MOOG Inc.
07/25/2025 | Press release | Distributed by Public on 07/25/2025 09:39
Quarterly Report for Quarter Ending June 28, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report filed on Form 10-K for the fiscal year ended September 28, 2024. In addition, the following should be read in conjunction with our Consolidated Financial Statements and Notes to Consolidated Condensed Financial Statements contained herein. All references to years in this Management's Discussion and Analysis of Financial Condition and Results of Operations are to fiscal years. Amounts may differ due to rounding as dollar and percentage variances are computed based on reported values.
OVERVIEW
We 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.
Within the aerospace and defense market, our products and systems include:
•Defense market - primary and secondary flight controls and components for military aircraft, turreted weapon systems, tactical and strategic missile steering controls and various defense product components.
•Commercial aircraft market - primary and secondary flight controls and components for commercial aircraft.
•Space market - satellite avionics, positioning controls and components, launcher thrust vector controls and components, as well as integrated space vehicles.
In the industrial market, our products are used in a wide range of applications including:
•Industrial market - various components and systems used in various applications including heavy industrial machinery used for metal forming and pressing, flight simulation motion control systems, energy exploration and generation products, material and automotive structural and fatigue testing systems, high efficiency pumps used in data center cooling applications, as well as for the electrification of construction vehicles.
•Medical market - components and pumps for enteral clinical nutrition and infusion therapy, CT scan medical equipment, ultrasonic sensors and surgical handpieces and sleep apnea equipment.
We 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.
Under ASC 606, 63% of revenue was recognized over time for the three months ended June 28, 2025, using the cost-to-cost method of accounting. The over-time method of revenue recognition is predominantly used in Space and Defense, Military Aircraft and Commercial Aircraft. 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. 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.
For the three months ended June 28, 2025, 37% of revenue was recognized at the point in time control transferred to the customer. This method of revenue recognition is used most frequently in Industrial. 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. When control has transferred to the customer, profit is generated as cost of sales is recorded and as revenue is recognized.
Our products and technologies affect the lives of millions of people around the world. Our solutions are critical to preserving national security, ensuring safe air transportation, reducing factory emissions and enhancing patient's lives all while driving innovation. Our engineers collaboratively design and manufacture the most advanced motion control products, to the highest quality standards, for use in demanding applications. By capitalizing on these core foundational strengths, we believe we have achieved a leadership position in the high performance precision controls market and are "Shaping the way our world moves™."
By leveraging our engineering heritage and by focusing on customer intimacy to solve our customers' most demanding technical problems, we have been able to expand our control product franchise to multiple markets; organically growing from a high-performance components manufacturer to a high-performance systems designer, manufacturer and integrator. In addition, we continue to expand our content positions on our current platforms, seeking to be the leading supplier in the niche markets we serve. We also look for innovation in all aspects of our business, employing new technologies to improve productivity, while focusing on talent development to strengthen our employee operational performance.
Our fundamental long-term strategies that will help us achieve our financial objectives center around pricing and simplification initiatives. Our pricing initiatives focus on receiving recognition for the value we deliver to our customers across all of our markets. Our simplification initiatives center around 80/20 methodologies and include:
•shaping our product and business portfolio to invest in growth areas and to divest those that no longer fit,
•rationalizing our footprint to align with current and future business levels,
•focusing our factories so that individual manufacturing sites meet the unique needs of a specific market, and
•investing in automation and technologies to improve business operations.
We focus on improving shareholder value through strategic revenue growth, both organic and acquired, improving operating efficiencies and utilizing low cost manufacturing facilities without compromising quality. Over time, we strive to have a balanced approach to capital allocation in order to maximize shareholder returns. Investing for organic growth through increased capital expenditures is a key element of our capital allocation strategy. Also, we have repurchased shares opportunistically, acquired businesses and remain committed to our dividend policy.
Acquisitions, Divestitures an Assets Held for Sale
See Note 3 - Assets, Divestitures and Assets Held for Sale in the Consolidated Financial Statements included in Item 1, Financial Statements of this report for details.
CRITICAL ACCOUNTING POLICIES
On a regular basis, we evaluate the critical accounting policies used to prepare our consolidated financial statements, including revenue recognition on long-term contracts, contract reserves, reserves for inventory valuation, reviews for impairment of goodwill, reviews for impairment of long-lived assets, pension assumptions and income taxes.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 - Basis of Presentation in the Consolidated Condensed Financial Statements included in Item 1, Financial Statements of this report for further information regarding Financial Accounting Standards Board issued ASUs.
| CONSOLIDATED RESULTS OF OPERATIONS | |||||||||||||||||||||||||||||
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Three Months Ended
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Nine Months Ended | ||||||||||||||||||||||||||||
| (In millions, except per share data) | June 28, 2025 | June 29, 2024 | $ Variance | % Variance | June 28, 2025 | June 29, 2024 | $ Variance | % Variance | |||||||||||||||||||||
| Net sales | $ | 971 | $ | 905 | $ | 67 | 7 | % | $ | 2,817 | $ | 2,692 | $ | 125 | 5 | % | |||||||||||||
| Gross margin | 27.4 | % | 27.8 | % | 27.1 | % | 27.9 | % | |||||||||||||||||||||
| Research and development expenses | 22 | 28 | (6) | (21 | %) | 70 | 87 | (17) | (19 | %) | |||||||||||||||||||
| Selling, general and administrative expenses as a percentage of sales | 14.3 | % | 14.0 | % | 14.2 | % | 13.7 | % | |||||||||||||||||||||
| Interest expense | 18 | 18 | - | (2 | %) | 54 | 53 | 1 | 3 | % | |||||||||||||||||||
| Asset impairment | 3 | - | 3 | N/M | 3 | 7 | (4) | N/M | |||||||||||||||||||||
| Restructuring expense | 3 | 4 | (1) | N/M | 9 | 13 | (4) | N/M | |||||||||||||||||||||
| Other | 4 | 4 | (1) | (16 | %) | 8 | 10 | (2) | (21 | %) | |||||||||||||||||||
| Effective tax rate | 23.4 | % | 20.5 | % | 23.4 | % | 22.7 | % | |||||||||||||||||||||
| Net earnings | $ | 60 | $ | 56 | $ | 3 | 6 | % | $ | 169 | $ | 164 | $ | 4 | 3 | % | |||||||||||||
| Diluted earnings per share | $ | 1.87 | $ | 1.74 | $ | 0.13 | 7 | % | $ | 5.25 | $ | 5.08 | $ | 0.17 | 3 | % | |||||||||||||
| Twelve-month backlog | $ | 2,650 | $ | 2,450 | $ | 200 | 8 | % | |||||||||||||||||||||
Net sales increased in the third quarter and in the first three quarters of 2025 compared to the third quarter and the first three quarters of 2024, driven by demand in Commercial Aircraft and by defense market growth in Space and Defense and Military Aircraft. These increases were partially offset by a decrease in Industrial, driven by the lost sales associated with our divestitures and simplification actions.
Gross margin decreased in the third quarter of 2025 compared to the third quarter of 2024, driven by inventory write-downs of $6 million, primarily within Industrial and Military Aircraft. Gross margin decreased in the first three quarters of 2025 compared to the first three quarters of 2024. This was driven by a one-time benefit of $14 million from the Employee Retention Credit associated with the CARES Act in the first three quarters of 2024, inventory write-downs of $8 million within Industrial and Military Aircraft in the first three quarters of 2025 and an $8 million out-of-period adjustment related to warranty expense in Commercial Aircraft in the first quarter of 2025.
Research and development expenses decreased in the third quarter and in the first three quarters of 2025 compared to the third quarter and the first three quarters of 2024 due to lower level of activity, primarily in Industrial.
Asset impairment and restructuring changes in the third quarter and the first three quarters of 2025 included an impairment in Industrial, charges for various simplification activities, primarily within Industrial, and charges associated with the termination of a product development effort in Military Aircraft. Asset impairment and restructuring changes in the third quarter and the first three quarters of 2024 included charges related to simplification initiatives, primarily in Industrial and Military Aircraft, and an impairment in Military Aircraft.
The effective tax rates in the third quarter of 2025 and in the first three quarters of 2025 were higher compared to the third quarter of 2024 and the first three quarters of 2024. The third quarter of 2024 and first three quarters of 2024 included higher benefits of favorable provision to return adjustments for tax credits associated with the respective prior year's tax returns.
The twelve-month backlog increased in the third quarter of 2025 compared with the third quarter of 2024. Within Space and Defense, we had higher orders across the entire portfolio of the business, reflecting strong business capture and broad-based growth in both Space and Defense. The twelve-month backlog in Military Aircraft increased due to the timing of orders across legacy and new OEM programs. The twelve-month backlog in Industrial increased due to changes in foreign currency exchange rates, partially offset by divestitures. Commercial Aircraft twelve-month backlog decreased in the third quarter of 2025. The timing of commercial OEM orders decreased backlog, partially offset by orders associated with increased amounts of long-term contracts in commercial aftermarket.
SEGMENT RESULTS OF OPERATIONS
Operating profit, as presented below, is net sales less cost of sales and other operating expenses, excluding interest expense, equity-based compensation expense, non-service pension 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, headcount or profit. Operating profit is reconciled to earnings before income taxes in Note 20 - Segments in the Notes to Consolidated Condensed Financial Statements included in this report.
Space and Defense
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| (dollars in millions) | June 28, 2025 | June 29, 2024 | $ Variance | % Variance | June 28, 2025 | June 29, 2024 | $ Variance | % Variance | |||||||||||||||||||||
| Net sales | $ | 288 | $ | 258 | $ | 29 | 11 | % | $ | 806 | $ | 755 | $ | 50 | 7 | % | |||||||||||||
| Operating profit | $ | 38 | $ | 33 | $ | 6 | 17 | % | $ | 100 | $ | 100 | $ | (1) | (1 | %) | |||||||||||||
| Operating margin | 13.3 | % | 12.6 | % | 12.4 | % | 13.3 | % | |||||||||||||||||||||
Space and Defense net sales increased in the third quarter and in the first three quarters of 2025 compared to the third quarter and first three quarters of 2024, reflecting broad-based defense demand. Higher demand for components for satellites and missiles was partially offset by timing of activity on spacecraft vehicles and turrets.
Operating margin increased in the third quarter of 2025 compared to the third quarter of 2024, driven by strong sales growth and a favorable sales mix. This was partially offset by investments we made for product development and business capture, as we continue to see large opportunities across both land and space applications.
Operating margin decreased in the first three quarters of 2025 compared to the first three quarters of 2024. In the first three quarters of 2025, we incurred $4 million of restructuring and other charges. Excluding these charges, operating margin was 12.9%. The resulting decrease in operating margin was due to the one-time benefit from the Employee Retention Credit associated with the CARES Act in the second quarter of 2024, partially offset by strong sales growth and a favorable sales mix through the first three quarters of 2025.
Military Aircraft
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| (dollars in millions) | June 28, 2025 | June 29, 2024 | $ Variance | % Variance | June 28, 2025 | June 29, 2024 | $ Variance | % Variance | |||||||||||||||||||||
| Net sales | $ | 225 | $ | 207 | $ | 17 | 8 | % | $ | 652 | $ | 596 | $ | 56 | 9 | % | |||||||||||||
| Operating profit | $ | 18 | $ | 24 | $ | (6) | (25 | %) | $ | 65 | $ | 60 | $ | 4 | 7 | % | |||||||||||||
| Operating margin | 8.0 | % | 11.6 | % | 9.9 | % | 10.1 | % | |||||||||||||||||||||
Military Aircraft net sales increased in the third quarter and in the first three quarters of 2025 compared to the third quarter and first three quarters of 2024.
In the third quarter of 2025 and in the first three quarters of 2025, sales increased in military OEM programs $16 million and $53 million, respectively, driven by the ramp-up of activity on the FLRAA program and our new production work.
Operating margin decreased in the third quarter of 2025 compared to the third quarter of 2024. In the third quarter of 2025, we incurred an $8 million charge associated with the termination of a product development effort. Excluding this charge, operating margin was 11.6%. The resulting decrease in operating margin was due to investing more in research and development, as well as an unfavorable sales mix.
Operating margin decreased in the first three quarters of 2025 compared to the first three quarters of 2024. In the first three quarters of 2025, we incurred an $8 million charge associated with the termination of a product development effort in the third quarter and $3 million of other charges in previous quarters. In the first three quarters of 2024, we incurred $6 million of impairment charges and $5 million of restructuring and other charges. Excluding these charges, in the first three quarters of 2025 and first three quarters of 2024, operating margins were 11.5% and 12.0%, respectively. The resulting decrease in operating margin was due to the one-time benefit from the Employee Retention Credit in the second quarter of 2024 and the absence of the prior year's gain from the sale of a mature product line.
Commercial Aircraft
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| (dollars in millions) | June 28, 2025 | June 29, 2024 | $ Variance | % Variance | June 28, 2025 | June 29, 2024 | $ Variance | % Variance | |||||||||||||||||||||
| Net sales | $ | 219 | $ | 189 | $ | 30 | 16 | % | $ | 657 | $ | 591 | $ | 66 | 11 | % | |||||||||||||
| Operating profit | $ | 33 | $ | 24 | $ | 8 | 34 | % | $ | 82 | $ | 70 | $ | 13 | 18 | % | |||||||||||||
| Operating margin | 14.9 | % | 12.9 | % | 12.5 | % | 11.8 | % | |||||||||||||||||||||
Commercial Aircraft net sales increased in the third quarter and in the first three quarters of 2025 compared to the third quarter and first three quarters of 2024.
In the third quarter of 2025, commercial aftermarket sales increased $29 million, driven largely by strong fleet utilization on the 787 and A350 programs. Commercial OEM sales increased $1 million, as the sale of intellectual property and inventory associated with a non-core product line was partially offset by decreased sales related to production delays certain customers are experiencing.
In the first three quarters of 2025, commercial aftermarket sales increased $58 million, and commercial OEM sales increased $8 million, both due largely to the same factors as the third quarter.
Operating margin increased in the third quarter of 2025 compared to the third quarter of 2024, driven by the sale of a non-core product line and record-level aftermarket sales. These factors were partially offset by pressure associated with tariffs and an unfavorable sales mix within our OEM business related to production delays certain customers are experiencing. Operating margin increased in the first three quarters of 2025 compared to the first three quarters of 2024, driven by the same factors as the third quarter, partially offset by an $8 million out-of-period adjustment related to warranty expense in the first quarter.
Industrial
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| (dollars in millions) | June 28, 2025 | June 29, 2024 | $ Variance | % Variance | June 28, 2025 | June 29, 2024 | $ Variance | % Variance | |||||||||||||||||||||
| Net sales | $ | 240 | $ | 250 | $ | (10) | (4 | %) | $ | 702 | $ | 749 | $ | (47) | (6 | %) | |||||||||||||
| Operating profit | $ | 23 | $ | 24 | $ | (1) | (6 | %) | $ | 76 | $ | 82 | $ | (6) | (7 | %) | |||||||||||||
| Operating margin | 9.6 | % | 9.8 | % | 10.8 | % | 10.9 | % | |||||||||||||||||||||
Industrial net sales decreased in the third quarter of 2025 compared to the third quarter of 2024, driven by the lost sales associated with our divestitures we completed at the beginning of this fiscal year.
In the first three quarters of 2025 compared to the first three quarters of 2024, divestitures as well as purposeful product and customer exits reduced sales, primarily within industrial automation, which decreased $44 million. In addition, lower sales for simulation and test products, following a prior year record, was mostly offset by market share gains for medical devices.
Operating margin decreased in the third quarter of 2025 compared to the third quarter of 2024. The third quarter of 2025 included inventory write-downs of $4 million, an asset impairment of $3 million and restructuring charges of $2 million. The third quarter of 2024 included restructuring charges of $3 million and inventory write-downs of $2 million. Excluding the impacts of these charges, operating margins in the third quarters of 2025 and 2024 were 13.5% and 11.7%, respectively. The resulting increase in operating margin was primarily due to simplification initiatives, partially offset by pressure associated with tariffs.
Operating margin decreased in the first three quarters of 2025 compared to the first three quarters of 2024. The first three quarters of 2025 included restructuring and other charges of $9 million, inventory write-downs of $6 million and an asset impairment of $3 million. The first three quarters of 2024 included restructuring charges of $9 million and inventory write-downs of $2 million. Excluding the impacts of these charges, operating margins in the first three quarters of 2025 and 2024 were 13.4% and 12.3%, respectively. The resulting increase in operating margin was primarily due to simplification initiatives, which was partially offset by the one-time benefit from the Employee Retention Credit in the second quarter of 2024.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated Statements of Cash Flows
| Nine Months Ended | |||||||||||
| (dollars in millions) |
June 28, 2025 |
June 29, 2024 |
$ Variance | ||||||||
| Net cash provided (used) by: | |||||||||||
| Operating activities | $ | 32 | $ | 47 | $ | (14) | |||||
| Investing activities | (92) | (115) | 22 | ||||||||
| Financing activities | 55 | 51 | 4 | ||||||||
Operating activities
Net cash from operating activities in the first three quarters of 2025 provided less cash than net cash provided by operating activities in the first three quarters of 2024. Accounts receivable used $87 million more cash, driven by the timing of collections. The timing of income tax payments used $33 million more cash. These uses were partially offset by physical inventories, which used $64 million less cash, as the growth of physical inventories slowed in Space and Defense, Military Aircraft and Commercial Aircraft. Also, customer advances provided $36 million more cash, as we secured customer advances on multiple defense programs.
Investing activities
Net cash used by investing activities in the first three quarters of 2025 included $103 million of capital expenditures for investments in organic growth, which was partially offset by $13 million of proceeds from the sales of businesses.
Net cash used by investing activities in the first three quarters of 2024 included $110 million of capital expenditures and $6 million associated with the acquisition of DCL.
Financing activities
Net cash provided by financing activities in the first three quarters of 2025 included $206 million of net borrowings on our credit facilities. Financing activities included a use of cash of $100 million for shares under the repurchase program authorized by the Board of Directors, which is a component of the purchase of outstanding shares for treasury, and $27 million of cash dividends.
Net cash provided by financing activities in the first three quarters of 2024 included $94 million of net borrowings on our credit facilities. Financing activities included a use of cash of $27 million of cash dividends.
General
Cash flows from our operations, together with our various financing arrangements, fund on-going activities, debt service requirements, organic growth, acquisition opportunities and the ability to return capital to shareholders. We believe these sources of funding will be sufficient to meet our cash requirements for the next 12 months and for the foreseeable future thereafter.
At June 28, 2025, our cash balances were $59 million, the majority of which is held outside of the U.S. by foreign operations. We regularly assess our cash needs, including repatriation of foreign earnings which may be subject to regulatory approvals and withholding taxes, where applicable by law.
Financing Arrangements
In addition to operations, our capital resources include bank credit facilities and an accounts receivable financing program to fund our short and long-term capital requirements. We continuously evaluate various forms of financing to improve our liquidity and position ourselves for future opportunities, which, from time to time, may result in selling debt and equity securities to fund acquisitions or take advantage of favorable market conditions.
We are generally not required to obtain the consent of lenders of the U.S. revolving credit facility before raising significant additional debt financing; however, certain limitations and conditions may apply that would require consent to be obtained. We have demonstrated our ability to secure consents to access debt markets. We have also been successful in accessing equity markets from time to time. We believe that we will be able to obtain additional debt or equity financing as needed.
In 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.
Our U.S. revolving credit facility, which matures on October 27, 2027, has a capacity of $1.1 billion and also provides an expansion option, which permits us to request an increase of up to $400 million to the credit facility upon satisfaction of certain conditions. The weighted-average interest rate on the outstanding U.S. revolving credit facility borrowings was 5.92% and is based on SOFR plus the applicable margin, which was 1.60% at June 28, 2025. On May 30, 2025, we amended and restated our loan agreement to include a $250 million term loan with installment payments of $3 million in 2026, $9 million in 2027 and the remaining balance on the maturity date of
October 27, 2027. Additional principal payments may be required under certain conditions. The proceeds of the term loan were used to pay down the outstanding revolver borrowings of the U.S. revolving credit facility. The interest rate on the term loan borrowings was 5.93% and is based on SOFR plus the applicable margin, which was 1.60% at June 28, 2025.
The loan agreement for the U.S. revolving credit facility and term loan contains various covenants. The minimum for the interest coverage ratio, defined as the ratio of EBITDA to interest expense for the most recent four quarters, is 3.0. The maximum for the leverage ratio, defined as the ratio of net debt to EBITDA for the most recent four quarters, is 4.0. EBITDA is defined in the loan agreement as (i) the sum of net income, interest expense, income taxes, depreciation expense, amortization expense, other non-cash items reducing consolidated net income and non-cash equity-based compensation expenses minus (ii) other non-cash items increasing consolidated net income.
The SECT has a revolving credit facility with a borrowing capacity of $25 million, maturing on October 26, 2026. Interest was 6.54% as of June 28, 2025 and is based on SOFR plus a margin of 2.23%.
We have $500 million 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. 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.
At June 28, 2025, we had $790 million of unused capacity, including $766 million from the U.S. revolving credit facility after considering standby letters of credit and other limitations.
Our Receivables Purchase Agreement, which matures on December 11, 2026, allows the Receivables Subsidiary to sell receivables to the Purchasers in amounts up to a $125 million limit so long as certain conditions are satisfied. The receivables are sold to the Purchasers in consideration for the Purchasers making payments of cash. Each Purchaser's share of capital accrues yield at a variable rate plus an applicable margin, which totaled 5.38% as of June 28, 2025.
We are in compliance with all covenants under each of our financing arrangements. See Note 4 - Receivables and Note 10 - Indebtedness, of Part I, Item 1, Financial Information of this report for additional details.
Dividends and Common Stock
We 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.
We are currently paying quarterly cash dividends on our Class A and Class B common stock and expect to continue to do so for the foreseeable future. See the Consolidated Condensed Statement of Shareholders Equity and Cash Flows, of Part I, Item 1, Financial Information, of this report for additional details.
The Board of Directors authorized a share repurchase program that permits repurchases for both Class A and Class B common stock, and allows us to buy up to an aggregate 3 million common shares. There are approximately 1.7 million common shares remaining under this authorization. See the Consolidated Condensed Statement of Shareholders Equity and Cash Flows, of Part I, Item 1, Financial Information and Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, of this report for additional details.
Off Balance Sheet Arrangements
We do not have any material off balance sheet arrangements that have or are reasonably likely to have a material future effect on our financial condition, results of operations or cash flows.
Contractual Obligations and Commercial Commitments
Our contractual obligations and commercial commitments have not changed materially from the disclosures in our Annual Report on Form 10-K for the year ended September 28, 2024. See Note 7 - Leases, Note 10 - Indebtedness, Note 15 - Employee Benefit Plans and Note 22 - Commitments and Contingencies, of Part I, Item 1, Financial Information, of this report for additional details.
ECONOMIC CONDITIONS AND MARKET TRENDS
We operate within the aerospace and defense market and the industrial market. A common factor throughout our markets is the continuing demand for technologically advanced products.
Our aerospace and defense businesses represented 73% of our 2024 sales. Our defense market, which represented 51% of our 2024 sales, is directly affected by defense funding levels and product demand, which have recently increased. Our commercial aircraft market, which represented 22% of our 2024 sales, is aligning with our customers' current plans. Within our various industrial markets, which collectively represented 27% of our 2024 sales, our customers are affected by a broad range of factors.
Aerospace and Defense
Within aerospace and defense, we serve three end markets: defense, commercial aircraft and space.
The defense market is dependent on military spending for development and production programs. We have a growing development program order book for future generation aircraft and turret programs, and we strive to embed our technologies within these high-performance military programs of the future, including the Textron Bell MV-75 FLRAA. Aircraft production programs are typically long-term in nature, offering predictable capacity needs and future revenues. We maintain positions on numerous high priority programs, including the Lockheed Martin F-35 Lightning II. The large installed base of our products leads to attractive aftermarket sales and service opportunities. The tactical and strategic missile, missile defense and defense controls markets are dependent on many of the same market conditions as military aircraft, including overall military spending and program funding levels. At times when there are perceived threats to national security, U.S. and European defense spending can increase; at other times, defense spending can decrease. Future levels of defense spending have increased in the near-term given the current global tensions, and are subject to governmental approvals.
The commercial OEM aircraft market depends on a number of factors, including both the increasing global demand for air travel and increasing fuel prices. Both factors contributed to the demand for new, more fuel-efficient aircraft with lower operating costs that led to large production backlogs for Boeing and Airbus. Boeing and Airbus are producing widebody aircraft at rates to support their projected demand while working through their current supply-chain constraints. Any adjustments to their production rates affect the timing of the demand for our flight control systems.
The 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.
The space market is comprised of three customer markets: civil, U.S. Department of Defense and commercial space. The civil market, namely NASA, is driven by investment for exploration activities. The U.S. Department of Defense market is driven by government-authorized levels of defense spending, including funding for defense-related satellite and space vehicle technologies. Levels of U.S. defense spending could increase as there is growing emphasis on space as the next frontier of potential future conflicts. The commercial space market is driven by demand for small satellites, which increases the demand for increased launch vehicle capacity. Our launch vehicle and satellite components and systems will continue to benefit from increased investments in each of these markets.
Industrial
Within industrial, we serve two end markets: industrial and medical. The industrial market consists of industrial automation products, simulation and test products and energy generation and exploration products. The medical market consists of medical devices and medical component products.
The 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. A portion of our industrial automation customers serve the automotive market.
Our simulation and test products operate in markets that were largely affected by the same factors and investment challenges as our commercial aircraft market. We will see stronger order demand for flight simulation systems as the airline training market grows in line with domestic and foreign flight hours.
Our energy generation and exploration products operate in a market that is influenced by changing oil and natural gas prices, global urbanization and the resulting change in supply and demand for global energy. Historically, drivers for global growth include investments in power generation infrastructure and exploration of new oil and gas resources.
The medical market we serve, in general, is influenced by economic conditions, regulatory environments, hospital and outpatient clinic spending on equipment, population demographics, medical advances, patient demands and the need for precision control components and systems. Advances in medical technology and treatments have resulted in the greater need for medical services, which drive the demand for our medical devices and components programs.
Foreign Currencies
We are affected by the movement of foreign currencies compared to the U.S. dollar. About one-sixth of our 2024 sales were denominated in foreign currencies. During the first nine months of 2025, average foreign currency rates generally were the same against the U.S. dollar compared to 2024. The translation of the results of our foreign subsidiaries into U.S. dollars had no material impact on sales compared to the same period one year ago.
Cautionary Statement
Information included or incorporated by reference in this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which can be identified by words such as: "may," "will," "should," "believes," "expects," "expected," "intends," "plans," "projects," "approximate," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," "assume" and other words and terms of similar meaning (including their negative counterparts or other various or comparable terminology). These forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995, are neither historical facts nor guarantees of future performance and are subject to several factors, risks and uncertainties, the impact or occurrence of which could cause actual results to differ materially from the expected results described in the forward-looking statements.
Although it is not possible to create a comprehensive list of all factors that may cause our actual results to differ from the results expressed or implied by our forward-looking statements or that may affect our future results, some of these factors and other risks and uncertainties are described in Item 1A "Risk Factors" of our Annual Report on Form 10-K and in our other periodic filings with the Securities and Exchange Commission ("SEC") and include, but are not limited to, risks relating to: (i) our operation in highly competitive markets with competitors who may have greater resources than we possess; (ii) our operation in cyclical markets that are sensitive to domestic and foreign economic conditions and events; (iii) our heavy dependence on government contracts that may not be fully funded or may be terminated; (iv) supply chain constraints and inflationary impacts on prices for raw materials and components used in our products; (v) failure of our subcontractors or suppliers to perform their contractual obligations; and (vi) our accounting estimations for over-time contracts and any changes we need to make thereto. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties.
While we believe we have identified and discussed in our SEC filings the material risks affecting our business, there may be additional factors, risks and uncertainties not currently known to us or that we currently consider immaterial that may affect the forward-looking statements we make herein. Given these factors, risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictive of future results. Any forward-looking statement speaks only as of the date on which it is made, and we disclaim any obligation to update any forward-looking statement made in this report, except as required by applicable law.
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