FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2000 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 | 16-0757636 |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| East Aurora, New York | 14052-0018 |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant's Telephone Number, Including Area Code: (716) 652-2000
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Name of Each Exchange on Which Registered |
| Class A Common Stock, $1.00 Par Value Class B Common Stock, $1.00 Par Value |
American Stock Exchange American Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
The aggregate market value of the Common Stock outstanding and held by non-affiliates (as defined in Rule 405 under the Securities Act of 1933) of the registrant, based upon the closing sale price of the Common Stock on the American Stock Exchange on December 8, 2000 was approximately $190 million.
The number of shares of Common Stock outstanding as of the close of business on December 8, 2000 was:
Class A 7,261,216; Class B 1,491,884.
The Documents listed below have been incorporated by reference into this Annual Report on Form 10-K:
(1) Specific sections of the Annual Report to Shareholders for the fiscal year ended
September 30, 2000 (the “2000 Annual Report”)
(2) Specific sections of
the January 2001 Proxy Statement to Shareholders (the “2001 Proxy”)
MOOG INC.
FORM 10-K INDEX
PART I
Item 1 - Business
Item 2 - Properties
Item 3 - Legal Proceedings
Item 4 - Submission of Matters to a
Vote of Security Holders
PART II
Item 5 - Market for the Registrant's
Common Equity and Related
Stockholder Matters
Item 6 - Selected Financial Data
Item 7 - Management's Discussion and
Analysis of Financial Condition
and Results of Operations
Item 7A - Quantitative and Qualitative
Disclosures About Market Risk
Item 8 - Financial Statements and
Supplementary Data
Item 9 - Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure
PART III
Item 10 - Directors and Executive Officers
of the Registrant
Item 11 - Executive Compensation
Item 12 - Security Ownership
of Certain Beneficial
Owners and Management
Item 13 - Certain Relationships and
Related Transactions
PART IV
Item 14 - Exhibits, Financial Statement
Schedules, and Reports
on Form 8-K
Cautionary Statement
Information, included herein or incorporated by reference, that are not historical facts, including statements accompanied by or containing words such as “believes,” “expects,” “intends,” “plans,” “projects,” “estimates,” “outlook,” “forecast,” “anticipates,” “presume” and “assume,” 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. These statements are not guarantees of future performance and are subject to several factors, risks and uncertainties, the impact or occurrence of which could cause actual results to differ materially from the expected results described in the forward-looking statements. These important factors, risks and uncertainties, include (i) fluctuations in general business cycles, demand for capital goods and government funding of procurement programs in which the Company participates, (ii) the dependency on certain major customers, such as Boeing and certain U.S. Government contractors, for a significant percentage of its sales, (iii) intense competition in the Company’s business which, depending on product line, may require the Company to compete by lowering prices or by advancing its technologies; several of the Company’s competitors are substantially larger than the Company and have greater financial resources with which to compete, (iv) the potential for substantial fines and penalties or debarment from future contracts in the event the Government’s procurement rules are not followed, (v) the potential for cost overruns on development jobs and actual results that may differ from estimates used in contract accounting, (vi) the possibility of a catastrophic loss of one or more of the Company’s manufacturing facilities, (vii) the impact of product liability claims related to the Company’s products used in applications where failure can result in significant property damage, injury and death, and (viii) foreign currency fluctuations in those countries in which the Company does business which can adversely affect the Company’s results of operations and financial condition. The factors identified above are not exhaustive. New factors, risks and uncertainties may emerge from time to time that may affect the forward-looking statements made herein. Given these risks, factors and uncertainties, investors should not place undue reliance on forward-looking statements as predictive of future results. The Company disclaims any obligation to update the forward-looking statements made in this Filing.
Part I
The Registrant, Moog Inc., a New York corporation formed in 1951, is referred to in this Annual Report on Form 10-K as "Moog," "the Company" or in the nominative "we" or the possessive "our."
ITEM 1. Business.
Certain information required herein is contained in part in the 2000 Annual Report, filed as an exhibit hereto.
Description of the Company's Business. See the 2000 Annual Report.
Distribution. Moog’s direct sales and marketing organization is comprised of individuals possessing highly specialized technical expertise. Such expertise is required in order to effectively evaluate the customer’s precision control requirements and to facilitate communication between the customer and Moog’s engineering staff. Manufacturers’ representatives are used to cover certain aerospace and industrial markets or territories.
Industry and Competitive Conditions. The Company experiences considerable competition in each of its three operating groups. However, the Company is the only precision motion control specialist which competes globally in all markets and all drive technologies.
Many of our competitors have greater financial and other resources. In Aircraft Controls, the Company’s principal competitors include Parker Hannifin Corporation, Curtiss-Wright Corp., HR Textron, a subsidiary of Textron, Inc. and Teijin Seiki Limited. In Space Controls, the Company’s principal competitors include Honeywell and HR Textron. In Industrial Controls, competitors include Robert Bosch AG, Mannesmann Rexroth AG, Barber-Colman Company, Siemens AG and Indramat GmbH.
Competition in each operating group is based upon design capability, product performance and life, service, price and delivery time. The Company believes it competes effectively on all of these bases.
Backlog. Substantially all backlog will be realized as sales in the next twelve months. The information required herein is incorporated by reference to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Raw Materials. Materials, supplies and components are purchased from numerous suppliers. The Company believes the loss of any one supplier, although potentially disruptive in the short term, would not materially affect the Company’s operations in the long term.
Working Capital. The information required herein is incorporated by reference to the discussion on inventories in Note 1 of Item 8, Financial Statements and Supplementary Data.
Seasonality. Moog's business is generally not seasonal.
Patents. Moog has numerous patents and has filed applications for others. While the aggregate protection afforded by these is of value, the Company does not consider the successful conduct of any material part of its business to be dependent upon such protection. The Company’s patents and patent applications, including U.S., Canadian, European and Japanese patents, relate to electrohydraulic, electropneumatic and electromechanical actuation mechanisms and control valves, electronic control component systems and interface devices.
Research Activities. Research and product development activity has been and continues to be significant to the Company. The information required herein is incorporated by reference to Item 6, Selected Financial Data.
Employees. On September 30, 2000, the Company employed 4,463 full-time employees, compared to 4,699 full-time employees at September 25, 1999. The decline is attributable to the effects of integration efforts of recent acquisitions.
Segment Financial Information. The information required herein is incorporated by reference to Note 10 of Item 8, Financial Statements and Supplementary Data.
Customers. The information required herein is incorporated by reference to the description contained in the 2000 Annual Report. In aggregate, the Company markets its products to a wide variety of customers. The Boeing Company represented approximately 17% of consolidated sales in 2000, including sales to the Boeing Commercial Airplane Group representing 9% of fiscal 2000 sales. Sales to the U.S. Government and its prime- or sub-contractors, including military sales to Boeing, represented approximately 29% of sales. Sales to these customers are made principally from Aircraft Controls and Space Controls. The concentration of customers varies between operating groups. In Aircraft Controls, as well as Space Controls, a few customers provide the majority of revenues, while in Industrial Controls, revenues are spread over a more diverse customer base.
International Operations. Operations outside the United States are conducted through various wholly-owned foreign companies. The Company’s international operations are located predominantly in Europe and the Asian-Pacific region. (See Note 10 of Item 8, Financial Statements and Supplementary Data, and Item 14 (21).) The Company’s international operations are subject to the usual risks inherent in international trade, including currency fluctuations, local governmental foreign investment restrictions, exchange controls, regulation of the import and distribution of foreign goods, as well as changing economic and social conditions in countries in which such operations are conducted.
Environmental Matters. See the description contained in Note 12 of Item 8, Financial Statements and Supplementary Data.
ITEM 2. Properties.
The Company occupies approximately 2,032,000 square feet of space (1,435,000 owned, 543,000 through operating leases and 54,000 through a capital lease) in the United States and countries throughout the world, distributed by segment as follows:
Square Feet
Aircraft Controls 1,006,000
Space Controls 308,000
Industrial Controls 680,000
Corporate Headquarters 38,000
---------
Total 2,032,000
Aircraft Controls’ principal manufacturing facilities are located in New York, California, Utah, England and the Philippines.
Space Controls' primary manufacturing facility is located in New York.
Industrial Controls' principal manufacturing facilities are located in New York, Germany, Ireland, Luxembourg and Japan.
The Company's headquarters are located in East Aurora, New York.
The Company believes that its properties have been adequately maintained and are generally in good condition. The Company believes that its existing facilities will provide sufficient production capacity for the foreseeable future. Operating leases expire at various times from November 2000 through November 2013. Upon the expiration of its current leases, the Company believes that it will be able to either secure renewal terms or enter into leases for alternative locations at market terms.
ITEM 3. Legal Proceedings.
From time to time, the Company is named as a defendant in legal actions arising in the normal course of business. The Company is not a party to any pending legal proceedings which management believes will result in a material adverse effect on the Company’s financial condition, liquidity or results of operations or to any pending legal proceedings other than ordinary, routine litigation related to its business.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None.
Part II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters.
The number of shareholders of Class A Common Stock and Class B Common Stock is approximately 5,700 and 2,800, respectively.
Dividend restrictions are detailed in Note 6 of Item 8, Financial Statements and Supplementary Data. Stock price information required herein is incorporated by reference to the 2000 Annual Report.
ITEM 6. Selected Financial Data.
For a more detailed discussion of 1998 through 2000 refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Notes to Consolidated Financial Statements.
(dollars in thousands except per share data)
Fiscal Years 2000 1999(1) 1998(2) 1997(3) 1996(4)
RESULTS FROM OPERATIONS
Net sales $644,006 $630,034 $536,612 $455,929 $407,237
Net earnings $ 25,400 $ 24,431 $ 19,268 $ 13,606 $ 10,709
Net earnings per share
Basic $ 2.88 $ 2.74 $ 2.33 $ 1.95 $ 1.44
Diluted $ 2.85 $ 2.70 $ 2.26 $ 1.88 $ 1.40
FINANCIAL POSITION
Total assets $791,705 $798,476 $559,325 $490,563 $449,558
Working capital 236,213 224,967 226,190 187,521 187,971
Indebtedness - senior 246,289 256,110 85,614 118,245 91,262
- senior subordinated 120,000 120,000 120,000 120,000 120,000
Shareholders' equity 222,554 211,770 191,008 114,191 104,743
Shareholders' equity per
common share outstanding 25.45 23.77 21.38 16.18 15.01
SUPPLEMENTAL FINANCIAL DATA
Capital expenditures $ 23,961 $ 26,439 $ 22,688 $ 13,713 $ 10,885
Depreciation and amortization 30,443 30,602 22,665 21,267 19,632
R&D - Company funded 21,981 33,306 27,487 17,798 17,303
- customer funded 18,624 14,367 15,440 14,071 24,411
Backlog 345,333 336,857 314,253 280,364 243,310
RATIOS
Net return on sales 3.9% 3.9% 3.6% 3.0% 2.6%
Return on shareholders' equity 11.7% 12.1% 12.6% 12.4% 10.0%
Current ratio 2.41 2.24 2.87 2.75 2.89
Debt to shareholders' equity 1.65 1.78 1.08 2.09 2.02
Long-term senior debt to
capitalization(5) 39.8% 40.9% 20.4% 30.3% 25.6%
Long-term debt to capitalization(5) 60.9% 62.3% 51.1% 66.0% 65.3%
(1) Includes the effects of the fiscal 1999 acquisitions and the related financing. See Note 2 to the Consolidated
Financial Statements.
(2) Includes the effects of the Class A common stock offering completed in February 1998. See Note 9 to the Consolidated
Financial Statements.
(3) Includes the effects of the October 1996 acquisition of the industrial hydraulic servocontrols business of
International Motion Control Inc.
(4) Net earnings include a $510 extraordinary loss on the early extinguishment of debt. Earnings before extraordinary
loss in 1996 were $11,219 and basic and diluted earnings per share before extraordinary loss were $1.51 and $1.47, respectively.
(5) Capitalization is equal to the sum of total long-term debt, excluding current maturities, and
shareholders’ equity.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Overview
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. The Company is organized into three operating segments.
Aircraft Controls designs and manufactures technologically advanced flight and engine controls for manufacturers of commercial and military aircraft. Moog is a supplier to several large commercial aircraft manufacturers including Boeing Commercial Airplane Company, Airbus Industrie, The Raytheon Company, Lockheed Martin Corporation and Bombardier Inc. The Company currently supplies flight controls for all Boeing’s 7-series commercial aircraft and for military aircraft, including the U.S. Navy’s F/A-18 E/F Super Hornet fighter aircraft and V-22 Osprey tiltrotor aircraft. The Company also is teamed with both competitors, Boeing and Lockheed Martin, to build the next generation fighter aircraft for use by all the U.S. military services known as the Joint Strike Fighter.
Space Controls, formerly known as Satellite and Launch Vehicle Controls, designs and manufactures controls and systems that control the flight, positioning or thrust of satellites, NASA’s Space Shuttle, solar panels and antennae, launch vehicles, tactical and strategic missiles and ground-based telecommunication systems. Customers include Alliant Techsystems Inc., Lockheed Martin, DaimlerChrysler Corporation, Raytheon and Boeing. Programs on which Moog participates include the Titan IV and Delta family of launch vehicles, the National Missile Defense program, the Space Station and several tactical missile programs.
Industrial Controls designs and manufactures hydraulic and electric controls used in a wide variety of industrial applications. Product applications include plastic injection and blow molding machines, steam and gas turbines, steel rolling mills, fatigue testing machines, motion simulators and gun and turret positioning and ammunition-loading systems on military ground vehicles.
On June 15, 2000, the Company purchased the remaining 33-1/3% minority interest of Microset Srl, an Italian manufacturer and designer of electronic controls for industrial machinery, for $1.1 million in cash. The Company acquired its previous 66-2/3% shareholding in Microset Srl in December 1998.
On August 11, 2000, the Company purchased the net assets of the industrial servovalve business of Schenck Pegasus Corporation, for $1.9 million, of which $1.5 million was paid in cash.
2000 Compared with 1999
Consolidated. Sales for 2000 increased 2% to $644 million as compared to $630 million in 1999. Aircraft Controls represented $10 million of the increase principally as a result of higher aftermarket sales, while Space Controls and Industrial Controls each increased $2 million.
Cost of sales as a percentage of sales was 69.7% in 2000 compared with 68.6% in 1999. The increase was due primarily to the redeployment of resources in Aircraft Controls from research and development (R&D) activities to production and, to a lesser extent, to lower margins in Space Controls as a result of the completion of the Standard Missile II program in 1999.
R&D expenses decreased by $11 million in 2000 to $22 million, or 3.4% of sales. The decrease was due primarily to reduced efforts for the development of next generation aircraft flight controls which peaked in fiscal 1999. A portion of the costs associated with those efforts has been redirected to either production or sales support.
Interest expense increased $5 million in 2000 to $33 million. Three-quarters of the increase was attributable to higher average outstanding borrowings on variable-rate indebtedness, resulting primarily from the financing of the 1999 first quarter acquisitions. The remainder of the increase was due primarily to the current year increase in interest rates.
MOOG INC.
Results of Operations
Fiscal Years Ended
September 30, September 25, September 26,
(dollars in millions) 2000 1999 1998
SALES
Aircraft Controls $ 312 $ 302 $ 254
Space Controls 112 110 94
Industrial Controls 220 218 189
------------ ----------- ------------
Net sales $ 644 $ 630 $ 537
------------ ----------- ------------
OPERATING PROFIT AND MARGINS
Aircraft Controls $ 43 $ 37 $ 29
13.8% 12.2% 11.4%
Space Controls 12 13 10
10.8% 11.7% 10.4%
Industrial Controls 25 23 20
11.2% 10.8% 10.8%
------------ ----------- ------------
Total operating profit $ 80 $ 73 $ 59
------------ ----------- ------------
12.4% 11.6% 11.0%
BACKLOG
Aircraft Controls $ 215 $ 192 $ 179
Space Controls 65 85 77
Industrial Controls 65 60 58
------------ ----------- ------------
Total backlog $ 345 $ 337 $ 314
------------- ----------- -----------
Other income in 2000 includes a $0.3 million fourth quarter gain on the sale of a 26% ownership in a Russian controls manufacturer.
The Company’s effective tax rate for 2000 was 34.2% compared to 33.5% a year ago. The increase resulted from lower U.S. tax incentives on export sales and proportionately lower earnings in certain low tax countries.
For 2000, net earnings increased 4% to $25 million compared with $24 million in 1999. Diluted EPS increased 6% to $2.85 in 2000 compared to $2.70 last year.
Aircraft Controls. Sales in Aircraft Controls increased 3% to $312 million in 2000 compared to $302 million in 1999. Aftermarket sales, which has grown to 40% of the segment’s sales in 2000 compared to 33% in 1999, increased $23 million over last year. Sales also increased $8 million related to development work for flight controls on the Bombardier BD 100. These increases were partially offset by anticipated declines of $13 million in OEM sales to Boeing for commercial aircraft related to their reduced production rates and $8 million on the F-15 fighter aircraft and $4 million on the B-2 bomber as these programs near completion.
Operating margins for Aircraft Controls were 13.8% in 2000 compared to 12.2% in 1999. The improvement in margins is attributable to increased aftermarket sales that typically carry stronger margins and, to a lesser extent, to reductions in R&D related to the development of next generation flight controls.
Twelve-month backlog for Aircraft Controls was $215 million at September 30, 2000 compared to $192 million at September 25, 1999. The increase is due primarily to the Boeing 7-series commercial aircraft, the Bombardier BD 100, and the V-22 programs.
Space Controls. Sales in Space Controls increased 2% to $112 million in 2000 compared to $110 million in 1999. Sales of flight controls for the Space Shuttle and Space Station Crew Return Vehicle increased $3 million while sales on the Titan IV launch vehicle program increased $2 million, primarily related to work performed earlier in the year. Increased sales of tactical missile controls for the AGM 142 of $5 million and Hellfire of $2 million helped offset sales declines of $9 million on the Standard Missile II program which was completed in 1999.
Operating margins for Space Controls decreased to 10.8% in 2000 from 11.7% last year. The decline in margins is attributable to the shift from more mature programs such as Standard Missile II to development programs such as National Missile Defense, Space Station Crew Return Vehicle and newer satellite propulsion and tactical missile programs.
Twelve-month backlog for Space Controls was $65 million at September 30, 2000 compared to $85 million at September 25, 1999. The decrease is primarily due to the Titan IV program nearing completion.
Industrial Controls. Sales in Industrial Controls increased 1% to $220 million in 2000 from $218 million in 1999. Had foreign currencies not weakened against the U.S. dollar, sales would have translated into an additional $9 million over last year. Sales for turbine controls increased by $12 million and sales of controls for plastics machinery increased by $7 million. Partially offsetting these increases was a $7 million decline in sales of controls for military ground vehicles and a $4 million decrease for electric motion simulators due to the completion of Universal’s Spiderman theme park attraction.
Operating margins increased to 11.2% in 2000 compared to 10.8% in 1999 due to improved operating efficiencies related to higher sales volume.
Twelve-month backlog for Industrial Controls was $65 million at September 30, 2000 compared to $60 million at September 25, 1999. The increase primarily relates to growth in the turbines and simulation businesses.
1999 Compared with 1998
Consolidated. Sales for 1999 were $630 million, up 17% from $537 million in 1998. The November 1998 acquisition of Montek accounted for the majority of the increase. In the first ten months after the acquisition, Montek had $78 million in sales, the majority of which were controls for aircraft. Sales in 1999 also included incremental sales of Hydrolux SARL, Moog-Hydrolux Hydraulic Systems, Inc. (Moog-Hydrolux) and Microset Srl., which are collectively referred to as the Acquired Industrial Businesses, totaling $24 million. Excluding the impact of acquisitions, sales decreased by $13 million due to the winding down of the B-2 bomber and F-15 fighter aircraft programs along with declines in deliveries to Boeing, due to their reduced production rates.
Cost of sales in 1999 was 68.6% of sales compared with 69.7% of sales in 1998. The improvement was due to a favorable product mix of sales in 1999 resulting from a greater share of aircraft flight control aftermarket sales along with a greater proportion of work on higher margin launch vehicle and tactical missile programs. This improvement was offset by higher cost of sales as a percentage of sales (1.4 percentage points) associated with the Acquired Industrial Businesses and the satellite controls business.
Research and development expenses increased by $6 million in 1999 to $33 million, or 5.3% of sales. Approximately half of the dollar increase was associated with the development of next generation flight controls. The fiscal 1999 acquisitions and efforts in Industrial Controls related to developing the next generation direct drive valve and turbine products accounted equally for the remainder of the increase.
Selling, general and administrative (SG&A) expenses were $100 million in 1999 compared to $85 million in 1998, while, as a percentage of sales, SG&A remained at 15.9% of net sales. The 1999 acquisitions accounted for over 70% of the absolute dollar increase.
Interest expense increased $8 million in 1999 to $28 million due to higher average outstanding borrowings resulting from the indebtedness incurred to finance the first quarter fiscal 1999 acquisitions.
The Company’s effective tax rate for 1999 was 33.5% compared to 35.5% in 1998. The 1999 tax rate reflects higher foreign tax credit benefits resulting from distributions from the Company’s German subsidiary.
For 1999, net earnings increased 27% to $24.4 million compared with $19.3 million in 1998. Diluted EPS increased to $2.70 in 1999 compared to $2.26 in 1998.
Aircraft Controls. Sales in Aircraft Controls increased 19% to $302 million in 1999 as compared to $254 million in 1998. The acquisition of Montek provided significant growth to Aircraft Controls sales and contributed to operating margin improvement during 1999. For the first ten months after the acquisition, Montek contributed $63 million to Aircraft Controls sales. Approximately 80% of Montek’s aircraft controls business related to controls for commercial airplane applications, primarily the Boeing 7-series airplanes. Also contributing to the overall sales improvement was an increase of $20 million in aftermarket sales from the Company’s pre-acquisition businesses, primarily related to controls for military applications. These increases were offset by anticipated declines in sales on the B-2 bomber and F-15 fighter aircraft programs, as they near completion, and pre-acquisition Boeing OEM business. The Company recently began initial production on the F/A-18E/F Super Hornet and the V-22 Osprey, which, over the long-term, will help offset the completion of the F-15 and B-2 programs. Although the Company’s total Boeing OEM business increased in 1999 due to the Montek acquisition, reduced production rates of the 747 and 777 slowed deliveries of pre-acquisition products to Boeing.
Operating margins for Aircraft Controls were 12.2% in 1999 compared to 11.4% in 1998. The main reason for the margin improvement is the acquisition of Montek, which had higher margins than the Company’s pre-acquisition operations. Montek’s business contains a greater percentage of aftermarket sales, which typically carry higher margins than sales to OEMs. For the first ten months after the acquisition, 38% of Montek’s sales related to spares, parts and repair services. Including the acquisition, Aircraft Controls aftermarket sales represented 33% of total sales in 1999 compared to 21% in 1998. This improvement was tempered by $3 million of increased research and development costs associated with the development of next generation flight controls.
Twelve-month backlog for Aircraft Controls was $192 million at September 25, 1999 compared to $179 million at September 26, 1998. The increase was due to the acquisition of Montek, offset by lower pre-acquisition business resulting from production rate declines at Boeing and certain military programs winding down.
Space Controls. Sales in Space Controls were $110 million in 1999, up 18% from $94 million in 1998. Sales of controls for tactical missiles increased $12 million in 1999 with 88% of that increase resulting from the acquisition of Montek for controls on the Hellfire, TOW and AGM 142 tactical missile programs. On the strength of the Titan IV, Delta family of launch vehicles and the National Missile Defense system, sales of launch vehicle steering controls increased $11 million. These increases were offset by lower sales of satellite controls due to a general softness in the satellite market.
Operating margins for Space Controls were 11.7% in 1999 compared to 10.4% in 1998. Operating margins for launch vehicle and tactical missile products improved 50% as the mix in 1999 favored more mature production programs and significant expenditures were made in 1998 on launch vehicle development programs. These favorable developments were mostly offset by lower sales and margins in satellite controls, which represents 20% of the group’s sales.
Twelve-month backlog for Space Controls was $85 million at September 25, 1999 compared to $77 million at September 26, 1998. The increase relates to controls for tactical missiles resulting from the acquisition of Montek.
Industrial Controls. Sales in Industrial Controls increased 15% to $218 million in 1999 from $189 million in 1998. The Acquired Industrial Businesses accounted for $24 million of the increase. Montek, which also produced industrial servovalves, accounted for the remainder of the Industrial Controls’ sales increase.
Operating margins for Industrial Controls were 10.8% in 1999 and 1998. An increase in margins of 2.5 percentage points in the Company’s pre-acquisition businesses is attributable to favorable product mix resulting from higher sales of electric controls for military ground vehicles and industrial hydraulic controls in Europe. This increase was offset by losses incurred by the Acquired Industrial Businesses reflecting lower than anticipated sales due to a downturn in the injection molding machinery market.
Twelve-month backlog for Industrial Controls was $60 million at September 25, 1999 compared to $58 million at September 26, 1998. Decreases in orders for controls for military ground vehicles and entertainment simulators offset backlog associated with the Acquired Industrial Businesses and Montek.
Financial Condition and Liquidity
On October 24, 2000, the Company amended its $340 million Corporate Revolving and Term Loan Agreement (Credit Facility). The term loan portion of the Credit Facility, which had a balance of $48.8 million at September 30, 2000, was increased to $75 million with the difference added to the unused borrowing capacity of the revolving portion of the facility. As of October 24, 2000, $100 million of unused borrowing capacity was available under the Credit Facility. The amended Credit Facility expires in December 2005 and requires quarterly principal payments on the term loan of $3.75 million, which commence in December 2000. Interest on th e amended agreement continues at LIBOR plus 200 basis points, with the margin adjusted based on leverage.
Cash provided by operating activities was $45 million in 2000 compared to $43 million a year ago. The increase in cash from operations is due primarily to improved earnings. The changes in provisions for losses are the result of normal ongoing reviews of contracts, inventories and receivables. The Company expects cash from operations in 2001 to be comparable with 2000.
Long-term debt decreased $3 million to $346 million at September 30, 2000. The percentage of long-term debt to capitalization decreased to 60.9% from 62.3% at September 25, 1999. In addition to the Credit Facility, the Company had $13 million of unused borrowing capacity under short and long-term lines of credit at September 30, 2000.
Net property, plant and equipment was $189 million at September 30, 2000 and September 25, 1999. Capital expenditures in 2000 were $24 million compared with depreciation and amortization of $30 million. Capital expenditures in 1999 were $26 million compared with depreciation and amortization of $31 million. Capital expenditures in 2001 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.
Quantitative and Qualitative Disclosures about Market Risk
The Company, in the normal course of business, has exposures to interest rate risks from its long-term debt obligations and foreign exchange rate risk with respect to its foreign operations and from foreign currency transactions. To minimize these risks, the Company periodically enters into interest rate swaps and forward contracts. The Company does not hold or issue financial instruments for trading purposes.
The Company’s borrowings under variable interest rate facilities are $237 million at September 30, 2000. In order to provide for interest rate protection, the Company has entered into interest rate swap agreements totaling $160 million, of which $80 million matures at various times through January 2001 and effectively converts this amount to fixed-rate debt at 7.3%. The remaining $80 million matures at various times during fiscal 2002 and effectively converts this amount to fixed-rate debt at 8.3%. If LIBOR were to change by 10%, the impact on consolidated interest expense from the Company’s floating-rate debt would be approximately $1 million in 2001.
The majority of the Company’s sales, expenses and cash flows are transacted in U.S. dollars. The Company does have some market risk exposure with respect to changes in foreign currency exchange rates primarily as it relates to the value of the U.S. dollar versus the Euro, the Japanese Yen and the British Pound. If foreign exchange rates were to collectively weaken against the U.S. dollar by 10%, net earnings would be reduced by approximately $1 million related to currency exchange rate translation exposures and $0.5 million related to pressures on operating margins for products sourced in non-U.S. countries.
The Company occasionally uses forward contracts to reduce fluctuations in foreign currency cash flows related to third party raw material purchases, intercompany product shipments and intercompany loans and to reduce fluctuations in the value of foreign currency investments in, and long-term advances to, subsidiaries. At September 30, 2000, there were no contracts outstanding.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Under this standard, companies are required to carry all derivatives on 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, the reason for holding it. SFAS No. 133, as amended by SFAS Nos. 137 and 138, is effective in the Company’s first quarter of fiscal 2001. As of September 30, 2000, the Company’s exposure to derivatives is limited to interest rate swap agreements which are highly effective in managing the Company’s interest rate exposure. A high correlation exists between the terms of the interest rate swaps and the underlying debt, which causes fluctuations in the fair value of the swaps to be offset by a fluctuation in the carrying value of the underlying debt. With respect to derivatives outstanding on September 30, 2000, the adoption of SFAS No. 133 in fiscal 2001 is not expected to have a material impact on the financial statements of the Company.
Subsequent Events
On October 31, 2000, the Company purchased the net assets of the Vickers Electrics Division, an Italian manufacturer of high-performance electric drives, from Aeroquip-Vickers S.p.A., for $9.9 million in cash.
On November 7, 2000, the Company announced an agreement to purchase the net assets of the Bosch Radial Piston Pump product line of Robert Bosch GmbH for $6.5 million in cash, plus the assumption of $1.6 million of pension liabilities. The closing of this transaction is subject to approval from antitrust authorities and to final approval of the merger of Bosch and Mannesmann Rexroth AG.
On November 15, 2000, the Company acquired the remaining 25% minority interest of Hydrolux SARL and Moog-Hydrolux for $1.3 million in cash.
Outlook
Sales in 2001 are expected to increase by 6% over 2000 to $682 million, exclusive of any revenues from the pending acquisition of the Bosch Radial Piston Pump product line. Aircraft Controls’ sales are expected to grow by 5% to $328 million primarily due to increased production rates of the F/A-18E/F, V-22, and Boeing 7-series commercial airplanes, and development work on regional aircraft and business jets. Sales in Space Controls are expected to decrease by 14% to $96 million as increases in sales of controls for satellites, tactical missiles, and the Space Station will not fully offset the effect of the Titan IV launch vehicle program nearing completion. Industrial Controls’ sales are expected to increase by 18% to $258 million due to increases in sales of turbine controls and controls for plastics machinery and $17 million of incremental revenues from the Vickers Electrics acquisition and $2 million from the Schenck Pegasus acquisition.
The operating margin for 2001 is expected to slightly increase to 12.5% from 12.4% in 2000 as higher sales in Aircraft Controls, where margins are forecasted to increase to 14.3%, and Industrial Controls, where margins are forecasted to increase to 11.8%, are expected to be partially offset by a decrease in margins to 8.0% in Space Controls as mature programs wind down. Earnings per share is projected to increase by 9% to $3.10 in 2001.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 8. Financial Statements and Supplementary Data.
MOOG INC.
Consolidated Statements of Earnings
Fiscal Years Ended
September 30, September 25, September 26,
(dollars in thousands 2000 1999 1998
except per share data)
NET SALES $ 644,006 $ 630,034 $ 536,612
COST OF SALES 448,702 432,033 374,000
------------- ----------- ------------
GROSS PROFIT 195,304 198,001 162,612
Research and development 21,981 33,306 27,487
Selling, general and administrative 101,990 100,023 85,374
Interest 33,271 28,188 20,148
Other (553) (244) (270)
------------- ----------- ------------
EARNINGS BEFORE INCOME TAXES 38,615 36,728 29,873
INCOME TAXES 13,215 12,297 10,605
------------- ----------- ------------
NET EARNINGS $ 25,400 $ 24,431 $ 19,268
------------- ----------- ------------
NET EARNINGS PER SHARE
Basic $ 2.88 $ 2.74 $ 2.33
Diluted $ 2.85 $ 2.70 $ 2.26
See accompanying Notes to Consolidated Financial Statements.
MOOG INC.
Consolidated Balance Sheets
As of As of
September 30, September 25,
(dollars in thousands except per share data) 2000 1999
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,827 $ 9,780
Receivables 211,463 212,279
Inventories 147,546 152,246
Deferred income taxes 26,972 29,097
Prepaid expenses and other current assets 3,693 3,413
------------ ------------
TOTAL CURRENT ASSETS 403,501 406,815
PROPERTY, PLANT AND EQUIPMENT 188,584 188,918
GOODWILL, net of accumulated amortization of
$22,126 in 2000 and $15,328 in 1999 181,303 184,368
OTHER ASSETS 18,317 18,375
------------ ------------
TOTAL ASSETS $ 791,705 $ 798,476
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,581 $ 5,831
Current installments of long-term debt 18,609 20,787
Accounts payable 36,253 36,373
Accrued salaries, wages and commissions 35,191 39,167
Contract loss reserves 20,916 24,741
Accrued interest 9,066 10,587
Federal, state and foreign income taxes 8,030 9,181
Other accrued liabilities 29,625 27,347
Customer advances 8,017 7,834
------------ ------------
TOTAL CURRENT LIABILITIES 167,288 181,848
LONG-TERM DEBT, excluding current installments
Senior debt 226,099 229,492
Senior subordinated notes 120,000 120,000
OTHER LONG-TERM LIABILITIES 55,764 55,366
------------ ------------
TOTAL LIABILITIES 569,151 586,706
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 12) - -
SHAREHOLDERS' EQUITY
9% Series B Cumulative, Convertible,
Exchangeable Preferred stock - Par Value $1.00
Authorized 200,000 shares. Issued 100,000 shares. 100 100
Common Stock - Par Value $1.00
Class A - Authorized 30,000,000 shares.
Issued 8,427,462 shares in 2000 and 8,427,311
shares in 1999. 8,427 8,427
Class B - Authorized 10,000,000 shares. Convertible
to Class A on a one for one basis.
Issued 2,461,661 shares in 2000 and
2,461,812 shares in 1999. 2,462 2,462
Additional paid-in capital 102,639 102,778
Retained earnings 157,497 132,104
Treasury shares (37,570) (32,589)
Accumulated other comprehensive loss (11,001) (1,512)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 222,554 211,770
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 791,705 $ 798,476
------------ ------------
See accompanying Notes to Consolidated Financial Statements.
MOOG INC.
Consolidated Statements of Shareholders' Equity
(dollars in thousands except per share data)
Fiscal Years Ended
September 30, September 25, September 26,
2000 1999 1998
PREFERRED STOCK $ 100 $ 100 $ 100
------------ ------------- -------------
COMMON STOCK
Beginning of year 10,889 10,889 9,134
Sale of Class A common stock - - 1,755
------------ ------------- -------------
End of year 10,889 10,889 10,889
------------ ------------- -------------
ADDITIONAL PAID-IN CAPITAL
Beginning of year 102,778 102,306 47,519
Issuance of treasury shares at less than cost (139) (234) (306)
Tax benefits related to stock option plan - 706 190
Sale of Class A common stock, net of issuance costs - - 54,903
------------ ------------- -------------
End of year 102,639 102,778 102,306
------------ ------------- -------------
RETAINED EARNINGS
Beginning of year 132,104 107,681 88,422
Net earnings 25,400 24,431 19,268
Preferred dividends ($.09 per share in
2000, 1999 and 1998) (7) (8) (9)
------------ ------------- -------------
End of year 157,497 132,104 107,681
------------ ------------- -------------
TREASURY SHARES, AT COST*
Beginning of year (32,589) (30,511) (30,967)
Shares issued related to options
(2000 - 34,000 Class A shares;
1999 - 53,000 Class A shares;
1998 - 99,750 Class A shares and
85,000 Class B shares) 408 636 2,451
Shares purchased
(2000 - 115,988 Class A shares
and 84,908 Class B shares;
1999 - 14,858 Class A shares
and 65,115 Class B shares;
1998 - 57,343 Class A shares
and 8,817 Class B shares) (5,489) (2,815) (2,145)
Shares sold to Savings and Stock Ownership Plan
(SSOP) (2000 - 770 Class A shares and 2,469
Class B shares; 1999 - 2,857
Class B shares; 1998 - 3,300 Class A shares) 100 101 150
------------ ------------- -------------
End of year (37,570) (32,589) (30,511)
------------ ------------- -------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)**
Beginning of year (1,512) 614 977
Adjustment from foreign currency translation (9,489) (2,126) (363)
------------ ------------- -------------
End of year (11,001) (1,512) 614
------------ ------------- -------------
LOAN TO SSOP
Beginning of year - (71) (994)
Payments received on loan to SSOP, net of advances - 71 923
------------ ------------- -------------
End of year - - (71)
------------ ------------- -------------
TOTAL SHAREHOLDERS' EQUITY $ 222,554 $ 211,770 $ 191,008
------------ ------------- -------------
COMPREHENSIVE INCOME
Net earnings $ 25,400 $ 24,431 $ 19,268
Adjustment from foreign currency translation (9,489) (2,126) (363)
Total comprehensive income $ 15,911 $ 22,305 $ 18,905
*Class A Common Stock in treasury: 1,182,626 shares as of September 30, 2000; 1,101,418 shares as of September 25,
1999; 1,140,514 shares as of September 26, 1998.
Class B Common Stock in treasury: 960,615 shares as of September 30, 2000; 878,176 shares as of September 25, 1999;
815,918 shares as of September 26, 1998.
Preferred Stock in treasury: 16,229 shares as of September 30, 2000 and September 25, 1999 and 5,117 shares as of
September 26, 1998.
**Consists solely of cumulative foreign currency translation.
See accompanying Notes to Consolidated Financial Statements.
MOOG INC.
Consolidated Statements of Cash Flows
Fiscal Years Ended
September 30, September 25, September 26,
2000 1999 1998
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 25,400 $ 24,431 $ 19,268
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 30,443 30,602 22,665
Provisions for non-cash losses
on contracts, inventories and
receivables 13,867 8,466 10,974
Deferred income taxes 3,934 2,110 (3,200)
Other 278 (71) 146
Change in assets and liabilities
providing (using) cash, excluding the
effects of acquisitions:
Receivables (5,270) (736) (19,590)
Inventories (5,636) (12,156) (20,124)
Other assets (3,129) (2,478) (320)
Accounts payable and
accrued liabilities (15,544) (5,531) 12,403
Other liabilities 384 63 524
Customer advances 214 (2,023) 615
------------- ------------- -------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 44,941 42,677 23,361
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired (1,450) (171,710) (20,983)
Acquisition of minority interest (1,051) (2,133) -
Purchase of property, plant
and equipment (23,961) (25,866) (22,527)
Proceeds from sale of assets 392 3,379 328
Payments received, net of
advances, on loan to Savings
and Stock Ownership Plan - 71 923
------------- ------------- -------------
NET CASH USED IN
INVESTING ACTIVITIES (26,070) (196,259) (42,259)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments of notes payable (5,622) (219) (477)
Proceeds from revolving lines of credit 158,000 258,700 126,151
Payments on revolving lines of credit (141,000) (166,000) (128,417)
Proceeds from issuance of long-term debt - 77,219 4,736
Payments on long-term debt (20,084) (15,329) (33,843)
Net proceeds from the sale of common stock - - 56,658
Purchase of outstanding shares
for treasury (5,489) (2,815) (2,145)
Proceeds from sale of treasury stock 369 503 2,295
Other (8) (8) (1,289)
------------- ------------- -------------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (13,834) 152,051 23,669
------------- ------------- -------------
Effect of exchange rate changes
on cash and cash equivalents (990) (314) 54
------------- ------------- -------------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 4,047 (1,845) 4,825
Cash and cash equivalents at
beginning of year 9,780 11,625 6,800
------------- ------------- -------------
Cash and cash equivalents
at end of year $ 13,827 $ 9,780 $ 11,625
------------- ------------- -------------
See Note 11 for Supplemental Cash Flow Information.
See accompanying Notes to Consolidated Financial Statements.
Notes To Consolidated Financial Statements
(dollars in thousands except per share data)
Note 1 - Summary of Significant Accounting Policies
Consolidation: The consolidated financial statements include the accounts of Moog Inc. and all of its U.S. and foreign wholly-owned and majority-owned subsidiaries (the Company). All significant intercompany balances and transactions have been eliminated in consolidation.
Fiscal Year: The Company’s fiscal year ends on the last Saturday in September. The consolidated financial statements include 53 weeks for the year ended September 30, 2000 and 52 weeks for each of the years ended September 25, 1999 and September 26, 1998. The Company believes this convention does not have a material effect on the comparability on the financial statements for the periods presented.
Cash and Cash Equivalents: All highly liquid investments with an original maturity of three months or less are considered cash equivalents.
Revenue Recognition: Revenues are recognized as units are delivered except for those under long-term contracts. The percentage of completion (cost-to-cost) method of accounting is followed for long-term contracts, which comprise approximately 40% of the Company’s sales. Under this method, revenues are recognized as the work progresses toward completion. For contracts with anticipated losses at completion, the projected loss is accrued when the loss becomes known.
Inventories: Inventories are stated at the lower-of-cost-or-market with cost determined primarily on the first-in, first-out (FIFO) method of valuation. Consistent with industry practice, aerospace related inventories include amounts relating to contracts having long production and procurement cycles, portions of which are not expected to be realized within one year.
Foreign Currency Translation: Foreign subsidiaries’ assets and liabilities are translated using rates of exchange as of the balance sheet date and the statements of earnings are translated at the average rates of exchange for the year.
Depreciation and Amortization: Plant and equipment are depreciated principally using the straight-line method over the estimated useful lives of the assets. Leasehold improvements and assets under capital leases are amortized on a straight-line basis over the term of the lease or the estimated useful life of the asset, whichever is shorter.
Intangibles associated with acquisitions are amortized on a straight-line basis over periods ranging from 10 years to 40 years. Long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. The Company uses undiscounted cash flows to determine whether impairment exists and measures any impairment loss using discounted cash flows.
Financial Instruments: The Company periodically uses derivative financial instruments for the purpose of hedging currency and interest rate exposures which exist as part of its ongoing business operations. In general, instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Deferred gains or losses related to any instrument designated but ultimately ineffective as a hedge of existing assets, liabilities, or firm commitments are recognized immediately in the statement of earnings. The interest differential to be paid or received on interest rate swaps is recognized in the consolidated statement of earnings, as incurred, as a component of interest expense. The Company does not hold or issue financial instruments for trading purposes. The Company is exposed to credit loss in the event of nonperformance by the counter parties to the instruments. The Company, however, does not expect nonperformance by the counter parties.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Under this standard, companies are required to carry all derivatives on 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, the reason for holding it. SFAS No. 133, as amended by SFAS Nos. 137 and 138, is effective in the Company’s first quarter of fiscal 2001. As of September 30, 2000, the Company’s exposure to derivatives is limited to interest rate swap agreements which are highly effective in managing the company’s interest rate exposure. A high correlation exists between the terms of the interest rate swaps and the underlying debt, which causes fluctuations in the fair value of the swaps to be offset by a fluctuation in the carrying value of the underlying debt. With respect to derivatives outstanding as of September 30, 2000, the adoption of SFAS No. 133 in fiscal 2001 is not expected to have a material impact on the financial statements of the Company.
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions.
Earnings Per Share: Basic and diluted weighted-average shares outstanding are as follows:
- --------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Basic weighted-average shares outstanding 8,828,644 8,927,369 8,281,974
Stock options 72,788 112,572 220,382
Convertible preferred stock 7,192 7,516 8,146
- --------------------------------------------------------------------------------
Diluted weighted-average shares outstanding 8,908,624 9,047,457 8,510,502
- --------------------------------------------------------------------------------
Preferred stock dividends are deducted from net earnings to calculate income available to common stockholders for basic earnings per share.
Stock-Based Compensation: The Company measures compensation cost for stock options under the intrinsic value method as prescribed by Accounting Principle Board Opinion No. 25.
Note 2 - Acquisitions
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 statements of earnings from the dates of acquisition. Purchase price allocations are considered preliminary until all relevant information has been obtained. This process generally occurs over a period of time, but not longer than a year from the acquisition date.
On August 11, 2000, the Company purchased the net assets of the industrial servovalve business of Schenck Pegasus Corporation for $1,900, of which $1,450 was paid in cash. The industrial servovalve business has annual sales of approximately $2,000.
On June 15, 2000, the Company purchased the remaining 33-1/3% minority interest of Microset Srl, an Italian manufacturer and designer of electronic controls for industrial machinery, for $1,051 in cash. On December 3, 1998, the Company had acquired a 66-2/3% shareholding in Microset Srl for $3,500 in cash.
On November 30, 1998, the Company completed the acquisition of all the outstanding common stock of Raytheon Aircraft Montek Company (Montek) for approximately $160,000 in cash. Based on the final determination of the fair value of the net assets acquired, the acquisition resulted in intangible assets of approximately $124,300, the majority of which is being amortized over 40 years. In addition to the customary business assets and liabilities, contract loss reserves of $25,600 related to development contracts on certain business jet programs were recorded. At September 30, 2000, the balance of these contract loss reserves was $7,800, the majority of which will be utilized by the end of fiscal 2001. The Company established a $3,800 reserve for severance and other related costs associated with expected involuntary termination of employees. The balance of the liability at September 30, 2000 was $620. Activity during fiscal 2000 included $981 of payments and a $1,260 reduction to the liability with a corresponding adjustment to goodwill. The plan is expected to be completed in 2001.
On October 30, 1998, the Company acquired a 75% shareholding of Hydrolux SARL, a Luxembourg manufacturer and designer of hydraulic power control systems for industrial machinery, and increased its ownership to 75% of Moog-Hydrolux Hydraulic Systems, Inc. (Moog-Hydrolux). The purchase price was $8,200 in cash, plus the assumption of $6,400 of debt. The acquisition resulted in intangible assets of approximately $3,300, which are being amortized over 20 years. On November 15, 2000, the Company acquired the remaining 25% minority interest of Hydrolux SARL and increased its ownership to 100% of Moog-Hydrolux for $1,354 in cash.
On February 3, 1998, the Company acquired the net assets of Schaeffer Magnetics, Inc. (Schaeffer). Schaeffer manufactures motion control devices and systems for solar panels and antennae to the space industry. The cash purchase price was $21,700 resulting in intangible assets of approximately $15,916, which are being amortized over 30 years.
On December 28, 1998, the Company purchased the remaining 10% minority interest of Moog Japan Ltd. for $2,133 in cash.
On October 31, 2000, the Company purchased the net assets of the Vickers Electrics Division, an Italian manufacturer of high-performance electric drives with annual sales of approximately $20,000, from Aeroquip-Vickers S.p.A. for $9,945 in cash.
On November 7, 2000, the Company announced an agreement to purchase the net assets of the Bosch Radial Piston Pump product line of Robert Bosch GmbH for $6,500 in cash plus the assumption of $1,600 of pension liabilities. The closing of this transaction is subject to approval from antitrust authorities and to final approval of the merger of Bosch and Mannesmann Rexroth AG.
Note 3 - Receivables
Receivables consist of:
- ----------------------------------------------------------------------------------------
September 30, 2000 September 25, 1999
- ----------------------------------------------------------------------------------------
Long-term contracts:
Amounts billed $ 48,984 $ 41,274
Unbilled recoverable costs and profits 102,267 102,311
Claims on terminated contracts - 391
------------ -----------
Total long-term contract receivables 151,251 143,976
Trade 61,125 67,069
Refundable income taxes 37 237
Other 1,306 3,414
------------ -----------
Total receivables 213,719 214,696
Less allowance for doubtful accounts (2,256) (2,417)
- ----------------------------------------------------------------------------------------
Receivables $ 211,463 $ 212,279
- ----------------------------------------------------------------------------------------
The long-term contract amounts are primarily associated with the U.S. Government and its prime- and sub-contractors and major commercial aircraft manufacturers. Substantially all unbilled amounts are expected to be collected within one year. In situations where billings exceed revenues recognized, the excess is included in customer advances.
Concentrations of credit risk with respect to billed receivables on long-term contracts and trade receivables are limited to those from significant customers, which are believed to be financially sound. Receivables from the U.S. Government and its prime- or sub-contractors, which represented 29% of sales in 2000, were $28,593 as of September 30, 2000. Receivables from the Boeing Commercial Airplane Group, which represented 9% of sales in 2000, were $3,600 as of September 30, 2000. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral.
Note 4 - Inventories
Inventories consist of the following:
- --------------------------------------------------------------------------------
September 30, 2000 September 25, 1999
- --------------------------------------------------------------------------------
Raw materials and purchased parts $ 49,868 $ 40,684
Work in process 74,430 87,925
Finished goods 23,248 23,637
- --------------------------------------------------------------------------------
Inventories $ 147,546 $ 152,246
- --------------------------------------------------------------------------------
Note 5 - Property, Plant and Equipment
Property, plant and equipment consists of:
- --------------------------------------------------------------------------------
September 30, 2000 September 25, 1999
- --------------------------------------------------------------------------------
Land $ 10,609 $ 10,127
Buildings and improvements 121,648 119,515
Machinery and equipment 282,620 275,640
-------------- --------------
Property, plant and equipment, at cost 414,877 405,282
Less accumulated depreciation and amortization (226,293) (216,364)
- --------------------------------------------------------------------------------
Property, plant and equipment $ 188,584 $ 188,918
- --------------------------------------------------------------------------------
Assets under capital leases included in property, plant and equipment are summarized as follows:
- --------------------------------------------------------------------------------
September 30, 2000 September 25, 1999
- --------------------------------------------------------------------------------
Assets under capital leases, at cost $ 6,439 $ 6,577
Less accumulated amortization (3,994) (3,445)
- --------------------------------------------------------------------------------
Net assets under capital leases $ 2,445 $ 3,132
- --------------------------------------------------------------------------------
Note 6 - Indebtedness
Long-term debt consists of the following:
- --------------------------------------------------------------------------------
September 30, 2000 September 25, 1999
- --------------------------------------------------------------------------------
Credit Facility
- revolving credit $ 187,000 $ 170,000
- term loan 48,750 67,500
International and other U.S. term loan agreements 7,495 10,784
Obligations under capital leases 1,463 1,995
------------- --------------
Senior debt 244,708 250,279
10% senior subordinated notes 120,000 120,000
------------- --------------
Total long-term debt 364,708 370,279
Less current installments (18,609) (20,787)
- --------------------------------------------------------------------------------
Long-term debt $ 346,099 $ 349,492
- --------------------------------------------------------------------------------
On October 24, 2000, the Company amended its $340,000 Corporate Revolving and Term Loan Agreement (Credit Facility). The term loan portion of the Credit Facility, which had a balance of $48,750 at September 30, 2000, was increased to $75,000 with the difference added to the unused borrowing capacity of the revolving portion of the facility. As of October 24, 2000, $100,000 of unused borrowing capacity was available under the Credit Facility. The amended Credit Facility expires in December 2005 and requires quarterly principal payments on the term loan of $3,750, which commence in December 2000. Interest on the amended agreement continues at LIBOR plus 200 basis points, with the margin adjusted based on leverage. In order to provide for interest rate protection, the Company has entered into interest rate swap agreements totaling $160,000, of which $80,000 matures at various times through January 2001 and effectively converts this amount to fixed-rate debt at 7.3%. The remaining $80,000 matures at various times during fiscal 2002 and effectively converts this amount to fixed-rate debt at 8.3%.
The Credit Facility is secured by substantially all of the Company’s U.S. assets. The loan agreement contains various covenants which, among others, specify minimum interest and fixed charge coverage, limit capital expenditures, specify minimum net worth, limit leverage and restrict payment of cash dividends on common stock.
International and other U.S. term loan agreements of $7,495 at September 30, 2000 consist principally of financing provided by various banks to certain foreign subsidiaries. These term loans are being repaid through 2009 and carry interest rates ranging from 1.0% to 10.1%.
The 10% Senior Subordinated Notes (the Notes) are due on May 1, 2006. The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after May 1, 2001 initially at 105% of their principal amount, plus accrued interest, declining ratably to 100% of their principal amount, plus accrued interest, on or after May 1, 2003. The Notes are unsecured, general obligations of the Company subordinated in right of payment to all existing and future senior indebtedness. The indenture includes certain covenants limiting, subject to certain exceptions, the incurrence of additional indebtedness, payment of dividends, redemption of capital stock, asset sales and certain mergers and consolidations.
Maturities of long-term debt, as adjusted for the October 24, 2000 amendment of the Credit Facility, are $18,609 in 2001, $17,409 in 2002, $17,318 in 2003, $15,477 in 2004, $15,035 in 2005, and $280,860 thereafter.
At September 30, 2000, the Company had pledged assets with a net book value of $462,821 as security for long-term debt.
The Company has both short-term lines of credit and long-term credit facilities with various banks throughout the world. The short-term credit lines are principally demand lines and subject to revision by the banks. These short-term lines of credit, along with $73,726 available on the Credit Facility, provided credit availability of $87,043 at September 30, 2000. Commitment fees are charged on some of these arrangements based on a percentage of the unused amounts available and are not material.
At September 30, 2000, the Company had $1,581 of notes payable to banks at an average rate of 4.8%. During 2000, an average of $3,904 in notes payable were outstanding at an average interest rate of 5.2%.
See Note 13 for fair values of indebtedness and interest rate swaps.
Note 7 - Employee Benefit Plans
The Company maintains a number of defined benefit plans covering substantially all employees. The changes in projected benefit obligations and plan assets and the funded status of the U.S. and non-U.S. defined benefit plans for 2000 and 1999 are as follows:
- -----------------------------------------------------------------------------------------------------------------------
U.S. Plans Non-U.S. Plans
- -----------------------------------------------------------------------------------------------------------------------
September 30, 2000 September 25, 1999 September 30, 2000 September 25, 1999
- -----------------------------------------------------------------------------------------------------------------------
Change in projected benefit obligation:
Projected benefit obligation
at beginning of year $163,989 $160,440 $36,225 $35,030
Service cost 6,750 6,441 1,437 1,674
Interest cost 12,086 11,052 2,031 2,149
Contributions by plan participants - - 202 198
Actuarial losses (gains) 1,779 (8,140) (453) (376)
Foreign currency exchange impact - - (4,677) (1,453)
Benefits paid from plan assets (6,331) (5,722) (576) (568)
Benefits paid by Company (105) (82) (92) (429)
- -----------------------------------------------------------------------------------------------------------------------
Projected benefit obligation
at end of year $178,168 $163,989 $34,097 $36,225
- -----------------------------------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of assets at beginning of year $163,854 $140,022 $15,577 $13,133
Actual return on plan assets 13,340 27,905 1,965 2,171
Employer contributions 1,000 1,649 1,294 863
Contributions by plan participants - - 202 198
Benefits paid (6,331) (5,722) (576) (568)
Foreign currency exchange impact - - (1,787) (220)
- -----------------------------------------------------------------------------------------------------------------------
Fair value of assets at end of year $171,863 $163,854 $ 16,675 $ 15,577
- -----------------------------------------------------------------------------------------------------------------------
Funded status: $ (6,305) $ (135) $(17,422) $(20,648)
Unrecognized net actuarial losses (gains) (17,103) (18,989) (1,294) (376)
Unrecognized prior service cost 6,223 7,017 128 141
Unrecognized initial transition (asset) obligation (504) (810) 503 759
- -----------------------------------------------------------------------------------------------------------------------
Accrued pension liability $(17,689) $(12,917) $(18,085) $(20,124)
- -----------------------------------------------------------------------------------------------------------------------
Amounts recognized in the balance sheet consist of:
Prepaid benefit cost $ - $ - $ 1,033 $ 975
Accrued pension liability (18,176) (13,195) (19,118) (21,099)
Intangible asset 487 278 - -
- -----------------------------------------------------------------------------------------------------------------------
Net amount recognized $(17,689) $(12,917) $(18,085) $(20,124)
- -----------------------------------------------------------------------------------------------------------------------
The following table provides aggregate information for pension plans with accumulated benefit obligations in excess of plan assets:
- ---------------------------------------------------------------------------
September 30, 2000 September 25, 1999
- ---------------------------------------------------------------------------
Projected benefit obligation $ 26,228 $ 39,711
Accumulated benefit obligation 22,344 33,921
Fair value of plan assets 2,200 12,505
- ---------------------------------------------------------------------------
Fiscal 2000 plan assets consist primarily of publicly traded stocks, bonds, mutual funds, and $13,398 in Company stock, based on quoted market prices. The Company's funding policy is to contribute at least the amount required by law in the respective countries. The principal actuarial assumptions weighted for all defined benefit plans are:
- ----------------------------------------------------------------------------------
U.S. Plans Non-U.S. Plans
- ----------------------------------------------------------------------------------
2000 1999 2000 1999
- ----------------------------------------------------------------------------------
Discount rate 7.5% 7.5% 5.7% 5.9%
Return on assets 9.5% 9.5% 5.6% 6.5%
Rate of compensation increase 3.6% 3.6% 3.1% 4.0%
- ----------------------------------------------------------------------------------
In addition, the Company maintains various defined contribution plans. Pension expense for all plans for 2000, 1999 and 1998 are as follows:
- ------------------------------------------------------------------------------------------------------------------
U.S. Plans Non-U.S. Plans
- ------------------------------------------------------------------------------------------------------------------
2000 1999 1998 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Service cost $ 6,750 $ 6,441 $ 4,647 $ 1,437 $ 1,674 $ 1,569
Interest cost on projected benefit obligation 12,086 11,052 9,971 2,031 2,149 1,912
Expected return on plan assets (13,459) (11,855) (10,098) (1,962) (991) (783)
Amortization of prior service cost 794 794 575 8 7 -
Amortization of transition (asset) obligation (305) (305) (305) (287) 168 174
Recognized actuarial loss (gain) 11 242 1 976 10 (142)
-------- -------- -------- -------- ------- --------
Pension expense for defined benefit plans 5,877 6,369 4,791 2,203 3,017 2,730
Pension expense for defined contribution plans 583 510 228 548 870 865
- ------------------------------------------------------------------------------------------------------------------
Total pension expense $ 6,460 $ 6,879 $ 5,019 $ 2,751 $ 3,887 $ 3,595
- ------------------------------------------------------------------------------------------------------------------
Employee and management profit share plans provide for the discretionary payment of profit share based on net earnings as a percentage of net sales multiplied by the employees’ wages, as defined. Profit share expense was $0, $5,334 and, $8,990 in 2000, 1999, and 1998, respectively.
The Company has a Savings and Stock Ownership Plan (SSOP) which includes an Employee Stock Ownership Plan. As one of the investment alternatives, participants in the SSOP can acquire Company Stock at market value, with the Company providing a 25% share match. Shares are allocated and compensation expense is recognized as the employer share match is earned. At September 30, 2000, the SSOP owned 373,154 Class A shares and 489,418 Class B shares.
The Company provides postretirement health care benefits to certain retirees. The change in the accumulated benefit obligation and the funded status of the plan for 2000 and 1999 are shown below. There are no plan assets. The transition obligation is being recognized over 20 years.
- ----------------------------------------------------------------------------------------
September 30, 2000 September 25, 1999
- ----------------------------------------------------------------------------------------
Change in Accumulated Postretirement Benefit
Obligation (APBO)
APBO at beginning of year $ 10,662 $ 10,154
Service cost 183 183
Interest cost 1,027 710
Plan participants' contributions 281 221
Benefits paid (1,668) (1,358)
Acquisitions - 521
Actuarial losses 879 231
Plan amendments 2,906 -
- --------------------------------------------------------------------------------------
APBO at end of year $ 14,270 $ 10,662
- --------------------------------------------------------------------------------------
Funded status $ (14,270) $ (10,662)
Unrecognized transition obligation 5,127 5,521
Unrecognized prior service cost 2,793 172
Unrecognized losses 2,675 1,931
- --------------------------------------------------------------------------------------
Accrued postretirement benefit liability $ (3,675) $ (3,038)
- --------------------------------------------------------------------------------------
The cost of the postretirement benefit plan is as follows:
- --------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
Service cost $ 183 $ 183 $ 152
Interest cost 1,027 710 699
Amortization of transitional obligation 394 396 394
Amortization of prior service cost 286 19 19
Recognized actuarial loss 134 62 -
- --------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 2,024 $ 1,370 $1,264
- --------------------------------------------------------------------------------
The plan was amended during 2000 to extend the health care benefits available to a certain group of retirees.
The assumed discount rate used in the accounting for the plan was 7.5% in 2000 and 1999.
For measurement purposes, a 10% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000, gradually decreasing to 5% for 2005 and remaining at that level thereafter. A one percentage point increase in this rate would increase the postretirement benefit obligation as of September 30, 2000 by $443, while a one percentage point decrease in this rate would decrease the postretirement benefit obligation by $345.
Note 8 - Income Taxes
The reconciliation of the provision for income taxes to the amount computed by applying the U.S. federal statutory tax rate to earnings before income taxes is as follows:
- ---------------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------
Earnings before income taxes:
Domestic $23,672 $22,184 $22,009
Foreign 14,864 14,588 8,746
Eliminations 79 (44) (882)
- ---------------------------------------------------------------------
Total $38,615 $36,728 $29,873
- ---------------------------------------------------------------------
Computed expected tax expense $13,515 $12,855 $10,456
Increase (decrease) in income taxes
resulting from:
Foreign tax rates 532 297 338
Nontaxable export sales (622) (943) (800)
State taxes net of federal benefit 412 403 501
Foreign tax credits (688) (646) (145)
Change in beginning of the year
valuation allowance (226) 128 179
Other 292 203 76
- ---------------------------------------------------------------------
Income taxes $13,215 $12,297 $10,605
- ---------------------------------------------------------------------
Effective income tax rate 34.2% 33.5% 35.5%
- ---------------------------------------------------------------------
At September 30, 2000, certain foreign subsidiaries had net operating loss carryforwards totaling $12,874. These loss carryforwards do not expire and can be used to reduce current taxes otherwise due on future earnings of those subsidiaries.
No provision has been made for U.S. federal or foreign taxes on that portion of certain foreign subsidiaries’ undistributed earnings ($51,408 at September 30, 2000) considered to be permanently reinvested. It is not practicable to determine the amount of tax that would be payable if these amounts were repatriated to the Company.
The components of income taxes are as follows:
- ---------------------------------------------------
2000 1999 1998
- ---------------------------------------------------
Current:
Federal $ 3,880 $ 4,518 $ 8,809
Foreign 5,105 5,487 3,897
State 296 182 1,099
------ ------ -------
Total current 9,281 10,187 13,805
------ ------ -------
Deferred:
Federal 4,498 2,471 (2,374)
Foreign (931) (715) (498)
State 367 354 (328)
------ ------ -------
Total deferred 3,934 2,110 (3,200)
- ---------------------------------------------------
Total income taxes $13,215 $12,297 $10,605
- ---------------------------------------------------
The tax effects of temporary differences that generated deferred tax assets and liabilities are detailed in the following table. Realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making its assessment of the recoverability of deferred tax assets.
- --------------------------------------------------------------------------------
September 30, 2000 September 25, 1999
- --------------------------------------------------------------------------------
Deferred tax assets:
Benefit accruals $ 15,823 $ 14,384
Contract loss reserves not
currently deductible 6,462 10,043
Tax benefit carryforwards 6,707 5,258
Inventory 5,043 4,182
Other accrued expenses 4,610 5,061
-------- --------
Total gross deferred tax assets 38,645 38,928
Less: Valuation reserve (377) (603)
-------- --------
Net deferred tax assets $ 38,268 $ 38,325
-------- --------
Deferred tax liabilities:
Differences in bases and depreciation
of property, plant and equipment $ 34,910 $ 29,909
Other 36 79
-------- --------
Total gross deferred tax liabilities $ 34,946 $ 29,988
- --------------------------------------------------------------------------------
Net deferred tax assets $ 3,322 $ 8,337
- --------------------------------------------------------------------------------
Net deferred tax assets are included in the balance sheet as follows:
- --------------------------------------------------------------------------------
September 30, 2000 September 25, 1999
- --------------------------------------------------------------------------------
Current assets $ 26,972 $ 29,097
Other assets 3,216 3,341
Other long-term liabilities (26,866) (24,101)
- --------------------------------------------------------------------------------
Net deferred tax assets $ 3,322 $ 8,337
- --------------------------------------------------------------------------------
Note 9 - Shareholders' Equity
Class A and Class B Common Stock share equally in the earnings of the Company, and are identical with certain exceptions. Class A shares have limited voting rights, with each share of Class A being entitled to one-tenth of a vote on most matters, and each share of Class B being entitled to one vote. Class A shareholders are entitled, subject to certain limitations, to elect at least 25% of the Board of Directors (rounded up to the nearest whole number) with Class B shareholders entitled to elect the balance of the directors. No cash dividend may be paid on Class B unless at least an equal cash dividend is paid on Class A. Class B shares are convertible at any time into Class A on a one-for-one basis at the option of the shareholder. The number of common shares issued reflects conversion of Class B to Class A of 151 in 2000, 170 in 1999 and 36,205 in 1998.
In early February 1998, the Company completed an offering of Class A shares at $34.375 per share. The offering consisted of 1,755,000 previously unissued shares sold by the Company and 300,000 existing shares sold by the Moog Inc. Employees' Retirement Plan.
The Company is authorized to issue up to 10,000,000 shares of preferred stock. Series B Preferred Stock is 9% Cumulative, Convertible, Exchangeable Preferred Stock with a $1.00 par value. Series B Preferred Stock consists of 100,000 issued shares and 83,771 outstanding shares at September 30, 2000, and is convertible into Class A Common shares (.08585 shares of Class A Common Stock per share of Series B Preferred Stock). In fiscal 1999, 11,112 Series B Preferred shares were converted to 954 Class A common shares. The Series B Preferred Stock is owned primarily by officers of the Company. With respect to any matters on which the Series B Preferred Stock is entitled to vote, all shares will be voted in a manner determined by a majority of such shares. The Series B Preferred Stock is entitled to vote as a class on certain takeover transactions. The Series B Preferred Stock has a liquidation preference over Class A and Class B Common Shares equal to $1.00 per share. The Board of Directors may authorize, without further shareholder action, the issuance of additional preferred stock which ranks senior to both classes of Common Stock of the Company with respect to the payment of dividends and the distribution of assets on liquidation. The preferred stock, when issued, would have such designations relative to voting and conversion rights, preferences, privileges and limitations as determined by the Board of Directors.
In February 1998, the shareholders of the Company approved the 1998 Stock Option Plan (1998 Plan) authorizing the issuance of options for 600,000 shares of Class A stock to directors, officers and key employees. Under the terms of the plan, options may be either incentive or non-qualified. All options issued as of September 30, 2000 were incentive options. The exercise price, determined by a committee of Board of Directors, may not be less than the fair market value of the Class A stock on the grant date. The options have a term of ten years. Options become exercisable over periods not exceeding six years.
Had compensation expense for stock options been determined based on the fair value of the options at the grant date, pro forma net earnings, basic earnings per share and diluted earnings per share would have been $24,569, $2.79 and $2.76, respectively, for 2000, $23,753, $2.66 and $2.63, respectively, for 1999 and $18,904, $2.28 and $2.22, respectively, for 1998. The weighted-average fair value of options granted during 2000, 1999 and 1998 was $11.82, $14.02 and $16.61 per option, respectively. Fair value was estimated at the date of grant using the Black-Scholes option-pricing model and the following weighted-average assumptions: risk-free interest rates of 5.9%, 5.1% and 5.7% for 2000, 1999 and 1998, respectively, expected volatility of 33%, expected life of 7.5 years and expected dividend yield of 0%.
The 1983 Incentive Stock Option Plan (1983 Plan) granted options on Class A shares to officers and key employees. The Plan terminated on December 31, 1992 and outstanding options expire no later than ten years after the date of grant. At September 30, 2000, 84,500 options were outstanding under the 1983 Plan.
Class A shares reserved for issuance at September 30, 2000 are as follows:
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------------
Conversion of Class B to Class A shares 1,501,046
1983 Plan 84,500
1998 Plan 600,000
Conversion of Series B Preferred Stock to Class A shares 7,191
- --------------------------------------------------------------------------------
2,192,737
- --------------------------------------------------------------------------------
Shares under option are as follows:
Class B Weighted Class A Weighted
Stock Average Stock Average
Option Exercise Option Exercise
Plan Price Plans Price
- --------------------------------------------------------------------------------
Outstanding at
September 27, 1997 85,000 $ 14.75 271,650 $ 8.15
Granted in fiscal 1998 - $ - 155,500 $ 33.875
Cancelled or expired in
fiscal 1998 - $ - (400) $ 10.50
Exercised in fiscal 1998 (85,000) $ 14.75 (99,750) $ 10.08
-------- --------
Outstanding at
September 26, 1998 - $ - 327,000 $ 19.79
Granted in fiscal 1999 - $ - 65,500 $ 29.44
Cancelled or expired in
fiscal 1999 - $ - (5,000) $ 33.875
Exercised in fiscal 1999 - $ - (53,000) $ 7.46
-------- --------
Outstanding at Sept. 25, 1999 - $ - 334,500 $ 23.43
Granted in fiscal 2000 - $ - 69,500 $ 23.875
Cancelled or expired in
fiscal 2000 - $ - (6,000) $ 33.48
Exercised in fiscal 2000 - $ - (34,000) $ 7.51
- --------------------------------------------------------------------------------
Outstanding at Sept. 30, 2000 - $ - 364,000 $ 24.83
- --------------------------------------------------------------------------------
The weighted-average remaining lives of the Class A options as of September 30, 2000 are as follows: 1983 Plan - 1.5 years; 1998 Plan - 8.0 years.
As of September 30, 2000, prices of options outstanding under the 1983 Plan ranged from $5.625 to $7.50, with a weighted-average exercise price of $6.56. The price of the options outstanding under the 1998 Plan ranged from $23.875 to $33.875, with a weighted-average exercise price of $30.36.
Options to purchase 84,500 Class A shares under the 1983 Plan were exercisable at September 30, 2000 at a weighted-average exercise price of $6.56. Options to purchase 86,040 Class A shares under the 1998 Plan were exercisable at September 30, 2000 at a weighted-average price of $33.71.
Note 10 - Segments
The Company’s reportable segments are Aircraft Controls, Space Controls and Industrial Controls. The determination of the Company’s reportable segments was based on an analysis of the organizational structure of the Company and its products, as well as markets served.
Aircraft Controls designs and manufactures technologically advanced flight and engine controls for manufacturers of commercial and military aircraft. Moog is a supplier to several large commercial aircraft manufacturers including Boeing, Airbus Industrie, The Raytheon Company, Lockheed Martin Corporation and Bombardier Inc. The Company currently supplies flight controls for all Boeing’s 7-series commercial aircraft and for military aircraft, including the U.S. Navy’s F/A-18 E/F Super Hornet fighter aircraft and V-22 Osprey tiltrotor aircraft. The Company also is teamed with both competitors, Boeing and Lockheed Martin, to build the next generation fighter aircraft for use by all the U.S. military services known as the Joint Strike Fighter.
Space Controls, formerly known as Satellite and Launch Vehicle Controls, designs and manufactures controls and systems that control the flight, positioning or thrust of satellites, NASA’s Space Shuttle, solar panels and antennae, launch vehicles, tactical and strategic missiles and ground-based telecommunication systems. Customers include Alliant Techsystems Inc., Lockheed Martin, DaimlerChrysler Corporation, Raytheon and Boeing. Programs on which Moog participates include the Titan IV and Delta family of launch vehicles, the National Missile Defense program, the Space Station and several tactical missile programs.
Industrial Controls designs and manufactures hydraulic and electric controls used in a wide variety of industrial applications. Product applications include plastic injection and blow molding machines, steam and gas turbines, steel rolling mills, fatigue testing machines, motion simulators and gun and turret positioning and ammunition-loading systems on military ground vehicles.
Segment information for the years ended 2000, 1999 and 1998 and reconciliations to consolidated amounts are as follows:
- ----------------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------
Sales:
Aircraft Controls $311,846 $302,108 $254,086
Space Controls 112,410 109,987 93,459
Industrial Controls 219,750 217,939 189,067
- ----------------------------------------------------------------------------------
Net sales $644,006 $630,034 $536,612
- ----------------------------------------------------------------------------------
Operating profit and margins:
Aircraft Controls $ 42,982 $ 36,960 $ 28,899
13.8% 12.2% 11.4%
Space Controls 12,185 12,833 9,755
10.8% 11.7% 10.4%
Industrial Controls 24,643 23,595 20,380
11.2% 10.8% 10.8%
-------- ------ ------
Total operating profit 79,810 73,388 59,034
12.4% 11.6% 11.0%
Deductions from operating profit:
Interest expense 33,271 28,188 20,148
Currency loss (gain) (75) 280 360
Corporate and other expenses, net 7,999 8,192 8,653
- ----------------------------------------------------------------------------------
Earnings before income taxes $ 38,615 $ 36,728 $ 29,873
- ----------------------------------------------------------------------------------
Depreciation and amortization expense:
Aircraft Controls $ 16,955 $ 16,185 $ 10,989
Space Controls 3,040 3,555 2,790
Industrial Controls 8,040 8,639 6,946
-------- ------- -------
28,035 28,379 20,725
Corporate 2,408 2,223 1,940
- ----------------------------------------------------------------------------------
Total depreciation and amortization $ 30,443 $ 30,602 $ 22,665
- ----------------------------------------------------------------------------------
Identifiable assets:
Aircraft Controls $427,532 $429,914 $234,075
Space Controls 119,150 119,108 111,463
Industrial Controls 217,111 220,621 189,653
-------- -------- --------
763,793 769,643 535,191
Corporate 27,912 28,833 24,134
- ----------------------------------------------------------------------------------
Total assets $791,705 $798,476 $559,325
- ----------------------------------------------------------------------------------
Capital expenditures:
Aircraft Controls $ 11,261 $ 9,722 $ 11,315
Space Controls 3,790 6,195 1,400
Industrial Controls 6,952 8,241 8,520
-------- -------- --------
22,003 24,158 21,235
Corporate 1,958 2,281 1,453
- ----------------------------------------------------------------------------------
Total capital expenditures $ 23,961 $ 26,439 $ 22,688
- ---------------------------------------------------------------------------------------------------------------------------
Operating profit is net sales less cost of sales and other operating expenses. The deductions from operating profit are directly identifiable to the respective segment or allocated on the basis of sales or manpower.
Sales to Boeing were $112,698, $123,254 and $108,640 in 2000, 1999 and 1998, respectively, including sales to the Boeing Commercial Airplane Group of $59,785, $72,768 and $56,780 in 2000, 1999 and 1998, respectively. Sales to the U.S. Government and its prime- or sub-contractors, including military sales to Boeing, were $184,388, $187,795 and $163,680 in 2000, 1999 and 1998, respectively. Sales to Boeing and to the U.S. Government and its prime- or sub-contractors are made principally from the Aircraft Controls and Space Controls segments.
Sales and property, plant and equipment by geographic area are as follows:
- ----------------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------
Sales:
United States $380,728 $372,346 $319,695
Germany 37,892 46,467 39,400
Japan 46,574 38,046 42,902
Other 178,812 173,175 134,615
- ----------------------------------------------------------------------------------
Net sales $644,006 $630,034 $536,612
- ----------------------------------------------------------------------------------
Property, plant and equipment:
United States $146,992 $144,583 $103,942
Philippines 14,958 15,013 12,004
Japan 11,629 11,152 8,913
Other 15,005 18,170 14,585
- ----------------------------------------------------------------------------------
Total property, plant and equipment $188,584 $188,918 $139,444
- ----------------------------------------------------------------------------------
Sales by geographic region are based on where the customer is located.
Note 11 - Supplemental Cash Flow Information
- ----------------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------
Cash paid for:
Interest $ 34,330 $ 25,332 $ 18,842
Income taxes 9,517 12,014 12,058
Non-cash investing and financing activities:
Leases capitalized, net of terminations $ - $ 573 $ 161
Acquisitions of businesses:
Fair value of assets acquired $ 1,714 $226,381 $ 30,050
Net cash paid 1,450 171,710 20,983
-------- -------- --------
Liabilities assumed $ 264 $ 54,671 $ 9,067
- ----------------------------------------------------------------------------------
Note 12- Commitments and Contingencies
The Company is engaged in administrative proceedings with governmental agencies and legal proceedings with governmental agencies and other third parties in the normal course of its business, including litigation under Superfund laws, regarding environmental matters. The Company believes that adequate reserves have been established for its share of the estimated cost for all currently pending environmental administrative or legal proceedings and does not expect that these environmental matters will have a material adverse effect on the financial condition, liquidity or results of operations of the Company.
From time to time, the Company is named as a defendant in legal actions arising in the normal course of business. The Company is not a party to any pending legal proceedings which management believes will result in a material adverse effect on the Company’s financial condition, liquidity or results of operations, or to any pending legal proceedings other than ordinary, routine litigation related to its business.
The Company leases certain facilities and equipment under operating lease arrangements. These arrangements may include fair market renewal or purchase options. Rent expense under operating leases amounted to $12,110 in 2000, $11,494 in 1999 and $8,810 in 1998. Future minimum rental payments required under noncancelable operating leases are $11,665 in 2001, $10,615 in 2002, $8,992 in 2003, $7,432 in 2004, $6,324 in 2005 and $12,107 thereafter.
The Company has $4,274 in open letters of credit at September 30, 2000. Purchase commitments outstanding at September 30, 2000 are $6,962 for machinery and equipment.
Note 13 - Fair Value of Financial Instruments
The carrying amount and the estimated fair value of the Company’s financial instruments as of September 30, 2000 and September 25, 1999 for financial instruments where the carrying amount differs from the fair value are as follows:
- ----------------------------------------------------------------------------------------
2000 1999
Carrying Fair Carrying Fair
Asset (Liability) Amount Value Amount Value
- ----------------------------------------------------------------------------------------
Interest rate swaps $ 238 $ 984 $ 34 $ 1,171
Long-t