SOURCE: Woodward Governor Company

April 21, 2008 16:45 ET

Woodward Reports Second Fiscal Quarter and Six Months Results

FORT COLLINS, CO--(Marketwire - April 21, 2008) - Woodward Governor Company (NASDAQ: WGOV) today reported financial results for its second quarter of fiscal 2008. (All per share amounts are presented on a fully diluted basis.)

Highlights

--  Sales for the quarter increased 19 percent over last year.
--  Earnings per share for the quarter were $0.43, an increase of 48
    percent over last year's $0.29.
--  Operating earnings for the quarter increased 38 percent over last
    year.
--  Cash generated from operations during the quarter was $22.8 million.
    

Net sales for the quarter were $305.8 million, up 19 percent from $256.3 million for the second quarter of the prior year. Net earnings for the quarter were $29.7 million, or $0.43 per share, compared with $20.3 million, or $0.29 per share, in the previous year's second quarter.

Net sales for the first half were $577.8 million, up 20 percent from $482.5 million for the first half of the prior year. Net earnings for the first half were $55.0 million, or $0.79 per share, compared with $38.1 million, or $0.54 per share, in the previous year's first half.

"We are pleased to see that investments made in prior years are delivering results in the growth of our systems and product sales. In addition to the sales growth, the successful development, production and marketing of our product offerings have been critical to realizing our improved financial performance," said Chairman and Chief Executive Officer Thomas A. Gendron. "This quarter's results reflect Woodward's ability to deliver operating leverage and earnings on the increased demand for our energy control solutions, while concurrently making key investments in future growth."

Segment Results

Turbine Systems' net sales for the second quarter were $147.5 million, an increase of 13 percent from $130.8 million for the second quarter a year ago. Segment earnings for the second quarter increased 30 percent to $31.0 million from $23.8 million for the same quarter a year ago. Earnings as a percent of sales were 21.0 percent this quarter compared to 18.2 percent in the prior year. As in recent quarters, our sales performance reflected generally strong demand for both our OEM and aftermarket offerings in the industrial and aerospace turbine markets. The earnings increase in Turbine Systems was principally the result of leverage on the increased volume.

Engine Systems' net sales for the second quarter were $125.8 million, an increase of 14 percent from $110.0 million for last year's second quarter. Sales continued to be strong in all of our markets. Segment earnings for the quarter increased 10 percent to $13.0 million from $11.8 million for the same period a year ago. Earnings as a percent of sales were 10.3 percent this quarter compared to 10.7 percent in the prior year reflecting higher than anticipated operating costs.

Electrical Power Systems' net sales for the second quarter were $64.9 million, an increase of 43 percent from $45.2 million for the second quarter a year ago. Sales growth this quarter was entirely organic. Segment earnings for the quarter increased 49 percent to $9.5 million from $6.4 million for the same quarter a year ago. Earnings as a percent of sales were 14.7 percent this quarter compared to 14.2 percent in the prior year. Again this quarter, growth occurred in both our power generation & distribution and wind turbine inverter markets with growth in wind continuing at an exceptional pace. Earnings for Electrical Power Systems increased primarily because of the increase in volume as well as favorable currency translation and improved operating processes.

Nonsegment expenses for the quarter declined to $9.3 million from $9.9 million last year.

Turbine Systems' net sales for the first half were $278.2 million, an increase of 12 percent from $247.8 million for the first half a year ago. Segment earnings for the first half increased 35 percent to $58.2 million compared to $43.1 million for the first half a year ago. Segment earnings as a percent of sales were 20.9 percent for the first half compared to 17.4 percent for the first half a year ago.

Engine Systems' net sales for the first half were $239.9 million, an increase of 13 percent from $212.9 million for last year's first half. Segment earnings for the first half were up slightly at $25.1 million from $24.4 million for the first half a year ago. Segment earnings as a percent of sales were down to 10.5 percent for the first half compared to 11.4 percent for the first half a year ago.

Electrical Power Systems' net sales for the first half were $122.4 million, an increase of 58 percent from $77.5 million for the first half a year ago, of which, 46 percent represents organic growth. Segment earnings as a percent of sales for the first half increased to 13.7 percent or $16.7 million from 12.9 percent or $10.0 million for the first half a year ago.

Nonsegment expenses for the first half declined to $16.9 million from $18.2 million last year.

Cash Flow and Financial Position

Net cash provided by operating activities was $29.2 million for the first half compared with $20.3 million for the first half of last year. Capital expenditures for the first half were $16.5 million compared with $13.1 million for the first half of last year. The debt to total capitalization ratio was 11.4 percent at the end of the second quarter, compared to 10.9 percent at the end of the prior fiscal year. Also, during the first half, share repurchases amounted to approximately $39 million.

A two-for-one stock split was approved by shareholders at the 2007 annual meeting of shareholders on January 23, 2008. The stock split was completed in February 2008. The number of shares reported in this release and the attached condensed consolidated financial statements have been updated from amounts reported prior to February 1, 2008, to reflect the effects of the split. During the quarter the dividend payment per split adjusted share was increased 9 percent to 6 cents per share.

"While overall macro-economic uncertainty continues, our prior investments in geographic and market expansion provide us with a broader base for sales growth," said Mr. Gendron. "As a result, our outlook in our core markets for the balance of this fiscal year is positive, and we now anticipate company-wide sales growth of 14 to 16 percent for 2008. Also, primarily as a result of increased operating leverage on our higher sales, we now expect earnings of $1.61 to $1.66 per share."

Conference Call

Woodward will hold an investor conference call at 6:00 p.m. EDT on Monday, April 21, 2008, to provide an overview of the financial performance for the second quarter of fiscal 2008, business highlights, and outlook for the remainder of the 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 1-866-835-8907 (domestic) or 1-703-639-1414 (international). Participants should call prior to the start time to allow for registration; the Conference ID is 1220291. An audio replay will be available by telephone from 9:00 p.m. EDT on April 21 until 11:59 p.m. EDT on April 23, 2008. The telephone number to access the replay is 1-888-266-2081 (domestic) or 1-703-925-2533 (international), reference access code 1220291.

About Woodward

Woodward is an independent designer, manufacturer, and service provider of energy control and optimization solutions for engines, aircraft and industrial turbines, 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 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, 2007, the Quarterly Report Form 10-Q for the quarter ended December 31, 2007, and the Quarterly Report Form 10-Q for the quarter ended March 31, 2008, to be filed shortly.

Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

                                 Three Months Ended     Six Months Ended
                                      March 31,             March 31,
                                --------------------  --------------------
(Unaudited - in thousands except
 per share amounts)                2008       2007       2008       2007
                                ---------  ---------  ---------  ---------
Net sales                       $ 305,753  $ 256,298  $ 577,816  $ 482,546
                                ---------  ---------  ---------  ---------
Costs and expenses:
  Cost of goods sold              210,377    176,172    401,207    333,916
  Selling, general, and
   administrative expenses         31,667     30,593     57,647     56,977
  Research and development
   costs                           18,781     15,946     34,407     29,900
  Amortization of intangible
   assets                           1,710      2,184      3,605      3,910
  Interest expense                    986      1,133      1,942      2,325
  Interest income                    (420)      (437)    (1,000)    (1,060)
  Other, net                         (996)      (703)    (2,128)    (1,484)
                                ---------  ---------  ---------  ---------
Total costs and expenses          262,105    224,888    495,680    424,484
                                ---------  ---------  ---------  ---------
Earnings before income taxes       43,648     31,410     82,136     58,062
Income taxes                      (13,934)   (11,148)   (27,097)   (19,913)
                                ---------  ---------  ---------  ---------
Net earnings                    $  29,714  $  20,262  $  55,039  $  38,149
                                =========  =========  =========  =========
Per share amounts:
Basic                           $    0.44  $    0.30  $    0.81  $    0.56
Diluted                         $    0.43  $    0.29  $    0.79  $    0.54
                                =========  =========  =========  =========
Weighted-average number of
 shares outstanding:
Basic                              67,603     68,503     67,762     68,362
Diluted                            69,473     70,361     69,776     70,225
                                =========  =========  =========  =========
Cash dividends per share        $   0.060  $   0.055  $   0.115  $   0.105
                                =========  =========  =========  =========

Note:  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 have been updated from amounts
       reported prior to February 1, 2008, to reflect the effects of
       the split.




Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS

                                                  March 31,   September 30,
                                                ------------- -------------
 (Unaudited - in thousands)                         2008          2007
                                                ------------- -------------
Assets
    Current assets:
      Cash and cash equivalents                 $      60,242 $      71,635
      Accounts receivable                             162,140       152,826
      Inventories                                     210,369       172,500
      Income taxes receivable                             611         9,461
      Deferred income taxes                            23,157        23,754
      Other current assets                             12,120         8,429
                                                ------------- -------------
        Total current assets                          468,639       438,605
    Property, plant, and equipment-net                164,325       158,998
    Goodwill                                          142,884       141,215
    Other intangibles-net                              70,273        73,018
    Deferred income taxes                               8,628        11,250
    Other assets                                        9,081         6,681
                                                ------------- -------------
Total assets                                    $     863,830 $     829,767
                                                ============= =============
Liabilities and shareholders' equity
    Current liabilities:
      Short-term borrowings                     $      25,672 $       5,496
      Current portion of long-term debt                13,990        15,940
      Accounts payable                                 60,944        57,668
      Accrued liabilities                              62,627        83,890
                                                ------------- -------------
        Total current liabilities                     163,233       162,994
    Long-term debt, less current portion               34,133        45,150
    Deferred income taxes                              26,087        19,788
    Other liabilities                                  66,274        57,404
                                                ------------- -------------
    Total liabilities                                 289,727       285,336
    Shareholders' equity                              574,103       544,431
                                                ------------- -------------
Total liabilities and shareholders' equity      $     863,830 $     829,767
                                                ============= =============




Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                Six-months ended March 31,
                                                --------------------------
(Unaudited - in thousands)                          2008          2007
                                                ------------  ------------
Net cash provided by operating activities       $     29,191  $     20,264
                                                ------------  ------------
Cash flows from investing activities:
Business acquisitions, net of cash acquired               --       (34,594)
Payments for purchase of property, plant, and
 equipment                                           (15,937)      (13,058)
Proceeds from sale of property, plant, and
 equipment                                               134           109
                                                ------------  ------------
Net cash used in investing activities                (15,803)      (47,543)
                                                ------------  ------------
Cash flows from financing activities:
Cash dividends paid                                   (7,793)       (7,192)
Proceeds from sales of treasury stock                  5,859         5,158
Purchases of treasury stock                          (38,701)       (6,869)
Excess tax benefits from stock compensation            6,958         3,669
Net borrowings (payments) under revolving lines
 of credit                                            20,175        (2,388)
Payments of long-term debt                           (13,432)      (12,686)
                                                ------------  ------------
Net cash used in financing activities                (26,934)      (20,308)
                                                ------------  ------------
Effect of exchange rate changes on cash                2,153         2,145
                                                ------------  ------------
Net change in cash and cash equivalents              (11,393)      (45,442)
Cash and cash equivalents, beginning of year          71,635        83,718
                                                ------------  ------------
Cash and cash equivalents, end of period        $     60,242  $     38,276
                                                ============  ============




Woodward Governor Company and Subsidiaries
SELECTED FINANCIAL INFORMATION

                                 Three-months ended     Six-months ended
                                      March 31,             March 31,
                                --------------------  --------------------
(Unaudited - in thousands)        2008       2007       2008       2007
                                ---------  ---------  ---------  ---------
External net sales:
    Turbine Systems             $ 143,298  $ 125,428  $ 270,080  $ 237,752
    Engine Systems                114,027     99,749    217,778    193,561
    Electrical Power Systems       48,428     31,121     89,958     51,233
Segment earnings:
    Turbine Systems                30,951     23,830     58,179     43,124
    Engine Systems                 13,005     11,785     25,066     24,362
    Electrical Power Systems        9,546      6,409     16,740     10,002
Earnings reconciliation:
    Total segment earnings         53,502     42,024     99,985     77,488
    Nonsegment expenses            (9,288)    (9,918)   (16,907)   (18,161)
                                ---------  ---------  ---------  ---------
    Operating earnings             44,214     32,106     83,078     59,327
    Interest expense and
     income, net                     (566)      (696)      (942)    (1,265)
                                ---------  ---------  ---------  ---------
    Consolidated earnings
     before income taxes        $  43,648  $  31,410  $  82,136  $  58,062
                                =========  =========  =========  =========

Capital expenditures            $   9,924  $   7,635  $  16,496  $  13,058
Depreciation expense                7,294      7,005     14,696     13,528
                                =========  =========  =========  =========


                                 Three-months ended     Six-months ended
                                      March 31,             March 31,
                                --------------------  --------------------
(Unaudited - in thousands)        2008       2007       2008       2007
                                ---------  ---------  ---------  ---------
Sales Reconciliation*:
    Turbine Systems             $ 147,454  $ 130,772  $ 278,247  $ 247,777
    Engine Systems                125,828    110,024    239,862    212,945
    Electrical Power Systems       64,891     45,223    122,365     77,525
  Less intersegment sales         (32,420)   (29,721)   (62,658)   (55,701)
                                ---------  ---------  ---------  ---------
  Total external sales          $ 305,753  $ 256,298    577,816  $ 482,546
                                =========  =========  =========  =========

Earnings Reconciliation:
    Turbine Systems             $  30,951  $  23,830  $  58,179  $  43,124
     As a percent of sales           21.0       18.2       20.9       17.4
    Engine Systems                 13,005     11,785     25,066     24,362
     As a percent of sales           10.3       10.7       10.5       11.4
    Electrical Power Systems        9,546      6,409     16,740     10,002
     As a percent of sales           14.7       14.2       13.7       12.9
                                ---------  ---------  ---------  ---------
    Total segment earnings         53,502     42,024     99,985     77,488
    Nonsegment expenses            (9,288)    (9,918)   (16,907)   (18,161)
    Interest expense and
     income, net                     (566)      (696)      (942)    (1,265)
                                ---------  ---------  ---------  ---------
    Consolidated earnings
     before income taxes        $  43,648  $  31,410  $  82,136  $  58,062
                                =========  =========  =========  =========

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




Woodward Governor Company and Subsidiaries
RECONCILIATION OF NET EARNINGS TO EBITDA

                                 Three-months ended     Six-months ended
                                      March 31,             March 31,
                                --------------------  --------------------
(Unaudited - in thousands)        2008       2007       2008       2007
                                ---------  ---------  ---------  ---------
Net earnings                    $  29,714  $  20,262  $  55,039  $  38,149
Income taxes                       13,934     11,148     27,097     19,913
Interest expense                      986      1,133      1,942      2,325
Interest income                      (420)      (437)    (1,000)    (1,060)
Amortization of intangible
 assets                             1,710      2,184      3,605      3,910
Depreciation expense                7,294      7,005     14,696     13,528
                                ---------  ---------  ---------  ---------
EBITDA                          $  53,218  $  41,295  $ 101,379  $  76,765


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.

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
    Tel: 970-482-5811