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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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For the quarterly period ended
or
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For the transition period from _____ to _____
Commission file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
As of February 2, 2022,
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TABLE OF CONTENTS
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Page |
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PART I – FINANCIAL INFORMATION |
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Item 1. |
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1 |
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1 |
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2 |
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3 |
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4 |
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5 |
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6 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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24 |
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24 |
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25 |
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26 |
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30 |
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Item 3. |
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34 |
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Item 4. |
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34 |
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PART II – OTHER INFORMATION |
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Item 1. |
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35 |
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Item 1A. |
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35 |
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Item 2. |
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35 |
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Item 6. |
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36 |
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36 |
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PART I – FINANCIAL INFORMATION
|
Item 1. |
Financial Statements |
WOODWARD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
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Three-Months Ended |
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December 31, |
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2021 |
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2020 |
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Net sales |
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$ |
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$ |
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Costs and expenses: |
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Cost of goods sold |
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Selling, general and administrative expenses |
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Research and development costs |
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Interest expense |
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Interest income |
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( |
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Other (income) expense, net |
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Total costs and expenses |
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Earnings before income taxes |
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Income tax expense |
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Net earnings |
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$ |
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$ |
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Earnings per share: |
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Basic earnings per share |
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$ |
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$ |
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Diluted earnings per share |
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$ |
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$ |
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Weighted-Average Common Shares Outstanding: |
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Basic |
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Diluted |
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See accompanying Notes to Condensed Consolidated Financial Statements
1
WOODWARD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
(Unaudited)
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Three-Months Ended |
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December 31, |
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2021 |
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2020 |
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Net earnings |
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$ |
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$ |
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Other comprehensive earnings: |
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Foreign currency translation adjustments |
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( |
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Net gain/(loss) on foreign currency transactions designated as hedges of net investments in foreign subsidiaries |
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( |
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Taxes on changes in foreign currency translation adjustments |
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Foreign currency translation and transactions adjustments, net of tax |
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( |
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Unrealized gain/(loss) on fair value adjustment of derivative instruments |
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( |
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Reclassification of net realized (gain)/loss on derivatives to earnings |
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Taxes on changes in derivative transactions |
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Derivative adjustments, net of tax |
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Amortization of pension and other postretirement plan: |
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Net prior service cost |
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Net loss |
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Foreign currency exchange rate changes on pension and other postretirement benefit plan liabilities |
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( |
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Taxes on changes in pension and other postretirement benefit plan liability adjustments, net of foreign currency exchange rate changes |
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Pension and other postretirement benefit plan adjustments, net of tax |
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( |
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Total comprehensive earnings |
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$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements
2
WOODWARD, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
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December 31, |
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September 30, |
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2021 |
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2021 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents, including restricted cash of $ |
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$ |
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$ |
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Accounts receivable, less allowance for uncollectible amounts of $ |
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Inventories |
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Income taxes receivable |
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Other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Goodwill |
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Intangible assets, net |
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Deferred income tax assets |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Current portion of long-term debt |
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$ |
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$ |
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Accounts payable |
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Income taxes payable |
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Accrued liabilities |
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Total current liabilities |
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Long-term debt, less current portion |
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Deferred income tax liabilities |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies (Note 21) |
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Stockholders' equity: |
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Preferred stock, par value $ |
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Common stock, par value $ |
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Additional paid-in capital |
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Accumulated other comprehensive losses |
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( |
) |
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( |
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Deferred compensation |
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Retained earnings |
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Treasury stock at cost, |
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( |
) |
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( |
) |
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Treasury stock held for deferred compensation, at cost, |
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( |
) |
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( |
) |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
|
$ |
|
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$ |
|
|
See accompanying Notes to Condensed Consolidated Financial Statements
3
WOODWARD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
Three-Months Ended December 31, |
|
|||||
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|
2021 |
|
|
2020 |
|
||
|
Cash flows from operating activities: |
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Net earnings |
|
$ |
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$ |
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|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
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Depreciation and amortization |
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Net gain on sales of assets and businesses |
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( |
) |
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( |
) |
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Stock-based compensation |
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Deferred income taxes |
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— |
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Changes in operating assets and liabilities: |
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Trade accounts receivable |
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Unbilled receivables (contract assets) |
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( |
) |
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( |
) |
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Costs to fulfill a contract |
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( |
) |
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( |
) |
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Inventories |
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( |
) |
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( |
) |
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Accounts payable and accrued liabilities |
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( |
) |
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Contract liabilities |
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Income taxes |
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Retirement benefit obligations |
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( |
) |
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( |
) |
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Other |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Payments for purchase of property, plant, and equipment |
|
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( |
) |
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( |
) |
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Proceeds from sale of assets |
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Payments for purchases of short-term investments |
|
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— |
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( |
) |
|
Proceeds from sales of short-term investments |
|
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— |
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Net cash used in investing activities |
|
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( |
) |
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( |
) |
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Cash flows from financing activities: |
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Cash dividends paid |
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( |
) |
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( |
) |
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Proceeds from sales of treasury stock |
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Purchase of treasury stock |
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( |
) |
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— |
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Borrowings on revolving lines of credit and short-term borrowings |
|
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— |
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Payments on revolving lines of credit and short-term borrowings |
|
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— |
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( |
) |
|
Payments of long-term debt and finance lease obligations |
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( |
) |
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( |
) |
|
Net cash used in financing activities |
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( |
) |
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( |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
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( |
) |
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Net change in cash and cash equivalents |
|
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( |
) |
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Cash and cash equivalents, including restricted cash, at beginning of year |
|
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Cash and cash equivalents, including restricted cash, at end of period |
|
$ |
|
|
|
$ |
|
|
See accompanying Notes to Condensed Consolidated Financial Statements
4
WOODWARD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
|
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Number of shares |
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Stockholders' equity |
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Accumulated other comprehensive (loss) earnings |
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Common stock |
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Treasury stock |
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Treasury stock held for deferred compensation |
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Common stock |
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Additional paid-in capital |
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Foreign currency translation adjustments |
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Unrealized derivative gains (losses) |
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Minimum retirement benefit liability adjustments |
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Total accumulated other comprehensive (loss) earnings |
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Deferred compensation |
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Retained earnings |
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Treasury stock at cost |
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Treasury stock held for deferred compensation |
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Total stockholders' equity |
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||||||||||||||
|
Balances as of September 30, 2020 |
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( |
) |
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( |
) |
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$ |
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$ |
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|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net earnings |
|
|
— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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|
Other comprehensive earnings (loss), net of tax |
|
|
— |
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|
— |
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|
|
— |
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|
|
— |
|
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|
— |
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|
|
|
|
|
|
( |
) |
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|
( |
) |
|
|
|
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— |
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— |
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— |
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— |
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|
Cash dividends paid ($ |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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|
( |
) |
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— |
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|
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— |
|
|
|
( |
) |
|
Sales of treasury stock |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
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|
|
— |
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|
|
|
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|
|
— |
|
|
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
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|
|
|
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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|
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|
Purchases/transfers of stock by/to deferred compensation plan |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
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|
— |
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|
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— |
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— |
|
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|
( |
) |
|
|
— |
|
|
Distribution of stock from deferred compensation plan |
|
|
— |
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— |
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— |
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— |
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— |
|
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— |
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— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Balances as of December 31, 2020 |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of September 30, 2021 |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net earnings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other comprehensive earnings (loss), net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Cash dividends paid ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Sales of treasury stock |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Purchase of treasury stock |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Purchases/transfers of stock by/to deferred compensation plan |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Distribution of stock from deferred compensation plan |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Balances as of December 31, 2021 |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
See accompanying Notes to Condensed Consolidated Financial Statements
5
WOODWARD, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In 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 December 31, 2021 and for the three-months ended December 31, 2021 and 2020, included herein, have not been audited by an independent registered public accounting firm. These unaudited 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 December 31, 2021, and the statements of earnings, comprehensive earnings, cash flows, and changes in stockholders’ equity for the periods presented herein. The results of operations for the three-months ended December 31, 2021 and 2020 are not necessarily indicative of the operating results to be expected for other interim periods or for the full fiscal year. Dollar and share amounts contained in these unaudited Condensed Consolidated Financial Statements are in thousands, except per share amounts, unless otherwise noted.
The unaudited 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. Accordingly, 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 amounts 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 unaudited Condensed Consolidated Financial Statements included herein. Significant estimates in these unaudited Condensed Consolidated Financial Statements include allowances for credit losses; net realizable value of inventories; variable consideration including customer rebates earned and payable and early payment discounts; warranty reserves; useful lives of property and identifiable intangible assets; the evaluation of impairments of property, intangible assets, and goodwill; the provision for income tax and related valuation reserves; the valuation of derivative instruments; 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, board members and any other eligible recipients; estimates of incremental borrowing rates used when estimating the present value of future lease payments; assumptions used when including renewal options or non-exercise of termination options in lease terms; estimates of total lifetime sales used in the recognition of revenue of deferred material rights and balance sheet classification of the related contract liability; estimates of total sales contract costs when recognizing revenue under the cost-to-cost method; and contingencies. Actual results could vary from Woodward’s estimates.
COVID-19 Pandemic
When combined with the various measures enacted by governments and private organizations to contain COVID-19 or slow its spread, the pandemic has adversely impacted global economic activity and contributed to volatility in financial markets; and the Company has likewise been significantly impacted by the global COVID-19 pandemic. The COVID-19 pandemic could continue to have a material adverse impact on economic and market conditions and presents uncertainty and risk with respect to the Company’s performance and financial results, including estimates and assumptions used by management for the reported amount of assets and liabilities.
Note 2. 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 (“ASC”) are communicated through issuance of an Accounting Standards Update (“ASU”).
In the time since the Company filed its most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2021, no new accounting standards have been issued, or are pending issuance, that are expected to have a material impact on the Condensed Consolidated Financial Statements upon adoption.
6
Note 3. Revenue
The amount of revenue recognized as point in time or over time follows:
|
|
|
Three-Months Ended December 31, 2021 |
|
|
Three-Months Ended December 31, 2020 |
|
||||||||||||||||||
|
|
|
Aerospace |
|
|
Industrial |
|
|
Consolidated |
|
|
Aerospace |
|
|
Industrial |
|
|
Consolidated |
|
||||||
|
Point in time |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Over time |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Accounts Receivable
Accounts receivable consisted of the following:
|
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
|
Billed receivables |
|
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
$ |
|
|
|
$ |
|
|
|
Other (Chinese financial institutions) |
|
|
|
|
|
|
|
|
|
Total billed receivables |
|
|
|
|
|
|
|
|
|
Current unbilled receivables (contract assets) |
|
|
|
|
|
|
|
|
|
Total accounts receivable |
|
|
|
|
|
|
|
|
|
Less: Allowance for uncollectible amounts |
|
|
( |
) |
|
|
( |
) |
|
Total accounts receivable, net |
|
$ |
|
|
|
$ |
|
|
As of December 31, 2021, “Other assets” on the Condensed Consolidated Balance Sheets includes $
Accounts receivable in Woodward’s Condensed Consolidated Financial Statements represent the net amount expected to be collected, and an allowance for uncollectible amounts related to credit losses is established based on expected losses. Expected losses are estimated by reviewing specific customer accounts, taking into consideration accounts receivable aging, credit risk of the customers, and historical payment history, as well as current and forecasted economic conditions and other relevant factors.
The allowance for uncollectible amounts and change in expected credit losses for trade accounts receivable and unbilled receivables (contract assets) consisted of the following:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Balance, beginning |
|
$ |
|
|
|
$ |
|
|
|
Charged to costs and expenses, or sales allowance |
|
|
|
|
|
|
|
|
|
Deductions |
|
|
( |
) |
|
|
( |
) |
|
Other additions1 |
|
|
|
|
|
|
|
|
|
Balance, ending |
|
$ |
|
|
|
$ |
|
|
|
|
(1) |
Includes effects of foreign exchange rate changes during the period. |
Contract liabilities
Contract liabilities consisted of the following:
|
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||||||||||
|
|
|
Current |
|
|
Noncurrent |
|
|
Current |
|
|
Noncurrent |
|
||||
|
Deferred revenue from material rights from GE joint venture formation |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Deferred revenue from advanced invoicing and/or prepayments from customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability related to customer supplied inventory |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Deferred revenue from material rights related to engineering and development funding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net contract liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
7
Woodward recognized revenue of $
Remaining performance obligations
Remaining performance obligations related to the aggregate amount of the total contract transaction price of firm orders for which the performance obligation has not yet been recognized in revenue as of December 31, 2021 was $
Remaining performance obligations related to material rights that have not yet been recognized in revenue as of December 31, 2021 was $
Disaggregation of Revenue
Woodward designs, produces and services reliable, efficient, low-emission, and high-performance energy control products for diverse applications in markets throughout the world. Woodward reports financial results for each of its Aerospace and Industrial reportable segments. Woodward further disaggregates its revenue from contracts with customers by primary market as Woodward believes this best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.
Revenue by primary market for the Aerospace reportable segment was as follows:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Commercial OEM |
|
$ |
|
|
|
$ |
|
|
|
Commercial aftermarket |
|
|
|
|
|
|
|
|
|
Defense OEM |
|
|
|
|
|
|
|
|
|
Defense aftermarket |
|
|
|
|
|
|
|
|
|
Total Aerospace segment net sales |
|
$ |
|
|
|
$ |
|
|
Revenue by primary market for the Industrial reportable segment was as follows:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Reciprocating engines |
|
$ |
|
|
|
$ |
|
|
|
Industrial turbines |
|
|
|
|
|
|
|
|
|
Total Industrial segment net sales |
|
$ |
|
|
|
$ |
|
|
The customers who each account for approximately 10% or more of net sales of each of Woodward’s reportable segments are as follows:
|
|
|
Three-Months Ended December 31, 2021 |
|
Three-Months Ended December 31, 2020 |
|
Aerospace |
|
The Boeing Company, General Electric Company, Raytheon Technologies |
|
The Boeing Company, General Electric Company, Raytheon Technologies |
|
Industrial |
|
Rolls-Royce PLC, Wartsila |
|
Rolls-Royce PLC, Weichai Westport, General Electric Company |
Note 4. 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 and restricted stock.
8
The following is a reconciliation of net earnings to basic earnings per share and diluted earnings per share:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
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 outstanding but were excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive.
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
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 December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Weighted-average treasury stock shares held for deferred compensation obligations |
|
|
|
|
|
|
|
|
Note 5. Leases
Lessee arrangements
Woodward has entered into operating leases for certain facilities and equipment with terms in excess of one year under agreements that expire at various dates. Some leases require the payment of property taxes, insurance, maintenance costs, or other similar costs in addition to rental payments. Woodward has also entered into finance leases for equipment with terms in excess of one year under agreements that expire at various dates.
Lease-related assets and liabilities follows:
|
|
|
Classification on the Condensed Consolidated Balance Sheets |
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Operating lease assets |
|
Other assets |
|
$ |
|
|
|
$ |
|
|
|
Finance lease assets |
|
Property, plant and equipment, net |
|
|
|
|
|
|
|
|
|
Total lease assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities |
|
Accrued liabilities |
|
|
|
|
|
|
|
|
|
Finance lease liabilities |
|
Current portion of long-term debt |
|
|
|
|
|
|
|
|
|
Noncurrent liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities |
|
Other liabilities |
|
|
|
|
|
|
|
|
|
Finance lease liabilities |
|
Long-term debt, less current portion |
|
|
|
|
|
|
|
|
|
Total lease liabilities |
|
|
|
$ |
|
|
|
$ |
|
|
9
Lease-related expenses were as follows:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Operating lease expense |
|
$ |
|
|
|
$ |
|
|
|
Amortization of finance lease assets |
|
|
|
|
|
|
|
|
|
Interest on finance lease liabilities |
|
|
|
|
|
|
|
|
|
Variable lease expense |
|
|
|
|
|
|
|
|
|
Short-term lease expense |
|
|
|
|
|
|
|
|
|
Sublease income1 |
|
|
( |
) |
|
|
( |
) |
|
Total lease expense |
|
$ |
|
|
|
$ |
|
|
|
|
(1) |
|
Lease-related supplemental cash flow information was as follows:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
Operating cash flows for operating leases |
|
$ |
|
|
|
$ |
|
|
|
Operating cash flows for finance leases |
|
|
|
|
|
|
|
|
|
Financing cash flows for finance leases |
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for recorded lease obligations: |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
|
|
|
|
|
|
Finance leases |
|
|
— |
|
|
|
|
|
Lessor arrangements
Woodward has assessed its manufacturing contracts and concluded that certain of the contracts for the manufacture of customer products met the criteria to be considered a leasing arrangement (“embedded leases”) with Woodward as the lessor. The specific manufacturing contracts that met the criteria were those that utilized Woodward property, plant and equipment and which is substantially (more than 90%) dedicated to the manufacturing of the product(s) for a single customer. Woodward has dedicated manufacturing lines with four of its customers representing embedded leases, all of which qualified as operating leases with undefined quantities of future customer purchase commitments. Although Woodward expects to allocate some portion of future net sales to these customers to embedded lessor arrangements, it cannot provide expected future undiscounted lease payments from property, plant and equipment leased to customers as of December 31, 2021. If, in the future, customers reduce purchases of related products from Woodward, the Company believes it will derive additional value from the underlying equipment by repurposing its use to support other customer arrangements.
Revenue from contracts with customers that included embedded operating leases, which is included in “Net sales” in the Condensed Consolidated Statements of Earnings, was $
The carrying amount of property, plant and equipment leased to others through embedded leasing arrangements, included in “Property, plant and equipment, net” on the Condensed Consolidated Balance Sheets, follows:
|
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
|
Property, plant and equipment leased to others through embedded leasing arrangements |
|
$ |
|
|
|
$ |
|
|
|
Less accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
Property, plant and equipment leased to others through embedded leasing arrangements, net |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Note 6. Joint venture
In fiscal year 2016, Woodward and General Electric Company (“GE”), acting through its GE Aviation business unit, consummated the formation of a strategic joint venture between Woodward and GE (the “JV”) to develop, manufacture and support fuel systems for specified existing and all future GE commercial aircraft engines that produce thrust in excess of fifty thousand pounds.
10
Unamortized deferred revenue from material rights in connection with the JV formation included:
|
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
|
Accrued liabilities |
|
$ |
|
|
|
$ |
|
|
|
Other liabilities |
|
|
|
|
|
|
|
|
Amortization of the deferred revenue (material right) recognized as an increase to sales was $
Other income related to Woodward’s equity interest in the earnings of the JV was as follows:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Other income |
|
$ |
|
|
|
$ |
|
|
Cash distributions to Woodward from the JV, recognized in “Other, net” in “Net cash provided by operating activities” on the Condensed Consolidated Statements of Cash Flows, were as follows:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Cash distributions |
|
$ |
|
|
|
$ |
|
|
Net sales to the JV were as follows:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Net sales1 |
|
$ |
|
|
|
$ |
|
|
|
|
(1) |
Net sales included a reduction of $ |
The Condensed Consolidated Balance Sheets include “Accounts receivable” related to amounts the JV owed Woodward, “Accounts payable” related to amounts Woodward owed the JV, and “Other assets” related to Woodward’s net investment in the JV, as follows:
|
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
|
Accounts receivable |
|
$ |
|
|
|
$ |
|
|
|
Accounts payable |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
Note 7. Financial instruments and fair value measurements
The table below presents information about Woodward’s financial assets and liabilities 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 as defined by the U.S. GAAP fair value hierarchy.
|
|
|
At December 31, 2021 |
|
|
At September 30, 2021 |
|
||||||||||||||||||||||||||
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||||||
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in term deposits with foreign banks |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
Equity securities |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Total financial assets |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency interest rate swaps |
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Total financial liabilities |
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
11
Investments in term deposits with foreign banks: Woodward’s foreign subsidiaries sometimes invest excess cash in various highly liquid financial instruments that Woodward believes are with creditworthy financial institutions. Such investments are reported in “Cash and cash equivalents” at fair value, with realized gains from interest income recognized in earnings. The carrying value of Woodward’s investments in term deposits with foreign banks are considered equal to the fair value given the highly liquid nature of the investments.
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” on the Condensed Consolidated Statements of Earnings. The trading securities are included in “Other assets” in the Condensed Consolidated Balance Sheets. 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.
Cross-currency interest rate swaps: Woodward holds cross-currency interest rate swaps, which are accounted for at fair value. In the Condensed Consolidated Balance Sheets, the swaps in an asset position are included in “Other assets,” and swaps in a liability position are included in “Other liabilities”. The fair values of Woodward’s cross-currency interest rate swaps are determined using a market approach that is based on observable inputs other than quoted market prices, including contract terms, interest rates, currency rates, and other market factors.
Cash, trade accounts receivable, accounts payable, and short-term borrowings are not remeasured to fair value, as the carrying cost of each approximates its respective fair value.
|
|
|
|
|
At December 31, 2021 |
|
|
At September 30, 2021 |
|
||||||||||
|
|
|
Fair Value Hierarchy Level |
|
Estimated Fair Value |
|
|
Carrying Cost |
|
|
Estimated Fair Value |
|
|
Carrying Cost |
|
||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable from municipalities |
|
2 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Note receivable from sale of the renewable power systems business and other related businesses |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in short-term time deposits |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
2 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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 and Woodward’s development of a new campus at its corporate headquarters in Fort Collins, Colorado, Woodward received long-term notes from municipalities within the states of Illinois and Colorado. 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 Woodward at the end of the period for similarly rated municipal notes of similar maturity, which is a level 2 input as defined by the U.S. GAAP fair value hierarchy. The interest rates used to estimate the fair value of the long-term notes were
In connection with the sale of the renewable power systems business and other related businesses, Woodward received a promissory note from the buyer for deferral of a portion of the purchase price, which is due by April 30, 2022. The fair value of the note was estimated based on a model that discounted future principal and interest payments received at an interest rate available to Woodward at the end of the period for similarly rated promissory notes of similar maturity, which is a level 2 input as defined by the U.S. GAAP fair value hierarchy. The interest rate used to estimate the fair value of the note was
From time to time, certain of Woodward’s foreign subsidiaries will invest excess cash in short-term time deposits with a fixed maturity date of longer than three months but less than one year from the date of the deposit. Woodward believes that the investments are with creditworthy financial institutions. The fair value of the investments in short-term time deposits was estimated based on a model that discounted future principal and interest payments to be received at an interest rate available to the foreign subsidiary entering into the investment for similar short-term time deposits of similar maturity. This was determined to be a level 2 input as defined by the U.S. GAAP fair value hierarchy. The interest rates used to estimate the fair value of the short-term time deposits was
12
The fair value of long-term debt was estimated based on the prices of comparable debt available to Woodward at the end of the period of similar type and maturity, which is a level 2 input as defined by the U.S. GAAP fair value hierarchy. The weighted-average interest rate used to estimate the fair value of long-term debt was
Woodward does not have expected credit losses related to any financial assets that are not required to be remeasured at fair value.
Note 8. Derivative instruments and hedging activities
Derivative instruments not designated or qualifying as hedging instruments
In May 2020, Woodward entered into a floating-rate cross-currency interest rate swap (the “2020 Floating-Rate Cross-Currency Swap”), with a notional value of $
The net interest income of the cross-currency interest rate swaps is recorded as a reduction to “Interest expense” in Woodward’s Condensed Consolidated Statements of Earnings. As of December 31, 2021, the total notional value of the 2020 Floating-Rate Cross-Currency Swap and the 2020 Fixed-Rate Cross-Currency Swaps was $
Derivatives instruments in fair value hedging relationships
In May 2020, Woodward entered into a US dollar denominated intercompany loan payable with identical terms and notional value as the 2020 Floating-Rate Cross-Currency Swap, together with a reciprocal intercompany floating-rate cross-currency interest rate swap. The agreements were entered into by Woodward Barbados Euro Financing SRL (“Euro Barbados”), a wholly owned subsidiary of Woodward. The US dollar denominated intercompany loan and reciprocal intercompany floating-rate cross-currency interest rate swap are designated as a fair value hedge under the criteria prescribed in ASC 815. The objective of the derivative instrument is to hedge against the foreign currency exchange risk attributable to the spot remeasurement of the US dollar denominated intercompany loan, as Euro Barbados maintains a Euro functional currency.
For each floating-rate intercompany cross-currency interest rate swap, only the change in the fair value related to the cross-currency basis spread, or excluded component, of the derivative instrument is recognized in accumulated other comprehensive income (“OCI”). The remaining change in the fair value of the derivative instrument is recognized in foreign currency transaction gain or loss included in “Selling, general and administrative costs” in Woodward’s Condensed Consolidated Statements of Earnings. The change in the fair value of the derivative instrument in foreign currency transaction gain or loss offsets the change in the spot remeasurement of the intercompany Euro and US dollar denominated loans. Hedge effectiveness is assessed based on the fair value changes of the derivative instrument, after excluding any fair value changes related to the cross-currency basis spread. The initial cost of the cross-currency basis spread is recorded in earnings each period through the swap accrual process. There are no credit-risk-related contingent features associated with the intercompany floating-rate cross-currency interest rate swap.
Derivative instruments in cash flow hedging relationships
In May 2020, Woodward entered into
13
For each of the fixed-rate intercompany cross-currency interest rate swaps, changes in the fair values of the derivative instruments are recognized in accumulated OCI and reclassified to foreign currency transaction gain or loss included in “Selling, general and administrative costs” in Woodward’s Condensed Consolidated Statements of Earnings. Reclassifications out of accumulated OCI of the change in fair value occur each reporting period based upon changes in the spot rate remeasurement of the Euro and US dollar denominated intercompany loans, including associated interest. Hedge effectiveness is assessed based on the fair value changes of the derivative instruments and such hedges are deemed to be highly effective in offsetting exposure to variability in foreign exchange rates. There are no credit-risk-related contingent features associated with these fixed-rate cross-currency interest rate swaps.
Derivatives instruments in net investment hedging relationships
On
Impact of derivative instruments designated as qualifying hedging instruments
The following table discloses the amount of (income) expense recognized in earnings on derivative instruments designated as qualifying hedging instruments:
|
|
|
|
|
Three-months ended December 31, |
|
|||||
|
Derivatives in: |
|
Location |
|
2021 |
|
|
2020 |
|
||
|
Cross-currency interest rate swap agreement designated as fair value hedges |
|
Selling, general and administrative expenses |
|
$ |
( |
) |
|
$ |
|
|
|
Cross-currency interest rate swap agreements designated as cash flow hedges |
|
Selling, general and administrative expenses |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
The following table discloses the amount of (gain) loss recognized in accumulated OCI on derivative instruments designated as qualifying hedging instruments:
|
|
|
|
|
Three-months ended December 31, |
|
|||||
|
Derivatives in: |
|
Location |
|
2021 |
|
|
2020 |
|
||
|
Cross-currency interest rate swap agreement designated as fair value hedges |
|
Selling, general and administrative expenses |
|
$ |
( |
) |
|
$ |
|
|
|
Cross-currency interest rate swap agreements designated as cash flow hedges |
|
Selling, general and administrative expenses |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
The following table discloses the amount of (gain) loss reclassified from accumulated OCI into earnings on derivative instruments designated as qualifying hedging instruments:
|
|
|
|
|
Three-months ended December 31, |
|
|||||
|
Derivatives in: |
|
Location |
|
2021 |
|
|
2020 |
|
||
|
Cross-currency interest rate swap agreement designated as fair value hedges |
|
Selling, general and administrative expenses |
|
$ |
( |
) |
|
$ |
|
|
|
Cross-currency interest rate swap agreements designated as cash flow hedges |
|
Selling, general and administrative expenses |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
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 losses of $
14
Note 9. Supplemental statement of cash flows information
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Interest paid, net of amounts capitalized |
|
$ |
|
|
|
$ |
|
|
|
Income taxes paid |
|
|
|
|
|
|
|
|
|
Income tax refunds received |
|
|
|
|
|
|
— |
|
|
Non-cash activities: |
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment on account |
|
|
|
|
|
|
|
|
Note 10. Inventories
|
|
|
December 31, |
|
|
September 30, |
|
||
|
|
|
2021 |
|
|
2021 |
|
||
|
Raw materials |
|
$ |
|
|
|
$ |
|
|
|
Work in progress |
|
|
|
|
|
|
|
|
|
Component parts(1) |
|
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
|
Customer supplied inventory |
|
|
|
|
|
|
|
|
|
On-hand inventory for which control has transferred to the customer |
|
|
( |
) |
|
|
( |
) |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
(1) |
Component parts include items that can be sold separately as finished goods or included in the manufacture of other products. |
Note 11. Property, plant, and equipment
|
|
|
December 31, |
|
|
September 30, |
|
||
|
|
|
2021 |
|
|
2021 |
|
||
|
Land and land improvements |
|
$ |
|
|
|
$ |
|
|
|
Buildings and building 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 |
|
$ |
|
|
|
$ |
|
|
For the three-months ended December 31, 2021 and 2020, Woodward had depreciation expense as follows:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Depreciation expense |
|
$ |
|
|
|
$ |
|
|
Note 12. Goodwill
|
|
|
September 30, 2021 |
|
|
Effects of Foreign Currency Translation |
|
|
December 31, 2021 |
|
|||
|
Aerospace |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Industrial |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Consolidated |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Woodward tests goodwill for impairment during the fourth quarter of each fiscal year, and at any time there is an indication that goodwill is more-likely-than-not impaired, such indications commonly referred to as triggering events. Woodward’s goodwill impairment test in the fourth quarter of fiscal year 2021 resulted in no impairment.
15
Note 13. Intangible assets, net
|
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||||||||||||||||||
|
|
|
Gross Carrying Value |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
|
Gross Carrying Value |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
||||||
|
Intangible assets with finite lives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships and contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Industrial |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Intellectual property: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Industrial |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
— |
|
|
Process technology: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Industrial |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Intangible asset with indefinite life: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Industrial |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Total intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Industrial |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Consolidated Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Woodward tests the indefinite lived tradename intangible asset for impairment during the fourth quarter of each fiscal year, or at any time there is an indication the indefinite lived tradename intangible asset is more-likely-than-not impaired, such indications commonly referred to as triggering events. Woodward’s impairment test for the indefinite lived tradename intangible asset in the fourth quarter of fiscal year 2021 resulted in
For the three-months ended December 31, 2021 and 2020, Woodward recorded amortization expense associated with intangibles of the following:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Amortization expense |
|
$ |
|
|
|
$ |
|
|
Future amortization expense associated with intangibles is expected to be:
|
Year Ending September 30: |
|
|
|
|
|
2022 (remaining) |
|
$ |
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
$ |
|
|
16
Note 14. Credit facilities, short-term borrowings and long-term debt
Revolving credit facility
Woodward maintains a $
Short-term borrowings
Woodward 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
Note 15. Accrued liabilities
|
|
|
December 31, |
|
|
September 30, |
|
||
|
|
|
2021 |
|
|
2021 |
|
||
|
Salaries and other member benefits |
|
$ |
|
|
|
$ |
|
|
|
Warranties |
|
|
|
|
|
|
|
|
|
Interest payable |
|
|
|
|
|
|
|
|
|
Accrued retirement benefits |
|
|
|
|
|
|
|
|
|
Net current contract liabilities |
|
|
|
|
|
|
|
|
|
Current portion of restructuring charges |
|
|
|
|
|
|
|
|
|
Taxes, other than income |
|
|
|
|
|
|
|
|
|
Purchase of treasury stock in transit |
|
|
— |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
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 as revenue is recognized on a non-specific basis whenever past experience indicates a normal and predictable pattern exists.
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Warranties, beginning of period |
|
$ |
|
|
|
$ |
|
|
|
Expense, net of (recoveries) |
|
|
( |
) |
|
|
|
|
|
(Reductions) additions for settlement of previous warranty liabilities |
|
|
( |
) |
|
|
|
|
|
Foreign currency exchange rate changes |
|
|
( |
) |
|
|
|
|
|
Warranties, end of period |
|
$ |
|
|
|
$ |
|
|
17
Restructuring charges
In fiscal year 2021, the Company recognized restructuring charges relating to workforce management costs to align the Company’s hydraulics and engine systems businesses with current market conditions. During such fiscal year, restructuring charges of $
In fiscal year 2020, the Company committed to a plan of termination (the “Termination Plan”) as well as other cost savings actions, in response to the ongoing global economic challenges resulting from the COVID-19 pandemic and its impact on the Company’s business. The Termination Plan involved the termination and/or furlough of employees and contractors at certain of the Company’s operating facilities, primarily in the United States. As a result of the Termination Plan and other related actions, the Company incurred $
The summary of activity in accrued restructuring charges during the three-months ended December 31, 2021 and 2020 are as follows:
|
|
|
|
|
|
|
Period Activity |
|
|
|
|
|
|||||||||||||
|
|
|
Balances as of September 30, 2021 |
|
|
Charges |
|
|
Payments |
|
|
Foreign currency exchange rate changes |
|
|
Non-cash activity |
|
|
Balances as of December 31, 2021 |
|
||||||
|
Workforce management costs associated with: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hydraulics Systems Realignment |
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
Engine Systems Realignment |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
Other liabilities included $
|
|
|
|
|
|
|
Period Activity |
|
|
|
|
|
|||||||||||||
|
|
|
Balances as of September 30, 2020 |
|
|
Charges |
|
|
Payments |
|
|
Foreign currency exchange rate changes |
|
|
Non-cash activity |
|
|
Balances as of December 31, 2020 |
|
||||||
|
Workforce management costs associated with: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COVID-19 pandemic |
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Total |
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Note 16. Other liabilities
|
|
|
December 31, |
|
|
September 30, |
|
||
|
|
|
2021 |
|
|
2021 |
|
||
|
Net accrued retirement benefits, less amounts recognized within accrued liabilities |
|
$ |
|
|
|
$ |
|
|
|
Total unrecognized tax benefits |
|
|
|
|
|
|
|
|
|
Noncurrent income taxes payable |
|
|
|
|
|
|
|
|
|
Deferred economic incentives (1) |
|
|
|
|
|
|
|
|
|
Cross-currency swap derivative liability |
|
|
|
|
|
|
|
|
|
Noncurrent operating lease liabilities |
|
|
|
|
|
|
|
|
|
Net noncurrent contract liabilities |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
(1) |
|
18
Note 17. Other (income) expense, net
|
|
|
Three-Months Ended |
|
|||||
|
|
|
December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Equity interest in the earnings of the JV |
|
$ |
( |
) |
|
$ |
( |
) |
|
Net gain on sales of assets and businesses |
|
|
( |
) |
|
|
( |
) |
|
Rent income |
|
|
( |
) |
|
|
( |
) |
|
Net gain on investments in deferred compensation program |
|
|
( |
) |
|
|
( |
) |
|
Other components of net periodic pension and other postretirement benefit, excluding service cost and interest expense |
|
|
( |
) |
|
|
( |
) |
|
Other |
|
|
( |
) |
|
|
( |
) |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
Note 18. Income taxes
The determination of the estimated annual effective tax rate is based upon a number of significant estimates and judgments. 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, issuance of future guidance, interpretation, and rule-making, and 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 earnings before income taxes:
|
|
|
Three-Months Ended |
|
|||||
|
|
|
December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Earnings before income taxes |
|
$ |
|
|
|
$ |
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
|
% |
|
|
|
% |
The increase in the effective tax rate for the three-months ended December 31, 2021 compared to the three-months ended December 31, 2020 is primarily attributable to a reduction in the income tax benefit from stock-based compensation exercises and the net impact of increased projected full-year earnings.
Gross unrecognized tax benefits were $
Woodward’s tax returns are subject to audits by U.S. federal, 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 limitation may result in changes to tax expense. Woodward’s fiscal years remaining open to examination for U.S. Federal income taxes include fiscal years
Note 19. Retirement benefits
Woodward provides various retirement 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.
19
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 matching contributions to eligible employee accounts, which are also deferred for employee personal income tax purposes. Certain non-U.S. employees are also eligible to participate in similar non-U.S. plans.
The amount of expense associated with defined contribution plans was as follows:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
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 Germany. 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 dependents and beneficiaries in the United States. 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, 2021, 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 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 December 31, |
|
|||||||||||||||||||||
|
|
|
United States |
|
|
Other Countries |
|
|
Total |
|
|||||||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||||
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic retirement pension (benefit) cost |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Contributions paid |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The components of net periodic retirement pension costs other than the service cost and interest cost components are included in the line item “Other (income) expense, net”, and the interest component is included in the line item “Interest expense” in the Condensed Consolidated Statements of Earnings.
The components of the net periodic other postretirement benefit costs recognized are as follows:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Service cost |
|
$ |
— |
|
|
$ |
— |
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
Amortization of: |
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss |
|
|
( |
) |
|
|
|
|
|
Prior service cost |
|
|
— |
|
|
|
— |
|
|
Net periodic other postretirement cost |
|
$ |
|
|
|
$ |
|
|
|
Contributions paid |
|
$ |
|
|
|
$ |
|
|
20
The components of net periodic other postretirement benefit costs other than the service cost and interest cost components are included in the line item “Other (income) expense, net”, and the interest cost component is included in the line item “Interest expense” in the Condensed Consolidated Statements of Earnings.
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, the actual funding in fiscal year 2022 may differ from the current estimate.
|
Retirement pension benefits: |
|
|
|
|
|
United States |
|
$ |
— |
|
|
United Kingdom |
|
|
|
|
|
Japan |
|
|
— |
|
|
Germany |
|
|
|
|
|
Other postretirement benefits |
|
|
|
|
Note 20. Stockholders’ equity
Stock repurchase program
In November 2019, the Woodward board of directors (the “Board”) authorized a program for the repurchase of up to $
In January 2022, the Board terminated the 2019 Authorization and concurrently authorized a new program for the repurchase of up to $
Stock-based compensation
Provisions governing outstanding stock option awards are included in the 2017 Omnibus Incentive Plan, as amended from time to time (the “2017 Plan”) and the 2006 Omnibus Incentive Plan (the “2006 Plan”), as applicable.
The 2017 Plan was first approved by Woodward’s stockholders in January 2017 and is the successor plan to the 2006 Plan. As of September 14, 2016, the effective date of the 2017 Plan, the Board delegated authority to administer the 2017 Plan to the Compensation Committee of the Board (the “Committee”), including, but not limited to, the power to determine the recipients of awards and the terms of those awards. On January 27, 2021 and January 26, 2022, Woodward’s stockholders approved an additional
Stock options
Woodward believes that stock options align the interests of its employees and directors with the interests of its stockholders. Stock option awards are granted with an exercise price equal to the market price of Woodward’s stock at the date the grants are awarded, a term, and generally have a vesting schedule at a rate of
The fair value of options granted is estimated as of the grant date using the Black-Scholes-Merton option-valuation model using the assumptions in the following table. Woodward calculates the expected term, which represents the average 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 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.
21
The following is a summary of the activity for stock option awards:
|
|
|
Three-Months Ended |
|
|||||
|
|
|
December 31, 2021 |
|
|||||
|
|
|
Number of options |
|
|
Weighted-Average Exercise Price per Share |
|
||
|
Options, beginning balance |
|
|
|
|
|
$ |
|
|
|
Options granted |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
( |
) |
|
|
|
|
|
Options forfeited |
|
|
( |
) |
|
|
|
|
|
Options, ending balance |
|
|
|
|
|
|
|
|
Changes in non-vested stock options were as follows:
|
|
|
Three-Months Ended |
|
|||||
|
|
|
December 31, 2021 |
|
|||||
|
|
|
Number of options |
|
|
Weighted-Average Grant Date Fair Value per Share |
|
||
|
Non-vested options outstanding, beginning balance |
|
|
|
|
|
$ |
|
|
|
Options granted |
|
|
|
|
|
|
|
|
|
Options vested |
|
|
( |
) |
|
|
|
|
|
Options forfeited |
|
|
( |
) |
|
|
|
|
|
Non-vested options outstanding, ending balance |
|
|
|
|
|
|
|
|
Information about stock options that have vested, or are expected to vest, and are exercisable at December 31, 2021 was as follows:
|
|
|
Number of options |
|
|
Weighted-Average Exercise Price |
|
|
Weighted-Average Remaining Life in Years |
|
|
Aggregate Intrinsic Value |
|
||||
|
Options outstanding |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Options vested and exercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to vest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
Woodward recognizes stock-based compensation expense on a straight-line basis over the requisite service period. Pursuant to form stock option agreements used by the Company, with terms approved by the administrator of the applicable plan, the requisite service period can be less than the four-year vesting period based on grantee’s retirement eligibility. As such, the recognition of stock-based compensation expense associated with some stock option grants can be accelerated to a period of less than four years, including immediate recognition of stock-based compensation expense on the date of grant.
At December 31, 2021, there was approximately $
Note 21. Commitments and contingencies
Woodward is currently involved in claims, pending or threatened litigation or 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 matters using estimates of the most likely amount of loss where it believes that it is probable the matter will result in a loss when ultimately resolved and such loss is reasonably estimable. Legal costs are expensed as incurred and are classified in “Selling, general and administrative expenses” on the Condensed Consolidated Statements of Earnings.
22
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 related 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 corporate officers, Woodward may be required to pay termination benefits to such officers.
Note 22. Segment information
Woodward serves the aerospace and industrial markets through its
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 generally excludes matters such as certain charges for restructuring, interest income and expense, certain gains and losses from asset dispositions, or other non-recurring and/or non-operationally related expenses.
A summary of consolidated net sales and earnings by segment follows:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Segment external net sales: |
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
|
|
|
$ |
|
|
|
Industrial |
|
|
|
|
|
|
|
|
|
Total consolidated net sales |
|
$ |
|
|
|
$ |
|
|
|
Segment earnings: |
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
|
|
|
$ |
|
|
|
Industrial |
|
|
|
|
|
|
|
|
|
Nonsegment expenses |
|
|
( |
) |
|
|
( |
) |
|
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
|
Consolidated earnings before income taxes |
|
$ |
|
|
|
$ |
|
|
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:
|
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
|
Segment assets: |
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
|
|
|
$ |
|
|
|
Industrial |
|
|
|
|
|
|
|
|
|
Unallocated corporate property, plant and equipment, net |
|
|
|
|
|
|
|
|
|
Other unallocated assets |
|
|
|
|
|
|
|
|
|
Consolidated total assets |
|
$ |
|
|
|
$ |
|
|
Note 23. Subsequent events
On January 26, 2022, the Board approved a cash dividend of $
23
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Forward Looking Statements
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 deemed 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:
|
|
• |
the impacts on our business relating to the global COVID-19 pandemic, including the impacts thereof on our industries, to supply and demand, and measures taken by governments and private industry in response; |
|
|
• |
future sales, earnings, cash flow, uses of cash, and other measures of financial performance; |
|
|
• |
trends in our business and the markets in which we operate, including expectations in those markets in future periods; |
|
|
• |
our expected expenses in future periods and trends in such expenses over time; |
|
|
• |
descriptions of our plans and expectations for future operations; |
|
|
• |
our expectations with regard to the status of the Boeing 737 MAX aircraft, the related impact on our original equipment manufacturer and initial provision sales, and the aircraft’s return to service; |
|
|
• |
plans and expectations relating to the performance of our joint venture with General Electric Company; |
|
|
• |
the effect of economic trends or growth; |
|
|
• |
the expected levels of activity in particular industries or markets and the effects of changes in those levels; |
|
|
• |
the scope, nature, or impact of acquisition activity and integration of such acquisition into our business; |
|
|
• |
the research, development, production, and support of new products and services; |
|
|
• |
restructuring and alignment costs and savings; |
|
|
• |
our plans, objectives, expectations and intentions with respect to business opportunities that may be available to us; |
|
|
• |
our liquidity, including our ability to meet capital spending requirements and operations; |
|
|
• |
future repurchases of common stock; |
|
|
• |
future levels of indebtedness and capital spending; |
|
|
• |
the stability of financial institutions, including those lending to us; |
|
|
• |
pension and other postretirement plan assumptions and future contributions; and |
|
|
• |
our tax rate and other effects of changes in applicable tax laws. |
We undertake no obligation to revise or update any forward-looking statements for any reason, except as required by applicable law.
Unless we have indicated otherwise or the context otherwise requires, references in 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, amounts presented in this Form 10-Q are in thousands, except per share amounts.
24
OVERVIEW
COVID-19 Pandemic
In March 2020, the World Health Organization declared COVID-19 to be a global pandemic. The pandemic has led to significant volatility in financial, commodities (including oil and gas) and other markets and industries (including the aviation industry) and has negatively affected our business and results of operations. We have reacted quickly to navigate the uncertain market environment, reduce our cost structure, increase our focus on operational excellence, and prioritize diligent cash management. The aggressive actions we implemented continue to drive strong cash flow, improve our liquidity and overall financial position, and enable ongoing investments in opportunities for growth in the markets in which we do business.
Although we saw positive signs of recovery during the first quarter of fiscal year 2022 across most of our end markets, ongoing industry-wide COVID-19 related disruptions, including supply chain constraints and labor shortages, adversely impacted our operations and caused some customer-initiated shipment delays. We are unable to predict the extent to which the pandemic and related impacts will continue to adversely affect our business, including our operational performance, results of operations, financial position, and the achievement of our strategic objectives. Nonetheless, we believe the current industry-wide COVID-19 situation and related disruptions will improve, and that our end markets will continue to recover for the remainder of the fiscal year.
We will continue to actively monitor the situation and may potentially take further actions to alter our business operations if we determine such actions are in the best interests of our shareholders, employees, customers, communities, business partners, and suppliers, or as required by federal, state, or local authorities. It is not clear what the potential effects of any such alterations or modifications may have on our business in future periods, including the effects on our customers, employees, and prospects, or on our financial results.
Operational Highlights
Quarter to Date Highlights
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Net Sales: |
|
|
|
|
|
|
|
|
|
Aerospace segment net sales |
|
$ |
336,435 |
|
|
$ |
321,667 |
|
|
Industrial segment |
|
|
205,151 |
|
|
|
215,952 |
|
|
Total consolidated net sales |
|
$ |
541,586 |
|
|
$ |
537,619 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings: |
|
|
|
|
|
|
|
|
|
Aerospace segment |
|
$ |
51,083 |
|
|
$ |
46,466 |
|
|
Segment earnings as a percent of segment net sales |
|
|
15.2 |
% |
|
|
14.4 |
% |
|
Industrial segment |
|
$ |
23,693 |
|
|
$ |
32,888 |
|
|
Segment earnings as a percent of segment net sales |
|
|
11.5 |
% |
|
|
15.2 |
% |
|
Consolidated net earnings |
|
$ |
30,305 |
|
|
$ |
41,570 |
|
|
Adjusted net earnings |
|
$ |
36,291 |
|
|
$ |
41,570 |
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
19.7 |
% |
|
|
12.6 |
% |
|
Adjusted effective tax rate |
|
|
20.6 |
% |
|
|
12.6 |
% |
|
Consolidated diluted earnings per share |
|
$ |
0.47 |
|
|
$ |
0.64 |
|
|
Consolidated adjusted diluted earnings per share |
|
$ |
0.56 |
|
|
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest and taxes (“EBIT”) |
|
$ |
45,411 |
|
|
$ |
55,995 |
|
|
Adjusted EBIT |
|
$ |
53,393 |
|
|
$ |
55,995 |
|
|
Earnings before interest, taxes, depreciation, and amortization (“EBITDA”) |
|
$ |
76,132 |
|
|
$ |
89,072 |
|
|
Adjusted EBITDA |
|
$ |
84,114 |
|
|
$ |
89,072 |
|
Adjusted net earnings, adjusted earnings per share, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA are non-U.S. GAAP financial measures. A description of these measures as well as a reconciliation of these non-U.S. GAAP financial measures to the closest U.S. GAAP financial measures can be found under the caption “Non-U.S. GAAP Measures” in this Item 2 – Management’s Discussion and Analysis of Financial Conditions and Results of Operations.
25
Liquidity Highlights
Net cash provided by operating activities for the first quarter of fiscal year 2022 was $39,290, compared to $146,725 for the first quarter of fiscal year 2021. The decrease in net cash provided by operating activities in the first quarter of fiscal year 2022 compared to the first quarter of the prior fiscal year is primarily attributable to working capital increases to support this fiscal year’s anticipated growth, including the timing of cash payments to suppliers.
For the first quarter of fiscal year 2022, free cash flow, which we define as net cash flow from operating activities less payments for property, plant and equipment, was $26,167, compared to $139,462 for the first quarter of fiscal year 2021. The decrease in free cash flow for the first quarter of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily due to working capital increases to support this fiscal year’s anticipated growth, including the timing of cash payments to suppliers, and higher payments for property, plant and equipment. Adjusted free cash flow, which we define as free cash flow, plus the cash payments for costs related to business development activities and restructuring activities, was $27,442 for the first quarter of fiscal year 2022. No adjustments were made to free cash flow for the first quarter of fiscal year 2021. Free cash flow and adjusted free cash flow are non-U.S. GAAP financial measures. A description of these measures as well as a reconciliation of these non-U.S. GAAP financial measures to the closest U.S. GAAP financial measures can be found under the caption “Non-U.S. GAAP Measures” in this Item 2 – Management’s Discussion and Analysis of Financial Conditions and Results of Operations.
At December 31, 2021, we held $426,982 in cash and cash equivalents and had total outstanding debt of $730,250. We have additional borrowing availability of $989,131, net of outstanding letters of credit, under our revolving credit agreement. At December 31, 2021, we also had additional borrowing capacity of $7,336 under various foreign lines of credit and foreign overdraft facilities.
RESULTS OF OPERATIONS
The following table sets forth consolidated statements of earnings data as a percentage of net sales for each period indicated:
|
|
|
Three-Months Ended |
|
|||||||||||||
|
|
|
December 31, 2021 |
|
|
% of Net Sales |
|
|
December 31, 2020 |
|
|
% of Net Sales |
|
||||
|
Net sales |
|
$ |
541,586 |
|
|
|
100 |
% |
|
$ |
537,619 |
|
|
|
100 |
% |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
419,151 |
|
|
|
77.4 |
% |
|
|
401,640 |
|
|
|
74.7 |
% |
|
Selling, general, and administrative expenses |
|
|
62,306 |
|
|
|
11.5 |
% |
|
|
56,111 |
|
|
|
10.4 |
% |
|
Research and development costs |
|
|
25,392 |
|
|
|
4.7 |
% |
|
|
31,996 |
|
|
|
6.0 |
% |
|
Interest expense |
|
|
8,306 |
|
|
|
1.5 |
% |
|
|
8,906 |
|
|
|
1.7 |
% |
|
Interest income |
|
|
(641 |
) |
|
|
(0.1 |
)% |
|
|
(495 |
) |
|
|
(0.1 |
)% |
|
Other (income) expense, net |
|
|
(10,674 |
) |
|
|
(2.0 |
)% |
|
|
(8,123 |
) |
|
|
(1.5 |
)% |
|
Total costs and expenses |
|
|
503,840 |
|
|
|
93.0 |
% |
|
|
490,035 |
|
|
|
91.1 |
% |
|
Earnings before income taxes |
|
|
37,746 |
|
|
|
7.0 |
% |
|
|
47,584 |
|
|
|
8.9 |
% |
|
Income tax expense |
|
|
7,441 |
|
|
|
1.4 |
% |
|
|
6,014 |
|
|
|
1.1 |
% |
|
Net earnings |
|
$ |
30,305 |
|
|
|
5.6 |
% |
|
$ |
41,570 |
|
|
|
7.7 |
% |
Other select financial data:
|
|
|
December 31, |
|
|
September 30, |
|
||
|
|
|
2021 |
|
|
2021 |
|
||
|
Working capital |
|
$ |
1,117,223 |
|
|
$ |
1,098,466 |
|
|
Total debt |
|
|
730,250 |
|
|
|
734,850 |
|
|
Total stockholders’ equity |
|
|
2,223,432 |
|
|
|
2,214,781 |
|
26
Net Sales
Consolidated net sales for the first quarter of fiscal year 2022 increased by $3,967, or 0.7%, compared to the same period of fiscal year 2021.
Details of the changes in consolidated net sales are as follows:
|
|
|
Three-Month Period |
|
|
|
Consolidated net sales for the period ended December 31, 2020 |
|
$ |
537,619 |
|
|
Aerospace volume |
|
|
12,230 |
|
|
Industrial volume |
|
|
(8,208 |
) |
|
Noncash consideration |
|
|
(1,552 |
) |
|
Effects of changes in price and sales mix |
|
|
5,579 |
|
|
Effects of changes in foreign currency rates |
|
|
(4,082 |
) |
|
Consolidated net sales for the period ended December 31, 2021 |
|
$ |
541,586 |
|
The increase in consolidated net sales for the first quarter of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily attributable to an increase in commercial aerospace sales volume.
In the Aerospace segment, the increase in net sales for the first quarter of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily attributed to an increase in commercial sales from higher global air passenger traffic, partially offset by lower defense OEM and aftermarket sales. During the first quarter of fiscal year 2022, Aerospace segment net sales were negatively impacted by approximately $42,000 due to ongoing industry-wide COVID-19 related disruptions, including supply chain constraints, labor shortages, and some customer-initiated shipment delays.
In the Industrial segment, the decrease in net sales for the first quarter of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily attributable to weakness natural gas engine sales in China and unfavorable foreign currency impacts, partially offset by higher marine sales. During the first quarter of fiscal year 2022, Industrial segment net sales were negatively impacted by approximately $28,000 due to ongoing industry-wide COVID-19 related disruptions, including supply chain constraints and labor shortages.
Costs and Expenses
Cost of goods sold increased by $17,511 to $419,151, or 77.4% of net sales, for the first quarter of fiscal year 2022, from $401,640, or 74.7% of net sales, for the first quarter of fiscal year 2021. The increase in cost of goods sold in the first quarter of fiscal year 2022 compared to the same period of the prior fiscal year is primarily due to increased Aerospace commercial OEM sales volume, which traditionally have lower margins, and higher manufacturing costs to support this fiscal year’s anticipated growth.
Gross margin (as measured by net sales less cost of goods sold, divided by net sales) was 22.6% for the first quarter, compared to 25.3% for the first quarter of fiscal year 2021. The decrease in gross margin for the first quarter of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily attributable to increased Aerospace commercial OEM sales volume, which traditionally have lower margins.
Selling, general and administrative expenses increased by $6,195, or 11.0%, to $62,306 for the first quarter of fiscal year 2022, compared to $56,111 for the first quarter of fiscal year 2021. Selling, general, and administrative expenses as a percentage of net sales increased to 11.5% for the first quarter of fiscal year 2022, compared to 10.4% for the first quarter of fiscal year 2021. The increase in selling, general and administrative expenses, both in dollars and as a percentage of net sales, for the first quarter of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily due to an increase in certain expenses incurred in the first quarter of fiscal year 2022 in connection with a non-recurring matter unrelated to the ongoing operations of the business and certain business development activities, each of which did not occur in the prior fiscal year quarter.
Research and development costs decreased by $6,604, or 20.6%, to $25,392 for the first quarter of fiscal year 2022, as compared to $31,996 for the first quarter of fiscal year 2021. As a percentage of net sales, research and development costs decreased to 4.7% for the first quarter of fiscal year 2022, as compared to 6.0% for the same period of the prior fiscal year. The decrease in research and development costs, both in dollars and as a percentage of net sales, for the first quarter of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily due to lower spending on Aerospace programs, as well as variability in the timing of projects and expenses. Our 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 customer business needs on current and future programs.
27
Interest expense decreased by $600, or 6.7%, to $8,306 for the first quarter of fiscal year 2022, compared to $8,906 for the first quarter of fiscal year 2021. Interest expense decreased as a percentage of net sales to 1.5% for the first quarter of fiscal year 2022, as compared to 1.7% for the first quarter of fiscal year 2021. The decrease in interest expense, both in dollars and as a percentage of net sales, for the first quarter of fiscal year 2022 as compared to the same period of the prior year is primarily attributable to reduced long-term debt balances and borrowings from the revolving credit facility. In the first quarter of fiscal year 2021, we paid the entire balance of two series of private placement notes totaling $100,000 primarily using cash from operations and proceeds from our revolving credit facility. Additionally, we did not borrow from the revolving credit facility during the first quarter of fiscal year 2022.
Other income increased by $2,551 to $10,674 for the first quarter of fiscal year 2022, compared to $8,123 for the first quarter of fiscal year 2021. Other income increased for the first quarter of fiscal year 2022 compared to the same period of the prior fiscal year primarily due to increased earnings in our equity interest in the joint venture with GE.
Income taxes were provided at an effective rate on earnings before income taxes of 19.7% for the first quarter of fiscal year 2022 and 12.6% for the first quarter of fiscal year 2021.
The increase in the effective tax rate for the first quarter of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily attributable to a reduction in the income tax benefit from stock-based compensation exercises and the net impact of increased projected full-year earnings.
Segment Results
The following table presents sales by segment:
|
|
|
Three-Months Ended December 31, |
|
|||||||||||||
|
|
|
2021 |
|
|
2020 |
|
||||||||||
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
336,435 |
|
|
|
62.1 |
% |
|
$ |
321,667 |
|
|
|
59.8 |
% |
|
Industrial |
|
|
205,151 |
|
|
|
37.9 |
% |
|
|
215,952 |
|
|
|
40.2 |
% |
|
Consolidated net sales |
|
$ |
541,586 |
|
|
|
100 |
% |
|
$ |
537,619 |
|
|
|
100 |
% |
The following table presents earnings by segment and reconciles segment earnings to consolidated net earnings:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Aerospace |
|
$ |
51,083 |
|
|
$ |
46,466 |
|
|
Industrial |
|
|
23,693 |
|
|
|
32,888 |
|
|
Nonsegment expenses |
|
|
(29,365 |
) |
|
|
(23,359 |
) |
|
Interest expense, net |
|
|
(7,665 |
) |
|
|
(8,411 |
) |
|
Consolidated earnings before income taxes |
|
|
37,746 |
|
|
|
47,584 |
|
|
Income tax expense |
|
|
(7,441 |
) |
|
|
(6,014 |
) |
|
Consolidated net earnings |
|
$ |
30,305 |
|
|
$ |
41,570 |
|
The following table presents segment earnings as a percent of segment net sales:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Aerospace |
|
|
15.2 |
% |
|
|
14.4 |
% |
|
Industrial |
|
|
11.5 |
% |
|
|
15.2 |
% |
Aerospace
Aerospace segment net sales increased by $14,768, or 4.6%, to $336,435 for the first quarter of fiscal year 2022, compared to $321,667 for the first quarter of fiscal year 2021. The increase in segment net sales in the first quarter of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily a result of increased commercial OEM and aftermarket sales due to recovering global passenger traffic, increased aircraft production rates, increased fleet utilization, and the return to service of the Boeing 737 MAX aircraft in certain jurisdictions.
Defense OEM sales decreased in the first quarter of fiscal year 2022 as compared to the same period of the prior fiscal year, primarily driven by softening demand for guided weapons as well as lower fixed wing aircraft sales. Our defense aftermarket sales decreased in the first quarter of fiscal year 2022 as compared to the same periods of the prior fiscal year primarily due to COVID-19 related disruptions. However, we believe defense activity will continue to remain stable, with the exception of the softening demand for guided weapons.
28
During the first quarter of fiscal year 2022, Aerospace segment net sales were negatively impacted by approximately $42,000 due to ongoing industry-wide COVID-19 related disruptions, including supply chain constraints and labor shortages, and some customer-initiated shipment delays.
Aerospace segment earnings increased by $4,617, or 9.9%, to $51,083 for the first quarter of fiscal year 2022, compared to $46,466 for the first quarter of fiscal year 2021.
The increase in Aerospace segment earnings for the first quarter of fiscal year 2022 compared to the same period of the prior fiscal year was due to the following:
|
|
|
Three-Month Period |
|
|
|
Earnings for the period ended December 31, 2020 |
|
$ |
46,466 |
|
|
Sales volume |
|
|
6,751 |
|
|
Price, sales mix and productivity |
|
|
(4,309 |
) |
|
Other, net |
|
|
2,175 |
|
|
Earnings for the period ended December 31, 2021 |
|
$ |
51,083 |
|
Aerospace segment earnings as a percentage of segment net sales were 15.2% for the first quarter of fiscal year 2022, compared to 14.4% for the first quarter of fiscal year 2021. The increase in Aerospace segment earnings in the first quarter of fiscal year 2022 as compared to the same period of the prior fiscal year was primarily due to higher volume, predominantly driven by an increase in commercial OEM and aftermarket sales. This increase was partially offset by lower defense OEM sales, primarily due to lower sales of guided weapons, and lower defense aftermarket sales due primarily to COVID-19 related disruptions.
Industrial
Industrial segment net sales decreased by $10,801, or 5.0%, to $205,151 for the first quarter of fiscal year 2022, compared to $215,952 for the first quarter of fiscal year 2021. Foreign currency exchange rates had an unfavorable impact on segment net sales of $4,137 for the first quarter of fiscal year 2022 as compared the same period of the prior fiscal year.
The decrease in Industrial segment net sales in the first quarter of fiscal year 2022 was primarily due to lower sales of natural gas-powered engines in China and unfavorable foreign currency impacts, partially offset by higher marine sales in Europe.
During the first quarter of fiscal year 2022, Industrial segment net sales were negatively impacted by approximately $28,000 due to ongoing industry-wide COVID-19 related disruptions, including supply chain constraints and labor shortages.
Industrial segment earnings decreased by $9,195, or 28.0%, to $23,693 for the first quarter of fiscal year 2022, compared to $32,888 for the first quarter of fiscal year 2021.
The decrease in Industrial segment earnings for the first quarter of fiscal year 2022 compared to the same period of the prior fiscal year was due to the following:
|
|
|
Three-Month Period |
|
|
|
Earnings for the period ended December 31, 2020 |
|
$ |
32,888 |
|
|
Sales volume |
|
|
(3,940 |
) |
|
Price, sales mix and productivity |
|
|
(5,207 |
) |
|
Effects of changes in foreign currency rates |
|
|
(259 |
) |
|
Other, net |
|
|
211 |
|
|
Earnings for the period ended December 31, 2021 |
|
$ |
23,693 |
|
Industrial segment earnings as a percentage of segment net sales were 11.5% for the first quarter of fiscal year 2022, compared to 15.2% for the first quarter of fiscal year 2021. The decrease in Industrial segment earnings in first quarter of fiscal year 2022 as compared to the same period of the prior fiscal year was primarily due to lower sales volume and product mix, as well as net inflationary impacts.
Nonsegment
Nonsegment expenses increased by $6,006 to $29,365 for the first quarter of fiscal year 2022, compared to $23,359 for the first quarter of fiscal year 2021. The increase in nonsegment expenses in the first quarter of fiscal year 2022 compared to the first quarter of fiscal year 2021 was primarily due to a non-recurring matter unrelated to the ongoing operations of the business and certain business development activities, each of which did not occur in the prior fiscal year quarter.
29
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have satisfied 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. From time to time, we have also issued debt to supplement our cash needs, repay our other indebtedness, or finance our acquisitions. We continue to expect that cash generated from our operating activities, together with borrowings under our revolving credit facility and other borrowing capacity, will be sufficient to fund our continuing operating needs for the foreseeable future.
In addition to our revolving credit facility, 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 revolving credit facility and our other credit facilities, see Note 14, Credit facilities, short-term borrowings and long-term debt in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item I of this Form 10-Q.
At December 31, 2021, we had total outstanding debt of $730,250 consisting of various series of unsecured notes due between 2023 and 2033 and obligations under our finance leases. At December 31, 2021, we had additional borrowing availability of $989,131 under our revolving credit facility, net of outstanding letters of credit, and additional borrowing availability of $7,336 under various foreign credit facilities. At December 31, 2021, we had no borrowings outstanding under our revolving credit facility. We also had no borrowings outstanding under our revolving credit facility during the first quarter of fiscal year 2022.
To our knowledge, we were in compliance with all our debt covenants as of December 31, 2021. Additionally, we do not believe the current known impacts of the COVID-19 pandemic will affect our ability to remain in compliance with our debt covenants. See Note 15, Credit facilities, short-term borrowings and long-term debt in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our most recently filed Form 10-K, for more information about our covenants.
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 common stock, payment of dividends, significant capital expenditures, consideration of strategic acquisitions and other potential uses of cash.
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. We do not believe the current known impacts of the COVID-19 pandemic will impact our ability to satisfy our long-term debt obligations.
In November 2019, the Woodward board of directors (the “Board”) authorized a program for the repurchase of up to $500,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a three-year period that was scheduled to expire in 2022 (the “2019 Authorization”). During the three-months ended December 31, 2021, Woodward repurchased 233 shares of its common stock for $26,742 under the 2019 Authorization. During the first three-months ended December 31, 2020, Woodward repurchased no shares of its common stock under the 2019 Authorization. In January 2022, the Board terminated the 2019 Authorization and concurrently authorized a program for the repurchase of up to $800,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a two-year period that will end in 2024 (the “2022 Authorization”).
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 financial institutions providing our capital requirements refuse to honor their contractual commitments, cease lending, or declare bankruptcy. We believe the lending institutions participating in our credit arrangements are financially stable and do not currently foresee adverse impacts to financial institutions supporting our capital requirements as a result of the COVID-19 pandemic or otherwise.
30
Cash Flows
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Net cash provided by operating activities |
|
$ |
39,290 |
|
|
$ |
146,725 |
|
|
Net cash (used in) investing activities |
|
|
(13,115 |
) |
|
|
(9,955 |
) |
|
Net cash (used in) financing activities |
|
|
(46,688 |
) |
|
|
(94,642 |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(967 |
) |
|
|
6,483 |
|
|
Net change in cash and cash equivalents |
|
|
(21,480 |
) |
|
|
48,611 |
|
|
Cash and cash equivalents, including restricted cash, at beginning of year |
|
|
448,462 |
|
|
|
153,270 |
|
|
Cash and cash equivalents, including restricted cash, at end of period |
|
$ |
426,982 |
|
|
$ |
201,881 |
|
Net cash flows provided by operating activities for the first quarter of fiscal year 2022 was $39,290, compared to $146,725 for the same period of fiscal year 2021. The decrease in net cash provided by operating activities in the first quarter of fiscal year 2022 as compared to the first quarter of the prior fiscal year is primarily attributable to working capital increases to support this fiscal year’s anticipated growth, and the timing of cash payments to suppliers.
Net cash flows used in investing activities for the first quarter of fiscal year 2022 was $13,115, compared to $9,955 for the same period of fiscal year 2021. The increase in cash flows used in investing activities in the first quarter of fiscal year 2022 as compared to the first quarter of the prior fiscal year is primarily due to increased payments for property, plant and equipment.
Net cash flows used in financing activities for the first quarter of fiscal year 2022 was $46,688, compared to $94,642 for the same period of fiscal year 2021. The decrease in net cash flows used in financing activities in the first quarter of fiscal year 2022 as compared to the first quarter of the prior fiscal year is primarily attributable to the change in net debt payments and repurchases of common stock. During the first quarter of fiscal year 2022, we had net debt payments in the amount of $381, compared to net debt payments in the amount of $100,395 in the first quarter of fiscal year 2021. During the first quarter of fiscal year 2022, we had $39,258 of cash repurchases of common stock, while there were no such repurchases in the first quarter of fiscal year 2021.
Non-U.S. GAAP Financial Measures
Adjusted net earnings, adjusted earnings per share, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, adjusted EBITDA, free cash flow, and adjusted free cash flow are financial measures not prepared and presented in accordance with U.S. GAAP. However, we believe these non-U.S. GAAP financial measures provide additional information that enables readers to evaluate our business from the perspective of management.
Earnings based non‐U.S. GAAP financial measures
Adjusted net earnings is defined by the Company as net earnings excluding, as applicable, (i) a charge in connection with a non-recurring matter unrelated to the ongoing operations of the business and (ii) costs related to business development activities. The Company believes that these excluded items are short‐term in nature, not directly related to the ongoing operations of the business and therefore, the exclusion of them illustrates more clearly how the underlying business of Woodward is performing. Management uses adjusted net earnings to evaluate the Company’s performance excluding these infrequent or unusual period expenses that are not necessarily indicative of the Company’s operating performance for the period. Management defines adjusted earnings per share as adjusted net earnings, as defined above, divided by the weighted‐average number of diluted shares of common stock outstanding for the period. Management uses both adjusted net earnings and adjusted earnings per share when comparing operating performance to other periods which may not have similar, infrequent or unusual charges.
31
The reconciliation of net earnings and earnings per share to adjusted net earnings and adjusted earnings per share, respectively, is shown in the tables below:
|
|
|
Three-Months Ended December 31, |
|
|||||||||||||
|
|
|
2021 |
|
|
2020 |
|
||||||||||
|
|
|
Net Earnings |
|
|
Earnings Per Share |
|
|
Net Earnings |
|
|
Earnings Per Share |
|
||||
|
Net earnings (U.S. GAAP) |
|
$ |
30,305 |
|
|
$ |
0.47 |
|
|
$ |
41,570 |
|
|
$ |
0.64 |
|
|
Non-U.S. GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring matter unrelated to the ongoing operations of the business, net of tax |
|
|
3,750 |
|
|
|
0.06 |
|
|
|
— |
|
|
|
— |
|
|
Business development activities, net of tax |
|
|
2,236 |
|
|
|
0.03 |
|
|
|
— |
|
|
|
— |
|
|
Non-U.S. GAAP adjustments |
|
|
5,986 |
|
|
|
0.09 |
|
|
|
— |
|
|
|
— |
|
|
Adjusted net earnings (Non-U.S. GAAP) |
|
$ |
36,291 |
|
|
$ |
0.56 |
|
|
$ |
41,570 |
|
|
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management uses EBIT to evaluate Woodward’s performance without financing and tax related considerations, as these elements do 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. The Company believes that EBIT and EBITDA are useful measures to the investor when measuring operating performance as they eliminate the impact of financing and tax expenses, which are non-operating expenses and may be driven by factors outside of the Company’s operations, such as changes in tax laws or regulations, and, in the case of EBITDA, the noncash charges associated with depreciation and amortization. Further, as interest from financing, income taxes, depreciation and amortization can vary dramatically between companies and between periods, management believes that the removal of these items can improve comparability.
Adjusted EBIT and adjusted EBITDA represent further non-U.S. GAAP adjustments to EBIT and EBITDA, in each case adjusted to exclude, as applicable (i) a charge in connection with a non-recurring matter unrelated to the ongoing operations of the business and (ii) costs related to business development activities. As these charges are infrequent or unusual items that can be variable from period to period and do not fluctuate with operating results, management believes that by removing these gains and charges from EBIT and EBITDA it improves comparability of past, present and future operating results and provides consistency when comparing EBIT and EBITDA between periods.
EBIT and adjusted EBIT reconciled to net earnings were as follows:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Net earnings (U.S. GAAP) |
|
$ |
30,305 |
|
|
$ |
41,570 |
|
|
Income tax expense |
|
|
7,441 |
|
|
|
6,014 |
|
|
Interest expense |
|
|
8,306 |
|
|
|
8,906 |
|
|
Interest income |
|
|
(641 |
) |
|
|
(495 |
) |
|
EBIT (Non-U.S. GAAP) |
|
$ |
45,411 |
|
|
$ |
55,995 |
|
|
Non-U.S. GAAP adjustments: |
|
|
|
|
|
|
|
|
|
Non-recurring matter unrelated to the ongoing operations of the business |
|
|
5,000 |
|
|
|
— |
|
|
Business development activities |
|
|
2,982 |
|
|
|
— |
|
|
Total non-U.S. GAAP adjustments |
|
|
7,982 |
|
|
|
— |
|
|
Adjusted EBIT (Non-U.S. GAAP) |
|
$ |
53,393 |
|
|
$ |
55,995 |
|
32
EBITDA and adjusted EBITDA reconciled to net earnings were as follows:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Net earnings (U.S. GAAP) |
|
$ |
30,305 |
|
|
$ |
41,570 |
|
|
Income tax expense |
|
|
7,441 |
|
|
|
6,014 |
|
|
Interest expense |
|
|
8,306 |
|
|
|
8,906 |
|
|
Interest income |
|
|
(641 |
) |
|
|
(495 |
) |
|
Amortization of intangible assets |
|
|
9,688 |
|
|
|
10,469 |
|
|
Depreciation expense |
|
|
21,033 |
|
|
|
22,608 |
|
|
EBITDA (Non-U.S. GAAP) |
|
|
76,132 |
|
|
|
89,072 |
|
|
Non-U.S. GAAP adjustments: |
|
|
|
|
|
|
|
|
|
Non-recurring matter unrelated to the ongoing operations of the business |
|
|
5,000 |
|
|
|
— |
|
|
Business development activities |
|
|
2,982 |
|
|
|
— |
|
|
Total non-U.S. GAAP adjustments |
|
|
7,982 |
|
|
|
— |
|
|
Adjusted EBITDA (Non-U.S. GAAP) |
|
$ |
84,114 |
|
|
$ |
89,072 |
|
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 accordance with U.S. GAAP. As adjusted net earnings, adjusted net earnings per share, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, and adjusted 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 adjusted net earnings, adjusted net earnings per share, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, and adjusted 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 by the Company as net cash flows provided by operating activities less payments for property, plant and equipment, in reviewing the financial performance of and cash generation by Woodward’s various business groups and evaluating cash levels. We believe free cash flow is a useful measure for investors because it portrays our ability to grow organically and generate cash from our businesses for purposes such as paying interest on our indebtedness, repaying maturing debt, funding business acquisitions, investing in research and development, purchasing our common stock, and paying dividends. In addition, 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 substitutes 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. Adjusted free cash flow represents a further non-U.S. GAAP adjustment to free cash flow to exclude the effect of cash paid for business development activities and cash paid for restructuring activities. Management believes that by excluding these infrequent or unusual items from free cash flow it better portrays our ability to generate cash, as such items are not indicative of the Company’s operating performance for the period.
Free cash flow and adjusted free cash flow reconciled to net cash provided by operating activities were as follows:
|
|
|
Three-Months Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Net cash provided by operating activities (U.S. GAAP) |
|
$ |
39,290 |
|
|
$ |
146,725 |
|
|
Payments for property, plant and equipment |
|
|
(13,123 |
) |
|
|
(7,263 |
) |
|
Free cash flow (Non-U.S. GAAP) |
|
$ |
26,167 |
|
|
$ |
139,462 |
|
|
Cash paid for business development activities |
|
|
770 |
|
|
|
— |
|
|
Cash paid for restructuring charges |
|
|
505 |
|
|
|
— |
|
|
Adjusted free cash flow (Non-U.S. GAAP) |
|
$ |
27,442 |
|
|
$ |
139,462 |
|
33
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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 in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our most recently filed 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 recently filed Form 10-K, include the discussion of estimates used for revenue recognition, inventory valuation, reviews for impairment of goodwill and other indefinitely lived intangible assets, 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 included in this Form 10-Q, and actual results could differ materially from the amounts reported.
New Accounting Standards
From time to time, the 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.
To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note 2, New accounting standards in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. 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.
|
Item 3. |
Quantitative and 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 7A 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, as amended (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 (Mark D. Hartman, Chief Financial Officer), as appropriate, to allow timely decisions regarding required disclosures.
Thomas A. Gendron and Mark D. Hartman, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15 under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on their evaluations, they concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2021.
There have not been any changes in our internal controls over financial reporting during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
34
PART II – OTHER INFORMATION
|
Item 1. |
Legal Proceedings |
Woodward is currently involved in claims, pending or threatened litigation or 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 matters using estimates of the most likely amount of loss where it believes that it is probable the matter will result in a loss when ultimately resolved and such loss is reasonably estimable.
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.
|
Item 1A. |
Risk Factors |
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.
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
Sales of Unregistered Securities
None.
|
Issuer Purchases of Equity Securities (In thousands, except for shares and per share amounts) |
|
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) |
|
||||
|
October 1, 2021 through October 31, 2021 (2) |
|
|
233,204 |
|
|
$ |
114.69 |
|
|
|
233,178 |
|
|
$ |
414,052 |
|
|
November 1, 2021 through November 30, 2021 (2) |
|
|
402 |
|
|
|
105.80 |
|
|
|
— |
|
|
|
414,052 |
|
|
December 1, 2021 through December 31, 2021 (2) |
|
|
40 |
|
|
|
109.46 |
|
|
|
— |
|
|
|
414,052 |
|
|
|
(1) |
In November 2019, the Board authorized a stock repurchase program for the repurchase of up to $500,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a three-year period that was scheduled to expire in 2022 (the “2019 Authorization”). In January 2022, the Board terminated the 2019 Authorization and concurrently authorized a program for the repurchase of up to $800,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a two-year period that will end in January 2024 (the “2022 Authorization”). |
|
|
(2) |
Under a trust established for the purposes of administering the Woodward Executive Benefit Plan, 26 shares of common stock were acquired in October 2021, 117 shares of common stock were acquired in November 2021, and 40 shares of common stock were acquired in December 2021 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. In addition, 285 shares of common stock were acquired in November 2021 on the open market related to the reinvestment of dividends for shares of treasury stock held for deferred compensation. 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. |
35
|
Item 6. |
Exhibits |
Exhibits filed as part of this Report are listed in the Exhibit Index.
WOODWARD, INC.
EXHIBIT INDEX
|
|
Exhibit Number |
Description |
|
* |
10.1 |
Amendment No. 2 to the Amended and Restated Credit Agreement dated November 24, 2021 |
|
* |
31.1 |
|
|
* |
31.2 |
|
|
* |
32.1 |
|
|
* |
101 |
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Earnings, (iii) Condensed Consolidated Statements of Comprehensive Earnings, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Stockholders’ Equity, and (vi) Notes to Condensed Consolidated Financial Statements. |
|
* |
104 |
Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
* |
Filed as an exhibit to this Report |
SIGNATURES
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: February 4, 2022 |
|
/s/ Thomas A. Gendron |
|
|
|
Thomas A. Gendron |
|
|
|
Chairman of the Board, Chief Executive Officer, and President (on behalf of the registrant and as the registrant’s Principal Executive Officer) |
|
|
|
|
|
Date: February 4, 2022 |
|
/s/ Mark D. Hartman |
|
|
|
Mark D. Hartman |
|
|
|
Chief Financial Officer (on behalf of the registrant and as the registrant’s Principal Financial and Accounting Officer) |
36