Moog(MOG_B) - 2021 Q4 - Annual Report

PART I Business Moog Inc. is a global designer and manufacturer of precision motion and fluid controls across aerospace, defense, and industrial markets, with 44% of 2021 revenue from U.S. Government contracts - Moog operates through three primary segments: Aircraft Controls, Space and Defense Controls, and Industrial Systems[12] - Sales from U.S. Government contracts represented 44% of total sales in fiscal year 2021[15] - The twelve-month backlog as of October 2, 2021, reached $2.1 billion, a 24% increase year-over-year[16] - Moog employs nearly 14,000 people across more than 25 countries, demonstrating its global presence[21] - Key customers include major aerospace and defense OEMs (Boeing, Lockheed Martin, Airbus) and industrial/medical companies (McKesson, Phillips Healthcare)[44][45][48] Risk Factors Moog faces significant risks from the COVID-19 pandemic, intense competition, reliance on government contracts, customer concentration, and fixed-price contract exposure - The COVID-19 pandemic continues to pose significant risks, impacting customer demand, manufacturing, and supply chains, especially in commercial aviation[55] - Intense competition from larger, more diversified firms with greater financial and R&D resources poses a significant challenge[56] - A substantial 44% of 2021 sales depends on U.S. Government contracts, subject to funding fluctuations and termination risks[63] - Significant customer concentration exists, with Boeing and Lockheed Martin each accounting for 12% of total sales in 2021[64] - 88% of 2021 sales using the cost-to-cost method were from fixed-price contracts, exposing the company to cost overrun losses[71] Unresolved Staff Comments There are no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[85] Properties As of October 2, 2021, Moog occupied 5.7 million square feet globally, with 4.2 million owned and 1.5 million leased, across its segments Total Occupied Space by Segment (as of Oct 2, 2021) | Segment | Owned (sq ft) | Leased (sq ft) | Total (sq ft) | | :--- | :--- | :--- | :--- | | Aircraft Controls | 1,530,000 | 419,000 | 1,949,000 | | Space and Defense Controls | 912,000 | 522,000 | 1,434,000 | | Industrial Systems | 1,710,000 | 603,000 | 2,313,000 | | Corporate Headquarters | 20,000 | — | 20,000 | | Total | 4,172,000 | 1,544,000 | 5,716,000 | Legal Proceedings No pending legal proceedings are expected to have a material adverse effect on the company's financial condition or operations - Management believes no pending legal proceedings will materially adversely affect the company's financial condition[87] Mine Safety Disclosures This section is not applicable to the company - Not applicable[87] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Moog's Class A and B common stocks trade on the NYSE; the company repurchased 75,230 shares in Q4 2021 under a 3 million share program - The company's Class A (MOG.A) and Class B (MOG.B) common stocks are traded on the NYSE[88] Issuer Purchases of Equity Securities (Q4 2021) | Period | Total Shares Purchased | Average Price Paid Per Share ($) | Shares Purchased Under Program | | :--- | :--- | :--- | :--- | | July 4 - July 31, 2021 | 4,471 | 83.34 | — | | Aug 1 - Aug 28, 2021 | 49,300 | 74.53 | 46,724 | | Aug 29 - Oct 2, 2021 | 21,459 | 75.88 | 15,700 | | Total | 75,230 | 75.44 | 62,424 | - A new share repurchase program authorized up to 3 million common shares on November 20, 2020, with 2,756,853 shares remaining as of October 2, 2021[91] Selected Financial Data Fiscal 2021 saw net sales of $2.85 billion, with net earnings recovering to $157.2 million and diluted EPS of $4.87, while the twelve-month backlog grew to $2.1 billion Five-Year Selected Financial Data (in thousands, except per share data) | Metric | 2021 | 2020 | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales (thousands) | $2,851,993 | $2,884,554 | $2,904,663 | $2,709,468 | $2,497,524 | | Net earnings (thousands) | $157,220 | $9,205 | $174,548 | $95,240 | $143,157 | | Diluted EPS ($) | 4.87 | 0.28 | 4.96 | 2.64 | 3.95 | | Twelve-month backlog (thousands) | $2,100,000 | $1,700,000 | $1,500,000 | $1,500,000 | $1,200,000 | | Net debt to capitalization (%) | 36 | 40 | 36 | 38 | 33 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses fiscal 2021's 1% sales decrease to $2.85 billion, significant net earnings recovery to $157 million, and a positive 2022 outlook with projected sales of $3.04 billion and EPS of $5.30-$5.70 Consolidated Results of Operations Fiscal 2021 net sales decreased 1% to $2.85 billion, while net earnings surged to $157 million from $9 million in 2020, and backlog increased 24% to $2.1 billion FY2021 vs FY2020 Consolidated Results (in millions) | Metric | 2021 (millions) | 2020 (millions) | $ Variance (millions) | % Variance | | :--- | :--- | :--- | :--- | :--- | | Net sales | $2,852 | $2,885 | $(33) | (1%) | | Net earnings | $157 | $9 | $148 | n/a | | Diluted EPS ($) | 4.87 | 0.28 | 4.59 | n/a | | Twelve-month backlog (millions) | $2,100 | $1,700 | $400 | 24% | - The significant increase in net earnings was primarily due to the absence of 2020's $121 million pension settlement charge, $38 million long-lived asset impairments, and $23 million inventory write-down[139][143][144] Segment Results of Operations In fiscal 2021, Aircraft Controls sales declined 4% to $1.16 billion, Space and Defense grew 4% to $799 million, and Industrial Systems fell 2% to $892 million, with varied operating profit changes - Aircraft Controls sales decreased 4% to $1.16 billion, driven by a 22% decline in commercial aircraft sales; operating profit surged 179% to $97 million due to the absence of prior year charges[150][151][152] - Space and Defense Controls sales increased 4% to $799 million, but operating margin decreased from 13.2% to 11.1% due to higher costs and supply chain challenges[153][154][155] - Industrial Systems sales declined 2% to $892 million, while operating profit increased 7% to $86 million due to lower COVID-related charges[157][159] Segment Outlook Moog forecasts a 6% increase in fiscal 2022 net sales to $3.04 billion, with operating profit growing 16% to $313 million and diluted EPS projected at $5.30-$5.70 2022 Financial Outlook (in millions, except EPS) | Metric | 2022 Forecast (millions) | 2021 Actual (millions) | % Variance | | :--- | :--- | :--- | :--- | | Net Sales | $3,035 | $2,852 | 6% | | Operating Profit | $313 | $271 | 16% | | Diluted EPS ($) | $5.30 - $5.70 | $4.87 | +13% (at midpoint) | - Aircraft Controls sales are expected to grow 7% in 2022, driven by recovery in commercial OEM and military programs[161] - Space and Defense Controls sales are projected to increase 10% in 2022, fueled by advanced space missions, satellites, and new defense programs[162] Financial Condition and Liquidity Fiscal 2021 saw net cash from operating activities increase 5% to $293 million, investing activities use $191 million, and financing activities use $87 million, improving net debt to capitalization to 36% Cash Flow Summary (in millions) | Activity | 2021 (millions) | 2020 (millions) | % Variance | | :--- | :--- | :--- | :--- | | Operating activities | $293 | $279 | 5% | | Investing activities | $(191) | $(146) | 31% | | Financing activities | $(87) | $(143) | (39%) | - The company invested $78 million for the Genesys acquisition and increased capital expenditures to $129 million in 2021[168] - Net debt to capitalization improved to 36% at fiscal year-end 2021, down from 40% in 2020, driven by increased total capitalization[180] Quantitative and Qualitative Disclosures About Market Risk Moog faces market risks from interest rate fluctuations on $409 million variable-rate debt and foreign currency exposure on one-fifth of 2021 sales, mitigated by derivatives - A hypothetical one percentage point increase in interest rates would have increased 2021 interest expense by $5 million[207] - A hypothetical 10% change in the U.S. dollar's value would have impacted 2021 net earnings by approximately $6 million from translation effects[209] - The company uses forward currency contracts to hedge foreign currency cash flows, with $172 million notional amounts outstanding as of October 2, 2021[208] Financial Statements and Supplementary Data This section presents audited consolidated financial statements for fiscal years 2019-2021, showing a significant 2021 profitability rebound with $157.2 million net earnings, $3.43 billion total assets, and $1.40 billion shareholders' equity Consolidated Statement of Earnings Highlights (in thousands) | Line Item | FY 2021 (thousands) | FY 2020 (thousands) | FY 2019 (thousands) | | :--- | :--- | :--- | :--- | | Net sales | $2,851,993 | $2,884,554 | $2,904,663 | | Gross profit | $775,723 | $743,696 | $815,832 | | Earnings before income taxes | $203,774 | $5,417 | $226,952 | | Net earnings | $157,220 | $9,205 | $174,548 | | Diluted EPS ($) | 4.87 | 0.28 | 4.96 | Consolidated Balance Sheet Highlights (in thousands) | Line Item | Oct 2, 2021 (thousands) | Oct 3, 2020 (thousands) | | :--- | :--- | :--- | | Total current assets | $1,718,780 | $1,613,487 | | Total assets | $3,433,169 | $3,225,831 | | Total current liabilities | $869,361 | $710,554 | | Long-term debt | $823,355 | $929,982 | | Total shareholders' equity | $1,400,144 | $1,243,083 | Consolidated Cash Flow Highlights (in thousands) | Line Item | FY 2021 (thousands) | FY 2020 (thousands) | FY 2019 (thousands) | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $293,226 | $279,177 | $181,423 | | Net cash used by investing activities | $(191,157) | $(146,193) | $(115,720) | | Net cash used by financing activities | $(86,995) | $(142,766) | $(98,681) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This section is not applicable to the company - Not applicable[439] Controls and Procedures Management concluded the company's disclosure controls and internal control over financial reporting were effective, with no material changes during the recent fiscal quarter - The CEO and CFO concluded that disclosure controls and procedures are effective as of the report's end[440] - No material changes occurred in internal control over financial reporting during the most recent fiscal quarter[442] Other Information On November 15, 2021, the Board adopted amended by-laws and approved revisions to executive compensation plans, including SARs, RSUs, and the Short Term Incentive Plan - The Board of Directors adopted amended and restated by-laws effective November 15, 2021[443] - Revisions were made to executive compensation plans, including SARs and RSUs, and the Management Short Term Incentive Plan, adjusting EPS and FCF weighting to 75% and 25% respectively[444][445] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement[448] Executive Compensation Information on executive and director compensation is incorporated by reference from the 2021 Proxy Statement - Information regarding executive compensation is incorporated by reference from the 2021 Proxy Statement[450] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership by beneficial owners and management, and equity compensation plans, is incorporated by reference from the 2021 Proxy Statement - Information regarding security ownership and equity compensation plans is incorporated by reference from the 2021 Proxy Statement[451] Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2021 Proxy Statement - Information regarding related party transactions and director independence is incorporated by reference from the 2021 Proxy Statement[452] Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 2021 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the 2021 Proxy Statement[453] PART IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K report - Lists all financial statements, schedules, and exhibits filed with the Form 10-K[456] Form 10-K Summary No Form 10-K summary is provided by the company - None[465]