UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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 May 8, 1995
Class A Common Stock, $1.00 par value 6,042,238 Shares
Class B Common Stock, $1.00 par value 1,677,814 Shares
<PAGE>
MOOG INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION 3-17
Consolidated Condensed Balance Sheets-
March 31, 1995 and September 30, 1994 4
Consolidated Condensed Statements of Operations-
Three Months Ended March 31, 1995 and 1994 5
Consolidated Condensed Statements of Operations-
Six Months Ended March 31, 1995 and 1994 6
Consolidated Condensed Statements of Cash Flows-
Six Months Ended March 31, 1995 and 1994 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)
Unaudited Audited
As of As of
March 31 September 30
ASSETS 1995 1994
CURRENT ASSETS
Cash and cash equivalents $ 7,757 $ 8,749
Receivables, net 156,088 144,197
Inventories (note 3) 85,214 78,642
Deferred income taxes 15,720 15,392
Prepaid expenses and other current assets 4,372 8,445
________ ________
TOTAL CURRENT ASSETS 269,151 255,425
PROPERTY, PLANT AND EQUIPMENT, net 143,737 146,472
INTANGIBLE ASSETS, net 17,296 18,154
OTHER ASSETS 5,456 4,405
TOTAL ASSETS $435,640 $424,456
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 7,041 $ 9,569
Current installments of long-term debt
and convertible subordinated debentures 18,211 15,201
Accounts payable 25,251 21,339
Accrued salaries, wages and commissions 19,988 20,641
Contract loss reserves 11,428 14,964
Other accrued liabilities 11,340 11,214
Accrued income taxes 989 391
Customer advances 7,643 10,070
________ ________
TOTAL CURRENT LIABILITIES 101,891 103,389
LONG-TERM DEBT, excluding current
installments 163,812 160,006
LONG-TERM PENSION OBLIGATION 23,227 20,093
OTHER LONG-TERM LIABILITIES 719 1,195
DEFERRED INCOME TAXES 18,457 16,671
CONVERTIBLE SUBORDINATED DEBENTURES,
excluding current installments 18,000 19,400
MINORITY INTEREST 1,772 1,518
________ ________
TOTAL LIABILITIES 327,878 322,272
COMMITMENTS AND CONTINGENCIES - -
<PAGE>
SHAREHOLDERS' EQUITY (note 7)
Preferred stock 100 100
Common stock 9,134 9,134
Other shareholders' equity 98,528 92,950
________ ________
TOTAL SHAREHOLDERS' EQUITY 107,762 102,184
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $435,640 $424,456
======== ========
See accompanying notes to Consolidated Condensed Financial
Statements.
<PAGE>
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
Unaudited
Three Months Ended
March 31
1995 1994
NET SALES $ 91,372 $ 75,127
OTHER INCOME 351 377
________ ________
91,723 75,504
________ ________
COSTS AND EXPENSES
Cost of sales 63,503 51,859
Research and development expenses 4,343 4,960
Selling, general and administrative
expenses 17,053 13,769
Interest expense 4,312 2,240
Foreign currency exchange gain (77) (92)
Other expenses 118 225
Inventory obsolescence charge (note 2) - 2,574
Restructuring expense (note 2) - 2,107
________ ________
89,252 77,642
EARNINGS (LOSS) BEFORE INCOME TAXES 2,471 (2,138)
INCOME TAXES 508 (897)
NET EARNINGS (LOSS) $ 1,963 $ (1,241)
======== =========
EARNINGS (LOSS) PER COMMON SHARE $ .25 $ (.16)
======== =========
AVERAGE COMMON SHARES OUTSTANDING 7,720,052 7,713,465
========= =========
See accompanying notes to Consolidated Condensed Financial
Statements.
<PAGE>
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
Unaudited
Six Months Ended
March 31
1995 1994
NET SALES $178,289 $143,945
OTHER INCOME 920 933
________ ________
179,209 144,878
________ ________
COSTS AND EXPENSES
Cost of sales 125,687 100,140
Research and development expenses 8,700 9,966
Selling, general and administrative
expenses 32,068 26,915
Interest expense 8,699 4,723
Foreign currency exchange gain (67) (221)
Other expenses 176 501
Inventory obsolescence charge (note 2) - 2,574
Restructuring expense (note 2) - 2,107
________ ________
175,263 146,705
________ ________
EARNINGS (LOSS) BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 3,946 (1,827)
INCOME TAXES 799 (784)
________ _________
EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 3,147 (1,043)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (note 4) - 505
________ _________
NET EARNINGS (LOSS) $ 3,147 $ (538)
======== =========
EARNINGS (LOSS) PER COMMON SHARE:
- BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE $ .41 $ (.13)
- CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE - .06
- NET EARNINGS (LOSS) $ .41 $ (.07)
________ _________
AVERAGE COMMON SHARES OUTSTANDING 7,719,735 7,713,465
========= ==========
See accompanying notes to Consolidated Condensed Financial
Statements.
<PAGE>
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Unaudited
Six Months Ended
March 31
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 3,147 $ (538)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization 9,834 7,236
Provisions for losses 951 3,848
Deferred income taxes 1,323 (747)
Cumulative effect of change in
accounting principle - (505)
Other (17) 473
Changes in assets and liabilities
providing (using) cash:
Receivables (9,119) 6,639
Inventories (4,312) (377)
Other assets 3,380 (1,921)
Accounts payable and accrued expenses (1,664) 4,460
Other liabilities (1,885) (7,550)
Accrued income taxes 689 294
________ ________
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,327 11,312
________ ________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (3,549) (3,791)
Proceeds from sale of assets 219 294
Other investing activities (1,125) 37
======== ========
NET CASH USED BY
INVESTING ACTIVITIES (4,455) (3,460)
________ ________
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in notes payable (2,894) (2,068)
Proceeds from revolving lines of credit 5,000 373
Proceeds from issuance of long-term debt 4,610 979
Payments on long-term debt and capital
lease obligations (4,342) (15,438)
Purchase of convertible subordinated
debentures (1,400) (1,282)
Preferred stock dividends paid (5) (5)
Proceeds from issuance of Treasury Stock 14 -
________ ________
NET CASH USED BY
FINANCING ACTIVITIES 983 (17,441)
________ ________
<PAGE>
Effect of exchange rate changes on cash 153 77
________ ________
DECREASE IN CASH (992) (9,512)
Cash at beginning of period 8,749 18,589
________ ________
Cash at end of period $ 7,757 $ 9,077
======== ========
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
normal and recurring adjustments necessary to present fairly
the financial position of Moog Inc. as of March 31, 1995 and
September 30, 1994, and the results of its operations and
cash flows for the three and six months ended March 31, 1995
and 1994. Certain reclassifications have been made to
conform the 1994 financial statements with the current year
presentation. The results of operations for the six month
period ended March 31, 1995 are not necessarily indicative
of the results expected for the full year.
2. During the quarter ended March 31, 1994,the Company recorded
a pre-tax charge for restructuring costs of $2,107. This
charge included $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 related to the disposition of a Domestic facility. In
the same 1994 quarter, the Company recorded a $2,574 pre-tax
charge for the write-off of Domestic obsolete inventory.
The inventory obsolescence charge reflected a decline in
repair activities and spare parts requirements on many
government programs.
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
1995 1994
Raw materials and purchased parts $21,730 $19,356
Work in process 49,907 48,517
Finished goods 13,577 10,769
_______ _______
$85,214 $78,642
======= =======
4. In the first quarter of 1994, the Company adopted Statement
of Financial Accounting Standards No. 109 (SFAS No. 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 No. 109, net
earnings were increased by $505. The effect of adopting
SFAS No. 109 has been reported as a Cumulative Effect of
Change in Accounting Principle.
5. On June 17, 1994, the Company acquired the hydraulic and
mechanical actuation product lines (the Product Lines) of
AlliedSignal Inc., located in Torrance, California. The
Product Lines include mechanical drive systems for leading
edge flaps and hydraulic servoactuators for primary and
secondary flight controls used on a variety of commercial
<PAGE>
and military aircraft. The purchase price, including
payment for specified transition services to be provided by
AlliedSignal Inc. over a period of approximately one year,
was $78,000, subject to adjustment as described below.
The Purchase Agreement provides for adjustment to the
purchase price based upon Net Assets delivered at closing.
The Company has a receivable from AlliedSignal of $3.6
million at March 31, 1995 and September 30, 1994,
representing AlliedSignal's initial calculation of the
shortfall in Net Assets delivered. The $3.6 million was
paid by AlliedSignal in April 1995. In addition,
notification has been sent to AlliedSignal of several issues
the Company believes require further reduction in the
purchase price. In the event the Company and AlliedSignal
cannot reach a resolution, the Purchase Agreement provides
for the use of an independent arbitrator. The resolution of
Net Assets delivered is not expected to have a material
adverse effect on the Company's future financial position or
results of operations, since any further reduction in Net
Assets delivered would result in a cash refund to the
Company. The cash refund would be used to reduce
outstanding debt, with a corresponding reduction of
intangible assets.
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
1995 1994
Cash paid during the period for:
Interest $7,925 $3,957
Income taxes, net of refunds (3,385) 2,429
Non cash investing and financing
activities:
Leases capitalized 176 8
7. The changes in shareholders' equity for the six months ended
March 31, 1995 are summarized as follows:
Number of Shares
Class A Class B
Preferred Common Common
Amount Shares Stock Stock
PREFERRED STOCK
Beginning and end of period $ 100 100,000
COMMON STOCK
Beginning and end of period 9,134 6,599,306 2,534,817
ADDITIONAL PAID-IN CAPITAL
Beginning and end of period 47,737
<PAGE>
RETAINED EARNINGS
Beginning of period 56,373
Net earnings 3,147
Preferred stock dividends (4)
_______
End of period 59,516
TREASURY STOCK
Beginning of period (17,929) (557,155) (858,003)
Treasury stock issued 14 87 1,000
_______ _______ _______
End of period (17,915) (557,068) (857,003)
EQUITY ADJUSTMENTS
Beginning of period 7,866
Foreign currency translation 2,268
_______
End of period 10,134
LOAN TO SAVINGS AND STOCK
OWNERSHIP PLAN (SSOP)
Beginning of period (1,098)
Payments received on loan
to SSOP 154
_______
End of period (944)
TOTAL SHAREHOLDERS' EQUITY $107,762 100,000 6,042,238 1,677,814
======== ======= ========= =========
<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.
Three Months Ended Six Months Ended
3/31/95 3/31/94 3/31/95 3/31/94
Net sales $60,656 $51,000 $123,184 $ 97,560
Intersegment sales 2,928 1,631 5,148 4,100
Total sales $63,584 $52,631 $128,332 $101,660
======= ======= ======== ========
Operating profit $ 5,826 $ 2,352 $ 12,152 $ 7,058
Restructuring and inventory
obsolescence charges
included in operating profit - 3,150 - 3,150
Earnings (loss) before cumulative
effect of change in accounting
principle * 805 (695) 1,865 625
Backlog 169,207 129,856
INTERNATIONAL CONTROLS manufactures and markets precision control components
for industrialized economies in Europe and the Far East.
Three Months Ended Six Months Ended
3/31/95 3/31/94 3/31/95 3/31/94
Net sales $30,716 $24,127 $ 55,105 $ 46,385
Intersegment sales 1,170 1,305 2,302 2,583
Total sales $31,886 $25,432 $ 57,407 $ 48,968
======= ======= ======== ========
Operating profit (loss) $ 2,778 $ (150) $ 3,779 $ (292)
Restructuring and inventory
obsolescence charges
included in operating profit - 1,531 - 1,531
Earnings (loss) before cumulative
effect of change in accounting
principle * 1,215 (499) 1,426 1,717
Backlog 47,759 29,289
* The $505 benefit from the change in accounting principle from the
adoption of SFAS No. 109, "Accounting for Income Taxes," is
included in 1994 year-to-date results only.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
OPERATING HIGHLIGHTS
(dollars in thousands)
CONSOLIDATED SALES AND EARNINGS
Three Months Ended Six Months Ended
3/31/95 3/31/94 3/31/95 3/31/94
Net sales $91,372 $75,127 $178,289 $143,945
Operating profit 8,604 2,202 15,931 6,766
Deductions from operating profit:
Interest expense 4,312 2,240 8,699 4,723
Currency exchange gain (77) (92) (67) (221)
Other expenses-net 1,823 2,152 3,189 4,210
Eliminations 75 40 164 (119)
_______ _______ _______ _______
Total deductions 6,133 4,340 11,985 8,593
Earnings (loss) before income taxes
and cumulative effect of change
in accounting principle 2,471 (2,138) 3,946 (1,827)
Income taxes 508 (897) 799 (784)
_______ _______ _______ _______
Earnings (loss) before cumulative
effect of change in
accounting principle 1,963 (1,241) 3,147 (1,043)
Cumulative effect of change in
accounting principle - - - 505
_______ _______ ________ _______
Net earnings (loss) $ 1,963 $(1,241) $ 3,147 $ (538)
====== ====== ======= ======
Backlog $216,966 $159,145
======= =======
Operating profit for each segment consists of total revenue less cost of
sales and segment specific operating expenses. In calculating net earnings
for each segment, deductions from operating profit have been charged to the
respective segments by being directly identified with a segment or allocated
on the basis of sales.
<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 1995 compared with the
second quarter and first six months of fiscal 1994, unless
otherwise noted.
GENERAL - For the second quarter of 1995, the Company reported
net earnings of $2.0 million or $.25 per share compared with a
net loss of $1.2 million or $.16 per share a year ago. For the
six months ended March 31, 1995, net earnings were $3.1 million
or $.41 per share, compared with a net loss in 1994 of $.5
million or $.07 per share.
Net earnings for 1995 have been favorably impacted by $38.8
million in year-to-date revenue associated with the June 1994
acquisition of the hydraulic and mechanical actuation product
lines of AlliedSignal Inc. (the Product Lines). Conversely, 1994
results were negatively affected by second quarter pre-tax
charges of $4.7 million. The charges entailed $2.6 million for
the write-off of Domestic obsolete inventory, $1.7 million for
restructuring costs principally related to operations in England,
Germany and Denmark, and $.4 million related to the disposition
of a leased facility in the U.S. The inventory obsolescence
charge reflected a decline in repair activities and spare parts
requirements on many government programs. Net earnings for the
six months of 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."
Domestic Controls segment operating profit was $5.8 million or
9.2% of segment sales for the second quarter of 1995, compared
with $5.5 million or 10.5% of segment sales for the second
quarter of 1994. The operating profit for 1994 excludes $3.2
million related to the aforementioned restructuring and inventory
obsolescence charges. The benefits from the Product Line
acquisition were, in large part, offset by a variety of factors.
The Aircraft Group has been affected by the short-term transition
costs related to transferring certain hydraulic products from the
Torrance, California operations to East Aurora, and the benefits
related to absorbing the overhead functions of the acquired
Product Lines will not be fully realized until the end of 1995.
Further, the Aircraft Group has been affected by the expected
decline in revenue on the B-2 program. Within the Systems
Group, cost reduction measures initiated in October of 1994 have
been largely offset by a sales decline of 10.7%, primarily due to
continuing reductions in U.S. defense spending for strategic and
tactical missiles. For the International Controls segment,
operating profit was $2.8 million or 8.7% of segment sales for
the second quarter of 1995 compared with $1.4 million or 5.4% of
segment sales in 1994. The 1994 results exclude $1.5 million of
charges previously discussed. The improvement is due to a
significant turnaround in sales and profits for the Company's
European group resulting from improved economic conditions and
cost reduction measures taken over the past three years. Sales
in real terms increased 28.6% for the European Group,
<PAGE>
led by increases in Germany and England. The European operations
improvement was, in part, tempered by a decrease in sales and
profits for the Pacific group, primarily in Japan and Hong Kong.
Japan is being affected by a slowing economy, while Hong Kong has
incurred additional costs related to sales efforts in new Asian
markets.
Operating profit for the Domestic Controls segment for the six
months ended March 31, 1995 was $12.2 million or 9.5% of segment
sales compared with $10.2 million or 10.0% of segment sales for
the six months ended March 31, 1994. The 1994 results exclude
the restructuring and inventory obsolescence charges previously
discussed. The improvement in operating profit is primarily
attributable to the Product Line acquisition. As with the second
quarter, the benefits from the Product Line acquisition and the
October 1994 cost reduction measures have been affected by the
short-term product transition costs and the decline in revenue on
the B-2 program. Operating profit for the International Controls
segment for the six months ended March 31, 1995 was $3.8 million
or 6.6% of segment sales compared with $1.2 million or 2.5% of
segment sales a year ago. The 1994 operating profit excludes the
effects of the charges previously discussed. The improvement in
capital goods markets has lead to a dramatic improvement in the
results of operations for the European Group. Overall sales in
Europe have increased 15.3% in real terms, lead by increases in
Germany and England. Within the Pacific Group, operating profit
is down from a year ago, primarily due to a slowing Japanese
economy and cost increases in Hong Kong related to penetrating
new Asian markets.
FINANCIAL CONDITION AND LIQUIDITY - Cash provided by operating
activities for the six months ended March 31, 1995 was $2.3
million compared with $11.3 million a year ago. The most
significant factors contributing to the decline were higher
accounts receivable and inventory levels. With regard to the
March 31, 1995 receivable levels, large progress billings were
made in March on significant contracts. Further, on amounts
previously invoiced, the Company made significant collections on
receivables in April of 1995. Regarding inventories, growth is
reflective of increased sales and backlog, particularly in the
International segment.
As of March 31, 1995, the Company had unused lines of credit of
$26.7 million, in addition to cash and cash equivalents of $7.8
million. In comparison, the Company had unused lines of credit
of $33.9 million and cash and cash equivalents of $8.7 million at
September 30, 1994.
Total consolidated assets at March 31, 1995 of $436 million were
2.6% higher than $424 million at September 30, 1994.
Strengthening foreign currencies relative to the U.S. dollar was
the primary reason for the increase.
Capital expenditures for the first six months of 1995 were $3.7
million compared with $8.9 million of 1995 depreciation and with
$3.8 million of capital expenditures for the first six months of
1994. Capital expenditures for the twelve months of 1995 are
expected to remain well 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, 1995 was 1.93
compared with 2.0 at September 30, 1994. The decrease in the
ratio as of March 31, 1995 primarily results from 1995 net
earnings.
Working capital at March 31, 1995 was $167 million compared with
$152 million at September 30, 1994. The increase in working
capital is principally related to increased sales and related
accounts receivable in Europe, along with new long-term credit
facilities for the German operation which were used to reduce
previously existing short-term debt. The current ratio was 2.64
at March 31, 1995 and 2.59 at September 30, 1994.
The Company refinanced its Domestic credit facilities on June 15,
1994, closing on a $152,000 Revolving Credit and Term Loan
Agreement with a banking group. The agreement provides for an
$85,000 revolving credit facility and a $67,000 term loan
facility. Interest on both the revolving and term facilities is
LIBOR plus 2.125%. To provide interest rate protection, the
Company has entered into interest rate swap arrangements for
$80,000, effectively converting this amount to fixed rate debt at
8.5% through March of 1996. The proceeds from the refinancing
were used principally to acquire the AlliedSignal hydraulic and
mechanical actuation product lines and pay off existing Domestic
term loans. The new $152 million Credit Facilities along with a
pre-existing $20 million term loan are secured by substantially
all of the Company's domestic assets. In addition, the stock of
all domestic and foreign subsidiaries has been pledged. The
Credit Facilities and amended term loan include customary
covenants for transactions of this nature, including requirements
to maintain various financial ratios.
NET SALES for the second quarter of 1995 were $91.4 million or
21.6% above net sales of $75.1 million a year ago. Net sales for
the Domestic Controls segment for the second quarter of 1995
increased 18.9% to $60.7 million compared with $51.0 million a
year ago. The increase is due the Product Line acquisition, in
part offset by lower revenues on the B-2 program and the Missiles
product line. Within the International Controls segment, sales
increased 27.3% to $30.7 million for the second quarter of 1995
compared with $24.1 million a year ago. This increase is
reflective of the improvement in capital goods markets in Europe,
particularly in Germany and England. The European sales increase
was partially offset by lower second quarter 1995 Pacific sales,
particularly in Japan. The U.S. dollar declined in value
relative to foreign currencies in the second quarter of 1995
compared with 1994. Without this decline, the real increase in
International segment net sales would have been 14.8%.
For the six months ended March 31, 1995, net sales increased
23.9% to $178 million compared with $144 million a year ago. For
the Domestic Controls segment, net sales increased 26.3% to $123
million compared with $97.6 million a year ago. The increase is
attributable to $38.8 million related to the Product Line
acquisition, offset in part by lower sales on the B-2 program and
<PAGE>
Missiles product line. For the International Controls segment,
net sales increased 18.8% to $55.1 million compared with $46.4
million a year ago. This increase is due to higher sales in
Europe related to the improvement in capital goods markets,
particularly in Germany and England. In the Pacific, sales
declined in real terms, principally due to a slowdown in the
Japanese economy. The strengthening of currencies accounted for
slightly more than half of the International segment total sales
increase for the first six months of 1995 compared with 1994.
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 1995 and
1994. On a year-to-date basis, Other income was $.9 million in
1995 and 1994. Other income generally includes rental, royalty
and interest income.
COST OF SALES was 69.5% of net sales in the second quarter of
1995 compared with 69.0% in 1994. On a year-to-date basis, cost
of sales as a percent of net sales was 70.5% for 1995 and 69.6%
for 1994. For the Domestic segment, cost of sales percentages
have increased from prior year levels due to short-term costs
associated with the previously mentioned transition of certain
hydraulic products to East Aurora from Torrance, along with
favorable cost experience on a long-term contract in 1994.
Within the International segment, cost of sales percentages have
declined as a result of increased sales and related improvements
in facility utilization, along with various workforce and cost
reduction efforts.
RESEARCH AND DEVELOPMENT EXPENSE was $4.3 million or 4.8% of net
sales for the second quarter of 1995 compared with $5.0 million
or 6.6% of net sales a year ago. For the six months ended March
31, 1995, R&D expense was $8.7 million or 4.9% of net sales
compared with $10.0 million or 6.9% of net sales a year ago.
Research and development expense in 1994 reflected 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 in 1994 on brushless motor development
for entertainment motion platforms.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES were $17.0 million
or 18.7% of net sales for the second quarter of 1995 compared
with $13.8 million or 18.3% of net sales in 1994. On a year-to-
date basis, SG&A expense was $32.3 million or 18.0% of net sales
in 1995 compared with $26.9 million or 18.7% of net sales in
1994. The 1995 second quarter SG&A expense increased as a
percentage of net sales compared to the second quarter of 1994
due to a variety of factors. Within the Pacific Group,
significant expenditures related to penetrating Asian markets
have been incurred, while in the Systems Group there were
increased expenditures on sales support activities. Further,
there are various administrative costs being incurred relating to
the Product Line acquisition, which will phase out as the
transition is completed by the end of 1995.
<PAGE>
INTEREST EXPENSE was $4.3 million or 4.7% of net sales for the
second quarter of 1995 compared with $2.2 million or 3.0% of net
sales a year ago. For the six months ended March 31, 1995,
interest expense was $8.7 million or 4.9% of net sales compared
with $4.7 million or 3.3% of net sales a year ago. The increase
in interest expense is due to the debt associated with the
Product Line acquisition and higher average interest rates.
INVENTORY OBSOLESCENCE CHARGE of $2.6 million in the second
quarter of 1994 represented a charge for the write-off of
obsolete Domestic inventory. This charge reflected a 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.
RESTRUCTURING EXPENSE of $2.1 million recorded in the second
quarter of 1994 represented 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 related to the disposition
of a facility.
INCOME TAXES - The effective tax rate at March 31, 1995 was 20.2%
compared with 42.9% a year ago, and represents the rate
forecasted for the entire fiscal year. The determination of the
1995 rate assumes the German operation will sustain its return to
profitability. The German operation receives the benefit of
available net operating loss carryforwards, reducing the
effective rate. At September 30, 1994, the German subsidiary had
$6.7 million of such carryforwards available.
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.
BACKLOG was $217 million at March 31, 1995 and September 30,
1994, compared with $159 million at March 31, 1994. Backlog for
the Domestic Controls segment was $169 million at March 31, 1995
compared with $181 million at September 30, 1994 and with $129
million at March 31, 1994. This increase from one year ago is
primarily attributable to the Product Line acquisition, while the
small decrease since year end is attributable to both the
Missiles and Military Aircraft product lines. Backlog for the
International Controls segment was $47.8 million at March 31,
1995 compared with $35.9 million at September 30, 1994 and with
$29.3 million at March 31, 1994. Backlog in Europe has increased
substantially in Germany and France, reflecting strong orders in
industrial hydraulics and electric motion controls. In the
Pacific, major increases in backlog in Japan and Hong Kong relate
to industrial hydraulic and plastics markets. Approximately one
quarter of the increase in International segment backlog from
September 30, 1994 to March 31, 1995 is attributable to
strengthening foreign currencies relative to the U.S. dollar
using spot rates.
<PAGE>
ENVIRONMENTAL MATTERS - The Company participated as a Potentially
Responsible Party (PRP) in the clean-up of two Superfund sites in
Western New York. The Company's share of the costs related to
the clean up of these sites has been paid. 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. The
Company is also in the process of evaluating environmental
remediation actions at a Company owned facility leased to a third
party. At March 31, 1995, 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. 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.
1994 ACQUISITION - On June 17, 1994, the Company concluded the
acquisition of the hydraulic and mechanical actuation product
lines (the Product Lines) of AlliedSignal Inc. located in
Torrance, California. The Product Lines include mechanical drive
systems for leading edge flaps and hydraulic servoactuators for
primary and secondary flight controls used on a variety of
commercial and military aircraft. The purchase price, including
payment for specific transition services to be provided by
AlliedSignal over a period of approximately one year, was
$78,000. The Purchase Agreement provides for an adjustment to
the purchase price based upon Net Assets delivered at closing.
The Company has recorded a receivable from AlliedSignal of $3.6
million at March 31, 1995 and September 30, 1994, which
represents AlliedSignal's initial calculation of the shortfall in
Net Assets delivered at closing. This amount was received in
early April of 1995. In addition, notification has been sent to
AlliedSignal of several issues the Company believes require
further reduction in the purchase price. In the event the
Company and AlliedSignal cannot reach a resolution, the Purchase
Agreement provides for the use of an independent arbitrator. The
resolution of Net Assets delivered is not expected to have a
material adverse effect on the Company's future financial
position or results of operations, since any reduction in Net
Assets delivered at closing from AlliedSignal's initial
calculation would result in a cash refund to the Company. The
cash refund would be used to reduce outstanding debt, with a
corresponding reduction of intangible assets.
GOVERNMENT CONTRACTING ENVIRONMENT - In fiscal 1995, the Company
expects over half of its revenue to come from commercial and
industrial business. Comparatively, in 1994 and prior years,
more than half of the Company's sales were to either the U.S.
Government or various foreign governments for military and space
hardware on programs that extend over many years. Current
defense industry conditions continue to represent significant
challenges to the Company. Further, the Company shares risks of
cancellation as a participant in these programs similar to the
risks assumed by all government contractors.
<PAGE>
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 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,
1995.
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.
None.
<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)
S/Robert R. Banta
Date: May 12, 1995 By__________________________________
Robert R. Banta
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)
S/Donald R. Fishback
Date: May 12, 1995 By__________________________________
Donald R. Fishback
Controller
(Principal Accounting Officer)
<PAGE>
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