SOURCE: Woodward Governor Company

Woodward Governor Company

November 18, 2009 16:00 ET

Woodward Reports Fourth Quarter and Fiscal Year 2009 Results

FORT COLLINS, CO--(Marketwire - November 18, 2009) - Woodward Governor Company (NASDAQ: WGOV) today reported financial results for its fourth quarter and fiscal year 2009. (All per share amounts are presented on a fully diluted basis.)

Quarterly Highlights

--  Sales for the quarter were $365 million, up approximately 4 percent
    from $351 million in the fourth quarter of last year.
--  Earnings per share were $0.34 for the quarter as compared with $0.50
    for the same quarter last year.
--  Free cash flow for the quarter was $92 million compared to $27 million
    for the same period in the prior year.
--  $121 million of debt was repaid in the fourth quarter.
--  Final resolution in November 2009 of MPC's government matter
    consistent with expectations.
--  Organic net sales (which excludes Airframe Systems segment external
    sales of $109.6 million) for the fiscal 2009 fourth quarter were $255
    million, down 27 percent from $351 million in the fiscal 2008 fourth
    quarter. Organic operating earnings (earnings before interest and taxes
    excluding the Airframe Systems segment) in the fourth quarter of fiscal
    2009 were $30.1 compared to fiscal 2008 of $50.9.
    

Annual Highlights

--  Annual sales were $1.4 billion, up 14 percent from fiscal 2008.
--  Reported earnings per share for fiscal 2009 were $1.37 compared to
    $1.75 per share for fiscal 2008. Excluding special charges highlighted in
    the reconciliation below, adjusted earnings per share were $1.57.
--  Free cash flow generated during fiscal 2009 was $190 million, up from
    $88 million generated in fiscal 2008.
--  Organic net sales for fiscal 2009 were $1.1 billion, down 12 percent
    from the prior fiscal year. Reported organic operating earnings were $143.9
    million compared to $183.6 million for fiscal 2008.
    

Net sales for the fiscal 2009 fourth quarter were $364.5 million, up approximately 4 percent from $350.5 million for the fiscal 2008 fourth quarter. Net earnings for the fiscal 2009 fourth quarter were $23.8 million, or $0.34 per share, compared with $34.4 million, or $0.50 per share, in the fiscal 2008 fourth quarter. Foreign currency exchange rates had a negative impact on net sales of approximately $5 million in the fiscal 2009 fourth quarter.

Organic net sales (which excludes Airframe Systems' segment external sales of $109.6 million) for the fiscal 2009 fourth quarter were $255.0 million, down approximately 27 percent from $350.5 million in the fiscal 2008 fourth quarter. Organic operating earnings (earnings before interest and taxes excluding the Airframe Systems segment) were down 41 percent compared to the fiscal 2008 fourth quarter.

Net sales for fiscal 2009 were $1.430 billion, up 14 percent from $1.258 billion for fiscal 2008. Net earnings for the year were $94.4 million, or $1.37 per share, compared with $121.9 million, or $1.75 per share for fiscal 2008. Net earnings included the special items noted in the reconciliation below. Foreign currency exchange rates had a negative impact on net sales of approximately 3 percent and approximately $0.09 per share on net earnings for fiscal 2009 as compared to fiscal 2008.

Organic net sales for fiscal 2009 were $1.111 billion, down 12 percent from the prior fiscal year. Reported organic operating earnings were $143.9 million. Adjusted organic operating earnings, excluding the special charges described below totaling $16.6 million taken in the second quarter of 2009, were $160.5 million compared to $183.6 million for fiscal 2008. Foreign currency exchange rates had a negative impact on net organic sales of approximately 9 percent and approximately $6 million on organic operating earnings for fiscal 2009 as compared to fiscal 2008.

    RECONCILIATION OF EARNINGS PER SHARE TO ADJUSTED EARNINGS PER SHARE

                                                  Three Months
                                                     Ended     Year Ended
                                                  ------------ -----------
                                                     September 30, 2009
                                                  -------------------------

Earnings Per Share as reported                    $       0.34 $      1.37
Purchase Accounting - Inventory                              -        0.12
Workforce Management and Other Special Charges               -        0.15
Favorable Resolution - Tax Issues                            -       (0.07)
                                                  ------------ -----------
Adjusted Earnings Per Share                       $       0.34 $      1.57
                                                  ============ ===========

Note: See statement regarding non-GAAP measures at the end of this release.

"During this challenging period, we delivered solid financial results by maintaining operating margins and delivering strong cash flow," said Chairman and Chief Executive Officer Thomas A. Gendron. "We believe that we have positioned the business to deliver solid results in a difficult environment and to leverage our advantages in the coming rebound. This is a result of a broad effort to manage costs in each of the businesses while investing in opportunities, technologies and relationships that will support future growth."

Quarterly Segment Results

Turbine Systems(1)

Turbine Systems' segment net sales for the fourth quarter, which includes intersegment sales, were $148.4 million, a decrease of approximately 15 percent from $175.2 million for the fourth quarter a year ago. Segment earnings for the fourth quarter of 2009 declined slightly to $32.0 million from $32.6 million for the same quarter a year ago. Segment earnings as a percent of segment net sales were 21.6 percent this quarter compared to 18.6 percent in the same quarter for the prior year.

Our sales performance reflected declines in aerospace OEM and industrial equipment markets, while aftermarket sales remained consistent with the prior year. This favorable mix, along with cost controls, allowed us to maintain segment earnings despite the decline in sales.

Airframe Systems

Airframe Systems' segment net sales for the fourth quarter, which includes intersegment sales, were $110.4 million, reflecting stable defense markets and weakness in the business and regional jet markets. Reported segment earnings were $12.0 million or 10.9 percent of segment net sales for the fourth quarter of 2009. Excluding the effects of purchase accounting as shown on the attached schedule of Airframe Systems - Adjusted Segment Earnings, segment earnings were $18.3 million or 16.6 percent of net segment sales. Consistent with our expectations, the sequential improvement in profitability reflects significant cost reductions and synergies. As a result of the improved profitability, our airframe acquisitions were accretive to earnings in the fourth quarter.

Electrical Power Systems

Electrical Power Systems' segment net sales for the fourth quarter, which includes intersegment sales, were $53.7 million, a decrease of 40 percent from $89.7 million for the fourth quarter a year ago. Segment earnings for this quarter were $5.1 million compared to $14.8 million for the same quarter a year ago. Excluding the effects of foreign currency exchange rates, net segment sales would have been approximately $57 million for the quarter. This quarter's sales results reflected a broad decline in all markets served by the Electrical Power Systems segment. Approximately one-half of the decline was related to a significant slowdown in wind converter sales. This decrease was driven by ongoing tightness in credit markets and delays in stimulus funding and tax credit availability. Segment earnings as a percent of sales decreased to 9.5 percent this quarter compared to 16.5 percent for the same quarter last year. Our profitability in this segment was affected by the significant decline in volume, although cost controls mitigated this impact.

Engine Systems(1)

Engine Systems' segment net sales for the fourth quarter, which includes intersegment sales, were $73.8 million compared to $120.0 million for last year's fourth quarter, a decrease of 38 percent. Segment earnings for this quarter decreased to $2.1 million from $10.5 million for the same period a year ago. Segment earnings as a percent of net sales were 2.8 percent this quarter compared to 8.8 percent in the same quarter last year. The lower sales levels were attributable to broad declines across all of our served markets. The impact of foreign currency exchange rates on net sales and segment earnings was not significant when compared to the prior year. Profitability was significantly affected by the decrease in volumes, partially offset by cost reduction actions taken predominantly in the second half of 2009.

Nonsegment

Nonsegment expenses totaled $9.1 million for the fourth quarter of 2009, compared to $7.0 million for the same quarter last year. This reflects costs associated with a continuous improvement project impacting all business segments.

(1) The steam turbine product line was moved from Engine Systems to Turbine
Systems in the fourth quarter of 2009. Segment information for all periods
presented has been recast.

Full Year Fiscal 2009 Segment Results

Turbine Systems

Turbine Systems' segment net sales for fiscal 2009 were $632.2 million, a slight decrease from $634.7 million for the same period a year ago. Segment earnings for the year increased 6 percent to $136.1 million from $128.9 million for last year. Segment earnings as a percent of net sales were 21.5 percent for fiscal 2009 compared to 20.3 percent in the prior year.

Airframe Systems

Segment net sales for fiscal 2009 were $322.0 million and segment earnings for the year were $11.0 million. Segment earnings reflect the $12.5 million charge related to purchase accounting effects on inventory related to the recent acquisition of HR Textron ("HRT") and $19.6 million of intangible amortization related to both of the MPC Products Corporation ("MPC") and HRT acquisitions, all of which were non-cash charges.

Electrical Power Systems

Electrical Power Systems' segment net sales for fiscal 2009 were $243.1 million, a decrease of approximately 16 percent from $289.3 million for a year ago. Segment earnings for fiscal 2009 decreased approximately 15 percent to $35.9 million from $42.3 million for a year ago. Segment earnings as a percent of net sales increased to 14.8 percent for fiscal 2009 compared to 14.6 percent for last year.

Engine Systems

Engine Systems' segment net sales for fiscal 2009 were $341.0 million compared to $469.4 million for last year, a decrease of 27 percent. Segment earnings for fiscal 2009 decreased 58 percent to $18.5 million from $43.7 million for last year. Segment earnings as a percent of net sales were 5.4 percent in fiscal 2009 compared to 9.3 percent in fiscal 2008.

Nonsegment

Nonsegment expenses for fiscal 2009 were $46.6 million, compared to $31.3 million for last year. Excluding special charges, nonsegment expenses were $30.0 million or 2.1 percent of net sales for 2009, compared to 2.5 percent of net sales for the prior year.

Cash Flow and Financial Position

Net cash generated from operating activities improved to $218.7 million for the year ended September 30, 2009 compared with $125.4 million for fiscal 2008, reflecting our continuing focus on working capital and operating cash flow initiatives. Free cash flow was $189.7 million for the 2009 fiscal year as compared to $87.8 million for 2008. We believe this level of cash generation should continue in 2010. Capital expenditures for the twelve-month period were $28.9 million compared with $37.5 million last year.

Our ratio of debt to debt-plus-equity was 44.7 percent at September 30, 2009 compared to 50.1 percent at the end of the prior quarter and 7.2 percent at September 30, 2008, reflecting the financing and partial debt repayments connected with the recent acquisitions.

Outlook

Though near-term visibility has improved somewhat, we still expect the environment to remain challenging through at least the first half of fiscal 2010. This may include sequential revenue declines in some of our businesses. For fiscal 2010, we expect our sales to be approximately flat compared to fiscal 2009. We expect Airframe Systems sales to increase due to the mid-year acquisition of HR Textron, but anticipate sequential declines through the first half of the year. We are optimistic that most of our businesses are bottoming out now or will in the near future. Signs of stabilization and a possible second-half recovery are appearing in many of our markets.

Therefore, for fiscal 2010 we expect our sales to be between $1.4 billion and $1.5 billion and our diluted earnings per share to be between $1.40 and $1.60.

**********

Non-GAAP Measures: Adjusted earnings per share, segment earnings, operating earnings, EBITDA and free cash flow are non-GAAP financial measures. The use of these measures is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America. Securities analysts, investors, and others frequently use adjusted earnings per share, segment earnings, operating earnings, EBITDA and free cash flow in their evaluation of companies, particularly those with significant property, plant, and equipment, and intangible assets that are subject to amortization. Management uses operating earnings to evaluate its performance without financing and tax related considerations, as these elements may not fluctuate with operating results. EBITDA is used in reviewing compliance with our debt covenants and in evaluating capital structure impacts of various strategic scenarios. Free cash flow is a non-GAAP financial measure which Woodward and others define as cash from operations less capital expenditures.

Conference Call

Woodward will hold an investor conference call at 5:00 p.m. EST on Wednesday, November 18, 2009 to provide an overview of the financial performance for the fourth quarter and fiscal 2009, business highlights, and outlook for fiscal 2010. You are invited to listen to the live webcast of our conference call, or a recording, and view or download accompanying presentation slides at our website, www.woodward.com.

You may also listen to the call by dialing 1-866-835-8893 (domestic) or 1-703-639-1409 (international). Participants should call prior to the start time to allow for registration; the Conference ID is 1403951. An audio replay will be available by telephone from 8:00 p.m. EST on November 18 until 11:59 p.m. EST on November 20, 2009. The telephone number to access the replay is 1-888-266-2081 (domestic) or 1-703-925-2533 (international), reference access code 1403951.

About Woodward

Woodward is an independent designer, manufacturer, and service provider of energy control and optimization solutions used in global infrastructure equipment. We serve the aerospace, power generation and distribution, and transportation markets. Our systems and components optimize the performance of commercial aircraft; military aircraft, ground vehicles and other equipment; gas and steam turbines; wind turbines; reciprocating engines; and electrical power systems. The company's innovative fluid energy, combustion control, electrical energy, and motion control systems help customers offer cleaner, more reliable and more cost-effective equipment. Our customers include leading original equipment manufacturers and end users of their products. Woodward is headquartered in Fort Collins, Colo., USA. Visit our website at www.woodward.com.

Information in this press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, including, but not limited to, statements regarding future sales, earnings, liquidity, relative profitability, and the impact of economic conditions and downturns on Woodward. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Factors that could cause actual results and the timing of certain events to differ materially from the forward-looking statements include, but are not limited to, the recent instability of the credit markets and other adverse economic and industry conditions; our ability to comply with the terms of the civil and criminal settlements related to the U.S. Department of Justice investigation of the pre-June 2005 government contract pricing practices of MPC Products Corporation and the related administrative agreement with the U.S. Department of Defense; Woodward's ability to implement and realize the intended effects of its restructuring efforts; Woodward's ability to reduce its expenses in proportion to any sales shortfalls; the ability of Woodward's suppliers to meet their obligations; Woodward's ability to integrate acquisitions and manage the costs related thereto; Woodward's substantial debt obligations, debt service requirements and its ability to operate its business and pursue business strategies in the light of certain restrictive covenants in its outstanding debt documents; unforeseen events that significantly reduce commercial airline travel; risks from operating internationally, including the impact on reported earnings from fluctuations in foreign currency exchange rates, and other risk factors described in Woodward's Annual Report on Form 10-K for the year ended September 30, 2008 and any subsequently filed Quarterly Report on Form 10-Q.

Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

                           Three Months Ended            Year Ended
(Unaudited - in               September 30,             September 30,
 thousands except per   ------------------------  ------------------------
 share amounts)             2009         2008         2009         2008
                        -----------  -----------  -----------  -----------

Net sales               $   364,527  $   350,541  $ 1,430,125  $ 1,258,204
                        -----------  -----------  -----------  -----------
Costs and expenses:
 Cost of goods sold         262,176      249,834    1,029,095      882,996
 Selling, general, and
  administrative
  expenses                   33,947       29,318      128,682      115,399
 Research and
  development costs          19,980       20,013       78,536       73,414
 Amortization of
  intangible assets           7,951        1,571       26,120        6,830
 Restructuring and
  special charges                 -            -       15,159            -
 Interest expense             9,499          865       33,629        3,834
 Interest income               (229)        (650)      (1,131)      (2,120)
 Other, net                  (1,590)      (1,088)      (2,377)      (4,059)
                        -----------  -----------  -----------  -----------
Total costs and
 expenses                   331,734      299,863    1,307,713    1,076,294
                        -----------  -----------  -----------  -----------
Earnings before income
 taxes                       32,793       50,678      122,412      181,910
Income taxes                 (8,976)     (16,251)     (28,060)     (60,030)
                        -----------  -----------  -----------  -----------
Net earnings            $    23,817  $    34,427  $    94,352  $   121,880
                        ===========  ===========  ===========  ===========
Earnings per share
 amounts:
Basic                   $      0.35  $      0.51  $      1.39  $      1.80
Diluted                 $      0.34  $      0.50  $      1.37  $      1.75
                        ===========  ===========  ===========  ===========
Weighted average number
 of shares outstanding:
Basic                        67,998       67,486       67,821       67,564
Diluted                      69,219       69,463       69,033       69,560
                        ===========  ===========  ===========  ===========
Cash dividends per
 share                  $     0.060  $     0.060  $     0.240  $     0.235
                        ===========  ===========  ===========  ===========




Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS

                                                       At September 30,
(Unaudited - in thousands)                             2009        2008
                                                    ----------- -----------

Assets
  Current assets:
    Cash and cash equivalents                       $   100,863 $   109,833
    Accounts receivable                                 209,626     178,128
    Inventories                                         302,339     208,317
    Income taxes receivable                              16,302           -
    Deferred income tax assets                           45,413      25,128
    Other current assets                                 21,701      16,649
                                                    ----------- -----------
      Total current assets                              696,244     538,055
  Property, plant, and equipment-net                    208,885     168,651
  Goodwill                                              442,802     139,577
  Other intangibles - net                               327,773      66,106
  Deferred income tax assets                              8,200       6,208
  Other assets                                           12,518       8,420
                                                    ----------- -----------
Total assets                                        $ 1,696,422 $   927,017
                                                    =========== ===========

Liabilities and stockholders' equity
  Current liabilities:
    Short-term borrowings                           $         - $     4,031
    Current portion of long-term debt                    45,569      11,560
    Accounts payable                                     81,108      65,427
    Income taxes payable                                  8,084       2,235
    Accrued liabilities                                 127,317      85,591
                                                    ----------- -----------
      Total current liabilities                         262,078     168,844
  Long-term debt, less current portion                  526,771      33,337
  Deferred income tax liabilities                        86,048      27,513
  Other liabilities                                     112,287      67,695
                                                    ----------- -----------
  Total liabilities                                     987,184     297,389
  Stockholders' equity                                  709,238     629,628
                                                    ----------- -----------
Total liabilities and stockholders' equity          $ 1,696,422 $   927,017
                                                    =========== ===========





Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                           Year Ended
                                                          September 30,
                                                      --------------------
(Unaudited - in thousands)                              2009       2008
                                                      ---------  ---------
Net cash provided by operating activities             $ 218,652  $ 125,354
                                                      ---------  ---------

Cash flows from investing activities:
Business acquisitions                                  (749,820)         -
Business dispositions                                    48,000          -
Payments for purchase of property, plant, and
 equipment                                              (28,947)   (37,516)
Proceeds from sale of assets                             16,637      1,607
                                                      ---------  ---------
Net cash used in investing activities                  (714,130)   (35,909)
                                                      ---------  ---------

Cash flows from financing activities:
Cash dividends paid                                     (16,289)   (15,872)
Proceeds from sales of treasury stock as a result of
 exercises of stock options                               4,631      9,440
Purchases of treasury stock                                (866)   (39,801)
Excess tax benefits from stock compensation               2,695     15,355
Proceeds from issuance of long-term debt                620,000          -
Payments of long-term debt                              (92,392)   (16,257)
Borrowings on revolving lines of credit and
 short-term borrowings                                  145,702     45,791
Payments on revolving lines of credit and short-term
 borrowings                                            (149,731)   (47,256)
Payment of long-term debt assumed in MPC acquisition    (18,610)         -
Net proceeds from (payments for) cash flow hedges        (1,308)       108
Debt issuance costs                                      (5,892)      (412)
                                                      ---------  ---------
Net cash provided by (used in) financing activities     487,940    (48,904)
                                                      ---------  ---------
Effect of exchange rate changes on cash and cash
 equivalents                                             (1,432)    (2,343)
                                                      ---------  ---------
Net change in cash and cash equivalents                  (8,970)    38,198
Cash and cash equivalents, beginning of period          109,833     71,635
                                                      ---------  ---------
Cash and cash equivalents, end of period              $ 100,863  $ 109,833
                                                      =========  =========




Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

                             Three Months Ended          Year Ended
                                September 30,           September 30,
(Unaudited - in thousands   --------------------  ------------------------
 except per share amounts)    2009       2008         2009         2008
                            ---------  ---------  -----------  -----------
Segment net sales *:
Turbine Systems             $ 148,353  $ 175,159  $   632,222  $   634,658
Airframe Systems              110,352          -      321,956            -
Electrical Power Systems       53,718     89,748      243,146      289,294
Engine Systems                 73,838    120,029      340,995      469,432
                            ---------  ---------  -----------  -----------
Total segment net sales     $ 386,261  $ 384,936  $ 1,538,319  $ 1,393,384
                            =========  =========  ===========  ===========
Intersegment net sales:
Turbine Systems             $  (3,149) $  (5,241) $   (14,272) $   (18,470)
Airframe Systems                 (785)         -       (2,947)           -
Electrical Power Systems       (9,176)   (16,986)     (48,146)     (66,571)
Engine Systems                 (8,624)   (12,168)     (42,829)     (50,139)
                            ---------  ---------  -----------  -----------
Total sales                 $ 364,527  $ 350,541  $ 1,430,125  $ 1,258,204
                            =========  =========  ===========  ===========
Segment earnings**:
Turbine Systems             $  31,978  $  32,561  $   136,120  $   128,930
As a percent of segment
 sales                           21.6%      18.6%        21.5%        20.3%
Airframe Systems               11,979          -       11,023            -
As a percent of segment
 sales                           10.9%       N/A          3.4%         N/A
Electrical Power Systems        5,087     14,785       35,891       42,303
As a percent of segment
 sales                            9.5%      16.5%        14.8%        14.6%
Engine Systems                  2,074     10,549       18,454       43,737
As a percent of segment
 sales                            2.8%       8.8%         5.4%         9.3%
                            ---------  ---------  -----------  -----------
Total segment earnings         51,118     57,895      201,488      214,970
Nonsegment expenses            (9,055)    (7,002)     (46,578)     (31,346)
                            ---------  ---------  -----------  -----------
Operating earnings             42,063     50,893      154,910      183,624
Interest expense and
 income, net                   (9,270)      (215)     (32,498)      (1,714)
                            ---------  ---------  -----------  -----------
  Consolidated earnings
   before income taxes      $  32,793  $  50,678  $   122,412  $   181,910
                            =========  =========  ===========  ===========

Capital expenditures        $  11,032  $  12,999  $    28,947  $    37,516
Depreciation expense            9,931      6,704       37,828       28,620
                            =========  =========  ===========  ===========

* This schedule reconciles segment sales, which include intersegment
  sales, with consolidated external sales.

**This schedule reconciles segment earnings, which excludes certain
  costs, to consolidated earnings before taxes.




Woodward Governor Company and Subsidiaries
RECONCILIATION OF NET EARNINGS TO OPERATING EARNINGS AND EBITDA

                                  Three Months Ended       Year Ended
                                    September 30,         September 30,
                                  ------------------  --------------------
(Unaudited - in thousands)          2009      2008      2009       2008
                                  --------  --------  ---------  ---------
Net earnings                      $ 23,817  $ 34,427  $  94,352  $ 121,880
Income taxes                         8,976    16,251     28,060     60,030
Interest expense                     9,499       865     33,629      3,834
Interest income                       (229)     (650)    (1,131)    (2,120)
                                  --------  --------  ---------  ---------
OPERATING EARNINGS                  42,063    50,893    154,910    183,624
Amortization of intangible assets    7,951     1,571     26,120      6,830
Depreciation expense                 9,931     6,704     37,828     28,620
                                  --------  --------  ---------  ---------
EBITDA                            $ 59,945  $ 59,168  $ 218,858  $ 219,074
                                  ========  ========  =========  =========


OPERATING EARNINGS                $ 42,063  $ 50,893  $ 154,910  $ 183,624
Less: Airframe Systems operating
 income                            (11,979)        -    (11,023)         -
                                  --------  --------  ---------  ---------
ORGANIC OPERATING EARNINGS        $ 30,084  $ 50,893  $ 143,887  $ 183,624
                                  ========  ========  =========  =========

Operating earnings (earnings before interest and taxes) and EBITDA (earnings before interest, taxes, depreciation, and amortization) are non-GAAP financial measures. The use of these measures is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America. Securities analysts, investors, and others frequently use both Operating Earnings and EBITDA in their evaluation of companies, particularly those with significant property, plant, and equipment, and intangible assets that are subject to amortization.

Management uses Operating Earnings to evaluate its performance without financing and tax related considerations as these elements may not fluctuate with operating results. EBITDA is used in reviewing compliance with its debt covenants and in evaluating capital structure impacts of various strategic scenarios.

Woodward Governor Company and Subsidiaries
RECONCILIATION OF CASH FLOW FROM OPERATIONS TO FREE CASH FLOW

                                 Three Months Ended        Year Ended
                                    September 30,         September 30,
                                --------------------  --------------------
(Unaudited - in thousands)        2009       2008       2009       2008
                                ---------  ---------  ---------  ---------

Net cash provided by operating
 activities                     $ 103,494  $  40,003  $ 218,652  $ 125,354
Capital expenditures              (11,032)   (12,999)   (28,947)   (37,516)
                                ---------  ---------  ---------  ---------
Free cash flow                  $  92,462  $  27,004  $ 189,705  $  87,838
                                =========  =========  =========  =========

Free cash flow is a non-GAAP financial measure. The use of this measure is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America. Securities analysts, investors, and others frequently use free cash flow in their evaluation of companies, particularly those with significant property, plant, and equipment, and intangible assets that are subject to amortization.

Management uses free cash flow in reviewing the financial performance of its various business segments.

Woodward Governor Company and Subsidiaries
SPECIAL ITEM SUMMARY

                                                        Year Ended
                                                     September 30, 2009
                                                   -----------------------
(Unaudited)                                        In Millions  Per Share
                                                   ----------- -----------

Items that decreased (increased) net earnings
 in 2009:

Purchase accounting - inventory                      $    12.5
Less: income tax impact                                   (4.5)
                                                   -----------
                                                           8.0 $      0.12

Workforce management and other charges                    16.6
Less: income tax impact                                   (5.8)
                                                   -----------
                                                          10.8        0.15

Favorable resolution - tax issues                         (5.0)      (0.07)
                                                   ----------- -----------
Net decrease in net earnings                       $      13.8 $      0.20
                                                   =========== ===========




Woodward Governor Company and Subsidiaries
Airframe Systems  - Adjusted Segment Earnings

                                    Three Months Ended      Year Ended
                                       September 30,       September 30,
                                    ------------------- -------------------
(Unaudited - in thousands)            2009      2008      2009      2008
                                    --------- --------- --------- ---------
Airframe Systems earnings           $  11,979 $       - $  11,023 $       -
Purchase accounting - inventory             -         -    12,500         -
Intangible asset amortization           6,296         -    19,550         -
                                    --------- --------- --------- ---------
ADJUSTED AIRFRAME SYSTEMS EARNINGS  $  18,275 $       - $  43,073 $       -
                                    ========= ========= ========= =========

Adjusted segment earnings is a non-GAAP financial measure. The use of this measure is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America. Securities analysts, investors, and others frequently use segment earnings in their evaluation of companies.

Management uses segment earnings in reviewing the financial performance of its various business segments.

Woodward Governor Company and Subsidiaries
Recast Segment Information


                                           2009 Fiscal Quarters
                                ------------------------------------------
                                  First      Second     Third      Fourth
                                ---------  ---------  ---------  ---------
Total segment net sales:
Turbine Systems                 $ 156,819  $ 168,043  $ 159,007  $ 148,353
Airframe Systems                   52,318     51,610    107,676    110,352
Electrical Power Systems           61,842     58,521     69,065     53,718
Engine Systems                    105,294     85,234     76,629     73,838
                                ---------  ---------  ---------  ---------
Total                           $ 376,273  $ 363,408  $ 412,377  $ 386,261
                                =========  =========  =========  =========
Intersegment sales:
Turbine Systems                 $   4,537  $   3,472  $   3,114  $   3,149
Airframe Systems                      658        701        803        785
Electrical Power Systems           13,925     13,300     11,745      9,176
Engine Systems                     12,409     11,274     10,522      8,624
                                ---------  ---------  ---------  ---------
Total                           $  31,529  $  28,747  $  26,184  $  21,734
                                =========  =========  =========  =========
External net sales:
Turbine Systems                 $ 152,282  $ 164,571  $ 155,893  $ 145,204
Airframe Systems                   51,660     50,909    106,873    109,567
Electrical Power Systems           47,917     45,221     57,320     44,542
Engine Systems                     92,885     73,960     66,107     65,214
                                ---------  ---------  ---------  ---------
Total                           $ 344,744  $ 334,661  $ 386,193  $ 364,527
                                =========  =========  =========  =========
Segment earnings (losses):
Turbine Systems                 $  33,244  $  37,635  $  33,263  $  31,978
Airframe Systems                    1,801      3,233     (5,990)    11,979
Electrical Power Systems            9,166      9,137     12,501      5,087
Engine Systems                      7,586      4,882      3,912      2,074
                                ---------  ---------  ---------  ---------
Total                           $  51,797  $  54,887  $  43,686  $  51,118
                                =========  =========  =========  =========
Earnings reconciliation:
Total segment earnings          $  51,797  $  54,887  $  43,686  $  51,118
Nonsegment expenses                (7,803)   (23,594)    (6,126)    (9,055)
Interest expense and income,
 net                               (5,875)    (6,486)   (10,867)    (9,270)
                                ---------  ---------  ---------  ---------
Consolidated earnings before
 income taxes                   $  38,119  $  24,807  $  26,693  $  32,793
                                =========  =========  =========  =========

Note: The steam turbine product line was moved from Engine Systems to Turbine Systems in the fourth quarter of 2009. Segment information for all periods presented has been recast.

Contact Information

  • CONTACT:
    Robert F. Weber, Jr.
    Chief Financial Officer and Treasurer
    970-498-3112

    Woodward Governor Company
    1000 East Drake Road
    Fort Collins, Colorado 80525, USA
    Tel: 970-482-5811
    Fax: 970-498-3058