UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
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 0-8408
WOODWARD GOVERNOR COMPANY
(Exact name of registrant as specified in its charter)
Delaware 36-1984010
(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
5001 North Second Street, Rockford, Illinois 61125-7001
(Address of principal executive offices)
(815) 877-7441
(Registrant's telephone number, including area code)
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 /X/ No / /
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes / / No / /
As of January 25, 2001, 11,316,377 shares of common stock with a par value of
$.00875 cents per share were outstanding.
TABLE OF CONTENTS
Page
Part I. Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
Part II. Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Part I
ITEM 1. FINANCIAL STATEMENTS
Statements of Consolidated Earnings
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
Net Sales $150,730 $133,592
- ------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of goods sold 113,401 99,653
Sales, general, and administrative
expenses 15,286 18,521
Amortization of intangible assets 1,645 1,667
Interest expense 2,179 2,809
Interest income (279) (174)
Other expense - net 556 1,104
- ------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 132,788 123,580
- ------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 17,942 10,012
Income taxes 7,034 4,005
- ------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 10,908 $6,007
==============================================================================================================================
Basic earnings per share $ 0.96 $ 0.53
==============================================================================================================================
Diluted earnings per share $ 0.95 $ 0.53
==============================================================================================================================
Weighted-average number of basic shares
outstanding 11,315 11,274
==============================================================================================================================
Weighted-average number of diluted shares
outstanding 11,471 11,321
==============================================================================================================================
Cash dividends per share $ 0.2325 $ 0.2325
==============================================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
Consolidated Balance Sheets
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------
At December 31, 2000 At September 30, 2000
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $8,724 $9,315
Accounts receivable, less
allowance for losses of
$3,476 for December and
$4,452 for September 94,770 105,153
Inventories 109,553 102,990
Deferred income taxes 16,492 16,835
- ------------------------------------------------------------------------------------------------------------------------------
Total current assets 229,539 234,293
- ------------------------------------------------------------------------------------------------------------------------------
Property, plant, and equipment, at cost:
Land 5,960 6,032
Buildings and improvements 128,069 127,825
Machinery and equipment 233,009 233,188
Construction in progress 2,118 3,364
- ------------------------------------------------------------------------------------------------------------------------------
369,156 370,409
Accumulated depreciation 248,060 247,951
- ------------------------------------------------------------------------------------------------------------------------------
Property, plant, and equipment - net 121,096 122,458
Intangibles - net 152,663 150,118
Other assets 9,813 8,450
Deferred income taxes 18,276 18,404
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $531,387 $533,723
==============================================================================================================================
BALANCE SHEETS CONTINUED ON NEXT PAGE.
2
Consolidated Balance Sheets - Continued
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------
At December 31, 2000 At September 30, 2000
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $5,950 $ 21,284
Current portion of long-term debt 37,500 22,500
Accounts payable and accrued
expenses 66,289 81,342
Income taxes payable 8,991 8,331
- ------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 118,730 133,457
- ------------------------------------------------------------------------------------------------------------------------------
Long-term debt, less current portion 79,500 74,500
Other liabilities 50,507 50,142
Commitments and contingencies - -
- ------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity represented by:
Preferred stock, par value $.003
per share, authorized 10,000
shares, no shares issued - -
Common stock, par value $.00875 per share, authorized 50,000
shares, issued 12,160 shares
106 106
Additional paid-in capital 13,352 13,295
Unearned ESOP compensation (5,430) (5,308)
Accumulated other comprehensive
earnings 1,680 3,045
Retained earnings 292,782 284,431
- ------------------------------------------------------------------------------------------------------------------------------
302,490 295,569
Less treasury stock, at cost 19,840 19,945
- ------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 282,650 275,624
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $531,387 $533,723
==============================================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
Statements of Consolidated Cash Flows
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $10,908 6,007
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 8,214 7,639
Net loss on sale of property, plant, and
equipment 429 30
Deferred income taxes 471 (8)
ESOP compensation expense (122) (90)
Equity in loss of unconsolidated affiliate - 102
Changes in operating assets and liabilities,
net of business acquisitions:
Accounts receivable 10,042 18,573
Inventories (6,639) (3,521)
Current liabilities, other than short-
term borrowings and current portion
of long-term debt (14,695) (19,583)
Other - net (1,002) 44
- ------------------------------------------------------------------------------------------------------------------------------
Total adjustments (3,302) 3,186
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,606 9,193
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property, plant, and
equipment (6,005) (7,581)
Proceeds from sale of property, plant, and
equipment 1 229
Business acquisitions, net of cash acquired (4,422) -
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (10,426) (7,352)
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (2,631) (2,621)
Proceeds from sales of treasury stock 162 588
Net proceeds from borrowings under revolving
lines 9,913 3,098
Payments of long-term debt (5,000) (3,750)
Tax benefit applicable to ESOP dividend and
stock options 74 77
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 2,518 (2,608)
- ------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (289) (284)
- ------------------------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (591) (1,051)
Cash and cash equivalents, beginning of year 9,315 10,449
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $8,724 $9,398
=============================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest expense paid $2,161 $3,471
Income taxes paid $5,881 $4,987
NONCASH INVESTING:
Liabilities assumed in business acquisition $611 $-
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
Notes to Consolidated Financial Statements
(1) The consolidated balance sheet as of December 31, 2000, the
statements of consolidated earnings for the three-month periods ended
December 31, 2000 and 1999, and the statements of consolidated cash
flows for the three-month periods ended December 31, 2000 and 1999,
were prepared by the company without audit. The September 30, 2000,
consolidated balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles. Information in this 10-Q report is
based in part on estimates and is subject to year-end adjustments and
audit. In our opinion, the figures reflect all adjustments necessary to
present fairly the company's financial position as of December 31,
2000, the results of its operations for the three-month periods ended
December 31, 2000 and 1999, and its cash flows for the three-month
periods ended December 31, 2000 and 1999. All such adjustments were of
a normal and recurring nature. The statements were prepared following
the accounting policies described in the company's 2000 annual report
on Form 10-K and should be read with the Notes to Consolidated
Financial Statements on pages 26-33 of the 2000 annual report to
shareholders. The statements of consolidated earnings for the
three-month periods ended December 31, 2000, are not necessarily
indicative of the results to be expected for other interim periods or
for the full year.
(2) In the statements of consolidated earnings, amounts reported under
the caption other expense-net include our equity in loss of an
unconsolidated affiliate. Prior to the fourth quarter of the year ended
September 30, 2000, we reported our equity in loss of this
unconsolidated affiliate, net of tax, as a separate line in the
statement. Amounts reported for the three months ended December 31,
1999, have been reclassified to be consistent with the current
presentation.
(3) On November 3, 2000, we acquired the stock of Hoeflich Controls,
Inc., a manufacturer of ignition systems, and related assets for
$5,050,000. The acquisition was accounted for using the purchase method
of accounting and results of operations of the acquired company were
included in our consolidated results from the acquisition date. The
excess of the purchase price over the estimated fair value of tangible
and identified intangible net assets acquired is being amortized over
15 years. Under terms of the purchase agreement, we could be required
to make an additional payment of up to $1,200,000 in fiscal year 2004,
contingent upon attaining certain investment and sales volumes, as
defined by the agreement. We currently expect any additional payment to
be accounted for as additional purchase price to be allocated among
intangible assets acquired. Pro forma information of our consolidated
results of operations as if the acquisition had been completed at the
beginning of fiscal year 2000 have not been included as the resulting
pro forma data would not be materially different from the results
reported.
5
(4) Earnings per share:
------------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
DECEMBER 31,
------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000 1999
------------------------------------------------------------------------------------------------------------------
Net earnings (A) $10,908 $ 6,007
Determination of shares:
Weighted-average shares of common
stock outstanding (B) 11,315 11,274
Assumed exercise of stock options 156 47
------------------------------------------------------------------------------------------------------------------
Weighted-average shares of common
stock outstanding assuming dilution (C) 11,471 11,321
------------------------------------------------------------------------------------------------------------------
Basic earnings per share (A/B) $.96 $0.53
==================================================================================================================
Diluted earnings per share (A/C) $.95 $0.53
==================================================================================================================
All outstanding stock options during the three months ended December
31, 2000, were included in the above computation. The following stock
options were outstanding during the three months ended December 31,
1999, but were not included in the computation of diluted earnings per
share because the options' exercise prices were greater than the
average market price of the common shares during the respective
periods: options, 220,375; weighted-average exercise price, $32.34.
(5) Inventories:
------------------------------------------------------------------------------------------------------------------
AT DECEMBER AT SEPTEMBER
(IN THOUSANDS OF DOLLARS) 31, 2000 30, 2000
-------------------------------------------------------------------------------------------------------------------
Raw materials $3,571 $3,056
Component parts 59,975 58,559
Work in process 29,509 27,315
Finished goods 16,804 14,453
------------------------------------------------------------------------------------------------------------------
109,859 103,383
Less progress payments (306) (393)
------------------------------------------------------------------------------------------------------------------
$109,553 $102,990
==================================================================================================================
(6) Included in accounts payable and accrued expenses are accounts
payable of $20,649,000 at December 31, 2000, and $25,065,000 at
September 30, 2000.
(7) The assets and liabilities of substantially all subsidiaries
outside the United States are translated to the United States dollar at
period-end rates of exchange, and earnings and cash flow statements are
translated at weighted-average rates of exchange. Translation
adjustments are accumulated with other comprehensive earnings (losses)
as a separate component of shareholders' equity. We have no other
components of other comprehensive earnings. The company's total
comprehensive earnings were as follows:
6
------------------------------------------------------------------------------------------------------------------
FOR THE THREE
MONTHS ENDED
DECEMBER 31,
------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 2000 1999
------------------------------------------------------------------------------------------------------------------
Net earnings $10,908 $6,007
Other comprehensive losses (1,365) (1,125)
------------------------------------------------------------------------------------------------------------------
Total comprehensive earnings $ 9,543 $4,882
=================================================================================================================
(8) Segment information:
------------------------------------------------------------------------------------------------------------------
FOR THE THREE
MONTHS ENDED
DECEMBER 31,
------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) 2000 1999
------------------------------------------------------------------------------------------------------------------
Industrial Controls:
External net sales $83,045 $77,298
Intersegment sales 177 107
Segment earnings 12,457 12,182
------------------------------------------------------------------------------------------------------------------
Aircraft Engine Systems:
External net sales $67,685 $56,294
Intersegment sales 534 265
Segment earnings 12,492 4,443
================================================================== ====================== ======================
Portions of Industrial Controls were previously reported as Aircraft
Engine Systems or Other Segments. Amounts for 1999 in the information
above have been restated to be consistent with the current composition
of our segments.
The difference between the total of segment earnings and the statements
of consolidated earnings follows:
------------------------------------------------------------------------------------------------------------------
FOR THE THREE
MONTHS ENDED
DECEMBER 31,
------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 2000 1999
------------------------------------------------------------------------------------------------------------------
Total earnings for reportable segments $24,949 $16,625
Interest expense and interest income (1,900) (2,635)
Unallocated corporate expenses (5,107) (3,978)
------------------------------------------------------------------------------------------------------------------
Consolidated earnings before income taxes $17,942 $10,012
=================================================================================================================
Segment assets were as follows:
----------------------------------------------------------------------------------------------------------
AT DECEMBER 31, AT SEPTEMBER 30,
(IN THOUSANDS) 2000 2000
- -------------------------------------------------------------------------------------------------------------------
Industrial Controls $222,463 $214,935
Aircraft Engine Systems 250,628 260,712
===================================================================================================================
7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
We prepared the following discussion and analysis to help you
better understand our results of operations and financial
condition. This discussion should be read with the consolidated
financial statements, including the notes, and the cautionary
statement on page 35 of our 2000 annual report to shareholders,
which was filed with our Form 10-K for the year ended September
30, 2000.
Results of Operations
Our results of operations are discussed and analyzed by
reportable segment. We have two reportable segments--Industrial
Controls and Aircraft Engine Systems. Industrial Controls
provides energy control systems and components primarily to OEMs
(original equipment manufacturers) of industrial engines and
turbines. Aircraft Engine Systems provides energy control
systems and components primarily to OEMs of aircraft engines.
Portions of Industrial Controls, related to the manufacture and
sale of fuel injection nozzles for industrial markets, control
systems and related services for industrial users in retrofit
situations, and products for small industrial engine markets,
were previously reported as Aircraft Engine Systems or Other
Segments. Prior-year amounts in the financial information that
follows have been restated to be consistent with the current
composition of our segments.
The segment earnings reported for these segments in the
discussion and analysis do not reflect allocations of corporate
expenses, and are before interest and income taxes. These other
items are separately discussed and analyzed.
Industrial Controls
----------------------------------------------------------------------------------------------------------
FOR THE THREE
MONTHS ENDED
DECEMBER 31,
----------------------------------------------------------------------------------------------------------
IN THOUSANDS 2000 1999
----------------------------------------------------------------------------------------------------------
External net sales $83,045 $77,298
Segment earnings 12,457 12,182
==========================================================================================================
External net sales for Industrial Controls rose seven percent in
this year's first quarter over the same quarter last year.
Included in last year's first quarter were sales from a portion
of Industrial Controls that was divested on May 31, 2000.
Although the actual amount of sales associated with this portion
of our business in fiscal year 2000 has not been determined, we
believe it had annual sales of approximately $50 million. We
continue to manufacture and sell components used in the business
to the buyer, accounting for approximately $2 million of our
first quarter fiscal year
8
2001 sales. In addition, our sales were impacted by
significantly increased demand for systems and components used
in power generation, as well as continuing strong demand for
other industrial products.
Costs related to new programs and product development, and a
less favorable product mix, limited Industrial Controls' segment
earnings during this year's first quarter to a two percent
increase over the first quarter a year ago.
We expect strong demand for marine, oil and gas exploration and
processing and, most significantly, power generation equipment,
to continue. To capture an increasing share of these growing
markets, Industrial Controls is developing and introducing
digital controls and complementary mechanical products designed
to increase fuel efficiency, lower emissions, and enable remote
operation and networking, as well as adding resources to
accommodate higher rates of product development and production.
During the quarter, we formed an alliance with Edward King AG of
Switzerland, specialists in fuel skid design. In addition, we
added ignition systems technology for gas engines with both the
acquisition of Hoeflich Controls, Inc. and a licensing agreement
with Adrenaline Research. These actions broadened the
functionality and scope of our integrated control systems.
Aircraft Engine Systems
----------------------------------------------------------------------------------------------------------
FOR THE THREE
MONTHS ENDED
DECEMBER 31,
----------------------------------------------------------------------------------------------------------
IN THOUSANDS 2000 1999
----------------------------------------------------------------------------------------------------------
External net sales $67,685 $56,294
Segment earnings 12,492 4,443
==========================================================================================================
External net sales for Aircraft Engine Systems rose 20 percent
in this year's first quarter over the same quarter last year.
This increase represents ongoing strength in OEM products and
aftermarket business, compared with a weak first quarter last
year.
Segment earnings for Aircraft Engine Systems increased 181
percent over the first quarter last year, reflecting the impact
of higher sales and cost reduction actions initiated in the
second quarter of fiscal 2000. In particular, our cost of goods
sold was relatively high in the first half of 2000. Following
last year's workforce management program, which aligned staffing
levels with expected demand, and other cost reduction actions,
our cost of goods sold as a percent of sales decreased to levels
comparable to those in fiscal year 1999.
We expect sales from Aircraft Engine Systems to remain
relatively flat, with perhaps some modest growth, over the next
several quarters as a result of relatively stable market
conditions. We do have a strong position in business and
9
regional jets, currently two of the strongest segments within
aviation. Our growth strategy involves continuing to expand the
scope of our integrated fuel delivery components for OEM
customers and improving products and services for the
aftermarket.
Nonsegment Expenses
----------------------------------------------------------------------------------------------------------
FOR THE THREE
MONTHS ENDED
DECEMBER 31,
----------------------------------------------------------------------------------------------------------
IN THOUSANDS 2000 1999
----------------------------------------------------------------------------------------------------------
Interest expense $2,179 $2,809
Interest income (279) (174)
Unallocated corporate expenses 5,107 3,978
==========================================================================================================
Interest expense decreased in the first quarter this year as
compared to the first quarter last year, despite a slight
increase in interest rates, because we had lower levels of
average outstanding debt this year.
Unallocated corporate expenses were higher in the first quarter
this year as compared to the same period last year primarily
because we capitalized certain ongoing member costs that were
associated with a project involving our business system software
as internal software development costs last year and, as a
result, we incurred higher depreciation expense this year. We
also provided more for variable compensation plans in this
year's first quarter as compared to last year as a result of
improved companywide performance.
Net Earnings
----------------------------------------------------------------------------------------------------------
FOR THE THREE
MONTHS ENDED
DECEMBER 31,
----------------------------------------------------------------------------------------------------------
IN THOUSANDS 2000 1999
----------------------------------------------------------------------------------------------------------
Earnings before income taxes $17,942 $10,012
Income taxes 7,034 4,005
----------------------------------------------------------------------------------------------------------
Net income 10,908 6,007
==========================================================================================================
Basic earnings per share $ .96 $ .53
Diluted earnings per share .95 .53
==========================================================================================================
The increase in earnings before income taxes resulted in an
increase in income taxes in the first quarter this year as
compared to the first quarter last year. Income taxes were
provided at an effective tax rate of 39.2% this year compared to
40.0% last year, reduced because nondeductible expenses were
less significant relative to pretax earnings this year than a
year ago. Net earnings for the first quarter this year were 82
percent higher than last year.
Our expectations for sales and earnings growth stated in our
2000 annual report remain unchanged. That is, without
considering the impact of any new acquisitions, we expect
consolidated net sales to increase at least 7% in fiscal year
2001 over 2000 and we expect earnings, not including any
one-time gains or expenses, to grow 10-15% in fiscal year 2001
10
over 2000. Significant new product development activity and
costs associated with ramping to higher levels of production
will tend to pressure third and fourth quarter results compared
to relatively strong quarters in 2000. However, we believe that
the breadth of our energy control technologies, our intense
customer focus and commitment to operational excellence, and the
strength of many of our targeted markets position us for
long-term success.
Financial Condition
Our discussion and analysis of financial condition is presented
by segment for total segment assets, which consists of accounts
receivable, inventories, property, plant, and equipment--net,
and intangibles--net. We also discuss and analyze other balance
sheet and cash flow items. Together, this discussion and
analysis will help you assess our liquidity and capital
resources, as well as understand changes in our financial
condition.
Assets
----------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2000 AT SEPTEMBER 30, 2000
IN THOUSANDS
----------------------------------------------------------------------------------------------------------
Total segment assets:
Industrial Controls $222,463 $214,935
Aircraft Engine Systems 250,628 260,712
Unallocated corporate
property, plant, and
equipment - net and
intangibles - net 4,991 5,072
Other unallocated assets 53,305 53,004
----------------------------------------------------------------------------------------------------------
Total assets $531,387 $533,723
==========================================================================================================
Industrial Controls' total segment assets at December 31, 2000,
were 4% higher than they were at September 30, 2000. This
increase resulted from carrying more inventory in anticipation
of future sales and the first quarter 2001 acquisition of
Hoeflich Controls, Inc. and related assets.
Aircraft Engine Systems' total segment assets at December 31,
2000, were 4% lower than they were at September 30, 2000. This
decrease resulted primarily because of differences in sales
volumes in the periods immediately preceding the balance sheet
dates and the impact such changes have on accounts receivable
balances.
11
Other Balance Sheet Measures
----------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2000 AT SEPTEMBER 30, 2000
IN THOUSANDS
----------------------------------------------------------------------------------------------------------
Total assets $531,387 $533,723
Working capital (current
assets less current
liabilities) 110,809 100,836
Long-term debt, less current 79,500 74,500
portion
Other liabilities 50,507 50,142
Commitments and contingencies - -
Shareholders' equity 282,650 275,624
==========================================================================================================
Our balance sheet remained strong at December 31, 2000. Working
capital increased $10.0 million, most significantly related to
reductions in accounts payable and accrued expenses that
included the impact of making annual payments associated with
variable compensation plans and defined contribution benefit
plans. The non-current portion of long-term debt increased by
$5.0 million in the first quarter, attributed primarily to the
acquisition of Hoeflich Controls, Inc. and related assets. The
increase in shareholders' equity during the first quarter was
attributable to the excess of net earnings over dividends, plus
the impact of changes in foreign currency exchange rates on
cumulative other comprehensive earnings.
We are currently involved in matters of litigation arising from
the normal course of business, including certain environmental
and product liability matters. Further discussion of these
matters is in Note P in the notes to consolidated financial
statements in our 2000 annual report to shareholders, which was
filed with our Form 10-K for the year ended September 30, 2000.
Cash Flows
----------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
DECEMBER 31,
----------------------------------------------------------------------------------------------------------
In thousands 2000 1999
----------------------------------------------------------------------------------------------------------
Net cash provided by operating $7,606 $9,193
activities
Net cash used in investing activities (10,426) (7,352)
Net cash provided by (used in)
financing activities 2,518 (2,608)
==========================================================================================================
Net cash flows provided by operations decreased by 17% in the
first quarter of 2001 as compared to the first quarter of 2000.
Although we generated more earnings in the current year, the
timing of sales billings and collections was such that our
accounts receivable did not decrease in the first quarter this
year as much as last year. Other factors impacting operating
cash flows were less significant. In both years, first quarter
operating cash flows were impacted by annual payments associated
with variable compensation plans and defined contribution
benefit plans.
12
Net cash flows for investing activities increased in the first
quarter of the current year as compared to last year primarily
because of the acquisition of Hoeflich Controls, Inc. and
related assets. Capital expenditures in this year's first
quarter were $1.6 million lower than they were in the same
period last year. Of this amount, $450 thousand related to
internal software development costs that we capitalized last
year. The project that those expenditures related to was
completed last year. Currently, there are no ongoing or planned
software development projects similar in size or scope to that
project. The remaining difference is related to both normal
quarterly variations in capital expenditure rates and an
expectation for lower capital expenditures for the full fiscal
year 2001 as compared to fiscal year 2000, to be more in line
with depreciation expense.
Net cash flows for financing activities changed by $5.1 million
in the first quarter of 2001 compared to the first quarter of
2000. In last year's first quarter, we generated sufficient cash
from operations to meet our investing cash flow needs. However,
with this year's acquisition of Hoeflich Controls, Inc. and
related assets, our operating cash flows were insufficient to
meet our investing cash flow needs during the first quarter. As
a result, we borrowed, on a net basis, $4.9 million during the
first quarter this year.
Future cash flows from operations and available revolving lines
of credit are expected to be adequate to meet our cash
requirements during the next twelve months. However, it is
possible business acquisitions could be made in the future that
would require amendments to existing debt agreements and the
need to obtain additional financing.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements." This bulletin provides interpretations
and practices followed by the Division of Corporation Finance
and the Office of the Chief Accountant in administering the
disclosure requirements of the Federal securities laws regarding
revenue recognition. It is effective for us no later than July
1, 2001. We have completed a preliminary review of our current
revenue recognition practices for particular transactions, and
we are in the process of performing a more thorough review that
we intend to complete in the second quarter. We have not
discovered any revenue recognition practices that would need to
change in order to comply with this bulletin as part of our
preliminary or expanded review procedures so far. However, it is
possible that we would find practices that would need to change
after our expanded review is completed. As a result, at this
time we are unable to comment as to what impact, if any,
compliance with this bulletin will have on our consolidated
financial statements.
13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our long-term debt is sensitive to changes in interest rates.
Also, assets, liabilities and commitments that are to be settled
in cash and are denominated in foreign currencies are sensitive
to changes in currency exchange rates. These market risks are
discussed more fully in the Management Discussion and Analysis
on page 21 of our 2000 annual report to shareholders, which was
filed with our Form 10-K for the year ended September 30, 2000.
PART II
ITEM 5 Other Information
As indicated in note 8 to the accompanying consolidated
financial statements, portions of Industrial Controls were
previously reported as Aircraft Engine Systems or Other
Segments. The following quarterly segment information for fiscal
2000 has been restated to be consistent with the current
composition of our segments:
2000 Fiscal Quarters
----------------------------------------------------------------------------------------------------------
(IN THOUSANDS OF
DOLLARS) FIRST SECOND THIRD FOURTH
----------------------------------------------------------------------------------------------------------
Industrial Controls:
External net sales $77,298 $83,717 $86,921 $83,026
Intersegment sales 107 291 168 134
Segment earnings 12,182 12,100 10,912 6,064
----------------------------------------------------------------------------------------------------------
Aircraft Engine Systems:
External net sales $56,294 $65,368 $68,575 $76,186
Intersegment sales 265 336 861 548
Segment earnings 4,443 4,014 11,190 18,503
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Filed as Part of this Report. None.
(b) Reports Filed on Form 8-K During the First
Quarter of the Fiscal Year Ending September 30, 2001. None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WOODWARD GOVERNOR COMPANY
January 30, 2001 /s/ John A. Halbrook
-----------------------------
John A. Halbrook, President
and Chief Executive Officer
January 30, 2001 /s/ Stephen P. Carter
-----------------------------
Stephen P. Carter, Vice
President, Chief Financial
Officer and Treasurer
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