 | $433 | $607 | Other Commercial Commitments (as of Oct 3, 2020) | Commitment Type | Total (in millions) | 2021 (in millions) | 2022-2023 (in millions) | 2024-2025 (in millions) | After 2025 (in millions) | | :-------------------------- | :------------------ | :----------------- | :---------------------- | :---------------------- | :--------------------- | | Standby letters of credit | $41 | $17 | $24 | $— | $— | - Pension obligations are excluded from the table, with anticipated contributions of $14 million in 2021 ($5 million for a non-qualified U.S. plan)[194] Economic Conditions and Market Trends Moog Inc.'s markets are experiencing varying pressures from the COVID-19 pandemic, with stable defense and space, challenged commercial aircraft, impacted industrial, and normalizing medical sectors - Defense and space businesses (approx. half of 2020 sales) are stable, driven by program funding, with modest supply chain and production risks[198] - Commercial aircraft market (less than 20% of 2020 sales) faces significant pressures due to drastic reductions in air travel, delayed new aircraft purchases, and lower jet fuel prices[198][203] - Industrial markets (automation, simulation, energy – less than 25% of 2020 sales) face productivity and demand challenges from macroeconomic slowdowns and reduced capital investments[199][207][208][209] - Medical market (approx. 10% of 2020 sales) experienced a surge in demand for COVID-19 related equipment (ventilators, pumps) but is expected to return to normal growth rates as this demand subsides[199][210] - Foreign currency movements, particularly the Euro, British pound, and Japanese yen, impact sales, with about one-fifth of 2020 sales denominated in foreign currencies; weakening foreign currency rates decreased 2020 sales by $4 million[211] Quantitative and Qualitative Disclosures About Market Risk Moog Inc. is exposed to interest rate risk on its variable-rate debt and foreign exchange rate risk from international operations; the company uses derivative instruments, such as foreign currency contracts, to manage these risks - Moog is exposed to interest rate risk from long-term debt and foreign exchange rate risk from foreign operations, managed through derivative instruments[214] Interest Rate Risk Sensitivity (2020) | Metric | Value | | :------------------------------------ | :---------- | | Variable interest rate borrowings (Oct 3, 2020) | $437 million | | Average variable borrowings (2020, adjusted for swaps) | $502 million | | Impact of 1% interest rate increase on 2020 interest expense | +$5 million | | Outstanding interest rate swaps (Oct 3, 2020) | None | Foreign Currency Risk Sensitivity (as of Oct 3, 2020) | Metric | Value | | :------------------------------------------------- | :---------- | | Notional amount of foreign currency contracts | $162 million | | Net fair value of U.S. dollar foreign currency contracts | $3 million net asset | | Impact of 10% USD increase on foreign currency contracts fair value | -$12 million | | Impact of 10% USD decrease on foreign currency contracts fair value | +$15 million | | Impact of 10% FX rate change on 2020 net earnings | +/-$5 million | Financial Statements and Supplementary Data This section presents Moog Inc.'s audited consolidated financial statements, including statements of earnings, comprehensive income, balance sheets, shareholders' equity, and cash flows, along with detailed notes and the independent auditor's report Consolidated Statements of Earnings The Consolidated Statements of Earnings show a significant decline in net earnings for Moog Inc. in 2020, primarily due to a pension settlement charge, long-lived asset impairment, and inventory write-downs Consolidated Statements of Earnings (Fiscal Years Ended) | (dollars in thousands, except share and per share data) | October 3, 2020 | September 28, 2019 | September 29, 2018 | | :----------------------------------------------------- | :-------------- | :----------------- | :----------------- | | Net sales | $2,884,554 | $2,904,663 | $2,709,468 | | Cost of sales | $2,118,150 | $2,088,831 | $1,923,179 | | Inventory write-down | $22,708 | $— | $12,198 | | Gross profit | $743,696 | $815,832 | $774,091 | | Research and development | $110,865 | $126,453 | $129,838 | | Selling, general and administrative | $397,947 | $404,653 | $388,434 | | Interest | $38,897 | $39,269 | $36,238 | | Long-lived asset impairment | $37,839 | $— | $— | | Restructuring | $10,700 | $— | $28,794 | | Pension settlement | $121,324 | $— | $— | | Other | $20,707 | $18,505 | $8,608 | | Earnings before income taxes | $5,417 | $226,952 | $182,179 | | Income taxes (benefit) | $(3,788) | $52,404 | $86,818 | | Net earnings attributable to Moog | $9,205 | $174,548 | $95,240 | | Net earnings per share - Diluted | $0.28 | $4.96 | $2.64 | | Dividends declared per share | $0.75 | $1.00 | $0.50 | Consolidated Statements of Comprehensive Income (Loss) The Consolidated Statements of Comprehensive Income (Loss) show a significant increase in comprehensive income in 2020, primarily driven by a large retirement liability adjustment and a foreign currency translation gain Consolidated Statements of Comprehensive Income (Loss) (Fiscal Years Ended) | (dollars in thousands) | October 3, 2020 | September 28, 2019 | September 29, 2018 | | :------------------------------------------------- | :-------------- | :----------------- | :----------------- | | Net earnings attributable to Moog and noncontrolling interest | $9,205 | $174,548 | $95,361 | | Other comprehensive income (loss), net of tax: | | | | | Foreign currency translation adjustment | $26,405 | $(29,984) | $(16,279) | | Retirement liability adjustment | $102,081 | $(12,806) | $28,024 | | Change in accumulated income (loss) on derivatives | $1,538 | $105 | $(121) | | Other comprehensive income (loss), net of tax | $130,024 | $(42,685) | $11,624 | | Comprehensive income (loss) attributable to Moog | $139,229 | $131,863 | $59,817 | Consolidated Balance Sheets The Consolidated Balance Sheets show an increase in total assets for Moog Inc. in 2020, driven by higher property, plant and equipment, goodwill, and intangible assets, with a slight decrease in shareholders' equity Consolidated Balance Sheets (as of) | (dollars in thousands, except per share data) | October 3, 2020 | September 28, 2019 | | :------------------------------------------ | :-------------- | :----------------- | | ASSETS | | | | Cash and cash equivalents | $84,583 | $89,702 | | Receivables, net | $855,535 | $954,355 | | Inventories, net | $623,043 | $534,974 | | Total current assets | $1,613,487 | $1,628,973 | | Property, plant and equipment, net | $600,498 | $586,767 | | Operating lease right-of-use assets | $68,393 | $— | | Goodwill | $821,856 | $784,240 | | Intangible assets, net | $85,046 | $79,646 | | Total assets | $3,225,831 | $3,114,237 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Current installments of long-term debt | $350 | $249 | | Accounts payable | $176,868 | $257,677 | | Contract advances | $203,338 | $137,242 | | Total current liabilities | $710,554 | $727,658 | | Long-term debt, excluding current installments | $929,982 | $832,984 | | Long-term pension and retirement obligations | $183,366 | $160,034 | | Total liabilities | $1,982,748 | $1,791,756 | | Total shareholders' equity | $1,243,083 | $1,322,481 | Consolidated Statements of Shareholders' Equity The Consolidated Statements of Shareholders' Equity show a decrease in total shareholders' equity in 2020, primarily driven by significant treasury share repurchases and a reduction in retained earnings Consolidated Statements of Shareholders' Equity (Fiscal Years Ended) | (dollars in thousands) | October 3, 2020 | September 28, 2019 | September 29, 2018 | | :------------------------------------------------- | :-------------- | :----------------- | :----------------- | | Common stock - Beginning and end of year | $51,280 | $51,280 | $51,280 | | Additional paid-in capital - End of year | $472,645 | $510,546 | $502,257 | | Retained earnings - End of year | $2,112,734 | $2,128,739 | $1,974,125 | | Treasury shares - End of year | $(990,783) | $(769,569) | $(738,494) | | Stock Employee Compensation Trust - End of year | $(64,242) | $(111,492) | $(118,449) | | Supplemental Retirement Plan Trust - End of year | $(53,098) | $(71,546) | $(72,941) | | Accumulated other comprehensive loss - End of year | $(285,453) | $(415,477) | $(372,792) | | Total Moog Shareholders' Equity | $1,243,083 | $1,322,481 | $1,224,986 | Common Stock Shares Outstanding (Fiscal Years Ended) | (share data) | October 3, 2020 | September 28, 2019 | September 29, 2018 | | :-------------------------------- | :-------------- | :----------------- | :----------------- | | Common Stock - Class A (End of year) | 43,799,229 | 43,794,935 | 43,784,489 | | Common Stock - Class B (End of year) | 7,480,484 | 7,484,778 | 7,495,224 | | Treasury Shares - Class A (End of year) | (13,959,998) | (11,101,512) | (10,872,575) | | Treasury Shares - Class B (End of year) | (3,344,877) | (3,345,489) | (3,323,996) | Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows show a significant increase in net cash provided by operating activities in 2020, with increased cash usage in investing and financing activities Consolidated Statements of Cash Flows (Fiscal Years Ended) | (dollars in thousands) | October 3, 2020 | 2019 | 2018 | | :------------------------------------------------- | :-------------- | :----- | :----- | | Net cash provided by operating activities | $279,177 | $181,423 | $102,407 | | Net cash used by investing activities | $(146,193) | $(115,720) | $(141,642) | | Net cash used by financing activities | $(142,766) | $(98,681) | $(221,569) | | Decrease in cash, cash equivalents and restricted cash | $(7,476) | $(35,158) | $(259,263) | | Cash, cash equivalents and restricted cash at end of year | $85,072 | $92,548 | $127,706 | | Interest paid | $38,420 | $38,864 | $36,689 | | Income taxes paid, net of refunds | $59,053 | $36,474 | $34,214 | Note 1 - Summary of Significant Accounting Policies This note outlines Moog Inc.'s key accounting policies, including consolidation, revenue recognition, use of estimates, and the adoption of new accounting standards for leases and pension asset valuation - Moog Inc. adopted ASC 842 (Leases) in Q1 2020 using the modified retrospective method, recognizing initial ROU assets of $75,521 thousand and lease liabilities of $79,187 thousand[268] - The company changed its method of accounting for the market-related value of fixed income assets within its qualified U.S. defined benefit plan, now using fair value for approximately 80% of plan assets, effective Q1 2020[271] Impact of Change in Accounting Principle on Net Earnings (2020) | Metric | As Reported (With Change) | Impact of Change | Without Change | | :------------------------------------------------- | :------------------------ | :--------------- | :------------- | | Net earnings attributable to Moog (in thousands) | $9,205 | $(8,788) | $417 | | Net earnings per share - Diluted | $0.28 | $(0.27) | $0.01 | - No goodwill impairment charges were recorded in 2020, 2019, or 2018[257] - In 2020, $37,839 thousand of impairment charges were recorded on long-lived assets, primarily in Aircraft Controls and Industrial Systems, due to COVID-19 impacts[260] Note 2 - Revenue from Contracts with Customers Moog Inc. recognizes revenue using a five-step model, with 65% of 2020 revenue recognized over time, and details contract assets, liabilities, and backlog - 65% of 2020 revenue was recognized over time using the cost-to-cost method, primarily for U.S. Government contracts and repair/overhaul arrangements[290] - 35% of 2020 revenue was recognized at a point in time, mainly in Industrial Systems, when control transfers to the customer[295] Contract Assets and Liabilities (as of) | (dollars in thousands) | October 3, 2020 | September 28, 2019 | | :--------------------- | :-------------- | :----------------- | | Unbilled receivables | $493,734 | $468,824 | | Contract advances | $203,338 | $137,242 | | Net contract assets | $290,396 | $331,582 | Remaining Performance Obligations (Backlog) (as of Oct 3, 2020) | Metric | Value | | :------------------------------------------------- | :---------- | | Total backlog | $2,555,129 | | Expected to be recognized as sales within next 12 months | ~65% | - Contract reserves totaled $72,412 thousand as of October 3, 2020, for anticipated losses, recalls, and other contract-related issues[294] Note 3 - Acquisitions and Divestitures In November 2019, Moog Inc. acquired GAT for $54,265 thousand, integrating it into the Industrial Systems segment, and divested a non-core business in 2020 - Acquired GAT (Gesellschaft für Antriebstechnik mbH and GAT Inc.) on November 28, 2019, for $54,265 thousand, included in Industrial Systems segment[301] - Sold a non-core business of Industrial Systems segment for $1,775 thousand in Q1 2020, recording a minimal gain[302] Note 4 - Receivables Receivables primarily consist of accounts receivable and unbilled receivables, totaling $855,535 thousand at October 3, 2020, with a significant portion from major customers Receivables Composition (as of) | (dollars in thousands) | October 3, 2020 | September 28, 2019 | | :--------------------- | :-------------- | :----------------- | | Accounts receivable | $363,089 | $477,154 | | Unbilled receivables | $493,734 | $468,824 | | Other | $5,025 | $13,779 | | Less allowance for doubtful accounts | $(6,313) | $(5,402) | | Receivables, net | $855,535 | $954,355 | - Receivables from Boeing were $249,424 thousand at October 3, 2020, and $245,892 thousand at September 28, 2019[306] - Unbilled recoverable costs and accrued profits under over-time contracts to the U.S. Government were $34,223 thousand at October 3, 2020[304] Note 5 - Inventories Moog Inc.'s net inventories totaled $623,043 thousand at October 3, 2020, primarily comprising raw materials, purchased parts, and work in progress; this figure includes $16,319 thousand in non-cash inventory reserves related to the COVID-19 pandemic Inventories, Net of Reserves (as of) | (dollars in thousands) | October 3, 2020 | September 28, 2019 | | :--------------------- | :-------------- | :----------------- | | Raw materials and purchased parts | $235,906 | $189,875 | | Work in progress | $327,990 | $276,538 | | Finished goods | $59,147 | $68,561 | | Inventories, net | $623,043 | $534,974 | - Net inventory includes $16,319 thousand in non-cash inventory reserves as of October 3, 2020, due to the impact of the COVID-19 pandemic[308] Note 6 - Property, Plant and Equipment Moog Inc.'s net property, plant and equipment amounted to $600,498 thousand at October 3, 2020; in 2020, the company recorded $25,419 thousand in impairment charges for owned and finance lease ROU assets, primarily due to the economic impacts of the COVID-19 pandemic Property, Plant and Equipment (as of) | (dollars in thousands) | October 3, 2020 | September 28, 2019 | | :-------------------------------- | :-------------- | :----------------- | | Land | $37,463 | $33,111 | | Buildings and improvements | $476,659 | $469,867 | | Machinery and equipment | $782,194 | $775,378 | | Computer equipment and software | $158,683 | $137,221 | | Property, plant and equipment, at cost | $1,454,999 | $1,415,577 | | Less accumulated depreciation and amortization | $(854,501) | $(828,810) | | Property, plant and equipment, net | $600,498 | $586,767 | - In 2020, $25,419 thousand of impairment charges were recorded for owned and finance lease ROU assets due to COVID-19 impacts[310] Note 7 - Leases Moog Inc. adopted ASC 842 (Leases) on September 29, 2019, recognizing ROU assets and lease liabilities for its global manufacturing facilities, office space, and equipment; operating lease ROU assets were $68,393 thousand and total operating lease liabilities were $75,871 thousand at October 3, 2020 - Adopted ASC 842: Leases on September 29, 2019, using the modified retrospective method[311] Lease Expense (Fiscal Year Ended Oct 3, 2020) | Expense Type | Amount (in thousands) | | :-------------------------- | :-------------------- | | Operating lease cost | $27,493 | | Finance lease cost (Amortization) | $1,175 | | Finance lease cost (Interest) | $367 | | Total finance lease cost | $1,542 | Supplemental Balance Sheet Information Related to Leases (as of Oct 3, 2020) | Metric | Operating Leases (in thousands) | Finance Leases (in thousands) | | :-------------------------------- | :------------------------------ | :---------------------------- | | Right-of-use assets | $68,393 | $12,433 (net PP&E) | | Total lease liabilities | $75,871 | $13,591 | | Weighted average remaining lease term | 7.4 years | 12.3 years | | Weighted average discount rate | 4.7% | 4.8% | - Operating lease ROU assets and finance leased costs reflect write-downs of $3,696 thousand and $1,112 thousand, respectively, due to COVID-19 related impairment charges[319] Note 8 - Goodwill and Intangible Assets Moog Inc.'s goodwill increased to $821,856 thousand at October 3, 2020, primarily due to an acquisition; intangible assets, net, were $85,046 thousand, with a $8,723 thousand write-down in 2020 Goodwill by Segment (as of Oct 3, 2020) | Segment | Balance (in thousands) | | :----------------------- | :--------------------- | | Aircraft Controls | $179,521 | | Space and Defense Controls | $261,726 | | Industrial Systems | $380,609 | | Total | $821,856 | Intangible Assets (as of Oct 3, 2020) | Asset Type | Gross Carrying Amount (in thousands) | Accumulated Amortization (in thousands) | Weighted Average Life (years) | | :----------------- | :--------------------------- | :---------------------------- | :---------------------------- | | Customer-related | $140,048 | $(103,733) | 11 | | Technology-related | $77,060 | $(54,833) | 9 | | Program-related | $38,963 | $(17,340) | 23 | | Marketing-related | $25,581 | $(20,981) | 8 | | Other | $4,134 | $(3,853) | 10 | | Total | $285,786 | $(200,740) | 12 | - In 2020, a $8,723 thousand write-down of intangible assets was recorded due to COVID-19 related impairment charges[324] Estimated Future Amortization of Acquired Intangible Assets (in thousands) | Year | Amount | | :--- | :------- | | 2021 | $10,800 | | 2022 | $10,600 | | 2023 | $9,700 | | 2024 | $9,300 | | 2025 | $8,200 | Note 9 - Indebtedness Moog Inc.'s long-term debt increased to $929,982 thousand at October 3, 2020, primarily due to the issuance of $500 million in 4.25% senior notes in December 2019, used to repay existing debt, and the redemption of $300 million of 5.25% senior notes in January 2020 Long-Term Debt Composition (as of) | (dollars in thousands) | October 3, 2020 | September 28, 2019 | | :-------------------------------- | :-------------- | :----------------- | | U.S. revolving credit facility | $362,136 | $395,712 | | SECT revolving credit facility | $6,000 | $7,000 | | Senior notes 4.25% | $500,000 | $— | | Senior notes 5.25% | $— | $300,000 | | Securitization program | $69,000 | $130,000 | | Other long-term debt | $1,661 | $— | | Obligations under capital leases | $— | $679 | | Senior debt | $938,797 | $833,391 | | Less deferred debt issuance cost | $(8,465) | $(158) | | Less current installments | $(350) | $(249) | | Long-term debt | $929,982 | $832,984 | - Issued $500 million aggregate principal amount of 4.25% senior notes due December 15, 2027, with net proceeds of $491,769 thousand used to repay U.S. revolving credit facility indebtedness[327] - Redeemed $300 million aggregate principal amount of 5.25% senior notes on January 13, 2020, incurring a $3,939 thousand call premium[328] Long-Term Debt Maturities (in thousands) | Year | Amount | | :--- | :------- | | 2021 | $350 | | 2022 | $75,364 | | 2023 | $947 | | 2024 | $— | | 2025 | $362,136 | | Thereafter | $500,000 | - Unused short and long-term borrowing capacity was $737,692 thousand at October 3, 2020[331] Note 10 - Other Accrued Liabilities Other accrued liabilities for Moog Inc. totaled $220,488 thousand at October 3, 2020, primarily comprising contract reserves, employee benefits, and warranty accruals Other Accrued Liabilities (as of) | (dollars in thousands) | October 3, 2020 | September 28, 2019 | | :--------------------- | :-------------- | :----------------- | | Contract reserves | $72,412 | $60,914 | | Employee benefits | $40,734 | $37,040 | | Warranty accrual | $27,707 | $28,061 | | Accrued income taxes | $11,785 | $26,532 | | Other | $67,850 | $36,178 | | Total | $220,488 | $188,725 | Warranty Accrual Activity (Fiscal Years Ended) | (dollars in thousands) | 2020 | 2019 | 2018 | | :----------------------------- | :----- | :----- | :----- | | Warranty accrual at beginning of period | $28,061 | $25,537 | $25,848 | | Warranties issued during current period | $14,820 | $20,024 | $15,705 | | Reductions for settling warranties | $(14,656) | $(16,083) | $(15,101) | | Warranty accrual at end of period | $27,707 | $28,061 | $25,537 | Note 11 - Derivative Financial Instruments Moog Inc. uses derivative financial instruments to manage interest rate and foreign exchange risks; while no interest rate swaps were outstanding at October 3, 2020, the company utilized foreign currency contracts as cash flow hedges and for non-hedging purposes to mitigate foreign currency exposure - Moog uses derivative financial instruments to manage interest rate risk (long-term debt) and foreign exchange risk (foreign operations and transactions)[334] - At October 3, 2020, there were no outstanding interest rate swaps designated as hedging instruments[335] - Foreign currency contracts with notional amounts of $38,133 thousand were outstanding as cash flow hedges at October 3, 2020, maturing through November 2021[336] - Foreign currency contracts not designated as hedging instruments had notional amounts of $123,992 thousand at October 3, 2020, primarily to minimize exposure on intercompany balances[339] Fair Value and Classification of Derivatives (as of) | (dollars in thousands) | Balance Sheets location | October 3, 2020 | September 28, 2019 | | :-------------------------------- | :---------------------- | :-------------- | :----------------- | | Derivatives designated as hedging instruments: | | | | | Foreign currency contracts (assets) | Other current assets | $1,818 | $1,060 | | Foreign currency contracts (assets) | Other assets | $169 | $261 | | Interest rate swaps (assets) | Other current assets | $— | $57 | | Foreign currency contracts (liabilities) | Accrued liabilities and other | $169 | $736 | | Foreign currency contracts (liabilities) | Other long-term liabilities | $— | $152 | | Derivatives not designated as hedging instruments: | | | | | Foreign currency contracts (assets) | Other current assets | $1,044 | $93 | | Foreign currency contracts (liabilities) | Accrued liabilities and other | $245 | $359 | Note 12 - Fair Value Moog Inc. classifies its financial instruments into a fair value hierarchy (Level 1, 2, or 3); derivatives are valued using observable market data (Level 2), and nonrecurring fair value measurements for impaired long-lived assets and intangible assets in 2020 used Level 3 inputs - Derivatives are valued using pricing models or discounted cash flow analyses incorporating observable market data (Level 2)[343] Fair Values of Financial Assets and Liabilities (as of) | (dollars in thousands) | Balance Sheets location | October 3, 2020 | September 28, 2019 | | :-------------------------------- | :---------------------- | :-------------- | :----------------- | | Foreign currency contracts (assets) | Other current assets | $2,862 | $1,153 | | Foreign currency contracts (assets) | Other assets | $169 | $261 | | Interest rate swaps (assets) | Other current assets | $— | $57 | | Foreign currency contracts (liabilities) | Accrued liabilities and other | $414 | $1,095 | | Foreign currency contracts (liabilities) | Other long-term liabilities | $— | $152 | | Total assets | | $3,031 | $1,471 | | Total liabilities | | $414 | $1,247 | - Fair value of long-term debt was $941,054 thousand at October 3, 2020, compared to a carrying value of $938,797 thousand, classified as Level 2[343] - Impairment losses of $37,839 thousand on property, plant and equipment, right-of-use assets, and intangible assets in 2020 were measured using Level 3 fair value inputs[344] Note 13 - Restructuring Moog Inc. initiated restructuring actions in 2020 due to the COVID-19 pandemic, resulting in $10,466 thousand for severance, primarily in the Philippines, Europe, and the U.S - In 2020, $10,466 thousand was recorded for severance due to restructuring actions related to COVID-19 impacts, primarily in the Philippines, Europe, and the U.S[346] - The 2018 restructuring charge included $12,198 thousand of non-cash inventory reserves, $12,316 thousand of non-cash intangible asset impairments, and $7,969 thousand for severance[348] Restructuring Accrual by Segment (as of Oct 3, 2020) | Segment | Balance (in thousands) | | :----------------------- | :--------------------- | | Aircraft Controls | $1,247 | | Space and Defense Controls | $— | | Industrial Systems | $9,095 | | Total | $10,342 | Note 14 - Employee Benefit Plans Moog Inc. maintains various defined benefit and defined contribution plans; in 2020, a significant event was the $121,324 thousand non-cash pension settlement charge resulting from transferring future benefit obligations for certain U.S. retirees to an insurance company - A $121,324 thousand non-cash pension settlement charge was incurred in 2020 due to transferring future benefit obligations for certain U.S. retirees to an insurance company[354] Defined Benefit Plan Funded Status (as of) | (dollars in thousands) | U.S. Plans (2020) | U.S. Plans (2019) | Non-U.S. Plans (2020) | Non-U.S. Plans (2019) | | :-------------------------------- | :---------------- | :---------------- | :-------------------- | :-------------------- | | Projected benefit obligation | $688,689 | $1,065,937 | $264,419 | $249,575 | | Fair value of assets | $615,872 | $1,004,163 | $170,765 | $166,242 | | Funded status | $(72,817) | $(61,774) | $(93,654) | $(83,333) | Weighted-Average Assumptions for Net Periodic Benefit Cost (2020) | Assumption | U.S. Plans | Non-U.S. Plans | | :-------------------------- | :--------- | :------------- | | Service cost discount rate | 3.5% | 1.6% | | Interest cost discount rate | 2.9% | 1.3% | | Return on assets | 4.5% | 2.7% | | Rate of compensation increase | 2.9% | 2.1% | Weighted Average Asset Allocations for Pension Plans (2020) | Asset Category | U.S. Plans (Actual) | Non-U.S. Plans (Actual) | | :------------- | :------------------ | :---------------------- | | Equity | 37% | 24% | | Fixed Income | 63% | 38% | | Other | —% | 38% | Total Expense for Defined Benefit and Contribution Plans (in thousands) | Plan Type | 2020 | 2019 | 2018 | | :-------------------------- | :----- | :----- | :----- | | Defined benefit plans | $156,319 | $39,699 | $29,979 | | Defined contribution plans | $33,663 | $25,118 | $21,389 | Note 15 - Income Taxes Moog Inc.'s effective income tax rate was (69.9)% in 2020, significantly impacted by tax benefits from increased foreign tax credit utilization and a lower earnings base due to pension settlement and asset impairments Effective Income Tax Rate and Components (2020) | Metric | 2020 | 2019 | 2018 | | :------------------------------------------------- | :----- | :----- | :----- | | Earnings before income taxes (Domestic) | $1,126 | $136,308 | $135,589 | | Earnings before income taxes (Foreign) | $4,291 | $90,644 | $46,590 | | Total Earnings before income taxes | $5,417 | $226,952 | $182,179 | | Effective income tax rate | (69.9)% | 23.1% | 47.7% | | Federal statutory income tax rate | 21.0% | 21.0% | 24.5% | - The 2020 effective tax rate was (69.9)%, influenced by tax benefits from increased foreign tax credit utilization and a lower earnings base due to pension settlement and asset impairments[386] Components of Income Taxes (in thousands) | Tax Type | 2020 | 2019 | 2018 | | :----------------- | :----- | :----- | :----- | | Current (Federal) | $14,789 | $23,302 | $19,985 | | Current (Foreign) | $18,997 | $29,460 | $35,515 | | Current (State) | $3,271 | $4,240 | $705 | | Deferred (Federal) | $(35,603) | $(5,666) | $23,229 | | Deferred (Foreign) | $(1,843) | $1,413 | $3,354 | | Deferred (State) | $(3,399) | $(345) | $4,030 | | Income taxes (benefit) | $(3,788) | $52,404 | $86,818 | Deferred Tax Assets and Liabilities (as of Oct 3, 2020) | (dollars in thousands) | October 3, 2020 | September 28, 2019 | | :-------------------------------- | :-------------- | :----------------- | | Total gross deferred tax assets | $170,970 | $174,937 | | Less valuation allowance | $(14,784) | $(13,137) | | Total gross deferred tax liabilities | $177,736 | $182,336 | | Net deferred tax assets (liabilities) | $(21,550) | $(20,536) | - Moog is no longer indefinitely reinvesting unremitted foreign earnings effective December 30, 2017, and has recorded a liability for related withholding taxes[388] Note 16 - Earnings per Share and Dividends Moog Inc.'s diluted weighted-average shares outstanding decreased to 33,437,801 in 2020; the company declared and paid cash dividends of $0.75 per share in 2020 Weighted-Average Shares Outstanding (Fiscal Years Ended) | (share data) | 2020 | 2019 | 2018 | | :-------------------------------- | :----------- | :----------- | :----------- | | Basic weighted-average shares outstanding | 33,257,684 | 34,854,614 | 35,661,638 | | Dilutive effect of equity-based awards | 180,117 | 324,354 | 390,669 | | Diluted weighted-average shares outstanding | 33,437,801 | 35,178,968 | 36,052,307 | - Cash dividends declared and paid were $0.75 per share in 2020, compared to $1.00 in 2019 and $0.50 in 2018[396] Note 17 - Shareholders' Equity Moog Inc.'s Class A and Class B common stocks have differing voting rights but share equally in earnings, with 2,881,116 shares repurchased for $215,776 thousand in 2020 - Class A and Class B common stock share equally in earnings, with Class A having limited voting rights (one-tenth of a vote) and Class B having one vote[397] Shares Reserved for Issuance (as of Oct 3, 2020) | Purpose | Shares | | :-------------------------------- | :----------- | | Conversion of Class B to Class A shares | 7,480,484 | | Employee Stock Purchase Plan | 1,747,015 | | 2014 Long Term Incentive Plan | 1,806,390 | | 2008 Stock Appreciation Rights Plan | 1,166,555 | | Total Class A and B shares reserved for issuance | 12,200,444 | - In 2020, Moog repurchased 2,881,116 Class A and B common shares for $215,776 thousand under its share repurchase program[400] - As of October 3, 2020, 166,191 shares remained authorized for future common share repurchases[400] Note 18 - Equity-Based Compensation Moog Inc. offers equity-based compensation through various plans and awards, with total compensation cost before income taxes at $5,661 thousand in 2020 - The Employee Stock Purchase Plan (ESPP) allows employees to purchase common stock at 85% of fair market value[402] Total Equity-Based Compensation Cost (before income taxes) | (dollars in thousands) | 2020 | 2019 | 2018 | | :-------------------------------- | :----- | :----- | :----- | | Stock appreciation rights | $2,643 | $2,594 | $2,617 | | Performance-based restricted stock units | $221 | $2,048 | $1,650 | | Restricted stock awards | $680 | $480 | $480 | | Employee stock purchase plan | $2,117 | $1,342 | $1,057 | | Total compensation cost | $5,661 | $6,464 | $5,804 | Stock Appreciation Rights (SARs) Activity (2020) | Metric | Number of Awards | Weighted Average Exercise Price | | :-------------------------------- | :--------------- | :---------------------------- | | Outstanding at Sep 28, 2019 | 935,156 | $62.60 | | Granted in 2020 | 136,700 | $85.95 | | Exercised in 2020 | (71,557) | $41.77 | | Outstanding at Oct 3, 2020 | 984,270 | $67.07 | | Exercisable at Oct 3, 2020 | 740,288 | $61.63 | | Aggregate Intrinsic Value (Oct 3, 2020) | - | $6,777 | | Total unvested compensation expense (Oct 3, 2020) | - | $2,926 | - Performance-Based Restricted Stock Units (PSUs) granted in 2020 have a three-year performance period, with payouts ranging from 0% to 200% based on performance targets[412] Note 19 - Stock Employee Compensation Trust and Supplemental Retirement Plan Trust The Stock Employee Compensation Trust (SECT) and Supplemental Retirement Plan (SERP) Trust assist in administering and funding equity-based compensation and benefit programs, holding company shares as investments - The SECT and SERP Trust administer and fund equity-based compensation plans and benefit programs[417] - Shares held by the SECT and SERP Trust are not considered outstanding for EPS calculations but are voted by the trustees[417] Note 20 - Accumulated Other Comprehensive Income (Loss) Moog Inc.'s Accumulated Other Comprehensive Income (Loss) significantly improved in 2020, primarily driven by a large positive retirement liability adjustment and a foreign currency translation gain Changes in AOCIL, Net of Tax, by Component (in thousands) | Component | AOCIL at Sep 29, 2018 | Other comprehensive income (loss) before reclassifications (2019) | Amounts reclassified from AOCIL (2019) | AOCIL at Sep 28, 2019 | Other comprehensive income (loss) before reclassifications (2020) | Amounts reclassified from AOCIL (2020) | AOCIL at Oct 3, 2020 | | :-------------------------------- | :-------------------- | :-------------------------------------------------------- | :----------------------------------- | :-------------------- | :-------------------------------------------------------- | :----------------------------------- | :------------------- | | Accumulated foreign currency translation | $(99,415) | $(26,501) | $(3,483) | $(129,399) | $26,898 | $(493) | $(102,994) | | Accumulated retirement liability | $(272,928) | $(35,606) | $22,800 | $(285,734) | $(13,659) | $115,740 | $(183,653) | | Accumulated gain (loss) on derivatives | $(449) | $41 | $64 | $(344) | $2,245 | $(707) | $1,194 | | Total AOCIL | $(372,792) | $(62,066) | $19,381 | $(415,477) | $15,484 | $114,540 | $(285,453) | Amounts Reclassified from AOCIL into Earnings (2020) | Reclassification Type | Statements of Earnings location | 2020 (in thousands) | | :-------------------------- | :------------------------------ | :------------------ | | Retirement liability (Prior service cost) | - | $(129) | | Retirement liability (Actuarial losses) | - | $29,652 | | Retirement liability (Curtailment loss) | - | $100 | | Retirement liability (Settlement loss) | - | $122,000 | | Net reclassification from AOCIL into earnings (Retirement liability) | Other | $115,740 | | Derivatives (Foreign currency contracts) | Sales | $(48) | | Derivatives (Foreign currency contracts) | Cost of sales | $(874) | | Derivatives (Interest rate swaps) | Interest | $(1) | | Net reclassification from AOCIL into earnings (Derivatives) | - | $(707) | Note 21 - Segments Moog Inc. operates in three segments: Aircraft Controls, Space and Defense Controls, and Industrial Systems, each serving distinct markets with varied performance in 2020 - Aircraft Controls designs, manufactures, and integrates flight controls for military and commercial aircraft, with aftermarket sales representing 30% of segment sales in 2020[423][426] - Space and Defense Controls provides controls for satellites, space vehicles, launch vehicles, armored combat vehicles, and missiles, benefiting from increased government spending[427][428][429][430] - Industrial Systems offers customized machine performance components and systems across industrial automation, simulation and test, energy, and medical markets[432][433][434][435][436] Net Sales by Market Type (in thousands) | Market Type | 2020 | 2019 | 2018 | | :-------------------------- | :--------- | :--------- | :--------- | | Military | $721,024 | $622,126 | $571,886 | | Commercial (Aircraft Controls) | $484,726 | $680,846 | $621,619 | | Space | $294,254 | $218,970 | $214,741 | | Defense (Space & Defense Controls) | $475,860 | $464,498 | $366,136 | | Energy | $127,693 | $120,771 | $163,888 | | Industrial Automation | $405,291 | $447,515 | $430,754 | | Simulation and Test | $102,600 | $122,935 | $127,321 | | Medical | $273,106 | $227,002 | $213,123 | | Total Net Sales | $2,884,554 | $2,904,663 | $2,709,468 | Operating Profit by Segment (in tho