Moog (MOG-A) risk factors, FY2024 10-K

Other

1. 01The CIST, led by our CISO, is responsible for leading enterprise-wide cybersecurity strategy, policy, standards, architecture and processes that protect, detect and respond in the defense of our data and enterprise computing systems and networks
2. 02Total 4,124,000 1,479,000 5,603,000
3. 03Our corporate headquarters is located in East Aurora, New York
4. 04Total 130,237 $ 180.03 — 2,172,081
5. 05The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes appearing elsewhere in this report
6. 06We are a worldwide designer, manufacturer and systems integrator of high-performance precision motion and fluid controls and control systems for a broad range of applications in aerospace and defense and industrial markets
7. 07We operate under four segments, Space and Defense, Military Aircraft, Commercial Aircraft and Industrial. Our principal manufacturing facilities are located in the United States, Philippines, United Kingdom, Germany, Italy, Costa Rica, China, Netherlands, Japan, Canada, India and Lithuania
8. 08Acquisitions, Divestitures and Assets Held for Sale
9. 09Equity Method and Other Investments
10. 10Suffolk Technologies Fund 1, L.P., is a limited partnership included in our Industrial segment that invests in startups to transform the construction, real estate and property maintenance industries in the U.S. We have a remaining on-call capital commitment of up to $6 million
11. 11CRITICAL ACCOUNTING POLICIES AND ESTIMATES
12. 12Revenue Recognition on Over-Time Contracts
13. 13Reserves for Inventory Valuation
14. 14Reviews for Impairment of Goodwill
15. 15For our annual test of goodwill for impairment in 2024, we performed a qualitative assessment for each of our four reporting units
16. 16Reviews for Impairment of Long-Lived Assets
17. 17An estimated annual effective tax rate is applied to our quarterly ordinary operating results. For certain significant, unusual or infrequent events, we recognize the tax impact in the quarter in which it occurs
18. 18CONSOLIDATED RESULTS OF OPERATIONS
19. 19Gross margin increased in 2024 compared to 2023, driven by improved performance on our space vehicle development programs, a $14 million benefit from the Employee Retention Credit associated with the CARES Act and the results of our pricing and simplification initiatives across all of our segments
20. 20Interest expense decreased in 2024 compared to 2023 due to capitalizing $10 million of interest associated with certain major long term capital projects in 2023 and 2024. Mostly offsetting the reduction was the impact of higher rates on outstanding debt balances, as well as higher debt balances
21. 21The effective tax rate was higher in 2024 compared to 2023, as the prior year included higher amounts of research and development tax credit benefits
22. 22SEGMENT RESULTS OF OPERATIONS
23. 23Military Aircraft net sales increased in 2024 compared to 2023, driven by growth on development and production aircraft. Sales increased $88 million in military OEM programs, driven by the ramp-up of activity on the FLRAA program and other OEM production programs
24. 24Operating margin 9.1 % 10.4 % 8.0 %
25. 252025 2024 $ Variance % Variance
26. 26(dollars in millions) 2024 2023 2022 $ Variance % Variance $ Variance % Variance
27. 27In the normal course of business, we are exposed to interest rate risk from our long-term debt. To manage these risks, we may enter into derivative instruments such as interest rate swaps which are used to adjust the proportion of total debt that is subject to variable and fixed interest rates
28. 28The SECT has a revolving credit facility with a borrowing capacity of $35 million, maturing on October 26, 2025. Interest was 7.24% as of September 28, 2024 and is based on SOFR plus a margin of 2.23%
29. 29At September 28, 2024, we had $755 million of unused capacity, including $721 million from the U.S. revolving credit facility after considering standby letters of credit and other limitations
30. 30We believe we can create long term value for our shareholders by continuing to invest in our business through both capital expenditures as well as investments in new market opportunities. We will also continue exploring opportunities to make strategic acquisitions and return capital to shareholders
31. 31Right-of-use lease liabilities - See Note 7 - Leases, for details on obligations and timing of expected future payments, including a five-year maturity schedule
32. 32We operate within the aerospace and defense and industrial markets
33. 33Within aerospace and defense, we serve three end markets: defense, commercial aircraft and space
34. 34The commercial aftermarket is driven by usage and the age of the existing aircraft fleet for passenger and cargo aircraft, which drives the need for maintenance and repairs. We have seen higher demand levels for our maintenance services and spare parts due to the increased number of flight hours across existing fleets
35. 35The industrial market we serve with our industrial automation products is influenced by several factors including capital investment levels, the pace of product and technology innovation, economic conditions and cost-reduction efforts. Our industrial automation customers mainly serve the automotive market
36. 36RECENT ACCOUNTING PRONOUNCEMENTS
37. 37Item 7A. Quantitative and Qualitative Disclosures about Market Risk
38. 38Net earnings $ 207,220 $ 170,998 $ 155,177
39. 39Note 1 - Summary of Significant Accounting Policies
40. 40Fiscal Year: Our fiscal year ends on the Saturday that is closest to September 30. The consolidated financial statements include 52 weeks for the years ended September 28, 2024, September 30, 2023 and October 1, 2022
41. 41Foreign 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
42. 42Revenue Recognition: We recognize revenue from contracts with customers using an over-time, cost-to-cost method of accounting or at the point in time that control transfers to the customer. For additional discussion on revenue recognition, see Note 2 - Revenue from Contracts with Customers
43. 43Selling, General and Administrative Expenses: Selling, general and administrative expenses are expensed as incurred. Such expenses include, but are not limited to advertising, bid and proposal, consulting, depreciation, employee payroll and related benefits, legal and professional costs
44. 44Restricted Cash: Restricted cash principally represents funds held to satisfy supplemental retirement obligations
45. 45Inventories: Inventories are stated at the lower of cost or net realizable value with cost determined primarily on the first-in, first-out (FIFO) method of valuation
46. 46Acquired Intangible Assets: Acquired identifiable intangible assets are recorded at cost and are amortized over their estimated useful lives
47. 47Product 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
48. 48Employee Benefit Plans: The measurement date for plan assets and benefit obligations is the month end closest to our fiscal year end
49. 49Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
50. 50Income Taxes (Topic 740): Improvements to Income Tax Disclosures
51. 51Note 2 - Revenue from Contracts with Customers
52. 52Contract Assets and Liabilities
53. 53For contracts recognized using the cost-to-cost method, the amount of unbilled receivables or contract advances and progress billings is determined for each contract to determine the contract asset or contract liability position at the end of each reporting period
54. 54Net contract assets $ 409,282 $ 328,624
55. 55Remaining Performance Obligations
56. 56Receivables, net $ 419,971 $ 434,723
57. 57The amount sold to the Purchasers was $125,000 at September 28, 2024, which was derecognized from the Consolidated Balance Sheets. As collateral against sold receivables, the Receivables Subsidiary maintains a certain level of unsold receivables, which was $578,124 at September 28, 2024
58. 58There 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
59. 59There 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 September 28, 2024 and September 30, 2023
60. 60Note 6 - Property, Plant and Equipment
61. 61Property, plant and equipment, net $ 929,357 $ 814,696
62. 62Operating lease cost is included in Cost of sales and Selling, general and administrative on the Consolidated Statements of Earnings. Finance lease cost is included in Cost of sales, Selling, general and administrative and Interest on the Consolidated Statements of Earnings
63. 63Operating lease cost $ 31,065 $ 30,031 $ 28,670
64. 64Total finance lease cost $ 10,290 $ 8,274 $ 3,941
65. 65Financing cash flow for finance leases 6,496 4,620 2,524
66. 66September 28, 2024 September 30, 2023
67. 67Total operating lease liabilities $ 64,352 $ 67,681
68. 68Total finance lease liabilities $ 109,344 $ 76,846
69. 69Finance leases 6.4 % 6.5 %
70. 70The operating lease ROU and finance lease disclosures above reflect write downs of $2,849 and $2,086 for the years 2024 and 2023, respectively as a result of restructuring actions taken to simplify our business operations through facility closures
71. 71Note 8 - Goodwill and Intangible Assets
72. 72Goodwill in our Space and Defense segment is net of a $4,800 accumulated impairment loss at September 28, 2024 and September 30, 2023. Goodwill in our Medical Devices reporting unit, included in our Industrial segment, is net of a $38,200 accumulated impairment loss at September 28, 2024 and September 30, 2023
73. 73Intangible assets 12 $ 261,780 $ (198,301) $ 263,639 $ (192,002)
74. 74Acquired intangible asset amortization $ 10,131 $ 11,514 $ 13,106
75. 75Note 9 - Equity Method and Other Investments
76. 76Losses from equity method investments and joint ventures were $226, $62 and $724 in 2024, 2023 and 2022, respectively and are included in Other in the Consolidated Statements of Earnings
77. 77Suffolk Technologies Fund 1, L.P., is a limited partnership included in our Industrial segment that invests in startups to transform the construction, real estate and property maintenance industries in the U.S. We have a remaining on-call capital commitment of up to $5,663
78. 78We maintain short-term line of credit facilities with banks throughout the world that are principally demand lines subject to revision by the banks
79. 79Long-term debt $ 874,139 $ 863,092
80. 80Note 11 - Other Accrued Liabilities
81. 81Other accrued liabilities $ 305,180 $ 211,769
82. 82Note 12 - Derivative Financial Instruments
83. 83Derivatives designated as hedging instruments
84. 84We use forward currency contracts to hedge our net investment in certain foreign subsidiaries. As of September 28, 2024, we had no outstanding net investment hedges
85. 85Derivatives not designated as hedging instruments
86. 86Foreign currency contracts Accrued liabilities and other $ — $ 581
87. 87Our 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
88. 88Total liabilities $ 2,867 $ 3,994
89. 89Balance at end of year $ 2,839 $ 3,089
90. 90Balance at September 28, 2024 $ 1,400 $ 624 $ 760 $ 9,394 $ 12,178
91. 91We maintain multiple employee benefit plans, covering employees at certain locations
92. 92Total expense for defined contribution plans $ 61,449 $ 54,518 $ 51,707
93. 93Projected benefit obligation at measurement date $ 575,426 $ 494,876 $ 151,637 $ 130,174
94. 94Funded status and amount recognized in assets and liabilities $ (102,793) $ (102,432) $ (37,861) $ (32,990)
95. 95Amount recognized in assets and liabilities $ (102,793) $ (102,432) $ (37,861) $ (32,990)
96. 96Amount recognized in AOCIL, before taxes $ 128,544 $ 145,536 $ 18,962 $ 11,463
97. 97Our funding policy is to contribute at least the amount required by law in the respective countries
98. 98Fair value of plan assets 50,619 13,107
99. 99Fair value of plan assets 523,253 433,960
100. 1002024 2023 2022 2024 2023 2022
101. 101Rate of compensation increase 3.8 % 3.8 % 3.5 % 3.2 % 3.2 % 3.0 %
102. 102Rate of compensation increase 3.2 % 3.8 % 3.8 % 2.4 % 3.2 % 3.1 %
103. 103Shares of registered investment companies: Consists of both equity and fixed income mutual funds. Valued at quoted market prices that represent the net asset value ("NAV") of shares held by the plan at year end
104. 104Investment in insurance contracts: Valued at contract value, which is the fair value of the underlying investment of the insurance company
105. 105Non-U.S. Plans, September 28, 2024 Level 1 Level 2 Level 3 Total
106. 106U.S. Plans, September 30, 2023 Level 1 Level 2 Level 3 Total
107. 107Non-U.S. Plans, September 30, 2023 Level 1 Level 2 Level 3 Total
108. 108Total investments at fair value $ 7,672 $ 87,894 $ 1,618 $ 97,184
109. 109Balance at September 28, 2024 $ 30,598
110. 110Total $ 122,933 $ 105,396 $ 3,779
111. 111$ 23,688 $ 38,427 $ 23,856 $ 4,069 $ 4,181 $ 7,475
112. 112We presently anticipate contributing approximately $6,200 to the SERP Trust for the non-qualified plan and $8,300 to the non-U.S. plans in 2025
113. 113Amount recognized in AOCIL, before taxes $ 3,717 $ 5,252
114. 114Net periodic postretirement benefit income $ (1,706) $ (2,139) $ (1,151)
115. 115Federal statutory income tax rate 21.0 % 21.0 % 21.0 %
116. 116Effective income tax rate 22.6 % 20.9 % 23.6 %
117. 117Total current 92,328 80,585 36,063
118. 118Income taxes $ 60,593 $ 45,054 $ 47,802
119. 119Total net deferred tax assets $ 189,918 $ 163,645
120. 120Deferred tax assets and liabilities are reported in separate captions on the Consolidated Balance Sheets
121. 121Note 17 - Earnings per Share
122. 122Note 18 - Shareholders’ Equity
123. 123Class A and B shares reserved for issuance 11,210,367
124. 124Note 19 - Equity-Based Compensation
125. 125We have an Employee Stock Purchase Plan ("ESPP") that allows for qualified employees (as defined in the plan) to purchase our common stock at a price equal to 85% of the fair market value at the lower of the beginning or the end of the semi-annual offering period
126. 126As of September 28, 2024, total unvested compensation expense associated with nonvested TVAs amounted to $4,865 and will be recognized over a weighted-average period of two years
127. 127Employee Stock Purchase Plan
128. 128Stock Appreciation Rights
129. 129Exercisable at September 28, 2024 523,336 $ 77.94 3.98 years $ 63,072
130. 130Note 20 - Stock Employee Compensation Trust and Supplemental Retirement Plan Trust
131. 131Note 21 - Accumulated Other Comprehensive Income (Loss)
132. 132Statements of Earnings location 2024 2023
133. 133Net reclassification from AOCIL into earnings $ 8,126 $ 18,342
134. 134Reclassification from AOCIL into earnings for the Retirement liability are included in the computation of non-service pension expense, which is included in Other and Pension settlement on the Consolidated Statements of Earnings
135. 135Net deferral in AOCIL of retirement liability $ (2,752) $ (6,716)
136. 136Our large commercial production programs include the Boeing 787 and the Airbus A350 programs. Our additional production programs include the Boeing 737 MAX, the Airbus A320 and A330, the Embraer E195-E2 and various Gulfstream business jets
137. 137Market Type 2024 2023 2022
138. 138Customer Type 2024 2023 2022
139. 139Revenue Recognition Method 2024 2023 2022
140. 140Net sales $ 3,609,160 $ 3,319,122 $ 3,035,783
141. 141Total operating profit 395,341 342,917 282,848
142. 142Earnings before income taxes $ 267,813 $ 216,052 $ 202,979
143. 143Total depreciation and amortization $ 93,106 $ 90,233 $ 88,389
144. 144Total assets $ 4,093,626 $ 3,808,036 $ 3,431,840
145. 145Total capital expenditures $ 156,018 $ 173,286 $ 139,431
146. 146Note 23 - Related Party Transactions
147. 147From 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
148. 148On October 31, 2024, the Board of Directors declared a $0.28 per share quarterly dividend payable on issued and outstanding shares of our Class A and Class B common stock on December 6, 2024 to shareholders of record at the close of business on November 21, 2024
149. 149Opinion on the Financial Statements
150. 150Description of the Matter
151. 151We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s review of estimated contract costs at completion, including the determination of the underlying significant assumptions described above
152. 152MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
153. 153Opinion on Internal Control over Financial Reporting
154. 154We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects
155. 155Definition and Limitations of Internal Control Over Financial Reporting
156. 156Disclosure Controls and Procedures
157. 157Changes in Internal Control over Financial Reporting
158. 158During the quarter ended September 28, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K
159. 159Directors, Executive Officers and Corporate Governance
160. 160We have adopted a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer and Controller. The code of ethics is available upon request without charge by contacting our Chief Financial Officer at 716-652-2000
161. 161Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
162. 162Certain Relationships and Related Transactions, and Director Independence
163. 163Exhibits and Financial Statement Schedules
164. 164Valuation and Qualifying Accounts
165. 165Credit and Securitization Agreements
166. 166Deferred tax valuation allowance 6,430 4,693 218 — 10,905