__________________________________________________________________________
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 December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 1-5129
MOOG INC.
(Exact name of registrant as specified in its charter)
New York State 16-0757636
__________________________________________________________________________
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
East Aurora, New York 14052-0018
__________________________________________________________________________
(Address of principal executive offices) (Zip code)
Telephone number including area code: (716) 652-2000
__________________________________________________________________________
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
The number of shares outstanding of each class of common stock as of
February 5, 1999 were:
Class A Common Stock, $1.00 par value 7,311,379 shares
Class B Common Stock, $1.00 par value 1,626,219 shares
__________________________________________________________________________
<PAGE>
MOOG INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Balance Sheets
December 31, 1998 and September 26, 1998 3
Consolidated Condensed Statements of Earnings
Three Months Ended December 31, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows
Three Months Ended December 31, 1998 and 1997 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
December 31, September 26,
1998 1998
____________ _____________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 11,472 $ 11,625
Receivables 192,874 182,228
Inventories (note 2) 153,256 121,784
Deferred income taxes 31,238 22,289
Prepaid expenses and other current
assets 5,728 9,151
__________ __________
TOTAL CURRENT ASSETS 394,568 347,077
PROPERTY, PLANT AND EQUIPMENT, net 185,847 139,444
GOODWILL, net (note 3) 187,162 60,025
OTHER ASSETS 18,493 12,779
__________ __________
TOTAL ASSETS $ 786,070 $ 559,325
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 7,926 $ 410
Current installments of
long-term debt (note 3) 20,930 5,505
Accounts payable 32,957 25,648
Accrued salaries, wages and
commissions 34,505 36,338
Contract loss reserves 29,287 10,448
Accrued interest 6,212 8,050
Federal, state and foreign
income taxes 9,427 6,838
Other accrued liabilities 26,724 17,746
Customer advances 8,910 9,904
__________ __________
TOTAL CURRENT LIABILITIES 176,878 120,887
LONG-TERM DEBT, excluding current
installments
Senior debt (note 3) 232,250 79,699
Senior subordinated notes 120,000 120,000
OTHER LONG-TERM LIABILITIES 59,069 47,731
__________ __________
TOTAL LIABILITIES 588,197 368,317
__________ __________
<PAGE>
SHAREHOLDERS' EQUITY (note 4)
Preferred stock 100 100
Common stock 10,889 10,889
Other shareholders' equity 186,884 180,019
__________ __________
TOTAL SHAREHOLDERS' EQUITY 197,873 191,008
__________ __________
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 786,070 $ 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
December 31,
1998 1997
NET SALES $ 148,444 $ 126,118
OTHER INCOME 388 352
__________ __________
148,832 126,470
__________ __________
COSTS AND EXPENSES
Cost of sales 102,673 89,110
Research and
development 9,243 5,126
Selling, general and
administrative 22,757 19,918
Interest 5,444 5,911
Other expenses 189 394
__________ __________
140,306 120,459
__________ __________
EARNINGS BEFORE
INCOME TAXES 8,526 6,011
INCOME TAXES 2,899 2,104
__________ __________
NET EARNINGS $ 5,627 $ 3,907
========== ==========
EARNINGS PER
SHARE (note 5)
Basic $ .63 $ .55
========== ==========
Diluted $ .62 $ .53
========== ==========
AVERAGE COMMON
SHARES OUTSTANDING
(note 5)
Basic 8,926,162 7,051,612
========== ==========
Diluted 9,059,509 7,312,835
========== ==========
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
Three Months Ended
December 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 5,627 $ 3,907
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 6,614 5,602
Other (472) (7,099)
_______ _______
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,769 2,410
_______ _______
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses, net of
cash acquired (note 3) (171,773) -
Purchase of property, plant and equipment (6,431) (4,428)
Proceeds from sale of assets (note 8) 2,619 182
Other 71 334
_______ _______
NET CASH USED BY INVESTING ACTIVITIES (175,514) (3,912)
_______ _______
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from notes payable 1,090 1,904
Net proceeds from revolving
lines of credit 89,000 -
Proceeds from long-term debt 75,016 2,016
Payments on long-term debt (1,060) (4,105)
Other (451) (254)
_______ _______
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 163,595 (439)
_______ _______
Effect of exchange rate changes on cash (3) (35)
_______ _______
DECREASE IN CASH AND CASH EQUIVALENTS (153) (1,976)
Cash and cash equivalents at beginning of period 11,625 6,800
_______ _______
CASH AND CASH EQUIVALENTS AT END OF PERIOD $11,472 $ 4,824
======= =======
CASH PAID FOR:
Interest $ 7,233 $ 8,060
Income taxes 1,389 1,234
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Leases capitalized, net of leases terminated $ - $ 117
Acquisitions of businesses:
Fair value of assets acquired $219,857
Cash paid 172,788
________
Liabilities assumed $ 47,069
========
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>
MOOG INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1998
(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 December 31, 1998
and the results of its operations and cash flows for the three months ended
December 31, 1998 and 1997. The results of operations for the three months
ended December 31, 1998 and 1997 are not necessarily indicative of the
results expected for the full year.
2. Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method of valuation. Inventories are comprised of the
following:
December 31, September 26,
1998 1998
Raw materials and purchased parts $ 50,469 $ 37,404
Work in process 75,617 64,385
Finished goods 27,170 19,995
________ ________
$153,256 $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
<PAGE>
resulting from this acquisition are approximately $125,000 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 December 31, 1998, the balance of the reserve was $3,000.
The Company is in the process of formalizing its plan of integrating the
operations of Montek. The Company expects to have a formal plan in place
and communications to impacted employees by the end 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.
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 for $265,000
in a 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. Based on a preliminary
purchase price allocation, which is subject to finalization, intangible
assets resulting from this acquisition are approximately $3,000 and will be
amortized over 30 years.
Hydrolux SARL, Moog-Hydrolux and Microset Srl are referred to as the
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
Industrial Businesses for the three months ended December 31, 1998 and 1997
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
December 31,
1998 1997
Net sales $166,172 $154,735
Net earnings 5,163 4,238
Basic earnings per share $.58 $.60
Diluted earnings per share $.57 $.58
<PAGE>
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.
4. Shareholders' Equity
The changes in shareholders' equity for the three months ended December 31,
1998 are summarized as follows:
Number of Shares
Class A Class B
Preferred Common Common
Amount Shares Stock Stock
------ --------- ------- -------
PREFERRED STOCK
Beginning and end of period $ 100 100,000
--------
COMMON STOCK
Beginning of period 10,889 8,427,141 2,461,982
Conversion of Class B to
Class A - 67 (67)
-------- --------- ----------
End of period 10,889 8,427,208 2,461,915
-------- --------- ---------
ADDITIONAL PAID-IN CAPITAL
Beginning of period 102,306
Issuance of Treasury shares
at less than cost (81)
--------
End of period 102,225
--------
RETAINED EARNINGS
Beginning of period 107,681
Net earnings 5,627
Preferred stock dividends (2)
--------
End of period 113,306
--------
TREASURY STOCK
Beginning of period (30,511) (5,114) (1,140,514) (815,918)
Treasury stock issued 216 - 18,000 -
Treasury stock purchased (585) - (8,019) (11,225)
-------- -------- --------- ---------
End of period (30,880) (5,114) (1,130,533) (827,143)
-------- -------- --------- ---------
ACCUMULATED OTHER
COMPREHENSIVE INCOME
Beginning of period 614
Foreign currency translation 1,619
--------
End of period 2,233
--------
<PAGE>
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 $197,873 94,886 7,296,675 1,634,772
======== ======== ========= =========
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:
Three Months Ended
December 31,
___________________
1998 1997
EARNINGS
Earnings available to common
shareholders - Basic $ 5,625 $ 3,905
Add: Preferred stock
dividends 2 2
__________ __________
Earnings available to common
shareholders - Diluted $ 5,627 $ 3,907
========== ==========
SHARES
Weighted-average shares
outstanding - Basic 8,926,162 7,051,612
Stock options 125,201 253,077
Convertible preferred stock 8,146 8,146
__________ __________
Shares outstanding -
Diluted 9,059,509 7,312,835
========== =========
BASIC EPS $ .63 $ .55
========== ==========
DILUTED EPS $ .62 $ .53
========== ==========
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
<PAGE>
Company's reportable segments was based on a combination of differences in
products sold by each segment as well as the markets which they serve. The
reportable segments are managed separately based on these differences.
The Aircraft Controls segment supplies technologically advanced flight
controls, engine controls and servovalves or servoactuators to
manufacturers of commercial airplanes and supplies similar products for use
on military aircraft with additional emphasis on technological performance,
weight minimization and mission survivability. The segment's products are
incorporated on Boeing's 7-series airplanes, Airbus airplanes and other
business and regional aircraft. The Company participates on several
significant U.S. Government programs including the V-22 Osprey tiltroter,
the F/A-18 Super Hornet and the Joint Strike Fighter. The Aircraft
Controls segment primarily serves the North American aerospace market in
addition to customers in Europe and the Asia-Pacific.
The Satellite and Launch Vehicle Controls segment manufactures and sells
motion, fluid and propellant controls and systems which are used to control
the flight and positioning of satellites, control the thrust of space
launch vehicles and steer tactical and strategic missiles. The segment's
customers include Boeing, Hughes, Lockheed Martin and Loral. Significant
programs include the Titan IV and Atlas Centaur launch vehicles and various
satellite programs. The Satellite and Launch Vehicle Controls segment
primarily serves the North American aerospace market in addition to
customers in Europe and Japan.
The Industrial Controls segment manufactures hydraulic and electric
controls which are used in a wide variety of applications requiring the
precise control of position, velocity and force. Applications for
hydraulic controls include plastic injection and blow molding machines,
industrial steam and gas turbines, steel rolling mills, sawmill equipment,
metal forming presses, mobile and marine equipment and fatigue testing
machines. Electric controls include custom designed brushless motors,
motor controllers and microprocessor-based machine controls. Applications
for electric controls include motion simulators, military ground vehicles,
plastic injection and blow molding machines, material handling robots,
carpet manufacturing and packaging equipment. The Industrial Controls
segment serves markets throughout the world.
Below are the revenues and operating profit by segment for the three months
ended December 31, 1998 and 1997 and a reconciliation of segment operating
profit to earnings before income taxes. Prior year information has been
restated.
Three Months Ended
December 31,
___________________
1998 1997
Sales
Aircraft Controls $ 73,101 $ 62,826
Satellite and Launch
Vehicle Controls 22,769 20,491
Industrial Controls 52,574 42,801
__________ __________
Total sales $ 148,444 $ 126,118
========== ==========
<PAGE>
Operating Profit
Aircraft Controls $ 8,207 $ 7,459
Satellite and Launch
Vehicle Controls 2,174 2,832
Industrial Controls 5,969 3,859
__________ __________
Total operating profit 16,350 14,150
Deductions from Operating
Profit:
Interest expense 5,444 5,911
Corporate expenses 2,254 2,039
Currency loss 126 189
__________ __________
Earnings before Income Taxes $ 8,526 $ 6,011
========== ==========
Total segment assets at December 31, 1998 were $770,578 compared to
$543,489 at September 26, 1998. The increase is due primarily to the
acquisition of Montek.
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 December 31,
1998 and 1997, comprehensive income was $7,246 and $2,280, 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.
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.]
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.
<PAGE>
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
reportable segments are managed separately based on these differences.
The Aircraft Controls segment supplies technologically advanced flight
controls, engine controls and servovalves or servoactuators to
manufacturers of commercial airplanes and supplies similar products for
use on military aircraft with additional emphasis on technological
performance, weight minimization and mission survivability. The segment's
products are incorporated on Boeing's 7-series airplanes, Airbus airplanes
and other business and regional aircraft. The Company participates on
several significant U.S. Government programs including the V-22 Osprey
tiltroter, the F/A-18 Super Hornet and the Joint Strike Fighter. The
Aircraft Controls segment primarily serves the North American aerospace
market in addition to customers in Europe and the Asia-Pacific.
The Satellite and Launch Vehicle Controls segment manufactures and sells
motion, fluid and propellant controls and systems which are used to control
the flight and positioning of satellites, control the thrust of space
launch vehicles and steer tactical and strategic missiles. The segment's
customers include Boeing, Hughes, Lockheed Martin and Loral. Significant
programs include the Titan IV and Atlas Centaur launch vehicles and various
satellite programs. The Satellite and Launch Vehicle Controls segment
primarily serves the North American aerospace market in addition to
customers in Europe and Japan.
The Industrial Controls segment manufactures hydraulic and electric
controls which are used in a wide variety of applications requiring the
precise control of position, velocity and force. Applications for
hydraulic controls include plastic injection and blow molding machines,
industrial steam and gas turbines, steel rolling mills, sawmill equipment,
metal forming presses, mobile and marine equipment and fatigue testing
machines. Electric controls include custom designed brushless motors,
motor controllers and microprocessor-based machine controls. Applications
for electric controls include motion simulators, military ground vehicles,
plastic injection and blow molding machines, material handling robots,
carpet manufacturing and packaging equipment. The Industrial Controls
segment serves markets throughout the world.
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
<PAGE>
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.
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
Industrial Businesses.
Results of Operations
Consolidated
Sales for the current quarter were $148.4 million, up 18% from $126.1
million in the same period of fiscal 1998. Sales increased across each of
the Company's segments. Over three-quarters of the consolidated increase
was attributable to the previously mentioned acquisitions during the
quarter along with the acquisition of Schaeffer Magnetics, Inc. (Schaeffer)
in February 1998. The remainder of the increase is a result of higher
sales of existing products within Industrial Controls and aftermarket sales
in the Aircraft Controls segment.
Cost of sales as a percentage of sales decreased to 69.2% in the current
quarter versus 70.7% in the same quarter a year ago. The improvement is
due primarily to favorable margins in Industrial Controls resulting from
increased sales and slowly improving conditions in the Asia Pacific.
Research and development expenses increased by $4.1 million to $9.2 million
in the current quarter as compared to the same quarter a year ago. The
increase is due primarily to additional efforts related to the development
of next generation flight controls in the Aircraft Controls segment. It is
expected that costs associated with these activities 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 expenses were $22.8 million, or 15.3%
of net sales, in the current quarter as compared to $19.9 million, or 15.8%
of net sales, in the same period a year ago. The increase in dollar terms
is due primarily to the acquisitions of Montek, the Industrial Businesses
and Schaeffer. The decrease as a percentage of sales was related to the
previously mentioned 18% increase in sales.
Interest expense declined $.5 million in the current quarter to $5.4
million from $5.9 million a year ago due to lower average borrowings
outstanding. The indebtedness incurred to finance the Montek acquisition
was outstanding for only one month in the first quarter of fiscal 1999.
Interest expense is expected to increase in future quarters as average
borrowings will be higher.
<PAGE>
The Company's effective tax rate for the current quarter was 34% compared
to 35% a year ago. The current quarter tax rate reflects higher foreign
tax credit benefits resulting from the anticipated distribution from the
Company's German subsidiary.
Basic earnings per share (EPS) was $.63 in the current quarter compared to
$.55 a year ago. Diluted EPS was $.62 in the first quarter of fiscal 1999
compared to $.53 last year.
Backlog at December 31, 1998 was $341.6 million compared to $288.5 million
at December 31, 1997. The increase is primarily due to the acquisitions of
Montek, which added $41 million to backlog, and, to a lesser extent, the
acquisitions of Schaeffer and the Industrial Businesses. Backlog consists
of that portion of open orders for which sales are expected to be
recognized over the next twelve months.
Segment Operating Review
(dollars in thousands)
Three Months Ended
December 31,
___________________
1998 1997
Sales
Aircraft Controls $ 73,101 $ 62,826
Satellite and Launch
Vehicle Controls 22,769 20,491
Industrial Controls 52,574 42,801
__________ __________
Total sales $ 148,444 $ 126,118
========== ==========
Operating Profit
Aircraft Controls $ 8,207 $ 7,459
Satellite and Launch
Vehicle Controls 2,174 2,832
Industrial Controls 5,969 3,859
__________ __________
Total operating profit $ 16,350 $ 14,150
========== ==========
Aircraft Controls
Sales in the Aircraft Controls segment increased $10.3 million in the
current quarter to $73.1 million as compared to $62.8 million in the same
quarter a year ago. Over three-quarters of the increase was due to the
previously mentioned acquisition of Montek. The sales generated by Montek
during December are not expected to continue at this rate as there were
catch-up deliveries on past due aftermarket orders. The remainder of the
segment's sales increase was due to stronger military aftermarket sales,
particularly F-18 spares provisioning and foreign military spares on F-16
hardware.
<PAGE>
Operating margins for the Aircraft Controls segment were 11.2% in the first
quarter of fiscal 1999 compared to 11.9% in the same period last year.
Favorable margins associated with increased aftermarket sales were more
than offset by approximately $3 million of additional research and
development costs incurred with respect to the development of next
generation flight controls.
Satellite and Launch Vehicle Controls
Sales in the Satellite and Launch Vehicle Controls segment were $22.8
million in the first quarter of fiscal 1999, up $2.3 million from the same
period a year ago. The acquisition of Schaeffer in the second quarter of
fiscal 1998 added $4 million in sales of electromechanical actuation
systems and the Montek acquisition added approximately $1 million in sales
of controls for tactical missiles. Sales of controls for launch vehicles
increased approximately $1.4 million primarily due to increased work on the
Titan IV program. Partially offsetting these increases was a continued
sales decline in satellite propulsion hardware resulting from reduced
incoming order activity associated with customers' high inventory levels,
the slowdown in the Asia-Pacific economies and delays in contract awards on
new constellation programs.
Operating margins for the Satellite and Launch Vehicle Controls segment
were 9.5% in the current quarter compared to 13.8% in the same period a
year ago. The decrease is due to lower margins in the satellite propulsion
hardware product line due to the previously mentioned decrease in sales and
less favorable cost experience on satellite programs in general.
Industrial Controls
Sales in the Industrial Controls segment increased $9.8 million to $52.6
million in the first quarter of fiscal 1999 from $42.8 million in the first
quarter of last year. The acquisitions of the Industrial Businesses and
Montek, which produces a small amount of hydraulic servovalves, accounted
for approximately $4 million of the increase. Sales of electric drives for
military ground vehicles increased approximately $3 million on the strength
of the European PzH 2000 and U.S. Crusader programs. Also contributing was
an increase in sales of hydraulic controls in Germany for plastics machines
and presses.
Operating margins for the Industrial Controls segment were 11.4% in the
current quarter versus 9.0% in the same period a year ago. Approximately
one-half of the increase relates to hydraulic controls and is due to
increased sales and improving Asia-Pacific market conditions. The
remainder of the increase is in electric controls and pertains mostly to
the increased sales of electric drives for military ground vehicles.
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 for $265
million in a 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
<PAGE>
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.
Long-term senior debt increased $152.6 million during the first quarter to
$232.3 million at December 31, 1998. The percentage of long-term debt to
capitalization increased to 64.0% from 51.1% at September 26, 1998.
These increases are a direct result of financing the current quarter
acquisitions.
At December 31, 1998, the Company had $117.1 million of unused borrowing
capacity under short and long-term lines of credit, including $102 million
from the Credit Facility.
Cash provided by operating activities was $11.8 million in the current
quarter versus $2.4 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 December 31, 1998 was $217.7 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 $15 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 $46.4 million to $185.8 million
at December 31, 1998. Capital expenditures for the first quarter of fiscal
1999 were $6.4 million compared with depreciation and amortization of $6.6
million. Capital expenditures in the first quarter of fiscal 1998 were
$4.5 million compared to depreciation and amortization of $5.6 million. The
acquisition of Montek added approximately $37 million to net property,
plant and equipment while the acquisitions of the Industrial Businesses
added approximately $4 million. Capital expenditures in 1999 are expected
to be approximately $22.5 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.
<PAGE>
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 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 $164 million to $238 million at
December 31, 1998. The Credit Facility under which the borrowings are
outstanding has an interest rate of LIBOR plus 200 basis points. If LIBOR
were to change by 10%, the impact on consolidated interest expense would be
approximately $1.2 million annually. At December 31, 1998 the carrying
value of the Company's long-term debt was $373.2 million compared to an
estimated fair value of $378.6 million. A 10% increase in treasury
security yields would result in a projected fair value at December 31, 1998
of $367.1 million.
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.
<PAGE>
Outlook
Sales of controls for commercial and military aircraft are expected to
remain strong throughout the remainder of fiscal 1999, in large part due to
the Montek acquisition, despite anticipated production rate declines on
existing Boeing OEM business. Sales of satellite propulsion hardware may
continue to lag as delays continue in the contract awards related to the
large satellite constellation programs. The acquisitions of the Industrial
Businesses should provide continued revenue growth in the Industrial
Controls segment.
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 benefits of integrating the acquired businesses.
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.
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.
(i) The Company filed a report on Form 8-K dated
November 3, 1998 reporting pursuant to item 5.
(ii) The Company filed a report on Form 8-K dated
November 30, 1998 reporting pursuant to items 2
and 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: February 11, 1999 By/s/Robert R. Banta
Robert R. Banta
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)
Date: February 11, 1999 By/s/Donald R. Fishback
Donald R. Fishback
Controller
(Principal Accounting Officer)
<PAGE>
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