Woodward Reports Third Quarter Fiscal Year 2020 Results
Woodward reported Q3 2020 results with net sales of $524 million, down 30% from $752 million a year ago. Net earnings were $38 million, or $0.61 per share, decreasing from $66 million, or $1.02 per share. Adjusted net earnings were $31 million, down from $84 million. The cash flow from operations for the first nine months was $212 million, with free cash flow at $173 million. Despite the challenges posed by COVID-19, especially in Aerospace and Industrial segments, cost reduction initiatives helped mitigate some impacts. The company has not provided specific financial guidance for the remainder of the year.
- Free cash flow increased to $173 million, up from $141 million year-over-year.
- Effective working capital management contributed positively to cash flow.
- Nonsegment expenses decreased to $15 million from $27 million year-over-year.
- Net sales decreased by 30% from the previous year.
- Net earnings fell from $66 million to $38 million, reflecting a significant decline.
- Aerospace segment sales declined by 39%, primarily due to lower commercial sales and reduced production rates.
FORT COLLINS, Colo., Aug. 06, 2020 (GLOBE NEWSWIRE) -- Woodward, Inc. (NASDAQ:WWD) today reported financial results for its third quarter of fiscal year 2020 ended June 30, 2020. (All amounts are presented on an as reported (U.S. GAAP) basis unless otherwise indicated. All per share amounts are presented on a fully diluted basis. All comparisons are made to the same periods of the prior year unless otherwise stated.)
Third Quarter Highlights
- Net sales were
$524 million , compared to$752 million , a decrease of 30 percent - Net earnings were
$38 million , compared to$66 million - Adjusted net earnings1 were
$31 million , compared to$84 million - Earnings per share were
$0.61 , down from$1.02 - Adjusted earnings per share1 were
$0.48 , down from$1.30 - For the first nine months of fiscal 2020, cash from operations was
$212 million ; free cash flow1 was$173 million , adjusted free cash flow1 was$169 million
“Early in the third quarter we moved quickly to align our operations and cost structure to mitigate the adverse effects of the COVID-19 pandemic on our business. Aerospace continues to benefit from a strong defense market, which softened the significant impact of the rapid reduction in passenger traffic and aircraft production rates. While Industrial results were also affected by the economic slowdown, the completed divestiture of our renewables portfolio enhanced the profitability of the segment,” said Thomas A. Gendron, Chairman and Chief Executive Officer of Woodward. “We continue to monitor our markets, customers and suppliers, while maintaining flexibility to ensure we remain well-positioned to meet near- and long-term customer demand. As an organization, we have a strong track record of managing through the cycles of our business, and we believe we have the right team, operational focus and strategy to ensure we emerge stronger when end market demand improves.”
Third Quarter Company Results
Net sales were
Adjusted net earnings, which excludes primarily the gain resulting from the resetting of certain cross currency interest rate swaps and the impacts of restructuring charges related to COVID-19, were
The effective tax rate for the third quarter of 2020 was 14.6 percent, compared to 28.4 percent in the prior year. The adjusted effective tax rate1 was 29.1 percent for the quarter, compared to 25.5 percent for the third quarter of 2019.
Segment Results
Aerospace
Aerospace segment net sales for the third quarter of fiscal 2020 were
The decline in Aerospace segment sales in the third quarter was primarily driven by lower commercial sales due to the secular decline in global passenger traffic and OEM production rates, plant closures and furloughs, all as a result of the global pandemic. Compared to very strong defense sales in the third quarter of 2019, defense OEM sales were lower in the third quarter of 2020, partially offset by higher defense aftermarket sales.
Segment earnings for the third quarter of 2020 were
Industrial
Industrial segment net sales for the third quarter of fiscal 2020 were
Industrial segment net sales for the third quarter of 2020 declined due to the ongoing impact of COVID-19 across our markets, continued weakness in oil and gas, and the divestiture of RPS.
Industrial segment earnings and adjusted Industrial segment earnings1 for the third quarter of 2020 were
Excluding RPS, Industrial segment earnings and adjusted Industrial segment earnings1 for the third quarter of 2020 would have been
Nonsegment
Nonsegment expenses totaled
Year-to-Date Results
Net sales for the first nine months of 2020 were
Adjusted net earnings for the first nine months of 2020 were
The effective tax rate for the first nine months of 2020 was 14.3 percent, compared to 21.0 percent for the same period of the prior year. The adjusted effective tax rate for the first nine months of 2020 was 18.7 percent, compared to an adjusted effective tax rate of 21.1 percent for the same period last year.
Aerospace segment net sales for the first nine months of 2020 were
Industrial segment net sales for the first nine months of 2020 were
Industrial segment earnings and adjusted Industrial segment earnings for the first nine months of 2020 were
Excluding RPS, Industrial segment earnings and adjusted Industrial segment earnings for the first nine months of 2020 were
Nonsegment expenses totaled
Cash Flow and Financial Position
Net cash provided by operating activities for the first nine months of fiscal 2020 was
Total debt was
Fiscal Year 2020 Outlook
The global economic effects associated with the COVID-19 pandemic have been unprecedented in their scope and depth. We continue to see severe volatility in our markets making even short-term forecasts challenging. With that uncertainty, we will not be providing specific financial guidance for fiscal 2020; however we anticipate our fourth quarter financial results to be similar to our third quarter.
Conference Call
Woodward will hold an investor conference call at 4:30 p.m. EDT, August 6, 2020, to provide an overview of the financial performance for the first nine months of fiscal year 2020, business highlights, and outlook for fiscal 2020. 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.com2.
You may also listen to the call by dialing 1-877-231-2582 (domestic) or 1-478-219-0714 (international); the Conference ID is 3888854. Participants should call prior to the start time to allow for registration. An audio replay will be available by telephone from 7:30 p.m. EDT on August 6, 2020 until 11:59 p.m. EDT on August 20, 2020. The telephone number to access the replay is 1-855-859-2056 (domestic) or 1-404-537-3406 (international), reference access code 3888854.
A webcast presentation will be available on the website by selecting “Investors/Events & Presentations.” The call and presentation will remain accessible at the website for 14 days.
About Woodward, Inc.
Woodward is an independent designer, manufacturer, and service provider of control system solutions and components for the aerospace and industrial markets. The company's innovative fluid, combustion, electrical, and motion control systems help customers offer cleaner, more reliable, and more efficient equipment. Our customers include leading original equipment manufacturers and end users of their products. Woodward is a global company headquartered in Fort Collins, Colorado, USA. Visit our website at www.woodward.com.
Notice Regarding Forward-Looking Statements
The statements in this release contain forward-looking statements that involve risks and uncertainties, including statements concerning the company’s quarterly cash dividend. Actual results could differ materially from projections or any other forward-looking statements and we have no obligation to update our forward-looking statements. Factors that could affect performance and could cause actual results to differ materially from projections and forward-looking statements are described in Woodward's Annual Report and Form 10-K for the year ended September 30, 2019 and any subsequently filed Quarterly Report on Form 10-Q.
Cautionary Statement
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 our position within our markets and ability to compete effectively, including statements about the continued effects of the COVID-19 pandemic on our business, and the management of our business, including our operations and strategy, expectations related to the performance of our segments and specific markets within those segments, our strategies and investments, the effects of the sale of our renewable power systems and related businesses, and our outlook for the fourth quarter and the factors that may affect our outlook. 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 COVID-19 pandemic and related volatility in financial, commodities (including oil and gas) and other markets and industries (including the aviation industry), a decline in our customers’ business, or our business with, or financial distress of, Woodward’s significant customers; global economic uncertainty and instability in the financial markets; Woodward’s ability to manage product liability claims, product recalls or other liabilities associated with the products and services that Woodward provides; Woodward’s ability to obtain financing, on acceptable terms or at all, to implement its business plans, complete acquisitions, or otherwise take advantage of business opportunities or respond to business pressures; Woodward’s long sales cycle, customer evaluation process, and implementation period of some of its products and services; Woodward’s ability to implement and realize the intended effects of any restructuring and alignment efforts; Woodward’s ability to successfully manage competitive factors, including prices, promotional incentives, competitor product development, industry consolidation, and commodity and other input cost increases; Woodward’s ability to manage expenses and product mix while responding to sales increases or decreases; the ability of Woodward’s subcontractors to perform contractual obligations and its suppliers to provide Woodward with materials of sufficient quality or quantity required to meet Woodward’s production needs at favorable prices or at all; Woodward’s ability to monitor its technological expertise and the success of, and/or costs associated with, its product development activities; consolidation in the aerospace market and our participation in a strategic joint venture with General Electric Company may make it more difficult to secure long-term sales in certain aerospace markets; Woodward’s debt obligations, debt service requirements, and ability to operate its business, pursue its business strategies and incur additional debt in light of covenants contained in its outstanding debt agreements; Woodward’s ability to manage additional tax expense and exposures; risks related to Woodward’s U.S. Government contracting activities, including liabilities resulting from legal and regulatory proceedings, inquiries, or investigations related to such activities; the potential of a significant reduction in defense sales due to decreases in the amount of U.S. Federal defense spending or other specific budget cuts impacting defense programs in which Woodward participates; changes in government spending patterns, priorities, subsidy programs and/or regulatory requirements; future impairment charges resulting from changes in the estimates of fair value of reporting units or of long-lived assets; future results of Woodward’s subsidiaries; environmental liabilities related to manufacturing activities and/or real estate acquisitions; Woodward’s continued access to a stable workforce and favorable labor relations with its employees; physical and other risks related to Woodward’s operations and suppliers, including natural disasters and COVID-19 related impacts, which could disrupt production; Woodward’s ability to successfully manage regulatory, tax, and legal matters; changes in accounting standards that could adversely impact our profitability or financial position; risks related to Woodward’s common stock, including changes in prices and trading volumes; impacts of tariff regulations; risks from operating internationally, including the impact on reported earnings from fluctuations in foreign currency exchange rates, and compliance with and changes in the legal and regulatory environments of the United States and the countries in which Woodward operates; fair value of defined benefit plan assets and assumptions used in determining Woodward’s retirement pension and other postretirement benefit obligations and related expenses; industry risks, including increases in natural gas prices, unforeseen events that may reduce commercial aviation, such as diseases, epidemics, pandemics and natural disasters, and increasing emissions standards; any adverse effects on Woodward’s operations due to information systems interruptions or intrusions; certain provisions of Woodward’s charter documents and Delaware law that could discourage or prevent others from acquiring the company; and other risk factors described in Woodward's filings with the Securities and Exchange Commission, including its Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, which we expect to file shortly, its Annual Report on Form 10-K for the year ended September 30, 2019 and any subsequently filed Quarterly Report on Form 10-Q, and other risks described in Woodward’s filings with the Securities and Exchange Commission.
| Woodward, Inc. and Subsidiaries | |||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS | |||||||||||||||||
| (Unaudited - in thousands except per share amounts) | |||||||||||||||||
| Three-Months Ended | Nine-Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||
| Net sales | $ | 523,826 | $ | 752,005 | $ | 1,964,401 | $ | 2,163,660 | |||||||||
| Costs and expenses: | |||||||||||||||||
| Cost of goods sold | 395,511 | 562,516 | 1,447,942 | 1,621,531 | |||||||||||||
| Selling, general, and administrative expenses | 57,361 | 52,980 | 177,035 | 159,764 | |||||||||||||
| Research and development costs | 34,522 | 40,661 | 106,029 | 123,359 | |||||||||||||
| Restructuring charges | 19,040 | - | 19,040 | - | |||||||||||||
| Gain on cross currency interest rate swaps | (30,481 | ) | - | (30,481 | ) | - | |||||||||||
| Impairment of assets sold | - | - | 37,902 | - | |||||||||||||
| Interest expense | 8,737 | 10,798 | 26,502 | 34,156 | |||||||||||||
| Interest income | (377 | ) | (348 | ) | (1,340 | ) | (1,013 | ) | |||||||||
| Other (income) expense, net | (5,503 | ) | (6,916 | ) | (31,991 | ) | (18,134 | ) | |||||||||
| Total costs and expenses | 478,810 | 659,691 | 1,750,638 | 1,919,663 | |||||||||||||
| Earnings before income taxes | 45,016 | 92,314 | 213,763 | 243,997 | |||||||||||||
| Income taxes | 6,551 | 26,207 | 30,607 | 51,191 | |||||||||||||
| Net earnings | $ | 38,465 | $ | 66,107 | $ | 183,156 | $ | 192,806 | |||||||||
| Earnings per share amounts: | |||||||||||||||||
| Basic earnings per share | $ | 0.62 | $ | 1.07 | $ | 2.95 | $ | 3.11 | |||||||||
| Diluted earnings per share | $ | 0.61 | $ | 1.02 | $ | 2.85 | $ | 2.99 | |||||||||
| Weighted average common shares outstanding: | |||||||||||||||||
| Basic | 62,309 | 61,941 | 62,188 | 61,977 | |||||||||||||
| Diluted | 63,427 | 64,633 | 64,273 | 64,437 | |||||||||||||
| Cash dividends per share paid to Woodward common stockholders | $ | 0.0813 | $ | 0.1625 | $ | 0.5238 | $ | 0.4675 | |||||||||
| Woodward, Inc. and Subsidiaries | |||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
| (Unaudited - in thousands) | |||||||
| June 30, | September 30, | ||||||
| 2020 | 2019 | ||||||
| Assets | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 101,363 | $ | 99,073 | |||
| Accounts receivable | 537,515 | 591,529 | |||||
| Inventories | 505,943 | 516,836 | |||||
| Income taxes receivable | 34,685 | 8,099 | |||||
| Other current assets | 57,441 | 55,691 | |||||
| Total current assets | 1,236,947 | 1,271,228 | |||||
| Property, plant, and equipment, net | 1,008,259 | 1,058,775 | |||||
| Goodwill | 796,372 | 797,853 | |||||
| Intangible assets, net | 595,158 | 611,992 | |||||
| Deferred income tax assets | 18,315 | 18,161 | |||||
| Other assets | 251,618 | 198,517 | |||||
| Total assets | $ | 3,906,669 | $ | 3,956,526 | |||
| Liabilities and stockholders’ equity | |||||||
| Current liabilities: | |||||||
| Short-term borrowings | $ | 98,639 | $ | 220,000 | |||
| Current portion of long-term debt | 101,643 | - | |||||
| Accounts payable | 160,887 | 240,460 | |||||
| Income taxes payable | 12,164 | 18,849 | |||||
| Accrued liabilities | 162,295 | 228,127 | |||||
| Total current liabilities | 535,628 | 707,436 | |||||
| Long-term debt, less current portion | 729,165 | 864,899 | |||||
| Deferred income tax liabilities | 156,583 | 151,362 | |||||
| Other liabilities | 575,527 | 506,088 | |||||
| Total liabilities | 1,996,903 | 2,229,785 | |||||
| Stockholders’ equity | 1,909,766 | 1,726,741 | |||||
| Total liabilities and stockholders’ equity | $ | 3,906,669 | $ | 3,956,526 | |||
| Woodward, Inc. and Subsidiaries | |||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
| (Unaudited - in thousands) | |||||||
| Nine-Months Ended | |||||||
| June 30, | |||||||
| 2020 | 2019 | ||||||
| Net cash provided by operating activities | $ | 212,416 | $ | 219,202 | |||
| Cash flows from investing activities: | |||||||
| Payments for purchase of property, plant, and equipment | (39,072 | ) | (77,905 | ) | |||
| Net proceeds from sale of assets | 18,844 | 809 | |||||
| Proceeds from business divestiture | 10,443 | - | |||||
| Proceeds from sales of short-term investments | 12,700 | 10,259 | |||||
| Payments for purchases of short-term investments | (13,109 | ) | (12,989 | ) | |||
| Net cash used in investing activities | (10,194 | ) | (79,826 | ) | |||
| Cash flows from financing activities: | |||||||
| Cash dividends paid | (32,587 | ) | (28,985 | ) | |||
| Proceeds from sales of treasury stock | 14,790 | 33,715 | |||||
| Payments for repurchases of common stock | (13,346 | ) | (110,311 | ) | |||
| Borrowings on revolving lines of credit and short-term borrowings | 1,027,342 | 1,286,258 | |||||
| Payments on revolving lines of credit and short-term borrowings | (1,191,319 | ) | (1,194,045 | ) | |||
| Proceeds from the issuance of long-term debt | (1,187 | ) | (143,402 | ) | |||
| Payment of debt financing costs | - | (2,238 | ) | ||||
| Net cash used in financing activities | (196,307 | ) | (159,008 | ) | |||
| Effect of exchange rate changes on cash and cash equivalents | (3,625 | ) | (660 | ) | |||
| Net change in cash and cash equivalents | 2,290 | (20,292 | ) | ||||
| Cash and cash equivalents at beginning of year | 99,073 | 83,594 | |||||
| Cash and cash equivalents at end of period | $ | 101,363 | $ | 63,302 | |||
| Woodward, Inc. and Subsidiaries | ||||||||||||||||
| RECONCILIATION OF NONSEGMENT EXPENSES TO ADJUSTED NONSEGMENT EXPENSES 1 | ||||||||||||||||
| (Unaudited - in thousands) | ||||||||||||||||
| Three-Months Ended | Nine-Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Nonsegment expenses (U.S. GAAP) | $ | 15,158 | $ | 26,714 | $ | 94,360 | $ | 83,211 | ||||||||
| Gain on sale of Duarte property | - | - | 13,522 | - | ||||||||||||
| Impairment of long-lived assets held for sale | - | - | (37,902 | ) | - | |||||||||||
| Loss on sale of disposal group | (2,540 | ) | - | (2,540 | ) | |||||||||||
| Merger and divestiture transaction costs | (1,732 | ) | - | (18,654 | ) | - | ||||||||||
| Restructuring charges related to COVID-19 | (19,040 | ) | - | (19,040 | ) | - | ||||||||||
| Net gain on cross currency interest rate swaps | 27,481 | - | 27,481 | - | ||||||||||||
| Acceleration of stock compensation | (2,376 | ) | - | (2,376 | ) | - | ||||||||||
| Duarte move related costs | - | (7,035 | ) | - | (23,159 | ) | ||||||||||
| Adjusted nonsegment expenses (Non-U.S. GAAP) | $ | 16,951 | $ | 19,679 | $ | 54,851 | $ | 60,052 | ||||||||
| Woodward, Inc. and Subsidiaries | |||||||||||||||
| SEGMENT NET SALES AND EARNINGS | |||||||||||||||
| (Unaudited - in thousands) | |||||||||||||||
| Three-Months Ended | Nine-Months Ended | ||||||||||||||
| June 30, | June 30, | ||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Net sales: | |||||||||||||||
| Aerospace | $ | 306,494 | $ | 498,775 | $ | 1,254,655 | $ | 1,374,616 | |||||||
| Industrial | $ | 217,332 | $ | 253,230 | $ | 709,746 | $ | 789,044 | |||||||
| Total consolidated net sales | $ | 523,826 | $ | 752,005 | $ | 1,964,401 | $ | 2,163,660 | |||||||
| Segment earnings*: | |||||||||||||||
| Aerospace | $ | 41,096 | $ | 103,238 | $ | 251,645 | $ | 277,814 | |||||||
| As a percent of segment net sales | 13.4 | % | 20.7 | % | 20.1 | % | 20.2 | % | |||||||
| Industrial | 27,438 | 26,240 | 81,640 | 82,537 | |||||||||||
| As a percent of segment net sales | 12.6 | % | 10.4 | % | 11.5 | % | 10.5 | % | |||||||
| Total segment earnings | 68,534 | 129,478 | 333,285 | 360,351 | |||||||||||
| Nonsegment expenses | (15,158 | ) | (26,714 | ) | (94,360 | ) | (83,211 | ) | |||||||
| EBIT | 53,376 | 102,764 | 238,925 | 277,140 | |||||||||||
| Interest expense, net | (8,360 | ) | (10,450 | ) | (25,162 | ) | (33,143 | ) | |||||||
| Consolidated earnings before income taxes | $ | 45,016 | $ | 92,314 | $ | 213,763 | $ | 243,997 | |||||||
| *This schedule reconciles segment earnings, which exclude certain costs, to consolidated earnings before taxes. | |||||||||||||||
| Payments for property, plant and equipment | $ | 9,711 | $ | 23,564 | $ | 39,072 | $ | 77,905 | |||||||
| Depreciation expense | $ | 22,378 | $ | 21,665 | $ | 68,101 | $ | 62,998 | |||||||
| Woodward, Inc. and Subsidiaries | |||||||||||||||||
| RECONCILIATION OF INDUSTRIAL SEGMENT EARNINGS TO ADJUSTED INDUSTRIAL SEGMENT EARNINGS 1 | |||||||||||||||||
| (Unaudited - in thousands) | |||||||||||||||||
| Three-Months Ended | Nine-Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||
| Industrial segment earnings (U.S. GAAP) | $ | 27,438 | $ | 26,240 | $ | 81,640 | $ | 82,537 | |||||||||
| Purchase accounting impacts* | - | 2,604 | - | 21,100 | |||||||||||||
| Adjusted Industrial segment earnings (Non-U.S. GAAP) | $ | 27,438 | $ | 28,844 | $ | 81,640 | $ | 103,637 | |||||||||
| * Represents the purchase accounting impact related to the amortization of the Woodward L'Orange backlog intangible. | |||||||||||||||||
| Woodward, Inc. and Subsidiaries | |||||||||||||||||
| RECONCILIATION OF NET EARNINGS TO EBIT 1 AND ADJUSTED EBIT 1 | |||||||||||||||||
| (Unaudited - in thousands) | |||||||||||||||||
| Three-Months Ended | Nine-Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||
| Net earnings (U.S. GAAP) | $ | 38,465 | $ | 66,107 | $ | 183,156 | $ | 192,806 | |||||||||
| Income taxes | 6,551 | 26,207 | 30,607 | 51,191 | |||||||||||||
| Interest expense | 8,737 | 10,798 | 26,502 | 34,156 | |||||||||||||
| Interest income | (377 | ) | (348 | ) | (1,340 | ) | (1,013 | ) | |||||||||
| EBIT (Non-U.S. GAAP) | 53,376 | 102,764 | 238,925 | 277,140 | |||||||||||||
| Non-U.S. GAAP adjustments* | (1,793 | ) | 9,639 | 39,509 | 44,259 | ||||||||||||
| Adjusted EBIT (Non-U.S. GAAP) | $ | 51,583 | $ | 112,403 | $ | 278,434 | $ | 321,399 | |||||||||
| * Includes, as applicable, (i) merger and divestiture transaction costs (ii) the gain on sale of the Duarte property, (iii) the impairment from assets sold, (iv) restructuring charges related to COVID-19, (v) the net gain on cross currency interest rate swaps, (vi) loss on sale of disposal group, (vii) acceleration of stock compensation, and (viii) Duarte move related costs, and (ix) purchase accounting impact related to the amortization of the Woodward L'Orange backlog intangible. | |||||||||||||||||
| Woodward, Inc. and Subsidiaries | |||||||||||||||||
| RECONCILIATION OF NET EARNINGS TO EBITDA 1 AND ADJUSTED EBITDA 1 | |||||||||||||||||
| (Unaudited - in thousands) | |||||||||||||||||
| Three-Months Ended | Nine-Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||
| Net earnings (U.S. GAAP) | $ | 38,465 | $ | 66,107 | $ | 183,156 | $ | 192,806 | |||||||||
| Income taxes | 6,551 | 26,207 | 30,607 | 51,191 | |||||||||||||
| Interest expense | 8,737 | 10,798 | 26,502 | 34,156 | |||||||||||||
| Interest income | (377 | ) | (348 | ) | (1,340 | ) | (1,013 | ) | |||||||||
| Amortization of intangible assets | 9,728 | 11,305 | 29,481 | 45,470 | |||||||||||||
| Depreciation expense | 22,378 | 21,665 | 68,101 | 62,998 | |||||||||||||
| EBITDA (Non-U.S. GAAP) | 85,482 | 135,734 | 336,507 | 385,608 | |||||||||||||
| Non-U.S. GAAP adjustments* | (1,793 | ) | 7,035 | 39,509 | 23,159 | ||||||||||||
| Adjusted EBITDA (Non-U.S. GAAP) | $ | 83,689 | $ | 142,769 | $ | 376,016 | $ | 408,767 | |||||||||
| * Includes, as applicable, (i) merger and divestiture transaction costs (ii) the gain on sale of the Duarte property, (iii) the impairment from assets sold, (iv) restructuring charges related to COVID-19, (v) the net gain on cross currency interest rate swaps, (vi) loss on sale of disposal group, (vii) acceleration of stock compensation, and (viii) Duarte move related costs | |||||||||||||||||
| Woodward, Inc. and Subsidiaries | |||||||||||||||||||||||||
| RECONCILIATION OF EARNINGS TO ADJUSTED EARNINGS 1 | |||||||||||||||||||||||||
| (Unaudited - in thousands, except per share amounts) | |||||||||||||||||||||||||
| Three-Months Ended | Three-Months Ended | ||||||||||||||||||||||||
| June 30, 2020 | June 30, 2019 | ||||||||||||||||||||||||
| Before Income Tax | Net of Income Tax | Per Share, Net of Income Tax | Before Income Tax | Net of Income Tax | Per Share, Net of Income Tax | ||||||||||||||||||||
| Earnings (U.S. GAAP) | $ | 45,016 | $ | 38,465 | $ | 0.61 | $ | 92,314 | $ | 66,107 | $ | 1.02 | |||||||||||||
| Non-U.S. GAAP adjustments: | |||||||||||||||||||||||||
| Duarte move related costs | - | - | - | 7,035 | 5,294 | 0.08 | |||||||||||||||||||
| Purchase accounting impacts1 | - | - | - | 2,604 | 1,867 | 0.03 | |||||||||||||||||||
| Loss on sale of disposal group | 2,540 | 1,801 | 0.02 | - | - | - | |||||||||||||||||||
| Acceleration of stock compensation | 2,376 | 1,788 | 0.03 | - | - | - | |||||||||||||||||||
| Merger and divestiture transaction costs2 | 1,732 | 1,304 | 0.02 | - | - | - | |||||||||||||||||||
| Restructuring charges related to COVID-19 | 19,040 | 14,200 | 0.22 | - | - | - | |||||||||||||||||||
| Net gain on cross currency interest rate swaps3 | (27,481 | ) | (26,904 | ) | (0.42 | ) | - | - | - | ||||||||||||||||
| Subtotal non-U.S. GAAP adjustments | (1,793 | ) | (7,811 | ) | (0.13 | ) | 9,639 | 7,161 | 0.11 | ||||||||||||||||
| Transition impact of U.S. tax legislation | - | - | - | - | 10,588 | 0.17 | |||||||||||||||||||
| Total non-U.S. GAAP adjustments | (1,793 | ) | (7,811 | ) | (0.13 | ) | 9,639 | 17,749 | 0.28 | ||||||||||||||||
| Adjusted earnings (Non-U.S. GAAP) | $ | 43,223 | $ | 30,654 | $ | 0.48 | $ | 101,953 | $ | 83,856 | $ | 1.30 | |||||||||||||
| (1) Represents the purchase accounting impacts related to the amortization of the Woodward L’Orange backlog intangible. (2) Merger and divestiture transaction costs include, as applicable, (i) merger-related transactions costs associated with the now-terminated merger with Hexcel, and (ii) divestiture-related transaction costs associated with the divestiture of the disposal groups. (3) The net gain on cross-currency interest rate swaps includes (i) the net realized gains on termination of the instruments and (ii) the swap breakage fees associated with termination of the instruments. | |||||||||||||||||||||||||
| Woodward, Inc. and Subsidiaries | |||||||||||||||||||||||||
| RECONCILIATION OF EARNINGS TO ADJUSTED EARNINGS 1 | |||||||||||||||||||||||||
| (Unaudited - in thousands, except per share amounts) | |||||||||||||||||||||||||
| Nine-Months Ended | Nine-Months Ended | ||||||||||||||||||||||||
| June 30, 2020 | June 30, 2019 | ||||||||||||||||||||||||
| Before Income Tax | Net of Income Tax | Per Share, Net of Income Tax | Before Income Tax | Net of Income Tax | Per Share, Net of Income Tax | ||||||||||||||||||||
| Earnings (U.S. GAAP) | $ | 213,763 | $ | 183,156 | $ | 2.85 | $ | 243,997 | $ | 192,806 | 2.99 | ||||||||||||||
| Non-U.S. GAAP adjustments: | |||||||||||||||||||||||||
| Gain on sale of Duarte property | (13,522 | ) | (10,175 | ) | (0.16 | ) | - | - | - | ||||||||||||||||
| Impairment of long-lived assets held for sale | 37,902 | 28,016 | 0.44 | - | - | - | |||||||||||||||||||
| Duarte move related costs | - | - | - | 23,159 | 17,417 | 0.27 | |||||||||||||||||||
| Purchase accounting impacts1 | - | - | - | 21,100 | 14,949 | 0.23 | |||||||||||||||||||
| Loss on sale of disposal group | 2,540 | 1,801 | 0.02 | - | - | - | |||||||||||||||||||
| Acceleration of stock compensation | 2,376 | 1,788 | 0.03 | - | - | - | |||||||||||||||||||
| Merger and divestiture transaction costs2 | 18,654 | 14,038 | 0.22 | - | - | - | |||||||||||||||||||
| Restructuring charges related to COVID-19 | 19,040 | 14,200 | 0.22 | - | - | - | |||||||||||||||||||
| Net gain on cross currency interest rate swaps3 | (27,481 | ) | (26,904 | ) | (0.42 | ) | - | - | - | ||||||||||||||||
| Sub-total non-U.S. GAAP adjustments | 39,509 | 22,764 | 0.35 | 44,259 | 32,366 | 0.50 | |||||||||||||||||||
| Transition impact of U.S. tax legislation | - | - | - | - | 10,588 | 0.18 | |||||||||||||||||||
| Total non-U.S. GAAP adjustments | 39,509 | 22,764 | 0.35 | 44,259 | 42,954 | 0.68 | |||||||||||||||||||
| Adjusted earnings (Non-U.S. GAAP) | $ | 253,272 | $ | 205,920 | $ | 3.20 | $ | 288,256 | $ | 235,760 | $ | 3.67 | |||||||||||||
| (1) Represents the purchase accounting impacts related to the amortization of the Woodward L’Orange backlog intangible. (2) Merger and divestiture transaction costs include, as applicable, (i) merger-related transactions costs associated with the now-terminated merger with Hexcel, and (ii) divestiture-related transaction costs associated with the divestiture of the disposal groups. (3) The net gain on cross-currency interest rate swaps includes (i) the net realized gains on termination of the instruments and (ii) the swap breakage fees associated with termination of the instruments. | |||||||||||||||||||||||||
| Woodward, Inc. and Subsidiaries | |||||||
| RECONCILIATION OF CASH FLOW FROM OPERATING ACTIVITIES TO FREE CASH FLOW AND ADJUSTED FREE CASH FLOW1 AND ADJUSTED FREE CASH FLOW1 | |||||||
| (Unaudited - in thousands, except per share amounts) | |||||||
| Nine-Months Ended | |||||||
| June 30, | |||||||
| 2020 | 2019 | ||||||
| Net cash provided by operating activities (U.S. GAAP) | $ | 212,416 | $ | 219,202 | |||
| Payments for property, plant, and equipment | (39,072 | ) | (77,905 | ) | |||
| Free cash flow (Non-U.S. GAAP) | 173,344 | 141,297 | |||||
| Cash proceeds from the sale of the Duarte facility | 18,767 | - | |||||
| Cash paid for merger and divestiture transaction costs | 17,624 | - | |||||
| Cash paid for restructuring charges | 14,052 | - | |||||
| Net cash proceeds from cross currency interest rate swaps | (55,191 | ) | - | ||||
| Adjusted free cash flow (Non-U.S. GAAP) | $ | 168,596 | $ | 141,297 | |||
| Woodward, Inc. and Subsidiaries | |||||||||||||||||
| RECONCILIATION OF INDUSTRIAL SEGMENT NET SALES EXCLUDING RENEWABLES AND OTHER BUSINESS DIVESTITURES | |||||||||||||||||
| (Unaudited - in thousands) | |||||||||||||||||
| Three-Months Ended | Nine-Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||
| Industrial segment net sales | $ | 217,332 | $ | 253,230 | $ | 709,746 | $ | 789,044 | |||||||||
| Disposal group sales | 7,730 | 22,813 | 67,663 | 64,667 | |||||||||||||
| Industrial segment net sales excluding renewables and other business divestitures | $ | 209,602 | $ | 230,417 | $ | 642,083 | $ | 724,377 | |||||||||
| Woodward, Inc. and Subsidiaries | |||||||||||||||||
| RECONCILIATION OF INDUSTRIAL SEGMENT EARNINGS EXCLUDING RENEWABLES AND OTHER BUSINESS DIVESTITURES | |||||||||||||||||
| (Unaudited - in thousands) | |||||||||||||||||
| Three-Months Ended | Nine-Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||
| Industrial segment earnings | $ | 27,438 | $ | 26,240 | $ | 81,640 | $ | 82,537 | |||||||||
| Disposal group earnings (losses) | 252 | (1,166 | ) | 3,602 | (3,940 | ) | |||||||||||
| Industrial segment earnings excluding renewables and other business divestitures | $ | 27,186 | $ | 27,406 | $ | 78,038 | $ | 86,477 | |||||||||
1Adjusted and Non-U.S. GAAP Financial Measures: Adjusted net earnings, adjusted earnings per share, adjusted Industrial segment earnings, adjusted EBIT and EBITDA, adjusted effective tax rate, and adjusted nonsegment expenses exclude, as applicable, (i) the gain on sale of assets associated with the sale of the Company’s Duarte real estate, (ii) the charge from the impairment of assets held for sale, and the losses, associated with the Company’s divestiture of its renewable power systems and related businesses (collectively, the “disposal group”), (iii) Duarte move related costs, (iv) the purchase accounting impacts related to the amortization of the backlog intangible acquired in connection with the acquisition of Woodward L’Orange on June 1, 2018 (the “L’Orange Acquisition”), (v) the transition impacts of the change in U.S. federal tax legislation in December 2017, (vi) costs associated with the previously proposed merger with Hexcel Corporation, which merger agreement was terminated on April 5, 2020, and (vii) transaction costs associated with the completed divestiture of our renewable power systems and related businesses, (viii) restructuring charges related to the COVID-19 pandemic, (ix) acceleration of stock compensation expense related to restructuring activities, and (x) the net gain on settlement of cross-currency interest rate swaps. Woodward believes that these items are short-term costs or are otherwise not related to the ongoing operations of the business and therefore, uses them to illustrate more clearly how the underlying business of Woodward is performing. Adjusted free cash flow is free cash flow (defined below) plus the cash proceeds from the sale of real property at our former Duarte operations and cash payments added back for merger and divestiture transaction costs, cash payments for restructuring activities, and excluding cash proceeds from the settlement of our cross-currency interest rate swaps. Management believes the inclusion of these proceeds in free cash flow better portrays the net cash impact of relocating the Duarte, CA operations to the Drake Campus in Fort Collins, CO and excludes the unusual or infrequent cash payments for merger and divestiture transaction costs not indicative of Woodward’s operating performance for the period.
EBIT (earnings before interest and taxes), EBITDA (earnings before interest, taxes, depreciation and amortization), adjusted cash flow from operating activities, free cash flow, adjusted free cash flow, adjusted net earnings, adjusted Industrial segment net earnings, adjusted net earnings per share, adjusted EBIT, adjusted EBITDA, adjusted effective tax rate, and adjusted nonsegment expenses are financial measures not prepared and presented in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Management uses EBIT and adjusted EBIT to evaluate Woodward’s operating performance without the impacts of financing and tax related considerations. Management uses EBITDA and adjusted EBITDA in evaluating Woodward’s operating performance, making business decisions, including developing budgets, managing expenditures, forecasting future periods, and evaluating capital structure impacts of various strategic scenarios. Management also uses free cash flow, which is derived from net cash provided by or used in operating activities less payments for property, plant, and equipment, as well as adjusted free cash flow (as described above), in reviewing the financial performance of Woodward’s various business segments and evaluating cash generation levels. Securities analysts, investors, and others frequently use EBIT, 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. The use of any of these non-U.S. GAAP financial measures is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. Because EBIT and EBITDA, and adjusted EBIT and EBITDA, exclude certain financial information compared with net earnings, the most comparable U.S. GAAP financial measure, users of this financial information should consider the information that is excluded. Free cash flow does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs. Management’s calculations of EBIT, EBITDA, adjusted net earnings, adjusted earnings per share, adjusted EBIT and EBITDA, adjusted effective tax rate, adjusted nonsegment expenses, free cash flow, and adjusted free cash flow may differ from similarly titled measures used by other companies, limiting their usefulness as comparative measures.
2Website, Facebook, Twitter: Woodward has used, and intends to continue to use, its Investor Relations website, its Facebook page and its Twitter handle as means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.
Don Guzzardo
Vice President, Investor Relations & Treasurer
970-498-3580
Don.Guzzardo@woodward.com
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