__________________________________________________________
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 |
For the quarterly period ended June 30, 2001
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 (State or other jurisdiction of incorporation or organization) |
16-0757636 (IRS employer identification no.) |
| East Aurora, New York (Address of principal executive offices) |
14052-0018 (Zip code) |
Telephone number including area code: (716) 652-2000
Former name, former address and former fiscal year, if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
The number of shares outstanding of each class of common stock as of August 7, 2001 were:
| Class A Common Stock, $1.00 par value Class B Common Stock, $1.00 par value |
7,277,276 shares 1,453,780 shares |
__________________________________________________________
MOOG INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
June 30, 2001 (unaudited) and September 30, 2000
Consolidated Condensed Statements of Earnings
Three and Nine Months Ended June 30, 2001 and 2000
(unaudited)
Consolidated Condensed Statements of Cash Flows
Nine Months Ended June 30, 2001 and 2000 (unaudited)
Notes to Consolidated Condensed Financial
Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
PART II. OTHER INFORMATION
SIGNATURES
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
MOOG INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands)
Unaudited
As of As of
June 30, September 30,
2001 2000
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ....................... $ 7,848 $ 13,827
Receivables ..................................... 232,974 211,463
Inventories ..................................... 158,433 147,546
Other current assets ............................ 32,382 30,665
-------- -------
TOTAL CURRENT ASSETS ......................... 431,637 403,501
PROPERTY, PLANT AND EQUIPMENT, net ....................... 195,555 188,584
GOODWILL, net ............................................ 189,305 181,303
OTHER ASSETS ............................................. 20,642 18,317
-------- -------
TOTAL ASSETS ............................................. $837,139 $791,705
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable ................................... $ 12,744 $ 1,581
Current installments of long-term debt .......... 16,751 18,609
Accounts payable ................................ 45,851 36,253
Accrued liabilities ............................. 93,594 81,912
Contract loss reserves .......................... 16,928 20,916
Customer advances ............................... 7,889 8,017
-------- --------
TOTAL CURRENT LIABILITIES ................... 193,757 167,288
LONG-TERM DEBT, excluding current installments
Senior debt ..................................... 231,422 226,099
Senior subordinated notes ....................... 120,000 120,000
OTHER LONG-TERM LIABILITIES .............................. 58,534 55,764
-------- --------
TOTAL LIABILITIES ........................... 603,713 569,151
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock ................................. 100 100
Common stock .................................... 10,889 10,889
Other shareholders' equity ...................... 222,437 211,565
-------- --------
TOTAL SHAREHOLDERS' EQUITY ................ 233,426 222,554
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............... $837,139 $791,705
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(unaudited)
(dollars in thousands except per share data)
Three Months Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
Net sales ............................ $ 179,252 $ 159,769 $ 519,505 $ 478,114
Cost of sales ........................ 125,309 111,783 365,776 332,585
----------- ----------- ---------- ----------
Gross profit ......................... 53,943 47,986 153,729 145,529
Research and development ............. 7,236 4,592 18,470 16,818
Selling, general and administrative .. 28,246 25,538 80,321 75,335
Interest ............................. 8,146 8,327 24,300 24,583
Other expense (income), net .......... 11 (56) (181) 19
----------- ----------- ---------- ----------
Earnings before income taxes ......... 10,304 9,585 30,819 28,774
Income taxes ......................... 3,145 3,259 10,325 9,874
----------- ----------- ---------- ----------
Net earnings ......................... $ 7,159 $ 6,326 20,494 18,900
=========== =========== ========== ==========
Net earnings per share
Basic ........................... $ 0.82 $ 0.72 2.35 2.14
=========== =========== ========== ==========
Diluted ......................... $ 0.81 $ 0.71 2.32 2.12
=========== =========== ========== ==========
Average common shares outstanding
Basic ........................... 8,722,227 8,784,583 8,732,694 8,854,050
=========== =========== ========== ==========
Diluted ......................... 8,843,279 8,855,367 8,832,805 8,930,824
=========== =========== ========== ==========
See accompanying Notes to Consolidated Condensed Financial Statements.
MOOG INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
Nine Months Ended
June 30,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ............................................ $ 20,494 $ 18,900
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization ...................... 23,542 22,720
Other .............................................. (12,808) (15,214)
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 31,228 26,406
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of businesses ............................... (27,085) --
Acquisition of minority interest ........................ (1,354) (1,051)
Purchase of property, plant and equipment ............... (19,361) (16,854)
Other ................................................... (8) 554
----------- ----------
NET CASH USED BY INVESTING ACTIVITIES .............. (47,808) (17,351)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (repayments of) notes payable ........ 959 (4,605)
Net (repayments of) proceeds from revolving
lines of credit ..................................... (8,000) 12,000
Proceeds from long-term debt ........................... 38,957 39
Payments on long-term debt ............................. (19,088) (12,051)
Purchase of outstanding shares for treasury ............ (2,077) (4,377)
Other .................................................. 408 349
----------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 11,159 (8,645)
----------- ----------
Effect of exchange rate changes on cash .................... (558) (496)
----------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS ...................... (5,979) (86)
Cash and cash equivalents at beginning of period ........... 13,827 9,780
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 7,848 $ 9,694
=========== ==========
CASH PAID FOR:
Interest ............................................... $ 27,926 $ 28,138
Income taxes ........................................... 8,947 8,136
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of businesses:
Fair value of assets acquired ...................... $ 42,467 $ --
Cash paid .......................................... 27,085 --
----------- ----------
Liabilities assumed ........................... $ 15,382 --
=========== ==========
See accompanying Notes to Consolidated Condensed Financial Statements.
MOOG INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 2001
(Unaudited)
(dollars in thousands except per share data)
1. Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America and in the opinion of management contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of Moog Inc. as of June 30, 2001 and the results of its operations for the three and nine months ended June 30, 2001 and 2000 and its cash flows for each of the nine months ended June 30, 2001 and 2000. The results of operations for the three and nine months ended June 30, 2001 are not necessarily indicative of the results expected for the full year. The accompanying unaudited consolidated condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended September 30, 2000.
2. Inventories
Inventories consist of the following:
June 30, September 30,
2001 2000
---- ----
Raw materials and purchased parts $ 54,021 $ 49,868
Work in process 79,539 74,430
Finished goods 24,873 23,248
----------- -----------
$ 158,433 $ 147,546
============ ===========
3. Earnings per Share
Basic and diluted weighted-average shares outstanding are as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
----------------- --------------------
Weighted-average shares
outstanding - Basic 8,722,227 8,784,583 8,732,694 8,854,050
Dilutive effect of:
Stock options 113,860 63,592 92,919 69,582
Convertible preferred stock 7,192 7,192 7,192 7,192
------------ ---------- --------- ---------
Weighted-average shares
outstanding - Diluted 8,843,279 8,855,367 8,832,805 8,930,824
============ ========== ========= =========
Preferred stock dividends are deducted from net earnings to calculate income available to common stockholders for basic earnings per share.
4. Shareholders’ Equity
The changes in shareholders' equity for the nine months ended June 30, 2001 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 10,889 8,427,462 2,461,661
------------
ADDITIONAL PAID-IN CAPITAL
Beginning of period 102,639
Issuance of Treasury shares at
more than cost 110
------------
End of period 102,749
------------
RETAINED EARNINGS
Beginning of period 157,497
Net earnings 20,494
Preferred stock dividends (5)
-------------
End of period 177,986
-------------
TREASURY STOCK
Beginning of period (37,570) (16,229) (1,182,626) (960,615)
Treasury stock issued 304 - 32,912 -
Treasury stock purchased (2,077) - (5,472) (47,266)
------------- ------------ -------------- --------------
End of period (39,343) (16,229) (1,155,186) (1,007,881)
------------- ------------ -------------- --------------
ACCUMULATED OTHER COMPREHENSIVE LOSS
Beginning of period (11,001)
Foreign currency translation (6,460)
Accumulated loss on cash flow
hedges (note 5) (1,494)
-------------
End of period (18,955)
-------------
TOTAL SHAREHOLDERS' ------------- ------------ -------------- --------------
EQUITY $ 233,426 83,771 7,272,276 1,453,780
============= ============ ============== ==============
5. Derivative Financial Instruments
On October 1, 2000, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, which requires companies to carry all derivatives on the balance sheet at fair value. The Company determines the fair value of derivatives by reference to quoted market prices. The accounting for changes in the fair value 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’s use of derivative instruments is limited to cash flow hedges, as defined in SFAS No. 133, of certain interest rate risks and, to a much lesser extent, foreign currency risks.
In order to provide for interest rate risk protection, the Company from time to time enters into interest rate swap agreements to effectively convert a certain level of variable-rate debt to fixed-rate debt. Of the $150,000 of interest rate swap agreements outstanding on June 30, 2001, $80,000 matures at various times during fiscal 2002 and $70,000 matures at various times during fiscal 2003. The effective portion of the gain or loss on an interest rate swap qualifying and designated as a cash flow hedge is reported in Other Comprehensive Loss ("OCL") and reclassified into interest expense in the same period or periods during which the hedged transaction affects earnings, and the ineffective portion is reported immediately in earnings. Ineffectiveness was immaterial in the first three quarters of fiscal 2001.
Activity in OCL related to derivatives held by the Company during the period from October 1, 2000 through June 30, 2001 is summarized below:
Before-Tax Income After-Tax
Amount Tax Amount
------ -------- ------
Cumulative effect of adopting SFAS No. 133 $ 567 $ (216) $ 351
Net decrease in fair value of derivatives (2,861) 1,077 (1,784)
Net reclassification from OCL into earnings (98) 37 (61)
------- ------ -------
Accumulated loss on cash flow hedges $(2,392) $ 898 $(1,494)
======= ====== =======
Of the $1,494 accumulated loss on cash flow hedges reported in Accumulated Other Comprehensive Loss at June 30, 2001, $1,405 of net losses are expected to be reclassified to earnings in the next twelve months. The fair value of derivatives at June 30, 2001 was a net $2,158 liability, most of which is included in accrued liabilities.
6. Comprehensive Income
For the three months ended June 30, 2001 and 2000, comprehensive income, net of related taxes, was $5,849 and $3,652, respectively. For the nine months ended June 30, 2001 and 2000, comprehensive income, net of related taxes, was $12,540 and $12,745, respectively. The only items of comprehensive income that are not included in net earnings are foreign currency translation and changes in unrealized loss on derivatives.
Accumulated other comprehensive loss, net of related taxes, at June 30, 2001 of $18,955 consisted of $17,461 cumulative translation adjustments and $1,494 unrealized losses on derivative instruments.
7. Severance Liability
In connection with the November 1998 acquisition of Raytheon Aircraft Montek Company ("Montek"), the Company previously finalized a formal plan for integrating the operations of Montek and informed the affected employees. The Company established a $3,800 liability for severance and other related costs associated with involuntary termination of employees. The balance of the liability at June 30, 2001 was $517. The plan is expected to be completed during fiscal 2001.
8. Acquisitions
On June 8, 2001, the Company purchased the net assets of the space valve product line of PerkinElmer Fluid Sciences, a division of PerkinElmer, Inc., for $6,000 in cash. This product line has annual sales of approximately $3,000 in the design and manufacture of solenoid and pressure operated valves for satellites, launch vehicles and manned space flight applications. Based on a preliminary purchase price allocation, which is subject to finalization, goodwill and other intangible assets resulting from this acquisition are approximately $5,600 and are being amortized over periods not exceeding 20 years.
On February 1, 2001, the Company acquired the net assets of the radial piston pump product line of Robert Bosch GmbH including $1,500 of unfunded pension liabilities, for approximately $6,700 in cash. This product line has annual sales of approximately $20,000 in the design and manufacture of hydraulic pumps used for a variety of industrial applications, in particular, injection molding machinery. Based on a preliminary purchase price allocation, which is subject to finalization, goodwill and other intangible assets resulting from this acquisition are approximately $2,500 and are being amortized over periods not exceeding 20 years.
On January 19, 2001, the Company acquired the stock of Whitton Technology Limited in the U.K. and the industrial gas turbine assets of Whitton Technology, Inc. in the U.S. for approximately $4,000 in cash and $3,000 in debt. Whitton is a designer and manufacturer of pumps and specialty products for producers of industrial power generating equipment and has annual sales of approximately $7,000. Based on a preliminary purchase price allocation, which is subject to finalization, goodwill and other intangible assets resulting from this acquisition are approximately $4,800 and are being amortized over periods not exceeding 20 years.
On October 31, 2000, the Company purchased the net assets of the Vickers Electrics Division, an Italian manufacturer of high-performance electric drives with annual sales of approximately $20,000, from Aeroquip-Vickers S.p.A., an Eaton Corporation subsidiary, for approximately $10,300 in cash. Based on a preliminary purchase price allocation, which is subject to finalization, goodwill and other intangible assets resulting from this acquisition are approximately $1,700 and are being amortized over periods not exceeding 20 years.
All of the Company’s acquisitions are accounted for under the purchase method, and accordingly, the operating results for the acquired businesses are included in the Consolidated Condensed Statements of Earnings from the dates of acquisition.
The following summary, prepared on a pro forma basis, combines the consolidated results of operations of the Company with those of the radial piston pump product line, Whitton, Vickers Electrics and the space valve product line for the three and nine months ended June 30, 2001 and 2000 as if the acquisitions took place at the beginning of each period presented. The pro forma consolidated results include the impact of certain adjustments, including amortization of intangibles and increased interest expense on acquisition debt, and related income tax effects.
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
2001 2000 2001 2000
---- ---- ---- ----
Net sales $ 179,801 $ 172,933 $ 535,473 $ 516,419
Net earnings 7,002 6,013 20,885 18,483
Basic earnings per share $ .80 $ .68 $ 2.39 $ 2.09
Diluted earnings per share $ .79 $ .68 $ 2.36 $ 2.07
The pro forma 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.
On November 15, 2000, the Company purchased the remaining 25% minority interest of Hydrolux SARL and Moog-Hydrolux Hydraulic Systems, Inc. for $1,354 and now owns 100% of these companies. The impact of this acquisition on the Company’s results of operations and financial condition is not significant.
9. Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” Under SFAS No. 141, all business combinations are to be accounted for using the purchase method of accounting and identifiable intangible assets acquired in a business combination are to be recognized separately from goodwill. Under SFAS No. 142, goodwill will no longer be amortized, but will be reviewed for impairment at least annually at the reporting unit level. Identifiable intangible assets acquired in a business combination are to be amortized over their useful lives unless their useful lives are indefinite, in which case, those intangible assets will be tested for impairment annually and not amortized until their lives are determined to be finite. These standards are effective for all business combinations completed after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, companies are required to adopt SFAS No. 142 for fiscal years beginning after December 15, 2001, but early adoption is permitted. The Company will likely adopt SFAS No. 142 in the first quarter of fiscal 2002. Excluding the amortization of goodwill after income taxes in the current year, net earnings would have been $8.3 million for the third quarter and $23.8 million year-to-date and earnings per share would have been $0.94 in the third quarter and $2.70 year-to-date. The Company is further evaluating the effect that adoption of these statements will have on its results of operations and financial condition.
10. Credit Facility
On October 24, 2000, the Company amended its $340,000 Corporate Revolving and Term Loan Agreement (the "Credit Facility"). The term loan portion of the Credit Facility, which had a balance of $48,750 at September 30, 2000, was increased to $75,000 with the difference added to the unused borrowing capacity of the revolving portion of the facility. At June 30, 2001, the Company had $82,000 of unused borrowing capacity on the Credit Facility. The amended Credit Facility expires in December 2005 and requires quarterly principal payments on the term loan of $3,750, which commenced in December 2000. Interest on the amended agreement continues at LIBOR plus a spread, which was 175 basis points at June 30, 2001.
11. Segment Information
Below are the sales and operating profit by segment for the three and nine months ended June 30, 2001 and 2000 and a reconciliation of segment operating profit to earnings before income taxes.
Three Months Ended Nine Months Ended
--------------------------- --------------------------
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
Net Sales
Aircraft Controls $ 83,732 $ 74,482 $ 248,209 $ 227,295
Space Controls 26,254 30,204 76,504 87,374
Industrial Controls 69,266 55,083 194,792 163,445
------------ ------------ ------------ ------------
Total net sales $ 179,252 $ 159,769 $ 519,505 $ 478,114
============ ============ ============ ============
Operating Profit and Margins
Aircraft Controls $ 12,025 $ 10,707 $ 36,303 $ 31,440
14.4% 14.4% 14.6% 13.8%
Space Controls 3,131 3,100 8,981 10,311
11.9% 10.3% 11.7% 11.8%
Industrial Controls 5,710 6,183 16,774 17,991
8.2% 11.2% 8.6% 11.0%
------------ ------------ ------------ ------------
Total operating profit 20,866 19,990 62,058 59,742
11.6% 12.5% 11.9% 12.5%
Deductions from Operating Profit
Interest expense 8,146 8,327 24,300 24,583
Corporate expenses and other 2,416 2,078 6,939 6,385
------------ ------------ ------------ ------------
Earnings before Income Taxes $ 10,304 $ 9,585 $ 30,819 $ 28,774
============ ============ ============ ============
Total segment assets at June 30, 2001 were $806,338 compared to $763,793 at September 30, 2000. The increase is primarily within Industrial Controls, related to the radial piston pump product line, Whitton and Vickers Electrics acquisitions as discussed in Note 8.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
[The following should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Form 10-K for the fiscal year ended September 30, 2000 and its Quarterly Reports on Form 10-Q for the quarters ended December 31, 2000 and March 31, 2001.]
The Company is a leading worldwide designer and manufacturer of a broad range of high-performance precision motion and fluid control products and systems for aerospace and industrial markets. The Company has three operating segments: Aircraft Controls; Space Controls; and Industrial Controls.
Recent Acquisitions
On June 8, 2001, the Company purchased the net assets of the space valve product line of PerkinElmer Fluid Sciences, a division of PerkinElmer, Inc., for $6 million in cash. This product line's business is the design and manufacture of solenoid and pressure operated valves for satellites, launch vehicles and manned space flight applications. On February 1, 2001, the Company paid approximately $7 million in cash for the net assets of the radial piston pump product line of Robert Bosch GmbH including $2 million of unfunded pension liabilities. This business has sales in the design and manufacture of pumps used for a variety of industrial applications, in particular injection molding machinery. On January 19, 2001, the Company acquired the stock of Whitton Technology Limited in the U.K. and the industrial gas turbine assets of Whitton Technology, Inc. in the U.S. for approximately $4 million in cash plus $3 million in debt. Whitton is a designer and manufacturer of pumps and specialty products for producers of industrial power generating equipment. On October 31, 2000, the Company purchased the net assets of the Vickers Electrics Division, an Italian manufacturer of high-performance electric drives previously owned by Aeroquip-Vickers S.p.A., an Eaton Corporation subsidiary, for approximately $10 million in cash.
Results of Operations
Consolidated
Net sales for the third quarter of 2001 increased 12.2% to $179 million from $160 million in the third quarter of 2000. Net sales increased $14 million in Industrial Controls and $9 million in Aircraft Controls while net sales decreased $4 million in Space Controls. For the first nine months of 2001, net sales increased 8.7% to $520 million from $478 million for the first nine months of 2000. Nine month net sales increased $32 million in Industrial Controls and $21 million in Aircraft Controls while sales decreased $11 million in Space Controls. Excluding the impact of a stronger U.S. dollar in the current year compared to foreign currencies, primarily the Euro and Yen, sales would have increased by an additional $3 million in the third quarter and an additional $14 million year-to-date compared to the same periods one year ago. During the first nine months of fiscal 2001, the Company completed the four acquisitions described above which generated $13 million of sales in the third quarter and $28 million of sales year-to-date.
Cost of sales as a percentage of net sales decreased to 69.9% in the third quarter of 2001 from 70.0% in the comparable quarter in 2000. Year-to-date, cost of sales as a percentage of net sales increased to 70.4% in 2001 from 69.6% in 2000 due primarily to lower industrial margins.
Research and development increased to $7 million, or 4.0% of net sales, in the third quarter of 2001 from $5 million in the third quarter of 2000. Year-to-date, research and development increased to $18 million, or 3.6% of net sales, in 2001 from $17 million in 2000. The increases are primarily attributable to development activities related to a variety of aircraft initiatives.
The Company’s effective tax rate decreased to 30.5% in the third quarter of 2001 from 34.0% in the third quarter of 2000. On a year-to-date basis, the effective tax rate decreased to 33.5% in 2001 from 34.3% in 2000. The decrease in the effective tax rate resulted from the determination during the quarter that the Company was entitled to additional benefits under the recently enacted extraterritorial income exclusion rules. These are tax benefits for sales of products from U.S. facilities primarily to customers located overseas. The relatively low tax rate for the third quarter includes the cumulative effect of lowering the higher rate recorded in the first two quarters of fiscal 2001.
Backlog at June 30, 2001 was $368 million compared to $335 million at June 30, 2000. The increase in backlog was primarily related to a $21 million net increase on military aircraft programs resulting from strong orders and by the fiscal 2001 industrial acquisitions, which contributed $9 million of incremental backlog.
Segment Operating Review
(dollars in millions)
Three Months Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
-------- -------- -------- --------
Net Sales
Aircraft Controls $ 84 $ 75 $ 248 $ 227
Space Controls 26 30 77 88
Industrial Controls 69 55 195 163
---------- ---------- --------- -----------
Total net sales $ 179 $ 160 $ 520 $ 478
========== ========== ========= ===========
Three Months Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
-------- -------- -------- --------
Operating Profit and Margins
Aircraft Controls $ 12 $ 11 $ 36 $ 32
14.4% 14.4% 14.6% 13.8%
Space Controls 3 3 9 10
11.9% 10.3% 11.7% 11.8%
Industrial Controls 6 6 17 18
8.2% 11.2% 8.6% 11.0%
-------- ------- -------- ---------
Total operating profit $ 21 $ 20 $ 62 $ 60
======== ======== ========= ========
11.6% 12.5% 11.9% 12.5%
Aircraft Controls
Net sales in Aircraft Controls increased 12.4% to $84 million in the third quarter of 2001 from $75 million in the third quarter of 2000. Boeing commercial sales increased $5 million in the quarter compared to the same quarter one year ago. Commercial sales to Boeing were unusually low in the third quarter of 2000 as certain manufacturing activities on the Boeing commercial business obtained as part of the November 1998 acquisition of Montek were transitioning to one of the Company’s low cost manufacturing facilities in that quarter. Sales also increased $3 million on the F/A-18E/F fighter aircraft program. Net sales in Aircraft Controls increased 9.2% to $248 million for the first three quarters of 2001 from $227 million in the first three quarters of 2000 as net sales increased $15 million on commercial aircraft programs, primarily Boeing commercial, and $6 million on the F/A-18E/F program.
Operating margins for Aircraft Controls were 14.4% for the third quarters in 2001 and 2000. On a year-to-date basis, margins were 14.6% in 2001 compared to 13.8% in 2000. The improvement in margins primarily resulted from favorable product mix and cost performance in the first quarter of 2001 compared to 2000.
Space Controls
Net sales in Space Controls decreased 13.1% to $26 million in the third quarter of 2001 from $30 million in the third quarter of 2000. A $6 million decrease related to the reduced level of work on the Titan IV launch vehicle program which is winding down and a $2 million decrease on the Hellfire tactical missile program were partially offset by a net sales increase of $4 million for satellites. The increase in satellites related to higher production levels as the number of geosynchronous satellite launches has returned to more normal levels this year. Year-to-date, net sales in Space Controls decreased 12.4% to $77 million in 2001 from the same period one year ago. A $20 million decrease in sales for launch vehicles, primarily the Titan IV program, was partially offset by an increase of $10 million for satellites.
Operating margins for Space Controls increased to 11.9% in the third quarter of 2001 from 10.3% in the third quarter of 2000 due primarily to improved contribution from satellites. Margins were 11.7% for the first nine months of 2001 compared to 11.8% for the first nine months of 2000.
Industrial Controls
Net sales in Industrial Controls increased 25.7% to $69 million in the third quarter of 2001 from $55 million in the third quarter of 2000. Year-to-date net sales in Industrial Controls increased 19.2% to $195 million in 2001 from $163 million in 2000. Excluding the impact of a stronger U.S. dollar relative to foreign currencies, primarily the Euro and Yen, in 2001, sales would have increased by an additional $3 million in the third quarter and $11 million year-to-date. The radial piston pump product line, Whitton and Vickers Electrics acquisitions generated $13 million of incremental sales in the third quarter of 2001 and $28 million of incremental sales for the first three quarters of 2001. On a year-to-date basis, excluding the effects of the acquisitions, sales increased $3 million for turbines controls and $3 million for motion simulator controls and material testing, while sales to the plastics market decreased $7 million.
Operating margins for Industrial Controls decreased to 8.2% in the third quarter and 8.6% year-to-date from 11.2% and 11.0% in the comparable periods in 2000. Contributing approximately equally to the decline are lower volume in the plastics markets, particularly injection molding in the Asian/Pacific region, lower sales of hydraulic manifold products, and pricing pressures in the turbines business.
Financial Condition and Liquidity
On October 24, 2000, the Company amended its $340 million Corporate Revolving and Term Loan Agreement (the "Credit Facility"). The term loan portion of the Credit Facility, which had a balance of $48.8 million at September 30, 2000, was increased to $75 million with the difference added to the unused borrowing capacity of the revolving portion of the facility. The Credit Facility expires in December 2005 and requires quarterly principal payments on the term loan of $3.75 million, which commenced in December 2000. Interest on the Credit Facility continues at LIBOR plus a spread that was 175 basis points on June 30, 2001. At June 30, 2001, the Company had $96 million of unused borrowing capacity under short and long-term lines of credit, including $82 million from the Credit Facility. The Credit Facility is secured by substantially all of the Company's U.S. assets. The Credit Facility 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.
Cash on hand at June 30, 2001 was $8 million compared to $14 million at September 30, 2000. Cash provided by operations was $31 million in the first three quarters of 2001 compared to $26 million in the first three quarters of 2000. Total debt increased to $381 million at June 30, 2001 from $366 million at September 30, 2000 as increased debt of $31 million related to the acquisitions was partially offset by repayments of $16 million. Long-term debt to capitalization was 60% at June 30, 2001.
Capital expenditures for the first three quarters of 2001 were $19 million compared with depreciation and amortization of $24 million. Capital expenditures for the first three quarters of 2000 were $17 million compared with depreciation and amortization of $23 million. Capital expenditures in 2001 are expected to be approximately $25 million.
The Company believes that its cash on hand, cash flows from operations and borrowing availability under short and long-term lines of credit will be sufficient to meet its operating needs.
Recent Accounting Pronouncements
On October 1, 2000, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, which requires companies to carry all derivatives on the balance sheet at fair value. The accounting for changes in the fair value 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. For the nine months ended June 30, 2001, the Company’s exposure to derivatives was primarily limited to interest rate swaps. At June 30, 2001, the Company had interest rate swap agreements of $150 million outstanding, of which $80 million matures at various times during fiscal 2002 and $70 million matures at various times during fiscal 2003. The adoption of this pronouncement did not have a material impact on the results of operations for the three and nine months ended June 30, 2001.
The Company has reviewed Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 101, “Revenue Recognition in Financial Statements,” which the Company is adopting in the fourth quarter of fiscal 2001. Management believes that this SAB will not have a material impact on the Company’s financial statements.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” Under SFAS No. 141, all business combinations are to be accounted for using the purchase method of accounting and identifiable intangible assets acquired in a business combination are to be recognized separately from goodwill. Under SFAS No. 142, goodwill will no longer be amortized, but will be reviewed for impairment at least annually at the reporting unit level. Identifiable intangible assets acquired in a business combination are to be amortized over their useful lives unless their useful lives are indefinite, in which case, those intangible assets will be tested for impairment annually and not amortized until their lives are determined to be finite. These standards are effective for all business combinations completed after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, companies are required to adopt SFAS No. 142 for fiscal years beginning after December 15, 2001, but early adoption is permitted. The Company will likely adopt SFAS No. 142 in the first quarter of fiscal 2002. Excluding the amortization of goodwill after income taxes in the current year, net earnings would have been $8.3 million for the third quarter and $23.8 million year-to-date and earnings per share would have been $0.94 in the third quarter and $2.70 year-to-date. The Company is further evaluating the effect that adoption of these statements will have on its results of operations and financial condition.
Outlook
The Company is forecasting net sales in 2001 of approximately $700 million, a 9% increase over 2000 net sales of $644 million. Forecasted net sales increases over 2000 of $44 million in Industrial Controls to $264 million and $23 million in Aircraft Controls to $335 million are expected to be partially offset by an $11 million decrease in Space Controls to $101 million. Sales in Industrial Controls are expected to increase primarily due to the radial piston pump product line, Whitton and Vickers Electrics acquisitions. Sales in Aircraft Controls are expected to grow as a result of increased production rates of the F/A-18E/F and Boeing 7-series commercial airplanes. Sales in Space Controls are expected to decrease related to a decline in sales on various launch vehicle programs, including the Titan IV program which has completed shipments, offset partially by increases in the sales of controls for satellites.
Net sales are forecasted to grow to $755 million in 2002, an 8% increase over 2001. Sales are forecasted to increase in each of the Company’s segments. Aircraft Controls’ sales are forecasted to increase 10%, primarily as a result of increases in military aftermarket sales and on business jets. Space Controls’ sales are forecasted to increase 7% primarily related to growth in the satellites business and increased activity on NASA’s Space Shuttle. Industrial Controls’ sales are forecasted to increase 6%, primarily due to having a full year of revenues from the radial piston pump product line, which was acquired in February 2001, and increases related to ground vehicles.
Operating margins for 2001 are expected to be approximately 11.9% compared to 12.4% in 2000. The decrease is due to the decline in margins in Industrial Controls, relating to lower volume in the plastics market and pricing pressures on turbines controls, partially offset by improvements in Aircraft Controls and Space Controls.
Operating margins for 2002 are expected to decline slightly to approximately 11.7% as the industrial businesses manage through the softness in the plastics market and margin pressures in the turbines market. Earnings per share are expected to increase by approximately 11% in 2001 to $3.16 and 12% in 2002 to $3.55 before applying the provisions of SFAS No. 142.
Cautionary Statement
Information and statements in the “Outlook” paragraph of the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this report and elsewhere herein that are not historical facts, including statements accompanied by or containing words such as “believes,” “expects,” “intends,” “plans,” “projects,” “estimates,” “outlook,” “forecast,” “anticipates,” “presume” and “assume,” 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. These statements are not guarantees of future performance and are subject to several factors, risks and uncertainties, the impact or occurrence of which could cause actual results to differ materially from the expected results described in the forward-looking statements. These important factors, risks and uncertainties include (i) fluctuations in general business cycles and demand for capital goods, (ii) the Company's dependence on government contracts that may not be fully funded or may be terminated, (iii) the Company’s dependence on certain major customers, such as Boeing for a significant percentage of its sales, (iv) the Company's dependence on the commercial aircraft industry which is highly cyclical and sensitive to fuel price increases, labor disputes, and economic conditions, (v) the possibility that advances in technology could reduce the demand for certain of the Company's products, specifically hydraulic-based motion controls, (vi) the use of electronic auctions by customers to award business, (vii) intense competition in the Company’s business which, depending on product line, may require the Company to compete by lowering prices or by advancing its technologies; several of the Company’s competitors are substantially larger than the Company and have greater financial resources with which to compete, (viii) the Company's significant indebtedness which could limit its operational and financial flexibility, (ix) the potential for substantial fines and penalties or suspension or debarment from future contracts in the event the regulations relating to defense industry contracting are not complied with, (x) the potential for cost overruns on development jobs and fixed-price contracts and actual results that may differ from estimates used in contract accounting, (xi) the Company's ability to successfully implement its acquisition strategy, (xii) the possibility of a catastrophic loss of one or more of the Company’s manufacturing facilities, (xiii) the impact of product liability claims related to the Company’s products used in applications where failure can result in significant property damage, injury and death, (xiv) foreign currency fluctuations in those countries in which the Company does business and other risks associated with international operations, (xv) the cost of compliance with environmental laws, and (xvi) the effect of power outages in California where the Company has significant manufacturing operations. The factors identified above are not exhaustive. New factors, risks and uncertainties may emerge from time to time that may affect the forward-looking statements made herein. Given these risks, factors and uncertainties, investors should not place undue reliance on forward-looking statements as predictive of future results. The Company disclaims any obligation to update the forward-looking statements made in this report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Refer to the Company’s Annual Report on Form 10-K for the year ended September 30, 2000 for a complete discussion of the Company’s market risk. There have been no material changes in the current year regarding this market risk information.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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None.
Item 2. Changes in Securities and Use of Proceeds.
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None.
Item 3. Defaults Upon Senior Securities.
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None.
Item 4. Submission of Matters to a Vote of Security Holders.
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None.
Item 5. Other Information.
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None.
Item 6. Exhibits and Reports on Form 8-K.
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a. Exhibits.
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None.
b. Reports on Form 8-K.
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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.
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(Registrant)
Date: August 14, 2001 By S/Robert R. Banta/S
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Robert R. Banta
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)
Date: August 14, 2001 By S/Donald R. Fishback/S
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Donald R. Fishback
Controller
(Principal Accounting Officer)