ROCKFORD, IL -- 11/17/2003 -- Woodward Governor Company (NASDAQ: WGOV) today reported fourth quarter and fiscal year 2003 results. For the full year, earnings were $12,346,000, or $1.08 per share (all per-share amounts are diluted) compared with $45,170,000, or $3.90 per share, in the prior year as measured before the cumulative effect of a fiscal year 2002 accounting change.
"Despite stronger performance in aircraft engine systems, deteriorating power generation markets continued to hinder fourth quarter results," said Chairman and Chief Executive Officer John A. Halbrook. "We started to see early benefits from our realignment of staff and capacity, as well as the progress made in Woodward's global supply chain in the quarter. Additional savings should be realized over the next year."
Net sales in the fourth quarter were $154,061,000, an increase of 1 percent from $152,586,000 in the previous year's fourth quarter. Net earnings in the fourth quarter were $1,735,000, or $0.15 per share, compared with $3,217,000, or $0.28 per share, in the previous year's fourth quarter. Expenses associated with workforce management activities and the consolidation of Aircraft Engine System's servovalve operations into its Rockford facility reduced net earnings by approximately $1,875,000 in the fourth quarter of fiscal 2003. Last year, expenses associated with workforce management activities and the decrease in the carrying amount of certain manufacturing equipment to its fair value reduced net earnings by approximately $3,300,000.
Net sales for the full fiscal year were $586,682,000, a decrease of 14 percent from $679,991,000 in the previous year. For the full fiscal year 2003, earnings were $12,346,000, or $1.08 per share, compared with $45,170,000, or $3.90 per share, in the prior year as measured before the cumulative effect of a fiscal year 2002 accounting change. Expenses associated with workforce management activities and other special items reduced fiscal year 2003 earnings by approximately $9,100,000 and last year's earnings by approximately $6,850,000. These special items are described more fully in the paragraphs that follow.
"Beyond the results, there was good news in both Industrial Controls and Aircraft Engine Systems," Mr. Halbrook continued. "Although we do not expect the large gas turbine market to bottom until sometime in 2004, there are signs power generation markets are recovering. In addition, we made market share gains in Industrial Controls through the introduction of new products, gaining new customers, and increasing content per engine. In Aircraft Engine Systems, sales in the fourth quarter were higher than both last year's fourth quarter and the third quarter of fiscal year 2003, but it's too early to predict if this performance is indicative of an industry upturn."
Industrial Controls' net sales in the fourth quarter were $88,793,000, including $10,422,000 from businesses acquired in 2003, compared to $90,743,000 in the same quarter a year ago. Industrial Controls incurred a loss of $6,931,000 in the fourth quarter of 2003, compared to a loss of $4,246,000 in the same quarter a year ago. Expenses associated with workforce management activity totaled approximately $2,000,000 in this year's fourth quarter and $2,100,000 in last year's fourth quarter. In addition, $3,000,000 was recognized in last year's fourth quarter to reduce the carrying amount of certain manufacturing equipment to its fair value. (All expenses discussed in conjunction with segment earnings are on a pretax basis.)
Industrial Controls' net sales for the full fiscal year were $332,755,000, a decrease of 19 percent from the previous year. The impact of businesses acquired in 2003 and 2002 increased net sales by approximately $19,000,000 in 2003 over 2002. Industrial Controls incurred a loss of $11,588,000 for the full fiscal year 2003, compared to earnings of $33,294,000 in the previous year. This year's results included expenses totaling approximately $7,850,000 that were associated with workforce management activities, lease termination costs, the write-off of certain advance licenses fees, and the transfer of an overseas pension to a different plan. Last year's results included expenses totaling approximately $7,000,000 that were associated with workforce management activities and the reduction of the carrying amount of certain manufacturing equipment to its fair value.
Aircraft Engine Systems' net sales in the fourth quarter were $65,268,000, compared to $61,843,000 in the same quarter a year ago, an increase of 6 percent. Aircraft Engine Systems' earnings were $13,793,000 in the fourth quarter of fiscal year 2003, compared to $11,973,000 in the same quarter a year ago, an increase of 15 percent. Expenses associated with the consolidation of Aircraft Engine Systems' servovalve operations into its Rockford facility totaled approximately $1,000,000 in the fiscal year 2003 fourth quarter. In last year's fourth quarter, Aircraft Engine Systems expensed approximately $210,000 for workforce management activities.
Aircraft Engine Systems' net sales for the full fiscal year were $253,927,000, a decrease of 6 percent from the previous year. Aircraft Engine Systems' earnings were $47,615,000 for the full fiscal year 2003, down 17 percent from the prior year. Expenses associated with workforce management activities totaled approximately $4,000,000 this year and $4,000,000 last year. In addition, we incurred other costs associated with the consolidation of Aircraft Engine System's servovalve operations into our Rockford facility this year that totaled approximately $2,600,000.
Mr. Halbrook concluded, "In fiscal 2003, as our key markets were seeking a cyclical trough, we took decisive steps to adjust our capacity and improve operations, while preserving Woodward's core strengths. In the case of two of those strengths -- commitment to our customers' needs and world-class engineering -- we chose to maintain our investment in developing new fuel-efficient, low-emission products and bundled systems rather than to pull back and wait for an upturn. The strategy impacted near-term financial results, but we believe created long-term value for our customers and shareholders.
"Despite the challenges ahead, Woodward's strategic momentum is solid. The speed at which we can transform our momentum into financial performance that meets our long-term objectives will depend on economic and industry conditions. In the meantime, based on prospects for market share gains, cost reductions achieved through actions in 2003, and our recent acquisitions, we reaffirm our outlook that earnings for fiscal 2004 will exceed those of 2003."
Woodward will hold an investor conference call at 7:30 a.m. CT on Tuesday, November 18, 2003, to provide an overview of the fourth quarter and fiscal 2003 financial performance, business highlights, and outlook for fiscal 2004. You are invited to listen to the live Webcast of our conference call or a recording at our Web site, www.woodward.com.
About Woodward
Woodward is the world's largest independent designer and manufacturer of energy control solutions for aircraft and industrial engines, turbines and power equipment. The company's innovative controls and fuel delivery systems help manufacturers worldwide operate cleaner and more efficient power equipment. Woodward's products and services are used in the aerospace, power generation, oil and gas processing, and transportation markets, which include rail, marine and many light and heavy industrial applications. Woodward is headquartered in Rockford, Illinois, and serves global markets from locations worldwide. Visit our Web site 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 might include ability to capture and retain market share, ability to improve margins, ability to integrate past and future acquisitions into operations, risks of power generation or airline industry economic conditions and the timing associated with recovery of those markets, political risks, military actions or trade embargoes affecting customers' markets, including the continuance of military actions in Iraq, potential cancellation of orders by customers, and competitive product and pricing pressures. These factors and others are more fully described in Woodward's Annual Report and Form 10-K for the year ended September 30, 2003 (expected to be available by mid-December 2003).
Woodward Governor Company and Subsidiaries STATEMENTS OF CONSOLIDATED EARNINGS Three months ended Year ended (Unaudited-in thousands September 30, September 30, ------------ ------------ except per share amounts) 2003 2002 2003 2002 ---- ---- ---- ---- Net sales $154,061 $152,586 $586,682 $679,991 -------- -------- -------- -------- Costs and expenses: Cost of goods sold 130,518 127,826 492,241 539,130 Sales, general, and administrative expenses 17,994 14,353 65,038 58,765 Amortization of intangible assets 1,781 1,446 4,870 3,748 Interest expense 1,141 1,186 4,635 5,109 Interest income (243) (158) (870) (635) Other expense-net 45 3,223 829 3,194 -------- -------- -------- -------- Total costs and expenses 151,236 147,876 566,743 609,311 -------- -------- -------- -------- Earnings before income taxes and cumulative effect of accounting change 2,825 4,710 19,939 70,680 Income taxes 1,090 1,493 7,593 25,510 -------- -------- -------- -------- Earnings before cumulative effect of accounting change 1,735 3,217 12,346 45,170 Cumulative effect of accounting change, net of income taxes - - - (2,489) -------- -------- -------- -------- Net earnings $ 1,735 $ 3,217 $ 12,346 $ 42,681 ======== ======== ======== ======== Basic per share amounts: Earnings before cumulative effect of accounting change $ 0.15 $ 0.28 $ 1.10 $ 3.99 Cumulative effect of accounting change, net of income taxes - - - (0.22) -------- -------- -------- -------- Net earnings $ 0.15 $ 0.28 $ 1.10 $ 3.77 ======== ======== ======== ======== Diluted per share amounts: Earnings before cumulative effect of accounting change $ 0.15 $ 0.28 $ 1.08 $ 3.90 Cumulative effect of accounting change, net of income taxes - - - (0.21) -------- -------- -------- -------- Net earnings $ 0.15 $ 0.28 $ 1.08 $ 3.69 ======== ======== ======== ======== Weighted-average number of shares outstanding: Basic 11,253 11,328 11,246 11,325 Diluted 11,419 11,535 11,389 11,577 ======== ======== ======== ======== Woodward Governor Company and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS At September 30, At September 30, (in thousands) 2003 2002 ---- ---- Assets Current assets: Cash and cash equivalents $ 24,058 $ 29,828 Accounts receivable 87,807 76,406 Inventories 126,289 127,112 Income taxes receivable 1,782 - Deferred income taxes 14,179 15,340 Other current assets 5,157 3,128 --------- --------- Total current assets 259,272 251,814 Property, plant, and equipment-net 124,144 123,622 Goodwill 133,620 115,265 Other intangibles-net 85,291 66,762 Deferred income taxes 6,429 17,885 Other assets 7,243 7,047 --------- --------- Total assets $ 615,999 $ 582,395 ========= ========= Liabilities and shareholders' equity Current liabilities: Short-term borrowings $ 5,774 $ 16,185 Current portion of long-term debt 30,000 2,000 Accounts payable 26,703 22,739 Accrued liabilities 45,533 52,256 Income taxes payable - 3,194 --------- --------- Total current liabilities 108,010 96,374 Long-term debt, less current portion 89,970 78,192 Other liabilities 57,215 52,928 --------- --------- Total liabilities 255,195 227,494 Shareholders' equity 360,804 354,901 --------- --------- Total liabilities and shareholders' equity $ 615,999 $ 582,395 ========= ========= Woodward Governor Company and Subsidiaries OTHER SELECTED INFORMATION Three months ended Year ended September 30, September 30, (Unaudited-in thousands) 2003 2002 2003 2002 ---- ---- ---- ---- External net sales: Industrial Controls $ 88,793 $ 90,743 $ 332,755 $ 408,665 Aircraft Engine Systems 65,268 61,843 253,927 271,326 Segment earnings (loss): Industrial Controls (6,931) (4,246) (11,588) 33,294 Aircraft Engine Systems 13,793 11,973 47,615 57,226 Capital Expenditures 6,653 6,599 18,802 22,898 Depreciation Expense 6,651 7,054 27,548 28,340 ========= ========= ========= ========= Segment earnings in the table above do not reflect interest, corporate expenses, income taxes, and cumulative effect of accounting change.
Stephen P. Carter Executive Vice President, Chief Financial Officer and Treasurer 1-815-639-6800