Price Graph
Price
Yield
These terms and conditions govern your use of the website alphaminr.com and its related services.
These Terms and Conditions (“Terms”) are a binding contract between you and Alphaminr, (“Alphaminr”, “we”, “us” and “service”). You must agree to and accept the Terms. These Terms include the provisions in this document as well as those in the Privacy Policy. These terms may be modified at any time.
Your subscription will be on a month to month basis and automatically renew every month. You may terminate your subscription at any time through your account.
We will provide you with advance notice of any change in fees.
You represent that you are of legal age to form a binding contract. You are responsible for any
activity associated with your account. The account can be logged in at only one computer at a
time.
The Services are intended for your own individual use. You shall only use the Services in a
manner that complies with all laws. You may not use any automated software, spider or system to
scrape data from Alphaminr.
Alphaminr is not a financial advisor and does not provide financial advice of any kind. The service is provided “As is”. The materials and information accessible through the Service are solely for informational purposes. While we strive to provide good information and data, we make no guarantee or warranty as to its accuracy.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, UNDER NO CIRCUMSTANCES SHALL ALPHAMINR BE LIABLE TO YOU FOR DAMAGES OF ANY KIND, INCLUDING DAMAGES FOR INVESTMENT LOSSES, LOSS OF DATA, OR ACCURACY OF DATA, OR FOR ANY AMOUNT, IN THE AGGREGATE, IN EXCESS OF THE GREATER OF (1) FIFTY DOLLARS OR (2) THE AMOUNTS PAID BY YOU TO ALPHAMINR IN THE SIX MONTH PERIOD PRECEDING THIS APPLICABLE CLAIM. SOME STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF INCIDENTAL OR CONSEQUENTIAL OR CERTAIN OTHER DAMAGES, SO THE ABOVE LIMITATION AND EXCLUSIONS MAY NOT APPLY TO YOU.
If any provision of these Terms is found to be invalid under any applicable law, such provision shall not affect the validity or enforceability of the remaining provisions herein.
This privacy policy describes how we (“Alphaminr”) collect, use, share and protect your personal information when we provide our service (“Service”). This Privacy Policy explains how information is collected about you either directly or indirectly. By using our service, you acknowledge the terms of this Privacy Notice. If you do not agree to the terms of this Privacy Policy, please do not use our Service. You should contact us if you have questions about it. We may modify this Privacy Policy periodically.
When you register for our Service, we collect information from you such as your name, email address and credit card information.
Like many other websites we use “cookies”, which are small text files that are stored on your computer or other device that record your preferences and actions, including how you use the website. You can set your browser or device to refuse all cookies or to alert you when a cookie is being sent. If you delete your cookies, if you opt-out from cookies, some Services may not function properly. We collect information when you use our Service. This includes which pages you visit.
We use Google Analytics and we use Stripe for payment processing. We will not share the information we collect with third parties for promotional purposes. We may share personal information with law enforcement as required or permitted by law.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30 , 2014
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
|
|
|
|
Commission file number 0 00 - 0 8408 |
|
|
WOODWARD, INC. |
|
|
(Exact name of registrant as specified in its charter) |
|
|
Delaware |
36-1984010 |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
1000 East Drake Road, Fort Collins, Colorado |
80525 |
|
(Address of principal executive offices) |
(Zip Code) |
|
(970) 482-5811 |
|
|
( Registrant’s telephone number, including area code ) |
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of July 17 , 2014, 65,490,433 shares of the registrant’s common stock with a par value of $0.001455 per share were outs tanding.
|
|
|
|
|
TABLE OF CONTENTS |
||
|
|
|
Page |
|
PART I – FINANCIAL INFORMATION |
||
|
Item 1. |
2 |
|
|
|
2 |
|
|
|
3 |
|
|
|
4 |
|
|
|
5 |
|
|
|
6 |
|
|
|
7 |
|
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
30 |
|
|
30 |
|
|
|
33 |
|
|
|
34 |
|
|
|
39 |
|
|
Item 3. |
43 |
|
|
Item 4. |
43 |
|
|
|
PART II – OTHER INFORMATION |
|
|
Item 1. |
43 |
|
|
Item 1A. |
43 |
|
|
Item 2. |
44 |
|
|
Item 6. |
44 |
|
|
|
45 |
|
1
PART I – FINANCIAL INFORMATION
Item 1 . Fi n ancial Statements
WOODWARD, INC.
CONDENSED CONSOLIDA TED STATEMENTS OF EARNINGS
( I n thousands, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development costs |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense, net (Note 16) |
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (Note 3): |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Diluted earnings per share |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding (Note 3): |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share paid to Woodward common stockholders |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
( I n thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Other comprehensive earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
Taxes on changes in foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of net realized losses on derivatives to earnings |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on derivatives arising during the period |
|
- |
|
|
|
|
|
- |
|
|
|
|
Taxes on changes in derivative transactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum retirement benefit liability adjustments (Note 18) |
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) arising during the period |
|
|
|
|
- |
|
|
|
|
|
- |
|
Curtailment arising during the period |
|
|
|
|
- |
|
|
|
|
|
- |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
Net prior service benefit |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange rate changes on minimum retirement benefit liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Taxes on changes in minimum retirement liability adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive earnings |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
3
CONDENSED CONSOLIDATED BALANCE SHEETS
( I n thousands, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
September 30, |
||
|
|
2014 |
|
2013 |
||
|
ASSETS |
|
|
|
|
(a) |
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
|
|
$ |
|
|
Accounts receivable, less allowance for uncollectible amounts of $7,260 and $8,872, respectively |
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
Income taxes receivable |
|
|
|
|
|
|
Deferred income tax assets |
|
|
|
|
|
|
Other current assets |
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
Intangible assets, net |
|
|
|
|
|
|
Deferred income tax assets |
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
Total assets |
$ |
|
|
$ |
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Current portion of long-term debt |
$ |
- |
|
$ |
|
|
Accounts payable |
|
|
|
|
|
|
Income taxes payable |
|
|
|
|
|
|
Deferred income tax liabilities |
|
|
|
|
|
|
Accrued liabilities |
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
Long-term debt, less current portion |
|
|
|
|
|
|
Deferred income tax liabilities |
|
|
|
|
|
|
Other liabilities |
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
Commitments and contingencies (Note 20) |
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
Preferred stock, par value $0.003 per share, 10,000 shares authorized, no shares issued |
|
- |
|
|
- |
|
Common stock, par value $0.001455 per share, 150,000 shares authorized, 72,960 shares issued |
|
|
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
Accumulated other comprehensive earnings |
|
|
|
|
|
|
Deferred compensation |
|
|
|
|
|
|
Retained earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock at cost, 7,477 s hares and 4,883 shares, respectively |
|
|
|
|
|
|
Treasury stock held for deferred compensation, at cost , 198 shares and 232 shares, respectively |
|
|
|
|
|
|
Total stockholders' equity |
|
|
|
|
|
|
Total liabilities and stockholders' equity |
$ |
|
|
$ |
|
|
(a) Retrospectively adjusted as discussed in Note 4, Business acquisitions |
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW S
( I n thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Months Ended June 30, |
||||
|
|
2014 |
|
2013 |
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
Net earnings |
$ |
|
|
$ |
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
Net (gain) loss on sales of assets |
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
Excess tax benefits from stock-based compensation |
|
|
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
Loss on derivatives reclassified from accumulated comprehensive earnings into earnings |
|
|
|
|
|
|
Changes in operating assets and liabilities, net of business acquisitions: |
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
|
|
|
|
Current income taxes |
|
|
|
|
|
|
Retirement benefit obligations |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
Payments for purchase of property, plant, and equipment |
|
|
|
|
|
|
Proceeds from sale of assets |
|
|
|
|
|
|
Business acquisitions, net of cash acquired |
|
- |
|
|
|
|
Net cash used in investing activities |
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
Cash dividends paid |
|
|
|
|
|
|
Proceeds from sales of treasury stock |
|
|
|
|
|
|
Payments for repurchases of common stock |
|
|
|
|
|
|
Excess tax benefits from stock compensation |
|
|
|
|
|
|
Borrowings on revolving lines of credit and short-term borrowings |
|
|
|
|
|
|
Payments on revolving lines of credit and short-term borrowings |
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
|
|
|
|
|
Payments of long-term debt |
|
|
|
|
|
|
Payments of debt financing costs |
|
|
|
|
- |
|
Net cash provided by (used in) financing activities |
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
Cash and cash equivalents at end of period |
$ |
|
|
$ |
|
See accompanying Notes to Condensed Consolidated Financial Statement s.
5
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
( I n thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares |
|
Stockholders' equity |
|||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (loss) earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
Preferred stock |
|
Common stock |
|
Treasury stock |
|
Treasury stock held for deferred compensation |
|
Common stock |
|
Additional paid-in capital |
|
Foreign currency translation adjustments |
|
Unrealized derivative gains (losses) |
|
Minimum retirement benefit liability adjustments |
|
Total accumulated other comprehensive (loss) earnings |
|
Deferred compensation |
|
Retained earnings |
|
Treasury stock at cost |
|
Treasury stock held for deferred compensation |
|
Total stockholders' equity |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of October 1, 2012 |
|
- |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
- |
|
- |
|
- |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
|
|
Other comprehensive income (loss), net of tax |
|
- |
|
- |
|
- |
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
Cash dividends paid |
|
- |
|
- |
|
- |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
|
|
Purchases of treasury stock |
|
- |
|
- |
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
|
|
Sales of treasury stock |
|
- |
|
- |
|
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
|
|
Common shares issued from treasury stock for benefit plans |
|
- |
|
- |
|
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
|
|
Tax benefit attributable to exercise of stock options |
|
- |
|
- |
|
- |
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
Stock-based compensation |
|
- |
|
- |
|
- |
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
Transfer of stock to deferred compensation plan |
|
- |
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Purchases of stock by deferred compensation plan |
|
- |
|
- |
|
- |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
Distribution of stock from deferred compensation plan |
|
- |
|
- |
|
- |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
Balances as of June 30, 2013 |
|
- |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of October 1, 2013 |
|
- |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Net earnings |
|
- |
|
- |
|
- |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
|
|
Other comprehensive income (loss), net of tax |
|
- |
|
- |
|
- |
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
Cash dividends paid |
|
- |
|
- |
|
- |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
|
|
Purchases of treasury stock |
|
- |
|
- |
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
|
|
Sales of treasury stock |
|
- |
|
- |
|
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
|
|
Common shares issued from treasury stock for benefit plans |
|
- |
|
- |
|
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
|
|
Tax benefit attributable to exercise of stock options |
|
- |
|
- |
|
- |
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
Stock-based compensation |
|
- |
|
- |
|
- |
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
Purchases of stock by deferred compensation plan |
|
- |
|
- |
|
- |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
Distribution of stock from deferred compensation plan |
|
- |
|
- |
|
- |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
Balances as of June 30, 2014 |
|
- |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
See accompanying Notes to Condensed Consolidated Financial Statements .
6
WOODWARD, INC.
NOTES TO CONDENSED CONSOL IDATED FINANCIAL STATEMENTS
( I n thousands , except per share amounts )
(Unaudited)
Note 1. Basis of Presentation
The Condensed Consolidated Financial Statements of Woodward, Inc. (“Woodward” or the “Company”) as of June 30, 2014 and for the three and nine -months ended June 30, 2014 and June 30, 2013 , included herein, have not been audited by an independent registered public accounting firm. These Condensed Consolidated Financial Statements reflect all normal recurring adjustments that, in the opinion of management, are necessary to present fairly Woodward’s financial position as of June 30, 2014 , and the statements of earnings, comprehensive earnings, cash flows, and changes in the statement of stockholders’ equity for the periods presented herein. The results of operations for the three and nine-months ended June 30, 2014 are not necessarily indicative of the operating results to be expected for other interim periods or for the full fiscal year. Dollar amounts contained in these Condensed Consolidated Financial Statements are in thous ands, except per share amounts.
The Condensed Consolidated Balance Sheet as of September 30, 2013 was derived from Woodward’s Annual Report on Form 10-K for the fiscal year then ended. During the three-months ended December 31, 2013, Woodward completed purchase accounting valuation estimates related to the acquisition of the Duarte Business (as defined below in Note 4, Business acquisitions ) and as a result, retrospectively adjusted the valuations of certain liabilities with a corresponding increase to goodwill and intangible assets as of the acquisition date. The retrospective adjustments amounted to approximate ly $12,800 and primarily relate to long-term performance obligations and other accrued liabilities. Changes since the acquisition date to the valuations of the assets and liabilities acquired resulted in insignificant changes to Woodward’s previously reported earnings and therefore prior reported earnings have not been restated.
The Condensed Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations.
These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in Woodward’s most recent Annual Report on Form 10-K filed with the SEC and other financial information filed with the SEC.
Management is required to use estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements, the reported revenues and expenses recognized during the reporting period, and certain financial statement disclosures, in the preparation of the Condensed Consolidated Financial Statements included herein. Significant estimates in these Condensed Consolidated Financial Statements include allowances for losses on receivables, net realizable value of inventories, warranty reserves, cost of sales incentives, useful lives of property and identifiable intangible assets, the evaluation of impairments of property, valuation of identifiable intangible assets and goodwill, income tax and valuation reserves, the valuation of assets and liabilities acquired in business combinations, assumptions used in the determination of the funded status and annual expense of pension and postretirement employee benefit plans, the valuation of stock compensation instruments granted to employees and board members, and contingencies. Actual results could vary materially from Woodward’s estimates.
Note 2. Recent accounting pronouncements
From time to time, the Financial Accounting Standards Board (“FASB”) or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through issuance of an Accounting Standards Update (“ASU”).
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” The purpose of ASU 2014-09 is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards. The amendments (i) remove inconsistencies and weaknesses in revenue requirements, (ii) provide a more robust framework for addressing revenue issues, (iii) improve comparability of revenue recognition across entities, industries, jurisdictions, and capital markets, (iv) provide more useful information to users of financial statements through improved disclosure requirements, and (v) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. ASU 201 4-09 is effective for annual reporting periods beginning after December 15, 201 6 (fiscal year 201 8 for Woodward) , including interim periods within that reporting period . Early adoption is not permitted. An entity should adopt the amendments using one of the following methods: retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying ASU 2014-09
7
recognized at the date of initial application. Woodward is currently assessing the impact that this guidance may have on its Consolidated Financial Statements.
In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in financial statements; however, the amendments require companies to provide information about the amounts reclassified out of accumulated comprehensive income by component. ASU 2013-02 requires a company to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated comprehensive income by respective line items of net income, but only if the amount so reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, a company is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. ASU 2013-02 is effective prospectively for annual reporting periods beginning after December 15, 2012 (fiscal year 2014 for Woodward). The disclosure requirement of ASU 2013-02, which Woodward has adopted, had no material impact on its Consolidated Financial Statements.
Note 3. Earnings per share
Basic earnings per share is computed by dividing net earnings available to common stockholders by the weighted-average number of shares of common stock outstanding for the period.
Diluted earnings per share reflects the weighted-average number of shares outstanding after consideration of the dilutive effect of stock options.
The following is a reconciliation of net earnings to basic earnings per share and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||
|
|
|
|
June 30, |
|
June 30, |
||||||||
|
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options and restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
Diluted earnings per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The following stock option grants were outs tanding during the three and nine-months ended June 30, 2014 and 2013 , but were excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||
|
|
|
|
June 30, |
|
June 30, |
||||||||
|
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
|
Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average option price |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The weighted-average shares of common stock outstanding for basic and diluted earnings per share included the weighted-average treasury stock shares held for deferred compensation obligations of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||
|
|
|
|
June 30, |
|
June 30, |
||||||||
|
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
|
Weighted-average treasury stock shares held for deferred compensation obligations |
|
|
|
|
|
|
|
|
|
|
|
|
8
Note 4. Business acquisitions
Duarte Business Acquisition
On December 27, 2012, Woodward entered into a definitive asset purchase agreement (the “Asset Purchase Agreement”) with GE Aviation Systems LLC (the “Seller”) and General Electric Company for the acquisition of substantially all of the assets and certain liabilities related to the Seller’s thrust reverser actuation systems business located in Duarte, California (the “Duarte Business”) for an aggregate purchase price of $ 200,000 . The acquisition was completed on December 28, 2012 and, based on customary purchase price adjustments, Woodward paid cash at closing in the amount of $198,900 . Woodward and the Seller have finalized the purchase price adjustment based on the customary post-closing provisions of the Asset Purchase Agreement.
The purchase price of the Duarte Business was as follows:
|
|
|
|
|
|
|
|
|
Cash paid to Seller |
$ |
|
|
Less cash acquired |
|
|
|
Total purchase price |
$ |
|
The allocation of the purchase price to the assets acquired and liabilities assumed was accounted for under the purchase method of accounting in accordance with ASC Topic 805, “Business Combinations.” Assets acquired and liabilities assumed in the transaction were allocated and recorded at their estimate d acquisition date fair values using management’s best estimate based on available data. T ransaction costs associated with the acquisition were expensed as incurred. The Company incurred transaction costs of $304 and $2,011 for the three and nine-months ended June 30, 2013 , respectively, which are included in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Earnings. No additional transaction costs were incurred in the three and nine-months ended June 30, 2014.
During the three-months ended December 31, 2013, Woodward completed its purchase accounting valuation estimates and as a result, retrospectively adjusted the valuations of certain liabilities with a corresponding increase to goodwill and intangible assets as of the acquisition date. The retrospective adjustments amounted to approximately $12,800 and primarily relate to long-term performance obligations and other accrued liabilities. Changes since the acquisition date to the valuations of the assets and liabilities acquired resulted in insignificant changes to Woodward’s previously reported earnings and therefore prior reported earnings have not been restated. The allocation of the purchase price to the assets and liabilities assumed was finalized as of December 27, 2013.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition of the Duarte Business:
|
|
|
|
|
|
|
|
|
Accounts receivable |
$ |
|
|
Inventories |
|
|
|
Other current assets |
|
|
|
Property, plant, and equipment |
|
|
|
Goodwill |
|
|
|
Intangible assets |
|
|
|
Other noncurrent assets |
|
|
|
Total assets acquired |
|
|
|
Other current liabilities |
|
|
|
Other noncurrent liabilities |
|
|
|
Total liabilities assumed |
|
|
|
Net assets acquired |
$ |
|
Goodwill recorded in connection with the acquisition of the Duarte Business, which is deductible for income tax purposes, represents the estimated value of potential expansion with new customers, the opportunity to further develop sales opportunities with new and acquired Duarte Business customers, and other synergies expected to be achieved through the integration of the Duarte Business into Woodward’s Aerospace segment.
9
A summary of the estimated intangible assets acquired, weighted-average useful lives, and amortization methods follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Amounts |
|
Weighted-Average Useful Life |
|
Amortization Method |
||
|
Customer relationships and contracts |
$ |
|
|
|
years |
|
Straight-line |
|
Process technology |
|
|
|
|
years |
|
Straight-line |
|
Backlog |
|
|
|
|
years |
|
Accelerated |
|
Total |
$ |
|
|
|
|
|
|
Assumed liabilities include $4,758 and $17,939 of current and long-term performance obligations, respectively, for contractual commitments that are expected to result in future economic losses.
The Asset Purchase Agreement included commitments for the Duarte Business to continue to provide services to the Seller unrelated to the core business acquired, for which Woodward will continue to be paid by the Seller. Assumed liabilities include $12,985 and $23,215 of current and long-term performance obligations, respectively, for services to be provided to the Seller, offset by $8,103 and $18,097 of current and long-term assets, respectively, related to contractual payments due from the Seller.
Net sales for the Duarte Business subsequent to the date it was acquired by Woodward were $ 37,929 and $ 107,062 for the three and nine-months ended June 30, 2014, respectively, and $34,723 and $69,813 for the three and nine-months ended June 30, 2013, respectively. E arnings of the Duarte Business subsequent to the date it was acquired by Woodward for the three and nine -months ended June 30, 2014 cannot be determined on a stand-alone basis due to the integration of the Duarte Business into Woodward’s Aerospace segment. Earnings of the Duarte Business subsequent to the date it was acquired by Woodward for the three and nine -months ended June 30, 2013 were slightly accretive to the consolidated net earnings of Woodward . Due to the timing of the acquisition, there were no net sales or operating expenses from the Duarte Business included in the Condensed Consolidated Statements of Earnings for the three-months ended December 31, 2012.
Pro forma results for Woodward giving effect to the acquisition of the Duarte Business
The following unaudited pro forma financial information presents the combined results of operations of Woodward and the Duarte Business as if the acquisition had occurred as of October 1, 2011, the beginning of fiscal year 2012. The pro forma information is presented for information purposes only and is not indicative of the results of operations that would have been achieved if the acquisition and the borrowings used to finance it had taken place at the beginning of fiscal year 2012. The pro forma information combines the historical results of Woodward with the historical results of the Duarte Business for that period.
Prior to the acquisition of the Duarte Business , the Duarte Business was a wholly owned business of the Seller , and as such was not a stand-alone entity for financial reporting purposes. Accordingly, the historical operating results of the Duarte Business may not be indicative of the results that might have been achieved, historically or in the future, if the Duarte Business had been a stand-alone entity. The unaudited pro forma results for the three and nine-months ended June 30, 2014 and June 30, 2013 include amortization charges for acquired intangible assets, eliminations of intercompany transactions, adjustments for depreciation expense for property, plant and equipment, adjustments for acquired performance obligations, transaction costs incurred, adjustments to interest expense, and related tax effects.
The unaudited pro forma results for the three and nine-month periods ended June 30, 2014 and June 30, 2013, compared to the actual results reported in these Condensed Consolidated Financial Statements, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended June 30, 2014 |
|
Three-Months Ended June 30, 2013 |
||||||||
|
|
As reported |
|
Pro forma |
|
As reported |
|
Pro forma |
||||
|
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Months Ended June 30, 2014 |
|
Nine-Months Ended June 30, 2013 |
||||||||
|
|
As reported |
|
Pro forma |
|
As reported |
|
Pro forma |
||||
|
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
Note 5. Financial instruments and fair value measurements
Financial assets and liabilities recorde d at fair value in the Condensed Consolidated Balance Sheet s are categorized based upon a fair value hierarchy established by U.S. GAAP , which prioritizes the inputs used to measure fair value into the following levels:
Level 1: Inputs based on quoted market prices in active markets for identical assets or liabilities at the measurement date.
Level 2: Quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable and can be corroborated by observable market data.
Level 3: Inputs reflect management’s best estimates and assumptions of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.
The table below presents information about Woodward’s financial assets that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques Woodward utilized to determine such fair value. Woodward had no financial liabilities required to be measured at fair value on a recurring basis as of June 30, 2014 or September 30, 2013 .
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2014 |
|
At September 30, 2013 |
||||||||||||||||||||
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
||||||||
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
|
|
$ |
- |
|
$ |
- |
|
$ |
|
|
$ |
|
|
$ |
- |
|
$ |
- |
|
$ |
|
|
Investments in money market funds |
|
|
|
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
- |
|
|
- |
|
|
|
|
Investments in reverse repurchase agreements |
|
|
|
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
- |
|
|
- |
|
|
|
|
Equity securities |
|
|
|
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
- |
|
|
- |
|
|
|
|
Total financial assets |
|
$ |
|
|
$ |
- |
|
$ |
- |
|
$ |
|
|
$ |
|
|
$ |
- |
|
$ |
- |
|
$ |
|
Investments in money market funds: Woodward sometimes invests excess cash in money market funds not insured by the Federal Deposit Insurance Corporation (“ FDIC ”) . Woodward believes that the investments in money market funds are on deposit with creditworthy financial institutions and that the funds are highly liquid. The investments in money market funds are reported at fair value, with realized gains from interest income realized in earnings and are included in “Cash and cash equivalents.” The fair values of Woodward’s investments in money market funds are based on the quoted market prices for the net asset value of the various money market f unds.
Investments in reverse repurchase agreements: Woodward sometimes invests excess cash in reverse repurchase agreements. Under the terms of Woodward’s reverse repurchase agreements, Woodward purchases an interest in a pool of securities and is granted a security interest in those securities by the counterparty to the reverse repurchase agreement. At an agreed upon date, generally the next business day, the counterparty repurchases Woodward’s interest in the pool of securities at a price equal to what Woodward paid to the counterparty plus a rate of return determined daily per the terms of the reverse repurchase agreement. Woodward believes that the investments in these reverse repurchase agreements are with creditworthy financial institutions and that the funds invested are highly liquid. The investments in reverse repurchase agreements are reported at fair value, with realized gains from interest income realized in earnings , and are included in “Cash
11
and cash equivalents.” Since the investments are generally overnight, the carrying value is considered to be equal to the fair value as the amount is deemed to be a cash deposit with no risk of change in value as of the end of each fiscal quarter.
Equity securities: Woodward holds marketable equity securities, through investments in various mutual funds, related to its deferred compensation program. Based on Woodward’s intentions regarding these instruments, marketable equity securities are classified as trading securities. The trading securities are reported at fair value, with realized gains and losses recognized in “Other (income) expense, net.” The trading securities are included in “Other assets.” The fair values of Woodward’s trading securities are based on the quoted market prices for the net asset value of the various mutual funds.
Accounts receivable and accounts payable are not remeasured to fair value , as the carrying cost of each approximates its respective fair value. The estimated fair values and carrying costs of other financial instruments that are not required to be remeasured at fair value in the Condensed Consolidated Balance Sheets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2014 |
|
At September 30, 2013 |
||||||||
|
|
|
Fair Value Hierarchy Level |
|
Estimated Fair Value |
|
Carrying Cost |
|
Estimated Fair Value |
|
Carrying Cost |
||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable from municipalities |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current portion |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal years 2013 and 2014, Woodward received long-term notes from a municipality within the state of Illinois in connection with certain economic incentives related to Woodward’s development of a second campus in the greater-Rockford, Illinois area for its Aerospace segment . The fair value of the long-term notes was estimated based on a model that discounted future principal and interest payments received at an interest rate available to the Company at the end of the period for similar ly rated municipal notes of similar maturity, which is a level 2 input as defined by the U.S. GAAP fair value hierarchy. The interest rate s used to estimate the fair value of the long-term notes were 3.3% at June 30, 2014 and 4.3% at September 30, 2013.
In fiscal year 2013, Woodward received a long-term note from a municipality within the state of Colorado in connection with certain economic incentives related to Woodward’s development of a new campus at its corporate headquarters in Fort Collins, Colorado. The fair value of the long-term note was estimated based on a model that discounted future principal and interest payments received at an interest rate available to the Company at the end of the period for similar ly rated municipality notes of similar maturity, which is a level 2 input as defined by the U.S. GAAP fair value hierarchy. The interest rate s used to estimate the fair value of the long-term note were 3.3% at June 30, 2014 and 4.3% at September 30, 2013.
The fair value of long-term debt was estimated based on a model that discounted future principal and interest payments at interest rates available to the Company at the end of the period for similar debt of the same maturity, which is a level 2 input as defined by the U.S. GAAP fair value hierarchy. The weighted-average interest rates used to estimate the fair value of long-term debt were 2.4 % and 2.0 % as of June 30, 2014 and September 30, 2013 , respectively.
No te 6 . Derivative instruments and hedging activities
Woodward is exposed to global market risks, including the effect of changes in interest rates, foreign currency exchange rates, changes in certain commodity prices and fluctuations in various producer indices. From time to time, Woodward enters into derivative instruments for risk management purposes only, including derivatives designated as accounting hedges and/or those utilized as economic hedges. Woodward uses interest rate related derivative instruments to manage its exposure to fluctuations of interest rates. Woodward does not enter into or issue derivatives for trading or speculative purposes.
By using derivative and/or hedging instruments to manage its risk exposure, Woodward is subject, from time to time, to credit risk and market risk on those derivative instruments. Credit risk arises from the potential failure of the counterparty to perform under the terms of the derivative and/or hedging instrument. When the fair value of a derivative contract is positive, the counterparty owes Woodward, which creates credit risk for Woodward. Woodward mitigates this credit risk by entering into transactions with only creditworthy counterparties. Market risk arises from the potential adverse effects on the value of derivative and/or hedging instruments that result from a change in interest rates, commodity prices, or foreign currency
12
exchange rates. Woodward minimizes this market risk by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.
In June 2013, in connection with Woodward’s expected refinancing of current maturities on its existing long-term debt, Woodward entered into a treasury lock agreement with a notional amount of $25,000 that qualified as a cash flow hedge under ASC Topic 815, “Derivatives and Hedging.” The objective of this derivative instrument was to hedge the risk of variability in cash flows attributable to changes in the designated benchmark interest rate over a seven-year period related to the future interest payments on a portion of anticipated future debt issuances. An unrealized gain of $546 on the derivative instrument was recorded in “Other current assets” as of June 30, 2013 as the fair value of the cash flow hedge with the offset recorded to reduce accumulated other comprehensive loss (“accumulated OCI”).
Woodward did not enter into any derivatives or hedging transactions during the three or nine-months ended June 30, 2014.
The remaining unrecognized gains and losses in Woodward’s Condensed Consolidated Balance Sheets associated with derivative instruments that were previously entered into by Woodward, which are classified in accumulated OCI, were net gains of $144 and $71 as of June 30, 2014 and September 30, 2013, respectively.
The following table disclose s the impact of derivative instruments in cash flow hedging relationships on Woodward’s Condensed Consolidated Statements of Earnings , recognized in interest expense :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended June 30, |
|
Nine-Months Ended June 30, |
||||||||
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
Amount of (Income) Expense Recognized in Earnings on Derivative |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Amount of (Gain) Loss Recognized in Accumulated OCI on Derivative |
|
|
- |
|
|
|
|
|
- |
|
|
|
|
Amount of (Gain) Loss Reclassified from Accumulated OCI into Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
Based on the carrying value of the realized but unrecognized gains and losses on terminated derivative instruments designated as cash flow hedges as of June 30, 2014, Woodward expects to reclassify $99 of net unrecognized losses on terminated derivative instruments from accumulated other comprehensive earnings to earnings during the next twelve months.
Note 7. Supplemental statement of cash flows information
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
Nine-Months Ended June 30, |
||||
|
|
|
2014 |
|
2013 |
||
|
Interest paid, net of amounts capitalized |
|
$ |
|
|
$ |
|
|
Income taxes paid |
|
|
|
|
|
|
|
Income tax refunds received |
|
|
|
|
|
|
|
Non-cash activities: |
|
|
|
|
|
|
|
Purchases of property, plant and equipment on account |
|
|
|
|
|
|
|
Common shares issued from treasury for benefit plans (Note 18) |
|
|
|
|
|
|
|
Notes receivable from municipalities for economic development incentives |
|
|
|
|
|
|
|
Cashless exercise of stock options |
|
|
|
|
|
|
|
Settlement of receivable through cashless acquisition of treasury shares in
|
|
|
|
|
|
|
13
Note 8 . Accounts receivable
Almost all of Woodward’s sales are made on credit and result in accounts receivable, which are recorded at the amount invoiced. In the normal course of business, not all accounts receivable are collected and, therefore, an allowance for losses of accounts receivable is provided equal to the amount that Woodward believes ultimately will not be collected. In establishing the amount of the allowance, customer-specific information is considered related to delinquent accounts, past loss experience, bankruptcy filings, deterioration in the customer’s operating results or financial position, and current economic conditions. Accounts receivable losses are deducted from the allowance , and the related accounts receivable balances are written off when the receivables are deemed uncollectible. Recoveries of accounts receivable previously written off are recognized when received.
Consistent with business practice common in China, Woodward’s Chinese subsidiary accepts from Chinese customers, in settlement of certain customer accounts receivable , bank drafts issued by creditworthy C hinese banks. Bank drafts are financial instruments issued by Chinese financial institutions as part of financing arrangements between the financial institution and a customer of the financial institution. Bank drafts represent a commitment by the issuing financial institution to pay a certain amount of money at a specified future maturity date to the legal owner of the bank draft as of the maturity date. The maturity date of bank drafts varies, but it is Woodward’s policy to only accept bank drafts with maturity dates no more than 180 days from the date of Woodward’s receipt of such draft . The issuing financial institution is the obligor, not Woodward’s customers. Upon Woodward’s acceptance of a bank draft from a customer , such customer has no further obligation to pay Woodward for the related accounts receivable balance . Woodward only accepts bank drafts issued by creditworthy banks as to which the credit risk associated with the bank draft is assessed to be minimal.
The composition of Woodward’s acc ounts receivable at June 30 , 201 4 and September 30, 201 3 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
September 30, |
||
|
|
|
2014 |
|
2013 |
||
|
Accounts receivable from: |
|
|
|
|
|
|
|
Customers |
|
$ |
|
|
$ |
|
|
Other (Chinese financial institutions) |
|
|
|
|
|
|
|
Allowance for uncollectible customer amounts |
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
Note 9 . Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
September 30, |
||
|
|
|
2014 |
|
2013 |
||
|
Raw materials |
|
$ |
|
|
$ |
|
|
Work in progress |
|
|
|
|
|
|
|
Component parts (1) |
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
(1) |
|
Component parts include items that can be sold separately as finished goods or included in the manufacture of other products. |
14
Note 10 . Property, plant, and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
September 30, |
||
|
|
|
2014 |
|
2013 |
||
|
Land and land improvements |
|
$ |
|
|
$ |
|
|
Buildings and improvements |
|
|
|
|
|
|
|
Leasehold improvements |
|
|
|
|
|
|
|
Machinery and production equipment |
|
|
|
|
|
|
|
Computer equipment and software |
|
|
|
|
|
|
|
Office furniture and equipment |
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
Construction in progress |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
|
|
$ |
|
Woodward is developing a second campus in the greater-Rockford, Illinois area for its Aerospace segment in order to address the growth expected over the next ten years and beyond and to support a substantial number of recently awarded new system platforms, particularly on narr ow- body aircraft. Included in construction in progress at June 30, 2014 and September 30, 2013 are $52,410 and $15,691, respectively, of costs associated with the construction of the second campus, including $1,870 and $444, respectively , of capitalized interest.
Woodward is also developing a new campus at its corporate headquarters in Fort Collins, Colorado to support the continued growth of its Energy segment by supplementing its existing Colorado manufacturing facilities and corporate headquarters. Included in construction in progress at June 30, 2014 and September 30, 2013 are $23,401 and $10,514, respectively, of costs associated with the construction of the new campus, including $1,246 and $394, respectively, of capitalized interest.
In addition, in September 2013, Woodward invested in a building site in Niles, Illinois. Woodward is building a new facility on this site for its Aerospace segment and will relocate some of its operations currently residing in nearby Skokie, Illinois to this new facility. Included in construction in progress at June 30, 2014 and September 30, 2013 are $34,130 and $12,067, respectively, of costs associated with the construction of the new facility, including $1,095 and $0 respectively, of capitalized interest.
For the three and nine-months ended June 30, 2014 and June 30, 2013, Woodward recorded depreciation expense of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||
|
|
|
June 30, |
|
June 30, |
||||||||
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
Depreciation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
15
For the three and nine-months ended June 30, 2014 and June 30, 2013 , Woodward had capitalized interest that would have otherwise been included in interest expense of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||
|
|
|
June 30, |
|
June 30, |
||||||||
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
Capitalized interest |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Note 11 . Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013 |
|
Effects of Foreign Currency Translation |
|
June 30, 2014 |
|||
|
Aerospace |
|
$ |
|
|
$ |
|
|
$ |
|
|
Energy |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
|
|
$ |
|
|
$ |
|
Woodward tests goodwill for impairment at the reporting unit level on an annual basis and more often if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Based on the relevant U.S. GAAP authoritative guidance, Woodward sometimes aggregates components of a single operating segment into a reporting unit, if appropriate. T he impairment tests consist of comparing the implied fair value of each reporting unit with its carrying amount including goodwill. If the carrying amount of the reporting unit exceeds its implied fair value, Woodward compares the implied fair value of goodwill with the recorded carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss would be recognized to reduce the carrying amo unt to its implied fair value.
Woodward completed its annual goodwill impairment test as of July 31, 201 3 during the quarter ended September 30, 201 3 . At that date, Woodward determined it was appropriate to aggregate certain components of the same operating segment into a single aggregated reporting unit. The fair value of each of Woodward’s reporting units was determined using a discounted cash flow method. This method represents a Level 3 input and incorporates various estimates and assumptions, the most significant being projected revenue growth rates, earnings margins, and the present value, based on the discount rate and terminal growth rate, of forecasted cash flows. Management projects revenue growth rates, earnings margins and cash flows based on each reporting unit’s current operational results, expected performance and operational strategies over a five or ten-year period. These projections are adjusted to reflect current economic conditions and demand for certain products, and require considerable management judgment.
Forecasted cash flows used in the July 31, 201 3 impairment test were discounted using weighted-average cost of capital assumptions ranging from 8.85% to 10.32% . The terminal values of the forecasted cash flows were calculated using the Gordon Growth Model and assumed an annual compound growth rate after five or ten years of 4.25% or 4.50% . These inputs, which are unobservable in the market, represent management’s best estimate of what market participants would use in determining the present value of the Company’s forecasted cash flows. Changes in these estimates and assumptions can have a significant impact on the fair value of forecasted cash flows. Woodward evaluated the reasonableness of the reporting unit’s resulting fair values utilizing a market multiple method.
The results of Woodward’s goodwill impairment tests performed as of July 31, 201 3 indicated the estimated fair value of each reporting unit was substantially in excess of its carrying value, and accordingly, no impairment existed.
During the three and nine-months ended June 30, 2014 there were no events or changes in operation that triggered a need to assess goodwill for possible impairment. As part of the Company’s ongoing monitoring efforts, Woodward will continue to consider the global economic environment and its potential impact on Woodward’s business in assessing goodwill for possible indications of impairment. There can be no assurance that Woodward’s estimates and assumptions regarding forecasted cash flows of certain reporting units, the current economic environment, or the other inputs used in forecasting the present value of forecasted cash flows will prove to be accurate projections of future performance.
16
Note 12 . Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014 |
|
September 30, 2013 |
||||||||||||||
|
|
Gross Carrying Value |
|
Accumulated Amortization |
|
Net Carrying Amount |
|
Gross Carrying Value |
|
Accumulated Amortization |
|
Net Carrying Amount |
||||||
|
Customer relationships and contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intellectual property: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Process technology: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
For the three and nine-months ended June 30, 2014 and June 30, 2013, Woodward recorded amortization expense of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
Amortization expense |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
17
Future amortization expense associated with intangibles is expected to be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending September 30: |
|
|
|
|
|
|
2014 (remaining) |
|
|
|
$ |
|
|
2015 |
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
2017 |
|
|
|
|
|
|
2018 |
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
$ |
|
Note 1 3 .
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
September 30, |
||
|
|
|
2014 |
|
2013 |
||
|
Revolving credit facility - Floating rate (LIBOR plus 0.85% - 1.65%), due July 2018, unsecured |
|
$ |
|
|
$ |
- |
|
Series B notes – 5.63%, due October 2013; unsecured |
|
|
- |
|
|
|
|
Series C notes – 5.92%, due October 2015; unsecured |
|
|
|
|
|
|
|
Series D notes – 6.39%, due October 2018; unsecured |
|
|
|
|
|
|
|
Series E notes – 7.81%, due April 2016; unsecured |
|
|
|
|
|
|
|
Series F notes – 8.24%, due April 2019; unsecured |
|
|
|
|
|
|
|
Series G notes – 3.42%, due November 2020; unsecured |
|
|
|
|
|
- |
|
Series H notes – 4.03%, due November 2023; unsecured |
|
|
|
|
|
- |
|
Series I notes – 4.18%, due November 2025; unsecured |
|
|
|
|
|
- |
|
Series J notes – Floating rate (LIBOR plus 1.25%), due November 2020; unsecured |
|
|
|
|
|
- |
|
Series K notes – 4.03%, due November 2023; unsecured |
|
|
|
|
|
- |
|
Series L notes – 4.18%, due November 2025; unsecured |
|
|
|
|
|
- |
|
Long-term borrowings under Line of Credit - Variable rate of 1.06% at September 30, 2013; unsecured |
|
|
- |
|
|
|
|
Total debt |
|
|
|
|
|
|
|
Less: current portion of long-term debt |
|
|
- |
|
|
|
|
Long-term debt, excluding current portion |
|
$ |
|
|
$ |
|
Woodward maintains a $600,000 revolving credit facility established under a revolving credit agreement between Woodward and a syndicate of lenders led by Wells Fargo Bank, National Association, as administrative agent (the “Revolving Credit Agreement”). The Revolving Credit Agreement provides for the option to increase available borrowings to up to $800,000 , subject to lenders’ participation, and matures in July 2018 . Borrowings under the Revolving Credit Agreement generally bear interest at LIBOR plus 0.85% to 1.65% . Under the Revolving Credit Agreement, there were $ 165,000 of borrowings outstanding as of June 30, 2014, at an effective interest rate of 1.20 % , and no borrowings outstanding as of September 30, 2013. As of June 30, 2014, the entire outstanding balance under the Revolving Credit Agreement was classified as long-term.
The Revolving Credit Agreement contains certain covenants customary with such agreements, which are generally consistent with the covenants applicable to Woodward’s long-term debt agreements, and contains customary events of default, including certain cross default provisions related to Woodward’s other outstanding debt arrangements in excess of
18
$60,000 , the occurrence of which would permit the lenders to accelerate the amounts due thereunder. In addition, the Revolving Credit Agreement includes the following financial covenants: (i) a maximum permitted leverage ratio of consolidated net debt to consolidated earnings before interest, taxes, depreciation, stock-based compensation, and amortization, plus any usual non-cash charges to the extent deducted in computing net income minus any usual non-cash gains to the extent added in computing net income (“Leverage Ratio”) for Woodward and its consolidated subsidiaries not to exceed 3.5 to 1.0 , which ratio, subject to certain restrictions, may increase to 4.0 to 1.0 for the fiscal quarter (and the immediately following fiscal quarter) during which a permitted acquisition occurs and to 3.75 to 1.0 for the next two succeeding fiscal quarters, and (ii) a minimum consolidated net worth of $800,000 , plus 50% of Woodward’s positive net income for the prior fiscal year and plus 50 % of Woodward’s net cash proceeds resulting from certain issuances of stock, subject to certain adjustments.
Woodward’s obligations under the Revolving Credit Agreement are guaranteed by Woodward FST, Inc., Woodward MPC, Inc., and Woodward HRT, Inc., each of which is a wholly owned subsidiary of Woodward.
In October 2008 , Woodward entered into a note purchase agreement (the “2008 Note Purchase Agreement”) relating to the Series B, C, and D Notes (the “2008 Notes”). In April 2009 , Woodward entered into a note purchase agreement (the “2009 Note Purchase Agreement”) relating to the Series E and F Notes (the “2009 Notes”).
On October 1, 2013 , Woodward entered into a note purchase agreement (the “2013 Note Purchase Agreement” and, together with the 2008 Note Purchase Agreement and the 2009 Note Purchase Agreement, the “Note Purchase Agreements”) relating to the sale by Woodward of an aggregate principal amount of $250,000 of its senior unsecured notes in a series of private placement transactions.
Woodward issued the Series G, H and I Notes (the “First Closing Notes”) on October 1, 2013 and used the proceeds to repay all of the outstanding balance on the Series B Notes due October 1, 2013.
Woodward issued the Series J, K and L Notes (the “Second Closing Notes” and, together with the 2008 Notes, 2009 Notes and First Closing Notes, the “Notes”) on November 15, 2013 and used the proceeds to partially repay the uncommitted line of credit as discussed below.
Interest on the 2008 Notes, the First Closing Notes, and the Series K and L Notes is payable semi-annually on April 1 and October 1 of each year until all principal is paid. Interest on the 2009 Notes is payable semi-annually on April 15 and October 15 of each year until all principal is paid. Interest on the Series J Notes is payable quarterly on January 1, April 1, July 1 and October 1 of each year until all principal is paid. As of June 30 , 201 4 , the Series J Notes bore interest at an effective rate of 1.48 % .
None of the Notes were registered under the Securities Act of 1933 and they may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. Holders of the Notes do not have any registration rights.
All of the issued Notes are held by multiple institutions.
Woodward’s obligations under the Notes are guaranteed by Woodward FST, Inc., Woodward MPC, Inc., and Woodward HRT, Inc., each of which is a wholly owned subsidiary of Woodward. Woodward’s obligations under the Notes rank equal in right of payment with all of Woodward’s other unsecured unsubordinated debt, including its outstanding debt under its revolving credit facility.
On October 1, 2013, Woodward also entered into amendments to the 2008 Note Purchase Agreement and 2009 Note Purchase Agreement that, among other things, conform certain of the affirmative and negative covenants in the 2008 Note Purchase Agreement and the 2009 Note Purchase Agreement, respectively, to the corresponding covenant provisions in the 2013 Note Purchase Agreement.
The Note Purchase Agreements contain restrictive covenants customary for such financings, including, among other things, covenants that place limits on Woodward’s ability to incur liens on assets, incur additional debt (including a leverage or coverage based maintenance test), transfer or sell Woodward’s assets, merge or consolidate with other persons and enter into material transactions with affiliates. Under the financial covenants contained in the Note Purchase Agreements, Woodward’s priority debt may not exceed, at any time, 25% of its consolidated net worth. Woodward’s L everage R atio cannot exceed 4.0 to 1.0 during any material acquisition period, or 3.5 to 1.0 at any other time on a rolling four quarter basis . In the event that Woodward’s Leverage R atio exceeds 3.5 to 1.0 during any material acquisition period, the interest rate on each series of Notes will increase. Further, Woodward’s consolidated net worth must at all times equal or exceed $800,000 plus 50% of Woodward’s consolidated net earnings for each fiscal year beginning with the fiscal year ending September 30, 2013. The Note Purchase Agreements also contain customary events of default, including certain cross-default provisions
19
related to Woodward’s other outstanding debt arrangements in excess of $60,000 , the occurrence of which would permit the holders of the respective Notes to accelerate the amounts due.
Woodward, at its option, is permitted at any time to prepay all, or from time to time to prepay any part of, the then outstanding principal amount of any series of the Notes at 100% of the principal amount of the series of Notes to be prepaid (but, in the case of partial prepayment, not less than $1,000) , together with interest accrued on such amount to be prepaid to the date of payment, plus any applicable prepayment compensation amount. The prepayment compensation amount, as to the Notes other than the floating rate Notes, is computed by discounting the remaining scheduled payments of interest and principal of the Notes being prepaid at a discount rate equal to the sum of 50 basis points and the yield to maturity of U.S. Treasury securities having a maturity equal to the remaining average life of the Notes being prepaid. The prepayment compensation amount, as to the floating rate Notes, generally is computed as a percentage of the principal amount of such floating rate Notes equal to (a) 2%, on or prior to November 15, 2014, (b) 1%, after November 15, 2014 and on or prior to November 15, 2015, and (c) 0% after November 15, 2015 .
In connection with the 2013 Note Purchase Agreement, Woodward incurred approximately $1,400 in financing costs, which will be deferred and amortized using the straight-line method over the life of the agreement.
Required future principal payments of the Notes as of June 30, 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ending September 30: |
|
|
|
|
2014 (remaining) |
|
$ |
- |
|
2015 |
|
|
- |
|
2016 |
|
|
|
|
2017 |
|
|
- |
|
2018 |
|
|
- |
|
Thereafter |
|
|
|
|
|
|
$ |
|
In connection with the acquisition of the Duarte Business, on December 21, 2012 Woodward entered into a 364 day uncommitted line of credit with JPMorgan Chase Bank, N.A. (the “Line of Credit”). The Line of Credit provided for unsecured loans to Woodward of up to $ 200,000 on a revolving basis. Loans made under the Line of Credit bore interest at a floating rate based, at the Company’s option, on either the prime rate or an adjusted LIBOR . The Line of Credit was repaid in full and terminated on December 20, 2013 .
Short-term borrowings
A Chinese subsidiary of Woodward has a local credit facility with the Hong Kong and Shanghai Banking Company under which it has the ability to borrow up to either $22,700 , or the local currency equivalent of $22,700. Any cash borrowings under the local Chinese credit facility are secured by a parent guarantee from Woodward. The Chinese subsidiary may utilize the local facility for cash borrowings to support its operating cash needs. Local currency borrowings on the Chinese credit facility are charged interest at the prevailing interest rate offered by the People’s Bank of China on the date of borrowing, plus a margin equal to 25% of that prevailing rate . U.S. dollar borrowings on the credit facility are charged interest at the lender’s cost of borrowing rate at the date of borrowing, plus 3% . The Chinese subsidiary had no outstanding cash borrowings against the local credit facility at June 30 , 2014 and September 30, 2013.
Woodward also has other foreign lines of credit and foreign overdraft facilities at various financial institutions, which are generally reviewed annually for renewal and are subject to the usual terms and conditions applied by the financial institutions. Pursuant to the terms of the related facility agreements, Woodward’s foreign performance guarantee facilities are limited in use to providing performance guarantees to third parties. There were no borrowings outstanding as of June 30, 2014 and September 30, 2013 on Woodward’s other foreign lines of credit and foreign overdraft facilities.
20
Note 1 4 . Accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
September 30, |
||
|
|
2014 |
|
2013 |
||
|
Salaries and other member benefits |
$ |
|
|
$ |
|
|
Warranties |
|
|
|
|
|
|
Interest payable |
|
|
|
|
|
|
Current portion of acquired performance obligations and unfavorable contracts (1) |
|
|
|
|
|
|
Accrued retirement benefits |
|
|
|
|
|
|
Deferred revenues |
|
|
|
|
|
|
Taxes, other than income |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
(1) |
|
For more information about acquired performance obligations and unfavorable contracts, see Note 4, Business acquisitions . |
Warranties
Provisions of Woodward’s sales agreements include product warranties customary to these types of agreements. Accruals are established for specifically identified warranty issues that are probable to result in future costs. Warranty costs are accrued on a non-specific basis whenever past experience indicates a normal and predictable pattern exists. Changes in accrued product warranties were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Months Ended June 30, |
||||
|
|
|
2014 |
|
|
2013 |
|
Warranties, beginning of period |
$ |
|
|
$ |
|
|
Expense |
|
|
|
|
|
|
Increases due to acquisition of Duarte Business |
|
- |
|
|
|
|
Reductions for settling warranties |
|
|
|
|
|
|
Foreign currency exchange rate changes |
|
|
|
|
|
|
Warranties, end of period |
$ |
|
|
$ |
|
Note 1 5 . Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
September 30, |
||
|
|
|
2014 |
|
2013 |
||
|
Net accrued retirement benefits, less amounts recognized within accrued liabilities |
|
$ |
|
|
$ |
|
|
Total unrecognized tax benefits, net of offsetting adjustments |
|
|
|
|
|
|
|
Acquired performance obligations and unfavorable contracts (1) |
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
(1) |
|
For more information about acquired performance obligations and unfavorable contracts, see Note 4, Business acquisitions . |
21
Note 1 6. Other (income) expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||
|
|
|
June 30, |
|
June 30, |
||||||||
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
Net (gain) loss on sales of assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Rent income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on investments in deferred compensation program |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Note 17 . Income taxes
U.S. GAAP requires that the interim period tax provision be determined as follows:
|
|
· |
|
At the end of each quarter, Woodward estimates the tax that will be provided for the current fiscal year stated as a percentage of estimated “ordinary income.” The term ordinary income refers to earnings from continuing operations before income taxes, excluding significant unusual or infrequently occurring items. |
The estimated annual effective rate is applied to the year-to-date ordinary income at the end of each quarter to compute the estimated year-to-date tax applicable to ordinary income. The tax expense or benefit related to ordinary income in each quarter is the difference between the most recent year-to-date and the prior quarter year-to-date computations.
|
|
· |
|
The tax effects of significant unusual or infrequently occurring items are recognized as discrete items in the interim period in which the events occur. The impact of changes in tax laws or rates on deferred tax amounts, the effects of changes in judgment about beginning of the year valuation allowances, and changes in tax reserves resulting from the finalization of tax audits or reviews are examples of significant unusual or infrequently occurring items that are recognized as discrete items in the interim period in which the event occurs. |
The determination of the annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pretax income of Woodward in each tax jurisdiction in which it operates, and the development of tax planning strategies during the year. In addition, as a global commercial enterprise, Woodward’s tax expense can be impacted by changes in tax rates or laws, the finalization of tax audits and reviews, changes in the estimate of the amount of undistributed foreign earnings that Woodward considers indefinitely reinvested, as well as other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions.
The following table sets forth the tax expense and the effective tax rate for Woodward’s income from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||
|
|
|
June 30, |
|
June 30, |
||||||||
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
Earnings before income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in the year-over-year effective tax rate for the three-months ended June 30, 2014 is attributable to higher earnings in jurisdictions with lower tax rates, reduced taxes on current and anticipated future distributions of foreign earnings to the U.S, and the favorable impact of reviews by tax authorities. This overall year-over-year decrease was partially offset by the lack of a U.S. research and experimentation credit in the three months ended June 30, 2014, as discussed below.
On January 2, 2013, the American Taxpayer Relief Act of 2012 (the “Taxpayer Relief Act”) was enacted, which retroactively extended the U.S. research and experimentation tax credit through December 31, 2013. As a result, income taxes for the nine-months ended June 30 , 2013 included a net expense reduction of $6, 558 related to the retroactive impact of
22
the U.S. research and experimentation tax credit pursuant to the Taxpayer Relief Act. The slight increase in effective tax rate for the nine-months ended June 30, 2014 is due to the lack of the retroactive benefit of the research and experimentation credit , offset by larger net favorable resolutions and reviews of tax matters and lapses of applicable statutes of limitations, higher earnings in jurisdictions with lower tax rates, and reduced taxes on current and anticipated future distributions of foreign earnings to the U.S in the current year .
Gross unrecognized tax benefits as of June 30, 2014 and September 30, 2013 were $14,582 and $22,694, respectively. Included in the balance of unrecognized tax benefits as of June 30, 2014 and September 30, 2013 are $11,628 and $17,838, res pectively, of tax benefits that, if recognized, would affect the effective tax rate. At this time, Woodward estimates that it is reasonably possible that the liability for unrecognized tax benefits will decrease by as much as $ 113 in the next twelve months due to the completion of reviews by tax authorities and the expiration of certain statutes of limitations. Woodward accrues for potential interest and penalties related to unrecognized tax benefits in tax expense. Woodward had accrued interest and penalties of $1,473 as of June 30, 2014 and $2,066 as of September 30, 2013.
Woodward’s tax returns are audited by U.S., state, and foreign tax authorities, and these audits are at various stages of completion at any given time. Reviews of tax matters by authorities and lapses of the applicable statutes of limitations may result in changes to tax expense . During the three-month period ended June 30, 2014, such reviews of tax matters resulted in a net favorable amount of $1,986. With a few exceptions, Woodward’s fiscal years remaining open to examination in the United States include fiscal years 2011 and thereafter, and fiscal years remaining open to examination in significant foreign jurisdictions include 2005 and thereafter.
Note 18 . Retirement benefits
Woodward provides various benefits to eligible members of the Company, including contributions to various defined contribution plans, pension benefits associated with defined benefit plans, postretirement medical benefits and postretirement life insurance benefits. Eligibility requirements and benefit levels vary depending on employee location.
Defined contribution plans
Most of the Company’s U.S. employees are eligible to participate in the U.S. defined contribution plan. The U.S. defined contribution plan allows employees to defer part of their annual income for income tax purposes into their personal 401(k) accounts. The Company makes contributions to eligible employee accounts, which are also deferred for employee personal income tax purposes. Certain foreign employees are also eligible to participate in foreign plans.
Most of Woodward’s U.S. employees with at least two years of service receive an annual contribution of Woodward stock, equal to 5% of their eligible prior year wages, to their personal Woodward Retirement Savings Plan accounts. In the second quarter of fiscal years 2014 and 2013, Woodward fulfilled its annual Woodward stock contribution obligation using shares held in treasury stock by issuing 260 shares of common stock for a total value of $11,193 and 250 shares of common stock for a total value of $9,780 , respectively.
The amount of expense associated with defined contribution plans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||
|
|
|
June 30, |
|
June 30, |
||||||||
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
Company costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Defined benefit plans
Woodward has defined benefit plans that provide pension benefits for certain retired employees in the United States, the United Kingdom, Japan, and Switzerland. Woodward also provides other postretirement benefits to its employees including postretirement medical benefits and life insurance benefits. Postretirement medical benefits are provided to certain current and retired employees and their covered depend e nts and beneficiaries in the United States and the United Kingdom. Life insurance benefits are provided to certain retirees in the United States under frozen plans, which are no longer available to current employees. A September 30 measurement date is utilized to value plan assets and obligations for all of Woodward’s defined benefit pension and other postretirement benefit plans.
U.S. GAAP requires that, for obligations outstanding as of September 30, 201 3 , the funded status reported in interim periods shall be the same asset or liability recognized in the previous year end statement of financial position adjusted for (a) subsequent accruals of net periodic benefit cost that exclude the amortization of amounts previously recognized in other
23
comprehensive income (for example, subsequent accruals of service cost, interest cost, and return on plan assets) and (b) contributions to a funded plan or benefit payments.
The components of the net periodic retirement pension costs recognized are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended June 30, |
||||||||||||||||
|
|
|
United States |
|
Other Countries |
|
Total |
||||||||||||
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||||
|
Service cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment (gain) loss |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
|
|
|
- |
|
Net periodic retirement pension (benefit) cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Contributions paid |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Months Ended June 30, |
||||||||||||||||
|
|
|
United States |
|
Other Countries |
|
Total |
||||||||||||
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||||
|
Service cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment (gain) loss |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
|
|
|
- |
|
Net periodic retirement pension (benefit) cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Contributions paid |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The curtailment gain in the three and nine-months ended June 30, 2014 pertained to workforce reductions related to the closure of Woodward’s Swiss facility in connection with the realignment of the renewable power business that occurred in the third quarter of fiscal year 2013.
24
The components of the net periodic other postretirement benefit costs recognized are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||
|
|
|
June 30, |
|
June 30, |
||||||||
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
Service cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic other postretirement (benefit) cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Contributions paid |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The amount of cash contributions made to these plans in any year is dependent upon a number of factors, including minimum funding requirements in the jurisdictions in which Woodward operates and arrangements made with trustees of certain foreign plans. As a result, t he actual funding in fiscal year 2014 may differ from the current estimate. Woodward estimates its remaining c ash contributions in fiscal year 2014 will be as follows:
|
|
|
|
|
|
|
|
|
|
|
Retirement pension benefits: |
|
|
|
|
United States |
|
$ |
|
|
United Kingdom |
|
|
|
|
Japan |
|
|
- |
|
Switzerland |
|
|
- |
|
Other postretirement benefits |
|
|
|
Multiemployer defined benefit plans
Woodward operates two multiemployer defined benefit plans for certain employees in the Netherlands and Japan. The amounts of contributions associated with the multiemployer plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||
|
|
|
June 30, |
|
June 30, |
||||||||
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
Company contributions |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Note 19 . Stock-based compensation
Stock options
Woodward’s 2006 Omnibus Incentive Plan (the “2006 Plan”), which has been approved by Woodward’s stockholders, provides for the grant of up to 7,410 stock options to its employees and directors. Woodward believes that these stock options align the interests of its employees and directors with those of its stockholders. Stock option awards are granted with an exercise price equal to the market price of Woodward’s stock at the date of grant, a ten - year term, and a four -year vesting schedule at a rate of 25 % per year.
The fair value of options granted was estimated on the date of grant using the Black-Scholes-Merton option-valuation model using the assumptions in the following table. Woodward calculates the expected term, which represents the period of time that stock options granted are expected to be outstanding, based upon historical experience of plan participants. Expected volatility is based on historical volatility using daily stock price observations. The estimated dividend yield is
25
based upon Woodward’s historical dividend practice and the market value of its common stock. The risk-free rate is based on the U.S. treasury yield curve, for periods within the contractual life of the stock option, at the time of grant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||||||||||||||
|
|
June 30, |
|
June 30, |
||||||||||||||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||||||||||||||
|
Expected term (years) |
|
n/a |
|
|
|
5.8 |
|
|
|
|
- |
8.6 |
|
|
|
|
- |
8.6 |
|
||||
|
Estimated volatility |
|
n/a |
|
|
|
54.4% |
|
|
|
38.5% |
|
|
|
|
- |
54.9% |
|
||||||
|
Estimated dividend yield |
|
n/a |
|
|
|
0.9% |
|
|
|
0.8% |
|
|
|
|
- |
1.0% |
|
||||||
|
Risk-free interest rate |
|
n/a |
|
|
|
0.9% |
|
|
|
|
- |
2.5% |
|
|
|
|
- |
1.3% |
|
||||
The following is a summary of the activity for stock option awards during the three and nine-months ended June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||
|
|
|
June 30, 2014 |
|
June 30, 2014 |
||||||||
|
|
|
Number of options |
|
Weighted-Average Exercise Price per Share |
|
Number of options |
|
Weighted-Average Exercise Price per Share |
||||
|
Options, beginning balance |
|
|
|
|
$ |
$
27.74
|
|
|
|
|
$ |
|
|
Options granted |
|
|
- |
|
|
n/a |
|
|
|
|
|
|
|
Options exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options, ending balance |
|
|
|
|
|
|
|
|
|
|
|
|
Changes in non-vested stock options during the three and nine-months ended June 30, 2014 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||
|
|
|
June 30, 2014 |
|
June 30, 2014 |
||||||||
|
|
|
Number of options |
|
Weighted-Average Exercise Price per Share |
|
Number of options |
|
Weighted-Average Exercise Price per Share |
||||
|
Options, beginning balance |
|
|
|
|
$ |
$
34.80
|
|
|
|
|
$ |
|
|
Options granted |
|
|
- |
|
|
n/a |
|
|
|
|
|
|
|
Options vested |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options, ending balance |
|
|
|
|
|
|
|
|
|
|
|
|
26
Information about stock options that have vested, or are expected to vest, and are exercisable at June 30, 2014 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
Weighted- Average Exercise Price |
|
Weighted- Average Remaining Life in Years |
|
Aggregate Intrinsic Value |
||||
|
Options outstanding |
|
|
4,615 |
|
$ |
|
|
|
5.7 |
|
$ |
103,020 |
|
Options vested and exercisable |
|
|
2,927 |
|
|
|
|
|
4.3 |
|
|
77,085 |
|
Options vested and expected to vest |
|
|
4,512 |
|
|
|
|
|
5.6 |
|
|
101,609 |
Restricted Stock
In the first quarter of fiscal year 2014, Wood w ard granted an award of 24 shares of restricted stock to its Chief Executive Officer and President, Thomas Gendron . Subject to Mr. Gendron’s continued employment by the Company, these shares of restricted stock will vest 100% following the end of the Company’s fiscal year 2017 if a cumulative earnings per share (“EPS”) target is met or exceeded for fiscal years 2014 through 2017. If this EPS target is not met, all shares of restricted stock will be forfeited by Mr. Gendron.
The shares of restricted stock were awarded to Mr. Gendron pursuant to a form restricted stock agreement approved by Woodward’s Compensation Committee (the “Committee”), which generally provides that: if the recipient of a restricted stock award is terminated from the Company for any reason other than death or disability during the restricted period, all shares of restricted stock will be immediately forfeited; if the recipient dies or becomes permanently disabled prior to the recipient’s termination and during the restricted period, all restrictions will lapse and the shares of restricted stock will fully vest immediately; similarly, in the event of a Change in Control (as defined in the form of restricted stock agreement) of the Company during the restricted period and prior to the recipient’s termination for any reason, all restrictions will lapse and the shares of restricted stock will fully vest immediately; during the restricted period, a recipient may exercise full voting rights with respect to the shares of restricted stock; dividends on the shares of restricted stock will accrue, but will not be paid, during the restricted period; and all dividends accrued during the restricted period will be paid upon any vesting of the shares of restricted stock, without payment of interest, provided that if the shares of restricted stock are forfeited for any reason, all accrued dividends will likewise be forfeited. The form of restricted stock agreement also includes adjustment provisions in the event the Company engages in certain recapitalization or similar transactions or in the event of a change of law or regulation. Upon vesting, shares become freely transferrable .
Woodward recognizes stock compensation on a straight-line basis over the requisite service period.
A summary of the activity for restricted stock awards in the three and nine-months ended June 30, 2014 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||
|
|
|
June 30, 2014 |
|
June 30, 2014 |
||||||||
|
|
|
|
Number |
|
|
Fair Value per Share |
|
|
Number |
|
|
Fair Value per Share |
|
Beginning balance |
|
|
|
|
$ |
|
|
|
- |
|
$ |
n/a |
|
Shares granted |
|
|
- |
|
|
n/a |
|
|
|
|
|
|
|
Shares vested |
|
|
- |
|
|
n/a |
|
|
- |
|
|
n/a |
|
Shares forfeited |
|
|
- |
|
|
n/a |
|
|
- |
|
|
n/a |
|
Ending balance |
|
|
|
|
|
|
|
|
|
|
|
|
At June 30 , 2014, there was approximately $ 13,792 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements, both stock options and restricted stock awards, granted under the 2002 Plan (for which no further grants will be made) and the 2006 Plan. The pre-vesting forfeiture rates for purposes of determining stock-based compensation cost recognized were estimated to be 0% for members of Woodward’s board of directors and 9% for all others. The remaining unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 1.9 years.
27
Note 20 . Commitments and contingencies
Woodward is currently involved in claims, pending or threatened litigation, other legal proceedings, investigations and/or regulatory proceedings arising in the normal course of business, including, among others, those relating to product liability claims, employment matters, worker’s compensation claims, contractual disputes, product warranty claims and alleged violations of various laws and regulations. Woodward accrues for known individual ma tters where it believes that it is probable the matter will result in a loss when ultimately resolved using estimates of the most likely amount of loss.
Legal costs are expensed as incurred and are classified in “Selling, general and administrative expenses” on the Condensed Consolidated Statements of Earnings.
Woodward is partially self-insured in the United States for healthcare and worker’s compensation up to predetermined amounts, above which third party insurance applies. Management regularly reviews the probable outcome of these claims and proceedings, the expenses expected to be incurred, the availability and limits of the insurance coverage, and the established accruals for liabilities.
While the outcome of pending claims, legal and regulatory proceedings, and investigations cannot be predicted with certainty, management believes that any liabilities that may result from these claims, proceedings and investigations will not have a material effect on Woodward's liquidity, financial condition, or results of operations.
In the event of a change in control of Woodward, as defined in change-in-control agreements with its current corporate officers, Woodward may be required to pay termination benefits to such officers.
Note 21 . Segment information
Woodward serves the aerospace market and the energy market through its two reportable segments - Aerospace and Energy. Woodward’s reportable segments are aggregations of Woodward’s operating segments. Woodward use s reportable segment information internally to manage its business, including the assessment of business segment performance and decisions for the allocation of resources between segments.
The accounting policies of the reportable segments are the same as those of the Company. Woodward evaluates segment profit or loss based on internal performance measures for each segment in a given period. In connection with that assessment, Woodward excludes matters such as charges for restructuring costs, interest income and expense, and certain gains and losses from asset dispositions.
A summary of consolidated net sales and earnings by segment follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||
|
|
|
June 30, |
|
June 30, |
||||||||
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
Segment external net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Segment earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonsegment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated earnings before income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
28
Segment assets consist of accounts receivable, inventories, property, plant, and equipment, net, goodwill, and other intangibles, net. A summary of consolidated total assets by segment follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014 |
|
September 30, 2013 |
||
|
Segment assets: |
|
|
|
|
|
|
|
Aerospace |
|
$ |
|
|
$ |
|
|
Energy |
|
|
|
|
|
|
|
Total segment assets |
|
|
|
|
|
|
|
Unallocated corporate property, plant and equipment, net |
|
|
|
|
|
|
|
Other unallocated assets |
|
|
|
|
|
|
|
Consolidated total assets |
|
$ |
|
|
$ |
|
29
Item 2 . Management’s Discussion and Analysi s of Financial Condition and Results of Operations (Amounts in thousands, except per share amounts)
This Quarterly Report on Form 10- Q , including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are statements that are dee med forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of management. Words such as “anticipate,” “believe,” “estimate,” “seek,” “goal,” “expect,” “forecast,” “intend,” “continue,” “outlook,” “plan,” “project,” “target,” “strive,” “can,” “could,” “may,” “should,” “will,” “would,” variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characteristics of future events or circumstances are forward-looking statements. Forward-looking statements may include, among others, statements relating to:
|
|
· |
|
future sales, earnings, cash flow, uses of cash, and other measures of financial performance; |
|
|
· |
|
description s of our plans and expectations for future operations; |
|
|
· |
|
the effect of economic downturns or growth in particular regions; |
|
|
· |
|
the effect of changes in the level of activity in particular industries or markets; |
|
|
· |
|
the availability and cost of materials, components, services, and supplies; |
|
|
· |
|
the scope, nature, or impact of acquisition activity and integration of such acquisitions into our businesses; |
|
|
· |
|
the development, production, and support of advanced technologies and new products and services; |
|
|
· |
|
new business opportunities; |
|
|
· |
|
restructuring and alignment costs and savings; |
|
|
· |
|
our plans, objectives, expectations and intentions with respect to recent acquisitions and expected business opportunities that may be available to us; |
|
|
· |
|
the outcome of contingencies; |
|
|
· |
|
future repurchases of common stock; |
|
|
· |
|
future levels of indebtedness and capital spending; and |
|
|
· |
|
pension plan assumptions and future contributions. |
Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including:
|
|
· |
|
a decline in business with, or financial distress of, our significant customers; |
|
|
· |
|
global economic uncertainty and instability in the financial markets; |
|
|
· |
|
our ability to obtain financing, on acceptable terms or at all, to implement our business plans, complete acquisitions, or otherwise take advantage of business opportunities or respond to business pressures; |
|
|
· |
|
the long sales cycle, customer evaluation process, and implementation period of some of our products and services; |
|
|
· |
|
our ability to implement and realize the intended effects of any restructuring and alignment efforts; |
|
|
· |
|
our ability to successfully manage competitive factors, including prices, promotional incentives, industry consolidation, and commodity and other input cost increases; |
|
|
· |
|
our ability to manage our expenses and product mix while responding to sales increases or de creases; |
|
|
· |
|
the ability of our subcontractors to perform contractual obligations and our suppliers to provide us with materials of sufficient quality or quantity required to meet our production needs at favorable prices or at all; |
30
|
|
· |
|
our ability to monitor our technological expertise and the success of, and/ or costs associated with, our product development activities; |
|
|
· |
|
our ability to integrate acquisitions and manage costs related thereto; |
|
|
· |
|
our debt obligations, our debt service requirements, and our ability to operate our business, pursue business strategies and incur additional debt in light of covenants contained in our outstanding debt agreements; |
|
|
· |
|
risks related to our U. S. Government contracting activities , including liabilities resulting from legal and regulatory proceedings, inquiries, or investigations related to such activities ; |
|
|
· |
|
the potential of a significant reduction in defense sales due to decreases in the amount of U.S. Federal defense spending, including the impacts of the sequestration of appropriations under the Budget Control Act of 2011 (the “Budget Act”), or other specific budget cuts impacting defense programs in which we participate; |
|
|
· |
|
changes in government spending patterns and /or priorities; |
|
|
· |
|
future impairment charges resulting from changes in the estimates of fair value of reporting units or of long-lived assets; |
|
|
· |
|
future results of our subsidiar ies ; |
|
|
· |
|
environmental liabilities related to manufacturing activities and /or real estate acquisitions ; |
|
|
· |
|
our continued access to a stable workforce and favorable labor relations with our employees; |
|
|
· |
|
physical and other risks related to our operations and suppliers, including natural disasters, which could disrupt production; |
|
|
· |
|
our ability to successfully manage regulatory, tax, and legal matters (including product liability, patent, and intellectual property matters); |
|
|
· |
|
risks from operating internationally, including the impact on reported earnings from fluctuations in foreign currency exchange rates, and compliance with and changes in the legal and regulatory environments of the United States and the countries in which we operate; |
|
|
· |
|
fair value of defined benefit plan assets and assumptions used in determining our retirement pension and other postretirement benefit obligations and related expenses including, among others, discount rates and investment return on pension assets; |
|
|
· |
|
our operations may be adversely affected by information systems interruptions or intrusions; and |
|
|
· |
|
certain provisions of our charter documents and Delaware law that could discourage or prevent others from acquiring our company. |
These factors are representative of the risks, uncertainties, and assumptions that could cause actual outcomes and results to differ materially from what is expressed or forecast in our forward-looking statements. Other factors are discussed under the caption “Risk Factors” in Part I, Item 1A in our most recent Annual Report on Form 10-K filed with the SEC (our “Form 10-K ” ), as updated from time to time in our subsequent Securities and Exchange Commission (“SEC”) filings. We undertake no obligation to revise or update any forward-looking statements for any reason.
Unless we have indicated otherwise or the context otherwise requires, references in this Quarterly Report on Form 10- Q (this “Form 10-Q”) to “Woodward,” “the Company,” “we,” “us,” and “our” refer to Woodward, Inc. and its consolidated subsidiaries.
Except where we have otherwise indicated or the context otherwise requires, amo unts presented in this Form 10-Q are in thousands, except per share amounts.
This discussion should be read together with Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our most recent Form 10-K and the Condensed Consolidated Financial Statements and Notes included therein and in this report.
31
Non-U.S. GAAP Financial Measures
Earnings before interest and taxes (“EBIT”), earnings before interest, taxes, depreciation and amortization (“EBITDA”), and free cash flow are financial measures not prepared and presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Earnings based non-U.S. GAAP financial measures
Management uses EBIT to evaluate Woodward’s performance without financing and tax related considerations, as these elements may not fluctuate with operating results. Management uses EBITDA in evaluating Woodward’s operating performance, making business decisions, including developing budgets, managing expenditures, forecasting future periods, and evaluating capital structure impacts of various strategic scenarios. Securities analysts, investors and others frequently use EBIT and EBITDA in their evaluation of companies, particularly those with significant property, plant, and equipment, and intangible assets subject to amortization.
EBIT and EBITDA for the three and nine -months ended June 30 , 201 4 and June 30 , 201 3 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended June 30, |
|
Nine-Months Ended June 30, |
||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
Net earnings |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
EBIT |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense |
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The use of these non-U.S. GAAP financial measures is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in acco rdance with U.S. GAAP. As EBIT and EBITDA exclude certain financial information compared with net earnings , the most comparable U.S. GAAP financial measure, users of this financial information should consider the information that is excluded. Our calculations of EBIT and EBITDA may differ from similarly titled measures used by other companies, limiting their usefulness as comparative measures.
Cash flow- based non-U.S. GAAP financial measures
Management uses free cash flow, which is defined as net cash flows provided by operating activities less payments for property, plant and equipment, in reviewing the financial performance of Woodward’s various business groups and evaluating cash levels. Securities analysts, investors, and others frequently use free cash flow in their evaluation of companies. The use of this non-U.S. GAAP financial measure is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. Free cash flow does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs. Our calculation of free cash flow may differ from similarly titled measures used by other companies, limiting its usefulness as a comparative measure.
Free cash flow s for the nine-months ended June 30 , 2014 and June 30 , 2013 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Months Ended June 30, |
||||
|
|
2014 |
|
2013 |
||
|
Net cash provided by operating activities |
$ |
|
|
$ |
|
|
Payments for property, plant and equipment |
|
|
|
|
|
|
Free cash flow |
$ |
|
|
$ |
|
32
Operational Highlights
Quarter to Date Highlights
Net sales f or the third quarter of fiscal year 2014 were $524,284 , a n increase of $40,525 or 8.4% , compared to $483,759 for the third quarter of the prior fiscal year.
Net earnings for the third quarter of fiscal year 2014 were $46,001 , or $0.69 per diluted share, an increase of $22,338, or 94.4%, compared to $23,663, or $0.34 per diluted share, for the third quarter of fiscal year 2013. During the third quarter of fiscal year 2013, net earnings results included specific charges of $15,707, or $0.17 per diluted share, related to the realignment of our renewable power business. The effective tax rate in the third quarter of fiscal year 2014 was 26.4% compared to 33.3% for the third quarter of the prior fiscal year.
EBIT for the third quarter of fiscal year 2014 was $68,367 , up 62.2% from $42,152 in the same period of fiscal year 2013. The prior year’s third quarter EBIT included the $15,707 of specific charges related to our renewable power business. EBITDA for the third quarter of fiscal year 2014 was $ 87,213 , an increase of 44.2 % from $60,480 for the same period of fiscal year 2013.
Year to Date Highlights
Net sales for the first nine months of fiscal year 2014 were $1,435,793 , an increase of 4.2% from $1,377,611 for the first nine months of the prior fiscal year. N et sales for the first nine months of fiscal 2014 , excluding the Duarte Business (discussed below) for the first three months of fiscal year 2014, were $ 1,404,361 , a n increase of 1.9 % from the first nine months of the prior fiscal year.
Net earnings for the first nine months of fiscal year 2014 were $114,182, or $1.68 per diluted share, an increase of $20,705, or 22.1%, compared to $93,477, or $1.34 per diluted share, for the first nine months of fiscal year 2013. The first nine months of fiscal year 2013 net earnings results included specific charges of $15,707, or $0.17 per diluted share. The effective tax rate in the first nine months of fiscal year 2014 was 25.0% compared to 24.8% for the first nine months of the prior fiscal year.
EBIT for the first nine months of fiscal year 2014 was $170,198 , up 17.9 % from $144,361 in the same period of fiscal year 2013. The first nine mon ths of fiscal year 2013 included the $15,707 of specific charges related to our renewable power business . EBITDA for the first nine months of fiscal year 2014 was $227,879, up 13.6 % from EBITDA of $200,581 for the same period of fiscal year 2013.
Duarte Business Acquisition
On December 27, 2012, Woodward entered into a definitive asset purchase agreement with GE Aviation Systems LLC (the “Seller”) and General Electric Company for the acquisition of substantially all of the assets and certain liabilities related to the Seller’s thrust reverser actuation systems business located in Duarte, California (the “Duarte Business”) for an aggregate purchase price of $200,000. The sale was completed on December 28, 2012, and we paid cash at closing in the amount of $198,900.
The Duarte Business develops and manufactures motion control technologies and platforms, more specifically thrust reverser actuation systems. The Duarte Business serves customers such as Airbus, Boeing, General Electric, Safran and the U.S. Government. Its products are used primarily on commercial aircraft, such as the Boeing 737, 747 and 777, and the Airbus A320. The Duarte Business has been integrated into Woodward’s Aerospace segment and included in our operating results since the acquisition.
Due to the timing of the closing of the acquisition, the Duarte Business had no impact on net sales, and except for acquisition costs of $1,707, had no impact on EBIT or net earnings for the first quarter of fiscal year 2013.
Liquidity Highlights
Net cash provided by operating activities for the first nine months of fiscal year 2014 was $183,890 , compared to $133,017 for the same period of fiscal year 2013.
Free cash flow for the first nine months of fiscal year 2014 was $79,360 , compared to free cash flow of $54,502 for the same period of fiscal year 2013, primarily attributable to higher cash flow from operations in the current year related mostly to improved earnings and working capital management, partially offset by higher levels of capital expenditures in the current year .
33
On October 1, 2013, we entered into a note purchase agreement (the “2013 Note Purchase Agreement”) relating to the sale by Woodward of an aggregate principal amount of $250,000 of its senior unsecured notes in a series of private placement transactions. We issued the Series G, H and I Notes on October 1, 2013 in an aggregate principal amount of $100,000 and used the proceeds to repay all of the outstanding balance on the Series B Notes due October 1, 2013. We issued the Series J, K and L Notes in an additional $150,000 aggregate principal amount on November 15, 2013 and used the proceeds to partially repay the uncommitted line of credit discussed below.
In connection with the acquisition of the Duarte Business on December 21, 2012, we entered into a 364 day uncommitted line of credit with JPMorgan Chase Bank, N.A. (the “Line of Credit”), which provided for unsecured loans to the Company of up to $200,000 on a revolving basis. The Line of Credit was repaid in full and terminated on December 20, 2013.
At June 30, 2014, we held $95,842 in cash and cash equivalents, and had total outstanding debt of $665,000 with additional borrowing availability of $428,488 under our $600,000 revolving credit facility, net of outstanding letters of credit. There was additional borrowing capacity of $28,152 under various foreign lines of credit and foreign overdraft facilities.
The following table s set forth selected consolidated statements of earnings data as a percentage of net sales for each period indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
||||||||||||||||||||
|
|
|
June 30, 2014 |
|
% of Net Sales |
|
June 30, 2013 |
|
% of Net Sales |
|
June 30, 2014 |
|
% of Net Sales |
|
June 30, 2013 |
|
% of Net Sales |
||||||||
|
Net sales |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
Other select financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
September 30, |
||
|
|
2014 |
|
2013 |
||
|
Working capital |
$ |
|
|
$ |
|
|
Total debt |
|
|
|
|
|
|
Total stockholders' equity |
|
|
|
|
|
34
Net Sales
Consolidated net sales for the third quarter of fiscal year 2014 increased by $40,525 , or 8.4% , compared to the same period of fiscal year 2013. Consolidated net sales for the first nine months of fiscal year 201 4 increased by $58,182 , or 4.2% compared to the same period of fiscal year 201 3 . Details of the changes in consolidated net sales are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month |
|
Nine-Month |
||
|
|
|
Period |
|
Period |
||
|
Consolidated net sales for the period ended June 30, 2013 |
|
$ |
|
|
$ |
|
|
Aerospace volume |
|
|
|
|
|
|
|
Energy volume |
|
|
|
|
|
|
|
Price and sales mix |
|
|
|
|
|
|
|
Duarte Business net sales from October 2013 to December 2013 |
|
|
- |
|
|
|
|
Effects of changes in foreign currency rates |
|
|
|
|
|
|
|
Consolidated net sales for the period ended June 30, 2014 |
|
$ |
|
|
$ |
|
The increase in net sales for the third quarter of fiscal year 2014 was pr imarily attributable to improvements in a number of markets within both our Energy and Aerospace segments, partially offset by decreased volumes in defense sales in our Aerospace segment and lower sales of compressed natural gas (“CNG”) systems in our Energy segment.
Net sales for the first nine months of fiscal year 2014 include sales from the Duarte Business for the first quarter of fiscal year 2014 for which there were no comparable sales in the first quarter of fiscal year 2013 due to the timing of the acquisition. The remaining increase in net sales for the first nine months of fiscal year 2014 was primarily attributable to improvements in a number of markets within both our Energy and Aerospace segments, mostly offset by decreased volumes in defense sales in our Aerospace segment and lower sales of CNG systems in our Energy segment.
Price changes: Increases in selling prices were driven primarily by our Aerospace segment markets.
Foreign currency exchange rates: During the third quarter and first nine months of fiscal year 2014, our net sales were positively impacted by $1,209 and $ 1,954 , respectively , due to favorable fluctuations in foreign currency exchange rates compared to the same periods of fiscal year 2013.
O ur worldwide sales activities are primarily denominated in U.S. d ollars (“USD”), European Monetary Units (the “Euro”), Great Britain p ounds ( “GBP”), Japanese yen (“JPY”), and Chinese y uan (“CNY”) . As the USD, Euro, GBP, JPY , and CNY fluctuate against each other and other currencies, we are exposed to gains or losses on sales transactions. If the CNY, which the Chinese government has not historically allowed to fluctuate significantly against USD, is allowed to fluctuate against USD in the future, we would be exposed to greater variability on sales transactions denomin ated in CNY . For additional information on foreign currency exchange rate risk, please refer to the risk factor titled “We derive a significant portion of our revenues from non-U.S. sales and are subject to the risks inherent in doing business in other countries” set forth under the caption “Risk Factors” in Part I, Item 1A of our most recent Form 10-K.
Costs and Expenses
Cost of goods sold, selling, general, and administrative expenses, and research and development costs as a percent of net sales decreased in the third quarter and first nine months of fiscal year 2014 as compared to the same periods of the prior fiscal year. This decrease in costs and expenses as a percent of net sales reflects several years of lean implementation , productivity improvements and cost control initiatives across the entire organization.
The Woodward variable compensation plan covers all segments and substantially all members . The third quarter of fiscal year 2014 reflects a significant increase in our company-wide variable compensation expense both sequentially and compared to the prior year third quarter.
As previously reported, the third quarter of fiscal year 2013 included specific charges of $15,707 related to our renewable power business. Uncertainty with respect to U.S. and other government renewable power incentives and economic factors associated with alternate energy sources resulted in significant overcapacity and financial distress in the renewable power industry, particularly in our fiscal year 2013. As a result, we made a decision in fiscal year 2013 to align our
35
renewable power business appropriately for the then current environment and foreseeable future, through revaluation of its assets and liabilities, including workforce management actions.
Cost of goods sold increased by $23,089 to $372,571 for the third quarter of fiscal year 2014 from $349,482 for the third quarter of fiscal year 2013. Cost of goods sold for the first nine months of fiscal year 2014 increased b y $40,910 to $1,028,065 from $987,155 for the first nine months of fiscal year 2013. The increase in costs of goods sold for the three and nine-month periods is primarily attributable to increased sales in our Energy segment and significant increases in variable compensation compared to the prior year periods. C ost of goods sold for the third quarter and first nine months of fiscal year 2013 included $8,300 of the specific charges (discussed above) related to the realignment of the renewable power business within our Energy segment.
G ross margins (as measured by net sales less cost of goods sold, divided by net sales) were 28.9% for the third quarter of fiscal year 2014, compared to 27.8% for the same period of the prior year. G ross margins were 28.4% for the first nine months of fiscal year 2014, compared to 28.3% for the same period of the prior year. Excluding the $8,300 of specific charges from the gross margins in fiscal year 2013 , gross margins for the third quarter and first nine months of fiscal year 2014 were down slightly compared to the same periods of fiscal year 2013 , primarily related to significant increases in variable compensation in fiscal year 2014 .
Selling, general, and administrative expenses decreased by $ 6,279 or 13.4 % to $40,468 for the third quarter of fiscal year 2014 as compared to $46,747 for the same period of fiscal year 2013. Selling, general and administrative expenses as a percentage of net sales decreased to 7.7% for the third quarter of fiscal year 2014 as compared to 9.7% for the same period of fiscal year 2013. Selling, general, and administrative expenses decreased by $ 7,292 , or 6.1 %, to $ 113,079 for the first nine months of fiscal year 2014 as compared to $120,371 for the same period of fiscal year 2013. Selling, general, and administrative expenses as a percentage of net sales decreased to 7.9 % for the first nine months of fiscal year 2014 compared to 8.7% for the same period of fiscal year 2013. The third quarter and first nine months of fiscal year 2013 included $7,407 of the specific charges (discussed above) related to the realignment of the renewable power business within our Energy segment. Excluding these specific charges in the prior fiscal year periods, selling, general and administrative expenses in the current fiscal year were comparable to the prior year for both the three and nine-month periods. In both the third quarter and first nine months of fiscal year 2014, significantly higher levels of variable compensation were offset by cost control initiatives when compared to the same periods of the prior fiscal year .
Research and development costs decreased by $ 497 , or 1.4 %, to $ 34,990 for the third quarter of fiscal year 2014 as compared to $35,487 for the same period of fiscal year 2013. Research and development costs de creased as a percentage of net sales to 6.7 % for the third quarter of fiscal year 2014 as compared to 7.3% for the same period of fiscal year 2013. Research and development costs increased by $714 , or 0.7% , to $100,219 for the first nine months of fiscal year 2014 as compared to $99,505 for the same period of fiscal year 2013. Research and development costs decreased as a percentage of net sales to 7.0% for the first nine months of fiscal year 2014 as compared to 7.2% for the same period of fiscal year 2013. Research and development costs for both the third quarter and first nine months of fiscal year 2014 reflected lower spending and increased variable compensation when compared to the same periods of the prior fiscal year. O ur research and development activities extend across almost all of our customer base , and we anticipate ongoing variability in research and development due to the timing of achieving development milestones .
Amortization of intangible assets decreased to $8,357 and $25,498 for the third quarter and first nine months of fiscal year 2014, respectively, compared to $9,769 and $27,249 for the same respective periods of fiscal year 2013. As a percentage of net sales, amortization of intangible assets decreased to 1.6 % and 1.8% for the third quarter and first nine months of fiscal year 2014, respectively, as compared to 2.0% for both of the same periods of fiscal year 2013.
Interest expense decreased to $5,972 and $18,219 for the third quarter and first nine months of fiscal year 2014, respectively, compared to $6,723 and $20,196 for the same respective periods of fiscal year 2013. As a percentage of net sales, interest expense was 1.1 % and 1.3 % for the third quarter and first nine months of fiscal year 2014, respectively, as compared to 1.4% and 1.5%, respectively, for the same periods of fiscal year 2013.
36
Income taxes were provided at an effective rate on earnings before income taxes of 26.4% and 25.0% for the third quarter and first nine months of fiscal year 2014, respectively, compared to 33.3% and 24.8%, respectively, for the same periods of fiscal year 20 13 . The changes in components of our effective tax rate (as a percentage of earnings before income taxes) were attributable to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month |
|
|
Nine-Month |
|
|
|
|
Period |
|
|
Period |
|
|
Effective tax rate for the period ended June 30, 2013 |
|
|
% |
|
|
% |
|
Research and experimentation credit |
|
|
|
|
|
|
|
Adjustment of prior period tax items |
|
|
|
|
|
|
|
Taxes on international activities |
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
Effective tax rate for the period ended June 30, 2014 |
|
|
% |
|
|
% |
The decrease in the year-over-year third quarter effective tax rate is attributable to higher earnings in jurisdictions with lower tax rates, as the prior year third quarter foreign earnings included the specific charges of $15,707 related to our renewable power business. The year-over year third quarter effective tax rate also decreased because of reduced taxes on current and anticipated future distributions of foreign earnings to the U.S and the favorable impact of reviews by tax authorities . The overall year-over-year third quarter effective tax rate decrease was partially offset by the lack of a U.S. research and experimentation credit in the current year’s third quarter.
The year-over-year effective tax rate for the first nine months increased slightly due to the retroactive impact of the reinstatement of the U.S. research and experimentation credit in fiscal year 2013, which did not recur in fiscal year 2014. This increase was offset by larger net favorable resolutions and reviews of tax matters and lapses of applicable statutes of limitations, higher earnings in jurisdictions with lower tax rates, and reduced taxes on current and anticipated future distributions of foreign earnings to the U.S in the current year.
Segment Results
The following table presents sales by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended June 30, |
|
Nine-Months Ended June 30, |
||||||||||||||||||||
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||||||||||||||
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Aerospace |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net sales |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
The following table presents earnings by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended June 30, |
|
Nine-Months Ended June 30, |
||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
Aerospace |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Energy |
|
|
|
|
|
|
|
|
|
|
|
|
Total segment earnings |
|
|
|
|
|
|
|
|
|
|
|
|
Nonsegment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated earnings before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net earnings |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
37
The following table presents earnings by segment as a percent of segment net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended June 30, |
|
Nine-Months Ended June 30, |
||||||||
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
Aerospace |
|
|
|
|
|
|
|
|
|
|
|
|
Energy |
|
|
|
|
|
|
|
|
|
|
|
Aerospace
Aerospace segment net sales were $274,923 for third quarter of fiscal year 2014, compared to $272,218 for the same period of the prior year. The slight increase in segment net sales for the third quarter of fiscal year 2014 as compared to the same period of fiscal year 2013 was driven primarily by increases in commercial original equipment manufacturer (“OEM”) and aftermarket sales, mostly offset by lower defense sales in both aftermarket and OEM.
Aerospace segment net sales were $765,816 for the first nine months of fiscal year 2014, compared to $754,100 for the same period of fiscal year 2013. Segment net sales for first nine months of fiscal year 2014, excluding t he sales from the acquired Duarte Business for the first quarter of fiscal year 2014, for which there were no comparable sales in the first quarter of fiscal year 2013 due to the timing of the acquisition, were $734,384, a decrease of $19,716, or 2.6%, compared to the same period of the prior fiscal year. Segment net sales for the first nine months of fiscal year 2014 excluding the net sales from the acquired Duarte Business, were lower compared to the same period of fiscal year 2013, driven primarily by significantly lower defense sales in both aftermarket and OEM, partially offset by increases in commercial OEM and aftermarket sales.
Defense sales continue to reflect the ongoing U.S. government budget constraints, which impact the timing of contracts and upgrade programs and have caused quarterly variability during the current fiscal year, and have resulted in lower defense sales in the first nine months of fiscal year 2014 as compared to the prior fiscal year. Defense aftermarket sales decreased significantly from the prior year, particularly related to sales for rotorcraft programs. Defense OEM sales also declined as compared to the prior year, but not as significantly. We anticipate that continued budget uncertainties may result in quarterly variability in our defense sales for the remainder of the fiscal year.
During our second quarter of fiscal year 2013, the sequestration of U.S. federal government appropriations took effect under the Budget Act. The impact of the sequester has been tempered by Congressional agreement, but it continues to result in budget uncertainties. We will continue to monitor any potential long-term effects of the Budget Act on our business.
Commercial OEM aircraft deliveries of narrow-body and wide-body aircraft have continued to increase based on improved airline dema nd and new product introduction. The commercial aftermarket showed improvement as global passenger traffic growth continues to drive aircraft utilization.
Aerospace segment earnings increased by $408 , or 1.0% , to $39,357 and decreased by $9,545, or 8.5%, to $102,195 for the third quarter and first nine months of fiscal year 2014, respectively, as compared $38,949 and $111,740, respectively, for the same periods of fiscal year 2013 due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month |
|
Nine-Month |
||
|
|
|
Period |
|
Period |
||
|
Earnings for the period ended June 30, 2013 |
|
$ |
|
|
$ |
|
|
Sales volume |
|
|
|
|
|
|
|
Price, sales mix and productivity |
|
|
|
|
|
|
|
Research and development expense |
|
|
|
|
|
|
|
Variable compensation |
|
|
|
|
|
|
|
Cost control initiatives |
|
|
|
|
|
|
|
Other, net |
|
|
|
|
|
|
|
Earnings for the period ended June 30, 2014 |
|
$ |
|
|
$ |
|
Segment e arnings as a percentage of sales were 14.3 % for the third quarter of both fiscal years 2014 and 2013. Segment earnings in the third quarter of fiscal year 2014 reflected cost control initiatives and lower research and development expenses, offset by increases in variable compensation. Segment earnings as a percentage of sales were 13.3% for first nine months of f iscal year 2014 compared, to 14.8% for the same period of fiscal year 2013. The decrease in Aerospace segment
38
earnings in the first nine months of fiscal year 2014 compared to the same period of fiscal year 2013 was primarily attributable to the impact of reduced defense sales volumes and increases in variable compensation, partially offset by cost control initiatives and lower research and development expenses.
Energy
Energy segment net sales were $249,361 and $669,977 for the third quarter and first nine months of fiscal year 2014, respectively, compared to $211,541 and $623,511 for the same respective periods of fiscal year 2013. The increase in sales is primarily attributable to improvements in several markets, inclu ding the wind turbine converter, aero-derivative turbine, and large gas and diesel engine markets , partially offset by lower sales of CNG systems .
Energy segment earnings in creased by $27,773 , or 223.4% , to $40,203 and $38,589, or 63.7% to $99,162 for the third quarter and first nine months of fiscal year 201 4, respectively, as compared to $12,430 and $60,573, respectively, for the same periods of fiscal year 201 3 due to the following :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month |
|
Nine-Month |
||
|
|
|
Period |
|
Period |
||
|
Earnings for the period ended June 30, 2013 |
|
$ |
|
|
$ |
|
|
Sales volume |
|
|
|
|
|
|
|
Price, sales mix and productivity |
|
|
|
|
|
|
|
Specific charges related to renewable power business |
|
|
|
|
|
|
|
Realignment savings |
|
|
|
|
|
|
|
Variable compensation |
|
|
|
|
|
|
|
Effects of changes in foreign currency rates |
|
|
|
|
|
|
|
Other, net |
|
|
|
|
|
|
|
Earnings for the period ended June 30, 2014 |
|
$ |
|
|
$ |
|
Segment e arnings as a percentage of sales increased to 16.1 % and 14.8% in the third quarter and first nine months of f iscal year 2014, respectively, compared to 5.9% and 9.7%, respectively, for the same periods of fiscal year 2013.
Uncertainty with respect to U.S. and other government renewable power incentives and economic factors associated with alternate energy sources resulted in significant overcapacity and financial distress in the renewable power industry, particularly in our fiscal year 2013. As a result, we made a decision in fiscal year 2013 to align our renewable power business appropriately for the then current environment and foreseeable future, through revaluation of its assets and liabilities, including workforce management actions , which resulted in specific charges of $15,707 in the third quarter of fiscal year 2013.
Excluding the specific charges of $15,707, t he remaining increase in the Energy segment earnings for the third quarter and first nine months of fiscal year 2014 as compared to the same respective periods of fiscal year 2013 was driven primarily by increased sales volume and related fixed cost leverage, and realignment savings, partially offset by increases in variable compensation . Foreign currency exchange rates had a favorable impact of $703 and an unfavorable impact of $ 1,529 for the third quarter and first nine months of fiscal year 2014, respectively, compared to the same periods of fiscal year 2013.
Nonsegment expenses
Nonsegment expenses for the third quarter and first nine months of fiscal year 2014 increased to $11,193 and $31,159, respectively, compared to $9,227 and $27,952 for the same periods for fiscal year 2013. As a percent of sales, nonsegment expenses for the third quarter and first nine months of fiscal year 2014 increased to 2.1% and 2.2% of net sales, respectively, compared to 1.9% and 2.0% of net sales for the same periods of fiscal year 2013. The increase in nonsegment expense was primarily related to increases in variable compensation.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have been able to satisfy our working capital needs, as well as capital expenditures, product development and other liquidity requirements associated with our operations, with cash flow provided by operating activities and borrowings under our credit facilities . We expect that cash generated from our operating activities, together with borrowings under our revolving credit facility , will be sufficient to fund our continuing operating needs , including capital expansion funding.
39
Our aggregate cash and cash equivalents were $ 95,842 and $ 48,556 , and our working capital was $ 661,620 and $ 541,183 at June 30, 2014 and September 30, 2013 , respectively. Of the $ 95,842 of cash a nd cash equivalents held at June 30, 2014, $ 7 9 ,296 was held by our foreign subsidiaries. We are not presently aware of any significant restrictions on the repatriation of these funds, although a portion is considered indefinitely reinvested in these foreign subsidiaries. If these funds were needed to fund our operations or satisfy obligations in the United States, they could be repatriated and their repatriation into the United States may cause us to incur additional U.S. income taxes or foreign withholding taxes. Any additional taxes could be offset, in part or in whole, by foreign tax credits. The amount of such taxes and application of tax credits would be dependent on the income tax laws and other circumstances at the time these amounts are repatriated. Based on these variables, it is not practicable to determine the income tax liability that might be incurred if these funds were to be repatriated.
Consistent with business practice common in China, Woodward’s Chinese subsidiary accepts from Chinese customers , in settlement of certain customer accounts receivable , bank drafts issued by creditworthy C hinese banks. Bank drafts are financial instruments issued by Chinese financial institutions as part of financing arrangements between the financial institution and a customer of the financial institution. Bank drafts represent a commitment by the issuing financial institution to pay a certain amount of money at a specified future maturity date to the legal owner of the bank draft as of the maturity date. The maturity date of bank drafts varies, but it is Woodward’s policy to only accept bank drafts with maturity dates no more than 180 days from the date of Woodward’s receipt of such draft . The issuing financial institution is the obligor, not Woodward’s customers. Upon Woodward’s acceptance of a bank draft from a customer , such customer has no further obligation to pay Woodward for the related accounts receivable balance . At June 30 , 201 4 and Septem ber 30, 2013 , Woodward had bank drafts of $ 50,144 and $72,954 , respectively, recorded as non-customer acco unts receivable on its condensed consolidated balance sheets. Woodward only accepts bank drafts issued by creditworthy banks as to which the credit risk associated with the bank draft is assessed to be minimal.
On October 1, 2013 , we entered into the 2013 Note Purchase Agreement relating to the sale by Woodward of an aggregate principal amount of $250,000 of its senior unsecured notes in a series of private placement transactions. We issued the Series G, H and I Notes on October 1, 2013 in an aggregate principal amount of $100,000 and used the proceeds to repay all of the outstanding balance on our Series B Notes due October 1, 2013. We issued the Series J, K and L Notes in an additional $150,000 aggregate principal amount on November 15, 2013. The notes issued under the 2013 Note Purchase Agreement have not been registered under the Securities Act of 1933 and they may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. Holders of the notes under the 2013 Note Purchase Agreement are not entitled to any registration rights. For further discussion of the 2013 Note Purchase Agreement, see Note 1 3 , Credit facilities, short-term borrowings and l ong-term debt in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item I of this Form 10-Q.
Our revolving credit facility , which we entered into on July 10, 2013, matures in July 2018 and provides a borrowing capacity of up to $600,000 with the option to increase total available borrowings to up to $800,000, subject to lenders’ participation. We can borrow against our $600,000 revolving credit facility as long as we are in compliance with all of our debt covenants . H istorically, we have used borrowings under our revolving credit facilities to meet certain short-term working capital needs , as well as for strategic uses, including repurchases of our stock, payments of dividends, and acquisitions. In addition, we have various foreign credit facilities, some of which are tied to net amounts on deposit at certain foreign financial institutions. These foreign credit facilities are reviewed annually for renewal. We use borrowings under these foreign credit facilities to finance certain local operations on a periodic basis. For further discussion of our $600,000 revolving credit facility and our other credit facilities, see Note 13, Credit facilities, short-term borrowings and long-term debt in the Notes to the Condensed Consolidated Financial Statements in Part I, Item I of this Form 10-Q.
At June 30 , 201 4 , we had total outstanding debt of $ 665,000 w ith additional borrowing availability of $ 428,488 under our revolving credit facility , net of outstanding letters of credit, and additional borrowing availability of $ 28,152 under various foreign credit facilities.
In connection with the acquisition of the Duarte Business on December 21, 2012 , we entered into the Line of Cred it. The Line of Credit provided for unsecured loans to the Company of up to $200,000 on a revolving basis. L oans ma de under the Line of Credit bore interest at a floating rate based , a t the Company’s option, on either the prime rate or an adjusted LIBOR. The Line of Credit was repaid in full and terminated on December 20, 2013.
40
At June 30 , 201 4 , we had $165,000 of borrowings outstanding on our r evolving c redit f acility , of which all of it was classified as long-term, and no borrowings outstanding on our foreign credit facilities. Revolving credit facility and s hort-term borrowing activity during the nine-months ended June 30, 2014 was as follows:
|
|
|
|
|
|
|
|
|
Maximum daily balance during the period |
$ |
|
|
Average daily balance during the period |
$ |
|
|
Weighted average interest rate on average daily balance |
|
|
We believe we were in compliance with all our debt covenants at June 30 , 201 4 .
In addition to utilizing our cash resources to fund the working capital needs of our business, we evaluate additional strategic uses of our funds, including the repurchase of our stock, payment of dividends, significant capital expenditures, consideration of strategic acquisitions and other potential uses of cash.
We are currently developing a second campus in the greater-Rockford, Illinois area for our Aerospace segment . This campus is intended to support the growth expected over the next ten years and beyond stimulated by our being awarded a substantial number of new system platforms, particularly on narrow - body aircraft. These investments are expected to result in future productivity gains for our existing and new business. However, given the significance of the anticipated volumes associated with the new system platforms, we still expect our Rockford area workforce to increase substantially, by as much as 70%-90% from current levels , by the end of 2021. In addition, in September 2013, we invested in a building site in Niles, Illinois. We are building a new facility on this site for our Aerospace segment and will relocate some of our operations currently residing in nearby Skokie, Illinois, to this new facility. We are also developing a new campus at our corporate headquarters in Fort Collins, Colorado to support the continued growth of our Energy segment by supplementing our existing Colorado manufacturing faciliti es and corporate headquarters. We anticipate investing approximately $ 500,000 through fiscal year 2016 in land, buildings and equipment among our two Rockford area campuses , the facility in Niles, Illinois, and a new campus at our corporate headquarters in Fort Collins, Colorado.
We believe that cash flows from operations, along with our contractually committed borrowings and other borrowing capability , will continue to be sufficient to fund anticipated capital spending requirements and our operations for the foreseeable future. However, we could be adversely affected if the banks supplying our borrowing requirements refuse to honor their contractual commitments, cease lending, or declare bankruptcy. While we believe the lending institutions participating in our credit arrangements are financially stable, events in the global credit markets, including the failure, takeover or rescue by various government entities of major financial institutions, have created uncertainty with respect to credit availability.
Our ability to service our long-term debt, to remain in compliance with the various restrictions and covenants contained in our debt agreements, and to fund working capital, capital expenditures and product development efforts will depend on our ability to generate cash from operating activities, which in turn is subject to, among other things, future operating performance as well as general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control.
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-Months Ended |
||||
|
|
June 30, |
||||
|
|
2014 |
|
2013 |
||
|
Net cash provided by operating activities |
$ |
|
|
$ |
|
|
Net cash used in investing activities |
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
Cash and cash equivalents at end of period |
$ |
|
|
$ |
|
41
Net cash flows provided by operating activities for the first nine months of fiscal year 2014 was $183,890 compared to $133,017 for the same period of fiscal year 2013. The increase of $ 5 0,873 is primarily attributable to improved working capital and higher earnings in the current fiscal year .
Net cash flows used in investing activities for the first nine months of fiscal year 2014 was $104,272 compared to $277,021 for the same period of fiscal year 2013. The decrease in cash used in investing activities compared to the same period of the last fiscal year is due primarily to the acquisition of the Duarte Business in the first quarter of fiscal year 2013, which utilized $198,860 of cash. In addition, payments for property, plant and equipment increased by $26,0 15 to $104,530 in the first nine months of fiscal year 2014 as compared to $78,515 in the same period of fiscal year 2013 related mainly to the development of a second campus in the greater-Rockford, Illinois area, a new facility in Niles, Illinois, and a new campus at our headquarters in Fort Collins, Colorado.
Net cash flows used in financing activities for the first nine months of fiscal year 2014 was $32,786 compared to net cash provided by financing activities of $ 142,887 for the same period of fiscal year 2013. During the first nine months of fiscal year 2014, we had net short and long-term borrowings of $115,002 compared to net debt borrowings of $192,868 in the prior year. The higher borrowings in the first nine months of fiscal year 2013 were primarily attributable to the acquisition of the Duarte Business. We utilized $141,48 8 to repurchase 3,272 shares of our common stock in the first nine months of fiscal year 2014 and $ 45,754 to repurchase 1,233 shares of our common stock in the first nine months of fiscal year 2013. These repurchases were made under our existing stock repurchase program, which is described in greater detail under “Unregistered Sales of Equity Securities and Use of Proceeds” in Part II, Item 2 of this Form 10-Q.
Contractual Obligations
We have various contractual obligations, including obligations related to long-term debt, operating leases, purchases, retirement pension benefit plans, and other postretirement benefit plans. These contractual obligations are summarized and discussed more fully in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our most recent Form 10-K. There have been no material changes to our various contractual obligations during the first nine months of fiscal year 2014 other than our entering into the 2013 Note Purchase Agreement as discussed in Note 13, Credit facilities, short-term borrowings and long-term debt , in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
C ritical Accounting Policies
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Note 1, Operations and summary of significant accounting policies , to the Consolidated Financial Statements in our most recent Form 10-K describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Our critical accounting estimates, identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our most recent Form 10-K include the discussion of estimates used for revenue recognition, purchase accounting, inventory valuation, postretirement benefit obligations, reviews for impairment of goodwill, and our provision for income taxes . Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the Condensed Consolidated Financial Statements, and actual results could differ materially from the amounts reported.
New Accounting Standards
From time to time, the Financial Accounting Standards Board (“FASB”) or other standards-setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update. Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our Condensed Consolidated Financial Statements upon adoption.
To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note 2, Recent accounting pronouncements , in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
42
Item 3 . Quantitative an d Qualitative Disclosures about Market Risk
In the normal course of business, we have exposures to interest rate risk from our long-term and short-term debt and our postretirement benefit plans, and foreign currency exchange rate risk related to our foreign operations and foreign currency transactions. We are also exposed to various market risks that arise from transactions entered into in the normal course of business related to items such as the cost of raw materials and changes in inflation. Certain contractual relationships with customers and vendors mitigate risks from changes in raw material costs and foreign currency exchange rate changes that arise from normal purchasing and normal sales activities.
These market risks are discussed more fully in “ Quantitative and Qualitative Disclosures About Market Risk ” in Part II, Item 7 A of our most recent Form 10-K. These market risks have not materially changed since the date our most recent Form 10-K was filed with the SEC.
Item 4. Controls and Procedures
We have established disclosure controls and procedures, which are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934 (the “Act”) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Act is accumulated and communicated to management, including our Principal Executive Officer (Thomas A. Gendron, Chairman of the Board, Chief Executive Officer and President) and Principal Financial and Accounting Officer (Robert F. Weber, Jr., Vice Chairman, Chief Financial Officer and Treasurer), as appropriate, to allow timely decisions regarding required disclosures.
Thomas A. Gendron and Robert F. Weber, Jr., evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based on their evaluations, they concluded that our disclosure controls and procedures were effective as of June 30 , 201 4 .
Furthermore, there have been no changes in our internal control over financial reporting during the fiscal quarter covered by this Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Beginning with the second quarter of fiscal year 2014, management include d the internal controls of the Duarte Business in its assessment of the effectiveness of Woodward’s internal controls over financial reporting. The Duarte Business was acquired in the first quarter of fiscal year 2013, as discussed in Note 4, Business Acquisitions , in the Notes to the Condensed Consolidated Financial Statements incl uded in Part I, Item 1 of this F orm 10-Q, and was excluded from management’s annual report on internal control over financial reporting for the fiscal year ended September 3 0 , 2013 in accordance with the general guidance issued by the SEC regarding exclusion of certain acquired businesses. The Duarte Business will be included in the assessment of Woodward’s internal controls over financial reporting for the fiscal year ending September 30, 2014 .
Woodward is currently involved in claims, pending or threatened litigation, other legal proceedings, investigations and/or regulatory proceedings arising in the normal course of business, including, among others, those relating to product liability claims, employment matters, worker’s compensation claims, contractual disputes, product warranty claims and alleged violations of various laws and regulations. We accrue for known individual ma tters where we believe that it is probable the matter will result in a loss when ultimately resolved using estimates of the most likely amount of loss.
While the outcome of pending claims, legal and regulatory proceedings, and investigations cannot be predicted with certainty, management believes that any liabilities that may result from these claims, proceedings and investigations will not have a material effect on Woodward's liquidity, financial condition, or results of operations.
Investment in our securities involves risk. An investor or potential investor should consider the risks summarized under the caption “Risk Factors” in Part I, Item 1A of our most recent Form 10-K when making investment decisions regarding our securities. The risk factors that were disclosed in our most recent Form 10-K have not materially changed since the date our most recent Form 10-K was filed with the SEC.
43
Item 2. Unregistered Sales of Eq uity Securities and Use of Proceeds
Sales of Unregistered Securities
None.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer Purchases of Equity Securities
|
|
Total Number of Shares Purchased |
|
Weighted Average Price Paid Per Share |
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
|
Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased under the Plans or Programs at Period End (1) |
||
|
April 1, 2014 through April 30, 2014 (2) |
|
|
|
$ |
|
|
|
|
$ |
|
|
May 1, 2014 through May 31, 2014 (2) |
|
|
|
|
|
|
|
|
|
|
|
June 1, 2014 through June 30, 2014 (2) |
|
|
|
|
|
|
- |
|
|
|
|
|
(1) |
|
In July 2013, our Board of Directors authorized a program for the repurchase of up to $200,000 of our outstanding shares of common stock on the open market or in privately negotiated transactions over a three-year period that will expire in July 2016 . |
|
|
(2) |
|
Under a trust established for the purposes of administering the Wood ward Executive Benefit Plan, in April, May and June of 2014 , 523, 116, and 69, shares of common stock , respectively, were acquired on the open market related to the deferral of compensation by certain eligible members of Woodward’s management who irrevocably elected to invest some or all of their deferred compensation in Woodward common stock. I n addition, 314 shares of common stock were acquired on the open market related to the reinvestment of dividends for shares of treasury stock held for deferred compensation in June 201 4 . Shares owned by the trust, which is a separate legal entity, are included in "Treasury stock held for deferred compensation" in the Condensed Consolidated Balance Sheets. |
Exhibits filed as Part of this Report are listed in the Exhibit Index.
44
Pursuant to the requirements 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, INC. |
|
Date: July 21 , 201 4 |
|
|
/s/ Thomas A. Gendron |
|
|
|
|
Thomas A. Gendron |
|
|
|
|
Chairman of the Board, Chief Executive Officer, and President (Principal Executive Officer) |
|
|
|
|
|
|
Date: July 21 , 2014 |
|
|
/s/ Robert F. Weber, Jr. |
|
|
|
|
Robert F. Weber, Jr. |
|
|
|
|
Vice Chairman, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
45
WOODWARD, INC.
EXHIBIT INDEX
|
|
|
|
|
|
|
Exhibit Number |
Description |
|
|
|
|
|
|
|
* |
31.1 |
Rule 13a-14(a)/15d-14(a) certification of Thomas A. Gendron |
|
|
* |
31.2 |
Rule 13a-14(a)/15d-14(a) certification of Robert F. Weber, Jr. |
|
|
* |
32.1 |
Section 1350 certifications |
|
|
* |
101.INS |
XBRL Instance Document. |
|
|
* |
101.SCH |
XBRL Taxonomy Extension Schema Document |
|
|
* |
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
* |
101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
* |
101.LAB |
XBRL Taxonomy Extension Label Linkbase Document |
|
|
* |
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
|
Attached as Exhibit 101 to this report are the following materials from Woodward, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30 , 2014 , formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Earnings, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Stockholders’ Equity, and (vi) the Notes to the Condensed Consolidated Financial Statements. |
||
|
|
|
||
|
|
|
||
|
* |
Filed as an exhibit to this Report |
||
46
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
| FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
|---|
| DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
|---|
No information found
No Customers Found
No Suppliers Found
Price
Yield
| Owner | Position | Direct Shares | Indirect Shares |
|---|