UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES | |
| EXCHANGE ACT OF 1934 | ||
| For the quarterly period ended June 30, 2004 | ||
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OR |
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| 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 |
M
OOG INC.
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New York State |
16-0757636 |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. employer identification no.) |
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East Aurora, New York |
14052-0018 |
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(Address of principal executive offices) |
(Zip code) |
Telephone number including area code: (716) 652-2000
Former name, former address and former fiscal year, if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No __
The number of shares outstanding of each class of common stock as of August 6, 2004 were:
Class A Common Stock, $1.00 par value 22,911,358 shares
Class B Common Stock, $1.00 par value 2,780,482 shares
MOOG INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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PART I. |
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FINANCIAL INFORMATION |
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Item 1. |
Consolidated Condensed Balance Sheets June 30, 2004 and September 27, 2003 |
3 |
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Consolidated Condensed Statements of Earnings Three and Nine Months Ended June 30, 2004 and 2003 |
4 |
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Consolidated Condensed Statements of Cash Flows Nine Months Ended June 30, 2004 and 2003 |
5 |
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Notes to Consolidated Condensed Financial Statements |
6-15 |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
16-27 |
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Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
27 |
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Item 4. |
Controls and Procedures |
28 |
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PART II. |
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OTHER INFORMATION |
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| Item 2. |
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
29 | |
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Item 6. |
Exhibits and Reports on Form 8-K |
30 |
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SIGNATURES |
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31 |
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2
| Part I. FINANCIAL INFORMATION | |||||||||||
| Item 1. Financial Statements | |||||||||||
| MOOG INC. | |||||||||||
| CONSOLIDATED CONDENSED BALANCE SHEETS | |||||||||||
| (Unaudited) | |||||||||||
| (dollars in thousands) | |||||||||||
| June 30, | September 27, | ||||||||||
| 2004 | 2003 | ||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS | |||||||||||
| Cash and cash equivalents | $ | 45,614 |
$ |
77,491 | |||||||
| Receivables | 256,949 | 262,094 | |||||||||
| Inventories | 191,043 | 170,578 | |||||||||
| Other current assets | 52,607 | 42,036 | |||||||||
| TOTAL CURRENT ASSETS | 546,213 | 552,199 | |||||||||
| PROPERTY, PLANT AND EQUIPMENT, net of accumulated | |||||||||||
| depreciation of $293,216 and $277,624, respectively | 246,449 | 208,169 | |||||||||
| GOODWILL | 289,060 | 194,937 | |||||||||
| INTANGIBLE ASSETS, net | 16,063 | 10,949 | |||||||||
| OTHER ASSETS | 26,306 | 25,326 | |||||||||
| TOTAL ASSETS | $ | 1,124,091 |
$ |
991,580 | |||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| CURRENT LIABILITIES | |||||||||||
| Notes payable | $ | 885 |
$ |
10,140 | |||||||
| Current installments of long-term debt | 18,751 | 15,607 | |||||||||
| Accounts payable | 52,136 | 47,159 | |||||||||
| Accrued liabilities | 104,703 | 98,952 | |||||||||
| Contract loss reserves | 13,855 | 16,147 | |||||||||
| Customer advances | 29,290 | 23,418 | |||||||||
| TOTAL CURRENT LIABILITIES | 219,620 | 211,423 | |||||||||
| LONG-TERM SENIOR DEBT, excluding current installments | 309,885 | 230,913 | |||||||||
| LONG-TERM PENSION AND RETIREMENT OBLIGATIONS | 91,433 | 91,324 | |||||||||
| DEFERRED INCOME TAXES | 37,684 | 31,953 | |||||||||
| OTHER LONG-TERM LIABILITIES | 2,168 | 1,819 | |||||||||
| TOTAL LIABILITIES | 660,790 | 567,432 | |||||||||
| SHAREHOLDERS' EQUITY | |||||||||||
| Preferred stock | - | 100 | |||||||||
| Common stock | 30,490 | 30,488 | |||||||||
| Other shareholders' equity | 432,811 | 393,560 | |||||||||
| TOTAL SHAREHOLDERS' EQUITY | 463,301 | 424,148 | |||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 1,124,091 |
$ |
991,580 | |||||||
| See accompanying Notes to Consolidated Condensed Financial Statements. | |||||||||||
3
| MOOG INC. | |||||||||||||||
| CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS | |||||||||||||||
| (Unaudited) | |||||||||||||||
| (dollars in thousands except per share data) | |||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| June 30, | June 30, | ||||||||||||||
| 2004 | 2003 | 2004 | 2003 | ||||||||||||
| Net sales | $ | 238,652 | 192,924 | $ | 698,706 | $ | 562,655 | ||||||||
| Cost of sales | 165,868 | 131,247 | 485,565 | 387,426 | |||||||||||
| Gross profit | 72,784 | 61,677 | 213,141 | 175,229 | |||||||||||
| Research and development | 7,706 | 7,763 | 21,972 | 23,060 | |||||||||||
| Selling, general and administrative | 40,800 | 34,831 | 121,233 | 94,711 | |||||||||||
| Interest | 2,851 | 3,519 | 8,870 | 14,302 | |||||||||||
| Other | (22) | 810 | 866 | 612 | |||||||||||
| Earnings before income taxes | 21,449 | 14,754 | 60,200 | 42,544 | |||||||||||
| Income taxes | 6,647 | 3,983 | 18,657 | 11,691 | |||||||||||
| Net earnings | $ | 14,802 | 10,771 | $ | 41,543 | $ | 30,853 | ||||||||
| Net earnings per share | |||||||||||||||
| Basic | $ | .57 | .47 | $ | 1.60 | $ | 1.35 | ||||||||
| Diluted | $ | .56 | .46 | $ | 1.57 |
$ |
1.34 | ||||||||
| Average common shares outstanding | |||||||||||||||
| Basic | 25,909,987 | 22,808,657 | 25,923,073 | 22,769,652 | |||||||||||
| Diluted | 26,406,305 | 23,167,241 | 26,454,997 | 23,093,667 | |||||||||||
| See accompanying Notes to Consolidated Condensed Financial Statements. | |||||||||||||||
4
| MOOG INC. | |||||||||||
| CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS | |||||||||||
| (Unaudited) | |||||||||||
| (dollars in thousands) | |||||||||||
| Nine Months Ended | |||||||||||
| June 30, | |||||||||||
| 2004 | 2003 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Net earnings | $ | 41,543 | $ | 30,853 | |||||||
| Adjustments to reconcile net earnings | |||||||||||
| to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 26,508 | 21,796 | |||||||||
| Other | 22,070 | (4,168) | |||||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 90,121 | 48,481 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Acquisition of business | (152,019) | - | |||||||||
| Purchase of property, plant and equipment | (20,759) | (20,744) | |||||||||
| Other | 1,465 | 230 | |||||||||
| NET CASH USED BY INVESTING ACTIVITIES | (171,313) |
(20,514) |
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| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Net repayments of notes payable | (9,780) | (4,269) | |||||||||
| Net proceeds from revolving lines of credit | 82,000 | 75,000 | |||||||||
| Proceeds from long-term debt | 22,655 | 35,340 | |||||||||
| Payments on senior subordinated notes | - | (120,000) | |||||||||
| Payments on long-term debt other than senior subordinated notes | (35,054) | (10,548) | |||||||||
| Purchase of stock held by Stock Employee Compensation Trust | (13,752) | - | |||||||||
| Other | 1,681 | 1,487 | |||||||||
| NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES | 47,750 | (22,990) | |||||||||
| Effect of exchange rate changes on cash | 1,565 | 780 | |||||||||
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (31,877) | 5,757 | |||||||||
| Cash and cash equivalents at beginning of period | 77,491 | 15,952 | |||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 45,614 | $ | 21,709 | |||||||
| CASH PAID FOR: | |||||||||||
| Interest | $ | 5,654 | $ | 19,386 | |||||||
| Income taxes | 1,967 | 3,965 | |||||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | |||||||||||
| Assets acquired under capital leases | $ | 3,864 | $ |
426 |
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| See accompanying Notes to Consolidated Condensed Financial Statements. | |||||||||||
5
MOOG INC. (Unaudited) 1. Basis of Presentation The accompanying unaudited consolidated condensed financial
statements have been prepared by management in accordance with generally
accepted accounting principles and in the opinion of management contain all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the financial position of Moog Inc. as of June 30, 2004 and September 27,
2003 and the results of its operations for the three and nine months ended June
30, 2004 and 2003 and its cash flows for the nine months ended June 30, 2004 and
2003. The results of operations for the three and nine months ended June 30,
2004 are not necessarily indicative of the results expected for the full year.
The accompanying unaudited consolidated condensed financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's Form 10-K for the fiscal year ended September 27, 2003. All
references to years in these financial statements are to fiscal years. 2. Recent Accounting Pronouncements As of December 31, 2003, the Company adopted FASB
Interpretation No. 46 R, "Consolidation of Variable Interest Entities," revised
in December 2003. The Company is the primary beneficiary of two variable
interest entities and has accordingly consolidated these entities beginning
December 31, 2003. The Company leases land and buildings from these variable
interest entities that own the land and buildings and have the related debt. In
the initial consolidation as of December 31, 2003, the Company recorded land and
buildings, net of depreciation, of $13,526 and long-term debt, including current
installments, of $9,279, reduced other assets by $4,252 and recorded other net
liabilities of $32. The cumulative effect of this accounting change is a $37
pretax loss and is included in other expense as the amount is immaterial. In December 2003, the FASB issued SFAS No. 132 R (revised),
"Employers' Disclosures about Pensions and Other Postretirement Benefits." This
statement requires revisions to employers' disclosures about pension plans and
other postretirement benefit plans. It does not change the measurement or
recognition provisions of SFAS No. 87 or SFAS No. 106. The interim period
disclosure requirements were applied beginning in the Company's second quarter
of 2004 and the annual disclosure requirements will be effective for 2004. 3. Acquisition On September 30, 2003, the beginning of the Company's 2004
fiscal year, the Company acquired the net assets of the Poly-Scientific division
of Litton Systems, Inc., a subsidiary of Northrop Grumman Corporation. Operating
results for this acquisition have been included in the consolidated financial
statements since that date. The acquired business is a manufacturer of motion
control and data transmission devices. Its principal products are electrical and
fiber optic slip rings, brushless D.C. motors and electromechanical actuators.
The acquisition complements the Company's business in the design and manufacture
of components and subsystems used in high-performance motion control systems in
addition to extending product applications into the medical market. On the acquisition date, the Company paid $158,000 in cash
for the net assets. In the second quarter, the Company received a net amount of
$5,981 from the seller representing a purchase price adjustment in accordance
with the asset purchase agreement, resulting in an adjusted purchase price of
$152,019. 6 The following table summarizes the estimated fair values of
the assets acquired and the liabilities assumed at the date of acquisition. This
preliminary purchase price allocation will be finalized during fiscal 2004 after
the Company completes its review of assets. The Company does not expect this
review to have a material impact on the purchase price allocation. After consideration of all types of intangibles that are
typically associated with an acquired business, including those referenced in
SFAS 141, a portion of the purchase price was ascribed only to those applicable
identifiable intangible assets that had value. Customer relationships were
valued using the discounted cash flow projections from new customers considering
that many of Poly-Scientific's customers were already customers of the Company.
Backlog was valued using the projected operating profit for firm customer orders
after return on requisite assets, which provides for an annual return on net
working capital, fixed assets, and intangible assets needed to support
production. Patents and engineering drawings were valued with consideration
given to the fact that the intellectual property is not a predominant business
driver using an estimate of costs, including royalties, that were otherwise
avoided due to the acquisition of such intellectual property with the assets of
the acquired business. Based on these valuations, the Company's management
concluded that intangible assets other than goodwill had a value of $6,810, or
4% of the purchase price. The acquired intangible assets are all being amortized and
have a weighted-average useful life of eight years. Customer-related intangible
assets, including customer relationships and backlog, are $5,150 and have a
weighted-average useful life of eight years. Technology-related intangible
assets, including engineering drawings, patents and patent applications, are
$1,660 and have a weighted-average useful life of ten years. The resulting goodwill was $92,650, or 61% of the purchase
price, reflecting the strong forecasted cash flows of the acquired operations.
The acquired business has become a separate reporting segment, Components, and
the entire amount of goodwill is included in that segment. The goodwill from
this acquisition is deductible over fifteen years for tax purposes. The following summary, prepared on a pro forma basis,
combines the consolidated results of operations of the Company with those of the
acquired business for the three and nine months ended June 30, 2003 as if the
acquisition took place at the beginning of the fiscal year. The pro forma
consolidated results include the impact of adjustments, including amortization
of intangibles, increased interest expense on acquisition debt, additional
shares of common stock outstanding and related income tax effects, among others.
Pro forma net earnings for the nine months ended June 30, 2003 also include
$1,087 of expense related to the step-up in inventory, all of which was assumed
to be incurred in the first quarter following the acquisition as inventory turns
over in one quarter. Three Months Ended Nine Months Ended June 30, June 30, 2004 2003 2004 2003
(as reported)
(pro forma)
(as reported)
(pro forma)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 2004
(dollars in thousands, except per share data)
Current assets
$
38,829
Property, plant
and equipment
23,983
Goodwill
92,650
Intangible assets
6,810
Total assets acquired
162,272
Total liabilities assumed
(10,253)
Net assets acquired
$
152,019
Net sales
$
238,652