Woodward Inc (WWD) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Woodward Governor Company first quarter earnings conference call. At this time I’d like to inform you that this conference is being recorded for rebroadcast, and that all participants are in a listen-only mode. Following the presentations you’ll be invited to participate in a question-and-answer session.

Your speakers for today are Mr. John Halbrook, Chairman and Chief Executive Officer, and Mr. Steve Carter, Vice President, Chief Financial Officer, and Treasurer of Woodward Governor Company.

I would now like to turn the conference over to Mr. Steve Carter. Please go ahead, sir.

Thank you, Operator.

We’d like to welcome all of you to Woodward’s first quarter fiscal 2003 conference call. I am Steve Carter, Woodward's Chief Financial Officer. With me today at our Corporate Headquarters in Rockford are John Halbrook, Woodward’s Chairman and CEO, and Tom Gendron, our President and Chief Operating Officer.

Most of you have probably seen a copy of the earnings announcement released at 5:30 p.m. yesterday or you may have received a copy by fax or e-mail. For those who have not seen a copy you can find one on our web site at www.woodward.com.

An audio replay of this call will be available through Friday, January 24th. The phone number was on the press release announcing this call and will be repeated by the Operator at the end of the call. In addition, a replay of this call will be accessible on our web site for 30 days.

Before we begin I’d like to provide our cautionary statement. In the course of this call when we present information and answer questions any statements we make other than actual results or business facts may contain forward-looking statements. Such statements involve risks and uncertainties that may cause actual results to differ materially from those we currently anticipate.

Factors that might cause material difference include but are not limited to economic conditions that would impact sales in both the industrial and aircraft markets, the affect of product mix on margins, and the ability of the company to maintain and add to its customer base.

We caution investors not to place undue reliance on these forward-looking statements as predictive of future results. In addition, the company disclaims any obligation to update the forward-looking statements made herein. For more information about the risks and uncertainties facing Woodward we encourage you to consult the press release and our public filings with the Securities & Exchange Commission.

Now, I’ll turn the call over to John to discuss our first quarter results and progress towards strategic goals throughout 2003.

Thank you, Steve. And welcome to all of you who have joined us today. I’d like to discuss some of the challenges and achievements of the first quarter performance and to give you our best insight as to what the rest of the year holds. Steve, Tom, and I will be available for your questions following the call. I’ll address our business segments and consolidated performance first, then outline our expectations for the future on a segment and consolidated basis.

Let’s begin our discussion with the Industrial Controls business. Sales for the quarter dropped more than we had anticipated. We have not experienced order cancellations, but in the current market we are working with very short lead-times on orders from our customers. This is hampering our ability to accurately project sales, and is a reflection of the uncertainty our customers are experiencing, as well.

Our customers have given us their best indications but the landscape is still shifting. The general direction of the large power generation markets has become fairly clear. It may be several years before we see the market recover to historical levels. The turmoil in the large power generation, however, has now extended across many of the other areas of the industrial segment. And those areas, while we do not see near-term signs of recovery market conditions according to our customers can change rapidly which requires that we be flexible in our outlook.

We are making adjustments to deal with the shifting market conditions. In large power generation we are pursuing the same strategy as our OEM customers to deploy our efforts toward the after-market needs of the large, installed power generation base. Woodword is planning with our OEM customers to provide repair, and overhaul services, and upgrades. The benefits will not be evident for several quarters, though, until we secure these new opportunities and our OEM customers' existing parts inventory is depleted.

In addition to after-market opportunities, we are supporting sales by increasing content per engine. For example, two years ago we had absolutely no valve content on large industrial gas turbines. Today, we have 30 percent of that valve market, and have added additional nozzle components, as well. We have also expanded our customer base. While GE remains our largest OEM customer we are also working with the other OEMs in that market.

We are achieving results in our other industrial markets by addressing the key drivers, cost, admissions, operating efficiencies, and having a global presence. From alternative fuel transportation products to stationery [gin] [ph]sets we are providing cleaner, cheaper, better operating components and systems than our competitors, and we are gaining market share as a result.

For example, we are supplying integral components such as the Atlas PC control and fuel system hardware for the new low emissions technology for Kawasaki Gas Turbines America, and Catalytica Energy Systems. Because we have basic technologies such as these that are compatible with multiple applications we can develop customized products that respond to our customers’ needs quickly, efficiently, and profitably. The total market for many of our industrial products may be temporarily contracting, but as those markets recover we are well-positioned for growth.

A vital component of our future growth is the product development arm of our business. Our customers come to us with difficult projects, and we are able to respond with integrated systems that are designed from the outset to work as a unit, to be cost effective, and that can be produced at the customer’s request. We target these projects that are profitable to us and allow us to build our strategically important technology offerings.

When our customers encourage us to work with them in the planning stage of their products it reflects our ability to satisfy their requirements and is a clear indication that we will be the supplier of choice on their projects. Those relationships sustain us through the difficult economic periods, but more importantly will place us in leadership categories as sales volumes begin to increase.

We are implementing structural changes toward a more global business approach, such as global sourcing and coordinating product family manufacturing processes. These changes will help integrate our global operations to save money through a unified supply chain, standardized quality initiatives, and economies of scale. These changes will also assist line managers in focusing on the continuous improvement initiatives being implemented globally.

For example, sic sigma operations are noticeably improving productivity. In addition, global purchasing initiatives are securing cost savings on purchase content that will be realized as inventories are replenished and sold to our customers.

It is unclear when the economic recovery will begin, but realistically we believe that industrial control sales for 2003 will likely be down significantly from 2002 with activity increasing somewhat in the second half of the year. We are taking prudent cost management steps, but believe that the improvements will not be sufficient to offset the dramatic decline in sales over our previous forecast. Segment earnings, therefore, will reflect a proportionately lower fiscal year-end total.

Now, for the aircraft engines. Our Aircraft Engine Systems shipments in 2002 benefited from existing orders well into the second quarter, despite the impact of the September 11th events. Sales in the first quarter ’03 have reached a level more in line with today’s market demand. Commercial sales to OEMs for the quarter were down year-over-year, largely reflecting lower ship rates by Airbus, Boeing, and Bombardier. Shipments of aero-derivative engine products used in power generation applications were significantly reduced. We expect similar levels throughout 2003 and most probably 2004.

However, we will continue to benefit from a number of factors that are growing our share of the commercial market. These involve our very strong position on the GE CF34 Series of engines that power the majority of the new regional jets which are increasingly displacing larger aircraft on many routes.

Our equally strong position on the CFM and Z2500 engines which power all of the very popular Airbus single-aisle A320 family, and our exclusive position on the GE90 which is gaining an increasing proportion of Boeing 777 sales. That content will also drive our future opportunity for repair and overhaul services, spare part sales, and product upgrades.

We have seen good growth in the military markets and after-market in 2002. Demand has now leveled-off for the time being, but still remains strong. Our solid customer relationships have also resulted in Woodward providing content on the Joint Strike Fighter. Woodward had been awarded contracts for content on the Pratt & Whitney F135 engine, and this quarter we announced that we will supply additional content on that engine as well as content on the GE Rolls Royce F136 engine. The U.S., Navy, Air Force, and Marines, as well as some overseas military forces will use the Joint Strike Fighter, the next generation airplane.

Finally, we are expanding our presence in the rapidly growing Asian markets where we are establishing our relationships in-country and are building participation in their regional jet programs and overhauls and repair business. During the quarter the GE CF34-10 engine was selected to power the new Chinese ARJ21 100 GC regional jets. Woodward supplies the fuel metering unit and actuators for the CF3410.

We work hard to increase productivity and optimize resources. While we have achieved significant savings from these measures we continually review our operations, and recently made the decision to consolidate our Buffalo operations into the facilities at Rockford. While the facility consolidation costs unfavorably impact 2003 margins once completed we expect to achieve annual savings of approximately 2.5 million while better utilizing the capacity available at this site.

We expect lowered sales throughout 2003 due to the continued weak commercial aircraft market. In order to meet customer expectations for product cost reductions with the least affect on our margins we will continue to pursue greater efficiencies, productivity, and quality through our sic sigma and lean manufacturing initiatives.

However, we believe margin levels will decrease somewhat from 2002 levels due to product mix and pricing pressure. Our strategy remains to build the customer relationships that will support greater volume with excellent margins as the market returns to previous levels.

Now, for just looking at total company a little bit. Our cost management initiatives have allowed earnings to increase slightly over the previous quarter despite a decrease in sales volume. The continued decline in sales volume, particularly in our industrial markets does not allow us to achieve the operating margins that would result from normal volumes. If the current trends continue throughout the year, especially in our industrial markets we believe full-year earnings may be 25 to 35 percent below those of 2002. As volumes return to normal and our costs remain steady we believe the higher margins will result in considerable growth in our earnings.

The market downturn is an excellent time to further broaden our leadership in selected fuel delivery system markets, continued driving productivity and quality initiatives throughout our facilities, and further distinguish ourselves from weaker competitors through partnering on product development with existing and new OEM customers. By progressing toward these objectives we can exploit opportunities during the downturn while continuing to build Woodward’s long-term value.

During these difficult economic times, however, we are taking steps to mitigate the reverse leverage affect while maintaining our focus on achieving our long-term strategic goals. We continue to capture market share by introducing new products, pursuing our acquisition strategy, and displacing competitors. We are leveraging our installed product base with new after-market services. Customers are expanding and extending key long-term contracts that help secure our future. We are implementing plans to optimize our resources and better utilize capacity.

Finally, we are expanding both our industrial and aircraft customer base globally, especially in the rapidly growing Asian markets. The results of these efforts will begin to accelerate as our markets resume growth.

In summary, we believe that our strong, loyal customer base along with the extensive installed base of products in conjunction with our growing market share in important niche markets is a true indication of our value today and in the future. Woodward is building value for its shareholders over time.

In addition, we are strongly positioned to benefit from economic recovery when it occurs. We have the financial strength to continue our strategic initiatives and to deliver value to our shareholders in the interim. We thank you for your continued support.

Now, I will ask Steve to review in more detail the quarterly financial results.

Thank you, John.

As I review the financial items today, I’ll talk about our quarter results first, followed by comments on some balance sheet items, and our outlook for the future.

Net sales for the quarter were 144.8m, down 20 percent from 180.9m in the first quarter a year ago. Net earnings for the first quarter of fiscal 2003 were 6.3m or 55 cents per share, a decrease of 54 percent from 13.7m last year or $1.19 per share as measured before the cumulative affect of last year’s accounting change.

Last year’s accounting change related to the adoption of new accounting standards for goodwill, which resulted in an after-tax charge of 2.5m or 22 cents per share in the first quarter. Last year’s net earning after the cumulative affect of the accounting change were 11.2 million or 97 cents per share.

First quarter sales for Industrial Controls fell 26 percent to 78.5 million. The decrease in sales reflected a continued decline in industrial markets, particularly in power generation. The industrial control segment earning for the quarter were 1.7m, compared to 13m last year. Earnings were disproportionately lower than sales because of fixed costs and development costs considered necessary to satisfy core customers current and future requirements.

Aircraft Engine Systems segment sales were 66.3m, down 12 percent from fiscal 2002 first quarter sales of 74.9m. We anticipated the sales decrease as a result of reduced commercial airline traffic, and we expect the current level of sales to continue throughout the year. Aircraft Engine Systems segment earnings were 12.8m, compared to 14.9m last year, a 14 percent reduction. Our favorable product sales mix this quarter, and ongoing cost containment initiatives helped us to maintain our margins despite the quarters’ comparably lower sales.

Last week we announced the consolidation of our servovalve operations in Buffalo, New York, into our Illinois Facility to achieve additional production cost efficiencies. In the first quarter we recognized 2.3m in expenses related to this consolidation, and we expect to record about 1.7m in the remaining costs over the last three quarters of fiscal 2003. We expect cost savings when the consolidation is complete to be about 2.5m per year.

Total company cost of goods sold in the first quarter increased to 82 percent of sales from 78 percent last year. Certain components of cost of goods sold, including portions of manufacturing and engineering costs don’t vary directly with sales. As a result, cost of goods sold does not increase or decrease in direct proportion of the sales, particularly when the decrease of sales is as large as it was in the past year.

SG&A expenses of 14.8m were virtually the same in the first quarters of both this year and last year. As a percent of sales SG&A expenses are 10.2 percent, compared to 8.3 percent last year. Many of our SG&A activities are not significantly impacted by changes in level of sales also, and so, although sales are lower the expenses remain about the same.

Interest expense in the first quarter was 1.2m, compared to 1.4m a year ago. Our outstanding debt was about 15m less at the end of this year’s first quarter than it was at the end of last year’s first quarter.

Depreciation and amortization were 7.7m in the first quarter, compared to 7.8m a year ago.

Second half starts per Rita.

The increase in intangibles other than goodwill acquired with businesses purchased in 2002 slightly increased amortization expense. However, depreciation expense decreased because capital expenditures were lower in 2002 than in prior years.

The effective tax rate of 38 percent this quarter was the same as last year. While our final tax rate depends on the global mix of our earnings we currently expect the tax rate for this year to remain around 38 percent.

EBITDA was $18.9m for the quarter, compared to 31.2m a year ago. We computed this measure before the cumulative affect of the accounting change.

Now, I’d like to make a few comments on the balance sheet. Comparisons are to the September 30th year-end amounts. Accounts receivable decreased 7m to 69m in the first quarter due primarily to lower sales levels. Inventories decreased slightly to 126m.

Accounts payable and accrued expenses decreased 13.6m because we made payments in the first quarter for accrued expenses associated with the variable compensation plans and retirement plans. In addition, accounts payable reflects lower levels of business activity, accruals for interest reflect lower levels of outstanding debt, and the time that payroll periods required lower accruals for lower wages and salaries at the end of the quarter.

In the first quarter of this year our Board of Directors approved a stock buyback program that authorizes us to buyback up to $20m of Woodward ‘s stock over the next two years in open market of private transactions. In the first quarter we bought-back 150,500 shares of stock at a total cost of almost $7m.

Now, let’s look at our outlook for the future. It has become increasingly more difficult to project the duration, magnitude, and breadth of economic recovery. Sales have been more severely impacted than we expected at the beginning of the quarter, particularly in industrial markets. We continue to believe our sales ought to be lower than this year in both segments. We now expect Industrial Controls fiscal 2003 sales to be about 15 to 20 percent lower, and Aircraft Engine Systems sales to be about five percent lower than last year.

Segment earnings in Industrial Controls will be down 25 to 35 percent due to greatly reduced sales volumes, the affect of which can’t be completely offset by cost reductions. We will continue to seek additional opportunities for cost reductions and productivity gains. However, we are committed to ensuring our competitive advantage in the long-term.

Aircraft Engine Systems segment earnings will likely decrease 15 to 20 percent, more than expected sales decrease because of the less favorable sales mix and the costs related to the consolidation of operations. We’ll continue to pursue greater efficiencies and productivity improvements in an effort to minimize the impact on margins.

As a result, if term conditions and industrial markets prevail in the next three quarters we expect consolidated net earning as measured before the current cumulative affect of the accounting change to be 25 to 35 percent lower in 2003 than 2002.

That completes our comments on the business and results for the first quarter. Operator, we’re now ready to open the call to questions.

The question and answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press "*1" on your push-button telephone. Should you wish to withdraw that question, please press "*2." Your question will be taken in the order that it is received. Please stand by for your first question, gentlemen. Our first question in queue comes from Mark Keeler with CL King & Associates. Please state your question.

Good morning, everyone.

Good morning, Mark.

Good morning.

Just some questions on the after market part of your business. Let's begin with the aircraft control segment. What percent of the total segment after market is military and what is commercial? Could you give us a breakout on that?

We're thinking.

Good.

About 5 percent is military after market.

Five percent of the segment after market?

Five percent of total segment sales.

Okay. And what, relatively speaking, what strengths have you seen between the military after market and the commercial after market? Has the commercial after market dipped up at all?

One of the things that--when you look at Woodward's aircraft sales, that you have to recognize is we are very highly represented on the newer aircraft engines. What you've seen happen with the aircraft industry today, they are grounding a lot of aircraft. A lot of those aircraft are JT8 powered, Pratt Whinney JT8's. We have very little aftermarket business associated with at. The aircraft that are still flying have very high Woodward content. So our after market business is holding pretty well in the commercial because we are represented on the planes that are still flying. The modern, more efficient aircraft are using Woodward equipment. So, we're holding up pretty well there. A military after market, I think, as Steve highlighted during the conference call is still doing well. The way the military orders we get spikes. Last year we had a lot of orders. We expect to still see more orders coming in. On the military side, if you look, almost all of the military aircraft, all the fighters, the bombers, the helicopters all have Woodward equipment on it. As we go into the state we are today, the military readiness, they continue to order more equipment to support those, and particularly, on the helicopter side.

Right. Now, let's take a look at the industrial control segment. Could you just give us some idea or some estimate of the types of declines that you've seen, not in the IGT business, but in some of the other businesses. For example, you know, reciprocating engines used for power generation, transportation, or maybe even in the oil and gas industries.

Sure. One of the larger areas that has been [indiscernible] has been the power generation side. A little bit in oil and gas as well on the reciprocating engines. We--that's one of the areas we expect to pick up in oil and gas, and particularly, on the gas side. A lot of the energy companies this year, as you are well aware of, have had some difficulties with their balance sheet, so that slowed some of the capital expenditures. We expect some of that to start picking up later this year. Areas that are actually on the [indiscernible] side, we are also in alternative fuel vehicles, so that we are actually picking up sales in alternative fuel vehicles in Korea, China, down in Brazil. So, we see some of that coming around. The ship marine market is down right now. So, you've seen a reduction in some of that and that is a very large market for us in terms of the type of equipment we provide. So, that's down at the moment as well. So, we're kind of seeing all of these hit. We expect oil and gas to come up first followed probably by power generation in the ship market.

Okay. And then, relative to industrial controls, the after market, you know, I realize that you have--you do nozzle repair and overhaul for GE, and I'm just wondering if you've seen any strengthening there.

Well, we do see, you know, an increase. We actually--on the turbine side, we also--we do work obviously for GE, which we highlight as our largest customer. We do work for Siemens Westinghouse. We do some work on solar machines.

Are these all nozzles?

Well, they are nozzles, valves, and actuators.

Okay.

And obviously, the fuel nozzle business--we talk about fuel nozzles, our other diesel fuel injection business. I can tell you we like those businesses quite a bit because these components are in the very hot section of an engine or a turbine and they [indiscernible]. And so, you do have the effect of an ongoing annuity of repair and overhaul business on these products as well as spare parts sales. With the huge install base that went in over the last couple of years, we are expecting, you know, we can project out repair and overhaul activity there. And as we highlighted earlier, we are putting together a lot of plans. We've put in process flows to be able to handle the repair and overhaul activity and we expect that to start ramping up later this year. And [indiscernible] as the hours accumulate, these parts have to come back. You know, they come back every year. So--.

--Right. Exactly. And are those the opportunities that you are going to focus on for the after market that you listed in the review in the--.

--Exactly. Those are on the repair and overhaul. And we also are working hand in hand with all of our OEM's on looking at other upgrade programs. We have a lot of equipment, whether on the combustion side or in the controls, that can help enhance the efficiency and lower emissions on current engines that are out in the fleet. So, we are working with them to develop new upgrade programs that they can take to their customer base. And a lot of customers are looking for that type of upgrade right now. So, those are the two activities we are putting extra effort into.

Okay. And then, one final question. When, again, relative to the industrial controls. As you emphasize cost and try to take some costs out, do you have any sense of what kind of charges we can expect for the rest of the year?

I don't think we have at the moment.

But there will be charges, right?

Yeah. What you can see, I think, you know, we talk about the reverse leverage effect. Obviously, we have a lot of capacity for the sales level we have. So we're going to take a hard look at that.

Right. Okay. Thank you very much.

Thank you. Our next question in the queue comes from Steve Wortman with Sidoti & Company. Please state your question, sir.

Good morning, guys.

Good morning, Steve.

Were there any charges in industrial during this quarter?

None that we identified.

Okay.

We actually have taken charges, we just haven't highlighted them out. We have been through various operations. The industrial site, I hope, must be recognized. We do operate globally. We have several plants in Europe, Asia, Brazil, North America. And we have been reducing some of our employment levels in these sites. We just haven't taken on large charge in that activity.

Nothing--it wasn't a significant single amount that we identified in the quarter.

Okay. Also, related to industrial, is there any way you can release some backlog figures compared to year-end, compared to today?

Really, Steve, the only time we ever take a hard look at the backlog is at the year end, and as we have talked before, and as I think we re-highlighted, the short lead times really make the backlog number of lesser value, we think. But we really don't have a firm number that we take a look at each quarter. Maybe, one of these days, I can highlight [indiscernible] clarify why we are not doing that. We do have with most of our major OEM customers, long term agreements. These long-term agreements are generally set up as either exclusive on a program or a guarantee as a percent of the volume of the program. What happens is with many of customers our lead times to them when we get an order is there on just in time and pull systems. We get like, at most, 20 days advance purchase orders. So what we would have to do to do a backlog is we would have to then go out and forecast what's in the contract and it is not under firm purchase order. It is under firm agreement. So we've found that the backlog of firm purchase orders isn't a very good reflection of our long-term business. And so, we don't use that as an ongoing measure.

Right.

Okay. A couple of other things. Are the plant closing costs included in segment earnings in aerospace in the quarter?

Yes. The $2.3 million we talked about?

Yes.

Yes, it is.

So really, excluding that, margins were significantly over 20 again?

They were at levels we typically see on the aircraft, yes.

Okay. And the last question, the guidance that you have provided, does that include the plane closing costs in there?

Yes.

Okay. Thank you very much.

Okay.

Thank you. Our next question in queue comes from David Jarreau with T. Rowe Price. Please state your question, sir.

Thank you. Just a couple of questions. If you look on a year-over-year basis, could you help us understand on the industrial controls. With the rate of decline we saw in IGT maybe also the rate of decline on--in diesel gensets as well as the rate of decline was all sort of maybe in all other as well as if you would add a little more clarity. How much did IGT sales sort of decline from Q4 levels to Q1 levels? And I have some--a couple of follow-up questions.

I guess I can go to the last on the Q4 to Q1. One difficulty we've had as we were ending the year, you know, when we forecast we take a long term forecast. That's when we do our own analysis of the market, the demand out there. We use a lot of resources to do that. Short term forecast, we rely on our customers. And what we'd have to tell you is we've had huge cycles in the demand because they haven't been able to forecast the cancellations and other activity they had. But from one quarter to the next, we've seen over 20 percent decline.

Within the IGT business?

Within the IGT, yeah. What we've seen, and one of the difficulties we've had, is we, on the reciprocating engine side, so you are talking about the diesel and the natural gas powered reciprocating engines. We've got a very wide customer base there. We are dealing with the largest manufacturers in the world on this equipment. And most of them, up until even two or three weeks ago, were predicting that the volumes were going to pick up the second half of this year, and all of them have now come back and said that's not going to happen. So we've had to adjust our forecast down. And we did have a very low first quarter. We had a lot of customers as they--making sure their inventory positions were in line for their year end, and we saw the management of inventory come and decline in all the segments.

Okay.

And that's where I think our latest projection is that the beginning of this year. We've met with all the major OEM's and almost every one of them have significantly reduced their outlook for '03.

And you were referring both to the IGT business as well as the diesel genset that the diesel genset manufacturers are no longer looking for the second half recovery?

Correct.

Okay. If you could also help us understand just the charge you are taking through the aircraft business this quarter. The $2.5 million in savings--will any of that savings sort of show up, you know, this year? You know, will you get half of it this year in the second half, get half of it sort of the first half of sort of fiscal '04? And will sort of the rest of the $1.7 million of expenditures to complete the research in the program, will that sort of be almost equally weighed through the next three quarters, or heavily towards Q2 and Q3 and maybe a little light in Q4?

I'll answer that. That's a good question, David. I think the one that we are looking at is that we are going to see probably most of it in the second and third quarters. We'll see mostly an additional charge you are expecting to see. It will--obviously then, we would probably expect to see a little bit of the savings you get starting to spread in--a little bit in '03 and third quarter, mostly into the third and fourth quarter. That's an annual savings rate we're looking at, so you can kind of spread it out over a typical year.

Okay.

So the--but of the 2.3 recognized in the first quarter, the additional 1.7 will principally be private stock in the third quarter, maybe leak some into the fourth quarter.

And the benefit we'll probably--won't really see it until the fourth--our fourth quarter.

Right.

Say it maybe gets an annualized rate of, what would that be, $625,000.00 by Q4, then we get the rest of the benefits in the Q1, Q3 of next year?

That's probably a reasonable assumption.

Okay. Just a couple of quick follow-up questions. Can you get the operating cash flow for the quarter as well as sort of the Capex for the quarter? I apologize--if you said that, I missed that. And also, as well as sort of the Capex target for the year?

Well, the Capex total for the quarter was about $3 million in the first quarter.

Okay.

And that compares roughly to $6 million last year in the first quarter.

Okay.

We've already, I think, indicated we expected total cap expenditures for this year to be approximately maybe around $20 million total. Now that may adjust itself as time goes on and as we see what happens, again, with results in the economy and everything like that. But that was our forecast we put out beginning of the year.

Could I have just the operating cash flow number for the quarter? I apologize.

Really haven't put out the operating cash flow information. It will be out in the 10Q that comes out. But, it has been, and I guess I'd say it's similar to what we've seen in the past.

Okay. We know the net income--we know the [indiscernible]. I can easily figure that out. The--can you just talk about the [indiscernible] what kind of [indiscernible] involved, and the balance sheet is in pretty good shape. You're doing--I believe you're generating strong cash flow. Can you talk about pricing [indiscernible]? You know, are we even close to doing more acquisitions or--.

Yeah, maybe I can answer your question. First, what I would highlight is that I think the environment is very good for acquisitions right now. We have in the last month had numerous [indiscernible] industry competitors talk to us about acquiring them. And I think a lot of that is due to the fact that everybody is having a difficult time. A lot of our competitors are having a much worse time than we are. So what I think that will do is I think the numbers are going to be more attractive for their outlook. We are actively looking at how to continue to enhance our strategy to get the right type of acquisition in. We are also--we are looking at also market share, like on market share acquisitions. And that means in effect consolidating on the competition. But those we scrutinize very carefully for the financial aspects of that.

If I could just ask you this one last question. If you look at sort of the order book in this quarter, I know you did a very short lead-time. But have we sort of not hit a bottom, or are you close as sort of, as you perceive the bottom in IGT, is it going to take a couple of years for sort of the power glut to be sort of consumed in the utilities. But are we sort of at the bottom, as you can see, as good of visibility as you have in terms of the IGT sort of sales, they've dropped off dramatically in the last couple of quarters. Is there any--have a sense that we've sort of hit the bottom there or would you indicate that it should probably get worse going forward?

Well, I'm not sure that it's necessarily at the bottom. You know, if you are talking about the market in total, the total number of large gas turbines being installed. Our share in that is going up, you know, we expect it to. One of the things that you have to watch that I think is important is the bubble occurred in the United States. If you look at what happened in Europe, China, the rest of Asia, South America. It didn't go up as high and it's not coming down as rapidly. And we also are very well represented in those areas, you know, that our customer base includes Siemens Westinghouse, Hitachi, Toshiba, Mitsubishi, Kawasaki, others. So you start seeing those aspects. And so, the rest of the world has been more stable. They are down a little bit today, but it's been the U.S. North American market that shot up so rapidly and has come down so rapidly. I still anticipate maybe a little more drop and then increases in the overseas areas.

Okay. Thank you.

Thank you. Our next question in the queue comes from Terry Ratterman with Kennedy Capital Management. Please state your question, sir.

Yes, hello. I think you just now answered the question. My question was about the international business in the--as far as gas turbines, whether it was on decline, on increase, stable, and I believe you just answered that.

Yeah. One of the areas, too, that--most of you probably know, but one of the biggest markets coming up is obviously in China. And we are working very hard. We have presence in China. We are working to make sure that we help secure the business that's going in there, both on the compression side in the pipelines, and also in power stations. So, we actually think the overseas is going to increase in the '04 and '05 time frame as [indiscernible] project line. So, like I tell you, we've been positioning our company to be able to secure those opportunities and to better work with the European and Asian-based turbine manufacturers.

Okay. Thank you.

Thank you. Ladies and gentlemen, if there are any further questions at this time, please press "*1" on your push-button telephones. Our next question comes once again from David Jarreau with T. Rowe Price.

Just two, actually, quick follow-ups. The share repurchase activity I don't see very aggressive in the quarter. Is it me--if the stock price stays at this level is there any reason to believe that the company will not continue to be sort of aggressive and, you know, we can see, very easily see that $20 million authorization gone by the end of this fiscal year?

But, that's true, Dave. I think at the current price and our desire to do what we do believe makes a good investment for our shareholders now. We would encourage and continue this program throughout the year. And you're right. It would fund itself out during the year.

All right. Great. As well as--I apologize. Did you actually give a year--could you actually help us just on the year-over-year number in terms of if you think about that industrial control segment between how far IGT sales feel on a year-to-year basis, diesel genset, sort of the other industrial portions of that business? And that's the last question. Thank you.

For clarification, you are asking us how far each of those segments have dropped?

Yeah. You look at the 26 percent decline in industrial controls and in the segment. Those three, if you break out for us those three buckets, I guess. Sort of IGT and diesel genset and other and just sort of try to get a sense of how far they have gone from--.

--Yeah. The IGT, our forecast year-over-year is for the large gas turbines to be down on the order of 35 percent year-over-year. So, that's a full year over year. I am not comparing quarter, but full year over full year. We expect about a 35 percent decline. In the diesel genset side, right now, I'd say it's in the 20 percent approximately right at the moment.

And, well, I'm guessing that the IGT fell off further in Q1 than 35 percent because your comp in Q4 and Q3 will get a little bit easier. Is that correct?

First quarter, all very strong. Two was a very good quarter for gas turbine sales. That's true.

Okay. Thank you very much.

You're welcome.

Mr. Halbrook, at this time there are no further questions. I will now turn the conference back to you.

Steve, Tom, and I do appreciate your interest in Woodward and your participation in the call. The next call will be for the second quarter of fiscal 2003, and we look forward to reporting our results and providing additional information about the outlook. Again, thanks for joining us today.