e10vq
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 1, 2011
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 1-5129
MOOG inc.
(Exact name of registrant as specified in its charter)
     
New York State   16-0757636
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
East Aurora, New York   14052-0018
(Address of principal executive offices)   (Zip Code)
Telephone number including area code: (716) 652-2000
 
Former name, former address and former fiscal year, if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer o  Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The number of shares outstanding of each class of common stock as of February 3, 2011 was:
Class A common stock, $1.00 par value 41,360,264 shares
Class B common stock, $1.00 par value 4,078,555 shares
 
 

 


 

MOOG Inc.
QUARTERLY REPORT ON FORM 10-Q
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 EX-10.1
 EX-10.2
 EX-10.3
 EX-31.1
 EX-31.2
 EX-32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

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PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Moog Inc.
Consolidated Condensed Balance Sheets
(Unaudited)
                 
    January 1,   October 2,
(dollars in thousands)   2011   2010
 
ASSETS
               
 
               
CURRENT ASSETS
               
 
               
Cash and cash equivalents
  $ 104,722     $ 112,421  
Receivables
    614,361       619,861  
Inventories
    471,013       460,857  
Other current assets
    102,921       99,140  
     
TOTAL CURRENT ASSETS
    1,293,017       1,292,279  
 
               
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $470,946 and $457,916, respectively
    486,943       486,944  
GOODWILL
    701,309       704,816  
INTANGIBLE ASSETS, net
    198,044       205,874  
OTHER ASSETS
    21,269       22,221  
     
TOTAL ASSETS
  $ 2,700,582     $ 2,712,134  
     
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
 
               
CURRENT LIABILITIES
               
 
               
Notes payable
  $ 5,029     $ 1,991  
Current installments of long-term debt
    7,279       5,405  
Accounts payable
    146,059       154,321  
Customer advances
    89,424       74,703  
Contract loss reserves
    42,411       40,810  
Other accrued liabilities
    196,986       202,244  
     
TOTAL CURRENT LIABILITIES
    487,188       479,474  
 
               
LONG-TERM DEBT, excluding current installments
               
Senior debt
    328,953       378,707  
Senior subordinated notes
    378,609       378,613  
LONG-TERM PENSION AND RETIREMENT OBLIGATIONS
    276,249       281,830  
DEFERRED INCOME TAXES
    72,468       69,541  
OTHER LONG-TERM LIABILITIES
    2,851       3,013  
     
TOTAL LIABILITIES
    1,546,318       1,591,178  
     
SHAREHOLDERS’ EQUITY
               
Common stock
    51,280       51,280  
Other shareholders’ equity
    1,102,984       1,069,676  
     
TOTAL SHAREHOLDERS’ EQUITY
    1,154,264       1,120,956  
     
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 2,700,582     $ 2,712,134  
     
See accompanying Notes to Consolidated Condensed Financial Statements.

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Moog Inc.
Consolidated Condensed Statements of Earnings
(Unaudited)
                 
    Three Months Ended
    January 1,   January 2,
(dollars in thousands, except per share data)   2011   2010
 
NET SALES
  $ 554,434     $ 495,178  
COST OF SALES
    389,881       350,776  
     
GROSS PROFIT
    164,553       144,402  
Research and development
    23,475       23,882  
Selling, general and administrative
    85,783       78,127  
Restructuring
    58       1,819  
Interest
    9,211       10,728  
Other
    246       394  
     
EARNINGS BEFORE INCOME TAXES
    45,780       29,452  
INCOME TAXES
    12,373       7,891  
     
NET EARNINGS
  $ 33,407     $ 21,561  
     
NET EARNINGS PER SHARE
               
Basic
  $ 0.74     $ 0.48  
Diluted
  $ 0.73     $ 0.47  
     
 
               
AVERAGE COMMON SHARES OUTSTANDING
               
Basic
    45,388,891       45,323,349  
Diluted
    45,906,552       45,592,874  
     
See accompanying Notes to Consolidated Condensed Financial Statements.

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Moog Inc.
Consolidated Condensed Statements of Cash Flows
(Unaudited)
                 
    Three Months Ended
    January 1,   January 2,
(dollars in thousands)   2011   2010
 
CASH FLOWS FROM OPERATING ACTIVITIES
               
Net earnings
  $ 33,407     $ 21,561  
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Depreciation
    16,151       15,051  
Amortization
    7,545       7,551  
Provisions for non-cash losses on contracts, inventories and receivables
    16,316       7,550  
Equity-based compensation expense
    3,433       2,784  
Other
    165       (1,913 )
Changes in assets and liabilities providing cash, excluding the effects of acquisitions:
               
Receivables
    5,096       23,093  
Inventories
    (13,842 )     14,720  
Accounts payable
    (8,710 )     (11,123 )
Customer advances
    14,939       (9,647 )
Accrued expenses
    (21,001 )     (15,778 )
Accrued income taxes
    7,354       3,851  
Pension assets and liabilities
    326       (2,105 )
Other assets and liabilities
    (2,898 )     470  
     
NET CASH PROVIDED BY OPERATING ACTIVITIES
    58,281       56,065  
     
 
               
CASH FLOWS FROM INVESTING ACTIVITIES
               
Acquisitions of businesses, net of acquired cash
    (3,073 )     (358 )
Purchase of property, plant and equipment
    (18,126 )     (11,628 )
Other
          4  
     
NET CASH USED BY INVESTING ACTIVITIES
    (21,199 )     (11,982 )
     
 
               
CASH FLOWS FROM FINANCING ACTIVITIES
               
Net proceeds from (repayments of) notes payable
    3,093       (279 )
Net repayments of revolving lines of credit
    (45,948 )     (22,968 )
Payments on long-term debt
    (1,039 )     (1,747 )
Excess tax benefits from equity-based payment arrangements
    34       11  
Other
    (432 )     1,153  
     
NET CASH USED BY FINANCING ACTIVITIES
    (44,292 )     (23,830 )
     
 
               
Effect of exchange rate changes on cash
    (489 )     (445 )
     
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    (7,699 )     19,808  
Cash and cash equivalents at beginning of period
    112,421       81,493  
     
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 104,722     $ 101,301  
     
 
               
CASH PAID FOR:
               
Interest
  $ 9,365     $ 10,678  
Income taxes, net of refunds
    5,050       3,669  
     
See accompanying Notes to Consolidated Condensed Financial Statements.

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MOOG Inc.
Notes to Consolidated Condensed Financial Statements
Three Months Ended January 1, 2011
(Unaudited)
(dollars in thousands, except per share data)
Note 1 — Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting of normal recurring adjustments considered necessary for the fair presentation of results for the interim period have been included. The results of operations for the three months ended January 1, 2011 are not necessarily indicative of the results expected for the full year. The accompanying unaudited consolidated condensed financial statements should be read in conjunction with the financial statements and notes thereto included in our Form 10-K for the fiscal year ended October 2, 2010. All references to years in these financial statements are to fiscal years.
Note 2 — Acquisitions
During the three months ended January 1, 2011, we completed one business combination within our Aircraft Controls segment for $3,073 in cash. This acquisition complements our military aftermarket business.
In 2010, we completed four business combinations within three of our segments. We completed one acquisition in our Aircraft Controls segment for $8,100 in cash, issuance of a $1,200 unsecured note and contingent consideration with an initial fair value of $1,400. This acquisition complements our military aftermarket business. We acquired two businesses in our Space and Defense Controls segment for $20,273, net of cash acquired, issuance of a $1,000 unsecured note and contingent consideration with an initial fair value of $1,600. One business specializes in turret design, fire control systems and vehicle electronics and the other expands our capabilities in the security and surveillance market. We completed one acquisition in our Industrial Systems segment for $1,050 in cash and issuance of a $150 unsecured note. Combined sales of these acquisitions for the 2009 calendar year were approximately $34,000. The purchase price allocations for the 2010 acquisitions are complete with the exception of income taxes for one of the Space and Defense Controls acquisitions.
Note 3 — Inventories
                 
    January 1,   October 2,
    2011   2010
 
Raw materials and purchased parts
  $ 178,742     $ 179,375  
Work in progress
    224,148       221,128  
Finished goods
    68,123       60,354  
 
Total
  $ 471,013     $ 460,857  
 

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Note 4 — Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the three months ended January 1, 2011 are as follows:
                                 
    Balance as of   Adjustment   Foreign   Balance as of
    October 2,   To Prior Year   Currency   January 1,
    2010   Acquisitions   Translation   2011
 
Aircraft Controls
  $ 173,507     $ (903 )   $ (924 )   $ 171,680  
Space and Defense Controls
    121,623       22       (232 )     121,413  
Industrial Systems
    122,120       41       (1,623 )     120,538  
Components
    160,896             600       161,496  
Medical Devices
    126,670       (138 )     (350 )     126,182  
 
Total
  $ 704,816     $ (978 )   $ (2,529 )   $ 701,309  
 
The components of acquired intangible assets are as follows:
                                         
            January 1, 2011   October 2, 2010
    Weighted -   Gross           Gross    
    Average   Carrying   Accumulated   Carrying   Accumulated
    Life (years)   Amount   Amortization   Amount   Amortization
 
Customer-related
    10     $ 148,148     $ (53,195 )   $ 148,722     $ (49,781 )
Program-related
    18       62,880       (6,204 )     63,796       (5,275 )
Technology-related
    9       55,039       (23,813 )     54,743       (22,117 )
Marketing-related
    9       22,207       (12,101 )     22,256       (11,548 )
Contract-related
    3       3,243       (1,349 )     3,312       (1,104 )
Artistic-related
    10       25       (23 )     25       (22 )
 
Acquired intangible assets
    11     $ 291,542     $ (96,685 )   $ 292,854     $ (89,847 )
 
All acquired intangible assets other than goodwill are being amortized. Customer-related intangible assets primarily consist of customer relationships. Program-related intangible assets consist of long-term programs. Technology-related intangible assets primarily consist of technology, patents, intellectual property and engineering drawings. Marketing-related intangible assets primarily consist of trademarks, trade names and non-compete agreements. Contract-related intangible assets consist of favorable operating lease terms.
Amortization of acquired intangible assets was $6,943 for the three months ended January 1, 2011 and $7,108 for the three months ended January 2, 2010. Based on acquired intangible assets recorded at January 1, 2011, amortization is expected to be approximately $27,671 in 2011, $26,762 in 2012, $23,079 in 2013, $20,729 in 2014 and $17,894 in 2015.
Note 5 — Product Warranties
In the ordinary course of business, we warrant our products against defects in design, materials and workmanship typically over periods ranging from twelve to thirty-six months. We determine warranty reserves needed by product line based on historical experience and current facts and circumstances. Activity in the warranty accrual is summarized as follows:
                 
    Three Months Ended
    January 1,   January 2,
    2011   2010
 
Warranty accrual at beginning of period
  $ 14,856     $ 14,675  
Warranties issued during current period
    3,149       1,734  
Adjustments to pre-existing warranties
    (7 )     (98 )
Reductions for settling warranties
    (1,580 )     (2,512 )
Foreign currency translation
    (113 )     (50 )
 
Warranty accrual at end of period
  $ 16,305     $ 13,749  
 

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Note 6 — Derivative Financial Instruments
We principally use derivative financial instruments to manage interest rate risk associated with long-term debt and foreign exchange risk related to foreign operations and foreign currency transactions. We enter into derivative financial instruments with a number of major financial institutions to minimize counterparty credit risk.
Derivatives designated as hedging instruments
Interest rate swaps are used to adjust the proportion of total debt that is subject to variable and fixed interest rates. The interest rate swaps are designated as hedges of the amount of future cash flows related to interest payments on variable-rate debt that, in combination with the interest payments on the debt, convert a portion of the variable-rate debt to fixed-rate debt. At January 1, 2011, we had interest rate swaps with notional amounts totaling $50,000. The interest rate swaps effectively convert this amount of variable-rate debt to fixed-rate debt at 3.1%, including the applicable margin of 200 basis points as of January 1, 2011. The interest will revert back to variable rates based on LIBOR plus the applicable margin upon the maturity of the interest rate swaps in 2012.
We use foreign currency forward contracts as cash flow hedges to effectively fix the exchange rates on future payments. To mitigate exposure in movements between various currencies, primarily the Philippine peso, we had outstanding foreign currency forwards with notional amounts of $8,711 at January 1, 2011. These contracts mature at various times through the first quarter of 2012.
These interest rate swaps and foreign currency forwards are recorded in the consolidated balance sheet at fair value and the related gains or losses are deferred in shareholders’ equity as a component of Accumulated Other Comprehensive Income (Loss) (AOCI). These deferred gains and losses are reclassified into expense during the periods in which the related payments or receipts affect earnings. However, to the extent the interest rate swaps and foreign currency forwards are not perfectly effective in offsetting the change in the value of the payments being hedged, the ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was not material in 2011 or 2010.
Activity in AOCI related to these derivatives during the first three months of 2011 is summarized below:
                         
    Pre-tax   Income   After-Tax
    Amount   Tax   Amount
 
Balance at October 2, 2010
  $ 223     $ (79 )   $ 144  
Net increase in fair value of derivatives
    203       (77 )     126  
Net reclassification from AOCI into earnings
    (127 )     43       (84 )
 
Accumulated income at January 1, 2011
  $ 299     $ (113 )   $ 186  
 
Activity and classification of derivatives are as follows:
                                         
            Net reclassification from AOCI into   Net deferral in AOCI of derivatives
            earnings (effective portion)   (effective portion)
            Three Months Ended   Three Months Ended
    Classification of net gain (loss)   January 1,   January 2,   January 1,   January 2,
    recognized in earnings   2011   2010   2011   2010
 
Interest rate swaps
  Interest expense   $ (105 )   $ (327 )   $ (28 )   $ 161  
Foreign currency forwards
  Cost of sales     232       459       231       1,122  
 
Net gain
          $ 127     $ 132     $ 203     $ 1,283  
 

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Derivatives not designated as hedging instruments
We also have foreign currency exposure on intercompany balances that are denominated in a foreign currency and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in the statements of earnings. To minimize foreign currency exposure, we had foreign currency forwards with notional amounts of $186,363 at January 1, 2011. The foreign currency forwards are recorded in the consolidated balance sheet at fair value and resulting gains or losses are recorded in the statements of earnings. We recorded a net loss of $2,324 for the three months ended January 1, 2011 on the foreign currency forwards which are included in other income or expense and generally offset the gains or losses from the foreign currency adjustments on the intercompany balances.
Summary of derivatives
The fair value and classification of derivatives on the consolidated balance sheet are summarized as follows:
                         
            January 1,   October 2,
            2011   2010
 
Derivatives designated as hedging instruments:
                       
Foreign currency forwards
  Other current assets   $ 663     $ 498  
Foreign currency forwards
  Other assets           92  
 
 
          $ 663     $ 590  
 
Interest rate swaps
  Other accrued liabilities     367       381  
Interest rate swaps
  Other long-term liabilities           63  
 
 
          $ 367     $ 444  
 
Derivatives not designated as hedging instruments:
                       
Foreign currency forwards
  Other current assets   $ 1,256     $ 3,101  
Foreign currency forwards
  Other assets           74  
 
 
          $ 1,256     $ 3,175  
 
Foreign currency forwards
  Other accrued liabilities   $ 2,116     $ 2,346  
Foreign currency forwards
  Other long-term liabilities           61  
 
 
          $ 2,116     $ 2,407  
 
Note 7 — Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate fair value. The definition of the fair value hierarchy is as follows:
Level 1 — Quoted prices in active markets for identical assets and liabilities.
Level 2 — Observable inputs other than quoted prices in active markets for similar assets and liabilities.
Level 3 — Inputs for which significant valuation assumptions are unobservable in a market and therefore value is based on the best available data, some of which is internally developed and considers risk premiums that a market participant would require.
Our derivatives are valued using various pricing models or discounted cash flow analyses that incorporate observable market data, such as interest rate yield curves and currency rates, classified as Level 2 within the valuation hierarchy. Our Level 3 fair value liabilities represent contingent consideration recorded for acquisitions to be paid if various financial targets are met. The amounts recorded were calculated for each payment scenario in each period using an estimate of the probability of the future cash outflows. The varying contingent payments were then discounted to the present value at the weighted average cost of capital.

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The following table presents the fair values and classification of our financial assets and liabilities measured on a recurring basis as of January 1, 2011:
                                         
    Classification   Level 1   Level 2   Level 3   Total
 
Foreign currency forwards
  Other current assets   $     $ 1,919     $     $ 1,919  
 
 
          $     $ 1,919     $     $ 1,919  
 
Foreign currency forwards
  Other accrued liabilities   $     $ 2,116     $     $ 2,116  
Interest rate swaps
  Other accrued liabilities           367             367  
Acquisition contingent consideration
  Other accrued liabilities                 1,301       1,301  
Acquisition contingent consideration
  Other long-term liabilities                 2,003       2,003  
 
 
          $     $ 2,483     $ 3,304     $ 5,787  
 
During 2010, we recorded contingent purchase price consideration for acquisitions. As of October 2, 2010, the fair value of those liabilities was $3,112. The change in the fair value for the three months ended January 1, 2011 represents an increase in the discounted future cash flows and is recorded as a component of interest expense.
Our only financial instrument for which the carrying value differs from its fair value is long-term debt. At January 1, 2011, the fair value of long-term debt was $725,777 compared to its carrying value of $714,841. The fair value of long-term debt was estimated based on quoted market prices.
Note 8 — Restructuring
In 2009, we initiated restructuring plans to better align our cost structure with lower sales activity associated with the global recession. The restructuring actions taken have resulted in workforce reductions, primarily in the U.S., the Philippines and Europe.
Restructuring expense by segment related to severance is summarized as follows:
                 
    Three Months Ended
    January 1,   January 2,
    2011   2010
 
Aircraft Controls
  $     $ 1,192  
Industrial Systems
    58       394  
Components
          239  
Medical Devices
          (6 )
 
Total
  $ 58     $ 1,819  
 
We do not anticipate significant additional amounts for the remainder of 2011. Payments related to these severance benefits are expected to be paid in full by the end of 2011.
Restructuring activity for the three months ended January 1, 2011 is as follows:
         
    Severance
 
Restructuring accrual at beginning of period
  $ 3,389  
Restructuring charges
    107  
Expense adjustments for prior year accruals
    (49 )
Cash payments
    (1,580 )
Foreign currency translation
    (42 )
 
Restructuring accrual at end of period
  $ 1,825  
 

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Note 9 — Employee Benefit Plans
Net periodic benefit costs for U.S. pension plans consist of:
                 
    Three Months Ended
    January 1,   January 2,
    2011   2010
 
Service cost
  $ 5,642     $ 4,680  
Interest cost
    7,171       6,767  
Expected return on plan assets
    (9,772 )     (8,836 )
Amortization of prior service cost
    2       50  
Amortization of actuarial loss
    2,823       1,237  
 
Pension expense for defined benefit plans
    5,866       3,898  
Pension expense for defined contribution plans
    1,547       1,728  
 
Total pension expense for U.S. plans
  $ 7,413     $ 5,626  
 
Net periodic benefit costs for non-U.S. pension plans consist of:
                 
    Three Months Ended
    January 1,   January 2,
    2011   2010
 
Service cost
  $ 1,172     $ 818  
Interest cost
    1,526       1,563  
Expected return on plan assets
    (954 )     (944 )
Amortization of prior service credit
    (14 )     (14 )
Amortization of actuarial loss
    378       133  
 
Pension expense for defined benefit plans
    2,108       1,556  
Pension expense for defined contribution plans
    1,147       1,430  
 
Total pension expense for non-U.S. plans
  $ 3,255     $ 2,986  
 
Net periodic benefit costs for the post-retirement health care benefit plan consist of:
                 
    Three Months Ended
    January 1,   January 2,
    2011   2010
 
Service cost
  $ 123     $ 143  
Interest cost
    276       336  
Amortization of transition obligation
    99       99  
Amortization of prior service cost
          54  
Amortization of actuarial loss
    149       210  
 
Total periodic post-retirement benefit cost
  $ 647     $ 842  
 
During the three months ended January 1, 2011, we made contributions to our defined benefit pension plans of $7,707 to the U.S. plans and $1,643 to the non-U.S. plans. We anticipate contributing approximately $24,300 more to the U.S. plans and approximately $4,900 more to the non-U.S. plans for a total of approximately $38,500 in 2011.
Note 10 — Income Taxes
The effective tax rates for the three months ended January 1, 2011 and January 2, 2010 of 27.0% and 26.8%, respectively, are lower than would be expected by applying the U.S. federal statutory tax rate to earnings before income taxes as a significant portion of earnings came from foreign operations with lower tax rates.

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Note 11 — Shareholders’ Equity
The changes in shareholders’ equity for the three months ended January 1, 2011 are summarized as follows:
                         
            Number of Shares  
            Class A     Class B  
            Common     Common  
    Amount     Stock     Stock  
 
COMMON STOCK
                       
 
Beginning and end of period
  $ 51,280       43,485,417       7,794,296  
     
 
                       
ADDITIONAL PAID-IN CAPITAL
                       
 
                       
Beginning of period
    389,376                  
Equity-based compensation expense
    3,433                  
Issuance of treasury shares at more than cost
    183                  
Income tax effect of equity-based compensation
    (6 )                
Adjustment to market — SECT
    1,603                  
 
                     
End of period
    394,589                  
 
                     
 
                       
RETAINED EARNINGS
                       
 
                       
Beginning of period
    880,733                  
Net earnings
    33,407                  
 
                     
End of period
    914,140                  
 
                     
 
                       
TREASURY STOCK
                       
 
                       
Beginning of period
    (47,724 )     (2,221,635 )     (3,305,971 )
Issuance of treasury shares
    335       62,867        
Purchase of treasury shares
    (294 )     (7,777 )      
     
End of period
    (47,683 )     (2,166,545 )     (3,305,971 )
     
 
                       
STOCK EMPLOYEE COMPENSATION TRUST (SECT)
                       
 
                       
Beginning of period
    (13,381 )             (374,502 )
Purchase of shares
    (655 )             (18,448 )
Adjustment to market — SECT
    (1,603 )              
     
End of period
    (15,639 )           (392,950 )
     
 
                       
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
                       
 
                       
Beginning of period
    (139,328 )                
Foreign currency translation adjustment
    (5,315 )                
Retirement liability adjustment
    2,178                  
Increase in accumulated income on derivatives
    42                  
 
                     
End of period
    (142,423 )                
 
                     
 
                       
TOTAL SHAREHOLDERS’ EQUITY
  $ 1,154,264       41,318,872       4,095,375  
     

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Note 12 — Stock Employee Compensation Trust
The Stock Employee Compensation Trust (SECT) assists in administering and provides funding for equity-based compensation plans and benefit programs, including the Moog Inc. Retirement Savings Plan. The shares in the SECT are not considered outstanding for purposes of calculating earnings per share. However, in accordance with the trust agreement governing the SECT, the SECT trustee votes all shares held by the SECT on all matters submitted to shareholders.
Note 13 — Earnings per Share
Basic and diluted weighted-average shares outstanding are as follows:
                 
    Three Months Ended
    January 1,   January 2,
    2011   2010
 
Weighted-average shares outstanding — Basic
    45,388,891       45,323,349  
Dilutive effect of equity-based awards
    517,661       269,525  
 
Weighted-average shares outstanding — Diluted
    45,906,552       45,592,874  
 
Note 14 — Comprehensive Income
The components of comprehensive income, net of tax, are as follows:
                 
    Three Months Ended
    January 1,   January 2,
    2011   2010
 
Net earnings
  $ 33,407     $ 21,561  
Other comprehensive income (loss):
               
Foreign currency translation adjustment
    (5,315 )     (1,426 )
Retirement liability adjustment, net of tax of $1,262 and $661, respectively
    2,178       975  
Increase in accumulated income or loss on derivatives
    42       766  
 
Comprehensive income
  $ 30,312     $ 21,876  
 
The components of accumulated other comprehensive income (loss), net of tax, are as follows:
                 
    January 1,   October 2,
    2011   2010
 
Cumulative foreign currency translation adjustment
  $ 37,549     $ 42,864  
Accumulated retirement liability adjustments
    (180,158 )     (182,336 )
Accumulated income on derivatives
    186       144  
 
Accumulated other comprehensive loss
  $ (142,423 )   $ (139,328 )
 

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Note 15 — Segment Information
Below are sales and operating profit by segment for the three months ended January 1, 2011 and January 2, 2010 and a reconciliation of segment operating profit to earnings before income taxes. Operating profit is net sales less cost of sales and other operating expenses, excluding interest expense, equity-based compensation expense and other corporate expenses. Cost of sales and other operating expenses are directly identifiable to the respective segment or allocated on the basis of sales, number of employees or profit.
                 
    Three Months Ended
    January 1,   January 2,
    2011   2010
 
Net sales:
               
Aircraft Controls
  $ 195,951     $ 175,060  
Space and Defense Controls
    95,746       69,491  
Industrial Systems
    143,745       136,352  
Components
    86,351       84,906  
Medical Devices
    32,641       29,369  
 
Net sales
  $ 554,434     $ 495,178  
 
Operating profit (loss) and margins:
               
Aircraft Controls
  $ 20,195     $ 17,610  
 
    10.3 %     10.1 %
Space and Defense Controls
    15,815       7,519  
 
    16.5 %     10.8 %
Industrial Systems
    14,407       11,181  
 
    10.0 %     8.2 %
Components
    14,803       12,122  
 
    17.1 %     14.3 %
Medical Devices
    (1,491 )     139  
 
    (4.6 %)     0.5 %
 
Total operating profit
    63,729       48,571  
 
    11.5 %     9.8 %
Deductions from operating profit:
               
Interest expense
    9,211       10,728  
Equity-based compensation expense
    3,433       2,784  
Corporate expenses and other
    5,305       5,607  
 
Earnings before income taxes
  $ 45,780     $ 29,452  
 

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Note 16 — Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued new standards on consolidation as codified in Accounting Standards Codification (ASC) 810-10. The new standard amends the consolidation guidance applicable to variable interest entities and affects the overall consolidation analysis. The new standard is effective for fiscal years beginning after November 15, 2009. We adopted this standard at the beginning of 2011. The adoption of this standard did not have a material impact on our consolidated financial statements.
In October 2009, the FASB issued new standards for allocating revenue to multiple deliverables in a contract as codified in ASC 605-25. The new standard allows entities to allocate consideration in a multiple element arrangement in a manner that better reflects the transaction economics. When vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, entities will be allowed to develop their best estimate of the selling price for each deliverable and allocate arrangement consideration using the relative selling price method. Additionally, use of the residual method has been eliminated. We adopted this standard at the beginning of 2011. The adoption of this standard did not have a material impact on our consolidated financial statements.
In January 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-06, “Fair Value Measurements and Disclosures (ASC Topic 820) — Improving Disclosures About Fair Value Measurements.” This amendment requires new disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. This standard is effective for us beginning in the second quarter of 2010 for Level 1 and 2 disclosures and in the first quarter of 2012 for Level 3. Other than requiring additional disclosures, the adoption of this new guidance will not have a material impact on our consolidated financial statements.
In April 2010, the FASB issued ASU 2010-17, “Milestone Method of Revenue Recognition.” This ASU allows entities to make a policy election to use the milestone method of revenue recognition and provides guidance on defining a milestone and the criteria that should be met to applying the milestone method. The scope of this ASU is limited to the transactions involving milestones related to research and development deliverables. We adopted this standard at the beginning of 2011. The adoption of this standard did not have a material impact on our consolidated financial statements.
In July 2010, the FASB issued new disclosure requirements about the credit quality of financing receivables and allowance for credit losses, as codified in ASC 310. The objective of the new standard is to facilitate a financial statement users’ evaluation of the nature of the credit risk inherent in an entity’s portfolio, how that risk is analyzed and assessed in arriving at the allowance for credit losses and explanations for changes in the allowance for credit losses. In addition, the amendment requires entities to disclose credit quality indicators, past due information and modification to financing receivables. The new standard is effective for interim and annual periods ending on or after December 15, 2010. We adopted this standard at the beginning of 2011. The adoption of this standard did not have a material impact on our consolidated financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Form 10-K for the fiscal year ended October 2, 2010. All references to years in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are to fiscal years.
OVERVIEW
We are a worldwide designer, manufacturer and integrator of high performance precision motion and fluid controls and control systems for a broad range of applications in aerospace and defense, industrial and medical markets. Our aerospace and defense products and systems include military and commercial aircraft flight controls, satellite positioning controls, controls for steering tactical and strategic missiles, thrust vector controls for space launch vehicles, controls for gun aiming, stabilization and automatic ammunition loading for armored combat vehicles, and security and surveillance products. Our industrial products are used in a wide range of applications, including injection molding machines, pilot training simulators, wind energy, power generation, material and automotive testing, metal forming, heavy industry and oil exploration. Our medical products include infusion therapy pumps, enteral clinical nutrition pumps, slip rings used on CT scanners and motors used in sleep apnea devices. We operate under five segments, Aircraft Controls, Space and Defense Controls, Industrial Systems, Components and Medical Devices. Our principal manufacturing facilities are located in the United States, including facilities in New York, California, Utah, Virginia, North Carolina, Pennsylvania, Ohio, Georgia and Illinois, and in England, Germany, Italy, Japan, the Philippines, Ireland, India and China.
We have long-term contracts with some of our customers. These contracts are predominantly within Aircraft Controls and Space and Defense Controls and represent approximately one-third of our sales. We recognize revenue on these contracts using the percentage of completion, cost-to-cost method of accounting as work progresses toward completion. The remainder of our sales are recognized when the risks and rewards of ownership and title to the product are transferred to the customer, principally as units are delivered or as service obligations are satisfied. This method of revenue recognition is predominantly used within the Industrial Systems, Components and Medical Devices segments, as well as with aftermarket activity.
We concentrate on providing our customers with products designed and manufactured to the highest quality standards. In achieving a leadership position in the high performance, precision controls market, we have capitalized on our strengths, which include:
    superior technical competence and customer intimacy breeding market leadership,
 
    customer diversity and broad product portfolio,
 
    well-established international presence serving customers worldwide, and
 
    proven ability to successfully integrate acquisitions.
We intend to increase our revenue base and improve our profitability and cash flows from operations by building on our market leadership positions, by strengthening our niche market positions in the principal markets we serve and by extending our participation on the platforms we supply by providing more systems solutions. We also expect to maintain a balanced, diversified portfolio in terms of markets served, product applications, customer base and geographic presence. Our strategy to achieve our objectives includes:
    maintaining our technological excellence by building upon our systems integration capabilities while solving our customers’ most demanding technical problems,
 
    taking advantage of our global capabilities,
 
    growing our profitable aftermarket business,
 
    capitalizing on strategic acquisitions and opportunities,
 
    entering and developing new markets, and
 
    striving for continuing cost improvements.
Challenges facing us include improving shareholder value through increased profitability while experiencing pricing pressures from customers, strong competition, increases in costs such as retirement and health care benefits and adjusting to global economic conditions. We address these challenges by focusing on strategic revenue growth and by continuing to improve operating efficiencies through various process, manufacturing and restructuring initiatives and using low cost manufacturing facilities without compromising quality.

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Acquisitions
All of our acquisitions are accounted for under the purchase method and, accordingly, the operating results for the acquired companies are included in the consolidated statements of earnings from the respective dates of acquisition. Under purchase accounting, we record assets and liabilities at fair value on the balance sheet. The purchase price described for each acquisition below is net of any cash acquired and includes debt issued or assumed.
During the three months ended January 1, 2011, we completed one business combination within our Aircraft Controls segment for a purchase price of $3 million. This acquisition complements our military aftermarket business.
In 2010, we completed four business combinations within three of our segments. We completed one acquisition in our Aircraft Controls segment for $11 million. This acquisition complements our military aftermarket business. We completed two acquisitions in our Space and Defense Controls segment for a total of $23 million. One business specializes in turret design, fire control systems and vehicle electronics and the other expands our capabilities in the security and surveillance market. We completed one acquisition in our Industrial Systems segment for $1 million.
CRITICAL ACCOUNTING POLICIES
There have been no changes in critical accounting policies in the current year from those disclosed in our 2010 Form 10-K.
Reviews for Impairment of Goodwill
Our most recent test of goodwill for impairment was our annual test as of the beginning of our fourth quarter in 2010. The results of that test indicated that goodwill was not impaired and the fair value of each reporting unit exceeded its carrying value by over 10%.
The most significant assumptions in determining fair value are projected revenue growth rates, operating profit margins and cash flows, the terminal growth rate and the discount rate. Management projects revenue growth rates, operating margins and cash flows based on each reporting unit’s current business, expected developments and operational strategies over a five-year period. In estimating the terminal growth rate, we consider our historical and projected results, as well as the economic environment in which our reporting units operate. Significant program delays, changes in demand due to economic pressures or unfavorable terms in our contracts could have a negative effect on the fair value of a reporting unit.

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RECENT ACCOUNTING PRONOUNCEMENTS
In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (ASC Topic 820) — Improving Disclosures About Fair Value Measurements.” This amendment requires new disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. This standard is effective for us beginning in the second quarter of 2010 for Level 1 and 2 disclosures and in the first quarter of 2012 for Level 3. Other than requiring additional disclosures, the adoption of this new guidance will not have a material impact on our consolidated financial statements.
In December 2010, the FASB issued ASU No. 2010-28, “Intangibles-Goodwill and Other (ASC Topic 350) — When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” This amendment modifies the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts, and it requires performing Step 2 if qualitative factors indicate that it is more likely than not that an impairment exists. The new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Any goodwill impairment resulting from the initial adoption of the amendments should be recorded as a cumulative-effect adjustment to beginning retained earnings. Any goodwill impairments occurring after the initial adoption of the amendments should be included in earnings. We will adopt this standard in the first quarter of 2012. We do not expect the adoption of this standard will have a material impact on our consolidated financial statements.
In December 2010, the FASB issued ASU No. 2010-29, “Business Combinations (ASC Topic 805) — Disclosure of Supplementary Pro Forma Information for Business Combinations.” This amendment expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This amendment is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. We will adopt this standard in 2012. Other than requiring additional disclosures, the adoption of this amendment will not have a material impact on our consolidated financial statements.
CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK
                                 
    Three Months Ended
    January 1,   January 2,   $   %
(dollars in millions, except per share data)   2011   2010   Variance   Variance
 
Net sales
  $ 554.4     $ 495.2     $ 59.2       12 %
Gross margin
    29.7 %     29.2 %                
Research and development expenses
  $ 23.5     $ 23.9     $ (0.4 )     (2 %)
Selling, general and administrative expenses as a percentage of sales
    15.5 %     15.8 %                
Restructuring expense
  $ 0.1     $ 1.8     $ (1.7 )     (95 %)
Interest expense
  $ 9.2     $ 10.7     $ (1.5 )     (14 %)
Effective tax rate
    27.0 %     26.8 %                
Net earnings
  $ 33.4     $ 21.6     $ 11.8       55 %
Diluted earnings per share
  $ 0.73     $ 0.47     $ 0.26       55 %
 
Net sales increased in the first quarter of 2011 compared to the first quarter of 2010. We had increases in all of our segments with the largest increases coming from the Space and Defense Controls and Aircraft Controls segments.
Our gross margin was higher in the first quarter of 2011 compared to 2010, reflecting a more favorable product mix, offset by additions to contract loss reserves, which were $8 million higher in 2011 compared to 2010, primarily related to our Aircraft Controls segment.
Research and development expenses remained relatively unchanged as increases in multiple programs, including the Airbus A350 program, were offset by a $3 million reimbursement for a commercial transport program.

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Selling, general and administrative expenses decreased as a percentage of sales, primarily from efficiencies gained as a result of the higher sales volume.
Interest expense decreased from the same period in 2010 as a result of lower average interest rates.
2011 Outlook — We expect sales in 2011 to increase by 6% to approximately $2.25 billion reflecting increases in all of our segments except for Components. We expect operating margins to improve to 10.9% in 2011 compared to 10.2% in 2010. We expect operating margins to increase in Medical Devices, Industrial Systems, Space and Defense Controls and Aircraft Controls and decrease in Components. We expect net earnings to increase to $127 million and diluted earnings per share to increase by 17% to $2.75.
SEGMENT RESULTS OF OPERATIONS AND OUTLOOK
Operating profit, as presented below, is net sales less cost of sales and other operating expenses, excluding interest expense, equity-based compensation expense and other corporate expenses. Cost of sales and other operating expenses are directly identifiable to the respective segment or allocated on the basis of sales, number of employees or profit. Operating profit is reconciled to earnings before income taxes in Note 15 of the Notes to Consolidated Condensed Financial Statements included in this report.
Aircraft Controls
                                 
    Three Months Ended
    January 1,   January 2,   $   %
(dollars in millions)   2011   2010   Variance   Variance
 
Net sales — military aircraft
  $ 114.1     $ 108.7     $ 5.4       5 %
Net sales — commercial aircraft
    74.3       57.3       17.0       30 %
Net sales — navigation aids
    7.5       9.0       (1.5 )     (17 %)
 
 
  $ 195.9     $ 175.0     $ 20.9       12 %
Operating profit
  $ 20.2     $ 17.6     $ 2.6       15 %
Operating margin
    10.3 %     10.1 %                
Backlog
  $ 560.6     $ 519.7     $ 40.9       8 %
 
Military aircraft sales increased on the V-22 program in aftermarket and OEM by $10 million partially offset by a $3 million decrease on the F-15 program and a $1 million decrease on the F-35 program as it shifts from development to production. Commercial aircraft sales were strong as sales increased $8 million in aftermarket, due to both an unusual order in 2011 and depressed levels in 2010. In addition, sales increased $6 million for Boeing, mostly from the ramp up of production on the 787, and $2 million for Airbus. Navigation aids decreased due to delays in contract awards.
Our operating margin was comparable in 2011 and 2010. The 2011 period benefitted from higher volume and sales mix changes toward higher margin business such as aftermarket. In addition, research and development spending declined in 2011, the result of a $3 million reimbursement on a commercial transport program. These favorable results were mostly offset by $7 million more of contract loss reserves recorded in 2011 on various commercial programs.
The higher level of twelve-month backlog for Aircraft Controls at January 1, 2011 compared to January 2, 2010 reflects strong military aircraft orders.
2011 Outlook for Aircraft Controls — We expect sales in Aircraft Controls to increase 5% to $797 million in 2011. Military aircraft sales are expected to increase 1% to $461 million. We expect a sales increase in military aftermarket, in part due to recent acquisitions, offset by a decrease on the F-15 program. Commercial aircraft sales are expected to increase 14% to $298 million with increases in almost all product lines, including Boeing 787, aftermarket and business jets. Navigation aids are expected to increase $1 million. We expect our operating margin to be 10.4% in 2011, an improvement from 10.1% in 2010, reflecting a more favorable sales mix.

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Space and Defense Controls
                                 
    Three Months Ended
    January 1,   January 2,   $   %
(dollars in millions)   2011   2010   Variance   Variance
 
Net sales
  $ 95.7     $ 69.5     $ 26.2       38 %
Operating profit
  $ 15.8     $ 7.5     $ 8.3       111 %
Operating margin
    16.5 %     10.8 %                
Backlog
  $ 209.7     $ 201.6     $ 8.1       4 %
 
Net sales in Space and Defense Controls increased significantly, primarily in three main areas, the Driver’s Vision Enhancer (DVE) program, tactical missiles and security and surveillance. Sales on the DVE program were $15 million in the quarter, compared to $1 million in 2010. Tactical missiles increased $8 million as a result of a large order for an aircraft stores management system and replenishment of missile inventory being used in the Middle East. In addition, sales increased $5 million in security and surveillance, primarily a result of our Pieper acquisition in Germany in the third quarter of 2010.
Our operating margin for Space and Defense Controls increased significantly in 2011. We benefitted from the strong volume and profitability of the DVE program sales in 2011. In addition, we had been waiting for export approval on the stores management application, which resulted in an adjustment of the profit rate.
The higher level of twelve-month backlog at January 1, 2011 compared to January 2, 2010 relates to increased orders for tactical missiles, offset by decreases in defense controls programs.
2011 Outlook for Space and Defense Controls — We expect sales in Space and Defense Controls to increase $32 million, or 10%, to $358 million in 2011. We expect sales increases in tactical missiles and in security and surveillance, primarily from the Pieper acquisition, which will offset a decline in satellites. We expect our operating margin in 2011 to increase to 12.0% from 11.0% in 2010, primarily the result of the strong first quarter and the forecasted sales increase.
Industrial Systems
                                 
    Three Months Ended
    January 1,   January 2,   $   %
(dollars in millions)   2011   2010   Variance   Variance
 
Net sales
  $ 143.7     $ 136.4     $ 7.3       5 %
Operating profit
  $ 14.4     $ 11.2     $ 3.2       29 %
Operating margin
    10.0 %     8.2 %                
Backlog
  $ 245.1     $ 190.2     $ 54.9       29 %
 
Net sales in Industrial Systems reflect increases in all of our major markets except for wind energy. The broad-based sales recovery reflects the strengthening of business in all of our major geographic markets. Sales increased $3 million each in controls for metal forming presses, distribution and power generation and $2 million each in plastics making machinery, test equipment and motion simulation. Offsetting those increases was a decrease in wind energy of $14 million, primarily due to the Chinese market, where large customers had built up inventory, allowing them to slow their orders.
Our operating margin for Industrial Systems increased as a result of the higher sales volume in 2011 associated with the economic recovery.
The higher level of twelve-month backlog for Industrial Systems at January 1, 2011 compared to January 2, 2010 is due primarily to increased demand in most of our major markets due to improving global economic conditions.
2011 Outlook for Industrial Systems — We expect sales in Industrial Systems to increase 11% to $606 million in 2011. We expect sales increases in most major markets, with the largest increases in test equipment, motion simulators and metal forming presses, offset by a small decline in wind energy. We expect that our operating margin will increase to 10.4% in 2011 from 8.8% in 2010 as a result of the higher sales volume associated with the economic recovery.

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Components
                                 
    Three Months Ended
    January 1,   January 2,   $   %
(dollars in millions)   2011   2010   Variance   Variance
 
Net sales
  $ 86.4     $ 84.9     $ 1.5       2 %
Operating profit
  $ 14.8     $ 12.1     $ 2.7       22 %
Operating margin
    17.1 %     14.3 %                
Backlog
  $ 162.4     $ 176.3     $ (13.9 )     (8 %)
 
Net sales in Components increased marginally from last year; however, we experienced a sales shift between markets. Sales increased $4 million in our industrial business from the general automation and closed circuit TV surveillance markets. Medical sales increased $2 million, primarily from sales to Respironics for sleep apnea equipment. Sales in the marine market, which is closely tied to off shore oil exploration, also increased $2 million. Sales in the aircraft market were relatively unchanged as a $2 million decline in military aircraft was offset by increased sales in the commercial market. Sales for space and defense controls declined $7 million, mostly a result of slowing demand for various military vehicles such as the Bradley Fighting Vehicle and a $2 million fiber optic modem order we supplied in 2010 which did not repeat in 2011.
Our operating margin increased as a result of the sales mix shift toward higher margin industrial and marine markets and away from defense controls.
The lower level of twelve-month backlog at January 1, 2011 compared to January 2, 2010 primarily relates to slowing orders for space and defense controls and military aircraft programs.
2011 Outlook for Components — We expect sales in Components to decrease by $10 million in 2011. We expect sales will decrease in both aircraft and space and defense controls as several major military aircraft and vehicle programs wind down. Partially offsetting those declines are expected sales increases in industrial, marine and medical markets. We expect our operating margin in 2011 to be 15.2%, lower than the 16.7% we achieved in 2010 due to the lower sales volume.
Medical Devices
                                 
    Three Months Ended
    January 1,   January 2,   $   %
(dollars in millions)   2011   2010   Variance   Variance
 
Net sales
  $ 32.6     $ 29.4     $ 3.2       11 %
Operating (loss) profit
  $ (1.5 )   $ 0.1     $ (1.6 )     N/A  
Operating margin
    (4.6 %)     0.5 %                
Backlog
  $ 12.9     $ 10.1     $ 2.8       28 %
 
Net sales in Medical Devices increased primarily from strength in the sensors and hand pieces market, which increased $2 million, and administration sets, which increased $1 million. Sales of pumps declined $1 million as we held shipments on one of our infusion pumps pending resolution of a software issue.
Our operating margin declined in 2011 relative to 2010 despite the sales increase. We recorded a $1 million reserve in connection with a voluntary software upgrade related to an infusion pump to improve its reliability in response to customer feedback. In addition, our costs have increased as a result of our investments in a more extensive direct sales force to broaden our channels to market.
Twelve-month backlog for Medical Devices is not as substantial relative to sales as in our other segments, reflecting the shorter order-to-shipment cycle for this line of business.
2011 Outlook for Medical Devices — We expect sales in Medical Devices to increase $13 million, or 11%, to $140 million in 2011. We expect sales increases from new product offerings, including increases in administration sets, pumps and sensors and hand pieces. We expect our operating margin to be 2.1%, a significant improvement from 2010 as a result of the sales volume increases and cost improvements.

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FINANCIAL CONDITION AND LIQUIDITY
                                 
    Three Months Ended
    January 1,   January 2,   $   %
(dollars in millions)   2011   2010   Variance   Variance
 
Net cash provided (used) by:
                               
Operating activities
  $ 58.3     $ 56.1     $ 2.2       4 %
Investing activities
    (21.2 )     (12.0 )     (9.2 )     77 %
Financing activities
    (44.3 )     (23.8 )     (20.5 )     86 %
 
Our available borrowing capacity and our cash flow from operations provide us with the financial resources needed to run our operations, reinvest in our business and make strategic acquisitions.
Operating activities
Net cash provided by operating activities increased slightly in 2011 compared to 2010. The increase is attributable to higher earnings and customer advances received on tactical missile programs in our Space and Defense segment in 2011. Offsetting those increases were higher working capital requirements, largely in inventory, compared to 2010 which was impacted by lower sales as we began to recover from the recession.
Investing activities
Net cash used by investing activities in the first three months of 2011 increased by $9 million, primarily from increased capital expenditures, including test equipment on the A350, and $3 million for a small acquisition to complement our military aftermarket business in Aircraft Controls.
Financing activities
Net cash used by financing activities in the first three months of 2011 increased by $20 million, primarily reflecting larger paydowns on our U.S. credit facility.
Off Balance Sheet Arrangements
We do not have any material off balance sheet arrangements that have or are reasonably likely to have a material future effect on our results of operations or financial condition.
Contractual Obligations and Commercial Commitments
Our contractual obligations and commercial commitments have not changed materially from the disclosures in our 2010 Form 10-K.

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CAPITAL STRUCTURE AND RESOURCES
We maintain bank credit facilities to fund our short and long-term capital requirements, including for acquisitions. From time to time, we also sell equity and debt securities to fund acquisitions or take advantage of favorable market conditions.
Our largest credit facility is our U.S. credit facility, which matures on March 14, 2013. It consists of a $750 million revolver and had an outstanding balance of $325 million at January 1, 2011. Interest on the outstanding credit facility borrowings is based on LIBOR plus the applicable margin, which was 200 basis points at January 1, 2011 and will decrease to 175 basis points during the second quarter of 2011. The credit facility is secured by substantially all of our U.S. assets.
The U.S. credit facility contains various covenants. The covenant for minimum net worth, defined as total shareholders’ equity adjusted to maintain the amounts of accumulated other comprehensive loss at the level in existence as of September 30, 2006, is $600 million. The covenant for minimum interest coverage ratio, defined as the ratio of EBITDA to interest expense for the most recent four quarters, is 3.0. The covenant for the maximum leverage ratio, defined as the ratio of net debt, including letters of credit, to EBITDA for the most recent four quarters, is 4.0. The covenant for maximum senior leverage ratio, defined as the ratio of net senior debt to consolidated EBITDA for the most recent four quarters is 2.75. The covenant for maximum capital expenditures is $100 million annually. We are in compliance with all covenants. EBITDA is defined in the loan agreement as (i) the sum of net income, interest expense, income taxes, depreciation expense, amortization expense, other non-cash items reducing consolidated net income and non-cash equity-based compensation expenses minus (ii) other non-cash items increasing consolidated net income.
We are required to obtain the consent of lenders of the U.S. credit facility before raising significant additional debt financing. In recent years, we have demonstrated our ability to secure consents to access debt markets. We have also been successful in accessing equity markets from time to time. We believe that we will be able to obtain additional debt or equity financing as needed.
At January 1, 2011, we had $428 million of unused borrowing capacity, including $414 million from the U.S. credit facility after considering standby letters of credit.
Net debt to capitalization was 35% at January 1, 2011 and 36% at October 2, 2010. The decrease in net debt to capitalization is primarily due to debt reductions funded by our positive cash flow and net earnings in the first three months of 2011.
We believe that our cash on hand, cash flows from operations and available borrowings under short and long-term lines of credit will continue to be sufficient to meet our operating needs.

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ECONOMIC CONDITIONS AND MARKET TRENDS
We operate within the aerospace and defense, industrial and medical markets. Our aerospace and defense markets are affected by market conditions and program funding levels, while our industrial markets are influenced by general capital investment trends. Our medical markets are influenced by economic conditions, population demographics, medical advances and patient demand. A common factor throughout our markets is the continuing demand for technologically advanced products.
Aerospace and Defense
Approximately 62% of our 2010 sales were generated in aerospace and defense markets. The military aircraft market is dependent on military spending for development and production programs. Production programs are typically long-term in nature, offering predictability as to capacity needs and future revenues. We maintain positions on numerous high priority programs, including the F-35 Joint Strike Fighter, F/A-18E/F Super Hornet and V-22 Osprey. The large installed base of our products leads to attractive aftermarket sales and service opportunities. Aftermarket revenues are expected to continue to grow due to a number of scheduled military retrofit programs and increased flight hours resulting from increased military commitments.
The commercial OEM market has historically exhibited cyclical swings and sensitivity to economic conditions. The aftermarket is driven by usage of the existing aircraft fleet, the age of the installed fleet and is currently being impacted by fleet re-sizing programs for passenger and cargo aircraft. Changes in aircraft utilization rates affect the need for maintenance and spare parts and impact aftermarket sales. Boeing and Airbus have historically adjusted production in line with air traffic volume.
The military and government space market is primarily dependent on the authorized levels of funding for satellite communications. Government spending on military satellites has risen in recent years as the military’s need for improved intelligence gathering has increased. The commercial space market is comprised of large satellite customers, traditionally telecommunications companies. Trends for this market, as well as for commercial launch vehicles, follow the telecommunications companies’ need for increased capacity and the satellite replacement lifecycle of 7-10 years. Our position on NASA programs are impacted by the uncertainty and delays resulting from the Administration’s re-definition of those programs; however, they hold the potential to be long-run production programs.
The tactical missile, missile defense and defense controls markets are dependent on many of the same market conditions as military aircraft, including overall military spending and program funding levels. Our homeland security product line is dependent on government funding at federal and local levels, as well as private sector demand.
Industrial
Approximately 30% of our 2010 sales were generated in industrial markets. The industrial markets we serve are influenced by several factors, including capital investment, product innovation, economic growth, cost-reduction efforts and technology upgrades. We are experiencing challenges from current global economic conditions. This includes reacting to the demands for industrial automation equipment and steel and automotive manufacturing. Those markets were impacted by the global recession in 2009 and have continued to recover since then.
Medical
Approximately 8% of our 2010 sales were generated in medical markets. The medical markets we serve are influenced by economic conditions, hospital and outpatient clinic spending on equipment, population demographics, medical advances, patient demands and the need for precision control components and systems. Advances in medical technology and medical treatments have had the effect of extending the average life span, in turn resulting in greater need for medical services. These same technology and treatment advances also drive increased demand from the general population as a means to improve quality of life. Greater access to medical insurance, whether through government funded health care plans or private insurance, also increases the demand for medical services.

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Foreign Currencies
We are affected by the movement of foreign currencies compared to the U.S. dollar, particularly in Industrial Systems. About one-third of our 2010 sales were denominated in foreign currencies. During the first three months of 2011, foreign currencies generally weakened against the U.S. dollar compared to the first three months of 2010. The translation of the results of our foreign subsidiaries into U.S. dollars decreased sales by $5 million compared to the same period one year ago.

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Cautionary Statement
Information included or incorporated by reference in this report that does not consist of historical facts, including statements accompanied by or containing words such as “may,” “will,” “should,” “believes,” “expects,” “expected,” “intends,” “plans,” “projects,” “approximate,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume” and “assume,” are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to several factors, risks and uncertainties, the impact or occurrence of which could cause actual results to differ materially from the expected results described in the forward-looking statements. These important factors, risks and uncertainties include:
    fluctuations in general business cycles for commercial aircraft, military aircraft, space and defense products, industrial capital goods and medical devices;
 
    our dependence on government contracts that may not be fully funded or may be terminated;
 
    our dependence on certain major customers, such as The Boeing Company and Lockheed Martin, for a significant percentage of our sales;
 
    delays by our customers in the timing of introducing new products, which may affect our earnings and cash flow;
 
    the possibility that the demand for our products may be reduced if we are unable to adapt to technological change;
 
    intense competition, which may require us to lower prices or offer more favorable terms of sale;
 
    our indebtedness, which could limit our operational and financial flexibility;
 
    the possibility that new product and research and development efforts may not be successful, which could reduce our sales and profits;
 
    increased cash funding requirements for pension plans, which could occur in future years based on assumptions used for our defined benefit pension plans, including returns on plan assets and discount rates;
 
    a write-off of all or part of our goodwill or intangible assets, which could adversely affect our operating results and net worth and cause us to violate covenants in our bank agreements;
 
    the potential for substantial fines and penalties or suspension or debarment from future contracts in the event we do not comply with regulations relating to defense industry contracting;
 
    the potential for cost overruns on development jobs and fixed-price contracts and the risk that actual results may differ from estimates used in contract accounting;
 
    the possibility that our subcontractors may fail to perform their contractual obligations, which may adversely affect our contract performance and our ability to obtain future business;
 
    our ability to successfully identify and consummate acquisitions, and integrate the acquired businesses and the risks associated with acquisitions, including that the acquired businesses do not perform in accordance with our expectations, and that we assume unknown liabilities in connection with acquired businesses for which we are not indemnified;
 
    our dependence on our management team and key personnel;
 
    the possibility of a catastrophic loss of one or more of our manufacturing facilities;
 
    the possibility that future terror attacks, war or other civil disturbances could negatively impact our business;
 
    that our operations in foreign countries could expose us to political risks and adverse changes in local, legal, tax and regulatory schemes;
 
    the possibility that government regulation could limit our ability to sell our products outside the United States;
 
    product quality or patient safety issues with respect to our medical devices business that could lead to product recalls, withdrawal from certain markets, delays in the introduction of new products, sanctions, litigation, declining sales or actions of regulatory bodies and government authorities;
 
    the impact of product liability claims related to our products used in applications where failure can result in significant property damage, injury or death and in damage to our reputation;
 
    changes in medical reimbursement rates of insurers to medical service providers, which could affect sales of our medical products;
 
    the possibility that litigation results may be unfavorable to us;
 
    our ability to adequately enforce our intellectual property rights and the possibility that third parties will assert intellectual property rights that prevent or restrict our ability to manufacture, sell, distribute or use our products or technology;
 
    foreign currency fluctuations in those countries in which we do business and other risks associated with international operations;
 
    the cost of compliance with environmental laws;
 
    the risk of losses resulting from maintaining significant amounts of cash and cash equivalents at financial institutions that are in excess of amounts insured by governments;
 
    the inability to modify, to refinance or to utilize amounts presently available to us under our credit facilities given uncertainties in the credit markets;
 
    our ability to meet the restrictive covenants under our credit facilities since a breach of any of these covenants could result in a default under our credit agreements; and

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    our customer’s inability to continue operations or to pay us due to adverse economic conditions or their inability to access available credit.
These factors are not exhaustive. New factors, risks and uncertainties may emerge from time to time that may affect the forward-looking statements made herein. Given these factors, risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictive of future results. We disclaim any obligation to update the forward-looking statements made in this report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Refer to the Company’s Annual Report on Form 10-K for the year ended October 2, 2010 for a complete discussion of our market risk. There have been no material changes in the current year regarding this market risk information.
Item 4. Controls and Procedures.
(a)   Disclosure Controls and Procedures. We carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures are effective as of the end of the period covered by this report, to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
 
(b)   Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c)   The following table summarizes our purchases of our common stock for the quarter ended January 1, 2011.
                                 
                            (d) Maximum
                    (c ) Total   Number (or
                    Number of   Approximate
                    Shares   Dollar Value) of
    (a) Total           Purchased as   Shares that May
    Number of           Part of Publicly   yet be
    Shares   (b) Average   Announced   Purchased
    Purchased   Price Paid Per   Plans or   Under the Plans
Period   (1)(2)   Share   Programs (3)   or Programs (3)
 
October 3, 2010 - October 31, 2010
    15,148     $ 35.15             766,400  
November 1, 2010 - November 30, 2010
    4,199     $ 36.60             766,400  
December 1, 2010 - January 1, 2011
    6,878     $ 38.31             766,400  
 
Total
    26,225     $ 36.21             766,400  
 
 
(1)   Purchases in October consisted of 15,148 shares of Class B common stock from the Moog family and others at $35.15 per share. Purchases in December included 3,301 shares of Class B common stock from others at $37.14 per share.
 
(2)   In connection with the exercise of stock options, we accept, from time to time, delivery of shares to pay the exercise price of employee stock options. During November, we accepted the delivery of 4,199 shares at $36.60 per share in connection with the exercise of stock options. During December, we accepted the delivery of 3,577 shares at $39.41 per share in connection with the exercise of stock options.
 
(3)   In October 2008, the Board of Directors authorized a share repurchase program. The program permits the purchase of up to 1,000,000 Class A or Class B common shares in open market or privately negotiated transactions at the discretion of management.
Item 6. Exhibits
(a)   Exhibits
  10.1   Amended and Restated Employment Termination Benefits Agreement between Moog Inc. and Employee-Officers, as amended on August 23, 2006 and December 1, 2010.**
 
  10.2   1998 Stock Option Plan, as amended and restated, effective January 11, 2011.**
 
  10.3   2003 Stock Option Plan, as amended and restated, effective January 11, 2011.**
 
  31.1   Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
  31.2   Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
  32.1   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
  101.INS    XBRL Instance Document.*
 
  101.SCH     XBRL Taxonomy Extension Schema Document.*
 
  101.CAL     XBRL Taxonomy Extension Calculation Linkbase Document.*
 
  101.DEF    XBRL Taxonomy Extension Definition Linkbase Document.*
 
  101.LAB     XBRL Taxonomy Extension Label Linkbase Document.*
 
  101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document.*
 
*   Submitted electronically herewith.
 
**   Identifies a management contract or compensatory plan or arrangement.

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Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language):
(i) Consolidated Condensed Statements of Earnings for the three months ended January 1, 2011 and January 2, 2010,
(ii) Consolidated Condensed Balance Sheets at January 1, 2011 and October 2, 2010, (iii) Consolidated Condensed Statements of Cash Flows for the three months ended January 1, 2011 and January 2, 2010 and (iv) Notes to Consolidated Condensed Financial Statements for the three months ended January 1, 2011.
In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section and shall not be part of any registration or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
             
 
      Moog Inc.    
 
     
 
(Registrant)
   
 
           
Date: February 9, 2011
  By   /s/ Robert T. Brady
 
   
 
      Robert T. Brady    
 
      Chairman    
 
      Chief Executive Officer    
 
      (Principal Executive Officer)    
 
           
Date: February 9, 2011
  By   /s/ John R. Scannell    
 
           
 
      John R. Scannell    
 
      President    
 
      Chief Operating Officer    
 
           
Date: February 9, 2011
  By   /s/ Donald R. Fishback    
 
           
 
      Donald R. Fishback    
 
      Vice President    
 
      Chief Financial Officer    
 
      (Principal Financial Officer)    
 
           
Date: February 9, 2011
  By   /s/ Jennifer Walter    
 
           
 
      Jennifer Walter    
 
      Controller    
 
      (Principal Accounting Officer)    

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