-----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, UqPfulsLEhB53qEET8jKIHF5I88Ui3fyMP/r9kggcfjUZTpFT1xAx74XEXvL/Xxs iTxlZeGcBSC8GJYM7e2gvw== 0000904802-99-000006.txt : 19990211 0000904802-99-000006.hdr.sgml : 19990211 ACCESSION NUMBER: 0000904802-99-000006 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981130 ITEM INFORMATION: FILED AS OF DATE: 19990210 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: 8-K/A SEC ACT: SEC FILE NUMBER: 001-05129 FILM NUMBER: 99528467 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 8-K/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ____________ FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): November 30, 1998 MOOG INC. ______________________________________________________________________ (Exact name of registrant as specified in its charter) New York 1-5129 16-0757636 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) East Aurora, New York 14052 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (716) 652-2000 NONE ______________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Item 7. Financial Statements, Pro Forma Condensed Combined Financial Information and Exhibits. The following financial statements and pro forma condensed combined financial information are filed as a part of this report. (a) Financial Statements of Raytheon Aircraft Montek Company (i) Audited Financial Statements for the years ended December 31, 1997 and 1996 (ii) Unaudited Financial Statements for the nine months ended September 30, 1998 and 1997 (b) Pro Forma Condensed Combined Financial Statements of Moog Inc., Raytheon Aircraft Montek Company, Hydrolux SARL, Moog-Hydrolux Hydraulic Systems, Inc. and Microset Srl. (i) Pro Forma Condensed Combined Statement of Earnings for the year ended September 26, 1998 (ii) Pro Forma Condensed Combined Balance Sheet as of September 26, 1998 (iii) Notes to Pro Forma Condensed Combined Financial Statements. (c) Exhibits (23) Consent of PricewaterhouseCoopers LLP RAYTHEON AIRCRAFT MONTEK COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Raytheon Company: In our opinion, the accompanying balance sheets and the related statements of income, parent company investment and cash flows present fairly, in all material respects, the financial position of Raytheon Aircraft Montek Company (the "Company") at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Boston, Massachusetts November 6, 1998 RAYTHEON AIRCRAFT MONTEK COMPANY BALANCE SHEETS December 31, 1997 and 1996 (in thousands) ASSETS 1997 1996 Current assets: Cash $ 14 $ 23 Accounts receivable, net 6,647 9,600 Inventory, net 19,034 17,672 Prepaid expenses and other current assets 4 20 Receivables from affiliates 1,013 447 Notes receivable 181 - Deferred tax assets - 1,283 ________ ________ Total current assets 26,893 29,045 ________ ________ Property, plant and equipment, net 25,105 25,096 Intangible assets, net 61,318 63,010 Long-term receivables 110 921 ________ ________ Total assets $113,426 $118,072 ======== ======== LIABILITIES AND PARENT COMPANY INVESTMENT Current liabilities: Bank overdraft 1,179 805 Accounts payable 2,314 1,642 Accrued salaries and wages 832 1,053 Accrued expenses 4,773 5,600 ________ ________ Total current liabilities 9,098 9,100 ________ ________ Long-term tax liabilities 418 - Commitments and contingencies (see footnotes 7 and 12) Parent company investment 103,910 108,972 ________ ________ $113,426 $118,072 ======== ======== The accompanying notes are an integral part of the financial statements. RAYTHEON AIRCRAFT MONTEK COMPANY STATEMENTS OF INCOME (LOSS) for the years ended December 31, 1997 and 1996 (in thousands) 1997 1996 Net external sales $79,384 $57,613 Net sales to affiliates 1,063 1,047 ________ ________ Total revenue 80,447 58,660 ________ ________ Cost of external sales 51,659 41,916 Cost of affiliated sales 2,084 2,477 ________ ________ Gross profit 26,704 14,267 ________ ________ Research and development 5,402 4,289 Selling, general and administrative 7,792 10,749 ________ ________ Operating profit (loss) 13,510 (771) ________ ________ Other expense (income) (13) 340 Intercompany interest 3,870 1,779 ________ ________ Income (loss) before taxes 9,653 (2,890) ________ ________ Provision (benefit) for income taxes 4,090 (588) ________ ________ Net income (loss) $ 5,563 $(2,302) ======== ======== The accompanying notes are an integral part of the financial statements. RAYTHEON AIRCRAFT MONTEK COMPANY STATEMENTS OF PARENT COMPANY INVESTMENT for the years ended December 31, 1997 and 1996 (in thousands) 1997 1996 Parent company investment, beginning of year $108,972 $ 96,932 ________ ________ Net income (loss) 5,563 (2,302) Net transfers (to)/from parent (10,625) 14,342 ________ ________ Parent company investment, end of year $103,910 $108,972 ======== ======== The accompanying notes are an integral part of the financial statements. RAYTHEON AIRCRAFT MONTEK COMPANY STATEMENTS OF CASH FLOWS for the years ended December 31, 1997 and 1996 (in thousands) 1997 1996 Cash flows from operating activities: Net income (loss) $ 5,563 $ (2,302) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,782 3,611 Loss on disposal of property, plant and equipment 39 285 Provision for bad debts (53) 450 Net provision for long term contracts (2,024) 7,975 Deferred income taxes 1,701 (741) Changes in assets and liabilities: Accounts receivable 3,006 (1,714) Inventory 662 (10,251) Prepaid expenses and other current assets 16 265 Receivables from affiliates (566) (304) Notes receivable (181) - Deferred receivable 811 829 Bank overdraft 374 (1,109) Accounts payable 672 (151) Accrued expenses (1,048) (3,828) ________ _________ Net cash provided by operating activities 12,754 (6,985) ________ _________ Investing activities: Additions to property, plant and equipment (2,138) (7,866) _________ __________ Net cash (used in) investing activities (2,138) (7,866) _________ __________ Financing activities: Transfers (to) from parent (10,625) 14,342 _________ __________ Net cash (used in) financing activities (10,625) 14,342 _________ __________ Decrease in cash (9) (509) Cash at beginning of year 23 532 _________ __________ Cash at end of year $ 14 $ 23 ========= ========== The accompanying notes are an integral part of the financial statements. RAYTHEON AIRCRAFT MONTEK COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED (dollars in thousands) 1. Background and Basis of Presentation: Raytheon Aircraft Montek Company (the "Company"), a wholly-owned subsidiary of Raytheon Company ("Raytheon"), is an international developer and producer of aircraft control systems in the world's commercial, military, and business aircraft aerospace markets as well as several industrial markets. Montek has five business lines: Aircraft Flight Controls, Missile Control Systems, Servovalves (Atchley Controls), Solenoids (SR Solenoids) and actuation systems for petroleum exploration industry (Seismic Source). On October 20, 1998, Raytheon entered into a purchase and sale agreement for the sale of the Company to Moog Inc. (the "Buyer"). These financial statements present the Company's results of operations and its financial condition as it operated as a subsidiary of Raytheon from July 1, 1996 through December 31, 1997 and as a division of E-Systems, Inc. (a wholly-owned subsidiary of Raytheon) from April 28, 1995 through June 30, 1996, including certain adjustments necessary for a fair presentation of the business. The financial statements presented may not be indicative of the results that would have been achieved had the Company operated as a non-affiliated entity. 2. Summary of Significant Accounting Policies: Use of Estimates The preparation of these 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 assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Estimates include reserves for contract losses, warranties and uncollectible accounts receivable. Actual results could differ from those estimates. Inventories Work-in-process inventories primarily relate to long-term contracts and are stated at actual production cost which includes direct manufacturing and engineering costs and applicable overhead reduced by amounts identified with revenues recognized on units delivered or with progress completed. Such inventories are further reduced by contract loss reserves which are established when a current contract estimate indicates a loss. Raw material inventories are stated at the lower of cost (first- in, first out) or market. Property, Plant and Equipment Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Depreciation provisions are based on the following estimated useful lives: buildings and improvements 25 to 39 years and furniture, fixtures, and equipment 3 to 16 years. Leasehold improvements are depreciated over the lesser of the remaining life of the lease or the estimated useful life of the improvement. Expenditures for renewals and betterments are capitalized while maintenance and repairs are charged to operations in the period incurred. When assets are retired or otherwise disposed, the assets and related allowances for depreciation are eliminated from the accounts and any resulting gain or loss is reflected in income. Goodwill Goodwill represents an allocation of the excess of Raytheon's acquisition costs over the fair value of the net assets of the E- Systems, Inc. business acquired in April, 1995. It is being amortized using the straight-line method over its estimated useful life of 40 years. The Company evaluates the recoverability of goodwill based on undiscounted future cash flows. No impairments of goodwill have been recorded as a result of these evaluations. Revenue Recognition Sales primarily relate to long-term contracts and are recognized as deliveries are made. A small percentage of sales are recognized when development contract milestones are reached. Expected profits or losses on long-term contracts are based on management estimates of total costs at completion. These estimates are reviewed and revised periodically throughout the lives of the contracts, and adjustments resulting from such revisions are recorded in the periods in which the revisions are made. Losses on contracts are recorded in full as they are identified. Provision is made for estimated warranties that range from one to five years at the time of sale. Research and Development Independent research and development expenditures are expensed as incurred. Income Taxes Historically, the Company's operations have been included in the consolidated income tax returns filed by Raytheon. Income tax expense in the Company's statement of operations is calculated on a separate tax return basis as if the Company had operated as a stand alone entity. The provision for income taxes is calculated in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," which requires the recognition of deferred income taxes using the liability method. Accounting for Stock - Based Compensation The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock-based plans. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation" and has provided pro forma disclosures of net income as if the fair value-based method prescribed by SFAS 123 had been applied in measuring compensation expense. Fair Value of Financial Instruments The fair values of financial instruments, including accounts receivable, other current assets, accounts payable and accrued expenses, approximate their respective book values. Concentration of Credit Risk In the normal course of business, the Company provides credit terms to its customers, including contracts involving the U.S. Government, which do not require collateral or other security. Accordingly, the Company performs ongoing credit evaluations of its non-U.S. Government customers and maintains allowances for possible losses. Two customers individually accounted for more than 10 percent of trade and long-term accounts receivable; one customer for 12.3 percent and 14.8 percent at December 31, 1997 and 1996, respectively, and the other for 16.9 percent and 12.9 percent at December 31, 1997 and 1996, respectively. Two customers individually accounted for more than 10 percent of net sales; one customer for 37.5 percent and 29.6 percent for the years ended December 31, 1997 and 1996, respectively, and the other for 11.2 percent for the year ended December 31, 1997. Because the Company is engaged in supplying defense-related equipment to the U.S. Government, it is subject to certain business risks specific to that industry. Sales to the U.S. Government may be affected by changes in procurement policies, budget considerations, changing concepts of national defense, political developments abroad and other factors. As a result of the Balanced Budget and Emergency Deficit Reduction Control Act, the federal deficit and changing world order conditions, Department of Defense (DOD) budgets have been subject to increasing pressure resulting in an uncertainty as to the future effects of DOD budget cuts. Parent Company Investment The Parent Company Investment amount includes Raytheon's investment in the Company and intercompany debt. At December 31, 1997 and 1996, the Company had long term funded balances from Raytheon of $55,302 and $59,622, respectively. Interest expense related to Raytheon's long-term financing is included in the statements of income. Interest expense associated with Raytheon's general corporate debt has not been allocated to the Company's financial statements. The Company participates in several benefit plans of Raytheon (see Note 12). Certain of Raytheon's costs have been allocated to the Company, primarily related to central services, taxes, legal expenses and risk management. Management believes these allocations are reasonable. Raytheon provides certain supplemental services to the Company related primarily to tax, general legal, audit and human resources which are not deemed to be material and have been excluded from these financial statements. All cash receipts and disbursements and intercompany charges related to the Company's operations are charged or credited to Parent Company Investment. 3. Accounts Receivable, Net: Accounts receivable, net, consist of the following: December 31, 1997 1996 Accounts receivable $ 7,080 $10,086 Allowance for doubtful accounts (433) (486) ________ ________ $ 6,647 $ 9,600 ======== ======== Accounts receivable principally relate to long-term contracts. Amounts billed under retainage provisions of contracts are not significant, and amounts not collectible within one year are disclosed separately as long-term receivables. 4. Inventories, Net: Inventories, net, are comprised of the following: December 31, 1997 1996 Work-in-process $21,531 $23,724 Loss contract reserves (1,817) (3,669) Progress billings (912) (2,586) Raw materials 232 203 ________ ________ Total $19,034 $17,672 ======== ======== 5. Property, Plant and Equipment, Net: Property, plant and equipment, net, are comprised of the following: December 31, 1997 1996 Land $ 1,290 $ 1,290 Buildings and improvements 22,033 21,689 Furniture, fixtures, and equipment 15,029 14,990 Construction-in-process 1,818 414 ________ ________ 40,170 38,383 ________ ________ Less accumulated depreciation and amortization (15,065) (13,287) ________ ________ Property, plant and equipment, net $25,105 $25,096 ======== ======== Depreciation expense totaled $2,090 and $1,925 for the years ended December 31, 1997 and 1996. 6. Intangible Assets, Net: Intangible assets, net, is comprised of the following: December 31, 1997 1996 Goodwill $65,607 $65,607 Other 331 331 Accumulated amortization (4,620) (2,928) ________ ________ $61,318 $63,010 ======== ======== 7. Lease Commitments and Obligations: The Company leased its office and manufacturing facility for a portion of 1996 and purchased this facility on August 22, 1996. The Company also leases certain computer and manufacturing equipment under operating leases. The following summarizes future minimum lease payments required under operating leases: 1998 $176 1999 124 2000 177 2001 - 2002 - Thereafter - ____ $477 ==== Total rent expense incurred by the Company under non-cancelable operating leases for the years ended December 31, 1997 and 1996 was $67 and $369, respectively. 8. Federal Income Taxes: The Company's financial statements reflect a charge for federal and state income taxes based on income as if the Company had been subject to income tax on a separate return basis. The charge was computed in accordance with SFAS No. 109 and the charge is based on the current tax rates. December 31, 1997 1996 Current income tax expense (benefit): Federal $ 1,190 $ (684) State 185 (106) ________ ________ 1,375 (790) ________ ________ Deferred income tax expense (benefit): Federal 2,351 175 State 364 27 ________ ________ Net provision (benefit) $ 4,090 $ (588) ======== ======== The provision for income taxes for 1997 and 1996 differs from the U.S. statutory rate due to the following: December 31, 1997 1996 Tax at statutory rate $ 3,282 $ (982) Non deductible goodwill amortization 574 574 FSC benefit (140) (140) State income tax net of federal tax benefit 374 (40) ________ ________ Net provision (benefit) $ 4,090 $ (588) ======== ======== Current income tax expense amounts are included as a transfer to Raytheon in the parent company investment account. The effect of temporary differences which give rise to deferred income tax balances are as follows: December 31, 1997 1996 Current deferred tax assets: Non deductible reserves $ 1,019 $ 2,531 Noncurrent deferred tax liabilities: Depreciation (1,437) (1,248) ________ ________ Net deferred tax (liability) asset $ (418) $ 1,283 ======== ======== 9. Employee Stock Plans: As a wholly-owned subsidiary of Raytheon, the Company has no separate employee stock option plan, however certain employees of the Company participate in Raytheon's stock option plans specifically the 1995 Stock Option Plan which provides for the grant of both incentive and nonqualified options at an exercise price which is 100% of the fair market value on the date of grant. The plans provide that all stock options may be exercised in their entirety 12 months after the date of grant. Incentive stock options terminate 10 years from the date of grant and become exercisable to a maximum of $100,000 per year. Nonqualified stock options expire 10 years from the date of grant. The following stock option information relates to options granted to the employees of the Company under Raytheon's stock option plans. Shares exercisable at the corresponding weighted average price at December 31, 1997 and 1996, respectively, were 21,300 at $46.17 and 9,400 at $39.03. Information for 1997 and 1996 follows: Weighted Number of Average Price Options Per Share Outstanding at December 31, 1995 14,600 $39.03 Granted 12,400 51.85 Exercised (5,200) 39.03 Canceled (500) 52.56 _______ Outstanding at December 31, 1996 21,300 46.17 _______ Granted 33,600 51.69 Exercised - - Canceled (900) 51.69 _______ Outstanding at December 31, 1997 54,000 $49.51 ======= ====== Raytheon adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (SFAS No. 123) "Accounting for Stock Based Compensation," as of December 31, 1997 and 1996 and accordingly, no compensation has been recognized for the stock option plans. Had compensation cost for the stock options awarded to the Company been determined based on the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, the Company's pro forma net income (loss) for the years ended December 31, 1997 and 1996 would have been $5,437 and $(2,374), respectively. The weighted-average fair value of each option granted in 1997 and 1996, respectively, was estimated at $9.95 and $10.57 on the date of grant using the Black-Scholes option pricing model with the following assumptions: risk free interest rate ranging from 5% to 7.5 %; expected life of 4 years; expected volatility of 15%; expected dividend yield of 6%; and assumed annual forfeiture rate of 5%. The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. The following table summarizes information about stock options outstanding at December 31, 1997: Options Outstanding Options Exercisable _____________________________ ___________________________________ Weighted Shares Average Weighted Shares Exercise Outstanding Contractual Average Exercisable Price at December 31, Remaining Exercise at December 31, Weighted Range 1997 Life Price 1997 Average ________ _______________ ___________ ________ _______________ ________ $39.03 9,400 7.5 $39.03 9,400 $39.03 $48.12 to $51.69 44,600 9.2 $51.73 11,900 $54.02 ______ ______ Total 54,000 21,300 ====== ====== 10. Employee Benefit Plans: Eligible employees of the Company may participate in two defined benefit plans sponsored by Raytheon or Raytheon entities, the E-Systems, Inc. Salaried Retirement Plan and the E-Systems, Inc. Medical Welfare Benefits Plan. Employees must be employed at least one year, have at least 1,000 hours of service, and be at least 21 years of age. These plans cover the majority of employees who have reached normal retirement age while working for the Company. Pension and other benefits are generally based on an employees compensation and years of service and participants are fully vested upon completion of five years of service. Retiree health plan costs paid by this plan are provided to retirees, eligible dependents and beneficiaries while retiree life insurance covers the retiree only. The total expense allocated to the Company for these plans was $2,143 and $1,753 for 1997 and 1996, respectively. The employees of the Company with more than six months of service participate in a defined benefit plan sponsored by a Raytheon entity, the E-Systems, Inc. Long-Term Disability Income Plan. This plan is a contributory welfare plan and covers active employees who voluntarily elect to contribute and participate. Substantially all employees are immediately eligible to participate in the E-Systems, Inc. Employee Savings Plan, sponsored by a Raytheon entity. Under the terms of the Plan, covered employees are allowed to contribute up to 18 percent of their pay, subject to IRS guidelines. A matching contribution of 50 percent of the employee's contribution, up to a maximum of 3 percent of an employee's eligible base pay is made by the Company. The Company's discretionary contributions are approximately one and one half percent of an employee's eligible base pay, subject to IRS guidelines. Total expense for this plan was $524 and $558 for 1997 and 1996, respectively. Employee benefit plan charges to the Company are based primarily on head count and eligible payroll. Management believes these allocation methods are reasonable. 11. Related Party Transactions: Included in the accompanying balance sheet are accounts receivable amounts of $1,013 and $447 as of December 31, 1997 and 1996, respectively, due from other Raytheon entities. For the years ended December 31, 1997 and 1996, the Company transacted sales and purchases with other Raytheon entities that were related parties. The total amounts of these net sales and related costs of sales are stated separately in the accompanying statement of income. The Company obtained financing for its operations from Raytheon and at December 31, 1997 and 1996, the Company had long term funded balances from Raytheon of $55,302 and $62,987, respectively. Related interest expense of $3,870 and $1,779 for the years ended December 31, 1997 and 1996, respectively, is recorded on the accompanying statement of income. The Company has paid product liability premiums to a Raytheon entity of $397 for the year ended December 31, 1997, the amount of which is included in the accompanying income statement. Also included in the income statement are certain immaterial transactions, including labor for Raytheon related projects recorded at cost, between the Company and various Raytheon entities. On December 17, 1997, Raytheon, HE Holdings, Inc., a wholly- owned subsidiary of Hughes Electronics Corporation (Hughes), and General Motors Corporation (GM) who is the parent of Hughes, entered into various agreements pursuant to which the defense business of Hughes (the Defense Business) was spun off to holders of GM's Class H common stock, followed immediately by the tax-free merger of the Defense Business with Raytheon. As a result of this transaction, the Defense Business became a related party to Montek. The amount of revenue related to the Defense Business recognized during the period from December 17, 1997 through December 31, 1997, and therefore included in the accompanying income statement, is immaterial. 12. Commitments and Contingencies: The Company is responsible for post-remediation monitoring costs related to prior storage tank remediation performed. The Company has included the present value of future post- remediation costs as an accrued liability in the accompanying balance sheet at December 31, 1997 and 1996 in accordance with application of the American Institute of Certified Public Accountants Statement of Position 96-1, "Environmental Remediation Liabilities." 13. Subsequent Events: Effective January 1, 1998, the Company transferred the related net assets including an allocation of goodwill of the Navigation Landing Systems (NLS) product line to another Raytheon entity. The total assets and parent company investment transferred were both approximately $11,000. The net loss for the NLS business at December 31, 1997 was approximately $2,900. On October 20, 1998, Raytheon entered into a stock purchase and sale agreement for the sale of the Company to Moog Inc. UNAUDITED FINANCIAL STATEMENTS RAYTHEON AIRCRAFT MONTEK COMPANY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 RAYTHEON AIRCRAFT MONTEK COMPANY BALANCE SHEET (Unaudited) (dollars in thousands) September 30, 1998 _____________ ASSETS CURRENT ASSETS Cash $ 364 Accounts receivable, net 8,222 Inventories, net 20,961 Prepaid expenses and other current assets 25 Receivables from affiliates 1,587 Notes Receivable 131 __________ TOTAL CURRENT ASSETS 31,290 PROPERTY, PLANT AND EQUIPMENT, net 25,614 INTANGIBLE ASSETS, net 50,312 LONG-TERM RECEIVABLES 729 __________ TOTAL ASSETS $ 107,945 ========== LIABILITIES AND PARENT COMPANY INVESTMENT CURRENT LIABILITIES Bank overdraft $ 560 Accounts payable 3,640 Accrued salaries and wages 1,037 Accrued expenses 6,545 __________ TOTAL CURRENT LIABILITIES 11,782 LONG-TERM LIABILITIES 3,541 PARENT COMPANY INVESTMENT 92,622 __________ $ 107,945 ========== See Notes to Financial Statements. RAYTHEON AIRCRAFT MONTEK COMPANY STATEMENTS OF INCOME (Unaudited) (dollars in thousands) Nine Months Ended September 30, 1998 1997 _______ _______ Net sales $63,247 $58,462 Cost of sales 45,538 40,265 _______ _______ Gross profit 17,709 18,197 Research and development 4,816 3,313 Selling, general and administrative 6,441 5,526 _______ _______ Operating Profit 6,452 9,358 Other income (21) (10) Intercompany interest 1,452 2,922 _______ _______ Income before taxes 5,021 6,446 Provision for income taxes 1,908 2,731 _______ _______ Net income $ 3,113 $ 3,715 ======= ======= See Notes to Financial Statements. RAYTHEON AIRCRAFT MONTEK COMPANY STATEMENTS OF CASH FLOWS (Unaudited) (dollars in thousands) Nine Months Ended September 30, 1998 1997 _________ _________ Cash flows from operating activities: Net income $ 3,113 $ 3,715 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,470 2,853 Deferred income taxes 3,123 3,328 Net provision for long-term contracts 2,606 (1,897) Changes in assets and liabilities: Accounts receivable (2,331) (3,149) Inventory (4,533) 2,870 Prepaid expenses and other current assets (21) 14 Receivables from affiliates (574) 347 Notes receivable 50 0 Deferred receivable (619) 712 Bank overdraft (619) (185) Accounts payable 1,326 1,286 Accrued expenses 1,977 (2,784) _________ _________ Net cash provided by operating activities 5,968 7,110 _________ _________ Investing Activities: Additions to property, plant and equipment (2,438) (883) _________ _________ Net cash used in investing activities (2,438) (883) _________ _________ Financing activities: Transfers to parent (3,180) (5,825) _________ _________ Net cash used in financing activities (3,180) (5,825) _________ _________ Increase in cash 350 402 Cash at beginning of period 14 23 _________ _________ Cash at end of period $ 364 $ 425 ========= ========= See Notes to Financial Statements. Raytheon Aircraft Montek Company Notes to Financial Statements Nine Months Ended September 30, 1998 and 1997 (Unaudited) (dollars in thousands) 1. Background and Basis of Presentation Raytheon Aircraft Montek Company (the "Company"), a wholly-owned subsidiary of Raytheon Company (Raytheon), is an international developer and producer of aircraft control systems in the world's commercial, military, and business aircraft aerospace markets as well as several industrial markets. The accompanying unaudited financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of Raytheon Aircraft Montek Company as of September 30, 1998 and the results of operations and its cash flows for the nine months ended September 30, 1998 and 1997 as it operated as a subsidiary of Raytheon. The results of operations for the nine months ended September 30, 1998 and 1997 are not necessarily indicative of the results expected for the full year. 2. Inventories Work-in-process inventories primarily relate to long-term contracts and are stated at actual production cost which includes direct manufacturing and engineering costs and applicable overhead reduced by amounts identified with revenues recognized on units delivered or with progress completed. Such inventories are further reduced by contract loss reserves which are established when a current contract estimate indicates a loss. Raw material inventories are stated at the lower of cost (first-in, first-out) or market. Inventories at September 30, 1998 consist of the following: Work-in-process $ 24,914 Loss contract reserves (1,550) Progress billings (2,689) Raw materials 286 ________ Total inventories $ 20,961 ________ 3. Subsequent Event The sale of all of the outstanding stock of Raytheon Aircraft Montek Company to Moog Inc. for approximately $160,000 was completed on November 30, 1998. 4. Non-cash Activities Effective January 1, 1998, the Company transferred the related net assets including an allocation of goodwill of the Navigation Landing Systems product line to another Raytheon entity. The total assets and parent company investment transferred were both approximately $11,000. Moog Inc. Pro Forma Condensed Combined Financial Statements (dollars in thousands) Introduction On November 30, 1998, Moog Inc. (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, is a supplier of flight controls to the Boeing Commercial Airplane Group and to manufacturers of regional aircraft and business jets including the Raytheon Aircraft Company. Montek also produces steering controls for tactical missiles and servovalves for both industrial and aerospace applications. 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 for $265,000 in a revolving facility and a $75,000 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 $3,750 commencing 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. On October 30, 1998, the Company acquired a 75% shareholding of Hydrolux SARL, a Luxembourg designer and manufacturer 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. 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. On December 3, 1998, the Company acquired a 66-2/3% shareholding in Microset Srl, an Italian designer and manufacturer of electronic controls for industrial machinery for $3,500 in cash. Hydrolux SARL, Moog-Hydrolux and Microset Srl are referred to as the Industrial Businesses. The Industrial Businesses are not considered significant either individually or in the aggregate. The acquisitions of the Industrial Businesses were not related to the acquisition of Montek. The following unaudited pro forma condensed combined financial statements give effect to the acquisitions of Montek and the Industrial Businesses by the Company assuming the transactions took place as of September 28, 1997 for the condensed combined statements of earnings and as of September 26, 1998 for the condensed combined balance sheet. The pro forma adjustments are described in the accompanying notes to the pro forma condensed combined financial statements and should be read in conjunction with such pro forma condensed combined financial statements. Such pro forma condensed combined financial statements should be read in conjunction with the Company's consolidated financial statements and notes set forth in the Report on Form 10-K for the year ended September 26, 1998. The pro forma condensed combined financial statements have been prepared based on preliminary purchase price allocations for each acquisition, which are subject to finalization. The pro forma condensed combined financial statements are not necessarily indicative of the actual results that would have occurred had the transactions been consummated on September 28, 1997 or September 26, 1998 or of the future results of operations which will be obtained by the Company as a result of the acquisitions. Moog Inc. Pro Forma Condensed Combined Statements of Earnings (Unaudited) Year Ended September 26, 1998 (dollars in thousands except per share data)
Industrial Montek Businesses Pro Forma Pro Forma Industrial Pro Forma Pro Forma Moog Inc. Montek Adjustments Combined Businesses Adjustments Combined _________ ______ ___________ _________ __________ ___________ _________ NET SALES $ 536,612 $ 85,232 $ (304) (1) $ 621,540 $ 33,356 $ (4,000) (1) $ 650,896 OTHER INCOME 1,447 25 1,472 0 1,472 __________ __________ _________ __________ __________ __________ ___________ 538,059 85,257 (304) 623,012 33,356 (4,000) 652,368 __________ __________ _________ __________ __________ __________ ___________ COST AND EXPENSES Cost of sales 374,000 58,522 4,408 (2) 433,969 24,907 (4,000) (1) 455,007 (1,432) (3) 131 (2) (470) (4) (309) (1) (750) (5) Research and development 27,487 6,906 (150) (1) 31,171 1,116 (400) (3) 31,887 (3,072) (6) Selling, general and administrative 85,374 8,707 151 (7) 92,338 6,387 98,725 (944) (8) (700) (9) (250) (5) Interest 20,148 2,400 (2,400) (10) 33,529 665 949 (4) 35,143 13,381 (11) Other Expenses 1,177 1,177 (70) (203) (5) 904 __________ __________ _________ __________ __________ __________ ___________ 508,186 76,535 7,463 592,184 33,005 (3,523) 621,666 __________ __________ _________ __________ __________ __________ ___________ EARNINGS BEFORE INCOME TAXES & EXTRAORDINARY ITEM 29,873 8,722 (7,767) 30,828 351 (477) 30,702 INCOME TAXES 10,605 3,314 (2,952) (12) 10,967 316 (325) (6) 10,958 __________ __________ _________ __________ __________ __________ ___________ EARNINGS BEFORE EXTRAORDINARY ITEM $ 19,268 $ 5,408 $ (4,815) $ 19,861 $ 35 $ (152) $ 19,744 ========== ========== ========= ========== ========= ========== =========== EARNINGS PER SHARE BEFORE EXTRAORDINARY ITEM Basic $ 2.33 $ 2.40 $ 2.38 Fully Diluted $ 2.26 $ 2.33 $ 2.32 See Notes to Pro Forma Condensed Combined Financial Statements.
Moog Inc. Pro Forma Condensed Combined Balance Sheet September 26, 1998 (dollars in thousands)
Industrial Montek Businesses Pro Forma Pro Forma Industrial Pro Forma Pro Forma Moog Inc. Montek Adjustments Combined Businesses Adjustments Combined _________ ______ ___________ _________ __________ ___________ _________ CURRENT ASSETS Cash and cash equivalents $ 11,625 $ 364 $ $ 11,989 $ 1,117 $ $ 13,106 Receivables, net 182,228 9,940 9,000 (13) 201,168 10,643 (4,754) (7) 207,057 Inventories 121,784 22,511 (9,000)(13) 135,295 13,612 (1,000) (8) 147,907 Deferred income taxes 22,289 8,000 (14) 30,289 30,289 Prepaid expenses and other current assets 9,151 25 9,176 104 9,280 __________ __________ _________ __________ __________ ___________ __________ TOTAL CURRENT ASSETS 347,077 32,840 8,000 387,917 25,476 (5,754) 407,639 PROPERTY, PLANT AND EQUIPMENT, NET 139,444 25,614 11,745 (15) 176,803 3,664 180,467 INTANGIBLES 60,025 50,312 (50,312) (15) 188,955 3,941 (9) 192,896 900 (15) 128,030 (16) OTHER ASSETS 12,779 729 3,643 (17) 17,151 3,919 (333) (10) 20,737 __________ __________ _________ __________ __________ ___________ __________ TOTAL ASSETS $ 559,325 $ 109,495 $ 102,006 $ 770,826 $ 33,059 $ (2,146) $ 801,739 ========== ========== ========= ========== ========== =========== ========== See Notes to Pro Forma Condensed Combined Financial Statements.
Moog Inc. Pro Forma Condensed Combined Balance Sheet (Unaudited) September 26, 1998 (dollars in thousands)
Industrial Montek Businesses Pro Forma Pro Forma Industrial Pro Forma Pro Forma Moog Inc. Montek Adjustments Combined Businesses Adjustments Combined _________ ______ ___________ _________ __________ ___________ _________ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes Payable $ 410 $ - $ $ 410 $ 5,756 $ $ 6,166 Current installments of long-term debt 5,505 - 15,000 (17) 20,505 578 21,083 Accounts payable 25,648 4,200 29,848 7,547 (4,754) (7) 32,641 Accrued salaries, wages and commissions 36,338 1,037 1,400 (15) 38,775 170 38,945 Contract loss reserves 10,448 1,550 17,950 (15) 29,948 29,948 Accrued interest 8,050 8,050 3 8,053 Accrued income taxes 6,838 6,838 6,838 Other accrued liabilities 17,746 6,545 3,635 (15) 27,926 817 167 (8) 28,910 Customer advances 9,904 - 9,904 9,904 __________ ________ ________ ___________ __________ _________ ____________ TOTAL CURRENT LIABILITIES 120,887 13,332 37,985 172,204 14,871 (4,587) 182,488 LONG-TERM DEBT, excluding current installments Senior debt 79,699 148,643 (17) 228,342 4,362 12,790 (11) 245,494 Senior subordinated notes 120,000 120,000 120,000 OTHER LONG-TERM LIABILITIES 47,731 3,541 8,000 (14) 59,272 3,477 (12) 62,749 __________ ________ ________ ___________ __________ _________ ____________ TOTAL LIABILITIES 368,317 16,873 194,628 579,818 19,233 11,680 610,731 __________ ________ ________ ___________ __________ _________ ____________ SHAREHOLDERS' EQUITY 191,008 92,622 (92,622) (15) 191,008 13,826 (13,826) (8) 191,008 __________ ________ ________ ___________ __________ _________ ____________ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 559,325 $109,495 $102,006 $ 770,826 $ 33,059 $ (2,146) $ 801,739 ========== ======== ======== =========== ========== ========= ============ See Notes to Pro Forma Condensed Combined Financial Statements.
Moog Inc. Notes to Pro Forma Condensed Combined Financial Statements (Unaudited) (dollars in thousands) Montek Pro Forma Adjustments The following pro forma adjustments have been made to reflect the acquisition of Montek as of September 28, 1997 for the Pro Forma Condensed Combined Statement of Earnings and as of September 26, 1998 for the Pro Forma Condensed Combined Balance Sheet. (1) To eliminate the results of a product line Of Montek that was not acquired as part of the transaction. (2) To reflect the increase in depreciation and amortization expense due to (a) the amortization of goodwill on a straight-line basis over 40 years, (b) the amortization of other intangibles and (c) the increase in depreciation resulting from step-up of property, plant and equipment. (3) To remove goodwill expense related to a previous acquisition of Montek. (4) To adjust expenses related to employee benefit plans. (5) To record ongoing cost savings associated with initial work force reductions at Montek that occurred shortly after the acquisition. (6) To remove expenses related to a development contract that was entered into with Raytheon Company concurrent with the signing of the stock purchase agreement which would have been charged against a contract loss reserve established in the purchase price allocation. (7) To remove amortization of existing debt issuance costs and record amortization of debt issuance costs associated with the Credit Facility and acquisition costs. (8) To remove expense for retention bonuses that would have been accrued by Montek prior to the acquisition. (9) Represents a reduction to the amount allocated to Montek by Raytheon Company for corporate administrative expenses. (10) Represents the reversal of interest expense recorded by Montek related to intercompany indebtedness due to Raytheon Company which was not assumed by the Company. (11) To record (a) additional interest expense on existing indebtedness at the Credit Facility's interest rate of LIBOR plus 200 basis points, (b) interest expense on acquisition indebtedness of $160,000, debt issuance costs of $3,143 and acquisition costs of $500, and (c) incremental fees related to the unused portion of the U.S. revolving credit facility. The interest rate assumed was 7.66%, which is the average rate that would have been in effect during the period. A change of 1/8 percent in the interest rate would result in a change in interest expense and earnings before extraordinary item of $313 and $194 before and after taxes, respectively. (12) Represents the tax effects of the above adjustments at the marginal tax rate. (13) Represents the reclassification necessary to conform Montek's units of delivery accounting for long-term contracts to the cost- to-cost percentage of completion method of accounting followed by the Company. The Company does not believe the impact of this change on earnings would be material. (14) To set-up a deferred tax asset and liability associated with the initial difference in value of Montek's net assets between its financial reporting and tax basis. (15) To reflect preliminary adjustments to fair market value. (see note 16). (16) To reflect the excess of acquisition cost over the estimated fair value of net assets acquired (i.e., goodwill) based on a preliminary purchase price allocation, which is subject to finalization, as follows: Purchase price $160,000 Allocated to: Historical value of Montek's net assets $42,310 Adjustments to fair value: Property, plant and equipment 11,745 Other intangibles 900 Employee benefit costs (1,400) Contract loss reserves (17,950) Severance and other liabilities (3,635) Total allocation 31,970 ________ Goodwill $128,030 ======== Contract loss reserves relate primarily to a development contract that was entered into with Raytheon Company concurrent with the signing of the stock purchase agreement. Severance costs are associated with expected involuntarily terminated employees at Montek. (17) To record indebtedness incurred to finance the Montek acquisition ($160,000), acquisition costs ($500) and deferred debt issuance costs ($3,143). Moog Inc. Notes to Pro Forma Condensed Combined Financial Statements (Unaudited) (dollars in thousands) Industrial Businesses Pro Forma Adjustments The following pro forma adjustments have been made to reflect the acquisitions of the Industrial Businesses as of September 28, 1997 for the Pro Forma Condensed Combined Statement of Earnings and as of September 26, 1998 for the Pro Forma Condensed Combined Balance Sheet. (1) To eliminate intercompany sales between the Company and the Industrial Businesses. (2) To reflect the amortization of goodwill on a straight-line basis over 30 years. (3) To record ongoing cost savings associated with the Company's existing research and development activities related to certain electronic controls which were curtailed shortly after the acquisitions of the Industrial Businesses. (4) To record additional interest expense on acquisition indebtedness. The interest rate assumed was 7.66% which is the average rate that would have been in effect during the period. A change of 1/8 percent in the interest rate would not be material. (5) To record the minority shareholders' interest in the Industrial Businesses. (6) Represents the tax effects of the above adjustments at the marginal tax rate. (7) To eliminate intercompany accounts between the Company and the Industrial Businesses. (8) To reflect preliminary adjustments to fair market value. (9) To reflect the excess of acquisition cost over the estimated fair value of net assets acquired (i.e., goodwill) based on a preliminary purchase price allocation, which is subject to finalization. (10) To remove the Company's 50% investment in Moog-Hydrolux that was previously accounted for on the equity method prior to the acquisition. (11) To record indebtedness incurred to finance the acquisitions of the Industrial Businesses. (12) To record the minority shareholders' interest in the Industrial Businesses. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf of the undersigned hereunto duly authorized. MOOG INC. MOOG INC. __________________________________ (Registrant) Date: February 10, 1999 By:/s/Robert R. Banta Robert R. Banta Executive Vice President Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS The Board of Directors Moog Inc.: We consent to incorporation by reference in the Registration Statements (Nos. 33-62968, 33-36721, 33-33958 and 33-57131) on Form S-8 of Moog Inc. of our report dated November 6, 1998 on our audits of the balance sheets and related statements of income, parent company investment and cash flows of Raytheon Aircraft Montek Company as of December 31, 1997 and 1996, and for the years ended December 31, 1997 and 1996, which report is included in this Current Report on Form 8-K/A of Moog Inc. PricewaterhouseCoopers LLP Boston, Massachusetts February 8, 1999 -----END PRIVACY-ENHANCED MESSAGE-----