UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

[√]		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended      September 29, 2007     

OR

[  ]		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      

(Exact Name of Registrant as Specified in its Charter)

New York		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)

     Registrant’s Telephone Number, Including Area Code: (716) 652-2000

Securities registered pursuant to Section 12(b) of the Act:

	Title of Each Class		Name of Each Exchange on Which Registered
	Class A Common Stock, $1.00 Par Value		New York Stock Exchange
	Class B Common Stock, $1.00 Par Value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:           None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes      √          No           

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes                  No      √     

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      √          No          

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.      √     

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer      √           Accelerated filer                 Non-accelerated filer           

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes                No      √     

The aggregate market value of the common stock outstanding and held by non-affiliates (as defined in Rule 405 under the Securities Act of 1933) of the registrant, based upon the closing sale price of the common stock on the New York Stock Exchange on March 30, 2007, the last business day of the registrant’s most recently completed second quarter, was approximately $1,536 million.

The number of shares of common stock outstanding as of the close of business on November 23, 2007 was:

Class A 38,330,731; Class B 4,116,950.

Portions of the 2007 Proxy Statement to Shareholders (“2007 Proxy”) are incorporated by reference into Part III of this Form 10-K.

FORM 10-K INDEX

						PAGE
PART I
		Item 1		Business			35-39
		Item 1A		Risk Factors			40-44
		Item 1B		Unresolved Staff Comments			44
		Item 2		Properties			45
		Item 3		Legal Proceedings			45
		Item 4		Submission of Matters to a Vote of Security Holders			45
PART II
		Item 5		Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			46-47
		Item 6		Selected Financial Data			48
		Item 7		Management’s Discussion and Analysis of Financial Condition and Results of Operations			49-63
		Item 7A		Quantitative and Qualitative Disclosures About Market Risk			64
		Item 8		Financial Statements and Supplementary Data			65-96
		Item 9		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			97
		Item 9A		Controls and Procedures			97
		Item 9B		Other Information			97
PART III
		Item 10		Directors, Executive Officers and Corporate Governance			97
		Item 11		Executive Compensation			97
		Item 12		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			97
		Item 13		Certain Relationships and Related Transactions and Director Independence			97
		Item 14		Principal Accountant Fees and Services			97
PART IV
		Item 15		Exhibits and Financial Statement Schedules			98-103
EX-23
EX-31.1
EX-31.2
EX-32.1

Cautionary Statement

Information included or incorporated by reference herein that does not consist of historical facts, including statements accompanied by or containing words such as “may,” “will,” “should,” “believes,” “expects,” “expected,” “intends,” “plans,” “projects,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume” and “assume,” are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to several factors, risks and uncertainties, the impact or occurrence of which could cause actual results to differ materially from the expected results described in the forward-looking statements. Certain of these factors, risks and uncertainties are discussed in the sections of this report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

PART I

The Registrant, Moog Inc., a New York corporation formed in 1951, is referred to in this Annual Report on Form 10-K as “Moog” or in the nominative “we” or the possessive “our.”

Unless otherwise noted or the context otherwise requires, all references to years in this report are to fiscal years.

Item 1. Business.

Description of the Business. Moog is a worldwide designer, manufacturer and integrator of precision control components and systems. Moog’s high-performance systems control military and commercial aircraft, satellites and space vehicles, launch vehicles, missiles, automated industrial machinery and medical equipment. We have five operating segments: Aircraft Controls, Space and Defense Controls, Industrial Systems, Components and Medical Devices.

Comparative segment revenues, operating profits and related financial information for 2007, 2006 and 2005 are provided in Note 15 of Item 8, Financial Statements and Supplementary Data, on pages 89 through 92 of this report.

Aircraft Controls. Our largest segment is Aircraft Controls. This segment generates revenues from three major markets: military aircraft, commercial aircraft and aftermarket support. We differentiate ourselves in these markets by offering a complete range of technologies, system integration capabilities and superior customer service.

We design, manufacture and integrate primary and secondary flight controls for military and commercial aircraft and provide aftermarket support. Our systems control large commercial transports, supersonic fighters, multi-role military aircraft, business jets and rotorcraft. Sales volume and margins in these markets are influenced by major factors that include whether the programs we are working on are in development or the number of new aircraft being built in production.

Typically, development programs require concentrated periods of research and development by our engineering teams and involve design, development, testing and integration. Production programs are generally long-term manufacturing efforts that extend for as long as the aircraft builder receives new orders. Margins are better on production programs because more consistent shipment rates create efficiencies. Revenues on production programs usually exhibit predictable trends driven by the demand for new aircraft. We are currently working on several large development programs including the F-35 Joint Strike Fighter, Boeing 787 Dreamliner, Indian Light Combat Aircraft, Airbus A400M and Boeing’s extended range 747-8. Our large military production programs include the F/A-18E/F Super Hornet and the V-22 Osprey. Our large commercial production programs include the full line of Boeing 7-series aircraft. Aftermarket support is the result of our original equipment heritage. With our equipment flying on active aircraft around the world, we support the major commercial airlines globally, various U.S. government agencies and many of the U.S.’s overseas allies. This part of our business is partially affected by hours flown for commercial transports and by hours flown and environmental factors for military aircraft. However, the largest factors in our aftermarket business are our ability to respond to customers’ needs for rapid turnaround times and their desire for factory warranted parts and repairs.

Aircraft Controls customers include Boeing, Lockheed Martin, Airbus, BAE, Bombardier, Gulfstream, Hawker Beechcraft, Honeywell, Northrop Grumman and the U.S. Government.

In Aircraft Controls, principal competitors include Parker Hannifin, Nabtesco, GE, Goodrich, Liebherr, HR Textron, Curtiss-Wright and Hamilton Sundstrand.

Space and Defense Controls. Space and Defense Controls has several important markets that generate segment revenues such as satellites and space vehicles, defense controls, launch vehicles, strategic missiles, missile defense and tactical missiles. As a result of the 2007 acquisition of QuickSet International, Inc., we have accelerated business development in the homeland defense market. We differentiate ourselves in these markets by having unique competence in the most difficult applications, complex motion and fluid control systems technology, innovative design and comprehensive project management capabilities.

For the commercial and military satellite markets, we design, manufacture and integrate chemical and electric propulsion systems and space flight motion controls. We design and manufacture control systems for gun positioning and to automatically load ammunition on military combat vehicles. Launch vehicles and missiles use our steering and propulsion controls, and the Space Station uses our couplings, valves and actuators. We design and build steering and propulsion controls for tactical and strategic missile programs. We supply valves on the final stage kill vehicle used in the U.S. National Missile Defense development initiative.

Commercial satellites and launcher markets are influenced by the telecommunications companies’ needs for capacity and the age and condition of their existing satellites. Orders for military satellites and launchers depend on the need for bandwidth. Defense controls revenues are driven mostly by U.S. and European military spending priorities. Tactical and strategic missile production depends on customer inventory levels. NASA’s various space programs and new exploration initiatives, such as the Constellation Program to replace the Space Shuttle, depend on relevant funding from NASA.

Customers include Alliant Techsystems, Lockheed Martin, Astrium, Raytheon, General Dynamics, United Technologies – Pratt & Whitney Rocketdyne, Aerojet, DRS Technologies and Boeing.

In Space and Defense Controls, principal competitors include Honeywell, HR Textron, Parker Hannifin, MPC, Vacco, Valvetech, Marotta, Ketema, Starsys, Sabca, Curtiss-Wright, ESW, Ampac ISP, Aerojet, Valcor, Aeroflex, Oerliken, Hamilton Sundstrand, Limitorque, R Vision and Axys Technologies.

Industrial Systems. Industrial Systems is a diverse segment, serving customers around the world and in many markets. Six major markets, plastics making machinery, simulation, power generating turbines, test, metal forming and heavy industry, generate over 60% of total sales in this segment. We differentiate ourselves in industrial markets by providing performance-based, customized products and systems, process expertise, best-in-class products in every leading technology and superior aftermarket support.

For the plastics making machinery market, we design, manufacture and integrate systems for all axes of injection and blow molding machines using leading edge technology, both hydraulic and electric. We supply electromechanical motion simulation bases for the flight simulation and training markets. In the power generation turbine market, we design, manufacture and integrate complete control assemblies for fuel, steam and variable geometry control applications that include wind turbines. For the test markets, we supply controls for automotive, structural and fatigue testing. Metal forming markets use our designed and manufactured systems that provide precise control of position, velocity, force, pressure, acceleration and other critical parameters. Heavy industry uses our high precision electrical and hydraulic servovalves for steel and aluminum mill equipment. Other markets include oil exploration, material handling, auto racing, carpet tufting, paper mills and lumber mills.

The factors that influence the industrial markets are as varied as the markets themselves. Capital investment, product innovation, economic growth, cost-reduction efforts, technology upgrades and the need in developing countries for manufacturing capacity and power generation are among the most important drivers in this segment. Catalysts for growth include automotive manufacturers that are upgrading their metal forming, injection molding and material test capabilities, steel manufacturers that are seeking to reduce energy costs and injection molding machine manufacturers that need exquisite precision in the production of CDs and DVDs.

Customers include FlightSafety, Tuftco, Huskey, Cooper, CAE, Arburg, Metso and Schlumberger.

In Industrial Systems, principal competitors include Bosch Rexroth, Eaton Vickers, Danaher, Baumueller, Siemens and Hydraudyne.

Components. Components shares many of the same markets that drive sales in our other segments, including military and commercial aerospace, defense controls and industrial and medical applications. We also participate in the market for highly specialized marine applications.

This segment’s three largest product categories are slip rings, fiber optic rotary joints and motors. Slip rings and fiber optic rotary joints use sliding contacts and optical technology to allow unimpeded rotation while delivering power and data across a rotating interface. They come in a range of sizes that allow them to be used in many applications that include diagnostic imaging, particularly CT scan medical equipment featuring high-speed data communications, de-icing and data transfer for rotorcraft, forward-looking infrared camera installations, radar pedestals, material handling, surveillance cameras, packaging and robotics.

Motors designed and manufactured by Components are also used in a wide variety of markets, many of which are the same as for slip rings. For the medical pump and blower market, and particularly sleep apnea equipment, Components designs and manufactures a series of miniature brushless motors that provide extremely low noise and reliable long life operation. Industrial markets use our motors for material handling, fuel cells and electric pumps. Military applications use our motors for gimbals, missiles and radar pedestals.

Components has several other product lines including electromechanical actuators for military, aerospace and commercial applications, fiber optic modems that provide electrical-to-optical conversion of communication and data signals, avionic instrumentation, optical switches and resolvers.

Continuous demand for product innovation in the medical equipment, homeland defense, aircraft protection, underwater installations, navigation systems and industrial machinery markets influence Components. Recent product innovation has resulted in lighter and smaller motors and increases in fiber optic bandwidth for CT scans. Other opportunities for growth will come from this segment’s penetration of international markets as it increasingly collaborates with our international sales engineers in our European and Pacific markets.

Customers include Respironics, Raytheon, Lockheed Martin, Honeywell, Philips Medical and the U.S. Government.

In Components, principal competitors include Danaher, Allied Motion, Ametek, MPC, Axsys, Schleifring, Airflyte, Smiths, Kearfott and Electro-Miniatures.

Medical Devices. Medical Devices is our newest segment, formed as a result of the acquisition of Curlin Medical in April 2006. The segment further expanded with the acquisitions of McKinley Medical in August 2006 and ZEVEX International in March 2007. This segment operates within the overall healthcare market, which is experiencing significant growth. We are beginning to differentiate ourselves in this market by advancing technology used in infusion therapy and enteral feeding and establishing key relationships with distribution and manufacturing companies.

The segment operates within three medical devices market areas: infusion therapy, enteral clinical nutrition and sensors and surgical handpieces. Within infusion therapy, our primary products are electronic ambulatory infusion pumps along with the necessary administration sets and disposable infusion pumps. Applications of these products include hydration, nutrition, patient controlled analgesia, local anesthesia, chemotherapy and antibiotics. We manufacture and distribute a complete line of portable pumps, stationary pumps, and disposable sets that are used in the delivery of enteral nutrition for patients in their own homes, in hospitals and in long-term care facilities. We manufacture and distribute ultrasonic and optical sensors used to detect air bubbles and ensure accurate fluid delivery. Our surgical handpieces are used to safely fragment and aspirate tissue in common medical procedures such as cataract removal.

The medical devices markets we operate in are influenced by trends in post-operative pain management, use of regional anesthesia, overall demographics and the aging of technology, all of which have created significant opportunities for us.

Key relationships with leading medical distribution and manufacturing companies like B. Braun, Royal Numico and DJO Inc. provide us with access to multiple medical markets and distribution channels.

In Medical Devices, principal competitors include Smiths Medical, Hospira, Alcon, Baxter International, CME, I-Flow, Kendall, Fresenius Kabi and Ross.

Distribution. Our sales and marketing organization consists of individuals possessing highly specialized technical expertise. This expertise is required in order to effectively evaluate a customer’s precision control requirements and to facilitate communication between the customer and our engineering staff. Our sales staff is the primary contact with customers. Manufacturers’ representatives are used to cover certain domestic aerospace markets. Distributors are used selectively to cover certain industrial and medical markets.

Industry and Competitive Conditions. We experience considerable competition in our aerospace, defense, industrial and medical markets.

We believe that the principal points of competition in our markets are product quality, design and engineering capabilities, product development, conformity to customer specifications, quality of support after the sale, timeliness of delivery and effectiveness of the distribution organization. We believe we compete effectively on all of these bases.

Government Contracts. All U.S. Government contracts may be subject to termination at the election of the Government.

Backlog. Substantially all backlog will be realized as sales in the next twelve months. Also see the discussion in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, beginning on page 49 of this report.

Raw Materials. Materials, supplies and components are purchased from numerous suppliers. We believe the loss of any one supplier, although potentially disruptive in the short-term, would not materially affect our operations in the long-term.

Working Capital. See the discussion on operating cycle in Note 1 of Item 8, Financial Statements and Supplementary Data, on page 69 of this report.

Seasonality. Our business is generally not seasonal.

Patents. We own numerous patents and have filed applications for others. While the protection afforded by these patents is of value, we do not consider the successful conduct of any material part of our business to be dependent upon such protection. Our patents and patent applications, including U.S. and international patents, relate to electrohydraulic, electro–pneumatic and electromechanical actuation mechanisms and control valves, electronic control component systems and interface devices. We have trademark and trade name protection in major markets throughout the world.

Research Activities. Research and product development activity has been, and continues to be, significant for us. Research and development increased to $103 million in 2007 from $69 million in 2006 and $44 million in 2005. The increases in 2007 and 2006 are largely a result of increasing development activities on Boeing’s next generation commercial aircraft, the 787 Dreamliner. During 2007, $15 million of the increase was attributable to work on the Boeing 787, which in total was $46 million in 2007. We also had another $8 million of increases on other aircraft projects and $3 million was a result of acquisitions. Boeing 787 was almost three-quarters of the increase in 2006 from 2005.

Employees. On September 29, 2007, we employed 8,364 full–time employees, compared to 7,273 full-time employees on September 30, 2006.

Customers. Our customers fall into three groups, Original Equipment Manufacturers, or OEMs, that are customers of our aerospace and defense markets, OEM customers of our industrial and medical businesses and aftermarket customers in all of our markets. Aerospace and defense OEM customers collectively represented approximately 44% of 2007 sales. The majority of these sales are to a small number of large companies. Due to the long-term nature of many of the programs, many of our relationships with aerospace and defense OEM customers are based on long–term agreements. Our OEM sales of industrial and medical controls and devices, which represented approximately 37% of 2007 sales, are to a wide diversity of customers around the world and are normally based on lead times of 90 days or less. We also provide aftermarket support, consisting of spare and replacement parts and repair and overhaul services, for all of our product applications. Our major aftermarket customers are the U.S. Government and commercial airlines.

Sales to the Boeing Company represented approximately 10% of consolidated sales in 2007, including sales to Boeing Commercial, which represented approximately 5% of 2007 sales. Sales to Lockheed Martin were approximately 7% of sales. Sales arising from U.S. Government prime or subcontracts, including military sales to Boeing and Lockheed Martin, were approximately 30% of sales. Sales to these customers are made primarily through Aircraft Controls, Space and Defense Controls and Components.

International Operations. Our operations outside the United States are conducted through wholly–owned foreign subsidiaries and are located predominantly in Europe and the Asian–Pacific region. See Note 15 of Item 8, Financial Supplementary Data, on pages 89 through 92 of this report for information regarding sales by geographic area and Exhibit 21 of Item 15, Exhibits and Financial Statement Schedules, on pages 100 and 101 of this report for a list of subsidiaries. Our international operations are subject to the usual risks inherent in international trade, including currency fluctuations, local governmental restrictions on foreign investment and repatriation of profits, exchange controls, regulation of the import and distribution of foreign goods, as well as changing economic and social conditions in countries in which such operations are conducted.

Environmental Matters. See the discussion in Note 16 of Item 8, Financial Statements and Supplementary Data, on page 92 of this report.

Website Access to Information. Our internet address is www.moog.com. We make our annual reports on Form 10–K, quarterly reports on Form 10–Q, current reports on Form 8–K and, if applicable, amendments to those reports, available on the investor information portion of our website. The reports are free of charge and are available as soon as reasonably practicable after they are filed with the Securities and Exchange Commission. We have posted our corporate governance guidelines, board committee charters and code of ethics to the investor information portion of our website. This information is available in print to any shareholder upon request. All requests for these documents should be made to Moog’s Manager of Investor Relations by calling (716) 687–4225.

Executive Officers of the Registrant. Other than Lawrence J. Ball and John B. Drenning, the principal occupations of our officers for the past five years have been their employment with us. John B. Drenning’s principal occupation is partner in the law firm of Hodgson Russ LLP.

On January 16, 2004, Lawrence J. Ball was named Vice President and General Manager of the Components Group. His employment with Moog began on September 30, 2003, when we acquired the Poly–Scientific division of Litton Systems, Inc., a subsidiary of Northrop Grumman Corporation. Previously he was Poly-Scientific’s President, a position he assumed in 1996.

On January 14, 2005, Harald E. Seiffer was named Vice President and continues as Business Development Manager for Moog Europe. Previously he was General Manager of Moog GmbH.

On January 10, 2006, Sasidhar Eranki was named Vice President and continues as Deputy General Manager of the Aircraft Group and Director of Engineering.

On January 10, 2006, John R. Scannell was named Vice President and continues as Director of Contracts and Pricing. Previously he was the Program Director of 787, General Manager of Moog Ireland and General Manager of the Electric Drives Product Line.

Executive Officers and Management		Age				Year First Elected Officer
Robert T. Brady
Chairman of the Board; President; Chief Executive Officer;
Director; Member, Executive Committee			66				1967
Richard A. Aubrecht
Vice Chairman of the Board; Vice President – Strategy and Technology;
Director; Member, Executive Committee			63				1980
Robert R. Banta
Executive Vice President; Chief Financial Officer; Assistant Secretary;
Director; Member, Executive Committee			65				1983
Joe C. Green
Executive Vice President; Chief Administrative Officer;
Director; Member, Executive Committee			66				1973
Stephen A. Huckvale
Vice President			58				1990
Martin J. Berardi
Vice President			51				2000
Warren C. Johnson
Vice President			48				2000
Jay K. Hennig
Vice President			47				2002
Lawrence J. Ball
Vice President			53				2004
Harald E. Seiffer
Vice President			48				2005
Sasidhar Eranki
Vice President			53				2006
John R. Scannell
Vice President			44				2006
Donald R. Fishback
Controller; Principal Accounting Officer			51				1985
Timothy P. Balkin
Treasurer; Assistant Secretary			48				2000
John B. Drenning
Secretary			70				1989

Item 1A. Risk Factors.

The markets we serve are cyclical and sensitive to domestic and foreign economic conditions and events, which may cause our operating results to fluctuate. The markets we serve are sensitive to fluctuations in general business cycles and domestic and foreign economic conditions and events. For example, demand for our industrial systems products is dependent upon several factors, including capital investment, product innovations, economic growth, cost-reduction efforts and technology upgrades. In addition, the commercial airline industry is highly cyclical and sensitive to fuel price increases, labor disputes and economic conditions. These factors could result in a reduction in the amount of air travel. A reduction in air travel could reduce orders for new aircraft for which we supply flight controls and for spare parts and services and reduce our sales. A reduction in air travel may also result in our commercial airline customers being unable to pay our invoices on a timely basis or at all.

We depend heavily on government contracts that may not be fully funded or may be terminated, and the failure to receive funding or the termination of one or more of these contracts could reduce our sales and increase our costs. Sales to the U.S. Government and its prime contractors and subcontractors represent a significant portion of our business. In 2007, sales under U.S. Government contracts represented 30% of our total sales, primarily within Aircraft Controls, Space and Defense Controls and Components. Sales to foreign governments represented 8% of our total sales. We expect that the percentage of our revenues from government contracts will continue to be substantial in the future. Government programs can be structured into a series of individual contracts. The funding of these programs is generally subject to annual congressional appropriations, and congressional priorities are subject to change. In addition, government expenditures for defense programs may decline or these defense programs may be terminated. A decline in government expenditures may result in a reduction in the volume of contracts awarded to us. We may have resources applied to specific government contracts and, if any of those contracts were terminated, we may incur substantial costs redeploying these resources.

If our subcontractors or suppliers fail to perform their contractual obligations, our prime contract performance and our ability to obtain future business could be materially and adversely impacted. Many of our contracts involve subcontracts with other companies upon which we rely to perform a portion of the services we must provide to our customers. There is a risk that we may have disputes with our subcontractors, including disputes regarding the quality and timeliness of work performed by the subcontractor, customer concerns about the subcontractor, our failure to extend existing task orders or issue new task orders under a subcontract or our hiring of personnel of a subcontractor. Failure by our subcontractors to satisfactorily provide on a timely basis the agreed-upon supplies or perform the agreed-upon services may materially and adversely impact our ability to perform our obligations as the prime contractor. Subcontractor performance deficiencies could result in a customer terminating our contract for default. A default termination could expose us to liability and substantially impair our ability to compete for future contracts and orders. In addition, a delay in our ability to obtain components and equipment parts from our suppliers may affect our ability to meet our customers’ needs and may have an adverse effect upon our profitability.

We make estimates in accounting for long-term contracts, and changes in these estimates may have significant impacts on our earnings. We have long-term contracts with some of our customers. These contracts are predominantly within Aircraft Controls and Space and Defense Controls. Revenue representing 34% of 2007 sales was accounted for using the percentage of completion, cost-to-cost method of accounting in accordance with the American Institute of Certified Public Accountants’ Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” We recognize revenue on contracts using the percentage of completion, cost-to-cost method of accounting as work progresses toward completion as determined by the ratio of cumulative costs incurred to date to estimated total contract costs at completion, multiplied by the total estimated contract revenue, less cumulative revenue recognized in prior periods.

Changes in estimates affecting sales, costs and profits are recognized in the period in which the change becomes known using the cumulative catch-up method of accounting, resulting in the cumulative effect of changes reflected in the period. A significant change in an estimate on one or more contracts could have a material effect on our results of operations. For contracts with anticipated losses at completion, we establish a provision for the entire amount of the estimated remaining loss and charge it against income in the period in which the loss becomes known. Amounts representing performance incentives, penalties, contract claims or change orders are considered in estimating revenues, costs and profits when they can be reliably estimated and realization is considered probable.

We enter into fixed-price contracts, which could subject us to losses if we have cost overruns. For the year ended September 29, 2007, fixed-price contracts represented 80% of our sales that were accounted for using the percentage of completion, cost-to-cost method of accounting. On fixed-price contracts, we agree to perform the scope of work specified in the contract for a predetermined price. Depending on the fixed price negotiated, these contracts may provide us with an opportunity to achieve higher profits based on the relationship between our total contract costs and the contract’s fixed price. However, we bear the risk that increased or unexpected costs may reduce our profit or cause us to incur a loss on the contract, which could reduce our net sales and net earnings. Loss reserves are more common on fixed-price contracts that involve the design and development of new and unique controls or control systems to meet the customer’s specifications.

Contracting in the defense industry is subject to significant regulation, including rules related to bidding, billing and accounting kickbacks and false claims, and any non-compliance could subject us to fines and penalties or possible debarment. Like all government contractors, we are subject to risks associated with this contracting. These risks include the potential for substantial civil and criminal fines and penalties. These fines and penalties could be imposed for failing to follow procurement integrity and bidding rules, employing improper billing practices or otherwise failing to follow cost accounting standards, receiving or paying kickbacks or filing false claims. We have been, and expect to continue to be, subjected to audits and investigations by government agencies. The failure to comply with the terms of our government contracts could harm our business reputation. It could also result in our progress payments being withheld or our suspension or debarment from future government contracts.

If we are unable to adapt to technological change, demand for our products may be reduced. The technologies related to our products have undergone, and in the future may undergo, significant changes. To succeed in the future, we will need to continue to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis. Historically, our technology has been developed through customer-funded and internally funded research and development and through business acquisitions. In addition, our competitors may develop technologies and products that are more effective than those we develop or that render our technology and products obsolete or uncompetitive. Furthermore, our products could become unmarketable if new industry standards emerge. We may have to modify our products significantly in the future to remain competitive, and new products we introduce may not be accepted by our customers.

Our new product and research and development efforts may not be successful, which would result in a reduction in our sales and earnings. In the past, we have incurred, and we expect to continue to incur, expenses associated with research and development activities and the introduction of new products. For instance, we are currently incurring substantial development costs in connection with our work on the 787. We may experience difficulties that could delay or prevent the successful development of new products or product enhancements, and new products or product enhancements may not be accepted by our customers. In addition, the research and development expenses we incur may exceed our cost estimates, and new products we develop may not generate sales sufficient to offset our costs. If any of these events occur, our sales and profits could be adversely affected.

The loss of Boeing or Lockheed Martin as a customer or a significant reduction in sales to either company would reduce our sales and earnings. We provide Boeing with controls for both military and commercial applications, which, in total, were 10% of our 2007 sales. Sales to Boeing’s commercial airplane group were 5% of 2007 sales. These commercial sales are generally made under a long-term supply agreement through 2012. Sales to Lockheed Martin were 7% of our 2007 sales. The loss of Boeing or Lockheed Martin as a customer or a significant reduction in sales to either company would significantly reduce our sales and earnings.

We operate in highly competitive markets with competitors who may have greater resources than we possess, which could reduce the volume of products we can sell and our operating margins. Many of our products are sold in highly competitive markets. Some of our competitors, especially in our industrial and medical markets, are larger, more diversified corporations and have greater financial, marketing, production and research and development resources. As a result, they may be better able to withstand the effects of periodic economic downturns. Our operations and financial performance will be negatively impacted if our competitors:

	•		develop products that are superior to our products;
	•		develop products that are more competitively priced than our products;
	•		develop methods of more efficiently and effectively providing products and services; or
	•		adapt more quickly than we do to new technologies or evolving customer requirements.

We believe that the principal points of competition in our markets are product quality, price, design and engineering capabilities, product development, conformity to customer specifications, quality of support after the sale, timeliness of delivery and effectiveness of the distribution organization. Maintaining and improving our competitive position will require continued investment in manufacturing, engineering, quality standards, marketing, customer service and support and our distribution networks. If we do not maintain sufficient resources to make these investments or are not successful in maintaining our competitive position, our operations and financial performance will suffer.

Significant changes in discount rates, rates of return on pension assets, mortality tables and other factors could affect our future earnings, equity and pension funding requirements. Pension obligations and the related costs are determined using actuarial valuations that involve several assumptions. Our funding requirements are also based on these assumptions. The most critical assumptions are the discount rate, the long-term expected return on assets and mortality. Other assumptions include salary increases and retirement age. Some of these assumptions, such as the discount rate and return on pension assets, are largely outside of our control. Changes in these assumptions could affect our future earnings, equity and funding requirements.

A write-off of all or part of our goodwill or other intangible assets could adversely affect our operating results and net worth and cause us to violate covenants in our bank credit facility. Goodwill and other intangible assets are a substantial portion of our assets. At September 29, 2007, goodwill was $538 million and other intangible assets were $82 million of our total assets of $2 billion. Our goodwill may increase in the future since our strategy includes growing through acquisitions. We may have to write-off all or part of our goodwill or other intangible assets if their value becomes impaired. Although this write-off would be a non-cash charge, it could reduce our earnings and net worth significantly. A write-off of goodwill or other intangible assets could also cause us to violate covenants in our bank credit facility that require a minimum level of net worth. This could result in our being unable to borrow under our bank credit facility or being obliged to refinance or renegotiate the terms of our bank indebtedness.

Our sales and earnings growth may be reduced if we cannot implement our acquisition strategy. Acquisitions are a key part of our growth strategy. Our historical growth has depended, and our future growth is likely to depend, in large part, on our ability to successfully implement our acquisition strategy, and the successful integration of acquired businesses into our existing operations. We intend to continue to seek additional acquisition opportunities in accordance with our acquisition strategy, both to expand into new markets and to enhance our position in existing markets throughout the world. If we are unable to successfully identify suitable candidates, negotiate appropriate acquisitions, successfully integrate acquired businesses into our existing operations or expand into new markets, our sales and earnings growth would be reduced.

We may incur losses and liabilities as a result of our acquisition strategy. Growth by acquisition involves risks that could adversely affect our financial condition and operating results, including:

	•		diversion of management time and attention from our core business;
	•		the potential exposure to unanticipated liabilities;
	•		the potential that expected benefits or synergies are not realized and that operating costs increase;
	•		the risks associated with incurring additional acquisition indebtedness, including that additional indebtedness could limit our cash flow availability for operations and our flexibility;
	•		difficulties in integrating the operations and personnel of acquired companies; and
	•		the potential loss of key employees, suppliers or customers of acquired businesses.

In addition, any acquisition, once successfully integrated, could negatively impact our financial performance if it does not perform as planned, does not increase earnings, or does not prove otherwise to be beneficial to us.

Our future growth and continued success is dependent on our key personnel. Our future success depends to a significant degree upon the continued contributions of our management team and technical personnel. The loss of members of our management team could have a material and adverse effect on our business. In addition, competition for qualified technical personnel in our industries is intense, and we believe that our future growth and success will depend on our ability to attract, train and retain such personnel.

Future terror attacks, war, or other civil disturbances could negatively impact our business. Terror attacks, war or other disturbances could lead to economic instability and decreases in demand for commercial products, which could negatively impact our business, financial condition and results of operations. Terrorist attacks worldwide have caused instability from time to time in global financial markets and the aviation industry. In 2007, 18% of our net sales was related to commercial aircraft. The long-term effects of terrorist attacks on us are unknown. These attacks and the U.S. Government’s continued efforts against terrorist organizations may lead to additional armed hostilities or to further acts of terrorism and civil disturbance in the United States or elsewhere, which may further contribute to economic instability.

Our operations in foreign countries expose us to political risks and adverse changes in local legal, tax and regulatory schemes. In 2007, 39% of our consolidated revenue was from customers outside of North America. We expect international operations and export sales to continue to contribute to our earnings for the foreseeable future. Both the sales from international operations and export sales are subject in varying degrees to risks inherent in doing business outside of the United States. Such risks include, without limitation, the following:

	•		the possibility of unfavorable circumstances arising from host country laws or regulations;
	•		partial or total expropriation;
	•		potential negative consequences from changes to significant taxation policies, laws or regulations;
	•		changes in tariff and trade barriers and import or export licensing requirements;
	•		political or economic instability, insurrection, civil disturbance or war; and
	•		potential negative consequences from the requirements of partial local ownership of operations in certain countries.

Government regulations could limit our ability to sell our products outside the United States and otherwise adversely affect our business. In 2007, 14% of our sales was subject to compliance with the United States Export Administration regulations. Our failure to obtain the requisite licenses, meet registration standards or comply with other government export regulations would hinder our ability to generate revenues from the sale of our products outside the United States. Compliance with the government regulations may also subject us to additional fees and operating costs. The absence of comparable restrictions on competitors in other countries may adversely affect our competitive position. In order to sell our products in European Union countries, we must satisfy certain technical requirements. If we are unable to comply with those requirements with respect to a significant quantity of our products, our sales in Europe would be restricted. Doing business internationally also subjects us to numerous U.S. and foreign laws and regulations, including, without limitation, regulations relating to import-export control, technology transfer restrictions, foreign corrupt practices and anti-boycott provisions. Failure by us or our sales representatives or consultants to comply with these laws and regulations could result in administrative, civil or criminal liabilities and could, in the extreme case, result in suspension or debarment from government contracts or suspension of our export privileges, which would have a material adverse effect on us.

Our facilities could be damaged by catastrophes which could reduce our production capacity and result in a loss of customers. We conduct our operations in facilities located throughout the world. Any of these facilities could be damaged by fire, floods, earthquakes, power loss, telecommunication and information systems failure or similar events. Our facilities in Southern California, Japan and the Philippines are particularly susceptible to earthquakes. These facilities accounted for 20% of our manufacturing, assembly and test capacity in 2007. Although we carry property insurance, including earthquake insurance and business interruption insurance, our inability to meet customers’ schedules as a result of a catastrophe may result in a loss of customers or significant additional costs such as penalty claims under customer contracts.

The failure of our products may damage our reputation, necessitate a product recall or result in claims against us that exceed our insurance coverage, thereby requiring us to pay significant damages. Defects in the design and manufacture of our products may necessitate a product recall. We include complex system design and components in our products that could contain errors or defects, particularly when we incorporate new technology into our products. If any of our products are defective, we could be required to redesign or recall those products or pay substantial damages or warranty claims. Such an event could result in significant expenses, disrupt sales and affect our reputation and that of our products. We are also exposed to product liability claims. Many of our products are used in applications where their failure is likely to result in significant property loss and serious personal injury or death. We carry aircraft and non-aircraft product liability insurance consistent with industry norms. However, these insurance coverages may not be sufficient to fully cover the payment of any potential claim. A product recall or a product liability claim not covered by insurance could have a material adverse effect on our business, financial condition and results of operations.

Our international operations pose currency and other risks that may adversely impact sales and earnings. We have significant manufacturing and sales operations in foreign countries. In addition, our domestic operations have sales to foreign customers. Our financial results may be adversely affected by fluctuations in foreign currencies and by the translation of the financial statements of our foreign subsidiaries from local currencies into U.S. dollars. The translation of our sales in foreign currencies, primarily the euro, British pound and Japanese yen, to the U.S. dollar had a $29 million positive impact on sales for 2007 using average exchange rates for 2007 compared to average exchange rates for 2006 and a $9 million negative impact on sales for 2006 using average exchange rates for 2006 compared to average exchange rates for 2005.

Our operations are subject to environmental laws, and complying with those laws may cause us to incur significant costs. Our operations and facilities are subject to numerous stringent environmental laws and regulations. Although we believe that we are in material compliance with these laws and regulations, future changes in these laws, regulations, or interpretations of them, or changes in the nature of our operations may require us to make significant capital expenditures to ensure compliance. We have been and are currently involved in environmental remediation activities, the cost of which may become significant depending on the discovery of additional environmental exposures at sites that we currently own or operate and at sites that we formerly owned or operated, or at sites to which we have sent hazardous substances or wastes for treatment, recycling or disposal.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

On September 29, 2007, we occupied 3,492,000 square feet of space in the United States and countries throughout the world, distributed by segment as follows:

		Square Feet
		Owned				Leased				Total
Aircraft Controls			1,012,000				239,000				1,251,000
Space and Defense Controls			268,000				116,000				384,000
Industrial Systems			758,000				382,000				1,140,000
Components			513,000				100,000				613,000
Medical Devices			51,000				32,000				83,000
Corporate Headquarters			–				21,000				21,000
Total			2,602,000				890,000				3,492,000

Aircraft Controls has principal manufacturing facilities located in New York, Utah, California, England and the Philippines. Space and Defense Controls has primary manufacturing facilities located in New York, California, Ohio, Illinois and Germany. Industrial Systems has principal manufacturing facilities located in New York, Germany, Italy, Japan, The Netherlands, Luxembourg, Ireland and India. Components has principal manufacturing facilities located in Virginia, North Carolina, Pennsylvania, Canada and England. Medical Devices has manufacturing facilities in California and Utah. Our corporate headquarters is located in East Aurora, New York.

We believe that our properties have been adequately maintained and are generally in good condition. Operating leases for properties expire at various times from 2008 through 2018. Upon the expiration of our current leases, we believe that we will be able to either secure renewal terms or enter into leases for alternative locations at market terms.

Item 3. Legal Proceedings.

From time to time, we are named as a defendant in legal actions. We are not a party to any pending legal proceedings that management believes will result in a material adverse effect on our financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.

Our two classes of common shares, Class A common stock and Class B common stock, are traded on the New York Stock Exchange (NYSE) under the ticker symbols MOG.A and MOG.B. The following chart sets forth, for the periods indicated, the high and low sales prices of the Class A common stock and Class B common stock on the NYSE.

Quarterly Stock Prices

		Class A								Class B
Fiscal Year Ended		High				Low				High				Low
September 29, 2007
1st Quarter		$	40.50			$	33.91			$	40.35			$	33.97
2nd Quarter			41.74				35.03				41.34				35.75
3rd Quarter			45.16				40.22				45.00				40.26
4th Quarter			49.42				37.20				45.50				37.75
September 30, 2006
1st Quarter		$	32.24			$	27.41			$	32.15			$	27.86
2nd Quarter			36.00				27.53				35.34				28.00
3rd Quarter			40.65				32.65				40.90				33.00
4th Quarter			37.22				29.60				36.70				30.22

The number of shareholders of record of Class A common stock and Class B common stock was 1,149 and 514, respectively, as of November 23, 2007.

We did not pay dividends on our Class A common stock or Class B common stock in 2006 or 2007 and have no plans to do so in the forseeable future.

The following table summarizes our purchases of our common stock for the quarter ended September 29, 2007.

Issuer Purchases of Equity Securities

(d) Maximum

(c) Total Number

Number (or Approx.

of Shares

Dollar Value) of

(a) Total

Purchased as

Shares that May

Number

(b) Average

Part of Publicly

Be Purchased

of Shares

Price Paid

Announced Plans

Under Plans

Period

Purchased (1)

Per Share

or Programs (1)

or Programs (1)

July 1-31, 2007

–

$

–

N/A

N/A

August 1-31, 2007

–

$

–

N/A

N/A

September 1-29, 2007

4,324

$

39.14

N/A

N/A

Total

4,324

$

39.14

N/A

N/A

(1)		In connection with the exercise and vesting of stock options, we from time to time accept delivery of shares to pay the exercise price of employee stock options. During September, we accepted the delivery of shares in connection with the exercise of stock options. We do not otherwise have any plan or program to purchase our common stock.

The following graph and table show the growth in the Company’s Class A common stock compared to the NYSE Composite – Total Return Index and the S&P Aerospace and Defense Index for a $100 investment made on September 30, 2002, including the reinvestment of any dividends.

Comparison of Five Year Cumulative Total Return

		9/02				9/03				9/04				9/05				9/06				9/07
Moog Inc. Class A		$	100.00				138.71				192.68				235.03				275.96				349.84
NYSE Composite – Total Return Index		$	100.00				109.74				135.24				187.23				173.56				269.01
S&P Aerospace & Defense Index		$	100.00				102.04				136.55				158.33				191.88				255.01

Item 6. Selected Financial Data.

For a more detailed discussion of 2005 through 2007, refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, on pages 49 through 63 of this report and Item 8, Financial Statements and Supplementary Data, on pages 65 through 96 of this report.

(dollars in thousands except per share data)		2007		(1)		2006		(1)(2)		2005		(1)(3)		2004		(4)		2003		(5)
RESULTS FROM OPERATIONS
Net sales		$	1,558,099			$	1,306,494			$	1,051,342			$	938,852			$	755,490
Net earnings		$	100,936			$	81,346			$	64,792			$	57,287			$	42,695
Net earnings per share (6)
Basic		$	2.38			$	2.01			$	1.68			$	1.48			$	1.24
Diluted		$	2.34			$	1.97			$	1.64			$	1.45			$	1.22
Weighted-average shares outstanding (6)
Basic			42,429,711				40,558,717				38,608,235				38,796,381				34,328,052
Diluted			43,149,481				41,247,689				39,498,834				39,592,224				34,860,206
FINANCIAL POSITION
Total assets		$	2,006,179			$	1,607,654			$	1,303,327			$	1,124,928			$	991,580
Working capital			616,623				420,495				312,706				321,805				340,776
Indebtedness – senior			417,434				186,451				148,773				311,289				256,660
– senior subordinated			200,089				200,107				200,124				–				–
Shareholders’ equity			877,212				762,856				521,037				471,656				424,148
Shareholders’ equity per common share outstanding (6)			20.63				18.04				13.48				12.23				10.93
SUPPLEMENTAL FINANCIAL DATA
Capital expenditures		$	96,988			$	83,555			$	41,188			$	34,297			$	28,139
Depreciation and amortization			52,093				47,077				36,207				35,508				29,535
Research and development			102,603				68,886				43,561				29,729				30,497
Twelve-month backlog			774,548				645,032				539,186				449,896				367,983
RATIOS
Net return on sales			6.5	%			6.2	%			6.2	%			6.1	%			5.7	%
Return on shareholders’ equity			12.3	%			12.9	%			12.8	%			12.6	%			12.5	%
Current ratio			2.93				2.37				2.09				2.42				2.61
Total debt to capitalization (7)			41.3	%			33.6	%			40.1	%			39.8	%			37.7	%

(1)		Includes the effects of acquisitions. See Note 2 of the Consolidated Financial Statements at Item 8 of this report.
(2)		Includes the effects of the adoption of SFAS No. 123(R), “Share-Based Payment,” under which we began recording stock-based compensation expense in 2006. Also includes the offering and sale of Class A Common Stock on February 21, 2006. See Notes 1, 11 and 12 of the Consolidated Financial Statements at Item 8 of this report.
(3)		Includes the effects of the issuance of senior subordinated notes on January 10, 2005 and September 12, 2005.
(4)		Includes the effects of the acquisition of the net assets of the Poly-Scientific division of Litton Systems, Inc., a subsidiary of Northrop Grumman Corporation, on September 30, 2003.
(5)		Includes the effects of the redemption of the senior subordinated notes on May 1, 2003 and the issuance of Class A common stock in September 2003.
(6)		Share and per share data prior to the April 1, 2005 three-for-two split of our Class A and Class B common stock have been restated.
(7)		Capitalization is the sum of total debt and shareholders’ equity.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

We are a worldwide designer, manufacturer and integrator of precision control components and systems. Our products and systems include military and commercial aircraft flight controls, satellite positioning controls, controls for positioning gun barrels and automatic ammunition loading for military combat vehicles, controls for steering tactical and strategic missiles, and thrust vector controls for space launch vehicles. Our products are also used in a wide variety of industrial applications, including injection molding machines for the plastics markets, simulators used to train pilots, power generating turbines, test, metal forming, heavy industry and certain medical applications. We operate under five segments, Aircraft Controls, Space and Defense Controls, Industrial Systems, Components and Medical Devices. Our principal manufacturing facilities are located in the United States, including facilities in New York, California, Utah, Virginia, North Carolina, Pennsylvania, Ohio and Illinois, and in Germany, England, Italy, Japan, the Philippines, Ireland and India.

Revenue under long-term contracts, representing 34% of our sales, is recognized using the percentage of completion, cost-to-cost method of accounting. This method of revenue recognition is predominately used within the Aircraft Controls and Space and Defense Controls segments due to the long-term contractual nature of the business activities, with the exception of their respective aftermarket activities. The remainder of our sales are recognized when the risks and rewards of ownership and title to the product are transferred to the customer, principally as units are delivered or as service obligations are satisfied. This method of revenue recognition is predominately used within the Industrial Systems, Components and Medical Devices segments, as well as with aftermarket activity.

We intend to increase our revenue base and improve our profitability and cash flows from operations by building on our market leadership positions and by strengthening our niche market positions in the principal markets that we serve. We also expect to maintain a balanced, diversified portfolio in terms of markets served, product applications, customer base and geographic presence. Our strategy to achieve our objectives includes maintaining our technological excellence by building upon our systems integration capabilities while solving our customers’ most demanding technical problems, growing our profitable aftermarket business, entering and developing new markets by using our broad expertise as a designer and supplier of precision controls, taking advantage of our global engineering, selling and manufacturing capabilities, striving for continuing cost improvements and capitalizing on strategic acquisition opportunities.

Challenges facing us include improving shareholder value through increased profitability while experiencing pricing pressures from customers, strong competition and increases in costs such as health care. We address these challenges by focusing on strategic revenue growth and by continuing to improve operating efficiencies through various process and manufacturing initiatives and using low cost manufacturing facilities without compromising quality.

Acquisitions

All of our acquisitions are accounted for using the purchase method of accounting for business combinations, and, accordingly, the results for the acquired companies are included in the consolidated statements of earnings from the respective dates of acquisition.

On September 12, 2007, we acquired QuickSet International, Inc. The purchase price, net of cash acquired, was $41 million, which was financed with credit facility borrowings. QuickSet is a manufacturer of precision positioning systems and pan and tilt mechanisms. QuickSet’s products are used to position surveillance cameras, thermal imagers, sensors and communication antennae for military, homeland defense and commercial surveillance applications. The markets served include positioning of surveillance cameras for securing national borders, commercial ports, strategic missile silos, military airbases and commercial airports. QuickSet’s products can also be used by the Navy and maritime industry in shipboard protection systems. This acquisition is principally included as part of our Space and Defense Controls segment. Annual sales for the twelve months preceding the acquisition were approximately $22 million.

On September 6, 2007, we acquired Techtron, a commercial slip ring manufacturer for $5.6 million in cash and is included as part of our Components segment.

On May 3, 2007, we acquired Thermal Control Products Inc. The purchase price, net of cash acquired, was $6.9 million. We paid $4.0 million in cash, which was financed with credit facility borrowings, and issued unsecured notes to the sellers payable over three years with a discounted present value of $2.9 million. Thermal Control Products specializes in the design, prototype and manufacture of electronic cooling and air moving systems for the automotive, telecommunications, server and electronic storage markets and is included as part of our Components segment.

On March 16, 2007, we acquired ZEVEX International, Inc. The purchase price, net of cash acquired, was $82 million, which was financed with credit facility borrowings, plus $2 million in assumed debt. ZEVEX manufactures and distributes a line of ambulatory pumps, stationary pumps and disposable sets that are used in the delivery of enteral nutrition for hospital, nursing home, neonatal and patient home use. ZEVEX also designs, develops and manufactures surgical tools and sensors and provides engineered solutions for the medical marketplace. This acquisition further expands our participation in the medical markets within our Medical Devices segment. Annual sales for the twelve months preceding the acquisition were approximately $43 million.

In the first quarter of 2007, we acquired a ball screw manufacturer for $2.6 million in cash plus $2.9 million in assumed debt and is included as part of our Industrial Systems segment.

Our purchase price allocations for our current year acquisitions are substantially complete with the exception of QuickSet, which are based on preliminary estimates of fair values of the assets acquired and liabilities assumed.

CRITICAL ACCOUNTING POLICIES

Our financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that affect the amounts reported. These estimates, assumptions and judgments are affected by our application of accounting policies, which are discussed in Note 1 of Item 8, Financial Statements and Supplementary Data, of this report. The critical accounting policies have been reviewed with the Audit Committee of our Board of Directors.

Revenue Recognition on Long-Term Contracts

Revenue representing 34% of 2007 sales was accounted for using the percentage of completion, cost-to-cost method of accounting in accordance with the American Institute of Certified Public Accountants’ Statement of Position (SOP) 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” This method of revenue recognition is predominately used within the Aircraft Controls and Space and Defense Controls segments due to the contractual nature of the business activities, with the exception of their respective aftermarket activities. The contractual arrangements are either firm fixed-price or cost-plus contracts and are with the U.S. Government or its prime subcontractors, foreign governments or commercial aircraft manufacturers, including Boeing and Airbus. The nature of the contractual arrangements includes customers’ requirements for delivery of hardware as well as funded nonrecurring development work in anticipation of follow-on production orders.

We recognize revenue on contracts using the percentage of completion, cost-to-cost method of accounting as work progresses toward completion as determined by the ratio of cumulative costs incurred to date to estimated total contract costs at completion, multiplied by the total estimated contract revenue, less cumulative revenue recognized in prior periods. Changes in estimates affecting sales, costs and profits are recognized in the period in which the change becomes known using the cumulative catch-up method of accounting, resulting in the cumulative effect of changes reflected in the period. Estimates are reviewed and updated quarterly for substantially all contracts. A significant change in an estimate on one or more contracts could have a material effect on our results of operations.

Occasionally, it is appropriate under SOP 81-1 to combine or segment contracts. Contracts are combined in those limited circumstances when they are negotiated as a package in the same economic environment with an overall profit margin objective and constitute, in essence, an agreement to do a single project. In such cases, we recognize revenue and costs over the performance period of the combined contracts as if they were one. Contracts are segmented in limited circumstances if the customer had the right to accept separate elements of the contract and the total amount of the proposals on the separate components approximated the amount of the proposal on the entire project. For segmented contracts, we recognize revenue and costs as if they were separate contracts over the performance periods of the individual elements or phases.

Contract costs include only allocable, allowable and reasonable costs, as determined in accordance with the Federal Acquisition Regulations and the related Cost Accounting Standards for applicable U.S. Government contracts, and are included in cost of sales when incurred. The nature of these costs includes development engineering costs and product manufacturing costs including direct material, direct labor, other direct costs and indirect overhead costs. Contract profit is recorded as a result of the revenue recognized less costs incurred in any reporting period. Amounts representing performance incentives, penalties, contract claims or change orders are considered in estimating revenues, costs and profits when they can be reliably estimated and realization is considered probable. Revenue recognized on contracts for unresolved claims or unapproved contract change orders was not material in 2007, 2006 and 2005.

Contract Loss Reserves

At September 29, 2007, we had contract loss reserves of $12 million. For contracts with anticipated losses at completion, a provision for the entire amount of the estimated remaining loss is charged against income in the period in which the loss becomes known. Contract losses are determined considering all direct and indirect contract costs, exclusive of any selling, general or administrative cost allocations that are treated as period expenses. Loss reserves are more common on firm fixed-price contracts that involve, to varying degrees, the design and development of new and unique controls or control systems to meet the customers’ specifications.

Reserves for Inventory Valuation

At September 29, 2007, we had inventories of $359 million, or 38% of current assets, and reserves for inventory valuation of $55 million, or 13% of gross inventories. Inventories are stated at the lower-of-cost-or-market with cost determined primarily on the first-in, first-out method of valuation.

We record valuation reserves to provide for slow-moving or obsolete inventory by using both a formula-based method that increases the valuation reserve as the inventory ages and, supplementally, a specific identification method. We consider overall inventory levels in relation to firm customer backlog in addition to forecasted demand including aftermarket sales. Changes in these and other factors such as low demand and technological obsolescence could cause us to increase our reserves for inventory valuation, which would negatively impact our gross margin.

As we record provisions within cost of sales to increase inventory valuation reserves, we establish a new, lower cost basis for the inventory. We do not increase this new cost basis for subsequent changes in facts or circumstances. Once we establish a reserve for an inventory item, we only relieve the reserve upon the subsequent use or disposal of the item.

Reviews for Impairment of Goodwill

At September 29, 2007, we had $538 million of goodwill, or 27% of total assets. We test goodwill for impairment at least annually, during our fourth quarter, and whenever events occur or circumstances change that indicate there may be an impairment. These events or circumstances could include a significant adverse change in the business climate, poor indicators of operating performance or a sale or disposition of a significant portion of a reporting unit.

We test goodwill for impairment at the reporting unit level. Certain of our reporting units are our operating segments while others are one level below our operating segments. We identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components.

Testing goodwill for impairment requires us to determine the amount of goodwill associated with reporting units, estimate fair values of those reporting units and determine their carrying values. These processes are subjective and require significant estimates. These estimates include judgments about future cash flows that are dependent on internal forecasts, long-term growth rates, allocations of commonly shared assets and estimates of the weighted-average cost of capital used to discount future cash flows. Changes in these estimates and assumptions could materially affect the results of our reviews for impairment of goodwill.

Based on these tests, goodwill was not impaired in 2007, 2006 or 2005.

Purchase Price Allocations for Business Combinations

During 2007, we acquired QuickSet International, Inc., Thermal Control Products, Inc., ZEVEX International, Inc., Techtron and a ball screw manufacturer. Under purchase accounting, we recorded assets and liabilities at fair value as of the acquisition dates. We identified and ascribed value to customer relationships, tradenames, patents and backlog, and estimated the useful lives over which these intangible assets would be amortized. Preliminary valuations of these assets were performed largely using discounted cash flow models. These preliminary valuations support the conclusion that intangible assets other than goodwill had a value of $42 million. The resulting goodwill was $76 million, reflecting the strong cash flows of the acquired operations.

During 2007, we completed our purchase price allocation for the 2006 acquisitions of Curlin Medical and McKinley Medical, which resulted in an increase in goodwill of $1 million.

Ascribing value to intangible assets requires estimates used in projecting relevant future cash flows, in addition to estimating useful lives of such assets. Using different assumptions could have a material effect on our current and future amortization expense.

Pension Assumptions

We sponsor various defined benefit pension plans covering substantially all employees. Pension obligations and the related costs are determined using actuarial valuations that involve several assumptions. The most critical assumptions are the discount rate, the long-term expected return on assets and mortality. Other assumptions include salary increases and retirement age.

The discount rate is used to state expected future cash flows at present value. Using a lower discount rate increases the present value of pension obligations. There is little judgment in selecting the discount rate as it reflects the yield of high-quality fixed income securities, generally AA corporate bonds, as of our August 31 measurement date. In determining expense for 2007 for our U.S. plans, representing 78% of our consolidated projected benefit obligation, we used a 6.0% discount rate, compared to 5.25% for 2006. Our expense in 2008 for these U.S. plans will be determined using a 6.25% discount rate. This 25 basis point increase in the discount rate will decrease our pension expense by $2 million in 2008. We currently forecast pension costs for all defined benefit pension plans to approximate $20 million in 2008.

The return on assets assumption reflects the average rate of earnings expected on funds invested or to be invested to provide for the benefits included in the projected benefit obligation. We select the return on assets assumption by considering our current and target asset allocations, both of which are around 80% equities and 20% debt and other investments for our largest plan, representing 87% of the fair value of consolidated plan assets, as well as historical and expected returns on each category of plan assets. In determining expense for 2007 for our largest plan, we used an 8.875% return on assets assumption, the same we used in 2006. A 50 basis point decrease in the return on assets assumption would increase our annual pension expense by approximately $1 million.

In 2007, we used the 2000 mortality table to determine expense for our U.S. plans. Our expense in 2008 will use the 2000 mortality table projected to 2007. This updated projection will increase the expense by approximately $1 million.

Deferred Tax Asset Valuation Allowances

At September 29, 2007, we had gross deferred tax assets of $75 million and a deferred tax asset valuation allowance of $9 million. The deferred tax assets principally relate to benefit accruals, inventory obsolescence and contract loss reserves. The deferred tax assets include $8 million related to net operating losses in Luxembourg, for which a $7 million deferred tax asset valuation allowance is recorded.

We record a valuation allowance to reduce deferred tax assets to the amount of future tax benefit that we believe is more likely than not to be realized. We consider recent earnings projections, allowable tax carryforward periods, tax planning strategies and historical earnings performance to determine the amount of the valuation allowance. Changes in these factors could cause us to adjust our valuation allowance, which would impact our income tax expense when we determine that these factors have changed.

CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK

(dollars in millions)		2007				2006				2005
Net sales		$	1,558			$	1,306			$	1,051
Gross margin			34.0	%			32.6	%			31.2	%
Research and development expenses		$	103			$	69			$	44
Selling, general and administrative expenses as a percentage of sales			16.2	%			16.4	%			16.7	%
Interest expense		$	30			$	22			$	14
Effective tax rate			29.8	%			32.3	%			31.7	%
Net earnings		$	101			$	81			$	65

Our fiscal year ends on the Saturday in September or October that is closest to September 30. In years prior to 2006, our fiscal year ended on the last Saturday in September. The consolidated financial statements include 52 weeks for the year ended September 29, 2007, 53 weeks for the year ended September 30, 2006 and 52 weeks for the year ended September 24, 2005. While management believes this affects the comparability of financial results presented, the impact has not been determined.

Net sales increased $252 million, or 19%, in 2007 and $255 million, or 24%, in 2006. Sales increased in each of our segments, even without considering the effects of our acquisitions. We estimate that acquisitions accounted for approximately 25% of the growth in 2007 and nearly half of the growth in 2006.

Our gross margin improved in 2007 compared to 2006. Approximately one-half of the improvement was a result of reduced charges to our contract loss reserves. One-quarter of the improvement was the result of a more favorable product mix in 2007, particularly associated with our Space and Defense Controls segment and higher gross margins in our Medical Devices segment. Our gross margin improved in 2006 due primarily to higher sales volume.

Gross margins can be influenced by activity in contract loss reserves, especially additions to loss reserves associated with new loss contracts or substantial increases in cost estimates on existing contracts. At September 29, 2007, we had contract loss reserves of $12 million, compared to $15 million at September 30, 2006 and $14 million at September 24, 2005. During 2007, we had $11 million of additions to contract loss reserves, offset by $14 million of reductions as costs incurred were charged against previously established loss reserves. During 2006, we had $18 million of additions to contract loss reserves, offset by $17 million of reductions as costs incurred were charged against previously established loss reserves. Approximately three-quarters of these contract loss reserves relate to aircraft development contracts in all periods presented.

Research and development expenses significantly increased in both 2007 and 2006, reflecting increases in development activities on Boeing’s next generation commercial aircraft, the 787 Dreamliner. During 2007, $15 million of the increase was attributable to work on the Boeing 787, another $8 million of the increase related to other aircraft projects and $3 million was a result of acquisitions. Development work on the Boeing 787 accounted for $18 million of the $25 million increase in 2006 over 2005.

Selling, general and administrative expenses as a percentage of sales for 2007 compared to 2006 was down slightly due mainly to a $2 million charge in 2006 for the termination of an agreement with a long-standing sales representative. In addition, the benefit of our higher sales volume in 2007 was somewhat offset by the higher cost structure of the new Medical Devices segment. Selling, general and administrative expenses as a percentage of sales decreased in 2006 compared to 2005. During 2006, we were able to increase our sales without corresponding increases in our cost structure, despite the $3.5 million of stock compensation expense resulting from the adoption of SFAS No. 123(R) in 2006 and a $2 million charge for the termination of an agreement with a long-standing sales representative in 2006.

Interest expense was higher in 2007 compared to 2006. Approximately 85% of the increase is due to higher debt levels associated with our acquisitions and additional pension contributions. Higher interest rates in 2007 contributed the remaining increase. Interest expense increased in 2006 compared to 2005 due almost equally to higher levels of debt associated with our acquisitions and higher interest rates, in part related to the issuance of 6¹/4% senior subordinated notes in 2005.

The effective tax rate for 2007 was lower than 2006 mainly as a result of a tax charge in 2006 related to a tax opinion rendered by the European tax court. We also utilized previously unrecognized tax loss carryforwards in 2007. Our effective tax rate increased in 2006 compared to 2005 due to lower foreign tax credits available in the U.S. and a tax charge related to the tax opinion rendered by the European tax court, offset partially by lower overall taxes on our 2006 foreign earnings.

In 2007, net earnings increased 24% and diluted earnings per share increased 19% compared to 2006. In 2006, net earnings increased 26% and diluted earnings per share increased 20%. Average common shares outstanding in 2007 and 2006 increased primarily as a result of the sale of 2,875,000 shares of Class A common stock on February 21, 2006.

2008 Outlook – We expect sales in 2008 to increase by 15% to approximately $1.8 billion with increases in each of our segments. Sales are expected to increase $64 million in Aircraft Controls, between $47 million and $67 million in Industrial Systems, $43 million in Space and Defense Controls, $38 million in Components and $34 million in Medical Devices. We expect operating margins to be 12.7% in 2008 compared to 12.5% in 2007. We expect operating margins to increase in Aircraft Controls and Medical Devices, maintain their levels in Industrial Systems and Components and decline in Space and Defense Controls. We expect net earnings to increase to between $115 million and $119 million. We expect diluted earnings per share to increase by a range of 13% to 17% to between $2.65 and $2.73.

SEGMENT RESULTS OF OPERATIONS AND OUTLOOK

Operating profit, as presented below, is net sales less cost of sales and other operating expenses, excluding stock compensation expense and other corporate expenses. Cost of sales and other operating expenses are directly identifiable to the respective segment or allocated on the basis of sales or manpower. Operating profit is reconciled to earnings before income taxes in Note 15 of Item 8, Financial Statements and Supplementary Data, of this report.

Aircraft Controls

(dollars in millions)		2007				2006				2005
Net sales – military aircraft		$	326			$	330			$	297
Net sales – commercial aircraft			261				197				155
		$	587			$	527			$	452
Operating profit		$	61			$	67			$	64
Operating margin			10.4	%			12.6	%			14.1	%
Backlog		$	322			$	282			$	253

Net sales in Aircraft Controls increased 11% in 2007 due to strong commercial aircraft sales. Commercial sales were led by a $37 million increase in OEM sales to Boeing, including $20 million associated with Boeing’s new 787. Business jet revenues were up $13 million and aftermarket revenues increased $11 million, reflecting higher activity in commercial and business jets. Military aircraft sales declined in 2007 as sales increases on the V-22, and Seahawk and Black Hawk helicopter programs were more than offset by $12 million of lower sales on the F-35 Joint Strike Fighter cost-plus development program.

Net sales in Aircraft Controls increased 17% in 2006. Military aircraft sales increased $34 million and commercial aircraft sales increased $42 million. Within military aircraft, our sales increased $18 million in aftermarket sales, $15 million on the F-35 program and $11 million on the Seahawk and Black Hawk helicopter programs. The higher level of aftermarket sales resulted from Black Hawk helicopter spares and repairs and overhaul activity that we believe is related to the Mideast conflict. These increases were partially offset by a $6 million sales decrease on the Indian Light Combat Aircraft, for which our sales were high in 2005. Within commercial aircraft, our sales increased $19 million in aftermarket sales, $10 million in Boeing OEM business and $8 million on business jets.

Our operating margin decreased in 2007 and 2006, mostly reflecting significant research and development costs particularly on the Boeing 787 program. Research and development expenses on this program were $46 million in 2007, $31 million in 2006 and $13 million in 2005. Charges to contract loss reserves were lower in 2007 compared to 2006 by $8 million; however, this was offset by a $4 million gain related to our negotiations with Boeing and the U.S. Army for the Comanche termination in 2006 and an unfavorable shift in product mix. Our operating margin decrease in 2006 compared to 2005 reflects higher research and development costs, which were partially offset by the $4 million gain on the termination of the Comanche contract.

Twelve-month backlog for Aircraft Controls increased to $322 million at September 29, 2007. This increase is largely related to strong commercial orders. The increase in backlog at September 30, 2006 from September 24, 2005 was largely the result of orders on the F-35 and V-22 programs.

2008 Outlook for Aircraft Controls – We expect sales in Aircraft Controls to increase 11% to $651 million in 2008. Commercial aircraft sales are expected to increase 13% to $296 million, principally related to business jets, Boeing OEM and aftermarket. Within military aircraft, we expect sales to increase 9% to $355 million mainly due to increases on the F-35 program, aftermarket and the V-22 program. We expect our operating margin to be 11.3% in 2008, an improvement from 10.4% in 2007, resulting mainly from lower research and development spending.

Space and Defense Controls

(dollars in millions)		2007				2006				2005
Net sales		$	185			$	148			$	128
Operating profit		$	24			$	13			$	11
Operating margin			13.1	%			9.0	%			8.6	%
Backlog		$	142			$	127			$	100

Net sales in Space and Defense Controls increased 25% in 2007 due principally to new defense controls programs. Sales on the Marine’s Light-Armored Vehicle (LAV-25) program increased $13 million in 2007. Future Combat Systems, which started in 2006 with a negligible amount of sales, generated over $10 million of sales. In addition, sales of controls for commercial and military satellites increased $7 million.

Net sales in Space and Defense Controls increased 15% in 2006. Sales of defense controls were strong, increasing $10 million over 2005, largely as a result of work on the LAV-25 and Stryker military vehicle programs. Sales of controls for tactical missiles increased $5 million related to deliveries for the TOW missile and foreign military deliveries of Maverick missile fin controls. In addition, sales of controls for satellites increased $5 million.

Our operating margin for Space and Defense Controls increased significantly in 2007, due largely to strong sales volume and a more favorable product mix. In addition, we had a $2 million charge in 2006 associated with the termination of a sales representative agreement. Our operating margin for 2006 improved compared to 2005 as a result of higher sales on satellites, which was somewhat offset by the $2 million charge in 2006 associated with the termination of the sales representative agreement.

Twelve-month backlog for Space and Defense Controls increased to $142 million at September 29, 2007 due to $16 million of backlog associated with the acquisition of QuickSet just prior to year-end. Backlog at September 30, 2006 increased from September 24, 2005 reflecting increased orders for defense controls and orders for naval systems resulting from the Flo-Tork acquisition.

2008 Outlook for Space and Defense Controls – We expect sales in Space and Defense Controls to increase 23% to $228 million in 2008. We expect that $35 million of the increase will be in our homeland defense product line, principally as a result of the QuickSet acquisition. In addition, the Constellation program, the name given to the Space Shuttle replacement program that includes cost-plus work on the Ares I Crew Launch Vehicle and Orion Crew Exploration Vehicle, will also have higher sales in 2008. Those increases will be somewhat offset by reductions on the LAV-25 program as we complete our shipments on this order and lower sales on Future Combat Systems. We expect our operating margin in 2008 to decrease to 11.0%, down from 13.1% in 2007, as a result of a larger portion of sales coming from lower margin cost-plus contracts and typical first year purchase accounting adjustments associated with the QuickSet acquisition.

Industrial Systems

(dollars in millions)		2007				2006				2005
Net sales		$	436			$	381			$	315
Operating profit		$	57			$	45			$	27
Operating margin			13.2	%			11.8	%			8.6	%
Backlog		$	150			$	122			$	104

Net sales in Industrial Systems increased 14% in 2007 reflecting substantial growth in most of our major markets. Sales increases of controls for presses and metal forming and plastics making machinery reflected strong demand in Europe. In addition, sales increased in our motion simulation and heavy industry markets. Stronger foreign currencies, in particular the euro, compared to the U.S. dollar, accounted for more than one-third of the sales increase.

Net sales in Industrial Systems increased 21% in 2006. The acquisitions of FCS Control Systems and Flo-Tork accounted for approximately 60% of the increase in sales and are predominantly in the simulation and test markets. Sales also increased $11 million in power generation and $6 million in heavy industry driven by demand in China. We experienced lower sales in only one major market, plastics, as the European market for controls on injection molding machines used in the production of CDs and DVDs was weak. Weaker foreign currencies compared to the U.S. dollar had a $10 million negative impact on sales in 2006 relative to 2005.

Our operating margin for Industrial Systems improved in both 2007 and 2006 due to higher sales volume and a more favorable product mix. In addition, as we have moved towards supplying more systems solutions in relation to components over time, our overall operating margin trend has improved.

The higher level of twelve-month backlog for Industrial Systems at September 29, 2007 compared to September 30, 2006 relates primarily to increased orders for motion simulation programs. Stronger foreign currencies compared to the U.S. dollar also accounted for approximately one third of the increase. The higher level of twelve-month backlog at September 30, 2006 compared to September 24, 2005 largely relates to increased orders for motion simulators.

2008 Outlook for Industrial Systems – We expect sales in Industrial Systems to increase between 11% and 15% to an amount in the range of $483 million to $503 million in 2008. The sales growth is expected to come from most of our major markets with the largest increases in motion simulation and aftermarket. We expect our operating margin to be 13.2% in 2008, the same strong performance we achieved in 2007.

Components

(dollars in millions)		2007				2006				2005
Net sales		$	283			$	238			$	156
Operating profit		$	45			$	37			$	21
Operating margin			15.7	%			15.5	%			13.5	%
Backlog		$	149			$	110			$	82

Net sales in Components increased 19% in 2007 with growth in every major market. Aircraft sales increased $18 million due mainly to increased military procurement on the Black Hawk and the Eurofighter, as well as growth in the commercial avionics market. Sales of space and defense controls, including foreign military sales of fiber optic modems for battlefield communication and various components supplied on the commander’s independent viewer for the Bradley Fighting Vehicle and Abrams tank, contributed $11 million of the increase for the year. Marine sales increased $7 million reflecting increased interest in exploration and production of oil. In addition, sales of medical equipment components improved by $6 million.

Net sales in Components increased 52% in 2006. We estimate that nearly two-thirds of this increase resulted from incremental sales associated with the acquisition of the Power and Data Technologies Group of the Kaydon Corporation. The remainder of the increase related to space and defense controls, medical equipment components and controls for military aircraft.

Our operating margin for 2007 relative to 2006 is comparable and the increase in 2006 over 2005 is a result of higher sales volume, a more favorable product mix and efficiencies associated with the integration of the Power and Data Technologies Group acquisition.

The higher level of twelve-month backlog at September 29, 2007 compared to September 30, 2006 primarily relates to increased orders for space and defense controls and military aircraft programs. The higher level of twelve-month backlog at September 30, 2006 compared to September 24, 2005 primarily relates to increased orders in military aircraft and space and defense control programs.

2008 Outlook for Components – We expect sales in Components to increase 13% to $321 million in 2008. The largest sales increases in 2008 are expected to come from industrial markets, which will benefit from the 2007 acquisitions of Thermal Control Products and Techtron, defense controls and medical markets. We expect our operating margin to be 15.7% in 2008, the same strong margin performance we achieved in 2007.

Medical Devices

(dollars in millions)		2007				2006
Net sales		$	68			$	13
Operating profit		$	7			$	–
Operating margin			10.2	%			(1.6%	)
Backlog		$	12			$	4

The Medical Devices segment was established in the third quarter of 2006 as a result of the acquisition of Curlin Medical. The fourth quarter of 2006 acquisition of McKinley Medical and the second quarter of 2007 acquisition of ZEVEX have further expanded this segment. The increase in 2007 reflects a full year of sales for the Curlin and McKinley product lines and a little over six months of sales from ZEVEX.

Our operating profit in 2007 and 2006 includes first year, non-recurring purchase accounting charges for inventory step-up and backlog of $1.6 million and $2.6 million, respectively. Excluding these charges, operating margins would have been 12.6% in 2007 and 18.4% in 2006. The decrease in operating margins after taking out the effects of these charges is mainly attributable to the product mix, reflecting proportionately lower sales of ambulatory pumps in 2007 compared to 2006, and the addition of ZEVEX pump sales in 2007 that have historically carried lower margins compared to our other pump product lines.

Twelve-month backlog for Medical Devices increased at September 29, 2007 compared to September 30, 2006 due to the acquisition of ZEVEX.

2008 Outlook for Medical Devices – We expect sales in Medical Devices to be $102 million in 2008, including a full year of ZEVEX sales, which would represent a 9% increase over the annualized rate of sales we experienced in the fourth quarter of 2007. We expect our operating margin to increase to 14.5% in 2008 primarily as a result of the absence of first year purchase accounting charges and the higher sales volume.

FINANCIAL CONDITION AND LIQUIDITY

(dollars in millions)		2007				2006				2005
Net cash provided (used) by:
Operating activities		$	25			$	77			$	107
Investing activities			(231	)			(170	)			(165	)
Financing activities			227				115				35

Our available borrowing capacity and our cash flow from operations provide us with the financial resources needed to run our operations, reinvest in our business and make strategic acquisitions.

Operating activities

Net cash provided by operating activities decreased $52 million in 2007. This decline relates principally to greater working capital requirements, especially receivables to support the substantial organic growth of our operations. Excluding acquisitions, our sales increased 15% in 2007, driving our use of cash associated with the growth in receivables. The significant increase in receivables is also partly influenced by the shift in our business toward proportionately more commercial aircraft sales including our increased work on the Boeing 787. Commercial aircraft sales represented 18% of total sales in 2007 compared to 15% in 2006. Payment terms on commercial aircraft programs do not typically benefit from progress payments as work progresses, unlike on our military programs. Further, with respect to the 787 program on which $20 million of 2007 sales were generated, we are working in accordance with an arrangement similar to other Boeing 787 subcontractors whereby we will be paid thirty days after Boeing delivers its first airplane to its customer. At the present time, Boeing’s first delivery is scheduled for late in calendar year 2008. Net cash provided by operating activities decreased $30 million in 2006. The majority of the decrease in 2006 relates to higher working capital requirements, related primarily to inventories associated with our increasing sales. Depreciation and amortization was $52 million in 2007, $47 million in 2006 and $36 million in 2005. Provisions for losses were $21 million in 2007, $30 million in 2006 and $26 million in 2005.

Investing activities

Net cash used by investing activities of $231 million in 2007 consists principally of $136 million used for five acquisitions and $97 million for capital expenditures. Our major cash outlays for acquisitions included $82 million for the March acquisition of ZEVEX International, Inc. and $41 million for the September acquisition of QuickSet International, Inc. Our significant 2007 capital expenditures were driven primarily by spending for tooling and test equipment for major new production programs such as Boeing’s 787 and expansion of our facilities related to our sales growth. In 2006, the $170 million of net cash used by investing activities consisted primarily of $90 million for acquisitions and $84 million for capital expenditures. The major cash outlays for 2006 acquisitions were $65 million for Curlin Medical to start our Medical Devices segment and $26 million for Flo-Tork. Capital expenditures in 2006 were also relatively significant and related to major program initiatives and facility expansions. In 2005, net cash used for investing activities was $165 million and included $124 million for acquisitions and $41 million for capital expenditures. The major cash outlays for 2005 acquisitions were $73 million for the Power and Data Technologies Group of the Kaydon Corporation and $47 million for FCS Control Systems.

In 2008, after a couple of years of very substantial capital investments, we expect capital expenditures to decline to approximately $70 million, converging more closely to our annual depreciation and amortization expense totals that we forecast will be about $63 million in 2008.

Financing activities

Net cash provided by financing activities in 2007 of $227 million principally relates to increased borrowings under our revolving credit facility. The increase in cash provided by financing activities in 2007 compared to 2006 and 2005 reflects our increased investments in acquisitions, capital expenditures and working capital requirements to fund our sales growth. Net cash provided by financing activities in 2006 is primarily related to net proceeds of $84 million received from the sale of Class A common stock, and additional borrowings under our revolving credit facility. During 2005, we also issued $200 million of 6¹/4% senior subordinated notes due January 15, 2015 and paid down credit facility borrowings with the net proceeds. In addition, net cash provided by financing activities included paydowns of borrowings as a result of strong operating cash flows.

CAPITAL STRUCTURE AND RESOURCES

We maintain bank credit facilities to fund our short and long-term capital requirements, including acquisitions. From time to time, we also sell equity and debt securities to fund acquisitions or take advantage of favorable market conditions.

On October 25, 2006, we amended our U.S. credit facility. Previously our credit facility consisted of a $75 million term loan and a $315 million revolver. Our new revolving credit facility, which matures on October 25, 2011, increased our borrowing capacity to $600 million. The new revolving credit facility had an outstanding balance of $402 million at September 29, 2007. Interest on outstanding credit facility borrowings is based on LIBOR plus the applicable margin, which was 125 basis points at September 29, 2007. The credit facility is secured by substantially all of our U.S. assets.

The U.S. credit facility contains various covenants. The covenant for minimum net worth, defined as total shareholders’ equity adjusted to maintain the amounts of accumulated other comprehensive loss at the level in existence as of September 30, 2006, is $550 million. The covenant for minimum interest coverage ratio, defined as the ratio of EBITDA to interest expense for the most recent four quarters, is 3.0. The covenant for the maximum leverage ratio, defined as the ratio of net debt including letters of credit to EBITDA for the most recent four quarters, is 3.5. The covenant for maximum capital expenditures is $110 million in 2007, $85 million in 2008 and $90 million thereafter. EBITDA is defined in the loan agreement as (i) the sum of net income, interest expense, income taxes, depreciation expense, amortization expense, other non-cash items reducing consolidated net income and non-cash stock related expenses minus (ii) other non-cash items increasing consolidated net income. We are in compliance with all covenants.

We are required to obtain the consent of lenders of the U.S. credit facility before raising significant additional debt financing. In recent years, we have demonstrated our ability to secure consents to access debt markets. We have also been successful in accessing capital markets and have shown strong, consistent financial performance. We believe that we will be able to obtain additional debt or equity financing as needed.

At September 29, 2007, we had $230 million of unused borrowing capacity, including $186 million from the U.S. credit facility after considering standby letters of credit.

Total debt to capitalization was 41% at September 29, 2007 and 34% at September 30, 2006. The increase in total debt to capitalization is due primarily to amounts borrowed to fund acquisitions, working capital requirements and capital expenditures, offset by earnings for 2007.

We believe that our cash on hand, cash flows from operations and available borrowings under short and long-term lines of credit will continue to be sufficient to meet our operating needs.

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 significant contractual obligations and commercial commitments at September 29, 2007 are as follows:

(dollars in millions)		Payments due by period
										2009-				2011-				After
Contractual Obligations		Total				2008				2010				2012				2012
Long-term debt		$	614			$	2			$	4			$	404			$	204
Interest on long-term debt			93				13				26				25				29
Operating leases			71				16				24				17				14
Purchase obligations			455				307				126				22				–
Total contractual obligations		$	1,233			$	338			$	180			$	468			$	247

Interest on long-term debt consists of payments on fixed-rate debt, primarily senior subordinated notes. Total contractual obligations exclude pension obligations. In 2008, we anticipate making pension contributions of $11 million.

(dollars in millions)	Commitments expiring by period
										2009-				2011-				After
Other Commercial Commitments		Total				2008				2010				2012				2012
Standby letters of credit		$	13			$	7			$	2			$	4			$	–

ECONOMIC CONDITIONS AND MARKET TRENDS

Military Aerospace and Defense

Approximately 38% of our sales relate to global military defense or government-funded programs. Most of these sales were within Aircraft Controls and Space and Defense Controls.

The military aircraft market is dependent on military spending for development and production programs. Military spending is expected to remain strong in the near term. Production programs are typically long-term in nature, offering greater predictability as to capacity needs and future revenues. We maintain positions on numerous high priority programs, including the F-35 Joint Strike Fighter, F/A-18E/F Super Hornet and V-22 Osprey. These and other government programs can be reduced, delayed or terminated. The large installed base of our products leads to attractive aftermarket sales and service opportunities. Aftermarket revenues are expected to continue to grow, due to military retrofit programs and increased flight hours resulting from increased military activity.

The military and government space market is primarily dependent on the authorized levels of funding for satellite communications needs or space exploration. We believe that long-term government spending on military satellites will remain strong in order to satisfy the military’s need for improved intelligence gathering. Funding for NASA’s Constellation Program, the replacement for the Space Shuttle, is expected to be solid in the coming years.

The tactical missile, missile defense and defense controls markets are dependent on many of the same market conditions as military aircraft, including overall military spending and program funding levels.

The market for homeland security and defense applications has gained momentum and acceptance over the last few years and border security, transportation security and preparedness are high priorities.

Industrial

Approximately 33% of our 2007 sales were generated in industrial markets. The industrial markets we serve are influenced by several factors, including capital investment, product innovation, economic growth, cost-reduction efforts and technology upgrades. However, due to the high degree of sophistication of our products and the niche markets we serve, we believe we may be less susceptible to overall macro-economic trends. Opportunities for growth include demand in China to support their economic growth particularly in power generation and steel manufacturing markets, automotive manufacturers that are upgrading their metal forming, injection molding and material test capabilities, increasing demand for aircraft training simulators, and the need for precision controls on plastics injection molding machines to provide improved manufacturing efficiencies.

Commercial Aircraft

Approximately 18% of our 2007 sales were on commercial aircraft programs. The commercial OEM aircraft market has historically exhibited cyclical swings and sensitivity to economic conditions. The aftermarket, which is driven by usage of the existing aircraft fleet, has proven to be more stable. Higher aircraft utilization rates result in the need for increased maintenance and spare parts and enhance aftermarket sales. Boeing and Airbus are both increasing production levels for new planes related to air traffic growth and further production increases are projected. We have contract coverage through 2012 with Boeing for the existing 7-series aircraft and are also developing flight control actuation systems for Boeing’s 787 Dreamliner. In the business jet market, our flight controls on a couple of newer jets are in early production. Aftermarket revenues are expected to grow as passenger miles continue to increase.

Medical

Approximately 8% of our 2007 sales were generated in medical markets. Demographics are aligned for growth in the overall healthcare market. The medical markets that we operate in are influenced by the need for precision control components and systems. Markets remain strong for brushless direct current motors used in sleep apnea machines as well as fiber optic slip rings for CT scan diagnostic imaging. Our enteral clinical nutrition products are gaining market share against more typical Total Parenteral Nutrition. Our post-operative pain management and wound perfusion products continue to experience market share gains due to quality of life enhancements and patient recovery time. Our ultrasonic surgical tools are gaining new positions in neurology and orthopedic markets due to higher performance and ease of use.

Foreign Currencies

We are affected by the movement of foreign currencies compared to the U.S. dollar, particularly in Industrial Systems. About one-third of our 2007 sales were denominated in foreign currencies including the euro, British pound and Japanese yen. During 2007, the translation of the results of our foreign subsidiaries into U.S. dollars increased sales by $29 million compared to 2006. During 2006, the translation of the results of our foreign subsidiaries into U.S. dollars reduced sales by $9 million compared to 2005.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 clarifies the accounting and reporting for income taxes recognized in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken on income tax returns. FIN 48 is effective for fiscal years beginning after December 15, 2006. Accordingly, we will adopt FIN 48 for the fiscal year beginning on September 30, 2007. The cumulative effect will be recorded as an adjustment to our opening balance of retained earnings. The adoption of FIN 48 is not expected to have a material impact on our consolidated financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurement. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We are currently evaluating the impact of adopting SFAS No. 157 on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R).” This statement requires entities to recognize an asset for a defined benefit postretirement plan’s overfunded status or a liability for a plan’s underfunded status in its balance sheet, with changes in funded status being recognized in comprehensive income in the year in which the changes occur. We have adopted these provisions of SFAS No. 158 as of September 29, 2007, the effect of which was to increase retirement liabilities by $42 million, deferred tax assets by $16 million and accumulated other comprehensive loss by $26 million. There was no impact to net earnings for the year ended September 29, 2007. This statement also requires an entity to measure a defined benefit postretirement plan’s assets and obligations that determine its funded status as of the end of the employers’ fiscal year. This requirement is effective for fiscal years ending after December 15, 2008.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedging accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of adopting SFAS No. 159 on our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

In the normal course of business, we have exposures to interest rate risk from our long-term debt and foreign exchange rate risk related to our foreign operations and foreign currency transactions. To manage these risks, we may enter into derivative instruments such as interest rate swaps and forward contracts. We do not hold or issue financial instruments for trading purposes. In 2007, our derivative instruments consisted of foreign currency forwards and interest rate swaps designated as cash flow hedges.

We have foreign currency exposure on intercompany loans. To minimize our foreign currency exposure, we have foreign currency forwards with a notional amount of $18 million outstanding at September 29, 2007.

At September 29, 2007, we had $402 million of borrowings under variable interest rate facilities. If interest rates had been one percentage point higher during 2007, our interest expense would have been $3 million higher. At September 29, 2007, we did not have any outstanding interest rate swaps. On October 30, 2007 and November 8, 2007, we entered into interest rate swaps with notional amounts totaling $60 million. Before consideration of the current applicable margin, the interest rate swaps effectively convert this amount of variable rate debt to fixed rate debt at 4.4% through their maturities in the first quarter of 2009, at which time the interest will revert back to a variable rate based on LIBOR.

Although the majority of our sales, expenses and cash flows are transacted in U.S. dollars, we have exposure to changes in foreign currency exchange rates such as the euro, British pound and Japanese yen. If average annual foreign exchange rates collectively weakened or strengthened against the U.S. dollar by 10%, our net earnings in 2007 would decrease or increase, respectively, by $6 million from foreign currency translation, primarily related to the euro, offset by $5 million from pressures on operating margins for products sourced outside of the U.S.

On a limited basis, we may enter into forward contracts to reduce fluctuations in foreign currency cash flows related to third party raw material purchases, intercompany product shipments and intercompany loans and to reduce fluctuations in the value of foreign currency investments in, and long-term advances to, subsidiaries.

Item 8. Financial Statements and Supplementary Data.

 

		Fiscal Years Ended
		September 29,				September 30,				September 24,
(dollars in thousands except per share data)		2007				2006				2005
NET SALES		$	1,558,099			$	1,306,494			$	1,051,342
COST OF SALES			1,028,852				880,744				723,050
GROSS PROFIT			529,247				425,750				328,292
Research and development			102,603				68,886				43,561
Selling, general and administrative			252,173				213,657				175,888
Interest			29,538				21,861				13,671
Other			1,182				1,197				254
EARNINGS BEFORE INCOME TAXES			143,751				120,149				94,918
INCOME TAXES			42,815				38,803				30,126
NET EARNINGS		$	100,936			$	81,346			$	64,792
NET EARNINGS PER SHARE
Basic		$	2.38			$	2.01			$	1.68
Diluted		$	2.34			$	1.97			$	1.64
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic			42,429,711				40,558,717				38,608,235
Diluted			43,149,481				41,247,689				39,498,834

See accompanying Notes to Consolidated Financial Statements.

		September 29,				September 30,
(dollars in thousands except per share data)		2007				2006
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	83,856			$	57,821
Receivables			431,978				333,492
Inventories			359,250				282,720
Deferred income taxes			46,789				39,950
Prepaid expenses and other current assets			14,978				14,118
TOTAL CURRENT ASSETS			936,851				728,101
PROPERTY, PLANT AND EQUIPMENT, net			386,813				310,011
GOODWILL			538,433				450,971
INTANGIBLE ASSETS, net of accumulated amortization of $30,802 in 2007 and $18,861 in 2006			81,916				49,922
OTHER ASSETS			62,166				68,649
TOTAL ASSETS		$	2,006,179			$	1,607,654
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Notes payable		$	3,354			$	17,119
Current installments of long–term debt			2,537				1,982
Accounts payable			113,942				99,677
Accrued salaries, wages and commissions			97,034				86,623
Customer advances			34,224				32,148
Contract loss reserves			12,362				15,089
Other accrued liabilities			56,775				54,968
TOTAL CURRENT LIABILITIES			320,228				307,606
LONG-TERM DEBT, excluding current installments
Senior debt			411,543				167,350
Senior subordinated notes			200,089				200,107
DEFERRED INCOME TAXES			80,419				83,587
LONG-TERM PENSION AND RETIREMENT OBLIGATIONS			113,354				83,299
OTHER LONG–TERM LIABILITIES			3,334				2,849
TOTAL LIABILITIES			1,128,967				844,798
COMMITMENTS AND CONTINGENCIES (Note 16)			–				–
SHAREHOLDERS’ EQUITY
Common Stock– Par Value $1.00
Class A–Authorized 50,000,000 shares. Issued 40,739,556 and outstanding 38,327,731 shares at September 29, 2007. Issued 40,670,529 and outstanding 38,086,286 shares at September 30, 2006.			40,740				40,671
Class B–Authorized 10,000,000 shares. Convertible to Class A on a one-for-one basis. Issued 7,865,157 and outstanding 4,197,350 shares at September 29, 2007. Issued 7,934,184 and outstanding 4,209,585 shares at September 30, 2006.			7,865				7,934
Additional paid–in capital			301,778				292,565
Retained earnings			570,063				469,127
Treasury shares			(39,873	)			(40,354	)
Stock Employee Compensation Trust			(15,928	)			(14,652	)
Accumulated other comprehensive income			12,567				7,565
TOTAL SHAREHOLDERS’ EQUITY			877,212				762,856
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	2,006,179			$	1,607,654

See accompanying Notes to Consolidated Financial Statements.

		Fiscal Years Ended
		September 29,				September 30,				September 24,
(dollars in thousands)		2007				2006				2005
COMMON STOCK
Beginning of year		$	48,605			$	45,730			$	45,736
Sale of Class A Common Stock			–				2,875				–
Adjustment for stock split			–				–				(6	)
End of year			48,605				48,605				45,730
ADDITIONAL PAID-IN CAPITAL
Beginning of year			292,565				187,025				183,348
Sale of Class A Common Stock, net of issuance costs			–				81,622				–
Issuance of treasury shares at more than cost, including $12,616 for the acquisition of McKinley Medical in 2006			1,086				15,919				687
Stock compensation expense			3,299				3,482				–
Adjustment to market – SECT, and other			4,828				4,517				2,990
End of year			301,778				292,565				187,025
RETAINED EARNINGS
Beginning of year			469,127				387,781				322,989
Net earnings			100,936				81,346				64,792
End of year			570,063				469,127				387,781
TREASURY SHARES, AT COST*
Beginning of year			(40,354	)			(42,916	)			(40,332	)
Shares issued as consideration for purchase of McKinley Medical (2006 – 445,730)			–				2,377				–
Shares issued related to options (2007 – 185,437 Class A shares; 2006 – 342,695 Class A shares; 2005 – 147,017 Class A shares)			989				1,828				748
Shares purchased (2007 – 13,019 Class A shares; 2006 – 51,900 Class A shares; 2005 – 112,199 Class A shares)			(508	)			(1,643	)			(3,332	)
End of year			(39,873	)			(40,354	)			(42,916	)
STOCK EMPLOYEE COMPENSATION TRUST (SECT)**
Beginning of year			(14,652	)			(12,952	)			(12,955	)
Sale of SECT stock to SSOP Plan (2007 – 70,900 Class B shares; 2006 – 75,350 Class B shares; 2005 – 80,523 Class B shares)			2,930				2,386				2,280
Purchase of SECT stock (2007 – 14,108 Class B shares; 2006 – 47,350 Class B shares; 2005 – 11,685 Class B shares)			(559	)			(1,599	)			(353	)
Adjustment to market – SECT			(3,647	)			(2,487	)			(1,924	)
End of Year			(15,928	)			(14,652	)			(12,952	)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Beginning of year			7,565				(43,631	)			(27,130	)
Other comprehensive income (loss)			30,890				51,196				(16,501	)
Initial adjustment to adopt SFAS No. 158, net of income taxes of $16,409			(25,888	)			–				–
End of year			12,567				7,565				(43,631	)
TOTAL SHAREHOLDERS’ EQUITY		$	877,212			$	762,856			$	521,037
COMPREHENSIVE INCOME
Net earnings		$	100,936			$	81,346			$	64,792
Other comprehensive income (loss):
Foreign currency translation adjustment			29,047				7,568				(2,840	)
Minimum pension liability adjustment prior to adoption of SFAS No. 158			1,929				44,230				(14,085	)
Accumulated (loss) gain on derivatives adjustment			(86	)			(602	)			424
COMPREHENSIVE INCOME		$	131,826			$	132,542			$	48,291

*		Class A Common Stock in treasury: 2,411,825 shares at September 29, 2007; 2,584,243 shares at September 30, 2006; 3,320,768 shares at September 24, 2005.
		Class B Common Stock in treasury: 3,305,971 shares at September 29, 2007, September 30, 2006 and September 24, 2005.
**		Class B Common Stock in SECT: 361,836 shares at September 29, 2007; 418,628 shares at September 30, 2006; 446,628 shares at September 24, 2005.
		The shares in the SECT are not considered outstanding for purposes of calculating earnings per share. However, in accordance with the
		Trust agreement, the SECT trustee votes all shares held by the SECT on all matters submitted to shareholders.

See accompanying Notes to Consolidated Financial Statements.

 

Consolidated Statements of Cash Flows

		Fiscal Years Ended
		September 29,				September 30,				September 24,
(dollars in thousands)		2007				2006				2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings		$	100,936			$	81,346			$	64,792
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation			40,226				36,239				32,159
Amortization			11,867				10,838				4,048
Provisions for non-cash losses on contracts, inventories and receivables			20,755				30,230				26,435
Deferred income taxes			(545	)			15,715				4,453
Stock compensation expense			3,299				3,482				–
Other			(116	)			100				2,592
Change in assets and liabilities providing (using) cash, excluding the effects of acquisitions:
Receivables			(72,848	)			(26,082	)			(24,037	)
Inventories			(64,737	)			(64,468	)			(25,918	)
Other assets			(943	)			(4,355	)			(10,770	)
Accounts payable and accrued liabilities			(1,112	)			18,753				6,531
Other liabilities			(12,994	)			(12,881	)			17,389
Customer advances			1,296				(12,042	)			9,274
NET CASH PROVIDED BY OPERATING ACTIVITIES			25,084				76,875				106,948
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses, net of cash acquired			(136,291	)			(90,138	)			(123,979	)
Purchases of property, plant and equipment			(96,960	)			(83,555	)			(41,188	)
Other			2,371				4,022				654
NET CASH USED IN INVESTING ACTIVITIES			(230,880	)			(169,671	)			(164,513	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments of) proceeds from notes payable			(15,707	)			4,076				(49	)
Proceeds from revolving lines of credit			666,209				298,100				264,700
Payments on revolving lines of credit			(400,209	)			(262,000	)			(408,300	)
Proceeds from issuance of long-term debt, other than senior subordinated notes			–				2,390				528
Payments on long-term debt, other than senior subordinated notes			(28,690	)			(17,616	)			(17,903	)
Proceeds from issuance of senior subordinated notes			–				–				196,515
Proceeds from sale of Class A Common Stock, net of issuance costs			–				84,497				–
Proceeds from sale of treasury stock			2,075				5,131				1,435
Purchase of outstanding shares for treasury			(508	)			(1,643	)			(3,332	)
Proceeds from sale of stock held by Stock Employee Compensation Trust			2,930				2,386				2,280
Purchase of stock held by Stock Employee Compensation Trust			(559	)			(1,599	)			(353	)
Excess tax benefits from share-based payment arrangements			1,147				1,243				–
Other			(17	)			–				(50	)
NET CASH PROVIDED BY FINANCING ACTIVITIES			226,671				114,965				35,471
Effect of exchange rate changes on cash and cash equivalents			5,160				1,902				(857	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			26,035				24,071				(22,951	)
Cash and cash equivalents at beginning of year			57,821				33,750				56,701
Cash and cash equivalents at end of year		$	83,856			$	57,821			$	33,750
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest		$	27,627			$	21,074			$	13,302
Income taxes, net of refunds			41,066				31,775				18,508
Non-cash investing and financing activities:
Treasury shares issued as consideration for purchase of McKinley Medical		$	–			$	14,993			$	–
Unsecured notes issued as partial consideration for acquisitions			2,850				12,000				–
Equipment acquired under capital leases			28				–				–