Annual Meeting Remarks, 1/12/05

01 / 12 / 2005

1   2   3   4   5   6   7   8   9   10   11  

Bob Banta, EVP and Chief Financial Officer

On Monday, January 10th, we received $150 million from the issuance of our so-called “high-yield” bonds. These bonds contain our promise of repayment ten years from now. There are no other principal payments between now and then. We’re also going to pay 6-¼% interest each year to our new bond owners.

$150M at 6 ¼%

At 6-¼%, we don’t think of these bonds as “high-yield”. You may recall that back in 1996 we issued $120 million of ten-year bonds. Interest rates were higher then, and we paid 10% each year until we retired those bonds in May of 2003. To pay off that 10% costing money, we borrowed money from our banking group, which we enlarged at that time. We used the $150 million received on Monday to repay that bank money used to pay off the 10% bonds. Reducing the cost of borrowing longer-term money has been an objective, and going from 10% down to 6-¼% is a 38% reduction in one of our costs.

Selling publicly traded bonds is a lengthy process. The preparation of our bond sale began in mid ’04. We registered with the Securities and Exchange Commission that we might sell some tradable bonds. Then through the fall, all the documents were prepared. Don Fishback, Tim Balkin, and Jennifer Walter spent many long days drafting, proofing, and correcting these papers. Papers such as the offering memorandum (or prospectus), a lengthy description of the note covenants, a bond indenture, an underwriting agreement, comfort letters from our auditors and more. The proofing activity was especially active all through the recent holiday period. Moog is fortunate to have such dedicated and well-experienced people along with the experts from Hodgson Russ and Ernst & Young. They all made our time line come out on schedule.

Achieved Tightest Spread in Last Ten Years

Our hope was to be the first company in ’05 to offer some high-yield bonds on Wall Street. This schedule reflected a belief that interest rates might be moving up over the course of 2005. We also thought the first week of the year might be a light week in terms of other offerings. Last Thursday afternoon, we priced our bonds. Ten-year treasuries were yielding 4.27% that day. Moog's spread over such treasuries came in at only 198 points or 6-¼% “all-in”. We achieved one of the lowest spreads ever for ten-year money compared to other bond issuers with similar credit ratings.

The graph illustrates how wide the spread of high-yield rates over treasuries can be at different points in time. We thought today’s low spreads made for excellent timing to be an issuer. On top of good bond market conditions, our credit ratios and trends are also strong. Our credit statistics created a lot of interest from bond fund managers.

One popular credit ratio is our debt at the end of each year divided by that year’s cash flow – commonly known as EBITDA. Our lower levels of debt relative to increased cash flow each year has resulted in a very low multiple. The long-term successes that Bob described have also produced a conservative balance sheet.

Oversubscribed

Another popular ratio is the number of times our annual cash generation (or EBITDA) covers our required interest payments. It’s never been better. No wonder our bond issue became over subscribed.

$250M in Cash and Unused Facility for Acquisitions Activities

1   2   3   4   5   6   7   8   9   10   11