UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
__x__ SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
_____ SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-5129
MOOG INC.
(Exact name of registrant as specified in its charter)
New York State 16-0757636
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
East Aurora, New York 14052-0018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 652-2000
No Change
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes ___x___ No ______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
Class Outstanding at February 7, 1994
Class A Common Stock, $1.00 par value 6,036,651 Shares
Class B Common Stock, $1.00 par value 1,676,814 Shares
<PAGE> - 1 -
MOOG INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION 3-13
Consolidated Condensed Balance Sheets-
December 31, 1993 and September 30, 1993 4
Consolidated Condensed Statements of Operations-
Three Months Ended December 31, 1993 and 1992 5
Consolidated Condensed Statements of Cash Flows-
Three Months Ended December 31, 1993 and 1992 6
Notes to Consolidated Condensed Financial
Statements 7-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
PART II. OTHER INFORMATION 14
SIGNATURES 15
<PAGE> - 2 -
PART I: FINANCIAL INFORMATION
<PAGE> - 3 -
MOOG INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
Unaudited Audited
As of As of
<S> December 31 September 30
ASSETS 1993 1993
CURRENT ASSETS <C> <C>
Cash and cash equivalents $ 17,136 $ 18,589
Accounts receivable-net 113,111 123,009
Inventories (note 2) 66,877 66,862
Deferred income taxes 11,018 6,412
Prepaid expenses and other current assets 2,183 1,842
TOTAL CURRENT ASSETS 210,325 216,714
PROPERTY, PLANT AND EQUIPMENT-net 92,807 95,855
OTHER ASSETS 5,611 5,561
TOTAL ASSETS $308,743 $318,130
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 17,983 $ 19,851
Current installments of long-term debt
and convertible subordinated debentures 18,777 18,793
Accounts payable 12,326 13,912
Accrued salaries, wages and commissions 14,382 16,736
Contract loss reserves 5,222 5,396
Other accrued liabilities 8,598 9,531
Accrued income taxes 580 195
Customer advances 7,344 8,767
TOTAL CURRENT LIABILITIES 85,212 93,181
LONG-TERM DEBT, excluding current
installments 76,069 78,153
LONG-TERM PENSION OBLIGATION 24,866 25,110
OTHER LIABILITIES 4,668 5,144
DEFERRED INCOME TAXES 3,689 1,857
CONVERTIBLE SUBORDINATED DEBENTURES,
excluding current installments 20,800 20,800
MINORITY INTEREST IN SUBSIDIARY COMPANY 1,275 1,324
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY (note 6)
Preferred stock 100 100
Common stock 9,134 9,134
Other shareholders' equity 82,930 83,327
TOTAL SHAREHOLDERS' EQUITY 92,164 92,561
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $308,743 $318,130
</TABLE>
See accompanying notes to Consolidated Condensed Financial Statements.
<PAGE> - 4 -
MOOG INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
Unaudited
<TABLE>
<CAPTION> Three Months Ended
December 31
1993 1992
<S> <C> <C>
NET SALES $ 68,818 $ 68,118
OTHER INCOME 556 624
69,374 68,742
COSTS AND EXPENSES
Cost of sales 48,542 46,780
Research and development expenses 5,006 4,126
Selling, general and administrative
expenses 12,885 13,157
Interest expense 2,483 3,005
Foreign currency exchange (gain) loss (129) 255
Other expenses 276 217
69,063 67,540
EARNINGS BEFORE INCOME TAXES, EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 311 1,202
INCOME TAXES
Current 40 (93)
Deferred 73 394
113 301
EARNINGS BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 198 901
EXTRAORDINARY ITEM, LOSS FROM EARLY
EXTINGUISHMENT OF DEBT, NET OF
INCOME TAXES OF $119 (note 3) - (357)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (note 4) 505 -
NET EARNINGS $ 703 $ 544
EARNINGS PER COMMON SHARE
- BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE $.03 $.12
- EXTRAORDINARY ITEM - (.05)
- CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE .06 -
- NET EARNINGS $.09 $.07
AVERAGE COMMON SHARES OUTSTANDING 7,713,465 7,713,465
</TABLE>
See accompanying notes to Consolidated Condensed Financial Statements.
<PAGE> - 5 -
MOOG INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Unaudited
<TABLE>
<CAPTION> Three Months Ended
December 31
<S> 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES <C> <C>
Net earnings $ 703 $ 544
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 3,484 4,356
Provisions for losses 903 371
Deferred income taxes (1,363) (165)
Cumulative effect of change in
accounting principle (505) -
Other 26 (56)
Changes in assets and liabilities
providing (using) cash:
Receivables 8,606 10,209
Inventories (2,158) (2,225)
Other assets (714) (820)
Accounts payable and accrued expenses (4,539) (9,062)
Other liabilities (1,337) (1,722)
Accrued income taxes (111) (124)
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,995 1,306
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and
equipment (2,033) (3,550)
Proceeds from sale of assets 152 1,321
Other 30 53
NET CASH USED BY INVESTING ACTIVITIES (1,851) (2,176)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in notes payable (810) 5,244
Proceeds from revolving lines of credit 224 12,069
Payments on revolving lines of credit - (6,861)
Proceeds from issuance of long-term debt 960 34
Payments on long-term debt and capital
lease obligations (2,935) (10,695)
Purchase of convertible subordinated
debentures - (177)
Preferred stock dividends paid (2) (2)
NET CASH USED BY FINANCING ACTIVITIES (2,563) (388)
Effect of exchange rate changes on cash (34) (154)
DECREASE IN CASH (1,453) (1,412)
Cash at beginning of period 18,589 8,106
Cash at end of period $17,136 $ 6,694
</TABLE>
See accompanying notes to Consolidated Condensed Financial Statements.
<PAGE> - 6 -
MOOG INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(dollars in thousands except share data)
Unaudited
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary to
present fairly the consolidated financial position as of December 31, 1993
and September 30, 1993, the results of operations for the three months
ended December 31, 1993 and 1992 and changes in cash flows for the three
months ended December 31, 1993 and 1992. The results of operations for
the three month period ended December 31, 1993 are not necessarily
indicative of the results expected for the full year. Certain
reclassifications have been made to the prior period financial statements
to conform with current period presentation.
2. Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method of valuation. Inventories are comprised of the
following:
December 31 September 30
1993 1993
Raw materials and purchased parts $14,522 $14,641
Work in process 46,745 47,176
Finished goods 5,610 5,045
$66,877 $66,862
3. During December 1992, the Company extinguished $10,186 of its 12 7/8%
long-term debt, prior to the scheduled maturity in order to take advantage
of the significant decline in interest rates. The result was an
extraordinary loss of $357, net of an income tax benefit of $119.
4. During the quarter ended December 31, 1993, the Company adopted Statements
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
and No. 106, "Employers' Accounting for Post-Retirement Benefits Other
Than Pensions." As a result of recording previously unrecognized deferred
tax assets in the United States and Japan in accordance with Statement No.
109, earnings were increased by $505. This increase has been reported as
a Cumulative Effect of Change in Accounting Principle. The effect of
adopting No. 106 is to increase post-retirement benefit expenses by
approximately $400 for fiscal 1994. The increase in first quarter
expenses related to No. 106 is $100.
5. In addition to the cash flow information provided in the Consolidated
Condensed Statements of Cash Flows, the following supplemental cash flow
data is provided:
Three Months Ended
December 31
1993 1992
Cash paid during the period for:
Interest $1,794 $2,255
Income tax 1,819 1,250
Non cash investing and financing
activities:
Leases capitalized 10 39
<PAGE> - 7 -
6. The changes in shareholders' equity for the three months ended December
31, 1993 are summarized as follows:
<TABLE>
<CAPTION>
Number of Shares
Class A Class B
Preferred Common Common
Amount Shares Stock Stock
<S> <C> <C> <C> <C>
PREFERRED STOCK
Beginning and end of period $ 100 100,000
COMMON STOCK
Beginning of period 9,134 6,598,989 2,535,134
Conversion of B shares into
A shares - 217 (217)
End of period 9,134 6,599,206 2,534,917
ADDITIONAL PAID-IN CAPITAL
Beginning and end of period 47,780
RETAINED EARNINGS
Beginning of period 54,259
Net earnings 703
Preferred stock dividends (2)
End of period 54,960
TREASURY STOCK
Beginning and end of period (18,002) (562,555) (858,103)
EQUITY ADJUSTMENTS
Beginning of period 564
Foreign currency translation (1,128)
End of period (564)
LOAN TO SAVINGS AND STOCK
OWNERSHIP PLAN (SSOP)
Beginning of period (1,274)
Payments received on loan
to SSOP 30
End of period (1,244)
TOTAL SHAREHOLDERS' EQUITY $92,164 100,000 6,036,651 1,676,814
</TABLE>
<PAGE> - 8 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING HIGHLIGHTS (dollars in thousands)
DOMESTIC CONTROLS manufactures and markets precision control components
primarily for North America. Three Months Ended
12/31/93 12/31/92
Net Sales $ 46,560 $ 43,725
Intersegment sales 2,469 2,422
Total sales $ 49,029 $ 46,147
Operating profit $ 4,706 $ 5,384
Earnings before extraordinary
item and cumulative effect of
change in accounting principle 1,320 1,841
Backlog 134,939 155,943
INTERNATIONAL CONTROLS manufactures and markets precision control components
for industrialized economies outside of North America.
Three Months Ended
12/31/93 12/31/92
Net Sales $ 22,258 $ 24,393
Intersegment sales 1,278 1,239
Total sales $ 23,536 $ 25,632
Operating profit (loss) $ (142) $ 728
Currency exchange (gain) loss (112) 315
Earnings (loss) before extraordinary
item and cumulative effect of
change in accounting principle (1,218) (929)
Backlog 27,720 40,756
CONSOLIDATED SALES AND EARNINGS
Three Months Ended
12/31/93 12/31/92
Net sales $ 68,818 $ 68,118
Operating profit 4,564 6,112
Deductions from operating profit:
Interest expense 2,483 3,005
Currency exchange (gain) loss (129) 255
Other expenses-net 2,058 1,611
Eliminations (159) 39
Total deductions 4,253 4,910
Earnings before income taxes,
extraordinary item and cumulative
effect of change in
accounting principle 311 1,202
Income taxes 113 301
Earnings before extraordinary item
and cumulative effect of change
in accounting principle 198 901
Extraordinary item - Loss from
early extinguishment of debt - (357)
<PAGE> - 9 -
Cumulative effect of change in
accounting principle 505 -
Net earnings $ 703 $ 544
Backlog $162,659 $196,699
Operating profit for each segment consists of total revenue less cost of
sales and segment specific operating expenses. The deductions from operating
profit have been charged to the respective segments by being directly
identified with a segment or allocated to the segments on the basis of
identifiable net assets.
<PAGE> - 10 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion represents an analysis of the first
quarter of fiscal 1994 compared with the first quarter of fiscal
1993, unless otherwise noted.
GENERAL - Net earnings for the three months ended December 31, 1993
were $.7 million or $.09 per share compared with $.5 million or
$.07 per share a year ago. Net earnings for the first quarter of
1994 include $.5 million for the cumulative effect of adopting
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Net earnings for the first quarter of 1993 included
an extraordinary after-tax charge of $.4 million for prepayment
costs on the early extinguishment of 12 7/8% debt. Before the
cumulative effect of the change in accounting principle and the
extraordinary item, net earnings for the first quarter of 1994 were
$.2 million or $.03 per share compared with $.9 million or $.12 per
share a year ago.
Operating profit for the Domestic Controls segment was $4.7 million
or 9.6% of segment sales for the first quarter of 1994 compared
with $5.4 million or 11.7% of segment sales a year ago.
Contributing to the decline in operating profit is an increase in
pension costs of approximately $.5 million resulting from a
reduction in the discount rate assumption at September 30, 1993 to
7.5% from 8.5% in the prior year. The lower discount rate reflects
the market decline in long-term U.S. interest rates. Operating
profit declined most noticeably in the Systems group due to a less
favorable product mix on marginally lower sales. This is due in
part to the virtual completion in 1993 of a long-term contract
within the Missiles product line as well as to a shift in the
product mix towards traditionally lower margin Space and
Electronics and Systems product lines. The Electronics and Systems
product line was also affected by lower margins on new product
introductions.
Operating profit for the International Controls segment declined to
a loss of $.1 million or .6% of segment sales in the first quarter
of 1994 compared with operating profit of $.7 million or 2.8% of
segment sales in the first quarter of 1993. This decline is
primarily due to operations in Japan and England. In Japan,
shipments of new product were impeded by the warranty replacement
of faulty components supplied by a subcontractor. England's
operating profit was off significantly from a year ago primarily
due to low levels of industrial sales in the first quarter of 1994.
Near term improvements in operating profits for the International
Controls segment will continue to be dependent on increased sales
volume primarily associated with the strengthening of European
economic conditions as well as successful product cost reductions.
In addition to adopting Statement No. 109, "Accounting for Income
Taxes", the Company also adopted in the first quarter of 1994,
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Post-Retirement Benefits Other Than Pensions."
Statement No. 106 costs are being expensed at $1.1 million annually
including the amortization of the initial transition obligation of
<PAGE> - 11 -
$7.9 million over twenty years. This 1994 cost is $.4 million
greater than the annual cost of post-retirement benefits other than
pensions in 1993 of $.7 million determined on a cost incurred
basis.
FINANCIAL CONDITION AND LIQUIDITY - Cash provided by operating
activities in the first quarter of 1994 was $3.0 million compared
with $1.3 million in 1993. Cash was generated from the decline in
Accounts Receivable during the first quarter of 1994 and 1993
principally due to declining Domestic Controls sales compared with
the fourth quarter of the preceding years.
During the fourth quarter of 1993, the Company borrowed the balance
of the unused portion of its Domestic revolving credit agreements
in order to take advantage of the committed favorable interest
rates. Domestic revolving credit facilities of $50.5 million were
automatically converted to term loans repayable ratably through
1998. The amount of cash drawn down on these revolvers in excess
of current financing needs of the operations has been invested in
short-term U.S. deposit instruments. Such excess cash will be used
for working capital or for debt reductions in future periods.
Future annual debt maturities are expected to approximate $19
million and will be financed from the aforementioned excess cash,
internally generated cash from operating activities and new credit
facilities. At December 31, 1993, the Company had unused Domestic
lines of credit of $4 million in addition to Domestic cash and cash
equivalents of $16 million.
In January 1994, the Company signed a revolving credit agreement
with a Domestic bank for $10 million. The interest rate is
determined with reference to the London Interbank Offered Rate
(LIBOR) plus a margin of 5/8%, and there is a nominal fee charged
for the unused portion of the facility. The available usage of the
facility matures on July 30, 1996 at which time the outstanding
borrowings are due and payable. The Company's other debt is
described in the 1993 Annual Report to Shareholders.
Total consolidated assets declined 3.0% to $309 million at December
31, 1993 compared with $318 million at September 30, 1993.
Approximately half of this decline results from the weakening of
foreign currencies relative to the U.S. dollar based on spot
exchange rates. Excluding the effects of foreign currencies,
assets declined primarily due to decreases in accounts receivable
on lower sales volume compared with the fourth quarter of the
previous year.
During the first quarter of 1993, the Company prepaid $10.2 million
of long-term debt on a capital lease with an interest rate of 12
7/8% in order to take advantage of the significant decrease in U.S.
market interest rates. The estimated annual pre-tax savings is
approximately $.8 million compared with a pre-tax extraordinary
charge recorded in the first quarter of 1993 of $.5 million.
Capital expenditures for the first quarter of 1994 were $2.0
million compared with $3.6 million of capital expenditures in the
first quarter of 1993 and compared with $3.5 million of 1994 first
quarter depreciation. Additions to property, plant and equipment
for all of 1994 are expected to remain below depreciation levels.
<PAGE> - 12 -
The Company monitors total debt to equity as a key financial ratio.
This ratio includes short-term and long-term debt and subordinated
debentures. The ratio at December 31, 1993 was 1.45 compared with
1.49 at September 30, 1993. Working capital at December 31, 1993
was $125 million compared with $124 million at September 30, 1993.
The current ratio was 2.5 at December 31, 1993 compared with 2.3 at
September 30, 1993.
NET SALES increased 1.0% to $68.8 million for the first quarter of
1994 compared with $68.1 million a year ago. Net sales for the
Domestic Controls segment increased 6.5% to $46.6 million in 1994
compared with $43.7 million a year ago primarily due to Aircraft
product sales. For the International Controls segment, net sales
declined 8.7% to $22.3 million in 1994 compared with $24.4 million
a year ago. Approximately half of this decline is due to the
weakening of foreign currencies relative to the U.S. dollar using
average exchange rates for the quarter. Exclusive of currency
effects, sales declined throughout Europe and principally in
Germany and England reflecting soft industrial economic conditions.
OTHER INCOME was $.6 million in the first quarter of 1994 compared
with $.6 million a year ago. Other income generally includes
rents, royalties and interest.
COST OF SALES was 70.5% of net sales in 1994 compared with 68.7% of
net sales in 1993. The increase in cost of sales as a percent of
net sales from a year ago is primarily attributable to the Domestic
segment and reflective of unfavorable shifts in product mix
including lower F-15 sales, lower margins for the Engine Controls
and the Electronics and Systems product lines, and less profitable
sales in the Missiles product line due to the virtual completion of
a long-term contract in 1993. Cost of sales as a percent of sales
also increased within the International Controls segment primarily
as a result of lower sales in England.
RESEARCH AND DEVELOPMENT EXPENSE was $5.0 million or 7.3% of net
sales in the first quarter of 1994 compared with $4.1 million or
6.1% of net sales in the first quarter of 1993. The increase in
research and development expenses from a year ago reflects
increased efforts on the Engine Controls product line and on radio
controls within the Electronics and Systems product line. In
addition, increased R&D was incurred on brushless motor development
for entertainment motion platforms.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES were $12.9 million or
18.7% of net sales in 1994 compared with $13.2 million or 19.3% of
net sales in 1993. The decrease in SG&A costs is principally due
to lower commission costs compared to a year ago.
INTEREST EXPENSE was $2.5 million or 3.6% of net sales in the first
quarter of 1994 compared with $3.0 million or 4.4% of net sales a
year ago. The decline in interest expense is primarily due to the
cost savings realized from the December 1992 prepayment of $10.2
million of 12 7/8% long-term debt as previously described and lower
worldwide interest rates.
FOREIGN CURRENCY (GAIN) LOSS for the first quarter of 1994 was a
gain of $.1 million compared with a loss of $.3 million a year ago.
<PAGE> - 13 -
The first quarter loss sustained in 1993 was due to the Company's
Italian subsidiary, which had a net liability payable in Deutsche
Marks to our German company. The Italian Lira was devalued against
the Deutsche Mark during the first quarter of 1993, resulting in a
significant foreign currency loss. Since then, increased
borrowings in Italian Lira have served to reduce the Deutsche Mark
exposure with respect to currency fluctuations.
INCOME TAXES - The effective tax rate for the first quarter of 1994
is 36% compared with 25% a year ago. The low effective tax rate in
1993 resulted from the utilization of net operating loss
carryforwards at the Company's German subsidiary. As previously
mentioned, the Company adopted Statement No. 109, Accounting for
Income Taxes, in the first quarter of 1994. The effect of this
change in accounting principle was to increase net earnings by $.5
million, primarily resulting from the recognition of deferred tax
assets in the U.S. and Japan. No deferred tax assets were recorded
at December 31, 1993 related to our German subsidiary which had net
operating loss carryforwards of $5.5 million at September 30, 1993.
These German tax losses, which may be carried forward indefinitely,
will be used to reduce taxes otherwise due on German income earned
in future years.
BACKLOG was $163 million at December 31, 1993 compared with $181
million at September 30, 1993 and with $197 million at December 31,
1992. Backlog for the Domestic Controls segment was $135 million
at December 31, 1993 compared with $149 million at September 30,
1993 and with $156 million at December 31, 1992. This anticipated
decline is mostly attributable to the Missile Systems product line
particularly the Titan, Maverick and VT-I programs. Backlog for
the International Controls segment was $27.7 million at December
31, 1993 compared with $32.0 million at September 30, 1993 and with
$40.8 million at December 31, 1992. Most of the backlog decline
within the International Controls segment is attributable to
Germany and reflects low new order rates primarily on the Aerospace
product line. Approximately one fourth of the decline in
International Segment backlog from September 30, 1993 to December
31, 1993 is attributable to weakening foreign currencies relative
to the U.S. dollar using spot rates.
ENVIRONMENTAL MATTERS - The Company has been named a potentially
responsible party (PRP) in the clean-up of three Superfund sites in
Western New York. In addition, the Company was notified in August
1993 by a PRP group at a related site that it will seek
contribution from the Company and others to the extent the group is
responsible for remediation costs at the related site. At December
31, 1993, the Company believes that adequate reserves have been
established for environmental issues for which our financial
exposure is probable and quantifiable. Because of the
uncertainties associated with environmental matters, the Company
could be requested to participate in future remediation activities,
if any, at the three Superfund sites. With respect to the related
site, the clean-up effort has not progressed sufficiently to allow
an accurate assessment of total clean-up costs, or the Company's
relative responsibility for those costs. Based upon currently
available data, while it is difficult to predict, the Company does
not expect that these environmental matters will have a material
effect on the financial position of the Company in excess of
amounts previously reserved.
<PAGE> - 14 -
GOVERNMENT CONTRACTING ENVIRONMENT - Current industry conditions
continue to represent significant challenges for the Company.
Approximately 60% of the Company's sales over the past five years
have been to either the U.S. Government or to various foreign
governments for military and space hardware on programs that extend
over many years. Government procurements of hardware within most
of these programs are generally authorized in annual quantities and
are constrained by the annual government budgeting process. The
Company shares risks of cancellation as a participant in these
programs similar to the risk assumed by all government contractors.
Many of the Company's products are on the leading edge of new
technologies. Development problems on projects on which the
Company is performing under fixed-price contracts and is unable to
recover the additional costs are part of the risks of being on the
forefront of such technology. In this regard, the Company's risk
of technical development and design problems is similar to other
high-technology companies. Since the manufacture of these products
involves highly precise, complex operations and vendor supplied
component parts, a similar risk exists for products in the
production phase.
Continued Government emphasis on audit and investigative activity
in the U.S. Defense Industry presents risks of unanticipated
financial exposure for companies with substantial activity in
Government contract work. The audit process is an on-going one
which includes post-award reviews and audits of compliance with the
various procurement requirements. Although Government regulations
provide that under certain circumstances a contractor may be fined,
penalized, have its progress payments withheld or be debarred from
contracting with the Government, the Company does not anticipate a
material financial impact from the various and on-going procurement
reviews. The Company believes that adequate reserves have been
established for any issues on which financial exposure is known and
quantifiable as of December 31, 1993.
The last 30 years have produced a continuing stream of
opportunities for the Company on precision hydraulic servosystems.
However, continual improvements in the power density of electric
motors and the current carrying capacity of controller circuitry
continually erode the application base for hydraulic controls.
Recognizing this phenomenon, the Company broadened its purview and
is a supplier of high performance industrial control systems rather
than just a supplier of components for hydraulic systems. The
Industrial world today is shifting to digital control for increased
functionality. The Company plans to provide increasingly
intelligent digital control as part of its electric drive systems
and as a complement to its hydraulic controls. The Company's
objective is to offer the world's most advanced systems capability
together with the world's highest performance hydraulic and
electric drives, to manufacture these products in world class
facilities and to present them to markets around the world through
a network of sales and application engineering subsidiaries.
<PAGE> - 15 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of Shareholders held
on February 9, 1994, the nominees to the Board of
Directors were re-elected based upon the following
results:
Authority
Nominee For Withheld
Class B
Richard A. Aubrecht 1,484,249 15,334
Class A
Peter P. Poth 5,182,865 28,647
In addition, KPMG Peat Marwick was ratified to
continue as auditors based upon the following votes:
For, 2,003,364; Against, 7,996; Abstain, 9,373.
Under applicable state law and the Company's
Restated Certificate of Incorporation and By-Laws,
abstentions and non-votes have no effect.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
None.
b. Reports on Form 8-K.
None.
<PAGE> - 16 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Moog Inc.
(Registrant)
Date: February 11, 1994 By S/Robert R. Banta/S
Robert R. Banta
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)
Date: February 11, 1994 By S/Donald R. Fishback
Donald R. Fishback
Controller
(Principal Accounting Officer)
<PAGE> - 17 -
