Woodward Governor Company (NASDAQ: WGOV) today reported financial
results for its first quarter of fiscal year 2010. (All per share
amounts are presented on a fully diluted basis.)
Quarterly Highlights
-- Net sales for the quarter were $339.3 million, down 2 percent from
$344.7 million in the first quarter of last year. Organic net sales(1) for
the fiscal 2010 first quarter were $281.1 million, down 18 percent from
$344.7 million in the first quarter of 2009.
-- Total operating earnings(2) for the quarter were $39.6 million
compared to $44.0 million in the first quarter of the prior year. Organic
operating earnings(1) in the first quarter of 2010 were $33.5 million, down
24 percent from $44.0 million in the same quarter of 2009.
-- Earnings per share were $0.32 for the quarter as compared with $0.39
for the same quarter last year.
-- Free cash flow (defined as cash provided by operating activities less
capital expenditures) for the quarter was $52.3 million and debt reduction
totaled $47.6 million for the quarter.
Net sales for the 2010 first quarter were $339.3 million, down 2
percent from $344.7 million for the 2009 first quarter. Net
earnings for the 2010 first quarter were $22.4 million, or $0.32
per share, compared with $27.1 million, or $0.39 per share, in the
2009 first quarter. Foreign currency exchange rates had a favorable
impact on net sales of approximately $9 million for the 2010 first
quarter.
Operating earnings were $39.6 million for the first quarter of
2010 compared to $44.0 million for the first quarter of 2009.
Operating earnings were significantly impacted by organic sales
volume declines, partially offset by $16.5 million of savings
resulting from cost reduction actions taken in the prior year and
the impact of the acquisition of HRT. Currency exchange rates also
had a favorable impact on operating earnings of approximately $2
million for the 2010 first quarter.
Organic net sales (which excludes $58.2 million of Airframe
Systems' segment external sales attributable to the HRT
acquisition) for the 2010 first quarter were $281.1 million, down
18 percent from $344.7 million in the 2009 first quarter. Organic
operating earnings were $33.5 million, down 24 percent from $44.0
million in the same quarter of 2009.
"We remain focused on efforts to improve profitability and cash
flow during this cycle," said Chairman and Chief Executive Officer
Thomas A. Gendron. "At the same time, we are capitalizing on
opportunities in our carefully selected niche markets by remaining
focused on our customers' needs and developing next-generation
products that are designed to deliver energy-efficient,
low-emission control solutions."
Quarterly Segment Results
Turbine Systems
Turbine Systems' segment net sales for the first quarter of
2010, which includes intersegment sales, were $142.4 million, a
decrease of 9 percent from $156.8 million for the first quarter a
year ago. Segment earnings for the first quarter of 2010 declined
to $32.1 million from $33.2 million for the same quarter a year
ago. Segment earnings as a percent of segment net sales improved to
22.5 percent this quarter compared to 21.2 percent in the same
quarter of the prior year.
The sales decline occurred primarily in our industrial turbine
and business jet markets. Segment earnings reflected the impact of
the sales decline, largely offset by the effects of savings from
cost reduction actions and a more favorable sales mix, resulting in
improved segment earnings as a percent of sales this quarter
compared to the prior year quarter.
Airframe Systems
Airframe Systems' segment net sales for the first quarter, which
includes intersegment sales, were $91.7 million, an increase of
$39.4 million from $52.3 million in the first quarter a year ago.
Segment earnings for this quarter were $2.4 million compared to
$1.8 million in the first quarter of 2009. Segment earnings as a
percent of segment net sales were 2.6 percent this quarter compared
to 3.4 percent in the same quarter for the prior year.
Net sales results reflected an increase of $58.2 million related
to the acquisition of HRT at the beginning of the third quarter of
2009, partially offset by declines resulting from the challenging
business and regional jet markets. The modest operating earnings
increase reflected the HRT acquisition and $7 million in savings
from cost reduction actions taken, largely offset by the
significant impact of the organic sales volume decline.
Electrical Power Systems
Electrical Power Systems' segment net sales for the first
quarter, which includes intersegment sales, were $56.8 million, a
decrease of 8 percent from $61.8 million for the first quarter a
year ago. Segment earnings for this quarter were $7.3 million
compared to $9.2 million for the same quarter last year. Segment
earnings as a percent of segment net sales were 12.9 percent this
quarter compared to 14.8 percent in the same quarter for the prior
year.
Net sales results reflect decreased volumes across most product
lines, partially offset by favorable currency translation impacts
of approximately $6 million. Segment earnings reflected the
decreased volumes, partially offset by favorable currency
translation effects.
Engine Systems
Engine Systems' segment net sales for the first quarter, which
includes intersegment sales, were $67.9 million compared to $105.3
million for last year's first quarter, a decrease of 36 percent.
Segment earnings for this quarter decreased to $3.2 million from
$7.6 million for the same period a year ago. Segment earnings as a
percent of segment net sales were 4.8 percent this quarter compared
to 7.2 percent in the same quarter last year.
The lower sales level was attributable to declines across all of
our served markets. Segment earnings were lower primarily due to
the decline in sales volume, although the impact was significantly
reduced by savings from cost reduction actions taken. Additionally,
favorable sales mix and currency translation effects positively
impacted earnings compared to the prior year quarter.
Nonsegment
Nonsegment expenses totaled $5.4 million for the first quarter
of 2010, compared to $7.8 million for the same quarter last year.
This decline resulted predominantly from reductions in variable
compensation as well as cost reduction efforts.
Cash Flow and Financial Position
Net cash generated from operating activities improved to $61.3
million for the first quarter of 2010 compared with $5.5 million
for the first quarter of 2009. Free cash flow was $52.3 million for
the first quarter of 2010 compared to an outflow of $3.0 million
for the first quarter of 2009. Capital expenditures for the first
quarter of 2010 were $9.0 million compared with $8.5 million for
the same period last year. During the quarter we also paid $25
million under the terms of the previously announced settlement
between MPC Products Corporation and the U.S. Department of
Justice.
During the quarter, we reduced total debt by approximately $48
million. As a result, our ratio of debt-to-debt-plus-equity was
41.8 percent at December 31, 2009 compared to 44.6 percent at
September 30, 2009.
Outlook
Our overall outlook for the balance of the year remains
consistent with our original guidance, and we continue to expect
net sales to be between $1.4 billion and $1.5 billion and diluted
earnings per share to be between $1.40 and $1.60.
**********
Non-US GAAP Measures: Segment earnings, operating earnings,
Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA) and free cash flow are non-US GAAP financial measures. The
use of these measures 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 segment earnings, operating
earnings, EBITDA and free cash flow in their evaluation of
companies, particularly those with significant property, plant, and
equipment, and intangible assets that are subject to amortization.
Management uses operating earnings to evaluate its performance
without financing and tax related considerations, as these elements
may not fluctuate with operating results. EBITDA is used in
reviewing compliance with our debt covenants and in evaluating
capital structure impacts of various strategic scenarios. Free cash
flow is a non-US GAAP financial measure which Woodward and others
define as cash provided by operating activities less capital
expenditures.
Conference Call
Woodward will hold an investor conference call at 5:00 p.m. EST
on Wednesday, January 20, 2010 to provide an overview of the
financial performance for the first quarter, business highlights,
and outlook for the remainder of fiscal 2010. 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 1-866-793-1299
(domestic) or 1-703-639-1306 (international). Participants should
call prior to the start time to allow for registration; the
Conference ID is 1416455. An audio replay will be available by
telephone from 8:00 p.m. EST on January 20, 2010 until 11:59 p.m.
EST on January 22, 2010. The telephone number to access the replay
is 1-888-266-2081 (domestic) or 1-703-925-2533 (international),
reference access code 1416455.
(1) "Organic" net sales, net earnings or operating earnings
refer to financial information of Woodward businesses excluding
business acquired in the April 3, 2009 acquisition of HR Textron
("HRT"). HRT is being integrated into the Airframe Systems business
segment.
(2) Operating earnings is defined as net earnings before
interest and taxes.
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 and
defense, power generation and distribution, and transportation
markets. Our systems and components optimize the performance of
commercial aircraft; military aircraft, ground vehicles and other
equipment; gas and steam turbines; wind turbines; reciprocating
engines; and electrical power systems. The company's innovative
fluid and electrical energy and combustion 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. 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; any failure to fully comply, to the US Government's
satisfaction, with any of the terms of the civil and criminal
settlements related to the U.S. Department of Justice investigation
of the pre-June 2005 government contract pricing practices of MPC
Products Corporation and the related administrative agreement with
the U.S. Department of Defense; 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
manage the costs related thereto; Woodward's substantial debt
obligations, debt service requirements, and any limitations
regarding its ability to operate its business and pursue business
strategies and incur additional debt in 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, 2009 and any subsequently
filed Quarterly Report Form 10-Q.
Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended
December 31,
--------------------
(Unaudited - in thousands except per share amounts) 2009 2008
--------- ---------
Net sales $ 339,308 $ 344,744
--------- ---------
Costs and expenses:
Cost of goods sold 239,552 244,286
Selling, general, and administrative expenses 32,835 32,460
Research and development costs 18,314 19,084
Amortization of intangible assets 9,181 4,828
Interest expense 8,251 6,537
Interest income (110) (662)
Other, net (205) 53
--------- ---------
Total costs and expenses 307,818 306,586
--------- ---------
Earnings before income taxes 31,490 38,158
Income taxes (9,044) (11,055)
--------- ---------
Net earnings 22,446 27,103
Net earnings attributable to noncontrolling interests (90) (39)
--------- ---------
Net earnings attributable to Woodward $ 22,356 $ 27,064
========= =========
Earnings per share amounts:
Basic earnings per share attributable to Woodward $ 0.33 $ 0.40
Diluted earnings per share attributable to Woodward $ 0.32 $ 0.39
========= =========
Weighted average number of shares outstanding:
Basic 68,361 67,796
Diluted 69,710 69,236
========= =========
Cash dividends per share $ 0.060 $ 0.060
--------- ---------
Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
(Unaudited - in thousands) 2009 2009
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 76,620 $ 100,863
Accounts receivable 178,382 209,626
Inventories 295,179 302,339
Income taxes receivable 17,024 16,302
Deferred income tax assets 34,717 45,413
Other current assets 24,284 21,701
------------ ------------
Total current assets 626,206 696,244
Property, plant, and equipment-net 204,889 208,885
Goodwill 442,973 442,802
Other intangibles - net 318,498 327,773
Deferred income tax assets 9,983 8,200
Other assets 14,204 12,518
------------ ------------
Total assets $ 1,616,753 $ 1,696,422
============ ============
Liabilities and stockholders' equity
Current liabilities:
Short-term borrowings $ - $ -
Current portion of long-term debt 28,549 45,569
Accounts payable 75,354 81,108
Income taxes payable 7,400 8,084
Accrued liabilities 86,996 127,317
------------ ------------
Total current liabilities 198,299 262,078
Long-term debt, less current portion 496,155 526,771
Deferred income tax liabilities 85,684 86,048
Other liabilities 105,649 110,010
------------ ------------
Total liabilities 885,787 984,907
Stockholders' equity 730,966 711,515
------------ ------------
Total liabilities and stockholders' equity $ 1,616,753 $ 1,696,422
------------ ------------
Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
December 31,
------------------
(Unaudited - in thousands) 2009 2008
-------- --------
Net cash provided by operating activities $ 61,269 $ 5,470
-------- --------
Cash flows from investing activities:
Business acquisitions (25,000) (369,043)
Payments for purchase of property, plant, and equipment (8,980) (8,505)
Proceeds from sale of assets 66 184
-------- --------
Net cash used in investing activities (33,914) (377,364)
-------- --------
Cash flows from financing activities:
Cash dividends paid (4,102) (4,068)
Proceeds from sales of treasury stock as a result of
exercises of stock options 809 760
Excess tax benefits from stock compensation 288 207
Proceeds from issuance of long-term debt - 400,000
Payments of long-term debt (47,589) (10,714)
Borrowings on revolving lines of credit and short-term
borrowings 30,610 31,853
Payments on revolving lines of credit and short-term
borrowings (30,610) (35,884)
Payment of long-term debt assumed in MPC acquisition - (18,494)
Debt issuance costs - (3,063)
-------- --------
Net cash provided by (used in) financing activities (50,594) 360,597
-------- --------
Effect of exchange rate changes on cash and cash
equivalents (1,004) (1,016)
-------- --------
Net change in cash and cash equivalents (24,243) (12,313)
Cash and cash equivalents, beginning of period 100,863 109,833
-------- --------
Cash and cash equivalents, end of period $ 76,620 $ 97,520
-------- --------
Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended
December 31,
--------------------
(Unaudited - in thousands except per share amounts) 2009 2008
--------- ---------
Segment net sales *:
Turbine Systems $ 142,416 $ 156,819
Airframe Systems 91,727 52,318
Electrical Power Systems 56,803 61,842
Engine Systems 67,879 105,294
--------- ---------
Total segment net sales $ 358,825 $ 376,273
========= =========
Intersegment net sales:
Turbine Systems $ (2,330) $ (4,537)
Airframe Systems (678) (658)
Electrical Power Systems (7,922) (13,925)
Engine Systems (8,587) (12,409)
--------- ---------
Total consolidated net sales $ 339,308 $ 344,744
========= =========
Segment earnings**:
Turbine Systems $ 32,074 $ 33,244
As a percent of segment sales 22.5% 21.2%
Airframe Systems 2,409 1,801
As a percent of segment sales 2.6% 3.4%
Electrical Power Systems 7,323 9,166
As a percent of segment sales 12.9% 14.8%
Engine Systems 3,235 7,586
As a percent of segment sales 4.8% 7.2%
--------- ---------
Total segment earnings 45,041 51,797
Nonsegment expenses (5,410) (7,764)
--------- ---------
Operating earnings 39,631 44,033
Interest expense and income, net (8,141) (5,875)
--------- ---------
Consolidated earnings before income taxes $ 31,490 $ 38,158
========= =========
Capital expenditures $ 8,980 $ 8,505
Depreciation expense 9,755 9,177
========= =========
*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 and Subsidiaries
RECONCILIATION OF NET EARNINGS TO OPERATING EARNINGS AND EBITDA
Three Months Ended
December 31,
------------------
(Unaudited - in thousands) 2009 2008
-------- --------
Net earnings $ 22,446 $ 27,103
Income taxes 9,044 11,055
Interest expense 8,251 6,537
Interest income (110) (662)
-------- --------
OPERATING EARNINGS 39,631 44,033
Amortization of intangible assets 9,181 4,828
Depreciation expense 9,755 9,177
-------- --------
EBITDA $ 58,567 $ 58,038
======== ========
OPERATING EARNINGS $ 39,631 $ 44,033
Less: HRT operating income (6,100) -
-------- --------
ORGANIC OPERATING EARNINGS $ 33,531 $ 44,033
-------- --------
Operating earnings (earnings before interest and taxes) and
EBITDA (earnings before interest, taxes, depreciation, and
amortization) are non-GAAP financial measures. The use of these
measures 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 both Operating Earnings and EBITDA in their
evaluation of companies, particularly those with significant
property, plant, and equipment, and intangible assets that are
subject to amortization.
Management uses Operating Earnings to evaluate its performance
without financing and tax related considerations as these elements
may not fluctuate with operating results. EBITDA is used in
reviewing compliance with its debt covenants and in evaluating
capital structure impacts of various strategic scenarios.
Woodward Governor Company and Subsidiaries
RECONCILIATION OF CASH FLOW FROM OPERATIONS TO FREE CASH FLOW
Three Months Ended
December 31,
------------------
(Unaudited - in thousands) 2009 2008
-------- --------
Net cash provided by operating activities $ 61,269 $ 5,470
Capital expenditures (8,980) (8,505)
-------- --------
Free cash flow $ 52,289 $ (3,035)
-------- --------
Free cash flow 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 free cash flow in their evaluation of
companies, particularly those with significant property, plant, and
equipment, and intangible assets that are subject to
amortization.
Management uses free cash flow in reviewing the financial
performance of its various business segments.
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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