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W e will continue to make the right moves to ensure our success. 

Woodward has always fostered a culture of integrity and has conducted its financial business in an open and understandable manner. We are easily reaching compliance with all the new standards, many of which were already our typical practices. It is our longstanding belief that our shareholders, customers, and members deserve honesty and respect, along with excellent performance. 

## Financial performance 

Our total company sales for fiscal 2002 rose slightly to $679,991,000. Earnings fell, however, to $45,170,000 or $3.90 per diluted share, before the cumulative effect of accounting change, from $53,943,000, or $4.84 per share in fiscal year 2001, as adjusted to eliminate goodwill-related amortization. 

Adverse external events impacted almost all businesses this year. The effects of the attacks of September 2001 sent an already weakened commercial aircraft industry into severe decline. We reacted swiftly by accelerating planned cost-cutting measures early in the year and maintained strong earnings despite the drop in sales. 

Turbulence in the domestic wholesale electricity market slowed spending for new power generation equipment, including a notable increase in project cancellations as the year progressed. In addition, macroeconomic uncertainties and a subdued outlook contributed to a decline in orders across all our industrial markets. 

In late fiscal year 2002, we implemented cost-cutting measures designed to stabilize margins, while preserving an infrastructure that will allow us to continue to serve customers well, even in tough times, and resume growth quickly as conditions improve. 

## Executing the strategy 

Market conditions will remain challenging through 2003. We are confident in our ability to face those challenges head-on and succeed. We will stay focused on building the long-term value of our business through winning an increased share of a growing number of profitable niche markets. 

Our plans call for careful cost management and continuous improvement initiatives that should allow fiscal year 2003 earnings to approximate those of fiscal 2002, despite lower sales. 

Industrial Controls is improving its cost base through productivity gains and global purchasing initiatives that allow us to consolidate our supplier base. While sales will likely be down from fiscal year 2002, we believe these activities, as well as more favorable product mix, should help improve earnings in 2003. 

Aircraft Engine Systems achieved a number of long-term contract wins that allow us to supply additional content on multiple engine platforms for a number of years to come. 

We believe sales for this segment in fiscal year 2003 will be below 2002 levels. But, our proven ability to manage costs and increase productivity should partially offset the effect of lower sales and will also be beneficial when the aerospace markets begin to normalize and our growth resumes. 

We will continue to make the right moves to ensure our success. We have a very talented and highly motivated workforce, advanced technologies, and the financial resources to effectively execute our strategy, capture market share, and position ourselves well for the future. 

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December 6, 2002 

