Real-time Form 4 intelligence. Smarter insider tracking.
YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.02pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.25pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.29pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
adversely+6
weakness+5
weaknesses+4
delay+2
delays+2
Positive rising
effective+2
able+1
achieve+1
strengthen+1
advancements+1
Risk Factors (Item 1A)
5,759 words
Item 1A.
Risk Factors.
Our business, financial condition and results of operations face many risks, many of which are not exclusively within our control. The known, material risks to our business summarized below should be carefully considered together with all the other information included in this report, including the financial statements and related notes. Any of the risks discussed below, elsewhere in this report or in our other SEC filings could have a material impact on our business, financial condition or results of operations. Although the risks summarized below are organized by heading, and each risk is summarized separately, many of the risks are interrelated. While we believe we have identified and discussed below the material risks affecting our business, there may be additional risks and uncertainties not currently known to us or that we currently consider immaterial that may materially adversely affect our business, financial condition or results of operations in the future and may require significant management time and attention.
STRATEGIC RISKS
We operate in highly competitive markets with competitors who may have greater resources than we possess. Many of our products are sold in highly competitive markets. Some of our competitors, especially in our industrial markets and medical market, are larger, more diversified and have financial, marketing, production and research and development resources. Within the aerospace and defense industries, suppliers have consolidated to expand their product offerings and to secure long-term sole-source positions. As a result, these competitors may be to withstand the effects of periodic economic . Our sales and operating margins will be impacted if our competitors:
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
misstatements+6
divestitures+2
corrections+2
dispute+2
opportunistically+1
Positive rising
effective+2
advances+1
gain+1
strong+1
enhance+1
MD&A (Item 7)
6,741 words
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The 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.
This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those under the heading “Risk Factors” in Item 1A of this report.
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, tactical and strategic missile steering controls, defense ground vehicle systems including turreted weapon systems and various other defense product components.
• Commercial aircraft market - primary and secondary flight controls and components for commercial aircraft.
• Space market - satellite avionics, propulsion and 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:
• develop products that are superior to our products,
• develop products of comparable quality and performance that are more competitively priced than our products,
• develop more efficient and effective manufacturing methods for their products and services, or
• adapt more quickly than we do to technological innovations or evolving customer requirements.
We believe that the principal points of competition in our markets are product quality, reliability, design and engineering capabilities, price, innovation, conformity to customers' specifications, timeliness of delivery, effectiveness of the distribution organization and quality of support after the sale. Maintaining or improving our competitive position requires continued investment in manufacturing, engineering, quality standards, marketing, customer service and support and in our distribution networks. If we do not maintain sufficient resources to make these investments, are unsuccessful in meeting our quality or delivery standards or are unsuccessful in maintaining our competitive position, we could face pricing pressures or loss in market share, causing our operations and financial performance to suffer.
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Our research and development and innovation efforts are substantial and may not be successful, which could reduce our sales and earnings. Our products and technological capabilities have undergone, and in the future may undergo, significant changes. In order to maintain a leadership position in the high-performance, precision controls market, we have incurred, and we expect to continue to incur, substantial expenses associated with research and development and innovation activities during the introduction of new products. Our technology has been developed through customer-funded and internally-funded research and development investments, as well as through business acquisitions. If we fail to predict customers' preferences, market preferences or fail to provide viable technological solutions, we may experience inefficiencies that could delay or prevent the acceptance of new products or product innovations. Also, incurred research and development expenses may exceed our cost estimates and the new products we develop may not generate sales sufficient to offset our investments. Additionally, our competitors may develop technologies or products that have more competitive advantages than ours and render our technology noncompetitive or obsolete.
If we are unable to adequately enforce and protect our intellectual property or defendagainstassertions of infringement, our business and our ability to compete could be harmed. Protecting our intellectual property is critical in order to maintain a competitive advantage. We therefore rely on internally developed and acquired patents, trademarks, copyrights, trade secrets, and proprietary know-how to establish and protect our technologies and products. However, these measures afford only limited protection, and our patent rights and other intellectual property protections have been in the past, and may be in the future, infringed, misappropriated, misrepresented, copied without authorization, circumvented or invalidated in the U.S. or in foreign countries that do not offer the same level of intellectual property protections. Also, as our patents and other intellectual property protections expire, we may face increased competition. Additionally, we cannot be assured that our existing or planned products do not, or will not, infringe on the intellectual property rights of others or that others will not claim such infringement. When others infringe on our intellectual property rights, the value of our products is diminished, and we have incurred, and may continue to incur, substantial litigation costs to enforce our rights. Litigation related to intellectual property matters has diverted, and may continue to divert, management's focus and resources away from operations. If we are unable to adequately enforce and protect our intellectual property or defendagainstassertions of infringement, we could face reputational harm and our inability to defendagainst these scenarios could have an adverse effect on our competitive position, our business operations and financial condition.
Our sales and earnings may be affected if we cannot identify, acquire or integrate strategic acquisitions, or as we conduct portfolio shaping and footprint rationalization initiatives. Acquisitions are an element of our growth strategy as we opportunistically make strategic investments in our businesses. Our historical growth has depended, and our future growth could depend, on our ability to successfully identify, acquire and integrate acquired businesses. We intend to seek additional acquisition opportunities that enhance our core businesses or accelerate our position on our new growth ventures. Growth by acquisition involves risk that could adversely affect our financial condition and operating results. We may not know the potential exposure to unanticipated liabilities, and the acquisition agreements we may enter into may not fully protect us from unanticipated liabilities. Additionally, the expected benefits or synergies might not be fully realized, integrating operations and personnel may be slowed and key employees, suppliers or customers of the acquired business may depart. As a result of our ongoing margin expansion initiatives, we expect to continue to divest assets or businesses, discontinue products or reduce our operating footprint. Under certain circumstances, this may require us to record impairment charges or losses as a result of a transaction. In pursuing acquisition opportunities, integrating acquired businesses or divesting business operations, management's time and attention may be diverted from our core business, while consuming resources and incurring expenses for these activities.
MARKET CONDITION RISKS
The markets we serve are cyclical and sensitive to domestic and foreign economic conditions and events, which may cause our operating results to fluctuate. The markets we serve are sensitive to fluctuations in general business cycles, global pandemics, domestic and foreign governmental tariffs, trade and monetary policies and economic conditions and events. Boeing and Airbus are producing widebody aircraft at rates to support the post-pandemic air traffic volumes, as well as working through their current supply-chain challenges. Any adjustments to their ramp schedules affects the demand for our flight control systems. Also, U.S. defense and other foreign governments' defense funding levels, driven in part by the current global unrest, can fluctuate and affect our defense and our space programs. Our industrial product demand depends upon several factors including levels of capital investment, the pace of product innovations and technology upgrades, changing economic conditions and the current and forecasted price of oil and natural gas.
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We depend heavily on government contracts that may not be fully funded or may be terminated, and the failure to receive funding or the termination of one or more of these contracts could reduce our sales and increase our costs. Sales to the U.S. Government and its prime contractors and subcontractors represent a significant portion of our business. In 2025, sales under U.S. Government contracts represented 38% of our total sales, primarily within Space and Defense and Military Aircraft. Sales to foreign governments represented 9% of our total sales. Funding for government programs can be structured into a series of individual contracts and depend on cyclical annual congressional appropriations. At times when there are perceived threats to national security, U.S. Defense spending can increase; at other times, defense spending can decrease. Future levels of defense spending are uncertain and subject to congressional debate and spending prioritization. Any reduction in defense spending could adversely impact our sales, operating profit and our cash flow. We have resources applied to specific government contracts and if any of those contracts are rescheduled or terminated, we may incur substantial costs redeploying those resources.
The loss of The Boeing Company as a customer or a significant reduction in the sales to The Boeing Company could adversely impact our operating results. We provide Boeing with controls for both military and commercial applications, as well as controls for space and defense applications, which totaled 10% of our 2025 sales. Sales to Boeing's commercial airplane group are generally made under long-term supply agreements. Boeing operates in a competitive environment and continues to evaluate the size, scope and cost of their supplier base. Labor disruptions or other supply chain constraints experienced by Boeing or its supplier base could delay planned production and negatively impact commercial aircraft production rates. Also, Boeing continues to match their commercial production rates to the resized global air traffic volume. In addition, a portion of our sales to Boeing is tied to varying levels of government defense spending, and a reduction in future U.S. defense spending levels could adversely impact our sales, operating profit and cash flow. Furthermore, a loss of Boeing as a customer could materially reduce our sales and earnings.
We may not realize the full amounts reflected in our backlog as revenue, which could adversely affect our future revenue and growth prospects. As of September 27, 2025, our total backlog was $6.0 billion, which represents confirmed orders we believe will be recognized as revenue. There is no assurance that our customers will purchase all the orders represented in our backlog. If customers do not purchase these orders, it would increase our risk of inventory obsolescence and inventory write-downs, which would adversely affect our operations and our earnings. A significant portion of our backlog relates to commercial aircraft programs, and any adjustments to their planned production schedules will affect the demand for our flight control systems. Also, given the uncertain nature of our contracts with the U.S. Government and other foreign governments, in part due to governments' abilities to modify, curtail or terminate major programs, we may not realize the full revenue value of the orders included in our backlog. If this occurs, our future revenue and growth prospects may be adversely affected.
OPERATIONAL RISKS
Inflated prices across various raw materials and third-party provided components and sub-assemblies have adversely impacted, and could continue to adversely impact, our financial condition, operating profit and cash flow. A constrained supply chain could have a material impact on our ability to manufacture and ship products. The prices for materials and components used in our products has increased, adding additional pressures to our operating margins. Also, sole-source suppliers could apply leverage over price or other terms. We may be unable to raise our prices for our products equal to the increased prices for supplied materials and components, which could adversely affect our financial condition, operating results and cash flow. In addition, constraints in our supply chain that cause shortages or delays in materials and components could prevent us from completing and shipping our final products on time. We have taken actions to strengthen our supply chain, including making supplier changes and internalizing some processes. Transitions to new suppliers and internalizing processes could result in significant additional costs and delays, preventing us from meeting customer demand for our products, which could damage customer relationships and adversely affect our financial condition, operating results and cash flow.
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If our subcontractors or suppliers fail to perform their contractual obligations, our prime contract performance and our ability to obtain future business could be materially and adversely impacted. We rely on other companies to perform portions of the manufacturing process of our products. While we actively manage our supply chain, establishing alternate sources, some business conditions cause us to obtain certain components and sub-assemblies from a single supplier or a limited group of suppliers. There are risks that we may have disputes with our subcontractors regarding the quality and timeliness of work performed by the subcontractor, customer concerns about the subcontractor, our failure to extend existing task orders or issue new task orders under a subcontract or our hiring of personnel of a subcontractor. A failure by any of our sole-sourced or group of subcontractors to timely and satisfactorily provide the required, defect-free supplies or components, or perform the required services, may materially and adversely impact our ability to perform our obligations as the prime contractor. Subcontractor performance deficiencies could result in a customer terminating our prime contract for default, which could expose us to liability and substantially impair our ability to compete for future orders.
We face, and may continue to face, risks related to information systems interruptions, intrusions and or new software implementations, which may adversely affect our business operations. We rely extensively on various information technologies throughout our company supporting nearly every business activity. In doing so, we work with sensitive data types including proprietary business information, intellectual property and confidential employee data. Handling and storage of this data, either onsite or managed by authorized third parties, subjects us to privacy, security, or other regulatory requirements, which could, if not handled or stored in compliance with applicable requirements, result in a potential liability. Business operations face risks, and may continue to face risks, due to information system errors, equipment failures, or ever-evolving cyber-attacks. In addition, advancements in artificial intelligence and quantum computing present risks to our business, as they may be used to identify vulnerabilities and produce advanced cybersecurity attacks. Unauthorized access or tampering via cybersecurity incidents may result in potential data corruption, exposure of proprietary or confidential information and work stoppages. Additionally, we have and expect to incur additional costs to comply with our customers' increased cybersecurity protections and standards, including those of the U.S. government. We have embarked on multi-year business information system transformation and standardization projects. These endeavors are complex and company-wide, involving new technologies and may introduce risk to our cybersecurity infrastructure. While we are investing significant resources throughout the planning, project managing and deployment processes, unanticipateddelays could occur and could adversely affect our financial results. Any of these cybersecurity issues may cause operational stoppages, increased operational costs, fines, penalties and diminished competitive advantages through reputational damages.
We may not be able to prevent, or timely detect, issues with our products and our manufacturing processes which may adversely affect our operations and our earnings. We must continuously improve product development and manufacturing processes and systems to ensure we deliver high-quality, technically advanced products. Due to growth in operations and our constrained supply chain, there is a risk our current manufacturing processes and systems are unable to maintain our high-quality and on-time delivery standards for our customers. If we are unable to maintain these standards, we could experience late deliveries and penalties, recalls, increased warranty costs, order cancellations and litigation.
The failure or misuse of our products may damage our reputation, necessitate a product recall or result in claimsagainst us that exceed our insurance coverage, thereby requiring us to pay significant damages. Defects in the design and manufacture of our products or our subcontractors' products may necessitate a product recall. We include complex system designs and components in our products that could contain errors or defects, particularly when we incorporate new technologies into our customers’ solutions. If any of our products are defective, we could be required to redesign or recall those products, pay substantial damages or warranty claims or face actions by regulatory bodies and government authorities. Such an event could result in significant expenses, delay sales, inflate inventory, cause reputational damage or cause us to withdraw from certain markets. We are also exposed to product liability claims. Many of our products are used in applications where their failure or misuse could result in significant property or economic loss and serious personal injury or death. We carry product liability insurance consistent with industry norms. However, these insurance coverages may not be sufficient to fully cover the payment of any potential claim. A product recall or a product liability claim not covered by insurance could have a material adverse effect on our business, financial condition and results of operations.
As an aerospace and defense company, we face risks related to the security of our facilities and employees. Threats to the physical security of our facilities and employees, such as civil unrest, terrorism, sabotage and workplace violence, could disrupt production, delay deliveries, compromise sensitive information or assets and increase security and insurance costs. These threats could adversely impact our sales, operating profit, cash flow and reputation.
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FINANCIAL RISKS
We make estimates in accounting for over-time contracts, and changes in these estimates may have significant impacts on our earnings. We have over-time contracts with some of our customers, predominantly in our aerospace and defense markets. We recognize revenue using an input method that uses costs incurred to date to measure progress toward completion ("cost-to-cost"). Changes in these required estimates could have a material adverse effect on sales and profits. Any adjustments are recognized in the period in which the change becomes known using the cumulative catch-up method of accounting. For contracts with anticipated losses at completion, we establish a provision for the entire amount of the estimated remaining loss and charge it against income in the period in which the loss becomes known and can be reasonably estimated. Amounts representing performance incentives, penalties, contract claims or impacts of scope change negotiations are considered in estimating revenues, costs and profits. Due to the substantial judgments involved with this process, our actual results could differ materially or could be settled unfavorably from our estimates. See Note 2 - Revenue from Contracts with Customers of Item 8, Financial Statements and Supplementary Data, of this report.
We enter into fixed-price contracts, which could subject us to losses if we have cost overruns. In 2025, fixed-price contracts represented 90% of our over-time sales that we account for using the cost-to-cost method. On fixed-price contracts, we agree to perform the scope of work specified in the contract for a predetermined price. Depending on the fixed price negotiated, these contracts may provide us with an opportunity to achieve higher profits based on the relationship between our total contract costs and the contract's fixed price. However, we bear the risk that increased or unexpected costs may reduce our profit or cause us to incur a loss on the contract, which would reduce our net earnings. Although we closely monitor all programs and continuously seek opportunities, in coordination with our customers and suppliers, to mitigate future material impacts on fixed price contract profitability, we may be unsuccessful in these efforts and our net earnings may be reduced. Contract loss reserves are most commonly associated with fixed-price contracts that involve the design and development of control systems to meet the customer's specifications.
Our indebtedness and restrictive covenants under our credit facilities and indenture governing our senior notes could limit our operational and financial flexibility. We have incurred significant indebtedness and may incur additional debt as we invest in operations, research and development, capital expenditures and acquisitions. Our ability to make scheduled interest and principal payments could be adversely impacted by changes in the availability, terms and cost of capital, changes in interest rates or changes in our credit ratings or our outlook. These changes could place us at a competitive disadvantage through higher debt costs, limiting our ability to meet operational and capital needs, delaying our reactions to changes in market conditions and pursuing acquisitions. In addition, the restrictive covenants under both our credit facilities and the indenture governing our senior notes could limit our operational and financial flexibility, which could also impact our ability to efficiently operate our business.
Significant changes in discount rates, rates of return on pension assets, mortality tables and other factors could adversely affect our earnings and equity and increase our pension funding requirements. Pension costs and obligations are determined using actual results as well as actuarial valuations that involve several assumptions. The most critical assumptions are the discount rate, the long-term expected return on assets and mortality tables. Other assumptions include salary increases and retirement age. Some of these assumptions, such as the discount rate and return on pension assets, are reflective of economic conditions and largely out of our control. Despite our largest pension plan being well funded, changes in the pension assumptions could adversely affect our earnings, equity and funding requirements.
A write-off of all or part of our goodwill or other intangible assets could adversely affect our operating results and enterprise value. Goodwill and other intangible assets are a substantial portion of our assets. At September 27, 2025, goodwill was $842 million and other intangible assets were $66 million of our total assets of $4.4 billion. The amount of goodwill and other intangible assets may increase in the future as a result of acquisitions. However, we may have to impair all or part of our goodwill or other intangible assets if the fair value falls because of changes in macroeconomic conditions, industry and market environments or the financial performance of the company. Although this impairment would be a non-cash charge, it could reduce our earnings and adversely affect our enterprise value. We review whether goodwill or other intangible assets have been impaired annually, or more frequently, if there have been changes in circumstances or conditions.
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Unforeseen exposure to additional income tax liabilities may affect our operating results. Our distribution of taxable income is subject to domestic and foreign tax jurisdictions. Our effective tax rate and earnings may be affected by shifts in our mix of earnings in countries with varying statutory tax rates, changes in the valuation of deferred tax assets and outcomes of any audits performed on previous tax returns. Additionally, any alterations to domestic and foreign government tax regulations or interpretations, global minimum taxes or other tax law changes could have significant impacts on our effective tax rate and on our deferred tax assets and liabilities. In 2021, the Organization for Economic Cooperation and Development (OECD) passed Pillar Two, an inclusive framework on Base Erosion and Profit Sharing, which would enact a minimum 15% tax for large multinational companies. Many countries are considering changes to their tax laws or proposing new tax laws to align with the recommendations that have been made by the OECD regarding Pillar Two. We are closely monitoring developments and evaluating the potential impacts of Pillar Two, which could adversely affect our effective tax rate, tax payments and results of operations.
LEGAL AND COMPLIANCE RISKS
We may not be able to remediate material weaknesses effectively, identify additional material weaknesses in the future or achieve and maintain effective disclosure controls and procedures and internal control over financial reporting, which may affect our ability to ensure timely and reliable financial reports and affect the ability of our auditors to attest to the effectiveness of our internal controls. We identified a material weakness in the design and operation of our controls over a distinct group of long-term aftermarket service revenue contracts in our Commercial Aircraft segment. That material weakness led to a conclusion that our internal controls over financial reporting and disclosure controls and procedures were not effective as of September 27, 2025. Management is responsible for establishing and maintaining adequate internal controls over financial reporting, as defined in Rule 13a-15(f) and 15d15(f) under the Securities Exchange Act. We are actively engaged in developing a remediation plan designed to address the material weakness but cannot be certain as to when our remediation plan will be fully completed. If the remedial measures are insufficient to address the material weakness or if additional material weaknesses or significant deficiencies in the internal controls are discovered or occur in the future, the consolidated financial statements may contain material misstatements. We may also be required to restate our financial results, which could materially and adversely affect our business and results of operations or financial condition, restrict our ability to access the capital markets, require us to expend significant resources to correct the material weaknesses or significant deficiencies, subject us to fines, lawsuits, penalties, judgments or other legal expenses, harm our reputation, create delays or the inability to meet future SEC reporting obligations. For more information related to our material weakness and its remediation, see Item 9A. Controls and Procedures of this report.
Contracting on government programs is subject to significant regulation, including rules related to bidding, billing and accounting standards, and any falseclaims or non-compliance could subject us to fines, penalties or possible debarment. We are subject to risks associated with government program contracting, including substantial civil and criminalfines and penalties. These fines and penalties could be imposed for failing to follow procurement integrity and bidding rules, employing improper billing practices or otherwise failing to follow cost accounting standards, receiving or paying kickbacks or filing falseclaims. We have been, and expect to continue to be, subjected to audits and investigations by U.S. and foreign government agencies and authorities. The failure to comply with the terms of our government contracts could harm our business reputation. We also could be subject to withheld progress payments or suspension or debarment from future government contracts, which could have a material effect on our operational and financial results.
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Our operations in foreign countries expose us to currency, political and trade risks and adverse changes in local legal and regulatory environments could impact our results of operations. We have significant manufacturing and sales operations in foreign countries. In addition, our domestic operations sell to foreign customers. Our financial results may be adversely affected by fluctuations in foreign currencies and by the translation of the financial statements of our foreign subsidiaries from local currencies into U.S. dollars. Both the sales from international operations and export sales are subject to varying degrees of risks inherent in doing business outside of the U.S. Such risks include the possibility of unfavorable circumstances arising from host country laws, regulations or customs including, but not limited to privacy laws protecting personal data, changes in tariff and trade barriers and import or export licensing requirements. The tariffs recently implemented in the U.S. on steel, aluminum and other raw materials, potential of further tariffs and potential retaliatory actions by other countries could increase costs and reduce availability of raw materials. This could adversely impact our sales, operating profit and cash flow. Uncertainty also remains with respect to trade policies and treaties between the U.S. and other countries including China, where we both source products and have customers. Changes to tariffs or other trade restrictions may result in higher prices for new aircraft, which may negatively impact customer order volume, and restrict our future orders. The potential loss of orders could negatively impact our financial results including lower sales, operating profits and cash flow. For our sales mix by country, see Note 22 - Segments, of Item 8, Financial Statements and Supplementary Data, of this report.
Government regulations could limit our ability to sell our products outside the U.S. and otherwise adversely affect our business. Our failure to obtain, or fully adhere to, the limitations contained in the requisite licenses, meet registration standards or comply with other government export regulations would hinder our ability to generate revenues from the sale of our products outside the U.S. In addition, the U.S. government has established, and from time to time revises, sanctions that restrict or prohibit U.S. companies and their subsidiaries from doing business with certain foreign countries, entities and individuals. The absence of comparable restrictions on competitors in other countries may adversely affect our competitive position. In order to sell our products in European Union countries, we must satisfy certain technical requirements. If we are unable to comply with those requirements, our sales in Europe would be restricted. Doing business internationally also subjects us to numerous U.S. and foreign laws and regulations, including regulations relating to import-export control, technology transfer restrictions, anti-bribery, privacy regulations and anti-boycott provisions. From time to time, we have filed, and may in the future file, voluntary disclosure reports with the U.S. Department of State and the Department of Commerce regarding certain violations of U.S. export laws and regulations discovered by us in the course of our business activities, employee training or internal reviews and audits. To date, our voluntary disclosures relating to export compliance matters have not resulted in a fine, penalty, or export privilege denial or restriction that has materially impacted our financial condition or ability to export. Our failure, or failure by an authorized agent or representative that is attributable to us, to comply with these laws and regulations could result in administrative, civil or criminal liabilities. In the extreme case, these failures could result in financial penalties, suspension or debarment from government contracts or suspension of our export privileges, which could have a material adverse effect on us. For our sales mix by country, see Note 22 - Segments, of Item 8, Financial Statements and Supplementary Data, of this report.
We are involved in various legal proceedings, the outcome of which may be unfavorable to us. Our business may be adversely impacted by the outcome of legal proceedings and other contingencies that cannot be predicted with certainty. We estimate loss contingencies and establish reserves based on our assessment when liability is deemed probable and reasonably estimable, given the facts and circumstances known to us at a particular point in time. Subsequent developments may affect our assessment and estimates of the loss contingencies recognized as liabilities.
Our operations are subject to environmental laws and complying with those laws may cause us to incur significant costs. Our operations and facilities are subject to numerous stringent environmental laws and regulations. Although we believe that we are in material compliance with these laws and regulations, future changes in these laws, regulations or interpretations of them, or changes in the nature of our operations may require us to make significant capital expenditures to ensure continued compliance. We have been, and are currently involved in, environmental remediation activities. The cost of these activities may become significant depending on the discovery of additional environmental exposures at sites that we currently own or operate, at sites that we formerly owned or operated, or at sites to which we have sent hazardous substances or wastes for treatment, recycling or disposal.
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We may face reputational, regulatory or financial risks from a perceived, or an actual, failure to achieve our sustainability goals. The increased focus on sustainability practices and disclosures is rapidly evolving, as is the criteria to measure our sustainability performance; both of which could result in greater expectations and may cause us to undertake costly initiatives to satisfy the evolving criteria. As we advance our sustainable business model, we are pursuing programs that we believe will improve our environmental practices, social engagement and how we govern ourselves. We periodically publish information about our sustainability goals, standards and frameworks. Achievement of these objectives is subject to risks and uncertainties, many of which are outside of our direct control, and it is possible we may fail, or be perceived to have failed, in the achievement of our sustainability goals. Also, certain customers, associates, shareholders, investors, suppliers, business partners, government agencies and non-governmental organizations may not be satisfied with our sustainability efforts. A failure, or perceived failure, of our sustainability goals could negatively affect our reputation and our results of operations.
Invalidation of Moog Military Aircraft LLC’s facility security clearance by the U.S. Defense Counterintelligence and Security Agency could impact potential future business as well as adversely affect our operating results. On June 28, 2024, Moog Military Aircraft LLC (“MMA”), our subsidiary, received a facility security clearance from the U.S. Department of Defense. MMA’s facility security clearance allows it to bid on and receive new classified contracts from U.S. government contracting agencies and from prime contractors. If, in the future, we are found to be in noncompliance, or if we are required to comply with additional obligations, the U.S. Defense Counterintelligence and Security Agency ("DCSA") could invalidate MMA's facility security clearance, which may adversely impact our sales, operating profit and cash flow.
GENERAL RISKS
Future terror attacks, war, natural disasters, public health crises or other catastrophic events beyond our control could negatively impact our business. Terror attacks, war or other civil disturbances, natural disasters, public health crises and other catastrophic events could lead to economic instability and decreased demand for commercial products, which could negatively impact our business, financial condition, results of operations and cash flows. From time to time, terrorist attacks worldwide have caused instability in global financial markets and in the aviation industry. Also, our facilities and suppliers are located throughout the world and could be subject to damage from fires, floods, earthquakes or other natural or man-made disasters. Although we carry third party property insurance covering these and other risks, our inability to meet customers' schedules as a result of a catastrophe may result in the loss of customers or significantly increase costs, including penaltyclaims under customer contracts. Insurance for certain risks may be unavailable, insufficient or subject to dispute, which could adversely impact our financial condition, operating profit and cash flow.
Our performance could suffer if we cannot maintain our culture as well as attract, retain and engage our employees. We believe our culture is our strongest asset and is the foundation of our business. Our culture focuses on trust, respect, collaboration, confidence and empowerment. Our strong culture allows us to recruit and retain top-level talent. We also believe our employees and our experienced leadership group are competitive advantages, as the best people, over time, produce the best results. If we are unable to carry these values forward by not attracting the most talented candidates, by not retaining and engaging our global workforce including our senior management team, or by not investing in their talent and personal development, our operational and financial performances could suffer.
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• Industrial market - various components and systems used in 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, as well as liquid cooling pumps used in data centers.
• Medical market - pumps and sets for enteral clinical nutrition and infusion therapy, slip rings used in CT scan medical equipment and various components used in ultrasonic sensors and surgical handpieces.
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, 64% of revenue was recognized over time for the year ended September 27, 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 year ended September 27, 2025, 36% 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 millions of people worldwide. Our solutions preserve national security, ensure safe air transportation, reduce industrial factory emissions and enhance patients' lives, 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 building on these core foundational capabilities, we believe we have achieved a leadership position in the high-performance, precision controls market, and are "Shaping The Way Our World Moves™."
We leverage our engineering expertise and close customer relationships to solve complex technical problems. This approach has allowed us to expand, organically and through acquisitions, our high-performance components business to also offer the design, manufacture and integration of high-performance systems across multiple markets. We continue to expand our content on existing platforms as well, seeking to be the leading precision motion-controls supplier across the niche markets we serve. We are also modernizing operations through productivity‑enhancing technologies and targeted talent development to strengthen operational performance.
Our long-term strategies to achieve our financial objectives focus on pricing and simplification initiatives. Our pricing strategy seeks recognition for the value we deliver to our customers across our markets. Our simplification initiatives, guided by 80/20 principles, include:
• shaping our product and business portfolio to invest in growth areas and divest non-core assets,
• rationalizing our global footprint to meet current and future business volumes,
• focusing our factories to meet the specific needs of each market, and
• investing in automation and technologies to improve operational efficiency.
We aim to improve shareholder value through strategic revenue growth, both organic and acquired, manufacturing and operating efficiencies and utilizing low-cost manufacturing facilities without compromising quality. Historically and over the long-term, our capital deployment strategy has balanced strategic acquisitions, share buybacks and dividend payments to maximize shareholder returns. In the near term, our capital deployment prioritizes organic growth while opportunistically pursuing acquisitions that complement our business.
Acquisitions, Divestitures and Assets Held for Sale
See Note 3 - Acquisitions, Divestitures and Assets Held for Sale, of Item 8, Financial Statements and Supplementary Data, of this report for details.
Equity Method and Other Investments
See Note 9 - Equity Method and Other Investments, of Item 8, Financial Statements and Supplementary Data, of this report for details.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that affect the amounts reported. These estimates, assumptions and judgments are affected by our application of accounting policies, which are discussed in Note 1 - Summary of Significant Accounting Policies, of Item 8, Financial Statements and Supplementary Data, of this report. We believe the accounting policies discussed below are the most critical in understanding and evaluating our financial results. These critical accounting policies have been reviewed with the Audit Committee of our Board of Directors.
Revenue Recognition on Over-Time Contracts
We recognize revenue from contracts with customers using the five-step model prescribed in ASC 606. For contracts that qualify for over-time treatment, we recognize revenue as control of the promised goods or services is being transferred to the customer. This is accomplished by using the cost-to-cost method of accounting, which measures progress 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 this 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. Revenue recognized using the cost-to-cost method of accounting over time for the year ended September 27, 2025 was 64% of total revenue. Revenue and cost estimates for substantially all over-time contract performance obligations are reviewed and updated quarterly. For further information, refer to Note 2 - Revenue from Contracts with Customers and Note 22 - Segments, of Item 8, Financial Statements and Supplementary Data, of this report.
Contract Reserves
At September 27, 2025, we had contract reserves of $84 million. Contract reserves are comprised of contract loss reserves, recall reserves, and contract-related reserves. Contract loss reserves are recorded for open contracts where it is anticipated that contract costs will be greater than contract income and are determined considering all direct and indirect contract costs, exclusive of any selling, general or administrative cost allocations that are treated as period expenses. 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 reserves are recorded for other reasons, such as delivery issues outside of the ordinary scope of the contract. For all three types of reserves, a provision for the entire amount of the loss is charged against income in the period in which the loss becomes known and can be reasonably estimated by management. For further information, refer to Note 2 - Revenue from Contracts with Customers, of Item 8, Financial Statements and Supplementary Data, of this report.
Reserves for Inventory Valuation
At September 27, 2025, we had net inventories of $914 million, or 39% of current assets. Reserves for inventory were $146 million, or 14% of gross inventories. Inventories are stated at the lower of cost or net realizable value with cost determined primarily on the first-in, first-out method of valuation.
We record valuation reserves to provide for slow-moving or obsolete inventory by principally using a formula-based method that increases the valuation reserve as the inventory ages. We also take specific circumstances into consideration. We consider overall inventory levels in relation to firm customer backlog in addition to forecasted demand including aftermarket sales. Changes in these and other factors, such as low demand and technological obsolescence, could cause us to increase our reserves for inventory valuation, which would negatively impact our gross margin. As we record provisions within cost of sales to increase inventory valuation reserves, we establish a new, lower cost basis for the inventory.
Income Taxes
Our annual tax rate is based on our earnings before tax by jurisdiction, applicable statutory tax rates, the impacts of permanent differences, tax incentives and tax planning opportunities in the various jurisdictions in which we operate. Significant judgment is required in determining our annual tax rate and in evaluating our tax positions.
An 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.
We record reserves against tax benefits when it’s more likely than not that we will not sustain a position if the appropriate taxing jurisdiction had full information and examined our position. We adjust these reserves when facts and circumstances change, such as when progress is made by taxing authorities in their review of our position. There is a considerable amount of judgment in making these assessments. There were no significant reserves taken in 2024.
Valuation allowances associated with deferred tax assets are another area that requires judgment. We record a valuation allowance to reduce deferred tax assets to the amount of future tax benefit that we believe is more likely than not to be realized. We consider recent earnings projections, allowable tax carryforward periods, tax planning strategies and historical earnings performance to determine the amount of the valuation allowance. Changes in these factors could cause us to adjust our valuation allowances, which would impact our income tax expense when we determine that these factors have changed.
At September 27, 2025, we had gross deferred tax assets of $209 million and deferred tax asset valuation allowances of $12 million. The deferred tax assets principally relate to benefit accruals, inventory obsolescence, tax benefit carryforwards, contract reserves and lease liabilities. The deferred tax assets include $13 million related to tax benefit carryforwards associated with net operating losses and tax credits, for which $12 million of deferred tax asset valuation allowances are recorded. For further information, refer to Note 16 - Income Taxes, of Item 8, Financial Statements and Supplementary Data, of this report.
CONSOLIDATED RESULTS OF OPERATIONS
During the preparation of our consolidated financial statements for the year ended September 27, 2025, management identified misstatements in previously issued annual consolidated financial statements and interim consolidated condensed financial statements, impacting prior periods.
The principal misstatement related to the accounting for a distinct group of long-term aftermarket service contracts with customers in the Commercial Aircraft segment. Specifically, there were inaccurate inputs used in the total costs at completion estimate within the over-time revenue recognition calculation for these contracts that accumulated over several years. Additionally, other unrelated misstatements, including an adjustment for the understatement of certain warranty costs, were also identified.
We evaluated the nature and magnitude of all identified misstatements to assess the materiality, including quantitative and qualitative considerations and determined that the misstatements were not material, individually or in aggregate, to any previously issued quarterly or annual consolidated financial statements. However, correcting these misstatements entirely in the current period would have been material to our 2025 financial statements. As a result, within this annual report, we have revised our prior period annual consolidated financial statements for 2023 and 2024 and our quarterly consolidated condensed financial statements for 2024 and 2025 to reflect the corrections in the periods in which the misstatements originated.
A summary of the corrections and their related impacts on each financial statement line items from our previously issued financial statements are presented in Note 1 - Summary of Significant Accounting Policies and Note 25 – Revision of Previously Issued Consolidated Financial Statements.
The following is a discussion of our results of operations in 2025 compared to revised 2024 results and our revised 2024 results of operations compared to revised 2023 results.
(In millions, except per share data)
$ Variance
% Variance
$ Variance
% Variance
Net sales
Gross margin
Research and development expenses
Selling, general and administrative expenses as a percentage of sales
Interest expense
Asset impairment
Restructuring expense
Loss on sale of businesses
Gain on sale of buildings
Pension settlement
Other
Effective tax rate
Net earnings
Diluted average common shares outstanding
Diluted earnings per share
Total backlog
Twelve-month backlog
Net sales increased in 2025 compared to 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 at the beginning of 2025. Net sales increased across all our segments in 2024 compared to 2023, driven by production ramps in Commercial Aircraft and by defense market growth in Military Aircraft and Space and Defense.
Gross margin decreased in 2025 compared to 2024. This was driven by a benefit of $14 million from the Employee Retention Credit associated with the CARES Act in 2024. Gross 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 our segments.
Research and development expenses decreased in 2025 compared to 2024 due to lower level of activity, primarily in Industrial. Research and development expenses increased in 2024 compared to 2023, driven by activities supporting our new growth programs in Space and Defense and Industrial.
Selling, general and administrative expenses as a percentage of sales increased in 2025 compared to 2024, driven by expenses associated with the settlement of a legal dispute of $12 million and increased business capture activities. Selling, general and administrative expenses as a percentage of sales decreased in 2024 compared to 2023, reflecting the incremental benefit from higher sales volume.
Interest expense increased in 2025 compared to 2024, driven by higher outstanding debt balances, partially offset by lower interest rates. Interest expense increased in 2024 compared to 2023, driven by higher interest rates, as well as higher debt balances.
In 2025, 2024 and 2023, inventory write-down, asset impairment and restructuring charges included charges for various simplification activities, primarily within Industrial. In 2023, we also incurred a non-cash pension settlement charge, which was mostly offset by the gain from the sales of three buildings in Industrial.
The effective tax rate was higher in 2025 compared to 2024, as 2024 included a benefit associated with a capital investment incentive in the United Kingdom. The effective tax rate was higher in 2024 compared to 2023, as the effective tax rate in 2023 reflected higher amounts of research and development tax credit benefits.
The twelve-month backlog at September 27, 2025 increased as compared with the twelve-month backlog at September 28, 2024. The twelve-month backlog in Military Aircraft increased due to the timing of orders for the F-35 program and new production programs. 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 Industrial increased due to increased orders in medical and liquid cooling pumps used in data centers.
The twelve-month backlog at September 28, 2024 increased as compared with the twelve-month backlog at September 30, 2023. Within Commercial Aircraft, we had higher spares orders in our aftermarket programs. Within Space and Defense, we had higher orders across our satellite and launch vehicle programs, as well as for defense component programs. These were partially offset by the timing of orders in various Military Aircraft programs.
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 22 - Segments, of Item 8, Financial Statements and Supplementary Data, of this report.
Space and Defense
(dollars in millions)
$ Variance
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Net sales
Operating profit
Operating margin
Space and Defense net sales increased in 2025 compared to 2024, reflecting broad-based defense demand. Higher demand for components for both satellites and defense applications, including missiles, was partially offset by timing of activity on spacecraft vehicles and turrets.
Operating margin decreased in 2025 compared to 2024, driven by the benefit from the Employee Retention Credit associated with the CARES Act in 2024 and expenses associated with the settlement of a legal dispute in 2025, partially offset by profitable sales growth.
Space and Defense net sales increased in 2024 compared to 2023, driven by strong, broad-based demand for defense applications. Higher U.S. demand for our component products, the ramp of new defense pursuits serving European needs and higher demand for launch vehicle and satellite components increased sales. These were partially offset by lower activity across our space vehicle programs.
Operating margin increased in 2024 compared to 2023 driven by strong operational performance, including improved performance on our space vehicle programs, the benefits from our pricing initiatives and the one-time benefit from the Employee Retention Credit associated with the CARES Act.
Military Aircraft
(dollars in millions)
$ Variance
% Variance
$ Variance
% Variance
Net sales
Operating profit
Operating margin
Military Aircraft net sales increased in 2025 compared to 2024. Sales increased in military OEM programs $63 million, driven by the ramp-up of activity on the MV-75 program and new production programs. Military aftermarket sales increased $14 million, driven primarily by fleet readiness activities.
Operating margin increased in 2025 compared to 2024, driven by stronger business performance and pricing, which was partially offset by the benefit from the Employee Retention Credit and the gain from the sale of a mature product line in 2024.
Military Aircraft net sales increased in 2024 compared to 2023, driven by growth on development and new production aircraft. Sales increased $88 million in military OEM programs, driven by the ramp-up of activity on the MV-75 program and other OEM production programs. Military aftermarket sales increased $3 million.
Operating margin increased in 2024 compared to 2023, driven by the benefits of cost absorption from having a full year of activity on the MV-75 program, a reduction in research and development expenses and the benefit from the Employee Retention Credit. Partially offsetting these benefits were higher impairment, restructuring and other charges in 2024.
Commercial Aircraft
(dollars in millions)
$ Variance
% Variance
$ Variance
% Variance
Net sales
Operating profit
Operating margin
Commercial Aircraft net sales increased in 2025 compared to 2024. Commercial aftermarket sales increased $68 million, driven largely by strong fleet utilization on the 787 and A350 programs. Commercial OEM sales increased $48 million, as we experienced growth from production ramps on widebody programs .
Operating margin decreased in 2025 compared to 2024, driven by pressure associated with tariffs, offset by the sale of a non-core product line as part of our portfolio shaping activities.
Commercial Aircraft net sales increased in 2024 compared to 2023. Commercial OEM sales increased $93 million, as we experienced growth from production ramps on widebody, narrowbody and business jet programs. Commercial aftermarket sales increased $29 million, driven by higher levels of spares for initial provisioning and higher repair volumes.
Operating margin decreased in 2024 compared to 2023. The absence of favorable aftermarket retrofit activity and the sale of a non-core product line as part of our portfolio shaping activities in 2023 were partially offset by the recovering OEM production volume in 2024.
Industrial
(dollars in millions)
$ Variance
% Variance
$ Variance
% Variance
Net sales
Operating profit
Operating margin
Industrial net sales decreased in 2025 compared to 2024, driven by divestitures, primarily within industrial automation, and lower sales for flight simulation systems and test products. These were partially offset by market share gains for medical devices.
Operating margin increased in 2025 compared to 2024 due to the benefits of our ongoing simplification initiatives, as well as prior year charges related to those initiatives. These were partially offset by the benefit from the Employee Retention Credit in 2024.
Industrial net sales increased in 2024 compared to 2023. Sales increased in our simulation and test market, driven by higher demand for flight simulation systems and test products. Sales also increased in our energy market. Partially offsetting these increases was a decrease in our industrial automation market, reflecting a slowdown in orders.
Operating margin decreased in 2024 compared to 2023 due to higher amounts of simplification charges, partially offset by the benefits from our pricing initiatives. In 2024 we incurred impairment, restructuring and inventory write-down charges of $32 million. In 2023, we incurred impairment, restructuring, inventory write-down and other charges of $21 million, partially offset by a $10 million gain related to the sales of three buildings.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated Statement of Cash Flows
(dollars in millions)
$ Variance
$ Variance
Net cash provided (used) by:
Operating activities
Investing activities
Financing activities
Operating activities
Net cash provided by operating activities increased in 2025 compared to 2024. Customer advances provided $123 million more cash, as we secured customer advances on multiple defense programs. Inventories used $80 million less cash, as the growth of inventories slowed in Military Aircraft and Commercial Aircraft. These were partially offset by accounts receivable, which used $123 million more cash, primarily in Commercial Aircraft, driven by the timing of collections.
Net cash provided by operating activities increased in 2024 compared to 2023. Billed and unbilled receivables provided $90 million more cash, driven by better collections and the expansion of our receivables financing program. Also, net earnings increased. Partially offsetting these sources of cash was customer advances, which used $81 million more cash as we worked down advances across all our segments.
Investing activities
Net cash used by investing activities in 2025 included $145 million of capital expenditures and $41 million associated with the acquisition of COTSWORKS, which were partially offset by $13 million of proceeds from the sales of businesses.
Net cash used by investing activities in 2024 included $152 million of capital expenditures. Net cash used by investing activities in 2024 also included $6 million associated with the acquisition of DCL.
Net cash used by investing activities in 2023 included $177 million of capital expenditures, including a $28 million building purchase. Also, 2023 included $22 million of proceeds from the sales of buildings and businesses.
Financing activities
Net cash used by financing activities in 2025 included a use of cash of $100 million for shares under the repurchase program authorized by the Board of Directors and $36 million for dividend payments. These were partially offset by $70 million of net borrowings on our credit facilities.
Net cash used by financing activities in 2024 included $35 million for dividend payments. Partially offsetting the dividend payments were $9 million of net borrowings on our credit facilities.
Net cash used by financing activities in 2023 included $34 million for dividend payments. Partially offsetting the dividend payments were $26 million of net borrowings on our credit facilities.
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 September 27, 2025, our cash balances were $62 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 credit facility borrowings was 5.80% and is based on SOFR plus the applicable margin, which was 1.60% at September 27, 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 5.90% and is based on SOFR plus the applicable margin, which was 1.60% at September 27, 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 6.36% as of September 27, 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 September 27, 2025, we had $925 million of unused capacity, including $901 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 5.21% as of September 27, 2025.
We are in compliance with all covenants under each of our financing arrangements. See Note 4 - Receivables and Note 10 - Indebtedness, of Item 8, Financial Statements and Supplementary Data, for additional details regarding our financing arrangements.
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 Statement of Shareholders Equity and Cash Flows, of Item 8, Financial Statements and Supplementary Data, for additional de tails regarding our financing arrangements.
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 Statement of Shareholders Equity and Cash Flows, of Part II, Item 8, Financial Information and Part II, Item 5, Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, of this report for additional details.
Today, 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.
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
For further information on our contractual obligations and commitments as of September 27, 2025, see the notes referenced below, of Item 8, Financial Statements and Supplementary Data, of this report.
Right-of-use lease liabilities - See Note 7 - Leases, for details on obligations and timing of expected future payments, including a five-year maturity schedule.
De bt Obligations and Interest Payments - See Note 10 - Indebtedness, for details of our debt and timing of expected future principal and interest payments. Our current and long-term interest obligation on fixed-rate debt is $21 million and $26 mill ion, respectively. Interest on variable-rate long-term debt, assuming the rate and outstanding balances do not change from those at September 27, 2025, would be approximately $28 million annually.
Employee Benefit Plans - See Note 15 - Employee Benefit Plans, for details on our obligations and timing of expected future payments under these plan s. In 2026, we anticipate making contributions to defined benefit pension plans of $10 million, of which approximately $6 million is for a non-qualified U.S. plan. We are unable to determine minimum funding requirements beyond 2025 . We have made no discretionary incremental contributions to our defined benefit plans in excess of minimum funding requirements. We do not plan to make additional contributions for the foreseeable future.
Income Taxes - We are unable to determine or estimate any potential changes to unrecognized tax benefits. See Note 16 - Income Taxes, for additional details of tax obligations.
Commitments - See Note 23 - Commitments and Contingencies, for additional details.
ECONOMIC CONDITIONS AND MARKET TRENDS
We operate within the aerospace and defense and industrial markets. A common factor throughout our markets is the continuing demand for technologically advanced products.
Our aerospace and defense businesses represented 75% of our 2025 sales. Our defense market, which represented 52% of our 2025 sales, is directly affected by defense funding levels and product demand, which have recently increased. Our commercial aircraft market, which represented 23% of our 2025 sales, is aligning with our customers' current plans. Within our various industrial markets, which represented 25% of our 2025 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. 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 vehicle 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. defense and commercial space. The civil market, namely NASA, is driven by investment for exploration activities. The U.S. 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 as well as the data center cooling market.
Our simulation and test products operate in markets that are largely affected by the same factors as our commercial aircraft market. Demand for our flight simulation systems will match the airline training market and the change in 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. Drivers for global energy 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 medical component offerings.
Foreign Currencies
We are affected by the movement of foreign currencies compared to the U.S. dollar. About one-sixth of our 2025 sales were denominated in foreign currencies. During 2025, average foreign currency rates generally strengthenedagainst the U.S. dollar compared to 2024. The translation of the results of our foreign subsidiaries into U.S. dollars increased sales by $5 million compared to one year ago. During 2024, average foreign currency rates generally weakenedagainst the U.S. dollar compared to 2023. The translation of the results of our foreign subsidiaries into U.S. dollars decreased 2024 sales by $4 million compared to 2023.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 - Summary of Significant Accounting Policies, included in Item 8, Financial Statements and Supplementary Data, of this report for further information regarding Financial Accounting Standards Board issued Accounting Standards Updates ("ASU").
