-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AqoiszjHqvpQpsLZd4lahrbbq0ijvibBOgLm3qEDtsllKriDR0KxiR1kzm5c8ci6 lsTHq7AVD9Q1Q8AvCmhh5g== 0000904802-99-000096.txt : 19991222 0000904802-99-000096.hdr.sgml : 19991222 ACCESSION NUMBER: 0000904802-99-000096 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990925 FILED AS OF DATE: 19991221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOOG INC CENTRAL INDEX KEY: 0000067887 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] IRS NUMBER: 160757636 STATE OF INCORPORATION: NY FISCAL YEAR END: 0927 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-05129 FILM NUMBER: 99778334 BUSINESS ADDRESS: STREET 1: PLANT 24 CITY: EAST AURORA STATE: NY ZIP: 14052-0018 BUSINESS PHONE: 7166522000 MAIL ADDRESS: STREET 1: PLANT 24 CITY: EAST AURORA STATE: NY ZIP: 14052 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 25, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from to ______________ to _____________ Commission file number 1-5129 __________________________________________ MOOG INC. (Exact Name of Registrant as Specified in its Charter) New York 16-0757636 _______________________________ ____________________ (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) East Aurora, New York 14052-0018 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code:(716) 652-2000 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered _____________________________________ _________________________ Class A Common Stock, $1.00 Par Value American Stock Exchange Class B Common Stock, $1.00 Par Value American Stock Exchange _____________________________________ _________________________ Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. _________ The aggregate market value of the Common Stock outstanding and held by non-affiliates (as defined in Rule 405 under the Securities Act of 1933) of the registrant, based upon the closing sale price of the Common Stock on the American Stock Exchange on December 8, 1999 was approximately $177 million. The number of shares of Common Stock outstanding as of the close of business on December 8, 1999 was: Class A: 7,335,602; Class B: 1,580,813. The Documents listed below have been incorporated by reference into this Annual Report on Form 10-K: (1) Specific sections of the Annual Report to Shareholders for the fiscal year ended September 25, 1999 (the "1999 Annual Report") (2) Specific sections of the January 2000 Proxy Statement to Shareholders (the "2000 Proxy") _________________________________________________________________ MOOG INC. FORM 10-K INDEX _________________________________________________________________ PART I PAGE Item 1 - Business 22-23 Item 2 - Properties 23 Item 3 - Legal Proceedings 23 Item 4 - Submission of Matters to a 23 Vote of Security Holders PART II Item 5 - Market for the Registrant's 23 Common Equity and Related Stockholder Matters Item 6 - Selected Financial Data 23-24 Item 7 - Management's Discussion and 25 Analysis of Financial Condition and Results of Operations Item 7A- Quantitative and Qualitative 30 Disclosures About Market Risk Item 8 - Financial Statements and 31 Supplementary Data Item 9 - Changes in and Disagreements with 44 Accountants on Accounting and Financial Disclosure PART III Item 10- Directors and Executive Officers 44-45 of the Registrant Item 11 - Executive Compensation 46 Item 12 - Security Ownership 46 of Certain Beneficial Owners and Management Item 13 - Certain Relationships and 46 Related Transactions PART IV Item 14 - Exhibits, Financial Statement 46-48 Schedules, and Reports on Form 8-K CAUTIONARY STATEMENT Information included or incorporated by reference which are not historical facts are forward looking statements. Such forward looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward looking statements involve a number of risks and uncertainties, including but not limited to, contracting with various governments, changes in economic conditions, demand for the Company's products, pricing pressures, intense competition in the industries in which the Company operates, successful integration of acquired businesses, the need for the Company to keep pace with technological developments and timely response to changes in customer needs and other factors identified in the Company's Securities and Exchange Commission filings. PART I The Registrant, Moog Inc., a New York corporation formed in 1951, is referred to in this Annual Report on Form 10-K as "Moog," "the Company" or in the nominative "we" or the possessive "our." ITEM 1. BUSINESS. Certain information required herein is contained in part in the 1999 Annual Report, specific pages of which are referred to in parentheses. DESCRIPTION OF THE COMPANY'S BUSINESS. (See pages 2 through 20.) DISTRIBUTION. Moog's sales and marketing organization is comprised of individuals possessing highly specialized technical expertise. Such expertise is required in order to effectively evaluate the customer's precision control requirements and to facilitate communication between the customer and Moog's engineering staff. Manufacturers' representatives are used to cover certain aerospace and selected industrial markets. INDUSTRY AND COMPETITIVE CONDITIONS. The Company experiences considerable competition in each of its three operating groups. However, the Company is the only precision motion control specialist which competes globally in all markets and all drive technologies. Many of its competitors have greater financial and other resources than the Company. In Aircraft Controls, the Company's principal competitors include Parker Hannifin Corporation, Curtiss-Wright Corp., HR Textron, a subsidiary of Textron, Inc. ("HR Textron") and Teijin Seiki Limited. In Satellite and Launch Vehicle Controls, the Company's principal competitors are Honeywell and HR Textron. In Industrial Controls, competitors include Robert Bosch AG, Mannesmann Rexroth AG, Barber-Colman Company, Siemens AG and Indramat GmbH. Competition in each operating group is based upon design capability, product performance and life, service, price and delivery time. In certain cases technological considerations predominate over price considerations, while in others price considerations are paramount. The Company believes it competes effectively on all of these bases. BACKLOG. Substantially all backlog will be realized as sales in the next twelve months. The information required herein is incorporated by reference to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, on page 26. RAW MATERIALS. Materials, supplies and components are purchased from numerous suppliers. The loss of any one supplier would not materially affect the Company's operations. WORKING CAPITAL. The information required herein is incorporated by reference to the discussion on inventories in Note 1 of Item 8 on page 35. SEASONALITY. Moog's business is generally not seasonal. PATENTS. Moog has numerous patents and has filed applications for others. While the aggregate protection afforded by these is of value, the Company does not consider the successful conduct of any material part of its business to be dependent upon such protection. The Company's patents and patent applications, including U.S., Canadian, European and Japanese patents, relate to electrohydraulic, electropneumatic and electromechanical actuation mechanisms and control valves, electronic control component systems and interface devices. RESEARCH ACTIVITIES. Research and product development activity has been and continues to be significant to the Company. The information required herein is incorporated by reference to Item 6, Selected Financial Data, on page 24. EMPLOYEES. The information required herein is incorporated by reference to Item 6, Selected Financial Data, on page 24. SEGMENT FINANCIAL INFORMATION. The information required herein is incorporated by reference to Note 10 of Item 8 on pages 42 and 43. CUSTOMERS. The information required herein is incorporated by reference to pages 2 through 20, 25 and 42. In aggregate, the Company markets its products to a wide variety of customers. The Boeing Company represented approximately 20% of consolidated sales in 1999, including sales to the Boeing Commercial Airplane Group representing 12% of fiscal 1999 sales. Sales to U.S. Government prime- or sub-contractors, including military sales to Boeing, represented approximately 30% of sales. Sales to these customers are made principally from Aircraft Controls, and Satellite and Launch Vehicle Controls. The concentration of customers varies between operating groups. In Aircraft Controls, as well as Satellite and Launch Vehicle Controls, a few customers provide the majority of revenues, while in Industrial Controls revenues are spread over a more diverse customer base. INTERNATIONAL OPERATIONS. Operations outside the United States are conducted through various foreign companies in which the Company's ownership interest ranges from majority to complete control. The Company's international operations are located predominantly in Europe and the Asian-Pacific region. (See pages 2 through 20, 43 and 47.) The Company's international operations are subject to the usual risks inherent in international trade, including currency fluctuations, local governmental foreign investment restrictions, exchange controls, regulation of the import and distribution of foreign goods, as well as changing economic and social conditions in countries in which such operations are conducted. ENVIRONMENTAL MATTERS. See page 43. ITEM 2. PROPERTIES. The Company occupies approximately 2.0 million square feet of space (1.3 million owned, 602,000 through operating leases and 54,000 through a capital lease) in the United States and countries throughout the world, distributed as follows: Square Feet ___________ Aircraft Controls 965,000 Satellite and Launch Vehicle Controls 291,000 Industrial Controls 622,000 Corporate Headquarters 146,000 _________ Total 2,024,000 Aircraft Controls' principal manufacturing and assembly facilities are located in East Aurora, New York, Torrance, California, Salt Lake City, Utah and the Philippines. Approximately 285,000 square feet were obtained in connection with the acquisition of Raytheon Aircraft Montek Company in November 1998. Satellite and Launch Vehicle Controls' primary manufacturing and assembly facility is located in East Aurora, New York. Industrial Controls' principal manufacturing facilities are located in East Aurora, New York, Germany, Luxembourg and Japan. The Company's headquarters are located in East Aurora, New York. The Company believes that its properties have been adequately maintained and are generally in good condition. The Company believes that its existing facilities will provide sufficient production capacity for its needs in the foreseeable future. Operating leases expire at varying times from December 1999 through November 2013. Upon the expiration of its current leases, the Company believes that it will be able to either secure renewal terms or enter into leases for alternative locations or market terms. ITEM 3. LEGAL PROCEEDINGS. From time to time, the Company is named as a defendant in legal actions arising in the normal course of business. The Company is not a party to any pending legal proceedings which management believes will result in a material adverse effect on the Company's financial condition, liquidity or results of operations or to any pending legal proceedings other than ordinary, routine litigation related to its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Dividend restrictions are detailed in Note 6 on page 37 of Item 8. Other information required herein is incorporated by reference to pages 24, 48 and 50. ITEM 6. SELECTED FINANCIAL DATA - NOTES AND DISCUSSION. Refer to the table on the following page for the Selected Financial Data for the five year fiscal period 1995 - 1999. For a more detailed discussion of 1997 through 1999 refer to Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 25 through 30 and Notes to Consolidated Financial Statements on pages 35 through 43. ITEM 6. SELECTED FINANCIAL DATA. (dollars in thousands except per share data)
FISCAL YEARS 1999(1) 1998(2) 1997(3) 1996 1995 _______________________________________________________________________________________________ RESULTS FROM OPERATIONS Net sales $ 630,034 $ 536,612 $ 455,929 $ 407,237 $ 374,284 Earnings before extraordinary loss $ 24,431 $ 19,268 $ 13,606 $ 11,219 $ 7,761 Net earnings $ 24,431 $ 19,268 $ 13,606 $ 10,709 $ 7,761 Per share Earnings before extraordinary loss Basic $ 2.74 $ 2.33 $ 1.95 $ 1.51 $ 1.00 Diluted $ 2.70 $ 2.26 $ 1.88 $ 1.47 $ .99 Net earnings Basic $ 2.74 $ 2.33 $ 1.95 $ 1.44 $ 1.00 Diluted $ 2.70 $ 2.26 $ 1.88 $ 1.40 $ .99 ________________________________________________________________________________________________ FINANCIAL POSITION Total assets $ 798,476 $ 559,325 $ 490,563 $ 449,558 $ 424,957 Working capital 224,967 226,190 187,521 187,971 166,985 Indebtedness - senior 256,110 85,614 118,245 91,262 170,361 - senior subordinated 120,000 120,000 120,000 120,000 19,400 Shareholders' equity 211,770 191,008 114,191 104,743 108,636 Shareholders' equity per common share outstanding 23.77 21.38 16.18 15.01 14.06 ________________________________________________________________________________________________ SUPPLEMENTAL FINANCIAL DATA Capital expenditures $ 26,439 $ 22,688 $ 13,713 $ 10,885 $ 10,232 Depreciation and amortization 30,602 22,665 21,267 19,632 19,675 R&D - Company funded 33,306 27,487 17,798 17,303 15,783 - customer funded 14,367 15,440 14,071 24,411 21,603 Backlog 336,857 314,253 280,364 243,310 237,941 ________________________________________________________________________________________________ ADDITIONAL DATA Number of employees 4,699 4,073 3,657 3,229 3,003 Number of shareholders - Class A 1,520 1,610 1,722 1,904 2,114 - Class B 713 751 810 898 966 ________________________________________________________________________________________________ RATIOS Net return on sales 3.9% 3.6% 3.0% 2.6% 2.1% Return on shareholders' equity 12.1% 12.6% 12.4% 10.0% 7.4% Current ratio 2.24 2.87 2.75 2.89 2.76 Debt to shareholders' equity 1.78 1.08 2.09 2.02 1.75 Long-term senior debt to capitalization(4) 40.9% 20.4% 30.3% 25.6% 55.5% Long-term debt to capitalization(4) 62.3% 51.1% 66.0% 65.3% 61.8% __________________________________________________________________________________________ (1) Includes the effects of the fiscal 1999 acquisitions of Montek and the Acquired Industrial Businesses and the related financing. See Notes 2 and 6 to the Consolidated Financial Statements. (2) Includes the effects of the Class A common stock offering completed in February 1998. See Note 9 to the Consolidated Financial Statements. (3) Includes the effects of the October 1996 acquisition of the industrial hydraulic servocontrols business of International Motion Control Inc. (4) Capitalization is equal to total long-term debt, excluding current maturities, and shareholders' equity.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW Moog Inc. is a leading worldwide designer and manufacturer of a broad range of high performance precision motion and fluid control products and systems for aerospace and industrial markets. The Company is organized into three operating groups. Aircraft Controls designs and produces technologically advanced flight and engine controls for manufacturers of commercial and military aircraft. Moog has supplied high performance servoactuators to move flight control surfaces on almost every U.S. military aircraft since the 1950's. The Company recently began initial production on the F/A-18E/F Super Hornet, the V-22 Osprey and Japanese F-2, as well as delivery of flight and engine control actuation for the Joint Strike Fighter concept demonstrator aircraft. The Company supplies controls to Boeing for its 7-series commercial airplanes as well as to Airbus, Raytheon, Lockheed Martin and Bombardier, among others. Satellite and Launch Vehicle Controls designs and manufactures motion, fluid and propellant controls and systems to control the flight, positioning or thrust of satellites, solar panels and antennae, launch vehicles and tactical and strategic missiles. Customers for the Company's products include Alliant, Lockheed Martin, DaimlerChrysler, Raytheon and Boeing. Significant programs include the Titan IV and Delta family of launch vehicles, National Missile Defense and numerous satellite programs. Industrial Controls manufactures hydraulic and electric controls used in a wide variety of industrial applications requiring the precise control of position, velocity and force. Moog believes it is the world's market leader in industrial servovalves. Applications for hydraulic controls include plastic injection and blow molding machines, steam and gas turbines, steel rolling mills and fatigue testing machines. In the field of power generation, Moog is the leading servovalve supplier to GE and its licensees and to Siemens Westinghouse. Applications for electric controls range from the motion simulators on MCA- Universal's Spiderman theme park attraction and electric drive systems for gun and turret positioning and ammunition-loading on military ground vehicles to controls for plastic injection and blow molding machines. On October 30, 1998, the Company acquired a 75% shareholding of Hydrolux SARL, a Luxembourg manufacturer and designer of hydraulic power control systems for industrial machinery from Paul Wurth SARL. As part of the transaction, the Company increased its ownership to 75% of Moog-Hydrolux Hydraulic Systems, Inc. (Moog-Hydrolux), a joint venture the Company formed in fiscal 1996 with Hydrolux SARL to serve the North American market. The Company previously owned 50% of Moog-Hydrolux. After the transaction, Paul Wurth SARL owns the remaining 25% minority interest in Hydrolux SARL and Moog-Hydrolux. The purchase price was $8.2 million in cash, plus the assumption of $6.4 million of debt. On November 30, 1998, the Company completed the acquisition from Raytheon Aircraft Company of all the outstanding common stock of Raytheon Aircraft Montek Company (Montek) for approximately $160 million in cash. Montek, located in Salt Lake City, Utah, supplies flight controls to the Boeing Commercial Airplane Group and manufacturers of regional and business jets. Montek also produces steering controls for tactical missiles and servovalves for both industrial and aerospace applications. On December 3, 1998, the Company acquired a 66-2/3% shareholding in Microset Srl, an Italian manufacturer and designer of electronic controls for industrial machinery for $3.5 million in cash. Hydrolux SARL, Moog-Hydrolux and Microset Srl are referred to as the Acquired Industrial Businesses. Effective with the first quarter of 1999, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 131, `Disclosures about Segments of an Enterprise and Related Information,' which requires financial information to be reported on the basis that is used by management for evaluating segment performance and deciding how to allocate resources to segments. The Company's reportable segments under SFAS No. 131 are Aircraft Controls, Satellite and Launch Vehicle Controls and Industrial Controls. The determination of the Company's reportable segments was based on an analysis of the organizational structure of the Company and its products, as well as markets served. Prior periods' information has been presented to conform to the new presentation of segment information. 1999 COMPARED WITH 1998 CONSOLIDATED. Sales for 1999 were $630 million, up 17% from $537 million in 1998. The current year acquisition of Montek accounted for the majority of the increase. In the ten months since the acquisition, Montek had $78 million in sales, the majority of which were controls for aircraft. Sales in 1999 also included incremental sales of the Acquired Industrial Businesses totaling $24 million. Excluding the impact of acquisitions, sales decreased by $13 million due to the winding down of the B-2 bomber and F-15 fighter aircraft programs along with declines in deliveries to Boeing, due to their reduced production rates. Cost of sales in 1999 was 68.6% of sales compared with 69.7% of sales in 1998. The improvement is due to a favorable product mix of sales in 1999 resulting from a greater share of aircraft flight control aftermarket sales along with a greater proportion of work on higher margin launch vehicle and tactical missile programs. This improvement was offset by higher cost of sales as a percentage of sales (1.4 percentage points) associated with the Acquired Industrial Businesses and the satellite controls business. Research and development expenses increased by $6 million in 1999 to $33 million, or 5.3% of sales. Approximately half of the dollar increase was associated with the development of next generation flight controls. The current year acquisitions and efforts in Industrial Controls related to developing the next generation direct drive valve and turbine products accounted equally for the remainder of the increase. Selling, general and administrative (SG&A) expenses were $100 million in 1999 compared to $85 million in 1998 while as a percentage of sales, SG&A remained at 15.9% of net sales. The 1999 acquisitions accounted for over 70% of the absolute dollar increase. Interest expense increased $8 million in 1999 to $28 million due to significantly higher average outstanding borrowings resulting from the indebtedness incurred to finance the first quarter acquisitions. The Company's effective tax rate for 1999 was 33.5% compared to 35.5% a year ago. The current year tax rate reflects higher foreign tax credit benefits resulting from distributions from the Company's German subsidiary. For 1999, net earnings increased 27% to $24.4 million compared with $19.3 million in 1998. Basic EPS increased to $2.74 in 1999 compared to $2.33 in 1998, while diluted EPS increased to $2.70 in 1999 compared to $2.26 last year.
___________________________________________________________________________ MOOG INC. Results of Operations ___________________________________________________________________________ Fiscal Years Ended ___________________________________________________________________________ September 25, September 26, September 27, (dollars in millions) 1999 1998 1997 ___________________________________________________________________________ SALES Aircraft Controls $ 302 $ 254 $ 226 Satellite and Launch Vehicle Controls 110 94 66 Industrial Controls 218 189 164 _________ _________ _________ Total sales $ 630 $ 537 $ 456 ========= ========= ========= OPERATING PROFIT AND MARGINS Aircraft Controls $ 37 $ 29 $ 31 12.2% 11.4% 14.0% Satellites and Launch Vehicle Controls 13 10 9 11.7% 10.4% 13.8% Industrial Controls 23 20 11 10.8% 10.8% 6.5% _________ _________ _________ Total operating profit $ 73 $ 59 $ 51 ========= ========= ========= BACKLOG Aircraft Controls $ 192 $ 179 $ 174 Satellite and Launch Vehicle Controls 85 77 55 Industrial Controls 60 58 51 _________ _________ _________ Total backlog $ 337 $ 314 $ 280 ========= ========= =========
AIRCRAFT CONTROLS. Sales in Aircraft Controls increased 19% to $302 million in 1999 as compared to $254 million in 1998. The acquisition of Montek provided significant growth to Aircraft Controls sales and contributed to operating margin improvement during 1999. For the ten months since the acquisition, Montek contributed $63 million to Aircraft Controls sales. Approximately 80% of Montek's aircraft controls' book of business relates to controls for commercial airplane applications, primarily the Boeing 7-series airplanes. Also contributing to the overall sales improvement was an increase of $20 million in aftermarket sales from the Company's pre-acquisition businesses, primarily related to controls for military applications. These increases were offset by anticipated declines in sales on the B-2 bomber and F- 15 fighter aircraft programs, as they near completion, and pre- acquisition Boeing OEM business. The Company recently began initial production on the F/A-18E/F Super Hornet and the V-22 Osprey, which over the long-term, will help offset the completion of the F-15 and B-2 programs. Although the Company's total Boeing OEM business increased in 1999 due to the Montek acquisition, reduced production rates of the 747 and 777 slowed deliveries of pre-acquisition products to Boeing. Operating margins for Aircraft Controls were 12.2% in 1999 compared to 11.4% in 1998. The main reason for the margin improvement is the acquisition of Montek, which has higher margins than the Company's pre-acquisition operations. The higher margins reflect Montek's book of business containing a greater percentage of aftermarket sales, which typically carry higher margins than sales to OEMs. For the ten months since its acquisition, 38% of Montek's sales related to spares, parts and repair services. Including the acquisition, Aircraft Controls aftermarket sales represented 33% of total sales in 1999 compared to 21% in 1998. This improvement was tempered by $3 million of increased research and development costs associated with the development of next generation flight controls. Backlog for Aircraft Controls was $192 million at September 25, 1999 compared to $179 million at September 26, 1998. The increase is due to the acquisition of Montek, offset by lower pre-acquisition business resulting from production rate declines at Boeing and certain military programs winding down. Backlog consists of that portion of open orders for which sales are expected to be recognized over the next twelve months. SATELLITE AND LAUNCH VEHICLE CONTROLS. Sales in Satellite and Launch Vehicle Controls were $110 million in 1999, up 18% from $94 million in 1998. Sales of controls for tactical missiles increased $12 million in the current year with 88% of that increase resulting from the acquisition of Montek for controls on the Hellfire, TOW and Popeye tactical missile programs. On the strength of the Titan IV, Delta family of launch vehicles and the National Missile Defense system, sales of launch vehicle steering controls increased $11 million. These increases were offset by lower sales of satellite controls due to a general softness in the satellite market. Operating margins for Satellite and Launch Vehicle Controls were 11.7% in 1999 compared to 10.4% in 1998. Operating margins for launch vehicle and tactical missile products improved 50% as the mix in 1999 favored more mature production programs and significant expenditures were made in 1998 on launch vehicle development programs. These favorable developments were mostly offset by lower sales and margins that deteriorated in satellite controls, which represents 20% of the group's sales. Backlog for Satellite and Launch Vehicle Controls was $85 million at September 25, 1999 compared to $77 million at September 26, 1998. The increase relates to controls for tactical missiles resulting from the acquisition of Montek. INDUSTRIAL CONTROLS. Sales in Industrial Controls increased 15% to $218 million in 1999 from $189 million in 1998. The Acquired Industrial Businesses accounted for $24 million with Hydrolux Sarl and Moog-Hydrolux adding $21 million in sales of hydraulic controls and Microset contributing $3 million in sales of electric controls. Montek, which produces industrial servovalves, accounted for the remainder of the Industrial Controls' sales increase. Operating margins for Industrial Controls were 10.8% in 1999 and 1998. An increase in margins of 2.5 percentage points in the Company's pre-acquisition businesses is attributable to favorable product mix resulting from higher sales of electric controls for military ground vehicles and industrial hydraulic controls in Europe. This increase was offset by losses incurred by the Acquired Industrial Businesses reflecting lower than anticipated sales due to a downturn in the injection molding machinery market. Backlog for Industrial Controls was $60 million at September 25, 1999 compared to $58 million at September 26, 1998. Decreases in orders for controls for military ground vehicles and entertainment simulators offset backlog associated with the Acquired Industrial Businesses and Montek. 1998 COMPARED WITH 1997 CONSOLIDATED. Net sales for 1998 increased 18% to $537 million as compared to $456 million in 1997. Sales in Aircraft Controls increased $28 million reflecting higher sales of controls for the Boeing 7-series airplanes, regional and business jets, the F-15 fighter aircraft and military programs entering initial production. Within Satellite and Launch Vehicle Controls, the February 1998 Schaeffer acquisition, which contributed approximately $14 million in sales, and increased launch vehicle activity resulted in a $28 million increase in sales. Sales in Industrial Controls increased $25 million led by higher volumes of controls for turbines, electric controls for military ground vehicles and entertainment simulators. Cost of sales in 1998 was 69.7% of sales compared with 69.2% in 1997. Approximately $2 million was incurred in Satellite and Launch Vehicle Controls associated with certain manufacturing issues including a defect on a propulsion system isolation valve and unfavorable cost experience on a fixed-price development contract for the Atlas Centaur launch vehicle program. In addition, margins declined due to an unfavorable product mix towards lower margin development and production programs related to commercial airplane applications. Research and development expenditures increased by $10 million in 1998 to $28 million, or 5.1% of net sales, primarily due to $7 million of additional effort related to the development of next generation flight controls within Aircraft Controls and, to a lesser extent, activity in Satellite and Launch Vehicle Controls related to various satellite constellations. Selling, general and administrative expenses were $85 million, or 15.9% of net sales, in 1998, compared to $82 million, or 17.9%, in 1997. The decrease as a percentage of sales was primarily due to growth in sales, in addition to a shift of costs (approximately $2 million) to production and research and development activities in 1998 from related bid and proposal work in 1997 within Aircraft Controls, which was recorded in SG&A. Interest expense decreased by $3 million to $20 million in 1998, as compared to 1997. The decline is due to lower average borrowings outstanding resulting from the use of proceeds from the equity offering completed in February 1998. The effective tax rate for 1998 was 35.5% compared with 30.5% in 1997. The 1997 tax rate was unusually low due to substantial foreign tax credit benefits resulting from the distribution of earnings from the Company's German subsidiary, and a higher share of 1997 earnings being generated in countries with lower tax rates. For 1998, net earnings increased 42% to $19.3 million compared with $13.6 million in 1997. Basic EPS increased to $2.33 in 1998 compared to $1.95 in 1997, while diluted EPS increased to $2.26 in 1998 compared with $1.88 in 1997. AIRCRAFT CONTROLS. Sales for Aircraft Controls increased 12% to $254 million in 1998 compared to $226 million in 1997. Initial production of controls for the V-22 Osprey and F/A-18E/F military programs added $14 million to 1998 sales while increased production rates on the Boeing 7-series airplanes improved 1998 sales by $9 million. The majority of the remaining increase was due to increased volume for secondary and leading edge actuation on the F-2 and F-15 fighter aircraft. Operating margins for Aircraft Controls in 1998 were 11.4% compared to 14.0% in 1997. The decrease is the result of $7 million in increased research and development expenses incurred in 1998 related to the development of next generation flight controls. Backlog for Aircraft Controls at September 26, 1998 was $179 million compared to $174 million at September 27, 1997. SATELLITE AND LAUNCH VEHICLE CONTROLS. Sales for Satellite and Launch Vehicle Controls increased 42% to $94 million in 1998 from $66 million in 1997. The increase was due to increased launch vehicle activity, which added $15 million in sales, the acquisition of Schaeffer, which contributed $14 million in incremental revenues, and $9 million of increased sales of controls for tactical missiles. These increases helped offset a sales decline in satellite propulsion hardware related to reduced incoming order activity associated with customers' high inventory levels and the slowdown in the Asian-Pacific economies. Launch vehicle activity during 1998 was strong particularly on the Atlas Centaur, Kistler commercial launch vehicle and Titan IV programs. Operating margins for Satellite and Launch Vehicle Controls were 10.4% in 1998 compared to 13.8% in 1997. Approximately half of the decrease was associated with certain manufacturing issues including a defect on a propulsion system isolation valve and unfavorable cost experience on a fixed-price development contract for the Atlas Centaur launch vehicle. The remaining decrease is primarily due to increased research and development activities related to various satellite constellations. Backlog for Satellite and Launch Vehicle Controls was $77 million at September 26, 1998 compared with $55 million at September 27, 1997. The increase is due primarily to launch vehicles, in particular the Titan IV program, and the Schaeffer acquisition, which added approximately $10 million. Industrial Controls. Sales for Industrial Controls increased 15% to $189 million in 1998 compared to $164 million in 1997 despite lower average currency values, particularly in Germany and the Asian-Pacific. Sales in 1998, at constant dollars, increased 20%, or $33 million. In the United States, sales of controls for hydraulic applications increased $10 million on growth in controls for turbines, flight training simulators and material testing equipment. Higher volumes for entertainment simulators and controls for carpet tufting equipment and military ground vehicles helped increase sales of controls for electric applications by $7 million. Internationally, sales growth of $16 million was primarily in Germany. Approximately $11 million of the increase was due to higher volume in controls for hydraulic applications, principally turbine and plastics controls, and $5 million related to increased volume of electric controls for military ground vehicles. Operating margins for Industrial Controls were 10.8% in 1998 compared to 6.5% in 1997. The increase was due primarily to higher sales allowing for better absorption of fixed costs. In addition, approximately $2 million of write-offs and transition costs were incurred in 1997 to allow the Company to compete more effectively in markets for electric controls. Backlog for Industrial Controls at September 26, 1998 was $58 million compared to $51 million at September 27, 1997. The increase from a year ago is attributable to growth in orders for electric controls for military ground vehicles and controls for hydraulic applications in Europe. FINANCIAL CONDITION AND LIQUIDITY In connection with the acquisition of Montek, the Company refinanced its U.S. credit facilities. Effective November 30, 1998, the Company entered into a $340 million Corporate Revolving and Term Loan Agreement (Credit Facility) with a banking group. The Credit Facility provides a $265 million revolving facility and a $75 million term loan with interest starting at LIBOR plus 200 basis points, with the spread adjusted based on leverage. The Credit Facility is for a five year period with quarterly principal payments on the term loan of $3.75 million, which commenced in March 1999. The Credit Facility is secured by substantially all of the Company's U.S. assets. The loan agreement includes customary covenants for a transaction of this nature, including maintaining various financial ratios. The Credit Facility was used primarily to acquire Montek and to refinance approximately $72 million of existing revolving credit facilities with the remaining balance available for future working capital requirements. Cash on hand at September 25, 1999 was $10 million. Cash provided by operating activities was $43 million in 1999 compared to $23 million a year ago. The increase in cash from operations is due primarily to improved earnings as adjusted for non-cash charges and lower growth in working capital, specifically with respect to receivables and inventories. The Company expects cash from operations in 2000 to be comparable with 1999. Long-term debt increased $150 million to $349 million at September 25, 1999. The percentage of long-term debt to capitalization increased to 62.3% from 51.1% at September 26, 1998. These increases are a direct result of financing the first quarter acquisitions. At September 25, 1999, the Company had $106 million of unused borrowing capacity under short and long-term lines of credit, including $92 million from the Credit Facility. Net property, plant and equipment increased $50 million to $189 million at September 25, 1999 from $13 million at September 26, 1998. The current year acquisitions added approximately $43 million to net property, plant and equipment. Capital expenditures in 1999 were $26 million compared with depreciation and amortization of $31 million. Capital expenditures in 1998 were $23 million compared to depreciation and amortization of $23 million. Capital expenditures in 2000 are expected to be approximately $24 million. The Company believes its cash on hand, cash flows from operations and available borrowings under short and long-term lines of credit, will continue to be sufficient to meet its operating needs. YEAR 2000 As the end of the century nears, there is widespread concern around the world that many existing computer programs that use only the last two digits to refer to a year will not properly recognize a year that begins with digits '20' instead of '19.' If not corrected, the concern is that many computer applications might fail, creating erroneous results or cause unanticipated system failures, among other problems. In fiscal 1996 the Company initiated activities, including designating a Year 2000 project team to be responsible for specific information technology (IT) environments, to ensure its Year 2000 readiness. In addition, communications were made to all non-IT functional areas to initiate a process of review and remediation of Year 2000 issues in those areas. The main business system, which encompasses manufacturing, engineering and accounting and is used by approximately 80% of the Company, has been reviewed and tested and is considered to be Year 2000 compliant. However certain auxiliary business applications required changes to ensure Year 2000 compliance, the most significant of which involved the Company's Human Resource Information System which was put in place and was operational on October 1, 1999 and cost approximately $1 million. The costs associated with remediating the remaining auxiliary business applications were not material. The Company also evaluated and tested product systems (i.e., CAD/CAM systems), personal computing, data entry and communication hardware and software and systems associated with facilities management. Although certain upgrades or replacements were made, many were previously scheduled and the timing was not materially impacted by the Year 2000 issue. The Year 2000 costs associated with these systems were not material. The Company uses large computerized numerical control (CNC) machines, which are critical to the manufacturing process. Confirmation of Year 2000 compliance with respect to these machines has been obtained from the Company's vendors. The Company also sent letters to its critical vendors who provide materials, supplies and components inquiring about their Year 2000 efforts. Only a small portion of the Company's products contain embedded processors or depend upon date logic. With respect to those that do, the Company identified certain software that required upgrading or replacement, which has been completed. The cost of upgrading or replacement was not material. The Company has completed remedial activity as it relates to the systems deemed critical. Activities related to less critical operations, which will continue until the end of 1999, include the installation of compliant releases of desktop, voice mail, data entry software and monitoring the progress of any critical suppliers who are still working to complete their Year 2000 plans. The cost associated with these activities is not expected to be material. The Company has contingency plans that address specific critical operations that are not expected, or likely, to experience problems. The contingency plans include the use of backup systems as well as manual processes to ensure continuity of business operations. The Company believes that it is taking the necessary steps to ensure the Year 2000 issue will not pose significant operational problems for the Company. However there can be no assurance that the Year 2000 issue will not materially impact the Company's results of operations or adversely affect relationships with customers, vendors and others. The Company believes the greatest potential risk from the Year 2000 issue relates to suppliers or customers whose systems may not be Year 2000 compliant and who may not be able to accept shipment of the Company's products until they correct their Year 2000 problems. OUTLOOK Sales in 2000 are expected to increase modestly in each of the Company's three operating groups. Aircraft Controls should continue to see increases in production rates on the F/A-18E/F while a full year of Montek and new commercial aircraft business awarded by Boeing will offset the decline in the commercial aircraft production rate at Boeing that began in 1999. Satellite and Launch Vehicle Controls sales are expected to grow on increased revenues from the National Missile Defense program and involvement on the Space Station. Sales of Industrial Controls are expected to grow on the continuing strength of turbine controls and metal-forming and a recovery in sales of servovalves to the plastics industry. In addition, Industrial Controls should benefit from new product introductions and partnering arrangements with some well-established suppliers of motion control devices. Operating margins are expected to improve as the Company continues the process of improving the cost structures related to the businesses acquired in 1999 as well as satellite control products. The Company is also focusing on its other operations to ensure their cost structures are appropriate in relation to expected sales while allowing for continued margin improvement. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company, in the normal course of business, has exposures to interest rate risks from its long-term debt obligations and foreign exchange rate risk with respect to its foreign operations and from foreign currency transactions. To minimize these risks, the Company periodically enters into interest rate swaps and forward contracts. The Company does not hold or issue financial instruments for trading purposes. In connection with the Montek acquisition and refinancing of the Company's U.S. credit facilities, the Company's borrowings under variable interest rate facilities have increased by $164 million to $238 million at September 25, 1999. The Credit Facility under which the borrowings are outstanding has an interest rate of LIBOR plus 200 basis points. In order to provide for interest rate protection, the Company has entered into interest rate swap agreements for $80 million, effectively converting this amount into fixed rate debt at 7.05%. If LIBOR were to change by 10%, the impact on consolidated interest expense from the Company's floating rate debt would be approximately $1 million annually. The majority of the Company's sales, expenses and cash flows are transacted in U.S. dollars. The Company does have some market risk exposure with respect to changes in foreign currency exchange rates primarily as it relates to the value of the U.S. dollar versus the British Pound, the Japanese Yen and the Euro. If foreign exchange rates were to collectively weaken against the U.S. dollar by 10%, net earnings would be reduced by approximately $1 million related to currency exchange rate translation exposures and $.5 million related to pressures on operating margins for products sourced in non-U.S. countries. The Company periodically uses forward contracts to reduce fluctuations in foreign currency cash flows related to third party raw material purchases, intercompany product shipments and intercompany loans. The Company periodically uses forward contracts to reduce fluctuations in the value of foreign currency investments in, and long-term advances to, subsidiaries. At September 25, 1999 there were no contracts outstanding. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, ' Accounting for Derivative Instruments and Hedging Activities,' which must be adopted by fiscal 2001. Under this standard, companies are required to carry all derivatives in the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. The Company is in the process of evaluating the impact this standard will have on its financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ___________________________________________________________________________ MOOG INC. Consolidated Statements of Earnings ___________________________________________________________________________ Fiscal Years Ended _____________________________________________________ September 25, September 26, September 27, 1999 1998 1997 (dollars in thousands except per share data) ___________________________________________________________________________ NET SALES $ 630,034 $ 536,612 $ 455,929 OTHER INCOME 1,597 1,447 1,565 ___________ ___________ ___________ 631,631 538,059 457,494 ___________ ___________ ___________ COSTS AND EXPENSES Cost of sales 432,033 374,000 315,380 Research and development 33,306 27,487 17,798 Selling, general and administrative 100,023 85,374 81,413 Interest 28,188 20,148 22,675 Other expenses 1,353 1,177 649 ___________ ___________ ___________ 594,903 508,186 437,915 ___________ ___________ ___________ EARNINGS BEFORE INCOME TAXES 36,728 29,873 19,579 INCOME TAXES (Note 7) 12,297 10,605 5,973 ___________ ___________ ___________ NET EARNINGS $ 24,431 $ 19,268 $ 13,606 =========== =========== =========== NET EARNINGS PER SHARE (Note 1) Basic $ 2.74 $ 2.33 $ 1.95 Diluted $ 2.70 $ 2.26 $ 1.88 ___________________________________________________________________________ See accompanying Notes to Consolidated Financial Statements.
___________________________________________________________________________ MOOG INC. Consolidated Balance Sheets ___________________________________________________________________________ As of As of (dollars in thousands except September 25, September 26, per share data) 1999 1998 ___________________________________________________________________________ ASSETS CURRENT ASSETS Cash and cash equivalents $ 9,780 $ 11,625 Receivables (Note 3) 212,279 182,228 Inventories (Note 4) 152,246 121,784 Deferred income taxes (Note 7) 29,097 22,289 Prepaid expenses and other current assets 3,413 9,151 _________ __________ TOTAL CURRENT ASSETS 406,815 347,077 PROPERTY, PLANT AND EQUIPMENT (Notes 5 and 6) 188,918 139,444 GOODWILL, net of accumulated amortization of $15,328 in 1999, and $10,117 in 1998 (Note 2) 184,368 60,025 OTHER ASSETS 18,375 12,779 _________ __________ TOTAL ASSETS $ 798,476 $ 559,325 ========= ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable (Note 6) $ 5,831 $ 410 Current installments of long-term debt (Note 6) 20,787 5,505 Accounts payable 36,373 25,648 Accrued salaries, wages and commissions 39,167 36,338 Contract loss reserves 24,741 10,448 Accrued interest 10,587 8,050 Federal, state and foreign income taxes 9,181 6,838 Other accrued liabilities 27,347 17,746 Customer advances 7,834 9,904 _________ __________ TOTAL CURRENT LIABILITIES 181,848 120,887 LONG-TERM DEBT, excluding current installments (Note 6) Senior debt 229,492 79,699 Senior subordinated notes 120,000 120,000 OTHER LONG-TERM LIABILITIES (Notes 7 and 8) 55,366 47,731 _________ __________ TOTAL LIABILITIES 586,706 368,317 _________ __________ COMMITMENTS AND CONTINGENCIES (Note 12) SHAREHOLDERS' EQUITY (see page 34 and Note 9) 9% Series B Cumulative, Convertible, Exchangeable Preferred stock - Par Value $1.00 Authorized 200,000 shares. Issued 100,000 shares. 100 100 Common Stock - Par Value $1.00 Class A- Authorized 30,000,000 shares. Issued 8,427,311 shares in 1999 and 8,427,141 shares in 1998. 8,427 8,427 Class B- Authorized 10,000,000 shares. Convertible to Class A on a one for one basis. Issued 2,461,812 shares in 1999 and 2,461,982 shares in 1998. 2,462 2,462 Additional paid-in capital 102,778 102,306 Retained earnings 132,104 107,681 Treasury shares (32,589) (30,511) Accumulated other comprehensive income (loss) (1,512) 614 Loan to Savings and Stock Ownership Plan - (71) __________ _________ TOTAL SHAREHOLDERS' EQUITY 211,770 191,008 __________ _________ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 798,476 $ 559,325 ___________________________________________________________________________ See accompanying Notes to Consolidated Financial Statements.
__________________________________________________________________________________________ MOOG INC. Consolidated Statements of Cash Flows __________________________________________________________________________________________ Fiscal Years Ended ___________________________________________________________ September 25, September 26, September 27, (dollars in thousands) 1999 1998 1997 _________________________________________________________________________________________ CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 24,431 $ 19,268 $ 13,606 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 30,602 22,665 21,267 Provisions for losses 8,466 10,974 9,763 Deferred income taxes 2,110 (3,200) (2,094) Other (71) 146 755 Change in assets and liabilities providing (using) cash, excluding the effects of acquisitions: Receivables (736) (19,590) (10,084) Inventories (12,156) (20,124) (4,479) Other assets (2,478) (320) (1,652) Accounts payable and accrued liabilities (5,531) 12,403 2,745 Other liabilities 63 524 3,810 Customer advances (2,023) 615 (1,607) __________ __________ __________ NET CASH PROVIDED BY OPERATING ACTIVITIES 42,677 23,361 32,030 __________ __________ __________ CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions and investments, net of cash acquired (Note 2) (171,710) (20,983) (49,180) Acquisition of minority interest (Note 2) (2,133) -- -- Purchase of property, plant and equipment (25,866) (22,527) (12,982) Proceeds from sale of assets (Note 5) 3,379 328 393 Payments received, net of advances, on loan to Savings and Stock Ownership Plan 71 923 (493) _________ _________ ________ NET CASH USED IN INVESTING ACTIVITIES (196,259) (42,259) (62,262) _________ _________ ________ CASH FLOWS FROM FINANCING ACTIVITIES Net repayments of notes payable (219) (477) (1,913) Proceeds from revolving lines of credit 258,700 126,151 97,000 Payments on revolving lines of credit (166,000) (128,417) (71,000) Proceeds from issuance of long-term debt 77,219 4,736 18,684 Payments on long-term debt (15,329) (33,843) (14,825) Net proceeds from the sale of common stock (Note 9) -- 56,658 -- Purchase of outstanding shares for treasury (2,815) (2,145) (428) Proceeds from sale of treasury stock 503 2,295 1,123 Other (8) (1,289) (836) _________ _________ ________ NET CASH PROVIDED BY FINANCING ACTIVITIES 152,051 23,669 27,805 _________ _________ ________ Effect of exchange rate changes on cash and cash equivalents (314) 54 (412) _________ _________ ________ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,845) 4,825 (2,839) Cash and cash equivalents at beginning of year 11,625 6,800 9,639 _________ _________ ________ Cash and cash equivalents at end of year $ 9,780 $ 11,625 $ 6,800 __________________________________________________________________________________________ See Note 11 for Supplemental Cash Flow Information. See accompanying Notes to Consolidated Financial Statements.
MOOG INC. Consolidated Statements of Shareholders' Equity __________________________________________________________________________________________ Fiscal Years Ended _____________________________________________________ (dollars in thousands September 25, September 26, September 27, except per share data) 1999 1998 1997 _________________________________________________________________________________________ PREFERRED STOCK $ 100 $ 100 $ 100 __________ __________ __________ COMMON STOCK Beginning of year 10,889 9,134 9,134 Sale of common stock (Note 9) -- 1,755 -- __________ __________ __________ End of year 10,889 10,889 9,134 ADDITIONAL PAID-IN CAPITAL Beginning of year 102,306 47,519 47,611 Sale of common stock, net of issuance costs (Note 9) -- 54,903 -- Issuance of treasury shares at less than cost (234) (306) (141) Tax benefits related to stock option plan 706 190 49 __________ __________ __________ End of year 102,778 102,306 47,519 __________ __________ __________ RETAINED EARNINGS Beginning of year 107,681 88,422 74,825 Net earnings 24,431 19,268 13,606 Preferred dividends ($.09 per share in 1999, 1998 and 1997) (8) (9) (9) __________ __________ __________ End of year 132,104 107,681 88,422 __________ __________ __________ TREASURY SHARES, AT COST* Beginning of year (30,511) (30,967) (31,803) Shares issued related to options (1999 - 53,000 Class A shares; 1998 - 99,750 Class A shares and 85,000 Class B shares; 1997 - 50,150 Class A shares and 44,912 Class B shares) 636 2,451 1,264 Shares purchased (1999 - 14,858 Class A shares and 65,115 Class B shares; 1998 - 57,343 Class A shares and 8,817 Class B shares; 1997 - 17,321 Class A shares and 410 Class B shares)(2,815) (2,145) (428) Shares sold to Savings and Stock Ownership Plan (SSOP) (1999 - 2,857 Class B shares; 1998 - 3,300 Class A shares) 101 150 -- __________ __________ __________ End of year (32,589) (30,511) (30,967) __________ __________ __________ ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)** Beginning of year 614 977 5,377 Adjustment from foreign currency translation (2,126) (363) (4,400) __________ __________ __________ End of year (1,512) 614 977 __________ __________ __________ LOAN TO SSOP Beginning of year (71) (994) (501) Payments received on loan to SSOP, net of advances 71 923 (493) __________ __________ __________ End of year -- (71) (994) __________ __________ __________ TOTAL SHAREHOLDERS' EQUITY $ 211,770 $ 191,008 $ 114,191 __________ __________ __________ COMPREHENSIVE INCOME Net earnings $ 24,431 $ 19,268 $ 13,606 Adjustment from foreign currency translation (2,126) (363) (4,400) __________ __________ __________ Total comprehensive income $ 22,305 $ 18,905 $ 9,206 __________________________________________________________________________________________ * Class A Common Stock in treasury: 1,101,418 shares as of September 25, 1999; 1,140,514 shares as of September 26, 1998; 1,186,221 shares as of September 27, 1997. Class B Common Stock in treasury: 878,176 shares as of September 25, 1999; 815,918 shares as of September 26, 1998; 892,101 shares as of September 27, 1997. Preferred Stock in treasury: 16,229 shares as of September 25, 1999 (Note 9), and 5,117 shares as of September 26, 1998 and September 27, 1997. ** End of year balance consists solely of cumulative foreign currency translation. See accompanying Notes to Consolidated Financial Statements.
_________________________________________________________________ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) _________________________________________________________________ NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION: The consolidated financial statements include the accounts of Moog Inc. and all of its U.S. and foreign wholly- owned and majority-owned subsidiaries (the Company). All significant intercompany balances and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS: All highly liquid investments with an original maturity of three months or less are considered cash equivalents (Note 13). REVENUE RECOGNITION: Revenues are recognized as units are delivered except for those under long-term contracts. The percentage of completion (cost-to-cost) method of accounting is followed for long-term contracts, which comprise approximately half of the Company's sales. Under this method, revenues are recognized as the work progresses toward completion. Contract incentive awards affect earnings when the amounts can be determined. For contracts with anticipated losses at completion, the projected loss is accrued. INVENTORIES: Inventories are stated at the lower-of-cost-or- market with cost determined primarily on the first-in, first-out (FIFO) method of valuation. Consistent with industry practice, aerospace related inventories include amounts relating to contracts having long production and procurement cycles, portions of which are not expected to be realized within one year. FOREIGN CURRENCY TRANSLATION: Foreign subsidiaries' assets and liabilities are translated using rates of exchange as of the balance sheet date and the statements of earnings are translated at the average rates of exchange for the year. DEPRECIATION AND AMORTIZATION: Plant and equipment are depreciated principally using the straight-line method over the estimated useful lives of the assets. Leasehold improvements and assets under capital leases are amortized on a straight-line basis over the term of the lease or the estimated useful life of the asset, whichever is shorter. Intangibles associated with acquisitions are amortized on a straight-line basis over periods not to exceed 40 years. The Company monitors its long-lived assets, including intangibles, for evidence of impairment. In the event that such evidence exists, the Company uses forecasted discounted cash flow analysis to determine the amount of impairment. FINANCIAL INSTRUMENTS: The Company periodically uses derivative financial instruments for the purpose of hedging currency and interest rate exposures which exist as part of its ongoing business operations. In general, instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Deferred gains or losses related to any instrument designated but ultimately ineffective as a hedge of existing assets, liabilities, or firm commitments are recognized immediately in the statement of earnings. The interest differential to be paid or received on interest rate swaps is recognized in the consolidated statement of earnings, as incurred, as a component of interest expense. The Company does not hold or issue financial instruments for trading purposes. The Company is exposed to credit loss in the event of nonperformance by the counter-parties to the instruments. The Company, however, does not expect nonperformance by the counter-parties. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," which must be adopted by fiscal 2001. Under this standard, companies are required to carry all derivative instruments in the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. The Company is in the process of evaluating the impact this standard will have on its financial statements. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions. EARNINGS PER SHARE: Basic and diluted weighted-average shares outstanding are as follows: _________________________________________________________________ 1999 1998 1997 _________________________________________________________________ Basic weighted-average shares outstanding 8,927,369 8,281,974 6,979,011 Stock options 112,572 220,382 245,601 Convertible preferred stock 7,516 8,146 8,585 _________ _________ _________ Diluted weighted-average shares outstanding 9,047,457 8,510,502 7,233,197 _________________________________________________________________ Preferred stock dividends are deducted from net earnings to calculate income available to common stockholders for basic earnings per share. STOCK-BASED COMPENSATION: The Company measures compensation cost for stock options as the excess, if any, of the quoted market price of the Company's stock at the measurement date over the exercise price. NOTE 2 - ACQUISITIONS All of the Company's acquisitions are accounted for under the purchase method, and accordingly, the operating results for the acquired companies are included in the consolidated statements of earnings from the dates of acquisition. Purchase price allocations are considered preliminary until all relevant information has been obtained. This process generally occurs over a period of time, but not longer than a year from the acquisition date. On October 30, 1998, the Company acquired a 75% shareholding of Hydrolux SARL, a Luxembourg manufacturer and designer of hydraulic power control systems for industrial machinery from Paul Wurth SARL. As part of the transaction, the Company increased its ownership to 75% of Moog-Hydrolux Hydraulic Systems, Inc. (Moog-Hydrolux), a joint venture the Company formed in fiscal 1996 with Hydrolux SARL to serve the North American market. The Company previously owned 50% of Moog-Hydrolux. After the transaction, Paul Wurth SARL owns the remaining 25% minority interest in Hydrolux SARL and Moog-Hydrolux. The purchase price was $8,200 in cash, plus the assumption of $6,400 of debt. The acquisition resulted in intangible assets of approximately $3,300, which are being amortized over 20 years. On November 30, 1998, the Company completed the acquisition from Raytheon Aircraft Company of all the outstanding common stock of Raytheon Aircraft Montek Company (Montek) for approximately $160,000 in cash. Montek, located in Salt Lake City, Utah, supplies flight controls to the Boeing Commercial Airplane Group and manufacturers of regional and business jets. Montek also produces steering controls for tactical missiles and servovalves for both industrial and aerospace applications. The acquisition resulted in intangible assets of approximately $122,000, the majority of which are being amortized over 40 years. In addition to the customary business assets and liabilities, contract loss reserves of $21,800 related to development contracts on certain business jet programs were recorded, the majority of which will be utilized by the end of fiscal 2000. The Company established a $3,800 reserve for severance and other related costs associated with expected involuntary termination of employees. The Company finalized a formal plan for integrating the operations of Montek and informed the impacted employees. The plan provides for the termination of 178 employees from various functional areas of Montek and is expected to be completed by May 2001. At September 25, 1999, the balance of the reserve was reduced to $2,870 as a result of payments made. On December 3, 1998, the Company acquired a 66-2/3% shareholding in Microset Srl, an Italian manufacturer and designer of electronic controls for industrial machinery for $3,500 in cash. The acquisition resulted in intangible assets of approximately $3,000, which are being amortized over 30 years. Hydrolux SARL, Moog-Hydrolux and Microset Srl are referred to as the Acquired Industrial Businesses. The following summary, prepared on a proforma basis, combines the consolidated results of operations of the Company, Montek and the Acquired Industrial Businesses as if the acquisitions took place on September 28, 1997. The unaudited proforma results include the impact of certain adjustments, including amortization of intangibles and increased interest expense on acquisition debt, and related income tax effects. _________________________________________________________________ (Unaudited) September 25, 1999 September 26, 1998 _________________________________________________________________ Net sales $ 647,762 $ 650,914 Net earnings 24,028 20,055 Basic earnings per share $ 2.69 $ 2.42 Diluted earnings per share $ 2.66 $ 2.36 _________________________________________________________________ The unaudited proforma results are not necessarily indicative of what actually would have occurred if the acquisitions had been in effect for the periods presented. In addition, they are not intended to be a projection of future results. In fiscal 1999, the Company purchased the remaining 10% minority interest of Moog Japan Ltd. for $2,133. The impact of this acquisition on the Company's results of operations and financial condition is not significant. On February 3, 1998, the Company acquired the net assets of Schaeffer Magnetics, Inc. (Schaeffer). Schaeffer manufactures motion control devices and systems for solar panels and antennas to the space industry. The purchase price was $21,700. NOTE 3 - RECEIVABLES Receivables consist of: _________________________________________________________________ September 25, 1999 September 26, 1998 _________________________________________________________________ Long-term contracts: Amounts billed $ 41,274 $ 48,216 Unbilled recoverable costs and profits 102,311 77,661 Claims on terminated contracts 391 391 __________ __________ Total long-term contract receivables 143,976 126,268 Trade 67,069 57,599 Refundable income taxes 237 17 Other 3,414 1,244 __________ __________ Total receivables 214,696 185,128 Less allowance for doubtful accounts (2,417) (2,900) _________________________________________________________________ Receivables $ 212,279 $ 182,228 _________________________________________________________________ The long-term contract amounts are primarily associated with U.S. Government prime- and sub-contractors and major commercial aircraft manufacturers. Substantially all unbilled amounts are expected to be collected within one year. In situations where billings exceed revenues recognized, the excess is included in customer advances. Concentrations of credit risk with respect to trade receivables are mitigated due to the significant amount of business with large commercial aerospace companies or U.S. Government prime- and sub-contractors and to the number of customers and their dispersion over a large geographic region. NOTE 4 - INVENTORIES Inventories consist of the following: _________________________________________________________________ September 25, 1999 September 26, 1998 _________________________________________________________________ Raw materials and purchased parts $ 40,684 $ 37,404 Work in process 87,925 64,385 Finished goods 23,637 19,995 _________________________________________________________________ Inventories $ 152,246 $ 121,784 _________________________________________________________________ NOTE 5 - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of: _________________________________________________________________ September 25, 1999 September 26, 1998 _________________________________________________________________ Land $ 10,127 $ 6,936 Buildings and improvements 119,515 94,915 Machinery and equipment 275,640 234,519 __________ __________ Property, plant and equipment, at cost 405,282 336,370 Less accumulated depreciation and amortization (216,364) (196,926) _________________________________________________________________ Property, plant and equipment $ 188,918 $ 139,444 _________________________________________________________________ In fiscal 1999, the Company sold land and building totaling $2,600 that was acquired as part of the acquisition of Schaeffer in 1998. There was no gain or loss on the sale. Assets under leases that have been accounted for as capital leases and included in property, plant and equipment are summarized as follows: _________________________________________________________________ September 25, 1999 September 26, 1998 _________________________________________________________________ Capital leases, at cost $ 6,577 $ 6,121 Less accumulated amortization (3,445) (2,787) _________________________________________________________________ Net assets under capital leases $ 3,132 $ 3,334 _________________________________________________________________ NOTE 6 - INDEBTEDNESS Long-term debt consists of the following: _________________________________________________________________ September 25, 1999 September 26, 1998 _________________________________________________________________ Credit Facility - revolving credit $ 170,000 $ - - term loan 67,500 - Revolving credit facilities - 74,000 International and other U.S. term loan agreements 10,784 8,985 Obligations under capital leases 1,995 2,219 __________ __________ Senior debt 250,279 85,204 10% senior subordinated notes 120,000 120,000 __________ __________ Total long-term debt 370,279 205,204 Less current installments (20,787) (5,505) _________________________________________________________________ Long-term debt $ 349,492 $ 199,699 _________________________________________________________________ In connection with the acquisition of Montek, the Company refinanced its U.S. credit facilities. Effective November 30, 1998, the Company entered into a $340,000 Corporate Revolving and Term Loan Agreement (Credit Facility) with a banking group. The Credit Facility provides a $265,000 revolving facility and a $75,000 term loan with interest starting at LIBOR plus 200 basis points, with the spread adjusted based on leverage. At September 25, 1999, interest on the Credit Facility was LIBOR plus 200 basis points. In order to provide for interest rate protection, the Company has entered into interest rate swap agreements totaling $80,000, effectively converting this amount to fixed debt at 7.05%. The Credit Facility expires in November 2003 and requires quarterly principal payments on the term loan of $3,750, which commenced in March 1999. The Credit Facility is secured by substantially all of the Company's U.S. assets. The loan agreement contains various covenants which, among others, specify minimum interest and fixed charge coverage, limit capital expenditures, specify minimum net worth, limit leverage and restrict payment of cash dividends on common stock. The Credit Facility was used primarily to acquire Montek and to refinance approximately $72,000 of existing revolving credit facilities. International and other U.S. term loan agreements of $10,784 at September 25, 1999 consist principally of financing provided by various banks to certain foreign subsidiaries. These term loans are being repaid through 2004 and carry interest rates ranging from 1.0% to 8.75%. The 10% Senior Subordinated Notes (the Notes) are due on May 1, 2006. The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after May 1, 2001 initially at 105% of their principal amount, plus accrued interest, declining ratably to 100% of their principal amount, plus accrued interest, on or after May 1, 2003. The Notes are unsecured, general obligations of the Company subordinated in right of payment to all existing and future senior indebtedness. The indenture includes certain covenants limiting, subject to certain exceptions, the incurrence of additional indebtedness, payment of dividends, redemption of capital stock, asset sales and certain mergers and consolidations. Maturities of long-term debt are $20,787 in 2000, $19,138 in 2001, $16,770 in 2002, $15,657 in 2003, $177,927 in 2004, and $120,000 thereafter. At September 25, 1999, the Company had pledged assets with a net book value of $397,713 as security for long-term debt. The Company has both short-term lines of credit and long- term credit facilities with various banks throughout the world. The short-term credit lines are principally demand lines and subject to revision by the banks. These short-term lines of credit, along with $92,300 available on the Credit Facility, provided credit availability of $105,888 at September 25, 1999. Commitment fees are charged on some of these arrangements based on a percentage of the unused amounts available and are not material. At September 25, 1999, the Company had $5,831 of notes payable to banks at an average rate of 3.9%. During 1999, an average of $6,086 in notes payable were outstanding at an average interest rate of 4.9%. See Note 13 for fair values of indebtedness and interest rate swaps. NOTE 7 - INCOME TAXES The reconciliation of the provision for income taxes to the amount computed by applying the U.S. federal statutory tax rate to earnings before income taxes is as follows: _________________________________________________________________ 1999 1998 1997 _________________________________________________________________ Earnings before income taxes: Domestic $ 22,184 $ 22,009 $ 16,310 Foreign 14,588 8,746 3,165 Eliminations (44) (882) 104 _________________________________________________________________ Total $ 36,728 $ 29,873 $ 19,579 _________________________________________________________________ Computed expected tax expense $ 12,855 $ 10,456 $ 6,657 Increase (decrease) in income taxes resulting from: Foreign tax rates 297 338 571 Nontaxable export sales (943) (800) (664) State taxes net of federal benefit 403 501 302 Foreign tax credits (646) (145) (1,244) Change in beginning of the year valuation allowance 128 179 (77) Other 203 76 428 _________________________________________________________________ Income taxes $ 12,297 $ 10,605 $ 5,973 _________________________________________________________________ Effective income tax rate 33.5% 35.5% 30.5% _________________________________________________________________ At September 25, 1999, certain foreign subsidiaries had net operating loss carryforwards totaling $12,852. These loss carryforwards do not expire and can be used to reduce current taxes otherwise due on future earnings of those subsidiaries. No provision has been made for U.S. federal or foreign taxes on that portion of certain foreign subsidiaries' undistributed earnings ($41,869 at September 25, 1999) considered to be permanently reinvested. It is not practicable to determine the amount of tax that would be payable if these amounts were repatriated to the Company. The components of income taxes are as follows: _________________________________________________________________ 1999 1998 1997 Current: Federal $ 4,518 $ 8,809 $ 6,543 Foreign 5,487 3,897 949 State 182 1,099 575 _______ _______ _______ Total current 10,187 13,805 8,067 _______ _______ _______ Deferred: Federal 2,471 (2,374) (1,621) Foreign (715) (498) (354) State 354 (328) (119) _______ _______ _______ Total deferred 2,110 (3,200) (2,094) _________________________________________________________________ Total income taxes $12,297 $10,605 $ 5,973 _________________________________________________________________ The tax effects of temporary differences that generated deferred tax assets and liabilities are detailed in the following table. Realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making its assessment of the recoverability of deferred tax assets. _________________________________________________________________ September 25, 1999 September 26, 1998 _________________________________________________________________ Deferred tax assets: Contract loss reserves not currently deductible $ 10,043 $ 4,828 Tax benefit carryforwards 5,258 628 Accrued vacation 7,398 6,109 Deferred compensation 2,081 1,566 Pension 4,905 3,907 Accrued expenses not currently deductible 5,027 4,034 Inventory 4,182 4,596 Other 34 638 _________ _________ Total gross deferred tax assets 38,928 26,306 Less: Valuation reserve (603) (474) _________ _________ Net deferred tax assets $ 38,325 $ 25,832 _________ _________ Deferred tax liabilities: Differences in bases and depreciation of property, plant and equipment $ 29,909 $ 21,993 Other 79 128 _________ _________ Total gross deferred tax liabilities $ 29,988 $ 22,121 _________________________________________________________________ Net deferred tax assets $ 8,337 $ 3,711 _________________________________________________________________ NOTE 8 - EMPLOYEE BENEFIT PLANS In 1999 the Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," which revises employers' required disclosures. It does not change the measurement or recognition of employee benefit plans. Prior year information has been presented to conform to the current year disclosures. The Company maintains a number of defined benefit plans covering substantially all employees. The changes in projected benefit obligations and plan assets and the funded status of the U.S. and non-U.S. defined benefit plans for 1999 and 1998 are as follows:
__________________________________________________________________________________________ U.S. Plans Non-U.S. Plans _________________________________________________________________ September 25, September 26, September 25, September 26, 1999 1998 1999 1998 __________________________________________________________________________________________ Change in projected benefit obligation: Projected benefit obligation at beginning of year $ 160,440 $ 125,981 $ 35,030 $ 29,549 Service cost 6,441 4,647 1,674 1,569 Interest cost 11,052 9,971 2,149 1,912 Contributions by plan participants - - 28 33 Actuarial losses (gains) (8,140) 18,035 (376) 2,021 Foreign currency exchange impact - - (1,283) 984 Benefits paid from plan assets (5,722) (5,242) (568) (655) Benefits paid by Company (82) (104) (429) (383) Plan amendments - 7,152 - - __________________________________________________________________________________________ Projected benefit obligation at end of year $ 163,989 $ 160,440 $ 36,225 $ 35,030 __________________________________________________________________________________________ Change in plan assets: Fair value of assets at beginning of year $ 140,022 $ 139,743 $ 13,133 $ 11,106 Actual return on plan assets 27,905 3,825 2,171 1,412 Employer contributions 1,649 1,696 863 718 Contributions by plan participants - - 198 174 Benefits paid (5,722) (5,242) (568) (655) Foreign currency exchange impact - - (220) 378 __________________________________________________________________________________________ Fair value of assets at end of year $ 163,854 $ 140,022 $ 15,577 $ 13,133 __________________________________________________________________________________________ Funded status: $ (135) $ (20,418) $ (20,648)$ (21,897) Unrecognized net actuarial losses (gains) (18,989) 5,443 (376) 183 Unrecognized prior service cost 7,017 7,811 141 114 Unrecognized net (asset) liability from SFAS No. 87 adoption date, amortized over 15 years (810) (1,116) 759 1,020 __________________________________________________________________________________________ Accrued pension liability $ (12,917) $ (8,280) $ (20,124) $ (20,580) __________________________________________________________________________________________ Amounts recognized in the balance sheet consist of: Prepaid benefit cost $ -- $ -- $ 975 $ 187 Accrued pension liability (13,195) (8,988) (21,099) (20,767) Intangible asset 278 708 -- -- Net amount recognized $ (12,917) $ (8,280) $ (20,124) $ (20,580) __________________________________________________________________________________________ The following table provides aggregate information for pension plans with accumulated benefit obligations in excess of plan assets: _________________________________________________________________ September 25, 1999 September 26, 1998 _________________________________________________________________ Projected benefit obligation $ 39,711 $ 193,086 Accumulated benefit obligation 33,921 173,685 Fair value of plan assets 12,505 150,293 ________________________________________________________________
Fiscal 1999 plan assets consist primarily of publicly traded stocks, bonds, mutual funds, and $12,075 in Company stock, based on quoted market prices. The Company's funding policy is to contribute at least the amount required by law in the respective countries. The principal actuarial assumptions weighted for all defined benefit plans are: _________________________________________________________________ U.S. Plans Non-U.S. Plans __________________________________________ 1999 1998 1999 1998 _________________________________________________________________ Discount rate 7.5% 7.0% 5.9% 6.4% Return on assets 9.5% 9.5% 6.0% 6.5% Rate of compensation increase 3.6% 3.6% 3.5% 4.0% _________________________________________________________________ In addition, the Company maintains various defined contribution plans. Pension expense for all plans for 1999, 1998 and 1997 are as follows:
___________________________________________________________________________ U.S. Plans Non-U.S. Plans ______________________________________________________ 1999 1998 1997 1999 1998 1997 ___________________________________________________________________________ Service cost $ 6,441 $ 4,647 $ 3,630 $ 1,674 $ 1,569 $ 1,463 Interest cost on projected benefit obligation 11,052 9,971 9,059 2,149 1,912 1,782 Expected return on plan assets (11,855) (10,098) (8,824) (991) (783) (679) Amortization of prior service cost 794 575 34 7 -- -- Amortization of transition (asset) obligation (305) (305) (305) 168 174 184 Recognized actuarial (gain) or loss 242 1 172 10 (142) (147) _______ _______ _______ ______ _____ ______ Pension expense for defined benefit plans 6,369 4,791 3,766 3,017 2,730 2,603 Pension expense for defined contribution plans 510 228 245 870 865 628 ___________________________________________________________________________ Total pension expense $ 6,879 $ 5,019 $ 4,011 $ 3,887 $ 3,595 $ 3,231 ___________________________________________________________________________
Employee and management profit share plans provide for the discretionary payment of profit share based on net earnings as a percentage of net sales multiplied by the employees' wages, as defined. Profit share expense was $5,334, $8,990 and $4,518 in 1999, 1998, and 1997, respectively. At management's discretion, the amounts paid to employees and management were 50%, 100% and 75% of the formula for 1999, 1998 and 1997, respectively. The Company has a Savings and Stock Ownership Plan (SSOP) which includes an Employee Stock Ownership Plan. As one of the investment alternatives, participants in the SSOP can acquire Company Stock at market value, with the Company providing a 25% share match. Shares are allocated and compensation expense is recognized as the employer share match is earned. At September 25, 1999, the SSOP owned 289,660 Class A shares and 499,623 Class B shares. The Company provides postretirement health care benefits to certain retirees. The change in the accumulated benefit obligation and the funded status of the plan for 1999 and 1998 are shown below. There are no plan assets. The transition obligation is being recognized over 20 years. _________________________________________________________________ September 25, 1999 September 26, 1998 _________________________________________________________________ Change in Accumulated Postretirement Benefit Obligation (APBO) APBO at beginning of year $ 10,154 $ 9,416 Service cost 183 152 Interest cost 710 699 Plan participants' contributions 221 174 Benefits paid (1,358) (1,311) Acquisitions 521 41 Actuarial losses 231 983 _________________________________________________________________ APBO at end of year $ 10,662 $ 10,154 _________________________________________________________________ Funded status $ (10,662) $(10,154) Unrecognized transition obligation 5,521 5,915 Unrecognized prior service cost 172 192 Unrecognized losses 1,931 1,764 _________________________________________________________________ Accrued postretirement benefit liability $ (3,038) $ (2,283) _________________________________________________________________ The cost of the postretirement benefit plan is as follows: _________________________________________________________________ 1999 1998 1997 _________________________________________________________________ Service cost $ 183 $ 152 $ 150 Interest cost 710 699 658 Amortization of transitional obligation 396 394 395 Amortization of prior service cost 19 19 19 Recognized actuarial loss 62 -- -- _________________________________________________________________ Net periodic postretirement benefit cost $1,370 $1,264 $1,222 _________________________________________________________________ The assumed discount rate used in the accounting for the plan was 7.5% in 1999 and 7.0% in 1998. The effect of a one percentage point increase in the health care cost trend rate, currently assumed at 2.5% would not have a significant impact on the accumulated postretirement benefit obligation as of September 25, 1999. NOTE 9 - SHAREHOLDERS' EQUITY Class A and Class B Common Stock share equally in the earnings of the Company, and are identical with certain exceptions. Class A shares have limited voting rights, with each share of Class A being entitled to one-tenth of a vote on most matters, and each share of Class B being entitled to one vote. Class A shareholders are entitled, subject to certain limitations, to elect at least 25% of the Board of Directors (rounded up to the nearest whole number) with Class B shareholders entitled to elect the balance of the directors. No cash dividend may be paid on Class B unless at least an equal cash dividend is paid on Class A. Class B shares are convertible at any time into Class A on a one-for-one basis at the option of the shareholder. The number of common shares issued reflects conversion of Class B to Class A of 170 in 1999, 36,205 in 1998 and 6,691 in 1997. In early February 1998, the Company completed an offering of Class A shares at $34.375 per share. The offering consisted of 1,755,000 previously unissued shares sold by the Company and 300,000 existing shares sold by the Moog Inc. Employees' Retirement Plan. In August 1998, the Board of Directors authorized the repurchase of up to 200,000 common shares. As of September 25, 1999, 100,047 shares had been repurchased at market prices under this program at a cost of $3,321. The Company is authorized to issue up to 10,000,000 shares of preferred stock. Series B Preferred Stock is 9% Cumulative, Convertible, Exchangeable Preferred Stock with a $1.00 par value. Series B Preferred Stock consists of 100,000 issued shares and 83,771 outstanding shares at September 25, 1999, and is convertible into Class A Common shares (.08585 shares of Class A Common Stock per share of Series B Preferred Stock). In fiscal 1999, 11,112 Series B Preferred shares were converted to 954 Class A common shares. The Series B Preferred Stock is owned primarily by officers of the Company. With respect to any matters on which the Series B Preferred Stock is entitled to vote, all shares will be voted in a manner determined by a majority of such shares. The Series B Preferred Stock is entitled to vote as a class on certain takeover transactions. The Board of Directors may authorize, without further shareholder action, the issuance of additional preferred stock which ranks senior to both classes of Common Stock of the Company with respect to the payment of dividends and the distribution of assets on liquidation. The preferred stock, when issued, would have such designations relative to voting and conversion rights, preferences, privileges and limitations as determined by the Board of Directors. In February 1998 the shareholders of the Company approved the 1998 Stock Option Plan (1998 Plan) authorizing the issuance of options for 600,000 shares of Class A stock to directors, officers and key employees. Under the terms of the plan, options may be either incentive or non-qualified. All options issued as of September 25, 1999 were incentive options. The exercise price, determined by a committee of Board of Directors, may not be less than the fair market value of the Class A stock on the grant date. The options have a term of ten years. Options become exercisable over a six year period. Had compensation expense for stock options been determined based on the fair value of the options at the grant date, proforma net earnings, basic earnings per share and diluted earnings per share would have been $23,753, $2.66 and $2.63, respectively, for 1999 and $18,904, $2.28 and $2.22, respectively, for 1998. The weighted-average fair value of options granted during 1999 and 1998 was $14.02 and $16.61 per option, respectively. Fair value was estimated at the date of grant using the Black Scholes option-pricing model and the following weighted-average assumptions: risk-free interest rate of 5.1% and 5.7% for 1999 and 1998, respectively, expected volatility of 33%, expected life of 7.5 years and expected dividend yield of 0%. The 1983 Non-Statutory Stock Option Plan granted options on Class B shares to directors, officers, and key employees. The 1983 Incentive Stock Option Plan (1983 Plan) granted options on Class A shares to officers and key employees. The Plans terminated on December 31, 1992 and outstanding options expire no later than ten years after the date of grant. At September 25, 1999, 118,500 options were outstanding under the 1983 Plan. Class A shares reserved for issuance at September 25, 1999 are as follows: _________________________________________________________________ Shares _________________________________________________________________ Conversion of Class B to Class A shares 1,583,636 1983 Plan 118,500 1998 Plan 600,000 Conversion of Series B Preferred Stock to Class A shares 7,191 _________________________________________________________________ 2,309,327 _________________________________________________________________ Shares under option are as follows: _________________________________________________________________ Class B Weighted Class A Weighted Stock Average Stock Average Option Exercise Option Exercise Plan Price Plans Price _________________________________________________________________ Outstanding at September 30, 1996 129,912 $ 14.28 322,600 $ 8.36 Cancelled or expired in fiscal 1997 -- $ -- (800) $ 10.50 Exercised in fiscal 1997 (44,912) $ 14.44 (50,150) $ 9.46 Outstanding at September 27, 1997 85,000 $ 14.75 271,650 $ 8.15 Granted in fiscal 1998 -- $ -- 155,500 $33.875 Cancelled or expired in fiscal 1998 -- $ -- (400) $ 10.50 Exercised in fiscal 1998 (85,000) $ 14.75 (99,750) $ 10.08 Outstanding at September 26, 1998 -- $ -- 327,000 $ 19.79 Granted in fiscal 1999 -- $ -- 65,500 $ 29.44 Cancelled or expired in fiscal 1999 -- $ -- (5,000) $33.875 Exercised in fiscal 1999 -- $ -- (53,000) $ 7.46 _________________________________________________________________ Outstanding at Sept. 25, 1999 -- $ -- 334,500 $ 23.43 _________________________________________________________________ The weighted-average remaining lives of the Class A options as of September 25, 1999 are as follows: 1983 Plan - 2.0 years; 1998 Plan - 8.7 years. As of September 25, 1999 prices of options outstanding under the 1983 Plan ranged from $5.625 to $8.00, with a weighted- average exercise price of $6.83. The price of the options outstanding under the 1998 Plan ranged from $29.125 to $33.875, with a weighted-average exercise price of $32.53. Options to purchase 85,000 Class B shares were exercisable at September 27, 1997 at a weighted-average exercise price of $14.75. Options to purchase 118,500, 171,500 and 271,650 Class A shares under the 1983 Plan were exercisable at September 25, 1999, September 26, 1998 and September 27, 1997, respectively, at a weighted-average exercise price of $6.83, $7.03 and $8.15 respectively. Options to purchase 44,020 Class A shares under the 1998 Plan were exercisable at September 25, 1999 at a weighted- average price of $33.875. NOTE 10 - SEGMENTS In fiscal 1999, the Company adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which requires financial information to be reported on the basis that is used by management for evaluating segment performance and deciding how to allocate resources to segments. The Company's reportable segments under SFAS No. 131 are Aircraft Controls, Satellite and Launch Vehicle Controls and Industrial Controls. The determination of the Company's reportable segments was based on an analysis of the organizational structure of the Company and its products, as well as markets served. Aircraft Controls designs and produces technologically advanced flight and engine controls to manufacturers of commercial and military aircraft. Moog supplies controls on numerous military and commercial aircraft including the F/A-18E/F Super Hornet, the V-22 Osprey, the Joint Strike Fighter concept demonstrator aircraft and Boeing 7-Series airplanes, among others. Satellite and Launch Vehicle Controls designs and manufactures motion, fluid and propellant controls and systems to control the flight, positioning or thrust of satellites, solar panels and antennae, launch vehicles, and tactical and strategic missiles. Industrial Controls manufactures hydraulic and electric controls which are used in a wide variety of industrial applications requiring the precise control of position, velocity and force. Applications include plastic injection and blow molding machines, steam and gas turbines, steel rolling mills, fatigue testing machines, and gun and turret positioning and ammunition-loading on military ground vehicles. Below is segment information for the years ended 1999, 1998 and 1997 and reconciliations to consolidated amounts. Prior year information has been presented to conform to the new presentation of segment information. _________________________________________________________________ 1999 1998 1997 _________________________________________________________________ Sales: Aircraft Controls $ 302,108 $ 254,086 $ 225,997 Satellite and Launch Vehicle Controls 109,987 93,459 65,816 Industrial Controls 217,939 189,067 164,116 _________________________________________________________________ Total sales $ 630,034 $ 536,612 $ 455,929 _________________________________________________________________ Operating profit and margins: Aircraft Controls $ 36,960 $ 28,899 $ 31,643 12.2% 11.4% 14.0% Satellite and Launch Vehicle Controls 12,833 9,755 9,077 11.7% 10.4% 13.8% Industrial Controls 23,595 20,380 10,649 10.8% 10.8% 6.5% _________ _________ _________ Total operating profit 73,388 59,034 51,369 Deductions from operating profit: Interest expense 28,188 20,148 22,675 Currency loss (gain) 280 360 (186) Corporate and other expenses, net 8,192 8,653 9,301 _________________________________________________________________ Earnings before income tax $ 36,728 $ 29,873 $ 19,579 _________________________________________________________________ Depreciation and amortization expense: Aircraft Controls $ 16,185 $ 10,989 $ 11,542 Satellite and Launch Vehicle Controls 3,555 2,790 1,797 Industrial Controls 8,639 6,946 6,519 _________ _________ _________ 28,379 20,725 19,858 Corporate 2,223 1,940 1,409 _________________________________________________________________ Total depreciation and amortization $ 30,602 $ 22,665 $ 21,267 _________________________________________________________________ Identifiable assets: Aircraft Controls $ 429,914 $ 234,075 $ 218,823 Satellite and Launch Vehicle Controls 119,108 111,463 76,970 Industrial Controls 220,621 189,653 170,898 _________ _________ _________ 769,643 535,191 466,691 Corporate 28,833 24,134 23,872 _________________________________________________________________ Total assets $ 798,476 $ 559,325 $ 490,563 _________________________________________________________________ Capital expenditures: Aircraft Controls $ 9,722 $ 11,315 $ 4,348 Satellite and Launch Vehicle Controls 6,195 1,400 3,023 Industrial Controls 8,241 8,520 4,576 _________ _________ ________ 24,158 21,235 11,947 Corporate 2,281 1,453 1,766 _________________________________________________________________ Total capital expenditures $ 26,439 $ 22,688 $ 13,713 _________________________________________________________________ Operating profit is total sales less cost of sales and other operating expenses. The deductions from operating profit are directly identifiable to the respective segment or allocated on the basis of sales or manpower. Sales to the Boeing Company were $123,254, $108,640 and $85,033 in 1999, 1998 and 1997, respectively, including sales to the Boeing Commercial Airplane Group of $72,768, $56,780 and $47,372 in 1999, 1998 and 1997, respectively. Sales to U.S. Government prime- or sub-contractors, including military sales to Boeing, were $187,795, $163,680 and $134,659 in 1999, 1998 and 1997, respectively. Sales to the Boeing Company and to U.S. Government prime- or sub-contractors are made principally from the Aircraft Controls and Satellite and Launch Vehicle Controls segments. Sales and property, plant and equipment by geographic area are as follows: _________________________________________________________________ 1999 1998 1997 _________________________________________________________________ Sales: United States $ 372,346 $ 319,695 $ 254,579 Germany 46,467 39,400 38,952 Japan 38,046 42,902 35,425 Other 173,175 134,615 126,973 _________________________________________________________________ Total sales $ 630,034 $ 536,612 $ 455,929 _________________________________________________________________ Property, plant and equipment: United States $ 144,583 $ 103,942 $ 100,614 Philippines 15,013 12,004 8,255 Japan 11,152 8,913 9,503 Other 18,170 14,585 13,737 _________________________________________________________________ Total property, plant and equipment $ 188,918 $ 139,444 $ 132,109 _________________________________________________________________ Sales by geographic region are based on where the customer is located. NOTE 11- SUPPLEMENTAL CASH FLOW INFORMATION
___________________________________________________________________________ 1999 1998 1997 ___________________________________________________________________________ Cash paid for: Interest $ 25,332 $ 18,842 $ 20,452 Income taxes 12,014 12,058 5,646 Non-cash investing and financing activities: Leases capitalized, net of terminations $ 573 $ 161 $ 731 Acquisitions of businesses: Fair value of assets acquired $226,381 $ 30,050 $ 51,915 Net cash paid 171,710 20,983 49,180 ________ ________ ________ Liabilities assumed $ 54,671 $ 9,067 $ 2,735 ___________________________________________________________________________
NOTE 12- COMMITMENTS AND CONTINGENCIES The Company is engaged in administrative proceedings with governmental agencies and legal proceedings with governmental agencies and other third parties in the normal course of its business, including litigation under Superfund laws, regarding environmental matters. The Company believes that adequate reserves have been established for its share of the estimated cost for all currently pending environmental administrative or legal proceedings and does not expect that these environmental matters will have a material adverse effect on the financial condition, liquidity or results of operations of the Company. From time to time, the Company is named as a defendant in legal actions arising in the normal course of business. The Company is not a party to any pending legal proceedings which management believes will result in a material adverse effect on the Company's financial condition, liquidity or results of operations, or to any pending legal proceedings other than ordinary, routine litigation related to its business. The Company leases certain facilities and equipment under operating lease arrangements. These arrangements may include fair market renewal or purchase options. Rent expense under operating leases amounted to $11,494 in 1999, $8,810 in 1998, and $7,762 in 1997. Future minimum rental payments required under noncancelable operating leases are $11,404 in 2000, $9,745 in 2001, $8,891 in 2002, $7,729 in 2003, $6,315 in 2004 and $14,646 thereafter. The Company has $2,861 in open letters of credit at September 25, 1999. Purchase commitments outstanding at September 25, 1999 are $7,629 for machinery and equipment. NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of the Company's financial instruments as of September 25, 1999 and September 26, 1998 are as follows:
___________________________________________________________________________ 1999 1998 Carrying Fair Carrying Fair Asset/(Liability) Amount Value Amount Value ___________________________________________________________________________ Cash and cash equivalents (Note 1) $ 9,780 $ 9,780 $ 11,625 $ 11,625 Interest rate swaps (Note 6) 34 1,171 (73) (146) Notes payable (Note 6) (5,831) (5,831) (410) (410) Long-term debt (Note 6) (370,279)(372,416) (205,204) (206,404) ___________________________________________________________________________
The fair value of interest rate swaps (used for hedging purposes) is the estimated amount that the Company would receive or pay to terminate the swap agreements at the end of the year, taking into account current interest rates. The fair value of long-term debt was estimated based on quoted market prices. ____________________________________________________________________________________________________________ NOTE 14 - QUARTERLY DATA - UNAUDITED Net Sales and Earnings ____________________________________________________________________________________________________________
Year Ended Year Ended September 25, 1999 September 26, 1998 ___________________________________________ ___________________________________________________ 1st 2nd 3rd 4th 1st 2nd 3rd 4th Qtr. Qtr. Qtr. Qtr. Total Qtr. Qtr. Qtr. Qtr. Total ____________________________________________________________________________________________________________ Net sales $148,444 $161,909 $160,528 $159,153 $630,034 $126,118 $134,511 $134,839 $141,144 $536,612 Gross profit 45,771 51,278 50,895 50,057 198,001 37,008 40,524 40,838 44,242 162,612 Net earnings 5,627 5,994 6,322 6,488 24,431 3,907 4,658 5,273 5,430 19,268 Per share data: Basic $ .63 $ .67 $ .71 $ .73 $ 2.74 $ .55 $ .57 $ .59 $ .61 $ 2.33 Diluted $ .62 $ .66 $ .70 $ .72 $ 2.70 $ .53 $ .55 $ .58 $ .60 $ 2.26 ____________________________________________________________________________________________________________ Note: The 1998 quarterly basic earnings per share do not add to the total due to rounding.
REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors of Moog Inc.: We have audited the consolidated financial statements of Moog Inc. and subsidiaries listed in Item 14(a)(1) of the annual report on Form 10-K for the fiscal year ended September 25, 1999. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule listed in Item 14(a)(2) of the annual report on Form 10-K for the fiscal year ended September 25, 1999. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We did not audit the consolidated financial statements or schedule of Moog GmbH, and for the year ended September 27, 1997 the consolidated financial statements or schedule of Moog Controls Limited, wholly owned consolidated subsidiaries of the Company. The financial statements of Moog GmbH and Moog Controls Limited which we have not audited reflect total assets constituting 6% and 8% as of September 25, 1999 and September 26, 1998, respectively, and total net sales constituting 11%, 12% and 19% of the related consolidated totals for the years ended September 25, 1999, September 26, 1998, and September 27, 1997, respectively. Those statements and schedules were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Moog GmbH and Moog Controls Limited for the applicable fiscal years, is based solely on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Moog Inc. and subsidiaries as of September 25, 1999 and September 26, 1998 and the results of their operations and their cash flows for each of the years in the three-year period ended September 25, 1999, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Buffalo, New York November 4, 1999 KPMG LLP _________________________________________________________________ ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required herein with respect to directors of the Company is incorporated by reference to "Election of Directors" in the 2000 Proxy. EXECUTIVE OFFICERS OF THE REGISTRANT. The names and ages of all executive officers of Moog are set forth on the following page. Other than John B. Drenning, the principal occupations of the following officers for the past five years have been their employment with the Company. Mr. Drenning's principal occupation is partner in the law firm of Phillips, Lytle, Hitchcock, Blaine & Huber. On October 1, 1999, Robert H. Maskrey was named Executive Vice President and Chief Operating Officer. Previously he was a Vice President of the Company. ___________________________________________________________________________ Executive Officers and Positions Held Age Year First Elected Officer ___________________________________________________________________________ Robert T. Brady Chairman of the Board; President; Chief Executive Officer; Director; Member, Executive Committee 58 1967 Richard A. Aubrecht Vice Chairman of the Board; Vice President - Strategy and Technology; Director; Member, Executive Committee 55 1980 Joe C. Green Executive Vice President; Chief Administrative Officer; Director; Member, Executive Committee 58 1973 Robert H. Maskrey Executive Vice President; Chief Operating Officer Director; Member, Executive Committee 58 1985 Robert R. Banta Executive Vice President; Chief Financial Officer; Assistant Secretary; Director; Member, Executive Committee 57 1983 Philip H. Hubbell Vice President - Contracts and Pricing 60 1988 Stephen A. Huckvale Vice President 50 1990 Richard C. Sherrill Vice President 61 1991 William P. Burke Treasurer 64 1985 John B. Drenning Secretary 62 1989 Donald R. Fishback Controller 43 1985 ___________________________________________________________________________ ITEM 11. EXECUTIVE COMPENSATION. The information required herein is incorporated by reference to "Compensation Committee Report," "Compensation Committee Interlocks and Insider Participation," "Summary Compensation Table," "Option Grants in Last Fiscal Year," "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values," "Employees' Retirement Plan," "Supplemental Retirement Plan," "Employment Termination Benefits Agreements" and "Compensation of Directors" in the 2000 Proxy. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required herein is incorporated by reference to the 2000 Proxy. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required herein is incorporated by reference to the 2000 Proxy. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Documents filed as part of this report: 1. Index to Financial Statements. The following financial statements are included: (i) Consolidated Statements of Earnings for each of the three years ended September 25, 1999. (ii) Consolidated Balance Sheets as of September 25, 1999 and September 26, 1998. (iii) Consolidated Statements of Cash Flows for each of the three years ended September 25, 1999. (iv) Consolidated Statements of Shareholders' Equity for each of the three years ended September 25, 1999. (v) Notes to Consolidated Financial Statements. (vi) Report of Independent Auditors. 2. Index to Financial Statement Schedules. The following Financial Statement Schedule as of and for each of the three years ended September 25, 1999, is included in this Annual Report on Form 10-K: II. Valuation and Qualifying Accounts. Schedules other than that listed above are omitted because the conditions requiring their filing do not exist, or because the required information is provided in the Consolidated Financial Statements, including the Notes thereto. 3. Exhibits The exhibits required to be filed as part of this Annual Report on Form 10-K have been included as follows: (2) (i) Stock Purchase Agreement between Moog Inc., Moog Torrance Inc. and AlliedSignal Inc., incorporated by reference to exhibit 2.1 of the Company's report on Form 8-K dated June 15, 1994. (ii) Asset Purchase Agreement dated as of September 22, 1996 between Moog Inc., Moog Controls Inc., International Motion Control Inc., Enidine Holdings, L.P. and Enidine Holding Inc., incorporated by reference to exhibit 2.1 of the Company's report on Form 8-K dated October 28, 1996. (iii) Stock Purchase Agreement dated October 20, 1998 between Raytheon Aircraft Company and Moog Inc., incorporated by reference to exhibit 2(i) of the Company's report on Form 8-K dated November 30, 1998. (3) Restated Certificate of Incorporation and By-laws of the Company, incorporated by reference to exhibit (3) of the Company's Annual Report on Form 10-K for its fiscal year ended September 30, 1989. (4) Form of Indenture between Moog Inc. and Fleet National Bank, as Trustee, dated May 10, 1996 relating to the 10% Senior Subordinated Notes due 2006, incorporated by reference to exhibit (iv) to Form 8-K dated May 10, 1996. (9) (i) Agreement as to Voting, effective October 15, 1988, incorporated by reference to exhibit (i) of October 15, 1988 Report on Form 8-K dated November 30, 1988. (ii) Agreement as to Voting, effective November 30, 1983, incorporated by reference to exhibit (i) of November 1983 Report on Form 8-K dated December 9, 1983. (10) Material contracts. (i) Management Profit Sharing Plan, incorporated by reference to exhibit 10(i) of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1991. (ii) Deferred Compensation Plan for Directors and Officers, incorporated by reference to exhibit (i) of November 1985 Report on Form 8-K, dated December 3, 1985. (iii) Incentive Stock Option Plan, incorporated by reference to exhibit 4(b) of the Registration Statement on Form S-8, File No. 33-36721, filed with the Securities and Exchange Commission on September 7, 1990. (iv) Savings and Stock Ownership Plan, incorporated by reference to exhibit 4(b) of the Company's Annual Report on Form 10-K for its fiscal year ended September 30, 1989. (v) Indemnity Agreement, incorporated by reference to Annex A to 1988 Proxy Statement dated January 4, 1988. (vi) 1998 Stock Option Plan, incorporated by reference to exhibit A to 1998 Proxy Statement dated January 5, 1998. (vii) Form of Employment Termination Benefits Agreement between Moog Inc. and Robert T. Brady, Richard A. Aubrecht, Joe C. Green, Robert H. Maskrey, Robert R. Banta, Phillip H. Hubbell and Richard C. Sherrill, (Filed herewith) (viii) Supplemental Retirement Plan, as amended and restated, effective October 1, 1978 - amended August 30, 1983; May 19, 1987; August 30, 1988 and November 11, 1999 (Filed herewith) (13) 1999 Annual Report to Shareholders. (Except for those portions which are expressly incorporated by reference to the Annual Report on Form 10-K, this exhibit is furnished for the information of the Securities and Exchange Commission and is not deemed to be filed as part of this Annual Report on Form 10-K.) (21) Subsidiaries of the Company. Subsidiaries of the Company are listed below: (i) Hydrolux Sarl, Incorporated in Luxembourg, 75% owned subsidiary (ii) Microset S.r.l., Incorporated in Italy, 66 2/3% owned subsidiary (iii) Moog AG, Incorporated in Switzerland, wholly- owned subsidiary with branch operation in Ireland (iv) Moog Australia Pty. Ltd., Incorporated in Australia, wholly-owned subsidiary (v) Moog do Brasil Controles Ltda., Incorporated in Brazil, wholly-owned subsidiary (a) Moog de Argentina Srl, Incorporated in Argentina, wholly-owned subsidiary of Moog do Brasil Controles Ltda. (vi) Moog Buhl Automation, a branch office of Moog Inc. operating under Danish law (vii) Moog Controls Corporation, Incorporated in New York, wholly-owned subsidiary with branch operation in the Republic of the Philippines (viii) Moog Controls Hong Kong Ltd., Incorporated in Hong Kong, wholly-owned subsidiary (ix) Moog Controls (India) Private Ltd., Incorporated in India, wholly-owned subsidiary (x) Moog Controls Ltd., Incorporated in the United Kingdom, wholly-owned subsidiary with a branch operation in India (a) Moog Norden A.B., Incorporated in Sweden, wholly-owned subsidiary of Moog Controls Ltd. (b) Moog OY, Incorporated in Finland, wholly-owned subsidiary of Moog Controls Ltd. (xi) Moog Control System (Shanghai) Co. Ltd., Incorporated in People's Republic of China, wholly-owned subsidiary (xii) Moog FSC Ltd., Incorporated in the Virgin Islands, wholly-owned subsidiary (xiii) Moog GmbH, Incorporated in Germany, wholly- owned subsidiary (a) Moog Italiana S.r.l., Incorporated in Italy, wholly-owned subsidiary, 90% owned by Moog GmbH; 10% owned by Moog Inc. (xiv) Moog-Hydrolux Hydraulic Systems, Inc., Incorporated in New York, 75% owned subsidiary (xv) Moog IFSC Ltd., Incorporated in the United Kingdom, wholly-owned subsidiary (xvi) Moog Industrial Controls Corporation, Incorporated in New York, wholly-owned subsidiary (xvii) Moog Japan Ltd., Incorporated in Japan, wholly-owned subsidiary (xviii) Moog Korea Ltd., Incorporated in South Korea, wholly-owned subsidiary (xix) Moog Properties, Inc., Incorporated in New York, wholly-owned subsidiary (xx) Moog Sarl, Incorporated in France, wholly- owned subsidiary, 95% owned by Moog Inc; 5% owned by Moog GmbH (xxi) Moog Singapore Pte. Ltd., Incorporated in Singapore, wholly-owned subsidiary (23) (ii) Consent of KPMG LLP; Consent and Audit Report of PricewaterhouseCoopers GmbH. (Filed herewith) (27) Financial Data Schedule. (Filed herewith) (99) Additional Exhibits. Information, Financial Statements and Exhibits required by Form 11-K for the Moog Inc. Savings and Stock Ownership Plan (to be filed by amendment). (b) Reports on Form 8-K No reports on Form 8-K have been filed in the three month period ended September 25, 1999. ________________________________________________________________________________________________________________________ MOOG INC. Schedule II Valuation and Qualifying Accounts - Three Years ended September 25, 1999 (dollars in thousands)
Additions Balance at charged to Foreign Balance beginning costs and Exchange at end Description of period expenses Deductions Acquisitions Impact of period ________________________________________________________________________________________________________________________ Year ended 1997: Reserve for contract losses $ 10,966 $ 3,898 $ 6,694 $ -- $ -- $ 8,170 Allowance for doubtful accounts 1,332 882 527 -- (93) 1,594 Reserve for inventory valuation 9,335 4,983 2,276 -- 85 12,127 ____________________________________________________________________________________ Year ended 1998: Reserve for contract losses $ 8,170 $ 4,923 $ 2,645 $ 1,212 $ -- $ 11,660 Allowance for doubtful accounts 1,594 1,782 493 -- 17 2,900 Reserve for inventory valuation 12,127 4,269 2,368 -- (68) 13,960 ____________________________________________________________________________________ Year ended 1999: Reserve for contract losses $ 11,660 $ 3,676 $ 15,198 $ 24,603 $ -- $ 24,741 Allowance for doubtful accounts 2,900 876 1,777 -- (55) 1,944 Reserve for inventory valuation 13,960 3,914 4,286 -- (461) 13,127 ____________________________________________________________________________________ ________________________________________________________________________________________________________________________
QUARTERLY STOCK PRICES Stock Prices Fiscal Year Class B Class A Ended High Low High Low _________________________________________________________________ Sept. 25, 1999 1st Quarter $35 7/16 $33 $39 1/8 $24 5/16 2nd Quarter 37 3/8 35 3/8 37 13/16 28 3/4 3rd Quarter 40 3/4 37 5/16 34 3/8 26 5/8 4th Quarter 41 1/4 40 1/4 35 1/4 28 5/8 _________________________________________________________________ Sept. 26, 1998 1st Quarter $40 $32 3/4 $39 7/8 $32 1/4 2nd Quarter 42 1/4 34 42 1/2 33 1/8 3rd Quarter 45 1/4 36 3/4 47 1/8 32 3/4 4th Quarter 39 3/4 32 1/2 39 15/16 28 1/8 _________________________________________________________________ SIGNATURES Pursuant to the requirements of Section 13, or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Moog Inc. (Registrant) Date: December 15, 1999 By ROBERT T. BRADY ________________________________ Robert T. Brady Chairman of the Board, President, Chief Executive Officer, and Director (Principal Executive Officer) By ROBERT R. BANTA ________________________________ Robert R. Banta Executive Vice President, Chief Financial Officer, and Director (Principal Financial Officer) By DONALD R. FISHBACK ________________________________ Donald R. Fishback Controller (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and on the dates indicated. By RICHARD A. AUBRECHT By PETER P. POTH ________________________________ ______________________________ Richard A. Aubrecht Peter P. Poth Director, December 15, 1999 Director, December 15, 1999 By JAMES L. GRAY By KRAIG H. KAYSER ________________________________ ______________________________ James L. Gray Kraig H. Kayer Director, December 15, 1999 Director, December 15, 1999 By JOE C. GREEN By JOHN D. HENDRICK ________________________________ ______________________________ Joe C. Green John D. Hendrick Director, December 15, 1999 Director, December 15, 1999 By ALBERT F. MYERS By ROBERT H. MASKREY ________________________________ ______________________________ Albert F. Myers Robert H. Maskrey Director, December 15, 1999 Director, December 15, 1999 INVESTOR INFORMATION REPORTS In addition to our Annual Report and 10-K, shareholders receive copies of our three quarterly earnings releases. Additional information about the Company may be obtained by writing: Shareholder Relations Moog Inc. East Aurora, New York 14052-0018 PHONE - 716/652-2000 FAX - 716/687-4457 E-MAIL sjohnson.inc@moog.com ELECTRONIC INFORMATION ABOUT MOOG In Moog's annual report, we try to convey key information about our fiscal year results. In addition to this primary information, we have a site on the world wide web. Please visit this location using the URL address of: http://www.moog.com ANNUAL MEETING Moog Inc.'s Annual Meeting of Shareholders will be held February 9, 2000 at the Albright-Knox Art Gallery, 1285 Elmwood Avenue, Buffalo, New York. Proxy cards should be dated, signed and returned promptly to ensure that all shares are represented at the meeting and voted in accordance with shareholder instructions. STOCK EXCHANGE Moog Inc.'s two classes of common shares are traded on the American Stock Exchange under the ticker symbols MOG.A and MOG.B. FINANCIAL MAILING LIST Shareholders who hold Moog stock in the names of their brokers or bank nominees but wish to receive information directly from the Company should contact Shareholder Relations at Moog Inc. TRANSFER AGENT AND REGISTRAR ChaseMellon Shareholder Services 85 Challenger Road Overpeck Centre Ridgefield Park, New Jersey 07660 1-800-288-9541 AFFIRMATIVE ACTION PROGRAM In recognition of our role as a contributing corporate citizen, Moog has adopted all programs and procedures in our Affirmative Action Program as a matter of corporate policy. Exhibit 10(vii) EMPLOYMENT TERMINATION BENEFITS AGREEMENT AGREEMENT, made this _____ day of [MONTH], [YEAR], and effective the [DATE] day of [MONTH], [YEAR], between MOOG INC., a New York corporation with an office and place of business at Jamison Road, East Aurora, New York 14052 (the "Company"), and [NAME], [ADDRESS], [CITY/TOWN], [STATE] [ZIP] ("Executive"). RECITALS: A. Executive is presently employed by Company; and B. Company and Executive entered into an Employment Termination Benefits Agreement as of the [DAY] day of [MONTH], [YEAR]; and C. The Board of Directors of Company (the "Board") recognizes that Executive's contribution to the growth and success of Company has been substantial; and D. Board desires to provide for continued employment of Executive, to supercede and replace the prior Employment Termination Benefits Agreement, and to establish appropriate employment arrangements which Board has determined will reinforce and encourage Executive's continued attention and dedication to the Company's business and success as a member of the Company's management, furthering the best interest of the Company and its Shareholders; and E. Executive is willing to commit himself to continue to serve Company on the terms and conditions herein provided. NOW, THEREFORE, in consideration of the mutual promises and the respective covenants and agreements of the parties herein contained and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I - DEFINITIONS 1.01 Terms Defined. In addition to any words and terms elsewhere defined herein, the following words and terms shall have the meanings indicated below unless the context or use indicates a different meaning: (a) "CAUSE" shall mean: Any harmful act or omission that constitutes a willful and a continuing material failure by the Executive to perform the material and essential obligations under this Agreement (other than as a result of death or total or partial incapacity due to physical or mental illness); or The Executive's conviction of a felony, or any willful perpetration by the Executive of a common law fraud upon the Company; or Any willful misconduct or bad faith omission by the Executive constituting dishonesty, fraud or immoral conduct, which is materially injurious to the financial condition or business reputation of the Company. Anything in this definition to the contrary notwithstanding, the termination of the Executive's employment by the Company is not considered to have been for Cause if the termination resulted from: Bad judgment or mere negligence on the part of the Executive; or An act or omission by the Executive without intending to gain, directly or indirectly, a substantial personal profit to which the Executive was not legally entitled; or An act or omission by the Executive that the Executive believed in good faith to have been in the interests of the Company or not opposed to such interests. (b) A "CHANGE OF CONTROL" shall mean the transfer in one or more transactions, extending over a period of not more than 24 months of Common Stock of the Company possessing 25% or more of the total combined voting power of all Class A and Class B Shares of Common Stock. A transfer shall be deemed to occur if shares of Common Stock are either transferred or made the subject of options, warrants, or similar rights granting a third party the opportunity to acquire ownership or voting control of such Common Stock. (c) "COMMON STOCK" shall mean the Class A and Class B $1.00 par value shares of the capital stock of the Company, as well as all other securities with voting rights or convertible into securities with voting rights. (d) "COMPENSATION" shall mean the base pay plus profit share and any bonus paid to Executive in any one fiscal year; provided, however, that if any profit share was not paid but would have been payable under the terms of the Profit Share Plan, Compensation shall include the amount of such unpaid profit share calculated in accordance with the terms of the profit share plan. "AVERAGE ANNUAL COMPENSATION" shall mean the average of the Compensation paid to Executive for the three highest years of the five years preceding termination. "MONTHLY PAYMENT" shall mean the average Annual Compensation divided by 12. (e) "COMPENSATION COMMITTEE" shall mean the Executive Compensation Committee of Board, as it is constituted from time to time. (f) "COMPANY" shall mean MOOG INC., as well as any successors or assigns of MOOG INC., whether by transfer, merger, consolidation, acquisition of all or substantially all of the business assets, change in identity, or otherwise by operation of law and for purposes of employment of Executive shall also mean any parent, subsidiary or affiliated entity to whom Executive's services may be assigned. (g) "DISABILITY" shall mean the inability of Executive to perform a substantial portion of his duties hereunder for a continuous period of 6 months or more. (h) "EFFECTIVE DATE" shall mean the date of this Agreement. (i) "INVOLUNTARY TERMINATION OF EMPLOYMENT" shall mean a severance of the Executive's employment relationship prior to age 65, other than for death, Disability, Retirement, or Cause, by or at the instigation of Company or by or at the instigation of Executive where Executive's pay has been diminished or reduced to a greater extent than any diminution or reduction of Company's Executives generally, or where there has been a Change of Control, Involuntary Termination of Employment shall also include a termination of the employment relationship by Executive (whether before or after age 65), within two years of the Change of Control, in those circumstances where the duties, responsibilities, status, base pay or perquisites of office and employment have been diminished or downgraded, or substantially increased (other than base pay) without Executive's actual or implied consent; provided, however, that a general increase or decrease in base pay which is approved by a majority of those executives who are parties to agreements similar to this Agreement will be considered as having been consented to for purposes of this Agreement. (j) "RETIREMENT" shall mean the election of Executive to retire from active employment with Company at the end of the month in which Executive attains 65 years of age or thereafter. Retirement shall also mean a similar election by Executive prior to age 65, where Executive elects to receive early Retirement benefits under the Moog Inc. Employees' Retirement Plan or any successor Company Retirement Plan. (k) "TERM OF EMPLOYMENT" means the period commencing on the effective date and expiring on the earliest to occur of (i) Executive's death, Disability or Retirement, (ii) the Voluntary Termination of Employment by Executive, or (iii) Termination for Cause of Executive's employment. (l) "TERMINATION FOR CAUSE" shall mean severance of the Employment relationship based upon or brought about by Cause as defined in paragraph (a) above. (m) "VOLUNTARY TERMINATION OF EMPLOYMENT" shall mean a severance of the Employment relationship by or at the instigation of Executive, other than a termination occurring upon a Change of Control as defined in paragraph (b) above, or upon death, Disability or Retirement. (n) "YEAR OF SERVICE" shall have the same meaning as defined in the Moog Inc. Employees' Retirement Plan for benefit accrual purposes. ARTICLE II - EMPLOYMENT, TERM, DUTIES 2.01 Employment. Company hereby hires Executive, and Executive agrees to serve Company, for a term beginning on the Effective Date of this Agreement, and ending on the last day of the Term of this Agreement. 2.02 Term. The term of this Agreement shall begin on the Effective Date, and shall end as provided in Section 5.01. Unless benefits under this Agreement are being provided at that time, this Agreement shall also end upon Executive's attainment of age 65; provided, however, that upon the request of Executive, Company in its sole discretion may agree to continue this Agreement after Executive's attainment of age 65 but, in such event, this Agreement shall end no later than Executive's attainment of age 70. 2.03 Capacity. Executive shall serve in such Executive or Managerial capacity as the Board of Directors or the Chief Executive Officer of the Company shall determine, and shall have all of the duties, responsibilities, obligations and privileges commensurate with such position. 2.04 Duties. Executive agrees to devote his full business time and energy to the business and affairs of Company and to utilize his best efforts, skill and abilities to promote such interest, performing such duties as may be assigned on the executive level. Company agrees that Executive shall have such powers and authority as shall reasonably be required to enable Executive to discharge his duties in an efficient manner. 2.05 Base of Operations. Company agrees that Executive's base of operations shall be Executive's location as of the effective date of this Agreement. Although Executive recognizes that substantial traveling may be required in connection with employment, Executive shall not be required to operate from any other area without Executive's prior consent. ARTICLE III - COMPENSATION AND BENEFITS 3.01 Base Salary and Profit Share. During the Term of Employment, Company shall pay Executive for all services to be rendered as set forth herein, a base salary as determined from time to time by the Compensation Committee, plus a Management Profit Share Award under the Profit Share Plan. The base salary shall be payable in periodic installments not less frequently than on a monthly basis. Any Profit Share Award shall be payable annually in the month of January. This Agreement shall not be deemed abrogated or terminated if Company, in its discretion, shall determine to modify the base compensation of Executive for any period of time, and Executive accepts such modification, but nothing herein contained shall be deemed to obligate Company to make any increase in base compensation. 3.02 Other Employment Benefits. Executive shall be entitled to all rights and benefits for which he shall be eligible under any Retirement, Profit Sharing, Employee Stock Purchase Plan, Savings and Investment Plan, Business Travel, Group Life, Disability, Accident or Health Insurance, Vacation, and other benefit plans which Company provides for its employees generally, as well as for any Stock Option, Incentive Compensation, Deferred Compensation, Extended Vacation, Supplemental Retirement, Club Memberships, Supplemental Medical and Life Insurance coverages and similar benefit plans which Company provides for executive personnel having duties and responsibilities similar to those of Executive. 3.03 Reimbursement of Expenses. Company shall provide Executive with an automobile or an allowance for automobile use and shall pay or reimburse Executive for all reasonable traveling or other expenses incurred or paid by Executive in connection with the performance of his services under this Agreement upon presentation of expense statements or vouchers, and such other supporting information as it may from time to time request. 3.04 Death Benefit. Company agrees that in the event of the death of Executive during the continuation of the term of employment hereunder, Executive's base salary shall continue to be paid to Executive's widow, or to Executive's estate, for a period of six months following the date of such demise. ARTICLE IV - NON COMPETITION, CONFIDENTIAL DATA 4.01 Non-Competition. During the term of this Agreement, and in the event of Involuntary Termination upon a Change in Control until the last payment of any benefits to Executive under this Agreement, Executive will not directly or indirectly enter the employ of, or render any service to any customer or former customer, or any other person, partnership, association or corporation engaged in any business engaged in by Company during the term of this Agreement, and Executive will not engage in any such business on his own account, nor become interested in any such business, directly or indirectly as an individual, partner, shareholder, director, officer, principal, agent, employee, trustee, consultant, or in any other relationship or capacity. 4.02 Confidential Information. Executive agrees, during the term of this Agreement and thereafter, not to use or make use of nor to divulge to anyone other than authorized personnel or representatives of Company, any information or knowledge relating to the business, business methods or techniques of Company including, without being limited to, information about accounting procedures, training methods or techniques, data, processes, research manufacturing formulae, costing, sales prospects, customers' or suppliers' lists, bidding formulae, sales, profits or costs, except to the extent that Executive can establish the same to be generally known to the public or recognized as standard practice in the business in which Company is engaged or to the extent Executive is required to divulge such information or knowledge in connection with any legal proceeding. 4.03 Patents and Inventions. Executive agrees that any patents, inventions, improvements, discoveries, formulae or processes which he may obtain, make or conceive during the period of employment hereunder, shall be the sole and exclusive property of Company, and that he will sign and execute any and all applications, assignments or other instruments necessary or appropriate to assign, convey or otherwise make available exclusively to Company all such patents, inventions, improvements, discoveries, formulae or processes. 4.04 Enforcement. Executive agrees that in the event of a breach or threatened breach by Executive of any provision of this Article, Company may institute legal proceedings to compel Employee compliance hereunder, including injunctive relief and any other remedy provided in law or equity. If the scope of any restriction contained in this Agreement is too broad to permit enforcement of such restriction to its full extent, then such restriction shall be enforced to the maximum extent permitted by law, and Executive hereby consents and agrees that such scope may be judicially modified accordingly in any proceeding brought to enforce such restriction. In the event of such judicial modification, Company may, if it determines in its sole judgment that such action is contrary to the best interests of Company, within ten days after notification of such modification, terminate all obligations of Company under this Agreement by giving Executive not less than 15 days notice of such termination. ARTICLE V - TERMINATION 5.01 Termination of Employment. Executive's employment by Company shall terminate on the earliest to occur of (a) Executive's death, Disability or Retirement, (b) Voluntary Termination of Employment by Executive, or (c) Termination for Cause of Executive's employment. In any such event this Agreement shall also terminate other than for the provisions of Articles IV, VI and VII and Section 3.04, which shall survive such Termination. The existence of Disability, as defined herein, shall be determined in the sole judgment of the Compensation Committee, and effective upon delivery to Executive of written notice that such determination has been made, Executive's employment shall be terminated and Executive shall be removed from all positions, as an Officer or Director, with Company. 5.02 Effect of Involuntary Termination. This Agreement shall survive an Involuntary Termination of Employment. 5.03 Executive Obligations Upon Termination. Executive agrees that upon termination of services under this Agreement, for any cause whatsoever, he will deliver to Company all documents, drawings, papers, computer tapes or discs, notes, memoranda, handbooks, manuals, and all other tangible material on which information is stored or recorded, and all copies thereof which Executive has in his control or possession in any way related to the business of Company, its customers, suppliers or affiliates. ARTICLE VI - BENEFITS UPON TERMINATION 6.01 Death, Disability, Retirement. In the event of termination upon death, Executive's surviving spouse or estate shall be entitled to the benefit provided in Section 3.04, life insurance benefits, the limited right (to the extent permitted by the terms of the applicable stock option plan or the grant thereunder) to exercise any outstanding options owned within the one year period after the date of death but not later than the expiration date(s) of such stock options or if such exercise is not permitted an amount equal to the bargain element of such options shall be paid, any death benefits which may be provided under any Company Retirement Plan or Supplemental Retirement Plan, the limited right to receive a payment in cash for any unutilized vacation benefits accrued for Executive, as well as any other benefits provided generally by Company to its executives upon death. Termination of the employment relationship by virtue of Retirement of Executive shall entitle Executive to all retirement benefits provided generally by Company to its Executives upon retirement including benefits under any Company Retirement Plan or Supplemental Retirement Plan, insurance benefits provided upon Retirement, the limited right (to the extent permitted by the terms of the applicable stock option plan or the grant thereunder) to exercise any stock options previously granted to Executive within the one year period after the date of Retirement but not later than the expiration date(s) of such stock options or if such exercise is not permitted an amount equal to the bargain element of such options shall be paid, and the limited right to receive a payment in cash for any unutilized vacation benefits accrued for Executive. In the event that employment is terminated by virtue of Disability as determined under Section 5.01, Executive shall be entitled to all basic and long term Disability benefits which may be provided generally under Plans made available by Company to its executives, including any rights which may be available upon disability under any Company Retirement Plan or Supplemental Retirement Plan, as well as the limited right (to the extent permitted by the terms of the applicable stock option plan or the grant thereunder) to exercise any stock options previously granted to Executive within the one year period after becoming disabled but not later than the expiration date(s) of such stock options or if such exercise is not permitted an amount equal to the bargain element of such options shall be paid, and the limited right to receive a payment in cash for any unutilized vacation benefits accrued for Executive. 6.02 Termination For Cause. Upon termination of Executive's employment for Cause, Executive shall be entitled to his base salary up to the date of such termination, as well as any vested benefits under any Company Retirement Plan or Supplemental Retirement Plan. Under such termination, Executive shall not be entitled to participate in any Profit Share Award or Incentive Compensation payable after the date of termination, but will be eligible to receive a payment in cash for any unutilized vacation benefits accrued for Executive. Unless otherwise provided by law, Executive shall not have the right or privilege of exercising any stock options held by Executive and issued under any stock option plan of the Company. 6.03 Voluntary Termination of Employment. In the event of Executive's Voluntary Termination of Employment with Company, Executive shall be entitled to his employment benefits up to the date of termination, including any vested benefits under any Company Retirement Plan or Supplemental Retirement Plan, but unless any Profit Share Award or Incentive Compensation is payable prior to such termination, Executive shall not receive any such payment. Executive shall receive a payment in cash for any unutilized vacation benefits accrued for Executive. Executive shall have the limited right (to the extent permitted by the terms of the applicable stock option plan or the grant thereunder) to exercise any stock options previously granted to Executive within three months after the date of such Voluntary Termination of Employment but not later than the expiration date(s) of such stock options or if such exercise is not permitted an amount equal to the bargain element of such options shall be paid. Notwithstanding the foregoing, if Executive dies within three months from the date of the Voluntary Termination of Employment, his stock options (to the extent permitted by the terms of the applicable stock option plan or the grant thereunder) may be exercised within the one year period after the date of such Voluntary Termination of Employment but not later than the expiration date(s) of such stock options or if such exercise is not permitted an amount equal to the bargain element of such options shall be paid. 6.04 Involuntary Termination of Employment. In the event of the Involuntary Termination of Employment of Executive, Executive shall be entitled to any vested benefits under any Company Retirement Plan or Supplemental Retirement Plan, Executive shall be entitled to continue at Company's expense for one year Club Memberships held by Executive for which reimbursement was provided by Company, Executive, for a period of one year, will continue to be provided with an automobile, or reimbursement of automobile expense, Executive shall be entitled to receive full Profit Share and Incentive Compensation for credited service and Company performance up to the date of termination. Executive shall have the right (to the extent permitted by the terms of the applicable stock option plan or the grant thereunder) to exercise any stock options held by Executive at the date of termination within the one year period after the date of such Involuntary Termination of Employment but not later than the expiration date(s) of such stock options or if such exercise is not permitted an amount equal to the bargain element of such options shall be paid. Executive shall also receive for one year after Termination the same Health, Life and Disability Insurance coverages, for which he was eligible during employment. Executive shall also receive a payment in cash for any unutilized vacation benefits accrued for Executive. In addition, Executive shall be provided with Company paid professional Out-Placement Service to assist Executive in securing other employment. Notwithstanding the foregoing, if the Executive dies within three months from the date of the Involuntary Termination of Employment, his stock options (to the extent permitted by the terms of the applicable stock option plan or the grant thereunder) may be exercised within the one year period after the date of such Involuntary Termination of Employment but not later than the expiration date(s) of such stock options or if such exercise is not permitted an amount equal to the bargain element of such options shall be paid. 6.05 Continuation of Compensation. In addition to the benefits of Section 6.04, upon Involuntary Termination of Employment Executive shall continue to receive Monthly Payments for that number of months set forth in the table below, based upon the Years of Service of Executive with Company. MONTHS OF YEARS OF SERVICE COMPENSATION CONTINUATION More Less Than Than 0 - 10 years 12 months 10 - 11 years 13 months 11 - 12 years 14 months 12 - 13 years 15 months 13 - 14 years 16 months 14 - 15 years 17 months 15 - 16 years 18 months 16 - 17 years 19 months 17 - 18 years 20 months 18 - 19 years 21 months 19 - 20 years 22 months 20 - 21 years 24 months 21 - 22 years 25 months 22 - 23 years 26 months 23 - 24 years 27 months 24 - 25 years 28 months 25 - 26 years 30 months 26 - 27 years 31 months 27 - 28 years 32 months 28 - 29 years 33 months 29 - 30 years 34 months more than 30 years 36 months 6.06 Involuntary Termination - Change of Control. In the event that an Involuntary Termination of Employment of Executive occurs by virtue of a Change of Control, Executive shall receive all of the benefits set out in Section 6.04 above. Executive shall receive Monthly Payments for the number of months indicated in the table below. MONTHS OF YEARS OF SERVICE COMPENSATION CONTINUATION More Less Than Than 0 - 3 years 12 months 3 - 10 years 24 months 10 - 15 years 27 months 15 - 20 years 30 months more than 20 years 36 months ARTICLE VII - MISCELLANEOUS 7.01 Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when received, if personally delivered, electronically transmitted, or mailed, first class postage prepaid, addressed to Company at Jamison Road and Seneca Street, East Aurora, New York 14052 (with a copy to Phillips, Lytle, Hitchcock, Blaine & Huber LLP, attention John B. Drenning, Esq., 3400 HSBC Center, Buffalo, New York 14203), or to Executive at the address on the first page, or such other address as may be designated by notice in accordance with the provisions of this Section. 7.02 Arbitration. All disputes, differences and controversies arising under or in connection with this Agreement, including but not limited to its interpretation, construction, performance or application, shall be settled and finally determined by arbitration in the City of Buffalo, New York, under the then existing rules of the American Arbitration Association. 7.03 Entire Agreement. This instrument contains the entire agreement of the parties with respect to its subject matter, and supersedes and replaces any prior agreement or understanding, and no amendment, modification or waiver of any provision hereof shall be valid unless it be in writing and signed by Company and Executive. 7.04 Non-Waiver. The waiver of, or failure to take action with regard to, any breach of any term or condition of this Agreement shall not be deemed to constitute a continuing waiver or a waiver of any other breach of the same or any other term or condition. 7.05 Paragraph and Other Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not affect in any way, the meaning or interpretation of this Agreement. 7.06 Gender and Number. The masculine gender used herein shall be deemed to include the feminine and neuter genders, and vice versa, and the singular or plural, shall be deemed to include the plural or singular, as the case may be, when required by the context, and the word "person" shall include corporation, firm, partnership or other form of association. 7.07 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, any of which shall be deemed an original, and all of which together shall constitute one and the same instrument, notwithstanding that all of the parties are not signatory to the original or the same counterpart. 7.08 Persons Bound - Non-Assignment. This Agreement and all of the provisions hereof shall be binding upon the parties hereto, their legal representatives, heirs, distributees, successors and assigns. Except as expressly stated herein, nothing in this Agreement is intended to confer upon any other person any rights or remedies under or by reason of this Agreement. Neither this Agreement nor any rights hereunder shall be assignable by Executive. 7.09 Guarantee of Company. If Executive's services are assigned to any parent, subsidiary or affiliate of Company, Company shall remain liable as a guarantor of the obligations hereunder. 7.10 Inconsistent Provisions. If any provision of this Agreement is inconsistent with any provision or any Plan or Resolution (including the Severance Pay Resolution) providing benefits substantially similar to those provided by this Agreement or any other document required or executed pursuant to this Agreement, the provisions of this Agreement shall be controlling. 7.11 Severability. If any provision of this Agreement or the application thereof to any person or circumstances is held invalid, the remainder of this Agreement and the application of such provision to the other person and circumstances shall not be affected thereby and each term and condition of the Agreement shall be valid and enforced to the fullest extent permitted by law. 7.12 Choice of Law. This Agreement shall be construed as to both validity and performance and enforced in accordance with and governed by the laws of the State of New York, without giving effect to the choice of law principles of those laws. 7.13 No Conflicting Agreement. Executive represents and warrants to Company that he is not a party to, or bound by, any agreement, understanding or plan which would interfere with or prevent performance under this Agreement. Company similarly represents and warrants to Executive. 7.14 Attorney's Fees. In the event that any dispute or difference arising under or in connection with this Agreement results in arbitration or litigation, Company shall reimburse Executive for all reasonable Attorney's Fees and expenses if Executive prevails in such proceeding. 7.15 Authorization. Company represents to Executive that this Agreement has been duly approved by its Board of Directors and execution by an appropriate officer duly authorized. IN WITNESS WHEREOF, the undersigned parties hereto have duly executed this Agreement as of the day and year first above written. MOOG INC. WITNESS: __________________________ By __________________________ [NAME] [TITLE] WITNESS: ______________________________ ______________________________ [NAME], Executive Exhibit 10(viii) MOOG INC. SUPPLEMENTAL RETIREMENT PLAN [ADOPTED: AUGUST 22, 1978; AMENDED: AUGUST 30, 1983, MAY 19, 1987, AUGUST 30, 1988, DECEMBER 12, 1996 AND NOVEMBER 11, 1999] ARTICLE I Purpose, Definitions, Administration, Amendment The Moog Inc. Supplemental Retirement Plan is an unfunded plan, not intended to qualify under the Internal Revenue Code, maintained for the purpose of providing additional retirement benefits for a select group of management or highly compensated employees of Moog Inc., and participation in the Moog Inc. Supplemental Retirement Plan is limited consistent with such purpose. Benefits under the Moog Inc. Supplemental Retirement Plan are intended to supplement benefits provided under the Moog Inc. Employees' Retirement Plan and benefits received from Social Security. The following words and phrases as used herein have the following meanings: "Cause" means: any harmful act or omission that constitutes a willful and a continuing material failure by the Executive to perform the material and essential obligations under his Employment Termination Benefits Agreement (other than as a result of death or total or partial incapacity due to physical or mental illness); or the Executive's conviction of a felony, or any willful perpetration by the Executive of a common law fraud upon the Company; or any willful misconduct or bad faith omission by the Executive constituting dishonesty, fraud or immoral conduct, which is materially injurious to the financial condition or business reputation of the Company. Anything in this definition to the contrary notwithstanding, the termination of the Executive's employment by the Company is not considered to have been for Cause if the termination resulted from: bad judgment or mere negligence on the part of the Executive; or an act or omission by the Executive without intending to gain, directly or indirectly, a substantial personal profit to which the Executive was not legally entitled; or an act or omission by the Executive that the Executive believed in good faith to have been in the interests of the Company or not opposed to such interests. "Change of Control" means the transfer in one or more transactions, extending over a period of not more than 24 months of Common Stock of the Company possessing 25% or more of the total combined voting power of all Class A and Class B Shares of Common Stock. A transfer shall be deemed to occur if shares of Common Stock are either transferred or made the subject of options, warrants, or similar rights granting a third party the opportunity to acquire ownership or voting control of such Common Stock. "Common Stock" means the Class A and Class B $1.00 par value shares of the capital stock of the Company, as well as all other securities with voting rights or convertible into securities with voting rights. "Code" means the Internal Revenue Code of 1986, as amended and as it may be amended. "Company" means Moog Inc., as well as any successors or assigns of Moog Inc., whether by transfer, merger, consolidation, acquisition of all or substantially all of the business assets, change in identity, or otherwise by operation of law and for purposes of employment of an Executive shall also mean any parent, subsidiary or affiliated entity to whom Executive's services may be assigned. "Compensation Committee" means the Executive Compensation Committee of the Board of Directors of the Company (the "Board"), as it is constituted from time to time. "Disability" means the inability of Executive to perform a substantial portion of his duties for a continuous period of 6 months or more. "Employment Termination Benefits Agreement" means the written agreement between the Company and the Executive providing the terms and conditions of the Executive's employment as a member of the Company's management. "Executive" means an employee of the Company who participates in the Moog Inc. Employees' Retirement Plan, who is an officer of the Company and who is a party to an Employment Termination Benefits Agreement. "Involuntary Termination of Employment" means a severance of the Participant's employment relationship prior to age 65, other than for death, Disability, Retirement, or Cause, by or at the instigation of Company or by or at the instigation of Participant where Participant's pay has been diminished or reduced to a greater extent than any diminution or reduction of Company's Executives generally, or where there has been a Change of Control, Involuntary Termination of Employment shall also include a termination of the employment relationship by Participant (whether before or after age 65), within two years of the Change of Control, in those circumstances where the duties, responsibilities, status, base pay or perquisites of office and employment have been diminished or downgraded, or substantially increased (other than base pay) without Participant's actual or implied consent; provided, however, that a general increase or decrease in base pay which is approved by a majority of those Participants who are parties to Employment Termination Benefits Agreements will be considered as having been consented to for purposes of this Plan. "Moog Inc. Employees' Retirement Plan" means the Moog Inc. Employees' Retirement Plan, as amended and restated effective as of January 1, 1989, as amended and as it may be amended, or any successor Company Retirement Plan, as in effect as of the date that a benefit is calculated under the Plan. "Participant" means an Executive who is a Participant in the Plan pursuant to Article II. The word "Participant" includes a person who has ceased to actively participate in the Plan but who has not received payment of all of his Plan benefits. "Plan" means the Moog Inc. Supplemental Retirement Plan, as set forth herein and as it may be amended. "Retirement" means the election of Executive to retire from active employment with Company at the end of the month in which Executive attains 65 years of age or thereafter. Retirement shall also mean a similar election by Executive prior to age 65, where Executive elects to receive early Retirement benefits under the Moog Inc. Employees' Retirement Plan. "Spouse" means a surviving spouse receiving benefits, if any, payable under the Moog Inc. Employees' Retirement Plan because of the death of a Participant, and includes a spouse receiving either pre-retirement surviving spouse benefits or survivor's benefits because of the form of payment elected by the Participant under the Moog Inc. Employees' Retirement Plan. "Supplemental Benefit" means the income, if any, payable to a Participant or Beneficiary pursuant to Article III of the Plan. "Year of Service" has the same meaning as defined in the Moog Inc. Employees' Retirement Plan for benefit accrual purposes. The Plan shall be operated under the direction of the Compensation Committee, which shall have all authority and powers necessary to administer the Plan and construe the Plan terms, make factual determinations, resolve any ambiguities or inconsistencies, determine eligibility for participation or benefits, and decide all questions arising in the Plan administration, interpretation or application; provided, however, that all such actions or decisions made after a Change of Control shall be subject to a de novo standard of judicial review. While the Company expects to continue the Plan indefinitely, it reserves the right to amend the Plan at any time and from time to time or to discontinue the Plan at any time, by action of its Board. No amendment or discontinuance of the Plan shall impair or adversely affect any benefits accrued under the Plan as of the date of such action, except with the consent of the Participant or Spouse entitled to receive such benefits. In the event of an amendment of the Plan affecting benefits, or discontinuance of the Plan, the interest of each Participant shall be determined as if each Participant retired as of the date of such amendment or discontinuance; provided, however, that in the event of such an amendment or discontinuance after a Change of Control, the Plan shall continue and benefits shall continue to accrue under the Plan, based on the terms of the Plan as of the date preceding such action, for all individuals who are Participants or Spouses on such date. ARTICLE II Eligibility Each Executive shall be a Participant eligible for Supplemental Benefits pursuant to Article III of the Plan, provided the Executive has at least ten continuous Years of Service with the Company and (except as provided in Article VIII) elects Retirement; provided, however, that at the time of Retirement, the Participant must have attained (1) age 65 or later or (2) age 60 or later with a combined total of age and Years of Service with the Company at least equal to 90; provided, further, that Supplemental Benefits shall be payable to an Executive who receives benefits under the Moog Inc. Employees' Retirement Plan because of Disability, without regard to such Participant's eligibility for early or normal Retirement benefits under this Plan. Supplemental Benefits shall be payable to a Spouse who receives pre-retirement surviving spouse benefits under the Moog Inc. Employees' Retirement Plan because the Executive died before commencing benefit payments under the Moog Inc. Employees' Retirement Plan. Eligibility for the benefits of this Plan is limited to Executives of the Company and does not extend to officers or executives of any affiliate or subsidiary. ARTICLE III Benefits For an Executive with twenty-five or more Years of Service with the Company, the Supplemental Benefit payable to the Executive under this Plan (determined based on the payment form elected under the Moog Inc. Employees' Retirement Plan) shall equal the excess, if any, of "(a)" over "(b)" + "(c)" where "(a)" is sixty-five percent of the average of the highest consecutive three-year base salary paid to such Executive prior to retirement, "(b)" is the benefit that would be paid to such Executive under the Moog Inc. Employees' Retirement Plan at age 65, and "(c)" is the primary Social Security benefit of such Executive at age 65. For an Executive with 10-24 Years of Service, "(a)" will be determined according to the following schedule: Years of Service (a) Total Combined Benefit Target 24 64% 23 63% 22 62% 21 61% 20 60% 19 59% 18 58% 17 57% 16 56% 15 55% 14 54% 13 53% 12 52% 11 51% 10 50% Early payment of Supplemental Benefits under this Plan shall be made to an Executive who elects earlier Retirement under the Moog Inc. Employees' Retirement Plan; provided, however, that no early payment shall be made unless the Executive's Retirement is at age 60 or later with a combined total of age and Years of Service with the Company at least equal to 90; provided, further, that the Supplemental Benefits payable under this Plan shall be reduced by the early payment actuarial discount established under the Moog Inc. Employees' Retirement Plan for the commencement of benefits before age 65. Notwithstanding the foregoing, Supplemental Benefits shall be payable to an Executive who receives benefits under the Moog Inc. Employees' Retirement Plan because of Disability, without regard to such Participant's eligibility for early or normal Retirement benefits under this Plan. In the event of commencement of Supplemental Benefits prior to attainment of age 62, the Supplemental Benefit payable under this Plan shall include a Social Security "bridge" payment equal to the amount of the Social Security benefit at age 62, until such time as the Executive attains age 62. In the event of commencement of Supplemental Benefits between age 62 and age 65, the Social Security benefit amount to be used in determining the Supplemental Benefit payable under this Plan shall be the Social Security benefit amount payable on the actual date of Retirement. A Spouse shall receive a payment of Supplemental Benefits determined by applying the above benefit formula if, and to the extent that, the Spouse receives pre-retirement surviving spouse benefits under the Moog Inc. Employees' Retirement Plan because the Executive died before commencing benefit payments under the Moog Inc. Employees' Retirement Plan; provided, however, that if the Executive had not attained age 65 when he died, the Supplemental Benefits shall be determined as if the Executive attained age 65 on the day before his death. Supplemental Benefits under this Plan, to which a Spouse is entitled pursuant to the preceding paragraph, shall be paid to a Spouse who receives pre-retirement surviving spouse benefits from the Moog Inc. Employees' Retirement Plan before the Participant would have attained age 65; provided, however, that the Supplemental Benefits payable under this Plan shall be reduced by the early payment actuarial discount established under the Moog Inc. Employees' Retirement Plan for the commencement of benefits before age 65. ARTICLE IV Time and Form of Benefit Payment Any benefit under this Plan shall be paid to the Participant, or his Spouse, at the same time and in the same form and manner as benefit payments are made to, or on behalf of, the Participant or Spouse under the Moog Inc. Employees' Retirement Plan, except as otherwise provided in Article III. ARTICLE V Funding This Plan shall be maintained as an unfunded Plan which is not intended to meet the qualification requirements of Section 401 of the Code. All benefits under this Plan shall be payable solely from the general assets of the Company and a Participant or Spouse shall have only the rights of a general unsecured creditor of the Company. No benefits under this Plan shall be payable from the trust fund maintained under or in accordance with the provisions of the Moog Inc. Employees' Retirement Plan. The Company, however, has established a grantor trust, to which the Company makes contributions from time to time in accordance with the terms of the Trust Agreement. ARTICLE VI Effective Date The Effective Date of this Plan shall be October 1, 1978. The Effective Date of the amendment and restatement of this Plan shall be November 11, 1999, and the amended and restated terms of the Plan shall apply to only Participants employed by the Company on or after the Effective Date of the amendment and restatement. ARTICLE VII Agreement Not to Compete Payment of benefits under this Plan is contingent upon the Participant's agreement not to directly or indirectly engage in or compete with the business of the Company, either as owner, partner or employee for a period of the later to occur of the expiration of three years after Retirement or the attainment of 65 years of age. In the event a Participant shall compete with the business of the Company, payment of benefits under this Plan shall be suspended so long as such Participant engages in activity deemed to be in competition with the business of the Company. Notwithstanding the foregoing, this Article VII shall not apply to a Participant after the Participant's Involuntary Termination of Employment by virtue of a Change of Control. ARTICLE VIII Benefits Upon Certain Terminations or Change of Control The provisions of this Article VIII shall apply only where there has been an Involuntary Termination of Employment or a Change of Control. Upon an Involuntary Termination of Employment, other than by virtue of a Change of Control, a Participant who would be eligible to receive benefits under this Plan if he was then age 65 or more, shall be vested in his benefits under this Plan upon such Involuntary Termination of Employment and, upon attainment of age 65, shall receive such benefits determined as follows: the benefit payable at age 65 shall be determined under Article III using the average of the highest consecutive three-year base salary paid prior to such Involuntary Termination of Employment, instead of such average for the base salary paid prior to Retirement, subject to further adjustment by reducing the combined benefit target of Article III by one percent for each year of the Participant's age under 65 at the time of such Involuntary Termination of Employment. For example, a Participant age 45 at the time of such Involuntary Termination of Employment, with 15 Years of Service to the Company, upon attaining age 65, would have a combined benefit target of 44 percent (55 percent - (55 percent x 20 percent) = 44 percent) instead of the combined benefit target of 55 percent that would be payable if the Participant were then 65 years of age with 15 Years of Service. Upon a Change of Control, a Participant who would be eligible to receive benefits under this Plan if he was then age 65 or more, shall be vested in his benefits under this Plan upon such Change of Control and, upon attainment of age 65, shall receive such benefits determined as follows: the benefit payable at age 65 shall be determined under Article III using the greater of the average of the highest consecutive three-year base salary paid prior to such Change of Control or such average for the base salary paid prior to Retirement. ARTICLE IX Miscellaneous Social Security: Any increases in Social Security benefits payable to a Participant after Retirement shall not be considered in determining any benefits payable under this Plan. Nonassignability: No benefit under this Plan shall be assigned or alienated, or be subjected by attachment or otherwise to the claims of creditors of any Participant or Spouse. Nonguarantee of Employment: This Plan shall not be construed as giving any Participant the right to be retained in the employment of the Company. Death Benefits: Except as provided in Article III (with respect to the payment of benefits under this Plan to a Spouse because pre-retirement surviving spouse benefits are payable under the Moog Inc. Employees' Retirement Plan) or Article IV (with respect to the payment of benefits under this Plan to a Spouse because of the form and manner of benefit payments elected by the Participant under the Moog Inc. Employees' Retirement Plan), there shall be no death benefit payable under this Plan. Deferred Retirement: In the event that a Participant elects a deferred Retirement date after age 65, the amount of benefit payable under this Plan at Retirement shall not be adjusted other than as provided by the benefit formulas in Article III. Attorney's Fees: In the event that any dispute or difference arising under or in connection with this Plan results in arbitration or litigation, Company shall reimburse Executive for all reasonable Attorney's Fees and expenses if Executive prevails in such proceeding. Exhibit 13 MOOG 1999 Annual Report The Power of Perfect Motion Moog is a worldwide manufacturer of precision control components and systems. Moog's high performance actuation products control military and commercial aircraft, satellites and space vehicles, launch vehicles, missiles and automated industrial machinery. Content: Financial Highlights 1 Letter to Shareholders 2 Moog Technology 4 Military Aircraft and Commercial Aircraft 6 Satellites & Launchers 10 Industrial Automation 14 eMoog.com 18 Board of Directors 20 Form 10K 21 Investor Information 50 Financial Highlights (dollars in thousands except per share data) Net Sales 1999 $630,034 1998 $536,612 1997 $455,929 1996 $407,237 1995 $374,284 Net Earnings 1999 $24,431 1998 $19,268 1997 $13,606 1996 $10,709 1995 $7,761 Net Earnings Per Share 1999 $2.70 1998 $2.26 1997 $1.88 1996 $1.40 1995 $.99 Total Assets 1999 $798,476 1998 $559,325 1997 $490,563 1996 $449,558 1995 $424,957 Indebtedness - Senior 1999 $256,110 1998 $85,614 1997 $118,245 1996 $91,262 1995 $170,361 - Subordinated 1999 $120,000 1998 $120,000 1997 $120,000 1996 $120,000 1995 $19,400 Shareholders' Equity 1999 $211,770 1998 $191,008 1997 $114,191 1996 $104,743 1995 $108,636 Capital Expenditures 1999 $26,439 1998 $22,688 1997 $13,713 1996 $10,885 1995 $10,232 Depreciation and Amortization 1999 $30,602 1998 $22,665 1997 $21,267 1996 $19,632 1995 $19,675 Backlog 1999 $336,857 1998 $314,253 1997 $280,364 1996 $243,310 1995 $237,941 Graphs inserted which show consolidated sales, operating profit and net earnings in millions of dollars as follows: FY1999 FY1998 FY1997 Sales 630 537 456 Operating profit 73 59 51 Net earnings 24 19 14 Chairman's Letter Fiscal Year 1999 Shareholders, Employees and Friends: Fiscal '99 was the fifth straight year of double-digit earnings growth for Moog. Net earnings and earnings per share increased 24% and 19%, respectively, on a 17% sales increase. Our results were all the more remarkable when contrasted with disappointments experienced by some of our aerospace industry customers and peers. Aviation Week, in its Market Focus column, described our performance as being "in sharp contrast" to other aerospace subcontractors. Our '99 experience differed for several reasons. Let's focus on four. First of all, we take our highly refined technical specialties to a variety of diverse markets. Our success depends on conditions in defense, commercial aerospace, and many industrial sectors in the U.S. and overseas. This year, weakness in the production of commercial airplanes, telecommunication satellites and injection molding machines was offset by strength in satellite launch vehicles, missile defense systems and turbine controls. Overseas, our results in Europe were much improved and our turnaround in Asia was amazing. Secondly, in early '99, we closed on three acquisitions: Hydrolux Sarl, Microset srl and the Montek division of Raytheon Aircraft. Montek had a larger impact on fiscal '99 than anything else. The additional revenues provided a big increase in our Aircraft group despite the production of fewer airplanes at Boeing and the end of deliveries on the F-15 and the B-2. Thirdly, we have a carefully maintained discipline for providing visibility at all management levels on cost and contract performance. We don't like surprises. We know from experience that when a problem exists, the facts are known at some level in the organization. Our process illuminates a problem as soon as it occurs so that all our Company's resources can be brought to bear. Lastly, and most importantly, our '99 results were achieved because we have an extraordinary organization of people who are experienced and dedicated, and willing to make personal sacrifices to get the job done and, in '99, they did. Let's review some of the highlights. Early in '99, we signed three very important multi-year contracts with Boeing. The biggest was an agreement that covers deliveries of all our commercial airplane products through 2008. It establishes pricing for the existing portfolio of products, including those that came with Montek, and it includes new business as well - the trailing edge transmissions on the 777 and the leading edge actuators for the 767. This new business will largely offset the slightly lower production rates for Boeing's 7-series aircraft in fiscal 2000.Taken altogether, this contract could approach $700 million. The next contract covered 170 shipsets of flight controls for the V-22 Osprey, delivered over six years. It will exceed $200 million. Lastly, our future in the helicopter business was stabilized by a $15 million contract for delivery of flight controls for six shipsets of pre-production RAH-66 Comanches. We'll go a long way to win a new job in the military aircraft business. In '99, we won the maneuvering leading edge on the Korean KTX-2 Trainer. The initial contract is worth $6.7 million, but it'll be worth $30 million if all 99 aircraft are built. Buying Montek stimulated a new emphasis for us on regional aircraft and business jets. The acquisition brought us spoiler actuators on the Raytheon Premier and an entire suite of flight control actuation on Raytheon's Hawker Horizon. A few months after the acquisition, we won all the flight control actuation on Bombardier's Continental. We're hopeful that these new relationships with Raytheon and Bombardier will develop as a strong complement to our positions at Boeing and Lockheed. Overall, our Aircraft revenues increased by 19% in '99, and we maintained margins in spite of heavy research and development in the Joint Strike Fighter. Aftermarket continued to build, amounting to nearly 35% of Aircraft segment revenues. Sales in our Satellite and Launch Vehicle segment were up 18% in fiscal '99, fueled by increases in steering controls for launch vehicles, particularly Titan IV and Delta IV. In addition, we were awarded contracts to develop steering controls for the National Missile Defense Launch Vehicle and flight controls for the Space Station Crew Return Vehicle. Although Montek's revenues are mostly aircraft-related, they include some tactical missile programs like Hellfire, TOW, and AGM-142. Within the same segment, satellite sales for propulsion controls, solar array drives, and antenna pointing mechanisms were a disappointment in fiscal '99. Commercial failures of Iridium(tm) and ICO slowed the development of further LEO constellations, perhaps indefinitely. Nevertheless, in fiscal 2000 we're looking for an upturn in satellite revenues because of a new award on the Lockheed Martin A2100 bus and a long term supply agreement with DASA in Europe. Overall, our Industrial business grew 15% in '99. Much of the growth came from the Hydrolux and Microset acquisitions. Beyond that, we saw impressive and sustainable growth in power generating turbine controls. Sales to customers building plastics forming machines, including Husky, were slower than we hoped but are expected to improve in 2000. Also in '99, we delivered 22 mobile motion simulators for MCA-Universal's Spiderman attraction at their Islands of Adventure Theme Park. These are remarkable machines choreographed to Universal's extraordinary visual effects. They provide theme park customers with experiences described by enthusiasts as "unforgettable". We look forward to the next century with optimism and confidence. Consolidation in aerospace and in many industrial sectors has strengthened our market position. Our acquisitions have broadened what we offer to many key customers and are part of the reason that, since '96, our revenues have increased by 50%.In terms of operational performance, market position, and the achievement of financial targets, we're delighted with the progress to date. The one major disappointment in our overall picture is the price of our A stock. In January of '98, having just reported fiscal '97 results of $1.88 per share, we issued 1.8 million new shares at $34 3/8. In this report, we're describing results that are a 43% improvement over '97, and, if we were enjoying a similar P/E ratio, we'd see a stock price of close to $50 per share. There may be several factors responsible for our P/E compression, but we think there are three major ones. We believe that disappointing results by some industry leaders in aerospace have pushed our sector out of favor. We're hopeful that, with the help of Aviation Week and a number of highly regarded industry analysts, Moog will be recognized as an exception. Secondly, we share the fate of many well-performing small cap companies, ignored for the time being by some of the major investment funds. We believe the time will come when the market will look more favorably on small caps. Finally, we have not yet been swept up in the dot com euphoria. The world is just learning of the capabilities of our web site - www.moog.com. Page 18 of this report describes our e-commerce capabilities. When users discover that they can specify and select servovalves and electric actuators on our web site, we'll probably have to change our name to eMoog.com, and then the sky will be the limit. Respectfully submitted, R. T. Brady Moog Technology Everyone appreciates the breathtaking advancement in computers and software. Just as computers have revolutionized information technology, they have also revolutionized controls in aircraft, satellites and industrial machinery. This phenomenon works in our favor. Our principal products are servoactuators that take the information generated by computers and then make something happen.The inputs to our products are tiny electrical signals emanating from control computers. Advancements in computer technology enhance the capabilities of our products and their relevance in today's industrial society. The diagram below describes conceptually the relationship between the control computer and our servoactuator. For those interested in a more detailed description: An electrohydraulic servocontrol system consists of six elements indicated in the diagram below: control electronics which may be a computer, microprocessor or guidance system and which create a command input signal; a servoamplifier which provides a low power electrical actuating signal which is the difference between the command input signal and the feedback signal generated by the feedback transducer; a servovalve which responds to this low power electrical signal and controls the high power flow of hydraulic fluid to an actuation element such as a piston and cylinder which positions the device being controlled; and a power supply, generally an electric motor and pump, which provides the flow of hydraulic fluid under high pressure. The feedback transducer measures the output of the system and converts this measurement into a proportional signal which is sent to the servoamplifier. The concepts are similar in electromechanical systems wherein an electric drive and ballscrew are used instead of a servovalve and actuator. This cutaway of an actuator shows the piston which moves inside the cylinder in response to the pressure and flow control of the servovalve. The piston extends and retracts, providing the motion or force commanded by the computer. Military and Commercial Aircraft Moog is the dominant supplier of primary and secondary flight control actuation on U.S. military aircraft. In recent years, our market share has been increasing due to our positions on the V-22 and the F-18, and our potential on the Joint Strike Fighter. In commercial airplanes, our position is similarly dominant at Boeing, and we have recently stepped up our pursuit of regional and business jets at Bombardier and business jets at Raytheon. In the U.S., our revenues will continue to grow because of our increasing market share and our strength in aftermarket revenues. Military Aircraft: 22% of '99 sales/FY'00 Forecast Sales: $144 million Commercial Aircraft: 26% of '99 sales/FY'00 Forecast Sales: $165 million Military and Commercial Aircraft Products - - Primary and secondary flight control actuation using hydraulic, mechanical and electrohydrostatic technologies - - Flight control servovalves - - Engine control servovalves and servoactuators - - Stabilizer trim controls and elevator feel systems - - --Active vibration control systems - - --Wingfold and weapons bay actuation systems Major Programs Military Aircraft: - - F/A-18E/F, V-22, F-16, Japanese F-2, Korean KTX-2, Joint Strike Fighter, C-27J, C-295, Tornado, Eurofighter-Typhoon Large Commercial Airplanes: - - Boeing 737, 747, 757, 767,777, Airbus A330, A340 Regional Aircraft: - - DHC-8-400 Business Jets: - - Citation X, Premier 1, Hawker Horizon, Gulfstream IV, Continental, Challenger 601 Military and Commercial Helicopters: - - Blackhawk, Seahawk, RAH-66, EH-101, S-92 Military Engine Controls: - - F-404, F-414, F-110, F-119,EJ200, AE2100, T406,RTM322 Commercial Engine Controls: - - CF-6, GE90, V2500, RB211 and Trent, Honeywell APU's, PW 901 Competitive Advantages - - Unparalleled experience in design of primary and secondary flight control actuation, both in the U.S. and overseas - - Complete actuation system integration capability - - State-of-the-art technology in flight controls, engine controls and active vibration - - World-class manufacturing facilities staffed with skilled,experienced and dedicated work force - - Focused, highly-responsive aftermarket support organization Competitors Electrohydraulic Actuation: - - Parker Hannifin, Teijin Seiki, Dowty Mechanical Actuation: - - Curtiss-Wright, Dowty Strategies & Initiatives - - Maintain leading-edge technology in flight control, engine control and active vibration controls - - Align business plans with customer objectives - - Partner with prime contractor R&D centers - - Continue emphasis on reduced development cycle for new products - - Continue pursuit of process improvement and cost reduction - - Maintain the world's most responsive aftermarket support services Market Developments - - The F/A-18E/F and the V-22 continue to ramp up in production - - Boeing production rate stabilizes at sustainable level - - Awarded new work on Boeing's 767 and 777 - - Regional aircraft and business jets become the near-term growth opportunity - - Awarded primary and secondary flight controls on the Bombardier Continental business jet - - Success on both Joint Strike Fighter Concept Demonstrator programs insures long-term position Graphs inserted which show Aircraft sales and operating profit in millions of dollars as follows: FY1999 FY1998 FY1997 Sales 302 254 226 Operating profit 37 29 31 Satellites and Launch Vehicles 17% of '99 sales/FY'00 Forecast Sales: $111 million Sales grew 18% in the Satellites and Launch Vehicles business in fiscal '99. Fueling the increase was a surge in revenues for launch vehicles and missiles, which more than offset the general slowdown in satellite construction. During the year, we won positions on National Missile Defense and the Space Station Crew Return Vehicle as well as additional applications on the Lockheed Martin A2100 satellite bus. In addition, Moog's divert and attitude control valves played a critical role in the successful intercepts by both the THAAD and EKV missiles. These successes and opportunities, coupled with a relatively stable ongoing business, support our optimism for fiscal 2000. Satellites and Launch Vehicles Products - - Thrust vectoring controls for engines on launch and space vehicles - - Fin controls for missiles - - Thruster valves, isolation valves, regulators and integrated manifolds for satellite propulsion control - - Electric propulsion propellant management systems for satellites - - Solar array drives and antenna pointing mechanisms Major Programs Satellite Propulsion: - - HS-601, HS-702, A2100,FS1300, Eurostar, Spacebus,IridiumTM, GlobalStar Launch and Space Vehicle Steering and Propulsion Controls: - - Titan IV, Atlas Centaur, Ariane, Trident II, Space Shuttle, Delta IV, Pegasus, Taurus, National Missile Defense, Space Station X38 Crew Return Vehicle, Hyper X Space Plane Missile Steering Controls: - - SM2-IV, VLASROC, Maverick, Patriot, Aspide, Sea Dart, Penguin, Aster 15 and 30, Apache, Storm Shadow, Arbizon, MQM 170-B, C-22 Drone, KEPD 350, Hellfire, Longbow, THAAD, EKV, AGM-142, TOW Space Station Components: - - Fluid quick disconnects, truss assembly actuators,fluid transfer couplings Electric Propulsion: - - Propellant Management Assembly for Loral - - NASA Deep Space One Xenon Feed System - - Hughes XIPS Regulator - - Xenon resistojet and cathode development Satellite Motion Control: - - IridiumTM solar array drives - - Japanese Experimental Module Intersatellite Communications System - - ILAS and GLI instruments on ADEOS 2 Competitive Advantages - - Unparalleled experience in design and manufacture of launch vehicle steering controls and satellite propulsion controls - - Leading edge technology in electric propulsion - - The most extensive experience in actuation for deploying satellite solar arrays and antennas - - World-class manufacturing facilities staffed with skilled,experienced and dedicated work force Competitors Launch Vehicle and Missile Steering Controls: - - Honeywell, HR Textron, Parker, Lucas Satellite Propulsion Controls: - - Vacco, Wright Components Launch Vehicle Propulsion Controls: - - Marotta, Ketema Satellite Motion Control: - - Tecstar, Honeywell, MPC Market Developments - - National Missile Defense has become a high priority for DoD - - The EELV competition between Delta IV and Atlas V begins - Moog is baselined on both teams - - Prospects for LEO satellite constellations fade and GEO satellite construction stabilizes - - We've signed a long term supply agreement with DASA in spite of export license issues Strategies & Initiatives - - Continue the advance of electromechanical capability for launch vehicles and missiles - - Increase use of automated test stands to reduce costs - - Continue implementation of next-generation cleanliness equipment and techniques - - Move from components to sub-systems in GEO satellite construction - - Support satellite and launch vehicle manufacturers on a worldwide basis Graphs inserted which show Satellites and Launch sales and operating profit in millions of dollars as follows: FY1999 FY1998 FY1997 Sales 110 94 66 Operating profit 13 10 9 Industrial Automation Moog began manufacturing industrial products 40 years ago.In 1959, we introduced our first industrial servovalve which has become the world's standard for high-performance hydraulic actuation. Over the years, we migrated upstream to produce the electronic controls for servo systems, and then expanded our base to include electric drives and electromechanical systems. Today, we provide both standard and customized servovalves and electric drives as components, as well as integrated hydraulic and electromechanical sub-systems. Many of our customers are global market leaders in particular product specialties and many are increasing their global market share, continuing to grow in spite of fluctuations in market conditions for capital goods. Industrial Hydraulics: 24% of '99 sales/FY'00 Forecast Sales: $163 million Electronics and Drives: 11% of '99 sales/FY'00 Forecast Sales: $77 million Industrial Hydraulics, Electronics and Drives Products Hydraulics: - - Every type of servovalve and proportional valve - - Actuation packages - high performance and conventional cylinders - - Customized, integrated manifold packages Electromechanical: - - --Brushless servomotors and programmable servodrives - - --Electromechanical servoactuator packages(linear and rotary) - - --Electronic controls for specialized automated machinery - - --Electrically actuated motion simulators and platforms Major Applications Hydraulics: - - Electrical feedback servovalves for control of clamp and injection operations on plastic injection molding equipment - - Mechanical feedback and direct drive valves for parison control, and electrical feedback valves for motion control in plastic blow molding machines and for control of rolls in paper machinery - - Fuel metering and vane actuation controls for gas turbines - - --Steam bypass and override controls for steam turbines - - --Hydraulic actuators and servovalves for fatigue testing systems - - --Electrical and mechanical feedback servovalves for coil box, gauge control, mold oscillator, side guide and down coiler control of steel and aluminum mill equipment - - --Control loading and motion platform actuators for flight training and entertainment simulators - - --Vane and nozzle positioning of water turbines - - --Formula 1 race car control systems - - --Six-degree-of-freedom entertainment motion platforms with 2,000 to 9,000 pounds of capacity Major Applications Electromechanical: - - Electric drives for assembly robots, metal forming machines, material handling robots and packaging machines - - Custom controls for Tuftco carpet tufting machines - - Full performance total machine controllers for injection molding and blow molding machines - - --Electric gun positioning,ammunition-handling, and radar platform actuation for military vehicles - - --Tilting controls for high-speed trains - - --Four- and six-degree-of-freedom motion platforms with capacities between 2,000 and 13,000 pounds for the entertainment and vehicle training markets - - --Special entertainment platforms for theme parks - - --Electric actuation for control of injection and blow molding machines - - --Vane positioning in gas turbines - - --Adaptive control for automatic profiling in injection molding Competitive Advantages - - Leading edge technology in industrial automation - - Worldwide application engineering to optimize custom solutions - - Focus on product reliability supported by worldwide service facilities - - World-class manufacturing facilities staffed with skilled, experienced and dedicated work force Competitors Servovalves: - - Bosch, Rexroth Electric Drives: - - Indramat, Pacific Scientific, Custom Servo Motors, Kollmorgen Electronic Controls: - - Siemens, Barber Colman, Gefran Electric Simulators: - - Fokker, Hydrodyne Strategies & Initiatives - - Continue development of leading edge technology - - Pursue forward integration of products in selected market applications - - Consolidate production in global manufacturing centers - - Focus factories and processes to shorten lead times - - Expand global capabilities for support and service Market Developments - - European sales stabilize and Asia recovers faster than anticipated - - Turbine controls provide fastest revenue growth - - Growth in plastics machine market slows and shift begins from hydraulic to electromechanical controls - - Train tilting for high speed trains goes electric - - MCA-Universal and Disney begin shift to electric actuation Graphs inserted which show Industrial sales and operating profit in millions of dollars as follows: FY1999 FY1998 FY1997 Sales 218 189 164 Operating profit 23 20 11 eMoog.com eMoog.com With all the attention paid these days to e-commerce and the internet, it seems timely to describe our current state in information management. We've organized the summary in three sections: Enterprise Resource Planning, CAD/CAM, and Net Communications. ERP: ENTERPRISE RESOURCE PLANNING Ten years ago, before ERP was a term of art, Moog set out to develop an information infrastructure that would tie together our 20 worldwide locations. It would integrate sales, engineering, manufacturing, quality assurance, cost management and finance. It had to satisfy public accounting standards for SEC reporting and government accounting standards for long term government contracting. A multi-function team analyzed the Company's needs, researched the available software, and selected a basic package provided by Western Data Systems. The original installation and modification of the WDS package took two years. Since then, the Moog Business System has been installed in our acquired companies and in the largest of our overseas facilities. Our objective of integrating our Company on one set of systems is close to complete. We now have in place the information infrastructure that many companies are just now spending millions to emulate. CAD/CAM While we've been perfecting the ability of Moog's Business System to schedule, monitor, and report activities within the Company, another computer-based evolution has come of age. We began Computer-Aided Design (CAD) over 20 years ago. In 1988, we began our second-generation implementation. We committed our Company to Unigraphics and began integrating the CAD portion with Computer-Aided Manufacturing (CAM) in a serious way. The objective has finally been achieved wherein a design engineering team, including the designer, manufacturing engineer, quality engineer, and assembly and test specialist, and sometimes the cell machinist who will make the part, can huddle around CAD stations and jointly design a mechanical part. The design will be downloaded directly to an NC machine and chips will be cut without ever committing the design to paper. The evolution of this process is as much cultural as technological. The result is that the cycle time to design and develop flight control actuators for the Joint Strike Fighter was reduced by over 50%. WORLD WIDE WEB Since we think of ourselves as an engineering-based manufacturing company that solves difficult motion control problems in direct contact with customers, it wasn't clear how much benefit we would gain when we first published - www.moog.com. However, our web site has grown from a simple collection of financial materials such that we now offer on-line modeling of servovalves and electric actuators. A number of our standard products can be selected for purchase anywhere in the world simply by entering our web site. So, we're joining the e-commerce generation hoping that some of the dot-com glamour spills over onto our P/E and our stock price. THE EXTRANET Where are we headed? The next step will be an interactive site where Moog's engineers will work directly with customers, exchanging technical details about our products and our manufacturing processes. Customers will access databases that will replace cartons of printed data that are often delivered with our products. Maintenance manuals will be updated on this site, making the most recent information instantly available. E-commerce has come to Moog in the same fashion that it's coming to General Motors and Ford and all of the much-publicized internet retailers. The potential for improved efficiency in the interaction between suppliers and customers has only begun to be tapped. The advances achieved in recent years and available in the very near future are nothing short of unbelievable. It's an exciting time. Directors and Officers Robert T. Brady Chairman of the Board Chief Executive Officer President Richard A. Aubrecht Vice Chairman of the Board Vice President Strategy and Technology Robert R. Banta Executive Vice President Chief Financial Officer Director William P. Burke Treasurer Warren B. Cutting Director Emeritus John B. Drenning Secretary Partner, Phillips Lytle et al Donald R. Fishback Controller Principal Accounting Officer James L. Gray Director Retired Executive Joe C. Green Executive Vice President Chief Administrative Officer Director John D. Hendrick Director President, Okuma America Corporation Philip H. Hubbell Vice President Contracts and Pricing Stephen A. Huckvale Vice President International Group Kraig H. Kayser Director President and CEO Seneca Foods Corporation Robert H. Maskrey Executive Vice President Chief Operating Officer Director Albert F. Myers Director Vice President and Treasurer Northrop Grumman Peter P. Poth Director Retired Executive Richard C. Sherrill Vice President Systems Group Worldwide Locations Moog Inc. Headquarters East Aurora, New York, USA Moog Aircraft Group Salt Lake Operations Salt Lake City, Utah, USA Moog Aircraft Group Torrance Operations Torrance, California, USA Moog Systems Group Schaeffer Magnetics Division Chatsworth, California, USA Moog-Hydrolux Hydraulic Systems Inc. East Aurora, New York, USA Moog Argentina Buenos Aires, Argentina Moog Australia Pty. Ltd. Mulgrave, Australia Moog do Brasil Controles Ltda. Sao Paulo, Brazil Moog Control System (Shanghai) Co., Ltd. Shanghai, People's Republic of China Moog Buhl Automation Copenhagen, Denmark Moog Controls Ltd. Tewkesbury, England Moog OY Espoo, Finland Moog S.A.R.L. Rungis, France Moog GmbH Boblingen, Germany Moog Controls Hong Kong Ltd. Hong Kong Moog Controls (India) Pvt. Ltd. Bangalore, India Moog International Financial Services Center Ltd. Dublin, Ireland Moog Ltd. Ringaskiddy, Ireland Moog Microset s.r.l. Brescia, Italy Moog Italiana s.r.l. Malnate, Italy Moog Japan Ltd. Hiratsuka, Japan Moog Hydrolux S.a.r.l. Luxembourg Moog Controls Corporation Baguio City, Philippines Moog Korea Ltd. Kwangju-kun, South Korea Moog Singapore Pte. Ltd. Singapore Moog Sarl Sucursal En Espana Orio, Spain Moog Norden A.B. Askim, Sweden Exhibit 23(ii) CONSENT OF INDEPENDENT AUDITORS The Board of Directors Moog Inc.: We consent to incorporation by reference in the Registration Statements (Nos. 33-20069, 33-36721, 33-36722, 33-33958, 33-62968, 33-57131, 333-73439 and 333-85657) on Form S-8 of Moog Inc. of our report dated November 4, 1999 relating to the consolidated balance sheets of Moog Inc. and subsidiaries as of September 25, 1999 and September 26, 1998, and the related consolidated statements of earnings, shareholders' equity, and cash flows and the related schedule for each of the years in the three-year period ended September 25, 1999, which report appears in the September 25, 1999 annual report on Form 10-K of Moog Inc. KPMG LLP Buffalo, New York December 21, 1999 [PricewaterhouseCoopers Letterhead] MOOG Inc. East Aurora, New York 14052-0018 U.S.A. Consent of Independent Auditors' We consent to the incorporation by reference in the Registration Statement of Moog Inc. on Form S-8 of our report dated November 12, 1999 on our audits of the consolidated financial statements of MOOG GmbH (a wholly-owned subsidiary of MOOG Inc.) and subsidiary as of September 30, 1999 and 1998 and for the years then ended, which report is included in this Annual Report on Form 10-K of Moog Inc. Stuttgart Germany December 17, 1999 PricewaterhouseCoopers [PricewaterhouseCoopers Letterhead] 12 November 1999 MOOG Inc. East Aurora, New York 14052-0018 United States of America Independent Auditors' Report The Board of Directors MOOG Inc. We have audited the consolidated balance sheets of MOOG GmbH (a wholly-owned subsidiary of MOOG Inc.) and subsidiary as of September 30, 1999 and 1998, and the related consolidated statements of earnings and retained earnings and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MOOG GmbH and subsidiary as of September 30, 1999 and 1998 and the results of their operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The supplemental information in the reporting package and the Hyperion submission are presented for purposes of additional analysis and are not a required part of the basic consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. PricewaterhouseCoopers Stuttgart/Germany EX-27 2
5 12-MOS SEP-25-1999 SEP-25-1999 9,780 0 214,696 (2,417) 152,246 406,815 405,282 (216,364) 798,476 181,848 349,492 0 100 10,889 200,781 798,476 630,034 631,631 432,033 432,033 34,659 876 28,188 36,728 12,297 24,431 0 0 0 24,431 2.74 2.70
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