F I N A N C I A L H I G H L I G H T S
Fiscal year ended September 30th 1995 1994 1993
(In Thousands of Dollars except per share amounts and other data)
Operating Results
Net billings for products and services $379,736 $333,207 $331,156
Total costs and expenses* 359,553 338,402 308,072
Earnings (loss) before cumulative
effect of accounting changes 11,936 (3,273) 13,389
Per share 4.11 (1.11) 4.50
Cumulative effect of accounting changes,
net of tax -- -- (17,417)
Per share -- -- (5.86)
Net earnings (loss) 11,936 (3,273) (4,028)
Per share 4.11 (1.11) (1.36)
Cash dividends per share 3.72 3.72 3.72
Year-end Financial Position
Working capital 116,364 113,751 107,809
Total assets 349,599 323,318 332,461
Long-term debt 27,796 32,665 36,246
Shareholders' equity 197,903 193,846 206,222
Other Data
Shareholders' equity per share $ 68.21 $ 66.29 $ 69.42
Worker members 3,071 3,439 3,264
Registered shareholder members 2,179 2,256 2,301
*Total costs and expenses includes restructuring expense of $5,927,
$23,700, and $3,480 for 1995, 1994, and 1993, respectively.
TO ALL SHAREHOLDER AND WORKER MEMBERS
Woodward Governor Company
Fiscal year 1995 held many challenges. Sales figures were up for the
year, and although profits increased substantially over last year,
they were not as high as expected. However, I sincerely believe we
have turned the corner, and I expect the future to hold not only
increases in sales, but also a corresponding return to better profit
levels.
Total sales during fiscal year 1995 were $379.7 million, a 14 percent
increase from last year's total of $333.2 million. Earnings before
income taxes jumped from a ($5.2) million loss in 1994 to a positive
$20.2 million in 1995. If the restructuring charges are removed, the
year-to-year change was a strong increase from $18.5 million to $26.1
million. Net earnings for 1995 were $11.9 million compared to a loss
in 1994 of ($3.3) million. Earnings per share equaled $4.11, which
compares to last year's ($1.11).
Our Industrial Controls' markets continue to grow. Many developing
countries are devoting increased resources to upgrade, if not expand,
their power-generating capacity. We are building strong relationships
with more engine and turbine builders, and more system packagers, in
leading industrial countries. Meanwhile, the substantial correction
in international aircraft markets has finally ended, and for the first
time in several years, the market is sending more positive than
negative signals. Aircraft Controls' sales exceeded expectations in
1995.
During 1995, we promoted change in almost every area of our
operations. In particular, the membership is being encouraged to help
integrate a number of strong, positive plans to create a more
productive environment. Without fear of contradiction, I can report
this is a very different company than at the time of our annual
meeting a year ago. And the changes made have been well received by
our members.
First, I want to review where we've been over the last few years
and how we are taking steps to correct unacceptable performance.
Several years ago, orders for civil aircraft decreased by half. In
1990, manufacturers produced about 1,000 large aircraft a year. From
1991 through 1994, that figure dropped to about 500 a year. Markets
for military aircraft dropped even more. As a result, in just over one
year, our aircraft business fell around 40 percent.
To counter the situation, we reduced costs, had layoffs, and
established an early retirement program for two consecutive years. It
quickly became evident we were not facing a short-term situation and
had to admit that a rebound to earlier business levels would not
happen anytime soon. Clearly, something had to be done and done
immediately.
We made some difficult decisions. We evaluated our products, our
core manufacturing technologies, and our general operations. In 1994,
we decided to close our Stevens Point, Wisconsin, plant and move its
aircraft manufacturing operations back to Rockford. In 1995, we made
the decision and moved our Hydraulic Turbine Controls business from
Stevens Point to Loveland, Colorado. There, this operation was
integrated into our Turbomachinery Controls business. In addition, we
closed our leased facility in south Rockford and absorbed its operations
into our North 2nd Street and Rockton plants.
In 1994, the Aircraft Controls group also implemented a new
manufacturing strategy, keeping only critical manufacturing
technologies in house. We contracted less critical operations to
outside sources. These actions played an important role in
streamlining our operations. Also, we evaluated our core strengths and
the markets we serve and decided that the Test Equipment business unit
was not among our core businesses. We now have Bauer Aerospace for
sale.
These decisions allowed us to significantly decrease the work force
throughout our Aircraft Controls operations. As an indication of the
drastic result of these actions, Rockford area membership dropped from
almost 2,100 in 1991 to under 1,000 today. These actions were
difficult and painful, but had to be done to restore the group to a
profitable and competitive business.
Over the last few years, customers' priorities and views of value
have changed. Cost is King! Customers are demanding the greatest value
for money spent on each and every product along with reduced
development time. At the same time, competition has increased. As a
result, the company faces new ways of doing business. It became
obvious that if we were going to position the company for long-term
growth, and a return to good profitability, we had to take a hard look
at how we were conducting business, both internally and externally.
Externally, no longer was it simply enough to be dedicated to the
customer. No longer was it enough to design, manufacture, and support
good controls. No longer could we settle for business as usual. In
short, no longer could we afford to merely react to the customer. That
mindset had to change. To succeed, not only did we need to adapt very
quickly to meet new situations, but also we had to anticipate change
and react before our competition.
To succeed in today's marketplace, we have to deliver what
customers want, when they want it. Otherwise, we risk losing long-term
customers and losing them for good--especially in our aviation markets.
Aircraft engine manufacturers make highly complex turbines and
generally they specify the fuel control when they design an engine. In
other words, if they don't choose our control at the start of their
development program, there is little chance Woodward will ever become
a part of that program.
To move ahead, we began changing our core value from just providing
good service to making the customer first, last, and everything in
between. Every day we are contacting customers and demonstrating our
capabilities. We are forming working partnerships with customers and
striving to understand and respond to their problems with a
completeness never before experienced.
During the last few years, we have intensely focused on future
products. To complicate the issue, life cycles of products and
processes are becoming shorter and shorter. Therefore, in spite of
reduced profits and marginal increases in sales, we continue to make
significant investments in research and development. We are
anticipating market needs and developing solutions when--and even
before--customers indicate they want new or better products.
For several years, we have opened plants and offices to put our
operations close to developing markets. This year we opened a
representative office in Beijing, China. China offers great promise as
a market for Woodward's products and services. We've also begun
producing and shipping products in India. Not only have we focused on
customer needs, but also we began making the internal changes
necessary to help us meet those needs.
Woodward's long-held values, such as integrity, respect for the
dignity of every individual, sharing profits with our worker members,
meeting customer needs, and operating with a view toward long-term
success, remain valid. However, we needed to change the way we put
those values into practice. We identified two critical areas:
- Instilling a deep sense of accountability
throughout the organization
- Changing our management style
We began by very specifically restating what our company goals and
strategies needed to become if we were to succeed over the long haul.
Once we articulated that framework, the business groups and business
units, various functions, departments, and individuals developed their
supporting goals and action plans.
We have begun to build an environment where individual
accountabilities are clearer, better understood, measured, and
rewarded. We are re-establishing the attitude that as a company we
must daily earn our right to new business; and as Woodward members,
are re-establishing the attitude that every day all members must earn
the right to be a part of the company. We encourage our members to
challenge the existing ways of doing things. We want every member to
always believe there is a better way--and then look for it. If we do
not believe and practice these precepts, then we will not progress as
rapidly as we must.
Why was this necessary? Over the years accountability slowly
declined throughout the organization. Woodward had fallen into a very
subtle trap brought about by our great successes of the 1970s and
1980s. Markets were strong, our products were excellent, profits were
high, and profit sharing for our members was very lucrative. We began
to believe our own press clippings and thought the good times would
never end. But in the early '90s they did end, and we discovered we
had to change.
To accelerate the process of change, we made some decisions more
symbolic than substantive. If we were going to expect everyone to
assume more accountability, we needed to send the message that we
consider every person an adult capable of making responsible
decisions. We needed to create an atmosphere that allowed change.
For many decades, Woodward had developed a reputation for following
rigid rules and strictly adhering to conformity. To energize change,
we decided to generate a strong signal to the membership that would
visibly and unquestionably indicate that change was taking place.
Therefore, we moved decision-making about social issues and work
environment away from a central corporate authority and placed it
within the individual business units.
As a result of that action, I suppose the most extraordinary news
coming out of Woodward over the following months was about our relaxed
dress codes and the encouragement to take coffee breaks. Recently,
members of the Rockford area plants even began to wear casual dress on
Fridays. As superficial as the changes may seem, they engendered a
significant increase in morale. These changes certainly serve as
visible signs of our break with the past. They send the message we
consider each individual capable of making reasonable decisions.
Since we are asking every member to assume responsibility for his
or her work, and be accountable for it, we are changing our
compensation system to more directly reward achievement. We are also
trying to reward individual initiative and accountability in more ways
than the paycheck. We want people to have the opportunity to improve
their self-esteem as much as increase their pay.
During the last year, a new management style has begun to evolve.
And, bit by bit, the acceptance of greater accountability is growing
in our daily operations. Once cautious members are beginning to reach
out and test the system, pleased with what they find in our new
environment. Every day it seems the company enjoys new victories as
people take responsibility and assertively express their ideas.
We are working to foster an environment of more open communication
where everyone can feel free to express concerns, to put ideas on the
table, and to deal with ideas constructively. We want an environment
with a clear set of objectives, identifiable goals, where everyone is
committed to working together to achieve stated targets. We are
striving for a work environment where everyone freely speaks their
mind, genuinely enjoys their work, and creativity is constantly
reinforced--and rewarded.
In our new environment, managers are not defined solely by being
the bosses who know all the answers, but rather as empathetic,
coaching managers, who act as mentors and teachers. We need managers
who know how to draw out good ideas from their people, assimilate the
collective knowledge of their groups, and facilitate effective team
action.
We continually involve our members in the everyday operation of the
business. For example, today there is virtually no new machine or
technology purchased without direct involvement of the people who have
responsibility for running the machines. We ask those who eventually
will use the new equipment to help evaluate and then recommend that
which will best meet their needs. Teams take the initiative to explore
new ways of handling existing operations and processes. As a result,
we are beginning to enjoy an increasing number of cost-reduction and
time-saving successes.
As the end of my first year as CEO and Chairman of the Board
approaches, I have great confidence in our company and its members.
Even though we had more restructuring costs during 1995 than
anticipated, and the improvements resulting from the restructuring did
not happen as quickly as we had hoped, we did manage to improve
earnings before restructuring costs and taxes by $7.6 million, or 41
percent. With this kind of performance, I believe the confidence I
have in the members and our company has been well justified.
As we face changing customer expectations and highly contested
markets, we are in a critical period of our history, and well-directed
leadership is important. I find leading Woodward in the pursuit of
continuing excellence is a daunting responsibility. It also is very
exciting and rewarding. Speaking for myself, and for every member of
Woodward, I can report we fully intend to remain a leader in our
markets. We are taking positive steps to change the way we do
business--both externally and internally. We constantly will focus our
attention on ways to do things better. And, we will not be satisfied
unless we continue to maintain our market leadership.
John A. Halbrook
Chairman of the Board
and Chief Executive Officer
November 30, 1995
WOODWARD'S VALUE ADDED APPROACH
Meeting Customer Needs
Day after day, we face tough competition in every one of our markets.
Customers continue to demand controls designed to offer the highest
value for money invested, and electronic-based systems remain in great
demand. As environmental and fuel-efficiency requirements become more
stringent, customers are calling for completely integrated, highly
effective fuel-metering systems. Therefore, the ability to develop
hydromechanical and electromechanical based units to supplement
electronic controls grows in importance. We hold a particularly strong
advantage in this area because it centers on one or more of our
traditional core technologies.
We believe we are prepared to meet the market's varied challenges
because we planned for them. When business was down and the future
didn't look very bright, we invested in research and development. We
strengthened our worldwide presence. Because we took these risks, we
are in an excellent position to help customers meet the critical needs
for control systems required by today's applications, as well as for
those of the future.
AIRCRAFT CONTROLS
The past twelve months indicate the aerospace market's cyclical
correction has run its course, and we have begun to experience a
modest turnaround in our Aircraft Controls business. From business to
commercial aviation, recent market forecasts indicate a stabilization
has begun, and long-term outlooks have brightened. For the immediate
future, we expect civil aviation markets to remain reasonably stable.
They certainly will be higher than the low point experienced in 1994,
but they will remain well below the remarkable highs of the late
1980s. Military controls markets remain in decline.
In 1995, the marketplace made a number of unforeseen demands on us.
During the year, we had unexpected, but welcome, increases in demand
for some of our Aircraft Controls products. We pulled together and
fulfilled these requirements. This achievement is even more
significant when one considers it occurred during the time our
attention was centered on closing two plants and changing our
operations.
To reduce operating costs and eliminate excess capacity, we closed
our Stevens Point, Wisconsin, plant and a leased facility in Rockford,
Illinois, consolidating all aircraft operations into our two Rockford
area plants. We combined four stand-alone business units into a single
Aircraft Controls operation. This new operation focuses on our three
critical business processes: customer support, product development,
and product flow and distribution. Through this simplified
organization, we reduced management costs, and we established a better
framework to clearly understand and improve fundamental business
processes. As a result, not only did we cut costs, but also we became
more aggressive and profitable without decreasing the quality of
customer support or the ability to compete for new programs.
As an integral part of the overall restructuring process, we
rethought our manufacturing strategy and made a commitment to a
significant increase in outsourcing parts production. We have
outsourced non-critical parts to suppliers, who have shown they can
manufacture them economically and maintain our quality standards. To
help us obtain conforming parts, we facilitated the formation of a
major new contractor, Pointe Precision, Stevens Point, Wisconsin.
Internally, we reorganized our in-house manufacturing organization
into logical flows focused on the production of parts critical to
control performance and on those we are uniquely qualified to
manufacture.
We continued to invest in equipment and methods to improve overall
operations and cut production time. We purchased new equipment
designed to improve our core manufacturing technologies. We also have
member teams reviewing material flow processes. With their
recommendations, we expect to make further strides in reducing
throughput time and approach the absolutely essential goal of making
100 percent on-time delivery. Other teams are performing similar
reviews in the Industrial Controls business group.
Increasingly, cost drives customer decisions. Quality and
reliability remain a must, and customers routinely expect these
features. Value delivered for money invested remains an important
criteria for success. In addition, end users have heightened their
influence on engine manufacturers to place a strong emphasis on
life-cycle costs. Because we have a long-standing reputation for
building reliable controls, and will continue to build upon that
reputation, we are in a good position to meet these market
expectations.
Also, with costs rising, creative financing is growing in
importance, both for supporting OEM sales to airlines and for winning
service contracts. Our strong financial position continues to work in
our favor, and we are creating and marketing innovative ways to help
end users cut costs, particularly in the support of their fuel
controls.
In our view, customers increasingly will demand complete fuel-
control systems as they try to reduce their costs and simplify their
supply functions. We are working hard to improve our already extensive
capability of integrating components into critical fuel delivery
systems. We have targeted a considerable portion of our research and
development efforts to increase this capability. However, it is
important to note that further technological advances appear to be
important only if they contribute to reduced cost and/or weight.
Currently, the aerospace market does not support implementing new
technology for its own sake.
Woodward controls may be found on a wide variety of commercial
aircraft: All Boeing 737-300, -400, and -500s with CFM56-3 turbofan
engines; Boeing 757s equipped with Rolls-Royce RB211-535E4 turbofan
engines; and the new Boeing 777s equipped with GE90 or Rolls-Royce
Trent 800 turbofans. The A319, A320, A321, and A340s made by European
airframer, Airbus, use Woodward controls on versions of the CFM56-5
turbofan and IAE V2500 turbofans. Also equipped with Woodward controls
are the MD-90s with IAE V2500 turbofans and the Canadair Regional Jet
with GE CF-34 turbofans.
The BR710, Rolls-Royce Trent, and the IAE V2500 turbofans employ
one of Woodward's family of advanced fuel metering controls. Since the
program began, Woodward's advanced fuel metering control has won all
contracts for which it has been proposed. This year, receiving the
V2500 contract was a major event. We worked hard for this contract,
and our demonstrated rapid-development cycle time played a major part
in our receiving it.
At the end of fiscal year 1995, Woodward was awaiting the decision
on its proposal for a fuel metering unit for the newest model of the
GE CF-34 turbofan and the launch of the BR715 program. These two
programs represent substantial contracts and if awarded, both controls
will enter production in 1999. (Editor Note: Since the end of fiscal
year 1995, Woodward received notification of the award of the CF-34
contract and the launch of the BR715 program.)
Woodward controls also have made a name for themselves in
applications on small and medium size airframes. Cessna and Raytheon,
the parent company of Beech, use our controls on models of the
Williams-Rolls FJ44 turbofan. In addition, Pratt & Whitney Canada
has used our products on many variations of the PT6 and PW206
turboprops. This year, an advanced PT6 turboprop engine, with a new
control system, was selected to power the winning Joint Primary Air
Training System (JPATS) entry. The selected aircraft is the Armed
Forces' next generation of primary trainer.
In addition to supplying controls to engine manufacturers, we have
a long-held commitment to provide comprehensive repair, overhaul,
parts, and engineering services to all end users of Woodward controls.
Earlier this year, we did have some problem getting parts when we
consolidated and relocated our operations. However, the problems are
being resolved and we are committed to supplying these services with
rapid turn time (the time it takes to convert a concept into a
finished product), first-class engineering support, and predictable
competitive pricing.
Last year we purchased HSC Controls Inc. This company specializes
in servovalves and other electromechanical devices used in aircraft,
medical, and industrial markets. These products are critical
components not only for our products, but also for almost every
existing and future control system. One of HSC's latest developments
centers on a family of jetpipe servovalves. Manufacturers of some of
the newest turbine engines and auxiliary power units on the market use
this product, and it has potential for many more applications. HSC is
committed to being the foremost supplier of the industry's fuel-based
servovalves.
INDUSTRIAL CONTROLS
On the Industrial Controls side of our business, the demand for engine
and turbine controls has begun to pick up, and new markets are making
an appearance. Many countries, such as those in South America, have
begun to privatize state-owned industry. In South America, these
actions have resulted in new owners with a desire to invest in updated
control systems. There also exists an increased possibility for
constructing new plants to meet growing demands for hydro-electrical
power. Countries formerly of the Soviet Union hold a significant
degree of opportunity for long-term business in the future. Even
countries with government-owned and operated powerplants are beginning
to recognize the need to upgrade existing controls.
Forming partnerships and other cooperative agreements with original
equipment manufacturers, system packagers, and end users is becoming a
common approach to business. By closely working with our customers, we
gain an important insight into the evolving needs of our markets. We
also find these associations hold the potential to open doors that
otherwise may have remained closed to us.
As we gain insight into present and future market expectations for
controls and control systems, we increase our ability to accurately
focus our research and development efforts. With this knowledge, we
become even better prepared to develop the means to effectively meet
market expectations.
The ability to determine market needs and then develop the means to
meet them has led us to produce innovative products. These products
have helped us secure a competitive advantage in several of our
markets, and we are continuing to look for new ways to gain an even
greater advantage. As we gain additional insight into market needs, we
are better able to give our customers products offering exceptional
features and performance. And, we can maintain a highly competitive
ratio between cost and value received.
We have strengthened our efforts on customer service by expanding
Woodward's presence throughout the world. Not only have we added new
offices, but we also have expanded the activities taking place in some
of our existing plants and offices.
We are enjoying a tremendous advantage over our competition through
the synergy found in a company exclusively engaged in the design,
manufacture, and support of controls and control systems. We have many
skills to draw upon, and we are making good use of those skills. Not
only do the units in Industrial Controls share their knowledge, but
also the Aircraft Controls and Industrial Controls businesses share
knowledge to help our customers solve problems. This year, engineers
from throughout the organization have pooled skills and technology to
develop unique, effective solutions to complex control issues.
TURBOMACHINERY CONTROLS
Throughout the world, we are experiencing increased activity in our
Turbomachinery Controls markets. Activity in the Asia and Pacific
regions is on the increase, and industries in Central and South
America are encouraging. The market indicates a growing need for new
and updated turbine control systems. To meet challenges such as these,
we opened offices in Beijing, China, and in Mexico City, Mexico. We
also opened an office in Perth, Australia, to support the Sydney
operation. Last year we opened a plant in India, and this year its
members played an important part in helping us sell several steam
turbine control systems to a large OEM.
Markets in the Middle East also hold a significant potential for
growth. Therefore, we increased the staff at our Abu Dhabi sales
office, and we opened a training facility. The number of training
sessions already booked clearly expresses a strong customer need for
this type of service.
Value-for-cost considerations have become an increasing decision-
maker for turbine controls users. Also, the ability to meet
environmental regulations continues to gain in importance in almost
every market. Turbomachinery engineers have accepted these challenges
and offer customers an increasing array of controls, control systems,
and subsystems designed to meet customer needs at reasonable costs.
Woodward's investment in the development of dry low emission (DLE)
controls technology for new-generation turbines has made us a
technology leader in this area. This technology led to our
establishing agreements with several major turbine manufacturers, and
they have specified the system for use on new DLE turbines. Not only
have we become a leader in DLE technology, but the knowledge gained
from undertaking this challenge fortifies our knowledge in the design
of fast-acting valves and related subsystems. The ability to combine
integrally designed components into a comprehensive system
differentiates Woodward valves from the competition.
One significant event for Turbomachinery Controls was the
integration of the Hydraulic Turbine Controls (Hydro) business unit,
formerly of Stevens Point, Wisconsin, into its operations. This
reorganization allows members to take full advantage of the many
talents and technologies found throughout the Turbomachinery Controls
operation, and it translates into important customer-related
improvements:
- Expanded aftermarket and customer services
- Development of more innovative products
- Reduced product lead times
- Integrated engineering capabilities
With increasing market activity, Turbomachinery Controls engineers
constantly look for new ways to meet customer needs. Many challenges
face us, and we believe we have the technically skilled members, the
controls and control systems, and the ability to meet all demands.
ENGINE CONTROLS
Throughout the year, Engine Controls engineers developed and tested
several controls specifically designed for the specialized needs of
individual markets. One of these units is the AutoBalancerTM 5000
control, which is designed to improve the operation of gas engines.
The AutoBalancer 5000 control came about because engineers worked
closely with members of the industry. But this was not the only
instance where we have developed close relationships with customers or
industry representatives. Engine Controls also entered into working
agreements with several engine manufacturers and system packagers. One
such association resulted in the design and application of a
specialized control system for engines fueled by liquid or compressed
natural gas. Manufacturers of trucks and busses worldwide are giving
strong consideration to these alternative-fuel engines as viable for
use in vehicles. Having a proven answer to the control problems
presented by these applications gives us a strong market advantage.
We entered into an agreement with Mercedes-Benz in Brazil. We are
working with this company to employ our Digital Min/Max control and
Flo-TechTM valve on equipment they produce. This system, developed for
use in carbureted gas engines, not only has spurred interest in one
particular area, but also it has potential for the use of Woodward
controls on other applications for Mercedes-Benz.
Through the efforts of members in Reading, England, we have entered
a partnering agreement with F.G. Wilson, a major system packager with
headquarters in Northern Ireland. By designating Woodward as its main
control supplier, F.G. Wilson opened the door for Woodward to develop
controls for engines made by manufacturers not traditionally
considered Woodward customers. We expect substantial growth in this
venture for 1996 and beyond. Also in Europe, we signed an exclusive
agreement with Deltec Fuel Systems of the Netherlands for joint
development of an integrated gas-engine control system.
Members of Woodward Governor Germany GmbH successfully participated
in a number of fuel-injection programs, and members in Japan
introduced fuel injection components into their markets. Over the
year, Woodward Governor Germany GmbH improved both its product and
production facility. Next year will be a pivotal time for this portion
of our business, and we have high expectations.
In India, members began producing and shipping, engine control
products. Although the plant's production presently is limited to
hydromechanical controls, the plant's staff promotes the sale and
application of the entire range of Woodward industrial products.
In Asia and the Pacific Rim, many markets, including those in
China, offer potential for new and retrofit engine-control
applications. In South America, in addition to the Mercedes-Benz
partnership, members of our plant in Brazil are seeing an increase in
the demand for Woodward engine controls and control systems.
Several of our Engine Controls developments have been underway for
a while, and we now are beginning to realize the rewards of those
efforts. In other areas, we may not experience increased success until
sometime in the future. Meanwhile, we need to continue to anticipate
market demands that will occur in years to come. All in all, the next
several years hold many challenges for our Engine Controls business
unit. Our members are facing these challenges with confidence and are
prepared to advance Woodward into a growing number of markets--both in
general and specialized control technology.
SUMMARY
Our efforts to build strong links with our customers continue to gain
momentum. John Halbrook, Woodward Chairman and CEO recently said, "We
must develop a passion for serving our customers." Achieving this
status is our focus, and we continue to reach out to our markets by
placing Woodward operations near them.
Simply building good customer relationships is not enough. We must
supplement these strong customer bonds with controls and control systems
containing greater built-in value for cost than any other product on the
market. We must consistently build upon our already strong customer
support capabilities. Each year we add to these capabilities. In the
United States, Canada, Mexico, Venezuela, and Curacao, N.M., we had
a total of twelve Central Distributors in place at the end of fiscal
year 1995. In addition, we now have one or more Authorized Independent
Service Facilities (AISFs) in twenty-nine countries, all supplying
Woodward products and support to customers throughout the world.
And as we enter more markets and develop more products, we believe
we are taking the necessary steps to make sure we attract, and retain,
members with the best talents available. By offering the right product
in the right place at the right time supported by the right people,
we believe Woodward will be the best source customers turn to when
seeking new or updated fuel controls and controls systems.
FINANCIAL SUMMARY AND ANALYSIS
Woodward Governor Company
RESULTS OF OPERATIONS
1995 Compared to 1994
Shipments
Shipments in 1995 were $379,736,000, 14% greater than the $333,207,000
shipped in 1994. Price increases accounted for 1.5% of the change and
volume increases 8.8% of the change in 1995 shipments. In addition,
shipments from overseas plants translated into over $11,700,000 or
3.5% more U.S. dollars compared to prior year exchange rates. Aircraft
Controls' and Industrial Controls' shipments have both increased since
last year. Military sales continued to decline and were 7.4% of sales
this year compared to 9.6% last year.
Aircraft Controls' shipments were $162,124,000 in 1995, up 14.5%
from last year's total of $141,632,000. There were some items in 1995
that need to be considered when comparing to 1994. Over $9,500,000 of
revenue was recognized in 1995 for reimbursement of nonrecurring
engineering charges. This compares to $2,600,000 in 1994. Shipments in
1994 for the then newly acquired HSC Controls Inc. and Bauer
Aerospace, which at year end 1994, the company announced its intent to
divest of, were $7,300,000. In 1995, these entities had shipments of
$14,525,000. Aircraft Controls' shipments were 42.7% of total company
shipments in 1995 compared to 42.5% in 1994. The aircraft industry has
seen some stabilization of the market, and the company is seeing an
increase in market share.
Industrial Controls' shipments in 1995 were $217,612,000 compared
to $191,575,000 in 1994, a 13.6% increase. This represents 57.3% of
total company shipments in 1995 compared to 57.5% in 1994. Shipments
from the overseas plants continue to increase at a much higher rate
than domestic shipments which were down slightly from the prior year.
The domestic business units are the principal manufacturing support
for the overseas plants, so even though customer shipments from the
domestic plants were down, the manufacturing activity was up. The
growth in the overseas markets is projected to continue in the near
future, with the domestic markets remaining flat or increasing
slightly.
Cost of Goods Sold
Cost of goods sold was $274,676,000 or 72.3% of net sales in 1995.
This compares to $248,839,000 or 74.7% in 1994. The favorable change
as a percent of shipments from 1994 to 1995 reflects the company's
cost control efforts and early benefits related to the restructuring
plan implemented in 1995. Research and development efforts continue to
be an important part of customer commitment, with many customers
requesting work be done to develop new applications for control
technology. Spending on research and development was $13,700,000 in
1995 compared to $16,400,000 in 1994. Engineering costs overall
continue to increase to meet the demands of customer support.
Sales, Service, and Administrative Expenses
For 1995, sales, service, and administrative expenses were $69,961,000
or 18.4% of sales compared to $58,557,000, or 17.6% in 1994. Included
in this year's total are some items that should not be incurred in the
future: these include costs related to the ongoing restructuring and
consolidation of the Aircraft Controls group which was essentially
completed in 1995 and a $1,100,000 bad debt provision relating to a
long time customer. These items in total added over $4,000,000 in
expenses this year.
Restructuring Expense
In 1994, the company had a major restructuring of the Aircraft
Controls group and recorded $23,700,000 of restructuring costs. These
costs included the announced closing of the Stevens Point, Wisconsin
plant, the intent to divest of Bauer Aerospace, and consolidating all
aircraft manufacturing, assembly, and test operations into the two
remaining Rockford-area plants. In 1995, the Stevens Point plant was
closed except for a small portion of the plant currently being leased
to a Woodward contractor who was established through company
assistance. The plant has been placed for sale with an international
real estate broker. As yet, no offers have been received. The company
has also attempted to sell Bauer Aerospace during 1995. No acceptable
offer has been made and the efforts to sell this business will
continue.
In 1995, additional restructuring expenses of $5,927,000 were
incurred. These principally relate to an early retirement program
announced in fiscal year 1994 that was implemented in 1995 and the
move of the Hydro business unit from Stevens Point to the plants in
Colorado. The decision to make this move was made in the first quarter
of 1995 and the move completed in the third quarter. We do not expect
any significant restructuring expenses in 1996.
Interest Expense
Interest expense was $3,825,000 in 1995 compared to $3,941,000 in
1994.
Interest Income
Interest income in 1995 was $555,000 compared to $708,000 in 1994.
Other Expense-Net
Other expense-net was $5,719,000 in 1995 compared to $4,073,000 in
1994.
Income Taxes
The income tax expense in 1995 was $8,247,000 and the effective rate
was 40.9%. In 1994, there was a tax benefit of $1,922,000 primarily
due to a significant restructuring charge. The effective rate in 1995
is higher than the statutory rate in the United States due to the fact
that a significant portion of the income was generated at overseas
locations at higher tax rates.
Net Earnings (Loss)
The 1995 net earnings were $11,936,000, an increase of $15,209,000
from the net (loss) in 1994 of ($3,273,000). The results for 1994
included a restructuring expense of $23,700,000 while 1995 also
included $5,927,000 of restructuring expenses. The return on sales was
3.1% in 1995 compared to (1.0%) in 1994. Return on average net worth
was 6.1% in 1995 and (1.7%) in 1994. Earnings (loss) per share was
$4.11 in 1995 and ($1.11) in 1994.
The earnings before income taxes from foreign operations increased
from $12,550,000 in 1994 to $15,126,000 in 1995. The shipment level
also increased, going from $89,128,000 in 1994 to $118,293,000 this
year. Shipments from domestic operations increased from $244,079,000
in 1994 to $261,443,000 in 1995. Over the same period, earnings (loss)
before income taxes from domestic operations went from ($17,745,000)
in 1994 to $5,057,000 in 1995. Without the restructuring expense of
$23,700,000, 1994 would have reflected earnings before income taxes
from domestic operations of $5,955,000. The 1995 earnings before
income taxes from domestic operations would have been $10,984,000
without the restructuring expense of $5,927,000. The net earnings of
$3,646,000 in 1995 compared to the net (loss) in 1994 of ($10,710,000)
for domestic operations.
Management expects that sales and earnings will continue to
increase next year. The expectation is that ongoing shipments of the
Aircraft Controls group will be flat while shipments from the
Industrial Controls group will increase. Although the Aircraft
Controls group has seen a stabilizing of the aircraft market and some
increased market share, the number of new aircraft being built is
still down from past levels. Inroads continue to be made on programs
with current customers that we are not presently involved on. The
expected increase in industrial shipments will be due principally to
the continued increase in the company's overseas markets. The
consolidation of the Hydro business into the Turbomachinery Controls
business unit in Colorado, the closing of the Stevens Point plant and
consolidation of aircraft operations, and the ongoing reduction of
membership levels all will contribute to a lower cost structure in
1996.
The company is currently involved in matters of litigation arising
from the normal course of business, including certain environmental
and product liability matters. For a further discussion of these
issues, refer to Notes to Consolidated Financial Statements, Footnote
K, "Contingencies," on page 28.
Financial Condition
Cash and cash equivalents increased from $10,272,000 in 1994 to
$12,451,000 in 1995. Combined short- and long-term debt increased
slightly to $62,960,000 in 1995 from $61,591,000 in 1994. With the
increase in accounts receivable and inventory, this increase was not
unexpected.
Accounts receivable increased from $69,778,000 at September 30,
1994 to $81,880,000 at September 30, 1995. This increase is due to the
exceptional shipment level in the month of September 1995, $7,500,000
greater than September 1994, and the deterioration in timely payments
from our customers. In addition, the allowance for losses increased
from $3,021,000 in 1994 to $4,605,000 in 1995. Of this increase,
$1,100,000 relates to a specific reserve for one customer.
Inventories increased from $80,272,000 at September 30, 1994 to
$92,831,000 at September 30, 1995. The increase was disappointing.
Although shipments increased, the inventory level needs to be better
managed. Material flow teams have been formed to focus on this issue
and major changes are underway in inventory management to be
implemented in 1996.
Property, plant, and equipment--net decreased from $122,911,000 at
September 30,1994 to $118,066,000 at September 30, 1995. The decrease
is a result of holding the capital expenditure level in 1995 below the
depreciation expense.
Deferred income taxes increased from $35,328,000 in 1994 to
$39,630,000 in 1995. A valuation allowance of $9,006,000 in 1995 and
$7,518,000 in 1994 was recorded principally due to foreign tax credit
and acquired foreign net operating loss carryforward limitations.
Remaining deferred tax assets are expected to be realized through
future earnings.
Accounts payable and accrued expenses increased from $37,972,000 at
September 30, 1994 to $50,765,000 at September 30,1995. Accounts
payable have increased from last year due to greater shipment
activity. Accrued salaries and wages are up due to the additional days
pay accrued this year, additional withholding taxes, and profit
sharing. In addition, the accrued early retirement liability increased
as a result of the program offered in fiscal 1995.
Other liabilities reflects the non-current accumulated
postretirement benefit obligation.
Shareholders' equity at September 30, 1995 increased to
$197,903,000 from $193,846,000 at September 30,1994.
Liquidity and Capital Expenditures
Cash dividends paid to shareholders in 1995 and 1994 were $3.72 per
share.
Cash flows provided from operations were $31,321,000 in 1995
compared to $35,805,000 in 1994.
Cash flows (used) in investing activities were ($18,428,000) in
1995. This compares to ($23,902,000) in 1994. The primary use of cash
is capital expenditures, with capital expenditures in 1995 up from
1994. The 1994 total also included the acquisitions of HSC Controls
Inc. and the two companies that comprise Woodward Governor Germany
GmbH.
Net cash (used) in financing activities was ($11,522,000) in 1995
and ($11,833,000) in 1994. Cash dividends continue to be the principal
use of cash in this area. The main financing activities are related to
short-term borrowing and long-term debt payments.
Membership
Worldwide membership decreased in 1995 from 3,439 at the beginning of
the year to 3,071 at September 30, 1995. The decrease occurred in the
Aircraft Controls group and was accomplished through an early
retirement program, attrition and the closing of the Stevens Point
plant.
RESULTS OF OPERATIONS
1994 Compared to 1993
Shipments
Shipments during 1994 were $333,207,000, .6% above the $331,156,000
shipped in 1993. Price increases accounted for .6%, volume decreases
accounted for 3.9% and increases due to acquisitions accounted for
3.2% of the change in 1994 shipments. In addition, shipments from
overseas plants translated into over $2,300,000, or .7% more U.S.
dollars compared to prior year exchange rates. A decline in Aircraft
Controls' shipments was offset by an increase in Industrial Controls'
shipments. Military sales continue to decline, dropping from 11.0% of
total company shipments in 1993 to 9.6% this year.
In 1994, the company acquired HSC Controls Inc. of Buffalo, New
York. HSC designs and manufactures torque motors and servovalves
primarily for aerospace applications. HSC's shipments from the date of
acquisition are included in the Aircraft Controls group. The company
also acquired two companies in Germany: Einspritzgeratewerk Aken, a
diesel fuel pump manufacturer, and Feingeratebau Kelbra, a
manufacturer of fuel-injection nozzles. These two companies have been
consolidated to become Woodward Governor Germany GmbH. Shipments from
the dates of acquisition for these companies are included in the
Industrial Controls group this year. Combined shipments included in
1994 results for these three acquisitions amount to $10,699,000.
Aircraft Controls' shipments were $141,632,000, down 7.0% from last
year's total of $152,238,000. In 1994, Aircraft Controls' shipments
were 42.5% of total company shipments compared to 46.0% in 1993. The
depression in the commercial aircraft industry continues to influence
shipments.
Industrial Controls' shipments in 1994 were $191,575,000 compared
to $178,918,000 last year, a 7.1% increase. Shipments made in 1994
represented 57.5% of total company shipments compared to
54.0% last year. However, shipments of the newly acquired Woodward
Governor Germany GmbH accounted for 4.1% of the increase, while
existing operations accounted for a 3.0% increase. The importance of
worldwide marketing efforts is evidenced by shipments at overseas
business units increasing at a higher rate than domestic shipments.
Cost of Goods Sold
Cost of goods sold was $248,839,000, or 74.7% of net sales in 1994
compared to $246,254,000, or 74.4% in 1993. Material costs increased
due to the greater purchased material content of our products, but
direct labor costs were reduced as a result of improvements in
productivity. Although research and development costs decreased from
the prior year, we continue to be committed to these efforts which are
necessary for future growth. Engineering costs overall continued to
increase because of the need to provide even greater support to
current products. Spending on research and development in 1994
amounted to $16,400,000 compared to $18,500,000 in 1993.
Sales, Service, and Administrative Expenses
In 1994, sales, service, and administrative expenses were $58,557,000
compared to $52,559,000 in 1993. This represents 17.6% of sales
compared to 15.9% in 1993. Included in the 1994 total are the sales,
service, and administrative expenses since the dates of acquisition
for the three acquired companies. That and the cost of implementing
the final phase of the new management information system at all
domestic locations were the primary reasons for the increase.
Restructuring Expense
Restructuring expense in 1994 was $23,700,000 compared to $3,480,000
in 1993, and reflects the major restructuring of the Aircraft Controls
group to bring manufacturing capacity in line with current and
projected shipment requirements. These costs include the closing of
the Stevens Point plant, divesting of Bauer Aerospace, and
consolidating all aircraft manufacturing, assembly, and test
operations into the two remaining Rockford-area plants. Included in
both years are the costs of severance pay offered to terminated
workers. The cost of an early retirement program offered to eligible
members is included in 1993.
Interest Expense
Interest expense was $3,941,000 in 1994 compared to $2,722,000 in
1993. The increase over last year is a result of higher levels of
borrowing combined with higher interest rates, in addition to $665,000
of interest as the result of completing an income tax review.
Interest Income
Interest income in 1994 was $708,000 compared to $748,000 in 1993.
Other Expense-Net
Other expense-net was $4,073,000 in 1994 compared to $3,805,000 in
1993.
Income Taxes
Income taxes were a benefit of $1,922,000 in 1994 compared to an
expense of $9,695,000 in 1993. The primary reason for the benefit this
year is the significant restructuring charge.
Accounting Changes
In the fourth quarter of 1993, the company elected to adopt Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106). SFAS 106
requires the company to accrue the cost of postretirement benefits
(principally health care) over the years members provide service. This
resulted in a one-time charge in 1993 of $17,341,000 (after reduction
for income tax of $11,087,000). The company also elected to adopt
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" (SFAS 112). SFAS 112 requires
the accrual method of accounting for benefits to former or inactive
members after active membership, but before retirement. Implementation
of this statement last year resulted in a one-time charge of $427,000
(after reduction for income tax of $273,000).
In 1993, the company also adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109
requires a change from the deferred method to the asset and liability
method of accounting for income taxes. The cumulative effect of this
adjustment was to increase earnings by $351,000. The cumulative impact
of the three accounting changes, net of tax, amounted to a $17,417,000
charge against net earnings in 1993, or $5.86 per share.
Net Earnings (Loss)
The 1994 (loss) before the cumulative effect of accounting changes was
($3,273,000), a decrease of $16,662,000 from 1993 earnings of
$13,389,000 before the cumulative effect of accounting changes. The
results for 1994 included a restructuring expense of $23,700,000
compared to $3,480,000 in 1993. Return on sales was (1.0)% compared to
4.0% in 1993. Return on average net worth was (1.7)% compared to 6.3%
in 1993. Earnings (loss) per share before the cumulative effect of
accounting changes were ($1.11) in 1994 compared to $4.50 in 1993.
After deducting the cumulative effect of accounting changes, net of
tax, of ($5.86) per share, the net (loss) per share in 1993 was
($1.36). The net (loss) in 1994 was ($3,273,000) compared to
($4,028,000) in 1993.
Earnings before income taxes and cumulative effect of accounting
changes from foreign operations in 1994 were $12,550,000 on shipments
of $89,128,000 compared to the 1993 total of $15,238,000 on shipments
of $78,018,000. The (loss) before income taxes and cumulative effect
of accounting changes from domestic operations this year was
($17,745,000) on shipments of $244,079,000 compared to $7,846,000 of
earnings in 1993 on shipments of $253,138,000. Without the
restructuring expense of $23,700,000, 1994 would have reflected
earnings before income taxes from domestic operations of $5,955,000.
In 1994, the net (loss) was ($10,710,000) compared to ($13,145,000) in
1993 for domestic operations.
Financial Condition
Cash and cash equivalents were $10,272,000 in 1994 and $10,497,000 in
1993. Combined short- and long-term debt increased to $61,591,000 from
$58,258,000 in 1993.
Accounts receivable increased from $64,024,000 at September 30,
1993 to $69,778,000 at September 30, 1994. The increase is principally
due to additional receivables of acquired companies. In addition the
allowance for losses was increased from $1,989,000 in 1993 to
$3,021,000 in 1994.
Inventories decreased to $80,272,000 at September 30, 1994 from
$83,128,000 at September 30, 1993. The reduction is a net result of
the decreased shipment volume at certain business units and the
additional inventory from acquisitions.
Property, plant, and equipment--net decreased from $144,016,000 at
September 30, 1993 to $122,911,000 at September 30, 1994. This
decrease is due to the writedown of these assets as a result of the
restructuring and capital expenditures for 1994 being less than
depreciation.
Deferred income taxes increased $10,419,000 from $24,909,000 in
1993 to $35,328,000 in 1994. The main reason for the increase is
$9,208,000 related to the 1994 restructuring charges and an acquired
net operating loss carryforward. A valuation allowance of $7,518,000
in 1994 and $2,492,000 in 1993 was recorded principally due to foreign
tax credit and acquired foreign net operating loss carryforward
limitations. Remaining deferred tax assets are expected to be realized
through future earnings.
Accounts payable and accrued expenses increased from $35,915,000 in
1993 to $37,972,000 in 1994.
Other liabilities reflects the non-current accumulated
postretirement benefit obligation.
Shareholders' equity at September 30, 1994 decreased to $193,846,000
from $206,222,000 at September 30, 1993.
Liquidity and Capital Expenditures
Cash dividends paid to shareholders in 1994 and 1993 were $3.72 per
share.
Cash flows provided from operations were $35,805,000 in 1994
compared to $37,222,000 for 1993.
Cash flows (used) in investing activities were ($23,902,000) in
1994. This compares to ($18,088,000) in 1993. Capital expenditures are
the primary use of cash, even though these expenditures have been
reduced significantly the last two years. In 1994, the company also
acquired HSC Controls Inc. and the two companies that now comprise
Woodward Governor Germany GmbH.
Net cash (used) in financing activities was ($11,833,000) in 1994,
($16,204,000) in 1993. The principal financing activities are short-
term borrowing and long-term debt. Dividend payments continue to be
the principal use of cash in this area.
Membership
Worldwide membership increased from 3,264 in 1993 to 3,439 in 1994.
The membership in newly acquired companies accounted for an increase
of 273, while the membership from existing operations declined by 98
through attrition.
The shares of the company are traded over-the-counter. The company
stock is listed on the NASD OTC Bulletin Board. The following schedule
presents the bid price range and dividends paid for each quarter of
the last two fiscal years. The bid price ranges are based upon
quotations from brokers and may not necessarily represent actual
transactions. Payment of dividends is subject to certain restrictions
described in the Notes to Consolidated Financial Statements, Footnote
F, "Long-term debt," page 26.
Quarterly Quarterly
Bid Price Dividends
Quarter Ended High Low Per Share
September 30, 1995 $67 $60 $.93
June 30, 1995 63 55 .93
March 31, 1995 67 55 .93
December 31, 1994 83 59 .93
September 30, 1994 $84 $80 $.93
June 30, 1994 86 80 .93
March 31, 1994 87 72 .93
December 31, 1993 74 65 .93
F I N A N C I A L S T A T E M E N T S
Woodward Governor Company and Subsidiaries
STATEMENTS OF CONSOLIDATED EARNINGS (LOSS)
Woodward Governor Company and Subsidiaries
Year Ended September 30,
(In Thousands of dollars except per share amounts)
1995 1994 1993
Net billings for products and services $379,736 $333,207 $331,156
Costs and expenses:
Cost of goods sold 274,676 248,839 246,254
Sales, service & admin.expenses 69,961 58,557 52,559
Restructuring expense 5,927 23,700 3,480
Interest expense 3,825 3,941 2,722
Interest income (555) (708) (748)
Other expense-net 5,719 4,073 3,805
Total costs and expenses 359,553 338,402 308,072
Earnings (loss) before income taxes and cumulative
effect of accounting changes 20,183 (5,195) 23,084
Income taxes 8,247 (1,922) 9,695
Earnings (loss) before cumulative effect
of accounting changes 11,936 (3,273) 13,389
Cumulative effect of accounting changes,
net of tax benefit of $11,360 -- -- (17,417)
Net earnings (loss) $ 11,936 $ (3,273) $ (4,028)
Net earnings (loss) per share:
Before cumulative effect of
accounting changes $ 4.11 $ (1.11) $ 4.50
Cumulative effect of accounting changes,
net of tax -- -- (5.86)
Net earnings (loss) per share $ 4.11 $ (1.11) $ (1.36)
Average number of shares outstanding 2,905,750 2,941,177 2,972,300
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
Woodward Governor Company and Subsidiaries
At September 30,
(In Thousands of Dollars except per share amounts) 1995 1994
Assets
Current assets:
Cash and cash equivalents $ 12,451 $ 10,272
Accounts receivable, less allowance for losses
of $4,605 for 1995 and $3,021 for 1994 81,880 69,778
Inventories 92,831 80,272
Deferred income taxes 21,853 20,957
Total current assets 209,015 181,279
Property, plant, and equipment, at cost:
Land 6,674 6,648
Buildings and improvements 121,870 120,503
Machinery and equipment 175,455 156,476
Construction in progress 985 2,475
304,984 286,102
Less allowance for depreciation 186,918 163,191
Property, plant, and equipment-net 118,066 122,911
Intangibles and other assets 4,741 4,757
Deferred income taxes 17,777 14,371
Total assets $349,599 $323,318
Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings $ 30,297 $ 24,674
Current portion of long-term debt 4,867 4,252
Accts payable and accrued expenses 50,765 37,972
Taxes on income 6,722 630
Total current liabilities 92,651 67,528
Long-term debt, less current portion 27,796 32,665
Other liabilities 31,249 29,279
Commitments and contingencies -- --
Shareholders' equity represented by:
Preferred stock, par value $.01 per share, authorized
3,000,000 shares, no shares issued -- --
Common stock, par value $.0625 per share, authorized
7,000,000 shares,issued 3,040,000 shares 190 190
Additional paid-in capital 13,560 13,891
Unearned stock plan compensation (17,333) (19,777)
Currency translation adjustment 16,802 15,210
Retained earnings 195,598 194,088
208,817 203,602
Less treasury stock, at cost 10,914 9,756
197,903 193,846
Total liabilities and shareholders' equity $349,599 $323,318
See accompanying Notes to Consolidated Financial Statements.
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Woodward Governor Company and Subsidiaries
(In Thousands
of Dollars Addit'l Unearned Currency
except per Common Paid-in Stock Trnslatn Retained Treasury Stock
share amounts) Stock Capital Plan Cmp Adjustmt Earnings Shares Amount
Balance
at Sept. 30, 1992 $190 $13,884 $(24,627) $13,692 $222,636 67,056 $6,085
Net (loss) -- -- -- -- (4,028) -- --
Purchases of
treasury stock -- -- -- -- -- 2,200 154
Issuance of stock
to ESOP -- -- -- -- -- (78) (4)
Stock plan
compensation expense -- -- 2,300 -- -- -- --
Cash dvdnds--$3.72
per common share -- -- -- -- (11,057) -- --
Tax benefit
applicable to
ESOP dividend -- -- -- -- 373 -- --
Translation
adjustments,
including
income taxes
allocated of $(63) -- -- -- (906) -- -- --
Balance
at Sept 30, 1993 190 13,884 (22,327) 12,786 207,924 69,178 6,235
Net (loss) -- -- -- -- (3,273) -- --
Purchases of
treasury stock -- -- -- -- -- 47,130 3,546
Issuance of
stock to ESOP -- 7 -- -- -- (397) (25)
Stock plan
compensation expense -- -- 2,550 -- -- -- --
Cash dvdnds--$3.72
per common share -- -- -- -- (10,956) -- --
Tax benefit
applicable to
ESOP dividend -- -- -- -- 393 -- --
Translation
adjustments,
including
income taxes
allocated of $238 -- -- -- 2,424 -- -- --
Balance at
Sept 30, 1994 190 13,891 (19,777) 15,210 194,088 115,911 9,756
Net earnings -- -- -- -- 11,936 -- --
Purchases of
treasury stock -- -- -- -- -- 52,016 3,363
Sales of
treasury stock -- (334) -- -- -- (27,795) (2,120)
Issuance of
stock to ESOP -- 3 -- -- -- (1,344) (85)
Stock plan
compensation expense -- -- 2,444 -- -- -- --
Cash dvdnds--$3.72
per common share -- -- -- -- (10,811) -- --
Tax benefit
applicable to
ESOP dividend -- -- -- -- 385 -- --
Translation
adjustments,
including
income taxes
allocated of $19. -- -- -- 1,592 -- -- --
Balance at
Sept 30, 1995 $190 $13,560 $(17,333) $16,802 $195,598 138,788 $10,914
See accompanying Notes to Consolidated Financial Statements.
STATEMENTS OF CONSOLIDATED CASH FLOWS
Woodward Governor Company and Subsidiaries
Year Ended September 30,
(In Thousands of Dollars) 1995 1994 1993
Cash flows from operating activities:
Net earnings (loss) $11,936 $ (3,273) $(4,028)
Adjustments to reconcile
net earnings (loss) to net
cash provided (used) by
operating activities:
Cumulative effect of acctg changes,
net of tax -- -- 17,417
Restructuring -- 23,306 2,366
Depreciation and amortization 23,786 26,614 25,256
Deferred income taxes (3,407) (10,419) (2,748)
Stock plan compensation expense 2,444 2,550 2,300
Changes in assets and liabilities,
net of effect of acquisitions:
Accounts receivable (11,158) (788) 6,395
Inventories (11,830) 8,394 (1,607)
Current liabilities, other than
short-term borrowings and current
portion of long-term debt 20,415 (9,762) (8,318)
Other-net (865) (817) 189
Total adjustments 19,385 39,078 41,250
Net cash provided by operating
activities 31,321 35,805 37,222
Cash flows from investing activities:
Payments for purchase of property, plant
and equipment (18,988) (16,515) (18,335)
Acquisitions, net of cash -- (8,014) --
Other 560 627 247
Net cash (used) in
investing activities (18,428) (23,902) (18,088)
Cash flows from financing activities:
Cash dividends paid (10,811) (10,956) (11,057)
Proceeds from sales of treasury stock 1,377 -- --
Purchases of treasury stock (3,363) (3,546) (154)
Payments of long-term debt (4,254) (4,012) (3,165)
Short-term borrowings proceeds
(payments) 5,144 6,288 (2,201)
Tax benefit applicable to ESOP dividend 385 393 373
Net cash (used) in financing
activities (11,522) (11,833) (16,204)
Effect of exchange rate changes on cash 808 (295) (66)
Net change in cash and cash equivalents 2,179 (225) 2,864
Cash and cash equivalents, beginning
of year 10,272 10,497 7,633
Cash and cash equivalents, end of year $12,451 $10,272 $10,497
Supplemental cash flow information:
Interest expense paid
(net $677 capitalized 1993) $ 3,930 $ 4,073 $ 2,803
Income taxes paid $ 8,669 $ 9,576 $10,069
See accompanying Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars except per share amounts)
A. Significant accounting policies are as follows:
Principles of consolidation: The consolidated financial statements
include the accounts of the company and its subsidiaries, the majority
of which are wholly-owned. Intercompany transactions have been
eliminated.
Foreign currency translation: The balance sheets of substantially all
subsidiaries outside the United States have been translated at year-
end rates of exchange and earnings statements at weighted average
rates of exchange. In addition, gains and losses from translation are
accumulated as a separate component of shareholders' equity; gains or
losses resulting from overseas currency transactions are included in
net earnings (loss) and are not significant.
Reclassifications: Certain reclassifications have been made to conform
prior years' data to the current presentation.
Inventories: Inventories, substantially all of which are work in
process and component parts, are valued at the lower of cost (on a
first-in, first-out basis) or market.
Property, plant, and equipment: Expenditures for major renewals and
improvements are capitalized at cost while repairs and maintenance are
charged to expense. Depreciation is provided principally on the
declining-balance method over the estimated useful lives of the assets
(5 to 45 years for buildings and improvements and 3 to 15 years for
machinery and equipment). Upon disposal of an asset the resulting gain
or loss is included in net earnings. In 1994, certain property, plant,
and equipment were reduced to their appraised and estimated net
realizable values due to restructuring.
Intangibles: The excess of purchase price over the fair values of net
assets acquired has been recorded as an intangible which is being
amortized using the straight-line method over 10 years, subject to
impairment write-offs determined by underlying cash flows. The
accumulated amortization as of September 30, 1995 and 1994 is $481 and
$85, respectively.
Statements of cash flows: For purposes of the statements of cash
flows, all highly liquid investments purchased with an original
maturity of three months or less are considered to be cash
equivalents.
Income taxes: Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of
the company's assets and liabilities. The company has provided for
taxes which would be payable if undistributed earnings of overseas
subsidiaries were to be remitted to the United States.
Revenue recognition: Revenue is recognized from product sales
primarily upon shipment to the customer.
Research and development costs: Expenditures related to new product
development are charged to expense when incurred and total
approximately $13,700, $16,400, and $18,500, for 1995, 1994, and 1993,
respectively.
Interest rate swap agreement: The differential to be paid or received
is accrued as interest rates change and is recognized over the life of
the agreement.
B. Acquisitions: The company purchased all of the shares of
Einspritzgeratewerk Aken GmbH (EGA) in Aken, Germany, on November 8,
1993. Woodward Governor Germany GmbH, formerly EGA, manufactures high
quality fuel pumps for large diesel engines.
On May 16, 1994, the company purchased all of the shares of HSC
Controls Inc. (HSC) of Buffalo, New York. HSC designs and manufactures
torque motors and servovalves for aerospace, industrial, and medical
applications.
Woodward Governor Germany GmbH acquired the assets of Feingeratebau
Kelbra GmbH (Kelbra) on September 1, 1994. Kelbra manufactures
injection nozzles and injection nozzle-holders for diesel engines.
The acquisitions have been accounted for by the purchase method of
accounting and the operating results of the acquisitions are included
in the company's consolidated results of operations from the date of
acquisition. The excess of cost over fair value of the assets acquired
is being amortized over a 10-year period. Pro forma results of these
acquisitions, assuming they had been made at the beginning of each
year presented, would not be materially different from the results
reported.
C. Restructuring Charges: In the fourth quarter of 1994, the company
recognized $23,700 in connection with a board-approved restructuring
initiative. The restructuring charge reflects costs associated with
closing facilities and the divestiture of Bauer Aerospace,
manufacturer of the test equipment product line. In 1995, the company
recognized additional costs associated with the restructuring
initiative including $1,300 related to the relocation of machinery and
members and $4,627 early retirement benefits and costs based on a
company designed severance package.
The components of the restructuring provision as of September 30, were
as follows:
1995 1994 1993
Write-down of property,
plant, and equipment
and intangible assets $ -- $ 19,148 $ --
Severance and early retirement 4,627 1,913 3,480
Other closure costs 1,300 2,639 --
$5,927 $23,700 $3,480
The restructuring activity for the years ended September 30, 1995 and
1994 is as follows:
1995 1994
Beginning balance $ 8,834 $5,107
Current year provision 5,927 4,552
Expenses incurred (4,597) (825)
$10,164 $8,834
The components of the accruals related to restructuring at September
30, 1995 and 1994 were as follows:
1995 1994
Severance related benefits $ 1,149 $1,971
Early retirement 7,093 4,466
Other closure costs 1,922 2,397
$10,164 $8,834
The early retirement benefits are payable for up to 10 years. Other
closure costs include a reserve of $1,432 for losses related to the
divestiture of the facilities and test equipment product line. It is
anticipated that the remaining costs and losses will be paid and
realized in fiscal 1996.
D. The provision for income taxes consists of:
1995 1994 1993
Currently payable:
Federal $2,754 $ 960 $5,144
State 1,007 614 1,120
Foreign 7,386 4,991 5,958
Deferred (2,900) (8,487) (2,527)
$8,247 $(1,922) $9,695
The company elected to adopt Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," as of October
1, 1992. The cumulative effect of accounting change for income taxes
as of October 1, 1992 decreased the net loss by $351 ($.12 per share)
and is reported separately in the statements of consolidated earnings
(loss) for the year ended September 30, 1993. Excluding the amount
recognized as the cumulative effect of accounting change, the effect
of applying SFAS No. 109 on the net loss for the year ended September
30, 1993, was a benefit of $589 ($.20 per share).
The components of the deferred tax benefit in 1995, 1994, and 1993
were as follows:
1995 1994 1993
Restructuring $ 1,308 $(9,208) $(1,850)
Postretirement and
early retirement benefits (1,659) 33 (1,442)
Depreciation 436 (171) (1,174)
State grant (6) 10 (400)
Inventory (3,104) 1,458 (343)
Valuation allowance 1,488 5,026 2,492
Net operating loss and
foreign tax credits (1,771) (5,688) --
Other 408 53 190
$(2,900) $(8,487) $(2,527)
The components of the net deferred tax assets at September 30, 1995
and 1994 were as follows:
1995 1994
Deferred tax assets:
Postretirement and
early retirement benefits $15,213 $13,376
Restructuring 7,900 9,208
Net operating loss and foreign tax credits 9,114 7,448
Inventory 8,778 5,674
Other items 9,919 9,260
Valuation allowance (9,006) (7,518)
Total deferred tax assets 41,918 37,448
Deferred tax liabilities:
Unremitted earnings of
foreign subsidiaries (1,766) (1,605)
Other items (522) (515)
Total deferred tax liabilities (2,288) (2,120)
Net deferred tax assets $39,630 $35,328
The company has recorded a valuation allowance to reflect the
estimated amount of deferred tax assets which may not be realized
principally due to foreign tax credit and acquired foreign net
operating loss carryforward limitations. Remaining deferred tax assets
are expected to be realized through future earnings. The change in the
valuation allowance for the years ended September 30, 1995 and 1994,
is as follows:
1995 1994
Beginning balance $(7,518) $(2,492)
Foreign net operating loss carryforward (440) (5,535)
Utilization of foreign tax credit carryover 265 579
State net operating loss carryforward (60) (70)
Capital loss carryforward (1,253) --
$(9,006) $(7,518)
The reasons for the differences between the effective tax rate of the
company and the United States statutory federal income tax rate are as
follows:
Percent of pre-tax earnings
1995 1994 1993
Statutory rate 35.0 (35.0) 34.8
State income taxes 1.9 (4.0) 3.1
Foreign tax rate differences 2.1 4.4 7.6
Effect of rate change -- 2.4 (2.5)
Foreign sales corporation (1.8) (7.8) (1.2)
Other items, net 3.7 3.0 .2
Effective rates 40.9 (37.0) 42.0
E. Short-term borrowings: Bank lines of credit available to the
company totaled $57,996, of which $30,297 were used at September 30,
1995. Interest on borrowings under the lines is based on various short-
term rates. Several of the lines require compensating balances or
commitment fees. The lines, generally reviewed annually for renewal,
are subject to the usual terms and conditions applied by the banks.
The weighted average interest rate for the company's borrowings was
6.3%, 5.3%, and 6.0% for 1995, 1994, and 1993, respectively.
F. Long-term debt:
1995 1994
9.45% note $12,200 $14,100
ESOP debt guarantee 19,500 21,500
Other 963 1,317
32,663 36,917
Less current portion (4,867) (4,252)
$27,796 $32,665
The company has a note agreement dated July 1990, wherein the company
issued a $20,000 unsecured note due August 1, 2000 with an interest
rate of 9.45%. Principal payments are due annually, with interest due
semi-annually.
The principal payments required on the 9.45% note and other debt in
each of the 5 years succeeding 1995 are: $2,367 in 1996, $2,582 in
1997, $2,497 in 1998, $2,783 in 1999, and $2,934 in 2000.
In 1991, the company established the Woodward Stock Plan, a qualified
employee stock ownership plan (ESOP), within its existing Deferred
Profit Sharing Plan, which covers all worker members meeting certain
service requirements. Using this ESOP feature, on June 18, 1992, the
Stock Plan borrowed $25,000 for a term of 11 years at an interest rate
of 8.01% and used the proceeds to buy 256,806 shares of common stock
from the company.
The company guaranteed payment of the loan and agreed to make future
contributions to the Stock Plan sufficient to repay the loan. The loan
and guarantee are recorded in the company's Consolidated Balance Sheets
as long-term debt and unearned Stock Plan compensation. The related
shares are being allocated to participants over 11 years as the debt
is repaid. The Stock Plan debt requires principal payments each September
30, through 2003; a payment of $2,000 was made in 1995, $2,000 in 1994,
and $1,500 in 1993. Payments increase to $2,500 with a final payment of
$2,000. Interest of $1,722 was paid in 1995, $1,882 in 1994, and $2,003
in 1993.
Dividends on these common shares are paid to the Stock Plan and,
together with company contributions, are used by the Stock Plan to
repay principal and interest on the outstanding debt. Shares are
allocated to participants based upon the ratio of the current year's
debt service to the sum of total principal and interest payments over
the life of the loan. The unallocated shares were 178,038, 203,152,
and 229,346 as of September 30, 1995, 1994, and 1993, respectively.
The company recognized Stock Plan related expense on the Shares
Allocated Method as follows:
1995 1994 1993
Interest expense $ 789 $ 933 $1,046
Compensation expense 2,444 2,550 2,300
$3,233 $3,483 $3,346
Company cash contributions to the Stock Plan for debt service were
$2,788, $2,933, and $2,546, in 1995, 1994, and 1993, respectively.
Dividends on these shares used for debt service were approximately
$934 in 1995, $949 in 1994, and $956 in 1993.
Federal income tax benefits of $385, $393, and $373 in 1995, 1994, and
1993, respectively, resulting from the deductibility of certain
dividends paid by the company to the Stock Plan, were credited
directly to retained earnings.
The provisions of the note and the guarantee limit the ability of the
company to, among other things, incur debt, pay cash dividends, sell
certain assets, acquire other businesses, and purchase the company's
capital stock. The agreements include a provision that change in
control of the company may result in all unpaid principal and interest
becoming due. The company must maintain consolidated net worth of
$150,000 and a consolidated current ratio of 1.25. At September 30,
1995, the company could pay dividends and purchase the company's
common stock up to an amount not exceeding $15,959.
At September 30, 1995, the company was contingently liable for
guarantees of indebtedness owed by an affiliated entity of $473.
G. Interest rate swap agreement: At September 30, 1994 and 1993, the
company had outstanding an interest rate swap agreement with a
commercial bank, having a total notional principal amount of $15,000.
This agreement effectively converted fixed rate debt into variable
rate debt and matured on August 29, 1995.
H. Accounts payable and accrued expenses:
1995 1994
Accounts payable $10,419 $ 6,850
Salaries and wages 6,148 2,195
Restructuring 10,164 8,834
Taxes, other 6,103 4,534
Warranty 3,646 3,404
Postretirement and postemployment 3,000 3,000
Other items--net 11,285 9,155
$50,765 $37,972
I. Retirement and benefit plans: The company provides certain health
care benefits to eligible retired members and their dependents and
survivors. Generally, participants become eligible after reaching age
55 with 10 years of service or after reaching age 65. The health plans
(medical, dental, vision, and hearing) are unfunded and pay 100% of
eligible expenses not paid by Medicare. A maximum reimbursement amount
exists for each plan. The plan requires cost-sharing by the members in
varying amounts based on years of service. The company has the right
to modify or terminate these benefits.
In 1993, the company elected to adopt the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." This resulted in a one-time charge of $17,341 (after
reduction for income tax of $11,087), related to prior service cost,
and was a non-cash transaction recognized as a cumulative effect of
accounting change as of October 1, 1992, decreasing net earnings by
$5.83 per share.
The accumulated postretirement benefit obligations were as follows:
1995 1994
Retirees $19,021 $18,430
Fully eligible active plan participants 156 67
Other active plan participants 14,275 11,256
Accumulated postretirement
benefit obligation 33,452 29,753
Unrecognized net gain (loss) from past
experience different from that assumed (203) 1,526
Total accumulated postretirement
benefit obligation $33,249 $31,279
</TOTAL>
The company has included $31,249 and $29,279 in other liabilities and
the balance in current liabilities for 1995 and 1994, respectively.
The periodic postretirement benefit cost consists of:
1995 1994 1993
Service cost-benefits attributed
to service during the period $ 894 $ 951 $ 942
Interest cost on accumulated
postretirement benefit
obligation 2,347 2,143 2,201
Net periodic postretirement
benefit cost $3,241 $3,094 $3,143
Actuarial assumptions used were as follows:
1995 1994 1993
Projected healthcare cost
trend rate 9.0% 9.5% 10.5%
Ultimate trend rate 5.25% 5.25% 4.0%
Year ultimate trend rate
is achieved 2002 2007 2005
Effect of a 1.0% increase in
the healthcare trend rate
on the accumulated post-
retirement benefit obligation $6,216 $5,280 $6,391
Effect of a 1.0% increase in the
healthcare trend rate on the
net periodic cost $ 690 $ 695 $ 726
Weighted average discount rate 7.75% 8.25% 7.0%
In 1995, the company extended loans to certain outside directors for
the purpose of purchasing company stock. The notes are to be repaid in
exchange for directors' retainer fees over the next five years and
total $385 as of September 30, 1995.
In 1993, the company also adopted SFAS No. 112, "Employers' Accounting
for Postemployment Benefits." The company's postemployment benefits
consist principally of disability medical benefits. This resulted in a
one-time charge of $427 (after reduction for income tax of $273) and
decreased net earnings by $.15 per share in 1993.
The company has a Deferred Profit Sharing Plan which covers all worker
members meeting certain service requirements. The company makes annual
contributions to the plan based on net earnings of the company as
defined by the plan document, with total contributions not to exceed
the amount deductible for federal income tax purposes.
The company is required, under local regulations, to provide a defined
benefit plan covering approximately 120 members in a foreign country.
Benefits are based primarily on each member's years of service and
average compensation over the period of participation.
The components of the net periodic pension cost are as follows:
1995 1994
Service cost--benefits earned
during the period $492 $497
Interest cost on projected
benefit obligation 562 662
Actual return on plan's assets (546) (629)
Net amortization and deferral 107 107
Net periodic pension cost $615 $637
Assumptions used in the accounting for net periodic pension cost were:
1995 1994
Weighted average discount rate 4.0% 5.0%
Expected long-term rate of return
on plan's assets 3.1% 5.5%
Compensation increase rate 3.0% 3.5%
The plan's funded status at September 30, 1995 and 1994 is as follows:
1995 1994
Accumulated benefit obligation $12,890 $12,492
Increase in benefits due to estimated
future compensation increases 1,972 1,816
Projected benefit obligation 14,862 14,308
Plan's assets at fair value 13,040 12,541
Projected benefit obligation in
excess of plan's assets 1,822 1,767
Unrecognized net loss from experience (158) --
Unrecognized transition amount (1,602) (1,710)
$ 62 $ 57
The total amounts contributed to the Deferred Profit Sharing Plan and
defined benefit plan and charged to expense were $3,461, $658, and
$1,565, for 1995, 1994, and 1993, respectively.
J. Leases: The company has entered into leases for certain facilities.
The leases are for 5 years with options to extend. Future minimum
rental commitments under these operating leases are: $420 in 1996,
$250 in 1997, $207 in 1998, $194 in 1999, and $206 in 2000. Rent
expense for leases was approximately $765, $867, and $796, for 1995,
1994, and 1993, respectively.
K. Contingencies: The company is currently involved in matters of
litigation arising from the normal course of business, including
certain environmental and product liability matters. The company had
accruals of approximately $1,634 and $3,427 at September 30, 1995 and
1994, respectively. These accruals are based on the company's current
estimate of the most likely amount of losses that it believes will be
incurred. These amounts, which are expected to be paid over the next
several years, have been included in accounts payable and accrued
expense. The most significant portion of these accruals relates to the
matters in the following two paragraphs:
The company is involved in certain environmental matters, in several
of which it has been designated a "de minimis potentially responsible
party" with respect to the cost of investigation and cleanup of third-
party sites. The company's current accrual for these matters is based
on costs incurred to date that have been allocated to the company and
its estimate of the most likely future investigation and cleanup
costs. There is, as in the case of most environmental litigation, the
theoretical possibility of joint and several liability being imposed
upon the company for damages which may be awarded.
It is the opinion of management, after consultation with legal
counsel, that additional liabilities, if any, resulting from these
matters are not expected to have a material adverse effect on the
financial condition of the company, although such matters could have a
material effect on quarterly or annual operating results when (or if)
resolved in a future period.
The company settled its claim regarding pricing provisions with a
major customer in the first quarter of 1995. The company received
approximately $7,000 for reimbursement of non-recurring engineering
charges.
L. Financial instruments: The estimated fair values of the company's
financial instruments at September 30, 1995 and 1994, were as follows:
1995 1994
Cash and cash equivalents $12,451 $10,272
Short-term borrowings (30,297) (24,674)
Long-term debt (34,119) (36,917)
Interest rate swap agreement -- (160)
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and cash equivalents: The carrying amounts approximate fair value
because of the short-term maturity of the instruments.
Short-term borrowings: The carrying amounts approximate fair value
because of the short-term maturity of the instruments and market rates
of interest.
Long-term debt: Fair value estimate is based on rates currently
offered to the company for similar debt of the same maturities.
Interest rate swap agreement: Fair value estimate was based on a quote
from a financial institution.
At September 30, 1995, the company had an 8.5% interest bearing
receivable from an affiliated entity of $798.
M. Company operations: The company designs and manufactures engine
fuel delivery and engine control systems, subsystems, and components
in the United States and in other countries. The company does business
with the government as both a prime contractor and a subcontractor.
Substantially all contracts are firm fixed price and may require cost
data to be submitted in connection with contract negotiations. The
contracts are subject to government audit and review.
Billings to a single customer were approximately 16%, 17%, and 22%, of
the net billings to customers in 1995, 1994, and 1993, respectively.
The company's accounts receivable from the customer were $11,314,
$10,240, and $7,471 at September 30, 1995, 1994, and 1993,
respectively. Billings derived from domestic sales to unaffiliated
customers in other countries were approximately 12%, 15%, and 12% of
the net billings to customers in 1995, 1994, and 1993, respectively.
Intercompany transfers are made at established intercompany selling
prices. Summarized financial information relating to these operations
is as follows:
United States Other Countries Eliminations Total
1995
Net billings:
Customers $ 261,443 $ 118,293 $ -- $379,736
Intercompany transfers 29,680 4,101 (33,781) --
$ 291,123 $ 122,394 $(33,781) $379,736
Earnings before income
taxes $ 5,057 $ 15,126 -- $ 20,183
Net earnings $ 3,646 $ 8,290 -- $ 11,936
Identifiable assets $ 271,508 $ 78,091 -- $349,599
1994
Net billings:
Customers $ 244,079 $ 89,128 $ -- $333,207
Intercompany transfers 18,199 3,599 (21,798) --
$ 262,278 $ 92,727 $(21,798) $333,207
Erngs (loss) before income
taxes $ (17,745) $ 12,550 -- $ (5,195)
Net earnings (loss) $ (10,710) $ 7,437 -- $ (3,273)
Identifiable assets $ 263,628 $ 59,690 -- $323,318
1993
Net billings:
Customers $ 253,138 $ 78,018 $ -- $331,156
Intercompany transfers 17,423 4,395 (21,818) --
$ 270,561 $ 82,413 $(21,818) $331,156
Earnings before income taxes and
cumulative effect of
accounting changes $ 7,846 $ 15,238 -- $ 23,084
Net earnings (loss) $ (13,145) $ 9,117 -- $ (4,028)
Identifiable assets $ 280,386 $ 52,075 -- $332,461
REPORT OF INDEPENDENT ACCOUNTANTS
Shareholder and Worker Members
Woodward Governor Company
We have audited the accompanying consolidated balance sheets of
Woodward Governor Company and Subsidiaries as of September 30, 1995
and 1994, and the related statements of consolidated earnings (loss),
shareholders' equity, and cash flows for the years ended September 30,
1995, 1994, and 1993. These financial statements are the
responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Woodward Governor Company and Subsidiaries as of September 30, 1995
and 1994 and the results of their consolidated operations and their
cash flows for the years ended September 30, 1995, 1994, and 1993, in
conformity with generally accepted accounting principles.
As discussed in Note D and Note I to the financial statements, the
company changed its method of accounting for postretirement benefits
other than pensions, postemployment benefits and income taxes in 1993.
Coopers & Lybrand L.L.P.
Rockford, Illinois
November 13, 1995
S U M M A R Y OF O P E R A T I O N S / T E N Y E A R R E C O R D
(In Thousands of Dollars except per share amounts and other data)
Net Billings, Costs and Earnings
| Net Earnings |
For Net Bill Total % of Avg For
the For Prod Costs & Income Per % of Shrhldrs' the
Year & Serv Expenses Taxes Amount Share Sales Equity Year
1995 $379,736 $359,553** $8,247 $11,936 $4.11 3.1 6.1 1995
1994 333,207 338,402** (1,922) (3,273) (1.11) (1.0) (1.7) 1994
1993 331,156 308,072** 9,695 13,389* 4.50* 4.0 6.3 1993
1992 374,173 341,197** 12,764 20,212 7.23 5.4 9.4 1992
1991 361,924 323,907 13,724 24,293 8.86 6.7 12.1 1991
1990 340,128 293,913 16,776 29,439 10.74 8.7 16.0 1990
1989 299,789 258,659 15,627 25,503 9.28 8.5 15.5 1989
1988 277,656 238,108 15,306 24,242 8.83 8.7 16.5 1988
1987 244,656 212,494 14,505 17,657 6.44 7.2 13.5 1987
1986 212,367 180,563 15,075 16,729 5.83 7.9 14.1 1986
Dividends, Expenditures and Other Data
For Wghtd Avg | Cash Dividends| Registd At the
the Shares Capital Deprctn Worker Share Year
Year Outstanding Amount Per Share Expndtrs Expense Members Members End
1995 2,905,750 $10,811 $3.72 $18,988 $23,334 3,071 2,179 1995
1994 2,941,177 10,956 3.72 16,515 26,114 3,439 2,256 1994
1993 2,972,300 11,057 3.72 18,335 24,837 3,264 2,301 1993
1992 2,794,657 10,330 3.70 52,684 22,241 3,632 2,301 1992
1991 2,741,838 10,145 3.70 33,075 18,236 3,953 2,303 1991
1990 2,741,562 9,181 3.35 22,057 15,397 3,673 2,209 1990
1989 2,749,056 7,971 2.90 31,190 13,165 3,317 2,084 1989
1988 2,744,832 6,862 2.50 21,540 11,213 3,180 1,919 1988
1987 2,740,678 5,617 2.05 12,887 10,204 2,947 1,704 1987
1986 2,870,128 4,825 1.67 23,693 8,759 2,747 1,672 1986
Financial Position
At the Plant & At the
Year Working Current Equipment Total Long-term |Shrhldrs' Equity| Year
End Capital Ratio Net Assets Debt Amount Per Share End
1995 $116,364 2.3 to 1 $118,066 $349,599 $27,796 $197,903 $68.21 1995
1994 113,751 2.7 to 1 122,911 323,318 32,665 193,846 66.29 1994
1993 107,809 2.7 to 1 144,016 332,461 36,246 206,222 69.42 1993
1992 103,818 2.5 to 1 151,126 331,653 40,135 219,690 73.90 1992
1991 105,213 2.4 to 1 118,417 306,534 17,300 208,564 76.07 1991
1990 115,737 3.3 to 1 101,985 269,221 18,700 194,081 70.78 1990
1989 83,009 2.2 to 1 96,075 249,833 -- 173,241 62.95 1989
1988 81,798 2.6 to 1 78,504 211,240 -- 156,083 56.77 1988
1987 74,220 3.0 to 1 68,267 181,447 -- 138,318 50.39 1987
1986 63,778 2.7 to 1 64,800 167,135 -- 123,929 45.05 1986
Management's Financial Summary and Analysis is on pages 13-18.
*Net earnings for 1993 is before cumulative effect of accounting changes.
**Total costs and expenses includes restructuring expense of $5,927,
$23,700, $3,480, and $2,741 for 1995, 1994, 1993, and 1992, respectively.