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 quarter ended March 31, 1995 Commission File #0-8408 OR { } TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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) Registrant's telephone number - (815) 877-7441 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 As of April 30, 1995, 2,914,706 shares of common stock with a par value of 6.25 cents per share were outstanding. WOODWARD GOVERNOR COMPANY FORM 10-Q For the Quarter Ended March 31, 1995 INDEX Description Part I. Financial Information Item 1. Financial Statements Statements of Consolidated Earnings for the Three Months Ended March 31, 1995 and 1994 Statements of Consolidated Earnings for the Six Months Ended March 31, 1995 and 1994 Consolidated Balance Sheets as of March 31, 1995 and September 30, 1994 Statements of Consolidated Cash Flows for the Six Months Ended March 31, 1995 and 1994 Note to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. Other Information Signatures WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED EARNINGS for the three months ended March 31, 1995 and 1994 (in thousands except per share amounts) (Unaudited) 1995 1994 ---------- ---------- Net billings for products and services $89,798 $81,873 ---------- ---------- Costs and expenses: Cost of goods sold 67,201 60,691 Sales, service and administrative expenses 15,573 13,433 Restructuring expense $1,201 - Interest expense 968 $1,378 Interest income (84) (130) Miscellaneous expense, net 829 2,914 730 1,978 --------- ---------- -------- ------ Total costs and expenses 85,688 76,102 ---------- ------- Earnings before income taxes 4,110 5,771 Income taxes 1,685 2,481 ---------- ------- Net earnings $2,425 $3,290 ---------- ------- Net earnings per share $ .84 $1.12 ---------- ------- Average shares outstanding 2,918 2,956 ---------- ------- Cash dividends per share $0.93 $0.93 ---------- ------- See accompanying note to consolidated financial statements. WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED EARNINGS for the six months ended March 31, 1995 and 1994 (in thousands except per share amounts) (Unaudited) 1995 1994 ---------- --------- Net billings for products and services $180,228 $155,813 ---------- ---------- Costs and expenses: Cost of goods sold 131,725 115,227 Sales, service and administrative expenses 30,975 26,190 Restructuring expense $4,737 - Interest expense 1,826 $2,116 Interest (income) (206) (312) Miscellaneous expense, net 1,599 7,956 1,933 3,737 --------- ---------- --------- ------- Total costs and expenses 170,656 145,154 ---------- ------- Earnings before income taxes 9,572 10,659 Income taxes 3,924 4,583 ---------- --------- Net earnings $5,648 $6,076 ---------- --------- Net earnings per share $1.94 $2.06 ---------- --------- Average shares outstanding 2,918 2,956 ---------- --------- Cash dividends per share $1.86 $1.86 ---------- --------- See accompanying note to consolidated financial statements. WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands of dollars) March September 31, 1995 30, 1994 ----------- --------- (Unaudited) Assets Current assets: Cash and cash equivalents $9,574 $10,272 Accounts receivable, less allowance for losses of $3,209 for March and $3,021 for September 65,480 69,778 Inventories 91,211 80,272 Deferred income taxes 20,957 20,957 ----------- --------- Total current assets 187,222 181,279 ----------- --------- Property, plant and equipment, at cost: Land 6,627 6,648 Buildings and improvements 121,039 120,503 Machinery and equipment 164,418 156,476 Construction in progress 1,758 2,475 ----------- --------- 293,842 286,102 Less allowance for depreciation 174,502 163,191 ----------- --------- Property, plant and equipment - net 119,340 122,911 Intangibles and other assets 4,685 4,757 Deferred income taxes 14,358 14,371 ----------- --------- Total assets $325,605 $323,318 ----------- --------- Liabilities and Shareholders' Equity Current liabilities: Short-term borrowings $11,402 $24,674 Current portion of long-term debt 4,252 4,252 Accounts payable and accrued expenses 51,082 37,972 Taxes on income 3,531 630 ----------- --------- Total current liabilities 70,267 67,528 ----------- --------- Long-term debt, less current portion 32,533 32,665 Other liabilities 29,279 29,279 Commitments and contingencies - - Shareholders' equity represented by: Preferred stock - - Common stock 190 190 Additional paid-in capital 13,892 13,891 Unearned stock plan compensation (19,555) (19,777) Currency translation adjustment 15,983 15,210 Retained earnings 194,644 194,088 ----------- --------- 205,154 203,602 Less treasury stock, at cost 11,628 9,756 ----------- --------- 193,526 193,846 ----------- --------- Total liabilities and shareholders' equity $325,605 $323,318 ----------- --------- See accompanying note to consolidated financial statements. WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS For the six months ended March 31, 1995 and 1994 (in thousands of dollars) (Unaudited) 1995 1994 ----------- ---------- (restated) Cash flows from operating activities: Net earnings $5,648 $6,076 ----------- ---------- Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Depreciation 12,291 13,228 Deferred income taxes, noncurrent 13 (5) Stock plan compensation expense 222 275 Changes in assets and liabilities: Accounts receivable 4,722 10,248 Inventories (10,506) 500 Current liabilities, other than short-term borrowings and current portion of long-term debt 16,078 (3,613) Other, net 235 (2,065) ----------- ----------- Total adjustments 23,055 18,568 ----------- ----------- Net cash provided by operating activities 28,703 24,644 ----------- ----------- Cash flows from investing activities: Payments for purchase of property, plant and equipment (8,100) (8,946) Other (340) 124 Acquisitions, net of cash - (1,094) ----------- ----------- Net cash (used) in investing activities (8,440) (9,916) ----------- ----------- Cash flows from financing activities: Cash dividends paid (5,434) (5,517) Purchase of treasury stock (1,872) (3,310) Payments of long-term debt (132) (94) Short-term borrowings, by original maturity: More than three months - proceeds - - More than three months - payments - - Three months or less, net (13,528) (7,557) Tax benefit applicable to ESOP dividend 196 206 ----------- ----------- Net cash (used) in financing activities (20,770) (16,272) ----------- ----------- Effect of exchange rate changes on cash (191) 277 ----------- ----------- Net change in cash and cash equivalents (698) (1,267) Cash and cash equivalents, beginning of year 10,272 10,497 ----------- ----------- Cash and cash equivalents, end of quarter $9,574 $9,230 ----------- ----------- SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid (net of amount capitalized) $1,837 $2,301 Income taxes paid $3,168 $5,959 See accompanying note to consolidated financial statements. WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES NOTE TO CONSOLIDATED FINANCIAL STATEMENTS The consolidated balance sheet as of March 31, 1995, and the statements of consolidated earnings and cash flows for the three and six month periods ended March 31, 1995 and 1994, have been prepared by the Company without audit. The September 30, 1994 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. Information furnished in this 10-Q report is based in part on approximations and is subject to year-end adjustment and audit. The figures do reflect all adjustments necessary, in the opinion of management, to present fairly the Company's financial position as of March 31, 1995, and the results of its operations for the three and six month periods ended March 31, 1995 and 1994, and cash flows for the six months then ended. All such adjustments are of a normal and recurring nature. The statements have been prepared in accordance with accounting policies set forth in the Company's 1994 annual report on Form 10-K and should be read in conjunction with the Notes to Consolidated Financial Statements therein. The statements of consolidated earnings for the three and six month periods ended March 31, 1995 are not necessarily indicative of the results to be expected for other interim periods or for the full year. PART I - ITEM 2 WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net billings for products and services delivered to customers continued to increase in the second quarter of fiscal year 1995 and totaled $89,798,000 compared to $81,873,000 in 1994, a 10% increase. Costs and expenses increased 13% from last year's second quarter and total $85,688,000 compared to $76,102,000. Earnings before income taxes for the three months decreased from $5,771,000 last year to $4,110,000 this year. Second quarter net earnings were $2,425,000 for 1995 compared to $3,290,000 in 1994. As a result of the 10% increase in second quarter shipments and the 22% increase in the first quarter, year-to-date shipments of $180,228,000 were up $24,415,000 or 16% from last year. Total costs and expenses for the six month period were $170,656,000, an increase of $25,502,000 or almost 18% from last year. Net earnings are down 7% from last year and total $5,648,000, compared to $6,076,000. Earnings per share through the second quarter decreased from $2.06 last year to $1.94 this year. Ongoing Operations Shipments from ongoing operations for the first six months of the fiscal year increased 5% from $152,594,000 in 1994 to $160,426,000 in 1995. Ongoing operations are all operations except those included in the Acquisitions and Divestiture and Unusual Items sections below. Shipments from ongoing operations in the Aircraft Controls Group were up over 1% from last year for the first six months, while Industrial Control shipments were up 8%. During the same period, expenses for ongoing operations increased from $139,640,000 to $147,771,000, a 6% increase. The weakened U.S. dollar had an impact on both of these areas as the overseas shipments and costs and expenses translated into more U.S. dollars. The higher shipment level also resulted in increased costs to produce our products. Worker membership at March 31, 1995 for ongoing operations totaled 3,036 compared to 3,240 at March 31, 1994. Acquisitions and Divestiture During fiscal year 1994, the company acquired three companies. Shipments from these companies were $5,766,000 in the second quarter of 1995, compared to $989,000 in 1994. Year-to-date shipments were $10,614,000 this year and $989,000 last year. Last year's acquisitions also added $11,738,000 of costs and expenses for the first six months of fiscal 1995 compared to $784,000 last year. As a result of reorganization and additional development costs, the acquisitions have not yet been profitable. Acquisitions also added 174 new members since last year. In the 1994 annual report, we discussed the intent to divest ourselves of Bauer Aerospace. Shipments for Bauer were $1,588,000 in the first six months of 1995, compared to $2,230,000 last year. Costs and expenses were $2,064,000 for this year and $4,065,000 last year. There were 45 members at Bauer on March 31, 1995 and 65 on March 31, 1994. Unusual Items Several items occurred during fiscal year 1995 which have greatly impacted the operating results for the first six months. As mentioned in the first quarter, over $7,000,000 of revenue was recognized for reimbursement of non-recurring engineering charges. Additional expenses were incurred relating to several items announced in the first quarter report - severance and relocation costs related to our decision to move the Hydro business unit to Colorado and integrate it into our Turbomachinery Controls business, and an early retirement program made available to domestic members. There were also costs related to the ongoing restructuring and consolidation of the Aircraft Controls Group. In total, these types of costs add up to almost $9,100,000 in the first six months of fiscal year 1995. Last year $665,000 was included in costs and expenses for the first six months due to unusual items. Balance Sheet Accounts receivable have decreased from $69,778,000 at September 30, 1994 to $65,480,000 at March 31, 1995 due to the higher level of shipments in the last two months of last fiscal year. Inventories have increased to $91,211,000 at March 31, 1995 from $80,272,000 at September 30, 1994. This is due to an increase in sales volume and a higher level of past due shipments. Property, plant and equipment-net has decreased from September 30, 1994 due to capital expenditures being less than depreciation. Short term borrowings decreased from $24,674,000 at September 30, 1994 to $11,402,000. Accounts payable and accrued expenses have increased to $51,082,000 at March 31, 1995 from $37,972,000 at September 30, 1994 due in part to accruals for the early retirement program and costs related to the Hydro relocation. The company's effective tax rate for the six months ended March 31, 1995 and 1994 was 41.0% and 43.0%, respectively. The effective tax benefit for the fiscal year ended September 30, 1994 was 37.0%. PART II - OTHER INFORMATION Item 6(b) No Form 8-K was filed for the quarter ended March 31, 1995. 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 /s/ John A. Halbrook John A. Halbrook, President and Chief Executive Officer /s/ Vern H. Cassens Vern H. Cassens, Senior Vice President, Treasurer, and Chief Financial Officer