ROCKFORD, IL -- 07/25/2006 -- Woodward Governor Company (NASDAQ: WGOV) today reported financial results for its third fiscal quarter and nine months ended June 30, 2006.
Net sales for the quarter were $217,053,000, up 3 percent from $210,252,000 for the third quarter last year. Earnings before income taxes for the quarter were $21,579,000, compared with $25,488,000 for the same quarter a year ago. This year's third quarter pretax results included the effects of expense accruals totaling $3,500,000 for certain pending legal matters. Last year's third quarter pretax results included a curtailment gain of $7,825,000 that resulted from changes to a retirement healthcare benefit plan.
Woodward adopted the new accounting standard for stock compensation this year. Had the same standard been applied last year, employee compensation expense would have increased by $608,000 in last year's third quarter.
Net earnings for the quarter were $28,918,000, or $0.82 per share, compared with $19,746,000, or $0.56 per share, in last year's third quarter (all per share amounts are diluted). This year's third quarter results benefited by $13,710,000 from changes in valuation allowances for deferred tax assets.
"Profitability improvement in our third quarter was significant, with combined segment earnings up over 30 percent from the same quarter last year," said President and Chief Executive Officer Thomas A. Gendron.
Industrial Controls' net sales for the third quarter were $137,930,000, a slight increase from the $136,592,000 for the third quarter a year ago. Segment earnings increased 73 percent to $16,406,000 from $9,469,000 for the same quarter a year ago.
"The Industrial Controls segment showed strong profitability for the quarter helped by the European restructuring efforts that were completed in March and a favorable mix in product sales. Sales growth, while flat overall, showed some improvement in large gas turbines from the sharply lower levels of the second quarter. Increases in turbine auxiliary and power distribution sales were also largely offset by continued lower demand in both gas-powered and diesel buses in China," commented Mr. Gendron.
Aircraft Engine Systems' net sales for the third quarter were $79,123,000, an increase of 7 percent from $73,660,000 for last year's third quarter. Segment earnings for the quarter increased 3 percent to $14,753,000 from $14,321,000 for the same quarter a year ago.
"Aircraft Engine Systems continued to make excellent progress in meeting development milestones for major engine control programs awarded over the past several years," said Mr. Gendron. "While increased development expenses continued in the quarter, we expect to be back within our targeted operating profit range in the fourth quarter and for the full year."
For the nine months ended June 30, 2006, consolidated net sales were $621,604,000, an increase of 2 percent from $610,196,000 for the corresponding period a year ago. Earnings before income taxes were $57,875,000 for the nine-month period, which included the expense accruals totaling $8,500,000 for pending legal matters. In the same period a year ago, earnings before income taxes were $64,818,000, which included a pretax gain of $3,834,000 from the first quarter sale of product rights and the third quarter curtailment gain of $7,825,000 described above. Net earnings for the nine-month period were $52,811,000, or $1.50 per share, compared with $44,720,000, or $1.28 per share last year. Income taxes benefited by $13,710,000 from changes in valuation allowances for deferred tax assets in this year's nine-month period.
Had we adopted the new accounting standard for stock compensation last year, employee compensation expense would have increased by $1,742,000 in last year's first nine months.
Mr. Gendron concluded, "We believe both of our operating segments will post higher sequential sales in the fourth quarter and our profitability will be in our previously communicated range. For the full year, we continue to anticipate company-wide sales growth of 3 to 6 percent and earnings of $1.67 to $1.75 per share before the effects of the pending legal matters and reduction of deferred tax valuation allowances mentioned earlier."
Woodward will hold an investor conference call at 7:30 a.m. CT on Wednesday, July 26, 2006, to provide an overview of the fiscal year 2006's third quarter and nine month financial performance, business highlights, and outlook for the year. You are invited to listen to the live webcast of our conference call or a recording at our website, www.woodward.com. You may also listen to the call by dialing 1-866-835-8903 (domestic) or 1-703-639-1410 (international). Participants should call prior to the start time to allow for registration; the Conference ID is 937853. An audio replay will be available by telephone from 10:30 a.m. CT on July 26 until 11:59 p.m. CT on July 28, 2006. The telephone number to access the replay is 1-888-266-2081 (domestic) or 1-703-925-2533 (international), reference access code 937853.
About Woodward
Woodward is the world's largest independent designer, manufacturer, and service provider of energy control solutions for aircraft engines, industrial engines and turbines, and power generation and mobile industrial equipment. The company's innovative control, fuel delivery, and combustion systems help customers worldwide operate cleaner, more reliable, and cost effective equipment. Woodward is headquartered in Rockford, Illinois, and serves global power generation, transportation, process industries, and aerospace markets from locations worldwide. Woodward is now listed in the new NASDAQ Global Select Market. 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, 2005 and Form 10-Q for the quarter ended June 30, 2006, expected to be available by mid-August 2006.
Woodward Governor Company and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Three months ended Nine months ended
June 30, June 30,
(Unaudited - in thousands -------------------- --------------------
except per share amounts) 2006 2005 2006 2005
--------- --------- --------- ---------
Net sales $ 217,053 $ 210,252 $ 621,604 $ 610,196
--------- --------- --------- ---------
Costs and expenses:
Cost of goods sold 154,089 158,867 448,055 459,660
Sales, general, and
administrative expenses 23,234 19,427 69,548 57,683
Research and development
costs 16,793 12,811 41,772 35,106
Amortization of intangible
assets 1,717 1,770 5,230 5,326
Curtailment gain - (7,825) - (7,825)
Interest expense 1,299 1,461 3,901 4,355
Interest income (754) (478) (1,995) (1,515)
Other income (1,072) (1,947) (3,263) (8,318)
Other expense 168 678 481 906
--------- --------- --------- ---------
Total costs and expenses 195,474 184,764 563,729 545,378
--------- --------- --------- ---------
Earnings before income taxes 21,579 25,488 57,875 64,818
Income taxes (7,339) 5,742 5,064 20,098
--------- --------- --------- ---------
Net earnings $ 28,918 $ 19,746 $ 52,811 $ 44,720
========= ========= ========= =========
Per share amounts:
Basic $ 0.84 $ 0.58 $ 1.53 $ 1.31
Diluted $ 0.82 $ 0.56 $ 1.50 $ 1.28
========= ========= ========= =========
Weighted-average number of
shares outstanding:
Basic 34,410 34,269 34,421 34,140
Diluted 35,254 35,190 35,268 35,058
========= ========= ========= =========
Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
At June 30, At September 30,
(Unaudited - in thousands) 2006 2005
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 66,938 $ 84,597
Accounts receivable 109,930 107,403
Inventories 157,623 149,336
Income taxes receivable 2,897 5,330
Deferred income taxes 21,261 18,700
Other current assets 5,230 4,207
--------- ---------
Total current assets 363,879 369,573
Property, plant, and equipment-net 117,066 114,787
Goodwill 131,748 131,035
Other intangibles-net 73,427 78,564
Deferred income taxes 12,469 2,310
Other assets 8,657 9,197
--------- ---------
Total assets $ 707,246 $ 705,466
========= =========
Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings $ - $ 8,419
Current portion of long-term debt 14,590 14,426
Accounts payable 36,705 37,015
Accrued liabilities 57,672 68,647
--------- ---------
Total current liabilities 108,967 128,507
Long-term debt, less current portion 59,402 72,942
Other liabilities 69,595 71,548
--------- ---------
Total liabilities 237,964 272,997
Shareholders' equity 469,282 432,469
--------- ---------
Total liabilities and shareholders' equity $ 707,246 $ 705,466
========= =========
Woodward Governor Company and Subsidiaries
OTHER SELECTED INFORMATION
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- --------------------
(Unaudited - in thousands) 2006 2005 2006 2005
--------- --------- --------- ---------
External net sales:
Industrial Controls $ 137,930 $ 136,592 $ 394,419 $ 394,978
Aircraft Engine Systems 79,123 73,660 227,185 215,218
Segment earnings:
Industrial Controls 16,406 9,469 41,058 24,619
Aircraft Engine Systems 14,753 14,321 45,619 48,555
Earnings reconciliation:
Total segment earnings 31,159 23,790 86,677 73,174
Curtailment gain - 7,825 - 7,825
Nonsegment expenses (9,035) (5,144) (26,896) (13,341)
Interest expense and income,
net (545) (983) (1,906) (2,840)
--------- --------- --------- ---------
Consolidated earnings before
income tax $ 21,579 $ 25,488 $ 57,875 $ 64,818
========= ========= ========= =========
Workforce management costs:
Member termination benefits $ - $ 469 $ 70 $ 1,341
Related costs of facility
consolidation - 943 - 943
Member termination benefits
adjustments - (83) - (2,198)
--------- --------- --------- ---------
Total workforce management
costs $ - $ 1,329 $ 70 $ 86
========= ========= ========= =========
Capital expenditures $ 6,679 $ 6,639 $ 19,661 $ 16,325
Depreciation expense 5,871 5,794 17,110 18,960
========= ========= ========= =========
CONTACT: Robert F. Weber, Jr. Chief Financial Officer and Treasurer 970-498-3112 Woodward Governor Company 5001 North Second Street P.O. Box 7001 Rockford, IL 61125-7001 Tel: 815-877-7441 Fax: 815-639-6050