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, 1997 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, 1997, 11,446,900 shares of common stock with a par value of
1.5625 cents per share were outstanding.
WOODWARD GOVERNOR COMPANY
FORM 10-Q
For the Quarter Ended March 31, 1997
INDEX
Description
Part I. Financial Information
Item 1. Financial Statements
Statements of Consolidated Earnings for the
Three Months Ended March 31, 1997 and 1996
Statements of Consolidated Earnings for the Six
Months Ended March 31, 1997 and 1996
Consolidated Balance Sheets as of
March 31, 1997 and September 30, 1996
Statements of Consolidated Cash Flows for the Six
Months Ended March 31, 1997 and 1996
Notes 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 31,1997 and 1996
(in thousands except per share amounts)
(Unaudited)
1997 1996
Net billings for products and services $106,546 $106,785
Costs and expenses:
Cost of goods sold 79,708 80,343
Sales, service and administrative
expenses 18,624 16,419
Interest expense $642 $879
Interest income (294) (206)
Miscellaneous expense, net 980 1,328 1,767 2,440
Total costs and expenses 99,660 99,202
Earnings before income taxes and
equity in loss of unconsolidated affiliate 6,886 7,583
Income taxes 2,686 3,033
Earnings before equity in loss of
unconsolidated affiliate 4,200 4,550
Equity in loss of unconsolidated affiliate,
net of tax (770) -
Net earnings $3,430 $4,550
Net earnings per share $0.30 $0.39
Average shares outstanding 11,485 11,572
Cash dividends per share $0.2325 $0.2325
See accompanying notes to consolidated financial statements.
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS
for the six months ended March 31,1997 and 1996
(in thousands except per share amounts)
(Unaudited)
1997 1996
Net billings for products and services $205,575 $194,927
Costs and expenses:
Cost of goods sold 150,965 145,100
Sales, service and administrative
expenses 35,267 31,444
Interest expense $1,212 $1,808
Interest income (390) (341)
Miscellaneous expense, net 2,140 2,962 2,374 3,841
Total costs and expenses 189,194 180,385
Earnings before income taxes and
equity in loss of unconsolidated affiliate 16,381 14,542
Income taxes 6,388 5,817
Earnings before equity in loss of
unconsolidated affiliate 9,993 8,725
Equity in loss of unconsolidated affiliate,
net of tax (1,425) -
Net earnings $8,568 $8,725
Net earnings per share $0.74 $0.75
Average shares outstanding 11,516 11,591
Cash dividends per share $0.4650 $0.4650
See accompanying notes to consolidated financial statements.
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
MARCH SEPTEMBER
31,1997 30, 1996
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $14,005 $13,070
Accounts receivable, less allowance
for losses of $2,841 for March
and $2,755 for September 75,901 80,902
Inventories 95,051 92,135
Deferred income taxes 19,991 19,991
Total current assets 204,948 206,098
Property, plant and equipment, at cost:
Land 5,884 6,218
Buildings and improvements 120,764 120,283
Machinery and equipment 192,495 182,680
Construction in progress 339 6,971
319,482 316,152
Less allowance for depreciation 209,627 201,939
Property, plant and equipment - net 109,855 114,213
Intangibles and other assets 10,821 9,919
Deferred income taxes 18,527 18,568
Total assets $344,151 $348,798
Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings $21,651 $15,310
Current portion of long-term debt 4,862 4,862
Accounts payable and accrued expenses 51,409 61,597
Taxes on income 5,638 3,226
Total current liabilities 83,560 84,995
Long-term debt, less current portion 22,672 22,696
Other liabilities 33,112 33,112
Commitments and contingencies - -
Shareholders' equity represented by:
Preferred stock - -
Common stock 190 190
Additional paid-in capital 13,192 13,165
Unearned stock plan compensation (14,647) (14,665)
Currency translation adjustment 10,560 13,620
Retained earnings 210,782 207,392
220,077 219,702
Less treasury stock, at cost 15,270 11,707
204,807 207,995
Total liabilities and shareholders' equity $344,151 $348,798
See accompanying notes to consolidated financial statements.
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
for the six months ended March 31, 1997 and 1996
(in thousands of dollars)
(Unaudited)
1997 1996
Cash flows from operating activities:
Net earnings $8,568 $8,725
Adjustments to reconcile net earnings to
net cash provided (used) by operating activities:
Depreciation and amortization 11,877 11,496
Deferred income taxes, noncurrent 40 42
Stock plan compensation expense 18 83
Changes in assets and liabilities:
Accounts receivable 3,658 9,321
Inventories (4,071) (2,718)
Current liabilities, other than short-term borrowings
and current portion of long-term debt (6,591) (3,854)
Equity in loss of unconsolidated affiliate 2,336 -
Other, net (571) (601)
Total adjustments 6,696 13,770
Net cash provided by operating activities 15,264 22,494
Cash flows from investing activities:
Payments for purchase of property, plant
and equipment (8,015) (9,614)
Other (243) 573
Investment in unconsolidated affiliate (3,500) -
Net cash (used) in investing activities (11,758) (9,041)
Cash flows from financing activities:
Cash dividends paid (5,359) (5,401)
Proceeds from sale of treasury stock 184 436
Purchase of treasury stock (3,761) (1,479)
Payments of long-term debt (24) (138)
Short-term borrowings (payments) 6,553 (4,568)
Tax benefit applicable to ESOP dividend 182 184
Net cash (used) in financing activities (2,225) (10,966)
Effect of exchange rate changes on cash (346) (1,184)
Net change in cash and cash equivalents 935 1,303
Cash and cash equivalents, beginning of year 13,070 12,451
Cash and cash equivalents, end of period $14,005 $13,754
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $1,262 $1,833
Income taxes paid $2,369 $6,652
See accompanying notes to consolidated financial statements.
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 1997, and the statements
of consolidated earnings and cash flows for the three and six month
periods ended March 31, 1997 and 1996, have been prepared by the company
without audit. The September 30, 1996 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, 1997, and the results of its operations for the three and six
month periods ended March 31, 1997 and 1996, 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 1996 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, 1997 are not necessarily indicative
of the results to be expected for other interim periods or for the full
year.
Stock Split
Fiscal year 1996 net earnings per share, average shares outstanding and
cash dividends per share have been restated to reflect the four-for-one
stock split effective February 1997.
PART I - ITEM 2
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Following an exceptionally strong first fiscal quarter, Woodward's
financial performance moderated in the second quarter, with total net
billings little changed from those of the same period a year ago. Just
as we observed in our first quarter report that the 23% increase in net
earnings for that period might not be matched in subsequent periods, we
would not assume that the decline in net earnings for the second fiscal
quarter represents the beginning of a new trend.
Net billings for products and services in the quarter ended March 31,
1997 were $106,546,000, slightly below the $106,785,000 a year earlier.
Although demand generally remained firm in most product lines, a few
production delays and weakness in the European turbine market resulted in
lower than expected billings. Reflecting our ongoing commitment to
customer service and new product development, operating expenses
increased. Total costs and expenses as a percentage of billings remained
comparable to last year, although somewhat higher than expectations.
Cost management remains a high corporate priority.
For the second quarter of the fiscal year, earnings before the effect of
the GENXONtm Power System joint venture (discussed further below) fell 8%
to $4,200,000, or $.37 per share, compared with earnings of $4,550,000,
or $.39 per share a year ago. Including our share of the GENXON loss,
net of tax, of $770,000, or $.07 per share, net earnings were $3,430,000,
or $0.30 per share.
First Half Results
A more representative picture of Woodward's financial performance is
provided by results for the first half of fiscal 1997, as the company's
management philosophy is that operating trends are more accurately
measured over the long term. For the six-month period, net billings of
products and services were $205,575,000, up 5% from $194,927,000 in
fiscal 1996. Aircraft Controls' shipments rose 3%, to $86,801,000 from
$84,313,000 last year. Industrial Controls' shipments of $118,774,000
increased 7% from last year's $110,614,000, even though a weak second
quarter in the European turbine market and a strengthening U.S. dollar
moderated the gains.
Before our share of the GENXON loss, earnings for the first half of
fiscal 1997 were $9,993,000, or $0.86 per share, up 15% from $8,725,000,
or $0.75 per share a year ago. Including the GENXON loss ($1,425,000, or
$0.12 per share), net earnings were $8,568,000, or $.74 per share,
compared to $8,725,000, or $.75 per share last year.
Operating Highlights
Following a favorable reception from potential customers, GENXON
accelerated efforts to develop its first advanced technology ultra-low
emission combustion system, which it will offer with Woodward controls to
the operators of fleets of installed, out-of-warranty industrial gas
turbines. We view our share of the current loss as a strategic
investment in a significant new market opportunity. Expectations are
that revenues will start being generated in the next fiscal year to
offset some of the expenses.
Shortly after the end of the second quarter, Industrial Controls combined
its Engine Controls and Turbomachinery business units into a single
organization. The objectives of the combination are to pool technology,
closely coordinate marketing and sales, and reduce costs in future years
by eliminating duplication. As a result, we believe customer service
will be improved, our competitiveness enhanced and, ultimately, financial
performance improved.
Balance Sheet
Cash and cash equivalents increased to $14,005,000 at March 31, 1997 from
$13,070,000 at September 30, 1996. Accounts receivable decreased from
$80,902,000 at September 30, 1996 to $75,901,000 at March 31, 1997.
Inventories increased from $92,135,000 at September 30, 1996 to $95,051,000
at March 31, 1997 due to the increased sales volume and a higher level of
past due shipments. Property, plant and equipment - net decreased to
$109,855,000 at March 31, 1997 from $114,213,000 at September 30, 1996, due
to capital expenditures being less than depreciation. Intangibles and
other assets increased from $9,919,000 at September 30, 1996 to $10,821,000
at March 31, 1997 due to the investment in the GENXONtm Power Systems joint
venture recorded during fiscal 1997. Short term borrowings increased from
$15,310,000 at September 30, 1996 to $21,651,000 at March 31, 1997.
Accounts payable and accrued expenses decreased to $51,409,000 at March 31,
1997 from $61,597,000 at September 30, 1996 due in part to reductions in
accounts payable and member benefit accruals.
Currency translation adjustment decreased from $13,620,000 at September 30,
1996 to $10,560,000 at March 31, 1997 as a result of fluctuations in
exchange rates.
The company's estimated effective tax rate for the six months ended March
31, 1997 and 1996 was 39.0% and 40.0%, respectively. The effective tax
rate for the fiscal year ended September 30, 1996 was 37.0%.
This quarterly report may contain forward looking statements reflecting
Woodward's current expectations. These statements involve risk and
uncertainty. Actual future results may differ materially from
expectations.
PART II - OTHER INFORMATION
Item 6(b)
No form 8-K was filed for the quarter ended March 31, 1997.
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
May 14, 1997 /s/ John A. Halbrook
John A. Halbrook, President
and Chief Executive Officer
May 14, 1997 /s/ Stephen P. Carter
Stephen P. Carter,Vice President,
Chief Financial Officer and Treasurer