Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
____________________________________________________________________________________________
Note 1 - Summary of Significant Accounting Policies
Consolidation:
The consolidated financial statements include the accounts of Moog Inc. and all of our U.S. and foreign subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Fiscal Year:
Our fiscal year ends on the Saturday that is closest to September 30. The consolidated financial statements include
52
weeks for the year ended
October 1, 2016
,
53
weeks for the year ended
October 3, 2015
and
52
weeks for the year ended
September 27, 2014
.
Operating Cycle
:
Consistent with industry practice, aerospace and defense related inventories, unbilled recoverable costs and profits on long-term contract receivables, customer advances and contract loss reserves include amounts relating to contracts having long production and procurement cycles, portions of which are not expected to be realized or settled within one yea
r.
Foreign Currency Translation:
Assets and liabilities of subsidiaries that prepare financial statements in currencies other than the U.S. dollar are translated using rates of exchange as of the balance sheet date and the statements of earnings are translated at the average rates of exchange for each reporting period
.
Use of Estimates
:
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions.
Revenue Recognition:
We recognize revenue using either the percentage of completion method for contracts or as units are delivered or services are performed.
Percentage of completion method for contracts
: Revenue representing
34%
,
33%
and
34%
of
2016
,
2015
and
2014
sales, respectively, was accounted for using the percentage of completion, cost-to-cost method of accounting. This method of revenue recognition is predominantly used within the Aircraft Controls and Space and Defense Controls segments due to the contractual nature of the business activities, with the exception of their respective aftermarket activities. The contractual arrangements are either firm fixed-price or cost-plus contracts and are primarily with the U.S. Government or its prime subcontractors, foreign governments or commercial aircraft manufacturers, including Boeing and Airbus. The nature of the contractual arrangements includes customers’ requirements for delivery of hardware as well as funded nonrecurring development work in anticipation of follow-on production orders.
Revenue on contracts using the percentage of completion, cost-to-cost method of accounting is recognized as work progresses toward completion as determined by the ratio of cumulative costs incurred to date to estimated total contract costs at completion, multiplied by the total estimated contract revenue, less cumulative revenue recognized in prior periods. Changes in estimates affecting sales, costs and profits are recognized in the period in which the change becomes known using the cumulative catch-up method of accounting, resulting in the cumulative effect of changes reflected in the period. Estimates are reviewed and updated quarterly for substantially all contracts. A significant change in an estimate on one or more contracts could have a material effect on our results of operations.
Occasionally, it is appropriate to combine or segment contracts. Contracts are combined in those limited circumstances when they are negotiated as a package in the same economic environment with an overall profit margin objective and constitute, in essence, an agreement to do a single project. In such cases, revenue and costs are recognized over the performance period of the combined contracts as if they were one. Contracts are segmented in limited circumstances if the customer had the right to accept separate elements of the contract and the total amount of the proposals on the separate components approximated the amount of the proposal on the entire project. For segmented contracts, revenue and costs are recognized as if they were separate contracts over the performance periods of the individual elements or phases.
Contract costs include only allocable, allowable and reasonable costs, as determined in accordance with the Federal Acquisition Regulations and the related Cost Accounting Standards for applicable U.S. Government contracts, and are included in cost of sales when incurred. The nature of these costs includes development engineering costs and product manufacturing costs including direct material, direct labor, other direct costs and indirect overhead costs. Contract profit is recorded as a result of the revenue recognized less costs incurred in any reporting period. Amounts representing performance incentives, penalties, contract claims or change orders are considered in estimating revenues, costs and profits when they can be reliably estimated and realization is considered probable. Revenue recognized on contracts for unresolved claims or unapproved contract change orders was
not material
for
2016
,
2015
or
2014
.
For contracts with anticipated losses at completion, a provision for the entire amount of the estimated remaining loss is charged against income in the period in which the loss becomes known. Contract losses are determined considering all direct and indirect contract costs, exclusive of any selling, general or administrative cost allocations that are treated as period expenses. Loss reserves are more common on firm fixed-price contracts that involve, to varying degrees, the design and development of new and unique controls or control systems to meet the customers’ specifications.
As units are delivered or services are performed
: In
2016
,
66%
of our sales were recognized as units were delivered or as service obligations were satisfied. Revenue is recognized when the risks and rewards of ownership and title to the product are transferred to the customer. When engineering or similar services are performed, revenue is recognized upon completion of the obligation including any delivery of engineering drawings or technical data. This method of revenue recognition is predominantly used within the Industrial Systems and Components segments, as well as with aftermarket activity. Profits are recorded as costs are relieved from inventory and charged to cost of sales and as revenue is recognized. Inventory costs include all product manufacturing costs such as direct material, direct labor, other direct costs and indirect overhead cost allocations.
Shipping and Handling Costs:
Shipping and handlin
g costs are included in cost of sales.
Research and Development
: Research and development costs are expensed as incurred and include salaries, benefits, consulting, material costs and depreciation.
Bid and Proposal Costs:
Bid and proposal costs are expensed as incurred and classified as selling, general and administrative expenses.
Equity-Based Compensation:
Our stock-based compensation plans allow for various types of stock-based incentive awards. The types and mix of stock-based incentive awards are evaluated on an on-going basis and may vary based on our overall strategy regarding compensation. Equity-based compensation expense is based on share-based payment awards that are ultimately expected to vest over the requisite services periods and are based on the fair value of the award measured on the grant date. Vesting requirements vary for directors, officers and key employees. In general, awards granted to officers and key employees principally vest over
three
years, in equal annual installments for time-based awards and in
three
years cliff vest for performance-based awards.
Equity-based compensation expense is included in selling, general and administrative expenses.
Earnings Per Share:
Basic and diluted weighted-average shares outstanding are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Basic weighted-average shares outstanding
|
|
36,277,445
|
|
|
38,945,880
|
|
|
44,362,412
|
|
Dilutive effect of equity-based awards
|
|
251,899
|
|
|
388,640
|
|
|
590,025
|
|
Diluted weighted-average shares outstanding
|
|
36,529,344
|
|
|
39,334,520
|
|
|
44,952,437
|
|
Cash and Cash Equivalents
:
All highly liquid investments with an original maturity of three months or less are considered cash equivalents.
Allowance for Doubtful Accounts:
The allowance for doubtful accounts is based on our assessment of the collectibility of customer accounts. The allowance is determined by considering factors such as historical experience, credit quality, age of the accounts receivable balances and current economic conditions that may affect a customer’s ability to pay.
Inventories:
Inventories are stated at the lower-of-cost-or-market with cost determined on the first-in, first-out (FIFO) method of valuation.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Plant and equipment are depreciated principally using the straight-line method over the estimated useful lives of the assets, generally ranging from
15
to
40
years for buildings and improvements,
5
to
15
years for machinery and equipment and
3
to
7
years for computer equipment and software. Leasehold improvements are amortized on a straight-line basis over the term of the lease or the estimated useful life of the asset, whichever is shorter.
Goodwill:
We test goodwill for impairment at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that indicate that the fair value of a reporting unit is likely to be below its carrying amount. We also test goodwill for impairment when there is a change in reporting units.
We may elect to perform a qualitative assessment that considers economic, industry and company-specific factors for all or selected reporting units. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to a quantitative test. We may also elect to perform a quantitative test instead of a qualitative test for any or all of our reporting units.
Quantitative testing requires a comparison of the fair value of each reporting unit to its carrying value. We typically use the discounted cash flow method to estimate the fair value of our reporting units. The discounted cash flow method incorporates various assumptions, the most significant being projected revenue growth rates, operating margins and cash flows, the terminal growth rate and the weighted-average cost of capital. If the carrying value of the reporting unit exceeds its fair value, goodwill is considered impaired and any loss must be measured. To determine the amount of the impairment loss, the implied fair value of goodwill is determined by assigning a fair value to all of the reporting unit's assets and liabilities, including any unrecognized intangible assets, as if the reporting unit had been acquired in a business combination at fair value. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss would be recognized in an amount equal to that excess.
We recorded a
$4,800
goodwill impairment charge in 2016 in the additive manufacturing reporting unit within our Space and Defense Controls segment.
There were
no
impairment charges recorded in
2015
or
2014
.
Acquired Intangible Assets:
Acquired identifiable intangible assets are recorded at cost and are amortized over their estimated useful lives.
Impairment of Long-Lived Assets:
Long-lived assets, including acquired identifiable intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. We use undiscounted cash flows to determine whether impairment exists and measure any impairment loss using discounted cash flows
In 2016, we recorded
$4,913
of impairment charges in our Aircraft Controls segment. These charges primarily related to intangible assets as a result of restructuring actions taken for a product line we are no longer pursuing. These charges are included in restructuring in the consolidated statements of earnings
In 2015, we recorded
$2,432
of impairment charges in our Industrial Systems segment. These charges primarily related to intangible assets from a wind energy product line and are included as other expense. We also recorded an additional
$472
impairment charge related to intangible assets on the product line we decided to exit in 2014, included as restructuring in the consolidated statements of earnings.
In 2014,
as a result of restructuring plans
we recorded a
$739
impairment charge in our Industrial Systems segment related to intangible assets from a product line we decided to exit. We also recorded a
$1,296
impairment charge in our Components segment related to equipment from a product line we are no longer pursuing. Both of these charges are included as restructuring in the consolidated statements of earnings.
Product Warranties:
In the ordinary course of business, we warrant our products against defect in design, materials and workmanship typically over periods ranging from
twelve
to
sixty
months. We determine warranty reserves needed by product line based on historical experience and current facts and circumstances. Activity in the warranty accrual is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Warranty accrual at beginning of period
|
|
$
|
18,660
|
|
|
$
|
19,953
|
|
|
$
|
17,429
|
|
Warranties issued during current year
|
|
13,272
|
|
|
9,666
|
|
|
12,611
|
|
Adjustments to pre-existing warranties
|
|
(1,463
|
)
|
|
(2,416
|
)
|
|
(2,037
|
)
|
Reductions for settling warranties
|
|
(8,486
|
)
|
|
(7,448
|
)
|
|
(7,759
|
)
|
Foreign currency translation
|
|
(620
|
)
|
|
(1,095
|
)
|
|
(291
|
)
|
Warranty accrual at end of period
|
|
$
|
21,363
|
|
|
$
|
18,660
|
|
|
$
|
19,953
|
|
Financial Instruments:
Our financial instruments consist primarily of cash and cash equivalents, receivables, notes payable, accounts payable, long-term debt, interest rate swaps and foreign currency contracts. The carrying values for our financial instruments approximate fair value with the exception at times of long-term debt. We do not hold or issue financial instruments for trading purposes.
We carry derivative instruments on the consolidated balance sheets at fair value, determined by reference to quoted market prices. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. Our use of derivative instruments is generally limited to cash flow hedges of certain interest rate risks and minimizing foreign currency exposure on foreign currency transactions, which are typically designated in hedging relationships, and intercompany balances, which are not designated as hedging instruments. Cash flows resulting from forward contracts are accounted for as hedges of identifiable transactions or events and classified in the same category as the cash flows from the items being hedged.
Reclassifications:
Certain prior year amounts have been reclassified to conform to current year's presentation. During 2016, we made a change to our segment reporting to include Medical Devices within our Components segment. The Goodwill, Restructuring and Segment footnotes have been restated to reflect this change.
Recent Accounting Pronouncements
:
|
|
|
|
|
|
Standard
|
|
Description
|
|
Financial Statement Effect or Other Significant Matters
|
ASU no. 2014-09
Revenue from Contracts with Customers
(And All Related ASUs)
|
|
The standard requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and assets recognized from costs incurred to obtain or fulfill a contract. The provisions of the standard, as well as all subsequently issued clarifications to the standard, are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The standard can be adopted using either a full retrospective or modified retrospective approach.
|
|
We are currently evaluating the alternative methods of adoption and the effect on our financial statements and related disclosures.
|
Date of adoption:
Q1 2019
|
ASU no. 2015-17
Balance Sheet Classification of Deferred Taxes
|
|
The standard amends existing guidance to require presentation of deferred tax assets and liabilities as noncurrent within the balance sheet. The provisions of the standard are effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted, and may be applied either prospectively or retrospectively.
|
|
Deferred income tax balances currently included in total current assets and total current liabilities in our balance sheet will be included in other assets and long term deferred income taxes.
|
|
Date of early adoption:
anticipated Q1 2017
|
ASU no. 2016-01
Recognition and Measurement of Financial Assets and Financial Liabilities
|
|
The standard requires most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. The amendment also impacts the measurement of financial liabilities under the fair value option as well as certain presentation and disclosure requirements for financial instruments. The provisions of the standard are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted for some, but not all, provisions. The amendment requires certain provisions to be applied prospectively and others to be applied by means of a cumulative-effect adjustment.
|
|
We are currently evaluating the effect on our financial statements and related disclosures.
|
Date of adoption:
Q1 2019
|
ASU no. 2016-02
Leases
|
|
The standard requires most lease arrangements to be recognized in the balance sheet as lease assets and lease liabilities. The standard also requires additional disclosures about the leasing arrangements. The provisions of the standard are effective for fiscal years beginning after December 15, 2018 and interim periods within those years. Early adoption is permitted.
|
|
We are currently evaluating the effect on our financial statements and related disclosures.
|
Date of adoption:
Q1 2020
|
We consider the applicability and impact of all ASUs. ASUs not listed above were assessed and determined to be either not applicable, or had or are expected to have minimal impact on our financial statements and related disclosures.
Note 2 - Acquisitions and Divestitures
In 2016, we acquired a
70%
ownership in Linear Mold and Engineering, a Livonia, Michigan-based company specializing in metal additive manufacturing that provides engineering, manufacturing and production consulting services to customers across a wide range of industries, including aerospace, defense, energy and industrial. The purchase price, net of acquired cash, was
$22,765
consisting of
$11,016
in cash, issuance of a
$1,280
unsecured note and assumption of
$10,469
of debt. The acquisition also includes a redeemable noncontrolling interest in the remaining
30%
, which is exercisable beginning
three
years from the date of acquisition. This acquisition is included in our Space and Defense Controls segment. Purchase price allocations for the acquisition are complete.
In 2015, we sold the Rochester, New York and Erie, Pennsylvania life sciences operations of our Components segment for
$2,988
in cash.
On November 3, 2016, we sold our Bradford Engineering B.V. operation located in the Netherlands for approximately
$1,300
in cash. This operation was included in our Space and Defense Controls segment. This transaction will be recorded in our financial statements in the first quarter of 2017. We are currently evaluating the financial statement impact, which potentially includes an income tax benefit associated with this transaction.
Note 3 - Receivables
Receivables consist of:
|
|
|
|
|
|
|
|
|
|
|
|
October 1,
2016
|
|
October 3,
2015
|
Accounts receivable
|
|
$
|
306,469
|
|
|
$
|
291,188
|
|
Long-term contract receivables:
|
|
|
|
|
Amounts billed
|
|
130,429
|
|
|
113,565
|
|
Unbilled recoverable costs and accrued profits
|
|
245,376
|
|
|
286,395
|
|
Total long-term contract receivables
|
|
375,805
|
|
|
399,960
|
|
Other
|
|
10,652
|
|
|
12,557
|
|
Total receivables
|
|
692,926
|
|
|
703,705
|
|
Less allowance for doubtful accounts
|
|
(4,538
|
)
|
|
(5,286
|
)
|
Receivables
|
|
$
|
688,388
|
|
|
$
|
698,419
|
|
Under our trade receivables securitization facility (the "Securitization Program"), we securitize certain trade receivables in transactions that are accounted for as secured borrowings. We maintain a subordinated interest in a portion of the pool of trade receivables that are securitized. The retained interest, which is included in receivables in the consolidated balance sheets, is recorded at fair value, which approximates the total amount of the designated pool of accounts receivable. See Note 7, Indebtedness, for additional disclosures related to the Securitization Program.
Long-term contract receivables are primarily associated with prime contractors and subcontractors in connection with U.S. Government contracts, commercial aircraft and satellite manufacturers. Amounts billed under long-term contracts to the U.S. Government were
$2,535
at
October 1, 2016
and
$8,284
at
October 3, 2015
. Unbilled recoverable costs and accrued profits under long-term contracts to be billed to the U.S. Government were
$12,195
at
October 1, 2016
and
$13,733
at
October 3, 2015
. Unbilled recoverable costs and accrued profits principally represent revenues recognized on contracts that were not billable on the balance sheet date. These amounts will be billed in accordance with contract terms, generally as certain milestones are reached or upon shipment. Approximately
80%
of unbilled amounts are expected to be collected within one year. In situations where billings exceed revenues recognized, the excess is included in customer advances.
There are
no
material amounts of claims or unapproved change orders included in the consolidated balance sheets. There are
no
material balances billed but not paid by customers under retainage provisions.
Concentrations of credit risk on receivables are limited to those from significant customers who are believed to be financially sound. Receivables from Boeing were
$169,199
at
October 1, 2016
and
$161,820
at
October 3, 2015
. We perform periodic credit evaluations of our customers’ financial condition and generally do not require collateral.
Note 4 - Inventories
Inventories, net of reserves, consist of:
|
|
|
|
|
|
|
|
|
|
|
|
October 1,
2016
|
|
October 3,
2015
|
Raw materials and purchased parts
|
|
$
|
174,331
|
|
|
$
|
188,843
|
|
Work in progress
|
|
235,258
|
|
|
243,373
|
|
Finished goods
|
|
69,451
|
|
|
61,144
|
|
Inventories
|
|
$
|
479,040
|
|
|
$
|
493,360
|
|
There are
no
material inventoried costs relating to long-term contracts where revenue is accounted for using the percentage of completion, cost-to-cost method of accounting as of
October 1, 2016
and
October 3, 2015
.
Note 5 - Property, Plant and Equipment
Property, plant and equipment consists of:
|
|
|
|
|
|
|
|
|
|
|
|
October 1,
2016
|
|
October 3,
2015
|
Land
|
|
$
|
28,932
|
|
|
$
|
27,132
|
|
Buildings and improvements
|
|
408,107
|
|
|
397,340
|
|
Machinery and equipment
|
|
684,995
|
|
|
669,578
|
|
Computer equipment and software
|
|
126,144
|
|
|
119,874
|
|
Property, plant and equipment, at cost
|
|
1,248,178
|
|
|
1,213,924
|
|
Less accumulated depreciation and amortization
|
|
(725,809
|
)
|
|
(677,168
|
)
|
Property, plant and equipment, net
|
|
$
|
522,369
|
|
|
$
|
536,756
|
|
Note 6 - Goodwill and Intangible Assets
The changes in the carrying amount of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft
Controls
|
Space and
Defense
Controls
|
Industrial
Systems
|
Components
|
Total
|
Balance at September 28, 2013
|
$
|
192,413
|
|
$
|
163,136
|
|
$
|
121,320
|
|
$
|
290,055
|
|
$
|
766,924
|
|
Adjustments to prior year acquisitions
|
—
|
|
(2,734
|
)
|
—
|
|
—
|
|
(2,734
|
)
|
Foreign currency translation
|
439
|
|
(795
|
)
|
(3,311
|
)
|
(2,671
|
)
|
(6,338
|
)
|
Balance at September 27, 2014
|
192,852
|
|
159,607
|
|
118,009
|
|
287,384
|
|
757,852
|
|
Divestiture
|
—
|
|
—
|
|
—
|
|
(1,715
|
)
|
(1,715
|
)
|
Foreign currency translation
|
(4,327
|
)
|
(1,394
|
)
|
(7,166
|
)
|
(6,038
|
)
|
(18,925
|
)
|
Balance at October 3, 2015
|
188,525
|
|
158,213
|
|
110,843
|
|
279,631
|
|
737,212
|
|
Acquisitions
|
—
|
|
21,076
|
|
—
|
|
—
|
|
21,076
|
|
Impairment
|
—
|
|
(4,800
|
)
|
—
|
|
—
|
|
(4,800
|
)
|
Foreign currency translation
|
(8,831
|
)
|
25
|
|
(4,525
|
)
|
5
|
|
(13,326
|
)
|
Balance at October 1, 2016
|
$
|
179,694
|
|
$
|
174,514
|
|
$
|
106,318
|
|
$
|
279,636
|
|
$
|
740,162
|
|
We test goodwill for impairment at least annually, during our fourth quarter.
We recorded a
$4,800
goodwill impairment charge in 2016 in a reporting unit within our Space and Defense Controls segment,
given the business outlook for this reporting unit. We estimated the fair value of this reporting unit principally using a discounted cash flow analysis.
Goodwill in our Medical Devices reporting unit, included in our Components segment, is net of a
$38,200
accumulated impairment loss at
October 1, 2016
.
The components of intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1, 2016
|
October 3, 2015
|
|
Weighted-
Average
Life (years)
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
Customer-related
|
11
|
$
|
165,445
|
|
$
|
(117,434
|
)
|
$
|
171,779
|
|
$
|
(110,697
|
)
|
Technology-related
|
9
|
70,277
|
|
(52,060
|
)
|
73,299
|
|
(49,723
|
)
|
Program-related
|
19
|
64,774
|
|
(26,018
|
)
|
75,720
|
|
(27,463
|
)
|
Marketing-related
|
9
|
25,031
|
|
(17,649
|
)
|
25,997
|
|
(16,648
|
)
|
Other
|
10
|
4,269
|
|
(3,075
|
)
|
4,771
|
|
(3,312
|
)
|
Intangible assets
|
12
|
$
|
329,796
|
|
$
|
(216,236
|
)
|
$
|
351,566
|
|
$
|
(207,843
|
)
|
Substantially all acquired intangible assets other than goodwill are being amortized
. Customer-related intangible assets primarily consist of customer relationships. Technology-related intangible assets primarily consist of technology, patents, intellectual property and software. Program-related intangible assets consist of long-term programs represented by current contracts and probable follow on work. Marketing-related intangible assets primarily consist of trademarks, trade names and non-compete agreements.
Amortization of acquired intangible assets was
$21,058
in
2016
,
$24,708
in
2015
and
$29,907
in
2014
. Based on acquired intangible assets recorded at
October 1, 2016
, amortization is estimated to be approximately
$18,000
in
2017
,
$17,000
in
2018
,
$15,400
in
2019
,
$13,400
in
2020
and
$8,000
in
2021
.
Note 7 - Indebtedness
Short-term borrowings consist of:
|
|
|
|
|
|
|
|
|
|
|
|
October 1, 2016
|
|
October 3,
2015
|
Lines of credit
|
|
$
|
99
|
|
|
$
|
83
|
|
Other short-term debt
|
|
1,280
|
|
|
—
|
|
Short-term borrowings
|
|
$
|
1,379
|
|
|
$
|
83
|
|
We maintain short-term credit facilities with banks throughout the world that are principally demand lines subject to revision by the banks. Interest on outstanding lines of credit is
0.9%
at
October 1, 2016
.
Long-term debt consists of:
|
|
|
|
|
|
|
|
|
|
|
|
October 1,
2016
|
|
October 3,
2015
|
U.S. revolving credit facility
|
|
$
|
590,000
|
|
|
$
|
675,000
|
|
Senior notes
|
|
300,000
|
|
|
300,000
|
|
Securitization program
|
|
120,000
|
|
|
100,000
|
|
Obligations under capital leases
|
|
471
|
|
|
101
|
|
Senior debt
|
|
1,010,471
|
|
|
1,075,101
|
|
Less current installments
|
|
(167
|
)
|
|
(34
|
)
|
Long-term debt
|
|
$
|
1,010,304
|
|
|
$
|
1,075,067
|
|
On
June 28, 2016
, we amended our U.S. revolving credit facility. The amendment extended the maturity of the credit facility to
June 28, 2021
. Our U.S. revolving credit facility has a capacity of
$1,100,000
and provides an expansion option, which permits us to request an increase of up to
$200,000
to the credit facility upon satisfaction of certain conditions.
The credit facility is secured by substantially all of our U.S. assets. The loan agreement contains various covenants which, among others, specify interest coverage and maximum leverage and capital expenditures. We are in compliance with all covenants. Interest on all of the outstanding credit facility borrowings is
2.2%
and is based on LIBOR plus the applicable margin, which was
1.63%
at
October 1, 2016
.
At
October 1, 2016
, we had
$300,000
aggregate principal amount of
5.25%
senior notes due
December 1, 2022
with interest paid semiannually on
June 1
and
December 1
of each year. The senior notes are unsecured obligations, guaranteed on a senior unsecured basis by certain subsidiaries and contain normal incurrence-based covenants and limitations such as the ability to incur additional indebtedness, pay dividends, make other restricted payments and investments, create liens and certain corporate acts such as mergers and consolidations.
On
April 15, 2016
, we amended the Securitization Program. The amendment increased our borrowing capacity to
$120,000
and extended the maturity to
April 13, 2018
.
Under the Securitization Program, we sell certain trade receivables and related rights to an affiliate, which in turn sells an undivided variable percentage ownership interest in the trade receivables to a financial institution, while maintaining a subordinated interest in a portion of the pool of trade receivables. Interest for the Securitization Program is
1.4%
at
October 1, 2016
and is based on 30-day LIBOR plus an applicable margin. A commitment fee is also charged based on a percentage of the unused amounts available and is
not material
. The agreement governing the Securitization Program contains restrictions and covenants which include limitations on the making of certain restricted payments, creation of certain liens, and certain corporate acts such as mergers, consolidations and sale of substantially all assets. The Securitization Program has a minimum borrowing requirement equal to the lesser of either
80%
of our borrowing capacity or
100%
of our borrowing base, which is a subset of the trade receivables sold under this agreement. As of
October 1, 2016
, our minimum borrowing requirement was
$96,000
.
Maturities of long-term debt are
$167
in
2017
,
$120,139
in
2018
,
$133
in
2019
,
$32
in
2020
,
$590,000
in
2021
and
$300,000
thereafter.
At
October 1, 2016
, we had pledged assets with a net book value of
$1,447,486
as security for long-term debt.
At
October 1, 2016
, we had
$503,164
of unused short and long-term borrowing capacity, including
$491,034
from the U.S. revolving credit facility.
However, our leverage ratio covenant limits our total borrowing capacity to
$417,742
as of
October 1, 2016
.
Commitment fees are charged on some of these arrangements and on the U.S. revolving credit facility based on a percentage of the unused amounts available and are
not material
.
Note 8 - Derivative Financial Instruments
We principally use derivative financial instruments to manage interest rate risk associated with long-term debt and foreign exchange risk related to foreign operations and foreign currency transactions. We enter into derivative financial instruments with a number of major financial institutions to minimize counterparty credit risk.
Derivatives designated as hedging instruments
Interest rate swaps are used to adjust the proportion of total debt that is subject to variable and fixed interest rates. The interest rate swaps are designated as hedges of the amount of future cash flows related to interest payments on variable-rate debt that, in combination with the interest payments on the debt, convert a portion of the variable-rate debt to fixed-rate debt. At
October 1, 2016
, we had interest rate swaps with notional amounts totaling
$185,000
. The interest rate swaps effectively convert this amount of variable-rate debt to fixed-rate debt at
2.5%
, including the applicable margin of
1.63%
as of
October 1, 2016
. The interest will revert back to variable rates based on LIBOR plus the applicable margin upon the maturity of the interest rate swaps. These interest rate swaps mature at various times between
December 5, 2016
and
July 8, 2019
.
We use foreign currency forward contracts as cash flow hedges to effectively fix the exchange rates on future payments and revenue. To mitigate exposure in movements between various currencies, including the Philippine peso and the British pound, we had outstanding foreign currency forwards with notional amounts of
$66,809
at
October 1, 2016
. These contracts mature at various times through
September 28, 2018
.
These interest rate swaps and foreign currency forwards are recorded on the consolidated balance sheet at fair value and the related gains or losses are deferred in shareholders’ equity as a component of Accumulated Other Comprehensive Income (Loss) (AOCIL). These deferred gains and losses are reclassified into the consolidated statements of earnings during the periods in which the related payments or receipts affect earnings. However, to the extent the interest rate swaps and foreign currency forwards are not perfectly effective in offsetting the change in the value of the payments being hedged, the ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was
not material
in
2016
,
2015
or
2014
.
Derivatives not designated as hedging instruments
We also have foreign currency exposure on balances, primarily intercompany, that are denominated in a foreign currency and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in the consolidated statements of earnings. To minimize foreign currency exposure, we have foreign currency forwards with notional amounts of
$134,350
at
October 1, 2016
. The foreign currency forwards are recorded in the consolidated balance sheets at fair value and resulting gains or losses are recorded in the consolidated statements of earnings. We recorded a net gain of
$6,089
in
2016
and a net loss of
$1,344
in
2015
on the foreign currency forwards. These gains and losses are included in other expense and generally offset the gains and losses from the foreign currency adjustments on the intercompany balances that are also included in other income or expense.
Summary of derivatives
The fair value and classification of derivatives is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1, 2016
|
|
October 3, 2015
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
|
$
|
379
|
|
|
$
|
12
|
|
Foreign currency contracts
|
Other assets
|
|
56
|
|
|
39
|
|
Interest rate swaps
|
Other current assets
|
|
52
|
|
|
—
|
|
Interest rate swaps
|
Other assets
|
|
69
|
|
|
—
|
|
|
Total asset derivatives
|
|
$
|
556
|
|
|
$
|
51
|
|
Foreign currency contracts
|
Other accrued liabilities
|
|
$
|
4,080
|
|
|
$
|
1,755
|
|
Foreign currency contracts
|
Other long-term liabilities
|
|
448
|
|
|
572
|
|
Interest rate swaps
|
Other accrued liabilities
|
|
201
|
|
|
756
|
|
Interest rate swaps
|
Other long-term liabilities
|
|
—
|
|
|
268
|
|
|
Total liability derivatives
|
|
$
|
4,729
|
|
|
$
|
3,351
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
|
$
|
422
|
|
|
$
|
115
|
|
Foreign currency contracts
|
Other accrued liabilities
|
|
$
|
76
|
|
|
$
|
429
|
|
Note 9 - Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate fair value. The definition of the fair value hierarchy is as follows:
Level 1 – Quoted prices in active markets for identical assets and liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for similar assets and liabilities.
Level 3 – Inputs for which significant valuation assumptions are unobservable in a market and therefore value is based on the best available data, some of which is internally developed and considers risk premiums that a market participant would require.
Our derivatives are valued using various pricing models or discounted cash flow analyses that incorporate observable market data, such as interest rate yield curves and currency rates, and are classified as Level 2 within the valuation hierarchy.
The following table presents the fair values and classification of our financial assets and liabilities measured on a recurring basis, all of which are classified as Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
October 1, 2016
|
|
October 3, 2015
|
Foreign currency contracts
|
Other current assets
|
|
$
|
801
|
|
|
$
|
127
|
|
Foreign currency contracts
|
Other assets
|
|
56
|
|
|
39
|
|
Interest rate swaps
|
Other current assets
|
|
52
|
|
|
—
|
|
Interest rate swaps
|
Other assets
|
|
69
|
|
|
—
|
|
|
Total assets
|
|
$
|
978
|
|
|
$
|
166
|
|
Foreign currency contracts
|
Other accrued liabilities
|
|
$
|
4,156
|
|
|
$
|
2,184
|
|
Foreign currency contracts
|
Other long-term liabilities
|
|
448
|
|
|
572
|
|
Interest rate swaps
|
Other accrued liabilities
|
|
201
|
|
|
756
|
|
Interest rate swaps
|
Other long-term liabilities
|
|
—
|
|
|
268
|
|
|
Total liabilities
|
|
$
|
4,805
|
|
|
$
|
3,780
|
|
Our only financial instrument for which the carrying value differs from its fair value is long-term debt. At
October 1, 2016
, the fair value of long-term debt was
$1,015,361
compared to its carrying value of
$1,010,471
. The fair value of long-term debt is classified as Level 2 within the fair value hierarchy and was estimated based on quoted market prices.
Note 10 - Restructuring
In 2016, we initiated further restructuring actions in conjunction with exiting a product line within Aircraft Controls in the U.S. and a facility in the U.K. We have also taken actions as a result of the business outlook in specific markets and locations in Components and Industrial Systems. Those actions have resulted in workforce reductions in Canada, Europe and the U.S. for Components and will result in workforce reductions primarily in Europe for Industrial Systems.
In 2015, we initiated additional restructuring plans as a result of ongoing reviews of our lines of business and operations. The restructuring actions taken resulted in workforce reductions, primarily in the U.S., Europe and Asia.
In 2014, we initiated restructuring plans in response to the business outlook. The restructuring actions taken resulted in workforce reductions, primarily in the U.S. and Europe.
The restructuring charge in 2016 consists of
$9,117
for severance,
$4,913
of non-cash charges for the impairment of long-lived assets in our Aircraft Controls segment and
$1,363
for facility closure.
The restructuring charge in 2015 principally relates to severance, but also includes
$3,773
related to the termination of a sales and marketing contract and
$472
for the impairment of long-lived assets in our Industrial Systems segment. Restructuring expense in 2014 principally relates to severance, but also includes
$1,296
for the impairment of long-lived assets in our Components segment and
$739
for the impairment of long-lived assets in our Industrial Systems segment.
Restructuring activity for severance and other costs by segment and reconciliation to consolidated amounts is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft Controls
|
Space and Defense Controls
|
Industrial Systems
|
Components
|
Corporate
|
Total
|
Balance at September 28, 2013
|
$
|
36
|
|
$
|
4,376
|
|
$
|
2,717
|
|
$
|
—
|
|
$
|
—
|
|
$
|
7,129
|
|
Charged to expense - 2014 plan
|
5,440
|
|
5,438
|
|
739
|
|
1,296
|
|
—
|
|
12,913
|
|
Cash payments - 2013 plan
|
(35
|
)
|
(4,014
|
)
|
(2,452
|
)
|
—
|
|
—
|
|
(6,501
|
)
|
Non-cash charges - 2014 plan
|
—
|
|
—
|
|
(739
|
)
|
(1,296
|
)
|
—
|
|
(2,035
|
)
|
Foreign currency translation
|
(2
|
)
|
(36
|
)
|
(79
|
)
|
—
|
|
—
|
|
(117
|
)
|
Balance at September 27, 2014
|
5,439
|
|
5,764
|
|
186
|
|
—
|
|
—
|
|
11,389
|
|
Charged to expense - 2015 plan
|
2,955
|
|
6,324
|
|
5,150
|
|
1,020
|
|
—
|
|
15,449
|
|
Adjustments to provision
|
(407
|
)
|
(309
|
)
|
—
|
|
—
|
|
—
|
|
(716
|
)
|
Cash payments - 2013 plan
|
—
|
|
(490
|
)
|
—
|
|
—
|
|
—
|
|
(490
|
)
|
Cash payments - 2014 plan
|
(4,833
|
)
|
(3,822
|
)
|
(178
|
)
|
—
|
|
—
|
|
(8,833
|
)
|
Cash payments - 2015 plan
|
(80
|
)
|
(167
|
)
|
(679
|
)
|
(761
|
)
|
—
|
|
(1,687
|
)
|
Non-cash charges - 2015 plan
|
—
|
|
—
|
|
(472
|
)
|
—
|
|
—
|
|
(472
|
)
|
Foreign currency translation
|
(27
|
)
|
(63
|
)
|
(4
|
)
|
—
|
|
—
|
|
(94
|
)
|
Balance at October 3, 2015
|
3,047
|
|
7,237
|
|
4,003
|
|
259
|
|
—
|
|
14,546
|
|
Charged to expense - 2016 plan
|
7,317
|
|
—
|
|
4,824
|
|
1,525
|
|
1,727
|
|
15,393
|
|
Adjustments to provision
|
(275
|
)
|
(328
|
)
|
(243
|
)
|
(5
|
)
|
—
|
|
(851
|
)
|
Cash payments - 2014 plan
|
(72
|
)
|
(776
|
)
|
—
|
|
—
|
|
—
|
|
(848
|
)
|
Cash payments - 2015 plan
|
(2,342
|
)
|
(5,455
|
)
|
(3,088
|
)
|
(234
|
)
|
—
|
|
(11,119
|
)
|
Cash payments - 2016 plan
|
(1,244
|
)
|
—
|
|
(2,015
|
)
|
(1,176
|
)
|
—
|
|
(4,435
|
)
|
Non-cash charges - 2016 plan
|
(4,913
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(4,913
|
)
|
Foreign currency translation
|
(44
|
)
|
(13
|
)
|
130
|
|
—
|
|
—
|
|
73
|
|
Balance at October 1, 2016
|
$
|
1,474
|
|
$
|
665
|
|
$
|
3,611
|
|
$
|
369
|
|
$
|
1,727
|
|
$
|
7,846
|
|
As of
October 1, 2016
, the restructuring accrual consists of
$605
for the 2014 plan,
$457
for the 2015 plan and
$6,784
for the 2016 plan. Restructuring for all plans is expected to be paid by
September 30, 2017
, except portions classified as long-term liabilities based on payment arrangements.
Note 11 - Employee Benefit Plans
We maintain multiple employee benefit plans, covering employees at certain locations.
Our qualified U.S. defined benefit pension plan is not open to new entrants. New employees are not eligible to participate in the pension plan. Instead, we make contributions for those employees to an employee-directed investment fund in the Moog Inc. Retirement Savings Plan ("RSP"). The Company’s contributions are based on a percentage of the employee’s eligible compensation and age. These contributions are in addition to the employer match on voluntary employee contributions.
The RSP includes an Employee Stock Ownership Plan. As one of the investment alternatives, participants in the RSP can acquire our stock at market value. We match
25%
of the first
2%
of eligible compensation contributed to any investment selection. Shares are allocated and compensation expense is recognized as the employer share match is earned. At
October 1, 2016
, the participants in the RSP owned
1,839,185
Class B shares.
The changes in projected benefit obligations and plan assets and the funded status of the U.S. and non-U.S. defined benefit plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
Projected benefit obligation at prior year measurement date
|
$
|
850,991
|
|
|
$
|
784,203
|
|
|
$
|
180,111
|
|
|
$
|
188,942
|
|
Service cost
|
23,637
|
|
|
23,635
|
|
|
5,204
|
|
|
6,087
|
|
Interest cost
|
37,659
|
|
|
34,031
|
|
|
4,928
|
|
|
4,814
|
|
Contributions by plan participants
|
—
|
|
|
—
|
|
|
863
|
|
|
774
|
|
Actuarial losses
|
96,107
|
|
|
35,064
|
|
|
38,265
|
|
|
4,639
|
|
Foreign currency exchange impact
|
—
|
|
|
—
|
|
|
(4,063
|
)
|
|
(19,149
|
)
|
Benefits paid from plan assets
|
(24,710
|
)
|
|
(22,612
|
)
|
|
(1,632
|
)
|
|
(2,186
|
)
|
Benefits paid by Moog
|
(2,754
|
)
|
|
(2,508
|
)
|
|
(2,429
|
)
|
|
(2,312
|
)
|
Other
|
(1,875
|
)
|
|
(822
|
)
|
|
(1,939
|
)
|
|
(1,498
|
)
|
Projected benefit obligation at measurement date
|
$
|
979,055
|
|
|
$
|
850,991
|
|
|
$
|
219,308
|
|
|
$
|
180,111
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value of assets at prior year measurement date
|
$
|
578,783
|
|
|
$
|
585,677
|
|
|
$
|
117,693
|
|
|
$
|
120,754
|
|
Actual return on plan assets
|
57,646
|
|
|
(28,435
|
)
|
|
19,926
|
|
|
4,437
|
|
Employer contributions
|
67,928
|
|
|
47,666
|
|
|
6,155
|
|
|
8,208
|
|
Contributions by plan participants
|
—
|
|
|
—
|
|
|
863
|
|
|
774
|
|
Benefits paid
|
(27,464
|
)
|
|
(25,120
|
)
|
|
(4,061
|
)
|
|
(4,498
|
)
|
Foreign currency exchange impact
|
—
|
|
|
—
|
|
|
(3,801
|
)
|
|
(10,983
|
)
|
Other
|
(1,875
|
)
|
|
(1,005
|
)
|
|
(1,336
|
)
|
|
(999
|
)
|
Fair value of assets at measurement date
|
$
|
675,018
|
|
|
$
|
578,783
|
|
|
$
|
135,439
|
|
|
$
|
117,693
|
|
Funded status and amount recognized in assets and liabilities
|
$
|
(304,037
|
)
|
|
$
|
(272,208
|
)
|
|
$
|
(83,869
|
)
|
|
$
|
(62,418
|
)
|
Amount recognized in assets and liabilities:
|
|
|
|
|
|
|
|
Other assets - non-current
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
108
|
|
|
$
|
220
|
|
Accrued and long-term pension liabilities
|
(304,037
|
)
|
|
(272,208
|
)
|
|
(83,977
|
)
|
|
(62,638
|
)
|
Amount recognized in assets and liabilities
|
$
|
(304,037
|
)
|
|
$
|
(272,208
|
)
|
|
$
|
(83,869
|
)
|
|
$
|
(62,418
|
)
|
Amount recognized in AOCIL, before taxes:
|
|
|
|
|
|
|
|
Prior service cost (credit)
|
$
|
694
|
|
|
$
|
881
|
|
|
$
|
(1,269
|
)
|
|
$
|
(737
|
)
|
Actuarial losses
|
449,377
|
|
|
386,759
|
|
|
57,926
|
|
|
38,869
|
|
Amount recognized in AOCIL, before taxes
|
$
|
450,071
|
|
|
$
|
387,640
|
|
|
$
|
56,657
|
|
|
$
|
38,132
|
|
U.S. plan assets included
149,022
shares of Class A common stock and
1,001,034
shares of Class B common stock. Our funding policy is to contribute at least the amount required by law in the respective countries.
The total accumulated benefit obligation as of the measurement date for all defined benefit pension plans was
$1,105,973
in
2016
and
$941,266
in
2015
. At the measurement date in
2016
, our plans had fair values of plan assets totaling
$810,457
. At the measurement date in
2016
,
three
of our plans had fair values of plan assets totaling
$65,706
, which exceeded their accumulated benefit obligations of
$60,939
. At the measurement date in
2015
,
three
of our plans had fair values of plan assets totaling
$62,070
, which exceeded their accumulated benefit obligations of
$54,603
. The following table provides aggregate information for the other pension plans, which have projected benefit obligations or accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
October 1, 2016
|
|
October 3, 2015
|
Projected benefit obligation
|
|
$
|
1,128,524
|
|
|
$
|
968,848
|
|
Accumulated benefit obligation
|
|
1,045,034
|
|
|
886,663
|
|
Fair value of plan assets
|
|
744,751
|
|
|
634,406
|
|
Weighted-average assumptions used to determine benefit obligations as of the measurement dates and weighted-average assumptions used to determine net periodic benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Assumptions for net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
4.5
|
%
|
|
4.4
|
%
|
|
5.0
|
%
|
|
3.0
|
%
|
|
3.1
|
%
|
|
3.7
|
%
|
Return on assets
|
7.7
|
%
|
|
8.0
|
%
|
|
8.4
|
%
|
|
4.1
|
%
|
|
4.5
|
%
|
|
4.1
|
%
|
Rate of compensation increase
|
4.1
|
%
|
|
4.1
|
%
|
|
4.1
|
%
|
|
2.6
|
%
|
|
3.0
|
%
|
|
2.8
|
%
|
Assumptions for benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
3.8
|
%
|
|
4.5
|
%
|
|
4.4
|
%
|
|
1.9
|
%
|
|
3.0
|
%
|
|
3.1
|
%
|
Rate of compensation increase
|
3.5
|
%
|
|
4.1
|
%
|
|
4.1
|
%
|
|
2.3
|
%
|
|
3.0
|
%
|
|
2.7
|
%
|
Beginning in 2017, we will change the method used to estimate the service and interest cost components of net periodic pension cost. The new method uses the spot yield curve approach to estimate the service and interest costs by applying the specific spot rates along the yield curve used to determine the benefit obligation to the relevant projected cash outflows. Previously, these cost components were determined using a single-weighted average discount rate. This change does not affect the measurement of the projected benefit obligation.
We have made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. We have accounted for this change as a change in accounting estimate and accordingly have accounted for it prospectively. The more granular application of the spot rates will reduce the service and interest cost for the annual net periodic pension expense in 2017 by approximately
$7,000
. The spot rates used to determine service and interest costs for our plans ranged from
1.26%
to
4.30%
, which results in a
3.96%
service cost discount rate and a
3.21%
interest cost discount rate to determine 2017 expense. Had this approach been applied to 2016 expense, these rates would have resulted in weighted-average rates for service and interest costs of
3.88%
and
4.72%
, respectively.
Pension plan investment policies and strategies are developed on a plan specific basis, which varies by country. The overall objective for the long-term expected return on both domestic and international plan assets is to earn a rate of return over time to meet anticipated benefit payments in accordance with plan provisions. The long-term investment objective of both the domestic and international retirement plans is to maintain the economic value of plan assets and future contributions by producing positive rates of investment return after subtracting inflation, benefit payments and expenses. Each of the plan’s strategic asset allocations is based on this long-term perspective and short-term fluctuations are viewed with appropriate perspective.
The U.S. qualified defined benefit plan’s assets are invested for long-term investment results. To accommodate the long-term investment horizon while providing appropriate liquidity, the plan maintains a liquid cash reserve of one-month to three-months of benefit distributions. Its assets are broadly diversified to help alleviate the risk of adverse returns in any one security or investment class. The international plans’ assets are invested in both low-risk and high-risk investments in order to achieve the long-term investment strategy objective. Investment risks for both domestic and international plans are considered within the context of the entire plan, rather than on a security-by-security basis.
The U.S. qualified defined benefit plan and certain international plans have investment committees that are responsible for formulating investment policies, developing manager guidelines and objectives and approving and managing qualified advisors and investment managers. The guidelines established for each of the plans define permitted investments within each asset class and apply certain restrictions such as limits on concentrated holdings in order to meet overall investment objectives.
Pension obligations and the related costs are determined using actuarial valuations that involve several assumptions. The return on assets assumption reflects the average rate of return expected on funds invested or to be invested to provide for the benefits included in the projected benefit obligation. In determining the return on assets assumption, we consider the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes and economic and other indicators of future performance. Asset management objectives include maintaining an adequate level of diversification to reduce interest rate and market risk and to provide adequate liquidity to meet immediate and future benefit payment requirements.
In determining our U.S. pension expense for
2016
, we assumed an average rate of return on U.S. pension assets of approximately
7.7%
measured over a planning horizon with reasonable and acceptable levels of risk. The rate of return assumed an average of
50%
in equity securities,
40%
in fixed income securities and
10%
in other securities. In determining our non-U.S. pension expense for
2016
, we assumed an average rate of return on non-U.S. pension assets of approximately
4.1%
measured over a planning horizon with reasonable and acceptable levels of risk. The rate of return assumed an average asset allocation of
30%
in equity securities and
70%
in fixed income securities.
The weighted average asset allocations by asset category for the pension plans as of
October 1, 2016
and
October 3, 2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Target
|
|
2016
Actual
|
|
2015
Actual
|
|
Target
|
|
2016
Actual
|
|
2015
Actual
|
Asset category:
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
20%-50%
|
|
55%
|
|
59%
|
|
30%-50%
|
|
32%
|
|
30%
|
Debt
|
35%-60%
|
|
36%
|
|
31%
|
|
40%-60%
|
|
36%
|
|
42%
|
Real estate and other
|
10%-20%
|
|
9%
|
|
10%
|
|
10%-30%
|
|
32%
|
|
28%
|
The following tables present the consolidated plan assets using the fair value hierarchy, which is described in Note 9 - Fair Value, as of
October 1, 2016
and
October 3, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans, October 1, 2016
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Shares of registered investment companies:
|
|
|
|
|
|
|
|
Non-investment grade
|
$
|
—
|
|
|
$
|
45,709
|
|
|
$
|
—
|
|
|
$
|
45,709
|
|
Real assets
|
—
|
|
|
37,337
|
|
|
—
|
|
|
37,337
|
|
Other
|
—
|
|
|
177,037
|
|
|
—
|
|
|
177,037
|
|
Fixed income funds:
|
|
|
|
|
|
|
|
U.S. Government obligations
|
—
|
|
|
23,867
|
|
|
—
|
|
|
23,867
|
|
Corporate and other
|
—
|
|
|
230
|
|
|
—
|
|
|
230
|
|
Employer securities
|
68,574
|
|
|
—
|
|
|
—
|
|
|
68,574
|
|
Interest in common collective trusts
|
—
|
|
|
237,032
|
|
|
—
|
|
|
237,032
|
|
Money market funds
|
—
|
|
|
18,962
|
|
|
—
|
|
|
18,962
|
|
Limited partnerships
|
—
|
|
|
—
|
|
|
44,003
|
|
|
44,003
|
|
Insurance contracts and other
|
—
|
|
|
—
|
|
|
22,267
|
|
|
22,267
|
|
Fair value
|
$
|
68,574
|
|
|
$
|
540,174
|
|
|
$
|
66,270
|
|
|
$
|
675,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Plans, October 1, 2016
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Shares of registered investment companies
|
$
|
—
|
|
|
$
|
6,523
|
|
|
$
|
—
|
|
|
$
|
6,523
|
|
Domestic equity
|
7,616
|
|
|
—
|
|
|
—
|
|
|
7,616
|
|
International equity
|
10,562
|
|
|
—
|
|
|
—
|
|
|
10,562
|
|
Fixed income funds
|
6,246
|
|
|
23,574
|
|
|
—
|
|
|
29,820
|
|
Unit linked life insurance funds
|
—
|
|
|
36,889
|
|
|
—
|
|
|
36,889
|
|
Cash and cash equivalents
|
73
|
|
|
553
|
|
|
—
|
|
|
626
|
|
Insurance contracts and other
|
—
|
|
|
789
|
|
|
42,614
|
|
|
43,403
|
|
Fair value
|
$
|
24,497
|
|
|
$
|
68,328
|
|
|
$
|
42,614
|
|
|
$
|
135,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans, October 3, 2015
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Shares of registered investment companies:
|
|
|
|
|
|
|
|
Non-investment grade
|
$
|
—
|
|
|
$
|
38,517
|
|
|
$
|
—
|
|
|
$
|
38,517
|
|
Real assets
|
—
|
|
|
35,647
|
|
|
—
|
|
|
35,647
|
|
Other
|
—
|
|
|
78,102
|
|
|
—
|
|
|
78,102
|
|
Fixed income funds:
|
|
|
|
|
|
|
|
U.S. Government obligations
|
—
|
|
|
64,441
|
|
|
—
|
|
|
64,441
|
|
Corporate and other
|
—
|
|
|
106,120
|
|
|
—
|
|
|
106,120
|
|
Employer securities
|
62,214
|
|
|
—
|
|
|
—
|
|
|
62,214
|
|
Interest in common collective trusts
|
—
|
|
|
88,870
|
|
|
—
|
|
|
88,870
|
|
Money market funds
|
—
|
|
|
16,887
|
|
|
—
|
|
|
16,887
|
|
Limited partnerships
|
—
|
|
|
—
|
|
|
64,760
|
|
|
64,760
|
|
Insurance contracts and other
|
—
|
|
|
—
|
|
|
23,225
|
|
|
23,225
|
|
Fair value
|
$
|
62,214
|
|
|
$
|
428,584
|
|
|
$
|
87,985
|
|
|
$
|
578,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Plans, October 3, 2015
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Shares of registered investment companies
|
$
|
—
|
|
|
$
|
3,683
|
|
|
$
|
—
|
|
|
$
|
3,683
|
|
Domestic equity
|
6,142
|
|
|
209
|
|
|
—
|
|
|
6,351
|
|
International equity
|
8,806
|
|
|
—
|
|
|
—
|
|
|
8,806
|
|
Fixed income funds
|
5,615
|
|
|
24,131
|
|
|
—
|
|
|
29,746
|
|
Unit linked life insurance funds
|
—
|
|
|
38,260
|
|
|
—
|
|
|
38,260
|
|
Cash and cash equivalents
|
252
|
|
|
880
|
|
|
—
|
|
|
1,132
|
|
Insurance contracts and other
|
—
|
|
|
779
|
|
|
28,936
|
|
|
29,715
|
|
Fair value
|
$
|
20,815
|
|
|
$
|
67,942
|
|
|
$
|
28,936
|
|
|
$
|
117,693
|
|
The following is a roll forward of the consolidated plan assets classified as Level 3 within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
Balance at September 27, 2014
|
|
$
|
103,717
|
|
|
$
|
30,183
|
|
|
$
|
133,900
|
|
Return on assets
|
|
849
|
|
|
1,083
|
|
|
1,932
|
|
Purchases from contributions to Plans
|
|
39,188
|
|
|
3,118
|
|
|
42,306
|
|
Proceeds from sales of investments
|
|
(54,479
|
)
|
|
—
|
|
|
(54,479
|
)
|
Settlements paid in cash
|
|
(1,290
|
)
|
|
(1,985
|
)
|
|
(3,275
|
)
|
Foreign currency translation
|
|
—
|
|
|
(3,463
|
)
|
|
(3,463
|
)
|
Balance at October 3, 2015
|
|
87,985
|
|
|
28,936
|
|
|
116,921
|
|
Return on assets
|
|
(704
|
)
|
|
11,723
|
|
|
11,019
|
|
Purchases from contributions to Plans
|
|
12,366
|
|
|
3,472
|
|
|
15,838
|
|
Proceeds from sales of investments
|
|
(30,695
|
)
|
|
—
|
|
|
(30,695
|
)
|
Settlements paid in cash
|
|
(2,682
|
)
|
|
(2,231
|
)
|
|
(4,913
|
)
|
Foreign currency translation
|
|
—
|
|
|
714
|
|
|
714
|
|
Balance at October 1, 2016
|
|
$
|
66,270
|
|
|
$
|
42,614
|
|
|
$
|
108,884
|
|
The valuation methodologies used for pension plan assets measured at fair value have been applied consistently. Cash and cash equivalents consist of direct cash holdings and institutional short-term investment vehicles. Direct cash holdings are valued at cost, which approximates fair value. Institutional short-term investment vehicles are valued daily. Investments in U.S. Government obligations are valued by a pricing service based upon closing market prices at year end. Shares of registered investment companies are valued at net asset value of shares held by the plan at year end. Common stocks traded on national exchanges are valued at the last reported sales price. Investments denominated in foreign currencies are translated into U.S. dollars using the last reported exchange rate. Fixed income funds are valued using methods, such as dealer quotes, available trade information, spreads, bids and offers provided by a pricing vendor. Investments in insurance contracts are valued at contract value, which is the fair value of the underlying investment of the insurance company. Securities or other assets for which market quotations are not readily available or for which market quotations do not represent the value at the time of pricing (including certain illiquid securities) are fair valued in accordance with procedures established under the supervision and responsibility of the Custodian of that investment. Such procedures may include the use of independent pricing services or affiliated advisor pricing, which use prices based upon yields or prices of securities of comparable quality, coupon, maturity and type, indications as to values from dealers, operating data and general market conditions.
The following table summarizes investments measured at fair value based on net asset value (NAV) per share as of
October 1, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded Commitments
|
|
Redemption Frequency
|
|
Redemption Notice Period
|
Interest in common collective trusts (1)
|
|
$
|
—
|
|
|
Daily, Weekly
|
|
0-5 days
|
Insurance contracts and other (2)
|
|
—
|
|
|
Quarterly
|
|
60-90 days
|
Limited partnerships (3)
|
|
7,052
|
|
|
Varies
|
|
10-45 days
|
Total
|
|
$
|
7,052
|
|
|
|
|
|
|
|
(1)
|
Interest in common collective trusts consist of pools of investments used by institutional investors to obtain exposure to equity and fixed income markets. Common collective trusts held by us invest primarily in investment grade fixed income securities, common stock and real property assets.
|
|
|
(2)
|
Insurance contracts and other includes hedge funds held by us, which invest primarily in global equity long and short positions. The primary strategy for the hedge funds is to seek risk-adjusted returns with volatility lower than the broad equity markets primarily through long and short investment opportunities in the global markets.
|
|
|
(3)
|
Investments in limited partnerships held by us invest primarily in emerging markets, equity and equity related securities. The strategy for the partnerships is to have exposure to certain markets or to securities that are judged to achieve superior earnings growth and/or judged undervalued relative to intrinsic value.
|
T
he preceding methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although we believe the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Pension expense for all defined benefit plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Service cost
|
$
|
23,637
|
|
|
$
|
23,635
|
|
|
$
|
21,571
|
|
|
$
|
5,204
|
|
|
$
|
6,087
|
|
|
$
|
5,533
|
|
Interest cost
|
37,659
|
|
|
34,031
|
|
|
33,354
|
|
|
4,928
|
|
|
4,814
|
|
|
5,984
|
|
Expected return on plan assets
|
(50,383
|
)
|
|
(47,136
|
)
|
|
(43,374
|
)
|
|
(4,862
|
)
|
|
(5,166
|
)
|
|
(4,487
|
)
|
Amortization of prior service cost (credit)
|
187
|
|
|
149
|
|
|
149
|
|
|
(103
|
)
|
|
(70
|
)
|
|
(57
|
)
|
Amortization of actuarial loss
|
26,168
|
|
|
22,355
|
|
|
16,346
|
|
|
2,600
|
|
|
2,289
|
|
|
1,398
|
|
Settlement loss
|
59
|
|
|
54
|
|
|
37
|
|
|
131
|
|
|
77
|
|
|
—
|
|
Pension expense for defined benefit plans
|
$
|
37,327
|
|
|
$
|
33,088
|
|
|
$
|
28,083
|
|
|
$
|
7,898
|
|
|
$
|
8,031
|
|
|
$
|
8,371
|
|
The estimated net prior service cost and net actuarial loss that will be amortized from accumulated other comprehensive loss into net periodic benefit cost for pension plans in
2017
are
$71
and
$38,264
, respectively.
Benefits expected to be paid to the participants of the plans are:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
2017
|
|
$
|
31,020
|
|
|
$
|
5,305
|
|
2018
|
|
34,368
|
|
|
5,814
|
|
2019
|
|
37,030
|
|
|
6,229
|
|
2020
|
|
40,106
|
|
|
5,692
|
|
2021
|
|
43,557
|
|
|
6,476
|
|
Five years thereafter
|
|
266,881
|
|
|
42,631
|
|
We presently anticipate contributing approximately
$63,200
to the U.S. plans and
$7,000
to the non-U.S. plans in
2017
.
Pension expense for the defined contribution plans consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
U.S. defined contribution plans
|
|
$
|
14,128
|
|
|
$
|
13,621
|
|
|
$
|
13,196
|
|
Non-U.S. defined contribution plans
|
|
6,029
|
|
|
6,570
|
|
|
6,458
|
|
Total pension expense for defined contribution plans
|
|
$
|
20,157
|
|
|
$
|
20,191
|
|
|
$
|
19,654
|
|
We provide postretirement health care benefits to certain domestic retirees, who were hired prior to October 1, 1989. There are
no
plan assets. The changes in the accumulated benefit obligation of this unfunded plan for
2016
and
2015
are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
October 1, 2016
|
|
October 3, 2015
|
Change in Accumulated Postretirement Benefit Obligation (APBO):
|
|
|
|
|
APBO at prior year measurement date
|
|
$
|
12,532
|
|
|
$
|
15,331
|
|
Service cost
|
|
161
|
|
|
226
|
|
Interest cost
|
|
468
|
|
|
576
|
|
Contributions by plan participants
|
|
1,944
|
|
|
2,228
|
|
Benefits paid
|
|
(3,043
|
)
|
|
(2,795
|
)
|
Actuarial losses (gains)
|
|
763
|
|
|
(3,034
|
)
|
APBO at measurement date
|
|
$
|
12,825
|
|
|
$
|
12,532
|
|
Funded status
|
|
$
|
(12,825
|
)
|
|
$
|
(12,532
|
)
|
Accrued postretirement benefit liability
|
|
$
|
12,825
|
|
|
$
|
12,532
|
|
Amount recognized in AOCIL, before taxes:
|
|
|
|
|
Actuarial gains
|
|
3,896
|
|
|
5,232
|
|
Amount recognized in AOCIL, before taxes
|
|
$
|
3,896
|
|
|
$
|
5,232
|
|
The cost of the postretirement benefit plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Service cost
|
|
$
|
161
|
|
|
$
|
226
|
|
|
$
|
225
|
|
Interest cost
|
|
468
|
|
|
576
|
|
|
624
|
|
Amortization of actuarial gain
|
|
(572
|
)
|
|
(106
|
)
|
|
(261
|
)
|
Net periodic postretirement benefit cost
|
|
$
|
57
|
|
|
$
|
696
|
|
|
$
|
588
|
|
As of the measurement date, the assumed discount rate used in the accounting for the postretirement benefit obligation was
3.2%
in
2016
,
3.9%
in
2015
and
3.9%
in
2014
. As of the measurement date, the assumed discount rate used in the accounting for the net periodic postretirement benefit cost was
3.9%
in
2016
,
4.5%
in
2015
and
4.5%
in
2014
.
For measurement purposes, a
6.8%
,
6.6%
and
6.9%
annual per capita rate of increase of medical and drug costs before age 65, medical costs after age 65 and drug costs after age 65, respectively, were assumed for
2017
, all gradually decreasing to
4.5%
for
2028
and years thereafter. A one percentage point increase in this rate would increase our accumulated postretirement benefit obligation as of the measurement date in
2016
by
$358
, while a one percentage point decrease in this rate would decrease our accumulated postretirement benefit obligation by
$311
.
There would be
no
material effect on the total service cost and interest cost components of the net periodic postretirement benefit cost given a one percentage point increase or decrease in this rate.
Employee and management profit sharing reflects a discretionary payment based on our financial performance. Profit share expense was
$16,656
,
$13,188
and
$22,030
in
2016
,
2015
and
2014
, respectively.
Note 12 - Income Taxes
The reconciliation of the provision for income taxes to the amount computed by applying the U.S. federal statutory tax rate to earnings before income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Earnings before income taxes:
|
|
|
|
|
|
|
Domestic
|
|
$
|
82,848
|
|
|
$
|
78,074
|
|
|
$
|
106,671
|
|
Foreign
|
|
90,012
|
|
|
105,760
|
|
|
112,252
|
|
Total
|
|
$
|
172,860
|
|
|
$
|
183,834
|
|
|
$
|
218,923
|
|
Federal statutory income tax rate
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Increase (decrease) in income taxes resulting from:
|
|
|
|
|
|
|
Repatriated earnings
|
|
26.8
|
%
|
|
—
|
|
|
—
|
|
R&D and foreign tax credits
|
|
(30.6
|
)%
|
|
(2.7
|
)%
|
|
(1.2
|
)%
|
Foreign tax rates
|
|
(2.7
|
)%
|
|
(4.8
|
)%
|
|
(5.2
|
)%
|
Export and manufacturing incentives
|
|
(1.0
|
)%
|
|
(0.7
|
)%
|
|
(0.8
|
)%
|
Change in enacted tax rates
|
|
(0.9
|
)%
|
|
(0.3
|
)%
|
|
(0.5
|
)%
|
State taxes, net of federal benefit
|
|
0.5
|
%
|
|
0.8
|
%
|
|
1.0
|
%
|
Change in valuation allowance for deferred taxes
|
|
0.9
|
%
|
|
1.1
|
%
|
|
0.6
|
%
|
Other
|
|
0.5
|
%
|
|
(0.1
|
)%
|
|
(1.2
|
)%
|
Effective income tax rate
|
|
28.5
|
%
|
|
28.3
|
%
|
|
27.7
|
%
|
At
October 1, 2016
, foreign tax benefit carryforwards total
$38,132
. Domestic benefit carryforwards total
$27,404
, including
$20,956
of state tax losses. We also have
$3,779
of state tax credit carryforwards. Some of these tax benefit carryforwards do not expire and can be used to reduce current taxes otherwise due on future earnings of those subsidiaries. The change in the valuation allowance relates to tax benefit carryforwards reflecting recent and projected financial performance, tax planning strategies and statutory tax carryforward periods.
During 2016, we repatriated
$90,937
of earnings from various foreign subsidiaries and the tax expense was completely offset by foreign tax credits.
No provision has been made for U.S. federal or foreign taxes on that portion of certain foreign subsidiaries’ undistributed earnings (
$857,447
at
October 1, 2016
) considered to be permanently reinvested. It is not practicable to determine the amount of tax that would be payable if these amounts were repatriated to the U.S.
The components of income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
12,812
|
|
|
$
|
12,065
|
|
|
$
|
25,325
|
|
Foreign
|
|
29,794
|
|
|
25,844
|
|
|
28,074
|
|
State
|
|
2,373
|
|
|
1,051
|
|
|
2,305
|
|
Total current
|
|
44,979
|
|
|
38,960
|
|
|
55,704
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
10,078
|
|
|
10,800
|
|
|
5,034
|
|
Foreign
|
|
(4,734
|
)
|
|
882
|
|
|
(1,148
|
)
|
State
|
|
(1,096
|
)
|
|
1,309
|
|
|
1,135
|
|
Total deferred
|
|
4,248
|
|
|
12,991
|
|
|
5,021
|
|
Income taxes
|
|
$
|
49,227
|
|
|
$
|
51,951
|
|
|
$
|
60,725
|
|
Realization of deferred tax assets is dependent, in part, upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making its assessment of the recoverability of deferred tax assets.
The tax effects of temporary differences that generated deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
October 1,
2016
|
|
October 3,
2015
|
Deferred tax assets:
|
|
|
|
|
Benefit accruals
|
|
$
|
237,261
|
|
|
$
|
210,241
|
|
Inventory reserves
|
|
33,950
|
|
|
32,948
|
|
Tax benefit carryforwards
|
|
17,349
|
|
|
14,245
|
|
Contract loss reserves not currently deductible
|
|
10,931
|
|
|
9,049
|
|
Other accrued expenses
|
|
17,669
|
|
|
17,676
|
|
Total gross deferred tax assets
|
|
317,160
|
|
|
284,159
|
|
Less valuation allowance
|
|
(10,938
|
)
|
|
(9,583
|
)
|
Total net deferred tax assets
|
|
306,222
|
|
|
274,576
|
|
Deferred tax liabilities:
|
|
|
|
|
Differences in bases and depreciation of property, plant and equipment
|
|
163,977
|
|
|
162,661
|
|
Pension
|
|
77,471
|
|
|
70,273
|
|
Total gross deferred tax liabilities
|
|
241,448
|
|
|
232,934
|
|
Net deferred tax assets
|
|
$
|
64,774
|
|
|
$
|
41,642
|
|
Net deferred tax assets and liabilities are included in the balance sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
|
October 1,
2016
|
|
October 3,
2015
|
Current assets
|
|
$
|
92,903
|
|
|
$
|
91,210
|
|
Other assets
|
|
14,325
|
|
|
11,158
|
|
Other accrued liabilities
|
|
(283
|
)
|
|
(517
|
)
|
Long-term liabilities
|
|
(42,171
|
)
|
|
(60,209
|
)
|
Net deferred tax assets
|
|
$
|
64,774
|
|
|
$
|
41,642
|
|
We have unrecognized tax benefits which, if ultimately recognized, will reduce our annual effective tax rate. A reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
October 1,
2016
|
|
October 3,
2015
|
Balance at beginning of year
|
|
$
|
1,184
|
|
|
$
|
1,793
|
|
Reductions as a result of lapse of statute of limitations
|
|
(686
|
)
|
|
(609
|
)
|
Balance at end of year
|
|
$
|
498
|
|
|
$
|
1,184
|
|
We are subject to income taxes in the U.S. and in various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require the application of significant judgment. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities in significant jurisdictions for years before 2014. The statute of limitations in several jurisdictions will expire in the next twelve months and we will have
$498
of unrecognized tax benefits recognized if the statute of limitations expires without the relevant taxing authority examining the applicable returns.
We record interest and penalties related to unrecognized tax benefits in income tax expense. We had accrued interest and penalties of
$469
and
$1,019
at
October 1, 2016
and
October 3, 2015
, respectively. We expensed interest of
$276
and
$208
for
2016
and
2015
, respectively.
Note 13 - Shareholders’ Equity
Class A and Class B common stock share equally in our earnings and are identical with certain exceptions. Other than on matters relating to the election of directors or as required by law where the holders of Class A and Class B shares vote as separate classes, Class A shares have limited voting rights, with each share of Class A being entitled to
one-tenth
of a vote on most matters, and each share of Class B being entitled to
one
vote. Class A shareholders are entitled, subject to certain limitations, to elect at least
25%
of the Board of Directors (rounded up to the nearest whole number) with Class B shareholders entitled to elect the balance of the directors. No cash dividend may be paid on Class B shares unless at least an equal cash dividend is paid on Class A shares. Class B shares are convertible at any time into Class A shares on a
one-for-one
basis at the option of the shareholder. The number of common shares issued reflects conversion of Class B to Class A of
28,183
in
2016
,
11,087
in
2015
and
14,471
in
2014
.
Class A shares and Class B shares reserved for issuance at
October 1, 2016
are as follows:
|
|
|
|
|
Shares
|
Conversion of Class B to Class A shares
|
7,612,912
|
|
2014 Long Term Incentive Plan
|
2,000,000
|
|
2008 Stock Appreciation Rights Plan
|
1,566,801
|
|
2003 Stock Option Plan
|
118,098
|
|
Class A and B shares reserved for issuance
|
11,297,811
|
|
We are authorized to issue up to
10,000,000
shares of preferred stock. The Board of Directors may authorize, without further shareholder action, the issuance of additional preferred stock which ranks senior to both classes of our common stock with respect to the payment of dividends and the distribution of assets on liquidation. The preferred stock, when issued, would have such designations relative to voting and conversion rights, preferences, privileges and limitations as determined by the Board of Directors.
We issue common stock under our equity compensation plans from treasury stock. As of October 1, 2016, in addition to the shares reserved for issuance upon the exercise of outstanding equity awards, there were
1,780,950
shares authorized for awards that may be granted in the future under the 2014 Long Term Incentive Plan.
Our board of directors has authorized a share repurchase program that has been amended from time to time to authorize additional repurchases. During 2016, we repurchased
850,546
shares of our Class A common stock for
$39,103
. During 2015 and 2014, we repurchased
4,795,568
and
4,001,877
of our Class A and Class B common stock for
$337,739
and
$273,008
, respectively.
As of
October 1, 2016
, the total remaining authorization for future common share repurchases under our program is
3,352,009
shares.
Note 14 - Equity-Based Compensation
We have equity-based compensation plans that authorize the issuance of equity-based awards for shares of Class A and Class B common stock to directors, officers and key employees. Equity-based compensation grants are designed to reward long-term contributions to Moog and provide incentives for recipients to remain with Moog.
On January 7, 2015, shareholders approved the 2014 Long Term Incentive Plan ("2014 Plan"). The 2014 Plan authorizes the issuance of a total of
2,000,000
shares of either Class A or Class B common stock. The 2014 Plan is intended to provide a flexible framework that permits the development and implementation of a variety of stock-based programs that base awards on key performance metrics as well as align our long term incentive compensation with our peers and shareholder interests.
During 2016, we granted awards in the form of stock appreciations rights (SARs) and performance-based restricted stock units (PSUs). The compensation cost for employee and non-employee director share-based compensation programs for all current and prior year awards granted are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Stock appreciation rights
|
|
$
|
2,482
|
|
|
$
|
4,955
|
|
|
$
|
6,751
|
|
Performance-based restricted stock units
|
|
755
|
|
|
—
|
|
|
—
|
|
Stock options
|
|
34
|
|
|
119
|
|
|
438
|
|
Total compensation cost
|
|
$
|
3,271
|
|
|
$
|
5,074
|
|
|
$
|
7,189
|
|
Stock Appreciation Rights and Stock Options
The fair value of SARs granted was estimated on the date of grant using the Black-Scholes option-pricing model. The following table provides the range of assumptions used to value awards and the weighted-average fair value of the awards granted
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Expected volatility
|
|
24% - 29%
|
|
|
24% - 38%
|
|
|
29% - 39%
|
|
Risk-free rate
|
|
1.4% - 1.8%
|
|
|
.9% - 1.9%
|
|
|
.7% - 2.0%
|
|
Expected dividends
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Expected term
|
|
4-6 years
|
|
|
3-7 years
|
|
|
3-7 years
|
|
Weighted-average fair value of awards granted
|
|
$
|
18.24
|
|
|
$
|
28.71
|
|
|
$
|
23.74
|
|
To determine expected volatility, we generally use historical volatility based on weekly closing prices of our Class A and Class B common stock over periods that correlate with the expected terms of the awards granted. The risk-free rate is based on the United States Treasury yield curve at the time of grant for the appropriate expected term of the awards granted. Expected dividends are based on our history and expectation of dividend payouts. The expected term of equity-based awards is based on vesting schedules, expected exercise patterns and contractual terms.
The number of shares received upon the exercise of a SAR is equal in value to the difference between the fair market value of the common stock on the exercise date and the exercise price of the SAR. The term of a SAR may not exceed ten years from the grant date. Options outstanding as of October 1, 2016 consisted of both incentive options and non-qualified options. Options become exercisable over periods not exceeding ten years. The exercise price of SARs and options, determined by a committee of the Board of Directors, may not be less than the fair value of the common stock on the grant date.
SARs and options are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Appreciation Rights
|
|
Number of Awards
|
|
Weighted-
Average
Exercise Price
|
|
Weighted-
Average
Remaining Contractual Life
|
|
Aggregate
Intrinsic
Value
|
Outstanding at October 3, 2015
|
|
1,373,544
|
|
|
$
|
45.90
|
|
|
|
|
|
Granted in 2016
|
|
194,000
|
|
|
65.02
|
|
|
|
|
|
Exercised in 2016
|
|
(37,996
|
)
|
|
37.13
|
|
|
|
|
|
Expired in 2016
|
|
(32,337
|
)
|
|
56.56
|
|
|
|
|
|
Forfeited in 2016
|
|
(29,992
|
)
|
|
67.89
|
|
|
|
|
|
|
Outstanding at October 1, 2016
|
|
1,467,219
|
|
|
$
|
47.97
|
|
|
5.2 years
|
|
$
|
20,923
|
|
Exercisable at October 1, 2016
|
|
1,157,117
|
|
|
$
|
42.81
|
|
|
4.3 years
|
|
$
|
20,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
|
|
|
|
|
|
Outstanding at October 3, 2015
|
|
255,883
|
|
|
$
|
36.81
|
|
|
|
|
|
Exercised in 2016
|
|
(137,785
|
)
|
|
33.20
|
|
|
|
|
|
Outstanding at October 1, 2016
|
|
118,098
|
|
|
$
|
41.02
|
|
|
0.9 years
|
|
$
|
2,187
|
|
Exercisable at October 1, 2016
|
|
111,216
|
|
|
$
|
41.02
|
|
|
0.9 years
|
|
$
|
2,060
|
|
The aggregate intrinsic value in the preceding tables represents the total pre-tax intrinsic value, based on our closing price of Class A common stock of
$59.54
and Class B common stock of
$59.64
as of
October 1, 2016
. That value would have been effectively received by the option and SAR holders had all option and SAR holders exercised their options and SARs as of that date.
The intrinsic value of awards exercised and fair value of awards vested are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Stock Appreciation Rights
|
|
|
|
|
|
|
Intrinsic value of SARs exercised
|
|
$
|
865
|
|
|
$
|
14,566
|
|
|
$
|
9,534
|
|
Total fair value of SARs vested
|
|
$
|
5,876
|
|
|
$
|
5,424
|
|
|
$
|
7,633
|
|
Stock Options
|
|
|
|
|
|
|
Intrinsic value of options exercised
|
|
$
|
4,100
|
|
|
$
|
14,205
|
|
|
$
|
6,977
|
|
Total fair value of options vested
|
|
$
|
947
|
|
|
$
|
981
|
|
|
$
|
1,009
|
|
As of
October 1, 2016
, total unvested compensation expense associated with SARs amounted to
$2,376
and will be recognized over a weighted-average period of
two
years.
Performance-Based Restricted Stock Units
PSU awards consist of shares of our stock which are payable upon the determination that we achieve certain established performance targets and can range from
0%
to
200%
of the targeted payout based on the actual results. PSU's granted in 2016 have a performance period of
three
years. The fair value of each PSU granted is equal to the fair market value of our common stock on the date of grant. PSUs granted generally have a
three
year period cliff vesting schedule; however, according to the grant agreements, if certain conditions are met, the employee (or beneficiary) will receive a prorated amount of the award based on active employment during the service period.
PSUs are as follows:
|
|
|
|
|
|
|
|
|
Performance-Based Restricted Stock Units
|
|
Number of Awards
|
|
Weighted-
Average
Grant Date Fair Value
|
Nonvested at October 3, 2015
|
|
—
|
|
|
$
|
—
|
|
Granted in 2016
|
|
41,550
|
|
|
64.95
|
|
Forfeited in 2016
|
|
(3,500
|
)
|
|
64.95
|
|
Nonvested at October 1, 2016
|
|
38,050
|
|
|
$
|
64.95
|
|
As of
October 1, 2016
, total unvested compensation expense associated with nonvested PSUs amounted to
$1,717
and will be recognized over a weighted-average period of
two
years.
Note 15 - Stock Employee Compensation Trust and Supplemental Retirement Plan Trust
The Stock Employee Compensation Trust (SECT) assists in administering and provides funding for equity-based compensation plans and benefit programs, including the Moog Inc. Retirement Savings Plan (RSP). The Supplemental Retirement Plan (SERP) Trust provides funding for benefits under the Moog Inc. SERP. Both the SECT and the SERP Trusts hold shares as investments. The shares in the SECT and SERP Trusts are not considered outstanding for purposes of calculating earnings per share. However, in accordance with the trust agreements governing the SECT and SERP Trusts, the trustees vote all shares held by the SECT and SERP Trusts on all matters submitted to shareholders.
Note 16 - Accumulated Other Comprehensive Income (Loss)
The changes in AOCIL, net of tax, by component are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated foreign currency translation
|
|
Accumulated retirement liability
|
|
Accumulated gain (loss) on derivatives
|
|
Total
|
AOCIL at September 27, 2014
|
|
$
|
9,254
|
|
|
$
|
(214,984
|
)
|
|
$
|
(1,108
|
)
|
|
$
|
(206,838
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
(82,042
|
)
|
|
(67,432
|
)
|
|
(2,848
|
)
|
|
(152,322
|
)
|
Amounts reclassified from AOCIL
|
|
—
|
|
|
15,506
|
|
|
1,919
|
|
|
17,425
|
|
Other comprehensive income (loss)
|
|
(82,042
|
)
|
|
(51,926
|
)
|
|
(929
|
)
|
|
(134,897
|
)
|
AOCIL at October 3, 2015
|
|
(72,788
|
)
|
|
(266,910
|
)
|
|
(2,037
|
)
|
|
(341,735
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
(37,838
|
)
|
|
(72,094
|
)
|
|
(4,227
|
)
|
|
(114,159
|
)
|
Amounts reclassified from AOCIL
|
|
—
|
|
|
17,910
|
|
|
2,923
|
|
|
20,833
|
|
Other comprehensive income (loss)
|
|
(37,838
|
)
|
|
(54,184
|
)
|
|
(1,304
|
)
|
|
(93,326
|
)
|
AOCIL at October 1, 2016
|
|
$
|
(110,626
|
)
|
|
$
|
(321,094
|
)
|
|
$
|
(3,341
|
)
|
|
$
|
(435,061
|
)
|
The amounts reclassified from AOCIL into earnings are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of earnings classification
|
|
2016
|
|
2015
|
Retirement liability:
|
|
|
|
|
|
|
Prior service cost
|
|
|
|
$
|
108
|
|
|
$
|
98
|
|
Actuarial losses
|
|
|
|
28,196
|
|
|
24,457
|
|
Reclassification from AOCIL into earnings
|
|
28,304
|
|
|
24,555
|
|
Tax effect
|
|
|
|
(10,394
|
)
|
|
(9,049
|
)
|
Net reclassification from AOCIL into earnings
|
|
$
|
17,910
|
|
|
$
|
15,506
|
|
Derivatives:
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Sales
|
|
$
|
1,287
|
|
|
$
|
233
|
|
Foreign currency contracts
|
|
Cost of sales
|
|
1,598
|
|
|
1,333
|
|
Interest rate swaps
|
|
Interest
|
|
771
|
|
|
1,378
|
|
Reclassification from AOCIL into earnings
|
|
3,656
|
|
|
2,944
|
|
Tax effect
|
|
|
|
(733
|
)
|
|
(1,025
|
)
|
Net reclassification from AOCIL into earnings
|
|
$
|
2,923
|
|
|
$
|
1,919
|
|
The amounts deferred in AOCIL are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of earnings classification
|
|
Net deferral in AOCIL - effective portion
|
|
|
|
|
2016
|
|
2015
|
Retirement liability:
|
|
|
|
|
|
|
Net actuarial loss during period
|
|
|
|
$
|
(110,856
|
)
|
|
$
|
(109,148
|
)
|
Tax effect
|
|
|
|
38,762
|
|
|
41,716
|
|
Net deferral in AOCIL of retirement liability
|
|
|
|
$
|
(72,094
|
)
|
|
$
|
(67,432
|
)
|
Derivatives:
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Sales
|
|
$
|
(3,829
|
)
|
|
$
|
(386
|
)
|
Foreign currency contracts
|
|
Cost of sales
|
|
(1,370
|
)
|
|
(1,527
|
)
|
Interest rate swaps
|
|
Interest
|
|
125
|
|
|
(2,431
|
)
|
Net loss
|
|
|
|
(5,074
|
)
|
|
(4,344
|
)
|
Tax effect
|
|
|
|
847
|
|
|
1,496
|
|
Net deferral in AOCIL of derivatives
|
|
$
|
(4,227
|
)
|
|
$
|
(2,848
|
)
|
Note 17 - Segments
During 2016, we made a change to our segment reporting. Components now includes the Medical Devices product lines, which were previously reported as a separate segment. All amounts have been restated to present Medical Devices within Components.
Aircraft Controls
.
We design, manufacture and integrate primary and secondary flight controls for military and commercial aircraft and provide aftermarket support. Our systems are used on both development and production programs in large commercial transports, supersonic fighters, multi-role military aircraft, business jets and rotorcraft. We also supply ground-based navigation aids.
We are currently working on the KC-46 military air refueling tanker on the military side, and the Airbus A350XWB, COMAC C919 and the Embraer E-Jet E2 family on the commercial side. Typically development programs require concentrated periods of research and development by our engineering teams, while production programs are generally long-term manufacturing efforts that extend for as long as the aircraft builder receives new orders.
In the past few years, a number of significant programs have begun to transition from the development phase to initial low-rate production, including the Lockheed Martin F-35 Joint Strike Fighter on the military side and the Boeing 787 on the commercial side. In terms of mature production programs, our large military programs include the F/A-18E/F Super Hornet, the V-22 Osprey tiltrotor and the Black Hawk UH-60/Seahawk SH-60 helicopter, while our large commercial production programs include the full line of Boeing 7-series aircraft, Airbus A330 and A380 and a variety of business jets.
Aftermarket sales, which represented
29%
,
30%
and
32%
of
2016
,
2015
and
2014
sales, respectively, for this segment consist of the maintenance, repair, overhaul and parts supply for both military and commercial aircraft. Further, we sell spare parts and line replaceable units to both military and commercial customers that they store throughout the world in order to minimize down time.
Space and Defense Controls.
We provide controls for satellites, space vehicles, launch vehicles, armored combat vehicles, tactical and strategic missiles, security and surveillance and other defense applications.
Within our space market, we design, manufacture and integrate commercial and military satellite positioning controls. These propulsion and actuation systems and the components control attitude, orbit insertion, solar panels and antennas. We also design, manufacture and integrate steering and propulsion controls for space launch vehicles, such as the Atlas, Delta and Ariane platforms. Additionally, we design and manufacture spaceflight electronics and software. We are also developing new control products and systems for a variety of programs related to manned spaceflight including: NASA's new Space Launch System, Multi-Purpose Crew Vehicle and Soft Capture System.
Within our defense market, we design controls for gun aiming, stabilization and automatic ammunition loading for armored combat vehicles for a variety of domestic and international customers. We also design controls for steering tactical and strategic missiles including: Lockheed Martin's Hellfire
®
, the U.S. National Missile Defense Agency's Ballistic Missile Defense initiatives and Raytheon's TOW and Trident missiles. We also design, build and integrate weapons stores management systems for light attack aerial reconnaissance, ground and sea platforms, as well as build high power, quiet controls for naval surface ships and submarines such as the US Virginia Class. Our sensor and surveillance products are used in both military and commercial applications such as electrical grid and other critical infrastructure protection applications.
Industrial Systems
.
Our Industrial Systems segment serves a global customer base across a variety of markets.
In the industrial automation market, we design, manufacture and integrate systems for industrial automation customers for applications in injection and blow molding machinery, metal forming presses and heavy industry in steel and aluminum production. Our systems allow for precise controls of critical parameters in the industrial manufacturing processes, using both hydraulic and electric technology. Other industrial automation markets we serve include material handling and paper mills.
In the energy market, we supply solutions for power generation applications which allow for precise control and greater safety of fuel metering and guide vane positioning on steam and gas turbines. We also design and manufacture high reliability systems and components for applications in oil and gas exploration and production, including downhole drilling, topside and subsea environments, as well as electric pitch controls and blade monitoring systems for wind turbines.
In the simulation and test market, we supply electromechanical motion simulation bases for the flight simulation and training markets, as well as medical training simulators. For the test markets, we supply custom test systems and controls for automotive, structural and fatigue testing.
Components.
Our Components segment serves many of the same markets as our other segments. Our Components segment’s largest product categories include slip rings and fiber optic rotary joints, motors, and infusion and enteral pumps and associated sets.
Slip rings and fiber optic rotary joints use sliding contacts and optical technology to allow unimpeded rotation while delivering power and data through a rotating interface. They come in a range of sizes that allow them to be used in many applications, including diagnostic imaging CT scan medical equipment, blade de-icing and data transfer for rotorcraft, remotely operated vehicles and floating platforms for offshore oil exploration, surveillance cameras, forward-looking infrared camera installations and radar pedestals, satellites, missiles and wind turbines.
Our motors are used in an equally broad range of markets, many of which are the same as for slip rings. We design and manufacture a series of fractional horsepower brushless motors that provide extremely low acoustic noise and reliable long life operation, with the largest market being sleep apnea equipment. Industrial customers use our motors for material handling and electric pumps. Military programs use our motors for gimbals, missiles and radar pedestals.
Infusion therapy products include infusion pumps and associated administration sets. They offer IV, intra-arterial, subcutaneous or epidural flow of fluids and precise medicine delivery and can be applied to many applications, including hydration, nutrition, patient-controlled analgesia, local anesthesia, chemotherapy and antibiotics.
Enteral clinical nutrition products include a complete line of portable and stationary pumps along with disposable sets. They are designed for ease of use and mobility. Medical customers use our enteral feeding products in the delivery of enteral nutrition for patients in their own homes, hospitals and long-term care facilities.
Our Components’ segment's other product lines include ultrasonic and optical sensors and surgical hand pieces used in medical applications, electromechanical actuators for military, aerospace and commercial applications, fiber optic modems that provide electrical-to-optical conversion of communication and data signals, avionic instrumentation, subsea navigation and control systems, acoustic sensors and sonars for energy and marine applications including remotely-operated underwater vehicles and optical switches and resolvers.
Segment information and reconciliations to consolidated amounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Net sales:
|
|
|
|
|
|
|
Aircraft Controls
|
|
$
|
1,063,718
|
|
|
$
|
1,086,547
|
|
|
$
|
1,117,656
|
|
Space and Defense Controls
|
|
366,091
|
|
|
381,444
|
|
|
394,505
|
|
Industrial Systems
|
|
514,984
|
|
|
521,505
|
|
|
590,971
|
|
Components
|
|
467,144
|
|
|
536,036
|
|
|
545,253
|
|
Net sales
|
|
$
|
2,411,937
|
|
|
$
|
2,525,532
|
|
|
$
|
2,648,385
|
|
Operating profit:
|
|
|
|
|
|
|
Aircraft Controls
|
|
$
|
98,509
|
|
|
$
|
100,006
|
|
|
$
|
115,726
|
|
Space and Defense Controls
|
|
41,419
|
|
|
33,236
|
|
|
26,119
|
|
Industrial Systems
|
|
48,542
|
|
|
45,021
|
|
|
58,108
|
|
Components
|
|
49,772
|
|
|
67,250
|
|
|
75,764
|
|
Total operating profit
|
|
238,242
|
|
|
245,513
|
|
|
275,717
|
|
Deductions from operating profit:
|
|
|
|
|
|
|
Interest expense
|
|
34,605
|
|
|
28,967
|
|
|
12,513
|
|
Equity-based compensation expense
|
|
3,271
|
|
|
5,074
|
|
|
7,189
|
|
Corporate and other expenses, net
|
|
27,506
|
|
|
27,638
|
|
|
37,092
|
|
Earnings before income taxes
|
|
$
|
172,860
|
|
|
$
|
183,834
|
|
|
$
|
218,923
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
Aircraft Controls
|
|
$
|
46,541
|
|
|
$
|
51,385
|
|
|
$
|
49,021
|
|
Space and Defense Controls
|
|
16,033
|
|
|
14,054
|
|
|
15,735
|
|
Industrial Systems
|
|
20,487
|
|
|
20,731
|
|
|
23,170
|
|
Components
|
|
14,422
|
|
|
16,576
|
|
|
19,467
|
|
Corporate
|
|
1,249
|
|
|
863
|
|
|
1,866
|
|
Total depreciation and amortization
|
|
$
|
98,732
|
|
|
$
|
103,609
|
|
|
$
|
109,259
|
|
Identifiable assets:
|
|
|
|
|
|
|
Aircraft Controls
|
|
$
|
1,150,138
|
|
|
$
|
1,220,814
|
|
|
$
|
1,257,099
|
|
Space and Defense Controls
|
|
450,606
|
|
|
440,439
|
|
|
480,806
|
|
Industrial Systems
|
|
574,053
|
|
|
591,367
|
|
|
648,580
|
|
Components
|
|
667,387
|
|
|
607,436
|
|
|
657,327
|
|
Corporate
|
|
199,675
|
|
|
226,415
|
|
|
164,640
|
|
Total assets
|
|
$
|
3,041,859
|
|
|
$
|
3,086,471
|
|
|
$
|
3,208,452
|
|
Operating profit is net sales less cost of sales and other operating expenses, excluding interest expense, equity-based compensation expense and other corporate expenses. Cost of sales and other operating expenses are directly identifiable to the respective segment or allocated on the basis of sales, manpower or profit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Capital expenditures:
|
|
|
|
|
|
|
Aircraft Controls
|
|
$
|
28,437
|
|
|
$
|
47,389
|
|
|
$
|
45,243
|
|
Space and Defense Controls
|
|
7,498
|
|
|
9,022
|
|
|
8,992
|
|
Industrial Systems
|
|
15,276
|
|
|
15,371
|
|
|
12,459
|
|
Components
|
|
15,576
|
|
|
8,371
|
|
|
11,816
|
|
Corporate
|
|
421
|
|
|
540
|
|
|
261
|
|
Total capital expenditures
|
|
$
|
67,208
|
|
|
$
|
80,693
|
|
|
$
|
78,771
|
|
Sales, based on the customer’s location, and property, plant and equipment by geographic area are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Net sales:
|
|
|
|
|
|
|
United States
|
|
$
|
1,353,398
|
|
|
$
|
1,413,877
|
|
|
$
|
1,485,556
|
|
Germany
|
|
173,182
|
|
|
199,351
|
|
|
205,005
|
|
Japan
|
|
164,702
|
|
|
156,999
|
|
|
180,026
|
|
France
|
|
120,907
|
|
|
84,733
|
|
|
75,963
|
|
United Kingdom
|
|
74,378
|
|
|
97,359
|
|
|
133,777
|
|
Other
|
|
525,370
|
|
|
573,213
|
|
|
568,058
|
|
Net sales
|
|
$
|
2,411,937
|
|
|
$
|
2,525,532
|
|
|
$
|
2,648,385
|
|
Property, plant and equipment, net:
|
|
|
|
|
|
|
United States
|
|
$
|
302,446
|
|
|
$
|
307,874
|
|
|
$
|
312,790
|
|
Philippines
|
|
65,000
|
|
|
68,101
|
|
|
72,602
|
|
United Kingdom
|
|
64,280
|
|
|
77,949
|
|
|
74,111
|
|
Other
|
|
90,643
|
|
|
82,832
|
|
|
95,845
|
|
Property, plant and equipment, net
|
|
$
|
522,369
|
|
|
$
|
536,756
|
|
|
$
|
555,348
|
|
Sales to Boeing were
$346,596
,
$399,082
and
$431,148
, or
14%
,
16%
and
16%
of sales, in
2016
,
2015
and
2014
, respectively, including sales to Boeing Commercial Airplanes of
$251,288
,
$240,984
and
$243,114
in
2016
,
2015
and
2014
, respectively. Sales arising from U.S. Government prime or sub-contracts, including military sales to Boeing, were
$726,562
,
$780,259
and
$763,004
in
2016
,
2015
and
2014
, respectively. Sales to Boeing and the U.S. Government and its prime- or sub-contractors are made primarily from our Aircraft Controls and Space and Defense Controls segments.
Note 18 - Commitments and Contingencies
From time to time, we are involved in legal proceedings. We are not a party to any pending legal proceedings which management believes will result in a material adverse effect on our financial condition, results of operations or cash flows.
We are engaged in administrative proceedings with governmental agencies and legal proceedings with governmental agencies and other third parties in the normal course of our business, including litigation under Superfund laws, regarding environmental matters. We believe that adequate reserves have been established for our share of the estimated cost for all currently pending environmental administrative or legal proceedings and do not expect that these environmental matters will have a material adverse effect on our financial condition, results of operations or cash flows.
In the ordinary course of business we could be subject to ongoing claims or disputes from our customers, the ultimate settlement of which could have a material adverse impact on our consolidated results of operations. While the receivables and any loss provisions recorded to date reflect management's best estimate of the projected costs to complete a given project, there is still significant effort required to complete the ultimate deliverable. Future variability in internal cost and as well as future profitability is dependent upon a number of factors including deliveries, performance and government budgetary pressures. The inability to achieve a satisfactory contractual solution, further unplanned delays, additional developmental cost growth or variations in any of the estimates used in the existing contract analysis could lead to further loss provisions. Additional losses could have a material adverse impact on our financial condition, results of operations or cash flows in the period in which the loss may be recognized.
We lease certain facilities and equipment under operating lease arrangements. These arrangements may include fair market renewal or purchase options. Rent expense under operating leases amounted to
$28,279
in
2016
,
$27,764
in
2015
and
$26,238
in
2014
. Future minimum rental payments required under non-cancellable operating leases are
$22,023
in
2017
,
$20,088
in
2018
,
$17,662
in
2019
,
$13,840
in
2020
,
$11,847
in
2021
and
$44,910
thereafter.
We are contingently liable for
$18,966
of standby letters of credit issued by a bank to third parties on our behalf at
October 1, 2016
. Purchase commitments outstanding at
October 1, 2016
are
$655,572
, including
$19,627
for property, plant and equipment.
Note 19 - Quarterly Data - Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
1st Qtr.
|
|
2nd Qtr.
|
|
3rd Qtr.
|
|
4th Qtr.
|
|
Total
|
Net sales
|
$
|
568,457
|
|
|
$
|
611,142
|
|
|
$
|
613,260
|
|
|
$
|
619,078
|
|
|
$
|
2,411,937
|
|
Gross profit
|
161,460
|
|
|
179,187
|
|
|
183,662
|
|
|
187,274
|
|
|
711,583
|
|
Net earnings attributable to common shareholders
|
26,241
|
|
|
31,050
|
|
|
36,311
|
|
|
33,143
|
|
|
126,745
|
|
Net earnings per share attributable to common shareholders:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.71
|
|
|
$
|
0.85
|
|
|
$
|
1.01
|
|
|
$
|
0.92
|
|
|
$
|
3.49
|
|
Diluted
|
$
|
0.71
|
|
|
$
|
0.85
|
|
|
$
|
1.00
|
|
|
$
|
0.92
|
|
|
$
|
3.47
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
1st Qtr.
|
|
2nd Qtr.
|
|
3rd Qtr.
|
|
4th Qtr.
|
|
Total
|
Net sales
|
$
|
630,523
|
|
|
$
|
637,246
|
|
|
$
|
634,539
|
|
|
$
|
623,224
|
|
|
$
|
2,525,532
|
|
Gross profit
|
183,918
|
|
|
173,550
|
|
|
190,576
|
|
|
188,660
|
|
|
736,704
|
|
Net earnings attributable to common shareholders
|
35,265
|
|
|
32,093
|
|
|
36,331
|
|
|
28,194
|
|
|
131,883
|
|
Net earnings per share attributable to common shareholders:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.87
|
|
|
$
|
0.81
|
|
|
$
|
0.95
|
|
|
$
|
0.76
|
|
|
$
|
3.39
|
|
Diluted
|
$
|
0.86
|
|
|
$
|
0.80
|
|
|
$
|
0.94
|
|
|
$
|
0.75
|
|
|
$
|
3.35
|
|
Note: Quarterly amounts may not add to the total due to rounding.