Annual Report (Form 10-K), fiscal year 1994

Item 1. Business
(a)General Description of Business
Woodward Governor Company, established in 1870, serves the prime mover control and accessory markets. The company designs and manufactures controls and accessory products for prime movers such as diesel engines, steam turbines, industrial and aircraft gas turbines, hydraulic turbines and for prime-mover-driven devices, such as aircraft propellers.
Woodward products range from hydromechanical devices to advanced digital electronic control systems. These products precisely control the speed and/or other functions of a prime mover under demanding conditions.
Woodward sells directly to original equipment manufacturers, service providers and equipment users world wide.
There have been no material changes in the mode of conducting the business during the last five years.
(b)Industry Segments
Information with respect to business segments is set forth in Note M to the consolidated financial statements on Page 25 of the registrant's annual report for the fiscal year ended September 30, 1994 and is hereby incorporated by reference.
(c)(1) Narrative Description of Business
(i) Information with respect to business segments is set forth in Note M to the consolidated financial statements on Page 25 of the registrant's annual report for the fiscal year ended September 30, 1994 and is hereby incorporated by reference.
(ii) There has been no public information regarding a new product or line of business requiring the investment of a material amount of total assets.
(iii) Most of the Company's products are machined from cast iron, cast aluminum and bar steel. In addition to the machined parts, there is an increasing number of purchased electrical components used. There are numerous sources of most of the raw materials and components used by the Company in its operations, and they are believed to be in adequate supply.
(iv) The Company has pursued a policy of applying for patents in both the United States and certain other countries on inventions made in the course of its development work. The Company regards its patents collectively as important, but does not consider its business dependent upon any one of such patents.
Item 1. Business (Con't)
(v) The Company's business is not subject to significant seasonal variation.
(vi) The Company maintains inventory levels sufficient to meet customer demands. The Company's working capital requirements are not materially affected by return policies or extended credit terms provided to customers.
(vii) One customer, General Electric Company, accounted for approximately 17% of consolidated sales during the fiscal year ended September 30, 1994. Nine other customers in total accounted for approximately 20% of consolidated sales in the fiscal year ended September 30, 1994. Sales to these customers involve several autonomous divisions and agencies. Products are supplied on the basis of individual purchase orders and contracts. There are no other material relationships between the Company and such customers.
(viii) Unfilled orders at September 30, 1994 totalled $155,006,000 or 1% lower than the September 30, 1993 total of $156,075,000. Management believes that unfilled orders is not necessarily an indicator of future shipment levels. As customers demand shorter lead times and flexibility in delivery schedules, they have also revised their purchasing practices. As a result, orders may become firm only within thirty to sixty days of delivery. Consequently, the backlog of unfilled orders at the year-end cannot be relied upon as a valid indication of profitability in a subsequent year. Of the September 30, 1994 total, $130,495,000 currently is scheduled for fiscal year 1995 delivery.
(ix) The Company does business with various U.S. government agencies, principally in the defense area, 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. It is anticipated that adjustments, if any, with respect to determination of reimbursable costs, will not have a material effect on the Company's financial condition. Substantially all of the Company's business, including both commercial and government contracts, is subject to cancellation by the customer. The military portion of all shipments has dropped from 11 percent of total company shipments last year to approximately 10 percent this year. Military shipments are principally made by the Company's Aircraft Controls business.
Item 1. Business (Con't)
(x) The Company competes with several other manufacturers, including divisions of large diversified and integrated manufacturers. The Company also competes with other divisions of its major customers. Although competition has increased worldwide, the Company believes it maintains a significant competitive position within its line of business. The Company has 30-40 main competitors in all product applications. However, published information pertinent to the Company's product line is not available in sufficient detail to permit an accurate assessment of its current relative competitive position. The principal methods of competition in the industry are price, product quality and customer service. In the opinion of management, the Company's prices are generally competitive and its product quality and customer service are favorable competitive factors.
(xi) Information with respect to research and development is set forth in Note A to the consolidated financial statements on Page 20 of the registrant's annual report for the fiscal year ended September 30, 1994 and is hereby incorporated by reference. The Company's products, whether proposed by the Company or requested by a customer, are offered for sale as proprietary designs and products of the Company. Consequently, all activities associated with basic research, the development of new products and the refinement of existing products are Company-sponsored.
(xii) Compliance with provisions regulating the discharge of materials into the environment has caused and will continue to require capital expenditures. 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.
(xiii) Information with respect to the number of persons employed by the Company is set forth in the "Summary of Operations/Ten Year Record" on Page 27 of the registrant's annual report for the fiscal year ended September 30, 1994 and is hereby incorporated by reference. As of November 30, 1994, 3411 members were employed by the Company.
Item 1. Business (Con't) (d) Company Operations
Information with respect to operations in the United States and other countries is set forth in Note M to the consolidated financial statements on Page 25 of the registrant's annual report for the fiscal year ended September 30, 1994 and is hereby incorporated by reference. Management is of the opinion there are no unusual risks attendant to the conduct of its operations in other countries.
Item 2.



Item 2. Description of Property
The registrant has plants located in seven communities in the United States. Aircraft controls are manufactured in Rockford, Illinois, and Buffalo, New York while industrial controls are manufactured in Fort Collins and Loveland, Colorado. Hydraulic turbine controls, as well as parts for aircraft controls, are manufactured in Stevens Point, Wisconsin. Test equipment is manufactured in Avon, Connecticut. The overhaul and repair of aircraft controls and sales of aircraft controls spare parts are done in the Rockton, Illinois facility. The registrant has nine facilities located overseas. Industrial controls are manufactured in Hoofddorp, The Netherlands; Reading, England; Aken, Germany; and Tomisato, Chiba, Japan. Aircraft controls are assembled in Reading as well. A European aircraft product service center for overhaul and repair of aircraft controls is located in Hoofddorp, The Netherlands. Service shops are maintained in Sydney, Australia; Kobe, Japan; Campinas, Sao Paulo, Brazil; Singapore, Republic of Singapore; and Ballabgarh, India.
Information with respect to a board approved restructuring initiative is set forth in Note C to the consolidated financial statements on page 20 of the registrant's annual report for the fiscal year ended September 30, 1994 and is hereby incorporated by reference. The restructuring includes closing the Stevens Point facility and the divestiture of Bauer Aerospace, manufacturer of the test equipment product line, located in Avon, Connecticut.
All other facilities were in excellent condition at the year-end and adequate production capacity is available to satisfy the Company's customers' needs throughout the coming year.
Corporate offices are maintained at the plant in Rockford, Illinois. Plants located in Rockford, Rockton, Stevens Point, Fort Collins, Loveland, Buffalo, The Netherlands, and Chiba, Japan are owned by the Company. The facilities in Avon, Connecticut; Kobe, Japan; Campinas, Sao Paulo, Brazil; Reading, England; Sydney, Australia; Ballabgarh, India, Aken Germany, and Singapore, Republic of Singapore are leased. Additional leased sales offices are maintained worldwide.
Item 3.

Item 3. Legal Proceedings
The Company is currently involved in matters of litigation arising from the normal course of business, including certain environmental and product liability matters, as well as a claim regarding pricing provisions in an alleged agreement with a major customer. On December 11, 1994, settlement was reached with this major customer on this claim. For a further discussion of these issues refer to Note K to the consolidated financial statements on page 24 of the registrant's annual report for the fiscal year ended September 30, 1994 which is hereby incorporated by reference.
Item 4.

Item 4. Submission of Matters to a Vote of Shareholders
There were no matters submitted during the fourth quarter of the year ended September 30, 1994 to a vote of shareholders, through the solicitation of proxies or otherwise.
Executive Officers of the Registrant
John A. Halbrook, age 49, is President and Chief Executive Officer. He was elected Chief Executive Officer on November 16, 1993 in addition to his position as President which he was elected to in November 1991. He also served as Chief Operating Officer from November 1991 until November 16, 1993. He had formerly been Senior Vice President in charge of Domestic Operations since January 1990. He was elected a Vice President in January 1989 and appointed Vice President in charge of Domestic Operations in July 1989.
Vern H. Cassens, age 62, is Senior Vice President and Treasurer and Chief Financial Officer and was elected to this position during 1988. Prior to this appointment he had been a Vice President since 1983 and Treasurer of the Company from 1968 to 1983.
Ronald E. Fulkrod, age 50, is a Vice President of the Company and Corporate Facilities Manager and Facilities Planner. He was elected to the Vice President position in January 1993. He has been employed by the Company in management positions for the last five years.
Peter A. Gomm, age 63, is a Vice President of the Company and Asia/Pacific/Brazil General Manager. He was elected a Vice President in 1983 and was General Manager of the International Industrial Controls Division from January 1988 to January 1992.
Duane L. Miller, age 46, is a Vice President of the Company and General Manager of Industrial Controls. He was elected to the position of Vice President in January 1993 and has been employed by the Company in management positions for the last five years.
C. Phillip Turner, age 54, is a Vice President of the Company and Manager of Aircraft Controls. He was elected Vice President in 1988. He was Treasurer of the Company from 1983 to 1988, and Secretary of the Company from 1977 to 1991.
Garin M. VanDeMark, age 60, is a Vice President of the Company and was elected to this position in 1986.
Carol J. Manning, age 45, is Secretary of the Company. She was elected to this position in June 1991. She has been employed as Administrative Assistant to the Chairman of the Board for the last five years.
All of the executive officers were elected to their present positions at the January 12, 1994 Board of Directors' meeting to serve until the organizational meeting of the Board of Directors to be held on January 11, 1995 and until their respective successors shall have been elected and qualified.
Calvin C. Covert passed away on December 1, 1994. He had served as Chairman of the Board of Directors since 1976. He had held the position of Chief Executive Officer from 1976 until his retirement on November 16, 1993.
Part II
Item 5.

Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters
Information with respect to number of shareholders is set forth in "Financial Highlights" which appears on Page 1 in the registrant's annual report for the fiscal year ended September 30, 1994 and is hereby incorporated by reference. Information with respect to common stock and dividends is set forth in the "Financial Summary and Analysis" on Page 14 of the registrant's annual report for the fiscal year ended September 30, 1994 and is hereby incorporated by reference.
Item 6.

Item 6. Selected Financial Data
Information with respect to this matter is set forth in the "Summary of Operations/Ten Year Record" on Page 27 of the registrant's annual report for the fiscal year ended September 30, 1994 and is hereby incorporated by reference.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations is set forth in the "Financial Summary and Analysis" on Pages 11 through 14 of the registrant's annual report for the fiscal year ended September 30, 1994 and is hereby incorporated by reference.
Item 8.


Item 8. Financial Statements and Supplementary Data
Information with respect to this matter is set forth in the registrant's annual report for the fiscal year ended September 30, 1994 (Financial Statements), as further set forth in the Index to Consolidated Financial Statements and Schedules (See Item 14) and is hereby incorporated by reference.
Item 9.

Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
The accounting firm of Coopers & Lybrand L.L.P. has been engaged since 1940. There have been no disagreements on any matter of accounting principles or practices or financial statement disclosure.
Part III
Item 10.



Item 10. Directors and Executive Officers of the Registrant
Information with respect to directors and executive officers, except for the information with respect to executive officers which appears in Part I of this report, is set forth under the caption "Election of Directors" on Pages 7 and 8 of the registrant's proxy statement dated December 1, 1994, which was filed with the Securities and Exchange Commission within 120 days following the end of the registrant's fiscal year ended September 30, 1994, and is made a part hereof.
Item 11.

Item 11. Executive Compensation
Information with respect to executive compensation is set forth under the caption "Executive Compensation" on Pages 9 through 12 of the registrant's proxy statement dated December 1, 1994, which is made a part hereof.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to security ownership of certain beneficial owners and management is set forth under the captions "Security Ownership of Principal Holders and Executive Officers" on Page 6 and "Election of Directors" on Pages 7 and 8 of the registrant's proxy statement dated December 1, 1994, which is made a part hereof.
Item 13.

Item 13. Certain Relationships and Related Transactions
Information with respect to certain relationships and related transactions is set forth under the caption "Executive Compensation" on Page 10 of the registrant's proxy statement dated December 1, 1994, which is made a part hereof.
Part IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Index to Consolidated Financial Statements and Schedules
Reference Form 10-K Annual Report Annual Report to Shareholders
Data incorporated by reference to the registrant's annual report to shareholders for the fiscal year ended September 30, 1994:
Statements of Consolidated Earnings (Loss) for the years ended September 30, 1994, 1993 and 1992 - 16
Consolidated Balance Sheets at September 30, 1994 and 1993 - 17
Statements of Consolidated Shareholders' Equity for the years ended September 30, 1994, 1993 and 1992 18
Statements of Consolidated Cash Flows for the years ended September 30, 1994, 1993 and 1992 - 19
Notes to Consolidated Financial Statements- 20-25
Report of Independent Accountants - 26
Financial Statement Schedules:
Report of Independent Accountants S-1 - II. Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties S-2 -
V. Property, Plant and Equipment S-3 -
VI. Accumulated Depreciation, Depletion, and Amortization of Property, Plant and Equipment S-4 -
VIII. Valuation and Qualifying Accounts S-5 -
IX. Short-Term Borrowings S-6 -
X. Supplementary Income Statement Information S-7 -
Item 14 (Con't) Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued)
Financial statements and schedules other than those listed on the preceding page are omitted for the reason that they are not applicable, are not required, or the information is included in the financial statements or the footnotes therein.
(b)There were no reports filed on form 8-K during the fourth quarter of the fiscal year ended September 30, 1994.
(c)The following exhibits are filed as part of this report:
(3) Articles of incorporation Articles of incorporation are and by-laws set forth in the exhibits filed with Form 10-K for the fiscal year ended September 30, 1977 and are hereby incorporated by reference.
Two amendments to the Articles of incorporation effective January 14, 1981 are set forth in the exhibits filed with 10-K for the fiscal year ended September 30, 1981 and are hereby incorporated by reference.
Two amendments to the Articles of incorporation effective January 11, 1984 are set forth in exhibits filed with Form 10-K for the fiscal year ended September 30, 1984 and are hereby incorporated by reference.
One amendment to the Articles of incorporation effective January 13, 1988 is set forth in exhibits filed with Form 10-K for the fiscal year ended September 30, 1988 and is hereby incorporated by reference.
By-laws as amended through September 30, 1992 together with three amendments to the By-laws effective November 16, 1993 are set forth in exhibits filed with Form 10-K for the fiscal year ended September 30, 1993 and are hereby incorporated by reference.
Item 14 (Con't) Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued)
(3) Articles of incorporation One amendment to the By-laws, and by-laws (continued) effective June 22, 1994 is filed herewith.
(4) Instruments defining the rights of Instruments with respect to security holders, including long-term debt and the ESOP indentures debt guarantee are not being filed as they do not individually exceed 10 percent of the registrant's assets. The registrant agrees to furnish a copy of each such instrument to the Commission upon request.
(13) Annual report to shareholders for Except to the extent the fiscal year ended specifically incorporated September 30, 1994 herein by reference, said report is furnished solely for the information of the Commission and is not deemed "filed" as part of this report.
(21) Subsidiaries of the registrant Information with respect to subsidiary operations is filed as an exhibit hereto.
SIGNATURES This report has been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and the financial statements referenced herein have been prepared in accordance with such rules and regulations and with generally accepted accounting principles, by officers and worker members of Woodward Governor Company. This has been done under the general supervision of Vern H. Cassens, Senior Vice President and Treasurer and Chief Financial Officer. The consolidated financial statements have been audited by Coopers & Lybrand L.L.P., independent accountants, as indicated in their report in the annual report to shareholders for the fiscal year ended September 30, 1994.
This report contains much detailed information of which the various signatories cannot and do not have independent personal knowledge. The signatories believe, however, that the preparation and review processes summarized above are such as to afford reasonable assurance of compliance with applicable requirements.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Woodward Governor Company (Registrant) Name
/s/ John A. Halbrook Director, President and Chief John A. Halbrook Executive Officer
/s/ Vern H. Cassens Director, Senior Vice Vern H. Cassens President and Treasurer and Chief Financial and Accounting Officer Date 94-12-20
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated:
Signature Title Date
/s/ J. Grant Beadle Director J. Grant Beadle
/s/ Carl J. Dargene Director December 21, 1994 Carl J. Dargene
/s/ Lawrence E. Gloyd Director December 20, 1994 Lawrence E. Gloyd
/s/ Thomas W. Heenan Director December 22, 1994 Thomas W. Heenan
/s/ J. Peter Jeffery Director _________________ J. Peter Jeffrey
/s/ Mark Leum Director December 20, 1994 Mark Leum
/s/ Michael T. Yonker Director December 22, 1994 Michael T. Yonker
REPORT OF INDEPENDENT ACCOUNTANTS
Shareholder and Worker Members Woodward Governor Company
Our report on the consolidated financial statements of Woodward Governor Company and Subsidiaries has been incorporated by reference in this Form 10-K from Page 26 of the 1994 Annual Report to Shareholders and Worker Members of Woodward Governor Company and Subsidiaries. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in the index on Page 8 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Rockford, Illinois November 11, 1994