Woodward Reports Fourth Quarter and Fiscal 2006 ResultsROCKFORD, IL -- 11/13/2006 -- Woodward Governor Company (NASDAQ: WGOV) today reported financial results for its fourth quarter and fiscal year 2006.
Highlights
- -- Record sales of $855 million in 2006
- -- GAAP earnings for 2006 were $1.99 per share, including $0.24 per share
from items highlighted below
- -- Industrial Controls' segment earnings improved to 10.3 percent of
sales for 2006, from 5.4 percent of sales in the previous year
- -- Aircraft Engine Systems' segment earnings continued to exceed 20
percent of sales for 2006
- -- Net cash provided by operating activities for 2006 increased 16
percent over the prior year to $81 million
Net sales for the quarter were $232.9 million, up 7 percent from $217.5 million for the fourth quarter of the prior year. Net earnings for the quarter were $17.1 million, or $0.49 per share, compared with $11.3 million, or $0.32 per share, in the previous year's fourth quarter (all per share amounts are diluted).
Net sales for the full fiscal year were $854.5 million, up 3 percent from $827.7 million in the prior year. Net earnings for the year were $69.9 million, or $1.99 per share, compared with $56.0 million, or $1.59 per share in the previous year, which included the items highlighted below:
In Millions, Net Per
Of Income Taxes Share
Items that increased (decreased) earnings
for 2006:
Change in valuation allowance for deferred
tax assets $13.7 $0.39
Expense accruals for certain legal matters (5.3) (0.15)
Items that increased earnings for 2005:
Gain on retirement healthcare benefit
curtailment $4.9 $0.14
Gain on sale of product rights 2.4 0.07
Woodward adopted the new accounting standard for stock compensation in 2006. As a result of adopting the new standard, net earnings decreased by $0.4 million, or $0.01 per share, for the fourth quarter of 2006 and by $1.8 million, or $0.05 per share, for the full year.
"A key objective for 2006 was to increase earnings by significantly raising Industrial Controls' profitability, while maintaining Aircraft Engine Systems' profitability despite significantly higher investment in R&D," said President and Chief Executive Officer Thomas A. Gendron. "We achieved that goal, and in doing so, we strengthened our competitiveness and further enhanced our ability to serve customers and win new business in the future."
Gendron continued, "Industrial Controls' segment earnings nearly doubled to 10.3 percent of sales for the year, driven by a manufacturing consolidation in 2005 and early 2006, supply chain productivity initiatives, and market and management-initiated changes in our product mix. The Aircraft Engine Systems segment delivered earnings of 20.4 percent of sales, within the target range of 20 to 22 percent. The substantial increase in R&D to support recent program wins, including the GEnx™ engine and the PW600 family of engines, was largely offset by the beneficial effects of higher volume and operating leverage."
Cash Flow and Financial Position
Net cash provided by operating activities was $80.5 million for the year compared with $69.4 million last year. Capital expenditures were $31.7 million for the year compared with $26.6 million last year. Purchases of treasury stock, primarily made in connection with repurchase authorizations by the Board of Directors, totaled $22.3 million for the year compared with $7.3 million last year. The debt to total capitalization ratio was 13.3 percent at the end of the year, compared to 18.1 percent at the end of the prior year.
Segment Results
Industrial Controls' net sales for the fourth quarter were $146.6 million, an increase of 3 percent from $142.0 million for the fourth quarter a year ago. Segment earnings for the quarter were substantially higher at $14.7 million compared to $4.2 million for the same quarter a year ago.
Industrial Controls' net sales for the full year were $541.0 million, an increase of 1 percent from $536.9 million last year. Segment earnings for the year increased 93 percent to $55.7 million from $28.8 million last year.
Aircraft Engine Systems' net sales for the fourth quarter were $86.4 million, an increase of 14 percent from $75.6 million for last year's fourth quarter. Segment earnings for the quarter increased 18 percent to $18.2 million from $15.5 million for the same quarter a year ago.
Aircraft Engine Systems' net sales for the full year were $313.5 million, an increase of 8 percent from $290.8 million last year. Segment earnings for the year were $63.9 million compared to $64.1 million last year. Last year's results included a $3.8 million pre-tax gain from the sale of product rights highlighted earlier.
Nonsegment expenses for the full year were $32.7 million compared to $17.9 million last year. This increase primarily relates to the pre-tax amount of accruals for certain legal matters highlighted earlier and the effects of the new accounting standard for stock compensation.
Business Acquisition
As previously announced, Woodward acquired SEG Schaltanlagen-Elektronik-Geräte GmbH & Co. KG on October 31, 2006, which will be part of the Industrial Controls segment. The acquisition provides Woodward with technologies and products that complement our power generation system solutions. SEG offers a wide range of protection and comprehensive control systems for power generation and distribution applications, power inverters for wind turbines, and complete electrical systems for gas and diesel engine-based power stations.
The acquisition also expands Woodward's relationships with several key customers. SEG's sales were approximately $60 million in calendar year 2005. We anticipate SEG will be accretive to our earnings in its first year of operations.
In line with our overall growth strategies, SEG adds dimension and range to our core technologies and product portfolio.
Outlook
Mr. Gendron continued, "Our future growth of sales and earnings will be based on the sustained demand by OEMs for fuel-efficient, low-emission components and systems meeting exacting requirements. Over the next few years, we will continue to develop new products and pursue strategic acquisitions and alliances in order to gain market share and expand into adjacent markets. Throughout, we will remain focused on profitability, and managing our resources effectively and prudently to moderate the effects of short-term economic and market volatility."
Mr. Gendron concluded, "For 2007, we are currently anticipating company-wide sales growth of 12 to 15 percent, including the effects of the SEG acquisition and earnings of $2.05 to $2.15 per share. For Industrial Controls, we expect sales will grow 13 to 16 percent and generate segment earnings of 10 to 12 percent of sales. For Aircraft Engine Systems, we expect sales growth of 10 to 12 percent and segment earnings of 20 to 22 percent."
Conference Call
Woodward will hold an investor conference call at 7:30 a.m. CT on Tuesday, November 14, 2006, to provide an overview of the fourth quarter and 2006 financial performance, business highlights, and outlook for 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 1-866-818-1223 (domestic) or 1-703-639-1376 (international). Participants should call prior to the start time to allow for registration; the Conference ID is 990546. An audio replay will be available by telephone from 10:30 a.m. CT on November 14 until 11:59 p.m. CT on November 16, 2006. The telephone number to access the replay is 1-888-266-2081 (domestic) or 1-703-925-2533 (international), reference access code 387581.
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. 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. Woodward's Form 10-K for the year ended September 30, 2006 will be issued by mid-December 2006.
Woodward Governor Company and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Three months ended Year ended
September 30, September 30,
-------------------- --------------------
(In thousands except per share 2006 2005 2006 2005
amounts) --------- --------- --------- ---------
Net sales $ 232,911 $ 217,530 $ 854,515 $ 827,726
--------- --------- --------- ---------
Costs and expenses:
Cost of goods sold 164,208 164,020 612,263 623,680
Sales, general, and
administrative
expenses 22,465 22,175 92,013 79,858
Research and
development costs 18,089 14,890 59,861 49,996
Amortization of
intangible assets 1,723 1,761 6,953 7,087
Curtailment gain - - - (7,825)
Interest expense 1,188 1,459 5,089 5,814
Interest income (755) (644) (2,750) (2,159)
Other income (982) (1,004) (4,245) (9,322)
Other expense 353 583 834 1,489
--------- --------- --------- ---------
Total costs and
expenses 206,289 203,240 770,018 748,618
--------- --------- --------- ---------
Earnings before income taxes 26,622 14,290 84,497 79,108
Income taxes 9,533 3,039 14,597 23,137
--------- --------- --------- ---------
Net earnings $ 17,089 $ 11,251 $ 69,900 $ 55,971
========= ========= ========= =========
Per share amounts:
Basic $ 0.50 $ 0.33 $ 2.03 $ 1.64
Diluted $ 0.49 $ 0.32 $ 1.99 $ 1.59
========= ========= ========= =========
Weighted-average number of
shares outstanding:
Basic 34,145 34,377 34,351 34,200
Diluted 34,966 35,298 35,191 35,127
========= ========= ========= =========
Woodward Governor Company and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
At September 30, At September 30,
(In thousands) 2006 2005
---------------- ----------------
Assets
Current assets:
Cash and cash equivalents $ 83,718 $ 84,597
Accounts receivable 117,254 107,403
Inventories 149,172 149,336
Income taxes receivable 1,787 5,330
Deferred income taxes 23,526 18,700
Other current assets 5,777 4,207
---------------- ----------------
Total current assets 381,234 369,573
Property, plant, and
equipment-net 124,176 114,787
Goodwill 132,084 131,035
Other intangibles-net 71,737 78,564
Deferred income taxes 10,439 2,310
Other assets 9,579 9,197
---------------- ----------------
Total assets $ 729,249 $ 705,466
================ ================
Liabilities and shareholders'
equity
Current liabilities:
Short-term borrowings $ 517 $ 8,419
Current portion of long-term
debt 14,619 14,426
Accounts payable 38,978 37,015
Accrued liabilities 66,877 68,647
---------------- ----------------
Total current liabilities 120,991 128,507
Long-term debt, less current
portion 58,379 72,942
Other liabilities 71,190 71,548
---------------- ----------------
Total liabilities 250,560 272,997
Shareholders' equity 478,689 432,469
---------------- ----------------
Total liabilities and shareholders'
equity $ 729,249 $ 705,466
================ ================
Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
September 30, September 30,
(In thousands) 2006 2005
------------- -------------
Net cash provided by operating
activities $ 80,536 $ 69,432
------------- -------------
Cash flows from investing activities:
Payments for purchase of property,
plant, and equipment (31,713) (26,615)
Proceeds from sale of property, plant,
and equipment 698 3,706
------------- -------------
Net cash used in investing activities (31,015) (22,909)
------------- -------------
Cash flows from financing activities:
Cash dividends paid (13,742) (11,861)
Proceeds from sales of treasury stock 4,163 6,674
Purchases of treasury stock (22,306) (7,292)
Excess tax benefits from stock
compensation 3,305 -
Net proceeds (payments) from borrowings
under revolving lines (8,025) 2,899
Payments of long-term debt (14,510) (923)
Other payments (318) -
------------- -------------
Net cash used in financing activities (51,433) (10,503)
------------- -------------
Effect of exchange rate changes on cash 1,033 (318)
------------- -------------
Net change in cash and cash equivalents (879) 35,702
Cash and cash equivalents, beginning of
year 84,597 48,895
------------- -------------
Cash and cash equivalents, end of year $ 83,718 $ 84,597
============= =============
Woodward Governor Company and Subsidiaries
OTHER SELECTED INFORMATION
Three months ended Year ended
September 30, September 30,
-------------------- --------------------
(In thousands) 2006 2005 2006 2005
--------- --------- --------- ---------
External net sales:
Industrial Controls $ 146,556 $ 141,959 $ 540,975 $ 536,937
Aircraft Engine Systems 86,355 75,571 313,540 290,789
Segment earnings:
Industrial Controls 14,646 4,202 55,704 28,821
Aircraft Engine Systems 18,240 15,497 63,859 64,052
Earnings reconciliation:
Total segment earnings 32,886 19,699 119,563 92,873
Nonsegment expenses (5,831) (4,594) (32,727) (17,935)
Curtailment gain - - - 7,825
Interest expense and income,
net (433) (815) (2,339) (3,655)
--------- --------- --------- ---------
Consolidated earnings before
income taxes $ 26,622 $ 14,290 $ 84,497 $ 79,108
========= ========= ========= =========
Capital expenditures 12,052 10,290 31,713 26,615
Depreciation expense 4,954 5,491 22,064 24,451
========= ========= ========= =========
Woodward Governor Company and Subsidiaries
RECONCILIATION OF EARNINGS
BEFORE INCOME TAXES TO EBITDA
Three months
ended Year ended
September 30, September 30,
-------------------- --------------------
(In thousands) 2006 2005 2006 2005
--------- --------- --------- ---------
Net earnings $ 17,089 $ 11,251 $ 69,900 $ 55,971
Income taxes 9,533 3,039 14,597 23,137
Interest expense 1,188 1,459 5,089 5,814
Interest income (755) (644) (2,750) (2,159)
Amortization of intangible
assets 1,723 1,761 6,953 7,087
Depreciation expense 4,954 5,491 22,064 24,451
--------- --------- --------- ---------
EBITDA $ 33,732 $ 22,357 $ 115,853 $ 114,301
========= ========= ========= =========
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. At September 30, 2006, property, plant, and
equipment, and intangible assets subject to amortization represented 27
percent of our total assets.
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
