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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 25, 1999
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 _____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _________
The aggregate market value of the Common Stock outstanding and
held by non-affiliates (as defined in Rule 405 under the
Securities Act of 1933) of the registrant, based upon the closing
sale price of the Common Stock on the American Stock Exchange on
December 8, 1999 was approximately $177 million.
The number of shares of Common Stock outstanding as of the close
of business on December 8, 1999 was:
Class A: 7,335,602; Class B: 1,580,813.
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 25, 1999 (the "1999
Annual Report")
(2) Specific sections of the January 2000 Proxy Statement
to Shareholders (the "2000 Proxy")
_________________________________________________________________
MOOG INC.
FORM 10-K INDEX
_________________________________________________________________
PART I PAGE
Item 1 - Business 22-23
Item 2 - Properties 23
Item 3 - Legal Proceedings 23
Item 4 - Submission of Matters to a 23
Vote of Security Holders
PART II
Item 5 - Market for the Registrant's 23
Common Equity and Related
Stockholder Matters
Item 6 - Selected Financial Data 23-24
Item 7 - Management's Discussion and 25
Analysis of Financial Condition
and Results of Operations
Item 7A- Quantitative and Qualitative 30
Disclosures About Market Risk
Item 8 - Financial Statements and 31
Supplementary Data
Item 9 - Changes in and Disagreements with 44
Accountants on Accounting and
Financial Disclosure
PART III
Item 10- Directors and Executive Officers 44-45
of the Registrant
Item 11 - Executive Compensation 46
Item 12 - Security Ownership 46
of Certain Beneficial
Owners and Management
Item 13 - Certain Relationships and 46
Related Transactions
PART IV
Item 14 - Exhibits, Financial Statement 46-48
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, successful
integration of acquired businesses, 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 1999 Annual Report, specific pages of which are referred to
in parentheses.
DESCRIPTION OF THE COMPANY'S BUSINESS. (See pages 2 through 20.)
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 and Moog's
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 three operating groups.
However, the Company is the only precision motion control
specialist which competes globally in all markets and all drive
technologies.
Many of 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") and Teijin Seiki Limited. In Satellite and Launch
Vehicle Controls, the Company's principal competitors are
Honeywell and HR Textron. In Industrial Controls, competitors
include Robert Bosch AG, Mannesmann Rexroth AG, Barber-Colman
Company, Siemens AG and Indramat GmbH.
Competition in each operating group is based upon design
capability, product performance and life, service, price and
delivery time. In certain cases 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 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, on
page 26.
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 35.
SEASONALITY. Moog's business is generally not seasonal.
PATENTS. Moog has numerous patents and has filed
applications for others. While the aggregate protection afforded
by these is of value, the Company does not consider the
successful conduct of any material part of its business to be
dependent upon such protection. The Company's patents and patent
applications, including U.S., Canadian, European and Japanese
patents, relate to electrohydraulic, electropneumatic and
electromechanical actuation mechanisms and control valves,
electronic control component systems and interface devices.
RESEARCH ACTIVITIES. Research and product development
activity has been and continues to be significant to the Company.
The information required herein is incorporated by reference to
Item 6, Selected Financial Data, on page 24.
EMPLOYEES. The information required herein is incorporated
by reference to Item 6, Selected Financial Data, on page 24.
SEGMENT FINANCIAL INFORMATION. The information required
herein is incorporated by reference to Note 10 of Item 8 on pages
42 and 43.
CUSTOMERS. The information required herein is incorporated
by reference to pages 2 through 20, 25 and 42. In aggregate, the
Company markets its products to a wide variety of customers. The
Boeing Company represented approximately 20% of consolidated
sales in 1999, including sales to the Boeing Commercial Airplane
Group representing 12% of fiscal 1999 sales. Sales to U.S.
Government prime- or sub-contractors, including military sales to
Boeing, represented approximately 30% of sales. Sales to these
customers are made principally from Aircraft Controls, and
Satellite and Launch Vehicle Controls. The concentration of
customers varies between operating groups. In Aircraft Controls,
as well as Satellite and Launch Vehicle Controls, a few customers
provide the majority of revenues, while in Industrial Controls
revenues are spread over a more diverse customer base.
INTERNATIONAL OPERATIONS. Operations outside the United
States are conducted through various foreign companies in which
the Company's ownership interest ranges from majority to complete
control. The Company's international operations are located
predominantly in Europe and the Asian-Pacific region. (See pages
2 through 20, 43 and 47.) 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 page 43.
ITEM 2. PROPERTIES.
The Company occupies approximately 2.0 million square feet
of space (1.3 million owned, 602,000 through operating leases and
54,000 through a capital lease) in the United States and
countries throughout the world, distributed as follows:
Square Feet
___________
Aircraft Controls 965,000
Satellite and Launch Vehicle Controls 291,000
Industrial Controls 622,000
Corporate Headquarters 146,000
_________
Total 2,024,000
Aircraft Controls' principal manufacturing and assembly
facilities are located in East Aurora, New York, Torrance,
California, Salt Lake City, Utah and the Philippines.
Approximately 285,000 square feet were obtained in connection
with the acquisition of Raytheon Aircraft Montek Company in
November 1998.
Satellite and Launch Vehicle Controls' primary manufacturing
and assembly facility is located in East Aurora, New York.
Industrial Controls' principal manufacturing facilities are
located in East Aurora, New York, Germany, Luxembourg and Japan.
The Company's headquarters are located in East Aurora, New
York.
The Company believes that its properties have been
adequately maintained and are generally in good condition. The
Company believes that its existing facilities will provide
sufficient production capacity for its needs in the foreseeable
future. Operating leases expire at varying times from December
1999 through November 2013. Upon the expiration of its current
leases, the Company believes that it will be able to either
secure renewal terms or enter into leases for alternative
locations or market terms.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is named as a defendant in
legal actions arising in the normal course of business. The
Company is not a party to any pending legal proceedings which
management believes will result in a material adverse effect on
the Company's financial condition, liquidity or results of
operations or to any pending legal proceedings other than
ordinary, routine litigation related to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Dividend restrictions are detailed in Note 6 on page 37 of
Item 8. Other information required herein is incorporated by
reference to pages 24, 48 and 50.
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 1995 - 1999. For a
more detailed discussion of 1997 through 1999 refer to
Management's Discussion and Analysis of Financial Condition and
Results of Operations on pages 25 through 30 and Notes to
Consolidated Financial Statements on pages 35 through 43.
ITEM 6. SELECTED FINANCIAL DATA.
(dollars in thousands except per share data)
FISCAL YEARS 1999(1) 1998(2) 1997(3) 1996 1995
_______________________________________________________________________________________________
RESULTS FROM OPERATIONS
Net sales $ 630,034 $ 536,612 $ 455,929 $ 407,237 $ 374,284
Earnings before
extraordinary loss $ 24,431 $ 19,268 $ 13,606 $ 11,219 $ 7,761
Net earnings $ 24,431 $ 19,268 $ 13,606 $ 10,709 $ 7,761
Per share
Earnings before
extraordinary loss
Basic $ 2.74 $ 2.33 $ 1.95 $ 1.51 $ 1.00
Diluted $ 2.70 $ 2.26 $ 1.88 $ 1.47 $ .99
Net earnings
Basic $ 2.74 $ 2.33 $ 1.95 $ 1.44 $ 1.00
Diluted $ 2.70 $ 2.26 $ 1.88 $ 1.40 $ .99
________________________________________________________________________________________________
FINANCIAL POSITION
Total assets $ 798,476 $ 559,325 $ 490,563 $ 449,558 $ 424,957
Working capital 224,967 226,190 187,521 187,971 166,985
Indebtedness - senior 256,110 85,614 118,245 91,262 170,361
- senior subordinated 120,000 120,000 120,000 120,000 19,400
Shareholders' equity 211,770 191,008 114,191 104,743 108,636
Shareholders' equity per
common share outstanding 23.77 21.38 16.18 15.01 14.06
________________________________________________________________________________________________
SUPPLEMENTAL FINANCIAL DATA
Capital expenditures $ 26,439 $ 22,688 $ 13,713 $ 10,885 $ 10,232
Depreciation and
amortization 30,602 22,665 21,267 19,632 19,675
R&D - Company funded 33,306 27,487 17,798 17,303 15,783
- customer funded 14,367 15,440 14,071 24,411 21,603
Backlog 336,857 314,253 280,364 243,310 237,941
________________________________________________________________________________________________
ADDITIONAL DATA
Number of employees 4,699 4,073 3,657 3,229 3,003
Number of shareholders
- Class A 1,520 1,610 1,722 1,904 2,114
- Class B 713 751 810 898 966
________________________________________________________________________________________________
RATIOS
Net return on sales 3.9% 3.6% 3.0% 2.6% 2.1%
Return on shareholders'
equity 12.1% 12.6% 12.4% 10.0% 7.4%
Current ratio 2.24 2.87 2.75 2.89 2.76
Debt to shareholders'
equity 1.78 1.08 2.09 2.02 1.75
Long-term senior debt
to capitalization(4) 40.9% 20.4% 30.3% 25.6% 55.5%
Long-term debt to
capitalization(4) 62.3% 51.1% 66.0% 65.3% 61.8%
__________________________________________________________________________________________
(1) Includes the effects of the fiscal 1999 acquisitions of Montek and the Acquired Industrial
Businesses and the related financing. See Notes 2 and 6 to the Consolidated Financial
Statements.
(2) Includes the effects of the Class A common stock offering completed in February 1998. See Note
9 to the Consolidated Financial Statements.
(3) Includes the effects of the October 1996 acquisition of the industrial hydraulic servocontrols
business of International Motion Control Inc.
(4) 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
Moog Inc. is a leading worldwide designer and manufacturer
of a broad range of high performance precision motion and fluid
control products and systems for aerospace and industrial
markets. The Company is organized into three operating groups.
Aircraft Controls designs and produces technologically
advanced flight and engine controls for manufacturers of
commercial and military aircraft. Moog has supplied high
performance servoactuators to move flight control surfaces on
almost every U.S. military aircraft since the 1950's. The Company
recently began initial production on the F/A-18E/F Super Hornet,
the V-22 Osprey and Japanese F-2, as well as delivery of flight
and engine control actuation for the Joint Strike Fighter concept
demonstrator aircraft. The Company supplies controls to Boeing
for its 7-series commercial airplanes as well as to Airbus,
Raytheon, Lockheed Martin and Bombardier, among others.
Satellite and Launch Vehicle Controls designs and
manufactures motion, fluid and propellant controls and systems to
control the flight, positioning or thrust of satellites, solar
panels and antennae, launch vehicles and tactical and strategic
missiles. Customers for the Company's products include Alliant,
Lockheed Martin, DaimlerChrysler, Raytheon and Boeing.
Significant programs include the Titan IV and Delta family of
launch vehicles, National Missile Defense and numerous satellite
programs.
Industrial Controls manufactures hydraulic and electric
controls used in a wide variety of industrial applications
requiring the precise control of position, velocity and force.
Moog believes it is the world's market leader in industrial
servovalves. Applications for hydraulic controls include plastic
injection and blow molding machines, steam and gas turbines,
steel rolling mills and fatigue testing machines. In the field of
power generation, Moog is the leading servovalve supplier to GE
and its licensees and to Siemens Westinghouse. Applications for
electric controls range from the motion simulators on MCA-
Universal's Spiderman theme park attraction and electric drive
systems for gun and turret positioning and ammunition-loading on
military ground vehicles to controls for plastic injection and
blow molding machines.
On October 30, 1998, the Company acquired a 75% shareholding
of Hydrolux SARL, a Luxembourg manufacturer and designer of
hydraulic power control systems for industrial machinery from
Paul Wurth SARL. As part of the transaction, the Company
increased its ownership to 75% of Moog-Hydrolux Hydraulic
Systems, Inc. (Moog-Hydrolux), a joint venture the Company formed
in fiscal 1996 with Hydrolux SARL to serve the North American
market. The Company previously owned 50% of Moog-Hydrolux. After
the transaction, Paul Wurth SARL owns the remaining 25% minority
interest in Hydrolux SARL and Moog-Hydrolux. The purchase price
was $8.2 million in cash, plus the assumption of $6.4 million of
debt.
On November 30, 1998, the Company completed the acquisition
from Raytheon Aircraft Company of all the outstanding common
stock of Raytheon Aircraft Montek Company (Montek) for
approximately $160 million in cash. Montek, located in Salt Lake
City, Utah, supplies flight controls to the Boeing Commercial
Airplane Group and manufacturers of regional and business jets.
Montek also produces steering controls for tactical missiles and
servovalves for both industrial and aerospace applications.
On December 3, 1998, the Company acquired a 66-2/3%
shareholding in Microset Srl, an Italian manufacturer and
designer of electronic controls for industrial machinery for $3.5
million in cash.
Hydrolux SARL, Moog-Hydrolux and Microset Srl are referred
to as the Acquired Industrial Businesses.
Effective with the first quarter of 1999, the Company
adopted Statement of Financial Accounting Standards (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 by management for evaluating segment
performance and deciding how to allocate resources to segments.
The Company's reportable segments under SFAS No. 131 are Aircraft
Controls, Satellite and Launch Vehicle Controls and Industrial
Controls. The determination of the Company's reportable segments
was based on an analysis of the organizational structure of the
Company and its products, as well as markets served. Prior
periods' information has been presented to conform to the new
presentation of segment information.
1999 COMPARED WITH 1998
CONSOLIDATED. Sales for 1999 were $630 million, up 17% from
$537 million in 1998. The current year acquisition of Montek
accounted for the majority of the increase. In the ten months
since the acquisition, Montek had $78 million in sales, the
majority of which were controls for aircraft. Sales in 1999 also
included incremental sales of the Acquired Industrial Businesses
totaling $24 million. Excluding the impact of acquisitions, sales
decreased by $13 million due to the winding down of the B-2
bomber and F-15 fighter aircraft programs along with declines in
deliveries to Boeing, due to their reduced production rates.
Cost of sales in 1999 was 68.6% of sales compared with 69.7%
of sales in 1998. The improvement is due to a favorable product
mix of sales in 1999 resulting from a greater share of aircraft
flight control aftermarket sales along with a greater proportion
of work on higher margin launch vehicle and tactical missile
programs. This improvement was offset by higher cost of sales as
a percentage of sales (1.4 percentage points) associated with the
Acquired Industrial Businesses and the satellite controls
business.
Research and development expenses increased by $6 million in
1999 to $33 million, or 5.3% of sales. Approximately half of the
dollar increase was associated with the development of next
generation flight controls. The current year acquisitions and
efforts in Industrial Controls related to developing the next
generation direct drive valve and turbine products accounted
equally for the remainder of the increase.
Selling, general and administrative (SG&A) expenses were
$100 million in 1999 compared to $85 million in 1998 while as a
percentage of sales, SG&A remained at 15.9% of net sales. The
1999 acquisitions accounted for over 70% of the absolute dollar
increase.
Interest expense increased $8 million in 1999 to $28 million
due to significantly higher average outstanding borrowings
resulting from the indebtedness incurred to finance the first
quarter acquisitions.
The Company's effective tax rate for 1999 was 33.5% compared
to 35.5% a year ago. The current year tax rate reflects higher
foreign tax credit benefits resulting from distributions from the
Company's German subsidiary.
For 1999, net earnings increased 27% to $24.4 million
compared with $19.3 million in 1998. Basic EPS increased to $2.74
in 1999 compared to $2.33 in 1998, while diluted EPS increased to
$2.70 in 1999 compared to $2.26 last year.
___________________________________________________________________________
MOOG INC.
Results of Operations
___________________________________________________________________________
Fiscal Years Ended
___________________________________________________________________________
September 25, September 26, September 27,
(dollars in millions) 1999 1998 1997
___________________________________________________________________________
SALES
Aircraft Controls $ 302 $ 254 $ 226
Satellite and Launch
Vehicle Controls 110 94 66
Industrial Controls 218 189 164
_________ _________ _________
Total sales $ 630 $ 537 $ 456
========= ========= =========
OPERATING PROFIT AND MARGINS
Aircraft Controls $ 37 $ 29 $ 31
12.2% 11.4% 14.0%
Satellites and Launch
Vehicle Controls 13 10 9
11.7% 10.4% 13.8%
Industrial Controls 23 20 11
10.8% 10.8% 6.5%
_________ _________ _________
Total operating
profit $ 73 $ 59 $ 51
========= ========= =========
BACKLOG
Aircraft Controls $ 192 $ 179 $ 174
Satellite and Launch
Vehicle Controls 85 77 55
Industrial Controls 60 58 51
_________ _________ _________
Total backlog $ 337 $ 314 $ 280
========= ========= =========
AIRCRAFT CONTROLS. Sales in Aircraft Controls increased 19%
to $302 million in 1999 as compared to $254 million in 1998. The
acquisition of Montek provided significant growth to Aircraft
Controls sales and contributed to operating margin improvement
during 1999. For the ten months since the acquisition, Montek
contributed $63 million to Aircraft Controls sales. Approximately
80% of Montek's aircraft controls' book of business relates to
controls for commercial airplane applications, primarily the
Boeing 7-series airplanes. Also contributing to the overall sales
improvement was an increase of $20 million in aftermarket sales
from the Company's pre-acquisition businesses, primarily related
to controls for military applications. These increases were
offset by anticipated declines in sales on the B-2 bomber and F-
15 fighter aircraft programs, as they near completion, and pre-
acquisition Boeing OEM business. The Company recently began
initial production on the F/A-18E/F Super Hornet and the V-22
Osprey, which over the long-term, will help offset the completion
of the F-15 and B-2 programs. Although the Company's total Boeing
OEM business increased in 1999 due to the Montek acquisition,
reduced production rates of the 747 and 777 slowed deliveries of
pre-acquisition products to Boeing.
Operating margins for Aircraft Controls were 12.2% in 1999
compared to 11.4% in 1998. The main reason for the margin
improvement is the acquisition of Montek, which has higher
margins than the Company's pre-acquisition operations. The higher
margins reflect Montek's book of business containing a greater
percentage of aftermarket sales, which typically carry higher
margins than sales to OEMs. For the ten months since its
acquisition, 38% of Montek's sales related to spares, parts and
repair services. Including the acquisition, Aircraft Controls
aftermarket sales represented 33% of total sales in 1999 compared
to 21% in 1998. This improvement was tempered by $3 million of
increased research and development costs associated with the
development of next generation flight controls.
Backlog for Aircraft Controls was $192 million at September
25, 1999 compared to $179 million at September 26, 1998. The
increase is due to the acquisition of Montek, offset by lower
pre-acquisition business resulting from production rate declines
at Boeing and certain military programs winding down. Backlog
consists of that portion of open orders for which sales are
expected to be recognized over the next twelve months.
SATELLITE AND LAUNCH VEHICLE CONTROLS. Sales in Satellite
and Launch Vehicle Controls were $110 million in 1999, up 18%
from $94 million in 1998. Sales of controls for tactical missiles
increased $12 million in the current year with 88% of that
increase resulting from the acquisition of Montek for controls
on the Hellfire, TOW and Popeye tactical missile programs. On the
strength of the Titan IV, Delta family of launch vehicles and the
National Missile Defense system, sales of launch vehicle steering
controls increased $11 million. These increases were offset by
lower sales of satellite controls due to a general softness in
the satellite market.
Operating margins for Satellite and Launch Vehicle Controls
were 11.7% in 1999 compared to 10.4% in 1998. Operating margins
for launch vehicle and tactical missile products improved 50% as
the mix in 1999 favored more mature production programs and
significant expenditures were made in 1998 on launch vehicle
development programs. These favorable developments were mostly
offset by lower sales and margins that deteriorated in satellite
controls, which represents 20% of the group's sales.
Backlog for Satellite and Launch Vehicle Controls was $85
million at September 25, 1999 compared to $77 million at
September 26, 1998. The increase relates to controls for tactical
missiles resulting from the acquisition of Montek.
INDUSTRIAL CONTROLS. Sales in Industrial Controls increased
15% to $218 million in 1999 from $189 million in 1998. The
Acquired Industrial Businesses accounted for $24 million with
Hydrolux Sarl and Moog-Hydrolux adding $21 million in sales of
hydraulic controls and Microset contributing $3 million in sales
of electric controls. Montek, which produces industrial
servovalves, accounted for the remainder of the Industrial
Controls' sales increase.
Operating margins for Industrial Controls were 10.8% in 1999
and 1998. An increase in margins of 2.5 percentage points in the
Company's pre-acquisition businesses is attributable to favorable
product mix resulting from higher sales of electric controls for
military ground vehicles and industrial hydraulic controls in
Europe. This increase was offset by losses incurred by the
Acquired Industrial Businesses reflecting lower than anticipated
sales due to a downturn in the injection molding machinery
market.
Backlog for Industrial Controls was $60 million at September
25, 1999 compared to $58 million at September 26, 1998. Decreases
in orders for controls for military ground vehicles and
entertainment simulators offset backlog associated with the
Acquired Industrial Businesses and Montek.
1998 COMPARED WITH 1997
CONSOLIDATED. Net sales for 1998 increased 18% to $537
million as compared to $456 million in 1997. Sales in Aircraft
Controls increased $28 million reflecting higher sales of
controls for the Boeing 7-series airplanes, regional and business
jets, the F-15 fighter aircraft and military programs entering
initial production. Within Satellite and Launch Vehicle Controls,
the February 1998 Schaeffer acquisition, which contributed
approximately $14 million in sales, and increased launch vehicle
activity resulted in a $28 million increase in sales. Sales in
Industrial Controls increased $25 million led by higher volumes
of controls for turbines, electric controls for military ground
vehicles and entertainment simulators.
Cost of sales in 1998 was 69.7% of sales compared with 69.2%
in 1997. Approximately $2 million was incurred in Satellite and
Launch Vehicle Controls associated with certain manufacturing
issues including a defect on a propulsion system isolation valve
and unfavorable cost experience on a fixed-price development
contract for the Atlas Centaur launch vehicle program. In
addition, margins declined due to an unfavorable product mix
towards lower margin development and production programs related
to commercial airplane applications.
Research and development expenditures increased by $10
million in 1998 to $28 million, or 5.1% of net sales, primarily
due to $7 million of additional effort related to the development
of next generation flight controls within Aircraft Controls and,
to a lesser extent, activity in Satellite and Launch Vehicle
Controls related to various satellite constellations.
Selling, general and administrative expenses were $85
million, or 15.9% of net sales, in 1998, compared to $82 million,
or 17.9%, in 1997. The decrease as a percentage of sales was
primarily due to growth in sales, in addition to a shift of costs
(approximately $2 million) to production and research and
development activities in 1998 from related bid and proposal work
in 1997 within Aircraft Controls, which was recorded in SG&A.
Interest expense decreased by $3 million to $20 million in
1998, as compared to 1997. The decline is due to lower average
borrowings outstanding resulting from the use of proceeds from
the equity offering completed in February 1998.
The effective tax rate for 1998 was 35.5% compared with
30.5% in 1997. The 1997 tax rate was unusually low due to
substantial foreign tax credit benefits resulting from the
distribution of earnings from the Company's German subsidiary,
and a higher share of 1997 earnings being generated in countries
with lower tax rates.
For 1998, net earnings increased 42% to $19.3 million
compared with $13.6 million in 1997. Basic EPS increased to $2.33
in 1998 compared to $1.95 in 1997, while diluted EPS increased to
$2.26 in 1998 compared with $1.88 in 1997.
AIRCRAFT CONTROLS. Sales for Aircraft Controls increased
12% to $254 million in 1998 compared to $226 million in 1997.
Initial production of controls for the V-22 Osprey and F/A-18E/F
military programs added $14 million to 1998 sales while increased
production rates on the Boeing 7-series airplanes improved 1998
sales by $9 million. The majority of the remaining increase was
due to increased volume for secondary and leading edge actuation
on the F-2 and F-15 fighter aircraft.
Operating margins for Aircraft Controls in 1998 were 11.4%
compared to 14.0% in 1997. The decrease is the result of $7
million in increased research and development expenses incurred
in 1998 related to the development of next generation flight
controls.
Backlog for Aircraft Controls at September 26, 1998 was $179
million compared to $174 million at September 27, 1997.
SATELLITE AND LAUNCH VEHICLE CONTROLS. Sales for Satellite
and Launch Vehicle Controls increased 42% to $94 million in 1998
from $66 million in 1997. The increase was due to increased
launch vehicle activity, which added $15 million in sales, the
acquisition of Schaeffer, which contributed $14 million in
incremental revenues, and $9 million of increased sales of
controls for tactical missiles. These increases helped offset a
sales decline in satellite propulsion hardware related to reduced
incoming order activity associated with customers' high inventory
levels and the slowdown in the Asian-Pacific economies. Launch
vehicle activity during 1998 was strong particularly on the Atlas
Centaur, Kistler commercial launch vehicle and Titan IV programs.
Operating margins for Satellite and Launch Vehicle Controls
were 10.4% in 1998 compared to 13.8% in 1997. Approximately half
of the decrease was associated with certain manufacturing issues
including a defect on a propulsion system isolation valve and
unfavorable cost experience on a fixed-price development contract
for the Atlas Centaur launch vehicle. The remaining decrease is
primarily due to increased research and development activities
related to various satellite constellations.
Backlog for Satellite and Launch Vehicle Controls was $77
million at September 26, 1998 compared with $55 million at
September 27, 1997. The increase is due primarily to launch
vehicles, in particular the Titan IV program, and the Schaeffer
acquisition, which added approximately $10 million.
Industrial Controls. Sales for Industrial Controls increased 15%
to $189 million in 1998 compared to $164 million in 1997 despite
lower average currency values, particularly in Germany and the
Asian-Pacific. Sales in 1998, at constant dollars, increased 20%,
or $33 million. In the United States, sales of controls for
hydraulic applications increased $10 million on growth in
controls for turbines, flight training simulators and material
testing equipment. Higher volumes for entertainment simulators
and controls for carpet tufting equipment and military ground
vehicles helped increase sales of controls for electric
applications by $7 million. Internationally, sales growth of $16
million was primarily in Germany. Approximately $11 million of
the increase was due to higher volume in controls for hydraulic
applications, principally turbine and plastics controls, and $5
million related to increased volume of electric controls for
military ground vehicles.
Operating margins for Industrial Controls were 10.8% in 1998
compared to 6.5% in 1997. The increase was due primarily to
higher sales allowing for better absorption of fixed costs. In
addition, approximately $2 million of write-offs and transition
costs were incurred in 1997 to allow the Company to compete more
effectively in markets for electric controls.
Backlog for Industrial Controls at September 26, 1998 was
$58 million compared to $51 million at September 27, 1997. The
increase from a year ago is attributable to growth in orders for
electric controls for military ground vehicles and controls for
hydraulic applications in Europe.
FINANCIAL CONDITION AND LIQUIDITY
In connection with the acquisition of Montek, the Company
refinanced its U.S. credit facilities. Effective November 30,
1998, the Company entered into a $340 million Corporate Revolving
and Term Loan Agreement (Credit Facility) with a banking group.
The Credit Facility provides a $265 million revolving facility
and a $75 million term loan with interest starting at LIBOR plus
200 basis points, with the spread adjusted based on leverage. The
Credit Facility is for a five year period with quarterly
principal payments on the term loan of $3.75 million, which
commenced in March 1999. The Credit Facility is secured by
substantially all of the Company's U.S. assets. The loan
agreement includes customary covenants for a transaction of this
nature, including maintaining various financial ratios. The
Credit Facility was used primarily to acquire Montek and to
refinance approximately $72 million of existing revolving credit
facilities with the remaining balance available for future
working capital requirements.
Cash on hand at September 25, 1999 was $10 million. Cash
provided by operating activities was $43 million in 1999 compared
to $23 million a year ago. The increase in cash from operations
is due primarily to improved earnings as adjusted for non-cash
charges and lower growth in working capital, specifically with
respect to receivables and inventories. The Company expects cash
from operations in 2000 to be comparable with 1999.
Long-term debt increased $150 million to $349 million at
September 25, 1999. The percentage of long-term debt to
capitalization increased to 62.3% from 51.1% at September 26,
1998. These increases are a direct result of financing the first
quarter acquisitions. At September 25, 1999, the Company had $106
million of unused borrowing capacity under short and long-term
lines of credit, including $92 million from the Credit Facility.
Net property, plant and equipment increased $50 million to
$189 million at September 25, 1999 from $13 million at September
26, 1998. The current year acquisitions added approximately $43
million to net property, plant and equipment. Capital
expenditures in 1999 were $26 million compared with depreciation
and amortization of $31 million. Capital expenditures in 1998
were $23 million compared to depreciation and amortization of $23
million. Capital expenditures in 2000 are expected to be
approximately $24 million.
The Company believes its cash on hand, cash flows from
operations and available borrowings under short and long-term
lines of credit, will continue to be sufficient to meet its
operating needs.
YEAR 2000
As the end of the century nears, there is widespread concern
around the world that many existing computer programs that use
only the last two digits to refer to a year will not properly
recognize a year that begins with digits '20' instead of '19.'
If not corrected, the concern is that many computer applications
might fail, creating erroneous results or cause unanticipated
system failures, among other problems.
In fiscal 1996 the Company initiated activities, including
designating a Year 2000 project team to be responsible for
specific information technology (IT) environments, to ensure its
Year 2000 readiness. In addition, communications were made to all
non-IT functional areas to initiate a process of review and
remediation of Year 2000 issues in those areas. The main business
system, which encompasses manufacturing, engineering and
accounting and is used by approximately 80% of the Company, has
been reviewed and tested and is considered to be Year 2000
compliant. However certain auxiliary business applications
required changes to ensure Year 2000 compliance, the most
significant of which involved the Company's Human Resource
Information System which was put in place and was operational on
October 1, 1999 and cost approximately $1 million. The costs
associated with remediating the remaining auxiliary business
applications were not material.
The Company also evaluated and tested product systems (i.e.,
CAD/CAM systems), personal computing, data entry and
communication hardware and software and systems associated with
facilities management. Although certain upgrades or replacements
were made, many were previously scheduled and the timing was not
materially impacted by the Year 2000 issue. The Year 2000 costs
associated with these systems were not material.
The Company uses large computerized numerical control (CNC)
machines, which are critical to the manufacturing process.
Confirmation of Year 2000 compliance with respect to these
machines has been obtained from the Company's vendors. The
Company also sent letters to its critical vendors who provide
materials, supplies and components inquiring about their Year
2000 efforts.
Only a small portion of the Company's products contain
embedded processors or depend upon date logic. With respect to
those that do, the Company identified certain software that
required upgrading or replacement, which has been completed. The
cost of upgrading or replacement was not material.
The Company has completed remedial activity as it relates to
the systems deemed critical. Activities related to less critical
operations, which will continue until the end of 1999, include
the installation of compliant releases of desktop, voice mail,
data entry software and monitoring the progress of any critical
suppliers who are still working to complete their Year 2000
plans. The cost associated with these activities is not expected
to be material.
The Company has contingency plans that address specific
critical operations that are not expected, or likely, to
experience problems. The contingency plans include the use of
backup systems as well as manual processes to ensure continuity
of business operations.
The Company believes that it is taking the necessary steps
to ensure the Year 2000 issue will not pose significant
operational problems for the Company. However there can be no
assurance that the Year 2000 issue will not materially impact the
Company's results of operations or adversely affect relationships
with customers, vendors and others. The Company believes the
greatest potential risk from the Year 2000 issue relates to
suppliers or customers whose systems may not be Year 2000
compliant and who may not be able to accept shipment of the
Company's products until they correct their Year 2000 problems.
OUTLOOK
Sales in 2000 are expected to increase modestly in each of
the Company's three operating groups. Aircraft Controls should
continue to see increases in production rates on the F/A-18E/F
while a full year of Montek and new commercial aircraft business
awarded by Boeing will offset the decline in the commercial
aircraft production rate at Boeing that began in 1999. Satellite
and Launch Vehicle Controls sales are expected to grow on
increased revenues from the National Missile Defense program and
involvement on the Space Station. Sales of Industrial Controls
are expected to grow on the continuing strength of turbine
controls and metal-forming and a recovery in sales of servovalves
to the plastics industry. In addition, Industrial Controls should
benefit from new product introductions and partnering
arrangements with some well-established suppliers of motion
control devices.
Operating margins are expected to improve as the Company
continues the process of improving the cost structures related to
the businesses acquired in 1999 as well as satellite control
products. The Company is also focusing on its other operations to
ensure their cost structures are appropriate in relation to
expected sales while allowing for continued margin improvement.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company, in the normal course of business, has exposures
to interest rate risks from its long-term debt obligations and
foreign exchange rate risk with respect to its foreign operations
and from foreign currency transactions. To minimize these risks,
the Company periodically enters into interest rate swaps and
forward contracts. The Company does not hold or issue financial
instruments for trading purposes.
In connection with the Montek acquisition and refinancing of
the Company's U.S. credit facilities, the Company's borrowings
under variable interest rate facilities have increased by $164
million to $238 million at September 25, 1999. The Credit
Facility under which the borrowings are outstanding has an
interest rate of LIBOR plus 200 basis points. In order to provide
for interest rate protection, the Company has entered into
interest rate swap agreements for $80 million, effectively
converting this amount into fixed rate debt at 7.05%. If LIBOR
were to change by 10%, the impact on consolidated interest
expense from the Company's floating rate debt would be
approximately $1 million annually.
The majority of the Company's sales, expenses and cash flows
are transacted in U.S. dollars. The Company does have some market
risk exposure with respect to changes in foreign currency
exchange rates primarily as it relates to the value of the U.S.
dollar versus the British Pound, the Japanese Yen and the Euro.
If foreign exchange rates were to collectively weaken against the
U.S. dollar by 10%, net earnings would be reduced by
approximately $1 million related to currency exchange rate
translation exposures and $.5 million related to pressures on
operating margins for products sourced in non-U.S. countries.
The Company periodically uses forward contracts to reduce
fluctuations in foreign currency cash flows related to third
party raw material purchases, intercompany product shipments and
intercompany loans. The Company periodically uses forward
contracts to reduce fluctuations in the value of foreign currency
investments in, and long-term advances to, subsidiaries. At
September 25, 1999 there were no contracts outstanding.
In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, ' Accounting for Derivative Instruments and
Hedging Activities,' which must be adopted by fiscal 2001. Under
this standard, companies are required to carry all derivatives in
the balance sheet at fair value. The accounting for changes in
the fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part
of a hedging relationship and, if so, the reason for holding it.
The Company is in the process of evaluating the impact this
standard will have on its financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
___________________________________________________________________________
MOOG INC.
Consolidated Statements of Earnings
___________________________________________________________________________
Fiscal Years Ended
_____________________________________________________
September 25, September 26, September 27,
1999 1998 1997
(dollars in thousands
except per share data)
___________________________________________________________________________
NET SALES $ 630,034 $ 536,612 $ 455,929
OTHER INCOME 1,597 1,447 1,565
___________ ___________ ___________
631,631 538,059 457,494
___________ ___________ ___________
COSTS AND EXPENSES
Cost of sales 432,033 374,000 315,380
Research and development 33,306 27,487 17,798
Selling, general and
administrative 100,023 85,374 81,413
Interest 28,188 20,148 22,675
Other expenses 1,353 1,177 649
___________ ___________ ___________
594,903 508,186 437,915
___________ ___________ ___________
EARNINGS BEFORE
INCOME TAXES 36,728 29,873 19,579
INCOME TAXES (Note 7) 12,297 10,605 5,973
___________ ___________ ___________
NET EARNINGS $ 24,431 $ 19,268 $ 13,606
=========== =========== ===========
NET EARNINGS PER SHARE (Note 1)
Basic $ 2.74 $ 2.33 $ 1.95
Diluted $ 2.70 $ 2.26 $ 1.88
___________________________________________________________________________
See accompanying Notes to Consolidated Financial Statements.
___________________________________________________________________________
MOOG INC.
Consolidated Balance Sheets
___________________________________________________________________________
As of As of
(dollars in thousands except September 25, September 26,
per share data) 1999 1998
___________________________________________________________________________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,780 $ 11,625
Receivables (Note 3) 212,279 182,228
Inventories (Note 4) 152,246 121,784
Deferred income taxes (Note 7) 29,097 22,289
Prepaid expenses and
other current assets 3,413 9,151
_________ __________
TOTAL CURRENT ASSETS 406,815 347,077
PROPERTY, PLANT AND EQUIPMENT
(Notes 5 and 6) 188,918 139,444
GOODWILL, net of accumulated
amortization of $15,328 in 1999,
and $10,117 in 1998 (Note 2) 184,368 60,025
OTHER ASSETS 18,375 12,779
_________ __________
TOTAL ASSETS $ 798,476 $ 559,325
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable (Note 6) $ 5,831 $ 410
Current installments of
long-term debt (Note 6) 20,787 5,505
Accounts payable 36,373 25,648
Accrued salaries, wages and
commissions 39,167 36,338
Contract loss reserves 24,741 10,448
Accrued interest 10,587 8,050
Federal, state and foreign
income taxes 9,181 6,838
Other accrued liabilities 27,347 17,746
Customer advances 7,834 9,904
_________ __________
TOTAL CURRENT LIABILITIES 181,848 120,887
LONG-TERM DEBT, excluding current
installments (Note 6)
Senior debt 229,492 79,699
Senior subordinated notes 120,000 120,000
OTHER LONG-TERM LIABILITIES
(Notes 7 and 8) 55,366 47,731
_________ __________
TOTAL LIABILITIES 586,706 368,317
_________ __________
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS' EQUITY (see page 34 and Note 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 8,427,311 shares in 1999 and
8,427,141 shares in 1998. 8,427 8,427
Class B- Authorized 10,000,000 shares.
Convertible to Class A on a one
for one basis. Issued 2,461,812
shares in 1999 and 2,461,982
shares in 1998. 2,462 2,462
Additional paid-in capital 102,778 102,306
Retained earnings 132,104 107,681
Treasury shares (32,589) (30,511)
Accumulated other comprehensive
income (loss) (1,512) 614
Loan to Savings and Stock Ownership Plan - (71)
__________ _________
TOTAL SHAREHOLDERS' EQUITY 211,770 191,008
__________ _________
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 798,476 $ 559,325
___________________________________________________________________________
See accompanying Notes to Consolidated Financial Statements.
__________________________________________________________________________________________
MOOG INC.
Consolidated Statements of Cash Flows
__________________________________________________________________________________________
Fiscal Years Ended
___________________________________________________________
September 25, September 26, September 27,
(dollars in thousands) 1999 1998 1997
_________________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 24,431 $ 19,268 $ 13,606
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 30,602 22,665 21,267
Provisions for losses 8,466 10,974 9,763
Deferred income taxes 2,110 (3,200) (2,094)
Other (71) 146 755
Change in assets and liabilities
providing (using) cash, excluding
the effects of acquisitions:
Receivables (736) (19,590) (10,084)
Inventories (12,156) (20,124) (4,479)
Other assets (2,478) (320) (1,652)
Accounts payable and accrued
liabilities (5,531) 12,403 2,745
Other liabilities 63 524 3,810
Customer advances (2,023) 615 (1,607)
__________ __________ __________
NET CASH PROVIDED BY
OPERATING ACTIVITIES 42,677 23,361 32,030
__________ __________ __________
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions and investments,
net of cash acquired (Note 2) (171,710) (20,983) (49,180)
Acquisition of minority interest
(Note 2) (2,133) -- --
Purchase of property, plant and
equipment (25,866) (22,527) (12,982)
Proceeds from sale of assets
(Note 5) 3,379 328 393
Payments received, net of advances,
on loan to Savings and Stock
Ownership Plan 71 923 (493)
_________ _________ ________
NET CASH USED IN INVESTING
ACTIVITIES (196,259) (42,259) (62,262)
_________ _________ ________
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments of notes payable (219) (477) (1,913)
Proceeds from revolving lines
of credit 258,700 126,151 97,000
Payments on revolving lines
of credit (166,000) (128,417) (71,000)
Proceeds from issuance of
long-term debt 77,219 4,736 18,684
Payments on long-term debt (15,329) (33,843) (14,825)
Net proceeds from the sale of
common stock (Note 9) -- 56,658 --
Purchase of outstanding shares
for treasury (2,815) (2,145) (428)
Proceeds from sale of treasury stock 503 2,295 1,123
Other (8) (1,289) (836)
_________ _________ ________
NET CASH PROVIDED BY FINANCING
ACTIVITIES 152,051 23,669 27,805
_________ _________ ________
Effect of exchange rate changes on
cash and cash equivalents (314) 54 (412)
_________ _________ ________
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,845) 4,825 (2,839)
Cash and cash equivalents at
beginning of year 11,625 6,800 9,639
_________ _________ ________
Cash and cash equivalents at
end of year $ 9,780 $ 11,625 $ 6,800
__________________________________________________________________________________________
See Note 11 for Supplemental Cash Flow Information.
See accompanying Notes to Consolidated Financial Statements.
MOOG INC.
Consolidated Statements of Shareholders' Equity
__________________________________________________________________________________________
Fiscal Years Ended
_____________________________________________________
(dollars in thousands September 25, September 26, September 27,
except per share data) 1999 1998 1997
_________________________________________________________________________________________
PREFERRED STOCK $ 100 $ 100 $ 100
__________ __________ __________
COMMON STOCK
Beginning of year 10,889 9,134 9,134
Sale of common stock (Note 9) -- 1,755 --
__________ __________ __________
End of year 10,889 10,889 9,134
ADDITIONAL PAID-IN CAPITAL
Beginning of year 102,306 47,519 47,611
Sale of common stock,
net of issuance costs (Note 9) -- 54,903 --
Issuance of treasury shares at
less than cost (234) (306) (141)
Tax benefits related to stock
option plan 706 190 49
__________ __________ __________
End of year 102,778 102,306 47,519
__________ __________ __________
RETAINED EARNINGS
Beginning of year 107,681 88,422 74,825
Net earnings 24,431 19,268 13,606
Preferred dividends ($.09 per
share in 1999, 1998 and 1997) (8) (9) (9)
__________ __________ __________
End of year 132,104 107,681 88,422
__________ __________ __________
TREASURY SHARES, AT COST*
Beginning of year (30,511) (30,967) (31,803)
Shares issued related to options
(1999 - 53,000 Class A shares;
1998 - 99,750 Class A shares
and 85,000 Class B shares;
1997 - 50,150 Class A shares
and 44,912 Class B shares) 636 2,451 1,264
Shares purchased (1999 - 14,858
Class A shares and 65,115
Class B shares; 1998 - 57,343
Class A shares and 8,817 Class B
shares; 1997 - 17,321 Class A
shares and 410 Class B shares)(2,815) (2,145) (428)
Shares sold to Savings and Stock
Ownership Plan (SSOP) (1999 -
2,857 Class B shares; 1998 -
3,300 Class A shares) 101 150 --
__________ __________ __________
End of year (32,589) (30,511) (30,967)
__________ __________ __________
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)**
Beginning of year 614 977 5,377
Adjustment from foreign
currency translation (2,126) (363) (4,400)
__________ __________ __________
End of year (1,512) 614 977
__________ __________ __________
LOAN TO SSOP
Beginning of year (71) (994) (501)
Payments received on loan to SSOP,
net of advances 71 923 (493)
__________ __________ __________
End of year -- (71) (994)
__________ __________ __________
TOTAL SHAREHOLDERS' EQUITY $ 211,770 $ 191,008 $ 114,191
__________ __________ __________
COMPREHENSIVE INCOME
Net earnings $ 24,431 $ 19,268 $ 13,606
Adjustment from foreign
currency translation (2,126) (363) (4,400)
__________ __________ __________
Total comprehensive income $ 22,305 $ 18,905 $ 9,206
__________________________________________________________________________________________
* Class A Common Stock in treasury: 1,101,418 shares as of September 25, 1999;
1,140,514 shares as of September 26, 1998; 1,186,221 shares as of September 27, 1997.
Class B Common Stock in treasury: 878,176 shares as of September 25, 1999; 815,918
shares as of September 26, 1998; 892,101 shares as of September 27, 1997.
Preferred Stock in treasury: 16,229 shares as of September 25, 1999 (Note 9), and
5,117 shares as of September 26, 1998 and September 27, 1997.
** End of year balance consists solely of cumulative foreign currency translation.
See accompanying Notes to Consolidated Financial Statements.
_________________________________________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands except per share data)
_________________________________________________________________
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION: The consolidated financial statements include
the accounts of Moog Inc. and all of its U.S. and foreign wholly-
owned and majority-owned subsidiaries (the Company). All
significant intercompany balances and transactions have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS: All highly liquid investments
with an original maturity of three months or less are considered
cash equivalents (Note 13).
REVENUE RECOGNITION: Revenues are recognized as units are
delivered except for those under long-term contracts. The
percentage of completion (cost-to-cost) method of accounting is
followed for long-term contracts, which comprise approximately
half of the Company's sales. 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.
INVENTORIES: Inventories are stated at the lower-of-cost-or-
market with cost determined primarily on the first-in, first-out
(FIFO) method of valuation. Consistent with industry practice,
aerospace related inventories include amounts relating to
contracts having long production and procurement cycles, portions
of which are not expected to be realized within one year.
FOREIGN CURRENCY TRANSLATION: Foreign subsidiaries' assets
and liabilities are translated using rates of exchange as of the
balance sheet date and the statements of earnings are translated
at the average rates of exchange for the year.
DEPRECIATION AND AMORTIZATION: Plant and equipment are
depreciated principally using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements and
assets under capital leases are amortized on a straight-line
basis over the term of the lease or the estimated useful life of
the asset, whichever is shorter.
Intangibles associated with acquisitions are amortized on a
straight-line basis over periods not to exceed 40 years. The
Company monitors its long-lived assets, including 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.
FINANCIAL INSTRUMENTS: The Company periodically uses
derivative financial instruments for the purpose of hedging
currency and interest rate exposures which exist as part of its
ongoing business operations. In general, instruments used as
hedges must be effective at reducing the risk associated with the
exposure being hedged and must be designated as a hedge at the
inception of the contract. Deferred gains or losses related to
any instrument designated but ultimately ineffective as a hedge
of existing assets, liabilities, or firm commitments are
recognized immediately in the statement of earnings. The interest
differential to be paid or received on interest rate swaps is
recognized in the consolidated statement of earnings, as
incurred, as a component of interest expense. The Company does
not hold or issue financial instruments for trading purposes. The
Company is exposed to credit loss in the event of nonperformance
by the counter-parties to the instruments. The Company, however,
does not expect nonperformance by the counter-parties.
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging
Activities," which must be adopted by fiscal 2001. Under this
standard, companies are required to carry all derivative
instruments in the balance sheet at fair value. The accounting
for changes in the fair value (i.e., gains or losses) of a
derivative instrument depends on whether it has been designated
and qualifies as part of a hedging relationship and, if so, the
reason for holding it. The Company is in the process of
evaluating the impact this standard will have on its financial
statements.
USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those
estimates and assumptions.
EARNINGS PER SHARE: Basic and diluted weighted-average
shares outstanding are as follows:
_________________________________________________________________
1999 1998 1997
_________________________________________________________________
Basic weighted-average
shares outstanding 8,927,369 8,281,974 6,979,011
Stock options 112,572 220,382 245,601
Convertible preferred
stock 7,516 8,146 8,585
_________ _________ _________
Diluted weighted-average
shares outstanding 9,047,457 8,510,502 7,233,197
_________________________________________________________________
Preferred stock dividends are deducted from net earnings to
calculate income available to common stockholders for basic
earnings per share.
STOCK-BASED COMPENSATION: The Company measures compensation
cost for stock options as the excess, if any, of the quoted
market price of the Company's stock at the measurement date over
the exercise price.
NOTE 2 - ACQUISITIONS
All of the Company's acquisitions are accounted for under
the purchase method, and accordingly, the operating results for
the acquired companies are included in the consolidated
statements of earnings from the dates of acquisition. Purchase
price allocations are considered preliminary until all relevant
information has been obtained. This process generally occurs over
a period of time, but not longer than a year from the acquisition
date.
On October 30, 1998, the Company acquired a 75% shareholding
of Hydrolux SARL, a Luxembourg manufacturer and designer of
hydraulic power control systems for industrial machinery from
Paul Wurth SARL. As part of the transaction, the Company
increased its ownership to 75% of Moog-Hydrolux Hydraulic
Systems, Inc. (Moog-Hydrolux), a joint venture the Company formed
in fiscal 1996 with Hydrolux SARL to serve the North American
market. The Company previously owned 50% of Moog-Hydrolux. After
the transaction, Paul Wurth SARL owns the remaining 25% minority
interest in Hydrolux SARL and Moog-Hydrolux. The purchase price
was $8,200 in cash, plus the assumption of $6,400 of debt. The
acquisition resulted in intangible assets of approximately
$3,300, which are being amortized over 20 years.
On November 30, 1998, the Company completed the acquisition
from Raytheon Aircraft Company of all the outstanding common
stock of Raytheon Aircraft Montek Company (Montek) for
approximately $160,000 in cash. Montek, located in Salt Lake
City, Utah, supplies flight controls to the Boeing Commercial
Airplane Group and manufacturers of regional and business jets.
Montek also produces steering controls for tactical missiles and
servovalves for both industrial and aerospace applications. The
acquisition resulted in intangible assets of approximately
$122,000, the majority of which are being amortized over 40
years. In addition to the customary business assets and
liabilities, contract loss reserves of $21,800 related to
development contracts on certain business jet programs were
recorded, the majority of which will be utilized by the end of
fiscal 2000. The Company established a $3,800 reserve for
severance and other related costs associated with expected
involuntary termination of employees. The Company finalized a
formal plan for integrating the operations of Montek and informed
the impacted employees. The plan provides for the termination of
178 employees from various functional areas of Montek and is
expected to be completed by May 2001. At September 25, 1999, the
balance of the reserve was reduced to $2,870 as a result of
payments made.
On December 3, 1998, the Company acquired a 66-2/3%
shareholding in Microset Srl, an Italian manufacturer and
designer of electronic controls for industrial machinery for
$3,500 in cash. The acquisition resulted in intangible assets of
approximately $3,000, which are being amortized over 30 years.
Hydrolux SARL, Moog-Hydrolux and Microset Srl are referred
to as the Acquired Industrial Businesses.
The following summary, prepared on a proforma basis,
combines the consolidated results of operations of the Company,
Montek and the Acquired Industrial Businesses as if the
acquisitions took place on September 28, 1997. The unaudited
proforma results include the impact of certain adjustments,
including amortization of intangibles and increased interest
expense on acquisition debt, and related income tax effects.
_________________________________________________________________
(Unaudited) September 25, 1999 September 26, 1998
_________________________________________________________________
Net sales $ 647,762 $ 650,914
Net earnings 24,028 20,055
Basic earnings per share $ 2.69 $ 2.42
Diluted earnings per share $ 2.66 $ 2.36
_________________________________________________________________
The unaudited proforma results are not necessarily
indicative of what actually would have occurred if the
acquisitions had been in effect for the periods presented. In
addition, they are not intended to be a projection of future
results.
In fiscal 1999, the Company purchased the remaining 10%
minority interest of Moog Japan Ltd. for $2,133. The impact of
this acquisition on the Company's results of operations and
financial condition is not significant.
On February 3, 1998, the Company acquired the net assets of
Schaeffer Magnetics, Inc. (Schaeffer). Schaeffer manufactures
motion control devices and systems for solar panels and antennas
to the space industry. The purchase price was $21,700.
NOTE 3 - RECEIVABLES
Receivables consist of:
_________________________________________________________________
September 25, 1999 September 26, 1998
_________________________________________________________________
Long-term contracts:
Amounts billed $ 41,274 $ 48,216
Unbilled recoverable costs
and profits 102,311 77,661
Claims on terminated
contracts 391 391
__________ __________
Total long-term contract
receivables 143,976 126,268
Trade 67,069 57,599
Refundable income taxes 237 17
Other 3,414 1,244
__________ __________
Total receivables 214,696 185,128
Less allowance for
doubtful accounts (2,417) (2,900)
_________________________________________________________________
Receivables $ 212,279 $ 182,228
_________________________________________________________________
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 25, 1999 September 26, 1998
_________________________________________________________________
Raw materials and
purchased parts $ 40,684 $ 37,404
Work in process 87,925 64,385
Finished goods 23,637 19,995
_________________________________________________________________
Inventories $ 152,246 $ 121,784
_________________________________________________________________
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
_________________________________________________________________
September 25, 1999 September 26, 1998
_________________________________________________________________
Land $ 10,127 $ 6,936
Buildings and improvements 119,515 94,915
Machinery and equipment 275,640 234,519
__________ __________
Property, plant and equipment,
at cost 405,282 336,370
Less accumulated depreciation
and amortization (216,364) (196,926)
_________________________________________________________________
Property, plant and
equipment $ 188,918 $ 139,444
_________________________________________________________________
In fiscal 1999, the Company sold land and building totaling
$2,600 that was acquired as part of the acquisition of Schaeffer
in 1998. There was no gain or loss on the sale.
Assets under leases that have been accounted for as capital
leases and included in property, plant and equipment are
summarized as follows:
_________________________________________________________________
September 25, 1999 September 26, 1998
_________________________________________________________________
Capital leases, at cost $ 6,577 $ 6,121
Less accumulated
amortization (3,445) (2,787)
_________________________________________________________________
Net assets under capital
leases $ 3,132 $ 3,334
_________________________________________________________________
NOTE 6 - INDEBTEDNESS
Long-term debt consists of the following:
_________________________________________________________________
September 25, 1999 September 26, 1998
_________________________________________________________________
Credit Facility
- revolving credit $ 170,000 $ -
- term loan 67,500 -
Revolving credit facilities - 74,000
International and other U.S.
term loan agreements 10,784 8,985
Obligations under capital
leases 1,995 2,219
__________ __________
Senior debt 250,279 85,204
10% senior subordinated notes 120,000 120,000
__________ __________
Total long-term debt 370,279 205,204
Less current installments (20,787) (5,505)
_________________________________________________________________
Long-term debt $ 349,492 $ 199,699
_________________________________________________________________
In connection with the acquisition of Montek, the Company
refinanced its U.S. credit facilities. Effective November 30,
1998, the Company entered into a $340,000 Corporate Revolving and
Term Loan Agreement (Credit Facility) with a banking group. The
Credit Facility provides a $265,000 revolving facility and a
$75,000 term loan with interest starting at LIBOR plus 200 basis
points, with the spread adjusted based on leverage. At September
25, 1999, interest on the Credit Facility was LIBOR plus 200
basis points. In order to provide for interest rate protection,
the Company has entered into interest rate swap agreements
totaling $80,000, effectively converting this amount to fixed
debt at 7.05%. The Credit Facility expires in November 2003 and
requires quarterly principal payments on the term loan of $3,750,
which commenced in March 1999.
The Credit Facility is secured by substantially all of the
Company's U.S. assets. The loan agreement contains various
covenants which, among others, specify minimum interest and fixed
charge coverage, limit capital expenditures, specify minimum net
worth, limit leverage and restrict payment of cash dividends on
common stock. The Credit Facility was used primarily to acquire
Montek and to refinance approximately $72,000 of existing
revolving credit facilities.
International and other U.S. term loan agreements of $10,784
at September 25, 1999 consist principally of financing provided
by various banks to certain foreign subsidiaries. These term
loans are being repaid through 2004 and carry interest rates
ranging from 1.0% to 8.75%.
The 10% Senior Subordinated Notes (the Notes) are due on May
1, 2006. The Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after May 1, 2001
initially at 105% of their principal amount, plus accrued
interest, declining ratably to 100% of their principal amount,
plus accrued interest, on or after May 1, 2003. The Notes are
unsecured, general obligations of the Company subordinated in
right of payment to all existing and future senior indebtedness.
The indenture includes certain covenants limiting, subject to
certain exceptions, the incurrence of additional indebtedness,
payment of dividends, redemption of capital stock, asset sales
and certain mergers and consolidations.
Maturities of long-term debt are $20,787 in 2000, $19,138 in
2001, $16,770 in 2002, $15,657 in 2003, $177,927 in 2004, and
$120,000 thereafter.
At September 25, 1999, the Company had pledged assets with a
net book value of $397,713 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 $92,300 available on the Credit Facility,
provided credit availability of $105,888 at September 25, 1999.
Commitment fees are charged on some of these arrangements based
on a percentage of the unused amounts available and are not
material.
At September 25, 1999, the Company had $5,831 of notes
payable to banks at an average rate of 3.9%. During 1999, an
average of $6,086 in notes payable were outstanding at an average
interest rate of 4.9%.
See Note 13 for fair values of indebtedness and interest
rate swaps.
NOTE 7 - INCOME TAXES
The reconciliation of the provision for income taxes to the
amount computed by applying the U.S. federal statutory tax rate
to earnings before income taxes is as follows:
_________________________________________________________________
1999 1998 1997
_________________________________________________________________
Earnings before income taxes:
Domestic $ 22,184 $ 22,009 $ 16,310
Foreign 14,588 8,746 3,165
Eliminations (44) (882) 104
_________________________________________________________________
Total $ 36,728 $ 29,873 $ 19,579
_________________________________________________________________
Computed expected tax expense $ 12,855 $ 10,456 $ 6,657
Increase (decrease) in income taxes
resulting from:
Foreign tax rates 297 338 571
Nontaxable export sales (943) (800) (664)
State taxes net of federal benefit 403 501 302
Foreign tax credits (646) (145) (1,244)
Change in beginning of the year
valuation allowance 128 179 (77)
Other 203 76 428
_________________________________________________________________
Income taxes $ 12,297 $ 10,605 $ 5,973
_________________________________________________________________
Effective income tax rate 33.5% 35.5% 30.5%
_________________________________________________________________
At September 25, 1999, certain foreign subsidiaries had net
operating loss carryforwards totaling $12,852. These loss
carryforwards do not expire and can be used to reduce current
taxes otherwise due on future earnings of those subsidiaries.
No provision has been made for U.S. federal or foreign taxes
on that portion of certain foreign subsidiaries' undistributed
earnings ($41,869 at September 25, 1999) considered to be
permanently reinvested. It is not practicable to determine the
amount of tax that would be payable if these amounts were
repatriated to the Company.
The components of income taxes are as follows:
_________________________________________________________________
1999 1998 1997
Current:
Federal $ 4,518 $ 8,809 $ 6,543
Foreign 5,487 3,897 949
State 182 1,099 575
_______ _______ _______
Total current 10,187 13,805 8,067
_______ _______ _______
Deferred:
Federal 2,471 (2,374) (1,621)
Foreign (715) (498) (354)
State 354 (328) (119)
_______ _______ _______
Total deferred 2,110 (3,200) (2,094)
_________________________________________________________________
Total income taxes $12,297 $10,605 $ 5,973
_________________________________________________________________
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 25, 1999 September 26, 1998
_________________________________________________________________
Deferred tax assets:
Contract loss reserves not
currently deductible $ 10,043 $ 4,828
Tax benefit carryforwards 5,258 628
Accrued vacation 7,398 6,109
Deferred compensation 2,081 1,566
Pension 4,905 3,907
Accrued expenses not
currently deductible 5,027 4,034
Inventory 4,182 4,596
Other 34 638
_________ _________
Total gross deferred tax
assets 38,928 26,306
Less: Valuation reserve (603) (474)
_________ _________
Net deferred tax assets $ 38,325 $ 25,832
_________ _________
Deferred tax liabilities:
Differences in bases and
depreciation of property,
plant and equipment $ 29,909 $ 21,993
Other 79 128
_________ _________
Total gross deferred tax
liabilities $ 29,988 $ 22,121
_________________________________________________________________
Net deferred tax assets $ 8,337 $ 3,711
_________________________________________________________________
NOTE 8 - EMPLOYEE BENEFIT PLANS
In 1999 the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits,"
which revises employers' required disclosures. It does not change
the measurement or recognition of employee benefit plans. Prior
year information has been presented to conform to the current
year disclosures.
The Company maintains a number of defined benefit plans
covering substantially all employees. The changes in projected
benefit obligations and plan assets and the funded status of the
U.S. and non-U.S. defined benefit plans for 1999 and 1998 are as
follows:
__________________________________________________________________________________________
U.S. Plans Non-U.S. Plans
_________________________________________________________________
September 25, September 26, September 25, September 26,
1999 1998 1999 1998
__________________________________________________________________________________________
Change in projected
benefit obligation:
Projected benefit obligation
at beginning of year $ 160,440 $ 125,981 $ 35,030 $ 29,549
Service cost 6,441 4,647 1,674 1,569
Interest cost 11,052 9,971 2,149 1,912
Contributions by plan
participants - - 28 33
Actuarial losses (gains) (8,140) 18,035 (376) 2,021
Foreign currency exchange impact - - (1,283) 984
Benefits paid from plan assets (5,722) (5,242) (568) (655)
Benefits paid by Company (82) (104) (429) (383)
Plan amendments - 7,152 - -
__________________________________________________________________________________________
Projected benefit obligation at
end of year $ 163,989 $ 160,440 $ 36,225 $ 35,030
__________________________________________________________________________________________
Change in plan assets:
Fair value of assets at
beginning of year $ 140,022 $ 139,743 $ 13,133 $ 11,106
Actual return on plan assets 27,905 3,825 2,171 1,412
Employer contributions 1,649 1,696 863 718
Contributions by plan
participants - - 198 174
Benefits paid (5,722) (5,242) (568) (655)
Foreign currency exchange
impact - - (220) 378
__________________________________________________________________________________________
Fair value of assets at
end of year $ 163,854 $ 140,022 $ 15,577 $ 13,133
__________________________________________________________________________________________
Funded status: $ (135) $ (20,418) $ (20,648)$ (21,897)
Unrecognized net actuarial
losses (gains) (18,989) 5,443 (376) 183
Unrecognized prior service
cost 7,017 7,811 141 114
Unrecognized net (asset)
liability from SFAS No. 87
adoption date, amortized
over 15 years (810) (1,116) 759 1,020
__________________________________________________________________________________________
Accrued pension liability $ (12,917) $ (8,280) $ (20,124) $ (20,580)
__________________________________________________________________________________________
Amounts recognized in the
balance sheet consist of:
Prepaid benefit cost $ -- $ -- $ 975 $ 187
Accrued pension liability (13,195) (8,988) (21,099) (20,767)
Intangible asset 278 708 -- --
Net amount recognized $ (12,917) $ (8,280) $ (20,124) $ (20,580)
__________________________________________________________________________________________
The following table provides aggregate information for pension plans with accumulated benefit
obligations in excess of plan assets:
_________________________________________________________________
September 25, 1999 September 26, 1998
_________________________________________________________________
Projected benefit obligation $ 39,711 $ 193,086
Accumulated benefit obligation 33,921 173,685
Fair value of plan assets 12,505 150,293
________________________________________________________________
Fiscal 1999 plan assets consist primarily of publicly traded
stocks, bonds, mutual funds, and $12,075 in Company stock, based
on quoted market prices. The Company's funding policy is to
contribute at least the amount required by law in the respective
countries. The principal actuarial assumptions weighted for all
defined benefit plans are:
_________________________________________________________________
U.S. Plans Non-U.S. Plans
__________________________________________
1999 1998 1999 1998
_________________________________________________________________
Discount rate 7.5% 7.0% 5.9% 6.4%
Return on assets 9.5% 9.5% 6.0% 6.5%
Rate of compensation
increase 3.6% 3.6% 3.5% 4.0%
_________________________________________________________________
In addition, the Company maintains various defined
contribution plans. Pension expense for all plans for 1999, 1998
and 1997 are as follows:
___________________________________________________________________________
U.S. Plans Non-U.S. Plans
______________________________________________________
1999 1998 1997 1999 1998 1997
___________________________________________________________________________
Service cost $ 6,441 $ 4,647 $ 3,630 $ 1,674 $ 1,569 $ 1,463
Interest cost on
projected benefit
obligation 11,052 9,971 9,059 2,149 1,912 1,782
Expected return on
plan assets (11,855) (10,098) (8,824) (991) (783) (679)
Amortization of prior
service cost 794 575 34 7 -- --
Amortization of
transition (asset)
obligation (305) (305) (305) 168 174 184
Recognized actuarial
(gain) or loss 242 1 172 10 (142) (147)
_______ _______ _______ ______ _____ ______
Pension expense for
defined benefit
plans 6,369 4,791 3,766 3,017 2,730 2,603
Pension expense for
defined contribution
plans 510 228 245 870 865 628
___________________________________________________________________________
Total pension
expense $ 6,879 $ 5,019 $ 4,011 $ 3,887 $ 3,595 $ 3,231
___________________________________________________________________________
Employee and management profit share plans provide for the
discretionary payment of profit share based on net earnings as a
percentage of net sales multiplied by the employees' wages, as
defined. Profit share expense was $5,334, $8,990 and $4,518 in
1999, 1998, and 1997, respectively. At management's discretion,
the amounts paid to employees and management were 50%, 100% and
75% of the formula for 1999, 1998 and 1997, respectively.
The Company has a Savings and Stock Ownership Plan (SSOP)
which includes an Employee Stock Ownership Plan. As one of the
investment alternatives, participants in the SSOP can acquire
Company Stock at market value, with the Company providing a 25%
share match. Shares are allocated and compensation expense is
recognized as the employer share match is earned. At September
25, 1999, the SSOP owned 289,660 Class A shares and 499,623 Class
B shares.
The Company provides postretirement health care benefits to
certain retirees. The change in the accumulated benefit
obligation and the funded status of the plan for 1999 and 1998
are shown below. There are no plan assets. The transition
obligation is being recognized over 20 years.
_________________________________________________________________
September 25, 1999 September 26, 1998
_________________________________________________________________
Change in Accumulated
Postretirement Benefit
Obligation (APBO)
APBO at beginning of year $ 10,154 $ 9,416
Service cost 183 152
Interest cost 710 699
Plan participants' contributions 221 174
Benefits paid (1,358) (1,311)
Acquisitions 521 41
Actuarial losses 231 983
_________________________________________________________________
APBO at end of year $ 10,662 $ 10,154
_________________________________________________________________
Funded status $ (10,662) $(10,154)
Unrecognized transition
obligation 5,521 5,915
Unrecognized prior service cost 172 192
Unrecognized losses 1,931 1,764
_________________________________________________________________
Accrued postretirement benefit
liability $ (3,038) $ (2,283)
_________________________________________________________________
The cost of the postretirement benefit plan is as follows:
_________________________________________________________________
1999 1998 1997
_________________________________________________________________
Service cost $ 183 $ 152 $ 150
Interest cost 710 699 658
Amortization of transitional
obligation 396 394 395
Amortization of prior service cost 19 19 19
Recognized actuarial loss 62 -- --
_________________________________________________________________
Net periodic postretirement benefit
cost $1,370 $1,264 $1,222
_________________________________________________________________
The assumed discount rate used in the accounting for the
plan was 7.5% in 1999 and 7.0% in 1998.
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 25, 1999.
NOTE 9 - SHAREHOLDERS' EQUITY
Class A and Class B Common Stock share equally in the
earnings of the Company, and are identical with certain
exceptions. Class A shares have limited voting rights, with each
share of Class A being entitled to one-tenth of a vote on most
matters, and each share of Class B being entitled to one vote.
Class A shareholders are entitled, subject to certain
limitations, to elect at least 25% of the Board of Directors
(rounded up to the nearest whole number) with Class B
shareholders entitled to elect the balance of the directors. No
cash dividend may be paid on Class B unless at least an equal
cash dividend is paid on Class A. Class B shares are convertible
at any time into Class A on a one-for-one basis at the option of
the shareholder. The number of common shares issued reflects
conversion of Class B to Class A of 170 in 1999, 36,205 in 1998
and 6,691 in 1997.
In early February 1998, the Company completed an offering of
Class A shares at $34.375 per share. The offering consisted of
1,755,000 previously unissued shares sold by the Company and
300,000 existing shares sold by the Moog Inc. Employees'
Retirement Plan.
In August 1998, the Board of Directors authorized the
repurchase of up to 200,000 common shares. As of September 25,
1999, 100,047 shares had been repurchased at market prices under
this program at a cost of $3,321.
The Company is authorized to issue up to 10,000,000 shares
of preferred stock. Series B Preferred Stock is 9% Cumulative,
Convertible, Exchangeable Preferred Stock with a $1.00 par value.
Series B Preferred Stock consists of 100,000 issued shares and
83,771 outstanding shares at September 25, 1999, and is
convertible into Class A Common shares (.08585 shares of Class A
Common Stock per share of Series B Preferred Stock). In fiscal
1999, 11,112 Series B Preferred shares were converted to 954
Class A common shares. The Series B Preferred Stock is owned
primarily by officers of the Company. With respect to any matters
on which the Series B Preferred Stock is entitled to vote, all
shares will be voted in a manner determined by a majority of such
shares. The Series B Preferred Stock is entitled to vote as a
class on certain takeover transactions. The Board of Directors
may authorize, without further shareholder action, the issuance
of additional preferred stock which ranks senior to both classes
of Common Stock of the Company with respect to the payment of
dividends and the distribution of assets on liquidation. The
preferred stock, when issued, would have such designations
relative to voting and conversion rights, preferences, privileges
and limitations as determined by the Board of Directors.
In February 1998 the shareholders of the Company approved
the 1998 Stock Option Plan (1998 Plan) authorizing the issuance
of options for 600,000 shares of Class A stock to directors,
officers and key employees. Under the terms of the plan, options
may be either incentive or non-qualified. All options issued as
of September 25, 1999 were incentive options. The exercise price,
determined by a committee of Board of Directors, may not be less
than the fair market value of the Class A stock on the grant
date. The options have a term of ten years. Options become
exercisable over a six year period.
Had compensation expense for stock options been determined
based on the fair value of the options at the grant date,
proforma net earnings, basic earnings per share and diluted
earnings per share would have been $23,753, $2.66 and $2.63,
respectively, for 1999 and $18,904, $2.28 and $2.22,
respectively, for 1998. The weighted-average fair value of
options granted during 1999 and 1998 was $14.02 and $16.61 per
option, respectively. Fair value was estimated at the date of
grant using the Black Scholes option-pricing model and the
following weighted-average assumptions: risk-free interest rate
of 5.1% and 5.7% for 1999 and 1998, respectively, expected
volatility of 33%, expected life of 7.5 years and expected
dividend yield of 0%.
The 1983 Non-Statutory Stock Option Plan granted options on
Class B shares to directors, officers, and key employees. The
1983 Incentive Stock Option Plan (1983 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. At September 25,
1999, 118,500 options were outstanding under the 1983 Plan.
Class A shares reserved for issuance at September 25, 1999
are as follows:
_________________________________________________________________
Shares
_________________________________________________________________
Conversion of Class B to Class A shares 1,583,636
1983 Plan 118,500
1998 Plan 600,000
Conversion of Series B Preferred Stock to Class A
shares 7,191
_________________________________________________________________
2,309,327
_________________________________________________________________
Shares under option are as follows:
_________________________________________________________________
Class B Weighted Class A Weighted
Stock Average Stock Average
Option Exercise Option Exercise
Plan Price Plans Price
_________________________________________________________________
Outstanding at
September 30, 1996 129,912 $ 14.28 322,600 $ 8.36
Cancelled or expired in
fiscal 1997 -- $ -- (800) $ 10.50
Exercised in fiscal 1997 (44,912) $ 14.44 (50,150) $ 9.46
Outstanding at
September 27, 1997 85,000 $ 14.75 271,650 $ 8.15
Granted in fiscal 1998 -- $ -- 155,500 $33.875
Cancelled or expired in
fiscal 1998 -- $ -- (400) $ 10.50
Exercised in fiscal 1998 (85,000) $ 14.75 (99,750) $ 10.08
Outstanding at
September 26, 1998 -- $ -- 327,000 $ 19.79
Granted in fiscal 1999 -- $ -- 65,500 $ 29.44
Cancelled or expired in
fiscal 1999 -- $ -- (5,000) $33.875
Exercised in fiscal 1999 -- $ -- (53,000) $ 7.46
_________________________________________________________________
Outstanding at Sept. 25, 1999 -- $ -- 334,500 $ 23.43
_________________________________________________________________
The weighted-average remaining lives of the Class A options
as of September 25, 1999 are as follows: 1983 Plan - 2.0 years;
1998 Plan - 8.7 years.
As of September 25, 1999 prices of options outstanding under
the 1983 Plan ranged from $5.625 to $8.00, with a weighted-
average exercise price of $6.83. The price of the options
outstanding under the 1998 Plan ranged from $29.125 to $33.875,
with a weighted-average exercise price of $32.53.
Options to purchase 85,000 Class B shares were exercisable
at September 27, 1997 at a weighted-average exercise price of
$14.75. Options to purchase 118,500, 171,500 and 271,650 Class A
shares under the 1983 Plan were exercisable at September 25,
1999, September 26, 1998 and September 27, 1997, respectively, at
a weighted-average exercise price of $6.83, $7.03 and $8.15
respectively. Options to purchase 44,020 Class A shares under the
1998 Plan were exercisable at September 25, 1999 at a weighted-
average price of $33.875.
NOTE 10 - SEGMENTS
In fiscal 1999, the Company adopted the provisions of 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 by management for evaluating segment
performance and deciding how to allocate resources to segments.
The Company's reportable segments under SFAS No. 131 are Aircraft
Controls, Satellite and Launch Vehicle Controls and Industrial
Controls. The determination of the Company's reportable segments
was based on an analysis of the organizational structure of the
Company and its products, as well as markets served.
Aircraft Controls designs and produces technologically
advanced flight and engine controls to manufacturers of
commercial and military aircraft. Moog supplies controls on
numerous military and commercial aircraft including the F/A-18E/F
Super Hornet, the V-22 Osprey, the Joint Strike Fighter concept
demonstrator aircraft and Boeing 7-Series airplanes, among
others.
Satellite and Launch Vehicle Controls designs and
manufactures motion, fluid and propellant controls and systems to
control the flight, positioning or thrust of satellites, solar
panels and antennae, launch vehicles, and tactical and strategic
missiles.
Industrial Controls manufactures hydraulic and electric
controls which are used in a wide variety of industrial
applications requiring the precise control of position, velocity
and force. Applications include plastic injection and blow
molding machines, steam and gas turbines, steel rolling mills,
fatigue testing machines, and gun and turret positioning and
ammunition-loading on military ground vehicles.
Below is segment information for the years ended 1999, 1998
and 1997 and reconciliations to consolidated amounts. Prior year
information has been presented to conform to the new presentation
of segment information.
_________________________________________________________________
1999 1998 1997
_________________________________________________________________
Sales:
Aircraft Controls $ 302,108 $ 254,086 $ 225,997
Satellite and Launch Vehicle
Controls 109,987 93,459 65,816
Industrial Controls 217,939 189,067 164,116
_________________________________________________________________
Total sales $ 630,034 $ 536,612 $ 455,929
_________________________________________________________________
Operating profit and margins:
Aircraft Controls $ 36,960 $ 28,899 $ 31,643
12.2% 11.4% 14.0%
Satellite and Launch
Vehicle Controls 12,833 9,755 9,077
11.7% 10.4% 13.8%
Industrial Controls 23,595 20,380 10,649
10.8% 10.8% 6.5%
_________ _________ _________
Total operating profit 73,388 59,034 51,369
Deductions from operating profit:
Interest expense 28,188 20,148 22,675
Currency loss (gain) 280 360 (186)
Corporate and other expenses,
net 8,192 8,653 9,301
_________________________________________________________________
Earnings before income tax $ 36,728 $ 29,873 $ 19,579
_________________________________________________________________
Depreciation and amortization expense:
Aircraft Controls $ 16,185 $ 10,989 $ 11,542
Satellite and Launch
Vehicle Controls 3,555 2,790 1,797
Industrial Controls 8,639 6,946 6,519
_________ _________ _________
28,379 20,725 19,858
Corporate 2,2