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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(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, 2000
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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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.
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 8, 2000
were:
Class A Common Stock, $1.00 par value 7,254,743 shares
Class B Common Stock, $1.00 par value 1,535,762 shares
1
<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, 2000 and September 25, 1999 3
Consolidated Condensed Statements of Earnings
Three and Six Months Ended March 31, 2000 and 1999 4
Consolidated Condensed Statements of Cash Flows
Six Months Ended March 31, 2000 and 1999 5
Notes to Consolidated Condensed Financial
Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 12
PART II. OTHER INFORMATION 13
SIGNATURES 14
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
MOOG INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
Unaudited Audited
As of As of
March 31, September 25,
2000 1999
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ......................... $ 11,702 $ 9,780
Receivables .................................... 222,648 212,279
Inventories (note 2) ........................... 155,734 152,246
Other current assets ........................... 35,508 32,510
--------- -----------
TOTAL CURRENT ASSETS .................... 425,592 406,815
PROPERTY, PLANT AND EQUIPMENT, net ................... 184,161 188,918
GOODWILL, net ........................................ 183,441 184,368
OTHER ASSETS ......................................... 17,712 18,375
--------- -----------
TOTAL ASSETS ......................................... $ 810,906 $ 798,476
========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable ..................................... $ 4,854 $ 5,831
Current installments of long-term debt ............ 18,741 20,787
Accounts payable .................................. 39,692 36,373
Accrued liabilities ............................... 82,991 86,282
Contract loss reserves ............................ 23,104 24,741
Customer advances ................................. 10,259 7,834
--------- -----------
TOTAL CURRENT LIABILITIES ................ 179,641 181,848
LONG-TERM DEBT, excluding current installments
Senior debt ....................................... 238,153 229,492
Senior subordinated notes ......................... 120,000 120,000
OTHER LONG-TERM LIABILITIES .......................... 55,525 55,366
--------- -----------
TOTAL LIABILITIES ................................. 593,319 586,706
--------- -----------
SHAREHOLDERS' EQUITY
Preferred stock ................................... 100 100
Common stock ...................................... 10,889 10,889
Other shareholders' equity ........................ 206,598 200,781
--------- -----------
TOTAL SHAREHOLDERS' EQUITY ........................... 217,587 211,770
--------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........... $ 810,906 $ 798,476
========= ===========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
3
<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,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ...................................... $ 161,061 $ 161,909 $ 318,345 $ 310,353
Cost of sales .................................. 111,767 110,631 220,802 213,304
------------ ----------- ----------- -----------
Gross profit ................................... 49,294 51,278 97,543 97,049
Research and development ....................... 6,137 8,983 12,226 18,226
Selling, general and administrative ............ 25,141 25,700 49,797 48,457
Interest ....................................... 8,324 7,321 16,256 12,765
Other expense, net ............................. 223 330 75 131
------------ ----------- ----------- -----------
Earnings before income taxes ................... 9,469 8,944 19,189 17,470
Income taxes ................................... 3,214 2,950 6,616 5,849
------------ ----------- ----------- -----------
Net earnings ................................... $ 6,255 $ 5,994 $ 12,573 $ 11,621
============ =========== ============ ===========
Net earnings per share (note 3)
Basic ................................... $ 0.70 $ 0.67 $ 1.41 $ 1.30
============ =========== ============ ===========
Diluted ................................. $ 0.70 $ 0.66 $ 1.40 $ 1.28
============ =========== ============ ===========
Average common shares outstanding (note 3)
Basic ................................... 8,873,156 8,933,419 8,889,166 8,929,770
============ =========== ============ ===========
Diluted ................................. 8,944,608 9,065,659 8,968,935 9,062,564
============ =========== ============ ===========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ................................................... $ 12,573 $ 11,621
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization ............................... 15,255 14,652
Other ....................................................... (20,941) 5,697
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................ 6,887 31,970
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses, net of cash acquired - (171,710)
Acquisition of minority interest (2,133)
Purchase of property, plant and equipment ...................... (8,087) (13,474)
Proceeds from sale of assets ................................... - 2,631
Other .......................................................... 372 71
-------- ---------
NET CASH USED BY INVESTING ACTIVITIES ................... (7,715) (184,615)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from notes payable ................................ (2,675) 1,190
Net proceeds from revolving lines of credit ................... 17,000 78,700
Proceeds from long-term debt 27 75,351
Payments on long-term debt ..................................... (8,134) (3,632)
Purchase of outstanding shares for treasury .................... (3,565) (950)
Other .......................................................... 289 378
-------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............... 2,942 151,037
-------- ---------
Effect of exchange rate changes on cash ........................... (192) (108)
-------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................. 1,922 (1,716)
Cash and cash equivalents at beginning of period .................. 9,780 11,625
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................ $ 11,702 $ 9,909
========= =========
CASH PAID FOR:
Interest ....................................................... $ 16,650 $ 10,022
Income taxes ................................................... 5,468 3,643
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Leases capitalized, net of leases terminated ................... $ - $ 22
Acquisitions of businesses:
Fair value of assets acquired ................................ $ 222,191
Cash paid .................................................. $ 172,725
=========
Liabilities assumed ...................................... $ 49,466
=========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
5
<PAGE>
MOOG INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 2000
(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, 2000 and the results of its operations for
the three and six months ended March 31, 2000 and 1999 and its cash flows for
each of the six months ended March 31, 2000 and 1999. The results of operations
for the three and six months ended March 31, 2000 and 1999 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 25, 1999.
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 25,
2000 1999
---- ----
Raw materials and purchased parts $ 52,638 $ 40,684
Work in process 80,575 87,925
Finished goods 22,521 23,637
-------- --------
$155,734 $152,246
======== ========
3. Earnings per Share
Basic and diluted weighted-average shares outstanding are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted-average shares
outstanding - Basic .......... 8,873,156 8,933,419 8,889,166 8,929,770
Stock options .................... 64,260 124,762 72,577 124,982
Convertible preferred stock ...... 7,192 7,478 7,192 7,812
--------- --------- --------- ---------
Shares outstanding - Diluted ..... 8,944,608 9,065,659 8,968,935 9,062,564
========= ========= ========= =========
</TABLE>
Preferred stock dividends are deducted from net earnings to calculate income
available to common stockholders for basic earnings per share.
6
<PAGE>
4. Shareholders' Equity
The changes in shareholders' equity for the six months ended March 31, 2000 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 8,427,311 2,461,812
Conversion of Class B to Class A ................... - 2,532 (2,532)
--------- ---------- ---------
End of period ...................................... 10,889 8,429,843 2,459,280
--------- ---------- ---------
ADDITIONAL PAID-IN CAPITAL
Beginning of period ................................ 102,778
Issuance of Treasury shares at
less than cost .................................... (83)
---------
End of period ...................................... 102,695
---------
RETAINED EARNINGS
Beginning of period ................................ 132,104
Net earnings ....................................... 12,573
Preferred stock dividends .......................... (4)
---------
End of period ...................................... 144,673
---------
TREASURY STOCK
Beginning of period ................................ (32,589) (16,229) (1,101,418) (878,176)
Treasury stock issued .............................. 376 - 23,780 2,469
Treasury stock purchased ........................... (3,565) - (101,553) (44,792)
--------- ------- ---------- ---------
End of period ...................................... (35,778) (16,229) (1,179,191) (920,499)
--------- ------- ---------- ---------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Beginning of period ................................ (1,512)
Foreign currency translation ....................... (3,480)
---------
End of period ...................................... (4,992)
--------- ------- ---------- ---------
TOTAL SHAREHOLDERS' EQUITY ......................... $ 217,587 83,771 7,250,652 1,538,781
========= ======= ========== =========
</TABLE>
7
<PAGE>
5. Comprehensive Income
For the three months ended March 31, 2000 and 1999, comprehensive income was
$3,589 and $1,214, respectively. For the six months ended March 31, 2000 and
1999, comprehensive income was $9,093 and $8,460, respectively. The only item of
comprehensive income that is not included in net earnings is foreign currency
translation.
6. Severance Liability
In connection with the November 1998 acquisition of Raytheon Aircraft Montek
Company (Montek), the Company finalized a formal plan for integrating the
operations of Montek and informed the affected employees. The Company
established a $3,800 liability for severance and other related costs associated
with involuntary termination of employees. The balance of the liability at March
31, 2000 was $1,088. Activity during the first six months of 2000 included $523
of payments and a $1,260 reduction to the liability with a corresponding
adjustment to goodwill. The plan is expected to be completed by May 2001.
7. Segment Information
Below are the sales and operating profit by segment for the three and six months
ended March 31, 2000 and 1999 and a reconciliation of segment operating profit
to earnings before income taxes.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales
Aircraft Controls ......................... $ 75,578 $ 77,625 $ 152,813 $ 150,726
Satellite and Launch Vehicle Controls ..... 28,795 30,080 57,170 52,849
Industrial Controls ....................... 56,688 54,204 108,362 106,778
----------- ----------- ----------- ------------
Total sales ........................... $ 161,061 $ 161,909 $ 318,345 $ 310,353
=========== =========== =========== ============
Operating Profit and Margins
Aircraft Controls ......................... $ 10,106 $ 9,712 $ 20,733 $ 17,919
.......................................... 13.4% 12.5% 13.6% 11.9%
Satellite and Launch Vehicle Controls ..... 3,205 3,496 7,211 5,670
.......................................... 11.1% 11.6% 12.6% 10.7%
Industrial Controls ...................... 6,762 5,458 11,808 11,427
.......................................... 11.9% 10.1% 10.9% 10.7%
----------- ----------- ----------- ------------
Total operating profit ................ 20,073 18,666 39,752 35,016
.......................................... 12.5% 11.5% 12.5% 11.3%
Deductions from Operating Profit
Interest expense ...................... 8,324 7,321 16,256 12,765
Corporate expenses .................... 2,068 2,230 4,127 4,484
Currency loss ......................... 212 171 180 297
----------- ----------- ----------- ------------
Earnings before Income Taxes .............. $ 9,469 $ 8,944 $ 19,189 $ 17,470
=========== =========== =========== ===========
</TABLE>
Total segment assets at March 31, 2000 were $778,801 compared to $769,643 at
September 25, 1999.
8. Share Repurchase
In February 2000, the Board of Directors authorized the Company to repurchase up
to $10,000 of its common shares on the open market. For the six months ended
March 31, 2000, the Company purchased 129,100 shares at a cost of $2,906.
8
<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 25, 1999 and its
Quarterly Report on Form 10-Q for the quarter ended December 31, 1999.]
Results of Operations
Consolidated
Sales for the second quarter of 2000 were $161 million compared to $162 million
in the same period of 1999. Increased sales volumes in Industrial Controls,
which resulted in an additional $3 million in sales, were offset by decreases in
Aircraft Controls and Satellite and Launch Vehicle Controls. For the first six
months of 2000, sales were $318 million compared to $310 million for the first
half of 1999. Sales increased across each of the Company's operating groups.
Satellites and Launch Vehicle Controls increased $4 million while Aircraft
Controls increased $3 million and Industrial Controls increased $1 million.
Cost of sales as a percentage of sales for the second quarter and first half of
2000 was 69.4% compared to 68.3% in the second quarter of 1999 and 68.7% for the
first six months of 1999. The increases in the current year are due primarily to
the redeployment of resources in Aircraft Controls from research and development
expenses (R&D) to production and lower sales volumes and cost overruns
associated with controls for electric applications.
R&D decreased to $6 million in the second quarter of 2000 compared to $9 million
in the same quarter a year ago. Year-to-date, R&D decreased to $12 million in
2000 compared to $18 million in 1999. The decreases were primarily due to the
winding down of efforts related to the development of next generation aircraft
flight controls. A portion of the costs associated with those efforts has been
redirected to either production or sales-support.
Interest expense increased $1 million in the second quarter to $8 million from
$7 million a year ago. The increase is due to higher average outstanding
borrowings and higher interest rates associated with the Company's floating-rate
indebtedness. On a year-to-date basis, interest expense increased $3 million to
$16 million in 2000 compared to $13 million in the first half of 1999.
Approximately two-thirds of the increase is attributable to indebtedness
incurred to finance the 1999 first quarter acquisitions. The remainder is due to
higher average borrowing levels and higher interest rates.
Backlog at March 31, 2000 was $327 million compared to $347 million at March 31,
1999. The decrease relates to controls on certain launch vehicle and
entertainment simulator programs nearing completion and lower incoming orders
for satellite controls as softness continues in this market.
Segment Operating Review
(dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales
Aircraft Controls $ 75 $ 78 $ 153 $ 150
Satellite and Launch Vehicle Controls 29 30 57 53
Industrial Controls 57 54 108 107
------- ------ ------- -------
Total sales $ 161 $ 162 $ 318 $ 310
======= ====== ======= =======
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Profit
Aircraft Controls $ 10 $ 10 $ 21 $ 18
13.4% 12.5% 13.6% 11.9%
Satellite and Launch Vehicle Controls 3 4 7 6
11.1% 11.6% 12.6% 10.7%
Industrial Controls 7 5 12 11
11.9% 10.1% 10.9% 10.7%
------- ------ -------- -------
Total operating profit $ 20 $ 19 $ 40 $ 35
======= ====== ======== =======
12.5% 11.5% 12.5% 11.3%
</TABLE>
Aircraft Controls
Sales in Aircraft Controls in the second quarter of 2000 were $75 million
compared to $78 million in the same quarter a year ago. OEM sales to Boeing
decreased by $9 million due to several reasons. Reductions in Boeing aircraft
production rates were expected to be offset by new business awarded by Boeing,
primarily controls for Trailing Edge Transmissions on the 777 airplane. Boeing
has since unexpectedly adjusted its requirements for these products in an
attempt to reduce apparently high levels of existing inventory. Another factor
is that certain manufacturing activities on the Boeing OEM business obtained as
part of the November 1998 acquisition of Montek were substantially transferred
to one of the Company's low cost manufacturing facilities during the second
quarter of 2000. A build up of inventory levels on this product occurred during
the first quarter to bridge the Company through this second quarter transfer,
resulting in lower cost input and sales in the second quarter. The decrease in
Boeing OEM business was partially offset by higher aftermarket sales for both
military and commercial aircraft and $3 million of additional sales on the
F/A-18E/F program. Sales in Aircraft Controls for the first half of 2000 were
$153 million compared to $150 million in the first six months of 1999. OEM sales
to Boeing decreased by $4 million. Incremental Boeing OEM sales of $7 million
resulting from Montek being included for a full six months in the current year
were offset by lower Boeing production rates.
Operating margins for Aircraft Controls were 13.4% in the second quarter of 2000
compared to 12.5% in the same period last year. On a year-to-date basis, margins
were 13.6% in 2000 compared to 11.9% in 1999. The increases are due primarily to
reductions in R&D related to the development of next generation flight controls
and to improved margins on a favorable mix of military aftermarket sales.
Satellite and Launch Vehicle Controls
Sales in Satellite and Launch Vehicle Controls were $29 million in the second
quarter of 2000 compared to $30 million in the same period a year ago. Increased
sales of controls for launch vehicles of $4 million, primarily on the Titan IV
program, were more than offset by a decrease of $3 million in sales of tactical
missiles, reflecting the completion of a large tactical missile program, and a
$2 million decrease in sales of satellite controls due to a continued low level
of order activity from the primes. Year-to-date, sales in Satellite and Launch
Vehicles Controls were $57 million in the first half of 2000 compared to $53
million in the first six months of 1999. Sales of launch vehicle controls
increased $9 million primarily on the strength of the Titan IV program.
Offsetting this increase was a decrease in sales of $4 million for satellite
controls and lower tactical missile controls sales. Incremental sales associated
with tactical missile programs, which were obtained through the Montek
acquisition, were more than offset by lower sales related to the 1999 completion
of work on a large tactical missile program.
10
<PAGE>
Operating margins for Satellite and Launch Vehicle Controls were 11.1% in the
second quarter of 2000 compared to 11.6% in the same period a year ago. The
decrease is due to lower sales of satellite controls and controls for tactical
missiles. Year-to-date, operating margins were 12.6% in 2000 compared to 10.7%
in 1999. The margin improvement is due to the increase in sales mentioned above
and the resultant mix of sales favoring higher margin launch vehicle programs.
Industrial Controls
Sales in Industrial Controls in the second quarter of 2000 were $57 million
compared to $54 million in the same period in 1999. Sales increased $5 million
at constant currency on the strength of hydraulic controls, which increased by
$7 million. This increase is due to higher sales of advanced controls for
industrial power-generating turbines and controls for plastics-making machinery,
primarily injection molding machines. Sales of controls for electric
applications at constant currency decreased by $2 million due to lower shipments
of aiming equipment for military ground vehicles and electric motion simulators.
Year-to-date, sales in Industrial Controls were $108 million in 2000 compared to
$107 million in 1999. Sales increased $7 million at constant currency with sales
of controls for hydraulic applications, primarily for plastics machinery and
turbines, increasing by $10 million. Sales of controls for electric applications
decreased $3 million at constant currency due to softness in the electric motion
simulator market and lower sales of controls for military ground vehicles.
Operating margins for Industrial Controls were 11.9% in the second quarter of
2000 compared to 10.1% in the same period of 1999. The improved margins are due
to strong sales of hydraulic controls and improvement in efficiencies for
plastics controls primarily related to the integration activities at the
industrial businesses acquired in 1999. Offsetting this improvement was $1
million of lower operating profit associated with lower sales of electric
controls. Year-to-date, operating margins were 10.9% in 2000 compared to 10.7%
in 1999 as strong margins associated with increased hydraulic controls sales
were offset by $2 million less profit on lower sales of controls for military
ground vehicles and entertainment motion simulators and cost overruns on two
major development contracts for electric motion simulators.
Financial Condition and Liquidity
Cash on hand at March 31, 2000 was $12 million compared to $10 million at
September 25, 1999. Cash from operations in the first half of 2000 was $7
million compared to $32 million in 1999. Long-term debt increased $9 million
during the first half of 2000 to $358 million at March 31, 2000 while the
percentage of long-term debt to capitalization remained at 62%. The reduction in
cash from operations and the resultant increase in debt were due to higher
receivable levels and continuing development efforts on various business jet
programs. At March 31, 2000, the Company has interest rate swap agreements of
$100 million outstanding, effectively converting this amount into fixed rate
debt at 7.27% for the balance of the year. The Company expects a reduction in
total debt in 2000 of as much as $10 million, notwithstanding the effects of the
stock repurchase program announced in February 2000. For the six months ended
March 31, 2000, the Company purchased 129,100 shares at a cost of $3 million.
At March 31, 2000, the Company had $89 million of unused borrowing capacity
under short and long-term lines of credit, including $76 million from the
Company's U.S. revolving credit facility.
Capital expenditures for the first half of 2000 were $8 million compared with
depreciation and amortization of $15 million. Capital expenditures in the first
half of 1999 were $14 million compared to depreciation and amortization of $15
million. Capital expenditures in 2000 are not expected to exceed $20 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.
11
<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
Aircraft Controls' 2000 sales are expected to increase over 1999 due primarily
to increased production rates on the F/A-18E/F and strong aftermarket sales.
Declines in commercial aircraft production rates at Boeing, along with delays in
orders associated with newly awarded incremental Boeing commercial aircraft
business, will more than offset a full year of Boeing OEM sales resulting from
the Montek acquisition in November 1998. Although the Company has recently
signed long-term agreements with several customers to supply various controls
for satellites and launch vehicles, sales in Satellite and Launch Vehicle
Controls are expected to decrease modestly in 2000 compared to last year.
Production of satellites continues to be low and customers continue to work-off
apparent high levels of inventory. In addition, sales of controls for tactical
missiles will decrease due to last year's completion of work on a large tactical
missile program. Notwithstanding further currency fluctuations, current year
sales in Industrial Controls should show a slight increase over 1999 on the
continuing strength of turbine controls and a recovery in sales of servovalves
to the plastics industry. Partially offsetting these increases in Industrial
Controls is an expected decline in the sales of electric motion simulators, as
compared to 1999, as major programs are approaching completion. As a result of
the above, consolidated sales are expected to increase by approximately 3% in
2000 compared to 1999.
Aircraft Controls' margins should increase as compared to 1999 due to the
significant drop in research and development costs associated with next
generation flight controls and a favorable mix of higher margin aftermarket
sales. Margins in Satellite and Launch Vehicle Controls benefited in the first
half of 2000 from strong revenues for controls for launch vehicles. Satellite
and Launch Vehicle Controls' margins will trend downward over the course of the
year due to projected lower sales volume on various launch vehicle programs and
continued low satellite controls activity. Margins in Industrial Controls will
be up in 2000 primarily due to strong hydraulic controls sales. As a result of
the foregoing, overall operating margins are expected to increase over 1999's
level by less than a half of a percentage point.
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 or 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, 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 25, 1999 and its
Quarterly Report on Form 10-Q for the quarter-ended December 31, 1999.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
No material changes have occurred in the current year regarding market risk.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
None.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
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 9, 2000.
b. At the Annual Meeting, the nominees to the Board of
Directors were elected based on the following results:
Nominee For Against
------- --- -------
Class B
Richard A. Aubrecht 1,428,188 19,400
John D. Hendrick 1,426,883 20,705
Class A
James L. Gray 6,046,973 183,762
c. KPMG LLP was ratified to continue as auditors based
upon the following votes:
Class A*: For, 620,461; Against, 1,919; Abstain, 693;
Class B: For, 1,435,471; Against 5,438; Abstain, 6,679.
*Each share of Class A Common Stock is entitled to
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.
13
<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 15, 2000 By S/Robert R. Banta/S
------------ -------------------
Robert R. Banta
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)
Date: May 15, 2000 By S/Donald R. Fishback/S
------------ ----------------------
Donald R. Fishback
Controller
(Principal Accounting Officer)
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