Business context and reporting period
Moog Inc. designs and manufactures precision motion and fluid-control systems for aerospace, defense and industrial markets. This Form 10-K covers the 52-week fiscal year ended October 2, 2021; the prior fiscal year ended October 3, 2020 included 53 weeks. The three segments are Aircraft Controls, Space and Defense Controls, and Industrial Systems.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $2.852 billion | $2.885 billion |
| Gross margin | 27.2% | 25.8% |
| Net earnings | $157.2 million | $9.2 million |
| Diluted EPS | $4.87 | $0.28 |
| Operating cash flow | $293.2 million | $279.2 million |
| Capital expenditures | $128.7 million | $88.3 million |
| Cash and cash equivalents at year-end | $99.6 million | $84.6 million |
| Total debt | $910.2 million | $938.8 million |
| Net debt to capitalization | 36% | 40% |
Year-end total backlog was $4.8 billion, up 88%; twelve-month backlog was $2.1 billion, up 24%. FY2021 sales by segment were Aircraft Controls $1.161 billion, Space and Defense Controls $799 million, and Industrial Systems $892 million.
Material changes versus prior year
- Sales declined about 1%, as growth in Space and Defense was offset by weaker Aircraft Controls and Industrial Systems demand. Foreign-exchange movements added $34 million to sales, and the Genesys acquisition contributed $44 million.
- Net earnings rose substantially from FY2020, but the comparison is heavily affected by FY2020’s $121.3 million non-cash pension settlement charge, $37.8 million long-lived-asset impairment, $22.7 million inventory write-down and $10.7 million restructuring expense.
- Gross margin improved partly because FY2020’s pandemic-related inventory write-down did not recur, alongside favorable segment mix. FY2021 included $1.5 million of long-lived-asset impairment.
- Segment operating profit increased at Aircraft Controls to $96.7 million from $34.7 million and at Industrial Systems to $85.9 million from $80.0 million; Space and Defense Controls declined to $88.3 million from $101.7 million, chiefly reflecting higher costs on fixed-price development contracts.
- Operating cash flow increased $14 million, with working-capital improvements, including lower inventory cash use, partly offset by less cash generated from receivables than in FY2020.
Outlook, risks and unusual items
Management’s FY2022 outlook projected sales of $3.035 billion, operating profit of $313 million, net earnings of $178 million and diluted EPS of $5.30–$5.70. It expected recovery across segments, particularly commercial aircraft and space and defense, while Industrial Systems sales were forecast to be broadly similar to FY2021. Management forecast approximately $340 million of operating cash flow and $160 million of capital expenditures. The outlook was expressly subject to continued COVID-19 uncertainty.
Key risks include ongoing pandemic effects, supply-chain and labor constraints, weak commercial aviation and aftermarket demand, government funding and contract termination, and customer concentration: Boeing and Lockheed Martin each represented 12% of FY2021 sales. Fixed-price contracts represented 88% of sales accounted for using the cost-to-cost method; cost estimates and contract performance can materially affect earnings. The auditor identified estimated costs to complete over-time contracts as a critical audit matter. Environmental and other legal matters were described, but management did not expect pending proceedings to have a material adverse effect.
Moog acquired Genesys for approximately $78 million and sold non-core businesses during FY2021. The planned sale of its Navaids business remained subject to regulatory review and customary closing conditions. After year-end, the receivables securitization facility was amended to allow up to $100 million and was extended to November 2024.
Most important facts for investors to verify
- Whether commercial-aircraft production, airline traffic and aftermarket demand recover as assumed in the FY2022 outlook.
- Whether the $4.8 billion backlog converts to revenue on schedule; management expected about 44% within twelve months, but orders may be modified, delayed or terminated.
- Whether supply, labor and fixed-price contract cost pressures affect margins, reserves or cash conversion.
- Debt maturities, covenant headroom and the terms and availability of the amended receivables facility; reported unused borrowing capacity was subject to leverage-covenant limits.
- Progress and any financial effects from the Navaids divestiture and other portfolio actions.