Woodward Governor Company (NASDAQ: WGOV) today reported financial
results for its second quarter of fiscal year 2009. (All per share
amounts are presented on a fully diluted basis.)
Quarterly Highlights
-- Total sales for the quarter of $334.7 million, up 9 percent from the
second quarter of last year. Operating earnings were $31.3 million for the
quarter. Excluding pre-tax special charges of $16.6 million as shown below,
operating earnings were up 8 percent from $44.2 million for the same
quarter last year.
-- Reported earnings per share were $0.27 for the quarter. Excluding
after-tax special charges of $0.16 per share, earnings per share were
consistent with last year's earnings per share of $0.43 for the same
quarter last year.
-- Total organic sales were down 8 percent, 4 percent without foreign
exchange impacts. Organic operating earnings, excluding special charges,
were in line with the same quarter last year.
Year-to-Date Highlights
-- Cash generated from operations during the first six months of fiscal
2009 was $51.8 million, up from $29.2 million generated in the first six
months of last year.
-- Total sales for the six-month period of $679.4 million, up 18 percent
over the same period last year. Operating earnings for the six months of
$75.3 million. Excluding pre-tax special charges of $16.6 million,
operating earnings were up 11 percent from $83.1 million for the same
period last year.
-- Year-to-date earnings per share for the six-month period were $0.66,
or $0.82 excluding special charges of $0.16 per share, compared to $0.79
per share for the same period last year.
-- Total organic sales were in line with the same period last year.
Organic operating earnings, excluding the $16.6 million of special charges,
increased 5 percent to $86.9 million from $83.1 million.
Net sales for the quarter were $334.7 million, up 9 percent from
$305.8 million for the same quarter of last year. Net earnings for
the quarter were $18.5 million, or $0.27 per share, compared with
$29.7 million, or $0.43 per share, in last year's second quarter.
Net earnings for the current quarter included special charges of
$0.16 per share as shown below. These charges are included in our
nonsegment results. Sales growth would have been approximately 14
percent compared to last year's second quarter without the negative
impact of exchange rates. Foreign exchange did not have a
significant impact on net earnings. Earnings benefitted from cost
control actions, offset by the effects of the decline in sales
volumes.
Special Charges Summary
Workforce management $ 14,254
Vacated facility impairment 905
--------
Restructuring and special charges 15,159
Inventory write-downs 1,255
Other charges 191
--------
Total special charges (pre-tax) $ 16,605
========
After-tax earnings per share impact $ 0.16
========
Inventory write-downs relate specifically to order cancellations and are
included in cost of goods sold. All of the items shown above relate to
actions taken as a direct result of the current economic downturn.
Net sales for the six-month period were $679.4 million, up 18
percent from $577.8 million for the six-month period last year. Net
earnings for the six-month period were $45.5 million, or $0.66 per
share, compared with $55.0 million, or $0.79 per share, in last
year's six-month period. Net earnings for the current quarter
included special charges of $0.16 per share, as detailed above.
Exchange rates had a negative impact of approximately 3 percent on
net sales and approximately $0.04 per share on net earnings for the
first six months of fiscal 2009.
"Sales this quarter were consistent with our expectations during
this stage of a challenging business cycle, and our results reflect
timely actions to control costs and improve cash flows. We have
taken significant steps to size our businesses for this environment
to meet our profitability and cash flow objectives while continuing
to pursue selected long-term organic growth opportunities. Further,
our Airframe Systems integration and profit improvement initiatives
are also proceeding consistent with our expectations," said
Chairman and Chief Executive Officer Thomas A. Gendron.
Quarterly Segment Results
Turbine Systems
Turbine Systems' segment net sales for the second quarter were
$157.8 million, an increase of 7 percent from $147.5 million for
the second quarter a year ago. Segment earnings for the second
quarter increased 12 percent to $34.8 million from $31.0 million
for the same quarter a year ago. Segment earnings as a percent of
sales were 22.0 percent this quarter compared to 21.0 percent in
the same quarter for the prior year. Our sales performance
reflected strong demand for our industrial offerings, partially
offset by a decline in demand in the business jet segment of the
market. Commercial and military aerospace sales, excluding the
business jet segment, were generally consistent with the prior
year.
Engine Systems
Engine Systems' segment net sales for the second quarter were
$92.5 million compared to $125.8 million for last year's second
quarter, a decrease of 27 percent. Segment earnings for the quarter
decreased 41 percent to $7.7 million from $13.0 million for the
same period a year ago. Segment earnings as a percent of sales were
8.3 percent this quarter compared to 10.3 percent in the same
quarter last year. The sales decline was experienced broadly across
the power generation and transportation markets. Exchange rates
negatively affected net sales by approximately $4 million but the
impact on segment earnings was not significant when compared to the
prior year. While profitability was affected by the significant
decline in volumes, our cost reduction actions substantially
limited the decline in earnings.
Electrical Power Systems
Electrical Power Systems' segment net sales for the second
quarter were $58.5 million, a decrease of 10 percent from $64.9
million for the second quarter a year ago. Without the negative
effects of exchange rates, sales were flat compared to the second
quarter a year ago. Segment earnings for the quarter were $9.1
million compared to $9.5 million for the same quarter a year ago.
Segment earnings as a percent of sales increased to 15.6 percent
this quarter compared to 14.7 percent for the same quarter last
year. Significant growth in wind inverter sales was offset by
declines in sales of products related to power generation and
distribution produced by the segment. Earnings were negatively
affected by approximately $1 million of exchange rate impact
partially offset by cost control actions.
Airframe Systems
During the first quarter Woodward acquired MPC, which formed our
Airframe Systems segment. Segment net sales for the second quarter
were $51.6 million and segment earnings were $3.2 million, or 6.3
percent of sales. Airframe's military business experienced moderate
growth in this quarter compared to the same quarter last year while
commercial sales were relatively stable. Segment earnings reflect
$3.4 million of intangible amortization, a non-cash charge, related
to the MPC acquisition. Airframe began to realize anticipated cost
savings in the second quarter, and further cost savings and
synergies are expected in coming quarters. Additionally,
restructuring actions at Airframe Systems totaling $10 million were
accrued in the initial consolidation of MPC, of which approximately
$7 million will be paid by the end of the third quarter of
2009.
Nonsegment
Nonsegment expenses of $23.6 million for the quarter include the
impact of previously discussed special charges of $16.6 million.
Nonsegment expenses for this quarter without these charges were
$7.0 million or 2.1 percent of net external sales, down from $9.3
million or 3.0 percent of net external sales for the same quarter
last year.
Woodward's effective tax rate this quarter was lower than normal
as a result of the resolution of a prior year tax matter and the
reinstatement of the U.S. research credit.
"We are extremely pleased that we are realizing our long-term
strategy of targeted expansion in the dynamic aerospace market with
the acquisitions of MPC and HRT. Together with our existing
technology, this combination provides a solid base in the airframe
segment of this market," continued Mr. Gendron. "We are confident
these actions will deliver significant shareholder value as we go
forward."
Year-to-Date Segment Results
Turbine Systems
Turbine Systems' segment net sales for the six-month period were
$302.5 million, an increase of 9 percent from $278.2 million for
the same period a year ago. Segment earnings for the six-month
period increased 10 percent to $63.9 million from $58.2 million for
the same period a year ago. Segment earnings as a percent of sales
were 21.1 percent for the first six months of fiscal 2009 compared
to 20.9 percent in the same period for the prior year.
Engine Systems
Engine Systems' segment net sales for the first six months of
fiscal 2009 were $206.7 million compared to $239.9 million for the
same period last year, a decrease of 14 percent. Segment earnings
for the six-month period decreased 23 percent to $19.4 million from
$25.1 million for the same period a year ago. Segment earnings as a
percent of sales were 9.4 percent this six-month period compared to
10.5 percent in the same period last year.
Electrical Power Systems
Electrical Power Systems' segment net sales for the six-month
period were $120.4 million, a decrease of 2 percent from $122.4
million for the same period a year ago. Segment earnings for the
six-month period increased 9 percent to $18.3 million from $16.7
million for the same period a year ago. Segment earnings as a
percent of sales increased to 15.2 percent during the six-month
period compared to 13.7 percent for the same period last year.
Airframe Systems
Segment net sales for the six-month period were $103.9 million
and segment earnings for the six-month period were $5.0 million, or
4.8 percent of sales. Segment earnings reflect $6.6 million of
intangible amortization, a non-cash charge, related to the MPC
acquisition.
Nonsegment
Nonsegment expenses for the six-month period were $31.4 million,
compared to $16.9 million for the same period last year. Excluding
special charges, nonsegment expenses would have been $14.8 million
or 2.2 percent of net external sales for the six-month period,
compared to 2.9 percent of net external sales for the same period
in the prior year.
Cash Flow and Financial Position
Net cash generated from operating activities improved to $51.8
million for the six-month period compared with $29.2 million for
the first six months of fiscal year 2008. Capital expenditures for
the six-month period were $12.7 million compared with $16.5 million
in the first six months of last year. Cash on hand was $126.9
million at March 31, 2009 up from $97.5 million at December 31,
2008 and $109.8 million at September 30, 2008.
Our ratio of debt to debt-plus-equity was 39.8 percent at March
31, 2009 compared to 40.1 percent at the end of the prior
quarter.
Subsequent Events
As previously announced, on April 3, 2009, Woodward completed
the acquisition of HR Textron from Textron Inc. and finalized
financing arrangements related to the acquisition. Woodward expects
the acquisition of HRT to be approximately neutral to earnings per
share in the current fiscal year.
HRT engineers and manufactures controls and actuation equipment
for aircraft and defense applications.
Outlook
In February, Woodward updated its earnings guidance to reflect
the acceleration of the downturn in our served markets and
announced our intentions to properly size the business. This
quarter's operating results are consistent with those expectations
and plans.
Reflecting the acquisition of HRT, Woodward expects our 2009
fiscal year sales to be in a range of $1.4 to $1.5 billion. Based
upon our year-to-date results and outlook for the second half of
2009, earnings per share in fiscal 2009 are now expected to be in a
range of $1.29 to $1.49, which includes the effects of the $0.16
per share of previously discussed special charges or $1.45 to $1.65
excluding the special charges. This assumes a neutral earnings
impact of the HRT acquisition.
Conference Call
Woodward will hold an investor conference call at 6:00 p.m. EDT
on Wednesday, April 22, 2009 to provide an overview of the
financial performance for the second quarter of fiscal 2009,
business highlights, and outlook for the remainder of the year. You
are invited to listen to the live webcast of our conference call,
or a recording, and view or download accompanying presentation
slides at our website, www.woodward.com.
You may also listen to the call by dialing 1-866-837-9786
(domestic) or 1-703-639-1423 (international). Participants should
call prior to the start time to allow for registration; the
Conference ID is 1351597. An audio replay will be available by
telephone from 10:00 p.m. EDT April 22, 2009 until 11:59 p.m. EDT
on April 25, 2009. The telephone number to access the replay is
1-888-266-2081 (domestic) or 1-703-925-2533 (international);
reference access code 1351597.
About Woodward
Woodward is an independent designer, manufacturer, and service
provider of energy control and optimization solutions used in
global infrastructure equipment. We serve the aerospace, power
generation and distribution, and transportation markets. Our
systems and components optimize the performance of commercial
aircraft; military aircraft and other equipment; industrial gas,
wind and steam turbines; reciprocating engines; and electrical
power systems. The company's innovative fluid energy, combustion
control, electrical energy, and motion control systems help
customers offer cleaner, more reliable, and more cost-effective
equipment. Our customers include leading original equipment
manufacturers and end users of their products. Woodward is
headquartered in Fort Collins, Colo., USA. You may wish to visit
our website at www.woodward.com.
Information in this press release contains forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995 that involve risks and uncertainties, including,
but not limited to, statements regarding future sales, earnings,
liquidity, relative profitability and the impact of economic
conditions and downturns on Woodward. Readers are cautioned that
these forward-looking statements are only predictions and are
subject to risks, uncertainties, and assumptions that are difficult
to predict. Factors that could cause actual results and the timing
of certain events to differ materially from the forward-looking
statements include, but are not limited to, the recent instability
of the credit markets and other adverse economic and industry
conditions; the outcome of the investigation by the U.S. Department
of Justice regarding certain pricing practices of MPC Products
Corporation prior to 2006; Woodward's ability to implement and
realize the intended effects of its restructuring efforts;
Woodward's ability to reduce its expenses in proportion to any
sales shortfalls; the ability of Woodward's suppliers to meet their
obligations; Woodward's ability to integrate acquisitions and costs
related thereto; Woodward's ability to minimize excess inventory as
a result of cancelled orders; Woodward's substantial debt and debt
service requirements and its ability to operate its business and
pursue business strategies in the light of certain restrictive
covenants in its outstanding debt documents; unforeseen events that
significantly reduce commercial airline travel; risks from
operating internationally, including the impact on reported
earnings from fluctuations in foreign currency exchange rates, and
other risk factors described in Woodward's Annual Report on Form
10-K for the year ended September 30, 2008, and Quarterly Report on
Form 10-Q for the quarters ended December 31, 2008 and March 31,
2009, to be filed shortly.
Woodward Governor Company
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Three Months Ended Six Months Ended
March 31, March 31,
-------------------- --------------------
(Unaudited - in thousands
except per share amounts) 2009 2008 2009 2008
--------- --------- --------- ---------
Net sales $ 334,661 $ 305,753 $ 679,405 $ 577,816
--------- --------- --------- ---------
Costs and expenses:
Cost of goods sold 235,539 210,377 479,825 401,207
Selling, general, and
administrative expenses 29,093 31,667 61,553 57,647
Research and development
costs 18,796 18,781 37,880 34,407
Amortization of intangible
assets 5,055 1,710 9,883 3,605
Restructuring and special
charges 15,159 -- 15,159 --
Interest expense 6,707 986 13,244 1,942
Interest income (221) (420) (883) (1,000)
Other, net (274) (996) (182) (2,128)
--------- --------- --------- ---------
Total costs and expenses 309,854 262,105 616,479 495,680
--------- --------- --------- ---------
Earnings before income taxes 24,807 43,648 62,926 82,136
Income taxes (6,333) (13,934) (17,388) (27,097)
--------- --------- --------- ---------
Net earnings $ 18,474 $ 29,714 $ 45,538 $ 55,039
========= ========= ========= =========
Earnings per share amounts:
Basic $ 0.27 $ 0.44 $ 0.67 $ 0.81
Diluted $ 0.27 $ 0.43 $ 0.66 $ 0.79
========= ========= ========= =========
Weighted-average number of
shares outstanding:
Basic 67,754 67,603 67,740 67,762
Diluted 68,762 69,473 68,997 69,776
========= ========= ========= =========
Cash dividends per share $ 0.060 $ 0.060 $ 0.120 $ 0.115
========= ========= ========= =========
Woodward Governor Company
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, September 30,
------------- -------------
(Unaudited - in thousands) 2009 2008
------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 126,873 $ 109,833
Accounts receivable 204,774 178,128
Inventories 290,625 208,317
Deferred income tax assets 44,736 25,128
Other current assets 21,315 16,649
------------- -------------
Total current assets 688,323 538,055
Property, plant, and equipment-net 180,611 168,651
Goodwill 325,424 139,577
Other intangibles-net 227,682 66,106
Deferred income tax assets 4,289 6,208
Other assets 13,378 8,420
------------- -------------
Total assets $ 1,439,707 $ 927,017
============= =============
Liabilities and stockholders' equity
Current liabilities:
Short-term borrowings $ -- $ 4,031
Current portion of long-term debt 18,909 11,560
Accounts payable 71,724 65,427
Income taxes payable 5,735 2,235
Accrued liabilities 115,949 85,591
------------- -------------
Total current liabilities 212,317 168,844
Long-term debt, less current portion 412,950 33,337
Deferred income tax liabilities 93,921 27,513
Other liabilities 67,097 67,695
------------- -------------
Total liabilities 786,285 297,389
Stockholders' equity 653,422 629,628
------------- -------------
Total liabilities and stockholders' equity $ 1,439,707 $ 927,017
============= =============
Woodward Governor Company
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Six Months Ended
March 31,
--------------------
(Unaudited - in thousands) 2009 2008
--------- ---------
Net cash provided by operating activities $ 51,826 $ 29,191
--------- ---------
Cash flows from investing activities:
Business acquisitions (369,065) --
Payments for purchase of property, plant, and
equipment (15,354) (15,937)
Proceeds from disposal of assets 188 134
--------- ---------
Net cash used in investing activities (384,231) (15,803)
--------- ---------
Cash flows from financing activities:
Cash dividends paid (8,136) (7,793)
Proceeds from sales of treasury stock as a result of
exercises of stock options 888 5,859
Purchases of treasury stock -- (38,701)
Excess tax benefits from stock compensation 211 6,958
Proceeds from issuance of long-term debt 400,000 --
Net borrowings (payments) on revolving lines of
credit and short-term borrowings (4,031) 20,175
Payments of long-term debt (12,850) (13,432)
Payment of long-term debt assumed in MPC acquisition (18,610) --
Net payments for cash flow hedges (1,308) --
Debt issuance costs (3,081) --
--------- ---------
Net cash provided by (used in) financing activities 353,083 (26,934)
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents (3,638) 2,153
--------- ---------
Net change in cash and cash equivalents 17,040 (11,393)
Cash and cash equivalents, beginning of period 109,833 71,635
--------- ---------
Cash and cash equivalents, end of period $ 126,873 $ 60,242
========= =========
Woodward Governor Company
SELECTED FINANCIAL INFORMATION
Three Months Ended Six Months Ended
March 31, March 31,
-------------------- --------------------
(Unaudited - in thousands) 2009 2008 2009 2008
--------- --------- --------- ---------
Segment net sales *:
Turbine Systems $ 157,837 $ 147,454 $ 302,547 $ 278,247
Engine Systems 92,476 125,828 206,699 239,862
Electrical Power Systems 58,521 64,891 120,363 122,365
Airframe Systems 51,610 -- 103,928 --
Less intersegment sales (25,783) (32,420) (54,132) (62,658)
--------- --------- --------- ---------
Total external sales $ 334,661 $ 305,753 $ 679,405 $ 577,816
========= ========= ========= =========
Segment earnings**:
Turbine Systems $ 34,799 $ 30,951 $ 63,934 $ 58,179
As a percent of segment sales 22.0 21.0 21.1 20.9
Engine Systems 7,718 13,005 19,413 25,066
As a percent of segment sales 8.3 10.3 9.4 10.5
Electrical Power Systems 9,137 9,546 18,303 16,740
As a percent of segment sales 15.6 14.7 15.2 13.7
Airframe Systems 3,233 -- 5,034 --
As a percent of segment sales 6.3 n/a 4.8 n/a
--------- --------- --------- ---------
Total segment earnings 54,887 53,502 106,684 99,985
Nonsegment expenses (23,594) (9,288) (31,397) (16,907)
--------- --------- --------- ---------
Operating earnings 31,293 44,214 75,287 83,078
Interest expense and income,
net (6,486) (566) (12,361) (942)
--------- --------- --------- ---------
Consolidated earnings before
income taxes $ 24,807 $ 43,648 $ 62,926 $ 82,136
========= ========= ========= =========
Capital expenditures $ 3,894 $ 9,926 $ 12,670 $ 16,498
Depreciation expense 9,298 7,294 18,475 14,696
========= ========= ========= =========
*This schedule reconciles segment sales, which include intersegment sales,
with consolidated external sales.
**This schedule reconciles segment earnings, which excludes certain costs,
to consolidated earnings before taxes.
Woodward Governor Company
RECONCILIATION OF NET EARNINGS TO OPERATING EARNINGS AND EBITDA
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
(Unaudited - in thousands) 2009 2008 2009 2008
-------- -------- -------- --------
Net earnings $ 18,474 $ 29,714 $ 45,538 $ 55,039
Income taxes 6,333 13,934 17,388 27,097
Interest expense 6,707 986 13,244 1,942
Interest income (221) (420) (883) (1,000)
-------- -------- -------- --------
OPERATING EARNINGS 31,293 44,214 75,287 83,078
Amortization of intangible assets 5,055 1,710 9,883 3,605
Depreciation expense 9,298 7,294 18,475 14,696
-------- -------- -------- --------
EBITDA $ 45,646 $ 53,218 $103,645 $101,379
======== ======== ======== ========
EBITDA (earnings before interest, taxes, depreciation, and amortization)
is a non-GAAP financial measure. The use of this measure is not intended
to be considered in isolation of or as a substitute for the financial
information prepared and presented in accordance with accounting
principles generally accepted in the United States of America. Securities
analysts, investors, and others frequently use EBITDA in their evaluation
of companies, particularly those with significant property, plant, and
equipment, and intangible assets that are subject to amortization.
Management uses EBITDA in reviewing compliance with its debt covenants and
in evaluating capital structure impacts of various strategic scenarios.
CONTACT: Robert F. Weber, Jr. Chief Financial Officer and
Treasurer 970-498-3112 Woodward Governor Company 1000 East Drake
Road Fort Collins, Colorado 80525, USA Tel: 970-482-5811 Fax:
970-498-3058
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