___________________________________________________________________________
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 June 30, 1997
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)
Telephone number including area code: (716) 652-2000
___________________________________________________________________________
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 [ ]
The number of shares outstanding of each class of common stock as of
August 8, 1997 were:
Class A Common Stock, $1.00 par value 5,441,624 shares
Class B Common Stock, $1.00 par value 1,606,169 shares
<PAGE>
MOOG INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION 3-14
Item 1. Consolidated Condensed Balance Sheets
as of June 30, 1997 and September 30,
1996 3
Consolidated Condensed Statements of
Income for the Three and Nine Months Ended
June 30, 1997 and 1996 4
Consolidated Condensed Statements of
Cash Flows for the Nine Months Ended
June 30, 1997 and 1996 5
Notes to Consolidated Condensed
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II. OTHER INFORMATION 15
SIGNATURES 16
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
MOOG INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands)
Unaudited Audited
As of As of
June 30, September 30,
1997 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,318 $ 9,639
Receivables 156,096 155,972
Inventories (note 3) 105,011 99,318
Deferred income taxes 18,451 19,708
Prepaid expenses and other current assets 3,962 2,939
_______ _______
TOTAL CURRENT ASSETS 291,838 287,576
PROPERTY, PLANT AND EQUIPMENT, net 134,499 131,371
INTANGIBLE ASSETS, net (note 2) 51,648 16,024
OTHER ASSETS 14,173 14,587
_______ _______
TOTAL ASSETS $492,158 $449,558
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 2,543 $ 3,420
Current installments of long-term debt 12,836 10,491
Accounts payable 21,436 21,597
Accrued salaries, wages and commissions 25,590 24,504
Contract loss reserves 6,231 10,966
Accrued interest 4,855 6,160
Other accrued liabilities 14,128 14,208
Customer advances 6,809 8,259
_______ _______
TOTAL CURRENT LIABILITIES 94,428 99,605
LONG-TERM DEBT, excluding current installments
Senior debt (note 2) 119,003 77,351
Senior subordinated notes 120,000 120,000
OTHER LONG-TERM LIABILITIES 47,344 47,859
_______ _______
TOTAL LIABILITIES 380,775 344,815
_______ _______
SHAREHOLDERS' EQUITY (note 4)
Preferred stock 100 100
Common stock 9,134 9,134
Other shareholders' equity 102,149 95,509
_______ _______
TOTAL SHAREHOLDERS' EQUITY 111,383 104,743
_______ _______
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $492,158 $449,558
======= =======
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(dollars in thousands except per share data)
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
NET SALES $ 120,064 $ 103,107 $ 333,719 $ 303,162
OTHER INCOME 329 428 1,235 1,784
__________ __________ __________ __________
120,393 103,535 334,954 304,946
__________ __________ __________ __________
COSTS AND EXPENSES
Cost of sales 84,041 70,534 229,642 209,739
Research and
development 4,420 4,433 12,985 13,118
Selling, general and
administrative 20,839 19,369 60,720 56,812
Interest expense 5,842 4,822 17,015 13,123
Other expenses 234 78 834 198
__________ __________ __________ __________
115,376 99,236 321,196 292,990
__________ __________ __________ __________
EARNINGS BEFORE
INCOME TAXES AND
EXTRAORDINARY LOSS 5,017 4,299 13,758 11,956
INCOME TAXES 1,456 1,277 3,979 3,540
__________ __________ __________ __________
EARNINGS BEFORE
EXTRAORDINARY LOSS 3,561 3,022 9,779 8,416
EXTRAORDINARY LOSS,
net of tax - (510) - (510)
__________ __________ __________ __________
NET EARNINGS $ 3,561 $ 2,512 $ 9,779 $ 7,906
========== ========== ========== ==========
EARNINGS PER
COMMON AND COMMON
EQUIVALENT SHARE:
Before extraordinary
loss $ .49 $ .40 $ 1.35 $ 1.08
Extraordinary loss - (.07) - (.07)
__________ __________ __________ __________
Net earnings $ .49 $ .33 $ 1.35 $ 1.01
========== ========== ========== ==========
AVERAGE COMMON AND
COMMON EQUIVALENT
SHARES OUTSTANDING
(note 5) 7,220,163 7,549,666 7,218,212 7,784,269
========== ========== ========== ==========
See accompanying Notes to Consolidated Condensed Financial
Statements.
<PAGE>
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30
(Unaudited)
(dollars in thousands)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 9,779 $ 7,906
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 15,712 14,863
Other (10,361) (18,135)
______ ______
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,130 4,634
______ ______
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses (note 2) (49,179) (5,902)
Purchase of property, plant and equipment (9,781) (7,543)
Other 39 292
______ ______
NET CASH USED BY INVESTING ACTIVITIES (58,921) (13,153)
______ ______
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments of notes payable (708) (2,786)
Net proceeds from (repayment of)
revolving lines of credit 34,000 (53,529)
Proceeds from issuance of long-term debt 18,655 8,312
Payments on long-term debt (8,836) (27,305)
Proceeds from issuance of senior
subordinated notes - 116,438
Redemption of convertible subordinated
debentures - (18,000)
Common stock repurchase - (14,465)
Other (850) 256
______ ______
NET CASH PROVIDED BY FINANCING ACTIVITIES 42,261 8,921
______ ______
Effect of exchange rate changes on cash 209 (252)
______ ______
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,321) 150
Cash and cash equivalents at beginning of period 9,639 7,576
______ ______
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,318 $ 7,726
====== ======
CASH PAID FOR:
Interest $17,096 $12,449
Income taxes 4,335 2,114
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Leases capitalized, net of leases terminated $ 731 $ 597
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>
MOOG INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 1997
(Unaudited)
(dollars in thousands except per share amounts)
1. Basis of Presentation
The accompanying unaudited consolidated condensed financial
statements have been prepared by management and in the opinion of
management contain all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the financial
position of Moog Inc. as of June 30, 1997, the results of its
operations for the three and nine months ended June 30, 1997 and
1996 and its cash flows for each of the nine month periods ended
June 30, 1997 and 1996. The results of operations for the three
and nine month periods ended June 30, 1997 are not necessarily
indicative of the results expected for the full year.
2. Acquisitions
On October 26, 1996, the Company acquired the assets of and
assumed certain liabilities related to the industrial hydraulic
servocontrols business (the U.S. Industrial Hydraulics Business)
of International Motion Control Inc., (IMC), an unrelated third
party. The purchase price was $48,600. The U.S. Industrial
Hydraulics Business, which operated under the name Moog Controls
Inc., was spun off by the Company in February 1988. The
acquisition has been accounted for under the purchase method, and
accordingly, the operating results for the U.S. Industrial
Hydraulics Business have been included in the Consolidated
Condensed Statement of Income since the date of acquisition. The
acquisition was principally financed with proceeds from the
Company's U.S. Revolving Credit and Term Loan Facility. The
acquisition resulted in intangible assets of approximately
$37,700, the majority of which are being amortized over 30 years.
During the third quarter, the Company purchased the assets and
servovalve distributor and repair business of Dowty-France for
approximately $600.
3. Inventories
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:
June 30, September 30,
1997 1996
Raw materials and purchased parts $ 30,119 $30,609
Work in process 63,409 55,789
Finished goods 11,483 12,920
________ _______
$105,011 $99,318
======== =======
<PAGE>
4. Shareholders' Equity
The changes in shareholders' equity for the nine months ended June 30, 1997
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 6,629,245 2,504,878
------- --------- ---------
ADDITIONAL PAID-IN CAPITAL
Beginning of period 47,611
Issuance of Treasury shares
at less than cost (67)
-------
End of period 47,544
-------
RETAINED EARNINGS
Beginning of period 74,825
Net earnings 9,779
Preferred stock dividends (7)
-------
End of period 84,597
-------
TREASURY STOCK
Beginning of period (31,803) (5,114) (1,219,050) (936,603)
Treasury stock issued 834 - 26,350 35,000
Treasury shares acquired (417) - (17,321)
------- ------ ----------- ---------
End of period (31,386) (5,114) (1,210,021) (901,603)
------- ------ ----------- ---------
EQUITY ADJUSTMENTS
Beginning of period 5,377
Foreign currency translation (2,861)
-------
End of period 2,516
-------
LOAN TO SAVINGS AND STOCK
OWNERSHIP PLAN (SSOP)
Beginning of period (501)
Payments received on loan
to SSOP 159
Purchases of stock and other (780)
-------
End of period (1,122)
-------
TOTAL SHAREHOLDERS' -------- -------- --------- ---------
EQUITY $111,383 94,886 5,419,224 1,603,275
======== ======== ========= =========
<PAGE>
5. Per Share Data
Average common and common equivalent shares outstanding include
237,812 and 263,529 common equivalent shares related to stock
options for the three months ended June 30, 1997 and 1996,
respectively, and 243,156 and 221,415 for the nine months ended
June 30, 1997 and 1996, respectively.
6. Accounting Changes
During the first quarter of fiscal 1997, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of" and SFAS No. 123, "Accounting for
Stock-Based Compensation."
The Company's previous policy on impairment was not materially
different than that prescribed by SFAS No. 121. The adoption of
SFAS No. 121 on October 1, 1996 did not require any impairment to
be recognized for the nine months ended June 30, 1997.
As permitted by SFAS No. 123, the Company will continue to apply
its current accounting policy under Accounting Principles Board
Opinion No. 25 with respect to stock-based compensation. The
adoption of SFAS No. 123 on October 1, 1996, therefore, had no
effect on the Company's consolidated financial position or
results of operations for the nine months ended June 30, 1997.
7. New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
SFAS No. 128, Earnings per Share, which is required to be adopted
by the Company during the first quarter of fiscal 1998. At that
time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating basic
earnings per share, the dilutive effect of stock options will be
excluded. The impact for the three months ended June 30, 1997 and
1996 would be to increase primary earnings per share by $.02 and
$.01 per share, respectively. The expected impact of SFAS No.
128 for the first nine months of 1997 and 1996 would be to
increase primary earnings per share by $.05 and $.03 per share,
respectively. The diluted earnings per share calculation
required under SFAS No. 128 should approximate the historically
reported primary earnings per share amounts.
8. Derivatives
In January 1997, the SEC issued new rules requiring expanded
disclosure for "market risk-sensitive" financial instruments. As
required for this interim filing, specific information on the
Company's accounting policies with regard to activities in
derivative financial instruments is provided below.
The Company uses derivative financial instruments for the purpose
of hedging currency and interest rate exposures which exist as a
part of its ongoing business operations.
<PAGE>
In general, instruments used as hedges must be effective at
reducing the risk associated with the exposure being hedged and
must be designated as a hedge at the inception of the contract.
Accordingly, changes in market values of hedge instruments must
be highly correlated with changes in market values of underlying
hedged items both at inception of the hedge and over the life of
the hedge contract. Deferred gains or losses related to any
instrument designated but ineffective as a hedge of existing
assets, liabilities, or firm commitments are recognized
immediately in the statement of income.
The Company uses forward contracts to reduce fluctuations in
foreign currency cash flows related to third party raw material
purchases, intercompany product shipments, and intercompany
loans. Foreign currency contracts are marked-to-market with net
amounts due to or from counter parties recorded in accounts
receivable or payable. For contracts hedging firm commitments,
mark-to-market gains and losses are deferred and recognized as an
adjustment to the basis of the transaction. For all other
contracts, mark-to-market gains and losses are recognized
currently in other income or expense, generally offsetting gains
and losses from underlying hedged transactions. The Company also
uses forward contracts to reduce fluctuations in the value of
foreign currency investments in and long-term advances to
subsidiaries. These contracts are marked-to-market with gains or
losses recorded in the cumulative translation adjustment
component of shareholders' equity.
The Company uses interest rate swaps to reduce interest rate
volatility with certain debt issues. The interest differential
to be paid or received on the swap is recognized in the statement
of income as incurred, as a component of interest expense.
The cash flows related to derivative financial instruments are
classified in the statement of cash flows in a manner consistent
with those of the transactions being hedged.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
On October 26, 1996, the Company acquired the assets of and assumed
certain liabilities related to the industrial hydraulic servocontrols
business (the U.S. Industrial Hydraulics Business) of International Motion
Control Inc., (IMC), an unrelated third party. The purchase price for the
U.S. Industrial Hydraulics Business was $48.6 million. The U.S. Industrial
Hydraulics Business, which operated under the name Moog Controls Inc., was
spun off by the Company in February 1988. The acquisition was accounted for
under the purchase method, and accordingly, the operating results for the
U.S. Industrial Hydraulics Business are included in the Consolidated
Condensed Statement of Income from the date of acquisition. The
acquisition was principally financed with proceeds from the Company's U.S.
Revolving Credit and Term Loan Facility. The acquisition resulted in
intangible assets of approximately $37.7 million, the majority of which are
being amortized over 30 years.
Net sales for the third quarter of fiscal 1997 were $120.1 million
versus $103.1 million in the prior year. The increase is due primarily to
increased volume in the commercial aircraft and space and systems product
lines, and the acquisition of the U.S. Industrial Hydraulics Business.
Cost of sales for the current quarter were 70.0% of net sales compared to
68.4% of net sales in the prior year. The increase as a percentage of
sales is due to an unfavorable product mix in Germany, costs incurred to
transfer certain industrial electronics production to Ireland and changes
in foreign currencies. These factors were partially offset by a favorable
product mix in commercial and military aircraft controls. Selling, general
and administrative expenses were $20.8 million, or 17.4% of net sales, in
the current quarter, compared to $19.4 million, or 18.8% of net sales, a
year ago. The decrease as a percentage of sales is due primarily to the
significant sales growth and reduced consulting costs related to enhancing
manufacturing operations. The third quarter of fiscal 1996 includes a $.5
million extraordinary loss on the early repayment of debt. Net earnings
for the third quarter of fiscal 1997 increased to $3.6 million, or $.49 per
share, compared with $2.5 million, or $.33 per share a year ago.
Net sales for the first nine months of fiscal 1997 were $333.7 million
versus $303.2 million in the same period of the prior year. The increase
is due primarily to the acquisition of the U.S. Industrial Hydraulics
Business, and increased production rates for commercial aircraft,
satellites, space propulsion, the space station and entertainment
simulators. Cost of sales for the first nine months of fiscal 1997 were
68.8% of net sales compared to 69.2% of net sales in the prior fiscal year.
The decrease as a percentage of sales was due primarily to a favorable
product mix in the commercial and military aircraft product lines and
strong margins of the newly acquired U.S. Industrial Hydraulics Business,
partially offset by unfavorable product mix at the Company's German
subsidiary and changes in foreign currencies. Selling, general and
administrative expenses were $60.7 million, or 18.2% of net sales, compared
to $56.8 million, or 18.7% of net sales, in the same period a year ago. As
a percentage of sales, selling, general and administrative expenses
decreased primarily due to the significant sales growth and reduced
consulting costs, offset by increased selling efforts in the commercial
<PAGE>
aircraft product line. Other income decreased to $1.2 million due to the
absence in the current year of license fees received on a foreign military
program in the prior year, while other expenses increased to $.8 million
due primarily to costs associated with a one year old joint venture to
manufacture and market hydraulic manifolds for OEM machinery. The prior
year results include a $.5 million extraordinary loss on the early
repayment of debt. Net earnings for the first nine months of fiscal 1997
increased to $9.8 million, or $1.35 per share, compared with $7.9 million,
or $1.01 per share, a year ago.
Segment Operating Review Three Months Ended Nine Months Ended
(dollars in thousands) June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
Sales:
Domestic Controls:
Segment $ 91,074 $ 73,201 $245,660 $215,360
Intersegment (4,186) (2,417) (9,574) (9,415)
--------- --------- --------- ---------
86,888 70,784 236,086 205,945
--------- --------- --------- ---------
International Controls:
Segment 34,675 36,742 102,736 110,300
Intersegment (1,499) (4,419) (5,103) (13,083)
---------- --------- --------- ---------
33,176 32,323 97,633 97,217
---------- --------- --------- ---------
Net Sales $120,064 $103,107 $333,719 $303,162
========== ========= ========= =========
Operating profit:
Domestic Controls $ 12,525 $ 8,768 $ 31,545 $ 24,886
International Controls 1,310 3,140 6,081 8,405
Eliminations 119 (84) (42) (930)
---------- --------- --------- ---------
$ 13,954 $ 11,824 $ 37,584 $ 32,361
========== ========= ========= =========
Earnings before
extraordinary loss:
Domestic Controls $ 3,310 $ 1,680 $ 8,132 $ 5,422
International Controls 175 1,435 1,682 3,638
Eliminations 76 (93) (35) (644)
---------- --------- --------- ---------
$ 3,561 $ 3,022 $ 9,779 $ 8,416
========== ========= ========= =========
Backlog:
Domestic Controls $231,997 $204,908
International Controls 44,246 42,171
--------- ---------
$276,243 $247,079
========= =========
<PAGE>
Domestic Controls
Domestic Controls net sales increased by 22.8% to $86.9
million in the third quarter of fiscal 1997 as compared with the
same period in the prior year. This sales improvement resulted
from increased production of precision controls for commercial
aircraft, satellites, the Space Station, entertainment simulators
and industrial hydraulic applications. The commercial aircraft
product line continued its growth pattern as deliveries of flight
controls to Boeing more than doubled compared to a year ago.
Sales of industrial hydraulic controls were up principally as a
result of the aforementioned acquisition of the U.S. Industrial
Hydraulics Business, which provided approximately $8 million of
incremental sales in the third quarter of fiscal 1997. These
sales increases were in part tempered by an expected decline in
military aircraft controls resulting from lower sales on
development programs.
Year-to-date, Domestic Controls net sales increased 14.6% to
$236.1 million. The Domestic Controls segment continues to
benefit from its strategy of generating a greater share of its
revenues from commercial markets. The acquisition of the U.S.
Industrial Hydraulics Business added approximately $19 million to
Domestic Controls year-to-date sales, while increased production
rates of controls for commercial aircraft, communication-related
satellites, space propulsion, the Space Station, as well as
entertainment simulators, more than offset an expected decline in
military aircraft controls.
Operating profit for the Domestic Controls segment was $12.5
million (13.8% of segment sales) in the third quarter of fiscal
1997, up 42.8% from fiscal 1996 results of $8.8 million (12.0% of
segment sales). The increase is due primarily to increased sales
and favorable product mix in the commercial aircraft product line
along with the acquisition of the U.S. Industrial Hydraulics
Business. Although sales declined within the military aircraft
product line, a favorable product mix, including profit
adjustments on certain long-term contracts nearing completion,
resulted in improved operating margins as compared to a year ago.
For the first nine months of fiscal 1997, Domestic Controls
operating profit was up 26.8% to $31.5 million (12.8% of segment
sales) compared with $24.9 million (11.6% of segment sales) in
the same period of fiscal 1996. The aforementioned increase in
year-to-date sales, favorable product mix in commercial and
military aircraft controls and the U.S. Industrial Hydraulics
Business acquisition accounted for the improvement. The results
for the first nine months of fiscal 1997 include higher selling
expenses associated with sales opportunities in the commercial
aircraft product line.
Backlog for the Domestic Controls segment was $232.0 million
at June 30, 1997 as compared to $205.5 million at September 30,
1996 and $204.9 million at June 30, 1996. The increase from a
year ago is due to growth in orders in the commercial aircraft,
missile systems and entertainment simulation product lines and
the acquisition of the U.S. Industrial Hydraulics Business.
<PAGE>
Backlog consists of that portion of open orders for which sales
are expected to be recognized over the next twelve months.
International Controls
Net sales in the International Controls segment increased
2.6% to $33.2 million in the third quarter of fiscal 1997 as
compared to a year ago. Excluding the impact of the
strengthening U.S. dollar versus certain foreign currencies, in
particular the German Mark and Japanese Yen, current quarter
sales of the International Controls segment would have increased
approximately 12%. The most notable sales gains relate to volume
increases in controls for military and commercial aircraft in the
United Kingdom and for industrial hydraulic applications in
certain countries in Europe and Japan.
Year-to-date, sales of the International Controls segment of
$97.6 million approximated fiscal 1996 levels despite unfavorable
currency movements. Excluding the impact of changes in currency
values, sales for the first nine months of fiscal 1997 would have
increased approximately 7% over last year. Sales gains were
posted in several of the Company's major product lines. In
particular, sales of controls for military and commercial
aircraft in the United Kingdom, industrial electric controls in
Germany and industrial hydraulic controls in Japan showed
moderate growth as compared to last year. These increases more
than offset volume declines in Germany and the United Kingdom for
industrial hydraulic products.
International Controls third quarter operating profit
decreased 58.3% to $1.3 million (3.8% of segment sales) as
compared to $3.1 million (8.5% of segment sales) a year ago. The
decrease in operating profit is attributable to several factors.
Operating margins have been negatively impacted by unfavorable
product mix at the Company's German subsidiary. Within the
industrial hydraulics product line in Germany, a greater
percentage of sales were generated from lower margin controls for
injection molding applications. Also impacting margins in
Germany was a shift in sales away from higher margin industrial
hydraulic controls to lower margin industrial electric controls.
International Controls operating profit was negatively affected
by a $.7 million write-off of excess inventory in connection with
the sale of a small product line within the industrial electrics
product line that produced plastic pipe measurement equipment and
transition costs incurred to move certain production to an
electronics manufacturing facility in Ireland. Operating margins
were also impacted by the movement of certain currencies in
European countries where the Company's products are manufactured
relative to currencies in countries where the products are sold.
Operating profit was positively affected by a lower level of
overhead resulting from reduced consulting costs related to
enhancing manufacturing operations.
For the first nine months of fiscal 1997, operating profit
was $6.1 million (5.9% of segment sales) compared to $8.4 million
(7.6% of segment sales) a year ago. The decrease is due
principally to the aforementioned unfavorable product mix in
Germany, costs incurred in connection with the sale of a product
<PAGE>
line, relocation of production, and changes in foreign currency
values.
Backlog at June 30, 1997 for the International Controls
segment was $44.2 million compared to $37.8 million at September
30, 1996 and $42.2 million at June 30, 1996. The increase from a
year ago was attributable to growth in orders for electric drives
in Germany and industrial hydraulics in Japan, partially offset
by lower relative currency values in certain European and Pacific
Rim countries.
Non-Operating Review
Interest expense increased by $1.0 million to $5.8 million
in the third quarter of fiscal 1997 and by $3.9 million to $17.0
million for the nine months ended June 30, 1997. The increases
are due primarily to additional indebtedness outstanding in
connection with the aforementioned acquisition of the U.S.
Industrial Hydraulics Business. To a lesser extent, the nine
month increase is partially due to a recapitalization initiated
by the Company in May 1996, which enhanced the Company's long-
term capital base and provided additional senior debt capacity to
fund growth, while having the effect of increasing the Company's
average interest rate.
The effective tax rates for the three and nine months ended
June 30, 1997 were 29.0% and 28.9%, respectively. The current
year rates reflect anticipated benefits resulting from
distributions of earnings from the Company's German subsidiary
and tax incentives associated with U.S. export sales, partially
offset by increased tax expense related to the current year
earnings of the German operations which are now fully taxable.
Effective October 1, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and SFAS No. 123, "Accounting for Stock-Based
Compensation." The adoption of these standards had no effect on
the Company's consolidated financial position or results of
operations for the nine months ended June 30, 1997.
In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128, Earnings per Share, which is required to be
adopted by the Company during the first quarter of fiscal 1998.
See note 7 in the Notes to Consolidated Condensed Financial
Statements for a discussion of the impact of this standard on the
Company.
Financial Condition and Liquidity
Cash provided by operating activities was $15.1 million in
the first nine months of fiscal 1997 compared to $4.6 million
last year. The increase in cash provided is due to increased
earnings and improved working capital management.
Long-term senior debt increased from September 30, 1996 by
$41.7 million to $119.0 million at June 30, 1997 primarily due to
<PAGE>
the acquisition of the U.S. Industrial Hydraulics Business, which
was principally financed with proceeds from the Company's U.S.
Revolving Credit and Term Loan Facility. The percentage of
long-term debt to capitalization at June 30, 1997 was 68.2% as
compared to 65.3% at September 30, 1996.
Available credit facilities at June 30, 1997 were $71.1
million, along with cash and cash equivalents of $8.3 million.
Management believes that Moog's credit facilities and cash flow
from operations will continue to be sufficient to meet its near-
term operating needs.
Working capital at June 30, 1997 was $197.4 million compared
with $188.0 million at September 30, 1996. The current ratio was
3.1 at June 30, 1997 compared to 2.9 at September 30, 1996. The
increase is due essentially to the acquisition of the U.S.
Industrial Hydraulics Business, offset in part, by unfavorable
movements in foreign currency exchange rates particularly in
Germany and Japan.
Property, plant and equipment increased $3.1 million to
$134.5 million at June 30, 1997 due to the acquisition of the
U.S. Industrial Hydraulics Business. Capital expenditures for
the first nine months of fiscal 1997 were $10.5 million compared
to $8.1 million last year, and depreciation and amortization were
$15.7 million and $14.9 million, respectively. Capital
expenditures for fiscal 1997 should approximate $18 million.
Intangible assets increased $35.6 million from September 30,
1996 primarily resulting from the acquisition of the U.S.
Industrial Hydraulics Business.
Cautionary Statement
Forward looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act
of 1995. Statements under the "Outlook" heading are considered
forward looking statements that relate to future operating
periods and are subject to important risks and uncertainties that
could cause actual results to differ materially. These risks and
uncertainties include, but are not limited to, contracting with
various governments, changes in economic conditions, demand for
the Company's products, pricing pressures, intense competition in
the industries in which the Company operates, the need for the
Company to keep pace with technological developments and timely
response to changes in customer needs, and other factors
identified in the Company's Securities and Exchange Commission
filings including the Company's most recent Annual Report on Form
10-K for the fiscal year ended September 30, 1996 and its
Quarterly Reports on Form 10-Q for the quarters ended December
31, 1996 and March 31, 1997.
Outlook
The Company believes the Domestic Controls segment is well
positioned to benefit from the strong commercial aircraft and
communication-related satellite markets and continues its
<PAGE>
strategy of generating a greater share of its revenues from
commercial markets. Growth in incoming orders for industrial
hydraulics and entertainment simulation will add to fiscal 1997
revenues. Although military aircraft revenues have declined, the
Company believes operating margins in this product line will
remain strong for the remainder of fiscal 1997 as a result of
favorable product mix. Beyond fiscal 1997, military aircraft
controls operating margins are expected to return to more normal,
historical levels. While its integration continues, the recently
acquired U.S. Industrial Hydraulics Business made a positive
contribution to earnings.
Excluding the impact of currency movements, increased sales
of military and commercial aircraft controls and industrial
electric controls in Europe and industrial hydraulic products in
the Pacific Rim region offset industrial hydraulics sales
declines in Europe. Despite lower operating profits, the Company
believes the International Controls segment's geographic and
product line diversity, as well as actions taken by management to
improve the industrial electric product line, will benefit
operating performance.
<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.
Exhibit 27 - Financial data schedule.
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)
Date: August 11, 1997 By/S/Robert R. Banta
Robert R. Banta
Executive Vice President
Chief Financial Officer
(Principal Financial
Officer)
Date: August 11, 1997 By/S/Donald R. Fishback
Donald R. Fishback
Controller
(Principal Accounting
Officer)
<PAGE>
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