SOURCE: Woodward Governor Company

November 19, 2008 16:10 ET

Woodward Reports Fourth Quarter and Fiscal Year 2008 Results

FORT COLLINS, CO--(Marketwire - November 19, 2008) - Woodward Governor Company (NASDAQ: WGOV) today reported financial results for its fourth quarter and fiscal year 2008. (All per share amounts are presented on a fully diluted basis.)

Quarterly Highlights
  -- Record sales for the quarter of $350.5 million, up 21 percent over
     last year.
  -- Earnings per share for the quarter of $0.50 compared with last year's
     $0.51, which included a $0.15 per share favorable tax adjustment.
  -- Cash generated from operations during the quarter was $40 million,
     down from $61 million for the prior year.
  -- Operating earnings increased to $50.9 million, up 42 percent from
     $35.8 million last year.

Annual Highlights
  -- Record annual sales of $1.26 billion, up 21 percent from last year.
  -- Record earnings per share for the year of $1.75, an increase of
     26 percent from $1.39 last year.
  -- Cash generated from operations during the year was $125.4 million,
     a 6 percent increase from the prior year.
  -- Operating earnings were up 38 percent to $183.6 million compared
     to the prior year.

Net sales for the quarter were $350.5 million, up 21 percent from $290.8 million for the fourth quarter of last year. Net earnings for the quarter were $34.4 million, or $0.50 per share, compared with $36.0 million, or $0.51 per share, in last year's fourth quarter. Last year's fourth quarter included a favorable tax adjustment of $10.3 million, or $0.15 per share. Approximately one quarter of the 21 percent sales growth was attributed to favorable impacts of foreign exchange rates. Exchange rates had a favorable, but insignificant, effect on net earnings.

Net sales for the year were $1.26 billion, up 21 percent from $1.04 billion for the prior year. Net earnings for the year were $121.9 million, or $1.75 per share, compared with $98.2 million, or $1.39 per share, in the previous year.

"Our business showed continued strength through our fiscal fourth quarter. We took advantage of two continuing trends in our markets -- the increasing global need for both energy efficiency and emissions reductions," said Chairman and Chief Executive Officer Thomas A. Gendron.

Quarterly Segment Results

Turbine Systems

Turbine Systems' segment net sales for the fourth quarter were $163.8 million, an increase of 14 percent from $143.8 million for the fourth quarter a year ago. Segment earnings for the fourth quarter increased 36 percent to $28.7 million from $21.0 million for the same quarter a year ago. Segment earnings as a percent of sales were 17.5 percent this quarter compared to 14.6 percent in the same quarter for the prior year. Our sales performance reflected generally strong demand for our OEM offerings in the industrial and aerospace turbine markets, including our recently introduced control systems for business jets. Compared to the prior year, earnings benefited from leverage on the increased sales volume. Relative to recent quarters, a stronger mix of OEM aerospace products affected segment earnings as a percent of sales.

Engine Systems

Engine Systems' segment net sales for the fourth quarter were $128.5 million, an increase of 3 percent from $124.7 million for last year's fourth quarter, supported by demand for our control systems for large, natural gas-powered, on-highway vehicles and our offerings in the marine market. Segment earnings for the quarter decreased 16 percent to $14.4 million from $17.2 million for the same period a year ago. Segment earnings as a percent of sales were 11.2 percent this quarter compared to 13.8 percent in the same quarter last year, largely due to normal quarterly fluctuations in product mix and the declining impact of increased costs associated with product moves mentioned in earlier quarters. Foreign exchange rates accounted for the majority of the sales growth quarter-over-quarter but had an insignificant impact on earnings.

Electrical Power Systems

Electrical Power Systems' segment net sales for the fourth quarter were $89.7 million, an increase of 64 percent from $54.6 million for the fourth quarter a year ago. Segment earnings for the quarter increased to $14.8 million from $5.1 million for the same quarter a year ago. Segment earnings as a percent of sales increased to 16.5 percent this quarter compared to 9.3 percent for the same quarter last year. In this segment, without the effects of exchange rates, growth was approximately 53 percent. Once again this quarter, growth occurred in both our wind turbine inverter and power generation and distribution markets, with growth in wind continuing at an exceptional pace. Earnings increased primarily due to sales volume and related leverage, improved manufacturing efficiency and favorable currency translation.

Nonsegment

Nonsegment expenses for the quarter were $7.0 million down from $7.6 million last year, decreasing to 2.0 percent of sales for the quarter, from 2.6 percent of sales last year.

Annual Segment Results

Turbine Systems

Turbine Systems' segment net sales for the year were $595.8 million, an increase of 14 percent from $523.8 million in the prior year. Segment earnings for the year increased 33 percent to $116.2 million compared to $87.4 million in the prior year. Segment earnings as a percent of sales were 19.5 percent for the year compared to 16.7 percent for the prior year.

Engine Systems

Engine Systems' segment net sales for the year were $499.3 million, an increase of 10 percent from $455.2 million for last year. Segment earnings for the year decreased 1 percent to $56.5 million compared to $57.0 million last year. Segment earnings as a percent of sales decreased to 11.3 percent for the year compared to 12.5 percent for the prior year.


Electrical Power Systems

Electrical Power Systems' segment net sales increased 60 percent for the year to $289.3 million from $181.4 million in the prior year. The sales growth increase of 60 percent consists of 55 percent organic growth and 5 percent inorganic growth. Segment earnings increased 108 percent to $42.3 million, or 14.6 percent of sales, from $20.3 million, or 11.2 percent of segment sales, for last year.

Nonsegment

Nonsegment expenses for the year decreased to 2.5 percent of sales, or $31.3 million, from 3.0 percent of sales, or $31.7 million, last year.

Cash Flow and Financial Position

Net cash provided by operating activities was $125.4 million for the year compared with $117.7 million for fiscal year 2007. Capital expenditures for the year were $41.1 million, including $3.6 million purchased on account, compared with $32.0 million last year. The ratio of debt to debt-plus-equity was 7 percent at September 30, 2008 compared to 11 percent at September 30, 2007. During fiscal year 2008, share purchases of treasury stock amounted to $39.8 million. Pursuant to the Board of Directors' September 2007 three year share repurchase authorization, $168.1 million remains available.

As previously announced on October 1, Woodward acquired MPC Products. During October 2008, Woodward issued a total of $400 million of long-term debt to finance the acquisition. On October 6, Woodward also acquired MotoTron Corporation for approximately $17 million. Neither the financing nor the acquisition of MPC and MotoTron are reflected in these financial statements.

Outlook

The economy over the last several months has been significantly impacted by financial institution credit crises ultimately impacting the broader credit markets and the financing available to many companies, both in the U.S. and abroad. More significantly to Woodward, at the moment, the rapid weakening of the euro and the British pound coupled with our continuing growth in Europe is having a pronounced impact on our outlook for 2009.

Preparation for the impacts of market fluctuations has been a strategic objective for a number of years and Woodward is well positioned to maintain liquidity and relative profitability in the event of potential sales declines. We have been investing more broadly both regionally and across our markets to reduce specific risk with respect to any one economy or market. Our focus on energy control and optimization across a wide range of applications and resources mitigates fluctuations in any one area. Further, our products are key components of critical infrastructure projects where government funding may supplement private financing. We are focusing on our core competencies to better serve our customers, driving improvements in the cash conversion cycle, reducing operating costs in many areas, and have locked in favorable long-term financing.

At this time, our order volumes indicate a modest increase in sales volumes in 2009. However, the significant effects of rapidly weakened European currencies may offset this increase. We now anticipate organic sales to be flat to slightly up with overall sales, including our recent acquisitions, to be approximately $1.4 to $1.5 billion and related earnings per share of $1.65 to $1.90.

Conference Call

Woodward will hold an investor conference call at 6:00 p.m. EST on Wednesday, November 19, 2008 to provide an overview of the financial performance for the fourth quarter and fiscal 2008, business highlights, and outlook for fiscal year 2009. 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 1-866-225-4091 (domestic) or 1-703-639-1128 (international). Participants should call prior to the start time to allow for registration; the Conference ID is 1299787. An audio replay will be available by telephone from 10:00 p.m. EST November 19, 2008 until 11:59 p.m. EST on November 21, 2008. The telephone number to access the replay is 1-888-266-2081 (domestic) or 1-703-925-2533 (international); reference access code 1299787.

About Woodward

Woodward is an independent designer, manufacturer, and service provider of energy control and optimization solutions for commercial and military aircraft, turbines, reciprocating engines, and electrical power system equipment. 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. Leading original equipment manufacturers use our products and services in aerospace, power and process industries, and transportation. Woodward is headquartered in Fort Collins, Colo., USA and serves global markets in aerospace, power and process industries, and transportation. 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; the outcome of the investigation by the U.S. Department of Justice regarding certain pricing practices of MPC Products Corporation prior to 2006; 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 costs related thereto; Woodward's ability to operate its business and pursue business strategies in the light of certain restrictive covenants in its outstanding debt documents; 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.

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)      2008       2007        2008        2007
                              ---------  ---------  ----------  ----------
Net sales                     $ 350,541  $ 290,765  $1,258,204  $1,042,337
                              ---------  ---------  ----------  ----------
Costs and expenses:
  Cost of goods sold            249,834    208,849     882,996     728,820
  Selling, general, and
   administrative expenses       29,318     26,979     115,399     111,297
  Research and development
   costs                         20,013     18,383      73,414      65,294
  Amortization of intangible
   assets                         1,571      1,640       6,830       7,496
  Interest expense                  865      1,046       3,834       4,527
  Interest income                  (650)    (2,041)     (2,120)     (3,604)
  Other, net                     (1,088)      (877)     (4,059)     (3,481)
                              ---------  ---------  ----------  ----------
Total costs and expenses        299,863    253,979   1,076,294     910,349
                              ---------  ---------  ----------  ----------
Earnings before income taxes     50,678     36,786     181,910     131,988
Income taxes                    (16,251)      (752)    (60,030)    (33,831)
                              ---------  ---------  ----------  ----------
Net earnings                  $  34,427  $  36,034  $  121,880  $   98,157
                              =========  =========  ==========  ==========
Earnings per share amounts:
Basic                         $    0.51  $    0.53  $     1.80  $     1.43
Diluted                       $    0.50  $    0.51  $     1.75  $     1.39
                              =========  =========  ==========  ==========
Weighted-average number of
 shares outstanding:
Basic                            67,486     68,518      67,564      68,489
Diluted                          69,462     70,667      69,560      70,487
                              =========  =========  ==========  ==========
Cash dividends per share      $   0.060  $   0.055  $    0.235  $    0.215
                              =========  =========  ==========  ==========

Notes:  A two-for-one stock split was approved by shareholders at the 2007
        annual meeting of shareholders on January 23, 2008. The stock
        split became effective for shareholders at the close of business
        on February 1, 2008. The number of shares reported in these
        condensed consolidated financial statements has been updated from
        amounts reported prior to February 1, 2008, to reflect the effects
        of the split.

        Net earnings for the fourth quarter of 2007 included tax
        adjustments netting to $10.3 million primarily due to favorable
        resolutions of issues with tax authorities.




Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS

                                                September 30, September 30,
 (Unaudited - in thousands)                         2008          2007
                                                ------------- -------------
Assets
    Current assets:
     Cash and cash equivalents                  $     109,833 $      71,635
     Accounts receivable                              178,128       152,826
     Inventories                                      208,317       172,500
     Income taxes receivable                               --         9,461
     Deferred income taxes                             25,128        23,754
     Other current assets                              16,649         8,429
                                                ------------- -------------
        Total current assets                          538,055       438,605
    Property, plant, and equipment-net                168,651       158,998
    Goodwill                                          139,577       141,215
    Other intangibles-net                              66,106        73,018
    Deferred income taxes                               6,208        11,250
    Other assets                                        8,420         6,681
                                                ------------- -------------
Total assets                                    $     927,017 $     829,767
                                                ============= =============
Liabilities and stockholders’ equity
    Current liabilities:
     Short-term borrowings                      $       4,031 $       5,496
     Current portion of long-term debt                 11,560        15,940
     Accounts payable                                  65,427        57,668
     Income taxes payable                               2,235            --
     Accrued liabilities                               85,591        83,890
                                                ------------- -------------
        Total current liabilities                     168,844       162,994
    Long-term debt, less current portion               33,337        45,150
    Deferred income taxes                              27,513        19,788
    Other liabilities                                  67,695        57,404
                                                ------------- -------------
    Total liabilities                                 297,389       285,336
    Stockholders’ equity                              629,628       544,431
                                                ------------- -------------
Total liabilities and stockholders’ equity      $     927,017 $     829,767
                                                ============= =============




Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

                                                           Year Ended
                                                          September 30,
(Unaudited - in thousands)                              2008       2007
                                                      ---------  ---------
Net cash provided by operating activities             $ 125,354  $ 117,718
                                                      ---------  ---------
Cash flows from investing activities:
Business acquisitions, net of cash acquired                  --    (35,289)
Payments for purchase of property, plant, and
 equipment                                              (37,516)   (31,984)
Proceeds from disposal of assets                          1,607        225
                                                      ---------  ---------
Net cash used in investing activities                   (35,909)   (67,048)
                                                      ---------  ---------
Cash flows from financing activities:
Cash dividends paid                                     (15,872)   (14,747)
Proceeds from sales of treasury stock                     9,440      7,856
Purchases of treasury stock                             (39,801)   (50,952)
Excess tax benefits from stock compensation              15,355      9,788
Net payments on revolving lines of credit                (1,465)    (2,760)
Payments of long-term debt                              (16,257)   (15,681)
Proceeds from cash flow hedge                               108         --
Payment of debt financing costs                            (412)        --
                                                      ---------  ---------
Net cash used in financing activities                   (48,904)   (66,496)
                                                      ---------  ---------
Effect of exchange rate changes on cash and cash
 equivalents                                             (2,343)     3,743
                                                      ---------  ---------
Net change in cash and cash equivalents                  38,198    (12,083)
Cash and cash equivalents, beginning of period           71,635     83,718
                                                      ---------  ---------
Cash and cash equivalents, end of period              $ 109,833  $  71,635
                                                      =========  =========




Woodward Governor Company and Subsidiaries
SELECTED FINANCIAL INFORMATION

                                 Three Months Ended        Year Ended
                                    September 30,         September 30,
                                --------------------  --------------------
(Unaudited - in thousands)         2008       2007       2008       2007
                                ---------  ---------  ---------  ---------
Segment net sales:
    Turbine Systems             $ 163,843  $ 143,767  $ 595,774  $ 523,842
    Engine Systems                128,539    124,690    499,318    455,200
    Electrical Power Systems       89,748     54,601    289,294    181,366
Segment earnings:
    Turbine Systems                28,687     21,036    116,196     87,353
    Engine Systems                 14,423     17,224     56,471     56,984
    Electrical Power Systems       14,785      5,092     42,303     20,294
Earnings reconciliation:
    Total segment earnings         57,895     43,352    214,970    164,631
    Nonsegment expenses            (7,002)    (7,561)   (31,346)   (31,720)
                                ---------  ---------  ---------  ---------
    Operating earnings             50,893     35,791    183,624    132,911
    Interest expense and
     income, net                     (215)       995     (1,714)      (923)
                                ---------  ---------  ---------  ---------
    Consolidated earnings
     before income taxes        $  50,678  $  36,786  $ 181,910  $ 131,988
                                =========  =========  =========  =========

    Capital expenditures        $  16,008  $   9,317  $  41,099  $  31,984
    Depreciation expense            6,704      4,737     28,620     25,428
                                =========  =========  =========  =========



                               Three Months Ended         Year Ended
                                   September 30,         September 30,
                              --------------------  ----------------------
(Unaudited - in thousands)      2008       2007        2008        2007
                              ---------  ---------  ----------  ----------
Sales Reconciliation*:
    Turbine Systems           $ 163,843  $ 143,767  $  595,774  $  523,842
    Engine Systems              128,539    124,690     499,318     455,200
    Electrical Power Systems     89,748     54,601     289,294     181,366
      Less intersegment sales   (31,589)   (32,293)   (126,182)   (118,071)
                              ---------  ---------  ----------  ----------
  Total external sales        $ 350,541  $ 290,765  $1,258,204  $1,042,337
                              =========  =========  ==========  ==========

Earnings Reconciliation:
    Turbine Systems           $  28,687  $  21,036  $  116,196  $   87,353
      As a percent of
       segment sales               17.5       14.6        19.5        16.7
    Engine Systems               14,423     17,224      56,471      56,984
      As a percent of
       segment sales               11.2       13.8        11.3        12.5
    Electrical Power Systems     14,785      5,092      42,303      20,294
      As a percent of
       segment sales               16.5        9.3        14.6        11.2
                              ---------  ---------  ----------  ----------
    Total segment earnings       57,895     43,352     214,970     164,631
    Nonsegment expenses          (7,002)    (7,561)    (31,346)    (31,720)
    Interest expense and
     income, net                   (215)       995      (1,714)       (923)
                              ---------  ---------  ----------  ----------
    Consolidated earnings
     before income taxes      $  50,678  $  36,786  $  181,910  $  131,988
                              =========  =========  ==========  ==========

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





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)          2008      2007      2008       2007
                                  --------  --------  ---------  ---------
Net earnings                      $ 34,427  $ 36,034  $ 121,880  $  98,157
Income taxes                        16,251       752     60,030     33,831
Interest expense                       865     1,046      3,834      4,527
Interest income                       (650)   (2,041)    (2,120)    (3,604)
                                  --------  --------  ---------  ---------
OPERATING EARNINGS                  50,893    35,791    183,624    132,911
Amortization of intangible assets    1,571     1,640      6,830      7,496
Depreciation expense                 6,704     4,737     28,620     25,428
                                  --------  --------  ---------  ---------
EBITDA                            $ 59,168  $ 42,168  $ 219,074  $ 165,835
                                  ========  ========  =========  =========

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 accounting principles generally
accepted in the United States of America. 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. Management uses EBITDA
in reviewing compliance with its debt covenants and in evaluating capital
structure impacts of various strategic scenarios.

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