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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
For the fiscal year ended September 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to ______________ 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
Incorporation or Organization) Identification No.)
East Aurora, New York 14052-0018
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code:(716) 652-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
_____________________________________ _________________________
Class A Common Stock, $1.00 Par Value American Stock Exchange
Class B Common Stock, $1.00 Par Value American Stock Exchange
_____________________________________ _________________________
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
Disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will 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
November 10, 1997 was approximately $188.4 million.
The number of shares of Common Stock outstanding as of the close
of business on November 10, 1997 was: Class A: 5,469,715; Class
B: 1,589,086.
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 27, 1997 (the "1997
Annual Report")
(2) Specific sections of the January 1998 Proxy Statement
to Shareholders (the "1998 Proxy")
_________________________________________________________________
MOOG INC.
FORM 10-K INDEX
_________________________________________________________________
PART I PAGE
Item 1 - Business 18-19
Item 2 - Properties 19
Item 3 - Legal Proceedings 19
Item 4 - Submission of Matters to a 19
Vote of Security Holders
PART II
Item 5 - Market for the Registrant's 19
Common Equity and Related
Stockholder Matters
Item 6 - Selected Financial Data 19-20
Item 7 - Management's Discussion and 21-26
Analysis of Financial Condition
and Results of Operations
Item 8 - Financial Statements and 27-39
Supplementary Data
Item 9 - Changes in and Disagreements with 40
Accountants on Accounting and
Financial Disclosure
PART III
Item 10 - Directors and Executive Officers 40
of the Registrant
Item 11 - Executive Compensation 41
Item 12 - Security Ownership 41
of Certain Beneficial
Owners and Management
Item 13 - Certain Relationships and 41
Related Transactions
PART IV
Item 14 - Exhibits, Financial Statement 41-43
Schedules, and Reports
on Form 8-K
Cautionary Statement
Information included or incorporated by reference which are not
historical facts are forward looking statements. Such forward
looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. The forward looking statements involve a number of risks
and uncertainties, including but not limited to, contracting with
various governments, changes in economic conditions, demand for
the Company's products, pricing pressures, intense competition in
the industries in which the Company operates, the need for the
Company to keep pace with technological developments and timely
response to changes in customer needs, and other factors
identified in the Company's Securities and Exchange Commission
filings.
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
1997 Annual Report, specific pages of which are referred to in
parentheses.
Description of the Company's Business. (See pages 2 through 16.)
Distribution. Moog's sales and marketing organization is
comprised of individuals possessing highly specialized technical
expertise. Such expertise is required in order to effectively
evaluate the customer's precision control requirements and to
facilitate communication between the customer's engineering staff
and the Moog engineering staff. Manufacturers' representatives
are used to cover certain aerospace and selected industrial
markets.
Industry and Competitive Conditions. The Company experiences
considerable competition in each of its five major product lines.
However, the Company is the only precision motion control
specialist which competes globally in all markets and all drive
technologies.
Many of its competitors have greater financial and other
resources than the Company. In Aircraft Controls, the Company's
principal competitors include Parker Hannifin Corporation,
Curtiss-Wright Corp., HR Textron, a subsidiary of Textron, Inc.
("HR Textron"), Teijin Seiki Limited and E-Systems Inc., a
Raytheon company, ("E-Systems"). In Satellites and Launch
Vehicles, the Company's principal competitors are AlliedSignal
Inc. and HR Textron. For the Industrial Hydraulics product line,
competitors are Robert Bosch AG, Mannesmann Rexroth AG and E-
Systems. Competitors in the Industrial Electrics product line
include Barber-Colman Company, Siemens AG, Indramat GmbH, Pacific
Scientific Company and Yaskawa Electric Corp.
Competition in each of the product lines is based upon design
capability, product performance and life, service, price and
delivery time. In certain product lines technological
considerations predominate over price considerations, while in
others price considerations are paramount. The Company believes
it competes effectively on all of these bases.
Backlog. Substantially all backlog will be realized as sales in
the next twelve months. The information required herein is
incorporated by reference to Item 6, Selected Financial Data, on
page 20.
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.
Working Capital. The information required herein is incorporated
by reference to the discussion on inventories in Note 1 of Item 8
on page 31.
Seasonality. Moog's business is generally not seasonal.
Patents. Moog has numerous patents and has filed applications
for others. While the aggregate protection afforded by these is
of value, the Company does not consider the successful conduct of
any material part of its business dependent upon such protection.
The Company's patents and patent applications, including U.S.,
Canadian, European and Japanese patents, relate to
electrohydraulic, electropneumatic and electromechanical
actuation mechanisms and control valves, electronic control
component systems and interface devices.
Research Activities. Research and product development activity
has been and continues to be significant to the Company. The
information required herein is incorporated by reference to Item
6, Selected Financial Data, on page 20.
Employees. The information required herein is incorporated by
reference to Item 6, Selected Financial Data, on page 20.
Segment Financial Information. The information required herein is
incorporated by reference to Notes 10 and 11 of Item 8 on page
37.
Customers. The information required herein is incorporated by
reference to pages 2 through 16 and 37. In aggregate, the Company
markets its products to a wide variety of customers. The Boeing
Corporation (including Boeing Helicopters, McDonnell Douglas and
the former Space and Defense business of Rockwell) represented
approximately 19% of fiscal 1997 sales, with sales to U.S.
government prime- or sub-contractors, including military sales to
Boeing, representing approximately 30% of sales. The
concentration of customers varies within product lines. In the
Commercial and Military Aircraft product lines as well as
Satellites and Launch Vehicles, a few customers provide the
majority of revenues, while in the Industrial Hydraulics and
Industrial Electrics product lines revenues are spread over a
wide customer base.
International Operations. Moog's International Controls segment
is an aggregate of operations located predominantly in Europe and
the Asian-Pacific region. (See pages 2 through 16, 37 and 42.)
The Company's international operations are subject to the usual
risks inherent in international trade, including currency
fluctuations, local governmental foreign investment restrictions,
exchange controls, regulation of the import and distribution of
foreign goods, as well as changing economic and social conditions
in countries in which such operations are conducted.
Environmental Matters. See pages 26 and 38.
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. These facilities consist of 755,525 square feet which
are owned, and 53,992 square feet which are under capital lease
and financed primarily by industrial revenue bonds which allow
the Company to purchase the facilities at nominal prices upon
expiration. The Domestic Controls segment leases 187,190 square
feet in East Aurora and 6,155 square feet in Torrance under
operating leases. Outside of the U.S., the Domestic Controls
segment owns manufacturing centers in the Philippines and India
consisting of 63,777 square feet and 31,299 square feet,
respectively.
The International Controls segment maintains major manufacturing
facilities in Germany, England and Japan. Of the major European
facilities, 4,500 square feet are owned and 219,235 square feet
are leased under operating lease agreements. The Japanese
facility, consisting of 67,911 square feet, is owned. A specialty
manufacturing operation with 27,750 square feet which is owned is
located in Ireland. In various other major markets, including
Italy, France, Spain, Sweden, Finland, Denmark, Brazil,
Australia, South Korea, Hong Kong and Singapore, the Company has
sales and applications engineering offices. Of these facilities,
30,027 square feet are owned and 74,977 square feet are leased
under operating leases. Operating leases of the International
facilities expire at varying times from December 1997 through
June 2013.
The Company believes that its properties have been adequately
maintained and are in generally good condition. The Company
currently has plans to add approximately 94,500 square feet and
30,000 square feet of manufacturing capacity between its East
Aurora, New York and Baguio City, Philippines locations,
respectively. After completion of such expansion the Company
believes that its existing facilities will provide sufficient
production capacity for its needs in the foreseeable future. Upon
the expiration of its current leases, the Company believes that
it will be able to either secure renewal terms or enter into
leases for alternative locations at market terms.
ITEM 3. Legal Proceedings.
From time to time, the Company is named as a defendant in legal
actions arising in the normal course of business. The Company is
not a party to any pending legal proceedings the resolution of
which management believes will have a material adverse effect on
the Company's results of operations or financial condition and
liquidity or to any pending legal proceedings other than
ordinary, routine litigation incidental to its business.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None.
Part II
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
Dividend restrictions are detailed in Note 6 on page 33 of Item
8. Other information required herein is incorporated by reference
to pages 20, 43 and 45.
ITEM 6. Selected Financial Data - Notes and Discussion.
Refer to the table on the following page for the Selected
Financial Data for the five year fiscal period 1993 - 1997. For a
more detailed discussion of 1995 through 1997 refer to
Management's Discussion and Analysis of Financial Condition and
Results of Operations on pages 21 through 26 and Notes to
Consolidated Financial Statements on pages 31 through 39.
ITEM 6. Selected Financial Data.
(dollars in thousands except per share data)
Fiscal Years 1997(1), (2) 1996 1995 1994(3), (4) 1993
__________________________________________________________________________________________
RESULTS FROM OPERATIONS
Net Sales $ 455,929 $ 407,237 $ 374,284 $ 307,370 $ 293,680
Earnings before extraordinary
item and cumulative effect of
change in accounting for
income taxes $ 13,606 $ 11,219 $ 7,761 $ 1,618 $ 5,118
Net Earnings $ 13,606 $ 10,709 $ 7,761 $ 2,123 $ 4,761
Per share
Earnings before extraordinary
item and cumulative effect of
change in accounting for
income taxes $ 1.88 $ 1.47 $ 1.00 $ .21 $ .66
Net earnings $ 1.88 $ 1.40 $ 1.00 $ .27 $ .62
Average common and common
equivalent shares outstanding 7,224,612 7,639,312 7,721,927 7,714,444 7,713,465
__________________________________________________________________________________________
FINANCIAL POSITION
Total Assets $ 490,563 $ 449,558 $ 424,957 $ 424,456 $ 318,130
Working Capital 187,521 187,971 166,985 150,850 123,533
Indebtedness - senior 118,245 91,262 170,361 183,376 115,515
- senior
subordinated 120,000 120,000 19,400 20,800 22,082
Shareholders' equity 114,191 104,743 108,636 102,184 92,561
Shareholders' equity per common
share outstanding 16.18 15.01 14.06 13.25 12.00
__________________________________________________________________________________________
SUPPLEMENTAL FINANCIAL DATA
Capital expenditures $ 13,713 $ 10,885 $ 10,232 $ 8,893 $ 10,216
Depreciation and amortization 21,267 19,632 19,675 15,700 15,621
R&D - Company funded 17,798 17,303 15,783 18,668 16,128
- customer funded 14,071 24,411 21,603 25,332 30,986
Backlog - Domestic 236,409 205,516 195,908 181,405 149,035
- International 43,955 37,794 42,033 35,856 32,046
__________________________________________________________________________________________
ADDITIONAL DATA
Number of employees 3,657 3,229 3,003 3,140 2,824
Number of shareholders - Class A 1,722 1,904 2,114 2,424 2,665
- Class B 810 898 966 1,088 1,201
__________________________________________________________________________________________
RATIOS
Net return on sales 3.0% 2.6% 2.1% .7% 1.6%
Return on shareholders' equity 12.4% 10.0% 7.4% 2.2% 5.0%
Current ratio 2.75 2.89 2.76 2.46 2.33
Debt to shareholders' equity 2.09 2.02 1.75 2.00 1.49
Long-term senior debt to
capitalization(5) 30.3% 25.6% 55.5% 56.8% 40.8%
Long-term debt to capitalization(5) 66.0% 65.3% 61.8% 63.7% 51.7%
__________________________________________________________________________________________
(1) Effective in fiscal 1997, the Company changed its fiscal year-end to the last Saturday in September
(September 27, 1997 for fiscal 1997). The impact on the current year results of operations was
not material.
(2) Includes the effects of the October 1996 acquisition of the industrial hydraulic servocontrols
business of International Motion Control Inc. See Note 2 to the Consolidated Financial Statements.
(3) Includes the effects of the June 1994 acquisition of the hydraulic and mechanical actuation product
lines of AlliedSignal Inc.
(4) Includes the effect of pre-tax restructuring charges of $4.7 million.
(5) Capitalization is equal to total long-term debt, excluding current maturities, and shareholders'
equity.
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The Company is a leading worldwide designer and manufacturer of a
broad range of high performance, precision motion and fluid
control products and systems for aerospace and industrial
markets. Moog's servoactuation systems are critical to the
flight control of commercial and military aircraft, positioning
satellites, controlling the thrust of space launch vehicles,
steering tactical and strategic missiles, and a wide variety of
hydraulic and electric industrial applications requiring the
precise control of position, velocity and force.
The Company has two segments, Domestic Controls and International
Controls. Domestic Controls primarily focuses on North American
markets, with the majority of its sales in aerospace-related
product lines. International Controls is focused on markets in
Europe and the Asian-Pacific, with the majority of sales in
industrial product lines.
The Company has five principal product lines. Aerospace Controls
includes Commercial Aircraft, Satellites and Launch Vehicles and
Military Aircraft. Industrial Controls includes Industrial
Hydraulics and Industrial Electrics controls. The Commercial
Aircraft product line provides servovalves and flight controls
for Boeing, Airbus and regional jet aircraft. The Satellites and
Launch Vehicles product line includes satellite positioning
controls and steering controls for launch vehicles, strategic
missiles and tactical missiles. The Military Aircraft product
line provides primary and secondary flight controls and engine
controls for advanced fighters, helicopters and bomber aircraft.
Industrial Hydraulics controls principally consist of servovalves
used in various applications including plastic injection and blow
molding, steam and gas turbines, steel rolling mills and fatigue
testing machines. The Industrial Electrics product line includes
motion simulators, controls for gun and turret positioning on
military ground vehicles and electric drives. In each product
line, significant revenues are generated through Aftermarket
sales, including spares and repairs.
The Company considers strategic acquisitions to enhance market
share or improve engineering and manufacturing capability. On
October 26, 1996, the Company acquired the assets of and assumed
certain liabilities related to the industrial hydraulic
servocontrols business (the U.S. Industrial Hydraulics Business)
of International Motion Control Inc., an unrelated third party,
for $48.6 million. The U.S. Industrial Hydraulics Business, which
operated under the name Moog Controls Inc., was spun off by the
Company in February 1988. The acquisition was principally
financed with proceeds from the Company's U.S. Revolving Credit
and Term Loan Facility (the Bank Credit Facility).
Sales
Aerospace and Industrial Controls sales were 64% and 36% of 1997
sales, respectively. In Aerospace Controls, the Company's sales
are dependent on commercial aircraft demand, procurement and
spending levels on various military programs and the demand for
satellites serving the telecommunications and direct broadcasting
industries. In Industrial Controls, the Company is subject to
changes in capital goods spending cycles in regional markets. The
Company's sales in each product category are subject to different
short and long-term cycles; however, the impact of cyclicality in
sales is mitigated by the diversity of the product lines and the
Company's broad global distribution capabilities.
Sales of Aerospace Controls are typically pursuant to long-term
contracts for which the Company uses the percentage of completion
(cost-to-cost) method of accounting. Under this method, revenues
are recognized as costs are incurred. Estimates of the cost to
complete the contracts are performed on a regular basis. On
contracts for which the estimated factory cost is higher than the
contract's value, a charge to earnings is made, and a loss
reserve created. The Company believes that adequate reserves have
been established.
International Controls sales were approximately 29% of
consolidated 1997 sales. Results of operations can be affected in
U.S. dollar terms by the fluctuation in foreign exchange rates.
Exposure to currency movements can be mitigated by the number of
countries in which the Company operates. Although the Company
does not hedge the operating results of its international
operations, it selectively hedges certain balance sheet
exposures.
Spare parts and repairs are aggressively marketed directly to the
Company's Aerospace and Industrial Controls customers. Sales of
spare parts and repairs are generally more profitable and less
volatile than OEM sales. Aftermarket sales were approximately
19% of 1997 and 1996 sales.
Over the past five years, government sales, as a percentage of
total sales, has declined as the Company has increased its focus
on the development and acquisition of Commercial Aircraft and
Industrial Controls product lines. In 1993, government sales were
57% of consolidated net sales compared to 39% in 1997. The mix of
commercial and government sales is not expected to materially
shift in the near future.
Cost of Sales
The principal elements of cost of sales are direct labor, raw
materials and manufacturing overhead. The Company has a highly
skilled workforce and an infrastructure of engineering and
related support costs. The business requires significant
investments in capital equipment, buildings and related support
costs. Cost of sales can be significantly affected by changes in
both volume and product mix. Accordingly, short-term changes in
volume can have a significant effect on gross margins.
Selling, General and Administrative Expenses
The Company's selling, general and administrative expenses are
generally higher in Industrial Controls compared to Aerospace
Controls. Typically, Industrial Controls has higher gross profit
margins, while requiring higher sales and support efforts.
Accordingly, shifts in the sales mix to or from Industrial
Controls will generally affect total selling, general and
administrative expenses as a percentage of sales. For Aerospace
Controls, selling, general and administrative expenses are also
affected by the extent of bid and proposal work on long-term
programs.
Research and Development
Research and development expenses can vary depending on whether
the engineering staff is engaged in customer-funded design and
development activities or Company-funded design and development
activities. Annual Company-funded research and development
expenses have averaged $17.1 million over the past five years.
Sales related to customer-funded design and development have
averaged $23.3 million, or 6.3% of sales, from 1993 to 1997. The
decline in customer-funded design and development costs in 1997
reflects the transition of certain long-term military programs
from the development phase to production.
Income Taxes
The Company's effective tax rate reflects differing tax rates of
the various countries in which it conducts its business.
Variations in where the Company earns income can have an impact
on the effective tax rate.
Fiscal Year
Effective in fiscal 1997, the Company changed its fiscal year-end
from September 30 to the last Saturday in September (September
27, 1997 for fiscal 1997). The impact on 1997 results of
operations was not material.
MOOG Inc.
Results of Operations
_________________________________________________________________
Fiscal Years Ended
_________________________________________________________________
September 27, September 30, September 30,
(dollars in thousands) 1997 1996 1995
_________________________________________________________________
DOMESTIC CONTROLS
Net sales
Aerospace $ 265,835 $ 249,594 $ 232,525
Industrial 59,031 26,981 21,401
_____________ _____________ _____________
324,866 276,575 253,926
Intersegment sales 13,792 11,912 10,446
_____________ _____________ _____________
Total sales $ 338,658 $ 288,487 $ 264,372
============= ============= =============
Operating profit $ 43,288 $ 32,744 $ 25,242
Backlog 236,409 205,516 195,908
INTERNATIONAL CONTROLS
Net sales
Aerospace $ 25,978 $ 19,382 $ 19,086
Industrial 105,085 111,280 101,272
_____________ _____________ _____________
131,063 130,662 120,358
Intersegment sales 7,887 14,983 4,728
_____________ _____________ _____________
Total sales $ 138,950 $ 145,645 $ 125,086
============= ============= =============
Operating profit $ 7,977 $ 11,796 $ 8,464
Backlog 43,955 37,794 42,033
CONSOLIDATED
Net sales
Aerospace $ 291,813 $ 268,976 $ 251,611
Industrial 164,116 138,261 122,673
_____________ _____________ _____________
$ 455,929 $ 407,237 $ 374,284
============= ============= =============
Operating profit $ 51,369 $ 43,339 $ 33,487
Net earnings 13,606 10,709 7,761
Backlog 280,364 243,310 237,941
_________________________________________________________________
1997 Compared with 1996
Consolidated
Net sales for 1997 were $455.9 million compared with $407.2
million in 1996. The sales improvement is due to increases of
$25.9 million in Industrial Controls and $22.8 million in
Aerospace Controls. The increase in Industrial Controls resulted
primarily from the acquisition of the U.S. Industrial Hydraulics
Business, which added approximately $28 million in revenues
during 1997, and to a lesser extent, increased demand for
entertainment simulators. Industrial Controls sales increases in
Europe and the Asian-Pacific were more than offset by exchange
rate fluctuations, particularly in Germany and Japan. The effect
on Industrial Controls sales of the decline in the value of the
applicable foreign currencies relative to the U.S. dollar was
approximately 8% in 1997 compared to 1996, or approximately $9
million. The sales improvement in Aerospace Controls resulted
primarily from increased volume in the Commercial Aircraft
product line and, to a lesser extent, the Satellites and Launch
Vehicles product line, tempered by expected declines in Military
Aircraft.
Cost of sales for 1997 was 69.2% of net sales, which is
comparable to 1996. Increased volume and product mix in
Aerospace Controls had a favorable effect of approximately $3
million on consolidated cost of sales. The improved Aerospace
Controls gross margin was offset by unfavorable product mix and
adverse changes in foreign currencies in Industrial Controls, in
particular Germany, and, to a lesser extent, costs incurred to
improve the longer-term margins of Industrial Electrics.
Selling, general and administrative expenses were $81.4 million,
or 17.9% of net sales, in 1997, compared to $75.7 million, or
18.6% of net sales, in 1996. The decrease as a percentage of
sales is principally due to growth in sales.
Interest expense increased by $4.6 million to $22.7 million in
1997, as compared to 1996, due primarily to additional
indebtedness incurred for the October 1996 acquisition of the
U.S. Industrial Hydraulics Business.
The 1997 tax rate of 30.5% primarily reflects benefits resulting
from the distribution of earnings from the German subsidiary and
tax incentives associated with U.S. export sales.
Other income decreased by $.8 million to $1.6 million in 1997 as
1996 included $.5 million of license fees received on a foreign
military program.
Other expense in 1997 includes $.4 million of the Company's share
of costs associated with the start-up phase of a joint venture
that manufactures and markets manifolds for OEM machinery, as
well as losses associated with disposals of assets.
Results in 1996 include a $.5 million extraordinary loss, net of
income tax benefit, on the early repayment of debt.
As a result of the previously mentioned factors, net earnings for
1997 increased to $13.6 million, or $1.88 per share, compared
with $10.7 million, or $1.40 per share in 1996.
Domestic Controls
Domestic Controls net sales increased by 17.5% to $324.9 million
in 1997 compared to $276.5 million in 1996. Sales of Industrial
Controls increased by $32.1 million primarily due to the October
1996 acquisition of the U.S. Industrial Hydraulics Business. In
addition, increased sales of entertainment motion simulators of
approximately $6 million contributed to the higher sales of
Industrial Controls. Sales of Aerospace Controls increased by
$16.2 million in 1997 due to growing Commercial Aircraft and
Satellites and Launch Vehicles demand. Sales of flight controls
for Commercial Aircraft to Boeing increased approximately 47%
from a year ago. The demand for cellular phones, pagers and
direct-to-home television has resulted in increased sales of
controls for communication-related Satellites and Launch
Vehicles. These increases were in part offset by expected sales
declines of approximately $12 million in the Military Aircraft
product line as certain programs, particularly the F/A-18 Super
Hornet and V-22 Osprey, were transitioning from the development
phase to low rate initial production.
Operating profit for the Domestic Controls segment was up 32.2%
to $43.3 million for 1997, or 12.8% of segment sales. This
compares with $32.7 million, or 11.4% of segment sales a year
ago. Approximately half of the increase was attributable to
higher Aerospace Controls sales, in addition to a more favorable
product mix in Commercial and Military Aircraft controls.
Industrial Controls accounted for the remainder of the Domestic
Controls operating profit increase primarily due to the
acquisition of the U.S. Industrial Hydraulics Business.
Backlog for the Domestic Controls segment was $236.4 million at
September 27, 1997 compared with $205.5 million at September 30,
1996. The increase from a year ago is due to low rate initial
production orders received on the F/A-18 Super Hornet, V-22
Osprey and Standard Missile 2 programs, growth in orders for
entertainment simulators and the acquisition of the U.S.
Industrial Hydraulics Business. Backlog consists of that portion
of open orders for which sales are expected to be recognized over
the next twelve months.
International Controls
International Controls net sales for 1997 of $131.1 million were
flat as compared to 1996 net sales of $130.7 million despite
lower average currency values. Excluding the changes in currency
values, 1997 sales increased approximately 8%. Sales of
Aerospace Controls, excluding the foreign exchange impact,
increased approximately $7 million in 1997 particularly on the
strength of Military Aircraft controls in the United Kingdom and,
to a lesser extent, missile controls in Italy. Sales of
Industrial Controls increased approximately $4 million in 1997,
excluding the foreign exchange impact, primarily due to improved
sales in the Company's Industrial Electrics product line. Sales
of Industrial Hydraulics controls marginally declined in Europe
and were offset by sales gains in Japan.
Operating profit for the International Controls segment decreased
32.4% to $8.0 million, or 5.7% of segment sales, compared to
$11.8 million, or 8.1% of segment sales, in 1996, primarily
related to Industrial Controls. Margins in Europe were affected
by the movement of certain currencies in countries where the
Company's products are manufactured relative to currencies in
countries where the products are sold. Margins in the Industrial
Electrics product line were affected by approximately $1.5
million of costs incurred throughout the year to better position
plastic systems controls for the long-term. The remainder of the
decline was attributable to a shift in Industrial Controls
product lines to lower margin electric controls, along with a
shift within the Industrial Hydraulics product line away from
higher margin mechanical feedback valves.
Backlog at September 27, 1997 for the International Controls
segment was $44.0 million compared to $37.8 million at September
30, 1996. The increase was attributable to growth in orders for
electric drives for military ground vehicles in Germany and
Industrial Hydraulics in Japan, partially offset by approximately
$4 million attributable to weaker currencies.
1996 Compared with 1995
Consolidated
Net sales for 1996 were $407.2 million versus $374.3 million in
1995. The increase was due to an increase of $17.4 million in
sales of controls for Aerospace applications and an increase of
$15.6 million in Industrial Controls. The increased Aerospace
Controls sales were attributable to increased volume in controls
for Commercial and Military Aircraft and Satellites and Launch
Vehicles, while Industrial Controls increased as a result of
improved sales of Industrial Hydraulics controls throughout
Europe.
Cost of sales for 1996 was 69.2% of net sales compared to 70.8%
of net sales in 1995. Approximately half of the decrease as a
percentage of sales was due to transition costs incurred in 1995
related to the acquisition of certain actuation product lines of
AlliedSignal Inc. in June 1994 and the remainder was due to
increased sales in the higher margin Industrial Hydraulics and
Satellites and Launch Vehicles product lines.
Research and development expenses increased to $17.3 million in
1996 from $15.8 million in 1995 due to the development of
advanced actuation technology and active vibration development
efforts in the U.S. related to Commercial and Military Aircraft
controls.
Selling, general and administrative expenses in 1996 were $75.7
million, or 18.6% of net sales, compared to $68.5 million, or
18.3% of net sales, in 1995. Approximately half of the increase
as a percentage of sales resulted from compensation costs
associated with stock appreciation rights, with the remainder due
to temporarily high legal expenses and amortization of debt
issuance costs.
Interest expense was $18.1 million for 1996, compared with $17.5
million for 1995. A recapitalization initiated by the Company in
May 1996 enhanced the Company's long-term capital base and
provided additional senior debt capacity to fund growth, while
increasing the Company's average interest rate. Although the
recapitalization resulted in higher interest expense for the
third and fourth quarters of 1996, interest expense declined to
4.5% of sales in 1996 from 4.7% in 1995.
The effective tax rate for 1996 was 30.1%. The effective tax
rate was affected by the utilization of net operating loss
carryforwards at the German subsidiary. In 1996, the Company
continued to reduce its valuation allowance for deferred tax
assets principally related to the improving financial position of
its German subsidiary.
Results in 1996 include a $.5 million extraordinary loss, net of
income tax benefit, on the early repayment of debt.
As a result of the factors mentioned above, net earnings for
1996 increased to $10.7 million, or $1.40 per share, compared
with $7.8 million, or $1.00 per share, in 1995.
Domestic Controls
Domestic Controls net sales in 1996 were $276.5 million, up 8.9%
above net sales of $253.9 million in 1995. Sales of Aerospace
Controls accounted for most of the increase.
Operating profit for the Domestic Controls segment was $32.7
million for 1996, or 11.4% of segment sales. This compares to
$25.2 million, or 9.5% of segment sales, in 1995. Aerospace
Controls accounted for substantially all of the increase as a
result of increased sales, along with the absence in 1996 of
transition costs associated with the acquisition of certain
actuation product lines from AlliedSignal Inc. in 1994.
International Controls
International Controls net sales in 1996 were $130.7 million
versus $120.4 million in 1995. International Controls net sales
growth relates principally to increased volumes due to stronger
demand for Industrial Hydraulics throughout Europe and, to a
lesser degree, the December 1995 acquisition of the industrial
servovalve product line of Ultra Hydraulics Limited. The
movement of certain foreign currencies relative to the U.S.
dollar in 1996 versus 1995 did not have a significant impact on
sales.
International Controls operating profit was $11.8 million for
1996, or 8.1% of segment sales, compared to $8.5 million, or 6.8%
of segment sales in 1995. The increase is a result of higher
segment sales due to improved European capital goods market
conditions.
Financial Condition and Liquidity
Cash provided by operating activities was $32.0 million in 1997
compared to $15.2 million in 1996 and 1995. The increase in 1997
resulted from lower working capital requirements, and to a lesser
extent, improved earnings as adjusted for non-cash expenses and
charges.
Long-term senior debt increased by $24.2 million to $101.6
million at September 27, 1997 from September 30, 1996 primarily
due to the acquisition of the U.S. Industrial Hydraulics
Business, which was principally financed with proceeds from the
Bank Credit Facility, offset by cash provided by operations. The
percentage of long-term debt to capitalization at September 27,
1997 was 66.0% compared to 65.3% at September 30, 1996.
At September 27, 1997, the Company had $87.7 million of unused
borrowing capacity available under short and long-term lines of
credit, including $68.0 million from the Bank Credit Facility.
During 1997, the Company obtained a $15 million credit facility
for its international subsidiaries. Approximately $5.7 million
was available on this facility at September 27, 1997.
Working capital at September 27, 1997 was $187.5 million compared
to $188.0 million at September 30, 1996. The current ratio was
2.75 at September 27, 1997, compared to 2.89 at September 30,
1996.
Current assets increased by $7.1 million to $294.7 million at
September 27, 1997. The increase was due to the acquisition of
the U.S. Industrial Hydraulics Business which added
approximately $12 million of current assets, primarily
receivables and inventories. In addition, receivables and
inventories increased in the International Controls segment as a
result of increased business. These increases were partially
offset by foreign currency fluctuations which resulted in a
decrease in current assets of approximately $8 million.
Current liabilities increased by $7.6 million to $107.2 million
at September 27, 1997. The increase was due to greater working
capital demands related to higher sales and approximately $4
million from the acquisition of the U.S. Industrial Hydraulics
Business. These increases were partially offset by changes in
foreign currency translation values resulting in a reduction in
current liabilities of approximately $3 million.
Net property, plant and equipment increased $.7 million to $132.1
million at September 27, 1997. Capital expenditures for 1997
were $13.7 million compared with depreciation and amortization of
$21.3 million. Capital expenditures in 1996 were $10.9 million
compared with depreciation and amortization of $19.6 million.
The acquisition of the U.S. Industrial Hydraulics Business added
approximately $7 million of property, plant and equipment, while
unfavorable movements in foreign currency translation values
resulted in a decrease of approximately $2 million. During 1997,
the Company entered into operating leases for equipment which
otherwise would have had a purchase cost of $6.9 million. Capital
expenditures for 1998 are expected to be below depreciation and
amortization levels. Capital expenditures in 1998 are expected
to include the cost of approximately 124,500 square feet of
facilities expansion for the Domestic Aerospace Controls
operations and a low cost manufacturing operation in the
Philippines.
Goodwill increased by $33.6 million to $49.6 million at September
27, 1997, primarily as a result of the October 1996 acquisition
of the U.S. Industrial Hydraulics Business, offset by current
year amortization of $2.9 million. The goodwill resulting from
this acquisition is being amortized over 30 years.
Recently Issued Accounting Pronouncements
Effective October 1, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and SFAS No. 123 "Accounting for Stock-Based
Compensation." As permitted by SFAS No. 123, the Company has
elected to continue measuring its compensation expense using the
principles of Accounting Principles Board Opinion No. 25. The
adoption of these standards had no effect on the Company's
consolidated financial position or results of operations.
In February 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 128, "Earnings per Share" which will be adopted
by the Company during the first quarter of 1998. At that time,
the Company will change the method currently used to compute
earnings per share (EPS) and restate all prior periods, as
required. Under the new requirements for calculating basic EPS,
the dilutive effect of stock options will be excluded. When
adopted, basic EPS required under SFAS No. 128 will be reported
for 1997, 1996 and 1995 as $1.95, $1.44 and $1.00, respectively,
and diluted EPS will be $1.88, $1.40 and $1.00, respectively.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." The standard must be adopted by fiscal
1999. SFAS No. 130 does not change any accounting measurements,
but requires presentation of comprehensive income and a
reconciliation thereof to net income. The principal differences
between comprehensive and net income are certain adjustments made
directly to shareholders' equity, such as foreign currency
translation adjustments.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which
requires financial information to be reported on the basis that
is used internally for evaluating segment performance and
deciding how to allocate resources to segments. The standard
must be adopted by fiscal 1999. The Company is currently
evaluating the disclosures required under this new standard.
Other
Foreign exchange instruments are used to hedge the Company's
equity in, and long-term advances to, various international
subsidiaries. In addition, the Company periodically utilizes
foreign currency forward contracts to hedge known foreign
currency cash flows. Interest rate swaps are used to manage
exposure to increases in interest rates on a floating-rate credit
facility. The Company does not hold or issue financial
instruments for trading purposes.
At September 27, 1997, the Company believes that adequate
reserves have been established for all currently pending
environmental issues, and does not expect environmental matters
and the utilization of existing reserves, if any, to have a
material effect on the financial condition and liquidity or
results of operations of the Company.
Sales to Boeing represented approximately 19% of the Company's
1997 net sales, and approximately 10% of the Company's sales were
to Boeing for Commercial Aircraft only. Boeing recently
announced plans, and the related costs, to rectify difficulties
it is experiencing with commercial aircraft production
inefficiencies and resulting late deliveries of its 7 series
airplanes. Boeing's announced plans to rectify these matters
include, among other things, the temporary shutdown of certain
lines of production to allow it to concentrate on catching up on
deliveries of certain of its 7 series aircraft. As Moog is
current on all of its scheduled deliveries to Boeing, the Company
does not foresee that any temporary shutdown will have any
materially adverse impact on its results of operations at this
time or in the near future. However, there can be no assurance
that, at some future date, Boeing will not modify its existing
orders with the Company in order to allow other vendors to catch
up on deliveries.
Recent months have seen an unusually rapid devaluation of certain
Asian-Pacific currencies including those in countries where the
Company has operations. Similarly, certain financial markets
have experienced valuation adjustments. The Company's sales in
the Asian-Pacific, excluding Japan, were $9.0 million in 1997, or
2.0% of consolidated sales. Including Japan, sales were $31.5
million or 6.9% of sales. At this time, the Company is unaware
of any major shifts in incoming orders that would produce
materially adverse effects on the Company's results of operations
in the near term.
The Company is currently evaluating the potential impact of the
computer systems and software products situation commonly
referred to as the "Year 2000 Issue." The Year 2000 Issue, which
affects most corporations, concerns the inability of information
systems, primarily computer software programs, to properly
recognize and process date-sensitive information relating to the
year 2000 and beyond. The Company utilizes a significant number
of computer software programs and operating systems across its
entire organization, including applications used in
manufacturing, product development, financial business systems
and various administrative functions. To the extent the
Company's software applications contain source code that is
unable to appropriately interpret the upcoming calendar year
"2000," some level of modification, or even possibly replacement
of such applications may be necessary. The Company is currently
in the process of completing the identification of applications
that may require modification or replacement. The Company does
not currently anticipate that it will incur material expenditures
to complete any such modification or replacement as the Company
believes that a majority of its systems are Year 2000 compliant,
although there can be no assurance in this regard. The Company's
issues relate not only to its own systems being Year 2000
compliant, but also those systems of its suppliers and customers.
A failure of suppliers or customers to address the Year 2000
Issue could have a material adverse effect on the Company.
Outlook
The Company believes its Aerospace Controls product lines are
well positioned. The Commercial Airplane market upswing, the
demand for Satellites and Launch Vehicles, and Military Aircraft
modernization programs are expected to provide revenue growth.
The Industrial Hydraulics product line was significantly
enhanced with the acquisition of the U.S. Industrial Hydraulics
Business in October 1996. Further synergies are expected in 1998
as the integration with the European and the Asian-Pacific
subsidiaries continues. Sales growth in Industrial Electrics is
anticipated principally due to military ground vehicle controls
and entertainment simulators.
ITEM 8. Financial Statements and Supplementary Data.
_________________________________________________________________
MOOG INC.
Consolidated Statements of Earnings
_________________________________________________________________
Fiscal Years Ended
__________________________________________
(dollars in thousands September 27, September 30, September 30,
except per share data) 1997 1996 1995
_________________________________________________________________
NET SALES $ 455,929 $ 407,237 $ 374,284
OTHER INCOME 1,565 2,380 2,166
___________ ____________ ____________
457,494 409,617 376,450
COSTS AND EXPENSES
Cost of sales 315,380 281,710 265,033
Research and development 17,798 17,303 15,783
Selling, general and
administrative 81,413 75,707 68,457
Interest 22,675 18,124 17,492
Other expenses 649 723 895
___________ ____________ ____________
437,915 393,567 367,660
___________ ____________ ____________
EARNINGS BEFORE INCOME
TAXES AND EXTRAORDINARY
ITEM 19,579 16,050 8,790
INCOME TAXES (note 7) 5,973 4,831 1,029
___________ ____________ ____________
EARNINGS BEFORE
EXTRAORDINARY ITEM 13,606 11,219 7,761
EXTRAORDINARY ITEM, LOSS
FROM EARLY EXTINGUISHMENT
OF DEBT, NET OF INCOME
TAX BENEFIT OF $300
(note 6) -- (510) --
___________ ____________ ____________
NET EARNINGS $ 13,606 $ 10,709 $ 7,761
=========== ============ ============
NET EARNINGS PER COMMON
AND COMMON EQUIVALENT
SHARE:
Before extraordinary
item $ 1.88 $ 1.47 $ 1.00
Extraordinary item -- (.07) --
___________ ____________ ____________
Net earnings $ 1.88 $ 1.40 $ 1.00
=========== ============ ============
AVERAGE COMMON AND
COMMON EQUIVALENT
SHARES OUTSTANDING 7,224,612 7,639,312 7,721,927
_________________________________________________________________
See accompanying Notes to Consolidated Financial Statements.
MOOG INC.
Consolidated Balance Sheets
_________________________________________________________________
As of As of
September 27, September 30,
(dollars in thousands) 1997 1996
________________________________________________________________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,800 $ 9,639
Receivables (note 3) 160,054 155,972
Inventories (note 4) 103,866 99,318
Deferred income taxes
(note 7) 18,935 19,708
Prepaid expenses and other
current assets 5,052 2,939
____________ _____________
TOTAL CURRENT ASSETS 294,707 287,576
PROPERTY, PLANT AND EQUIPMENT
(notes 5 and 6) 132,109 131,371
GOODWILL, net of accumulated
amortization of $7,528 in
1997, and $4,676 in 1996 49,626 16,024
OTHER ASSETS 14,121 14,587
____________ _____________
TOTAL ASSETS $ 490,563 $ 449,558
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable (note 6) $ 1,323 $ 3,420
Current installments of
long-term debt (note 6) 15,345 10,491
Accounts payable 23,860 21,597
Accrued salaries, wages and
commissions 28,747 24,504
Contract loss reserves 8,170 10,966
Accrued interest 7,253 6,160
Federal, state and foreign
income taxes 5,419 4,728
Other accrued liabilities 10,439 9,480
Customer advances 6,630 8,259
____________ _____________
TOTAL CURRENT
LIABILITIES 107,186 99,605
LONG-TERM DEBT, excluding
current installments (note 6)
Senior debt 101,577 77,351
Senior subordinated notes 120,000 120,000
OTHER LONG-TERM LIABILITIES
(notes 7 and 8) 47,609 47,859
____________ _____________
TOTAL LIABILITIES 376,372 344,815
____________ _____________
COMMITMENTS AND CONTINGENCIES
(note 12)
SHAREHOLDERS' EQUITY (see page
30 and notes 8 and 9)
9% Series B Cumulative, Convertible,
Exchangeable Preferred stock -
Par Value $1.00
Authorized 200,000 shares.
Issued 100,000 shares. 100 100
Common Stock - Par Value $1.00
Class A - Authorized 30,000,000
shares. Issued 6,635,936 shares
in 1997 and 6,629,245 shares
in 1996. 6,636 6,629
Class B - Authorized 10,000,000
shares. Convertible to Class A on
a one for one basis. Issued
2,498,187 shares in 1997 and
2,504,878 shares in 1996. 2,498 2,505
Additional paid-in capital 47,519 47,611
Retained earnings 88,422 74,825
Treasury shares (30,967) (31,803)
Equity adjustments 977 5,377
Loan to Savings and Stock
Ownership Plan (994) (501)
____________ _____________
TOTAL SHAREHOLDERS'
EQUITY 114,191 104,743
____________ _____________
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 490,563 $ 449,558
_________________________________________________________________
See accompanying Notes to Consolidated Financial Statements.
MOOG INC.
Consolidated Statements of Cash Flows
Fiscal Years Ended
___________________________________________________
September 27, September 30, September 30,
(dollars in thousands) 1997 1996 1995
__________________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 13,606 $ 10,709 $ 7,761
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 21,267 19,632 19,675
Provisions for losses 9,763 6,444 3,761
Deferred income taxes (2,094) (584) 1,565
Extraordinary item, loss from
early extinguishment of debt,
pre-tax -- 810 --
Other 755 485 (84)
Change in assets and liabilities
providing (using) cash:
Receivables (10,084) (13,465) (7,876)
Inventories (4,479) (17,662) (8,627)
Other assets (1,652) (1,486) 952
Accounts payable and
accrued liabilities 2,745 5,604 (3,189)
Other liabilities 3,810 6,354 1,381
Customer advances (1,607) (1,665) (144)
___________ ___________ __________
NET CASH PROVIDED BY OPERATING
ACTIVITIES 32,030 15,176 15,175
___________ ___________ __________
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions and investments,
including 1995 purchase price
settlement (note 2) (49,180) (6,752) 9,200
Purchase of property, plant
and equipment (12,982) (10,288) (9,974)
Proceeds from sale of assets 393 202 362
Payments received, net of advances,
on loan to Savings and Stock
Ownership Plan (493) 248 349
___________ ___________ __________
NET CASH USED IN INVESTING
ACTIVITIES (62,262) (16,590) (63)
___________ ___________ __________
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments of notes payable (1,913) (3,357) (2,738)
Proceeds from revolving lines
of credit 97,000 92,272 --
Payments on revolving lines of credit (71,000) (149,657) (1,000)
Proceeds from issuance of
long-term debt 18,684 125,213 7,610
Payments on long-term debt (14,825) (46,181) (18,884)
Purchase of outstanding shares
for treasury (428) (14,605) --
Proceeds from sale of treasury stock 1,123 545 60
Other (836) (435) (9)
___________ ___________ __________
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 27,805 3,795 (14,961)
___________ ___________ __________
Effect of exchange rate changes on
cash and cash equivalents (412) (318) (136)
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,839) 2,063 15
Cash and cash equivalents at
beginning of year 9,639 7,576 7,561
___________ ___________ __________
Cash and cash equivalents
at end of year $ 6,800 $ 9,639 $ 7,576
=========== =========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 20,452 $ 12,856 $ 17,598
Income taxes, net of refunds 5,646 2,739 (3,189)
Non-cash investing and financing
activities:
Adjustment required to adjust
minimum pension liability (note 8) 676 (2,019) 1,083
Leases capitalized, net of leases
terminated 731 597 260
__________________________________________________________________________________________
See accompanying Notes to Consolidated Financial Statements
MOOG INC.
Consolidated Statements of Shareholders' Equity
Fiscal Years Ended
___________________________________________________
(dollars in thousands September 27, September 30, September 30,
except per share data) 1997 1996 1995
__________________________________________________________________________________________
PREFERRED STOCK $ 100 $ 100 $ 100
_____________ _____________ _____________
COMMON STOCK 9,134 9,134 9,134
_____________ _____________ _____________
ADDITIONAL PAID-IN CAPITAL
Beginning of year 47,611 47,709 47,737
Issuance of treasury shares
at less than cost (141) (98) (28)
Tax benefits related to
stock option plan 49 -- --
_____________ _____________ _____________
End of year 47,519 47,611 47,709
_____________ _____________ _____________
RETAINED EARNINGS
Beginning of year 74,825 64,125 56,373
Net earnings 13,606 10,709 7,761
Preferred dividends ($.09 per share
in 1997, 1996 and 1995) (9) (9) (9)
_____________ _____________ _____________
End of year 88,422 74,825 64,125
_____________ _____________ _____________
TREASURY SHARES, AT COST*
Beginning of year (31,803) (17,841) (17,929)
Shares issued related to
options (1997 - 50,150
Class A shares and 44,912
Class B shares; 1996 - 46,800
Class A shares and 500 Class B
shares; 1995 - 6,000 Class A
shares and 1,000 Class B
shares) 1,264 568 87
Shares acquired through
purchase (1997 - 17,321 Class A
shares and 410 Class B shares;
1996 - 721,086 Class A shares,
80,000 Class B shares and
5,117 Series B Preferred shares) (428) (14,605) --
Shares issued related to conversion
of convertible subordinated
debentures (1996 - 6,204 Class A
shares; 1995 - 87 Class A shares) -- 75 1
_____________ _____________ _____________
End of year (30,967) (31,803) (17,841)
_____________ _____________ _____________
EQUITY ADJUSTMENTS**
Beginning of year 5,377 6,158 7,867
Adjustment from foreign currency
translation (4,400) (2,110) (478)
Adjustment from change in pension
liability -- 1,329 (1,231)
_____________ _____________ _____________
End of year 977 5,377 6,158
_____________ _____________ _____________
LOAN TO SAVINGS AND STOCK OWNERSHIP
PLAN (SSOP)
Beginning of year (501) (749) (1,098)
Payments received on loan, net of
advances, to SSOP (493) 248 349
_____________ _____________ _____________
End of year (994) (501) (749)
_____________ _____________ _____________
TOTAL SHAREHOLDERS' EQUITY $114,191 $ 104,743 $108,636
__________________________________________________________________________________________
* Class A Common Stock in treasury: 1,186,221 shares as of September 27, 1997;
1,219,050 shares as of September 30, 1996; 550,968 shares as of September 30, 1995.
Class B Common Stock in treasury: 892,101 shares as of September 27, 1997; 936,603
shares as of September 30, 1996; 857,103 shares as of September 30, 1995. Preferred
Stock in treasury: 5,117 shares as of September 27, 1997 and September 30, 1996.
** End of year balance includes cumulative foreign currency translation, net of
applicable deferred taxes, of 1997 - $977; 1996 - $5,377; 1995 - $7,487; and
cumulative minimum pension liability adjustments of 1997 and 1996 - ($0); 1995 -
($1,329). Included in adjustment from foreign currency translation are net deferred
(gains) losses of $89 in 1997, $(246) in 1996, and $1,138 in 1995 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 (the Company). All significant intercompany balances
and transactions have been eliminated in consolidation.
Fiscal Year: Effective in fiscal 1997, the Company changed its
fiscal year-end to the last Saturday in September (September 27,
1997 for fiscal 1997). The impact on the current year results of
operations was not material.
Cash and Cash Equivalents: All highly liquid investments with
an original maturity of three months or less are considered cash
equivalents. Cash and cash equivalents are carried at amounts
which approximate fair value. The Company places its temporary
investments in highly rated financial institutions.
Revenue Recognition: The percentage of completion (cost-to-cost)
method of accounting is followed for long-term contracts. Under
this method, revenues are recognized as the work progresses
toward completion. Contract incentive awards affect earnings when
the amounts can be determined. For contracts with anticipated
losses at completion, the projected loss is accrued. Revenues
other than on long-term contracts are recognized as units are
delivered.
Inventories: Inventories are stated at the lower of cost or
market with cost determined primarily on the first-in, first-out
(FIFO) method of valuation. Consistent with industry practice,
aerospace related inventories include amounts relating to
contracts having long production and procurement cycles, portions
of which are not expected to be realized within one year.
Foreign Currency Translation: Foreign subsidiaries' assets and
liabilities are translated using rates of exchange as of the
balance sheet date and the statements of earnings are translated
at the average rates of exchange for the year.
Depreciation and Amortization: Plant and equipment are
depreciated principally using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements and
assets 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.
Intangibles associated with acquisitions are amortized on a
straight-line basis over periods not to exceed 30 years. The
Company monitors its intangibles for evidence of impairment. In
the event that such evidence exists, the Company uses forecasted
discounted cash flow analysis to determine the amount of
impairment, if any.
Long-Lived Assets: Effective October 1, 1996, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of." The adoption of this standard
had no effect on the Company's consolidated financial position or
results of operations in fiscal 1997.
Financial Instruments: The Company uses derivative financial
instruments for the purpose of hedging currency and interest rate
exposures which exist as part of its ongoing business operations.
In general, instruments used as hedges must be effective at
reducing the risk associated with the exposure being hedged and
must be designated as a hedge at the inception of the contract.
Deferred gains or losses related to any instrument designated but
ultimately ineffective as a hedge of existing assets,
liabilities, or firm commitments are recognized immediately in
the statement of earnings. The Company does not hold or issue
financial instruments for trading purposes. The Company is
exposed to credit loss in the event of nonperformance by the
counter-parties to the instruments. The Company, however, does
not expect nonperformance by the counter-parties.
The Company uses forward contracts to reduce fluctuations in
foreign currency cash flows related to third party raw material
purchases, intercompany product shipments, and intercompany
loans. Foreign currency contracts are marked-to-market with net
amounts due to or from counter-parties recorded in accounts
receivable or payable. For contracts hedging firm commitments,
marked-to-market gains or losses are deferred and recognized as
an adjustment to the basis of the transaction. For all other
contracts, marked-to-market gains or losses are recognized
currently, generally offsetting gains or losses from underlying
hedged transactions. Foreign currency forward contracts
outstanding at fair value on September 27, 1997 and September 30,
1996 were $2,086 and $1,717, respectively. The Company also uses
forward contracts to reduce fluctuations in the value of foreign
currency investments in, and long-term advances to, subsidiaries.
At September 27, 1997 and September 30, 1996, the Company had $0
and $4,484, respectively, of such instruments outstanding at fair
value. These contracts are marked-to-market with gains or losses
recorded in the cumulative translation adjustment component of
shareholders' equity.
The Company uses interest rate swaps to reduce interest rate
volatility with certain debt issues. The interest differential to
be paid or received on the swap is recognized in the statement of
earnings, as incurred, as a component of interest expense.
The cash flows related to derivative financial instruments are
classified in the statement of cash flows in a manner consistent
with those of the transactions being hedged.
Use of Estimates: Management has necessarily made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
Note 2 - Acquisitions
On October 26, 1996, the Company acquired the assets of, and
assumed certain liabilities related to, the industrial hydraulic
servocontrols business (the U.S. Industrial Hydraulics Business)
of International Motion Control Inc., an unrelated third party.
The purchase price was $48,600. The U.S. Industrial Hydraulics
Business, which operated under the name Moog Controls Inc., was
spun off by the Company in February 1988. The acquisition was
principally financed with proceeds from the Company's U.S.
Revolving Credit and Term Loan Facility (the Bank Credit
Facility) and resulted in intangible assets of approximately
$36,500, the majority of which are being amortized over 30 years.
The following summary, prepared on a proforma basis, combines the
consolidated results of operations of the Company and the U.S.
Industrial Hydraulics Business for the year ended September 30,
1996 as if the acquisition took place on October 1, 1995. The
proforma consolidated results include the impact of certain
adjustments, including amortization of intangibles and increased
interest expense on acquisition debt, and related income tax
effects.
_________________________________________________________________
(Unaudited) 1996
_________________________________________________________________
Net Sales $437,099
Earnings before extraordinary item 11,739
Net earnings 11,229
Net earnings per share $1.47
_________________________________________________________________
The proforma results are not necessarily indicative of what
actually would have occurred if the acquisition had been in
effect for the period presented. In addition, they are not
intended to be a projection of future results.
On May 7, 1997, the Company purchased the assets and servovalve
distributor and repair business of Dowty-France for $580. On
May 24, 1996, the Company acquired the propellant valve product
line of Parker Hannifin Corporation for $890. On December 15,
1995, the Company purchased for $5,012 net of cash acquired, the
industrial servovalve product line of Ultra Hydraulics Limited
located in the United Kingdom.
All of the Company's acquisitions are accounted for under the
purchase method, and accordingly, the operating results for the
acquired companies are included in the Consolidated Statements of
Earnings from the date of acquisition.
On May 13, 1996, a joint venture called Moog Hydrolux LLC, in
which the company has a 50% interest, was formed. The Company
accounts for this investment on the equity method.
Note 3 - Receivables
Receivables consist of:
_________________________________________________________________
September 27, 1997 September 30, 1996
_________________________________________________________________
Long-term contracts:
Amounts billed $ 42,028 $ 37,068
Unbilled recoverable costs and
profits 66,472 71,101
Claims on terminated contracts 558 1,518
________ ________
Total long-term contract
receivables 109,058 109,687
Trade 50,998 45,710
Refundable income taxes 250 183
Other 1,342 1,724
________ ________
Total receivables 161,648 157,304
Less allowance for doubtful
accounts (1,594) (1,332)
_________________________________________________________________
Receivables $ 160,054 $ 155,972
_________________________________________________________________
The long-term contract amounts are primarily associated with U.S.
Government prime- and sub-contractors and major commercial
aircraft manufacturers. Substantially all unbilled amounts are
expected to be collected within one year. In situations where
billings exceed revenues recognized, the excess is included in
customer advances.
Concentrations of credit risk with respect to trade receivables
are mitigated due to the significant amount of business with
large commercial aerospace companies or U.S. Government prime-
and sub-contractors and to the number of customers and their
dispersion over a large geographic region.
Note 4 - Inventories
Inventories consist of the following:
_________________________________________________________________
September 27, 1997 September 30, 1996
_________________________________________________________________
Raw materials and purchased
parts $ 28,933 $ 30,609
Work in process 64,502 55,789
Finished goods 10,431 12,920
_________________________________________________________________
Inventories $ 103,866 $ 99,318
_________________________________________________________________
Note 5 - Property, Plant and Equipment
Property, plant and equipment consists of:
_________________________________________________________________
September 27, 1997 September 30, 1996
_________________________________________________________________
Land $ 7,283 $ 7,553
Buildings and improvements 87,727 87,945
Machinery and equipment 222,362 214,880
Property, plant and equipment,
at cost 317,372 310,378
Less accumulated depreciation
and amortization (185,263) (179,007)
_________________________________________________________________
Property, plant and equipment $ 132,109 $ 131,371
_________________________________________________________________
Assets under leases that have been accounted for as capital
leases and included in property, plant and equipment are
summarized as follows:
_________________________________________________________________
September 27, 1997 September 30, 1996
_________________________________________________________________
Capital leases at cost $ 6,025 $ 6,711
Less accumulated amortization (2,114) (2,721)
_________________________________________________________________
Net assets under capital leases $ 3,911 $ 3,990
_________________________________________________________________
Note 6 - Indebtedness
Long-term debt consists of the following:
_________________________________________________________________
September 27, 1997 September 30, 1996
_________________________________________________________________
Bank Credit Facility
- revolving credit $ 67,000 $ 41,000
- term loan 24,000 30,000
International and other U.S. term
loan agreements 13,935 13,254
International revolving credit
facility 9,266 -
Obligations under capital leases 2,721 3,588
________ ________
Senior debt 116,922 87,842
10% senior subordinated notes 120,000 120,000
________ ________
Total long-term debt 236,922 207,842
Less current installments (15,345) (10,491)
_________________________________________________________________
Long-term debt $ 221,577 $ 197,351
_________________________________________________________________
The Bank Credit Facility consists of a $135,000 revolving credit
facility and a $24,000 term loan. The revolving credit facility
expires in October 2000. The term loan has four years remaining
through July 2001, with quarterly principal payments of $1,500.
Interest on the Bank Credit Facility is LIBOR plus 1.75%. In
order to provide for interest rate protection, the Company has
entered into interest rate swap agreements for $80,000,
effectively converting this amount to fixed rate debt averaging
8.1%. The swaps expire at various times during 1998.
The Bank Credit Facility contains various covenants which, among
others, specify minimum interest coverage, limit senior debt to a
defined capital base, limit capital expenditures and restrict
payment of cash dividends on common stock. The Bank Credit
Facility is secured by substantially all of the Company's U.S.
assets and the common shares of all Domestic and International
subsidiaries.
International and other U.S. term loan agreements of $13,935 at
September 27, 1997 consist principally of financing provided by
various banks to individual International subsidiaries. These
term loans are being repaid through 2003, and carry interest
rates ranging from .8% to 13.5%.
During fiscal 1997, the Company entered into a credit facility
for its international subsidiaries. The facility allows for
borrowings in different foreign currencies up to $15 million,
carries an interest rate of LIBOR plus .75% and expires on
October 1, 1999.
The 10% Senior Subordinated Notes (the "Notes"), have a single
maturity with the aggregate principal amount due on May 1, 2006.
The Notes are redeemable at the option of the Company, in whole
or in part, at any time on or after May 1, 2001 initially at 105%
of their principal amount, plus accrued interest, declining
ratably to 100% of their principal amount, plus accrued interest,
on or after May 1, 2003.
The Notes are unsecured, general obligations of the Company
subordinated in right of payment to all existing and future
senior indebtedness. The Notes indenture includes certain
covenants limiting, subject to certain exceptions, the incurrence
of additional indebtedness, payment of dividends, redemption of
capital stock, asset sales and certain mergers and
consolidations.
In May 1996, the Company prepaid in its entirety the principal
balance on its 10.25% Senior Secured Note resulting in an
extraordinary pre-tax charge of $810. The charge consisted of
prepayment and amendment fees and the write-off of related debt
issuance costs.
Maturities of long-term debt are $15,345 in 1998, $18,002 in
1999, $8,526 in 2000, $73,794 in 2001, $886 in 2002, and $120,369
thereafter.
The fair value of long-term debt was estimated based on quoted
market prices and discounted cash flow analysis using current
rates offered to the Company for debt with the same remaining
maturities. At September 27, 1997, the estimated fair value of
long-term debt was $245,471.
At September 27, 1997, the Company has pledged assets with a net
book value of $288,531 as security for long-term debt.
The Company has both short-term lines of credit and long-term
credit facilities with various banks throughout the world. The
short-term credit lines are principally demand lines and subject
to revision by the banks. These short-term lines of credit, along
with $68,000 available on the Bank Credit Facility and $5,734 on
the international revolving credit facility, provided credit
availability of $87,709 at September 27, 1997. Commitment fees
are charged on some of these arrangements based on a percentage
of the unused amounts available.
At September 27, 1997, the International Controls segment had
$1,323 of notes payable to banks at an average rate of 13.7%.
During 1997, an average of $1,948 in notes payable were
outstanding at an average interest rate of 11.6%. Notes payable
are carried at amounts which approximate fair value.
Note 7 - Income Taxes
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 before income taxes and extraordinary item is
as follows:
_________________________________________________________________
1997 1996 1995
_________________________________________________________________
Earnings before income taxes and
extraordinary item:
Domestic $ 16,310 $ 10,979 $ 6,042
Foreign 3,165 6,272 2,967
Eliminations 104 (1,201) (219)
_________________________________________________________________
Total $ 19,579 $ 16,050 $ 8,790
_________________________________________________________________
Computed expected tax expense $ 6,657 $ 5,457 $ 2,988
Increase (decrease) in income
taxes resulting from:
Foreign tax rates 571 1,102 356
Nontaxable export sales (664) (76) (280)
State taxes net of federal benefit 302 141 226
Foreign tax credits (1,244) - -
Change in beginning of the year
valuation allowance (77) (2,541) (2,709)
Other 428 748 448
_________________________________________________________________
Income taxes $ 5,973 $ 4,831 $ 1,029
_________________________________________________________________
Effective income tax rate 30.5% 30.1% 11.7%
_________________________________________________________________
At September 27, 1997, certain International subsidiaries had net
operating loss carryforwards totalling $1,219. These loss
carryforwards do not expire and can be used to reduce current
taxes otherwise due on future earnings of those subsidiaries.
No provision has been made for U.S. federal or foreign taxes on
that portion of certain International subsidiaries' undistributed
earnings ($28,474 at September 27, 1997) considered to be
permanently reinvested. It is not practicable to determine the
amount of tax that would be payable if these amounts were
repatriated to the Company.
The components of income taxes excluding the extraordinary item
are as follows:
_________________________________________________________________
1997 1996 1995
_________________________________________________________________
Current:
Federal $ 6,543 $ 2,817 $ (828)
Foreign 949 2,518 292
State 575 80 -
________ ________ _______
Total current 8,067 5,415 (536)
________ ________ _______
Deferred:
Federal (1,621) 1,220 2,466
Foreign (354) (1,937) (1,243)
State (119) 133 342
________ ________ ______
Total deferred (2,094) (584) 1,565
_________________________________________________________________
Total income taxes $ 5,973 $ 4,831 $ 1,029
_________________________________________________________________
The tax effects of temporary differences that generated deferred
tax assets and liabilities are detailed in the following table.
Realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which
those temporary differences become deductible. Management
considers projected future taxable income and tax planning
strategies in making its assessment of the recoverability of
deferred tax assets.
_________________________________________________________________
September 27, 1997 September 30, 1996
_________________________________________________________________
Deferred tax assets:
Contract loss reserves not
currently deductible $ 4,137 $ 4,739
Tax benefit carryforwards 647 2,044
Accrued vacation 5,173 5,025
Deferred compensation 5,069 4,156
Accrued expenses not currently
deductible 3,508 2,463
Inventory 3,884 3,633
Other 427 505
________ ________
Total gross deferred tax
assets 22,845 22,565
Less: Valuation reserve (295) (456)
________ ________
Net deferred tax assets 22,550 22,109
________ ________
Deferred tax liabilities:
Differences in bases and
depreciation of property,
plant and equipment 21,720 21,314
Prepaid pension - 207
Other 1,135 996
________ ________
Total gross deferred tax
liabilities 22,855 22,517
_________________________________________________________________
Net deferred tax liabilities $ 305 $ 408
_________________________________________________________________
Note 8 - Employee Benefit Plans
The Company maintains a number of defined benefit pension plans. The funded status of these plans is as follows:
__________________________________________________________________________________________________________________________________
September 27, 1997 September 30, 1996
_________________________________________ ___________________________________________________
U.S. Employee Other U.S. Employee Other
Plan with Other Plans Plans with Plan with Other Plans Plans with
Assets in with Assets Accumulated Assets in with Assets Accumulated
Excess of in Excess Benefits in Excess of in Excess of Benefits in
Accumulated of Accumulated Excess of Accumulated Accumulated Excess of
Benefits Benefits Assets Benefits Benefits Assets
_________________________________________________________________________________________________________________________________
Accumulated benefit obligation
- Vested $ 109,686 $ 9,034 $ 15,274 $ 100,232 $ 7,071 $ 14,883
- Nonvested 914 - 4,177 670 - 3,545
_________ _________ _________ _________ _________ _________
- Total $ 110,600 $ 9,034 $ 19,451 $ 100,902 $ 7,071 $ 18,428
_________ _________ _________ _________ _________ _________
Projected benefit obligation (PBO) $ 121,300 $ 9,972 $ 24,258 $ 112,357 $ 7,377 $ 23,553
Plan assets at fair value 139,743 9,769 1,337 112,119 8,377 1,447
_________ _________ _________ _________ _________ _________
Plan assets in excess of
(or less than) PBO 18,443 (203) (22,921) (238) 1,000 (22,106)
Unrecognized cumulative experience
loss (gain) (19,074) 822 (1,346) 1,426 (482) (2,446)
Unrecognized net (asset) liability
from SFAS no. 87 adoption date,
amortized over 15 years (1,735) - 1,470 (2,104) - 1,909
Unrecognized prior service cost 31 - 1,071 35 - 273
Adjustment required to recognize
minimum liability - - (729) - - (53)
_________________________________________________________________________________________________________________________________
Accrued pension (liability) asset $ (2,335) $ 619 $ (22,455) $ (881) $ (518) $(22,423)
_________________________________________________________________________________________________________________________________
Fiscal 1997 plan assets, shown above, consist primarily of
publicly traded stocks, bonds, mutual funds and $21,667 in
Company stock, based on quoted market prices. The Company's
funding policy is to contribute at least the amount required by
law in the various jurisdictions in which the plans are
domiciled. The principal actuarial assumptions weighted for all
defined benefit plans are:
________________________________________________________________
1997 1996
________________________________________________________________
Discount rate 7.3% 7.6%
Return on assets 8.5% 8.6%
Rate of compensation increase 3.7% 3.8%
_________________________________________________________________
In addition, the Company maintains various defined contribution
plans. These defined contribution plans, along with the defined
benefit plans, cover substantially all employees. Pension expense
for all plans for 1997, 1996 and 1995 is as follows:
_________________________________________________________________
1997 1996 1995
_________________________________________________________________
Service cost - benefits
earned during the year $ 5,093 $ 4,635 $ 4,523
Interest cost on projected
benefit obligation 10,841 9,827 9,019
Actual return on plan assets (30,843) (17,231) (16,939)
Net amortization, deferral and
other 21,278 9,816 9,038
________ _______ _______
Pension expense for defined
benefit plans 6,369 7,047 5,641
Pension expense for other plans 873 574 763
________________________________________________________________
Total pension expense $ 7,242 $ 7,621 $ 6,404
________________________________________________________________
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 $4,518 in 1997 and $2,602 in 1996. The profit share
plan was suspended for 1995.
The Company has a Savings and Stock Ownership Plan (SSOP) which
includes an Employee Stock Ownership Plan. As one of the
investment alternatives, participants in the SSOP can acquire
Company stock at market value, with the Company providing a 25%
share match. The SSOP purchase of the initial shares was funded
by a Company loan. The loan is repaid with Company contributions.
Interest on the loan is computed at the Bank Credit Facility
borrowing rate. The Company makes temporary advances to the SSOP
for purchases of additional shares. Shares are allocated and
compensation expense is recognized as the employer share match is
earned. At September 27, 1997, the SSOP owned (allocated and
unallocated) 147,991 Class A shares and 514,311 Class B shares.
The Company provides postretirement health care benefits to
certain retirees. Expenses under this plan were $1,222, $1,158
and $1,011 in 1997, 1996 and 1995, respectively. A reconciliation
of the funded status of the plan with the accrued liability is
shown below. There are no plan assets.
_________________________________________________________________
September 27, 1997 September 30, 1996
_________________________________________________________________
Accumulated postretirement benefit
obligation (APBO)
- Inactives $ (5,420) $ (5,147)
- Actives fully eligible (767) (395)
- Actives not fully eligible (3,229) (2,800)
________ ________
Total APBO (funded status) (9,416) (8,342)
Unrecognized transition obligation 6,310 6,704
Unrecognized prior service cost 211 -
Unrecognized gains (losses) 780 (343)
_________________________________________________________________
Accrued postretirement benefit
liability $ (2,115) $ (1,981)
_________________________________________________________________
Discount rate 7.8% 8.0%
_________________________________________________________________
The effect of a one percentage point increase in the health care
cost trend rate, currently assumed at 2.5%, would not have a
significant impact on the accumulated postretirement benefit
obligation as of September 27, 1997.
Note 9 - Shareholders' Equity
Class A and Class B Common Stock equally share in the earnings of
the Company, and are identical with certain exceptions. Class A
shares have limited voting rights, with each share of Class A
being entitled to one-tenth of a vote on most matters, and each
share of Class B being entitled to one vote. Class A shareholders
are entitled, subject to certain limitations, to elect at least
25% of the Board of Directors (rounded up to the nearest whole
number) with Class B shareholders entitled to elect the balance
of the directors. 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. 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 6,691 and 30,039 shares in 1997 and 1996,
respectively.
The Company is authorized to issue up to 10,000,000 shares of
preferred stock. Series B Preferred Stock is 9% Cumulative,
Convertible, Exchangeable Preferred Stock with a $1.00 par value.
Series B Preferred Stock consists of 100,000 issued shares and
94,883 outstanding shares at September 27, 1997, and is
convertible into Class A Common shares (.08585 shares of Class A
Common Stock per share of Series B Preferred Stock). The Series B
Preferred Stock is owned by nine principal officers of the
Company. With respect to any matters on which the Series B
Preferred Stock is entitled to vote, all shares will be voted in
a manner determined by a majority of such shares. The Series B
Preferred Stock is entitled to vote as a class on certain
takeover transactions. The 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.
The Company adopted SFAS No. 123 "Accounting for Stock-Based
Compensation," effective October 1, 1996. This statement
encourages companies to adopt a fair value based method of
accounting for compensation costs of employee stock compensation
plans. As permitted by SFAS No. 123, the Company will continue to
apply its current accounting policy using the intrinsic value
method of accounting prescribed by Accounting Principles Board
Opinion No. 25 with respect to measuring stock-based
compensation. The adoption of SFAS No. 123, therefore, had no
effect on the Company's consolidated financial position or
results of operations for fiscal 1997. Proforma footnote
disclosures of net earnings and earnings per share, as if the
fair value based method of accounting had been applied, have not
been presented as awards have not been granted subsequent to
fiscal 1995.
Of the Class B Common Stock, 85,000 shares are reserved for
issuance under the 1983 Non-Statutory Stock Option Plan. Class A
shares reserved for issuance at September 27, 1997 are as
follows:
_________________________________________________________________
Shares
_________________________________________________________________
Conversion of Class B to Class A shares 1,691,086
1983 Incentive Stock Option Plan 271,650
Conversion of Series B Preferred Stock to Class A
shares 8,146
_________________________________________________________________
1,970,882
_________________________________________________________________
The 1983 Non-Statutory Stock Option Plan granted options on
Class B shares to directors, officers, and key employees. Stock
appreciation rights were granted in tandem with the options and
are exercisable only to the extent the options are exercised.
Compensation expense related to the stock appreciation rights was
$1,302, $1,043 and $73 in fiscal 1997, 1996 and 1995,
respectively. The 1983 Incentive Stock Option Plan granted
options on Class A shares to officers and key employees. 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, 1994: 133,412 380,000
Cancelled or expired in fiscal 1995 (500) (3,400)
Exercised in fiscal 1995 (1,000) (6,000)
_______ _______
Outstanding at September 30, 1995: 131,912 370,600
Cancelled or expired in fiscal 1996 (1,500) (1,200)
Exercised in fiscal 1996 (500) (46,800)
Outstanding at September 30, 1996
(weighted-average exercise price:
Class B - $14.28, Class A - $8.36) 129,912 322,600
Cancelled or expired in fiscal 1997
(weighted-average exercise price:
Class A - $10.50) - (800)
Exercised in fiscal 1997
(weighted-average exercise price:
Class B - $14.44, Class A - $9.46) (44,912) (50,150)
_______ _______
Outstanding and exercisable at
September 27, 1997: (weighted-
average exercise price: Class B - $14.75,
Class A - $8.15) 85,000 271,650
___________________________________________________________________________
The weighted-average remaining contractual life of the Class B
and Class A options as of September 27, 1997 is .9 and 2.6 years,
respectively.
All options outstanding at September 27, 1997, are exercisable at
prices ranging as follows: Class B - $14.75 per share; Class A -
$5.625 to $10.50 per share.
Note 10 - Segment Information
The Company is organized into two segments: The Domestic Controls
segment, which is larger based on sales and assets, and
International Controls. Domestic Controls primarily serves North
American markets with a substantial majority of its sales within
the aerospace industry. International Controls serves markets in
Europe and the Asian-Pacific with the majority of its sales
related to industrial applications.
___________________________________________________________________________
1997 1996 1995
___________________________________________________________________________
Domestic Controls
Net sales:
Aerospace $ 265,835 $ 249,594 $ 232,525
Industrial 59,031 26,981 21,401
_________ _________ _________
324,866 276,575 253,926
Intersegment sales 13,792 11,912 10,446
_________ _________ _________
Total sales $ 338,658 $ 288,487 $ 264,372
_________ _________ _________
Operating profit $ 43,288 $ 32,744 $ 25,242
Net earnings 10,960 5,863 4,030
Identifiable assets 351,944 297,445 282,323
Capital expenditures 8,322 4,973 5,633
Depreciation and amortization
expense 10,975 10,103 10,363
___________________________________________________________________________
International Controls
Net sales:
Aerospace $ 25,978 $ 19,382 $ 19,086
Industrial 105,085 111,280 101,272
_________ _________ _________
131,063 130,662 120,358
Intersegment sales 7,887 14,983 4,728
_________ _________ _________
Total sales $ 138,950 $ 145,645 $ 125,086
_________ _________ _________
Operating profit $ 7,977 $ 11,796 $ 8,464
Net earnings 2,570 5,691 3,918
Identifiable assets 121,456 126,732 120,499
Capital expenditures 3,910 4,468 3,977
Depreciation and amortization
expense 4,312 4,913 5,337
___________________________________________________________________________
Consolidated operations
Net sales $ 455,929 $ 407,237 $ 374,284
_________ _________ _________
Operating profit (O.P.), net
of intercompany eliminations $ 51,369 $ 43,339 $ 33,487
Deductions from O.P.:
Interest expense 22,675 18,124 17,492
Currency (gain) loss (186) (88) 143
Other expenses, net 9,301 9,253 7,062
_________ _________ _________
Earnings before income taxes
and extraordinary item $ 19,579 $ 16,050 $ 8,790
_________ _________ _________
Total identifiable assets $ 473,400 $ 424,177 $ 402,822
Corporate assets 32,938 45,976 39,864
Eliminations (15,775) (20,595) (17,729)
_________ _________ _________
Total consolidated assets $ 490,563 $ 449,558 $ 424,957
___________________________________________________________________________
Intersegment sales, which are transacted and accounted for at
factory cost plus applicable general and administrative expenses
and profit, 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 sales.
Included in net sales for Domestic Controls is $85,033 in 1997 of
sales to the Boeing Corporation (including Boeing Helicopters,
McDonnell Douglas and the former Space and Defense business of
Rockwell) and $134,659 in 1997, $153,865 in 1996 and $136,261 in
1995, in sales to U.S. government prime- or sub-contractors,
including military sales to Boeing.
In June 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 131, "Dislosure about Segments of an Enterprise
and Related Information," which requires financial information to
be reported on the basis that is used internally for evaluating
segment performance and deciding how to allocate resources to
segments. The standard must be adopted by fiscal 1999. The
Company is currently evaluating the disclosures required under
this new standard.
Note 11 - Geographic Areas and Export Sales
___________________________________________________________________________
United Europe Pacific & Corporate & Consol-
States Other Eliminations idated
Identifiable Assets:
1997 $351,944 $ 87,606 $ 33,850 $ 17,163 $490,563
1996 297,445 92,206 34,526 25,381 449,558
1995 282,323 79,910 40,589 22,135 424,957
Sales to Unaffiliated Customers:
1997 $324,866 $ 99,609 $ 31,454 $455,929
1996 276,575 101,093 29,569 407,237
1995 253,926 90,076 30,282 374,284
Inter-area Sales to Affiliates:
1997 $ 13,792 $ 5,662 $ 2,225 $ 21,679
1996 11,912 13,529 1,454 26,895
1995 10,446 4,062 666 15,174
Export Sales:
1997 $ 71,348 $ 25,277 $ 2,578 $ 99,203
1996 57,350 27,023 2,220 86,593
1995 54,364 25,370 1,610 81,344
Net Earnings (Loss):
1997 $ 10,960 $ 1,185 $ 1,385 $ 76 $ 13,606
1996 5,863 5,005 686 (845) 10,709
1995 4,030 4,082 (164) (187) 7,761
___________________________________________________________________________
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 12- Commitments and Contingencies
The Company is, in the normal course of its business, engaged in
administrative proceedings with governmental agencies and legal
proceedings with governmental agencies and other third parties,
including litigation under Superfund laws, regarding
environmental matters. The Company believes that adequate
reserves have been established for all currently pending
environmental administrative or legal proceedings, and does not
expect that these environmental matters, and the utilization of
existing reserves, if any, will have a material effect on the
financial condition and liquidity, or results of operations of
the Company.
From time to time, the Company is named as a defendant in legal
actions arising in the normal course of business. The Company is
not a party to any pending or legal proceedings the resolution of
which management believes will have a material adverse effect on
the Company's results of operations or financial condition and
liquidity, or to any pending legal proceedings other than
ordinary, routine litigation incidental to its business.
The Company leases certain facilities and equipment under
operating lease arrangements. These arrangements may include fair
market renewal or purchase options. Rent expense under operating
leases amounted to $7,762 in 1997, $7,191 in 1996 and $6,957 in
1995. Future minimum rental payments required under noncancelable
operating leases are $7,359 in 1998, $6,169 in 1999, $4,751 in
2000, $3,292 in 2001, $3,035 in 2002 and $9,281 thereafter.
The Company subleases various facilities to third parties. Gross
rental income from such activities was $351 in 1997, $1,291 in
1996 and $1,535 in 1995. Future minimum rental income under
noncancelable operating leases is $234 in 1998, $225 in 1999 and
$188 in 2000.
Note 13 - Per Share Data
Primary earnings per common and common equivalent share have been
calculated after deducting dividend entitlements on preferred
stock and using the weighted average number of shares of common
stock and dilutive stock options outstanding.
In February 1997, the FASB issued SFAS No. 128, "Earning per
Share," which will be adopted by the Company during the first
quarter of fiscal 1998. At that time, the Company will change the
method currently used to compute earnings per share (EPS) and
restate all prior periods, as required. Under the new
requirements for calculating basic EPS, the dilutive effect of
stock options will b