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, 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
___________________________________________________________________________
(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 9, 1999 were:
Class A Common Stock, $1.00 par value 7,327,227 shares
Class B Common Stock, $1.00 par value 1,585,949 shares
___________________________________________________________________________
<PAGE>
MOOG INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Balance Sheets
June 30, 1999 and September 26, 1998 3
Consolidated Condensed Statements of
Earnings Three and Nine Months Ended
June 30, 1999 and 1998 4
Consolidated Condensed Statements of Cash
Flows Nine Months Ended June 30, 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
June 30, September 26,
1999 1998
_________ _____________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,922 $ 11,625
Receivables 203,027 182,228
Inventories (note 2) 150,852 121,784
Deferred income taxes 29,830 22,289
Prepaid expenses and other current assets 5,008 9,151
________ ________
TOTAL CURRENT ASSETS 397,639 347,077
PROPERTY, PLANT AND EQUIPMENT, net 186,699 139,444
GOODWILL, net (note 3) 183,629 60,025
OTHER ASSETS 18,120 12,779
________ ________
TOTAL ASSETS $ 786,087 $ 559,325
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 7,481 $ 410
Current installments of long-term debt (note 3) 20,031 5,505
Accounts payable 29,738 25,648
Accrued salaries, wages and commissions 39,415 36,338
Contract loss reserves 26,356 10,448
Accrued interest 8,437 8,050
Federal, state and foreign income taxes 7,525 6,838
Other accrued liabilities 24,328 17,746
Customer advances 6,611 9,904
________ ________
TOTAL CURRENT LIABILITIES 169,922 120,887
LONG-TERM DEBT, excluding current installments
Senior debt (note 3) 236,534 79,699
Senior subordinated notes 120,000 120,000
OTHER LONG-TERM LIABILITIES 56,973 47,731
________ ________
TOTAL LIABILITIES 583,429 368,317
________ ________
SHAREHOLDERS' EQUITY (note 4)
Preferred stock 100 100
Common stock 10,889 10,889
Other shareholders' equity 191,669 180,019
________ ________
TOTAL SHAREHOLDERS' EQUITY 202,658 191,008
________ ________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 786,087 $ 559,325
======== ========
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,
1999 1998 1999 1998
____ ____ ____ ____
NET SALES $ 160,528 $ 134,839 $ 470,881 $ 395,468
OTHER INCOME 408 440 1,051 1,101
_________ _________ _________ _________
160,936 135,279 471,932 396,569
_________ _________ _________ _________
COSTS AND EXPENSES
Cost of sales 109,633 94,001 322,937 277,098
Research and development 7,722 6,857 25,948 18,585
Selling, general and
administrative 26,306 21,359 74,762 62,754
Interest 7,584 4,704 20,349 15,856
Other expenses 189 246 964 984
_________ _________ _________ _________
151,434 127,167 444,960 375,277
_________ _________ _________ _________
EARNINGS BEFORE INCOME
TAXES 9,502 8,112 26,972 21,292
INCOME TAXES 3,180 2,839 9,029 7,454
_________ _________ _________ _________
NET EARNINGS $ 6,322 $ 5,273 $ 17,943 $ 13,838
========= ========= ========= =========
EARNINGS PER SHARE (note 5)
Basic $ .71 $ .59 $ 2.01 $ 1.71
========= ========= ========= =========
Diluted $ .70 $ .58 $ 1.98 $ 1.66
========= ========= ========= =========
AVERAGE COMMON SHARES OUTSTANDING (note 5)
Basic 8,933,995 8,898,886 8,931,184 8,064,966
========= ========= ========= =========
Diluted 9,046,109 9,139,304 9,057,196 8,314,128
========= ========= ========= =========
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,
1999 1998
____ ____
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 17,943 $ 13,838
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 22,984 16,474
Other (16,276) (22,172)
________ ________
NET CASH PROVIDED BY OPERATING ACTIVITIES 24,651 8,140
________ ________
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 (19,349) (16,366)
Proceeds from sale of assets (note 8) 3,015 252
Other 71 547
________ ________
NET CASH USED BY INVESTING ACTIVITIES (190,106) (36,550)
________ ________
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from notes payable 1,549 449
Net proceeds from (repayments of) revolving
lines of credit 96,700 (2,000)
Proceeds from long-term debt 76,198 4,447
Payments on long-term debt (9,249) (33,275)
Purchase of treasury shares (2,262) (364)
Proceeds from sale of common stock - 56,728
Other 370 751
________ ________
NET CASH PROVIDED BY FINANCING ACTIVITIES 163,306 26,736
________ ________
Effect of exchange rate changes on cash (554) (268)
________ ________
DECREASE IN CASH AND CASH EQUIVALENTS (2,703) (1,942)
Cash and cash equivalents at beginning of period 11,625 6,800
________ ________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,922 $ 4,858
======== ========
CASH PAID FOR:
Interest $ 19,485 $ 17,420
Income taxes 7,934 9,079
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Leases capitalized, net of leases terminated $ 50 $ 261
Acquisitions of businesses:
Fair value of assets acquired $ 222,976
Net cash paid 171,710
________
Liabilities assumed $ 51,266
========
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>
MOOG INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 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 account-
ing 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 June 30, 1999 and the results of its
operations for the three and nine months ended June 30, 1999 and 1998 and
its cash flows for each of the nine months ended June 30, 1999 and 1998.
The results of operations for the three and nine month periods ended
June 30, 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:
June 30, September 26,
1999 1998
Raw materials and purchased parts $ 49,023 $ 37,404
Work in process 77,091 64,385
Finished goods 24,738 19,995
________ ________
$ 150,852 $ 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. Montek also produces steering controls for tactical
<PAGE>
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 $120,000 and will be amortized over 40 years. In connection
with the preliminary allocation of the purchase price, the Company
established a $3,800 reserve for severance and other related costs
associated with expected involuntary termination of employees. The Company
has developed a formal plan for integrating the operations of Montek and
informed the impacted employees. The plan provides for the termination of
176 employees from various functional areas of Montek and is expected to be
completed by May 2001. At June 30, 1999, the balance of the reserve was
$3,220. 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.
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 which commenced 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 approxi-
mately $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 nine months ended June 30, 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.
<PAGE>
Three Months Ended Nine Months Ended
June 30, June 30,
1999 1998 1999 1998
Net sales $160,528 $164,992 $488,609 $481,212
Net earnings 6,322 4,773 17,479 13,836
Basic earnings per share $.71 $.54 $1.96 $1.71
Diluted earnings per share $.70 $.52 $1.93 $1.66
The proforma results are not necessarily indicative of what actually would
have occurred if the acquisitions 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 of fiscal 1999, 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 nine months ended June 30, 1999
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 10,889 8,427,141 2,461,982
Conversion of Class B to
Class A - 304 (304)
______ _________ _________
End of Period 10,889 8,427,445 2,461,678
_______ _________ _________
ADDITIONAL PAID-IN CAPITAL
Beginning of period 102,306
Issuance of Treasury shares at
less than cost (199)
_______
End of period 102,107
_______
RETAINED EARNINGS
Beginning of period 107,681
Net earnings 17,943
Preferrred stock dividends (7)
_______
End of period 125,617
_______
TREASURY STOCK
Beginning of period (30,511) (5,117) (1,140,514) (815,918)
Treasury stock issued 676 - 47,954 2,857
Treasury stock purchased (2,363) (11,112) (12,819) (55,268)
_______ ______ _________ _______
End of period (32,198) (16,229) (1,105,379) (868,329)
_______ ______ _________ _______
ACCUMULATED OTHER COMPREHENSIVE INCOME
Beginning of period 614
Foreign currency translation (4,471)
_______
End of period (3,857)
_______
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 _______ ______ _________ _________
$ 202,658 83,771 7,322,066 1,593,349
======= ====== ========= =========
<PAGE>
5. Earnings Per Share
<TABLE>
The number of shares and earnings used in the Company's basic and diluted earnings per share
computations are as follows:
<CAPTION>
Three Months Ended Nine Months Ended
__________________ _________________
June 30, June 30,
1999 1998 1999 1998
____ ____ ____ ____
<S> <C> <C> <C> <C>
EARNINGS
Earnings available to common
shareholders-Basic $ 6,320 $ 5,271 $ 17,936 $ 13,831
Add: Preferred stock dividends 2 2 7 7
_________ _________ _________ _________
Earnings available to common
shareholders-Diluted $ 6,322 $ 5,273 $ 17,943 $ 13,838
========= ========= ========= =========
SHARES
Weighted-average shares
outstanding-Basic 8,933,995 8,898,886 8,931,184 8,064,966
Stock options 104,636 232,272 118,200 241,016
Convertible preferred stock 7,478 8,146 7,812 8,146
_________ _________ _________ _________
Shares Outstanding-Diluted 9,046,109 9,139,304 9,057,196 8,314,128
========= ========= ========= =========
BASIC EPS $ .71 $ .59 $ 2.01 $ 1.71
========= ========= ========= =========
DILUTED EPS $ .70 $ .58 $ 1.98 $ 1.66
========= ========= ========= =========
</TABLE>
<PAGE>
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.
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,
Raytheon, Alliant, Lockheed Martin and DaimlerChrysler. Significant
programs include the Titan IV and Delta launch vehicles, National Missile
Defense 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 drive systems for
gun and turret positioning and ammunition-loading on military ground
vehicles.
Below are the revenues and operating profit by segment for the three and
nine months ended June 30, 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.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Sales
Aircraft Controls $ 75,772 $ 60,592 $ 226,498 $ 187,750
Satellite and Launch Vehicle Controls 28,837 25,427 81,686 69,028
Industrial Controls 55,919 48,820 162,697 138,690
________ ________ _________ _________
Total sales $ 160,528 $ 134,839 $ 470,881 $ 395,468
======== ======== ========= =========
Operating Profits
Aircraft Controls $ 9,597 $ 6,791 $ 27,516 $ 21,885
Satellite and Launch Vehicle Controls 3,481 1,981 9,149 7,822
Industrial Controls 5,972 6,524 17,399 14,516
________ ________ _________ ________
Total operating profit 19,050 15,296 54,064 44,223
Deductions from Operating Profit
Interest expenses 7,584 4,704 20,349 15,856
Corporate expenses 2,089 2,412 6,643 6,886
Other (125) 68 100 189
________ ________ _________ ________
Earnings before Income Taxes $ 9,502 $ 8,112 $ 26,972 $ 21,292
======== ======= ========= ========
Total segment assets at June 30, 1999 were $758,145 compared to $543,489 at September 26, 1998. The
increase is due primarily to the acquisition of Montek.
</TABLE>
<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 June 30, 1999
and 1998, comprehensive income was $5,012 and $3,940, respectively.
For the nine months ended June 30, 1999 and 1998, comprehensive income was
$13,472 and $10,111, 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 Reports on Form 10-Q for the quarters ended December 31, 1998
and March 31, 1999.]
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.
See Note 6 of the Notes to Consolidated Condensed Financial Statements for
a description of each segment.
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 $8.2 million in cash, plus the
assumption of $6.4 million of debt.
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 million 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. 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 $3.5 million in cash.
Hydrolux SARL, Moog-Hydrolux and Microset Srl are referred to as the
Acquired Industrial Businesses.
<PAGE>
Results of Operations
Consolidated
Sales for the current quarter were $160.5 million, up 19% from $134.8
million in the same period of fiscal 1998. The previously mentioned
acquisitions in the first quarter of fiscal 1999 added $29 million to
consolidated sales in the current quarter, with Montek accounting for
approximately three-quarters of the incremental sales. Sales year-to-date
were $470.9 million, an increase of 19% from last year's sales of $395.5
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 $77 million, with Montek adding $54 million.
Cost of sales as a percentage of sales was 68.3% in the current quarter
versus 69.7% in the same quarter a year ago. The improvement is due to a
favorable mix of sales in the current quarter resulting from a greater
share of aftermarket sales in Aircraft Controls, in large part due to the
Montek acquisition, and a greater proportion of work on higher margin
launch vehicle and tactical missile production programs. The Acquired
Industrial Businesses and the satellite controls business increased cost of
sales by approximately 1.3 percentage points and was offset by lower
employee fringe benefit costs. On a nine month basis, cost of sales was
68.6% in the current year versus 70.1% last year. The improvement is due
primarily to a shift in product mix to higher margin aftermarket sales in
Aircraft Controls and electric controls for military ground vehicles.
Research and development (R&D) expenses increased by $.9 million in the
current quarter to $7.7 million. The first quarter acquisitions accounted
for half of the increase while the remainder is primarily due to increased
efforts in the U.S. industrial hydraulics business. For the first nine
months of fiscal 1999, R&D expenses increased $7.4 million to $25.9
million. Approximately 70% of the increase relates to the Company's
existing aircraft business, the majority of which pertains to additional
efforts related to the development of next generation flight controls. The
first quarter acquisitions added approximately $1 million to year-to date
R&D expenses.
Selling, general and administrative (SG&A) expenses were $26.3 million, or
16.4% of net sales, in the current quarter as compared to $21.4 million,
or 15.8% of net sales, in the same period a year ago. Year-to-date SG&A
expenses were $74.8 million, or 15.9% of net sales, compared to $62.8
million, or 15.9% of net sales, in the same period last year. The majority
of the increases in dollar terms are due to the current year acquisitions
and the February 1998 acquisition of Schaeffer.
Interest expense increased $2.9 million in the current quarter to $7.6
million and $4.5 million year-to-date to $20.3 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 and first nine
months of fiscal 1999 was 33.5% compared to 35% a year ago. The current
year tax rate reflects higher foreign tax credit benefits resulting from
distributions from the Company's German subsidiary.
Backlog at June 30, 1999 was $346.5 million compared to $312.9 million at
June 30, 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
Three Months Ended Nine Months Ended
June 30, June 30,
1999 1998 1999 1998
____ ____ ____ ____
Sales
Aircraft Controls $ 75.8 $ 60.6 $ 226.5 $ 187.8
Satellite and Launch Vehicle
Controls 28.8 25.4 81.7 69.0
Industrial Controls 55.9 48.8 162.7 138.7
______ ______ ______ ______
Total sales $ 160.5 $ 134.8 $ 470.9 $ 395.5
______ ______ ______ ______
Operating Profit and Margins
Aircraft Controls $ 9.6 $ 6.8 $ 27.5 $ 21.9
12.7% 11.2% 12.1% 11.7%
Satellite and Launch Vehicle
Controls 3.5 2.0 9.1 7.8
12.1% 7.8% 11.2% 11.3%
Industrial Controls 6.0 6.5 17.4 14.5
10.7% 13.4% 10.7% 10.5%
______ ______ ______ ______
Total operating profit $ 19.1 $ 15.3 $ 54.1 $ 44.2
______ ______ ______ ______
11.9% 11.4% 11.5% 11.2%
Aircraft Controls
Sales in the Aircraft Controls segment increased $15.2 million in the
current quarter to $75.8 million as compared to same quarter a year ago.
The increase is due to the previously mentioned acquisition of Montek,
which added approximately $18 million in sales, mostly related to controls
for commercial airplanes. The incremental Montek sales were partially
offset by anticipated declines in sales on the B-2 bomber program, as it
nears completion, and existing Boeing OEM business. Aftermarket sales,
which typically carry higher margins than sales to OEMs, represented
approximately 36% of Aircraft Controls sales in the current quarter
compared to 26% last year. Sales year-to-date increased $38.7 million to
$226.5 million as compared to $187.8 million for the first nine months of
fiscal 1998. The Montek acquisition contributed $43 million to year-to-
date sales of which 80% related to commercial airplanes. Stronger military
aftermarket sales, particularly F-15 and F-18 spares and test equipment,
were more than offset by the declines in B-2 bomber sales and existing
Boeing OEM business. Aftermarket sales year-to-date represented 35% of
sales compared to 23% in the prior year.
Operating margins for the Aircraft Controls segment were 12.7% in the third
quarter of fiscal 1999 compared to 11.2% in the same period last year.
The main reason for the margin increase is the increased percentage of
aftermarket sales primarily in the Company's commercial airplane product
line. The growth in aftermarket sales was experienced in the Company's
core operations and also reflects the composition of Montek's book of
business. Within the military business, the shift from high margin B-2 and
F-15 programs nearing completion to lower margin initial production
<PAGE>
programs such as the V-22 Osprey and F/A-18E/F programs continues.
Operating margins for the first nine months of fiscal 1999 were 12.1%
compared with 11.7% in fiscal 1998. Margin improvement resulting from the
above mentioned factors was tempered by $5 million in higher research and
development expenses in fiscal 1999, the majority of which related to the
development of next generation flight controls.
Satellite and Launch Vehicle Controls
Sales in the Satellite and Launch Vehicle Controls segment were $28.8
million in the third quarter of fiscal 1999, up $3.4 million from the same
period a year ago. The acquisition of Montek added approximately $2
million of sales related to hardware for the Hellfire and TOW tactical
missiles. Sales of controls for launch vehicles increased approximately $4
million on the strength of the Titan IV launch vehicle program and controls
for the Delta family of launch vehicles. These increases were offset by
lower sales of satellite controls, in particular motion control devices for
solar panels and antennas, due to delays of contract awards related to the
large satellite constellation programs. Sales year-to-date were $81.7
million compared to $69.0 million in fiscal 1998. Montek contributed
approximately $7 million in incremental sales in fiscal 1999 related to
tactical missile hardware. Year-to-date increases in sales of controls for
launch vehicles of approximately $7 million helped offset declines in
satellite propulsion hardware.
Operating margins for the Satellite and Launch Vehicle Controls segment
were 12.1% in the current quarter compared to 7.8% in the same period a
year ago. Prior year margins were affected by charges related to negative
cost experience on a fixed-price development contract for the Atlas Centaur
launch vehicle program. Current quarter margins reflect production on
higher margin launch vehicle and tactical missile programs, partially
offset by depressed operating performance within the satellite controls
product line resulting from lower sales. On a year-to-date basis,
operating margins were 11.2% compared to 11.3% in the prior year.
Industrial Controls
Sales in the Industrial Controls segment increased $7.1 million to $55.9
million in the third quarter of fiscal 1999 from $48.8 million in the same
quarter of last year. The first quarter acquisitions contributed $9
million. Sales were up in the turbine controls market, however they were
more than offset by lesser demand for hydraulic controls in the steel and
material test markets. Sales for the first nine months of fiscal 1999 were
$162.7 million compared to $138.7 million in the same period of fiscal
1998. Acquisitions accounted for $22 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.
Operating margins for the Industrial Controls segment were 10.7% in the
current quarter versus 13.4% in the same period a year ago. The decrease
is due to operating losses associated with the Acquired Industrial
Businesses primarily reflecting a temporary slowdown in demand in the
injection molding industry. Year-to-date, margins were 10.7% compared to
10.5% in fiscal 1998. The improvement is due to higher sales of electric
controls for military ground vehicles and industrial hydraulic controls in
Europe, improving margins in the Asian-Pacific, offset by losses associated
with the Acquired Industrial Businesses.
<PAGE>
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, which commenced 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 $156.8 million during the first nine months
of fiscal 1999 to $236.5 million at June 30, 1999. The percentage of long-
term debt to capitalization increased to 63.8% from 51.1% at
September 26, 1998. These increases are a direct result of financing the
first quarter acquisitions and providing initial working capital to the
acquired businesses.
At June 30, 1999, the Company had $105 million of unused borrowing capacity
under short and long-term lines of credit, including $91 million from the
Credit Facility.
Cash provided by operating activities was $24.7 million in the current year
versus $ 8.1 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.
Working capital at June 30, 1999 was $227.7 million compared to $226.2
million at September 26, 1998. Excluding the effects of the current year
acquisitions and the related Credit Facility, working capital decreased $16
million. The majority of the decrease is due to lower receivables in the
Aircraft Controls and Satellite and Launch Vehicle Controls segments.
Net property, plant and equipment increased $47.3 million to $186.7 million
at June 30, 1999. The current year acquisitions added approximately $43
million to net property, plant and equipment.
Capital expenditures for the first nine months of fiscal 1999 were $19.4
million compared with depreciation and amortization of $23.0 million.
Capital expenditures for the first nine months of fiscal 1998 were $16.6
million compared to depreciation and amortization of $16.5 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.
<PAGE>
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 October 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.
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 $171 million to $245 million at June 30,
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.
<PAGE>
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 2001. 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 continued sales growth, particularly in Aircraft Controls and
Industrial Controls, over the remainder of fiscal 1999 as compared to the
same period in the prior year. Modest growth in consolidated sales is
expected for fiscal 2000.
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 also believes that steady growth in
operating profit will be achieved in fiscal 2000. Given the forecast for
modest sales growth, improved operating earnings will be achieved through
cost reduction efforts. The Company's focus in the near-term is to
concentrate on improving the cost structures of the businesses acquired in
the current year and the satellite controls product line, in particular,
motion control devices for solar panels and antennas. The Company will
also focus on its core operations to ensure their cost structures are at
sufficient levels to support the forecasted level of sales while allowing
for earnings growth.
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 Reports on Form 10-Q for the quarters ended December 31, 1998 and
March 31,1999.
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.
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 16, 1999 By S/Robert R. Banta/S
Robert R. Banta
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)
Date: August 16, 1999 By S/Donald R. Fishback/S
Donald R. Fishback
Controller
(Principal Accounting Officer)
<PAGE>
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