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 June 30, 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 July 31, 1997, 11,446,966 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 June 30, 1997
INDEX
Description
Part I. Financial Information
Item 1. Financial Statements
Statements of Consolidated Earnings for the
three months ended June 30, 1997 and 1996
Statements of Consolidated Earnings for the nine
months ended June 30, 1997 and 1996
Consolidated Balance Sheets as of June 30, 1997
and September 30, 1996
Statements of Consolidated Cash Flows for the nine
months ended June 30, 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 June 30, 1997 and 1996
(in thousands except per share amounts)
(Unaudited)
1997 1996
Net billings for products and services $115,761 $106,034
Costs and expenses:
Cost of goods sold 87,247 79,312
Sales, service and administrative
expenses 17,967 16,534
Other:
Interest expense $701 $760
Interest income (204) (107)
Miscellaneous expense, net 918 1,415 1,259 1,912
Total costs and expenses 106,629 97,758
Earnings before income taxes and
equity in loss of unconsolidated affiliate 9,132 8,276
Income taxes 3,562 3,311
Earnings before equity in loss of
unconsolidated affiliate 5,570 4,965
Equity in loss of unconsolidated affiliate,
net of tax (732) -
Net earnings $4,838 $4,965
Net earnings per share $0.42 $0.43
Average shares outstanding 11,447 11,580
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 nine months ended June 30, 1997 and 1996
(in thousands except per share amounts)
(Unaudited)
1997 1996
Net billings for products and services $321,336 $300,961
Costs and expenses:
Cost of goods sold 238,212 224,412
Sales, service and administrative
expenses 53,234 47,978
Other:
Interest expense $1,913 $2,568
Interest income (594) (448)
Miscellaneous expense, net 3,058 4,377 3,633 5,753
Total costs and expenses 295,823 278,143
Earnings before income taxes and
equity in loss of unconsolidated affiliate 25,513 22,818
Income taxes 9,950 9,128
Earnings before equity in loss of
unconsolidated affiliate 15,563 13,690
Equity in loss of unconsolidated affiliate,
net of tax (2,157) -
Net earnings $13,406 $13,690
Net earnings per share $1.17 $1.18
Average shares outstanding 11,493 11,556
Cash dividends per share $0.6975 $0.6975
See accompanying notes to consolidated financial statements.
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
JUNE SEPTEMBER
30, 1997 30, 1996
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $14,280 $13,070
Accounts receivable, less allowance
for losses of $2,543 for June
and $2,755 for September 79,251 80,902
Inventories 87,945 92,135
Deferred income taxes 19,991 19,991
Total current assets 201,467 206,098
Property, plant and equipment, at cost:
Land 5,876 6,218
Buildings and improvements 120,022 120,283
Machinery and equipment 195,715 182,680
Construction in progress 448 6,971
322,061 316,152
Less allowance for depreciation 213,397 201,939
Property, plant and equipment - net 108,664 114,213
Intangibles and other assets 10,815 9,919
Deferred income taxes 18,525 18,568
Total assets $339,471 $348,798
Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings $12,000 $15,310
Current portion of long-term debt 4,862 4,862
Accounts payable and accrued expenses 55,147 61,597
Taxes on income 5,153 3,226
Total current liabilities 77,162 84,995
Long-term debt, less current portion 22,651 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 13,194 13,165
Unearned stock plan compensation (14,637) (14,665)
Currency translation adjustment 9,981 13,620
Retained earnings 213,069 207,392
221,797 219,702
Less treasury stock, at cost 15,251 11,707
206,546 207,995
Total liabilities and shareholders'equity $339,471 $348,798
See accompanying notes to consolidated financial statements.
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
for the nine months ended June 30, 1997 and 1996
(in thousands of dollars)
(Unaudited)
1997 1996
Cash flows from operating activities:
Net earnings $13,406 $13,690
Adjustments to reconcile net earnings to
net cash provided (used) by operating activities:
Depreciation and amortization 17,763 18,157
Deferred income taxes, noncurrent 43 76
Stock plan compensation expense 28 126
Changes in assets and liabilities:
Accounts receivable (94) 3,746
Inventories 2,821 (4,399)
Current liabilities, other than short-term
borrowings and current portion of
long-term debt (3,095) 5,056
Equity in loss of unconsolidated affiliate 3,536 -
Other, net (269) (4,020)
Total adjustments 20,733 18,742
Net cash provided by operating activities 34,139 32,432
Cash flows from investing activities:
Payments for purchase of property, plant
and equipment (13,401) (16,023)
Investment in unconsolidated affiliate (5,300) -
Other 363 1,007
Net cash (used) in investing activities (18,338) (15,016)
Cash flows from financing activities:
Cash dividends paid (8,019) (8,073)
Proceeds from sales of treasury stock 184 436
Purchases of treasury stock (3,761) (1,731)
Payments of long-term debt (45) (209)
Short-term borrowings (payments) (2,563) (13,439)
Tax benefit applicable to stock plan dividend 273 276
Net cash (used) in financing activities (13,931) (22,740)
Effect of exchange rate changes on cash (660) (1,172)
Net change in cash and cash equivalents 1,210 (6,496)
Cash and cash equivalents, beginning of year 13,070 12,451
Cash and cash equivalents, end of period $14,280 $5,955
Supplemental cash flow information:
Interest paid $1,626 $2,587
Income taxes paid $5,872 $11,562
See accompanying notes to consolidated financial statements.
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of June 30, 1997, and the statements of
consolidated earnings and cash flows for the three and nine month periods
ended June 30, 1997 and 1996, have been prepared by Woodward Governor
Company (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 June 30, 1997, and
the results of its operations for the three and nine month periods ended
June 30, 1997 and 1996, and cash flows for the nine month periods 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 nine month
periods ended June 30, 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 on February 7, 1997, to holders of record as of January 23,
1997.
PART I - ITEM 2
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The company is pleased to report solid financial performance in the third
fiscal quarter and the nine months ended June 30, 1997. Increased sales and
improved cost management were the principal contributors to the results for
both periods.
Third Quarter Results
Net billings for products and services in the quarter ended June 30, 1997
rose 9%, to $115,761,000 from $106,034,000 a year ago. Aircraft Controls'
shipments of $51,920,000 were up 6%; excluding Bauer Aerospace, which was
divested in July 1996, the increase would have been almost 9%. The increase
reflects the current upswing in the aircraft production cycle, as well as
additional market penetration by new products that expand beyond the core
fuel controls business. Industrial Controls' shipments rose 12%, to
$63,841,000, benefiting from strength in custom-engineered systems, turbine
retrofits in the U.S., a strong market for engine controls in Europe, and
last year's acquisition of Deltec Fuel Systems.
Total costs and expenses for the quarter were $106,629,000, an increase of
$8,871,000, or 9%, over the prior year quarter. As a percentage of net
billings, however, total costs and expenses were approximately the same as
last year, reflecting the company's continued focus on productivity and
efficiency. Sales, service and administrative expenses increased $1,433,000
over the prior year quarter primarily due to expanding international sales
operations including Deltec, an increased emphasis on training, and costs
associated with the recent consolidation of the Industrial Controls
business units in Colorado. Earnings for the quarter, before the effect of
the GENXONtm Power Systems joint venture, rose 12% to $5,570,000, or $.49
per share, from $4,965,000, or $.43 per share, a year ago. Including the
company's share of GENXON's loss ($732,000 after taxes, or $.07 per share),
net earnings were $4,838,000, or $.42 per share.
Nine Months Results
For the first nine months of fiscal 1997, net billings for products and
services were $321,336,000, up 7% from $300,961,000 in the corresponding
period last year. Aircraft Controls' billings increased 4% for the year to
date (7% excluding Bauer), to $138,721,000; Industrial Controls achieved a
9% gain, to $182,615,000. Total costs and expenses for the first nine
months of fiscal 1997, as a percentage of billings, were slightly lower
when compared to the same prior year period, primarily due to the Company's
ongoing emphasis on cost management. Before the effect of GENXON, earnings
were $15,563,000, or $1.35 per share, 14% ahead of last year's $13,690,000,
or $1.18 per share. Including the company's portion of GENXON's loss for
the nine months ($2,157,000 after taxes, or $.18 per share), net earnings
were $13,406,000, or $1.17 per share.
GENXON Update
GENXON, a joint venture with Catalytica, Inc., which is developing XONONtm
Combustion Systems for installed, out-of-warranty gas turbines, had several
positive achievements during the quarter. In June, GENXON signed a
Memorandum of Understanding with General Electric Company for the worldwide
commercialization of the ultra-low emission systems in GE-designed heavy
duty gas turbines. Also during the quarter, GENXON announced the successful
operation of XONON in a gas turbine under field operating conditions at
full load. These encouraging developments, coupled with recent indications
of continued political support for strict air quality regulations in the
United States and abroad, helped to focus attention on GENXON's advanced
emission control technology. Development expenses have been accelerated to
support these expanding market opportunities.
Balance Sheet
The balance sheet remained strong as of June 30, 1997, with total
shareholders' equity of $206,546,000 and long-term debt of $22,651,000,
which was less than 10% of total capital.
Cash balances increased $1,210,000 to $14,280,000 at June 30, 1997 when
compared to September 30, 1996. Higher cash balances during the current
fiscal year have been utilized to reduce short-term borrowings, which
declined $3,310,000 since September 30, 1996 and totaled $12,000,000 at
June 30, 1997. Total inventories were $87,945,000 at June 30, 1997 as
compared to $92,135,000 at September 30, 1996, a decline of $4,190,000,
which reflects the company's on-going emphasis of inventory management.
Property, plant and equipment - net decreased to $108,664,000 at June 30,
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 $10,815,000 at June 30, 1997 due to the
impact of the investment in the GENXON joint venture. Accounts payable and
accrued expenses decreased to $55,147,000 at June 30, 1997 from $61,597,000
at September 30, 1996, due in part to reductions in accounts payable and
other accruals.
The currency translation adjustment, a component of total shareholders'
equity, decreased from $13,620,000 at September 30, 1996 to $9,981,000 at
June 30, 1997 due to fluctuations in exchange rates.
The company's effective tax rate for the nine months ended June 30, 1997
and 1996 was 39.0% and 40.0%, respectively. The effective tax rate for the
fiscal year ended September 30, 1996 was 37.0%.
Other
On June 25, 1997, the Board of Directors declared a quarterly dividend of
twenty-three and one-quarter cents ($.2325) per share. The dividend is
payable on September 2, 1997 to shareholders of record at the close of
business on August 15, 1997.
To continue to build presence in the company's competitive markets, efforts
are centered on working closely with customers to understand their needs
and respond quickly and effectively. Internally, as part of a commitment to
maintaining a leading position in technology, product quality, and customer
service, the company continues programs designed to ensure that all members
have the motivation, knowledge, and authority to continually raise the
level of their performance and, collectively, that of the company. An
energized and engaged membership is the key strategic asset moving the
company toward its long-term objectives for growth and profitability.
This quarterly report may contain forward looking statements reflecting the
company's current expectations. These statements involve risk and
uncertainty. Actual future results may differ materially from
expectations.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", both of which become effective in
fiscal year 1999. The company has not yet determined the impact these new
statements will have on the consolidated financial statements and related
disclosures.
PART II - OTHER INFORMATION
Item 6(b)
No Form 8-K was filed for the quarter ended June 30, 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
August 14, 1997 /s/ John A. Halbrook
John A. Halbrook, President
and Chief Executive Officer
August 14, 1997 /s/ Stephen P. Carter
Stephen P. Carter, Vice President,
Chief Financial Officer and Treasurer