UNITED STATES SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended March 31, 2004 | ||
| or | ||
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to | ||
Commission file number 0-8408
Woodward Governor Company
| Delaware | 36-1984010 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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5001 North Second Street, Rockford, Illinois (Address of principal executive offices) |
61125-7001 (Zip Code) |
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(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 þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o
As of April 23, 2004, 11,298,576 shares of common stock with a par value of $.00875 cents per share were outstanding.
TABLE OF CONTENTS
1
PART I — FINANCIAL INFORMATION
| Item 1. | Financial Statements |
Statements of Consolidated Earnings
| Woodward Governor Company and Subsidiaries |
| Three Months Ended | ||||||||||
| March 31, | ||||||||||
| 2004 | 2003 | |||||||||
| (Unaudited) | ||||||||||
| (In thousands except | ||||||||||
| per share amounts) | ||||||||||
|
Net Sales
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$ | 172,951 | $ | 146,159 | ||||||
|
Costs and expenses:
|
||||||||||
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Cost of goods sold
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139,232 | 122,114 | ||||||||
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Selling, general, and administrative expenses
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16,827 | 15,289 | ||||||||
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Amortization of intangible assets
|
1,820 | 1,029 | ||||||||
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Interest expense
|
1,451 | 951 | ||||||||
|
Interest income
|
(213 | ) | (383 | ) | ||||||
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Other income — net
|
(755 | ) | (259 | ) | ||||||
|
Total costs and expenses
|
158,362 | 138,741 | ||||||||
|
Earnings before income taxes
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14,589 | 7,418 | ||||||||
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Income taxes
|
5,484 | 2,907 | ||||||||
|
Net earnings
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$ | 9,105 | $ | 4,511 | ||||||
|
Earnings per share:
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||||||||||
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Basic
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$ | 0.81 | $ | 0.40 | ||||||
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Diluted
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0.79 | 0.40 | ||||||||
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Weighted-average number of shares
outstanding:
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||||||||||
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Basic
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11,276 | 11,151 | ||||||||
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Diluted
|
11,557 | 11,270 | ||||||||
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Cash dividends per share
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$ | 0.24 | $ | 0.24 | ||||||
See accompanying Notes to Consolidated Financial Statements.
2
Statements of Consolidated Earnings
Woodward Governor Company and Subsidiaries
| Six Months Ended | ||||||||||
| March 31, | ||||||||||
| 2004 | 2003 | |||||||||
| (Unaudited) | ||||||||||
| (In thousands except | ||||||||||
| per share amounts) | ||||||||||
|
Net Sales
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$ | 331,924 | $ | 290,984 | ||||||
|
Costs and expenses:
|
||||||||||
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Cost of goods sold
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266,547 | 240,380 | ||||||||
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Selling, general, and administrative Expenses
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34,005 | 30,086 | ||||||||
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Amortization of intangible assets
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3,430 | 2,046 | ||||||||
|
Interest expense
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2,695 | 2,145 | ||||||||
|
Interest income
|
(786 | ) | (492 | ) | ||||||
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Other income — net
|
(577 | ) | (703 | ) | ||||||
|
Total costs and expenses
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305,314 | 273,462 | ||||||||
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Earnings before income taxes
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26,610 | 17,522 | ||||||||
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Income taxes
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10,112 | 6,746 | ||||||||
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Net earnings
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$ | 16,498 | $ | 10,776 | ||||||
|
Per share amounts:
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||||||||||
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Basic
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$ | 1.46 | $ | 0.96 | ||||||
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Diluted
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1.43 | 0.95 | ||||||||
|
Weighted-average number of shares
outstanding:
|
||||||||||
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Basic
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11,269 | 11,229 | ||||||||
|
Diluted
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11,507 | 11,366 | ||||||||
|
Cash dividends per share
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$ | 0.48 | $ | 0.4725 | ||||||
See accompanying Notes to Consolidated Financial Statements.
3
Consolidated Balance Sheets
| Woodward Governor Company and Subsidiaries |
| At | At | |||||||||
| March 31, | September 30, | |||||||||
| 2004 | 2003 | |||||||||
| (Unaudited) | ||||||||||
| (In thousands except | ||||||||||
| per share amounts) | ||||||||||
| ASSETS | ||||||||||
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Current assets:
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||||||||||
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Cash and cash equivalents
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$ | 36,969 | $ | 24,058 | ||||||
|
Accounts receivable, less allowance for losses of
$1,926 for March and $2,601 for September
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84,100 | 87,807 | ||||||||
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Inventories
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136,442 | 126,289 | ||||||||
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Income taxes receivable
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— | 1,782 | ||||||||
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Deferred income taxes
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14,922 | 14,179 | ||||||||
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Other current assets
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3,392 | 5,157 | ||||||||
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Total current assets
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275,825 | 259,272 | ||||||||
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Property, plant, and equipment — net
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120,574 | 124,144 | ||||||||
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Goodwill
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131,505 | 133,620 | ||||||||
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Other intangibles — net
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86,002 | 85,291 | ||||||||
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Deferred income taxes
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3,450 | 6,429 | ||||||||
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Other assets
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6,669 | 7,243 | ||||||||
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Total assets
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$ | 624,025 | $ | 615,999 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
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Current liabilities:
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||||||||||
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Short-term borrowings
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$ | 9,248 | $ | 5,774 | ||||||
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Current portion of long-term debt
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— | 30,000 | ||||||||
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Accounts payable
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36,654 | 26,703 | ||||||||
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Accrued liabilities
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43,722 | 45,533 | ||||||||
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Income taxes payable
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7,313 | — | ||||||||
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Total current liabilities
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96,937 | 108,010 | ||||||||
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Long-term debt, less current portion
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90,064 | 89,970 | ||||||||
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Other liabilities
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60,331 | 57,215 | ||||||||
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Commitments and contingencies
|
— | — | ||||||||
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Shareholders’ equity represented by:
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||||||||||
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Preferred stock, par value $.003 per share,
authorized 10,000 shares, no shares issued
|
— | — | ||||||||
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Common stock, par value $.00875 per share,
authorized 50,000 shares, issued 12,160 shares
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106 | 106 | ||||||||
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Additional paid-in capital
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14,145 | 13,760 | ||||||||
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Accumulated other comprehensive earnings
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12,880 | 9,625 | ||||||||
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Deferred compensation
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4,415 | 4,377 | ||||||||
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Retained earnings
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372,818 | 361,382 | ||||||||
| 404,364 | 389,250 | |||||||||
|
Less: Treasury stock, at cost, 864 shares
for March and 901 shares for September
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23,256 | 24,069 | ||||||||
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Treasury stock held for deferred compensation
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4,415 | 4,377 | ||||||||
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Total shareholders’ equity
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376,693 | 360,804 | ||||||||
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Total liabilities and shareholders’
equity
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$ | 624,025 | $ | 615,999 | ||||||
See accompanying Notes to Consolidated Financial Statements.
4
Statements of Consolidated Cash Flows
| Woodward Governor Company and Subsidiaries |
| Six Months Ended | ||||||||||
| March 31, | ||||||||||
| 2004 | 2003 | |||||||||
| (Unaudited) | ||||||||||
| (In thousands) | ||||||||||
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Cash flows from operating
activities:
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||||||||||
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Net earnings
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$ | 16,498 | $ | 10,776 | ||||||
|
Adjustments to reconcile net earnings to net cash
provided by operating activities:
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||||||||||
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Depreciation and amortization
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17,014 | 15,652 | ||||||||
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Net loss on sale of property, plant, and equipment
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143 | 76 | ||||||||
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ESOP compensation expense
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— | (291 | ) | |||||||
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Deferred income taxes
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297 | 4,023 | ||||||||
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Reclassification of unrealized losses on
derivatives to earnings
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147 | 85 | ||||||||
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Changes in operating assets and liabilities:
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||||||||||
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Accounts receivable
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5,550 | 3,085 | ||||||||
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Inventories
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(8,311 | ) | 3,295 | |||||||
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Accounts payable and accrued liabilities
|
6,996 | (9,303 | ) | |||||||
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Income taxes payable
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9,386 | (390 | ) | |||||||
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Other — net
|
5,120 | (18 | ) | |||||||
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Total adjustments
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36,342 | 16,214 | ||||||||
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Net cash provided by operating activities
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52,840 | 26,990 | ||||||||
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Cash flows from investing
activities:
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||||||||||
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Payments for purchase of property, plant, and
equipment
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(9,361 | ) | (6,881 | ) | ||||||
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Proceeds from sale of property, plant, and
equipment
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124 | 98 | ||||||||
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Business acquisitions, net of cash acquired
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389 | — | ||||||||
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Net cash used in investing activities
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(8,848 | ) | (6,783 | ) | ||||||
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Cash flows from financing
activities:
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||||||||||
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Cash dividends paid
|
(5,408 | ) | (5,310 | ) | ||||||
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Proceeds from sales of treasury stock
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1,198 | 307 | ||||||||
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Purchases of treasury stock
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— | (9,503 | ) | |||||||
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Net payments from borrowings under revolving lines
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(26,837 | ) | (4,961 | ) | ||||||
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Net cash used in financing activities
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(31,047 | ) | (19,467 | ) | ||||||
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Effect of exchange rate changes on cash
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(34 | ) | 284 | |||||||
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Net change in cash and cash
equivalents
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12,911 | 1,024 | ||||||||
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Cash and cash equivalents, beginning of year
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24,058 | 29,828 | ||||||||
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Cash and cash equivalents, end of period
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$ | 36,969 | $ | 30,852 | ||||||
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Supplemental cash flow information:
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Interest expense paid
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$ | 3,036 | $ | 658 | ||||||
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Income taxes paid
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4,498 | 2,623 | ||||||||
See accompanying Notes to Consolidated Financial Statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| (1) | Overview: |
The consolidated balance sheet as of March 31, 2004, the statements of consolidated earnings for the three and six-month periods ended March 31, 2004 and 2003, and the statements of consolidated cash flows for the six-month periods ended March 31, 2004 and 2003, were prepared by the company without audit. The September 30, 2003, consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. Information in this 10-Q report is based in part on estimates and is subject to year-end adjustments and audit. In our opinion, the figures reflect all adjustments necessary to present fairly the company’s financial position as of March 31, 2004, the results of its operations for the three and six-month periods ended March 31, 2004 and 2003, and its cash flows for the six-month periods ended March 31, 2004 and 2003. All such adjustments were of a normal and recurring nature. The statements were prepared following the accounting policies described in the company’s 2003 annual report on Form 10-K and should be read with the Notes to Consolidated Financial Statements on pages 34-46 of the 2003 annual report to shareholders. The statements of consolidated earnings for the three and six-month period ended March 31, 2004, is not necessarily indicative of the results to be expected for other interim periods or for the full year.
| (2) | Stock-based compensation policy: |
We use the intrinsic value method to account for stock-based employee compensation under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and therefore we do not recognize compensation expense in association with options granted at or above the market price of our common stock at the date of grant. The following table presents a reconciliation of reported net earnings and per share information to pro forma net earnings and per share information that would have been reported if the fair value method had been used to account for stock-based employee compensation:
| Three Months | Six Months | ||||||||||||||||
| Ended | Ended | ||||||||||||||||
| March 31, | March 31, | ||||||||||||||||
| 2004 | 2003 | 2004 | 2003 | ||||||||||||||
| (In thousands except per share amounts) | |||||||||||||||||
|
Reported net earnings
|
$ | 9,105 | $ | 4,511 | $ | 16,498 | $ | 10,776 | |||||||||
|
Stock-based compensation expense using the fair
value method, net of income tax
|
(452 | ) | (257 | ) | (689 | ) | (512 | ) | |||||||||
|
Pro forma net earnings
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$ | 8,653 | $ | 4,254 | $ | 15,809 | $ | 10,264 | |||||||||
|
Reported net earnings per share amounts:
|
|||||||||||||||||
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Basic
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$ | 0.81 | $ | 0.40 | $ | 1.46 | $ | 0.96 | |||||||||
|
Diluted
|
0.79 | 0.40 | 1.43 | 0.95 | |||||||||||||
|
Pro forma net earnings per share amounts:
|
|||||||||||||||||
|
Basic
|
$ | 0.77 | $ | 0.38 | $ | 1.40 | $ | 0.91 | |||||||||
|
Diluted
|
0.75 | 0.38 | 1.38 | 0.91 | |||||||||||||
| (3) | New Accounting Standards: |
In December 2003, the Financial Accounting Standards Board issued a revised Statement of Financial Accounting Standards No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” The revised Statement requires additional disclosures to those in the original Statement No. 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The interim-period disclosure requirements of the revised Statement were effective during our first quarter this year, and our disclosures may be found in note 10 to the consolidated
6
financial statements. The remaini