__________________________________________________________________________
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, 1998
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 7, 1998 were:
Class A Common Stock, $1.00 par value 7,312,225 shares
Class B Common Stock, $1.00 par value 1,635,959 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
June 30, 1998 and September 27, 1997 3
Consolidated Condensed Statements of Earnings
Three and Nine Months Ended June 30, 1998 and 1997 5
Consolidated Condensed Statements of Cash Flows
Nine Months Ended June 30, 1998 and 1997 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION 18
SIGNATURES 19
<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 27,
1998 1997
_________ _____________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,858 $ 6,800
Receivables 175,523 160,054
Inventories (note 2) 118,061 103,866
Deferred income taxes 21,169 18,935
Prepaid expenses and other current
assets 6,465 5,052
---------- ----------
TOTAL CURRENT ASSETS 326,076 294,707
PROPERTY, PLANT AND EQUIPMENT, net 139,267 132,109
GOODWILL, net (note 3) 59,596 49,626
OTHER ASSETS 13,601 14,121
---------- ----------
TOTAL ASSETS $ 538,540 $ 490,563
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,299 $ 1,323
Current installments of
long-term debt (note 7) 4,553 15,345
Accounts payable 26,320 23,860
Accrued salaries, wages and
commissions 31,868 28,747
Contract loss reserves 9,480 8,170
Accrued interest 5,173 7,253
Federal, state and foreign
income taxes 6,425 5,419
Other accrued liabilities 14,354 10,439
Customer advances 9,933 6,630
---------- ----------
TOTAL CURRENT LIABILITIES 109,405 107,186
LONG-TERM DEBT, excluding current
installments
Senior debt (note 7) 80,915 101,577
Senior subordinated notes 120,000 120,000
OTHER LONG-TERM LIABILITIES 45,742 47,609
---------- ----------
TOTAL LIABILITIES 356,062 376,372
---------- ----------
<PAGE>
SHAREHOLDERS' EQUITY (notes 4 and 5)
Preferred stock 100 100
Common stock 10,889 9,134
Other shareholders' equity 171,489 104,957
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 182,478 114,191
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 538,540 $ 490,563
========== ==========
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(dollars in thousands except per share data)
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
NET SALES $ 134,839 $ 120,064 $ 395,468 $ 333,719
OTHER INCOME 440 329 1,101 1,235
---------- ---------- ---------- ----------
135,279 120,393 396,569 334,954
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of sales 94,001 84,041 277,098 229,642
Research and
development 6,857 4,420 18,585 12,985
Selling, general and
administrative 21,359 20,839 62,754 60,720
Interest 4,704 5,842 15,856 17,015
Other expenses 246 234 984 834
---------- ---------- ---------- ----------
127,167 115,376 375,277 321,196
---------- ---------- ---------- ----------
EARNINGS BEFORE
INCOME TAXES 8,112 5,017 21,292 13,758
INCOME TAXES 2,839 1,456 7,454 3,979
---------- ---------- ---------- ----------
NET EARNINGS $ 5,273 $ 3,561 $ 13,838 $ 9,779
========== ========== ========== ==========
EARNINGS PER
SHARE (note 6)
Basic $ .59 $ .51 $ 1.71 $ 1.40
========== ========== ========== ==========
Diluted $ .58 $ .49 $ 1.66 $ 1.35
========== ========== ========== ==========
AVERAGE COMMON
SHARES OUTSTANDING
(note 6)
Basic 8,898,886 6,982,351 8,064,966 6,975,056
========== ========== ========== ==========
Diluted 9,139,304 7,228,748 8,314,128 7,226,797
========== ========== ========== ==========
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
Nine Months Ended
June 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $13,838 $ 9,779
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 16,474 15,712
Other (22,172) (10,361)
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,140 15,130
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses, net of
cash acquired (note 3) (20,983) (49,179)
Purchase of property, plant and equipment (16,366) (9,781)
Other 799 39
------ ------
NET CASH USED BY INVESTING ACTIVITIES (36,550) (58,921)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from notes payable 449 (708)
Net (repayments of) proceeds from
revolving lines of credit (2,000) 34,000
Proceeds from long-term debt 4,447 18,655
Payments on long-term debt (33,275) (8,836)
Proceeds from the sale of common
stock (note 4) 56,728 -
Other 387 (850)
------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 26,736 42,261
------ ------
Effect of exchange rate changes on cash (268) 209
------ ------
DECREASE IN CASH AND CASH EQUIVALENTS (1,942) (1,321)
Cash and cash equivalents at beginning of period 6,800 9,639
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,858 $ 8,318
====== ======
CASH PAID FOR:
Interest $17,420 $17,096
Income taxes 9,079 4,335
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Leases capitalized, net of leases terminated $ 261 $ 731
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>
MOOG INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 1998
(Unaudited)
(dollars in thousands)
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, 1998, the
results of its operations for the three and nine months ended June 30, 1998
and 1997 and its cash flows for each of the nine month periods ended June
30, 1998 and 1997. The results of operations for the three and nine month
periods ended June 30, 1998 and 1997 are not necessarily indicative of the
results expected for the full year.
2. 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 27,
1998 1997
---- ----
Raw materials and purchased parts $ 35,315 $ 28,933
Work in process 65,955 64,502
Finished goods 16,791 10,431
-------- --------
$118,061 $103,866
======== ========
3. Acquisition
On February 3, 1998, the Company acquired the net assets of Schaeffer
Magnetics, Inc. (Schaeffer), a leading supplier to the space industry of
motion control devices and systems with annual revenues of approximately
$20,000. The purchase price was $21,700. The acquisition has been
accounted for under the purchase method, and accordingly, the operating
results of Schaeffer have been included in the Consolidated Condensed
Statement of Earnings since the date of acquisition. Goodwill resulting
from this acquisition is approximately $12 million, which will be amortized
over 30 years.
4. Stock Offering
On January 29, 1998, the Company completed an offering of Class A shares at
$34.375 per share. The offering consisted of 1,700,000 previously unissued
shares sold by the Company and 300,000 existing shares sold by the Moog
Inc. Employees' Retirement Plan (Moog Retirement Plan). In addition, on
February 5, 1998, an additional 55,000 previously unissued Class A shares
were sold pursuant to an over-allotment option exercised by the
underwriters of the offering.
<PAGE>
The net proceeds to the Company from the offering of $56.7 million were
used to repay amounts outstanding under the Company's U.S. Revolving Credit
and Term Loan Facility (Bank Credit Facility) and will be used for smaller
strategic acquisitions. The Company did not receive any proceeds from the
sale of shares by the Moog Retirement Plan.
5. Shareholders' Equity
The changes in shareholders' equity for the nine months ended June 30, 1998
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 of period 9,134 6,635,936 2,498,187
Sale of common stock 1,755 1,755,000 -
Conversion of Class B to
Class A - 35,405 (35,405)
-------- --------- ----------
End of period 10,889 8,426,341 2,462,782
-------- --------- ---------
ADDITIONAL PAID-IN CAPITAL
Beginning of period 47,519
Sale of common stock, net of
issuance costs 54,973
Issuance of Treasury shares
at less than cost (122)
--------
End of period 102,370
--------
RETAINED EARNINGS
Beginning of period 88,422
Net earnings 13,838
Preferred stock dividends (7)
--------
End of period 102,253
--------
TREASURY STOCK
Beginning of period (30,967) (5,114) (1,186,221) (892,101)
Treasury stock issued 1,394 - 53,450 51,000
Treasury stock purchased (364) - (8,948) -
-------- -------- --------- ---------
End of period (29,937) (5,114) (1,141,719) (841,101)
-------- -------- --------- ---------
EQUITY ADJUSTMENTS
Beginning of period 977
Foreign currency translation (3,727)
--------
End of period (2,750)
--------
<PAGE>
LOAN TO SAVINGS AND STOCK
OWNERSHIP PLAN (SSOP)
Beginning of period (994)
Net change in loan to SSOP 547
--------
End of period (447)
--------
-------- -------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY $182,478 94,886 7,284,622 1,621,681
======== ======== ========= =========
6. Earnings Per Share
During the first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS
No. 128 replaces primary EPS with basic EPS and fully diluted EPS with
diluted EPS. Basic EPS is computed by dividing reported earnings by
weighted average shares outstanding. Diluted EPS is computed the same way
as fully diluted EPS except that the calculation now uses the average share
price for the reporting period to compute dilution from options under the
treasury stock method. The Company has restated its earnings per share for
prior periods.
The number of shares and earnings used in the Company's basic and diluted
earnings per share computations are as follows:
Three Months Ended Nine Months Ended
------------------------ ----------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------------ ----------- ---------- -----------
EARNINGS
Earnings available to common
shareholders - Basic $ 5,271 $ 3,559 $ 13,831 $ 9,772
Add: Preferred stock
dividends 2 2 7 7
---------- ---------- ---------- ----------
Earnings available to common
shareholders - Diluted $ 5,273 $ 3,561 $ 13,838 $ 9,779
========== ========== ========== ==========
SHARES
Weighted-average shares
outstanding - Basic 8,898,886 6,982,351 8,064,966 6,975,056
Stock options 232,272 237,812 241,016 243,156
Convertible preferred stock 8,146 8,585 8,146 8,585
---------- --------- --------- ----------
Shares outstanding -
Diluted 9,139,304 7,228,748 8,314,128 7,226,797
========== ========= ========= ==========
BASIC EPS $ .59 $ .51 $ 1.71 $ 1.40
========== ========== ========= ==========
DILUTED EPS $ .58 $ .49 $ 1.66 $ 1.35
========== ========== ========= ==========
<PAGE>
7. Long-Term Debt
On April 1, 1998 the Company used $21,000 available under the revolving
portion of the Bank Credit Facility to pay off the term loan outstanding
under the same facility. In addition, effective April 1, 1998, the
interest rate on the revolving portion of the Bank Credit Facility was
lowered to LIBOR plus .90%.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Moog Inc. is a leading worldwide designer and manufacturer of a broad range
of high performance, precision motion and fluid control products and
systems for aerospace and industrial markets.
Moog's servoactuation systems are critical to the flight control of
commercial and military aircraft, positioning satellites, controlling the
thrust of space launch vehicles, steering tactical and strategic missiles,
and a wide variety of industrial hydraulic and electronic applications that
require the precise control of position, velocity and force. The
business consists of five principal product lines. Commercial Aircraft,
Military Aircraft and Satellites and Launch Vehicles are collectively
referred to as Aerospace Controls. Industrial Hydraulics and Electronics
and Drives are collectively referred to as Industrial Controls.
The operating results of the Company are reported using two segments:
Domestic Controls and International Controls. Domestic Controls primarily
focuses on North American markets with the majority of its sales in
aerospace-related product lines. International Controls is focused on
markets in Europe and the Asian-Pacific, with the majority of sales in
industrial product lines. The Company is currently reviewing the
requirements of Statement of Financial Accounting Standard (SFAS) No. 131,
"Disclosure about Segments of an Enterprise and Related Information," which
requires financial information to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The Company will adopt this new standard and revise
its segment reporting, if necessary, no later than its first quarter of
fiscal 1999.
Overview
During the second quarter of 1998, the Company completed two transactions
which helped improve its financial condition and build on its strategy of
broadening product lines.
On January 29, 1998, the Company completed an offering of Class A shares at
a price of $34.375 per share. The offering consisted of 1,700,0000
previously unissued shares and 300,000 existing shares sold by the Moog
Inc. Employees' Retirement Plan (Moog Retirement Plan). In addition, on
February 5, 1998, an additional 55,000 previously unissued Class A shares
were sold pursuant to an over-allotment option exercised by the
underwriters of the offering. The net proceeds to the Company from the
offering of $56.7 million were used to repay amounts outstanding under the
U.S. Revolving Credit and Term Loan Facility (Bank Credit Facility) and
will be used for smaller strategic acquisitions. The Company did not
receive any proceeds from the sale of shares by the Moog Retirement Plan.
On February 3, 1998, the Company purchased the net assets of Schaeffer
Magnetics, Inc. (Schaeffer), a leading supplier to the space industry of
motion control devices and systems for solar panels and antennas on
satellites with annual revenues of approximately $20 million. The purchase
price was $21.7 million.
<PAGE>
Results of Operations
Consolidated
Sales in the current quarter were $134.8 million, reflecting an increase of
12% from last year's sales of $120.1 million. Aerospace Controls sales
increased 10% fueled by a 46% increase in Satellites and Launch Vehicles
controls. The majority of this increase resulted from the previously
mentioned acquisition of Schaeffer, which provided incremental revenues of
approximately $6 million. Also contributing to the sales growth was
increased volume for launch vehicle controls. Increased sales of
entertainment simulators, electric controls for military vehicles, material
test equipment and power generation controls helped increase Industrial
Controls sales by 16%. Sales year-to-date were $395.5 million, an
increase of 19% from last year's sales of $333.7 million. Sales of
Aerospace Controls grew 21% as the Company continued to benefit from growth
in the commercial airplane market, increased launch vehicle activity, the
Schaeffer acquisition, which added approximately $9 million in revenues,
and initial production on large military aircraft and missile programs.
Industrial Controls sales increased 14% (20% at constant currency) due to
the same factors mentioned above. Cost of sales for the current quarter of
69.7% of sales is comparable to 70.0% last year. On a year-to-date basis,
cost of sales was 70.1% in the current year versus 68.8% last year. Cost
of sales increased as a percentage of sales in the first nine months for a
variety of reasons, each of which was individually small. The mix of
business in the current year consisted of more Aerospace Controls sales,
which generally have lower gross margins than Industrial Controls and,
within Aerospace Controls, a mix which contained a larger share of lower
margin development and production programs. In addition, the higher margin
aftermarket business represented a lower proportionate share of sales.
Research and development expenditures increased by $2.4 million in the
current quarter to $6.9 million, or 5.1% of net sales, and by $5.6 million
year-to-date to $18.6 million, or 4.7% of net sales, primarily due to
additional engineering efforts related to the development of next
generation flight controls and, to a lesser extent, activity on satellite
constellation programs, including Teledesic and Skybridge.
Selling, general and administrative (SG&A) expenses were $21.4 million, or
15.8% of net sales, in the third quarter of fiscal 1998, compared to $20.8
million, or 17.4% of net sales, in fiscal 1997. Year-to-date SG&A expenses
were $62.8 million, or 15.9% of net sales, compared to $60.7 million, or
18.2% of net sales, in the same period last year. The decrease as a
percentage of sales in both periods was primarily due to growth in sales,
in addition to a shift of costs to production and research and development
activities in fiscal 1998 from bid and proposal work, which is recorded in
SG&A, in fiscal 1997. These decreases were offset, in part, by additional
SG&A expenses from Schaeffer.
Interest expense decreased by $1.1 million to $4.7 million in the current
quarter and $1.2 million to $15.9 million year-to-date due to lower average
borrowings outstanding under the Bank Credit Facility resulting primarily
from the use of proceeds from the equity offering in January 1998.
The effective tax rate in fiscal 1998 was 35.0% compared to 29.0% in the
third quarter of fiscal 1997 and 28.9% for the first nine months of last
year. The prior year tax rates reflect higher foreign tax credit benefits
resulting from distributions of earnings from our German subsidiary.
<PAGE>
During the first quarter of fiscal 1998, the Company adopted SFAS No. 128
"Earnings per Share." SFAS No. 128 replaces primary EPS with basic EPS and
fully diluted EPS with diluted EPS. Basic EPS is computed by dividing
reported earnings by weighted average shares outstanding. Diluted EPS is
computed the same way as fully diluted EPS except the calculation now uses
the average share price for the reporting period to compute dilution from
options under the treasury stock method. The Company has restated its
earnings per share for prior periods.
For the third quarter of fiscal 1998, net earnings increased 48% to $5.3
million compared with $3.6 million last year. Basic earnings per share
increased to $.59 in the current quarter compared to $.51 in the same
period last year, while diluted earnings per share was $.58 compared to
$.49 in fiscal 1997. For the first nine months of fiscal 1998, net earnings
increased 42% to $13.8 million compared with $9.8 million last year. Basic
earnings per share increased to $1.71 in fiscal 1998 compared to $1.40 in
the same period last year, while diluted earnings per share was $1.66 in
fiscal 1998 compared to $1.35 in fiscal 1997.
Segment Operating Review
(dollars in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- -------
DOMESTIC CONTROLS
Net sales:
Aerospace $ 79,366 $ 70,854 $ 236,213 $ 193,463
Industrial 19,715 16,209 56,333 42,933
--------- --------- ---------- ----------
99,081 87,063 292,546 236,396
Intersegment sales 4,690 4,186 13,852 9,574
--------- --------- ---------- ----------
Total sales $ 103,771 $ 91,249 $ 306,398 $ 245,970
========= ========= ========== ==========
Operating profit $ 11,287 $ 12,542 $ 35,800 $ 31,579
Backlog 256,107 231,997
INTERNATIONAL CONTROLS
Net sales:
Aerospace $ 6,653 $ 7,010 $ 20,565 $ 19,112
Industrial 29,105 25,991 82,357 78,211
--------- --------- --------- ---------
35,758 33,001 102,922 97,323
Intersegment sales 3,033 1,499 7,515 5,103
--------- --------- --------- ---------
Total sales $ 38,791 $ 34,500 $ 110,437 $ 102,426
========= ========= ========= =========
Operating profit $ 4,006 $ 1,412 $ 8,423 $ 6,005
Backlog 56,824 44,246
<PAGE>
CONSOLIDATED
Net sales:
Aerospace $ 86,019 $ 77,864 $ 256,778 $ 212,575
Industrial 48,820 42,200 138,690 121,144
--------- --------- --------- ---------
$ 134,839 $ 120,064 $ 395,468 $ 333,719
========= ========= ========= =========
Operating profit $ 15,293 $ 13,954 $ 44,223 $ 37,584
Backlog 312,931 276,243
Domestic Controls
Domestic Controls net sales increased by $12.0 million to $99.1 million in
the current quarter compared to $87.1 million in the same period of the
prior year. The 14% improvement reflects increases of $8.5 million in
Aerospace Controls and $3.5 million in Industrial Controls. The increase
in Aerospace Controls resulted primarily from the Schaeffer acquisition,
which added approximately $6 million in revenues. Also contributing to
Aerospace Controls sales growth was increased volume on launch vehicles
programs, specifically Centaur, the Kistler commercial launch vehicle and
the Titan IV program. Sales of Military Aircraft controls were flat in the
quarter as increases attributable to initial production on the F/A-18 E/F
and V-22 Osprey programs were almost entirely offset by declines on the B-2
program, which is nearing completion. The improvement in Industrial
Controls relates primarily to increased demand for entertainment simulators
and power generation controls. Year-to-date, sales for the Domestic
Controls segment increased 24%. Aerospace Controls increased $42.8
million, or 22%. Satellites and Launch Vehicles accounted for
approximately $20 million of the increase, primarily due to the acquisition
of Schaeffer, which added $9 million in revenues and due to increased
demand for controls for launch vehicles. Sales of Military Aircraft
controls increased approximately $12 million due primarily to initial
production on the F/A-18 E/F and V-22 Osprey programs. Commercial Aircraft
sales increased approximately $11 million primarily as a result of
increased OEM sales to Boeing. Industrial Controls sales year-to-date
increased $13 million as a result of the same factors mentioned above.
Operating margins in the current quarter for the Domestic Controls segment
decreased to 10.9% of segment sales, or $11.3 million, from 13.7%, or $12.5
million, in the same quarter of last year. The decrease is due to
declining Aerospace Controls margins partially offset by improved margins
within Industrial Controls. Aerospace operating profit is down $3.7
million primarily as a result of increased research and development
expenditures in the Military Aircraft product line associated with
development of next generation flight controls and approximately $1 million
in the Satellite and Launch Vehicles product line mostly related to lower
sales of satellite propulsion hardware and negative cost experience on a
fixed-price development contract for the Atlas Centaur launch vehicle
program. Industrial Controls operating profit increased $2.5 million due
to increased sales and a product mix more weighted to higher margin valve
sales and fewer lower margin actuators. Year-to-date, operating margins
declined to 11.7% from 12.8% in the prior year. The decrease is due to
the above mentioned margin decline in Aerospace Controls, offset by
favorable product mix within Industrial Controls. In dollar terms, year-
to-date operating profit increased to $35.8 million compared to $31.6
million a year ago due to increased sales and favorable product mix within
Industrial Controls.
<PAGE>
Backlog consists of that portion of open orders for which sales are
expected to be recognized over the next twelve months. Backlog at June 30,
1998 for the Domestic Controls segment was $256.1 million compared with
$236.4 million at September 27, 1997 and $232.0 million at June 30, 1997.
The increase from a year ago is due to the second quarter acquisition of
Schaeffer, which added $11 million of backlog, and increased launch vehicle
activity.
International Controls
Sales in the International Controls segment increased approximately 8% in
the third quarter of fiscal 1998 to $35.8 million, as compared to last year
(up 14% at constant currency). Sales of Industrial Controls increased
approximately $5 million, at constant currency, primarily on the strength
in sales of Industrial Hydraulics in Europe and electric controls for
military vehicles in Germany. Sales of Aerospace Controls were essentially
level with prior year's results. Year-to date, sales for the International
Controls segment increased approximately 6% to $102.9 million versus $97.3
million in fiscal 1997 (up 14% at constant currency), primarily on the
strength of Industrial Hydraulics in Europe and electric controls in
Germany.
International Controls third quarter operating margin was 10.3% of segment
sales, or $4.0 million, compared to 4.1%, or $1.4 million, in the prior
year, while year-to-date the operating margin in fiscal 1998 was 7.6%, or
$8.4 million, compared to 5.9%, or $6.0 million, a year ago. The increase
in the current quarter and year-to-date is attributable to increased sales
and the absence in fiscal 1998 of a $.7 million write-off of excess
inventory in connection with the sale of a small product line within the
industrial electronics product line and transition costs incurred to move
certain production to the Company's electronics manufacturing facility in
Ireland.
Backlog at June 30, 1998 for the International Controls segment was $56.8
million, compared with $44.0 million at September 27, 1997 and $44.2
million at June 30, 1997. The increase from a year ago is attributable to
growth in orders for electric drives for military ground vehicles and
Industrial Hydraulics in Europe.
Financial Condition and Liquidity
Cash provided by operating activities was $8.1 million in the first nine
months of fiscal 1998 compared to $15.1 million in the same period a year
ago. The decrease is due primarily to higher receivables within Aerospace
Controls associated with long-term contracts and increased inventories to
support higher sales.
Long-term senior debt at June 30, 1998 was $80.9 million compared to $101.6
million at September 27, 1997. The percentage of long-term debt to
capitalization decreased to 52.4% at June 30, 1998 from 66.0% at September
27, 1997. The decrease in senior debt is due to the use of proceeds from
the equity offering during the second quarter to pay down amounts
outstanding under the Bank Credit Facility, net of amounts used to acquire
Schaeffer. On April 1, 1998 the Company used $21 million available under
the revolving portion of the Bank Credit Facility to pay off the term loan
outstanding under the same facility. As a result, the current portion of
long-term debt decreased by the amount of the term loan due within the next
twelve months. Effective April 1, 1998, the interest rate on the revolving
portion of the Bank Credit Facility was lowered to LIBOR plus .90%.
<PAGE>
At June 30, 1998, the Company had $94.6 million of unused borrowing
capacity available under short and long-term lines of credit, including
$80.0 million from the Bank Credit Facility.
Working capital at June 30, 1998 was $216.7 million compared with $187.5
million at September 27, 1997. The current ratio was 2.98 and 2.75 at June
30, 1998 and September 27, 1997, respectively. The $29.2 million increase
in working capital is due primarily to a $15.5 million increase in
receivables and a $14.2 million increase in inventories. The increase in
receivables is attributable to significant cost input on long-term
Aerospace Controls contracts, which are accounted for under long-term
percentage-of-completion (cost-to-cost) accounting and approximately $5
million related to the acquisition of Schaeffer. Inventory increases were
due to increased production levels to support sales growth.
Net property, plant and equipment at June 30, 1998 was $139.3 million as
compared to $132.1 million at September 27, 1997. Capital expenditures for
the first nine months of fiscal 1998 were $16.6 million compared with
depreciation and amortization of $16.5 million. Capital expenditures for
the same period last year were $10.5 million compared with depreciation and
amortization of $15.7 million. The acquisition of Schaeffer added
approximately $6 million of property, plant and equipment. Capital
expenditures for fiscal 1998 should approximate depreciation and
amortization levels.
Goodwill increased to $59.6 million at June 30, 1998 from $49.6 million at
September 27, 1997. The increase is due to the acquisition of Schaeffer
during the quarter, which resulted in goodwill of approximately $12
million.
Year 2000
The Company believes that it has taken reasonable steps, within the
Company, to identify the potential impact of the computer systems and
software products situation commonly referred to as the "Year 2000 Issue."
The Year 2000 Issue, which affects most corporations, concerns the
inability of information systems, primarily computer software programs, to
properly recognize and process date-sensitive information relating to the
year 2000 and beyond. The Company utilizes a significant number of
computer software programs and operating systems across its entire
organization, including applications used in manufacturing, product
development, financial business systems and various administrative
functions. To the extent the Company's software applications contain
source code that is unable to appropriately interpret the upcoming calendar
year "2000," some level of modification, or even possibly replacement of
such applications may be necessary. The Company currently estimates that
it will not incur material expenditures to complete any such modification
or replacement as the Company believes that a majority of its systems are
Year 2000 compliant, although there can be no assurance in this regard. In
addition, a failure of suppliers or customers to address the Year 2000
Issue could have a material adverse effect on the Company. Subsequent to
the end of the Company's most recent interim period, the Securities and
Exchange Commission (SEC) issued expanded disclosure guidelines relating to
the Year 2000 Issue. The Company will comply with these guidelines in
subsequent SEC filings after having fully evaluated the necessary
disclosures.
<PAGE>
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 27, 1997 and its
Quarterly Reports on Form 10-Q for the quarters ended December 31, 1997 and
March 31, 1998.
Outlook
Sales in the Military and Commercial Aircraft product lines appear to have
temporarily peaked due to the B-2 program nearing completion and a recent
rescheduling of deliveries to Boeing. However, increases in satellites
controls, primarily due to the Schaeffer acquisition and to projected
growth on satellite constellations, and launch vehicles due to work on the
Titan IV program, should provide modest growth in Aerospace Controls in the
near term. Sales and operating income growth in Industrial Controls is
expected to continue on the strength of electric controls for military
ground vehicles in Europe, power generation controls, and due to the strong
U.S. and European industrial economies, which benefit our Industrial
Hydraulics business. Sales from the Company's Asian-Pacific operations,
excluding Japan, account for less than 2% of total sales (5% including
Japan) and, as a result, economic difficulties in the Asian-Pacific region
are not expected to have a material impact on the Company's results of
operations or financial condition.
<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.
Shareholder Proposals
Pursuant to new amendments to Rule 14a-4(c) under the
Securities Exchange Act of 1934, as amended, if a
shareholder who intends to present a proposal at the 1999
Annual Meeting of Shareholders does not notify the Company
of such proposal on or prior to November 21, 1998, then
management proxies would be allowed to use their
discretionary voting authority to vote on the proposal when
the proposal is raised at the annual meeting, even though
there is no discussion of the proposal in the proxy
statement for that meeting.
Stock Purchase Program
On August 7, 1998 the board of directors authorized the
Company to repurchase up to 200,000 shares of its common
stock. The shares may be purchased from time to time on the
open market at prevailing prices.
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, 1998 By /s/ Robert R. Banta
Robert R. Banta
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)
Date: August 11, 1998 By /s/ Donald R. Fishback
Donald R. Fishback
Controller
(Principal Accounting Officer)
<PAGE>
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