Woodward Governor Company 1000 East Drake Road Fort Collins, Colorado 80525 Tel: 970-482-5811
FOR IMMEDIATE RELEASE
Woodward Reports Record Sales and Earnings for the Fourth Quarter and Fiscal Year 2007
Fort Collins, Colo., November 14, 2007—Woodward Governor Company (Nasdaq:WGOV) today reported record financial results for its fourth quarter and fiscal year 2007.
Fiscal Year 2007 Highlights
•
Record sales of $1.042 billion, an increase of 22 percent over last year with organic sales growth of 11 percent
•
Net earnings for the year were $2.79 per share compared to $1.99 per share last year, including the items highlighted below
•
Strong financial performance in all segments with total segment earnings up 46 percent
•
Cash generated from operations was $117.7 million, an increase of 46 percent over prior year
•
New business segment structure aligns better with market focus
Net sales for the fourth quarter were $290.8 million, up 25 percent from $232.9 million for the same quarter last year. Net earnings for the quarter were $36.0 million, or $1.02 per share, compared with $17.1 million, or $0.49 per share, in the previous year’s fourth quarter.
Net sales for the full fiscal year were $1.042 billion, up 22 percent from $854.5 million for the prior year. Net earnings for the year were $98.2 million, or $2.79 per share, compared with $69.9 million, or $1.99 per share, in the previous year.
Earnings for the quarter and full year included the items highlighted below:
Three Months Ended September 30
Year Ended September 30
In millions, net of
Per share
In millions, net of
Per share
income tax
income tax
Items that increased (decreased) net earnings in 2007:
Net tax adjustments
$
10.3
$
0.29
$
10.3
$
0.30
Impact of adverse arbitration ruling
(2.5
)
(0.07
)
Items that increased (decreased) net earnings in 2006:
Change in valuation allowance for deferred taxes
13.7
0.39
Expense accruals for certain legal matters
(5.3
)
(0.15
)
This year’s and quarter’s results include the effect of the SEG acquisition in October 2006. This quarter’s results reflect two tax adjustments, a favorable resolution of issues with tax authorities resulting in a reduction of tax expense of $13.3 million, and a reduction in deferred tax assets resulting in tax expense of $3.0 million due to a decrease in the German statutory income tax rate.
“The strength of our targeted end-markets and our offerings to them raised Woodward sales over the $1 billion mark this year, confirming the successful execution of our strategies,” said President and Chief Executive Officer Thomas A. Gendron. “As energy costs and environmental concerns escalate, our strategy of addressing increasing efficiency and lowering emissions is being well received in the marketplace.”
Turbine Systems’ Results
Total net sales (including intersegment sales) for the fourth quarter were $143.8 million, an increase of 12.0 percent from $128.3 million for the fourth quarter a year ago. Segment earnings for the quarter increased to $21.0 million from $20.3 million for the same quarter a year ago, an increase of 3.8 percent. Segment earnings as a percent of sales for the quarter decreased to 14.6 percent from 15.8 percent a year ago.
Total net sales for the full year were $523.8 million, an increase of 14.1 percent from $458.9 million for last year. Segment earnings for the full year increased to $87.4 million from $67.6 million for the same period a year ago, an increase of 29.3 percent. Segment earnings as a percent of total net sales for the year improved to 16.7 percent from 14.7 percent a year ago.
Engine Systems’ Results
Total net sales for the fourth quarter were $124.7 million, an increase of 9.4 percent from $113.9 million for the fourth quarter a year ago. Segment earnings for the quarter increased to $17.2 million from $11.2 million for the same quarter a year ago, an increase of 54.5 percent. Segment earnings as a percent of sales for the quarter improved to 13.8 percent from 9.8 percent a year ago.
Total net sales for the full year were $455.2 million, an increase of 5.8 percent from $430.4 million last year. Segment earnings for the full year increased to $57.0 million from $40.8 million last year, an increase of 39.6 percent. Segment earnings as a percent of sales for the year improved to 12.5 percent from 9.5 percent a year ago.
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Electrical Power Systems’ Results
Total net sales for the fourth quarter increased to $54.6 million from $20.9 million for the fourth quarter a year ago. Organic sales growth for the quarter was 12 percent. Segment earnings for the quarter increased to $5.1 million from $0.6 million for the same quarter a year ago. Segment earnings as a percent of sales for the quarter improved to 9.3 percent from 2.7 percent a year ago.
Total net sales for the full year were $181.4 million as compared to $76.2 million last year. Organic sales growth for the full year was 14 percent. Segment earnings for the full year increased to $20.3 million from $4.5 million last year. Segment earnings as a percent of sales for the year improved to 11.2 percent from 5.9 percent a year ago.
“During the course of the year we have won significant long-term sourcing agreements with many of our key customers,” Mr. Gendron continued. “By teaming with our customers early in the development process and maintaining a competitive cost structure, we continue to earn their business.”
Cash Flow and Financial Position
Net cash provided by operating activities was $117.7 million for the full year compared with $80.5 million for last year. Capital expenditures for the year were $32.0 million compared to $31.7 million during the same period last year. The debt to total capitalization ratio was 10.8 percent at September 30, 2007 compared to 13.3 percent at the end of the prior year.
Outlook
Mr. Gendron concluded, “We believe the strength in our end markets will continue through 2008 and our efforts to improve our overall cost structure will deliver enhanced margins and improved profitability. As a result, for fiscal 2008 we have targeted sales growth for Woodward in the range of 8-10 percent and earnings of $3.05 — $3.15 per diluted share.”
Conference Call
Woodward will hold an investor conference call at 6:00 p.m. EST on Wednesday, November 14, 2007, to provide an overview of the financial performance for the fourth quarter and 2007 financial performance, business highlights, and outlook for the 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 1-866-814-1917 (domestic) or 1-703-639-1361 (international). Participants should call prior to the start time to allow for registration; the Conference ID is 1157382. An audio replay will be available by telephone from 9:00 p.m. EST on November 14 until 11:59 p.m. EST on November 16, 2007. The telephone number to access the replay is 1-888-266-2081 (domestic) or 1-703-925-2533 (international), reference access code 1157382.
About Woodward
Woodward is the largest independent designer, manufacturer, and service provider of energy control and optimization solutions for aircraft engines, industrial engines and turbines, and electrical power 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 atwww.woodward.com.
CONTACT:
Robert F. Weber, Jr.
Chief Financial Officer and Treasurer 970-498-3112
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, 2006 and Form 10-Q for the quarters ended December 31, 2006 and March 31, and June 30, 2007. Woodward’s Form 10-K for the year ended September 30, 2007 will be issued by early-December 2007.
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3
Woodward Governor Company and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNING S
Three months ended
Year ended
September 30,
September 30,
(Unaudited - in thousands except per share amounts)
2007
2006
2007
2006
Net sales
$
290,765
$
232,911
$
1,042,337
$
854,515
Costs and expenses:
Cost of goods sold
208,850
164,208
728,820
612,263
Sales, general, and administrative expenses
26,979
22,465
111,297
92,013
Research and development costs
18,383
18,089
65,294
59,861
Amortization of intangible assets
1,640
1,723
7,496
6,953
Interest expense
1,046
1,188
4,527
5,089
Interest income
(2,041)
(755)
(3,604)
(2,750)
Other income
(1,108)
(982)
(4,186)
(4,245)
Other expense
230
353
705
834
Total costs and expenses
253,979
206,289
910,349
770,018
Earnings before income taxes
36,786
26,622
131,988
84,497
Income taxes
752
9,533
33,831
14,597
Net earnings
$
36,034
$
17,089
$
98,157
$
69,900
Per share amounts:
Basic
$
1.05
$
0.50
$
2.87
$
2.03
Diluted
$
1.02
$
0.49
$
2.79
$
1.99
Weighted-average number of shares outstanding:
Basic
34,259
34,145
34,245
34,351
Diluted
35,334
34,966
35,244
35,191
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Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
At September 30,
At September 30,
(Unaudited - in thousands)
2007
2006
Assets
Current assets:
Cash and cash equivalents
$
71,635
$
83,718
Accounts receivable
152,826
117,254
Inventories
172,500
149,172
Income taxes receivable
9,461
1,787
Deferred income taxes
23,754
23,526
Other current assets
8,429
5,777
Total current assets
438,605
381,234
Property, plant, and equipment-net
158,998
124,176
Goodwill
141,215
132,084
Other intangibles-net
73,018
71,737
Deferred income taxes
11,250
16,687
Other assets
6,681
9,579
Total assets
$
829,767
$
735,497
Liabilities and shareholders’ equity
Current liabilities:
Short-term borrowings
$
5,496
$
517
Current portion of long-term debt
15,940
14,619
Accounts payable
57,668
38,978
Accrued liabilities
83,890
66,877
Total current liabilities
162,994
120,991
Long-term debt, less current portion
45,150
58,379
Deferred income taxes
19,788
6,248
Other liabilities
57,404
71,190
Total liabilities
285,336
256,808
Shareholders’ equity
544,431
478,689
Total liabilities and shareholders’ equity
$
829,767
$
735,497
5
6
Woodward Governor Company and Subsidiaries
CONDENSED CONSOLIDATED
STATEMENTS OF
CASH FLOWS
Year ended
September 30,
(Unaudited - in thousands)
2007
2006
Net cash provided by operating activities
$
117,718
$
80,536
Cash flows from investing activities:
Business acquisitions, net of cash acquired
(35,289
)
—
Payments for purchase of property, plant, and equipment
(31,984
)
(31,713
)
Proceeds from sale of property, plant, and equipment
225
698
Net cash used in investing activities
(67,048
)
(31,015
)
Cash flows from financing activities:
Cash dividends paid
(14,747
)
(13,742
)
Proceeds from sales of treasury stock
7,856
4,163
Purchases of treasury stock
(50,952
)
(22,306
)
Excess tax benefits from stock compensation
9,788
3,305
Payments from borrowings under revolving lines
(2,760
)
(8,025
)
Payments of long-term debt
(15,681
)
(14,510
)
Other payments
—
(318
)
Net cash used in financing activities
(66,496
)
(51,433
)
Effect of exchange rate changes on cash
3,743
1,033
Net change in cash and cash equivalents
(12,083
)
(879
)
Cash and cash equivalents, beginning of year
83,718
84,597
Cash and cash equivalents, end of period
$
71,635
$
83,718
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Woodward Governor Company and Subsidiaries
SELECTED FINANCIAL INFORMATION
Three months ended
Year ended
September 30,
September 30,
(Unaudited - in thousands)
2007
2006
2007
2006
Sales Reconciliation*:
Turbine Systems
$
143,767
$
128,327
$
523,842
$
458,923
Engine Systems
124,690
113,927
455,200
430,448
Electrical Power Systems
54,601
20,874
181,366
76,186
Less intersegment sales
(32,293
)
(30,217
)
(118,071
)
(111,042
)
Total external sales
290,765
232,911
1,042,337
854,515
Earnings Reconciliation:
Turbine Systems
21,036
20,266
87,353
67,584
Engine Systems
17,225
11,152
56,984
40,829
Electrical Power Systems
5,092
571
20,294
4,475
Total segment earnings
43,353
31,989
164,631
112,888
Nonsegment expenses
(7,562
)
(4,934
)
(31,720
)
(26,052
)
Interest expense and income, net
995
(433
)
(923
)
(2,339
)
Consolidated earnings before income taxes
$
36,786
$
26,622
$
131,988
$
84,497
��
Capital expenditures
$
9,317
$
12,052
$
31,984
$
31,713
Depreciation expense
4,737
4,954
25,428
22,064
*This schedule reconciles segment sales, which include intersegment sales, with Woodward external sales.
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Woodward Governor Company and Subsidiaries
RECONCILIATION O F
NET EARNINGS TO
EBITDA
Three months ended
Year ended
September 30,
September 30,
(Unaudited - in thousands)
2007
2006
2007
2006
Net earnings
$
36,034
$
17,089
$
98,157
$
69,900
Income taxes (benefit)
752
9,533
33,831
14,597
Interest expense
1,046
1,188
4,527
5,089
Interest income
(2,041
)
(755
)
(3,604
)
(2,750
)
Amortization of intangible assets
1,640
1,723
7,496
6,953
Depreciation expense
4,737
4,954
25,428
22,064
EBITDA
$
42,168
$
33,732
$
165,835
$
115,853
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.
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