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, 1998 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, 1998, 11,299,325 shares of common stock with a par value
of $.00875 cents per share were outstanding.
WOODWARD GOVERNOR COMPANY
FORM 10-Q
For the Quarter Ended March 31, 1998
INDEX
Description
Part I. Financial Information
Item 1. Financial Statements
Statements of Consolidated Earnings for the
Three Months Ended March 31, 1998 and 1997
Statements of Consolidated Earnings for the Six
Months Ended March 31, 1998 and 1997
Consolidated Balance Sheets as of
March 31, 1998 and September 30, 1997
Statements of Consolidated Cash Flows for the Six
Months Ended March 31, 1998 and 1997
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, 1998 and 1997
(in thousands except per share amounts)
(Unaudited)
1998 1997
Net billings for products
and services $113,160 $106,546
Costs and expenses:
Cost of goods sold 81,563 79,708
Sales, service and
administrative expenses 19,412 18,624
Other:
Interest expense $444 $642
Interest income (225) (294)
Other expense, net 1,269 1,488 980 1,328
Total costs and expenses 102,463 99,660
Earnings before income taxes and
equity in loss of unconsolidated
affiliate 10,697 6,886
Income taxes 4,314 2,686
Earnings before equity in loss of
unconsolidated affiliate 6,383 4,200
Equity in loss of unconsolidated affiliate,
net of tax 968 770
Net earnings $5,415 $3,430
Basic and diluted earnings per share $0.48 $0.30
Average number of shares outstanding 11,315 11,485
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, 1998 and 1997
(in thousands except per share amounts)
(Unaudited)
1998 1997
Net billings for products
and services $211,300 $205,575
Costs and expenses:
Cost of goods sold 154,622 150,965
Sales, service and administrative
expenses 38,131 35,267
Other:
Interest expense $785 $1,212
Interest income (424) (390)
Other expense, net 2,015 2,376 2,140 2,962
Total costs and expenses 195,129 189,194
Earnings before income taxes and
equity in loss of unconsolidated
affiliate 16,171 16,381
Income taxes 6,449 6,388
Earnings before equity in loss of
unconsolidated affiliate 9,722 9,993
Equity in loss of unconsolidated affiliate,
net of tax 1,849 1,425
Net earnings $7,873 $8,568
Basic and diluted earnings per share $0.69 $0.74
Average number of shares outstanding 11,381 11,516
Cash dividends per share $0.465 $0.465
See accompanying notes to consolidated financial statements.
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
MARCH SEPTEMBER
31, 1998 30, 1997
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 7,727 $ 14,999
Accounts receivable, less
allowance for losses of $3,279
for March and $2,757 for
September 81,454 91,806
Inventories 89,177 83,249
Deferred income taxes 19,651 19,651
Total current assets 198,009 209,705
Property, plant and equipment, at cost:
Land 5,607 5,842
Buildings and improvements 119,100 119,997
Machinery and equipment 191,408 188,758
Construction in progress 2,104 2,270
318,219 316,867
Less allowance for depreciation 211,224 205,919
Property, plant and equipment - net 106,995 110,948
Intangibles and other assets 8,688 8,933
Deferred income taxes 18,490 18,524
Total assets $332,182 $348,110
Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings $ 10,295 $ 7,908
Current portion of long-term debt 4,979 4,979
Accounts payable and accrued
expenses 52,466 64,824
Taxes on income 7,753 7,167
Total current liabilities 75,493 84,878
Long-term debt, less current portion 17,679 17,717
Other liabilities 34,901 34,901
Commitments and contingencies - -
Shareholders' equity represented by:
Preferred stock - -
Common stock 106 106
Additional paid-in capital 13,297 13,283
Unearned ESOP compensation (12,176) (12,128)
Currency translation adjustment 7,599 9,391
Retained earnings 215,356 215,211
224,182 225,863
Less treasury stock, at cost 20,073 15,249
204,109 210,614
Total liabilities and shareholders'
equity $332,182 $348,110
See accompanying notes to consolidated financial statements.
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
for the six months ended March 31, 1998 and 1997
(in thousands of dollars)
(Unaudited)
1998 1997
Cash flows from operating activities:
Net earnings $ 7,873 $ 8,568
Adjustments to reconcile net earnings to
net cash provided (used) by operating
activities:
Depreciation and amortization 12,643 11,877
Equity in loss of unconsolidated affiliate 3,082 2,336
Changes in assets and liabilities:
Accounts receivable 9,417 3,658
Inventories (6,520) (4,071)
Current liabilities, other than
short-term borrowings and current
portion of long-term debt (12,760) (6,591)
Other, net (541) (513)
Total adjustments 5,321 6,696
Net cash provided by operating activities 13,194 15,264
Cash flows from investing activities:
Payments for purchase of property, plant
and equipment (9,077) (8,015)
Investment in unconsolidated affiliate (2,975) (3,500)
Other 269 (243)
Net cash used in investing activities (11,783) (11,758)
Cash flows from financing activities:
Cash dividends paid (5,289) (5,359)
Proceeds from sales of treasury stock 39 184
Purchases of treasury stock (4,866) (3,761)
Payments of long-term debt (38) (24)
Net proceeds from short-term borrowings 2,643 6,553
Tax benefit applicable to ESOP dividend 186 182
Net cash used in financing activities (7,325) (2,225)
Effect of exchange rate changes on cash (1,358) (346)
Net change in cash and cash equivalents (7,272) 935
Cash and cash equivalents, beginning of year 14,999 13,070
Cash and cash equivalents, end of period $7,727 $14,005
Supplemental cash flow information:
Interest expense paid $889 $1,262
Income taxes paid $4,383 $2,369
See accompanying notes to consolidated financial statements.
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: The consolidated balance sheet as of March 31, 1998, and the
statements of consolidated earnings and cash flows for the three
and six month periods ended March 31, 1998 and 1997, have been
prepared by the company without audit. The September 30, 1997
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,
1998, and the results of its operations for the three and six
month periods ended March 31, 1998 and 1997, 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
1997 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, 1998 are not necessarily indicative of
the results to be expected for other interim periods or for the
full year.
Note 2: The following is a reconciliation of the numerators and
denominators for the computation of basic and diluted earnings
per share:
Three Months Six Months
Ended Ended
March 31, March 31,
(in 000's except per share amounts) 1998 1997 1998 1997
Basic Earnings per Share:
Net earnings $ 5,415 $ 3,430 $ 7,873 $ 8,568
Shares
Weighted average common shares 11,315 11,485 11,381 11,516
Basic Earnings per Share $ 0.48 $ 0.30 $ 0.69 $ 0.74
Diluted Earnings per Share:
Net earnings $ 5,415 $ 3,430 $ 7,873 $ 8,568
Shares
Weighted average shares from above 11,315 11,485 11,381 11,516
Add: Additional dilutive effect
of outstanding stock options 41 50 46 38
Weighted average shares, as
adjusted for dilution 11,356 11,535 11,427 11,554
Diluted Earnings per Share $ 0.48 $ 0.30 $ 0.69 $ 0.74
The following options were not included in the computation of diluted
earnings per share as the options' exercise prices were greater than the
average market price of the common shares during the respective quarter
and year-to-date periods:
WEIGHTED
AVERAGE
EXERCISE
DATE OPTIONS PRICE
6/25/97 1,000 $33.75
10/1/97 20,000 34.88
11/17/97 138,340 32.25
1/14/98 55,701 32.00
PART I - ITEM 2
WOODWARD GOVERNOR COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Woodward's financial results for the second quarter of fiscal 1998 were
significantly stronger than the first-quarter performance, boosting
earnings for the first half of fiscal 1998 near the prior year level.
The results also provide encouragement that performance targets for the
full fiscal year are within reach.
Results of Operations
For the quarter ended March 31, 1998, net billings for products and
services were $113,160,000, up 6 percent from $106,546,000 a year ago.
Industrial Controls' shipments rose 7 percent to $64,046,000, benefiting
from strength in engineered systems, particularly in international
markets. In the Aircraft Controls group, growth in aftermarket business
contributed to a 6 percent shipment increase over the prior year quarter,
to $49,114,000.
Total costs and expenses for the quarter rose 3 percent over the same
quarter in fiscal 1997, significantly less than the 6% growth in net
billings. Improved profitability reflects the productivity gains as a
result of quality and efficiency initiatives implemented over the last
two years. In addition, margins were also enhanced by the relatively
higher proportion of aftermarket shipments, which are at more favorable
margins than shipments to original equipment manufacturers.
Overall, earnings before the effect of the GENXON(tm) Power Systems, LLC,
joint venture were $6,383,000, or $0.56 per share, up 52 percent from
$4,200,000, or $0.37 per share, a year ago. Net earnings advanced 58
percent to $5,415,000, or $0.48 per share, from $3,430,000, or $0.30 per
share a year earlier.
For the first half of fiscal 1998, net billings for products and
services increased 3 percent to $211,300,000 from $205,575,000 in the
same period last year. Aircraft Controls' shipments were up 5
percent for the six-month period, while net billings by the Industrial
Controls group rose 1 percent. Total costs and expenses grew at a
slightly faster rate than shipments, primarily due to increased sales,
service and administrative expenses. A portion of this increase
is attributable to intensified new business development efforts, as well
as start-up costs related to Aircraft Controls' new aftermarket support
facility in Prestwick, Scotland, which opened during the second
quarter. Earnings for the first half of the fiscal year, before
Woodward's share of GENXON's loss, were $9,722,000, or $0.85 per share,
slightly below last year's $9,993,000, or $0.87 per share. Including the
effect of GENXON, net earnings for the six months were $7,873,000, or
$0.69 per share, compared with $8,568,000, or $0.74 per share last year.
Although the principal markets are expected to remain highly
competitive, management is cautiously optimistic about the outlook for
the balance of fiscal 1998. While the company's Asian business has not
yet been significantly affected by the economic weakness in the Pacific
Rim region, it expects the impact may become more noticeable in the
second half of the fiscal year.
Financial Condition
Cash and cash equivalents decreased to $7,727,000 at March 31, 1998 from
$14,999,000 at September 30, 1997 due to additional inventory purchases and
payment of accounts payable and member benefits. Working capital totaled
$122,516,000 at March 31, 1998, a decline of $2,311,000 since September 30,
1997. The current ratio, however, increased to a strong 2.62 at March 31,
1998 compared to 2.47 as of the prior fiscal year-end. Accounts receivable
totaled $81,454,000 at March 31, 1998 compared to $91,806,000 at September
30, 1997. The higher level of receivables as of last fiscal year end was
caused by higher level of shipments in September. Inventories increased
from $83,249,000 at September 30, 1997 to $89,177,000 at March 31, 1998 due
partly to the additional inventory needed to meet anticipated product
demand over the next several months. Property, plant and equipment - net
decreased to $106,995,000 at March 31, 1998 from $110,948,000 at September
30, 1997, due to capital expenditures being less than depreciation.
Accounts payable and accrued expenses decreased to $52,466,000 at March 31,
1998 from $64,824,000 at September 30, 1997 due in part to reductions in
accounts payable and member benefit accruals.
On March 26, 1998, the Board of Directors declared a quarterly dividend
of twenty-three and one-quarter cents ($.2325) per share. The dividend
is payable on June 1, 1998 to shareholders of record at the close of
business on May 8, 1998.
Year 2000 Project
The Company has formed a Year 2000 Task Force with representatives from
each business unit and location. This task force is charged with the
responsibility of determining and coordinating the action necessary to
provide uninterrupted, normal operation of business-critical systems
before, during and after Year 2000. The Company is also encouraging
similar compliance from customers, suppliers and partners, as appropriate,
and will work with them to help achieve this goal. Currently, the Task
Force is in the latter parts of the Assessment/Discovery phase of the
project and will be moving into the Delivery/Execution phase, which is
currently scheduled to be completed well in advance of December 31, 1999.
Management believes that total costs associated with Year 2000 issues will
not have a material effect on the consolidated earnings of the Company.
New Accounting Pronouncements
On October 1, 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share". This new standard
simplifies the calculations of earnings per share and requires presentation
of both basic and diluted earnings per share on the Statements of
Consolidated Earnings. Diluted earnings per share reflects the impact of
outstanding stock options, if exercised. The Company's calculation of
diluted earnings per share did not differ from basic earnings per share in
each of the quarterly and year-to-date periods ended March 31, 1998 and
1997.
In June 1997, the Financial Accounting Standards Board ("FASB") issued 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.
In February 1998, FASB issued SFAS No. 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits." The Company does not expect
the adoption of this pronouncement to have a material effect on results of
operations or financial condition.
Forward-looking Statements
This quarterly report may contain forward-looking statements reflecting
management's current expectations concerning shipment levels, business
performance, joint venture outlook and growth prospects. These statements
involve risks and uncertainties including changes in product demand,
competition, effectiveness of process improvement programs, impact of
currency exchange rate changes, and other factors discussed in the
Company's 1997 Annual Report on Form 10-K filed with the Securities and
Exchange Commission. Actual future results and trends may differ
materially from these expectations.
PART II - OTHER INFORMATION
Item 6(b)
a) Exhibits
27. Financial data schedule
b) No form 8-K was filed for the quarter ended March 31, 1998.
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 13, 1998 /s/ John A. Halbrook
John A. Halbrook, President
and Chief Executive Officer
May 13, 1998 /s/ Stephen P. Carter
Stephen P. Carter, Vice President,
Chief Financial Officer and Treasurer