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 March 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
X 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 May 9, 1994
Class A Common Stock, $1.00 par value 6,036,434 Shares
Class B Common Stock, $1.00 par value 1,677,031 Shares
<PAGE>
MOOG INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION 3-17
Consolidated Condensed Balance Sheets-
March 31, 1994 and September 30, 1993 4
Consolidated Condensed Statements of Operations-
Three Months Ended March 31, 1994 and 1993 5
Consolidated Condensed Statements of Operations-
Six Months Ended March 31, 1994 and 1993 6
Consolidated Condensed Statements of Cash Flows-
Six Months Ended March 31, 1994 and 1993 7
Notes to Consolidated Condensed Financial
Statements 8-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-17
PART II. OTHER INFORMATION 18
SIGNATURES 19
<PAGE>
PART I: FINANCIAL INFORMATION
<PAGE>
MOOG INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
Unaudited Audited
As of As of
March 31 September 30
1994 1993
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,077 $ 18,589
Receivables, net 115,588 123,009
Inventories (note 3) 63,277 66,862
Deferred income taxes 11,145 6,412
Prepaid expenses and other current assets 3,323 1,842
TOTAL CURRENT ASSETS 202,410 216,714
PROPERTY, PLANT AND EQUIPMENT, net 92,348 95,855
OTHER ASSETS 5,433 5,561
TOTAL ASSETS $300,191 $318,130
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 17,011 $ 19,851
Current installments of long-term debt
and convertible subordinated debentures 14,812 18,793
Accounts payable 16,981 13,912
Accrued salaries, wages and commissions 15,664 16,736
Contract loss reserves 5,156 5,396
Other accrued liabilities 12,419 9,531
Accrued income taxes 348 195
Customer advances 5,564 8,767
TOTAL CURRENT LIABILITIES 87,955 93,181
LONG-TERM DEBT, excluding current installments 68,592 78,153
LONG-TERM PENSION OBLIGATION 24,771 25,110
OTHER LONG-TERM LIABILITIES 692 5,144
DEFERRED INCOME TAXES 5,508 1,857
CONVERTIBLE SUBORDINATED DEBENTURES,
excluding current installments 19,400 20,800
MINORITY INTEREST IN SUBSIDIARY COMPANY 1,437 1,324
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY (note 7)
Preferred stock 100 100
Common stock 9,134 9,134
Other shareholders' equity 82,602 83,327
TOTAL SHAREHOLDERS' EQUITY 91,836 92,561
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $300,191 $318,130
</TABLE>
See accompanying notes to Consolidated Condensed Financial Statements.
<PAGE>
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
Unaudited
<TABLE>
<CAPTION> Three Months Ended
March 31
1994 1993
<S> <C> <C>
NET SALES $ 75,127 $ 74,840
OTHER INCOME 377 461
75,504 75,301
COSTS AND EXPENSES
Cost of sales 52,120 52,135
Research and development expenses 4,960 4,373
Selling, general and administrative
expenses 13,508 13,489
Interest expense 2,240 2,717
Foreign currency exchange (gain) loss (92) 77
Other expenses 225 58
Inventory obsolescence charge
(note 2) 2,574 -
Restructuring expense (note 2) 2,107 -
77,642 72,849
EARNINGS (LOSS) BEFORE INCOME TAXES (2,138) 2,452
INCOME TAXES
Current 933 (253)
Deferred (1,830) 1,093
(897) 840
NET EARNINGS (LOSS) $ (1,241) $ 1,612
EARNINGS (LOSS) PER COMMON SHARE $(.16) $.21
AVERAGE COMMON SHARES OUTSTANDING 7,713,465 7,713,465
</TABLE>
See accompanying notes to Consolidated Condensed Financial Statements.
<PAGE>
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
Unaudited
<TABLE>
<CAPTION> Six Months Ended
March 31
1994 1993
<S> <C> <C>
NET SALES $143,945 $142,958
OTHER INCOME 933 1,085
144,878 144,043
COSTS AND EXPENSES
Cost of sales 100,662 98,915
Research and development expenses 9,966 8,499
Selling, general and administrative
expenses 26,393 26,710
Interest expense 4,723 5,722
Foreign currency exchange (gain) loss (221) 332
Other expenses 501 211
Inventory obsolescence charge
(note 2) 2,574 -
Restructuring expense (note 2) 2,107 -
146,705 140,389
EARNINGS (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (1,827) 3,654
INCOME TAXES
Current 973 (346)
Deferred (1,757) 1,487
(784) 1,141
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (1,043) 2,513
EXTRAORDINARY ITEM, LOSS FROM EARLY
EXTINGUISHMENT OF DEBT, NET OF
INCOME TAXES OF $119 (note 4) - (357)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (note 5) 505 -
NET EARNINGS (LOSS) $ (538) $ 2,156
EARNINGS (LOSS) PER COMMON SHARE:
- BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $(.13) $.33
- EXTRAORDINARY ITEM - (.05)
- CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE .06 -
- NET EARNINGS (LOSS) $(.07) $.28
AVERAGE COMMON SHARES OUTSTANDING 7,713,465 7,713,465
</TABLE>
See accompanying notes to Consolidated Condensed Financial Statements.
<PAGE>
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Unaudited
<TABLE>
<CAPTION> Six Months Ended
March 31
<S> 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES <C> <C>
Net earnings (loss) $ (538) $ 2,156
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization 7,236 8,255
Provisions for losses 3,848 1,709
Deferred income taxes (747) (290)
Cumulative effect of change in
accounting principle (505) -
Other 473 65
Changes in assets and liabilities
providing (using) cash:
Receivables 6,639 6,717
Inventories (377) (297)
Other assets (1,921) (1,607)
Accounts payable and accrued expenses 4,460 (9,376)
Other liabilities (7,550) (1,597)
Accrued income taxes 294 159
NET CASH PROVIDED BY OPERATING 11,312 5,894
ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment(3,791) (6,474)
Proceeds from sale of assets 294 6,420
Other 37 90
NET CASH (USED) PROVIDED
BY INVESTING ACTIVITIES (3,460) 36
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in notes payable (2,068) (200)
Proceeds from revolving lines of credit 373 16,835
Payments on revolving lines of credit - (9,383)
Proceeds from issuance of long-term debt 979 623
Payments on long-term debt and capital
lease obligations (15,438) (12,025)
Purchase of convertible subordinated
debentures (1,282) (177)
Preferred stock dividends paid (5) (5)
NET CASH USED
BY FINANCING ACTIVITIES (17,441) (4,332)
Effect of exchange rate changes on cash 77 (480)
INCREASE (DECREASE) IN CASH (9,512) 1,118
Cash at beginning of period 18,589 8,106
Cash at end of period $ 9,077 $ 9,224
</TABLE>
See accompanying notes to Consolidated Condensed Financial Statements.
<PAGE>
MOOG INC.
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 financial position of
Moog Inc. as of March 31, 1994 and September 30, 1993, and the
results of their operations and their cash flows for the three
and six months ended March 31, 1994 and 1993. The results of
operations for the six month period ended March 31, 1994 are not
necessarily indicative of the results expected for the full year.
In addition, certain reclassifications have been made to the
prior period financial statements to conform with the current
year presentation.
2. During the quarter ended March 31, 1994, the Company recorded a
pre-tax charge for future restructuring costs of $2,107. This
charge includes $1,683 of severance benefit costs related to
workforce reductions primarily in the Company's operations in
England, Germany and Denmark, and $424 of additional costs
primarily related to the disposition of a facility which is in
the process of being subleased.
In addition to the restructuring charge, the Company recorded a
$2,574 pre-tax charge for the write-off of Domestic obsolete
inventory in the second quarter of 1994. This provision for
inventory obsolescence increased the consolidated Reserve for
Inventory Obsolescence to $8,477 as of March 31, 1994 compared
with $5,072 as of September 30, 1993. The Domestic Reserve for
Inventory Obsolescence increased to $6,507 at March 31, 1994 from
$3,423 at September 30, 1993. This inventory obsolescence charge
reflects a recent decline in repair activities and spare parts
requirements on many government programs in addition to
accelerating the cash tax benefit by physically disposing of this
excess inventory in this fiscal year. Approximately $5,000 of
the quarter-end reserve will be scrapped prior to year-end
resulting in cash tax benefits of approximately $1,900. The
consolidated reserve remaining after scrapping the excess
inventory will be approximately $3,500 and is considered adequate
to properly value the remaining inventory.
3. 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:
March 31 September 30
1994 1993
Raw materials and purchased parts $13,010 $14,641
Work in process 41,967 47,176
Finished goods 8,300 5,045
$63,277 $66,862
<PAGE>
4. In late 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
cost of the extinguishment was reported as an extraordinary loss
of $357, net of an income tax benefit of $119.
5. In the quarter ended December 31, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109 (SFAS 109),
"Accounting for Income Taxes." As a result of recording
previously unrecognized deferred tax assets in the United States
and Japan in accordance with SFAS 109, net earnings were
increased by $505. The effect of adopting SFAS 109 has been
reported as a Cumulative Effect of Change in Accounting
Principle.
Also in the first quarter of 1994, the Company adopted Statement
of Financial Accounting Standards No. 106 (SFAS 106), "Employers'
Accounting for Post-Retirement Benefits Other Than Pensions."
The effect of adopting SFAS 106 is to increase post-retirement
benefit expenses by approximately $400 for the twelve months
ending September 30, 1994, or approximately $200 in the first six
months.
6. In addition to the cash flow information provided in the
Consolidated Condensed Statements of Cash Flows, the following
supplemental cash flow data is provided:
Six Months Ended
March 31
1994 1993
Cash paid during the period for:
Interest $3,957 $5,488
Income tax 2,429 1,502
Non cash investing and financing
activities:
Leases capitalized 8 37
7. The changes in shareholders' equity for the six months ended
March 31, 1994 are summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
Class A Class B
Preferred Common Common
Amount Shares Stock Stock
<S>
PREFERRED STOCK <C> <C> <C> <C>
Beginning and end of period $ 100 100,000
COMMON STOCK
Beginning and end of period 9,134 6,598,989 2,535,134
ADDITIONAL PAID-IN CAPITAL
Beginning and end of period 47,780
RETAINED EARNINGS
Beginning of period 54,259
Net earnings (538)
Preferred stock dividends (5)
End of period 53,716
TREASURY STOCK
Beginning and end of period (18,002) (562,555) (858,103)
EQUITY ADJUSTMENTS
Beginning of period 564
Foreign currency translation (219)
End of period 345
LOAN TO SAVINGS AND STOCK
OWNERSHIP PLAN (SSOP)
Beginning of period (1,274)
Payments received on loan
to SSOP 37
End of period (1,237)
TOTAL SHAREHOLDERS' EQUITY $91,836 100,000 6,036,434 1,677,031
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
OPERATING HIGHLIGHTS
(dollars in thousands)
DOMESTIC CONTROLS manufactures and markets precision control components
primarily for North America.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
3/31/94 3/31/93 3/31/94 3/31/93
<S> <C> <C> <C> <C>
Net sales $51,000 $49,087 $ 97,560 $ 92,812
Intersegment sales 1,631 2,310 4,100 4,732
Total sales $52,631 $51,397 $101,660 $ 97,544
Operating profit $ 2,352 $ 5,000 $ 7,058 $ 10,384
Non-recurring restructuring charge and
inventory obsolescence charge
included in operating profit 3,150 - 3,150 -
Earnings (loss) before extraordinary
item and cumulative effect of
change in accounting principle (695) 1,452 625 3,293
Backlog 129,856 153,355
</TABLE>
INTERNATIONAL CONTROLS manufactures and markets precision control
components for industrialized economies in Europe and the Far East.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
3/31/94 3/31/93 3/31/94 3/31/93
<S> <C> <C> <C> <C>
Net sales $24,127 $25,753 $ 46,385 $ 50,146
Intersegment sales 1,305 631 2,583 1,870
Total sales $25,432 $26,384 $ 48,968 $ 52,016
Operating profit (loss) $ (150) $ 1,760 $ (292)$ 2,488
Non-recurring restructuring charge and
inventory obsolescence charge
included in operating profit 1,531 - 1,531 -
Currency exchange (gain) loss (109) 110 (221) 423
Earnings (loss) before extraordinary
item and cumulative effect of
change in accounting principle (499) 107 (1,717) (822)
Backlog 29,289 40,389
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
OPERATING HIGHLIGHTS
(dollars in thousands)
CONSOLIDATED SALES AND EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
3/31/94 3/31/93 3/31/94 3/31/93
<S> <C> <C> <C> <C>
Net sales $75,127 $74,840 $143,945 $142,958
Operating profit 2,202 6,760 6,766 12,872
Deductions from operating profit:
Interest expense 2,240 2,717 4,723 5,722
Currency exchange (gain) loss (92) 77 (221) 332
Other expenses-net 2,152 1,572 4,210 3,183
Eliminations 40 (58) (119) (19)
Total deductions 4,340 4,308 8,593 9,218
Earnings (loss) before income taxes,
extraordinary item and cumulative
effect of change in
accounting principle (2,138) 2,452 (1,827) 3,654
Income taxes (897) 840 (784) 1,141
Earnings (loss) before extraordinary item
and cumulative effect of change
in accounting principle (1,241) 1,612 (1,043) 2,513
Extraordinary item - loss from
early extinguishment of debt - - - (357)
Cumulative effect of change in
accounting principle - - 505 -
Net earnings (loss) $(1,241) $ 1,612 $ (538)$ 2,156
Backlog $159,145 $193,744
</TABLE>
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 in calculating net earnings.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion represents an analysis of the second quarter and
first six months of fiscal 1994 compared with the second quarter and first
six months of fiscal 1993, unless otherwise noted.
GENERAL - For the second quarter of 1994, the Company reported a net loss
of $1.2 million or $.16 per share compared with net earnings of $1.6
million or $.21 per share a year ago. For the six months ended March 31,
1994, the net loss in 1994 was $.5 million or $.07 per share compared with
net earnings in 1993 of $2.2 million or $.28 per share.
Included in the 1994 second quarter results are non-recurring pre-tax
charges of $4.7 million. These non-recurring charges included a provision
of $2.6 million for the write-off of Domestic obsolete inventory. This
provision for inventory obsolescence increased the consolidated Reserve for
Inventory Obsolescence to $8.5 million as of March 31, 1994 compared with
$5.1 million as of September 30, 1993. The Domestic Reserve for Inventory
Obsolescence increased to $6.5 million at March 31, 1994 from $3.4 million
at September 30, 1993. This inventory obsolescence charge reflects a
recent decline in repair activities and spare parts requirements on many
government programs in addition to accelerating the cash tax benefit by
physically disposing of this excess inventory in this fiscal year.
Approximately $5.0 million of the quarter-end reserve will be scrapped
prior to year-end resulting in cash tax benefits of approximately $1.9
million. The consolidated reserve remaining after scrapping the excess
inventory will be approximately $3.5 million and is considered adequate to
properly value the remaining inventory.
The remaining portion of the non-recurring charges of $2.1 million is for
restructuring costs. During the quarter, plans were finalized to
restructure the Company's operations primarily in England, Germany and
Denmark. Of the $2.1 million restructuring charge, $1.7 million represents
severance accruals for the equivalent of approximately 100 people. The
annual cost savings from reduced wages and benefits for these employees
will be approximately $4 million. Severance benefits will be paid mostly
during the third and fourth quarters of 1994. The other $.4 million of
restructuring charges recorded in the second quarter of 1994 primarily
represents an additional reserve needed for the disposition of a facility
which is in the process of being subleased. Once the contract is signed,
which is expected to occur during the third quarter, the Company will
generate annual savings from the elimination of lease payments totaling
$1.1 million. The cost savings from these restructuring actions are
expected to be fully realized during the first and second quarters of 1995.
Net earnings for the six months ended March 31, 1994 also included a first
quarter benefit of $.5 million for the cumulative effect of adopting
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Net earnings for the six months ended March 31, 1993 included an
extraordinary after-tax charge of $.4 million for prepayment costs on the
early extinguishment of 12 7/8% debt. After the effects of the non-
recurring charges for inventory and restructuring described above, and
before the cumulative effect of the change in accounting principle and the
extraordinary item, the net loss for the first six months of 1994 was $1.0
million or $.13 per share compared with net earnings in 1993 of $2.5
million or $.33 per share.
<PAGE>
Operating profit for the Domestic Controls segment, excluding $3.2 million
of non-recurring second quarter charges previously discussed, was $5.5
million or 10.5% of segment sales for the second quarter of 1994 compared
with $5.0 million or 9.7% of segment sales for the second quarter of 1993.
The improvement is due to increased sales and profitability in the Aircraft
Controls product line primarily related to activity on the B-2 Program,
whose production cycle is scheduled to be completed by mid-1995. This
profit improvement was offset by a profit decline on the Missiles product
line due to lower sales on U.S. defense related programs. For the
International Controls segment, operating profit excluding $1.5 million of
non-recurring charges previously discussed, was $1.4 million or 5.4% of
segment sales for the second quarter of 1994 compared with $1.8 million or
6.7% of segment sales in 1993. This decline is primarily due to further
deterioration of sales and profits for the Company's European group
resulting from the persistent recession, offset by an increase in sales and
profits for the Pacific group led primarily by a strong second quarter in
Japan. Operating profit for the Domestic Controls segment for the six
months ended March 31, 1994 excluding the effects of the non-recurring
charges previously discussed was $10.2 million or 10.0% of segment sales
compared with $10.4 million or 10.7% of segment sales a year ago.
Operating profit for the International Controls segment for the six months
ended March 31, 1994 excluding the effects of the non-recurring charges
previously discussed was $1.2 million or 2.5% of segment sales compared
with $2.5 million or 4.8% of segment sales a year ago. The European
recession has negatively affected the results of operations. Within the
Pacific, operating profit is also down from a year ago primarily due to
very strong 1993 shipments in Korea on certain aerospace programs.
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 $7.9 million over 20 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.
On March 4, 1994, the Company announced the signing of a Memorandum of
Understanding for the purchase of a portion of AlliedSignal's aerospace
actuation business in Torrance, California. The proposed purchase price is
$71 million for the mechanical and hydraulic actuation product lines. The
acquisition will increase the Company's annual revenues by approximately
$75 million. Closing, which is subject to final negotiation, is scheduled
to occur at the end of May 1994. The Federal Trade Commission reported in
early May 1994 that antitrust clearances had been granted under the Hart-
Scott-Rodino Act. The product lines being acquired are used on a variety
of Domestic and International commercial and military aircraft. Mechanical
actuators include drive systems for the leading edge flaps on the F/A-18
E/F. Hydraulic actuators include primary flight controls for the Boeing
747 and 757 and the Airbus A330 and A340. This acquisition will maintain
Moog's balance of approximately 50% commercial and 50% military business.
The Company will finance this transaction with debt. The Company has
received commitments from seven banks for $152 million which will be used
to pay for the AlliedSignal product lines, closing costs related to the
transaction, and $46 million for refinancing existing domestic credit
facilities. The residual available after the transaction will be used for
working capital. The structure of the financing package will include $67
<PAGE>
million of seven year term loans with annual principal payments beginning
in 1995. The remaining $85 million will be financed with revolving credit
facilities. Interest will be at LIBOR plus 2.0%. This compares with
current Domestic loan agreements which bear interest at LIBOR plus 5/8%.
The entire loan facility will be secured by substantially all of the
Company's Domestic assets including those to be acquired from AlliedSignal,
in addition to pledging the stock of all Domestic and foreign subsidiaries.
The loan agreements will include customary covenants for transactions of
this nature, including maintaining various ratios.
FINANCIAL CONDITION AND LIQUIDITY - Cash provided by operating activities
for the six months ended March 31, 1994 was $11.3 million compared with
$5.9 million a year ago. Other than the $4.7 million of non-recurring
charges previously discussed, the most notable items affecting the
comparison of 1994 with 1993 Cash Provided by Operations include Accounts
Payable and accrued expenses, and Other liabilities. The use of cash in
1993 resulting from the decrease in Accounts Payable and accrued expenses
is due to the payment of severance for amounts accrued in 1992. The source
of cash in 1994 from the increase in Accounts Payable and accrued expenses
is offset by the use of cash from the decrease in Other liabilities mainly
due to the change in the classification of a reserve for a loss expected on
the sublease of a facility from noncurrent to current. The use of cash in
1994 related to the decrease in Other liabilities is also due to pension
contributions made in excess of amounts accrued.
During the fourth quarter of 1993, the Company borrowed the balance of the
unused portion of its Domestic revolving credit agreements. Domestic
revolving credit facilities of $50.5 million were automatically converted
to term loans repayable ratably through 1998. At March 31, 1994, the
Company had unused lines of credit of $27 million, which includes an
additional $10 million of revolving credit acquired during the second
quarter of 1994, in addition to cash and cash equivalents of $9.1 million.
Total consolidated assets at March 31, 1994 of $300 million were 5.6% lower
than $318 million at September 30, 1993. Excluding the effects of
weakening foreign currencies relative to the U.S. dollar which had a minor
impact on the comparison of asset levels, assets decreased primarily due to
lower cash balances resulting from payments on outstanding debt, and lower
receivable levels related primarily to the collection of cash on amounts
due to the Company, including holdbacks, on a long-term contract within the
Missiles product line.
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.
During the second quarter of 1993, the Company sold various machinery and
equipment for $4.7 million and leased this equipment back under an
operating lease. There was no gain or loss recognized on the transaction.
Capital expenditures for the first six months of 1994 were $3.8 million
compared with $7.2 million of 1994 depreciation and with $6.5 million of
capital expenditures for the first six months of 1993. Capital
expenditures for the twelve months of 1994 are expected to remain below
depreciation levels.
<PAGE>
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 March 31, 1994 was 1.30 compared with 1.49 at September 30,
1993 and with 1.43 at March 31, 1993. The decrease in the ratio as of
March 31, 1994 results from payments made on long-term debt including $5
million paid prior to its scheduled maturity. There were no prepayment
costs incurred. Working capital at March 31, 1994 was $114 million
compared with $124 million at September 30, 1993 and with $115 million at
March 31, 1993. The current ratio was 2.3 at March 31, 1994, September 30,
1993 and March 31, 1993.
NET SALES for the second quarter of 1994 were $75.1 million or .4% above
net sales of $74.8 million a year ago. Net sales for the Domestic Controls
segment for the second quarter of 1994 increased 3.9% to $51.0 million
compared with $49.1 million a year ago. The increase is due to strong
revenues on the B-2 Program on which production activity is scheduled to be
completed by mid-1995, offset by a decline in the Missiles product line as
a result of expected reductions in defense spending. Within the
International Controls segment, sales declined 6.3% to $24.1 million for
the second quarter of 1994 compared with $25.8 million a year ago. This
decline is reflective of continuing recessionary conditions in Europe,
particularly in Germany and France. The European sales decline was
partially offset by strong second quarter 1994 Pacific sales, particularly
in Japan. The U.S. dollar declined in value relative to foreign currencies
in the second quarter of 1994 compared with 1993. Without this decline,
net sales would have decreased by an additional $.5 million using constant
exchange rates from 1993 to 1994. For the six months ended March 31, 1994,
net sales increased .7% to $144 million compared with $143 million a year
ago. For the Domestic Controls segment, net sales increased 5.1% to $97.6
million for the first six months of 1994 compared with $92.8 million a year
ago. The increase represents increased sales in 1994 on the B-2 Program
offset by lower sales in the Defense-driven Missiles product line and the
Engine Controls product line which is affected by an industry decline of
both military and commercial aircraft engines. For the International
Controls segment, net sales declined 7.5% to $46.4 million for the first
six months of 1994 compared with $50.1 million a year ago. This decline is
due to lower sales in Europe related to the recession, particularly in
Germany and France, offset by stronger sales for the first six months in
the Pacific, particularly in Japan. Foreign currencies relative to the
U.S. dollar were weaker for the first six months of 1994 compared with
1993. This weakening of currencies accounted for approximately 15% of the
International segment total sales decline for the first six months of 1994
compared with 1993. Within the Company's international activities,
operations are conducted in more than ten countries. Accordingly, the
Company generally experiences a leveling effect from currencies after
translation into U.S. dollars on the Company's operating results.
OTHER INCOME was $.4 million for the second quarter of 1994 compared with
$.5 million a year ago. On a year-to-date basis, Other Income was $.9
million in 1994 compared with $1.1 million a year ago. Other income
generally includes rental, royalty and interest income.
COST OF SALES was 69.4% of net sales in the second quarter of 1994 compared
with 69.7% in 1993. On a year-to-date basis, cost of sales as a percent of
net sales was 69.9% for 1994 and 69.2% for 1993. Cost of sales percentages
in 1994 have remained relatively consistent with 1993 for both the Domestic
and International Controls segments, in part, a result of the benefits
received from prior years' cost reduction initiatives.
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSE was $5.0 million or 6.6% of net sales for
the second quarter of 1994 compared with $4.4 million or 5.8% of net sales
a year ago. For the six months ended March 31, 1994, R&D expense was $10.0
million or 6.9% of net sales compared with $8.5 million or 5.9% of net
sales a year ago. The increase in research and development expense 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. Total Company engineering staffing has not
increased; rather the increase in R&D results from a shift of emphasis on
customer-funded R&D to Company-sponsored R&D projects.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES were $13.5 million or 18.0% of
net sales for the second quarter of 1994 compared with $13.5 million or
18.0% of net sales in 1993. On a year-to-date basis, SG&A expense was
$26.4 million or 18.3% of net sales in 1994 compared with $26.7 million or
18.7% of net sales in 1993.
INTEREST EXPENSE was $2.2 million or 3.0% of net sales for the second
quarter of 1993 compared with $2.7 million or 3.6% of net sales a year ago.
For the six months ended March 31, 1994, interest expense was $4.7 million
or 3.3% of net sales compared with $5.7 million or 4.0% of net sales a year
ago. The decline in interest expense is due to lower worldwide average
debt levels and interest rates, in addition to the cost savings realized
from the December 1992 prepayment of $10.2 million of 12 7/8% long-term
debt as previously described.
INVENTORY OBSOLESCENCE CHARGE of $2.6 million in the second quarter of 1994
represents a non-recurring charge for the write-off of Domestic obsolete
inventory. This charge reflects a recent decline in repair activities and
spare parts requirements on many government programs in addition to
accelerating the cash tax benefits by physically disposing of this excess
inventory in this fiscal year. Approximately $5.0 million of this reserve
will be scrapped prior to year end resulting in cash tax benefits of
approximately $1.9 million.
RESTRUCTURING EXPENSE of $2.1 million recorded in the second quarter of
1994 represents the costs to restructure the Company's operations,
primarily in England, Germany and Denmark. Approximately $1.7 million
represents severance benefit costs for workforce reductions and $.4 million
relates to the disposition of a facility which is in the process of being
subleased.
INCOME TAXES - The effective tax rate at March 31, 1994 is 43.0% and
represents the rate forecasted for the entire fiscal year. The
determination of this rate assumes that the operating results of the
Company's German subsidiary will improve in the second half of 1994
compared with the first half. As the German subsidiary is expected to
receive the benefit of available net operating loss carryforwards, this
projected improvement serves to lower the effective rate. If Germany is
unable to achieve its forecasted improvement, this will result in a higher
effective rate for 1994. The relatively low effective tax rate in 1993 of
31.2% resulted primarily from tax benefits expected to be received through
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.
<PAGE>
No deferred tax assets are recorded at March 31, 1994 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 to German income
earned in future years.
BACKLOG was $159 million at March 31, 1994 compared with $181 million at
September 30, 1993 and with $194 million at March 31, 1993. Backlog for
the Domestic Controls segment was $130 million at March 31, 1994 compared
with $149 million at September 30, 1993 and with $153 million at March 31,
1993. This decline is primarily attributable to the Aircraft Controls
product line, particularly the B-2 Program, and to the Engine Controls
product line as a result of the current slowdown in the industry production
of military and commercial aircraft engines. Backlog for the International
Controls segment was $29.3 million at March 31, 1994 compared with $32.0
million at September 30, 1993 and with $40.4 million at March 31, 1993.
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 lines. Approximately one fourth of the decline in
International segment backlog from September 30, 1993 to March 31, 1994 is
attributable to weakening foreign currencies relative to the U.S. dollar
using spot rates.
ENVIRONMENTAL MATTERS - The Company continues to participate as a
Potentially Responsible Party (PRP) in the clean-up of two Superfund sites
in Western New York. In addition, the Company was notified in 1993 by a
PRP group at a third 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 March 31, 1994, the Company believes that adequate
reserves have been established for environmental issues for which 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 sites.
With respect to the third site referenced above, the New York State
Department of Environmental Conservation has recently estimated the cost of
a phase one clean-up and the Company's share of this will clearly be
immaterial. Based upon currently available data, while it is difficult to
predict with certainty, the Company does not expect that these
environmental matters will have a material affect on the financial position
of the Company in excess of amounts currently reserved.
GOVERNMENT CONTRACTING ENVIRONMENT - Current industry conditions continue
to represent significant challenges for the Company. Prior to 1993,
approximately 60% of the Company's sales were 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. Sales to the
U.S. and Foreign governments are expected to decline to nearly 50% of
consolidated net sales as early as this year.
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
<PAGE>
similar to other high-technology companies. Since the production 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 March 31, 1994.
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>
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.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
None.
b. Reports on Form 8-K.
Reference Item 5 Form 8-K dated March 4, 1994.
<PAGE>
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: May 13, 1994 By S/Robert R. Banta/S
Robert R. Banta
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)
Date: May 13, 1994 By S/Donald R. Fishback
Donald R. Fishback
Controller
(Principal Accounting Officer)
<PAGE>
