UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-5129

MOOG INC.

(Exact name of registrant as specified in its charter)

New York State		16-0757636
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
East Aurora, New York		14052-0018
(Address of principal executive offices)		(Zip Code)

Telephone number including area code: (716) 652-2000

Former name, former address and former fiscal year, if changed since last report.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No þ

The number of shares outstanding of each class of common stock as of May 4, 2011 was:

Class A common stock, $1.00 par value 41,417,225 shares
Class B common stock, $1.00 par value 3,998,182 shares

 

 

MOOG Inc.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

PAGE

PART 1

FINANCIAL INFORMATION

Item 1

Financial Statements:

Consolidated Condensed Balance Sheets April 2, 2011 and October 2, 2010

3

Consolidated Condensed Statements of Earnings Three and Six Months Ended April 2, 2011 and April 3, 2010

4

Consolidated Condensed Statements of Cash Flows Six Months Ended April 2, 2011 and April 3, 2010

5

Notes to Consolidated Condensed Financial Statements

6-17

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18-32

Item 3

Quantitative and Qualitative Disclosures about Market Risk

32

Item 4

Controls and Procedures

32

PART II

OTHER INFORMATION

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 6

Exhibits

33-34

SIGNATURES

35

EX-31.1

EX-31.2

EX-32.1

EX-101 INSTANCE DOCUMENT

EX-101 SCHEMA DOCUMENT

EX-101 CALCULATION LINKBASE DOCUMENT

EX-101 LABELS LINKBASE DOCUMENT

EX-101 PRESENTATION LINKBASE DOCUMENT

EX-101 DEFINITION LINKBASE DOCUMENT

PART I FINANCIAL INFORMATION

Item 1. Financial Statements.

Moog Inc.
Consolidated Condensed Balance Sheets
(Unaudited)

		April 2,				October 2,
(dollars in thousands)		2011				2010
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	100,020			$	112,421
Receivables			643,654				619,861
Inventories			487,443				460,857
Other current assets			105,901				99,140
TOTAL CURRENT ASSETS			1,337,018				1,292,279
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $491,302 and $457,916, respectively			492,518				486,944
GOODWILL			709,353				704,816
INTANGIBLE ASSETS, net			195,644				205,874
OTHER ASSETS			24,304				22,221
TOTAL ASSETS		$	2,758,837			$	2,712,134
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Notes payable		$	1,554			$	1,991
Current installments of long-term debt			2,300				5,405
Accounts payable			152,083				154,321
Customer advances			79,974				74,703
Contract loss reserves			40,973				40,810
Other accrued liabilities			208,179				202,244
TOTAL CURRENT LIABILITIES			485,063				479,474
LONG-TERM DEBT, excluding current installments
Senior debt			335,978				378,707
Senior subordinated notes			378,605				378,613
LONG-TERM PENSION AND RETIREMENT OBLIGATIONS			272,884				281,830
DEFERRED INCOME TAXES			76,381				69,541
OTHER LONG-TERM LIABILITIES			2,974				3,013
TOTAL LIABILITIES			1,551,885				1,591,178
SHAREHOLDERS’ EQUITY
Common stock			51,280				51,280
Other shareholders’ equity			1,155,672				1,069,676
TOTAL SHAREHOLDERS’ EQUITY			1,206,952				1,120,956
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	2,758,837			$	2,712,134

See accompanying Notes to Consolidated Condensed Financial Statements.

Moog Inc.
Consolidated Condensed Statements of Earnings
(Unaudited)

		Three Months Ended								Six Months Ended
		April 2,				April 3,				April 2,				April 3,
(dollars in thousands, except per share data)		2011				2010				2011				2010
NET SALES		$	574,226			$	510,488			$	1,128,660			$	1,005,666
COST OF SALES			406,978				362,587				796,859				713,363
GROSS PROFIT			167,248				147,901				331,801				292,303
Research and development			28,154				25,504				51,629				49,386
Selling, general and administrative			86,974				76,098				172,757				154,225
Restructuring			518				1,320				576				3,139
Interest			8,970				9,248				18,181				19,976
Other			(673	)			236				(427	)			630
EARNINGS BEFORE INCOME TAXES			43,305				35,495				89,085				64,947
INCOME TAXES			12,690				10,494				25,063				18,385
NET EARNINGS		$	30,615			$	25,001			$	64,022			$	46,562
NET EARNINGS PER SHARE
Basic		$	0.67			$	0.55			$	1.41			$	1.03
Diluted		$	0.66			$	0.55			$	1.39			$	1.02
AVERAGE COMMON SHARES OUTSTANDING
Basic			45,419,121				45,374,912				45,404,006				45,349,131
Diluted			46,058,991				45,730,252				45,982,772				45,661,564

See accompanying Notes to Consolidated Condensed Financial Statements.

Moog Inc.
Consolidated Condensed Statements of Cash Flows
(Unaudited)

		Six Months Ended
		April 2,				April 3,
(dollars in thousands)		2011				2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings		$	64,022			$	46,562
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation			31,873				29,954
Amortization			15,099				14,859
Provisions for non-cash losses on contracts, inventories and receivables			32,119				19,310
Equity-based compensation expense			5,175				3,678
Other			1,576				2,084
Changes in assets and liabilities providing cash, excluding the effects of acquisitions:
Receivables			(17,581	)			(27,782	)
Inventories			(30,843	)			7,348
Accounts payable			(5,144	)			3,854
Customer advances			4,542				5,606
Accrued expenses			(28,844	)			(21,517	)
Accrued income taxes			11,769				6,606
Pension assets and liabilities			(3,237	)			(7,293	)
Other assets and liabilities			(4,581	)			564
NET CASH PROVIDED BY OPERATING ACTIVITIES			75,945				83,833
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses, net of acquired cash			(3,073	)			(369	)
Purchase of property, plant and equipment			(34,888	)			(27,997	)
Other			160				(212	)
NET CASH USED BY INVESTING ACTIVITIES			(37,801	)			(28,578	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments of notes payable			(505	)			(12,871	)
Net repayments of revolving lines of credit			(39,798	)			(32,209	)
Payments on long-term debt			(7,066	)			(2,109	)
Excess tax benefits from equity-based payment arrangements			135				53
Other financing transactions			(5,770	)			1,083
NET CASH USED BY FINANCING ACTIVITIES			(53,004	)			(46,053	)
Effect of exchange rate changes on cash			2,459				(2,097	)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS			(12,401	)			7,105
Cash and cash equivalents at beginning of period			112,421				81,493
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	100,020			$	88,598
CASH PAID FOR:
Interest		$	17,629			$	19,395
Income taxes, net of refunds			10,939				8,305

See accompanying Notes to Consolidated Condensed Financial Statements.

Moog Inc.
Notes to Consolidated Condensed Financial Statements
Six Months Ended April 2, 2011
(Unaudited)
(dollars in thousands, except per share data)

Note 1 — Basis of Presentation

The accompanying unaudited consolidated condensed financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting of normal recurring adjustments considered necessary for the fair presentation of results for the interim period have been included. The results of operations for the six months ended April 2, 2011 are not necessarily indicative of the results expected for the full year. The accompanying unaudited consolidated condensed financial statements should be read in conjunction with the financial statements and notes thereto included in our Form 10-K for the fiscal year ended October 2, 2010. All references to years in these financial statements are to fiscal years.

Note 2 — Acquisitions

During the six months ended April 2, 2011, we completed one business combination within our Aircraft Controls segment for $3,073 in cash. This acquisition complements our military aftermarket business.

In 2010, we completed four business combinations within three of our segments. We completed one acquisition in our Aircraft Controls segment for $8,100 in cash, issuance of a $1,200 unsecured note and contingent consideration with an initial fair value of $1,400. This acquisition complements our military aftermarket business. We acquired two businesses in our Space and Defense Controls segment for $20,273, net of cash acquired, issuance of a $1,000 unsecured note and contingent consideration with an initial fair value of $1,600. One business specializes in turret design, fire control systems and vehicle electronics and the other expands our capabilities in the security and surveillance market. We completed one acquisition in our Industrial Systems segment for $1,050 in cash and issuance of a $150 unsecured note. Combined sales of these acquisitions for the 2009 calendar year were approximately $34,000. The purchase price allocations for the 2010 acquisitions are complete with the exception of income taxes for one of the Space and Defense Controls acquisitions.

Note 3 — Inventories

		April 2,				October 2,
		2011				2010
Raw materials and purchased parts		$	185,967			$	179,375
Work in progress			232,151				221,128
Finished goods			69,325				60,354
Total		$	487,443			$	460,857

Note 4 — Goodwill and Intangible Assets

The changes in the carrying amount of goodwill are as follows:

		Balance as of				Adjustment				Foreign				Balance as of
		October 2,				To Prior Year				Currency				April 2,
		2010				Acquisitions				Translation				2011
Aircraft Controls		$	173,507			$	(903	)		$	1,150			$	173,754
Space and Defense Controls			121,623				22				251				121,896
Industrial Systems			122,120				41				2,119				124,280
Components			160,896				—				1,615				162,511
Medical Devices			126,670				(138	)			380				126,912
Total		$	704,816			$	(978	)		$	5,515			$	709,353

The components of acquired intangible assets are as follows:

						April 2, 2011								October 2, 2010
		Weighted —				Gross								Gross
		Average				Carrying				Accumulated				Carrying				Accumulated
		Life (years)				Amount				Amortization				Amount				Amortization
Customer-related			10			$	151,018			$	(57,675	)		$	148,722			$	(49,781	)
Program-related			18				64,902				(7,389	)			63,796				(5,275	)
Technology-related			9				55,620				(25,577	)			54,743				(22,117	)
Marketing-related			9				22,392				(12,731	)			22,256				(11,548	)
Contract-related			3				3,348				(1,671	)			3,312				(1,104	)
Artistic-related			10				25				(24	)			25				(22	)
Acquired intangible assets			11			$	297,305			$	(105,067	)		$	292,854			$	(89,847	)

All acquired intangible assets other than goodwill are being amortized. Customer-related intangible assets primarily consist of customer relationships. Program-related intangible assets consist of long-term programs. Technology-related intangible assets primarily consist of technology, patents, intellectual property and engineering drawings. Marketing-related intangible assets primarily consist of trademarks, trade names and non-compete agreements. Contract-related intangible assets consist of favorable operating lease terms.

Amortization of acquired intangible assets was $7,012 and $13,956 for the three and six months ended April 2, 2011 and $6,869 and $13,977 for the three and six months ended April 3, 2010. Based on acquired intangible assets recorded at April 2, 2011, amortization is expected to be approximately $28,000 in 2011, $27,000 in 2012, $23,000 in 2013, $21,000 in 2014 and $18,000 in 2015.

Note 5 — Product Warranties

In the ordinary course of business, we warrant our products against defects in design, materials and workmanship typically over periods ranging from twelve to thirty-six months. We determine warranty reserves needed by product line based on historical experience and current facts and circumstances. Activity in the warranty accrual is summarized as follows:

		Three Months Ended								Six Months Ended
		April 2,				April 3,				April 2,				April 3,
		2011				2010				2011				2010
Warranty accrual at beginning of period		$	16,305			$	13,749			$	14,856			$	14,675
Warranties issued during current period			3,597				1,693				6,746				3,427
Adjustments to pre-existing warranties			397				(3	)			390				(101	)
Reductions for settling warranties			(2,063	)			(913	)			(3,643	)			(3,425	)
Foreign currency translation			334				(344	)			221				(394	)
Warranty accrual at end of period		$	18,570			$	14,182			$	18,570			$	14,182

Note 6 — Derivative Financial Instruments

We principally use derivative financial instruments to manage interest rate risk associated with long-term debt and foreign exchange risk related to foreign operations and foreign currency transactions. We enter into derivative financial instruments with a number of major financial institutions to minimize counterparty credit risk.

Derivatives designated as hedging instruments

Interest rate swaps are used to adjust the proportion of total debt that is subject to variable and fixed interest rates. The interest rate swaps are designated as hedges of the amount of future cash flows related to interest payments on variable-rate debt that, in combination with the interest payments on the debt, convert a portion of the variable-rate debt to fixed-rate debt. At April 2, 2011, we had interest rate swaps with notional amounts totaling $50,000. The interest rate swaps effectively convert this amount of variable-rate debt to fixed-rate debt at 2.9%, including the applicable margin of 175 basis points as of April 2, 2011. The interest will revert back to variable rates based on LIBOR plus the applicable margin upon the maturity of the interest rate swaps in 2012.

We use foreign currency forward contracts as cash flow hedges to effectively fix the exchange rates on future payments. To mitigate exposure in movements between various currencies, primarily the Philippine peso, we had outstanding foreign currency forwards with notional amounts of $20,223 at April 2, 2011. These contracts mature at various times through the first quarter of 2012.

These interest rate swaps and foreign currency forwards are recorded in the consolidated balance sheet at fair value and the related gains or losses are deferred in shareholders’ equity as a component of Accumulated Other Comprehensive Income (Loss) (AOCI). These deferred gains and losses are reclassified into expense during the periods in which the related payments or receipts affect earnings. However, to the extent the interest rate swaps and foreign currency forwards are not perfectly effective in offsetting the change in the value of the payments being hedged, the ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was not material in 2011 or 2010.

Activity in AOCI related to these derivatives is summarized below:

		Three Months Ended								Six Months Ended
		April 2,				April 3,				April 2,				April 3,
		2011				2010				2011				2010
Balance at beginning of period		$	186			$	577			$	144			$	(189	)
Net (decrease) increase in fair value of derivatives, net of tax of $61, $350, ($15) and ($51), respectively			(97	)			(817	)			30				65
Net reclassification from AOCI into earnings, net of tax of $49, ($5), $91 and $11, respectively			(79	)			39				(164	)			(77	)
Balance at end of period		$	10			$	(201	)		$	10			$	(201	)

Activity and classification of derivatives are as follows:

						Net reclassification from AOCI into earnings																Net deferral in AOCI of derivatives
						(effective portion)																(effective portion)
						Three Months Ended								Six Months Ended								Three Months Ended								Six Months Ended
		Statement of earnings				April 2,				April 3,				April 2,				April 3,				April 2,				April 3,				April 2,				April 3,
		classification				2011				2010				2011				2010				2011				2010				2011				2010
Interest rate swaps		Interest expense				$	(105	)		$	(106	)		$	(210	)		$	(433	)		$	(30	)		$	(454	)		$	(58	)		$	(293	)
Foreign currency forwards		Cost of sales					233				62				465				521				(128	)			(713	)			103				409
Net gain (loss)						$	128			$	(44	)		$	255			$	88			$	(158	)		$	(1,167	)		$	45			$	116

Derivatives not designated as hedging instruments

We also have foreign currency exposure on intercompany balances that are denominated in a foreign currency and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in the statements of earnings. To minimize foreign currency exposure, we had foreign currency forwards with notional amounts of $155,078 at April 2, 2011. The foreign currency forwards are recorded in the consolidated balance sheet at fair value and resulting gains or losses are recorded in the statements of earnings. We recorded the following gains and losses on foreign currency forwards which are included in other income or expense and generally offset the gains or losses from the foreign currency adjustments on the intercompany balances:

		Three Months Ended								Six Months Ended
		April 2,				April 3,				April 2,				April 3,
		2011				2010				2011				2010
Net gain (loss)		$	1,648			$	(932	)		$	(675	)		$	(3,504	)

Summary of derivatives

The fair value and classification of derivatives on the consolidated balance sheets are summarized as follows:

						April 2,				October 2,
						2011				2010
Derivatives designated as hedging instruments:
Foreign currency forwards		Other current assets				$	384			$	498
Foreign currency forwards		Other assets					—				92
						$	384			$	590
Foreign currency forwards		Other accrued liabilities				$	59			$	—
Foreign currency forwards		Other long-term liabilities					80				—
Interest rate swaps		Other accrued liabilities					292				381
Interest rate swaps		Other long-term liabilities					—				63
						$	431			$	444
Derivatives not designated as hedging instruments:
Foreign currency forwards		Other current assets				$	2,664			$	3,101
Foreign currency forwards		Other assets					—				74
						$	2,664			$	3,175
Foreign currency forwards		Other accrued liabilities				$	2,206			$	2,346
Foreign currency forwards		Other long-term liabilities					—				61
						$	2,206			$	2,407

Note 7 — Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate fair value. The definition of the fair value hierarchy is as follows:

Level 1 — Quoted prices in active markets for identical assets and liabilities.

Level 2 — Observable inputs other than quoted prices in active markets for similar assets and liabilities.

Level 3 — Inputs for which significant valuation assumptions are unobservable in a market and therefore value is based on the best available data, some of which is internally developed and considers risk premiums that a market participant would require.

Our derivatives are valued using various pricing models or discounted cash flow analyses that incorporate observable market data, such as interest rate yield curves and currency rates, classified as Level 2 within the valuation hierarchy. Our Level 3 fair value liabilities represent contingent consideration recorded for acquisitions to be paid if various financial targets are met. The amounts recorded were calculated for each payment scenario in each period using an estimate of the probability of the future cash outflows. The varying contingent payments were then discounted to the present value at the weighted average cost of capital.

The following table presents the fair values and classification of our financial assets and liabilities measured on a recurring basis as of April 2, 2011:

		Classification				Level 1				Level 2				Level 3				Total
Foreign currency forwards		Other current assets				$	—			$	3,048			$	—			$	3,048
						$	—			$	3,048			$	—			$	3,048
Foreign currency forwards		Other accrued liabilities				$	—			$	2,265			$	—			$	2,265
Foreign currency forwards		Other long-term liabilities					—				80				—				80
Interest rate swaps		Other accrued liabilities					—				292				—				292
Acquisition contingent consideration		Other accrued liabilities					—				—				300				300
Acquisition contingent consideration		Other long-term liabilities					—				—				2,116				2,116
						$	—			$	2,637			$	2,416			$	5,053

During 2010, we recorded contingent purchase price consideration for acquisitions. As of October 2, 2010, the fair value of those liabilities was $3,112. The change in the fair value for the six months ended April 2, 2011 represents an increase of $299 in the discounted future cash flows and is recorded as a component of interest expense and reductions of $995 due to earn out provisions not being achieved and are recorded as other income.

Our only financial instrument for which the carrying value differs from its fair value is long-term debt. At April 2, 2011, the fair value of long-term debt was $732,929 compared to its carrying value of $718,437. The fair value of long-term debt was estimated based on quoted market prices.

Note 8 — Restructuring

In 2009, we initiated restructuring plans to better align our cost structure with lower sales activity associated with the global recession. The restructuring actions taken have resulted in workforce reductions, primarily in the U.S., the Philippines and Europe.

Restructuring expense by segment related to severance is summarized as follows:

		Three Months Ended								Six Months Ended
		April 2,				April 3,				April 2,				April 3,
		2011				2010				2011				2010
Aircraft Controls		$	43			$	971			$	43			$	2,163
Space and Defense Controls			65				—				65				—
Industrial Systems			395				87				453				481
Components			15				179				15				418
Medical Devices			—				83				—				77
Total		$	518			$	1,320			$	576			$	3,139

We do not anticipate significant additional amounts for the remainder of 2011. Payments related to these severance benefits are expected to be paid in full by the end of 2011.

Restructuring activity for the six months ended April 2, 2011 is as follows:

		Severance
Restructuring accrual at beginning of period		$	3,389
Restructuring charges			684
Expense adjustments for prior year accruals			(108	)
Cash payments			(2,914	)
Foreign currency translation			16
Restructuring accrual at end of period		$	1,067

Note 9 — Employee Benefit Plans

Net periodic benefit costs for U.S. pension plans consist of:

		Three Months Ended								Six Months Ended
		April 2,				April 3,				April 2,				April 3,
		2011				2010				2011				2010
Service cost		$	5,642			$	4,679			$	11,284			$	9,359
Interest cost			7,171				6,766				14,342				13,533
Expected return on plan assets			(9,772	)			(8,836	)			(19,544	)			(17,672	)
Amortization of prior service cost			2				51				4				101
Amortization of actuarial loss			2,823				1,238				5,646				2,475
Pension expense for defined benefit plans			5,866				3,898				11,732				7,796
Pension expense for defined contribution plans			1,678				1,745				3,225				3,473
Total pension expense for U.S. plans		$	7,544			$	5,643			$	14,957			$	11,269

Net periodic benefit costs for non-U.S. pension plans consist of:

		Three Months Ended								Six Months Ended
		April 2,				April 3,				April 2,				April 3,
		2011				2010				2011				2010
Service cost		$	1,188			$	786			$	2,360			$	1,604
Interest cost			1,553				1,479				3,079				3,042
Expected return on plan assets			(971	)			(902	)			(1,925	)			(1,846	)
Amortization of prior service credit			(14	)			(13	)			(28	)			(27	)
Amortization of actuarial loss			385				128				763				261
Pension expense for defined benefit plans			2,141				1,478				4,249				3,034
Pension expense for defined contribution plans			1,102				1,449				2,249				2,879
Total pension expense for non-U.S. plans		$	3,243			$	2,927			$	6,498			$	5,913

Net periodic benefit costs for the post-retirement health care benefit plan consist of:

		Three Months Ended								Six Months Ended
		April 2,				April 3,				April 2,				April 3,
		2011				2010				2011				2010
Service cost		$	122			$	143			$	245			$	286
Interest cost			275				336				551				672
Amortization of transition obligation			99				99				198				198
Amortization of prior service cost			—				54				—				108
Amortization of actuarial loss			149				210				298				420
Total periodic post-retirement benefit cost		$	645			$	842			$	1,292			$	1,684

Actual contributions for the six months ended April 2, 2011 and anticipated additional 2011 contributions to our defined benefit pension are as follows:

		U.S. Plans				Non-U.S. Plans				Total
Actual		$	15,414			$	4,432			$	19,846
Anticipated			16,270				2,548				18,818
		$	31,684			$	6,980			$	38,664

Note 10 — Income Taxes

The effective tax rates of 29.3% and 28.1% for the three and six months ended April 2, 2011 and 29.6% and 28.3% for the three and six months ended April 3, 2010 are lower than would be expected by applying the U.S. federal statutory tax rate to earnings before income taxes primarily as a result of a significant portion of our earnings that come from foreign operations with lower tax rates.

Note 11 — Shareholders’ Equity

The changes in shareholders’ equity for the six months ended April 2, 2011 are summarized as follows:

						Number of Shares
						Class A				Class B
						Common				Common
		Amount				Stock				Stock
COMMON STOCK
Beginning of period		$	51,280				43,485,417				7,794,296
Conversion of Class B to Class A			—				34,660				(34,660	)
End of Period			51,280				43,520,077				7,759,636
ADDITIONAL PAID-IN CAPITAL
Beginning of period			389,376
Equity-based compensation expense			5,175
Issuance of treasury shares at more than cost			893
Income tax effect of equity-based compensation			99
Adjustment to market — SECT			3,985
End of period			399,528
RETAINED EARNINGS
Beginning of period			880,733
Net earnings			64,022
End of period			944,755
TREASURY STOCK
Beginning of period			(47,724	)			(2,221,635	)			(3,305,971	)
Issuance of treasury shares			774				145,193				—
Purchase of treasury shares			(1,192	)			(28,015	)			—
End of period			(48,142	)			(2,104,457	)			(3,305,971	)
STOCK EMPLOYEE COMPENSATION TRUST (SECT)
Beginning of period			(13,381	)							(374,502	)
Issuance of shares			525								11,759
Purchase of shares			(3,856	)							(91,139	)
Adjustment to market — SECT			(3,985	)							—
End of period			(20,697	)			—				(453,882	)
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Beginning of period			(139,328	)
Foreign currency translation adjustment			15,725
Retirement liability adjustment			3,965
Decrease in accumulated income on derivatives			(134	)
End of period			(119,772	)
TOTAL SHAREHOLDERS’ EQUITY		$	1,206,952				41,415,620				3,999,783

Note 12 — Stock Employee Compensation Trust

The Stock Employee Compensation Trust (SECT) assists in administering and provides funding for equity-based compensation plans and benefit programs, including the Moog Inc. Retirement Savings Plan. The shares in the SECT are not considered outstanding for purposes of calculating earnings per share. However, in accordance with the trust agreement governing the SECT, the SECT trustee votes all shares held by the SECT on all matters submitted to shareholders.

Note 13 — Earnings per Share

Basic and diluted weighted-average shares outstanding are as follows:

		Three Months Ended								Six Months Ended
		April 2,				April 3,				April 2,				April 3,
		2011				2010				2011				2010
Weighted-average shares outstanding — Basic			45,419,121				45,374,912				45,404,006				45,349,131
Dilutive effect of equity-based awards			639,870				355,340				578,766				312,433
Weighted-average shares outstanding — Diluted			46,058,991				45,730,252				45,982,772				45,661,564

Note 14 — Comprehensive Income

The components of comprehensive income, net of tax, are as follows:

		Three Months Ended								Six Months Ended
		April 2,				April 3,				April 2,				April 3,
		2011				2010				2011				2010
Net earnings		$	30,615			$	25,001			$	64,022			$	46,562
Other comprehensive income (loss):
Foreign currency translation adjustment			21,040				(12,396	)			15,725				(13,822	)
Retirement liability adjustment, net of tax of $1,264, $660, $2,526 and $1,321, respectively			1,787				707				3,965				1,682
Decrease in accumulated income or loss on derivatives			(176	)			(778	)			(134	)			(12	)
Comprehensive income		$	53,266			$	12,534			$	83,578			$	34,410

The components of accumulated other comprehensive income (loss), net of tax, are as follows:

		April 2,				October 2,
		2011				2010
Cumulative foreign currency translation adjustment		$	58,589			$	42,864
Accumulated retirement liability adjustments			(178,371	)			(182,336	)
Accumulated income on derivatives			10				144
Accumulated other comprehensive loss		$	(119,772	)		$	(139,328	)

Note 15 — Segment Information

Below are sales and operating profit by segment for the three and six months ended April 2, 2011 and April 3, 2010 and a reconciliation of segment operating profit to earnings before income taxes. Operating profit is net sales less cost of sales and other operating expenses, excluding interest expense, equity-based compensation expense and other corporate expenses. Cost of sales and other operating expenses are directly identifiable to the respective segment or allocated on the basis of sales, number of employees or profit.

		Three Months Ended								Six Months Ended
		April 2,				April 3,				April 2,				April 3,
		2011				2010				2011				2010
Net sales:
Aircraft Controls		$	206,030			$	188,753			$	401,981			$	363,813
Space and Defense Controls			87,791				79,084				183,537				148,575
Industrial Systems			155,851				120,441				299,596				256,793
Components			90,348				89,839				176,699				174,745
Medical Devices			34,206				32,371				66,847				61,740
Net sales		$	574,226			$	510,488			$	1,128,660			$	1,005,666
Operating profit (loss) and margins:
Aircraft Controls		$	19,168			$	19,575			$	39,363			$	37,185
			9.3	%			10.4	%			9.8	%			10.2	%
Space and Defense Controls			13,083				8,678				28,898				16,197
			14.9	%			11.0	%			15.7	%			10.9	%
Industrial Systems			15,858				8,139				30,265				19,320
			10.2	%			6.8	%			10.1	%			7.5	%
Components			13,255				14,396				28,058				26,518
			14.7	%			16.0	%			15.9	%			15.2	%
Medical Devices			(1,504	)			12				(2,995	)			151
			(4.4	%)			0.0	%			(4.5	%)			0.2	%
Total operating profit			59,860				50,800				123,589				99,371
			10.4	%			10.0	%			11.0	%			9.9	%
Deductions from operating profit:
Interest expense			8,970				9,248				18,181				19,976
Equity-based compensation expense			1,742				894				5,175				3,678
Corporate expenses and other			5,843				5,163				11,148				10,770
Earnings before income taxes		$	43,305			$	35,495			$	89,085			$	64,947

Note 16 — Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (FASB) issued new standards on consolidation as codified in Accounting Standards Codification (ASC) 810-10. The new standard amends the consolidation guidance applicable to variable interest entities and affects the overall consolidation analysis. The new standard is effective for fiscal years beginning after November 15, 2009. We adopted this standard at the beginning of 2011. The adoption of this standard did not have a material impact on our consolidated financial statements.

In October 2009, the FASB issued new standards for allocating revenue to multiple deliverables in a contract as codified in ASC 605-25. The new standard allows entities to allocate consideration in a multiple element arrangement in a manner that better reflects the transaction economics. When vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, entities will be allowed to develop their best estimate of the selling price for each deliverable and allocate arrangement consideration using the relative selling price method. Additionally, use of the residual method has been eliminated. We adopted this standard at the beginning of 2011. The adoption of this standard did not have a material impact on our consolidated financial statements.

In January 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-06, “Fair Value Measurements and Disclosures (ASC Topic 820) — Improving Disclosures About Fair Value Measurements.” This amendment requires new disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. This standard is effective for us beginning in the second quarter of 2010 for Level 1 and 2 disclosures and in the first quarter of 2012 for Level 3 disclosures. Other than requiring additional disclosures, the adoption of this new guidance will not have a material impact on our consolidated financial statements.

In April 2010, the FASB issued ASU 2010-17, “Milestone Method of Revenue Recognition.” This ASU allows entities to make a policy election to use the milestone method of revenue recognition and provides guidance on defining a milestone and the criteria that should be met to applying the milestone method. The scope of this ASU is limited to the transactions involving milestones related to research and development deliverables. We adopted this standard at the beginning of 2011. The adoption of this standard did not have a material impact on our consolidated financial statements.

In July 2010, the FASB issued new disclosure requirements about the credit quality of financing receivables and allowance for credit losses, as codified in ASC 310. The objective of the new standard is to facilitate financial statement users’ evaluation of the nature of the credit risk inherent in an entity’s portfolio, how that risk is analyzed and assessed in arriving at the allowance for credit losses and explanations for changes in the allowance for credit losses. In addition, the amendment requires entities to disclose credit quality indicators, past due information and modification to financing receivables. The new standard is effective for interim and annual periods ending on or after December 15, 2010. We adopted this standard at the beginning of 2011. The adoption of this standard did not have a material impact on our consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Form 10-K for the fiscal year ended October 2, 2010. All references to years in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are to fiscal years.

OVERVIEW

We are a worldwide designer, manufacturer and integrator of high performance precision motion and fluid controls and control systems for a broad range of applications in aerospace and defense, industrial and medical markets. Our aerospace and defense products and systems include military and commercial aircraft flight controls, satellite positioning controls, controls for steering tactical and strategic missiles, thrust vector controls for space launch vehicles, controls for gun aiming, stabilization and automatic ammunition loading for armored combat vehicles, and security and surveillance products. Our industrial products are used in a wide range of applications, including injection molding machines, pilot training simulators, wind energy, power generation, material and automotive testing, metal forming, heavy industry and oil exploration. Our medical products include infusion therapy pumps, enteral clinical nutrition pumps, slip rings used on CT scanners and motors used in sleep apnea devices. We operate under five segments, Aircraft Controls, Space and Defense Controls, Industrial Systems, Components and Medical Devices. Our principal manufacturing facilities are located in the United States, including facilities in New York, California, Utah, Virginia, North Carolina, Pennsylvania, Ohio, Georgia and Illinois, and in England, Germany, Italy, Japan, the Philippines, Ireland, India and China.

We have long-term contracts with some of our customers. These contracts are predominantly within Aircraft Controls and Space and Defense Controls and represent approximately one-third of our sales. We recognize revenue on these contracts using the percentage of completion, cost-to-cost method of accounting as work progresses toward completion. The remainder of our sales are recognized when the risks and rewards of ownership and title to the product are transferred to the customer, principally as units are delivered or as service obligations are satisfied. This method of revenue recognition is predominantly used within the Industrial Systems, Components and Medical Devices segments, as well as with aftermarket activity.

We concentrate on providing our customers with products designed and manufactured to the highest quality standards. In achieving a leadership position in the high performance, precision controls market, we have capitalized on our strengths, which include:

	•		superior technical competence and customer intimacy breeding market leadership,
	•		customer diversity and broad product portfolio,
	•		well-established international presence serving customers worldwide, and
	•		proven ability to successfully integrate acquisitions.

We intend to increase our revenue base and improve our profitability and cash flows from operations by building on our market leadership positions, by strengthening our niche market positions in the principal markets we serve and by extending our participation on the platforms we supply by providing more systems solutions. We also expect to maintain a balanced, diversified portfolio in terms of markets served, product applications, customer base and geographic presence. Our strategy to achieve our objectives includes:

	•		maintaining our technological excellence by building upon our systems integration capabilities while solving our customers’ most demanding technical problems,
	•		taking advantage of our global capabilities,
	•		growing our profitable aftermarket business,
	•		capitalizing on strategic acquisitions and opportunities,
	•		entering and developing new markets, and
	•		striving for continuing cost improvements.

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

Acquisitions

All of our acquisitions are accounted for under the purchase method and, accordingly, the operating results for the acquired companies are included in the consolidated statements of earnings from the respective dates of acquisition. Under purchase accounting, we record assets and liabilities at fair value on the balance sheet. The purchase price described for each acquisition below is net of any cash acquired and includes debt issued or assumed.

During the six months ended April 2, 2011, we completed one business combination within our Aircraft Controls segment for a purchase price of $3 million. This acquisition complements our military aftermarket business.

In 2010, we completed four business combinations within three of our segments. We completed one acquisition in our Aircraft Controls segment for $11 million. This acquisition complements our military aftermarket business. We completed two acquisitions in our Space and Defense Controls segment for a total of $23 million. One business specializes in turret design, fire control systems and vehicle electronics and the other expands our capabilities in the security and surveillance market. We completed one acquisition in our Industrial Systems segment for $1 million.

CRITICAL ACCOUNTING POLICIES

There have been no changes in critical accounting policies in the current year from those disclosed in our 2010 Form 10-K.

Reviews for Impairment of Goodwill

Our most recent test of goodwill for impairment was our annual test as of the beginning of our fourth quarter in 2010. The results of that test indicated that goodwill was not impaired and the fair value of each reporting unit exceeded its carrying value by over 10%.

The most significant assumptions in determining fair value are projected revenue growth rates, operating profit margins and cash flows, the terminal growth rate and the discount rate. Management projects revenue growth rates, operating margins and cash flows based on each reporting unit’s current business, expected developments and operational strategies over a five-year period. In estimating the terminal growth rate, we consider our historical and projected results, as well as the economic environment in which our reporting units operate. Significant program delays, changes in demand due to economic pressures or unfavorable terms in our contracts could have a negative effect on the fair value of a reporting unit.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (ASC Topic 820) — Improving Disclosures About Fair Value Measurements.” This amendment requires new disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. This standard is effective for us beginning in the second quarter of 2010 for Level 1 and 2 disclosures and in the first quarter of 2012 for Level 3 disclosures. Other than requiring additional disclosures, the adoption of this new guidance will not have a material impact on our consolidated financial statements.

In December 2010, the FASB issued ASU No. 2010-28, “Intangibles-Goodwill and Other (ASC Topic 350) — When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” This amendment modifies the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts, and it requires performing Step 2 if qualitative factors indicate that it is more likely than not that an impairment exists. The new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Any goodwill impairment resulting from the initial adoption of the amendments should be recorded as a cumulative effect adjustment to beginning retained earnings. Any goodwill impairments occurring after the initial adoption of the amendments should be included in earnings. We will adopt this standard in the first quarter of 2012. We do not expect the adoption of this standard will have a material impact on our consolidated financial statements.

In December 2010, the FASB issued ASU No. 2010-29, “Business Combinations (ASC Topic 805) — Disclosure of Supplementary Pro Forma Information for Business Combinations.” This amendment expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This amendment is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. We will adopt this standard at the beginning of 2012. Other than requiring additional disclosures, the adoption of this amendment will not have a material impact on our consolidated financial statements.

CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK

		Three Months Ended																Six Months Ended
		April 2,				April 3,				$				%				April 2,				April 3,				$				%
(dollars in millions, except per share data)		2011				2010				Variance				Variance				2011				2010				Variance				Variance
Net sales		$	574.2			$	510.5			$	63.7				12	%		$	1,128.7			$	1,005.7			$	123.0				12	%
Gross margin			29.1	%			29.0	%											29.4	%			29.1	%
Research and development expenses		$	28.2			$	25.5			$	2.7				11	%		$	51.6			$	49.4			$	2.2				4	%
Selling, general and administrative expenses as a percentage of sales			15.1	%			14.9	%											15.3	%			15.3	%
Restructuring expense		$	0.5			$	1.3			$	(0.8	)			(62	%)		$	0.6			$	3.1			$	(2.5	)			(81	%)
Interest expense		$	9.0			$	9.2			$	(0.2	)			(2	%)		$	18.2			$	20.0			$	(1.8	)			(9	%)
Effective tax rate			29.3	%			29.6	%											28.1	%			28.3	%
Net earnings		$	30.6			$	25.0			$	5.6				22	%		$	64.0			$	46.6			$	17.4				37	%
Diluted earnings per share		$	0.66			$	0.55			$	0.11				20	%		$	1.39			$	1.02			$	0.37				36	%

Net sales increased in the second quarter of 2011 compared to 2010 in all of our segments with the largest increases coming from Industrial Systems and Aircraft Controls.

Net sales also increased in the first half of 2011 compared to 2010 in all of our segments with the largest increases coming from Industrial Systems, Aircraft Controls and Space and Defense Controls.

Our gross margin was relatively unchanged in the second quarter and first half of 2011 compared to 2010, reflecting volume increases and a more favorable product mix, offset by additions to contract loss reserves. The loss reserves are primarily related to our Aircraft Controls segment.

Research and development expenses increased in the second quarter of 2011 compared to 2010, from the Airbus A350 program. For the first half of 2011, the increase in research and development expense was partially offset by $5 million of reimbursements for a commercial transport program.

Interest expense decreased in the second quarter and first half of 2011 from the same periods in 2010 as a result of lower average borrowings and lower interest rates.

2011 Outlook — We expect sales in 2011 to increase by 7% to $2.27 billion reflecting increases in all of our segments except Components. We expect operating margins to improve to 10.7% in 2011 compared to 10.2% in 2010. We expect operating margins to increase in Space and Defense Controls and Industrial Systems, remain relatively flat in Aircraft Controls and Medical Devices and decrease in Components. We expect net earnings to increase to $129 million and diluted earnings per share to increase by 19% to $2.80.

SEGMENT RESULTS OF OPERATIONS AND OUTLOOK

Operating profit, as presented below, is net sales less cost of sales and other operating expenses, excluding interest expense, equity-based compensation expense and other corporate expenses. Cost of sales and other operating expenses are directly identifiable to the respective segment or allocated on the basis of sales, number of employees or profit. Operating profit is reconciled to earnings before income taxes in Note 15 of the Notes to Consolidated Condensed Financial Statements included in this report.

Aircraft Controls

		Three Months Ended																Six Months Ended
		April 2,				April 3,				$				%				April 2,				April 3,				$				%
(dollars in millions)		2011				2010				Variance				Variance				2011				2010				Variance				Variance
Net sales — military aircraft		$	122.6			$	114.0			$	8.6				8	%		$	236.7			$	222.7			$	14.0				6	%
Net sales — commercial aircraft			73.8				64.8				9.0				14	%			148.1				122.1				26.0				21	%
Net sales — navigation aids			9.7				10.0				(0.3	)			(3	%)			17.2				19.0				(1.8	)			(9	%)
		$	206.1			$	188.8			$	17.3				9	%		$	402.0			$	363.8			$	38.2				11	%
Operating profit		$	19.2			$	19.6			$	(0.4	)			(2	%)		$	39.4			$	37.2			$	2.2				6	%
Operating margin			9.3	%			10.4	%											9.8	%			10.2	%
Backlog																		$	569.0			$	510.6			$	58.4				11	%

Within military aircraft sales, aftermarket sales increased $19 million, or 55%, in the second quarter of 2011 compared to 2010. The increase in the military aftermarket was unusually large and we do not expect the sales levels to be as high for the remainder of the year. This increase was partially offset by a $4 million decrease on the F-35 program as it shifts from development to production and a $3 million decrease on the F-15 program. Commercial aircraft sales were strong as sales increased $5 million from the ramp up of production on the Boeing 787, $3 million in aftermarket due to depressed levels in 2010 and $2 million in business jets as that market recovers.

Military aircraft sales increased $28 million in aftermarket for the first half of 2011 compared to 2010, partially offset by a $6 million decrease on the F-15 program and a $5 million decrease on the F-35 program. Commercial aircraft sales were strong as aftermarket sales increased $11 million, due to both an unusual order in 2011 and depressed levels in 2010. In addition, sales increased $10 million for the Boeing 787 production ramp up. Navigation aids decreased due to delays in contract awards.

Our operating margin was lower in the second quarter and first half of 2011 compared to 2010, reflecting additions to contract loss reserves that were $4 million higher in the quarter and $11 million higher in the first six months. The higher loss reserves are on various commercial programs, including the 787 and G250 as a result of changes coming out of flight tests. Partially offsetting those reserve additions are benefits associated with higher volume, sales mix changes toward higher margin business such as military aftermarket, restructuring charges incurred in 2010 and lower research and development as a percentage of sales, primarily the result of reimbursements totaling $5 million on a commercial transport program in the first six months of 2011.

The higher level of twelve-month backlog for Aircraft Controls at April 2, 2011 compared to April 3, 2010 reflects strong military and commercial aircraft orders.

2011 Outlook for Aircraft Controls — We expect sales in Aircraft Controls to increase 7% to $811 million in 2011. Military aircraft sales are expected to increase 3% to $471 million. We expect a sales increase in military aftermarket, primarily from the strong first half, offset by a decrease on the F-15 program. Commercial aircraft sales are expected to increase 15% to $302 million with increases in almost all product lines, including aftermarket, Boeing 787 and Airbus. Navigation aids are expected to increase $1 million. We expect our operating margin to be 10.2% in 2011, relatively flat compared to the 10.1% achieved in 2010, reflecting a more favorable sales mix, offset by higher contract loss reserves.

Space and Defense Controls

		Three Months Ended																Six Months Ended
		April 2,				April 3,				$				%				April 2,				April 3,				$				%
(dollars in millions)		2011				2010				Variance				Variance				2011				2010				Variance				Variance
Net sales		$	87.8			$	79.1			$	8.7				11	%		$	183.5			$	148.6			$	34.9				23	%
Operating profit		$	13.1			$	8.7			$	4.4				51	%		$	28.9			$	16.2			$	12.7				78	%
Operating margin			14.9	%			11.0	%											15.7	%			10.9	%
Backlog																		$	205.4			$	208.4			$	(3.0	)			(1	%)

Net sales in Space and Defense Controls increased in the second quarter in two main areas, tactical missiles and security and surveillance. Tactical missiles increased $8 million as the replenishment of missile inventory related to the Middle East continued. Security and surveillance increased $7 million, the largest portion resulting from our Pieper acquisition in Germany in the third quarter of 2010. Partially offsetting those increases was a $3 million decline in the satellite market which experienced a record year in 2010.

Net sales in Space and Defense Controls increased significantly in the first half of 2011, primarily in three areas, tactical missiles, the Driver’s Vision Enhancer (DVE) program and security and surveillance. Tactical missiles increased $16 million as a result of a large order for an aircraft stores management system and the replenishment of missile inventory. Sales on the DVE program were $15 million higher compared to 2010. In addition, sales increased $12 million in security and surveillance, primarily a result of our Pieper acquisition.

Our operating margin for Space and Defense Controls increased significantly in the second quarter and first half of 2011 as a result of the higher sales volume, in particular the volume and profitability of the DVE program sales in 2011. In addition, we had been waiting for export approval on the aircraft stores management system. Approval was granted in the first quarter of 2011 which eliminated a significant program risk, thereby allowing us to adjust the profit rate.

The level of twelve-month backlog at April 2, 2011 is comparable to April 3, 2010 as increased orders for satellites were offset by decreases in launch vehicles.

2011 Outlook for Space and Defense Controls — We expect sales in Space and Defense Controls to increase $32 million, or 10%, to $358 million in 2011. We expect sales increases in tactical missiles and in security and surveillance, primarily from the Pieper acquisition, which will offset a decline in satellites. We expect our operating margin in 2011 to increase to 13.3% from 11.0% in 2010, primarily the result of the strong first half.

Industrial Systems

		Three Months Ended																Six Months Ended
		April 2,				April 3,				$				%				April 2,				April 3,				$				%
(dollars in millions)		2011				2010				Variance				Variance				2011				2010				Variance				Variance
Net sales		$	155.9			$	120.4			$	35.5				29	%		$	299.6			$	256.8			$	42.8				17	%
Operating profit		$	15.9			$	8.1			$	7.8				96	%		$	30.3			$	19.3			$	11.0				57	%
Operating margin			10.2	%			6.8	%											10.1	%			7.5	%
Backlog																		$	264.3			$	237.2			$	27.1				11	%