SOURCE: Woodward Governor Company

November 14, 2007 16:06 ET

Woodward Reports Record Sales and Earnings for the Fourth Quarter and Fiscal Year 2007

FORT COLLINS, CO--(Marketwire - November 14, 2007) - Woodward Governor Company (NASDAQ: WGOV) today reported record financial results for its fourth quarter and fiscal year 2007.

Fiscal Year 2007 Highlights

-- Record sales of $1.042 billion, an increase of 22 percent over last year with organic sales growth of 11 percent

-- Net earnings for the year were $2.79 per share compared to $1.99 per share last year, including the items highlighted below

-- Strong financial performance in all segments with total segment earnings up 46 percent

-- Cash generated from operations was $117.7 million, an increase of 46 percent over prior year

-- New business segment structure aligns better with market focus

Net sales for the fourth quarter were $290.8 million, up 25 percent from $232.9 million for the same quarter last year. Net earnings for the quarter were $36.0 million, or $1.02 per share, compared with $17.1 million, or $0.49 per share, in the previous year's fourth quarter.

Net sales for the full fiscal year were $1.042 billion, up 22 percent from $854.5 million for the prior year. Net earnings for the year were $98.2 million, or $2.79 per share, compared with $69.9 million, or $1.99 per share, in the previous year.

Earnings for the quarter and full year included the items highlighted below:

                                   Three Months Ended      Year Ended
                                      September 30        September 30
                                   ------------------- -------------------
                                 In millions,         In millions,
                                    net of               net of
                                    income              income
                                      tax    Per share    tax    Per share
                                   ========= ========= ========= =========
Items that increased (decreased)
 net earnings in 2007:
   Net tax adjustments             $    10.3 $    0.29 $    10.3 $    0.30
   Impact of adverse arbitration
    ruling                                                  (2.5)    (0.07)
Items that increased (decreased)
 net earnings in 2006:
   Change in valuation allowance for
    deferred taxes                                          13.7      0.39
   Expense accruals for certain legal
    matters                                                 (5.3)    (0.15)

This year's and quarter's results include the effect of the SEG acquisition in October 2006. This quarter's results reflect two tax adjustments, a favorable resolution of issues with tax authorities resulting in a reduction of tax expense of $13.3 million, and a reduction in deferred tax assets resulting in tax expense of $3.0 million due to a decrease in the German statutory income tax rate.

"The strength of our targeted end-markets and our offerings to them raised Woodward sales over the $1 billion mark this year, confirming the successful execution of our strategies," said President and Chief Executive Officer Thomas A. Gendron. "As energy costs and environmental concerns escalate, our strategy of addressing increasing efficiency and lowering emissions is being well received in the marketplace."

Turbine Systems' Results

Total net sales (including intersegment sales) for the fourth quarter were $143.8 million, an increase of 12.0 percent from $128.3 million for the fourth quarter a year ago. Segment earnings for the quarter increased to $21.0 million from $20.3 million for the same quarter a year ago, an increase of 3.8 percent. Segment earnings as a percent of sales for the quarter decreased to 14.6 percent from 15.8 percent a year ago.

Total net sales for the full year were $523.8 million, an increase of 14.1 percent from $458.9 million for last year. Segment earnings for the full year increased to $87.4 million from $67.6 million for the same period a year ago, an increase of 29.3 percent. Segment earnings as a percent of total net sales for the year improved to 16.7 percent from 14.7 percent a year ago.

Engine Systems' Results

Total net sales for the fourth quarter were $124.7 million, an increase of 9.4 percent from $113.9 million for the fourth quarter a year ago. Segment earnings for the quarter increased to $17.2 million from $11.2 million for the same quarter a year ago, an increase of 54.5 percent. Segment earnings as a percent of sales for the quarter improved to 13.8 percent from 9.8 percent a year ago.

Total net sales for the full year were $455.2 million, an increase of 5.8 percent from $430.4 million last year. Segment earnings for the full year increased to $57.0 million from $40.8 million last year, an increase of 39.6 percent. Segment earnings as a percent of sales for the year improved to 12.5 percent from 9.5 percent a year ago.

Electrical Power Systems' Results

Total net sales for the fourth quarter increased to $54.6 million from $20.9 million for the fourth quarter a year ago. Organic sales growth for the quarter was 12 percent. Segment earnings for the quarter increased to $5.1 million from $0.6 million for the same quarter a year ago. Segment earnings as a percent of sales for the quarter improved to 9.3 percent from 2.7 percent a year ago.

Total net sales for the full year were $181.4 million as compared to $76.2 million last year. Organic sales growth for the full year was 14 percent. Segment earnings for the full year increased to $20.3 million from $4.5 million last year. Segment earnings as a percent of sales for the year improved to 11.2 percent from 5.9 percent a year ago.

"During the course of the year we have won significant long-term sourcing agreements with many of our key customers," Mr. Gendron continued. "By teaming with our customers early in the development process and maintaining a competitive cost structure, we continue to earn their business."

Cash Flow and Financial Position

Net cash provided by operating activities was $117.7 million for the full year compared with $80.5 million for last year. Capital expenditures for the year were $32.0 million compared to $31.7 million during the same period last year. The debt to total capitalization ratio was 10.8 percent at September 30, 2007 compared to 13.3 percent at the end of the prior year.

Outlook

Mr. Gendron concluded, "We believe the strength in our end markets will continue through 2008 and our efforts to improve our overall cost structure will deliver enhanced margins and improved profitability. As a result, for fiscal 2008 we have targeted sales growth for Woodward in the range of 8-10 percent and earnings of $3.05 - $3.15 per diluted share."

Conference Call

Woodward will hold an investor conference call at 6:00 p.m. EST on Wednesday, November 14, 2007, to provide an overview of the financial performance for the fourth quarter and 2007 financial performance, business highlights, and outlook for the next year. 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 1-866-814-1917 (domestic) or 1-703-639-1361 (international). Participants should call prior to the start time to allow for registration; the Conference ID is 1157382. An audio replay will be available by telephone from 9:00 p.m. EST on November 14 until 11:59 p.m. EST on November 16, 2007. The telephone number to access the replay is 1-888-266-2081 (domestic) or 1-703-925-2533 (international), reference access code 1157382.

About Woodward

Woodward is the largest independent designer, manufacturer, and service provider of energy control and optimization solutions for aircraft engines, industrial engines and turbines, and electrical power equipment. The company's innovative fluid energy, combustion control, electrical energy, and motion control systems help customers offer cleaner, more reliable, and cost-effective equipment. Woodward is headquartered in Fort Collins, Colorado USA and serves global markets in aerospace, power and process industries and transportation. Visit our website at www.woodward.com.

The statements in this release concerning the company's future sales, earnings, business performance, prospects, and the economy in general reflect current expectations and are forward-looking statements that involve risks and uncertainties. Actual results could differ materially from projections or any other forward-looking statement 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, 2006 and Form 10-Q for the quarters ended December 31, 2006 and March 31, and June 30, 2007. Woodward's Form 10-K for the year ended September 30, 2007 will be issued by early-December 2007.

Woodward Governor Company and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS


(Unaudited - in           Three months ended
 thousands except per         September 30,       Year ended September 30,
 share amounts)             2007         2006         2007         2006
                        -----------  -----------  -----------  -----------
Net sales               $   290,765  $   232,911  $ 1,042,337  $   854,515
                        -----------  -----------  -----------  -----------
Costs and expenses:
    Cost of goods sold      208,850      164,208      728,820      612,263
    Sales, general, and
     administrative
     expenses                26,979       22,465      111,297       92,013
    Research and
     development costs       18,383       18,089       65,294       59,861
    Amortization of
     intangible assets        1,640        1,723        7,496        6,953
    Interest expense          1,046        1,188        4,527        5,089
    Interest income          (2,041)        (755)      (3,604)      (2,750)
    Other income             (1,108)        (982)      (4,186)      (4,245)
    Other expense               230          353          705          834
                        -----------  -----------  -----------  -----------
    Total costs and
     expenses               253,979      206,289      910,349      770,018
                        -----------  -----------  -----------  -----------
Earnings before income
 taxes                       36,786       26,622      131,988       84,497
Income taxes                    752        9,533       33,831       14,597
                        -----------  -----------  -----------  -----------
Net earnings            $    36,034  $    17,089  $    98,157  $    69,900
                        ===========  ===========  ===========  ===========

Per share amounts:
Basic                   $      1.05  $      0.50  $      2.87  $      2.03
Diluted                 $      1.02  $      0.49  $      2.79  $      1.99
                        ===========  ===========  ===========  ===========

Weighted-average number
 of shares outstanding:
Basic                        34,259       34,145       34,245       34,351
Diluted                      35,334       34,966       35,244       35,191
                        ===========  ===========  ===========  ===========




Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS

                                                     At            At
                                                September 30, September 30,
(Unaudited - in thousands)                          2007          2006
                                                ------------- -------------
Assets
    Current assets:
      Cash and cash equivalents                 $      71,635 $      83,718
      Accounts receivable                             152,826       117,254
      Inventories                                     172,500       149,172
      Income taxes receivable                           9,461         1,787
      Deferred income taxes                            23,754        23,526
      Other current assets                              8,429         5,777
                                                ------------- -------------
         Total current assets                         438,605       381,234
    Property, plant, and equipment-net                158,998       124,176
    Goodwill                                          141,215       132,084
    Other intangibles-net                              73,018        71,737
    Deferred income taxes                              11,250        16,687
    Other assets                                        6,681         9,579
                                                ------------- -------------
Total assets                                    $     829,767 $     735,497
                                                ============= =============
Liabilities and shareholders' equity
    Current liabilities:
      Short-term borrowings                     $       5,496 $         517
      Current portion of long-term debt                15,940        14,619
      Accounts payable                                 57,668        38,978
      Accrued liabilities                              83,890        66,877
                                                ------------- -------------
         Total current liabilities                    162,994       120,991
    Long-term debt, less current portion               45,150        58,379
    Deferred income taxes                              19,788         6,248
    Other liabilities                                  57,404        71,190
                                                ------------- -------------
    Total liabilities                                 285,336       256,808
    Shareholders' equity                              544,431       478,689
                                                ------------- -------------
Total liabilities and shareholders' equity      $     829,767 $     735,497
                                                ============= =============




Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                           Year ended
                                                          September 30,
(Unaudited - in thousands)                              2007       2006
                                                      ---------  ---------
Net cash provided by operating activities             $ 117,718  $  80,536
                                                      ---------  ---------
Cash flows from investing activities:
Business acquisitions, net of cash acquired             (35,289)        --
Payments for purchase of property, plant, and
 equipment                                              (31,984)   (31,713)
Proceeds from sale of property, plant, and equipment        225        698
                                                      ---------  ---------
Net cash used in investing activities                   (67,048)   (31,015)
                                                      ---------  ---------
Cash flows from financing activities:
Cash dividends paid                                     (14,747)   (13,742)
Proceeds from sales of treasury stock                     7,856      4,163
Purchases of treasury stock                             (50,952)   (22,306)
Excess tax benefits from stock compensation               9,788      3,305
Payments from borrowings under revolving lines           (2,760)    (8,025)
Payments of long-term debt                              (15,681)   (14,510)
Other payments                                               --       (318)
                                                      ---------  ---------
Net cash used in financing activities                   (66,496)   (51,433)
                                                      ---------  ---------
Effect of exchange rate changes on cash                   3,743      1,033
                                                      ---------  ---------
Net change in cash and cash equivalents                 (12,083)      (879)
Cash and cash equivalents, beginning of year             83,718     84,597
                                                      ---------  ---------
Cash and cash equivalents, end of period              $  71,635  $  83,718
                                                      =========  =========




Woodward Governor Company and Subsidiaries
SELECTED FINANCIAL INFORMATION

                                 Three months ended        Year ended
                                    September 30,         September 30,
(Unaudited - in thousands)        2007       2006       2007       2006
                                ---------  ---------  ---------  ---------
Sales Reconciliation*:
    Turbine Systems             $ 143,767  $ 128,327  $ 523,842  $ 458,923
    Engine Systems                124,690    113,927    455,200    430,448
    Electrical Power Systems       54,601     20,874    181,366     76,186
     Less intersegment sales      (32,293)   (30,217)  (118,071)  (111,042)
                                ---------  ---------  ---------  ---------
    Total external sales          290,765    232,911  1,042,337    854,515

Earnings Reconciliation:
    Turbine Systems                21,036     20,266     87,353     67,584
    Engine Systems                 17,225     11,152     56,984     40,829
    Electrical Power Systems        5,092        571     20,294      4,475
                                ---------  ---------  ---------  ---------
    Total segment earnings         43,353     31,989    164,631    112,888
    Nonsegment expenses            (7,562)    (4,934)   (31,720)   (26,052)
    Interest expense and
     income, net                      995       (433)      (923)    (2,339)
                                ---------  ---------  ---------  ---------
    Consolidated earnings
     before income taxes        $  36,786  $  26,622  $ 131,988  $  84,497
                                =========  =========  =========  =========

Capital expenditures            $   9,317  $  12,052  $  31,984  $  31,713
Depreciation expense                4,737      4,954     25,428     22,064
                                =========  =========  =========  =========

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



Woodward Governor Company and Subsidiaries
RECONCILIATION OF NET EARNINGS TO EBITDA

                                    Three months
                                       ended              Year ended
                                    September 30,        September 30,
                                --------------------  --------------------
(Unaudited - in thousands)        2007       2006       2007       2006
                                ---------  ---------  ---------  ---------
Net earnings                    $  36,034  $  17,089  $  98,157  $  69,900
Income taxes (benefit)                752      9,533     33,831     14,597
Interest expense                    1,046      1,188      4,527      5,089
Interest income                    (2,041)      (755)    (3,604)    (2,750)
Amortization of intangible assets   1,640      1,723      7,496      6,953
Depreciation expense                4,737      4,954     25,428     22,064
                                ---------  ---------  ---------  ---------
EBITDA                          $  42,168  $  33,732  $ 165,835  $ 115,853
                                =========  =========  =========  =========

EBITDA (earnings before interest, taxes, depreciation, and amortization) 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 generally accepted accounting
principles. Securities analysts, investors, and others frequently use
EBITDA in their evaluation of companies, particularly those with
significant property, plant, and equipment, and intangible assets that are
subject to amortization.

Contact Information

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