Recent Accounting Pronouncements Adopted
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Standard
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Description
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Financial Statement Effect or Other Significant Matters
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ASU no. 2016-02
Leases
(and all related ASUs)
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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.
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We adopted this standard using the modified retrospective method, without adjusting prior comparative periods. We recorded an initial right-of-use (ROU) assets of $68,126 and lease liabilities of $71,776, which included reclassifying deferred rent as a component of the ROU asset on the Consolidated Condensed Balance Sheets. There were no material changes to our Consolidated Condensed Statements of Earnings or Consolidated Condensed Statements of Cash Flows. We have completed the necessary changes to our financial statements and related disclosures, internal controls, financial policies and information systems. See Note 7 - Leases, for additional disclosure.
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Date adopted:
Q1 2020
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Recent Accounting Pronouncements Not Yet Adopted
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Standard
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Description
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Financial Statement Effect or Other Significant Matters
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ASU no. 2018-15
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
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The standard amends ASC 350 to include in its scope implementation costs of a Cloud Computing Arrangement (CCA) that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract. The ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The amendments should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.
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We are currently evaluating the effect on our financial statements and related disclosures.
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Planned date of adoption:
Q1 2021
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ASU no. 2016-13 Measurement of Credit Losses on Financial Instruments
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The standard replaces the incurred loss model with the current expected credit loss (CECL) model to estimate credit losses for financial assets measured at amortized cost and certain off-balance sheet credit exposures. The CECL model requires a Company to estimate credit losses expected over the life of the financial assets based on historical experience, current conditions and reasonable and supportable forecasts. The provisions of the standard are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The amendment requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.
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We are currently evaluating the effect on our financial statements and related disclosures.
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Planned date of adoption:
Q1 2021
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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 an immaterial impact on our financial statements and related disclosures.
Impact of Change in Accounting Principle
Beginning in the first quarter of 2020, we changed our method of accounting for the determination of the market-related value of assets for a class of assets within the qualified U.S. defined benefit plan (the plan). This class of assets is currently comprised solely of the fixed income funds asset class held in the portfolio for the plan and provides a natural hedge (liability-hedging assets) against the changes in the recorded amount of net periodic pension cost. Refer to Note 13 - Employee Benefit Plans, in our Form 10-K for the fiscal year ended September 28, 2019, for our fair value disclosure by asset classification. Our previous method of accounting was to calculate the market-related value of assets for all the plan’s assets recognizing investment gains and losses ratably over a five-year period. We have elected to use the fair value of our liability-hedging assets, which represent approximately 80% of the plan’s assets, to determine the market-related value of the assets beginning in the first quarter of 2020. This change in accounting principle is preferable as the recognition of the gains and losses on this class of assets will affect net periodic pension cost in the period in which they occur. No change is being made to the accounting principle for the other classes of pension assets, which represent the remaining 20% of the pension asset portfolio for the plan. The gains and losses for these other plan assets will continue to be amortized into earnings over a five-year period.
The change in accounting principle requires retrospective application and prospective disclosure. The tables below represent the impact of this change on the Consolidated Condensed Statements of Earnings and the Consolidated Condensed Statements of Comprehensive Income (Loss) for the three months ended December 28, 2019, the Consolidated Condensed Balance Sheets for the period ended December 28, 2019, the Consolidated Condensed Statements of Earnings and the Consolidated Statements of Comprehensive Income (Loss) for the three months ended December 29, 2018 and the Consolidated Condensed Balance Sheets for the periods ended December 29, 2018, September 28, 2019 and September 29, 2018, respectively. The change in accounting principle had no impact on the Consolidated Condensed Statements of Cash Flows for these periods.
The tables below represent the impact of the change in accounting principle on the Consolidated Condensed Statement of Earnings and the Consolidated Statements of Comprehensive Income (Loss) for the three months ended December 28, 2019.
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Three Months Ended
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As Reported (With Change), December 28, 2019
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Impact of Change
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Without Change, December 28, 2019
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Other
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$
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7,546
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$
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2,876
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$
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10,422
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Earnings before income taxes
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66,904
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(2,876
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)
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64,028
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Income taxes
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16,877
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(679
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)
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16,198
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Net earnings
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$
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50,027
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$
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(2,197
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)
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$
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47,830
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Net earnings per share
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Basic
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$
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1.45
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$
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(0.06
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)
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$
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1.39
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Diluted
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$
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1.44
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$
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(0.07
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)
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$
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1.37
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Retirement liability adjustment
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$
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4,363
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$
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2,197
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$
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6,560
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Other comprehensive income (loss), net of tax
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$
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27,298
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$
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2,197
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$
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29,495
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Comprehensive income (loss)
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$
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77,325
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$
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—
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$
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77,325
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The table below represents the impact of the change in accounting principle on the Consolidated Condensed Balance Sheet as of December 28, 2019.
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As Reported (With Change), December 28, 2019
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Impact of Change
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Without Change, December 28, 2019
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Shareholders’ equity
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Retained earnings
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$
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2,170,105
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$
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2,392
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$
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2,172,497
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Accumulated other comprehensive loss
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(388,179
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(2,392
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(390,571
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)
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Total shareholders’ equity
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$
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1,336,691
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$
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—
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$
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1,336,691
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The tables below represent the impact of the change in accounting principle on the Consolidated Condensed Statement of Earnings and the Consolidated Condensed Statements of Comprehensive Income (Loss) for the three months ended December 29, 2018.
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Three Months Ended
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As Previously Reported, December 29, 2018
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Impact of Change
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As Reported, December 29, 2018
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Other
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$
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3,434
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$
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1,701
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$
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5,135
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Earnings before income taxes
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58,184
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(1,701
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56,483
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Income taxes
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14,115
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(401
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13,714
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Net earnings
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$
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44,069
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$
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(1,300
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$
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42,769
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Net earnings per share
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Basic
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$
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1.27
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$
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(0.04
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$
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1.23
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Diluted
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$
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1.25
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$
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(0.03
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$
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1.22
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Retirement liability adjustment
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$
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4,819
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$
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1,300
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$
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6,119
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Other comprehensive income (loss), net of tax
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$
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(3,904
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$
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1,300
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$
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(2,604
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Comprehensive income (loss)
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$
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40,165
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$
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—
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$
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40,165
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The table below represents the impact of the change in accounting principle on the Consolidated Condensed Balance Sheet as of December 29, 2018.
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As Previously Reported, December 29, 2018
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Impact of Change
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As Reported, December 29, 2018
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Shareholders’ equity
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Retained earnings
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$
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2,023,803
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$
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(689
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$
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2,023,114
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Accumulated other comprehensive loss
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(376,085
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689
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(375,396
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Total shareholders’ equity
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$
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1,273,264
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$
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—
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$
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1,273,264
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The table below represents the impact of the change in accounting principle on the Consolidated Condensed Balance Sheet as of September 28, 2019.
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As Previously Reported, September 28, 2019
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Impact of Change
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As Reported, September 28, 2019
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Shareholders’ equity
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Retained earnings
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$
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2,133,328
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$
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(4,589
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$
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2,128,739
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Accumulated other comprehensive loss
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(420,066
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)
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4,589
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(415,477
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Total shareholders’ equity
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$
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1,322,481
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$
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—
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$
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1,322,481
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The table below represents the impact of the change in accounting principle on the Consolidated Condensed Balance Sheet as of September 29, 2018.
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As Previously Reported, September 29, 2018
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Impact of Change
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As Reported, September 29, 2018
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Shareholders’ equity
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Retained earnings
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$
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1,973,514
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$
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611
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$
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1,974,125
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Accumulated other comprehensive loss
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(372,181
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)
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(611
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)
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(372,792
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)
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Total shareholders’ equity
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$
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1,224,986
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$
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—
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$
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1,224,986
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See Note 13 - Employee Benefit Plans and Note 16 - Accumulated Other Comprehensive Income (Loss) for adjusted reporting for prior periods.
Note 2 - Revenue from Contracts with Customers
We recognize revenue from contracts with customers using the five-step model prescribed in ASC 606. The first step is identifying the contract. The identification of a contract with a customer requires an assessment of each party’s rights and obligations regarding the products or services to be transferred, including an evaluation of termination clauses and presently enforceable rights and obligations. Each party’s rights and obligations and the associated terms and conditions are typically determined in purchase orders. For sales that are governed by master supply agreements under which provisions define specific program requirements, purchase orders are issued under these agreements to reflect presently enforceable rights and obligations for the units of products and services being purchased.
Contracts are sometimes modified to account for changes in contract specifications and requirements. When this occurs, we assess the modification as prescribed in ASC 606 and determine whether the existing contract needs to be modified (and revenue cumulatively caught up), whether the existing contract needs to be terminated and a new contract needs to be created, or whether the existing contract remains and a new contract needs to be created. This is determined based on the rights and obligations within the modification as well as the associated transaction price.
The next step is identifying the performance obligations. A performance obligation is a promise to transfer goods or services to a customer that is distinct in the context of the contract, as defined by ASC 606. We identify a performance obligation for each promise in a contract to transfer a distinct good or service to the customer. As part of our assessment, we consider all goods and/or services promised in the contract, regardless of whether they are explicitly stated or implied by customary business practices. The products and services in our contracts are typically not distinct from one another due to their complexity and reliance on each other or, in many cases, we provide a significant integration service. Accordingly, many of our contracts are accounted for as one performance obligation. In limited cases, our contracts have more than one distinct performance obligation, which occurs when we perform activities that are not highly complex or interrelated or involve different product life cycles. Warranties are provided on certain contracts, but do not typically provide for services beyond standard assurances and are therefore not distinct performance obligations under ASC 606.
The third step is determining the transaction price, which represents the amount of consideration we expect to be entitled to receive from a customer in exchange for providing the goods or services. There are times when this consideration is variable, for example a volume discount, and must be estimated. Sales, use, value-added, and excise taxes are excluded from the transaction price, where applicable.
The fourth step is allocating the transaction price. The transaction price must be allocated to the performance obligations identified in the contract based on relative stand-alone selling prices when available, or an estimate for each distinct good or service in the contract when standalone prices are not available. Our contracts with customers generally require payment under normal commercial terms after delivery. Payment terms are typically within 30 to 60 days of delivery. The timing of satisfaction of our performance obligations does not significantly vary from the typical timing of payment.
The final step is the recognition of revenue. We recognize revenue as the performance obligations are satisfied. ASC 606 provides guidance to help determine if we are satisfying the performance obligation at a point in time or over time. In determining when performance obligations are satisfied, we consider factors such as contract terms, payment terms and whether there is an alternative use of the product or service. In essence, we recognize revenue when or as control of the promised goods or services transfer to the customer.
Under ASC 606, revenue recognized over time using an input method that uses costs incurred to date to measure progress toward completion ("cost-to-cost") was 64% for the three months ended December 28, 2019. The over time method of revenue recognition is predominantly used in Aircraft Controls and Space and Defense Controls. We use this method for U.S. Government contracts and repair and overhaul arrangements as we are creating or enhancing assets that the customer controls as the assets are being created or enhanced. In addition, many of our large commercial contracts qualify for over-time accounting as our performance does not create an asset with an alternative use and we have an enforceable right to payment for performance completed to date. Our over-time contracts are primarily firm fixed price.
Revenue is recognized on contracts using the cost-to-cost method of accounting as work progresses toward completion as determined by the ratio of cumulative costs incurred to date to estimated total contract costs at completion, multiplied by the total estimated contract revenue, less cumulative revenue recognized in prior periods. We believe that cumulative costs incurred to date as a percentage of estimated total contract costs at completion is an appropriate measure of progress toward satisfaction of performance obligations as this measure most accurately depicts the progress of our work and transfer of control to our customers. Changes in estimates affecting sales, costs and profits are recognized in the period in which the change becomes known using the cumulative catch-up method of accounting, resulting in the cumulative effect of changes reflected in the period. Estimates are reviewed and updated quarterly for substantially all contracts. For the three months ended December 28, 2019 and December 29, 2018 we recognized revenues of $14,619 and $11,759, respectively for adjustments made to performance obligations satisfied (or partially satisfied) in previous periods.
Contract costs include only allocable, allowable and reasonable costs which are included in cost of sales when incurred. For applicable U.S. Government contracts, contract costs are determined in accordance with the Federal Acquisition Regulations and the related Cost Accounting Standards. The nature of these costs includes development engineering costs and product manufacturing costs such as direct material, direct labor, other direct costs and indirect overhead costs. Contract profit is recorded as a result of the revenue recognized less costs incurred in any reporting period. Variable consideration and contract modifications, such as performance incentives, penalties, contract claims or change orders are considered in estimating revenues, costs and profits when they can be reliably estimated and realization is considered probable. Revenue recognized on contracts for unresolved claims or unapproved contract change orders was not material for the three months ended December 28, 2019.
As of December 28, 2019, we had contract reserves of $62,221. For contracts with anticipated losses at completion, a provision for the entire amount of the estimated remaining loss is charged against income in the period in which the loss becomes known. Contract losses are determined considering all direct and indirect contract costs, exclusive of any selling, general or administrative cost allocations that are treated as period expenses. Loss reserves are more common on firm fixed-price contracts that involve, to varying degrees, the design and development of new and unique controls or control systems to meet the customers’ specifications. In accordance with ASC 606, we calculate contract losses at the contract level, versus the performance obligation level. Recall reserves are recorded when additional work is needed on completed products for them to meet contract specifications. Contract-related loss reserves are recorded for the additional work needed on completed and delivered products in order for them to meet contract specifications.
Revenue recognized at the point in time control was transferred to the customer was 36% for the three months ended December 28, 2019. This method of revenue recognition is used most frequently in Industrial Systems. We use this method for commercial contracts in which the asset being created has an alternative use. We determine the point in time control transfers to the customer by weighing the five indicators provided by ASC 606 - the entity has a present right to payment; the customer has legal title; the customer has physical possession; the customer has the significant risks and rewards of ownership; and the customer has accepted the asset. When control has transferred to the customer, profit is generated as cost of sales is recorded and as revenue is recognized. Inventory costs include all product manufacturing costs such as direct material, direct labor, other direct costs and indirect overhead cost allocations. Shipping and handling costs are considered costs to fulfill a contract and not considered performance obligations. They are included in cost of sales as incurred.
Contract Assets and Liabilities
Unbilled receivables (contract assets) primarily represent revenues recognized for performance obligations that have been satisfied but for which amounts have not been billed. These are included as Receivables on the Consolidated Condensed Balance Sheets. Contract advances (contract liabilities) relate to payments received from customers in advance of the satisfaction of performance obligations for a contract. We do not consider contract advances to be significant financing components as the intent of these payments in advance are for reasons other than providing a significant financing benefit and are customary in our industry.
Total contract assets and contract liabilities are as follows:
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December 28,
2019
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September 28, 2019
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Unbilled receivables
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$
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497,356
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$
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468,824
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Contract advances
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177,107
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137,242
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Net contract assets
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$
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320,249
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$
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331,582
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The increase in contract assets reflects the net impact of additional unbilled revenues recorded in excess of revenue recognized during the period. The increase in contract liabilities reflects the net impact of additional deferred revenues recorded in excess of revenue recognized during the period. For the three months ended December 28, 2019, we recognized $35,759 of revenue that was included in the contract liability balance at the beginning of the period.
Remaining Performance Obligations
As of December 28, 2019, the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied), also known as backlog, was approximately $2,430,000. We expect to recognize approximately 69% of that amount as sales over the next twelve months and the balance thereafter.
Disaggregation of Revenue
See Note 19, Segments, for disclosures related to disaggregation of revenue.
Note 3 - Acquisitions, Divestitures and Equity Method Investments
On November 28, 2019, we acquired Gesellschaft für Antriebstechnik mbH and GAT Inc. (GAT), headquartered in Geisenheim, Germany for a purchase price of $53,906, net of acquired cash. GAT designs and manufactures high-end fluid rotating unions and slip rings. This operation is included in our Industrial Systems segment. The purchase price allocation is subject to adjustments as we obtain additional information for our estimates during the measurement period.
In the first quarter of 2020, we sold a non-core business of our Industrial Systems segment for $1,775 in net consideration and recorded a gain in other income of $169.
In the first quarter of 2019, we sold a non-core business of our Industrial Systems segment for $4,191 in cash and recorded a gain in other income of $2,641.
Note 4 - Receivables
Receivables consist of:
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December 28,
2019
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September 28,
2019
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Accounts receivable
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$
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243,988
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$
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255,079
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Over-time contract receivables:
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Billed receivables
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241,740
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222,075
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Unbilled receivables
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497,356
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468,824
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Total over-time contract receivables
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739,096
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690,899
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Other
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11,041
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16,711
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Less allowance for doubtful accounts
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(4,911
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)
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(5,402
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)
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Receivables
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$
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989,214
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$
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957,287
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We securitize certain trade receivables in transactions that are accounted for as secured borrowings (Securitization Program). We maintain a subordinated interest in a portion of the pool of trade receivables that are securitized. The retained interest, which is included in Receivables in the consolidated condensed balance sheets, is recorded at fair value, which approximates the total amount of the designated pool of accounts receivable. Refer to Note 9, Indebtedness, for additional disclosures related to the Securitization Program.
Note 5 - Inventories
Inventories, net of reserves, consist of:
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December 28,
2019
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September 28,
2019
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Raw materials and purchased parts
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$
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189,051
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$
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189,875
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Work in progress
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288,633
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276,538
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Finished goods
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81,548
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68,561
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Inventories
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$
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559,232
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$
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534,974
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There are no material inventoried costs relating to over-time contracts where revenue is accounted for using the cost-to-cost method of accounting as of December 28, 2019 and September 28, 2019.
Note 6 - Property, Plant and Equipment
Property, plant and equipment consists of:
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December 28,
2019
|
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September 28,
2019
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Land
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$
|
36,584
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$
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33,111
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Buildings and improvements
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483,370
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469,867
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Machinery and equipment
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803,236
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775,378
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Computer equipment and software
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139,495
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137,221
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Property, plant and equipment, at cost
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1,462,685
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1,415,577
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Less accumulated depreciation and amortization
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(849,198
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)
|
|
(828,810
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)
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Property, plant and equipment, net
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$
|
613,487
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|
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$
|
586,767
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Note 7 - Leases
On September 29, 2019, we adopted ASC 842: Leases, and the related amendments (ASC 842), using the modified retrospective method, as described in Note 1, Basis of Presentation, without adjusting prior comparative periods.
We lease certain manufacturing facilities, office space and machinery and equipment globally. At inception we evaluate whether a contractual arrangement contains a lease. Specifically, we consider whether we control the underlying asset and have the right to obtain substantially all the economic benefits or outputs from the asset. If the contractual arrangement contains a lease, we then determine the classification of the lease, operating or finance, using the classification criteria described in ASC 842. We then determine the term of the lease based on terms and conditions of the contractual arrangement, including whether the options to extend or terminate the lease are reasonably certain to be exercised. We have elected to not separate lease components from non-lease components, such as common area maintenance charges and instead, account for the lease and non-lease components as a single component.
Our lease ROU assets represent our right to use an underlying asset for the lease term and our lease liabilities represent our obligation to make lease payments. Operating lease ROU assets are included in Operating lease right-of-use assets and operating lease liabilities are included in Accrued liabilities and other and Other long-term liabilities on the Consolidated Condensed Balance Sheets. Finance lease ROU assets are included in Property, plant and equipment and finance lease liabilities are included in Accrued liabilities and other and Other long-term liabilities on the Consolidated Condensed Balance Sheets. Operating lease cost is included in Cost of sales and Selling, general and administrative on the Consolidated Condensed Statements of Earnings. Finance lease cost is included in Cost of sales, Selling, general and administrative and Interest on the Consolidated Condensed Statements of Earnings.
The ROU assets and lease liabilities for both operating and finance leases are recognized as of the commencement date at the net present value of the fixed minimum lease payments over the term of the lease, using the discount rate described below. Variable lease payments are recorded in the period in which the obligation for the payment is incurred. Variable lease payments based on an index or rate are initially measured using the index or rate as of the commencement date of the lease and included in the fixed minimum lease payments. For short-term leases that have a term of 12 months or less as of the commencement date, we do not recognize a ROU asset or lease liability on our balance sheet; we recognize expense as the lease payments are made over the lease term.
The discount rate used to calculate the present value of our leases is the rate implicit in lease. If the information necessary to determine the rate implicit in the lease is not available, we use our incremental borrowing rate for collateralized debt, which is determined using our credit rating and other information available as of the lease commencement date.
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
Three Months Ended December 28, 2019
|
|
|
Operating lease cost
|
$
|
6,160
|
|
|
|
|
|
Finance lease cost:
|
|
|
Amortization of right-of-use assets
|
$
|
76
|
|
|
Interest on lease liabilities
|
48
|
|
|
Total finance lease cost
|
$
|
124
|
|
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
Three Months Ended December 28, 2019
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flow for operating leases
|
$
|
6,027
|
|
|
Operating cash flow for finance leases
|
48
|
|
|
Financing cash flow for finance leases
|
88
|
|
|
Assets obtained in exchange for lease obligations:
|
|
|
Operating leases
|
568
|
|
|
Finance leases
|
—
|
|
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
December 28, 2019
|
Operating Leases
|
|
Operating lease right-of-use assets
|
$
|
62,669
|
|
|
|
Accrued liabilities and other
|
$
|
13,737
|
|
Other long-term liabilities
|
52,581
|
|
Total operating lease liabilities
|
$
|
66,318
|
|
|
|
Finance Leases
|
|
Property, plant, and equipment, at cost
|
$
|
3,818
|
|
Accumulated depreciation
|
(415
|
)
|
Property, plant, and equipment, net
|
$
|
3,403
|
|
|
|
Accrued liabilities and other
|
$
|
228
|
|
Other long-term liabilities
|
3,198
|
|
Total finance lease liabilities
|
$
|
3,426
|
|
|
|
Weighted average remaining lease term in years
|
|
Operating leases
|
8.2
|
|
Finance leases
|
31.2
|
|
|
|
Weighted average discount rate
|
|
Operating leases
|
4.7
|
%
|
Finance leases
|
5.8
|
%
|
Maturities of lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
|
Operating Leases
|
|
Finance Leases
|
2020
|
|
$
|
12,485
|
|
|
$
|
308
|
|
2021
|
|
15,147
|
|
|
406
|
|
2022
|
|
12,568
|
|
|
319
|
|
2023
|
|
8,775
|
|
|
234
|
|
2024
|
|
5,549
|
|
|
176
|
|
Thereafter
|
|
27,238
|
|
|
6,630
|
|
Total lease payments
|
|
81,762
|
|
|
8,073
|
|
Less: imputed interest
|
|
(15,444
|
)
|
|
(4,647
|
)
|
Total
|
|
$
|
66,318
|
|
|
$
|
3,426
|
|
Note 8 - Goodwill and Intangible Assets
The changes in the carrying amount of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft
Controls
|
Space and
Defense
Controls
|
Industrial
Systems
|
Total
|
Balance at September 28, 2019
|
$
|
176,939
|
|
$
|
261,684
|
|
$
|
345,617
|
|
$
|
784,240
|
|
Acquisitions
|
—
|
|
—
|
|
20,828
|
|
20,828
|
|
Divestitures
|
—
|
|
—
|
|
(635
|
)
|
(635
|
)
|
Foreign currency translation
|
3,145
|
|
51
|
|
4,973
|
|
8,169
|
|
Balance at December 28, 2019
|
$
|
180,084
|
|
$
|
261,735
|
|
$
|
370,783
|
|
$
|
812,602
|
|
Goodwill in our Space and Defense Controls segment is net of a $4,800 accumulated impairment loss at December 28, 2019.
Goodwill in our Medical Devices reporting unit, included in our Industrial Systems segment, is net of a $38,200 accumulated impairment loss at December 28, 2019.
The components of intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
September 28, 2019
|
|
|
Weighted-
Average
Life (years)
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
Customer-related
|
|
11
|
|
$
|
132,778
|
|
|
$
|
(99,640
|
)
|
|
$
|
132,697
|
|
|
$
|
(100,091
|
)
|
Technology-related
|
|
9
|
|
78,119
|
|
|
(51,428
|
)
|
|
62,015
|
|
|
(35,680
|
)
|
Program-related
|
|
19
|
|
65,165
|
|
|
(38,621
|
)
|
|
69,220
|
|
|
(52,192
|
)
|
Marketing-related
|
|
9
|
|
37,355
|
|
|
(20,334
|
)
|
|
23,139
|
|
|
(19,899
|
)
|
Other
|
|
10
|
|
4,153
|
|
|
(3,764
|
)
|
|
4,061
|
|
|
(3,624
|
)
|
Intangible assets
|
|
12
|
|
$
|
317,570
|
|
|
$
|
(213,787
|
)
|
|
$
|
291,132
|
|
|
$
|
(211,486
|
)
|
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 is as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
December 28, 2019
|
|
December 29, 2018
|
Acquired intangible asset amortization
|
$
|
3,223
|
|
|
$
|
3,683
|
|
Based on acquired intangible assets recorded at December 28, 2019, amortization is estimated to be approximately:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
2021
|
2022
|
2023
|
2024
|
Estimated future amortization of acquired intangible assets
|
$
|
14,300
|
|
$
|
11,800
|
|
$
|
10,200
|
|
$
|
9,300
|
|
$
|
8,800
|
|
Note 9 - Indebtedness
We maintain short-term line of credit facilities with banks throughout the world that are principally demand lines subject to revision by the banks.
Long-term debt consists of:
|
|
|
|
|
|
|
|
|
|
|
|
December 28,
2019
|
|
September 28,
2019
|
U.S. revolving credit facility
|
|
$
|
50,387
|
|
|
$
|
395,712
|
|
SECT revolving credit facility
|
|
7,000
|
|
|
7,000
|
|
Senior notes 4.25%
|
|
500,000
|
|
|
—
|
|
Senior notes 5.25%
|
|
300,000
|
|
|
300,000
|
|
Securitization program
|
|
130,000
|
|
|
130,000
|
|
Obligations under capital leases
|
|
—
|
|
|
679
|
|
Senior debt
|
|
987,387
|
|
|
833,391
|
|
Less deferred debt issuance cost
|
|
(9,814
|
)
|
|
(158
|
)
|
Less current installments
|
|
—
|
|
|
(249
|
)
|
Long-term debt
|
|
$
|
977,573
|
|
|
$
|
832,984
|
|
On October 15, 2019, we amended and restated our U.S. revolving credit facility, which matures on October 15, 2024. 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 $400,000 to the credit facility upon satisfaction of certain conditions. The credit facility is secured by substantially all of our U.S. assets. The loan agreement contains various covenants which, among others, specify interest coverage and maximum leverage. We are in compliance with all covenants.
The SECT has a revolving credit facility with a borrowing capacity of $35,000, maturing on July 26, 2022. Interest is based on LIBOR plus an applicable margin. A commitment fee is also charged based on a percentage of the unused amounts available and is not material.
On December 13, 2019, we completed the sale of $500,000 aggregate principal amount of 4.25% senior notes due December 15, 2027 with interest paid semiannually on June 15 and December 15 of each year, which will commence on June 15, 2020. The senior notes are unsecured obligations, guaranteed on a senior unsecured basis by certain subsidiaries and contain normal incurrence-based covenants and limitations such as the ability to incur additional indebtedness, pay dividends, make other restricted payments and investments, create liens and certain corporate acts such as mergers and consolidations. The aggregate net proceeds of $492,750 were used to repay indebtedness under our U.S. revolving credit facility, thereby increasing the unused portion of our U.S. revolving credit facility.
On December 13, 2019, we issued a notice of redemption to the holders of our 5.25% senior notes due on December 1, 2022, to redeem and retire all of the outstanding notes. The notes were redeemed on January 13, 2020 at 101.313% pursuant to an early redemption right. We redeemed the aggregate principal amount of $300,000 using proceeds drawn from our U.S. revolving credit facility. The associated loss on the redemption includes $3,939 of call premium paid to external bondholders.
The Securitization Program was extended on October 16, 2019 and matures on October 29, 2021 and effectively increases our borrowing capacity by up to $130,000. Under the Securitization Program, we sell certain trade receivables and related rights to an affiliate, which in turn sells an undivided variable percentage ownership interest in the trade receivables to a financial institution, while maintaining a subordinated interest in a portion of the pool of trade receivables. Interest for the Securitization Program is based on 30-day LIBOR plus an applicable margin. A commitment fee is also charged based on a percentage of the unused amounts available and is not material. The agreement governing the Securitization Program contains restrictions and covenants which include limitations on the making of certain restricted payments, creation of certain liens, and certain corporate acts such as mergers, consolidations and sale of substantially all assets. The Securitization Program has a minimum borrowing requirement equal to the lesser of either 80% of our borrowing capacity or 100% of our borrowing base, which is a subset of the trade receivables sold under this agreement. As of December 28, 2019, our minimum borrowing requirement was $104,000.
Note 10 - Other Accrued Liabilities
Other accrued liabilities consists of:
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2019
|
|
September 28, 2019
|
Contract reserves
|
|
$
|
62,221
|
|
|
$
|
60,914
|
|
Employee benefits
|
|
42,540
|
|
|
37,040
|
|
Warranty accrual
|
|
29,369
|
|
|
28,061
|
|
Accrued income taxes
|
|
29,912
|
|
|
26,532
|
|
Other
|
|
47,248
|
|
|
36,178
|
|
Other accrued liabilities
|
|
$
|
211,290
|
|
|
$
|
188,725
|
|
In the ordinary course of business, we warrant our products against defects in design, materials and workmanship typically over periods ranging from twelve to sixty months. We determine warranty reserves needed by product line based on historical experience and current facts and circumstances. Activity in the warranty accrual is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 28,
2019
|
|
December 29,
2018
|
Warranty accrual at beginning of period
|
|
$
|
28,061
|
|
|
$
|
25,537
|
|
Additions from acquisitions
|
|
542
|
|
|
—
|
|
Warranties issued during current period
|
|
3,843
|
|
|
3,365
|
|
Adjustments to pre-existing warranties
|
|
(181
|
)
|
|
(91
|
)
|
Reductions for settling warranties
|
|
(3,172
|
)
|
|
(4,371
|
)
|
Foreign currency translation
|
|
276
|
|
|
(183
|
)
|
Warranty accrual at end of period
|
|
$
|
29,369
|
|
|
$
|
24,257
|
|
Note 11 - 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 December 28, 2019, we had interest rate swaps with notional amounts totaling $45,000. The interest rate swaps effectively convert this amount of variable-rate debt to fixed-rate debt at 3.18%, including the applicable margin of 1.50% as of December 28, 2019. The interest will revert back to variable rates based on LIBOR plus the applicable margin upon the maturity of the interest rate swaps. These interest rate swaps mature at various times through June 23, 2020.
We use foreign currency contracts as cash flow hedges to effectively fix the exchange rates on future payments and revenue. To mitigate exposure in movements between various currencies, including the Philippine peso, the British pound and the Czech koruna, we had outstanding foreign currency forwards with notional amounts of $44,475 at December 28, 2019. These contracts mature at various times through May 28, 2021.
We use forward currency contracts to hedge our net investment in certain foreign subsidiaries. As of December 28, 2019, we had no outstanding net investment hedges.
These interest rate swaps, foreign currency contracts and net investment hedges are recorded in the Consolidated Condensed Balance Sheets at fair value and the related gains or losses are deferred in Shareholders’ Equity as a component of Accumulated Other Comprehensive Income (Loss) (AOCIL). These deferred gains and losses are reclassified into the Consolidated Condensed Statements of Earnings, as necessary, during the periods in which the related payments or receipts affect earnings. However, to the extent the interest rate swaps and foreign currency contracts are not perfectly effective in offsetting the change in the value of the payments and revenue being hedged, the ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was not material in the first three months of 2020 or 2019.
Derivatives not designated as hedging instruments
We also have foreign currency exposure on balances, primarily intercompany, that are denominated in foreign currencies and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in the Consolidated Condensed Statements of Earnings. To minimize foreign currency exposure, we had foreign currency contracts with notional amounts of $85,957 at December 28, 2019. The foreign currency contracts are recorded in the Consolidated Condensed Balance Sheets at fair value and resulting gains or losses are recorded in the Consolidated Condensed Statements of Earnings. We recorded the following gains or losses on foreign currency contracts which are included in other income or expense and generally offset the gains or losses from the foreign currency adjustments on the intercompany balances that are also included in other income or expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Statements of Earnings location
|
|
December 28,
2019
|
|
December 29,
2018
|
Net gain (loss)
|
|
|
|
|
|
Foreign currency contracts
|
Other
|
|
$
|
1,571
|
|
|
$
|
(1,650
|
)
|
Summary of derivatives
The fair value and classification of derivatives is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheets location
|
|
December 28,
2019
|
|
September 28,
2019
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
|
$
|
1,633
|
|
|
$
|
1,060
|
|
Foreign currency contracts
|
Other assets
|
|
246
|
|
|
261
|
|
Interest rate swaps
|
Other current assets
|
|
4
|
|
|
57
|
|
|
Total asset derivatives
|
|
$
|
1,883
|
|
|
$
|
1,378
|
|
Foreign currency contracts
|
Accrued liabilities and other
|
|
$
|
62
|
|
|
$
|
736
|
|
Foreign currency contracts
|
Other long-term liabilities
|
|
—
|
|
|
152
|
|
|
Total liability derivatives
|
|
$
|
62
|
|
|
$
|
888
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
|
$
|
280
|
|
|
$
|
93
|
|
Foreign currency contracts
|
Accrued liabilities and other
|
|
$
|
256
|
|
|
$
|
359
|
|
Note 12 - 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheets location
|
|
December 28,
2019
|
|
September 28,
2019
|
Foreign currency contracts
|
|
Other current assets
|
|
$
|
1,913
|
|
|
$
|
1,153
|
|
Foreign currency contracts
|
|
Other assets
|
|
246
|
|
|
261
|
|
Interest rate swaps
|
|
Other current assets
|
|
4
|
|
|
57
|
|
|
|
Total assets
|
|
$
|
2,163
|
|
|
$
|
1,471
|
|
Foreign currency contracts
|
|
Accrued liabilities and other
|
|
$
|
318
|
|
|
$
|
1,095
|
|
Foreign currency contracts
|
|
Other long-term liabilities
|
|
—
|
|
|
152
|
|
|
|
Total liabilities
|
|
$
|
318
|
|
|
$
|
1,247
|
|
Our only financial instrument for which the carrying value differs from its fair value is long-term debt. At December 28, 2019, the fair value of long-term debt was $998,099 compared to its carrying value of $987,387. 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 13 - Employee Benefit Plans
Net periodic benefit costs for our defined benefit pension plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 28,
2019
|
|
December 29,
2018
|
U.S. Plans
|
|
|
|
|
Service cost
|
|
$
|
5,759
|
|
|
$
|
5,251
|
|
Interest cost
|
|
7,649
|
|
|
9,231
|
|
Expected return on plan assets
|
|
(11,021
|
)
|
|
(11,264
|
)
|
Amortization of prior service cost (credit)
|
|
33
|
|
|
46
|
|
Amortization of actuarial loss
|
|
6,329
|
|
|
6,660
|
|
Pension expense for U.S. defined benefit plans
|
|
$
|
8,749
|
|
|
$
|
9,924
|
|
Non-U.S. Plans
|
|
|
|
|
Service cost
|
|
$
|
1,671
|
|
|
$
|
1,246
|
|
Interest cost
|
|
697
|
|
|
1,101
|
|
Expected return on plan assets
|
|
(1,139
|
)
|
|
(1,298
|
)
|
Amortization of prior service cost (credit)
|
|
—
|
|
|
(5
|
)
|
Amortization of actuarial loss
|
|
1,216
|
|
|
640
|
|
Pension expense for non-U.S. defined benefit plans
|
|
$
|
2,445
|
|
|
$
|
1,684
|
|
Pension expense for our defined contribution plans consists of:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 28,
2019
|
|
December 29,
2018
|
U.S. defined contribution plans
|
|
$
|
5,398
|
|
|
$
|
4,614
|
|
Non-U.S. defined contribution plans
|
|
1,402
|
|
|
1,196
|
|
Total pension expense for defined contribution plans
|
|
$
|
6,800
|
|
|
$
|
5,810
|
|
Note 14 - Restructuring
Restructuring activity for severance and other costs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Space and Defense Controls
|
Industrial Systems
|
Total
|
Balance at September 28, 2019
|
$
|
27
|
|
$
|
4,096
|
|
$
|
4,123
|
|
Adjustments to provision
|
(2
|
)
|
(643
|
)
|
(645
|
)
|
Cash payments - 2018 plan
|
(26
|
)
|
(244
|
)
|
(269
|
)
|
Foreign currency translation
|
—
|
|
79
|
|
79
|
|
Balance at December 28, 2019
|
$
|
—
|
|
$
|
3,288
|
|
$
|
3,288
|
|
As of December 28, 2019, the restructuring accrual consists of $3,288 for the 2018 plan. Restructuring is expected to be paid within a year, except for the non-current portion of the facility closure accrual, which is classified as a long-term liability.
Note 15 - Income Taxes
The effective tax rate for the three months ended December 28, 2019 and December 29, 2018 was 25.2% and 24.3% respectively. The effective tax rate for this period is higher than would be expected by applying the U.S. federal statutory tax rate of 21% to earnings before income taxes primarily due to tax on earnings generated outside of the U.S. The effective tax rate for the three months ended December 28, 2019 includes the impact of the Global Intangible Low-Taxed Income ("GILTI"), which imposes U.S. tax on certain foreign subsidiary income in the year it is earned, and Foreign-Derived Intangible Income ("FDII") deduction. Our accounting policy is to treat tax on GILTI as a current period cost included in tax expense in the year incurred.
Note 16 - Accumulated Other Comprehensive Income (Loss)
The changes in AOCIL, net of tax, by component for the three months ended December 28, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated foreign currency translation (1)
|
|
Accumulated retirement liability
|
|
Accumulated gain (loss) on derivatives
|
|
Total
|
AOCIL at September 28, 2019
|
|
$
|
(129,399
|
)
|
|
$
|
(285,734
|
)
|
|
$
|
(344
|
)
|
|
$
|
(415,477
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
22,026
|
|
|
(1,237
|
)
|
|
1,401
|
|
|
22,190
|
|
Amounts reclassified from AOCIL
|
|
(493
|
)
|
|
5,600
|
|
|
1
|
|
|
5,108
|
|
Other comprehensive income (loss)
|
|
21,533
|
|
|
4,363
|
|
|
1,402
|
|
|
27,298
|
|
AOCIL at December 28, 2019
|
|
$
|
(107,866
|
)
|
|
$
|
(281,371
|
)
|
|
$
|
1,058
|
|
|
$
|
(388,179
|
)
|
|
|
(1)
|
Net gains and losses on net investment hedges are recorded as cumulative translation adjustments in AOCIL to the extent that the instruments are effective in hedging the designated risk.
|
The amounts reclassified from AOCIL into earnings are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Statements of Earnings location
|
|
December 28,
2019
|
|
December 29,
2018
|
Retirement liability:
|
|
|
|
|
|
|
Prior service cost (credit)
|
|
|
|
$
|
(32
|
)
|
|
$
|
(76
|
)
|
Actuarial losses
|
|
|
|
7,394
|
|
|
7,629
|
|
Reclassification from AOCIL into earnings (2)
|
|
7,362
|
|
|
7,553
|
|
Tax effect
|
|
|
|
(1,762
|
)
|
|
(1,848
|
)
|
Net reclassification from AOCIL into earnings
|
|
$
|
5,600
|
|
|
$
|
5,705
|
|
Derivatives:
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Sales
|
|
$
|
2
|
|
|
$
|
(33
|
)
|
Foreign currency contracts
|
|
Cost of sales
|
|
40
|
|
|
660
|
|
Interest rate swaps
|
|
Interest
|
|
(41
|
)
|
|
(400
|
)
|
Reclassification from AOCIL into earnings
|
|
1
|
|
|
227
|
|
Tax effect
|
|
|
|
—
|
|
|
(57
|
)
|
Net reclassification from AOCIL into earnings
|
|
$
|
1
|
|
|
$
|
170
|
|
|
|
(2)
|
The reclassifications are included in the computation of non-service pension expense, which is included in Other on the Consolidated Condensed Statement of Earnings.
|
The amounts deferred in AOCIL are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Net deferral in AOCIL - effective portion
|
|
|
Three Months Ended
|
|
|
December 28,
2019
|
|
December 29,
2018
|
Foreign currency contracts
|
|
$
|
1,794
|
|
|
$
|
899
|
|
Interest rate swaps
|
|
(4
|
)
|
|
(235
|
)
|
Net gain (loss)
|
|
1,790
|
|
|
664
|
|
Tax effect
|
|
(389
|
)
|
|
(170
|
)
|
Net deferral in AOCIL of derivatives
|
|
$
|
1,401
|
|
|
$
|
494
|
|
Note 17 - Stock Employee Compensation Trust and Supplemental Retirement Plan Trust
The Stock Employee Compensation Trust (SECT) assists in administering and provides funding for equity-based compensation plans and benefit programs, including the Moog Inc. Retirement Savings Plan (RSP) and the Employee Stock Purchase Plan (ESPP). The Supplemental Retirement Plan (SERP) Trust provides funding for benefits under the SERP provisions of the Moog Inc. Plan to Equalize Retirement Income and Supplemental Retirement Income. Both the SECT and the SERP Trust hold Moog shares as investments. The shares in the SECT and SERP Trust are not considered outstanding for purposes of calculating earnings per share. However, in accordance with the trust agreements governing the SECT and SERP Trust, the trustees vote all shares held by the SECT and SERP Trust on all matters submitted to shareholders.
Note 18 - Earnings per Share and Dividends
Basic and diluted weighted-average shares outstanding are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 28,
2019
|
|
December 29,
2018
|
Basic weighted-average shares outstanding
|
|
34,510,851
|
|
|
34,815,255
|
|
Dilutive effect of equity-based awards
|
|
276,553
|
|
|
310,574
|
|
Diluted weighted-average shares outstanding
|
|
34,787,404
|
|
|
35,125,829
|
|
For the three months ended December 28, 2019 and December 29, 2018, there were 34,635 and 44,465 common shares from equity-based awards, respectively, excluded from the calculation of diluted earnings per share as they would be anti-dilutive.
We declared and paid cash dividends of $0.25 per share on our Class A and Class B common stock in the first quarters of 2020 and 2019.
Note 19 - Segment Information
Disaggregation of net sales by segment for the three months ended December 28, 2019 and December 29, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Market Type
|
|
December 28,
2019
|
|
December 29,
2018
|
Net sales:
|
|
|
|
|
Military
|
|
$
|
173,694
|
|
|
$
|
146,801
|
|
Commercial
|
|
166,260
|
|
|
157,244
|
|
Aircraft Controls
|
|
339,954
|
|
|
304,045
|
|
Space
|
|
62,740
|
|
|
50,176
|
|
Defense
|
|
123,500
|
|
|
105,892
|
|
Space and Defense Controls
|
|
186,240
|
|
|
156,068
|
|
Energy
|
|
29,939
|
|
|
29,297
|
|
Industrial Automation
|
|
106,831
|
|
|
109,130
|
|
Simulation and Test
|
|
28,468
|
|
|
29,050
|
|
Medical
|
|
63,411
|
|
|
52,086
|
|
Industrial Systems
|
|
228,649
|
|
|
219,563
|
|
Net sales
|
|
$
|
754,843
|
|
|
$
|
679,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Customer Type
|
|
December 28,
2019
|
|
December 29,
2018
|
Net sales:
|
|
|
|
|
Commercial
|
|
$
|
166,260
|
|
|
$
|
157,244
|
|
U.S. Government (including OEM)
|
|
132,209
|
|
|
117,181
|
|
Other
|
|
41,485
|
|
|
29,620
|
|
Aircraft Controls
|
|
339,954
|
|
|
304,045
|
|
Commercial
|
|
34,152
|
|
|
30,053
|
|
U.S. Government (including OEM)
|
|
134,687
|
|
|
114,465
|
|
Other
|
|
17,401
|
|
|
11,550
|
|
Space and Defense Controls
|
|
186,240
|
|
|
156,068
|
|
Commercial
|
|
220,519
|
|
|
210,568
|
|
U.S. Government (including OEM)
|
|
6,421
|
|
|
6,442
|
|
Other
|
|
1,709
|
|
|
2,553
|
|
Industrial Systems
|
|
228,649
|
|
|
219,563
|
|
Commercial
|
|
420,931
|
|
|
397,865
|
|
U.S. Government (including OEM)
|
|
273,317
|
|
|
238,088
|
|
Other
|
|
60,595
|
|
|
43,723
|
|
Net sales
|
|
$
|
754,843
|
|
|
$
|
679,676
|
|
Operating profit is net sales less cost of sales and other operating expenses, excluding interest expense, equity-based compensation expense and other corporate expenses. Cost of sales and other operating expenses are directly identifiable to the respective segment or allocated on the basis of sales, number of employees or profit. Operating profit by segment for the three months ended December 28, 2019 and December 29, 2018 and a reconciliation of segment operating profit to earnings before income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 28,
2019
|
|
December 29,
2018
|
Operating profit:
|
|
|
|
|
Aircraft Controls
|
|
$
|
38,592
|
|
|
$
|
33,199
|
|
Space and Defense Controls
|
|
25,282
|
|
|
18,473
|
|
Industrial Systems
|
|
26,799
|
|
|
27,705
|
|
Total operating profit
|
|
90,673
|
|
|
79,377
|
|
Deductions from operating profit:
|
|
|
|
|
Interest expense
|
|
10,232
|
|
|
9,682
|
|
Equity-based compensation expense
|
|
2,381
|
|
|
2,008
|
|
Non-service pension expense
|
|
3,601
|
|
|
4,894
|
|
Corporate and other expenses, net
|
|
7,555
|
|
|
6,310
|
|
Earnings before income taxes
|
|
$
|
66,904
|
|
|
$
|
56,483
|
|
Note 20 - Related Party Transactions
John Scannell, Moog's Chairman of the Board and Director and Chief Executive Officer, is a member of the Board of Directors of M&T Bank Corporation and M&T Bank. We currently engage with M&T Bank in the ordinary course of business for various financing activities, all of which were initiated prior to the election of Mr. Scannell to the Board. M&T Bank provides credit extension for routine purchases, which for the three months ended December 28, 2019 and December 29, 2018 totaled $4,574 and $5,289, respectively. At December 28, 2019, we held a $15,000 interest rate swap with M&T Bank and outstanding leases with a total original cost of $25,526. M&T Bank also maintains an interest of approximately 12% in our U.S. revolving credit facility. Further details of the U.S. revolving credit facility can be found in Note 9, Indebtedness.
Note 21 - Commitments and Contingencies
From time to time, we are involved in legal proceedings. We are not a party to any pending legal proceedings which management believes will result in a material adverse effect on our financial condition, results of operations or cash flows.
We are engaged in administrative proceedings with governmental agencies and legal proceedings with governmental agencies and other third parties in the normal course of our business, including litigation under Superfund laws, regarding environmental matters. We believe that adequate reserves have been established for our share of the estimated cost for all currently pending environmental administrative or legal proceedings and do not expect that these environmental matters will have a material adverse effect on our financial condition, results of operations or cash flows.
In the ordinary course of business we could be subject to ongoing claims or disputes from our customers, the ultimate settlement of which could have a material adverse impact on our consolidated results of operations. While the receivables and any loss provisions recorded to date reflect management's best estimate of the projected costs to complete a given project, there may still be significant effort required to complete the ultimate deliverable. Future variability in internal cost as well as future profitability is dependent upon a number of factors including deliveries, performance and government budgetary pressures. The inability to achieve a satisfactory contractual solution, further unplanned delays, additional developmental cost growth or variations in any of the estimates used in the existing contract analysis could lead to further loss provisions. Additional losses could have a material adverse impact on our financial condition, results of operations or cash flows in the period in which the loss may be recognized.
We 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 $25,510 at September 28, 2019 and $26,594 at September 29, 2018. As of September 28, 2019, future minimum rental payments required under non-cancellable operating leases are $20,993 in 2020, $19,118 in 2021, $15,636 in 2022, $11,344 in 2023, $7,151 in 2024 and $41,670 thereafter.
We are contingently liable for $35,728 of standby letters of credit issued to third parties on our behalf at December 28, 2019.
Note 22 - Subsequent Event
On January 23, 2020, the Board of Directors declared a $0.25 per share quarterly dividend payable on issued and outstanding shares of our Class A and Class B common stock on March 2, 2020 to shareholders of record at the close of business on February 14, 2020.