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FORM 10-K
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 [FEE REQUIRED]
For the fiscal year ended September 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
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 (I.R.S. Employer Identification No.)
Incorporation or Organization)
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:
Name of Each Exchange
Title of Each Class on Which Registered
Class A Common Stock, $1.00 Par Value American Stock Exchange
Class B Common Stock, $1.00 Par Value American Stock Exchange
9-7/8% Convertible Subordinated American Stock Exchange
Debentures due 2006
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
No disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is 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 9, 1994 was approximately
$48,407,157.
The number of shares of Common Stock outstanding as of the close of
business on December 9, 1994 was:
Class A 6,042,238; Class B 1,677,814.
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, 1994 (the "1994 Annual Report")
(2) Specific sections of the Proxy Statement to Shareholders dated
January 6, 1995 (the "1995 Proxy")
MOOG INC.
FORM 10-K INDEX
PART I PAGE
Item 1 - Business 21
Item 2 - Properties 22
Item 3 - Legal Proceedings 22
Item 4 - Submission of Matters to a 22
Vote of Security Holders
PART II
Item 5 - Market for the Registrant's 22
Common Equity and Related
Stockholder Matters
Item 6 - Selected Financial Data 22-23
Item 7 - Management's Discussion and 24-28
Analysis of Financial Condition and
Results of Operations
Item 8 - Financial Statements and 29-43
Supplementary Data
Item 9 - Changes in and Disagreements with 43
Accountants on Accounting and
Financial Disclosure
PART III
Item 10 - Directors and Executive Officers 43-44
of the Registrant
Item 11 - Executive Compensation 45
Item 12 - Security Ownership 45
of Certain Beneficial
Owners and Management
Item 13 - Certain Relationships and 45
Related Transactions
PART IV
Item 14 - Exhibits, Financial Statement 45-48
Schedules, and Reports
on Form 8-K
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 1994 Annual Report, specific pages of which are referred to
in parentheses.
Description of the Company's Business. (See pages 2 through
18.)
Distribution. Moog primarily uses its own sales and
engineering personnel in the sale of its products. In selective
markets, independent manufacturers' representatives are retained.
Industry and Competitive Conditions. Moog experiences
considerable competition in its Domestic Controls segment,
principally in the areas of product performance and price. These
competitors are associated with parent companies larger than the
Company as measured by total assets and sales. These include the
Hydraulics Research and Manufacturing Division of Textron Inc.,
NWL Control Systems owned by Abex Inc., the Parker Bertea
Aerospace Group of Parker Hannifin Corporation, E-Systems
Corporation and Vickers, a Division of Trinova Corporation.
The International Controls segment experiences similar
competition from numerous domestic and foreign corporations,
particularly Mannesmann Rexroth, a Mannesmann AG company, and
Robert Bosch AG.
Backlog. Substantially all backlog will be recorded as
sales in the next twelve months. The information required herein
is incorporated by reference to Item 6, Selected Financial Data,
on page 23.
Raw Materials. Materials, supplies and components are
purchased from numerous suppliers. The loss of any one supplier
would not materially affect the Company's operations.
Seasonality. Moog's business is generally not seasonal.
Patents. Moog has a number of 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 is
dependent upon such protection. The Company's patents and patent
applications, including U.S., Canadian, European and Japanese
patents, relate to electrohydraulic, pneumatic and mechanical
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, on page 23.
Employees. The information required herein is incorporated
by reference to Item 6, Selected Financial Data, on page 23.
Segment Financial Information. See page 40.
Customers. The information required herein is incorporated
by reference to pages 2 through 18 and 40. Moog's military
activities in aerospace, through its Domestic Controls segment,
are subject to changes in national defense policy, Department of
Defense (DoD) procurement practice, and contract termination. In
commercial aerospace, principally commercial aviation, Moog's
activities are subject to changes in the delivery schedules of
the major commercial aircraft manufacturers.
International Operations. Moog's International Controls
segment is an aggregate of operations located predominantly in
Europe and the Far East. (See pages 2 through 18, 40 and 46.)
The Company's international operations are subject to the
usual risks inherent in foreign 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.
Working Capital. Working capital includes items which will
not be realized within one year, reflecting the procurement and
production cycle associated with long term contracts. Long-term
contract receivables include substantial amounts not yet billed
under progress payment terms of contracts, and which provide that
certain holdback amounts cannot be billed until shipment of
completed units. Inventories reflect the extended production and
procurement cycle on most Moog products. Contract loss reserves
include expenditures to be incurred over development and
production periods extending beyond one year.
Environmental Matters. See pages 27, 28 and 41.
ITEM 2.
Properties. Corporate headquarters are located in East
Aurora, New York. Principal manufacturing facilities for the
Domestic Controls segment are located in East Aurora, New York
and Torrance, California. The facilities consist of 756,000
square feet which are owned and 54,000 square feet which are
leased under capital lease obligations. Facilities under capital
leases are financed primarily by industrial revenue bonds, which
allow the Company to purchase the facilities at nominal prices
upon expiration. The Domestic segment leases 140,000 square feet
in East Aurora under operating leases. With respect to the
Company's facilities, third parties have leased 91,000 square
feet of owned space through December 1996 and 65,000 square feet
of leased space through August 1997. Outside of the U.S., the
Domestic segment owns two low cost manufacturing centers in the
Philippines and India. The Philippines facility consists of
64,000 square feet, and the India facility consists of 25,000
square feet.
The International Controls segment maintains major
manufacturing facilities in Germany, England and Japan. Of the
major European facilities 4,000 square feet are owned and 202,000
square feet are leased under operating lease agreements. The
Japanese facility, consisting of 68,000 square feet, is owned.
Smaller specialty manufacturing operations are located in Ireland
and Denmark. The Irish facility, with 26,000 square feet, is
owned, while the Danish facility of 30,000 square feet is leased
under an operating lease. In various other major markets,
including Italy, France, Spain, Sweden, Finland, Brazil,
Australia, South Korea, Hong Kong and Singapore, the Company has
sales and applications engineering offices. Of these facilities,
30,000 square feet are owned and 41,000 square feet are leased
under operating leases. Operating leases of the International
facilities expire at varying times from January 1995 through
January 2013.
In September 1994, Moog terminated a long term operating
lease for 73,000 square feet at the former Engine Controls
facility in Florida. The Company had provided reserves covering
the cost of terminating this lease in the 1994 and 1992
restructuring actions. The Company consolidated its German
facilities, vacating a facility consisting of 55,000 square feet
under a long-term operating lease. This facility was sub-leased
effective January 1, 1994 through the remaining lease term.
The capacity of Moog's manufacturing facilities is
considered adequate for current and future production
requirements.
ITEM 3. Legal Proceedings.
There are no legal proceedings presently pending by or
against Moog or its subsidiaries which would have a material
adverse effect on the financial condition or results of
operations of Moog and its subsidiaries taken as a whole.
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.
Dividend restrictions are detailed in Note 7 on page 35 of
Item 8, Financial Statements and Supplementary Data. Dividends
on common stock were suspended by the Board of Directors on
November 29, 1988.
Other information required herein is incorporated by
reference to pages 23 and 46.
ITEM 6. Selected Financial Data - Notes and Discussion.
The following is a brief summary of sales and net earnings
for the five year fiscal period 1990 - 1994. For a more detailed
discussion of 1992 through 1994 refer to Management's Discussion
and Analysis of Financial Condition and Results of Operations on
pages 24 through 28 and Notes to Consolidated Financial
Statements on pages 33 through 42.
During the five year period, sales have increased 1.2%.
Excluding the 1994 acquisition of the hydraulic and mechanical
actuation Product Lines of AlliedSignal Inc. and the related
incremental sales of approximately $22,400, sales would have
declined 6.2%. This decline is primarily the result of reduced
appropriations for defense hardware by the U.S. Government. The
Product Line acquisition, however, is expected to add
approximately $75,000 to $80,000 in annual revenue, enhancing the
Domestic Controls segment's position in its core aerospace
markets. Sales for the International Controls segment also
declined 3.0%, principally due to weak capital goods markets in
Europe partially offset by strong sales growth in Asian-Pacific
operations.
Domestic net earnings during the five year period have
approximated 3% or more of net sales, excluding the pre-tax
inventory obsolescence and restructuring charges of $3,390 in
1994 and $10,504 in 1992.
The International Controls segment experienced a significant
deterioration in net earnings from 1990 to 1992. The decline
results from investing significant resources to bring new
industrial and aerospace applications to existing markets in
conjunction with the prolonged weakness in European capital goods
markets, which resulted in significantly reduced margins on the
traditionally high margin industrial hydraulic product line. The
Company has taken various actions throughout the last three years
to consolidate manufacturing and development activities, increase
utilization of low cost manufacturing centers, and increase
product line specialization. As a result, International Controls
segment losses were reduced significantly in 1993 and 1994.
ITEM 6. Selected Financial Data.
(dollars in thousands except per share data)
Years Ended
September 30 1994 1993 1992 1991 1990
RESULTS FROM OPERATIONS
Net Sales $ 307,370 $ 293,680 $ 307,004 $ 321,283 $ 303,709
Government 57% 57% 60% 61% 61%
Commercial 43% 43% 40% 39% 39%
Earnings (Loss)
before Income
Taxes,
Extraordinary
Item and
Cumulative Effect
of Change in
Accounting Principle 3,040 8,620 (6,284) 12,209 13,242
Effective Tax Rate 46.8% 40.6% (7.8%) 37.5% 48.0%
Earnings (Loss)
before Extraordinary
Item and Cumulative
Effect of Change
in Accounting
Principle 1,618 5,118 (6,773) 7,631 6,886
Extraordinary Item - (357) - - -
Cumulative Effect of
Change in Accounting
Principle 505 - - - -
NET EARNINGS $ 2,123 $ 4,761 $ (6,773) $ 7,631 $ 6,886
(LOSS)
PER SHARE
Earnings (Loss)
before
Extraordinary
Item and
Cumulative Effect
of Change in
Accounting
Principle $ .21 $ .66 $ (.88) $ .97 $ .86
Extraordinary
Item - (.04) - - -
Cumulative Effect
of Change in
Accounting
Principle .06 - - - -
Net Earnings
(Loss) $ .27 $ .62 $ (.88) $ .97 $ .86
Equity per
Common Share 13.25 12.00 12.61 12.93 11.66
FINANCIAL POSITION
Total Assets $ 424,456 $ 318,130 $ 335,986 $ 334,938 $ 321,448
Working Capital 152,036 123,533 114,694 107,363 107,526
Total Debt and
Convertible
Subordinated
Debentures 204,176 137,597 143,985 145,575 150,813
Shareholders'
Equity 102,184 92,561 97,374 100,438 92,945
SUPPLEMENTAL FINANCIAL DATA
Capital
Expenditures $ 8,893 $ 10,216 $ 15,295 $ 18,467 $ 20,640
Depreciation and
Amortization of
Property, plant
and equipment 15,032 15,665 17,189 17,834 17,316
R&D - Company
Sponsored 19,923 16,128 17,927 16,946 13,842
- Customer
Sponsored 25,332 30,986 29,220 24,896 32,802
Backlog - Domestic 181,405 149,035 169,800 192,400 190,200
- Interna-
tional 35,856 32,046 42,300 38,600 38,600
ADDITIONAL DATA
Number of Employees 3,140 2,824 2,886 3,309 3,349
Number of Shareholders
- Class A 2,424 2,665 2,855 3,014 3,175
- Class B 1,088 1,201 1,257 1,343 1,403
Average Common
Shares
Outstanding 7,714,444 7,713,465 7,717,791 7,836,780 7,977,246
RATIOS
Net Return on Sales .7% 1.6% N/A 2.4% 2.3%
Return on Equity 2.2% 5.0% N/A 7.9% 7.8%
Current Ratio 2.47 2.33 2.14 1.98 2.13
Total Debt and
Debentures to
Equity 2.00 1.49 1.48 1.45 1.62
INTERNATIONAL SUBSIDIARIES
Net Sales $ 92,507 $ 102,071 $ 96,314 $ 99,423 $ 96,231
Foreign Currency
Exchange (Gain)
Loss (24) 86 655 92 665
Net Earnings
(Loss) $ (2,036) $ (3,363) $ (7,189) $ 285 $ 1,635
ITEM 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Earnings per share in 1994 were $.27 compared with $.62 in
1993 and a loss of $.88 in 1992. Net earnings in 1994 were $2.1
million or 0.7% of net sales compared with $4.8 million or 1.6%
of net sales in 1993 and compared with a net loss of $6.8 million
or 2.2% of net sales in 1992. Net earnings in 1994 include the
cumulative positive effect of $.5 million related to the adoption
of SFAS No. 109, "Accounting for Income Taxes", a change in
accounting principle. Conversely, 1994 net earnings were
negatively affected by significant inventory obsolescence and
restructuring charges. During the second quarter of 1994, the
Company initiated a program to dispose of obsolete inventory
resulting in a pretax charge of $2.6 million which primarily
reflects the recent decline in Domestic repair activities and
spare parts requirements on many government programs. Prior to
the end of 1994, the Company physically disposed of $6.8 million
of obsolete inventory, principally covered by reserves. The 1994
pretax restructuring charge of $2.1 million included $1.8 million
of severance benefit costs related to workforce reductions
totaling 140 employees in the Company's operations in the U.S.,
England, Germany and Denmark. The remaining $.3 million
restructuring charge was related to lease termination costs. The
restructuring actions were taken in response to Defense spending
reductions and to persistently weak capital goods markets in
Europe. The workforce reduction is expected to decrease annual
wages and benefit costs by approximately $6.0 million.
Net earnings in 1993 included a $.4 million net after-tax
extraordinary charge related to prepayment costs on the early
retirement of $10.2 million of 12 7/8% debt. The 1992 loss
included a $13.8 million pretax restructuring charge primarily
representing actions taken in 1992 in response to the U.S.
position on the post-Soviet Defense environment. Programs
including Maverick, M-X, F-15, Small ICBM, and SRAM II were then
targeted for reduction, cancellation or phase-out. The 1992
restructuring charge also included amounts related to the
Company's European operations in response to the weak capital
goods markets and the consolidation of European manufacturing and
development activities.
Acquisition - On June 17, 1994, Moog Inc. acquired the
hydraulic and mechanical actuation product lines (the Product
Lines) of AlliedSignal Inc. located in Torrance, California. The
Product Lines are applied to a variety of commercial and military
aircraft. Mechanical actuators include drive systems for the
leading edge flaps on the F/A-18 C/D and Boeing 777, and
hydraulic actuators include the primary flight controls for the
Boeing 747 and 757 and the Airbus A330 and A340. The acquisition
strengthens Moog's position in the actuation market and will
improve utilization of existing manufacturing facilities and the
overhead structure. The Product Lines are expected to add annual
revenues of approximately $75 million to $80 million in the near
term. The purchase price for the Product Lines including payment
for specified transition services was $78 million in cash subject
to adjustment based upon finalization of the net book value of
assets transferred. The transition services principally relate
to computer services, engineering, and manufacturing support for
a period of approximately one year.
At the present time, the Company and AlliedSignal are
attempting to resolve the final purchase price of the Product
Lines. The Purchase Agreement provides for an adjustment to the
purchase price based upon the Net Assets delivered at closing.
The Company has recorded a receivable from AlliedSignal of $3.6
million at September 30, 1994 which represents AlliedSignal's
initial calculation of the shortfall in Net Assets delivered at
closing. In addition, notification has been sent to AlliedSignal
of several items that the Company believes require further
reduction in the purchase price. In the event that the Company and
AlliedSignal cannot reach a resolution of this matter, the Purchase
Agreement provides for the use of an independent arbitrator to resolve
the issue. The resolution of the Net Assets delivered is not
expected to have a material adverse effect on the Company's
future financial position or results of operations, since any
reduction in the Net Assets transferred at closing from
AlliedSignal's initial calculation would result in a cash refund
to the Company, be used to pay down outstanding debt, and reduce
the intangibles recorded on the opening balance sheet.
In conjunction with the acquisition, the Company refinanced
its Domestic credit facilities. On June 15, 1994, the Company
completed a $152 million Revolving Credit and Term Loan Agreement
with a banking group and extended the Maturity of an existing $20
million, 10-1/4% Note. The $152 million Agreement provides for
$85 million in a revolving facility and a $67 million term loan.
See Financial Condition and Liquidity for additional information.
Operations - Operating profit for the Domestic Controls
segment in 1994 was $20.4 million or 9.2% of segment sales
compared with $21.7 million or 10.8% of segment sales in 1993 and
with $16.6 million or 7.6% of segment sales in 1992. Excluding
pretax Domestic inventory obsolescence and restructuring charges
of $3.4 million in 1994 and $10.5 million in 1992, Domestic
segment operating profit would have been $23.8 million or 10.7%
of segment sales in 1994, while 1992 operating profit would have
been $27.1 million or 12.4% of segment sales. The increase in
Domestic segment operating profit, excluding the obsolescence and
restructuring charges, from 1993 to 1994 results from the
acquisition of the Product Lines. The decrease in operating
profit, excluding the restructuring charge from 1992 to 1993, was
mainly due to lower margins within the Motion Systems group,
where net sales declined by approximately 20%. Operating profit
for the Motion Systems group continued to decline in 1994
primarily as a result of decreasing sales on the Missiles product
line. The 1994 restructuring actions were specifically targeted
to reverse the recent trend of declining operating profit for the
Motion Systems group.
Operating profit for the International Controls segment in
1994 was $1.1 million or 1.1% of segment sales compared with $5.1
million or 4.7% of segment sales in 1993. This also compares
with a loss of $3.7 million or 3.7% of segment sales in 1992.
Included in operating profit for the International Controls
segment are inventory obsolescence and restructuring charges of
$1.3 million in 1994 and $3.3 million in 1992. Excluding these
charges, operating profit for the International Controls segment
would have been $2.4 million or 2.4% of segment sales in 1994 and
a loss of $.4 million or .4% of segment sales in 1992. The
change in operating profit from 1993 to 1994 for the
International Controls segment results primarily from a decrease
of profits at the Company's English subsidiary on a variety of
industrial products, and to a decline in operating profit from
the Pacific subsidiaries due to a slow Japanese economy and from
strong shipments in 1993 on aerospace programs in Korea. The
operating profit for the fourth quarter of 1994 at the Company's
English subsidiary showed a strong increase from the first three
quarters due to higher sales and the positive effects of
previously implemented staff reductions. The improvement of
operating profit exclusive of the restructuring charge from 1992
to 1993 for the International Controls segment was the result of
increased sales and margins within the Pacific operations and
improvements in Europe from the previous year's operating loss to
a break-even situation due to cost reduction efforts.
Improvements in future operating profits of the European
operations will, in part, be dependent on further product cost
reductions and increased sales associated with the strengthening
of economic conditions.
The Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" in the first quarter
of 1994. SFAS No. 106 costs were $1.1 million in 1994 including
the amortization of the initial transition obligation of $7.9
million over twenty years. The 1994 cost is $.4 million greater
than the annual cost of postretirement benefits other than
pensions in 1993 of $.7 million, determined on a cost incurred
basis.
At September 30, 1994, the Company had a valuation reserve
of $5.2 million or 24% of the gross Deferred Tax Asset related
primarily to the Company's subsidiaries in Germany, France and
England in accordance with SFAS No. 109. During the fourth
quarter of 1994, the Company recorded Deferred Tax Assets from
future utilization of Net Operating Losses and reversing
Temporary Deductions resulting in additional earnings of $.4
million.
Financial Condition and Liquidity - On June 15, 1994, the
Company completed a new $152 million Revolving Credit and Term
Loan Facility (the Credit Facilities) with a banking group. The
Credit Facilities consist of an $85 million revolving credit
facility and a $67 million term loan. The revolving credit
facility is for a five year period, reducing by $5 million per
year commencing in October 1995. The term loan is a seven year
agreement, with quarterly principal payments commencing on
January 1, 1995. The credit facilities provide for interest at
LIBOR plus 2.125%, compared with the previous Domestic credit
arrangements at LIBOR plus .625%. To provide protection from
interest rate increases, the Company entered into $60 million of
interest rate swap arrangements. This has the effect of
converting $60 million into fixed rate debt for two years at
8.2%. In addition to the new credit facilities, the Company
amended the terms of its existing $20 million, 10-1/4% Note.
This Note, which previously required $5 million in annual
principal payments from 1996 through 1999, has been amended to
require annual principal payments of $1.7 million in 1995, $2.7
million in 1996, and $3.0 million in 1997 through 2001.
The $152 million Credit Facilities were used principally to
1acquire the Product Lines, including transition services, from
AlliedSignal for $78 million and to refinance approximately $46
million of then existing Domestic term loans, with the balance
available for future working capital requirements. The Credit
Facilities and amended Note are secured by substantially all of
the Company's Domestic assets, including the common shares of all
Domestic and International subsidiaries. The Credit Facilities
and amended Note include customary covenants for transactions of
this nature, including interest coverage, loan payment coverage,
current ratio and maintenance of tangible net worth to total
liabilities.
Net cash provided by operating activities for 1994 was $11.1
million compared with $14.3 million in 1993 and with $20.6
million in 1992. Other than net earnings, the items most
significantly affecting the comparison of Net cash provided by
operating activities for 1994, 1993 and 1992 are Deferred income
taxes, Receivables, Accounts payable and accrued expenses and
Other liabilities. In 1994, cash was generated due to lower
Deferred tax assets attributable to the physical scrapping of
$6.8 million of obsolete inventory, principally covered by
reserves for obsolescence. Current income tax benefits were also
generated in 1994 related to book and tax accounting differences
on the acquired Product Lines. In 1992, cash was used related to
Deferred income taxes resulting from the increase in deferred tax
assets associated with significant year-end severance and other
restructuring charges. Receivables increased in 1994, thereby
using cash, primarily related to the Product Line acquisition.
In 1992, Receivables decreased mainly due to the timing of
collections on Domestic programs with billing arrangements based
on the achievement of milestones. Accounts payable and accrued
expenses increased in 1994, offsetting the cash used related to
the decrease in Other liabilities. This was mainly due to the
classification of a reserve for a loss expected on the sublease
of a facility from non-current to current. The use of cash in
1993 related to the decrease in Accounts payable and accrued
expenses was due to the payment of severance for amounts accrued
in 1992. The cash generated in 1992 related to the increase in
Other liabilities was due to a year-end accrual for anticipated
losses associated with a decision to close the Engine Controls
facility in Florida.
At September 30, 1994, the Company had reserves for work
force reductions of $3.8 million, $2.3 million of which related
to the acquisition of the Product Lines. The remaining $1.5
million relates to other severance arrangements, primarily in the
U.S.
At September 30, 1994, the Company has worldwide unused
lines of credit of $33.9 million, plus cash and cash equivalents
of $8.7 million. In comparison, the Company had worldwide unused
lines of credit of $18.4 million and cash of $18.6 million at
September 30, 1993.
Total consolidated assets increased 33% to $424 million at
September 30, 1994 compared with $318 million a year ago. This
increase principally reflects the acquisition of the Product
Lines. The strengthening of foreign currencies relative to the
U.S. dollar based on spot exchange rates at the balance sheet
dates also contributed to the increase by approximately $5.9
million.
In 1993, the Company sold machinery and equipment for $5.8
million and leased the equipment back under operating leases. No
gain or loss was recognized and the proceeds were used to pay
down outstanding borrowings.
Capital expenditures in 1994 were $8.9 million compared with
$10.2 million in 1993 and with $15.3 million in 1992. Capital
expenditures were well below depreciation and amortization levels
of $15.0 million in 1994 and $15.7 million in 1993. Capital
expenditures in 1992 were closer to depreciation and amortization
of $17.2 million, in part due to $2.6 million spent to upgrade
software for Management Information Systems. Additions to
Property, Plant and Equipment in 1995 are expected to remain well
below depreciation levels. Purchase commitments outstanding at
September 30, 1994 are $1.2 million for machinery and equipment.
In December 1992, the Company prepaid $10.2 million of long-
term debt on a capital lease with an interest rate of 12 7/8% in
order to take advantage of the significant decrease in U.S.
market interest rates. The annual pretax savings was
approximately $.8 million compared with the pretax extraordinary
charge required in the first quarter of 1993 of $.5 million. The
Company used existing revolving lines of credit to finance the
prepayment.
The Company monitors total debt-to-equity as a key financial
ratio. This ratio includes short-term and long-term debt and
subordinated debentures. The ratio at September 30, 1994 was
2.00 compared with 1.49 at September 30, 1993 and with 1.48 at
September 30, 1992. The increase in the ratio as of
September 30, 1994 results from the acquisition of the Product
Lines which was financed entirely by long-term debt. Working
capital at September 30, 1994 was $152 million compared with $124
million at September 30, 1993 and with $115 million at September
30, 1992. The current ratio was 2.47 at September 30, 1994
compared with 2.33 and 2.14 at September 30, 1993 in 1992,
respectively. The strengthening of working capital and the
current ratio at September 30, 1994 also relates to the
acquisition of the Product Lines.
Net Sales increased 4.7% to $307 million in 1994 compared
with $294 million in 1993. Net sales in 1993 were down 4.3% from
net sales of $307 million in 1992. Net sales for the Domestic
segment in 1994 increased 12.6% to $213 million compared with
$189 million in 1993. Domestic segment net sales in 1993 were
down 9.4% from $209 million in 1992. In 1994, net sales of $22.4
million from the newly acquired Product Lines was the principal
reason for the increase. Within the Domestic Controls segment,
sales of the Missiles product line continued to decline as a
result of the affects of reduced U.S. Defense spending,
accompanied by sales declines on the Engine Controls product
line. These decreases were offset in 1994 by increased sales on
the B-2 program and stronger sales in the commercial aircraft
business. The net sales decline in 1993 compared with 1992
primarily reflects the effects of the reductions in new orders on
U.S. Defense related programs.
Net sales for the International Controls segment in 1994
declined 9.8% to $94.1 million compared with $104 million in
1993. This also compares with $98.0 million of net sales in
1992. Fluctuations in foreign currencies relative to the U.S.
dollar in 1994 did not impact the sales decline. The decline is
principally attributable to lower sales in Germany in aerospace
and Defense markets, in conjunction with lower industrial sales
in England and France due to the persistently weak European
capital goods market. The increase of net sales in 1993 compared
with 1992 resulted primarily from net sales increases reported by
the Pacific companies, primarily Japan, Hong Kong and Korea.
During 1993, foreign currencies weakened on average relative to
the U.S. dollar, reducing net sales by $3.0 million compared with
1992. Within the Company's International activities, operations
conducted in more than ten countries helped to level the effect
of translating multiple currencies into U.S. dollars on the
Company's operating results.
Worldwide commercial sales were $133 million or 43% of
consolidated sales in 1994. This compares with worldwide
commercial sales of $127 million in 1993 or 43% of consolidated
sales in 1993 and with $122 million or 40% of consolidated sales
in 1992. Worldwide government sales were $174 million in 1994 or
57% of consolidated sales compared with $167 million or 57% of
consolidated sales in 1993 and with $185 million or 60% of
consolidated sales in 1992. In light of the decline in U.S.
Defense spending in recent years, the Company has focused on the
development of its commercial product lines. Since 1990, as a
percentage of consolidated sales, commercial business has
increased from 39% to 43% in 1994.
Consolidated net sales in 1994 increased from 1993 primarily
due to unit volume changes and, to a lesser extent, due to minor
average price increases. Within the Domestic Controls segment,
the increase in net sales results primarily from the acquisition
of the Product Lines while the decrease in net sales for the
International segment is nearly all due to lower unit volume
partially offset by minor price increases, principally within
Europe. Comparing consolidated net sales in 1993 with 1992, the
decline is also due to unit volume changes partially offset by
some minor average price increases. Within the Domestic Controls
segment, the 1993 decrease was due to lower unit volume partially
offset by a minor increase in prices. For the International
segment, exclusive of the 1993 impact of changing foreign
currencies, nearly all of the increase was due to unit volume
partially offset by minor price reductions resulting from
competitive pressures in Europe.
Other Income was $2.5 million in 1994 compared with $2.7
million in 1993 and $3.4 million in 1992. Included in 1992 Other
Income was $.5 million related to the leasing of one of the
Company's facilities in Europe. Other Income generally includes
rents, royalties and interest.
Cost of Sales as a percent of net sales in 1994 was 69.8%
compared with 70.5% in 1993 and 1992. Cost of sales as a percent
of net sales for the Domestic Controls segment was 73.3% in 1994
compared with 72.9% in 1993 and 71.4% in 1992. The increasing
trend of Domestic Cost of Sales as a percent of sales over the
past three years results primarily from reduced higher margin
sales on the Missiles product line, which included favorable cost
experience in previous years on various long-term development
contracts. Cost of Sales as a percent of sales for the
International Controls segment improved to 65.6% of net sales in
1994 compared with 67.0% in 1993 and 69.6% in 1992. This
continued improvement over the three year period results
primarily from the benefits of cost reduction actions initiated
in 1992 and continued through 1994.
Research and Development Expenses were $19.9 million or 6.5%
of net sales in 1994 compared with $16.1 million or 5.5% of net
sales in 1993 and with $17.9 million or 5.8% of net sales in
1992. The 1994 increase is the result of a shift toward Company-
sponsored R&D projects from customer-sponsored projects. The
increase in 1994 R&D results primarily from efforts on
entertainment simulators, brushless motors, radio controls and
development of high performance engine control valves. The
decline in 1993 reflected a shift of emphasis from R&D activities
to sales and marketing activities which the Company has
classified as SG&A expenses. Total Company-sponsored and
customer-sponsored research and development expenses were $45.3
million in 1994 compared with $47.1 million in 1993 and in 1992.
Customer-sponsored R&D was $25.3 million in 1994 compared with
$31.0 million in 1993 and $29.2 million in 1992. Customer-
sponsored R&D reflects the Company's involvement in a number of
development programs including the B-2, the Taiwanese Indigenous
Defense Fighter (IDF) and a number of military ground vehicle
programs in Europe.
Selling, General & Administrative Expenses were $56.2
million or 18.3% of net sales in 1994 compared with $52.7 million
or 18.0% of net sales in 1993 and $53.6 million or 17.5% of net
sales in 1992. The increased costs in 1994 in absolute terms is
primarily due to the acquisition of the Product Lines. As a
percentage of net sales, the increase in 1994 SG&A
relates primarily to increased staffing costs in Japan, Hong Kong
and Singapore in order to pursue future sales opportunities that
currently exist in the Pacific.
Interest Expense was $11.4 million or 3.7% of net sales in
1994 compared with $11.0 million or 3.7% of net sales in 1993 and
with $13.3 million or 4.3% of net sales in 1992. The increase in
1994 primarily reflects the increase in debt related to the
acquisition of the Product Lines. The decrease in 1993 was due
to lower average Domestic interest rates in addition to interest
cost savings related to the December 1992 prepayment of $10.2
million of long-term debt which carried an interest rate of
12-7/8%.
Foreign Currency Exchange (Gain) Loss was a gain of $.5
million in 1994 compared with a loss of $.1 million in 1993 and a
loss of $.7 million in 1992. The foreign currency gain in 1994
primarily relates to a short-term loan denominated in Deutsche
Marks between the parent company and the German subsidiary during
which time the Deutsche Mark strengthened. Included in the 1992
currency loss was $.4 million related to the Company's Italian
subsidiary resulting from the September 1992 devaluation of the
Italian Lira.
Inventory Obsolescence Charge of $2.6 million in 1994
represents a second quarter charge for the write-off of Domestic
obsolete inventory. This charge reflects the recent decline in
repair activities and spare parts requirements on many government
programs.
Restructuring Expense of $2.1 million in 1994 represents the
costs to restructure operations primarily in response to the
effects of continued reductions in U.S. Defense spending as well
as the effects of the persistent weakness of capital goods
markets in Europe, particularly as it affects operations in
England, Germany and Denmark. Approximately $1.8 million of this
1994 charge represents severance benefit costs relating to
workforce reductions and $.3 million relates to the costs of
disposing of a leased facility.
Income Taxes - The high effective tax rate in 1994 of 46.8%
results primarily from losses incurred at our German subsidiary
against which the amount of tax benefits recognized in accordance
with SFAS No. 109 were limited. At September 30, 1994, the
German company had approximately $6.7 million of net operating
loss carryforwards. These tax losses, which may be carried
forward indefinitely, can be used to reduce taxes otherwise due
on German income earned in future years.
The effective tax rate for 1993 of 40.6% was comprised of a
low effective rate on Domestic earnings of 20.8% offset by a tax
expense of $1.4 million for the International Controls segment on
a pre-tax loss of $1.4 million. The low effective Domestic tax
rate in 1993 resulted primarily from a $1.1 million benefit
received in 1993 from the utilization of prior year foreign tax
credit carryforwards computed at September 30, 1992 in accordance
with SFAS No. 96. The unusual 1993 tax situation for the
International Controls segment resulted from paying taxes at
certain subsidiaries primarily in the Pacific where taxable
earnings were generated, offset by pretax losses in Europe that
generated virtually no benefit. In 1992, despite a significant
pretax loss, the Company reported income tax expense of $.5
million for the year. The unusual effect in 1992 reflected the
combination of a high effective tax rate for the Domestic
Controls segment which had pretax earnings, offset by a
relatively low tax benefit for the International Controls
segment, which had a pretax loss. In 1992, the benefits from the
utilization of losses at the foreign subsidiaries as well as the
benefits from calculated Domestic foreign tax credits were
limited under SFAS No. 96.
Backlog - Consolidated backlog increased to $217 million at
September 30, 1994 compared with $181 million at September 30,
1993. Backlog for the Domestic Controls segment increased to
$181 million at September 30, 1994 compared with $149 million a
year ago. Within the Domestic Controls segment, this increase is
primarily due to the acquisition of the new Product Lines. Also
within the Domestic Controls segment, there has been a noticeable
decline in backlog for the B-2 program related to Defense
spending reductions.
International Controls segment backlog was $35.9 million at
September 30, 1994 compared with $32.0 million a year ago.
Approximately $.5 million of this increase resulted from the
strengthening of foreign currencies relative to the U.S. dollar
from 1993 to 1994. The Company is cautiously optimistic that a
European capital goods recovery is near as backlog for the
European subsidiaries increased 26% from a year ago, mostly
during the fourth quarter of 1994. Offsetting this increase in
Europe is a decrease in backlog within the Pacific companies,
primarily due to reduced aerospace orders from the strong levels
a year ago.
Environmental Matters - At September 30, 1994, the Company
has been named a potentially responsible party (PRP) in the
clean-up of three Superfund sites in Western New York. On
November 23, 1994, a final settlement became effective regarding
one of the three sites. In addition, the Company was notified in
August 1993 by a PRP Group at a related site that it will seek
contribution from the Company and others to the extent the group
is responsible for remediation costs at the related site. The
Company also is in the process of evaluating potential
environmental remediation actions at a Company-owned facility
leased to a third party. At September 30, 1994, the Company
believes that adequate reserves have been established for
environmental issues for which financial exposure is probable and
quantifiable. Because of the uncertainties associated with
environmental matters, the Company could be requested to
participate in future remediation activities, if any, at the two
Superfund sites. With respect to the related site, the clean-up
effort has not progressed sufficiently to allow an accurate
assessment of total clean-up costs or the Company's relative
responsibility for those costs. Based on currently available
data, while it is difficult to predict, the Company does not
expect that these environmental matters will have a material
effect on the financial position of the Company in excess of
amounts previously reserved.
Defense Contracting Environment - Current industry
conditions continue to represent significant challenges for the
Company. In 1994 and prior years, more than half of the
Company's sales were to either the U.S. Government or various
foreign governments for military and space hardware on programs
that extend over many years. The Company shares risks of
cancellation as a participant in these programs similar to the
risks assumed by all government contractors.
Many of the Company's products are on the leading edge of
new technologies. Development problems on projects on which the
Company is performing under fixed-price contracts and is unable
to recover the additional costs are part of the risks of being on
the forefront of such technology. In this regard, the Company's
risk of technical development and design problems is similar to
other high-technology companies. Since the production of these
products involves highly precise, complex operations and vendor
supplied component parts, a similar risk exists for products in
the production phase.
Continued Government emphasis on audit and investigative
activity in the U.S. Defense Industry presents risks of
unanticipated financial exposure for companies with substantial
activity in Government contract work. The audit process is an
on-going one which includes post-award reviews and audits of
compliance with the various procurement requirements. Although
Government regulations provide that under certain circumstances a
contractor may be fined, penalized, have its progress payments
withheld or be debarred from contracting with the Government, the
Company does not anticipate a material financial impact from the
various and on-going procurement reviews. The Company believes
that adequate reserves have been established for any issues on
which financial exposure is known and quantifiable as of
September 30, 1994.
The last 30 years have produced a continuing stream of
opportunities for the Company on precision hydraulic
servosystems. However, continual improvements in the power
density of electric motors and the current carrying capacity of
controller circuitry continually erode the application base for
hydraulic controls. Recognizing this phenomenon, the Company
broadened its purview and is a supplier of high performance
industrial control systems rather than just a supplier of
components for hydraulic systems. The industrial world today is
shifting to digital control for increased functionality. The
Company plans to provide increasingly intelligent digital control
as part of its electric drive systems and as a complement to its
hydraulic controls. The Company's objective is to offer the
world's most advanced systems capability together with the
world's highest performance hydraulic and electric drives, to
manufacture these products in world class facilities and to
present them to markets around the world through a network of
sales and application engineering subsidiaries.
ITEM 8. Financial Statements and Supplementary Data.
MOOG INC.
Consolidated Statements of Operations
(dollars in thousands except per share data)
Years ended
September 30 1994 1993 1992
NET SALES $ 307,370 $ 293,680 $ 307,004
OTHER INCOME 2,489 2,663 3,371
309,859 296,343 310,375
COSTS AND EXPENSES
Cost of sales 214,418 206,985 216,373
Research and development
expenses 19,923 16,128 17,927
Selling, general and
administrative expenses 56,181 52,723 53,619
Interest expense 11,402 10,974 13,346
Foreign currency exchange
(gain) loss (451) 60 673
Other expenses 665 853 887
Inventory obsolescence
charge (note 4) 2,574 - -
Restructuring expense
(note 10) 2,107 - 13,834
306,819 287,723 316,659
EARNINGS (LOSS) BEFORE
INCOME TAXES,
EXTRAORDINARY
ITEM AND CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 3,040 8,620 (6,284)
INCOME TAXES (note 9) 1,422 3,502 489
EARNINGS (LOSS) BEFORE
EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE 1,618 5,118 (6,773)
EXTRAORDINARY ITEM,
LOSS FROM EARLY
EXTINGUISHMENT OF
DEBT, NET OF INCOME
TAXES OF $119 (note 7) - (357) -
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE (note 9) 505 - -
NET EARNINGS (LOSS) $ 2,123 $ 4,761 $ (6,773)
NET EARNINGS (LOSS) PER COMMON SHARE:
Before extraordinary
item and cumulative
effect of change in
accounting principle $ .21 $ .66 $ (.88)
Extraordinary item - (.04) -
Cumulative effect of
change in accounting
principle .06 - -
Net earnings (loss) $ .27 $ .62 $ (.88)
AVERAGE COMMON
SHARES OUTSTANDING 7,714,444 7,713,465 7,717,791
See accompanying Notes to Consolidated Financial Statements.
MOOG INC.
Consolidated Balance Sheets
(dollars in thousands)
As of September 30 1994 1993
ASSETS
CURRENT ASSETS
Cash and cash
equivalents $ 8,749 $ 18,589
Receivables, net (note 3) 144,197 123,009
Inventories (note 4) 78,642 66,862
Deferred income taxes 15,392 6,412
Prepaid expenses and
other current assets 8,445 1,842
TOTAL CURRENT ASSETS 255,425 216,714
PROPERTY, PLANT AND EQUIPMENT,
net (notes 5, 7, 8 and 16) 146,472 95,855
INTANGIBLE ASSETS, at cost,
less applicable amortization
(note 2) 18,154 2,197
OTHER ASSETS 4,405 3,364
TOTAL ASSETS $ 424,456 $ 318,130
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable (note 6) $ 9,569 $ 9,851
Current installments of
long-term debt and
convertible subordinated
debentures (note 7) 15,201 18,793
Accounts payable 21,339 13,912
Accrued salaries, wages
and commissions 20,641 16,736
Contract loss reserves (note 2) 14,964 5,396
Other accrued liabilities 11,214 9,531
Accrued income taxes 391 195
Customer advances 10,070 8,767
TOTAL CURRENT LIABILITIES 103,389 93,181
LONG-TERM DEBT, excluding current
installments (note 7) 160,006 78,153
LONG-TERM PENSION OBLIGATION
(note 11) 20,093 25,110
OTHER LONG TERM LIABILITIES 1,195 5,144
DEFERRED INCOME TAXES 16,671 1,857
CONVERTIBLE SUBORDINATED
DEBENTURES, excluding
current installments (note 7) 19,400 20,800
MINORITY INTEREST IN SUBSIDIARY
COMPANY 1,518 1,324
COMMITMENTS AND CONTINGENCIES
(note 16) - -
SHAREHOLDERS' EQUITY (see page 32
and notes 11, 12, and 13)
9% Series B Cumulative, Convertible,
Exchangeable Preferred stock -
Par Value $1.00 Authorized
10,000,000 shares. Issued 100,000
shares. 100 100
Common Stock - Par Value $1.00
Class A - Authorized 30,000,000
shares. Issued 6,599,306
shares in 1994 and
6,598,989 shares in 1993. 6,599 6,599
Class B - Authorized 30,000,000
shares. Convertible to
Class A on a one for
one basis. Issued
2,534,817 shares in
1994 and 2,535,134
shares in 1993. 2,535 2,535
Additional paid-in capital 47,737 47,780
Retained earnings 56,373 54,259
Treasury shares (17,929) (18,002)
Equity adjustments 7,867 564
Loan to Savings and Stock
Ownership Plan (1,098) (1,274)
TOTAL SHAREHOLDERS' EQUITY 102,184 92,561
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 424,456 $ 318,130
See accompanying Notes to Consolidated Financial Statements.
MOOG INC.
Consolidated Statements of Cash Flows
(dollars in thousands)
Years ended September 30 1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 2,123 $ 4,761 $ (6,773)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Depreciation and amortization 15,700 15,621 17,767
Provisions for losses 5,860 5,839 7,548
Deferred income taxes 5,428 837 (2,477)
Other 418 40 152
Change in assets and liabilities
providing (using) cash:
Receivables (10,813) (2,906) 11,575
Inventories (1,376) (969) (3,234)
Other assets (4,797) 2,806 (2,038)
Accounts payable and accrued expenses 3,520 (12,059) (3,703)
Other liabilities (4,792) 2,046 7,039
Accrued income taxes (1) (353) (3,517)
Customer advances (127) (1,384) (1,720)
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,143 14,279 20,619
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Product Lines, including
a receivable from AlliedSignal Inc.
of $3,648 (note 2) (78,000) - -
Acquisition of Buhl Automation and
Esprit Technology - - (1,351)
Purchase of property, plant and
equipment (7,741) (9,887) (14,889)
Proceeds from sale of assets 526 9,538 2,984
Payments received on loan to
Savings and Stock Ownership Plan 177 161 186
NET CASH USED IN INVESTING ACTIVITIES (85,038) (188) (13,070)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in notes payable (10,635) (486) (3,670)
Proceeds from revolving lines of
credit 70,000 31,852 44,392
Payments on revolving lines of credit (151) (21,521) (37,679)
Proceeds from issuance of long-term
debt 69,695 1,686 1,333
Payments on long-term debt and
capital lease obligations (63,276) (15,419) (10,800)
Purchase of convertible subordinated
debentures (1,282) (177) (161)
Dividends paid (9) (9) (9)
Purchase of treasury stock - - (387)
Proceeds from issuance of treasury
stock 30 - -
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 64,372 (4,074) (6,981)
Effect of exchange rate changes
on cash (317) 466 505
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (9,840) 10,483 1,073
Cash and cash equivalents at beginning
of year 18,589 8,106 7,033
Cash and cash equivalents at end
of year $ 8,749 $ 18,589 $ 8,106
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (notes 6 and 7) $ 11,359 $ 10,830 $ 12,116
Income taxes, net of refunds 367 2,405 7,810
Non-cash investing and financing activities:
Equity adjustment from change in
pension liability versus
unrecognized prior service
cost (note 11) 5,568 (5,523) (143)
Adjustment required to recognize
minimum pension liability (note 11) (5,654) 5,704 942
Leases capitalized net of leases
terminated 1,160 401 729
See accompanying Notes to Consolidated Financial Statements
MOOG INC.
Consolidated Statements of Shareholders' Equity
(dollars in thousands except per share data)
Years ended September 30 1994 1993 1992
PREFERRED STOCK (note 13) $ 100 $ 100 $ 100
COMMON STOCK (note 13) 9,134 9,134 9,134
ADDITIONAL PAID-IN CAPITAL
Beginning of year 47,780 47,780 47,780
Issuance of Treasury Shares at
less than cost (43) - -
End of year 47,737 47,780 47,780
RETAINED EARNINGS
Beginning of year 54,259 49,507 56,289
Net earnings (loss) 2,123 4,761 (6,773)
Preferred dividends ($.09 per share
in 1994, 1993 and 1992) (9) (9) (9)
End of year 56,373 54,259 49,507
TREASURY SHARES, AT COST*
Beginning of year (18,002) (18,002) (17,615)
Shares acquired (1992 - 49,300
Class A Shares, 7,100 Class B Shares) - - (387)
Shares issued related to options
(1994 - 5,500 Class A Shares) 73 - -
End of year (17,929) (18,002) (18,002)
EQUITY ADJUSTMENTS**
Beginning of year 564 10,290 6,371
Adjustment from foreign currency
translation, net of applicable
deferred taxes of $330 in
1994, $362 in 1993, and $763 in 1992 1,735 (4,203) 4,062
Adjustment from change in
pension liability versus
unrecognized prior service cost 5,568 (5,523) (143)
End of year 7,867 564 10,290
LOAN TO SAVINGS AND STOCK OWNERSHIP
PLAN (SSOP) (note 11)
Beginning of year (1,274) (1,435) (1,621)
Payments received on loan to SSOP 176 161 186
End of year (1,098) (1,274) (1,435)
TOTAL SHAREHOLDERS' EQUITY $ 102,184 $ 92,561 $ 97,374
* Class A Common Stock in treasury: 557,055 shares as of September 30,
1994; 562,555 shares as of September 30, 1993 and 1992.
Class B Common Stock in treasury: 858,103 shares as of September 30,
1994, 1993 and 1992.
** End of year balance includes foreign currency translation of 1994 -
$7,965; 1993 - $6,230; 1992 - $10,433; and pension liability
adjustments of 1994 - ($98); 1993 - ($5,666); 1992 - ($143). Included
in foreign currency translation are deferred losses of $545 in 1994,
$228 in 1993, and $16 in 1992 related to hedging net investments in,
and long term advances to, various international subsidiaries.
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
International subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
Cash and Cash Equivalents: The Company considers all highly
liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Revenue Recognition: The percentage of completion
(cost-to-cost) method of accounting is followed for long-term
contracts received by the Company. Under this method, revenues
are recognized as the work progresses toward completion. Other
than on long term contracts, revenues are recognized as units are
delivered. Contract incentive awards affect earnings when the
amounts can be determined. For contracts with anticipated losses
at completion, the projected loss is accrued at the time it can
reasonably be estimated.
Inventories: Inventories are stated at the lower of cost or
market using 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: Foreign subsidiary assets and liabilities
are translated using rates of exchange as of the balance sheet
date and the statements of operations are translated at the
average rates of exchange during the year. Gains and losses
resulting from translation and hedging of net investments in, or
long term advances to, foreign subsidiaries are accumulated in
the equity section as "Equity Adjustments." Gains and losses
resulting from foreign currency transactions are included in
income.
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 considered 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. Debt issuance costs are
amortized over the term of the related debt agreements.
Intangibles associated with acquisitions are amortized over
their estimated useful lives, generally 7 to 12 years. The
Company annually reviews acquisition related intangibles for
impairment. The method used to determine whether such
intangibles have been impaired is generally based upon forecasted
undiscounted cash flows.
Income Taxes: The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes," in 1994. The Company separately reported the cumulative
effect of the adoption of SFAS No. 109 in the Consolidated
Statements of Operations.
Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for future tax
consequences attributed to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Under the previously used asset and
liability method of SFAS No. 96, deferred tax assets and
liabilities were recognized for all events that had been
recognized in the financial statements, with generally no
consideration of any future events in calculating deferred taxes.
Note 2 - Acquisition
On June 17, 1994, the Company acquired the hydraulic and
mechanical actuation product lines (the Product Lines) of
AlliedSignal Inc., located in Torrance, California. The Product
Lines include mechanical drive systems for leading edge flaps and
hydraulic servoactuators for primary and secondary flight
controls used on a wide variety of commercial and military
aircraft. The Company paid $78 million for the Product Lines
including payment for specified transition services, subject to
adjustment based upon finalization of the net book value of
assets transferred. The acquisition has been accounted for under
the purchase method, and accordingly, the operating results for
the Product Lines have been included in the Consolidated
Statement of Operations since the date of acquisition. The cost
of the acquisition has been preliminarily allocated on the basis
of the estimated fair value of assets acquired and the
liabilities assumed, including contract loss reserves.
The acquisition was financed with proceeds from a Revolving
Credit and Term Loan Agreement with a banking group (Note 7).
The acquisition resulted in Product Line intangible assets of
$14,320, which are being amortized over a 12 year period.
The following summary, prepared on a pro-forma basis,
combines the unaudited consolidated results of operations as if
the Product Lines had been acquired at the beginning of the
periods presented. The pro-forma consolidated results include
the impact of certain adjustments, including amortization of
intangibles, increased interest expense on acquisition debt, and
related income tax effects.
(Unaudited) 1994 1993
Net sales $ 375,545 $ 394,130
Net earnings before extraordinary
item and cumulative effect of
change in accounting principle 6,916 7,461
Net earnings 7,421 7,104
Earnings per share $ .96 $ .92
The pro-forma results are not necessarily indicative of what
actually would have occurred if the acquisition had been in
effect for the periods presented. In addition, they are not
intended to be a projection of future results.
As part of the acquisition strategy, the Company will
relocate certain production from Torrance, California to the
Company's facilities in Western New York. Accordingly, the
Company has provided a reserve for $2,400 related to expected
work force reductions of 130 employees at the Torrance facility.
As of September 30, 1994, the Torrance work force has been
reduced by 30, with the remainder of the reductions to take place
in 1995. Of the Torrance related severance liability, $2,270
remains unpaid as of September 30, 1994. An additional liability
of $600 was recorded to cover product line relocations and
out-placement costs which will be completed in 1995.
Note 3 - Receivables
Receivables consist of:
September 30 1994 1993
Long term contracts:
Amounts billed $ 22,035 $ 30,915
Unbilled recoverable costs
and profits 63,151 54,880
Unbilled costs and profits
subject to negotiation 571 1,455
Total long-term contract
receivables 85,757 87,250
Trade 53,812 36,306
Refundable income taxes 5,504 403
Other 617 914
Total receivables 145,690 124,873
Less allowance for doubtful
accounts (1,493) (1,864)
Receivables, net $144,197 $123,009
The long term contract amounts identified above are
primarily associated with prime U.S. Government contractors.
These amounts include retainage in accordance with the terms of
the contracts. Unbilled costs and profits subject to negotiation
represent claims on terminated contracts. 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.
Note 4 - Inventories
Inventories consist of the following:
September 30 1994 1993
Raw materials and purchased parts $ 19,356 $ 14,641
Work in process 48,517 47,176
Finished goods 10,769 5,045
$ 78,642 $ 66,862
In March 1994, the Company recorded a pre-tax charge of
$2,574 to write off obsolete domestic inventory. This charge
reflects a recent decline in repair activities and spare parts
requirements on various government programs.
Note 5 - Property, Plant and Equipment
Property, plant and equipment consists of:
September 30 1994 1993
Land $ 7,870 $ 4,441
Buildings and improvements 87,124 76,595
Machinery and equipment 207,769 156,341
Property, plant and equipment,
at cost 302,763 237,377
Less accumulated depreciation and
amortization (156,291) (141,522)
Property, plant and equipment, net $146,472 $ 95,855
Note 6 - Notes Payable
The Company maintains short term lines of credit with
various banks throughout the world. These short term lines of
credit, along with $14,750 available on the long term U.S.
Revolving Credit Agreement detailed in Note 7, provide credit
availability amounting to $33,860. The short term credit lines
are principally demand lines and subject to revision by the
banks. Commitment fees are charged on some credit arrangements
based on a percentage of the unused amounts available. At
September 30, 1994, $9,200 of notes payable to banks at an
average rate of 8.8% were outstanding under these lines of
credit.
Note 7 - Long Term Debt and Subordinated Debentures
Long-Term Debt consists of the following:
September 30 1994 1993
U.S. revolving credit agreement $ 70,000 $ -
U.S. term loan agreements 67,000 59,549
10-1/4% Note 20,000 20,000
International and other U.S.
term loan agreements 13,359 12,950
Obligations under capital leases 3,448 3,165
173,807 95,664
Less current installments:
Long-term debt 12,978 16,571
Capital lease obligations 823 940
$160,006 $ 78,153
In conjunction with the 1994 acquisition of the Product
Lines (Note 2), the Company refinanced its U.S. credit
facilities. On June 15, 1994, the Company entered into a
$151,750 Revolving Credit and Term Loan Agreement (the Agreement)
with a banking group. The Agreement provides for an $84,750
revolving credit facility and a $67,000 term loan. The revolving
credit portion of the Agreement is for a five year period through
May 1999. The maximum amount available under the revolving
credit facility will be reduced by $5,000 commencing October 1,
1995 and in each subsequent year through October 1, 1998. The
term loan portion of the Agreement is for a seven year period
through June 2001. The term loan requires quarterly principal
payments of $1,925 commencing January 1, 1995, $2,310 commencing
January 1, 1996, and $2,502 from January 1, 1997 through April 1,
2001, with a final payment of $5,005 on June 1, 2001. Interest
on the Agreement is LIBOR plus 2.125%. In order to provide for
interest rate protection, the Company has entered into interest
rate swap agreements for $60,000, effectively converting this
amount to fixed rate debt of 8.2% for a two year period through
June of 1996.
The 10-1/4% Note was amended as part of the refinancing.
The term of the Note was extended from July 1999 to July 2001,
and the payment schedule modified to quarterly principal payments
of $550 commencing January 1, 1995, increasing to $700 on January
1, 1996 and $750 on January 1, 1997.
Both the Agreement and the Note contain various covenants
which, among others, specify minimum interest and payment
coverage, maintenance of tangible net worth, working capital and
current ratio levels, and limit liabilities in relation to
tangible net worth. The Agreement and the Note provide for
restrictions on dividends. The Agreement and the Note are
secured by substantially all of the Company's U.S. assets and the
common shares of all Domestic and International subsidiaries.
The Agreement and the Note will convert to unsecured arrangements
when the Company has three consecutive quarters whereby the ratio
of consolidated liabilities to tangible net worth is less than
200%.
International and other U.S. term loan agreements of $13,359
at September 30, 1994 consist principally of financing provided
by various banks to individual International subsidiaries. These
term loans are being repaid through 2004, and carry interest
rates ranging from 2.875% to 16.1% in 1994 and 3.5% to 16.1% in
1993.
Convertible subordinated debentures at 9-7/8% total $20,800
at September 30, 1994. The debentures are subordinated in right
of payment to all senior indebtedness, as defined, and are
convertible, subject to prior redemption, into shares of Class A
Common Stock at $22.88 per share at any time up to and including
the maturity date of January 15, 2006 (Note 13). The Company
purchased $0, $182, and $177 of debentures in 1994, 1993, and
1992, respectively. Gains realized from these purchases of $9 and
$18 for 1993 and 1992, respectively, are included in other
income. The purpose of these purchases was to meet annual sinking
fund payments of $1,400 which commenced on January 15, 1992. The
Company may accelerate annual sinking fund payments to redeem an
additional $1,400 annually. The debentures are redeemable at the
option of the Company, at any time, in whole or in part, at 100%
of their principal amount. The quoted market price of the
debentures at September 30, 1994 and 1993, was 100 and 101,
respectively.
Maturities of long-term debt (including capital lease
obligations) and subordinated debentures for the next five years
are $15,201 in 1995, $20,941 in 1996, $20,991 in 1997, $21,309 in
1998, $70,012 in 1999, and $46,153 thereafter.
In the first quarter of 1993, the Company extinguished
$10,186 of 12-7/8% Domestic long-term debt prior to its scheduled
maturity in order to take advantage of a decline in U.S. interest
rates. Funds from existing credit facilities were used to
accomplish the extinguishment. The cost of the extinguishment
was $357, net of $119 in income tax benefits, which has been
recorded as an extraordinary charge in the Consolidated Statement
of Operations.
At September 30, 1994, the Company has pledged assets with a
net book value of $268,493 as security for long-term debt.
Note 8 - Leases
The Company leases certain facilities and equipment under
various lease arrangements. Such arrangements generally include
fair market value renewal and/or purchase options. Some of the
capital leases (primarily land and buildings) allow for the
Company to purchase the asset at a nominal price upon expiration.
Substantially all leases provide that the Company pay applicable
taxes, maintenance, insurance, and certain other operating
expenses. Assets under leases that have been accounted for as
capital leases and included in property, plant and equipment are
summarized as follows:
September 30 1994 1993
Capital leases at cost $ 6,861 $ 11,871
Less accumulated amortization 2,534 4,423
Net assets under capital leases $ 4,327 $ 7,448
Future minimum rental payments required under noncancelable
operating leases are $5,644 in 1995, $5,316 in 1996, $4,746 in
1997, $4,156 in 1998, $3,403 in 1999 and $14,890 thereafter.
The Company subleases various facilities to third parties.
Gross rental income from such activities was $1,247 in 1994, $780
in 1993, and $1,160 in 1992. Future minimum rental income under
noncancelable operating leases is $1,586 in 1995, $1,582 in 1996,
$1,057 in 1997, $637 in 1998 and $111 in 1999.
Rent expense under operating leases amounted to $7,049 in
1994, $6,366 in 1993, and $6,336 in 1992. Amortization of assets
recorded as capital leases is included with depreciation and
amortization of plant and equipment. Interest expense includes
$261 in 1994, $715 in 1993, and $2,095 in 1992 attributable to
obligations under capital leases.
Note 9 - Income Taxes
The Company adopted SFAS No. 109 "Accounting for Income
Taxes" in 1994. SFAS No. 109 supersedes SFAS No. 96 "Accounting
For Income Taxes." The impact of adopting SFAS No. 109 on the
Consolidated Statement of Operations was to increase earnings by
$505, which was recorded in the first quarter of 1994 as a
cumulative effect of change in accounting principle.
The reconciliation of the provision for income taxes with
the amount computed by applying the U.S. federal statutory tax
rate of 34% to earnings (loss) before income taxes, extraordinary
item and cumulative effect of change in accounting principle is
as follows:
1994 1993 1992
Earnings (loss) before income
taxes, extraordinary item
and cumulative effect of
change in accounting
principle:
Domestic $ 6,054 $ 10,376 $ 1,715
Foreign (3,440) (1,741) (8,427)
Eliminations 426 (15) 428
Total $ 3,040 $ 8,620 $ (6,284)
Computed expected tax expense
(benefit) $ 1,034 $ 2,931 $ (2,136)
Increase (decrease) in income
taxes resulting from:
Foreign tax rates 32 402 (1,001)
Deferred tax rate differential - (1,092) 904
Nontaxable FSC earnings (350) (325) -
State taxes net of federal
benefit 79 168 676
Limitation on benefits from
foreign net operating
losses 375 1,498 1,822
Other 252 (80) 224
Income taxes $ 1,422 $ 3,502 $ 489
Effective income tax rate 46.8% 40.6% (7.8%)
The fluctuation in the rates among the three years is due
primarily to limitations on the amount of deferred tax assets or
liabilities that were recorded, including the limitation on
benefits related to International subsidiary net operating
losses. At September 30, 1994, certain International
subsidiaries had net operating loss carryforwards totalling
$8,217. These loss carryforwards do not expire and can be used
to reduce current taxes otherwise due on future earnings of those
subsidiaries.
Accumulated undistributed earnings of International
subsidiaries intended to be permanently reinvested are $7,263 at
September 30, 1994. If such earnings were remitted to the
Company, income taxes, based on the applicable current rates,
would be payable after reductions for any foreign taxes
previously paid on such earnings and subject to applicable
limitations.
The components of income taxes excluding the extraordinary
item and cumulative effect of change in accounting principle are
as follows:
1994 1993 1992
Current:
Federal $ (3,255) $ 1,320 $ 2,836
Foreign (249) 2,180 (1,024)
State - 213 958
Total current (3,504) 3,713 2,770
Deferred:
Federal 5,440 305 (2,133)
Foreign (634) (558) (214)
State 120 42 66
Total deferred 4,926 (211) (2,281)
Total income taxes $ 1,422 $ 3,502 $ 489
The tax effects of temporary differences that give rise to
deferred tax assets and liabilities at September 30, 1994 are as
follows:
Deferred tax assets:
Contract loss reserves not currently deductible $ 5,575
Net operating loss carryforwards 3,730
Accrued vacation 3,621
Deferred compensation 3,212
Accrued expenses not currently deductible 2,698
Inventory 2,436
Other 845
Total gross deferred tax assets 22,117
Less: Valuation reserve (5,223)
Net deferred tax assets 16,894
Deferred tax liabilities:
Differences in bases and depreciation of property,
plant and equipment 13,591
Goodwill and other intangible assets 2,832
Prepaid pension 884
Other 866
Total gross deferred tax liabilities 18,173
Net deferred tax liabilities $ 1,279
Net deferred taxes are presented in the accompanying
Consolidated Balance Sheets as follows:
Noncurrent deferred tax liabilities $ 16,671
Current deferred tax assets 15,392
Net deferred tax liabilities $ 1,279
In 1993 and 1992, deferred taxes resulted from differences
in the tax and financial accounting for depreciation,
restructuring charges, and estimated losses on contracts and
inventories.
Note 10 - Restructuring Charges
In 1994, the Company provided $2,107 in pre-tax
restructuring charges, with $890 related to the Domestic Controls
segment and $1,217 related to the International Controls segment.
The restructuring actions were taken in response to continuing
defense spending reductions and the persistently weak capital
goods markets in Europe. The restructuring charge includes
$1,757 of severance benefit costs relating to work force
reductions totalling 140 employees in the Company's operations in
the United States, England, Germany and Denmark. The Company has
reduced its work force by 60 people as of September 30, 1994,
with the remainder of the reductions scheduled for 1995. Of the
total severance related charge, $702 remained accrued as of
September 30, 1994. A charge of $350 was also recorded for the
termination of a long term operating lease in September 1994.
In 1992, the Company incurred pre-tax restructuring charges
of $13,834, with $10,504 related to the Domestic Controls segment
and $3,330 for the International Controls segment. The Domestic
Controls segment restructuring charge was taken in response to
defense spending reductions and included work force reductions,
closing a facility in Florida, and consolidating manufacturing in
Western New York. In the International Controls segment, the
restructuring charges were taken in response to the weak capital
goods markets in Europe and to consolidate European manufacturing
operations. From the 1992 restructuring accrual, $852 remains
unpaid principally related to long term severance arrangements.
Note 11 - Employee Benefit Plans
Employee and management profit share plans provide for the
computation of profit share based on net earnings as a percent of
net sales multiplied by base wages, as defined. Profit share
expense was $459 in 1994, $1,119 in 1993, and $0 in 1992. No
management profit share was expensed in 1994, 1993, or 1992.
The Company has a Savings and Stock Ownership Plan (SSOP)
which includes an Employee Stock Ownership Plan (ESOP). 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. At inception, the ESOP purchased 150,000
shares of Class B Common Stock to provide the matching shares.
At the time the ESOP purchased the shares, Shareholders' Equity
was reduced by $2,213, representing the Company's prepayment of
future compensation expense. As the Company makes contributions
to the ESOP, the loan to the Company and the amount of prepaid
compensation is reduced. ESOP compensation expense is recognized
on a share allocation method. Contributions to the ESOP by the
Company for 1994, 1993 and 1992 were $273, $161 and $186,
respectively, and shares allocated to ESOP participants for 1994,
1993 and 1992 were 11,979, 10,891 and 12,563, respectively. At
September 30, 1994, 390,000 Class B Common Shares were owned by
the SSOP or its participants, including the Company match,
representing 23% of the issued and outstanding Class B shares.
In 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Post-retirement Benefits Other than Pensions." Under SFAS No.
106, the cost of postretirement benefits other than pensions must
be recognized as employees perform services to earn the benefits,
instead of when benefits are paid, as had been the practice in
1993 and prior years.
Postretirement health care benefits for U.S. employees are
the only costs that need to be accrued by the Company in
accordance with SFAS No. 106. Substantially all of the Company's
U.S. employees hired prior to March 1, 1989 will become eligible
for benefits when they reach normal retirement age while working
for the Company. Further, changes in the Company's health care
plans have limited the amount of retiree health care benefits to
employees who retire after October 1, 1989. This includes
limiting the Company's annual premium cost increases to 2.5% per
year on a non-cumulative basis.
The 1994 SFAS No. 106 cost of $1,075 is comprised of $103
for service cost, $577 for interest cost and $395 for the
amortization of the October 1, 1993 transition obligation over a
20 year period. The health care costs for retirees expensed in
1993 and 1992 were $741 and $760, respectively, based on claims
as incurred.
The discount rate assumed at September 30, 1994 was 9.0%
compared with the 7.5% rate used to determine the October 1, 1993
initial transition obligation. In June 1994, the Company's SFAS
No. 106 obligation increased by $569 due to the acquisition of
the Product Lines (Note 2). This incremental obligation was
determined using a 7.5% discount rate. The health care cost
trend rates assumed are 2.5% per year beginning in 1995 for
qualified employees who are presently under 65 years of age, and
12.5% in 1995, 11.0% in 1996, 10.0% in 1997 and 2.5% for 1998 and
all subsequent years for Plan participants who are currently
older than 65 years of age. The effect of a one percentage point
increase in the assumed health care cost trend rate would
increase the accumulated postretirement benefit obligation as of
September 30, 1994 by approximately 4%, and increase the
aggregate of the service and interest cost components of net
annual postretirement benefit cost by approximately 4%.
A reconciliation of the funded status of the plan with the
accrued liability at September 30, 1994 is shown below. There
were no Plan Assets at September 30, 1994.
September 30 1994
Accumulated Postretirement Benefit Obligation (APBO)
- Inactives $ (4,414)
- Actives fully eligible (342)
- Actives not fully eligible (2,167)
Total APBO (Funded Status) (6,923)
Unrecognized Transition Obligation 7,493
Unrecognized Gains (1,498)
Accrued Postretirement Benefit Cost $ (928)
The pension plans of the Company and its subsidiaries cover
substantially all employees, including certain employees in
foreign countries. Total pension expense for all plans in 1994,
1993, and 1992 was $7,050, $5,684, and $4,194, respectively.
Included as an offset to 1992 pension expense is a $580
curtailment gain from the conversion of participants from a
defined benefit plan to a defined contribution plan at an
International subsidiary.
With the exception of certain International subsidiaries,
the Company funds pension costs accrued, including amortization
of prior service costs, over a 15-year period. The table below
sets forth the funded status of the domestic and foreign defined
benefit plans at September 30, 1994 and 1993, and pension expense
in 1994 and 1993 for such defined benefit plans.
At September 30, 1994 and 1993, the minimum pension
liability adjustments were $989 and $6,643, respectively. This
liability is offset by an intangible asset of $891 in 1994 and
$977 in 1993, and a reduction of shareholders' equity, net of
deferred taxes, of $98 and $5,666 in 1994 and 1993, respectively.
The 1994 and 1993 minimum pension liability adjustment reflects
the change in the discount rate for measuring U.S. plan
obligations. In 1994, the discount rate for the U.S. was
increased to 9.0% from 7.5% in 1993. The comparable discount
rate for 1992 was 8.5%.
Plan Assets consist primarily of government obligations and
publicly traded stocks, bonds and mutual funds.
Principal actuarial assumptions are:
1994 1993
Weighted average discount rate 8.7% 7.5%
Weighted average return on assets 8.9% 8.9%
Rate of compensation increase 3.3% 3.3%
1994 1993
U.S. U.S.
Employee Employee Other Plans
Plan with Plan with Plans with with
Assets in Other Plans Plans with Accumulated Assets in Accumulated
Excess of with Assets Accumulated Benefits in Excess of Benefits in
Accumulated in Excess of Benefits in Excess of Accumulated Excess of
Benefits Accumulated Excess of Plan Assets Benefits Plan Assets
Benefits Plan Assets
Funded Status:
Accumulated
benefit
obligation
- Vested $77,075 $3,528 $11,852 $85,865 $3,311 $11,977
- Nonvested 313 - 3,361 239 - 1,878
- Total $77,388 $3,528 $15,213 $86,104 $3,311 $13,855
Projected
benefit
obligation (PBO) $82,437 $3,675 $20,854 $91,136 $3,478 $18,625
Plan assets at
fair value 84,793 4,068 1,585 76,342 3,466 1,318
Plan assets in
excess of
(or less than) PBO 2,356 393 (19,269) (14,794) (12) (17,307)
Unrecognized
cumulative
experience loss
(gain) 2,741 (615) (738) 12,773 (392) 174
Unrecognized net
(asset) liability
from SFAS no. 87
adoption date,
amortized
over 15 years (2,840) (3) 2,453 (3,208) (4) 2,576
Unrecognized prior
service cost 43 - 355 256 - 118
Adjustment required
to recognize minimum
liability - - (989) (4,789) - (1,854)
Accrued pension
(liability)
asset $ 2,300 $ (225) $ (18,188) $ (9,762) $ (408) $ (16,293)
Pension Expense:
Service cost -
benefits earned
during the year $ 2,880 $ 293 $ 1,044 $ 2,644 $ 277 $ 1,019
Interest cost on
projected benefit
obligation 6,903 268 1,301 6,313 293 1,230
Actual gain on
Plan assets (2,568) (394) (55) (10,663) (534) (49)
Net amortization
and deferral (3,338) 121 291 4,244 304 351
Curtailment gain - (62) (17) - - (10)
Pension expense
for defined
benefit plans $ 3,877 $ 226 $ 2,564 $ 2,538 $ 340 $ 2,541
Note 12 - Stock Option Plans
The 1983 Non-Statutory Stock Option Plan provides for granting options
on 133,412 Class B Shares (Note 13) to directors, officers, and key
employees at September 30, 1994. Stock appreciation rights were granted in
tandem with the options and are exercisable only to the extent the options
are exercised. The 1983 Incentive Stock Option Plan provides for granting
options on 380,000 Class A shares to officers and key employees at
September 30, 1994. The Plans terminated on December 31, 1992 and
outstanding options expire no later than ten years after the date of grant.
Options were granted at prices not less than market value on the date
of the grant. Shares under option are as follows:
Non-Statutory Incentive
Plan Plan
(Class B) (Class A)
Outstanding at September 30, 1991 196,020 387,500
Granted in 1992 - ($7.50 per share) - 62,000
Cancelled in 1992 (51,000) (106,100)
Outstanding at September 30, 1992 145,020 343,400
Granted in 1993 - ($5.625 per share) - 57,000
Cancelled in 1993 (5,304) (11,100)
Outstanding at September 30, 1993 139,716 389,300
Cancelled or expired in 1994 (6,304) (3,800)
Exercised in 1994 - (5,500)
Outstanding and exercisable
at September 30, 1994:
Class A ($5.625 to $10.50 per share) - 380,000
Class B ($11.00 to $17.25 per share) 133,412 -
Note 13 - Capital Stock
Class A Common Stock (Class A) and Class B Common Stock (Class B)
share equally in the earnings of the Company, and are identical in most
respects except (i) Class A has limited voting rights, 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, (ii) Class A shareholders are
entitled 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, (iii) cash dividends may be paid on Class A
without paying a cash dividend on Class B and no cash dividend may be paid
on Class B unless at least an equal cash dividend is paid on Class A, and
(iv) 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 317 shares in
1994, 373 shares in 1993, and 295 shares in 1992.
Series B Preferred Stock is 9% Cumulative, Convertible, Exchangeable,
Preferred Stock with a $1.00 par value. 100,000 shares of Series B
Preferred Stock have been issued and are convertible into Class A Common
Shares. 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.
Of the Class B common stock, 133,412 shares are reserved for issuance
under the 1983 Non-Statutory Stock Option Plan (note 12). Class A shares
reserved for issuance at September 30, 1994 are as follows:
Shares
Conversion of Class B to Class A shares 2,668,229
Conversion of 9-7/8% convertible
subordinated debentures (note 7) 909,091
1983 Incentive Stock Option Plan (note 12) 380,000
Conversion of Series B Preferred Stock to Class A shares 8,585
3,965,905
Note 14 - Industry Segments
The Company's two industry segments, Domestic Controls and
International Controls, manufacture and market precision control systems
and components primarily for North America and for industrialized economies
in Europe and the Far East, respectively.
1994 1993 1992
Domestic Controls
Net Sales:
Government $ 157,928 $ 147,532 $ 167,207
Commercial 55,322 41,833 41,751
Intersegment sales 7,804 12,488 10,054
Total sales $ 221,054 $ 201,853 $ 219,012
Operating profit (O.P.) $ 20,373 $ 21,726 $ 16,642
Inventory obsolescence and
restructuring charges
included in O.P. 3,390 - 10,504
Net earnings 4,394 7,604 1,911
Identifiable assets 288,886 182,289 191,591
Capital expenditures 5,263 6,093 8,010
Depreciation expense 7,725 7,389 8,664
International Controls
Net Sales:
Government $ 16,385 $ 19,240 $ 18,268
Commercial 77,735 85,075 79,778
Intersegment sales 5,634 4,231 2,406
Total sales $ 99,754 $ 108,546 $ 100,452
Operating profit (O.P.) $ 1,135 $ 5,097 $ (3,685)
Inventory obsolescence and
restructuring charges
included in O.P. 1,291 - 3,330
Net loss (2,366) (2,842) (8,883)
Identifiable assets 106,231 104,630 117,450
Capital expenditures 3,019 2,888 3,855
Depreciation expense 5,129 5,996 6,567
Consolidated operations
Net Sales $ 307,370 $ 293,680 $ 307,004
Operating profit (O.P.) 21,508 26,823 12,957
Inventory obsolescence and
restructuring charges
included in O.P. 4,681 - 13,834
Deductions from operating profit:
Interest expense 11,402 10,974 13,346
Currency (gain) loss (451) 60 834
Other expenses, net 7,613 7,170 5,260
Eliminations (96) (1) (199)
Total deductions 18,468 18,203 19,241
Earnings (loss) before income
taxes, extraordinary item
and cumulative effect of
change in accounting principle 3,040 8,620 (6,284)
Income taxes 1,422 3,502 489
Earnings (loss) before
extraordinary item
and cumulative effect of
change in accounting
principle 1,618 5,118 (6,773)
Extraordinary item - (357) -
Cumulative effect of change
in accounting principle 505 - -
Net earnings (loss) $ 2,123 $ 4,761 $ (6,773)
Total identifiable assets $395,117 $286,919 $309,041
Corporate assets 50,179 42,085 33,325
Eliminations (20,840) (10,874) (6,380)
Total assets $424,456 $318,130 $335,986
Intersegment sales, which are transacted at appropriate transfer
prices, have been eliminated in net sales. Operating profit is total
revenue less cost of sales and other operating expenses. The deductions
from operating profit have been charged to the respective segments by being
directly identified with the segments or allocated on the basis of assets
or earnings.
Included in 1994 net sales for Domestic Controls is $118,807 in sales
to the U.S. Government or to prime U.S. Government contractors, of which
$38,752 represents sales on the B-2 Advanced Technology Bomber with
Northrop Corporation.
Note 15 - Geographic Areas and Export Sales
United Europe Pacific & Corporate & Consol-
States Other Eliminations idated
Identifiable Assets:
1994 $276,757 $ 66,156 $ 48,023 $ 33,520 $424,456
1993 172,751 67,169 47,311 30,899 318,130
1992 188,743 87,033 41,034 19,176 335,986
Sales to Unaffiliated Customers:
1994 214,863 64,446 28,061 307,370
1993 191,608 75,343 26,729 293,680
1992 210,690 75,716 20,598 307,004
Inter-area Sales to Affiliates:
1994 8,127 6,012 7,679 21,818
1993 9,317 5,948 7,940 23,205
1992 8,533 4,635 6,482 19,650
Export Sales:
1994 41,698 18,373 2,069 62,140
1993 25,623 31,760 3,297 60,680
1992 28,254 25,867 2,152 56,273
Net Earnings (Loss):
1994 4,407 (2,658) 1,202 (828) 2,123
1993 7,828 (4,815) 1,659 89 4,761
1992 143 (7,273) (85) 442 (6,773)
Sales between geographic areas are transacted at appropriate transfer
prices. Export sales from the United States are primarily to areas other
than Europe. Export sales from Europe and all other geographic areas are
principally to countries within their geographic area.
Note 16- Commitments and Contingencies
The Company has been named a potentially responsible party (PRP) in
the clean-up of three Superfund sites in Western New York. In addition,
the Company was notified in August 1993 by a PRP group at a related site
that it will seek contribution from the Company and others to the extent
the group is responsible for remediation costs at the related site. The
Company also is in the process of evaluating potential environmental
remediation actions at a Company owned facility leased to a third party.
At September 30, 1994, the Company believes that adequate reserves
have been established for environmental issues for which financial exposure
is probable and quantifiable. Because of the uncertainties associated with
environmental matters, the Company could be requested to participate in
future remediation activities, if any, at the three Superfund sites. With
respect to the related site, the clean-up effort has not progressed
sufficiently to allow an accurate assessment of total clean-up costs or,
the Company's relative responsibility for those costs. Based upon
currently available data, while it is difficult to predict, the Company
does not expect that these environmental matters will have a material
effect on the financial position of the Company in excess of amounts
previously reserved.
In the ordinary course of business, subsidiaries of the Company have
discounted promissory notes received in settlement of trade receivables at
banks. The aggregate proceeds from discounted notes were $14,809 in 1994,
$13,663 in 1993, and $15,100 in 1992. Under the recourse provisions of
such transactions, the subsidiaries are contingently liable for $2,926 at
September 30, 1994.
The Company has $9,464 in open letters of credit at September 30,
1994, which principally relate to cash advances received on a contract.
Purchase commitments outstanding at September 30, 1994 are $1,186 for
machinery and equipment.
Note 17 - Financial Instruments and Credit Concentration
The Company uses a variety of financial instruments, including foreign
exchange instruments, letters of credit, and interest rate swaps. These
instruments are utilized to meet the financing needs of the Company and to
reduce exposure to fluctuating foreign exchange rates. 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.
Foreign exchange instruments are used to hedge the Company's equity
in, and long term advances to, various International subsidiaries. At
September 30, 1994 and September 30, 1993, the Company had $9,935 and
$8,659, respectively, of such instruments outstanding at fair value. Gains
and losses on these hedges of equity and long term advances are included in
shareholders' equity. Foreign currency forward contracts are utilized to
hedge known foreign currency cash flows. Gains and losses on such
contracts are netted against the gain or loss on the underlying amounts
receivable or payable. Foreign currency forward contracts outstanding at
fair value on September 30, 1994 were $1,934. The Company has three
interest rate swap agreements which convert a notional amount of $60,000 in
variable rate long term debt to 8.2% fixed rate debt. The agreements
mature in June 1996. The differential interest paid or received is accrued
as interest rates change and is recognized over the life of the agreements.
Cash and cash equivalents and notes payable are carried at amounts
which approximate fair value at September 30, 1994 because of their short
maturity. The fair value of long-term debt was estimated based on a
discounted cash flow analysis using current rates offered to the Company
for debt with the same remaining maturities. At September 30, 1994, the
carrying value and estimated fair value of long-term debt was $175,207 and
$177,000, respectively.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and trade receivables. The Company places its temporary
investments with highly rated financial institutions for maturities of
generally three months or less. Concentrations of credit risk with respect
to trade receivables are limited due to the significant amount of business
with prime U.S. Government contractors or large commercial aerospace
companies, and to the number of customers and their dispersion over a large
geographic area.
Note 18- Quarterly Data - Unaudited
Net Sales and Earnings
(dollars in thousands except per share data)
Year Ended Year Ended
September 1994 September 1993
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Qtr. Qtr. Qtr. Qtr. Total Qtr. Qtr. Qtr. Qtr. Total
Net Sales $68,818 $75,127 $73,215 $90,210 $307,370 $68,118 $74,840 $72,151 $78,571 $293,680
Gross Profit 20,276 23,007 23,334 26,334 92,952 21,338 22,705 20,823 21,829 86,695
Earnings (Loss)
before Income
Taxes,
Extraordinary
Item and
Cumulative
Effect
of Change
in Accounting
Principle 311 (2,138) 2,151 2,716 3,040 1,202 2,452 2,536 2,430 8,620
Earnings (Loss)
before
Extraordinary
Item and
Cumulative
Effect of
Change in
Accounting
Principle 198 (1,241) 1,212 1,449 1,618 901 1,612 1,522 1,083 5,118
Extraordinary Item - - - - - (357) - - - (357)
Cumulative Effect
of Change in
Accounting
Principle 505 - - - 505 - - - - -
Net Earnings
(Loss) $ 703 $(1,241) $1,212 $ 1,449 $ 2,123 $ 544 $1,612 $1,522 $1,083 $4,761
Net Earnings
(Loss) Per
Common Share:
Before
Extraordinary
Item and
Cumulative
Effect of
Change in
Accounting
Principle $ .03 $ (.16) $ .16 $ .19 $ .21 $ .11 $ .21 $ .20 $ .14 $ .66
Extraordinary
Item - - - - - (.04) - - - (.04)
Cumulative
Effect of
Change in
Accounting
Principle .06 - - - .06 - - - - -
Net Earnings
(Loss) $ .09 $ (.16) $ .16 $ .19 $ .27 $ .07 $ .21 $ .20 $ .14 $ .62
Note: The 1994 quarterly Earnings Per Share do not add to the total due to rounding.
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors of Moog Inc.:
We have audited the consolidated financial statements of Moog Inc. and
subsidiaries listed in Item 14 (a)(1) of the annual report on Form 10-K for
the fiscal year 1994. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement
schedules listed in Item 14 (a)(2) of the annual report on Form 10-K for
the fiscal year 1994. These consolidated financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based
on our audits. We did not audit the financial statements of certain
wholly-owned consolidated subsidiaries, which statements reflect total
assets constituting 13% and 18% as of September 30, 1994 and 1993, and
total net sales constituting 18%, 22% and 21% of the related consolidated
totals for the years ended September 30, 1994, 1993 and 1992, respectively.
Those statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts
included for such consolidated subsidiaries, is based solely on the reports
of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing