MOOG INC. 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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| þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended December 29, 2007
OR
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|
| o |
|
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)
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|
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| New York State
|
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16-0757636 |
| (State or Other Jurisdiction of Incorporation or Organization)
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|
(I.R.S. Employer Identification No.) |
| |
|
|
| East Aurora, New York
|
|
14052-0018 |
| (Address of Principal Executive Offices)
|
|
(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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
The number of shares outstanding of each class of common stock as of February 1, 2008 was:
| |
|
|
Class A common stock, $1.00 par value |
|
38,511,902 shares |
Class B common stock, $1.00 par value |
|
4,088,134 shares |
MOOG INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
MOOG INC.
Consolidated Condensed Balance Sheets
(Unaudited)
| |
|
|
|
|
|
|
|
|
| |
|
December 29, |
|
|
September 29, |
|
| (dollars in thousands) |
|
2007 |
|
|
2007 |
|
| |
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
83,152 |
|
|
$ |
83,856 |
|
Receivables |
|
|
465,188 |
|
|
|
431,978 |
|
Inventories |
|
|
378,237 |
|
|
|
359,250 |
|
Other current assets |
|
|
65,638 |
|
|
|
61,767 |
|
| |
|
|
TOTAL CURRENT ASSETS |
|
|
992,215 |
|
|
|
936,851 |
|
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $374,183 and $361,120, respectively |
|
|
402,236 |
|
|
|
386,813 |
|
GOODWILL |
|
|
548,642 |
|
|
|
538,433 |
|
INTANGIBLE ASSETS, net |
|
|
81,923 |
|
|
|
81,916 |
|
OTHER ASSETS |
|
|
60,146 |
|
|
|
62,166 |
|
| |
|
|
TOTAL ASSETS |
|
$ |
2,085,162 |
|
|
$ |
2,006,179 |
|
| |
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Notes payable |
|
$ |
817 |
|
|
$ |
3,354 |
|
Current installments of long-term debt |
|
|
2,544 |
|
|
|
2,537 |
|
Accounts payable |
|
|
121,927 |
|
|
|
113,942 |
|
Customer advances |
|
|
32,935 |
|
|
|
34,224 |
|
Contract loss reserves |
|
|
10,970 |
|
|
|
12,362 |
|
Other accrued liabilities |
|
|
150,613 |
|
|
|
153,809 |
|
| |
|
|
TOTAL CURRENT LIABILITIES |
|
|
319,806 |
|
|
|
320,228 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT, excluding current installments |
|
|
|
|
|
|
|
|
Senior debt |
|
|
456,848 |
|
|
|
411,543 |
|
Senior subordinated notes |
|
|
200,085 |
|
|
|
200,089 |
|
LONG-TERM PENSION AND RETIREMENT OBLIGATIONS |
|
|
115,980 |
|
|
|
113,354 |
|
DEFERRED INCOME TAXES |
|
|
79,296 |
|
|
|
80,419 |
|
OTHER LONG-TERM LIABILITIES |
|
|
4,208 |
|
|
|
3,334 |
|
| |
|
|
TOTAL LIABILITIES |
|
|
1,176,223 |
|
|
|
1,128,967 |
|
| |
|
|
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Common stock |
|
|
48,605 |
|
|
|
48,605 |
|
Other shareholders’ equity |
|
|
860,334 |
|
|
|
828,607 |
|
| |
|
|
TOTAL SHAREHOLDERS’ EQUITY |
|
|
908,939 |
|
|
|
877,212 |
|
| |
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
$ |
2,085,162 |
|
|
$ |
2,006,179 |
|
| |
See accompanying Notes to Consolidated Condensed Financial Statements.
3
MOOG INC.
Consolidated Condensed Statements of Earnings
(Unaudited)
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
December 29, |
|
|
December 30, |
|
| (dollars in thousands, except per share data) |
|
2007 |
|
|
2006 |
|
| |
NET SALES |
|
$ |
446,407 |
|
|
$ |
355,981 |
|
COST OF SALES |
|
|
298,777 |
|
|
|
235,299 |
|
| |
|
|
GROSS PROFIT |
|
|
147,630 |
|
|
|
120,682 |
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
24,092 |
|
|
|
22,238 |
|
Selling, general and administrative |
|
|
71,282 |
|
|
|
56,746 |
|
Interest |
|
|
9,712 |
|
|
|
5,685 |
|
Other |
|
|
114 |
|
|
|
611 |
|
| |
|
|
EARNINGS BEFORE INCOME TAXES |
|
|
42,430 |
|
|
|
35,402 |
|
|
|
|
|
|
|
|
|
|
INCOME TAXES |
|
|
14,755 |
|
|
|
11,338 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS |
|
$ |
27,675 |
|
|
$ |
24,064 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS PER SHARE |
|
|
|
|
|
|
|
|
Basic |
|
$ |
.65 |
|
|
$ |
.57 |
|
Diluted |
|
|
.64 |
|
|
|
.56 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
AVERAGE COMMON SHARES OUTSTANDING |
|
|
|
|
|
|
|
|
Basic |
|
|
42,485,328 |
|
|
|
42,317,680 |
|
Diluted |
|
|
43,258,660 |
|
|
|
43,016,743 |
|
| |
See accompanying Notes to Consolidated Condensed Financial Statements.
4
MOOG INC.
Consolidated Condensed Statements of Cash Flows
(Unaudited)
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|
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|
|
|
|
|
|
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|
Three Months Ended |
|
| |
|
December 29, |
|
|
December 30, |
|
| (dollars in thousands) |
|
2007 |
|
|
2006 |
|
| |
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
27,675 |
|
|
$ |
24,064 |
|
Adjustments to reconcile net earnings to net cash (used) provided
by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
11,359 |
|
|
|
9,529 |
|
Amortization |
|
|
3,980 |
|
|
|
2,461 |
|
Provisions for non-cash losses on contracts, inventories and receivables |
|
|
4,594 |
|
|
|
9,518 |
|
Stock compensation expense |
|
|
1,628 |
|
|
|
1,602 |
|
Other |
|
|
(154 |
) |
|
|
(1,325 |
) |
Changes in assets and liabilities (using) providing cash, excluding the
effects of acquisitions: |
|
|
|
|
|
|
|
|
Receivables |
|
|
(30,476 |
) |
|
|
(1,570 |
) |
Inventories |
|
|
(18,022 |
) |
|
|
(20,503 |
) |
Customer advances |
|
|
(1,499 |
) |
|
|
10,227 |
|
Other assets and liabilities |
|
|
(2,759 |
) |
|
|
(11,361 |
) |
| |
|
|
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES |
|
|
(3,674 |
) |
|
|
22,642 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Acquisitions of businesses, net of acquired cash |
|
|
(9,085 |
) |
|
|
(3,153 |
) |
Purchase of property, plant and equipment |
|
|
(25,091 |
) |
|
|
(24,911 |
) |
Other |
|
|
(1,298 |
) |
|
|
17 |
|
| |
|
|
NET CASH USED BY INVESTING ACTIVITIES |
|
|
(35,474 |
) |
|
|
(28,047 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Net (repayments of) proceeds from notes payable |
|
|
(2,585 |
) |
|
|
5,366 |
|
Net proceeds from revolving lines of credit |
|
|
42,295 |
|
|
|
24,000 |
|
Payments on long-term debt |
|
|
(270 |
) |
|
|
(25,866 |
) |
Excess tax benefits from share-based payment arrangements |
|
|
586 |
|
|
|
142 |
|
Other |
|
|
(3,196 |
) |
|
|
782 |
|
| |
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
36,830 |
|
|
|
4,424 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
1,614 |
|
|
|
1,335 |
|
| |
|
|
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
(704 |
) |
|
|
354 |
|
Cash and cash equivalents at beginning of period |
|
|
83,856 |
|
|
|
57,821 |
|
| |
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
83,152 |
|
|
$ |
58,175 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
CASH PAID FOR: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
7,299 |
|
|
$ |
2,203 |
|
Income taxes |
|
|
8,117 |
|
|
|
6,765 |
|
| |
See accompanying Notes to Consolidated Condensed Financial Statements.
5
MOOG INC.
Notes to Consolidated Condensed Financial Statements
Three Months Ended December 29, 2007
(Unaudited)
(dollars in thousands, except per share data)
Note 1 — Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have been prepared by
management in accordance with U.S. generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion
of management, all adjustments consisting of normal recurring adjustments considered necessary for
fair presentation of results for the interim period have been included. The results of operations
for the three months ended December 29, 2007 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 our Form 10-K for
the fiscal year ended September 29, 2007. All references to years in these financial statements are
to fiscal years.
Note 2 — Acquisitions
All of our acquisitions are accounted for under the purchase method and, accordingly, the operating
results for the acquired companies are included in the consolidated statements of earnings from the
respective dates of acquisition.
On November 20, 2007, we acquired PRIZM Advanced Communication Electronincs Inc. The purchase
price, net of cash acquired, was $12,000, which was financed with credit facility borrowings and
issuance of $3,000 of unsecured notes to the sellers payable on March 31, 2009. PRIZM specializes
in the design of fiber optic and wireless video and data multiplexers used in commercial and
military subsea markets for oil and gas exploration, terrestrial robots and remote sensing
applications. This acquisition is included in our Components segment.
On September 12, 2007, we acquired QuickSet International, Inc. The purchase price, net of cash
acquired, was $41,108, which was financed with credit facility borrowings. QuickSet is a
manufacturer of precision positioning systems and pan and tilt mechanisms. QuickSet’s products are
used to position surveillance cameras, thermal imagers, sensors and communication antennae for
military, homeland defense and commercial surveillance for securing national borders, commercial
ports, strategic missile silos and military protection systems. This acquisition is principally
included as part of our Space and Defense Controls segment and will contribute to growth in our
defense controls market and accelerate our business development in homeland defense. Annual sales
for the twelve months preceding the acquisition were approximately $22,000. During 2008, we
completed our purchase price allocation for the acquisition and, as a result, goodwill increased by
$2,294 and intangible assets decreased by $2,081.
On September 6, 2007, we acquired Techtron, a commercial slip ring manufacturer, for $5,600 in
cash. This acquisition is included as part of our Components segment.
On May 3, 2007, we acquired Thermal Control Products Inc. The purchase price, net of cash acquired,
was $6,887. We paid $4,037 in cash, which was financed with credit facility borrowings, and issued
unsecured notes to the sellers payable over three years with a discounted present value of $2,850.
Thermal Control Products specializes in the design, prototype and manufacture of electronic cooling
and air moving systems for the automotive, telecommunications, server and electronic storage
markets and is included as part of our Components segment.
On March 16, 2007, we acquired ZEVEX International, Inc. The purchase price, net of cash acquired,
was $82,457, which was financed with credit facility borrowings, and $1,796 in assumed debt. ZEVEX
manufactures and distributes a line of ambulatory pumps, stationary pumps and disposable sets that
are used in the delivery of enteral nutrition for hospital, long-term care facilities, neonatal and
patient home use. ZEVEX also designs, develops and manufactures surgical tools and sensors and
provides engineered solutions for the medical marketplace. This acquisition further expands our
participation in medical markets. Annual sales for the twelve months preceding the acquisition were
approximately $43,000.
In the first quarter of 2007, we acquired a ball screw manufacturer. The adjusted purchase price
was $2,567 paid in cash and $2,935 in assumed debt.
Our purchase price allocations are substantially complete with the exception of PRIZM’s purchase
price allocation, which is based on preliminary estimates of fair values of assets acquired and
liabilities assumed.
Note 3 — Stock-Based Compensation
We have stock option plans that authorize the issuance of options for shares of Class A common
stock to directors, officers and key employees. Stock option grants are designed to reward
long-term contributions to Moog and provide incentives for recipients to remain with Moog. The 2003
Stock Option Plan authorizes the issuance of options for 1,350,000 shares of Class A common stock.
The 1998 Stock Option Plan authorizes the issuance of options for 2,025,000 shares of Class A
common stock. Under the terms of the plans, options may be either incentive or non-qualified. The
exercise price, determined by a committee of the Board of Directors, may not be less than the fair
market value of the Class A common stock on the grant date. Options become exercisable over periods
not exceeding ten years.
6
On January 9, 2008, shareholders approved the 2008 Stock Appreciation Rights Plan. The 2008 Stock
Appreciation Rights Plan authorizes the issuance of 2,000,000 stock appreciation rights (SARs),
which represent the right to receive shares of Class A common stock. Under the terms of the plan,
the SARs are non-qualified for U.S. Federal income taxes. The exercise price of the SARs,
determined by a committee of the Board of Directors, may not be less than the fair value of the
Class A common stock on the grant date. The number of shares received upon exercise of SARs is
equal in value to the difference between the fair market value of the Class A common stock on the
exercise date and the exercise price of the SAR. SARs become exercisable over periods not exceeding
ten years.
Stock compensation expense recognized is based on share-based payment awards that are ultimately
expected to vest. Vesting requirements vary for directors, officers and key employees. In general,
options granted to outside directors vest one year from the date of grant, options granted to
officers vest on various schedules and options granted to key employees vest in equal annual
increments over a five-year period from the date of grant.
Note 4 — Inventories
| |
|
|
|
|
|
|
|
|
| |
|
December 29, |
|
|
September 29, |
|
| |
|
2007 |
|
|
2007 |
|
| |
Raw materials and purchased parts |
|
$ |
138,375 |
|
|
$ |
121,622 |
|
Work in progress |
|
|
188,062 |
|
|
|
183,810 |
|
Finished goods |
|
|
51,800 |
|
|
|
53,818 |
|
| |
Total |
|
$ |
378,237 |
|
|
$ |
359,250 |
|
| |
Note 5 — Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the three months ended December 29, 2007 are as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance as of |
|
|
Current |
|
|
Adjustment |
|
|
Foreign |
|
|
Balance as of |
|
| |
|
September 29, |
|
|
Year |
|
|
To Prior Year |
|
|
Currency |
|
|
December 29, |
|
| |
|
2007 |
|
|
Acquisitions |
|
|
Acquisitions |
|
|
Translation |
|
|
2007 |
|
| |
Aircraft Controls |
|
$ |
103,898 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
34 |
|
|
$ |
103,932 |
|
Space and Defense Controls |
|
|
67,546 |
|
|
|
— |
|
|
|
2,157 |
|
|
|
— |
|
|
|
69,703 |
|
Industrial Systems |
|
|
101,465 |
|
|
|
— |
|
|
|
137 |
|
|
|
1,555 |
|
|
|
103,157 |
|
Components |
|
|
153,442 |
|
|
|
5,539 |
|
|
|
192 |
|
|
|
269 |
|
|
|
159,442 |
|
Medical Devices |
|
|
112,082 |
|
|
|
— |
|
|
|
326 |
|
|
|
— |
|
|
|
112,408 |
|
| |
Total |
|
$ |
538,433 |
|
|
$ |
5,539 |
|
|
$ |
2,812 |
|
|
$ |
1,858 |
|
|
$ |
548,642 |
|
| |
All acquired intangible assets other than goodwill are being amortized. The weighted-average
amortization period is eight years for customer-related, technology-related and marketing-related
intangible assets and ten years for artistic-related intangible assets. In total, these intangible
assets have a weighted-average life of eight years. Customer-related intangible assets primarily
consist of customer relationships. Technology-related intangible assets primarily consist of
technology, patents, intellectual property and engineering drawings. Marketing-related intangible
assets primarily consist of trademarks, tradenames and non-compete agreements.
Amortization of acquired intangible assets was $3,709 for the three months ended December 29, 2007
and $2,118 for the three months ended December 30, 2006, respectively. Based on acquired intangible
assets recorded at December 29, 2007, amortization is expected to be $13,595 in 2008, $12,116 in
2009, $11,983 in 2010, $11,752 in 2011 and $11,128 in 2012. The gross carrying amount and
accumulated amortization for major categories of acquired intangible assets are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 29, 2007 |
|
|
September 29, 2007 |
|
| |
| |
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
| |
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Accumulated |
|
| |
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
| |
Customer-related |
|
$ |
66,861 |
|
|
$ |
(17,674 |
) |
|
$ |
64,556 |
|
|
$ |
(15,181 |
) |
Technology-related |
|
|
30,297 |
|
|
|
(7,523 |
) |
|
|
30,560 |
|
|
|
(6,482 |
) |
Marketing-related |
|
|
15,158 |
|
|
|
(7,395 |
) |
|
|
15,229 |
|
|
|
(7,031 |
) |
Artistic-related |
|
|
25 |
|
|
|
(15 |
) |
|
|
25 |
|
|
|
(15 |
) |
| |
Acquired intangible assets |
|
$ |
112,341 |
|
|
$ |
(32,607 |
) |
|
$ |
110,370 |
|
|
$ |
(28,709 |
) |
| |
7
Note 6 — Product Warranties
In the ordinary course of business, we warrant our products against defects in design, materials
and workmanship typically over periods ranging from twelve to thirty-six months. We determine
warranty reserves needed by product line based on historical experience and current facts and
circumstances. Activity in the warranty accrual is summarized as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
December 29, |
|
|
December 30, |
|
| |
|
2007 |
|
|
2006 |
|
| |
Warranty accrual at beginning of period |
|
$ |
7,123 |
|
|
$ |
5,968 |
|
Warranties issued during current period |
|
|
1,772 |
|
|
|
1,578 |
|
Reductions for settling warranties |
|
|
(1,087 |
) |
|
|
(1,617 |
) |
Foreign currency translation |
|
|
91 |
|
|
|
117 |
|
| |
Warranty accrual at end of period |
|
$ |
7,899 |
|
|
$ |
6,046 |
|
| |
Note 7 — Derivative Financial Instruments
We have foreign currency exposure on intercompany loans that are denominated in a foreign currency
and are adjusted to current values using period-end exchange rates. The resulting gains or losses
are recorded in the statements of earnings. To minimize the foreign currency exposure, we have
foreign currency forwards with a notional amount of $16,775. The foreign currency forwards are
recorded in the balance sheet at fair value and resulting gains or losses are recorded in the
statements of earnings, generally offsetting the gains or losses from the adjustments on the
intercompany loans. At December 29, 2007, the fair value of the foreign currency forwards was a
$1,199 liability, which was included in other accrued liabilities. At September 29, 2007, the fair
value of the foreign currency forwards was a $1,047 liability, which was included in other accrued
liabilities.
We use derivative financial instruments to manage the risk associated with changes in interest
rates associated with long-term debt that affect the amount of future interest payments under our
U.S. credit facility. During the first quarter of 2008, we entered into interest rate swaps with
notional amounts totaling $60,000 effectively converting that amount of variable-rate debt to
fixed-rate debt. Based on the applicable margin at December 29, 2007, the interest rate swaps
effectively convert this amount of variable-rate debt to fixed-rate debt at 5.7% through their
maturities. These interest rate swaps mature in the first quarter of 2009, at which time the
interest will revert back to variable rates based on LIBOR plus the applicable margin. Activity in
Accumulated Other Comprehensive Income (AOCI) related to derivatives held by us during the first
three months of 2008 is summarized below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pre-Tax |
|
|
Income |
|
|
After-Tax |
|
| |
|
Amount |
|
|
Tax |
|
|
Amount |
|
| |
Accumulated gain at September 29, 2007 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Net decrease in fair value of derivatives |
|
|
(629 |
) |
|
|
242 |
|
|
|
(387 |
) |
Net reclassification from AOCI into earnings |
|
|
(53 |
) |
|
|
21 |
|
|
|
(32 |
) |
| |
Accumulated loss at December 29, 2007 |
|
$ |
(682 |
) |
|
$ |
263 |
|
|
$ |
(419 |
) |
| |
To the extent that the interest rate swaps are not perfectly effective in offsetting the change in
the value of the interest payments being hedged, the ineffective portion of these contracts is
recognized in earnings immediately. The interest rate swaps entered into during 2008 qualify for
the shortcut method and, accordingly, we do not have any ineffectiveness during the term of the
swaps. Ineffectiveness was not material in the first three months of 2007. At December 29, 2007,
the fair value of interest rate swaps was a $629 liability, which is included in other accrued
liabilities and other long-term liabilities.
8
Note 8 — Employee Benefit Plans
Net periodic benefit costs for U.S. pension plans consist of:
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
December 29, |
|
|
December 30, |
|
| |
|
2007 |
|
|
2006 |
|
| |
Service cost |
|
$ |
4,115 |
|
|
$ |
3,750 |
|
Interest cost |
|
|
5,859 |
|
|
|
5,205 |
|
Expected return on plan assets |
|
|
(7,453 |
) |
|
|
(6,373 |
) |
Amortization of prior service cost |
|
|
265 |
|
|
|
279 |
|
Amortization of actuarial loss |
|
|
690 |
|
|
|
1,133 |
|
| |
Pension expense for defined benefit plans |
|
|
3,476 |
|
|
|
3,994 |
|
Pension expense for defined contribution plans |
|
|
359 |
|
|
|
290 |
|
| |
Total pension expense for U.S. plans |
|
$ |
3,835 |
|
|
$ |
4,284 |
|
| |
Net periodic benefit costs for non-U.S. pension plans consist of:
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
December 29, |
|
|
December 30, |
|
| |
|
2007 |
|
|
2006 |
|
| |
Service cost |
|
$ |
969 |
|
|
$ |
915 |
|
Interest cost |
|
|
1,434 |
|
|
|
1,206 |
|
Expected return on plan assets |
|
|
(915 |
) |
|
|
(706 |
) |
Amortization of prior service credit |
|
|
(9 |
) |
|
|
(9 |
) |
Amortization of actuarial loss |
|
|
84 |
|
|
|
204 |
|
| |
Pension expense for defined benefit plans |
|
|
1,563 |
|
|
|
1,610 |
|
Pension expense for defined contribution plans |
|
|
441 |
|
|
|
355 |
|
| |
Total pension expense for non-U.S. plans |
|
$ |
2,004 |
|
|
$ |
1,965 |
|
| |
Net periodic benefit costs for the post-retirement health care benefit plan consist of:
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
December 29, |
|
|
December 30, |
|
| |
|
2007 |
|
|
2006 |
|
| |
Service cost |
|
$ |
107 |
|
|
$ |
100 |
|
Interest cost |
|
|
312 |
|
|
|
301 |
|
Amortization of transition obligation |
|
|
98 |
|
|
|
98 |
|
Amortization of prior service cost |
|
|
72 |
|
|
|
72 |
|
Amortization of actuarial loss |
|
|
112 |
|
|
|
131 |
|
| |
Net periodic post-retirement benefit cost |
|
$ |
701 |
|
|
$ |
702 |
|
| |
During the three months ended December 29, 2007, we made contributions to our defined benefit
pension plans of $164 to the U.S. plans and $1,253 to the non-U.S. plans. We presently don’t
anticipate contributing any additional amounts to the U.S. plans but do anticipate contributing
$3,600 to the non-U.S. plans in 2008 for a total of approximately $5,000.
9
Note 9 — Shareholders’ Equity
The changes in shareholders’ equity for the three months ended December 29, 2007 are summarized as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Number of Shares |
|
| |
|
|
|
|
|
Class A |
|
|
Class B |
|
| |
|
|
|
|
|
Common |
|
|
Common |
|
| |
|
Amount |
|
|
Stock |
|
|
Stock |
|
| |
COMMON STOCK |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
$ |
48,605 |
|
|
|
40,739,556 |
|
|
|
7,865,157 |
|
Conversion of Class B to Class A |
|
|
— |
|
|
|
3,000 |
|
|
|
(3,000 |
) |
| |
|
|
End of period |
|
|
48,605 |
|
|
|
40,742,556 |
|
|
|
7,862,157 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL PAID-IN CAPITAL |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
301,778 |
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
1,628 |
|
|
|
|
|
|
|
|
|
Issuance of Treasury shares at more than cost |
|
|
2,257 |
|
|
|
|
|
|
|
|
|
Income tax effect of equity based compensation |
|
|
618 |
|
|
|
|
|
|
|
|
|
Adjustment to market — SECT |
|
|
1,433 |
|
|
|
|
|
|
|
|
|
| |
|
|
End of period |
|
|
307,714 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
570,063 |
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
27,675 |
|
|
|
|
|
|
|
|
|
Adjustment for adoption of FIN 48 |
|
|
(546 |
) |
|
|
|
|
|
|
|
|
| |
|
|
End of period |
|
|
597,192 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TREASURY STOCK |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
(39,873 |
) |
|
|
(2,411,825 |
) |
|
|
(3,305,971 |
) |
Treasury stock issued |
|
|
848 |
|
|
|
159,013 |
|
|
|
— |
|
Treasury stock purchased |
|
|
(1,722 |
) |
|
|
(38,275 |
) |
|
|
— |
|
| |
|
|
End of period |
|
|
(40,747 |
) |
|
|
(2,291,087 |
) |
|
|
(3,305,971 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCK EMPLOYEE COMPENSATION TRUST (SECT) |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
(15,928 |
) |
|
|
|
|
|
|
(361,836 |
) |
Purchases of stock from SSOP |
|
|
(4,579 |
) |
|
|
|
|
|
|
(101,137 |
) |
Adjustment to market — SECT |
|
|
(1,433 |
) |
|
|
|
|
|
|
— |
|
| |
|
|
End of period |
|
|
(21,940 |
) |
|
|
|
|
|
|
(462,973 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED OTHER COMPREHENSIVE INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
12,567 |
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
5,967 |
|
|
|
|
|
|
|
|
|
Increase in accumulated loss on derivatives |
|
|
(419 |
) |
|
|
|
|
|
|
|
|
| |
|
|
End of period |
|
|
18,115 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS’ EQUITY |
|
$ |
908,939 |
|
|
|
38,451,469 |
|
|
|
4,093,213 |
|
| |
10
Note 10 — Stock Employee Compensation Trust
The Stock Employee Compensation Trust (SECT) assists in administering and provides funding for
employee stock plans and benefit programs, including the Moog Inc. Savings and Stock Ownership Plan
(SSOP). The shares in the SECT are not considered outstanding for purposes of calculating earnings
per share. However, in accordance with the trust agreement governing the SECT, the SECT trustee
votes all shares held by the SECT on all matters submitted to shareholders.
Note 11 — Earnings per Share
Basic and diluted weighted-average shares outstanding are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
December 29, |
|
|
December 30, |
|
| |
|
2007 |
|
|
2006 |
|
| |
Weighted-average shares outstanding — Basic |
|
|
42,485,328 |
|
|
|
42,317,680 |
|
Dilutive effect of stock options |
|
|
773,332 |
|
|
|
699,063 |
|
| |
Weighted-average shares outstanding — Diluted |
|
|
43,258,660 |
|
|
|
43,016,743 |
|
| |
Note 12 — Comprehensive Income
The components of comprehensive income are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
December 29, |
|
|
December 30, |
|
| |
|
2007 |
|
|
2006 |
|
| |
Net earnings |
|
$ |
27,675 |
|
|
$ |
24,064 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
5,967 |
|
|
|
7,163 |
|
Increase in accumulated loss on derivatives, net of tax |
|
|
(419 |
) |
|
|
(86 |
) |
| |
Comprehensive income |
|
$ |
33,223 |
|
|
$ |
31,141 |
|
| |
The components of accumulated other comprehensive income are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
December 29, |
|
|
September 29, |
|
| |
|
2007 |
|
|
2007 |
|
| |
Cumulative foreign currency translation adjustment |
|
$ |
53,616 |
|
|
$ |
47,649 |
|
Retirement liability adjustment |
|
|
(35,082 |
) |
|
|
(35,082 |
) |
Accumulated loss on derivatives |
|
|
(419 |
) |
|
|
— |
|
| |
Accumulated other comprehensive income |
|
$ |
18,115 |
|
|
$ |
12,567 |
|
| |
11
Note 13 — Segment Information
Below are sales and operating profit by segment for the three months ended December 29, 2007 and
December 30, 2006 and a reconciliation of segment operating profit to earnings before income taxes.
Operating profit is net sales less cost of sales and other operating expenses, excluding stock
compensation expense and other corporate expenses. Cost of sales and other operating expenses are
directly identifiable to the respective segment or allocated on the basis of sales, manpower or
profit.
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
December 29, |
|
|
December 30, |
|
| |
|
2007 |
|
|
2006 |
|
| |
Net sales: |
|
|
|
|
|
|
|
|
Aircraft Controls |
|
$ |
159,581 |
|
|
$ |
130,788 |
|
Space and Defense Controls |
|
|
57,347 |
|
|
|
43,665 |
|
Industrial Systems |
|
|
122,733 |
|
|
|
102,230 |
|
Components |
|
|
79,587 |
|
|
|
68,319 |
|
Medical Devices |
|
|
27,159 |
|
|
|
10,979 |
|
| |
Net sales |
|
$ |
446,407 |
|
|
$ |
355,981 |
|
| |
Operating profit and margins: |
|
|
|
|
|
|
|
|
Aircraft Controls |
|
$ |
15,088 |
|
|
$ |
13,319 |
|
|
|
|
9.5 |
% |
|
|
10.2 |
% |
Space and Defense Controls |
|
|
6,700 |
|
|
|
5,376 |
|
|
|
|
11.7 |
% |
|
|
12.3 |
% |
Industrial Systems |
|
|
17,893 |
|
|
|
13,499 |
|
|
|
|
14.6 |
% |
|
|
13.2 |
% |
Components |
|
|
14,836 |
|
|
|
13,115 |
|
|
|
|
18.6 |
% |
|
|
19.2 |
% |
Medical Devices |
|
|
3,587 |
|
|
|
2,145 |
|
|
|
|
13.2 |
% |
|
|
19.5 |
% |
| |
Total operating profit |
|
|
58,104 |
|
|
|
47,454 |
|
|
|
|
13.0 |
% |
|
|
13.3 |
% |
Deductions from operating profit: |
|
|
|
|
|
|
|
|
Interest expense |
|
|
9,712 |
|
|
|
5,685 |
|
Stock compensation expense |
|
|
1,628 |
|
|
|
1,602 |
|
Corporate expenses and other |
|
|
4,334 |
|
|
|
4,765 |
|
| |
Earnings before income taxes |
|
$ |
42,430 |
|
|
$ |
35,402 |
|
| |
12
Note 14 — Recent Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes” (FIN 48). FIN 48 clarifies the accounting and reporting for income taxes recognized in
accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a comprehensive
model for the financial statement recognition, measurement, presentation and disclosure of
uncertain tax positions taken or expected to be taken on income tax returns. We adopted the
provisions of FIN 48 on September 30, 2007. Previously, we had accounted for tax contingencies in
accordance with SFAS No. 5, “Accounting for Contingencies.” As required by FIN 48, which clarifies
SFAS No. 109, we recognized the financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely than not sustain the position
following an audit. For tax positions meeting the more-likely-than-not threshold, the amount
recognized in the financial statements is the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the relevant tax authority. At the
adoption date, we applied FIN 48 to all tax positions for which the statute of limitations remained
open. As a result of the implementation of FIN 48, we recognized an increase of $546 in the
liability for unrecognized tax benefits, which was accounted for as a reduction to the September
30, 2007 balance of retained earnings.
The amount of unrecognized tax benefits as of September 30, 2007 was $1,452. That amount includes
$1,160 of unrecognized tax benefits, which, if ultimately recognized, will reduce our annual
effective tax rate. There have been no material changes in unrecognized tax benefits since
September 30, 2007.
We are subject to income taxes in the U.S. and in various states and foreign jurisdictions. Tax
regulations within each jurisdiction are subject to the interpretation of the related tax laws and
regulations and require significant judgment to apply. With few exceptions, we are no longer
subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities
for the years before 2005.
We are currently under examination by the Internal Revenue Service for 2005 and 2006. We expect
that examination will be concluded and settled in the next twelve months. We have unrecognized tax
benefits of $342 for those years. We believe it is reasonably possible that the resolution of these
examinations could result in payments ranging from $700 to $1,000.
We accrue interest and penalties related to unrecognized tax benefits in income tax expense for all
periods presented. We have accrued $152 for the payment of interest and penalties at September 30,
2007. Subsequent changes to accrued interest and penalties have not been significant.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement
establishes a framework for measuring fair value in generally accepted accounting principles,
clarifies the definition of fair value within that framework, and expands disclosures about the use
of fair value measurement. SFAS No.157 is effective for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years. We are currently evaluating the impact of
adopting SFAS No.157 on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities.” This statement permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve financial reporting
by providing entities with the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply complex hedging
accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15,
2007. We are currently evaluating the impact of adopting SFAS No. 159 on our consolidated financial
statements.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” This statement replaces
SFAS No. 141. The objective of SFAS No. 141(R) is to improve the relevance, representational
faithfulness and comparability of the information that a reporting entity provides in its financial
reports about a business combination and its effects. It establishes principles and requirements
for the acquirer to recognize and measure the identifiable assets acquired, the liabilities
assumed, any noncontrolling interest in the acquiree, the goodwill acquired or a gain from a
bargain purchase. It also provides disclosure requirements to enable users of the financial
statements to evaluate the nature and financial effects of the business combination. SFAS No.
141(R) is effective for fiscal years beginning on or after December 15, 2008. Early adoption of
this statement is prohibited. We are currently evaluating the impact of adopting SFAS No. 141(R) on
our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements-an amendment of ARB No. 51.” The objective of SFAS No. 160 is to improve the relevance,
comparability and transparency of the financial information that a reporting entity provides in its
consolidated financial statements by establishing additional accounting and reporting standards.
SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. Early adoption
of this statement is prohibited. We are currently evaluating the impact of adopting SFAS No. 160 on
our consolidated financial statements.
13
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 29, 2007. All references to years in this Management’s Discussion and Analysis of
Financial Condition and Results of Operations are to fiscal years.
OVERVIEW
We are a worldwide designer, manufacturer and integrator of precision control components and
systems. Our products and systems include military and commercial aircraft flight controls,
satellite positioning controls, controls for positioning gun barrels and automatic ammunition
loading for military combat vehicles, controls for steering tactical and strategic missiles, and
thrust vector controls for space launch vehicles. Our products are also used in a wide variety of
industrial applications, including injection molding machines for the plastics market, simulators
used to train pilots, power generating turbines, test equipment, metal forming, heavy industry and
certain medical applications. We operate under five segments, Aircraft Controls, Space and Defense
Controls, Industrial Systems, Components and Medical Devices. Our principal manufacturing
facilities are located in the United States, including facilities in New York, California, Utah,
Virginia, North Carolina, Pennsylvania, Ohio and Illinois and in Germany, England, Italy, Japan,
the Philippines, Ireland and India.
Revenue under long-term contracts, representing approximately one-third of our sales, is recognized
using the percentage of completion, cost-to-cost method of accounting. This method of revenue
recognition is predominantly used within the Aircraft Controls and Space and Defense Controls
segments due to the long-term contractual nature of the business activities, with the exception of
their respective aftermarket activities. The remainder of our sales are recognized when the risks
and rewards of ownership and title to the product are transferred to the customer, principally as
units are delivered or as service obligations are satisfied. This method of revenue recognition is
predominantly used within the Industrial Systems, Components and Medical Devices segments, as well
as with aftermarket activity.
We intend to increase our revenue base and improve our profitability and cash flows from operations
by building on our market leadership positions and by strengthening our niche market positions in
the principal markets that we serve. We also expect to maintain a balanced, diversified portfolio
in terms of markets served, product applications, customer base and geographic presence. Our
strategy to achieve our objectives includes maintaining our technological excellence by building
upon our systems integration capabilities while solving our customers’ most demanding technical
problems, growing our profitable aftermarket business, entering and developing new markets by using
our broad expertise as a designer and supplier of precision controls, taking advantage of our
global engineering, selling and manufacturing capabilities, striving for continuing cost
improvements and capitalizing on strategic acquisition opportunities.
Challenges facing us include improving shareholder value through increased profitability while
experiencing pricing pressures from customers, strong competition and increases in costs such as
health care. We address these challenges by focusing on strategic revenue growth and by continuing
to improve operating efficiencies through various process and manufacturing initiatives and using
low cost manufacturing facilities without compromising quality.
Acquisitions
All of our acquisitions are accounted for under the purchase method and, accordingly, the operating
results for the acquired companies are included in the consolidated statements of earnings from the
respective dates of acquisition.
On November 20, 2007, we acquired PRIZM Advanced Communication Electronics Inc. The purchase price,
net of cash acquired, was $12 million, which was financed with credit facility borrowings and
issuance of $3 million of unsecured notes to the sellers payable on March 31, 2009. PRIZM
specializes in the design of fiber optic and wireless video and data multiplexers used in
commercial and military subsea markets, for oil and gas exploration, terrestrial robotics and
remote sensing applications. This acquisition is included in our Components segment.
On September 12, 2007, we acquired QuickSet International, Inc. The purchase price, net of cash
acquired, was $41 million, which was financed with credit facility borrowings. QuickSet is a
manufacturer of precision positioning systems and pan and tilt mechanisms. QuickSet’s products are
used to position surveillance cameras, thermal imagers, sensors and communication antennae for
military, homeland defense and commercial surveillance for securing national borders, commercial
ports, strategic missile silos and military protection systems. This acquisition is principally
included as part of our Space and Defense Controls segment and will accelerate business development
in our homeland defense market. Annual sales for the twelve months preceding the acquisition were
approximately $22 million. During 2008, we completed our purchase price allocation for the
acquisition and, as a result, goodwill increased by $2 million and intangible assets decreased by
$2 million.
On September 6, 2007, we acquired Techtron, a commercial slip ring manufacturer, for $5.6 million
in cash. This acquisition is included as part of our Components segment.
On May 3, 2007, we acquired Thermal Control Products Inc. The purchase price, net of cash acquired,
was $7 million. We paid $4 million in cash, which was financed with credit facility borrowings, and
issued unsecured notes to the sellers payable over three years with a discounted present value of
$3 million. Thermal Control Products specializes in the design, prototype and manufacture of
electronic cooling and air moving systems for the automotive, telecommunications, server and
electronic storage markets and is included as part of our Components segment.
14
On March 16, 2007, we acquired ZEVEX International, Inc. The purchase price, net of cash acquired,
was $82 million, which was financed with credit facility borrowings, and $2 million in assumed
debt. ZEVEX manufactures and distributes a line of ambulatory pumps, stationary pumps and
disposable sets that are used in the delivery of enteral nutrition for hospital, long-term care
facilities, neonatal and patient home use. ZEVEX also designs, develops and manufactures surgical
tools and sensors and provides engineered solutions for the medical marketplace. This acquisition
further expands our participation in medical markets. Annual sales for the twelve months preceding
the acquisition were approximately $43 million.
In the first quarter of 2007, we acquired a ball screw manufacturer for $2.6 million in cash and
$2.9 million in assumed debt.
Our purchase price allocations are substantially complete with the exception of PRIZM’s purchase
price allocation, which is based on preliminary estimates of fair values of assets acquired and
liabilities assumed.
CRITICAL ACCOUNTING POLICIES
There have been no changes in critical accounting policies in the current year from those disclosed
in our 2007 Form 10-K.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes” (FIN 48). FIN 48 clarifies the accounting and reporting for income taxes recognized in
accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a comprehensive
model for the financial statement recognition, measurement, presentation and disclosure of
uncertain tax positions taken or expected to be taken on income tax returns. We adopted the
provisions of FIN 48 on September 30, 2007. Previously, we had accounted for tax contingencies in
accordance with SFAS No. 5, “Accounting for Contingencies.” As required by FIN 48, which clarifies
SFAS No. 109, we recognized the financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely than not sustain the position
following an audit. For tax positions meeting the more-likely-than-not threshold, the amount
recognized in the financial statements is the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the relevant tax authority. At the
adoption date, we applied FIN 48 to all tax positions for which the statute of limitations remained
open. As a result of the implementation of FIN 48, we recognized an increase of one-half million
dollars in the liability for unrecognized tax benefits, which was accounted for as a reduction to
the September 30, 2007 balance of retained earnings.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement
establishes a framework for measuring fair value in generally accepted accounting principles,
clarifies the definition of fair value within that framework, and expands disclosures about the use
of fair value measurement. SFAS No.157 is effective for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years. We are currently evaluating the impact of
adopting SFAS No. 157 on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities.” This statement permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve financial reporting
by providing entities with the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply complex hedging
accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15,
2007. We are currently evaluating the impact of adopting SFAS No. 159 on our consolidated financial
statements.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” This statement replaces
SFAS No. 141. The objective of SFAS No. 141(R) is to improve the relevance, representational
faithfulness and comparability of the information that a reporting entity provides in its financial
reports about a business combination and its effects. It establishes principles and requirements
for the acquirer to recognize and measure the identifiable assets acquired, the liabilities
assumed, any noncontrolling interest in the acquiree, the goodwill acquired or a gain from a
bargain purchase. It also provides disclosure requirements to enable users of the financial
statements to evaluate the nature and financial effects of the business combination. SFAS No.
141(R) is effective for fiscal years beginning on or after December 15, 2008. Early adoption of
this statement is prohibited. We are currently evaluating the impact of adopting SFAS No. 141(R) on
our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements-an amendment of ARB No. 51.” The objective of SFAS No. 160 is to improve the relevance,
comparability and transparency of the financial information that a reporting entity provides in its
consolidated financial statements by establishing additional accounting and reporting standards.
SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. Early adoption
of this statement is prohibited. We are currently evaluating the impact of adopting SFAS No. 160 on
our consolidated financial statements.
15
CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
December 29, |
|
|
December 30, |
|
| (dollars in millions) |
|
2007 |
|
|
2006 |
|
| |
Net sales |
|
$ |
446.4 |
|
|
$ |
356.0 |
|
Gross margin |
|
|
33.1 |
% |
|
|
33.9 |
% |
Research and development expenses |
|
$ |
24.1 |
|
|
$ |
22.2 |
|
Selling, general and administrative expenses as
a percentage of sales |
|
|
16.0 |
% |
|
|
15.9 |
% |
Interest expense |
|
$ |
9.7 |
|
|
$ |
5.7 |
|
Effective tax rate |
|
|
34.8 |
% |
|
|
32.0 |
% |
Net earnings |
|
$ |
27.7 |
|
|
$ |
24.1 |
|
| |
Net sales increased $90 million, or 25%, in the first quarter of 2008 over the first quarter of
2007. Sales increased in each of our segments and our acquisitions over the past year have
contributed $33 million of the incremental sales in the first quarter of 2008 compared to the first
quarter of 2007.
Our gross margin was down from the first quarter of 2007, reflecting shifts in the mix of business
and other factors. Aircraft Controls margins were lower as a greater proportion of that business
came from the F-35 Joint Strike Fighter and Boeing 787 Dreamliner programs, both of which had a
downward impact on our aircraft margins. We also had proportionately lower aftermarket sales, which
typically carry higher margins. In addition, the shift in the mix of sales towards more commercial
aircraft business also affected aircraft margins. Charges for purchase accounting from our
acquisitions over the past year were $2 million higher in the first quarter of 2008 compared to
similar adjustments in the first quarter of 2007. Also negatively impacting our gross margin was $1
million of the effect from the strengthening of the Philippine peso, associated with our
manufacturing operations located in the Philippines, where we have significant expenses paid in
that currency. Partially offsetting these pressures was a decline in the additions to our contract
loss reserves. Additions to contract loss reserves were $5 million less in the first quarter of
2008 compared to the first quarter of 2007.
Research and development expenses increased by $2 million, or 8%, in the first quarter of 2008 over
the same period last year. The higher level of research and development expenses largely relates to
development activities on a number of aircraft initiatives, including the Boeing 747-8 program, and
in the Medical Devices segment as a result of the ZEVEX acquisition. Offsetting those increases was
a slight decline in research and development costs on the 787 from $10 million in the first quarter
of 2007 to $9 million in the first quarter of 2008. Development work on the 787 reached its peak in
2007 and the costs are now declining.
Selling, general and administrative expenses as a percentage of sales were comparable to the same
period last year as efficiencies associated with our higher sales volume were offset by the higher
cost structure of the Medical Devices segment, which comprises a larger proportion of our business
in the first quarter of 2008 than in the first quarter of 2007.
Interest expense was higher in the first quarter of 2008 compared to the first quarter of 2007.
Higher debt levels primarily associated with our acquisitions accounted for approximately one-half
of the increase while borrowings to fund working capital requirements and capital expenditures
contributed the other half.
The
effective tax rate for the first quarter of 2008 was higher than the
first quarter of 2007 due to $1 million of additional tax exposures associated with foreign operations that were
recorded in the first quarter of 2008.
Net earnings increased 15% in the first quarter of 2008 and diluted earnings per share increased
14% in the first quarter of 2008.
2008 Outlook – We expect sales in 2008 to increase by 17% to approximately $1.83 billion with
increases in each of our segments. Sales are expected to increase $70 million in Industrial
Systems, $65 million in Aircraft Controls, $58 million in Space and Defense Controls, $43 million
in Components and $34 million in Medical Devices over 2007. We expect our operating margin to be
12.5% in 2008, the same level we achieved in 2007, as operating margins increase in Industrial
Systems and Medical Devices, maintain their levels in Components and decline in Aircraft Controls
and Space and Defense Controls. We expect net earnings to increase to $118 million. We expect
diluted earnings per share to increase by approximately 16% to $2.71.
16
SEGMENT RESULTS OF OPERATIONS AND OUTLOOK
Operating profit, as presented below, is net sales less cost of sales and other operating expenses,
excluding stock compensation expense and other corporate expenses. Cost of sales and other
operating expenses are directly identifiable to the respective segment or allocated on the basis of
sales, manpower or profit. Operating profit is reconciled to earnings before income taxes in Note
13 of the Notes to Consolidated Condensed Financial Statements included in this report.
Aircraft Controls
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
December 29, |
|
|
December 30, |
|
| (dollars in millions) |
|
2007 |
|
|
2006 |
|
| |
Net sales — military aircraft |
|
$ |
90.8 |
|
|
$ |
79.6 |
|
Net sales — commercial aircraft |
|
|
68.8 |
|
|
|
51.2 |
|
| |
|
|
$ |
159.6 |
|
|
$ |
130.8 |
|
Operating profit |
|
$ |
15.1 |
|
|
$ |
13.3 |
|
Operating margin |
|
|
9.5 |
% |
|
|
10.2 |
% |
Backlog |
|
$ |
322.1 |
|
|
$ |
288.7 |
|
| |
Net sales in Aircraft Controls increased $29 million, or 22%, in the first quarter of 2008 as sales
were up within both military and commercial aircraft. Commercial aircraft sales increased $18 million
from last year primarily as a result of an $8 million increase in business jets, including the
Hawker 4000 and Challenger 300, and a $7 million increase in OEM sales to Boeing, which included
$5 million on the 787. Military aircraft sales increased $11 million in the first quarter. Sales
increased by $5 million on the F-35 program as we design and
develop the short
takeoff and carrier versions and $5 million on our production programs, the F/A-18E/F Super Hornet,
V-22 Osprey and Black Hawk helicopter.
Our operating margin was down from the first quarter of 2007, reflecting shifts in the mix of
business and other factors. Margins were lower as a greater proportion of that business came from
the F-35 and 787 programs, both of which had a downward impact on margins. We also had
proportionately lower aftermarket sales, which typically carry higher margins. In addition, the
shift in the mix of sales towards more commercial aircraft business also affected margins. Also
negatively impacting our operating margin was $1 million of the effect from the strengthening of
the Philippine peso, associated with our manufacturing operations located in the Philippines, where
we have significant expenses paid in that currency. The effects of the product mix and peso
appreciation were only partially offset by $6 million of lower additions to contract loss reserves
in the first quarter of 2008 compared to 2007.
Twelve-month backlog for Aircraft Controls increased to $322 million at December 29, 2007 from $289
million at December 30, 2006 due to strong commercial aircraft orders, particularly for business
jets.
2008 Outlook for Aircraft Controls – We expect sales in Aircraft Controls to increase 11% to $651
million in 2008. Commercial aircraft sales are expected to increase $35 million, or 13%, to $296
million, principally related to business jets and the 787. Within military aircraft, we expect
sales to increase $30 million, or 9%, mainly due to increases on the F-35 program, military
aftermarket and the V-22 helicopter program. We expect our operating margin to be 10.0% in 2008
compared to 10.4% in 2007. This decline is a result of product mix shift to programs with lower
margins, a greater proportion of commercial aircraft sales and increased costs in our Philippine
operation related to the appreciation of the Philippine peso against the U.S. dollar.
17
Space and Defense Controls
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
December 29, |
|
|
December 30, |
|
| (dollars in millions) |
|
2007 |
|
|
2006 |
|
| |
Net sales |
|
$ |
57.3 |
|
|
$ |
43.7 |
|
Operating profit |
|
$ |
6.7 |
|
|
$ |
5.4 |
|
Operating margin |
|
|
11.7 |
% |
|
|
12.3 |
% |
Backlog |
|
$ |
166.4 |
|
|
$ |
127.7 |
|
| |
Net sales in Space and Defense Controls increased $14 million, or 31%, in the first quarter of
2008. The increase resulted primarily from $10 million of sales from the QuickSet acquisition, $6
million of which is on the new Driver’s Vision Enhancer program in the defense controls market and
$3 million in the homeland defense market. In addition, sales of controls for satellites increased
$4 million in the first quarter of 2008. The Constellation program, the Space Shuttle replacement,
generated over $3 million in the first quarter of 2008, which offset the $2 million decline in
sales for the Space Shuttle.
Our operating margin for Space and Defense Controls declined in the first quarter of 2008 as
efficiencies from the strong sales volume was more than offset by the typical charges related to
purchase accounting for our QuickSet acquisition of $1 million.
Twelve-month backlog for Space and Defense Controls increased to $166 million at December 29, 2007
from $128 million at December 30, 2006 due to increased orders for defense controls and homeland
defense programs as a result of the QuickSet acquisition.
2008 Outlook for Space and Defense Controls – We expect sales in Space and Defense Controls to
increase 31% to $243 million in 2008. We expect increases primarily in homeland defense and defense
controls as a result of the QuickSet acquisition and in the Constellation program, which includes
work on the Ares I Crew Launch and Orion Crew Exploration vehicles. We expect our operating margin
in 2008 to be 12.0%, down from 13.1% in 2007, as a result of a shift towards a larger portion of
sales coming from lower margin cost-plus contracts and typical first year purchase accounting
adjustments associated with the QuickSet acquisition.
Industrial Systems
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
December 29, |
|
|
December 30, |
|
| (dollars in millions) |
|
2007 |
|
|
2006 |
|
| |
Net sales |
|
$ |
122.7 |
|
|
$ |
102.2 |
|
Operating profit |
|
$ |
17.9 |
|
|
$ |
13.5 |
|
Operating margin |
|
|
14.6 |
% |
|
|
13.2 |
% |
Backlog |
|
$ |
169.7 |
|
|
$ |
122.6 |
|
| |
Net sales in Industrial Systems increased $21 million, or 20%, in the first quarter of 2008. Sales
were up in several of our major markets including heavy industry, motion simulation, presses and
metal forming and plastics making machinery. Sales growth in heavy industry was $5 million, or 52%,
and represents equipment used in steel mills, especially in China. Sales growth in motion
simulation of $4 million, or 42%, reflects strong demand. Growth in sales of controls for metal
forming and presses of $3 million relates to strong demand in Europe, although one-third of the
increase occurred in Asia. Growth in our sales of controls for plastics making machinery, our
largest industrial market, of $3 million reflects strong demand in Europe. Stronger foreign
currencies, in particular the euro, compared to the U.S. dollar also had a positive impact on
sales, representing 39% of the sales increase.
Our operating margin for Industrial Systems improved in the first quarter of 2008 over the
comparable 2007 period due to higher volume and delayed increases in our cost structure, increases
which will be needed for continued growth.
The higher level of twelve-month backlog for Industrial Systems at December 29, 2007 compared to
December 30, 2006 primarily relates to orders of controls for heavy industry and turbines.
2008 Outlook for Industrial Systems – We expect sales in Industrial Systems to increase 16% to $506
million in 2008. We expect sales growth in most of our major markets with the largest increases in
motion simulation and aftermarket. We expect our operating margin to be 13.7% in 2008, an
improvement over 13.2% in 2007.
18
Components
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
December 29, |
|
|
December 30, |
|
| (dollars in millions) |
|
2007 |
|
|
2006 |
|
| |
Net sales |
|
$ |
79.6 |
|
|
$ |
68.3 |
|
Operating profit |
|
$ |
14.8 |
|
|
$ |
13.1 |
|
Operating margin |
|
|
18.6 |
% |
|
|
19.2 |
% |
Backlog |
|
$ |
170.2 |
|
|
$ |
113.7 |
|
| |
Net sales in Components increased $11 million, or 16%, in the first quarter of 2008 with
improvements in every market area, but most notably in our industrial, aircraft and marine markets.
The acquisitions of Thermal Control Products, Techtron and PRIZM contributed $4 million of the
sales increase. Industrial sales were up over $3 million, or 28%, most of which came from the
Thermal Control Products and Techtron acquisitions. Aircraft sales increased $3 million in the quarter due to increased military
procurement, especially for the Guardian program, which increased $2 million, and a multi-spectral
targeting system on the Predator UAV. Marine market sales were up $2 million, one-quarter of which
was a result of our PRIZM acquisition in the first quarter of 2008.
Our operating margin declined in the first quarter of 2008 relative to 2007 primarily as a result
of charges related to purchase accounting for our recent acquisitions.
The higher level of twelve-month backlog at December 29, 2007 compared to December 30, 2006
primarily relates to increased orders for space and defense controls and military aircraft
programs.
2008 Outlook for Components – We expect sales in Components to increase 15% to $326 million in
2008. We expect sales increases in every market, led by increases in space and defense controls,
military aircraft programs and industrial markets, which will benefit from the acquisitions of
Thermal Control Products and Techtron. We expect our operating margin to be 15.7% in 2008, the same
strong margin performance we achieved in 2007.
Medical Devices
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
December 29, |
|
|
December 30, |
|
| (dollars in millions) |
|
2007 |
|
|
2006 |
|
| |
Net sales |
|
$ |
27.2 |
|
|
$ |
11.0 |
|
Operating profit |
|
$ |
3.6 |
|
|
$ |
2.1 |
|
Operating margin |
|
|
13.2 |
% |
|
|
19.5 |
% |
Backlog |
|
$ |
11.3 |
|
|
$ |
2.6 |
|
| |
The Medical Devices segment was established in the third quarter of 2006 as a result of the
acquisition of Curlin Medical. The fourth quarter of 2006 acquisition of McKinley Medical and the
second quarter of 2007 acquisition of ZEVEX have further expanded this segment. The increase in
sales in the first quarter of 2008 primarily reflects the acquisition of ZEVEX.
The decrease in our operating margin is mainly attributable to the product mix, reflecting
proportionately lower sales of higher margin ambulatory pumps in 2008 compared to 2007.
Twelve-month backlog for Medical Devices increased at December 29, 2007 compared to December 30,
2006 due to the acquisition of ZEVEX.
2008 Outlook for Medical Devices – We expect sales in Medical Devices to be $102 million in 2008,
including a full year of ZEVEX sales. We expect our operating margin will increase to 14.0% from
10.2% in 2007, primarily as a result of similar amounts of total purchase accounting charges over
the larger sales we expect in 2008, which includes a full year of ZEVEX sales.
19
FINANCIAL CONDITION AND LIQUIDITY
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
| |
|
December 29, |
|
December 30, |
| (dollars in millions) |
|
2007 |
|
2006 |
| |
Net cash provided (used) by: |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(3.7 |
) |
|
$ |
22.6 |
|
Investing activities |
|
|
(35.5 |
) |
|
|
(28.0 |
) |
Financing activities |
|
|
36.8 |
|
|
|
4.4 |
|
| |
Our available borrowing capacity and our cash flow from operations provide us with the financial
resources needed to run our operations, reinvest in our business and make strategic acquisitions.
Operating activities
Net cash provided by operating activities decreased in the first quarter of 2008 compared to 2007.
This decline relates principally to greater working capital requirements, especially increased
receivables and lower customer advances, to support the substantial organic growth of our
operations. Excluding acquisitions, our sales increased 16% in the first quarter of 2008 compared
to the first quarter of 2007, driving our use of cash associated with the growth in receivables.
The significant increase in receivables is also influenced by the shift in our business toward
proportionately more commercial aircraft sales including our increased work on the Boeing 787 and
business jets. Payment terms on commercial aircraft programs typically do not benefit from progress
payments as work progresses, unlike on our military programs. Further, with respect to the 787
program on which we have cumulatively recognized over $25 million of sales to date, we are working
in accordance with an arrangement similar to the other 787 subcontractors whereby we are to be paid
thirty days after Boeing delivers the first 787 to its customer.
Investing activities
Net cash used by investing activities in the first quarter of 2008 consisted principally of $25
million for capital expenditures and $9 million towards the acquisition of PRIZM. The high level of
capital expenditures in the first quarter of 2008 was driven primarily by expansion of our
facilities to support our sales growth and spending for equipment for new production programs. Net
cash used by investing activities in the first quarter of 2007 consisted of $25 million from the
procurement of capital equipment for the 787 production program, facility expansions and other
capital expenditures. We also paid $3 million for our acquisition of a ball screw manufacturer.
Based on the growth of our core businesses, we now project our capital expenditures to be
approximately $85 million in 2008.
Financing activities
Net cash provided by financing activities in the first quarter of 2008 reflects the use of our U.S.
credit facility for increased working capital requirements to fund our sales growth, capital
expenditures and the acquisition of PRIZM.
Off Balance Sheet Arrangements
We do not have any material off balance sheet arrangements that have or are reasonably likely to
have a material future effect on our results of operations or financial condition.
Contractual Obligations and Commercial Commitments
Our contractual obligations and commercial commitments have not changed materially from the
disclosures in our 2007 Form 10‑K.
20
CAPITAL STRUCTURE AND RESOURCES
We maintain bank credit facilities to fund our short and long-term capital requirements, including
for acquisitions. From time to time, we also sell equity and debt securities to fund acquisitions
or take advantage of favorable market conditions.
Our largest credit facility is our U.S. credit facility, which matures on October 25, 2011. It
consists of a $600 million revolver and had an outstanding balance of $444 million at December 29,
2007. Interest on outstanding credit facility borrowings is based on LIBOR plus the applicable
margin, which was 125 basis points at December 29, 2007. The credit facility is secured by
substantially all of our U.S. assets.
The U.S. credit facility contains various covenants. The covenant for minimum net worth, defined as
total shareholders’ equity adjusted to maintain the amounts of accumulated other comprehensive loss
at the level in existence as of September 30, 2006 is $550 million. The covenant for minimum
interest coverage ratio, defined as the ratio of EBITDA to interest expense for the most recent
four quarters, is 3.0. The covenant for the maximum leverage ratio, defined as the ratio of net
debt including letters of credit to EBITDA for the most recent four quarters, is 3.5. The covenant
for maximum capital expenditures is $85 million in 2008 and $90 million thereafter. EBITDA is
defined in the loan agreement as (i) the sum of net income, interest expense, income taxes,
depreciation expense, amortization expense, other non-cash items reducing consolidated net income
and non-cash stock related expenses minus (ii) other non-cash items increasing consolidated net
income. We are in compliance with all covenants.
We are required to obtain the consent of lenders of the U.S. credit facility before raising
significant additional debt financing. In recent years, we have demonstrated our ability to secure
consents to access debt markets. We have also been successful in accessing capital markets and have
shown strong, consistent financial performance. We believe that we will be able to obtain
additional debt or equity financing as needed.
At December 29, 2007, we had $188 million of unused borrowing capacity, including $142 million from
the U.S. credit facility after considering standby letters of credit.
Net debt to capitalization was 39% at December 29, 2007 and 38% at September 29, 2007.
We believe that our cash on hand, cash flows from operations and available borrowings under short
and long-term lines of credit will continue to be sufficient to meet our operating needs.
21
ECONOMIC CONDITIONS AND MARKET TRENDS
Military Aerospace and Defense
Approximately 38% of our 2007 sales related to global military defense or government-funded
programs. Most of these sales were within Aircraft Controls and Space and Defense Controls.
The military aircraft market is dependent on military spending for development and production
programs. Military spending is expected to remain strong in the near term. Production programs are
typically long-term in nature, offering greater predictability as to capacity needs and future
revenues. We maintain positions on numerous high priority programs, including the F-35 Joint Strike
Fighter, F/A-18E/F Super Hornet and V-22 Osprey. These and other government programs can be
reduced, delayed or terminated. The large installed base of our products leads to attractive
aftermarket sales and service opportunities. Aftermarket revenues are expected to continue to
grow, due to military retrofit programs and increased flight hours resulting from increased
military activity.
The military and government space market is primarily dependent on the authorized levels of funding
for satellite communications needs and space exploration. We believe that long-term government
spending on military satellites will remain strong in order to satisfy the military’s need for
improved intelligence gathering. Funding for NASA’s Constellation Program, the replacement for the
Space Shuttle, is expected to be solid in the coming years.
The tactical missile, missile defense and defense controls markets are dependent on many of the
same market conditions as military aircraft, including overall military spending and program
funding levels.
The market for homeland security and defense applications has gained momentum and acceptance over
the last few years and border security, transportation security and preparedness are high
priorities.
Industrial
Approximately 33% of our 2007 sales were generated in industrial markets. The industrial markets we
serve are influenced by several factors, including capital investment, product innovation, economic
growth, cost-reduction efforts and technology upgrades. Based on the high degree of sophistication
of our products and the niche markets we serve, we believe our business is not overly sensitive to
fluctuations in general macro-economic industrial trends. Opportunities for growth include demand
in China to support its economic growth particularly in power generation and steel manufacturing
markets, automotive manufacturers that are upgrading their metal forming, injection molding and
material test capabilities, increasing demand for aircraft training simulators, and the need for
precision controls on plastics injection molding machines to provide improved manufacturing
efficiencies.
Commercial Aircraft
Approximately 18% of our 2007 sales were on commercial aircraft programs. The commercial OEM
aircraft market has historically exhibited cyclical swings and sensitivity to economic conditions.
The aftermarket, which is driven by usage of the existing aircraft fleet, has proven to be more
stable. Higher aircraft utilization rates result in the need for increased maintenance and spare
parts and enhance aftermarket sales. Boeing and Airbus are both increasing production levels for
new planes related to air traffic growth and further production increases are projected. We have
contract coverage through 2012 with Boeing for the existing 7-series aircraft and are also
developing flight control actuation systems for Boeing’s 787 Dreamliner. In the business jet
market, our flight controls on a couple of newer jets are in early production. Aftermarket revenues
are expected to grow as passenger miles continue to increase.
Medical
Approximately 8% of our 2007 sales were generated in medical markets. Demographics are aligned for
growth in the overall healthcare market. The medical markets that we operate in are influenced by
the need for precision control components and systems. Markets remain strong for brushless direct
current motors used in sleep apnea machines as well as fiber optic slip rings for CT scan
diagnostic imaging. Our enteral clinical nutrition products are gaining market share against more
typical Total Parenteral Nutrition. Our postoperative pain management and wound perfusion products
continue to experience market share gains due to quality-of-life enhancements and patient recovery
time. Our ultrasonic surgical tools are gaining new positions in neurology and orthopedic markets
due to higher performance and ease of use.
Foreign Currencies
We are affected by the movement of foreign currencies compared to the U.S. dollar, particularly in
Industrial Systems. About one-third of our 2007 sales were denominated in foreign currencies
including the euro, British pound and Japanese yen. During the first three months of 2008, these
foreign currencies strengthened against the U.S. dollar and the translation of the results of our
foreign subsidiaries into U.S. dollars contributed $12 million to the sales increase over the same
period one year ago. During 2007, these foreign currencies strengthened against the U.S. dollar and
the translation of the results of our foreign subsidiaries into U.S. dollars increased sales by $29
million compared to 2006.
22
Cautionary Statement
Information included herein or incorporated by reference that does not consist of historical facts,
including statements accompanied by or containing words such as “may,” “will,” “should,”
“believes,” “expects,” “expected,” “intends,” “plans,” “projects,” “estimates,” “predicts,”
“potential,” “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 for commercial aircraft, military aircraft, space and
defense products, industrial capital goods and medical devices, (ii) our dependence on government
contracts that may not be fully funded or may be terminated, (iii) our dependence on certain major
customers, such as The Boeing Company and Lockheed Martin, for a significant percentage of our
sales, (iv) the possibility that the demand for our products may be reduced if we are unable to
adapt to technological change, (v) intense competition which may require us to lower prices or
offer more favorable terms of sale, (vi) our significant indebtedness which could limit our
operational and financial flexibility, (vii) the possibility that new product and research and
development efforts may not be successful which could reduce our sales and profits, (viii)
increased cash funding requirements for pension plans, which could occur in future years based on
assumptions used for our defined benefit pension plans, including returns on plan assets and
discount rates, (ix) a write-off of all or part of our goodwill, which could adversely affect our
operating results and net worth and cause us to violate covenants in our bank agreements, (x) the
potential for substantial fines and penalties or suspension or debarment from future contracts in
the event we do not comply with regulations relating to defense industry contracting, (xi) the
potential for cost overruns on development jobs and fixed price contracts and the risk that actual
results may differ from estimates used in contract accounting, (xii) the possibility that our
subcontractors may fail to perform their contractual obligations, which may adversely affect our
contract performance and our ability to obtain future business, (xiii) our ability to successfully
identify and consummate acquisitions, and integrate the acquired businesses and the risks
associated with acquisitions, including that the acquired businesses do not perform in accordance
with our expectations, and that we assume unknown liabilities in connection with the acquired
businesses for which we are not indemnified, (xiv) our dependence on our management team and key
personnel, (xv) the possibility of a catastrophic loss of one or more of our manufacturing
facilities, (xvi) the possibility that future terror attacks, war or other civil disturbances could
negatively impact our business, (xvii) that our operations in foreign countries could expose us to
political risks and adverse changes in local, legal, tax and regulatory schemes, (xviii) the
possibility that government regulation could limit our ability to sell our products outside the
United States, (xix) product quality or patient safety issues with respect to our medical devices
business that could lead to product recalls, withdrawal from certain markets, delays in the
introduction of new products, sanctions, litigation, declining sales or actions of regulatory
bodies and government authorities, (xx) the impact of product liability claims related to our
products used in applications where failure can result in significant property damage, injury or
death and in damage to our reputation, (xxi) the possibility that litigation may result unfavorably
to us, (xxii) our ability to adequately enforce our intellectual property rights and the
possibility that third parties will assert intellectual property rights that prevent or restrict
our ability to manufacture, sell, distribute or use our products or technology, (xxiii) foreign
currency fluctuations in those countries in which we do business and other risks associated with
international operations and (xxiv) the cost of compliance with environmental laws. 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 factors, risks and
uncertainties, investors should not place undue reliance on forward-looking statements as
predictive of future results. We disclaim any obligation to update the forward-looking statements
made in this report.
23
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 29, 2007 for a
complete discussion of our market risk. There have been no material changes in the current year
regarding this market risk information.
Item 4. Controls and Procedures.
| (a) |
|
Disclosure Controls and Procedures.
Moog carried out an evaluation, under
the supervision and with the
participation of Company management,
including the Chief Executive Officer
and Chief Financial Officer, of the
effectiveness of the design and
operation of our disclosure controls
and procedures as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e).
Based on that evaluation, the Chief
Executive Officer and Chief Financial
Officer concluded that these disclosure
controls and procedures are effective
as of the end of the period covered by
this report, to ensure that information
required to be disclosed in reports
filed or submitted under the Exchange
Act is made known to them on a timely
basis, and that these disclosure
controls and procedures are effective
to ensure such information is recorded,
processed, summarized and reported
within the time periods specified in
the Commission’s rules and forms. |
| |
| (b) |
|
Changes in Internal Control over
Financial Reporting. There have been
no changes in our internal control over
financial reporting during the most
recent fiscal quarter that have
materially affected, or are reasonably
likely to materially affect, our
internal control over financial
reporting. |
24
PART II OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds.
(c) The following table summarizes our purchases of our
common stock for the quarter ended December 29, 2007.
| |
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(c) Total |
|
|
(d) Maximum |
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| |
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Number of |
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Number (or |
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| |
|
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|
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|
|
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|
Shares |
|
|
Approximate |
|
| |
|
|
|
|
|
|
|
|
|
Purchased |
|
|
Dollar Value) |
|
| |
|
(a) Total |
|
|
|
|
|
|
As Part of |
|
|
of Shares that |
|
| |
|
Number of |
|
|
|
|
|
|
Publicly |
|
|
May Yet Be |
|
| |
|
Shares |
|
|
(b) Average |
|
|
Announced |
|
|
Purchased Under |
|
| |
|
Purchased |
|
|
Priced Paid |
|
|
Plans or |
|
|
the Plans or |
|
| Period |
|
(1)(2) |
|
|
Per Share |
|
|
Programs (2) |
|
|
Programs (2) |
|
| |
October 1 - 31, 2007 |
|
|
74,127 |
|
|
$ |
45.36 |
|
|
|
N/A |
|
|
|
N/A |
|
November 1 - 30, 2007 |
|
|
38,178 |
|
|
$ |
44.81 |
|
|
|
N/A |
|
|
|
N/A |
|
December 1 - 29, 2007 |
|
|
27,107 |
|
|
$ |
45.27 |
|
|
|
N/A |
|
|
|
N/A |
|
| |
Total |
|
|
139,412 |
|
|
$ |
45.19 |
|
|
|
N/A |
|
|
|
N/A |
|
| |
|
|
|
| (1) |
|
The purchases during October represent the purchase of shares from the Moog Inc. Savings and Stock Ownership Plan. Purchases in November
include 14,700 shares from the Moog Inc. Savings and Stock Ownership Plan at $44.49 per share. Purchases in December include 12,310
shares from the Moog Inc. Savings and Stock Ownership Plan at $45.67 per share. |
| |
| (2) |
|
In connection with the exercise and vesting of stock options, we accept, from time to time, delivery of shares to pay the exercise price
of employee stock options. We do not otherwise have any plan or program to purchase our common stock. During November, we accepted the
delivery of 23,478 shares at $45.01 per share in connection with the exercise of stock options. During December, we accepted the delivery of 14,797 shares at $44.93 per share in connection with the exercise of stock options. |
Item 6. Exhibits
(a) Exhibits
| |
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
25
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.
| |
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Moog Inc. |
|
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|
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(Registrant)
|
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|
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Date: February 5, 2008
|
|
By
|
|
/s/ Robert T. Brady |
|
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|
|
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Robert T. Brady
|
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|
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|
|
|
Chairman |
|
|
|
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
(Principal Executive Officer) |
|
|
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|
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|
Date: February 5, 2008
|
|
By
|
|
/s/ John R. Scannell
John R. Scannell
|
|
|
|
|
|
|
Vice President |
|
|
|
|
|
|
Chief Financial Officer |
|
|
|
|
|
|
(Principal Financial Officer) |
|
|
|
|
|
|
|
|
|
Date: February 5, 2008
|
|
By
|
|
/s/ Donald R. Fishback
Donald R. Fishback
|
|
|
|
|
|
|
Vice President — Finance |
|
|
|
|
|
|
(Principal Accounting Officer) |
|
|
26
Exhibit Index
| |
|
|
| Exhibits |
|
|
| Description |
|
|
| |
| |
31.1
|
|
Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
27