UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-5129
MOOG INC.
(Exact name of registrant as specified in its charter)
New York State 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
No Change
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:
Class Outstanding at August 7, 1996
Class A Common Stock, $1.00 par value 5,387,758 Shares
Class B Common Stock, $1.00 par value 1,567,775 Shares
MOOG INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION 3-20
Consolidated Condensed Balance Sheets
June 30, 1996 and September 30, 1995 4
Consolidated Condensed Statements of Income
Three Months Ended June 30, 1996 and 1995 5
Consolidated Condensed Statements of Income
Nine Months Ended June 30, 1996 and 1995 6
Consolidated Condensed Statements of Cash Flows
Nine Months Ended June 30, 1996 and 1995 7
Notes to Consolidated Condensed Financial
Statements 8-11
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-20
PART II. OTHER INFORMATION 21-25
SIGNATURES 26
PART I: FINANCIAL INFORMATION
MOOG INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands)
Unaudited Audited
As of As of
June 30 September 30
1996 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,726 $ 7,576
Receivables, net 155,207 148,915
Inventories (note 6) 101,125 86,176
Deferred income taxes 16,918 16,816
Prepaid expenses and other current assets 2,469 2,275
_______ _______
TOTAL CURRENT ASSETS 283,445 261,758
PROPERTY, PLANT AND EQUIPMENT, net 134,038 139,131
PRODUCT LINE INTANGIBLES, net 16,637 14,093
OTHER ASSETS 13,199 9,975
_______ _______
TOTAL ASSETS $447,319 $424,957
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 4,045 $ 6,606
Current installments of long-term debt
(note 2) 6,567 7,080
Accounts payable 24,447 25,781
Accrued salaries, wages and commissions 21,527 21,065
Contract loss reserves 12,526 12,872
Other accrued liabilities 16,739 11,433
Customer advances 8,846 9,936
_______ _______
TOTAL CURRENT LIABILITIES 94,697 94,773
LONG-TERM DEBT, less current installments
(note 2) 85,446 158,075
LONG-TERM PENSION OBLIGATION 25,465 23,794
OTHER LONG-TERM LIABILITIES 85 430
DEFERRED INCOME TAXES 19,652 19,674
SENIOR SUBORDINATED NOTES (note 2) 120,000 -
CONVERTIBLE SUBORDINATED DEBENTURES (note 2) - 18,000
MINORITY INTEREST IN SUBSIDIARY COMPANY 1,503 1,575
_______ _______
TOTAL LIABILITIES 346,848 316,321
_______ _______
SHAREHOLDERS' EQUITY (note 9)
Preferred stock 100 100
Common stock 9,134 9,134
Other shareholders' equity 91,237 99,402
_______ _______
TOTAL SHAREHOLDERS' EQUITY 100,471 108,636
_______ _______
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $447,319 $424,957
======= =======
See accompanying notes to Consolidated Condensed Financial Statements.
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
Unaudited
Three Months Ended
June 30
1996 1995
NET SALES $103,107 $ 99,450
OTHER INCOME 428 490
_______ _______
103,535 99,940
_______ _______
COSTS AND EXPENSES
Cost of sales 70,534 71,281
Research and development expenses 4,433 3,616
Selling, general and administrative
expenses 19,369 18,295
Interest expense 4,822 4,291
Foreign exchange loss (gain) 58 (95)
Other expenses 20 81
_______ _______
99,236 97,469
_______ _______
EARNINGS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 4,299 2,471
INCOME TAXES 1,277 166
_______ _______
EARNINGS BEFORE EXTRAORDINARY ITEM 3,022 2,305
EXTRAORDINARY ITEM, LOSS FROM EARLY
EXTINGUISHMENT OF DEBT,
NET OF INCOME TAXES OF $300 (note 4) 510 -
_______ _______
NET EARNINGS $ 2,512 $ 2,305
======= =======
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
Before Extraordinary Item $.40 $.30
Extraordinary Item .07 -
_______ _______
Net Earnings $.33 $.30
======= =======
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (note 5) 7,549,666 7,722,209
========= =========
See accompanying notes to Consolidated Condensed Financial Statements.
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
Unaudited
Nine Months Ended
June 30
1996 1995
NET SALES $303,162 $277,739
OTHER INCOME 1,784 1,410
_______ _______
304,946 279,149
_______ _______
COSTS AND EXPENSES
Cost of sales 209,739 196,387
Research and development expenses 13,118 11,908
Selling, general and administrative
expenses 56,812 51,352
Interest expense 13,123 12,990
Foreign exchange (gain) (94) (162)
Other expenses 292 257
_______ _______
292,990 272,732
_______ _______
EARNINGS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 11,956 6,417
INCOME TAXES 3,540 965
_______ _______
EARNINGS BEFORE EXTRAORDINARY ITEM 8,416 5,452
EXTRAORDINARY ITEM, LOSS FROM EARLY
EXTINGUISHMENT OF DEBT,
NET OF INCOME TAXES OF $300 (note 4) 510 -
_______ _______
NET EARNINGS $ 7,906 $ 5,452
======= =======
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
Before Extraordinary Item $1.08 $.71
Extraordinary Item .07 -
_______ _______
Net Earnings $1.01 $.71
_______ _______
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
(note 5) 7,784,269 7,720,557
========= =========
See accompanying notes to Consolidated Condensed Financial Statements.
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Unaudited
Nine Months Ended
June 30
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 7,906 $ 5,452
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 14,863 14,401
Provisions for losses 4,533 1,901
Deferred income taxes 410 1,197
Other 141 97
Changes in assets and liabilities
providing (using) cash:
Receivables (8,876) (16,119)
Inventories (18,114) (6,341)
Prepaid expenses and other assets (987) 2,128
Accounts payable and accrued expenses 1,311 (1,028)
Other liabilities 2,615 957
Accrued income taxes 1,911 1,030
Customer advances (1,079) (2,108)
________ ________
NET CASH PROVIDED BY
OPERATING ACTIVITIES 4,634 1,567
________ ________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase price reduction related to June 1994
acquisition of hydraulic and mechanical
actuation product lines of AlliedSignal, Inc. - 9,200
Acquisition of Ultra and Parker Hannifin
product lines (note 7) (5,902) -
Purchases of property, plant and equipment (7,543) (6,725)
Proceeds from sale of assets 101 308
Other 191 273
________ ________
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (13,153) 3,056
________ ________
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in notes payable (2,786) (2,269)
Net payments on revolving lines of credit (53,529) (1,000)
Proceeds from issuance of long-term debt 8,312 7,537
Proceeds from issuance of senior
subordinated notes (note 2) 116,438 -
Payments on long-term debt (27,305) (9,344)
Redemption of convertible subordinated
debentures (note 2) (18,000) (1,400)
Dividends paid (7) (7)
Purchase of outstanding shares for treasury (14,465) -
Proceeds from issuance of treasury stock 263 59
________ ________
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 8,921 (6,424)
________ ________
Effect of exchange rate changes on cash (252) 74
________ ________
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 150 (1,727)
Cash and cash equivalents at
beginning of period 7,576 7,561
________ ________
Cash and cash equivalents at end of period $ 7,726 $ 5,834
======== ========
See accompanying notes to Consolidated Condensed Financial Statements.
MOOG INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands except share data)
Unaudited
1. In the opinion of the Company, the accompanying unaudited
consolidated condensed financial statements fairly present
the financial position of Moog Inc. as of June 30, 1996 and
the results of its operations and cash flows for the three
and nine months ended June 30, 1996 and 1995. The results
of operations for the nine month period ended June 30, 1996
are not necessarily indicative of the results expected for
the full year. Certain reclassifications have been made to
conform the 1995 financial statements with the current year
presentation.
2. On May 14, 1996, the Company completed a recapitalization
(the "Recapitalization") which increases its operating and
financial flexibility. The principal elements of the
Recapitalization were:
(1) The amendment on May 13, 1996 and March 22, 1996
of the Company's secured U.S. revolving credit and term
loan facility (the "Bank Credit Facility") pursuant to
which the lenders thereunder consented to consummation
of the Recapitalization and the parties agreed to amend
certain financial covenants.
(2) The redemption (the "Debenture Redemption") on
April 26, 1996 of the Company's 9-7/8% Convertible
Subordinated Debentures due 2006 (the "9-7/8%
Convertible Debentures") using funds available under
the Bank Credit Facility. Of the total principal
balance outstanding of $18,000 on April 26, 1996,
principal of $17,858 was redeemed with $142 of
principal converted into 6,204 Class A Common shares.
(3) The completion on May 14, 1996 of a $120,000
offering (the "Offering") of 10% Senior Subordinated
Notes due 2006 (the "Notes"), the proceeds of which
were approximately $116,438 net of discounts and
expenses of the Offering. The Notes have a single
maturity with the aggregate principal amount due on
May 1, 2006. The Notes are redeemable at the option of
the Company, in whole or in part, at any time on or
after May 1, 2001 initially at 105% of their principal
amount, plus accrued interest, declining ratably to
100% of their principal amount, plus accrued interest,
on or after May 1, 2003. The Company used such net
proceeds to:
(a) Repurchase 714,600 shares of its Class A
Common Stock, representing 11.8% of the
outstanding shares of Class A Common Stock (9.3%
of total Common Stock outstanding), from Seneca
Foods Corporation for a purchase price of $12,863,
or $18 per share;
(b) Prepay in its entirety the principal balance
of $16,400 on the Company's 10 1/4% Senior Secured
Note due 2001 (the "10 1/4% Note");
(c) Repay approximately $86,481 of its revolving
borrowings under the Bank Credit Facility, which
includes $17,858 borrowed for the Debenture
Redemption; and
(d) Pay prepayment and amendment fees of $506
incurred in connection with the Recapitalization.
The Offering was made under Rule 144A and Regulation S of
the Securities Act of 1933. Accordingly, the Notes were not
registered under the Securities Act of 1933. Subsequently,
the Company registered new Notes (the "New Notes") under the
Securities Act of 1933 and has commenced an offer to
exchange the Notes for the New Notes registered under the
Securities Act of 1933. The exchange is being made only by
means of a prospectus, and is currently scheduled to
conclude on August 26, 1996.
3. The following proforma income statement amounts show the
effect for the nine month period ended June 30, 1996
assuming that the Notes had been sold on October 1, 1995 and
that net proceeds of $116,438 were used to repurchase
714,600 shares of the Company's Class A Common Stock for
$12,863, prepay the balance then outstanding of $18,350 on
the 10-1/4% Note, redeem $19,258 of the 9-7/8% Convertible
Debentures, pay prepayment and amendment fees of $557 on the
10-1/4% Note and the Bank Credit Facility, with the
remainder used to repay outstanding revolving borrowings
under the Bank Credit Facility of $65,410. The proforma
adjustments include $142 in principal of the 9-7/8%
Convertible Debentures which was converted into 6,204 shares
of Class A Common Stock. The reduction in net earnings for
the proforma period reflects the net increase in interest
and amortization expenses associated with Recapitalization.
The proforma financial information does not purport to
represent the Company's results of operations if the
Recapitalization had in fact been consummated on October 1,
1995.
Nine Months Ended
June 30, 1996
Actual Proforma
Net sales $300,162 $200,055
Earnings before income taxes
and extraordinary item 11,956 9,814
Earnings before
extraordinary item 8,416 7,066
Earnings per common and common
equivalent share before
extraordinary item $1.08 $.98
Average common and common
equivalent shares outstanding 7,784,269 7,194,854
4. In connection with the May 1996 prepayment in its entirety
of the 10-1/4% Note, the Company incurred a prepayment fee
and wrote off the related deferred debt issue costs. The
result was an extraordinary loss of $510, net of an income
tax benefit of $300.
5. Average Common and Common Equivalent Shares Outstanding
include 263,529 and 221,415 common equivalent shares related
to stock options for the three and nine month periods ending
June 30, 1996, respectively. There were no common
equivalent shares included in the calculation for the same
three and nine month periods in the prior year.
6. Inventories are stated at the lower of cost or market using
the first-in, first-out (FIFO) method of valuation.
Inventories are comprised of the following:
June 30 September 30
1996 1995
Raw materials and purchased parts $ 29,973 $ 23,028
Work in process 57,260 52,839
Finished goods 13,892 10,309
_______ _______
$101,125 $ 86,176
_______ _______
7. On December 15, 1995 the Company purchased, for $5,012 net
of cash acquired, the servovalve product line assets of
Ultra Hydraulics Limited ("Ultra"). This product line
traces its history back to a license granted by Moog in the
1950's. Over the past thirty years, the Ultra product line
has benefited from numerous refinements to the original Moog
designs and has developed a valuable customer network.
Ultra, located in the United Kingdom, had worldwide sales of
just under $5,000 in its latest fiscal year.
On May 24, 1996, the Company acquired the space products
line of Parker Hannifin Corporation for $.9 million. This
acquisition broadens the Company's product offerings in this
market.
These acquisitions have been accounted for under the
purchase method, and accordingly, the operating results for
the product lines have been included in the Consolidated
Condensed Statements of Income since the date of
acquisition. The cost of the acquisitions has been
preliminarily allocated on the basis of the estimated fair
values of assets acquired and liabilities assumed. The
acquisitions were financed with proceeds from the Bank
Credit Facility. Intangible assets of $3,641 arising from
the acquisitions are being amortized over twelve to fifteen
years.
8. In addition to the cash flow information provided in the
Consolidated Condensed Statements of Cash Flows, the
following supplemental cash flow data is provided:
Nine Months Ended
June 30
1996 1995
Cash paid (received) during the
period for:
Interest 12,449 $11,444
Income taxes 2,114 (3,510)
Non cash investing and financing
activities:
Leases capitalized, net of
leases terminated 597 261
9. The changes in shareholders' equity for the nine months
ended June 30, 1996 are summarized as follows:
Number of Shares
Class A Class B
Preferred Common Common
Amount Shares Stock Stock
PREFERRED STOCK
Beginning and end of period $ 100 100,000
COMMON STOCK
Beginning and end of period 9,134 6,599,306 2,534,817
ADDITIONAL PAID-IN CAPITAL
Beginning of period 47,709
Issuance of treasury shares
at less than cost (3)
_______
End of period 47,706
RETAINED EARNINGS
Beginning of period 64,125
Net earnings 7,906
Preferred stock dividends (7)
_______
End of period 72,024
TREASURY STOCK
Beginning of period (17,841) (550,968) (857,103)
Treasury stock issued 266 22,204 -
Treasury stock acquired (14,465) (714,723) (80,000)
_______ ________ ________
End of period (32,040) (1,243,487) (937,103)
EQUITY ADJUSTMENTS
Beginning of period 6,158
Foreign currency translation (2,054)
_______
End of period 4,104
LOAN TO SAVINGS AND STOCK
OWNERSHIP PLAN (SSOP)
Beginning of period (749)
Payments received on loan
to SSOP 192
_______
End of period (557)
TOTAL SHAREHOLDERS' EQUITY $100,471 100,000 5,355,819 1,597,714
======= ======= ========= =========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company, founded in 1951, is a leading global designer and
manufacturer of a broad range of high performance motion and
fluid control products and systems for aerospace and industrial
applications. Moog's servoactuation systems are critical to the
flight control of commercial and military aircraft, controlling
the thrust of space launch vehicles, steering tactical and
strategic missiles, satellite positioning, and in a wide variety
of electric and hydraulic industrial applications that require
the precise control of position, velocity and force. Moog
believes it is the recognized worldwide technological leader in
the market of precision controls.
The Company has two industry segments, Domestic Controls and
International Controls, both of which include five major product
lines. These product lines are Commercial Aircraft, Military
Aircraft, Space & Missiles (together "Aerospace Controls") and
Industrial Electronic Controls and Industrial Hydraulic Controls
(together "Industrial Controls"). Domestic Controls designs and
manufactures products primarily for North American markets, while
International Controls designs and manufactures products
primarily for markets in Europe and the Far East. The
substantial majority of Domestic Controls segment sales relate to
Aerospace Controls, with a relatively small portion of sales
related to Industrial Controls. Conversely, International
Controls segment sales relate principally to Industrial Controls,
with a relatively small portion of sales related to Aerospace
Controls.
From time to time, the Company considers select acquisitions to
achieve its strategies of broadening product lines, enhancing
market share and improving manufacturing and engineering
capabilities. In 1994, for example, Moog acquired certain
hydraulic and mechanical actuation product lines of AlliedSignal
located in Torrance, California (the "Acquisition"). Mechanical
actuation products acquired include drive systems for the leading
edge flaps on the F/A-18 C/D, F/A-18 E/F, V-22 Osprey and Boeing
777, and hydraulic actuation products acquired include the
primary flight controls for the Boeing 747 and 757 and the Airbus
A330 and A340. The Acquisition strengthened Moog's position in
the actuation market and improved utilization of existing
manufacturing facilities and overhead structure. The Acquisition
added revenues of approximately $95.0 million in fiscal 1995.
The final purchase price, excluding $5.0 million for specified
transition services, was $63.8 million. The transition services
which ended in June 1995 principally related to computer
services, engineering, and manufacturing support.
On December 15, 1995, the Company purchased, for $5.0 million net
of cash acquired, the servovalve product line of Ultra Hydraulics
Limited ("Ultra"). This product line traces its history back to
a license granted by Moog in the 1950's. Over the past thirty
years, the Ultra product line has benefited from numerous
refinements to the original Moog designs and has developed a
valuable customer network. Ultra, located in the United Kingdom,
had worldwide sales of just under $5.0 million in its latest
fiscal year. On May 24, 1996, the Company acquired the space
product line of Parker Hannifin Corporation for $.9 million.
This acquisition broadens the Company's product offering in this
market.
Sales. Commercial aerospace and Industrial Controls sales
accounted for slightly more than half of fiscal 1995 sales, with
the balance to either the U.S. government or various foreign
governments for military and space hardware on programs that
normally extend over many years. Over the past five years, the
percentage of government sales has declined as the Company has
increased its focus on the development and acquisition of
Commercial Aircraft and Industrial Controls product lines. In
fiscal 1991, government sales were 61% and commercial sales were
39%, respectively, of sales, compared to 49% and 51% in fiscal
1995, respectively. Moog expects the percentage of commercial
sales to continue to increase based upon expected growth in
Commercial Aircraft and Industrial Controls. The Company's sales
are dependent upon its ability to provide highly technical
controls solutions at a competitive price. Although price is a
major consideration, it is often secondary to technical
considerations.
In Commercial Aircraft, the Company's sales follow the production
cycle of the major original equipment manufacturers. In
Industrial Controls, the Company is subject to the normal swings
in capital goods spending in regional markets. Sales of Military
Aircraft and Space and Missiles products are subject to changes
in government procurement levels on programs in which the
Company participates. While the Company's sales in each of its
product lines is subject to cyclicality, the impact of
cyclicality can be mitigated by the diversity of these product
lines and their broad geographic distribution.
Sales to U.S. government prime contractors are typically pursuant
to long-term contracts for which the Company uses the percentage
of completion (cost to cost) method of accounting. Under this
method, revenues are recognized as costs are incurred. Estimates
of the cost to complete the contract are performed on a regular
basis. On contracts for which the estimated factory cost is
higher than the contract's value, a charge to earnings is made
and a loss reserve provided. The Company shares risks of
cancellation as a participant in these programs similar to the
risks assumed by all government contractors. Government emphasis
on audit and investigative activity in the U.S. defense industry
presents risks of unanticipated financial exposure for companies
with substantial activity in government contract work. The audit
process is an on-going one which includes post-award reviews and
audits of compliance with the various procurement requirements.
Approximately 32% of fiscal 1995 sales were to international
markets. The Company's consolidated U.S. dollar sales and
results of operations can be affected by the fluctuation in
foreign exchange rates. The Company believes exposure to
movements in a particular currency can be mitigated by the number
of countries in which it operates. Although the Company does not
hedge sales or operating results of its international operations,
it selectively hedges certain balance sheet exposures.
The Company aggressively markets spare parts and repairs directly
to its Aerospace and Industrial Controls customers. Sales of
spare parts and repairs are more profitable than OEM sales and
generally less volatile. For fiscal 1995, the Company's
aftermarket sales represented approximately 14% of sales, which
the Company estimates to be approximately twice fiscal 1992
aftermarket sales, reflecting increases in the Company's
installed base and focus on aftermarket sales opportunities
resulting from the Acquisition.
Cost of Sales. The principal elements of cost of sales are
direct labor, raw materials and manufacturing overhead. The
business requires significant investments in capital equipment,
buildings and related support costs. Cost of sales can be
significantly affected by changes in both volume and product mix.
The Company has a highly skilled workforce and an infrastructure
of engineering and related support costs. Accordingly, short-
term changes in volume can have a significant effect on gross
margins. These short-term changes can be tempered by the long-
term nature of the Aerospace Controls business and the production
cycle of major industrial capital goods manufacturers. In
Aerospace Controls, new contracts or contract
terminations/cutbacks are generally known in advance, while in
industrial markets, the Company generally "lags" into a capital
spending slowdown.
Since 1991 the Company has significantly reduced its worldwide
manufacturing cost base. Excluding the Acquisition, the Company
reduced its U.S. workforce by 28%, or 605 people, from fiscal
1991 through 1995, while closing and terminating the lease for
its engine controls facility in Florida and sub-leasing two
facilities in East Aurora, New York. In Europe, the Company
reduced headcount by 23%, or 173 people, from fiscal 1991 through
1994, and consolidated industrial manufacturing in Germany and
aerospace production in England. Manufacturing capabilities in
France and Italy were eliminated. These restructuring actions
resulted in total charges of $13.8 million in 1992 and $2.1
million in 1994. In conjunction with these efforts, the Company
increased utilization of low cost manufacturing centers in the
Philippines, Ireland and India. In fiscal 1994, the Company
recorded an inventory obsolescence charge of $2.6 million,
representing the write-off of obsolete Domestic Controls
inventory, reflecting the decline in repair activities and spare
parts requirements on certain government programs. The Company
expects to continue to increase the use of its international low
cost manufacturing facilities in the future.
Selling, General and Administrative Expenses. The Company's
selling, general and administrative expenses are generally higher
in Industrial Controls compared to Aerospace Controls markets.
Typically, the majority of industrial products have higher gross
profit margins, but also require higher sales and support effort.
Accordingly, shifts in the sales mix to or from Industrial
Controls will generally affect total selling, general and
administrative expenses as a percentage of sales. Selling,
general and administrative expenses are also affected by the
amount of bid and proposal work on government contracts and
commission sales.
Research and Development. While the Company's overall level of
engineering resources has been relatively constant, its research
and development expenses will vary depending on whether its
engineering staff is engaged in customer-funded design and
development, sales support, production support or Company-funded
research and development activities.
Income Taxes. Income taxes consist of the consolidation of the
tax attributes in each country in which the Company has an
established presence. In recent years, the effective tax rate
has been affected by significant net operating losses and
utilization of net operating loss carryforwards primarily at the
Company's German operation. These net operating loss
carryforwards are expected to be substantially utilized by the
end of fiscal 1996.
Results of Operations
DOMESTIC CONTROLS
Three Months Ended Nine Months Ended
6/30/96 6/30/95 6/30/96 6/30/95
Net sales $70,784 $66,308 $205,945 $189,492
Intersegment sales 2,417 2,502 9,415 7,650
_______ _______ ________ ________
Total sales $73,201 $68,810 $215,360 $197,142
======= ======= ======== ========
Operating profit $ 8,583 $ 5,855 $ 24,191 $ 18,007
Earnings before
extraordinary item $ 1,495 $ 766 $ 4,727 $ 2,631
Backlog $204,908 $188,101
INTERNATIONAL CONTROLS
Three Months Ended Nine Months Ended
6/30/96 6/30/95 6/30/96 6/30/95
Net sales $32,323 $33,142 $ 97,217 $ 88,247
Intersegment sales 4,419 1,119 13,083 3,421
_______ _______ ________ ________
Total sales $36,742 $34,261 $110,300 $ 91,668
======= ======= ======== ========
Operating profit $ 3,325 $ 3,069 $ 9,100 $ 6,848
Net earnings $ 1,620 $ 1,587 $ 4,333 $ 3,013
Backlog $ 42,171 $ 46,308
CONSOLIDATED
Three Months Ended Nine Months Ended
6/30/96 6/30/95 6/30/96 6/30/95
Net sales $103,107 $99,450 $303,162 $277,739
Operating profit 11,824 8,876 32,361 24,643
Deductions from
operating profit:
Interest expense 4,822 4,291 13,123 12,990
Currency exchange
(gain) loss 58 (95) (94) (162)
Other expenses-net 2,645 2,209 7,376 5,398
________ _______ ________ ________
Total deductions 7,525 6,405 20,405 18,226
________ _______ ________ ________
Earnings before income
taxes and extraordinary item 4,299 2,471 11,956 6,417
Income taxes 1,277 166 3,540 965
________ _______ ________ ________
Earnings before
extraordinary item 3,022 2,305 8,416 5,452
Extraordinary item, loss from
early extinguishment of debt,
net of income taxes of $300
(note 4) 510 - 510 -
________ _______ ________ ________
Net earnings $ 2,512 $ 2,305 $ 7,906 $ 5,452
======== ======= ======== ========
Backlog $247,079 $234,409
======== ========
Operating profit for each segment consists of total revenue less
cost of sales and segment specific operating expenses. In
calculating net earnings for each segment, deductions from
operating profit have been charged to the respective segments by
being directly identified with a segment or allocated on the
basis of sales.
Fiscal 1996 Third Quarter Compared with Fiscal 1995 Third Quarter
Net sales for the third quarter of fiscal 1996 were $103 million,
an increase of 3.7% over last fiscal year's third quarter. Net
sales for the Domestic Controls segment were $70.8 million, 6.8%
above net sales of $66.3 million a year ago. The Domestic
Controls segment sales increase is attributable to increased
sales of satellite, space propulsion, and missile controls. For
the International Controls segment, net sales decreased 2.5% to
$32.3 million in the fiscal 1996 third quarter compared with
$33.1 million a year ago. The International Controls segment
sales decline was caused by weaker average foreign currency
values relative to the U.S. dollar. Excluding currency
fluctuations, stronger demand for Industrial Hydraulic Controls
in Europe and the December 1995 acquisition of the Ultra
servovalve product line resulted in a 5.1% sales increase.
Other income was $.4 million in the third quarter of fiscal 1996
compared to $.5 million a year ago. The decrease relates to
lower rent and royalty income.
Cost of sales for the third quarter of fiscal 1996 was $70.5
million, or 68.4% of net sales, compared to $71.3 million, or
71.7% of net sales in the prior fiscal year. The decrease as a
percentage of sales is primarily due to a greater share of high
margin Space & Missiles sales, and improved margins in the
Military and Commercial Aircraft product lines due to the absence
of transition expenses associated with the Acquisition.
Research and development expense was $4.4 million, 4.3% of net
sales, for the third quarter of fiscal 1996, compared with $3.6
million or 3.6% of net sales in the third quarter of fiscal 1995.
The increase relates to research in the U.S. on advanced Military
and Commercial Aircraft actuation systems and in Germany on
various hydraulic and electronic products.
Selling, general and administrative expenses were $19.4 million
or 18.8% of sales, in the third quarter of fiscal 1996, compared
to $18.3 million or 18.4% of sales the same period a year ago.
The increase is attributable to higher sales levels, the Ultra
acquisition, costs associated with stock appreciation rights
associated with the non-qualified stock option plan, and
consulting costs incurred by the German subsidiary related to
enhancing manufacturing activities.
Operating profit for the Domestic Controls segment was $8.6
million in the third quarter of fiscal 1996, or 11.7% of segment
sales. This compares with $5.9 million, or 8.5% of segment sales
a year ago. The increase is attributable to the previously
discussed 6.8% increase in net sales, the absence of the
transition costs, and a higher margin product mix. For the
International Controls segment, operating profit in the third
quarter of fiscal 1996 was $3.3 million, or 9.1% of segment
sales, compared to $3.1 million, or 9.0% of segment sales a year
ago.
Interest expense was $4.8 million in the third quarter of fiscal
1996 compared to $4.3 million the third quarter of fiscal 1995.
The increase relates to the Recapitalization, slightly higher
interest rates and higher average borrowing levels.
Income taxes are based upon an effective rate for the third
quarter of fiscal 1996 of 29.7% compared to 6.7% for the third
quarter of fiscal 1995. The effective tax rates reflect the
utilization of net operating loss carryforwards available to the
German subsidiary. The lower tax rate in fiscal 1995 reflected
the fact that a larger proportion of fiscal 1995 third quarter
earnings before taxes were generated by the German subsidiary
relative to fiscal 1996.
The extraordinary item of $.5 million represents the net after-
tax cost associated with the prepayment of the 10 1/4% Note.
As a result of the factors discussed above, net earnings for the
second quarter of fiscal 1996 increased to $2.5 million, or $.33
per share, compared with $2.3 million, or $.30 per share, a year
ago.
Fiscal 1996 Third Quarter Year-to-Date Compared with Fiscal 1995
Third Quarter Year-to-Date
Net sales for the first nine months of fiscal 1996 were $303
million, an increase of 9.2% over the same period a year ago.
Net sales for the Domestic Controls segment were $206 million,
8.7% above net sales of $189 million a year ago. The Domestic
Controls segment sales increase is attributable to increased
sales in both the Commercial and Military Aircraft product lines,
higher satellite and space propulsion controls, and growth in
electric drives sales. For the International Controls segment,
net sales increased 10.2% to $97.2 million in the first nine
months of fiscal 1996 compared with $88.2 million a year ago.
The International Controls segment sales growth relates
principally to stronger demand for Industrial Hydraulic Controls
throughout Europe and, to a lesser degree, the December 1995
acquisition of the servovalve product line of Ultra Hydraulics
Ltd.
Other income was $1.8 million in the first nine months of fiscal
1996 compared to $1.4 million a year ago. The increase relates
to license fees received on a foreign military program.
Cost of sales for the first nine months of fiscal 1996 was $210
million, or 69.2% of net sales, compared to $196 million, or
70.7% of net sales in the prior fiscal year. The decrease as a
percentage of sales is primarily due to the absence of transition
costs in 1996 related to the Acquisition and to increased sales
in the higher margin Space and Missiles product line.
Research and development expense was $13.1 million or 4.3% of net
sales, for the first nine months of fiscal 1996, compared with
$11.9 million or 4.3% of net sales in the same period of fiscal
1995. The increase relates to additional engineering effort in
the U.S. on advanced Military and Commercial Aircraft actuation
systems and in Germany on various hydraulic and electronic
products.
Selling, general and administrative expenses were $56.8 million
or 18.7% of sales, in the first nine months of fiscal 1996,
compared to $51.4 million or 18.5% of sales in the same period a
year ago. The increase is attributable to higher sales levels,
the Ultra acquisition, stock appreciation rights expense, and
consulting costs incurred by the German subsidiary related to
enhancing manufacturing activities.
Operating profit for the Domestic Controls segment was $24.2
million for the first nine months of fiscal 1996, or 11.2% of
segment sales. This compares with $18.0 million, or 9.1% of
segment sales a year ago. The increase is attributable to the
previously discussed 8.7% increase in net sales, and the absence
in fiscal 1996 of transition costs associated with the
Acquisition. For the International Controls segment, operating
profit for the first nine months of fiscal 1996 was $9.1 million,
or 8.3% of segment sales, compared to $6.8 million, or 7.5% of
segment sales a year ago. The increase is a result of higher net
sales due to improved capital goods market conditions.
Interest expense was $13.1 million for the first nine months of
fiscal 1996, compared with $13.0 million for the same fiscal 1995
period. While the Recapitalization resulted in higher interest
expense for the third quarter of fiscal 1996, average debt levels
prior to the Recapitalization were lower in fiscal 1996 resulting
in lower interest expense prior to the Recapitalization. The
lower pre-Recapitalization interest expense reduction has been
largely offset by the higher post-Recapitalization interest
expense. As a percentage of sales, interest expense declined to
4.3% of sales in the current quarter from 4.7% a year ago.
Income taxes are based upon an effective rate for the first nine
months of fiscal 1996 of 29.6%, compared to 15.0% for the same
fiscal 1995 period. The effective tax rates reflect the
utilization of net operating loss carryforwards available to the
German subsidiary. The lower tax rate in fiscal 1995 reflected
the fact that a larger proportion of fiscal 1995 earnings before
taxes were generated by the German subsidiary relative to fiscal
1996.
The extraordinary item of $.5 million represents the net after-
tax cost associated with the prepayment of the 10-1/4% Note.
As a result of the factors discussed above, net earnings for the
first nine months of fiscal 1996 increased to $7.9 million, or
$1.01 per share compared with $5.5 million, or $.71 per share, a
year ago.
Financial Condition and Liquidity
On May 14, 1996, the Company completed the Recapitalization which
increases its operating and financial flexibility. The principal
elements of the Recapitalization were:
(1) The amendment on May 13, 1996 and March 22, 1996
of the Company's Bank Credit Facility pursuant to which
the lenders thereunder consented to consummation of the
Recapitalization and the parties agreed to amend
certain financial covenants.
(2) The Debenture Redemption on April 26, 1996 of the
Company's 9-7/8% Convertible Debentures using funds
available under the Bank Credit Facility. Of the total
principal balance outstanding of $18,000 on April 26,
1996, principal of $17,858 was redeemed with $142 of
principal converted into 6,204 Class A Common shares.
(3) The completion on May 14, 1996 of the $120,000
Offering of 10% Senior Subordinated Notes due 2006, the
proceeds of which were approximately $116,438 net of
discounts, commissions and estimated expenses of the
Offering. The Notes have a single maturity with the
aggregate principal amount due on May 1, 2006. The
Notes are redeemable at the option of the Company, in
whole or in part, at any time on or after May 1, 2001
initially at 105% of their principal amount, plus
accrued interest, declining ratably to 100% of their
principal amount, plus accrued interest, on or after
May 1, 2003. The Company used such net proceeds to:
(a) Repurchase 714,600 shares of its Class A
Common Stock, representing 11.8% of the
outstanding shares of Class A Common Stock (9.3%
of total Common Stock outstanding), from Seneca
Foods Corporation for a purchase price of $12,863,
or $18 per share;
(b) Prepay in its entirety the principal balance
of $16,400 on the Company's 10-1/4% Note;
(c) Repay approximately $86,481 of its revolving
borrowings under the Bank Credit Facility, which
includes $17,858 borrowed for the Debenture
Redemption; and
(d) Pay prepayment and amendment fees of $506
incurred in connection with the Recapitalization.
As of June 30, 1996, the Company (excluding its subsidiaries) had
$196 million of total debt of which $75.5 million was senior
debt.
Scheduled periodic principal payments of long-term debt for the
next five years are presented below compared with the revised
principal payments of long-term debt after giving effect to the
Recapitalization.
($ in millions) Maturities of Long-Term Debt
Fiscal Before After
Year Recapitalization Recapitalization Decrease
1996 $ 7.1 $ 6.4 $( .7)
1997 13.6 9.2 (4.4)
1998 18.3 13.9 (4.4)
1999 12.7 8.3 (4.4)
2000 12.3 7.9 (4.4)
Cash provided by operating activities was $4.6 million for the
first nine months of fiscal 1996 compared to cash provided of
$1.6 million in the same period for fiscal 1995. The principal
factor contributing to the increase in cash provided was higher
net earnings.
As of June 30, 1996, the Company had worldwide unused lines of
credit of $113 million, plus cash and cash equivalents of $7.7
million. The Company had worldwide unused lines of credit of
$56.9 million and cash and cash equivalents of $7.6 million at
September 30, 1995.
Consolidated assets at June 30, 1996 increased to $447 million
compared with $425 million at September 30, 1995. The increase
was principally due to the acquisition of Ultra in December 1995
and increases in inventory levels to shorten lead times.
Capital expenditures for the first nine months of fiscal 1996
were $8.2 million compared with depreciation and amortization of
$14.9 million. Capital expenditures in the first nine months of
fiscal 1995 were $6.9 million compared with $14.4 million of
depreciation and amortization. Capital expenditures in fiscal
1996 are expected to remain below depreciation and amortization
levels.
The percentage of long-term debt to capitalization at June 30,
1996 was 67.2% and at September 30, 1995 was 61.8%.
Working capital at June 30, 1996 was $189 million compared with
$167 million at September 30, 1995. The increase in working
capital principally relates to increased inventory levels. The
current ratio was 2.99 at June 30, 1996, compared to 2.76 at
September 30, 1995.
With respect to the Bank Credit Facility, the Company amended the
facility on November 14, 1995, increasing the total facility to
$165 million, consisting of a $135 million revolving credit
facility and a $30.0 million term loan. The term loan is for a
six year period, with quarterly principal payments commencing in
October 1996. The revolving credit facility is available through
October 2000. The Bank Credit Facility currently provides for
interest at LIBOR plus 1.75%. To provide protection from
interest rate increases, the Company has $60.0 million of
interest rate swap arrangements which have the effect of
converting $60 million into fixed rate debt of approximately
8.0%.
The Bank Credit Facility is secured by substantially all of the
Company's domestic assets, including the common shares of all
domestic and foreign subsidiaries. The Bank Credit Facility
includes customary covenants, including interest coverage,
payment coverage, maintenance of tangible net worth to total
liabilities, and limits on capital expenditures and acquisitions.
The Notes, which are unsecured, include customary covenants,
including limitations on indebtedness, restricted payments, and
dividends, among others.
Recent Accounting Pronouncements
The Company is required to adopt SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets to Be Disposed Of," and SFAS
No. 123, "Accounting for Stock-Based Compensation," in fiscal
1997. The Company does not believe that the adoption of either
standard will have a material effect on the fiscal 1997
consolidated financial statements.
Backlog
Backlog consists of that portion of open orders for which sales
are expected to be recognized over the next twelve months.
Backlog was $247 million at June 30, 1996 compared with $238
million at September 30, 1995 and $234 million at June 30, 1995.
Backlog for the Domestic Controls segment was $205 million at
June 30, 1996 compared with $196 million at September 30, 1995
and with $188 million at June 30, 1995. The increase in Domestic
Controls backlog from a year ago results from strong growth in
orders for Space and Missiles products, along with higher
electrical drive order levels. International Controls segment
backlog was $42.1 million at June 30, 1996 compared with $42.0
million at September 30, 1995 and with $46.3 million at June 30,
1995. The International Controls backlog decline from a year ago
is due to currency fluctuations.
PART II. OTHER INFORMATION
Item 1. 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 proceeding the resolution of
which management believes will have a material
adverse effect on the Company's results of
operations or financial condition or, except as
discussed herein, to any pending legal proceedings
other than ordinary, routine litigation incidental
to its business.
In early 1988, Moog entered into a transaction
(the "1988 Transaction") with William C. Moog, its
then founder, chairman and largest shareholder,
pursuant to which Mr. Moog exchanged all his
common stock in the Company for sole ownership of
Moog's domestic industrial business and its
automotive systems activities. The newly formed
business transferred to Mr. Moog was called MCI.
In 1994, Mr. Moog transferred his interest in and
control of MCI to an unrelated company currently
controlled by International Motion Controls Inc.
The capital stock of MCI is now held by a
partnership in which William C. Moog is a limited
partner. Mr. Moog is the father-in-law of Richard
A. Aubrecht, an officer and director of the
Company.
At the time of the 1988 Transaction, Moog was a
beneficiary of certain agreements with the Power
Authority of the State of New York ("PASNY"),
pursuant to which the Company was entitled to
purchase electric power at advantageous rates. In
the course of the 1988 Transaction, an ancillary
agreement was entered into which provided that MCI
would be able to take credits against future rent
and services payments to Moog. MCI never took the
credits. Moog regards the ancillary agreement as
having been waived or discharged and of no further
force or effect. In 1995, under its new
ownership, MCI began an action against Moog in New
York State Supreme Court which seeks the economic
benefits of the ancillary agreement. Moog
answered the complaint and has defended the
lawsuit, alleging, inter alia, that MCI, by its
inaction over a course of seven years, waived any
rights it may have had under the ancillary
agreement.
Also, as part of the 1988 Transaction, Moog and
MCI entered into a Trade Name License Agreement
("TNLA") pursuant to which MCI was licensed to use
the words "Moog Controls" and "Moog Controls Inc."
to identify itself and its business. The TNLA
recognized that Moog is the exclusive registrant
for the trademark and service mark "Moog." It
further recognized that all use of the word "Moog"
by MCI should inure solely to the benefit of Moog.
The TNLA did not express any particular duration
or geographic scope, but did prohibit its
assignment or sublicense.
In late 1995, Moog Italiana S.r.l., Moog's
indirect, wholly owned subsidiary, sought
preliminary relief against MCI's Italian
distributor for MCI's use of the Moog name in
Italy. As a consequence of the action commenced
by Moog Italiana S.r.l., MCI sued Moog in United
States District Court, seeking a declaration of
its rights under the TNLA and preliminary and
permanent injunctions directing Moog to compel its
foreign subsidiaries not to bring actions which
would affect MCI's right to use the Moog name in
their respective jurisdictions. The MCI action
was dismissed for lack of subject matter
jurisdiction and recently refiled in state court.
On February 28, 1996, Moog notified MCI that Moog
was terminating the TNLA and granting MCI until
August 31, 1996, to use its existing supplies of
materials imprinted with the Moog name. It is
anticipated that MCI will challenge this
termination. Motions addressed to the
jurisdiction of the District Court and other
preliminary issues are currently pending before
the court.
During fiscal 1995, the Company sold to MCI
products and services in the amount of $1.8
million and purchased from MCI products and
services in the amount of $2.1 million. In light
of the adversarial proceedings between Moog and
MCI, the level of these transactions has decreased
significantly.
On March 25, 1996, a complaint was filed in the
Superior Court of the State of California for the
County of Los Angeles by certain former employees
at the Aerospace Equipment Division of
AlliedSignal against AlliedSignal, Moog, a named
employee of AlliedSignal and unnamed employees of
both companies. The complaint alleges a number of
claims related to age discrimination in connection
with the termination of the plaintiff's employment
by AlliedSignal, and by Moog after the transfer of
such former employees from AlliedSignal to Moog in
connection with the Acquisition. The complaint
seeks general, special and punitive damages and
attorneys' fees in unspecified amounts and such
other relief as the court deems appropriate. The
Company intends to vigorously defend this action
and does not believe that it will have a material
adverse effect upon its financial condition.
Environmental Matters
The Company's operations and properties are
subject to federal, state and local environmental
and health and safety laws and regulations,
including those relating to the handling,
generation, emission, discharge, treatment,
storage and disposal of hazardous and non-
hazardous materials and wastes. The Company has a
permit to discharge wastewater from its East
Aurora facility, which in 1994 was revised by the
New York State Department of Environmental
Conservation ("DEC") to substantially lower its
effluent limitations. Over the past two years,
the Company has cooperated with the DEC by
investigating this matter and preparing an
appropriate action plan in response to the permit.
In February 1996, the DEC formally notified the
Company that it believes the Company has exceeded
the limits imposed by the permit. The DEC
requested that the Company enter into an order on
consent relative to alleged non-compliance with
respect to the wastewater discharges, and
indicated that if the Company did not do so, the
DEC would initiate an enforcement action. In
March 1996, the Company proposed, in lieu of
entering into a consent order, that certain
immediate action be taken to treat the wastewater
discharges and address this matter. The DEC has
not yet responded to the Company's proposal and
the Company currently expects to implement its
proposal after receiving a DEC response. Whether
or not a consent order is entered into, the
Company expects the cost of any required
corrective action to be less than $100,000. There
can be no assurance that the DEC will refrain from
enforcement action, which could include monetary
sanctions, with respect to this matter.
The Company has also recently become aware of an
interpretation of certain state regulations in
California pursuant to which its Torrance
facility, acquired in the Acquisition, should have
had a permit from the California Department of
Toxic Substances Control ("DTSC") for the
treatment of hazardous substances. The Company is
working with the DTSC staff to obtain a variance
from this regulation.
The federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA," also
commonly referred to as "Superfund") authorizes
the federal and state governments and private
parties to take action with respect to releases
and threatened releases of hazardous substances
and provides a cause of action to recover the
response costs from certain statutorily
responsible parties. The federal government may
also order responsible parties to take remedial
action directly. Liability under CERCLA may be
joint and several among responsible parties. The
Company, over the past five years, has been named
as a potentially responsible party ("PRP") with
respect to three Superfund sites. The clean up
actions with regard to the three Superfund sites
have been completed, and the Company's share of
the related costs was not significant. No further
actions have been initiated by federal or state
regulators. In addition, the Company was notified
in August 1993 by a PRP group at a site related to
one of the Superfund sites referenced above that
it will seek contribution from the Company to the
extent the PRP group is responsible for
remediation costs. In late March 1996, the
Company was notified of a proposed de micromis
settlement with respect to waste claimed to have
been generated by formerly owned operations. The
Company is also in the process of voluntarily
remediating an area identified in 1994 at a
Company-owned facility leased to a third party.
The Company believes that adequate reserves have
been established for environmental issues, and
does not expect that these environmental matters
will have a material effect on the financial
position of the Company in excess of amounts
previously reserved.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security
Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
None.
b. Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Moog Inc.
___________________________________
(Registrant)
Date: August 12, 1996 By S/Robert R. Banta/S
_________________ _________________________________
Robert R. Banta
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)
Date: August 12, 1996 By S/Donald R. Fishback/S
________________ _________________________________
Donald R. Fishback
Controller
(Principal Accounting Officer)