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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, 1999
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
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
East Aurora, New York 14052-0018
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(Address of principal executive offices) (Zip code)
Telephone number including area code: (716) 652-2000
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Former name, former address and former fiscal year,
if changed since last report.
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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 May 7, 1999
were:
Class A Common Stock, $1.00 par value 7,325,999 shares
Class B Common Stock, $1.00 par value 1,612,956 shares
<PAGE>
MOOG INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Balance Sheets
March 31, 1999 and September 26, 1998 3
Consolidated Condensed Statements of Earnings
Three and Six Months Ended March 31, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows
Six Months Ended March 31, 1999 and 1998 5
Notes to Consolidated Condensed Financial
Statements 6-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-17
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 17
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
March 31, September 26,
1999 1998
------------ -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,909 $ 11,625
Receivables 192,120 182,228
Inventories (note 2) 150,642 121,784
Deferred income taxes 30,589 22,289
Prepaid expenses and other current assets 6,322 9,151
------- -------
TOTAL CURRENT ASSETS 389,582 347,077
PROPERTY, PLANT AND EQUIPMENT, net 186,704 139,444
GOODWILL, net (note 3) 183,971 60,025
OTHER ASSETS 18,519 12,779
------- -------
TOTAL ASSETS $ 778,776 $ 559,325
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 7,514 $ 410
Current installments of long-term
debt (note 3) 20,376 5,505
Accounts payable 29,487 25,648
Accrued salaries, wages and commissions 37,845 36,338
Contract loss reserves 30,713 10,448
Accrued interest 10,593 8,050
Federal, state and foreign income taxes 9,821 6,838
Other accrued liabilities 25,744 17,746
Customer advances 7,742 9,904
------- -------
TOTAL CURRENT LIABILITIES 179,835 120,887
LONG-TERM DEBT, excluding current installments
Senior debt (note 3) 223,110 79,699
Senior subordinated notes 120,000 120,000
OTHER LONG-TERM LIABILITIES 56,866 47,731
------- -------
TOTAL LIABILITIES 579,811 368,317
------- -------
SHAREHOLDERS' EQUITY (note 4)
Preferred stock 100 100
Common stock 10,889 10,889
Other shareholders' equity 187,976 180,019
------- -------
TOTAL SHAREHOLDERS' EQUITY 198,965 191,008
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 778,776 $ 559,325
======= =======
See accompanying Notes to Consolidated Condensed Financial Statement
<PAGE>
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
-------- --------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 161,909 $ 134,511 $ 310,353 $ 260,629
OTHER INCOME 255 309 643 661
-------- --------- -------- --------
162,164 134,820 310,996 261,290
-------- --------- -------- --------
COSTS AND EXPENSES
Cost of sales 110,631 93,987 213,304 183,097
Research and development 8,983 6,602 18,226 11,728
Selling, general and administrative 25,700 21,477 48,457 41,395
Interest 7,321 5,241 12,765 11,152
Other expenses 585 344 774 738
-------- --------- -------- --------
153,220 127,651 293,526 248,110
-------- --------- -------- --------
EARNINGS BEFORE INCOME TAXES 8,944 7,169 17,470 13,180
INCOME TAXES 2,950 2,511 5,849 4,615
-------- --------- -------- --------
NET EARNINGS $ 5,994 $ 4,658 $ 11,621 $ 8,565
======== ========= ======== =======
EARNINGS PER SHARE (note 5)
Basic $ .67 $ .57 $ 1.30 $ 1.12
======== ========= ======== =======
Diluted $ .66 $ .55 $ 1.28 $ 1.08
======== ========= ======== =======
AVERAGE COMMON SHARES OUTSTANDING (note 5)
Basic 8,933,419 8,226,538 8,929,770 7,648,005
========== ========= ========= =========
Diluted 9,065,659 8,468,491 9,062,564 7,899,593
========== ========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
Six Months Ended
March 31,
1999 1998
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 11,621 $ 8,565
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 14,652 10,816
Other 5,697 (13,022)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 31,970 6,359
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses, net of cash
acquired (note 3) (171,710) (20,983)
Acquisition of minority interest (note 3) (2,133) -
Purchase of property, plant and equipment (13,474) (11,344)
Proceeds from sale of assets (note 8) 2,631 239
Other 71 787
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (184,615) (31,301)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from notes payable 1,190 2,737
Net proceeds from (repayments of) revolving
lines of credit 78,700 (27,000)
Proceeds from long-term debt 75,351 3,325
Payments on long-term debt (3,632) (12,010)
Proceeds from sale of common stock - 56,935
Other (572) 457
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 151,037 24,444
--------- ---------
Effect of exchange rate changes on cash (108) (252)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (1,716) (750)
Cash and cash equivalents at beginning of period 11,625 6,800
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,909 $ 6,050
========= =========
CASH PAID FOR:
Interest $ 10,022 $ 9,813
Income taxes 3,643 4,301
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Leases capitalized, net of leases terminated $ 22 $ 116
Acquisitions of businesses:
Fair value of assets acquired $ 222,191
Cash paid 172,725
---------
Liabilities assumed $ 49,466
=========
See accompanying Notes to Consolidated Condensed Financial Statements.
MOOG INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED MARCH 31, 1999
(Unaudited)
(dollars in thousands)
1. Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have been
prepared by management in accordance with generally accepted accounting
principles 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 March 31, 1999 and the results of its operations for
the three and six months ended March 31, 1999 and 1998 and its cash flows for
each of the six months ended March 31, 1999 and 1998. The results of operations
for the three and six month periods ended March 31, 1999 and 1998 are not
necessarily indicative of the results expected for the full year. The
accompanying unaudited consolidated condensed financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's Form 10-K for the fiscal year ended September 26, 1998.
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:
March 31, September 26,
1999 1998
---------- -------------
Raw materials and purchased parts $ 48,568 $ 37,404
Work in process 75,870 64,385
Finished goods 26,204 19,995
-------- -------
$ 150,642 $121,784
======== =======
3. Acquisitions
On October 30, 1998, the Company acquired a 75% shareholding of Hydrolux SARL, a
Luxembourg designer and manufacturer of hydraulic power control systems for
industrial machinery from Paul Wurth SARL. As part of the transaction, the
Company increased its ownership to 75% of Moog-Hydrolux Hydraulic Systems, Inc.
(Moog-Hydrolux), a joint venture the Company formed in fiscal 1996 with Hydrolux
SARL, to serve the North American market. The Company previously owned 50% of
Moog-Hydrolux. After the transaction, Paul Wurth SARL owns the remaining 25%
minority interest in Hydrolux SARL and Moog-Hydrolux. The purchase price was
$8,200 in cash, plus the assumption of $6,400 of debt. Based on a preliminary
purchase price allocation, which is subject to finalization, intangible assets
resulting from this acquisition are approximately $1 million and will be
amortized over 30 years.
On November 30, 1998, the Company completed the acquisition from Raytheon
Aircraft Company of all the outstanding common stock of Raytheon Aircraft Montek
Company (Montek) for approximately $160,000 in cash. Montek, located in Salt
Lake City, Utah, is a supplier of flight controls to the Boeing Commercial
Airplane Group and to manufacturers of regional aircraft and business jets
including the Raytheon Aircraft Company. Montek also produces steering controls
for tactical missiles and servovalves for both industrial and aerospace
applications. Based on a preliminary purchase price allocation, which is subject
to finalization, intangible assets resulting from this acquisition are
approximately $118,000 and will be amortized over 40 years. In connection with
the preliminary allocation of the purchase price, the Company established a
$3,000 reserve for severance and other related costs associated with expected
involuntarily terminated employees. At March 31, 1999, the balance of the
reserve was $2,700. During the second quarter, the Company incurred $300 in
severance-related costs for initial workforce reductions. The Company has
developed a formal plan for integrating the operations of Montek and will inform
the impacted employees during the third quarter of fiscal 1999. Any change to
the reserve as a result of the completion of the plan of integration will be
reflected in the final purchase price allocation.
<PAGE>
In connection with the acquisition of Montek, the Company refinanced its U.S.
credit facilities. Effective November 30, 1998, the Company entered into a
$340,000 Corporate Revolving and Term Loan Agreement (Credit Facility) with a
banking group. The Credit Facility provides a $265,000 revolving facility and a
$75,000 term loan with interest starting at LIBOR plus 200 basis points, with
the spread adjusted based on leverage. The Credit Facility is for a five year
period with quarterly principal payments on the term loan of $3,750 commencing
in March 1999. The Credit Facility is secured by substantially all of the
Company's U.S. assets. The loan agreement includes customary covenants for a
transaction of this nature, including maintaining various financial ratios. The
Credit Facility was used primarily to acquire Montek and to refinance
approximately $72,000 of existing revolving credit facilities with the remaining
balance available for future working capital requirements.
On December 3, 1998, the Company acquired a 66-2/3% shareholding in Microset
Srl, an Italian designer and manufacturer of electronic controls for industrial
machinery for $3,500 in cash.
Hydrolux SARL, Moog-Hydrolux and Microset Srl are referred to as the Acquired
Industrial Businesses.
All of the Company's acquisitions are accounted for under the purchase method,
and accordingly, the operating results for the acquired companies are included
in the Consolidated Condensed Statements of Earnings from the dates of
acquisition.
The following summary, prepared on a proforma basis, combines the consolidated
results of operations of the Company, Montek and the Acquired Industrial
Businesses for the three and six months ended March 31, 1999 and 1998 as if the
acquisitions took place at the beginning of each period presented. The proforma
consolidated results include the impact of certain adjustments, including
amortization of intangibles and increased interest expense on acquisition debt,
and related income tax effects.
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
Net sales $161,909 $161,485 $328,081 $316,220
Net earnings 5,994 4,826 11,157 9,064
Basic earnings per share $.67 $.59 $1.25 $1.19
Diluted earnings per share $.66 $.57 $1.23 $1.15
The proforma results are not necessarily indicative of what actually would have
occurred if the acquisition had been in effect for the periods presented. In
addition, they are not intended to be a projection of future results.
During the second quarter, the Company purchased the remaining 10% minority
interest of Moog Japan Ltd. for $2.1 million. The impact of this acquisition on
the Company's results of operations and financial condition is not significant.
<PAGE>
4. Shareholders' Equity
The changes in shareholders' equity for the six months ended March 31, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
Number of Shares
----------------
Class A Class B
Preferred Common Common
Amount Shares Stock Stock
---------- --------- ------- -------
<S> <C> <C> <C> <C>
PREFERRED STOCK
Beginning and end of period $ 100 100,000
----------
COMMON STOCK
Beginning of period 10,889 8,427,141 2,461,982
Conversion of Class B to Class A - 237 (237)
---------- --------- ---------
End of period 10,889 8,427,378 2,461,745
---------- --------- ---------
ADDITIONAL PAID-IN CAPITAL
Beginning of period 102,306
Issuance of Treasury shares at
less than cost (151)
----------
End of period 102,155
----------
RETAINED EARNINGS
Beginning of period 107,681
Net earnings 11,621
Preferred stock dividends (5)
---------
End of period 119,297
---------
TREASURY STOCK
Beginning of Period (30,511) (5,117) (1,140,514) (815,918)
Treasury stock issued 532 - 35,954 2,857
Treasury stock purchased (950) (11,112) (8,819) (20,428)
--------- -------- --------- --------
End of period (30,929) (16,229) (1,113,379) (833,489)
--------- -------- --------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Beginning of period 614
Foreign currency translation (3,161)
--------
End of period (2,547)
--------
LOAN TO SAVINGS AND STOCK
OWNERSHIP PLAN (SSOP)
Beginning of period (71)
Net change in loan to SSOP 71
--------
End of period -
--------
-------- --------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY $ 198,965 83,771 7,313,999 1,628,256
========= ========= ========= =========
</TABLE>
5. Earnings Per Share
The number of shares and earnings used in the Company's basic and diluted
earnings per share computations are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
EARNINGS
Earnings available to common
shareholders - Basic $ 5,992 $ 4,656 $ 11,616 $ 8,560
Add: Preferred stock dividends 2 2 5 5
--------- --------- ---------- ---------
Earnings available to common
shareholders - Diluted $ 5,994 $ 4,658 $ 11,621 $ 8,565
========= ========= ========== =========
SHARES
Weighted-average shares
outstanding - Basic 8,933,419 8,226,538 8,929,770 7,648,005
Stock options 124,762 233,807 124,982 243,442
Convertible preferred stock 7,478 8,146 7,812 8,146
--------- --------- --------- ---------
Shares outstanding - Diluted 9,065,659 8,468,491 9,062,564 7,899,593
========= ========= ========= =========
BASIC EPS $ .67 $ .57 $ 1.30 $ 1.12
========= ========= ========= =========
DILUTED EPS $ .66 $ .55 $ 1.28 $ 1.08
========= ========= ========= =========
</TABLE>
6. Segment Information
Effective with the first quarter of fiscal 1999, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 131, Disclosures 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's
reportable segments under SFAS No. 131 are Aircraft Controls, Satellite and
Launch Vehicle Controls and Industrial Controls. The operating results of the
segments are reviewed regularly by the Chief Executive Officer of the Company.
The determination of the Company's reportable segments was based on a
combination of differences in products sold by each segment as well as the
markets that are served.
The Aircraft Controls segment supplies technologically advanced flight controls,
engine controls and servovalves or servoactuators to manufacturers of commercial
and military aircraft. Aircraft Controls designs and manufactures primary and
secondary flight controls and engine controls. Moog has supplied high
performance servoactuators to move flight control surfaces on almost every U.S.
military aircraft since the 1950's. The Company recently began initial
production on the F/A-18E/F Super Hornet and the V-22 Osprey as well as delivery
of flight and engine control actuation for the Joint Strike Fighter concept
demonstrator aircraft. The Company supplies controls for Boeing's 737, 747, 757,
767 and 777 airplanes, Airbus's A310, A320, A330 and A340 airplanes, as well as
for many regional and business aircraft.
<PAGE>
The Satellite and Launch Vehicle Controls segment designs and manufactures
motion, fluid and propellant controls and systems used to control the flight and
positioning of satellites, positioning of solar panels and antennas, thrust of
space launch vehicles, and steering of tactical and strategic missiles.
Customers for the Company's products include Boeing, Hughes, Lockheed Martin and
Loral Space. Significant programs include the Titan IV, Delta and Atlas Centaur
launch vehicles and numerous satellite programs.
The Industrial Controls segment manufactures hydraulic and electric controls
which are used in a wide variety of industrial applications requiring the
precise control of position, velocity and force. Moog believes it is the world's
market leader in industrial servovalves. Applications for hydraulic controls
include plastic injection and blow molding machines, steam and gas turbines,
steel rolling mills and fatigue testing machinery. In the field of power
generation, Moog is the leading servovalve supplier to GE and its licensees and
to Siemens Westinghouse. Applications for electric controls include motion
simulators, military ground vehicles, plastic injection and blow molding
machines, material handling robots, carpet manufacturing and packaging
equipment. Applications for electric controls range from the motion simulator on
MCA-Universal's Spiderman theme park attraction to electric drives for Wegmann
PzH 2000 howitzers.
Below are the revenues and operating profit by segment for the three and six
months ended March 31, 1999 and 1998 and a reconciliation of segment operating
profit to earnings before income taxes. Prior year information has been
presented to conform to the new presentation of segment information.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales
Aircraft Controls $ 77,625 $ 64,332 $ 150,726 $ 127,158
Satellite and Launch
Vehicle Controls 30,080 23,110 52,849 43,601
Industrial Controls 54,204 47,069 106,778 89,870
-------- --------- --------- ---------
Total Sales $ 161,909 $ 134,511 $ 310,353 $ 260,629
======== ========= ========= =========
Operating Profit
Aircraft Controls $ 9,712 $ 7,636 $ 17,919 $ 15,095
Satellite and Launch
Vehicle Controls 3,496 3,009 5,670 5,841
Industrial Controls 5,458 4,135 11,427 7,994
-------- --------- --------- ---------
Total operating profit 18,666 14,780 35,016 28,930
Deductions from Operating Profit
Interest expense 7,321 5,241 12,765 11,152
Corporate expenses 2,230 2,279 4,484 4,318
Currency loss 171 91 297 280
-------- --------- --------- ---------
Earnings before Income Taxes $ 8,944 $ 7,169 $ 17,470 $ 13,180
======== ========= ========= =========
</TABLE>
Total segment assets at March 31, 1999 were $757,728 compared to $543,489 at
September 26, 1998. The increase is due primarily to the acquisition of Montek.
<PAGE>
7. Comprehensive Income
In the first quarter of fiscal 1999, the Company adopted SFAS No. 130,
Reporting Comprehensive Income, which established standards for reporting and
displaying comprehensive income and its components in an annual financial
statement that is displayed with the same prominence as other financial
statements. This standard also requires that companies report a total for
comprehensive income in condensed financial statements of interim periods.
The only item of comprehensive income that is not included in net earnings is
foreign currency translation. For the three months ended March 31, 1999 and
1998, comprehensive income was $1,214 and $3,891, respectively. For the six
months ended March 31, 1999 and 1998, comprehensive income was $8,460 and
$6,171, respectively.
8. Sale of Assets
During the first quarter of fiscal 1999, the Company sold land and building
totaling $2,600 that was acquired as part of the acquisition of Schaeffer
Magnetics, Inc. in February 1998. There was no gain or loss on the sale.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
[The following should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's Form 10-K for the fiscal year ended September 26, 1998 and its
Quarterly Report on Form 10-Q for the quarter ended December 31, 1998.]
The Company
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.
Effective with the first quarter of fiscal 1999, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 131, Disclosures 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's
reportable segments under SFAS No. 131 are Aircraft Controls, Satellite and
Launch Vehicle Controls and Industrial Controls. The operating results of the
segments are reviewed regularly by the Chief Executive Officer of the Company.
The determination of the Company's reportable segments was based on a
combination of differences in products sold by each segment as well as the
markets that are served.
The Aircraft Controls segment supplies technologically advanced flight controls,
engine controls and servovalves or servoactuators to manufacturers of commercial
and military aircraft. Aircraft Controls designs and manufactures primary and
secondary flight controls and engine controls. Moog has supplied high
performance servoactuators to move flight control surfaces on almost every U.S.
military aircraft since the 1950's. The Company recently began initial
production on the F/A-18E/F Super Hornet and the V-22 Osprey as well as delivery
of flight and engine control actuation for the Joint Strike Fighter concept
demonstrator aircraft. The Company supplies controls for Boeing's 737, 747, 757,
767 and 777 airplanes, Airbus's A310, A320, A330 and A340 airplanes, as well as
for many regional and business aircraft.
The Satellite and Launch Vehicle Controls segment designs and manufactures
motion, fluid and propellant controls and systems to control the flight and
positioning of satellites, positioning of solar panels and antennas, thrust of
space launch vehicles and steering tactical and strategic missiles. Customers
for the Company's products include Boeing, Hughes, Lockheed Martin and Loral
Space. Significant programs include the Titan IV, Delta and Atlas Centaur launch
vehicles and numerous satellite programs.
The Industrial Controls segment manufactures hydraulic and electric controls,
which are used in a wide variety of industrial applications requiring the
precise control of position, velocity and force. Moog believes it is the world's
market leader in industrial servovalves. Applications for hydraulic controls
include plastic injection and blow molding machines, steam and gas turbines,
steel rolling mills, and fatigue testing machines. In the field of power
generation, Moog is the leading servovalve supplier to GE and its licensees and
to Siemens Westinghouse. Applications for electric controls include motion
simulators, military ground vehicles, plastic injection and blow molding
machines, material handling robots, carpet manufacturing and packaging
equipment. Applications for electric controls range from the motion simulator on
MCA-Universal's Spiderman theme park attraction to electric drives for Wegmann
PzH 2000 howitzers.
Overview
On October 30, 1998, the Company acquired a 75% shareholding of Hydrolux SARL, a
Luxembourg designer and manufacturer of hydraulic power control systems for
industrial machinery from Paul Wurth SARL. As part of the transaction, the
Company increased its ownership to 75% of Moog-Hydrolux Hydraulic Systems, Inc.
(Moog-Hydrolux), a joint venture the Company formed in fiscal 1996 with Hydrolux
SARL, to serve the North American market. The Company previously owned 50% of
Moog-Hydrolux. After the transaction, Paul Wurth SARL owns the remaining 25%
minority interest in Hydrolux SARL and Moog-Hydrolux. The purchase price was
$8,200 in cash, plus the assumption of $6,400 of debt.
<PAGE>
On November 30, 1998, the Company completed the acquisition from Raytheon
Aircraft Company of all the outstanding common stock of Raytheon Aircraft Montek
Company (Montek) for approximately $160,000 in cash. Montek, located in Salt
Lake City, Utah, is a supplier of flight controls to the Boeing Commercial
Airplane Group and to manufacturers of regional aircraft and business jets
including the Raytheon Aircraft Company. Montek also produces steering controls
for tactical missiles and servovalves for both industrial and aerospace
applications.
On December 3, 1998, the Company acquired a 66-2/3% shareholding in Microset
Srl, an Italian designer and manufacturer of electronic controls for industrial
machinery for $3,500 in cash.
Hydrolux SARL, Moog-Hydrolux and Microset Srl are referred to as the Acquired
Industrial Businesses.
Results of Operations
Consolidated
Sales for the current quarter were $161.9 million, up 20% from $134.5 million in
the same period of fiscal 1998. The previously mentioned acquisitions in the
first quarter of fiscal 1999 added $30 million to consolidated sales in the
current quarter, with Montek accounting for approximately three-quarters of the
incremental sales. Sales year-to-date were $310.4 million, an increase of 19%
from last year's sales of $260.6 million. The increase is due primarily to the
current year acquisitions and the acquisition of Schaeffer Magnetics, Inc.
(Schaeffer) in February 1998, which collectively added $48 million, with Montek
adding $32 million.
Cost of sales as a percentage of sales was 68.3% in the current quarter versus
69.9% in the same quarter a year ago. On a six month basis, cost of sales was
68.7% in the current year versus 70.3% last year. The improvement is due
primarily to better margins in Industrial Controls, reflecting a shift in sales
to higher margin electric controls for military ground vehicles. To a lesser
extent, margins improved due to higher aftermarket sales in Aircraft Controls
and improving margins in the Asia Pacific.
Research and development expenses increased by $2.4 million to $9.0 million in
the current quarter and by $6.5 million year-to-date to $18.2 million. The
increase is due primarily to additional efforts related to the development of
next generation flight controls and other activities within the Aircraft
Controls segment. It is expected that costs associated with the next generation
flight controls will trend downward during the remainder of the fiscal year with
a shift of a portion of these efforts to cost of sales and selling, general and
administrative expenses.
Selling, general and administrative (SG&A) expenses were $25.7 million, or 15.9%
of net sales, in the current quarter as compared to $ 21.5 million, or 16.0% of
net sales, in the same period a year ago. Year-to-date SG&A expenses were $48.5
million, or 15.6% of net sales, compared to $41.4 million, or 15.9% of net
sales, in the same period last year. The increases in dollar terms are due
primarily to the current year acquisitions and the February 1998 acquisition of
Schaeffer.
Interest expense increased $2.1 million in the current quarter to $7.3 million
and $1.6 million year-to-date to $12.8 million compared to a year ago due to
higher average outstanding borrowings resulting from the indebtedness incurred
to finance the first quarter acquisitions.
The Company's effective tax rate for the current quarter was 33% compared to 35%
a year ago. The current quarter tax rate reflects higher foreign tax credit
benefits resulting from distributions from the Company's German subsidiary.
Backlog at March 31, 1999 was $346.9 million compared to $311.0 million at March
31, 1998. The increase is due to the acquisition of Montek. Backlog consists
only of that portion of firm orders for which sales are expected to be
recognized over the next twelve months.
<PAGE>
Segment Operating Review
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Sales
Aircraft Controls $ 77.6 $ 64.3 $ 150.7 $ 127.1
Satellite and Launch Vehicle Controls 30.1 23.1 52.9 43.6
Industrial Controls 54.2 47.1 106.8 89.9
--------------- -------------- -------------- ----------------
Total sales $ 161.9 $ 134.5 $ 310.4 $ 260.6
--------------- -------------- -------------- ----------------
Operating Profit and Margins
Aircraft Controls $ 9.7 $ 7.7 $ 17.9 $ 15.1
12.5% 11.9% 11.9% 11.9%
Satellite and Launch Vehicle Controls 3.5 3.0 5.7 5.8
11.6% 13.0% 10.7% 13.4%
Industrial Controls 5.5 4.1 11.4 8.0
10.1% 8.8% 10.7% 8.9%
--------------- -------------- -------------- ----------------
Total operating profit $ 18.7 $ 14.8 $ 35.0 $ 28.9
-------------- -------------- -------------- ---------------
11.5% 11.0% 11.3% 11.1%
</TABLE>
Aircraft Controls
Sales in the Aircraft Controls segment increased $13.3 million in the current
quarter to $77.6 million as compared to $64.3 million in the same quarter a year
ago. The increase is due to the previously mentioned acquisition of Montek,
which added approximately $17 million in sales, mostly related to commercial
aircraft. The incremental Montek sales were partially offset by anticipated
declines in sales on the B-2 bomber program and existing Boeing OEM business.
Sales year-to-date increased $23.6 million to $150.7 million as compared to
$127.1 million for the first six months of fiscal 1998. The Montek acquisition
contributed $25 million to year-to-date sales. Stronger military aftermarket
sales, particularly F-18 spares provisioning and foreign military spares on F-16
hardware were more than offset by the declines in B-2 bomber sales and existing
Boeing OEM business.
Operating margins for the Aircraft Controls segment were 12.5% in the second
quarter of fiscal 1999 compared to 11.9% in the same period last year. Favorable
margins associated with increased aftermarket sales, in part related to the
Montek acquisition, helped offset approximately $2 million of additional costs
incurred with respect to the development of next generation flight controls and
other research and development activities. Operating margins for the first six
months of fiscal 1999 were 11.9%, which is constant with fiscal 1998 margins.
Stronger second quarter margins were more than offset by higher research and
development expenses in the first quarter of fiscal 1998.
<PAGE>
Satellite and Launch Vehicle Controls
Sales in the Satellite and Launch Vehicle Controls segment were $30.1 million in
the second quarter of fiscal 1999, up $7.0 million from the same period a year
ago. The acquisition of Montek added approximately $4 million of sales of
tactical missile hardware. The remainder of the increase was due to increased
sales related to the Titan IV launch vehicle program and thrust vector controls
for the Delta family of launch vehicles. Sales year-to-date were $52.9 million
compared to $43.6 million in fiscal 1998. Montek and Schaeffer collectively
contributed approximately $9 million in incremental sales in fiscal 1999. These
year-to-date increases, along with increased volume for the Titan IV and Delta
launch vehicles, helped offset first quarter declines in satellite propulsion
hardware.
Operating margins for the Satellite and Launch Vehicle Controls segment were
11.6% in the current quarter compared to 13.0% in the same period a year ago. On
a year-to-date basis, operating margins were 10.7% compared to 13.4% in the
prior year. The decrease in both periods is associated with unfavorable cost
experience in the satellite controls product line resulting primarily from lower
sales as delays in contract awards on new constellation programs continue.
Industrial Controls
Sales in the Industrial Controls segment increased $7.1 million to $54.2 million
in the second quarter of fiscal 1999 from $47.1 million in the same quarter of
last year. The first quarter acquisitions contributed $9 million to current year
sales. The U.S. hydraulics business experienced some softening in the material
test and steel industries resulting in a $1 million sales decline. Increased
sales of electric drives for military ground vehicles of approximately $2
million on the strength of the European PzH 2000 howitzer program offset sales
declines in entertainment simulators as the program related to the Spiderman
attraction at Universal Studios is winding down. Sales for the first half of
fiscal 1999 were $106.8 million compared to $89.9 million in the same period of
fiscal 1998. Acquisitions accounted for $13 million of the year-to-date
increase. The remainder of the increase is primarily due to increased sales of
electric controls for military ground vehicles both in Europe and the U.S.
Operating margins for the Industrial Controls segment were 10.1% in the current
quarter versus 8.8% in the same period a year ago. The contribution related to
higher sales of electric controls for military ground vehicles, which more than
offset losses experienced in the Acquired Industrial Businesses. Year-to-date,
margins were 10.7% compared to 8.9% in fiscal 1998. The improvement is due to
higher sales of electric controls for military ground vehicles and higher sales
of hydraulic controls in Germany and improving margins in the Asia-Pacific,
partially offset by losses associated with the Acquired Industrial Businesses.
Financial Condition and Liquidity
In connection with the acquisition of Montek, the Company refinanced its U.S.
credit facilities. Effective November 30, 1998, the Company entered into a $340
million Corporate Revolving and Term Loan Agreement (Credit Facility) with a
banking group. The Credit Facility provides a $265 million revolving facility
and a $75 million term loan with interest starting at LIBOR plus 200 basis
points, with the spread adjusted based on leverage. The Credit Facility is for a
five year period with quarterly principal payments on the term loan of $3.75
million commencing in March 1999. The Credit Facility is secured by
substantially all of the Company's U.S. assets. The loan agreement includes
customary covenants for a transaction of this nature, including maintaining
various financial ratios. The Credit Facility was used primarily to acquire
Montek and to refinance approximately $72 million of existing revolving credit
facilities with the remaining balance available for future working capital
requirements.
Long-term senior debt increased $143.4 million during the first half of fiscal
1999 to $223.1 million at March 31, 1999. The percentage of long-term debt to
capitalization increased to 63.2% from 51.1% at September 26, 1998. These
increases are a direct result of financing the first quarter acquisitions,
offset by the utilization of cash generated from current year operations to pay
down borrowings on the Credit Facility.
At March 31, 1999, the Company had $124.8 million of unused borrowing capacity
under short and long-term lines of credit, including $109 million from the
Credit Facility.
<PAGE>
Cash provided by operating activities was $32.0 million in the current quarter
versus $6.4 million a year ago. The increase is due primarily to increased
earnings and collection of receivables on certain mature military programs with
progress payment terms in the first quarter of fiscal 1999.
Working capital at March 31, 1999 was $209.7 million compared to $226.2 million
at September 26, 1998. Excluding the effects of the current quarter acquisitions
and the related Credit Facility, working capital decreased $30 million. The
majority of the decrease is due to lower receivables in the Aircraft Controls
and Satellite and Launch Vehicle Controls segments. Cash generated through
current year earnings and lower working capital levels was used in part to pay
down revolver debt classified as non-current indebtedness.
Net property, plant and equipment increased $47.3 million to $186.7 million at
March 31, 1999. The current year acquisitions added approximately $42 million to
net property, plant and equipment.
Capital expenditures for the first half of fiscal 1999 were $13.5 million
compared with depreciation and amortization of $14.7 million. Capital
expenditures in the first half of fiscal 1998 were $11.5 million compared to
depreciation and amortization of $10.8 million. Capital expenditures in 1999 are
expected to be approximately $24 million.
The Company believes its cash on hand, cash flows from operations and available
borrowings under short and long-term lines of credit, will continue to be
sufficient to meet its operating needs.
Other
Year 2000
As the end of the century nears, there is widespread concern around the world
that many existing computer programs that use only the last two digits to refer
to a year will not properly recognize a year that begins with digits 20
instead of 19. If not corrected, the concern is that many computer
applications might fail, creating erroneous results or cause unanticipated
system failures, among other problems.
The Company is continuing to upgrade and test those information technology (IT)
systems and non-IT systems that have been identified as not being Year 2000
compliant. The most significant of these systems is the Company's Human Resource
Information System for the U.S. operations. The Company has purchased a new
system which is scheduled to be in place by mid-1999 and costs approximately $1
million, the majority of which will be capitalized. The business systems for
Montek and the Acquired Industrial Businesses are being evaluated and tested and
are not expected to require material Year 2000 compliance expenses. Upgrades and
testing of other systems including business systems of certain international
subsidiaries, product systems (i.e., CAD/CAM systems), personal computing, data
entry, and communication hardware and software and systems associated with
facilities management continues to occur. The Year 2000 costs associated with
these activities is not expected to be material. Only a small portion of the
Company's products contain embedded processors or depend upon date logic. The
Company has identified these products, primarily in the Industrial Controls
segment and has begun to upgrade or replace the software. The cost is not
expected to be material. The Company also continues to evaluate responses from
critical vendors regarding their Year 2000 readiness.
The Company believes that it is taking the necessary steps to ensure the Year
2000 issue will not pose significant operational problems for the Company.
However, if all Year 2000 issues are not properly identified, or assessment,
remediation and testing do not occur on a timely basis, there can be no
assurance that the Year 2000 issue will not materially impact the Company's
results of operations or adversely affect relationships with customers, vendors
and others. The Company believes the greatest potential risk from the Year 2000
Issue relates to suppliers or customers whose systems may not be Year 2000
compliant. The Company has identified certain critical areas of its business for
which contingency plans are currently being developed. The Company will continue
to evaluate internal and external factors and assess whether additional
contingency plans are necessary and have those plans in place by the end of
1999.
<PAGE>
Market Risk Sensitive Instruments
In connection with the Montek acquisition and refinancing of the Company's U.S.
credit facilities, the Company's borrowings under variable interest rate
facilities has increased by $157 million to $231 million at March 31, 1999 from
September 26, 1998. The Credit Facility under which the borrowings are
outstanding has an interest rate of LIBOR plus 200 basis points. In order to
provide for interest rate protection, the Company has entered into interest rate
swap agreements for $80 million, effectively converting this amount into fixed
rate debt at 7.05%. If LIBOR were to change by 10%, the impact on consolidated
interest expense would be approximately $1 million annually.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which must be
adopted by fiscal 2000. Under this standard, companies are required to carry all
derivatives in the balance sheet at fair value. The accounting for changes in
the fair value (i.e., gains or losses) of a derivative instrument depends on
whether it has been designated and qualifies as part of a hedging relationship
and, if so, on the reason for holding it. The Company is in the process of
evaluating the impact this standard will have on its financial statements.
Outlook
The acquisitions in the first quarter of fiscal 1999 are expected to provide
sales growth in each segment over the remainder of fiscal 1999 as compared to
the same period in the prior year.
The Company is expecting growth in operating profit in fiscal 1999 in each
segment due to improved product mix driven by higher aftermarket sales and the
acquisition of Montek. The Company continues to integrate the acquired
businesses in order to improve the Company's overall cost structures. Within the
Satellites and Launch Vehicle Controls segment, the Company is reviewing its
cost structure in response to continued delays in contract awards related to the
large satellite constellation programs.
Cautionary Statement
Information included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical facts are forward
looking statements. Such forward looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
The forward looking statements involve a number of risks and uncertainties,
including but 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, successful
integration of acquired businesses, 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 26, 1998 and its Quarterly Report on Form 10-Q for
the quarter ended December 31, 1998.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The information required herein is incorporated by reference to the information
appearing under the caption Market Risk Sensitive Instruments in Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<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.
----------------------------------------------------
a. The Company's Annual Meeting of Shareholders was
held on February 10, 1999.
b. At the Annual Meeting, the nominees to the Board of
Directors were elected based on the following
results:
Nominee For Against
------- --- -------
Class B
Joe C. Green 1,479,725 16,255
Class A
Robert T. Brady 6,423,714 69,944
c. KPMG LLP was ratified to continue as auditors based
upon the following votes: Class A*: For, 647,433.3;
Against, 1,016.8; Abstain, 915.7; Class B: For,
1,487,812; Against, 3,111; Abstain, 5,057.
* Each share of Class A Common Stock is entitled to
a one-tenth vote per share on this proposal.
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.
--------------------
(i) The Company filed a report on Form
8-K/A dated February 10, 1999
reporting pursuant to item 7.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Moog Inc.
-------------------
(Registrant)
Date: May 14, 1999 By S/Robert R. Banta/S
-----------------------
Robert R. Banta
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)
Date: May 14, 1999 By S/Donald R. Fishback/S
------------------------
Donald R. Fishback
Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-25-1999
<PERIOD-END> MAR-31-1999
<CASH> 9,909
<SECURITIES> 0
<RECEIVABLES> 192,120
<ALLOWANCES> 0
<INVENTORY> 150,642
<CURRENT-ASSETS> 389,582
<PP&E> 186,704
<DEPRECIATION> 0
<TOTAL-ASSETS> 778,776
<CURRENT-LIABILITIES> 179,835
<BONDS> 343,110
0
100
<COMMON> 10,889
<OTHER-SE> 187,976
<TOTAL-LIABILITY-AND-EQUITY> 778,776
<SALES> 310,353
<TOTAL-REVENUES> 310,996
<CGS> 213,304
<TOTAL-COSTS> 213,304
<OTHER-EXPENSES> 19,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,765
<INCOME-PRETAX> 17,470
<INCOME-TAX> 5,849
<INCOME-CONTINUING> 11,621
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,621
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.28
</TABLE>
