Moog Inc.

Ladies and gentlemen, please stand by. Good day and welcome to the MoG fourth quarter and year end fiscal year 2020 earnings conference call. Today's conference is being recorded. And now at this time, I would like to hand the conference over to Ann Lohr. Please go ahead, ma'am.

Good morning. Before we begin, we call your attention to the fact that we may make forward-looking statements during the course of this conference call. These forward-looking statements are not guarantees of our future performance and are subject to risks, uncertainties, and other factors that could cause actual performance to differ materially from such statements. A description of these risks, uncertainties, and other factors is contained in our news release of November 6, 2020, our most recent Form 8-K filed on November 6, 2020, and in certain of our other public filings with the SEC. We've provided some financial schedules to help our listeners better follow along with the prepared comments. For those of you who do not already have the document, a copy of today's financial presentation is available on our investor relations webcast page via www.move.com. John?

Thanks, Anne. Good morning. Thanks for joining us. We hope all our listeners are staying safe and healthy. This morning, we'll report on the fourth quarter of fiscal 20 and reflect on our performance for the full year. Given the continuing uncertainty we all face as a result of the pandemic, we'll not be providing detailed guidance for fiscal 21 today. Instead, we'll provide color on what we're seeing in our various end markets and our operating assumptions as we head into a new year. I've organized my headlines into three broad categories. First, macroeconomic, second, microeconomic, and third, more specific topics. From a macroeconomic perspective, fiscal 20 was a tumultuous year. Early in the year, we worried about trade disputes with China and the potential impact of a hard Brexit on our business. Unrest in the Middle East was also on our radar. Then COVID hit and the last six months have been dominated by the impact this pandemic is having across the globe and speculating about when we'll see a recovery. Looking to the microeconomic, our diversity across end markets was a significant strength in a period of great uncertainty. Half of our business is in the defense and space markets, and these markets were essentially unaffected by the pandemic. Our medical market was very strong all year, as demand for specialty equipment to help COVID patients buoyed our sales. Our industrial markets slowed as we went through the year, although our geographical diversity of end customers helped alleviate the impact. Finally, our commercial aircraft business was hit very hard with both OEM and aftermarket customers feeling the brunt of global travel restrictions. Turning to MoG's specific comments, the fourth quarter was a good quarter overall compared to the same quarter a year ago, particularly given the operating conditions this year. Sales were up in our defense, space, and medical markets, but lower in industrial applications and down over 50% in our commercial aircraft market. Adjusted margins of 8.3% and earnings per share of 81 cents were respectable. We had another outstanding quarter for free cash flow, and we reinstated our dividend and bought back 600,000 shares. We incurred impairment and restructuring charges totaling $15 million as we continued to align our operations with the demand predictions from our customers. We also completed a major transaction to de-risk our DB pension plan in the U.S., transferring half the assets and liabilities to an insurance carrier at a very favorable rate. We incurred a non-cash charge of $121 million, or $2.85 per share for this transaction. Jennifer will describe this in more detail later on our call. Looking back on the full year, the following headlines stand out. First, it was a year of records, divided into two halves. The first half was characterized by record sales, record net earnings, and record earnings per share. In the second half, we generated record free cash flow. Our response to the pandemic dominated our third and fourth quarters as we shifted our attention from sales and earnings to leverage and liquidity. Our intense focus on expense reduction and cash flow generation resulted in lower leverage at the end of the year than six months ago when the pandemic hit. We incurred over $70 million in charges associated with restructuring, impairments, and asset write-downs. Second, we refinanced our balance sheet in our first quarter, extending the term of our revolving credit facility and selling $500 million of high yield bonds at 4.25%. At the time, we were just following our usual strategy of getting the money before we needed it. In hindsight, it was brilliant timing. Third, we followed our historical capital allocation policy. We completed one acquisition early in the year and returned excess capital to our shareholders through our dividend and buyback programs. We paused these activities during the third quarter as we assessed the situation, but as cash flow improved, we returned to a balanced capital allocation in the fourth quarter. Over the course of the full year, we repurchased almost 3 million shares and between dividends and share repurchases, we returned over $240 million to our shareholders in fiscal 20. Fourth, as we've mentioned many times, our diversity across end markets provided stability and continued strong operating performance throughout the year. And finally, and most importantly, I believe you see the true strength of a company during times of adversity. On that measure, fiscal 20 was a record year for our company in every way. The employees of the company across the globe did an outstanding job managing through an unprecedented crisis. It was definitely not the year we planned for 12 months ago, and to say it was a challenge would be an understatement. However, our long-term strategy of diversity across end markets and financial prudence served us well. As I do at this time each year, I'd like to express my gratitude and thanks for the dedication and commitment of our 13,000 employees around the world who made all this happen.