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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December  31, 2014

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

 

 

 

Commission file number 000-08408

WOODWARD, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

36-1984010

 

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

1000 East Drake Road, Fort Collins, Colorado

 

80525

 

(Address of principal executive offices)

 

(Zip Code)

(970) 482-5811

 

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes     No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer     Accelerated filer    Non-accelerated filer    Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  No

As of January 16, 2015, 65,016,278 shares of the registrant’s common stock with a par value of $0.001455 per share were outstanding.

 


 

 

 

 

 

 

TABLE OF CONTENTS

 

 

Page

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

2

 

Condensed Consolidated Statements of Earnings

2

 

Condensed Consolidated Statements of Comprehensive Earnings

3

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Condensed Consolidated Statements of Stockholders’ Equity

6

 

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24 

 

Forward Looking Statements

24 

 

Overview

27 

 

Results of Operations

27 

 

Liquidity and Capital Resources

31 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34 

Item 4.

Controls and Procedures

34 

 

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings

34 

Item 1A.

Risk Factors

35 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35 

Item 6.

Exhibits

35 

 

Signatures

36 

1

 


 

 

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements

 

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three-Months Ended

 

December 31,

 

2014

 

2013

 

 

 

 

 

 

Net sales

$

487,646 

 

$

429,042 

Costs and expenses:

 

 

 

 

 

    Cost of goods sold

 

343,760 

 

 

315,466 

    Selling, general and administrative expenses

 

39,843 

 

 

37,328 

    Research and development costs

 

34,029 

 

 

29,424 

    Amortization of intangible assets

 

7,575 

 

 

8,484 

    Interest expense

 

5,949 

 

 

6,062 

    Interest income

 

(127)

 

 

(59)

    Other (income) expense, net (Note 15)

 

(455)

 

 

(607)

Total costs and expenses

 

430,574 

 

 

396,098 

Earnings before income taxes

 

57,072 

 

 

32,944 

Income tax expense

 

13,288 

 

 

9,561 

Net earnings

$

43,784 

 

$

23,383 

 

 

 

 

 

 

Earnings per share (Note 3):

 

 

 

 

 

Basic earnings per share

$

0.67 

 

$

0.35 

Diluted earnings per share

$

0.66 

 

$

0.34 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding (Note 3):

 

 

 

 

 

Basic

 

65,322 

 

 

67,724 

Diluted

 

66,739 

 

 

69,021 

Cash dividends per share paid to Woodward common stockholders

$

0.08 

 

$

0.08 

 

See accompanying Notes to Condensed Consolidated Financial Statements

2

 


 

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three-Months Ended

 

December 31,

 

2014

 

2013

 

 

 

 

 

 

Net earnings

$

43,784 

 

$

23,383 

Other comprehensive earnings:

 

 

 

 

 

Foreign currency translation adjustments

 

(12,933)

 

 

4,474 

Taxes on changes in foreign currency translation adjustments

 

849 

 

 

433 

 

 

(12,084)

 

 

4,907 

Reclassification of net realized losses on derivatives to earnings

 

25 

 

 

25 

Taxes on changes in derivative transactions

 

(10)

 

 

(9)

 

 

15 

 

 

16 

Minimum retirement benefit liability adjustments (Note 17)

 

 

 

 

 

Amortization of:

 

 

 

 

 

Net prior service benefit

 

56 

 

 

(22)

Net loss

 

130 

 

 

194 

Foreign currency exchange rate changes on minimum retirement benefit liabilities

 

540 

 

 

(96)

Taxes on changes in minimum retirement liability adjustments

 

(257)

 

 

(27)

 

 

469 

 

 

49 

Total comprehensive earnings

$

32,184 

 

$

28,355 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

3

 


 

 

WOODWARD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

September 30,

 

2014

 

2014

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

58,462 

 

$

115,287 

Accounts receivable, less allowance for uncollectible amounts of $6,757 and $7,078, respectively

 

300,161 

 

 

346,858 

Inventories

 

467,700 

 

 

451,944 

Income taxes receivable

 

9,860 

 

 

6,574 

Deferred income tax assets

 

40,709 

 

 

40,774 

Other current assets

 

43,538 

 

 

47,207 

Total current assets

 

920,430 

 

 

1,008,644 

Property, plant and equipment, net

 

566,273 

 

 

513,279 

Goodwill

 

557,959 

 

 

559,724 

Intangible assets, net

 

246,859 

 

 

254,772 

Deferred income tax assets

 

6,567 

 

 

6,292 

Other assets

 

56,571 

 

 

54,491 

Total assets

$

2,354,659 

 

$

2,397,202 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

$

 -

 

$

 -

Accounts payable

 

176,580 

 

 

160,683 

Income taxes payable

 

10,225 

 

 

6,130 

Deferred income tax liabilities

 

314 

 

 

472 

Accrued liabilities

 

116,570 

 

 

172,731 

Total current liabilities

 

303,689 

 

 

340,016 

Long-term debt, less current portion

 

700,000 

 

 

710,000 

Deferred income tax liabilities

 

88,754 

 

 

85,031 

Other liabilities

 

99,764 

 

 

101,211 

Total liabilities

 

1,192,207 

 

 

1,236,258 

Commitments and contingencies (Note 19)

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

Preferred stock, par value $0.003 per share, 10,000 shares authorized, no shares issued

 

 -

 

 

 -

Common stock, par value $0.001455 per share, 150,000 shares authorized, 72,960 shares issued

 

106 

 

 

106 

Additional paid-in capital

 

117,218 

 

 

112,491 

Accumulated other comprehensive earnings (losses)

 

(15,133)

 

 

(3,533)

Deferred compensation

 

4,642 

 

 

3,915 

Retained earnings

 

1,377,002 

 

 

1,338,468 

 

 

1,483,835 

 

 

1,451,447 

Treasury stock at cost, 7,953  shares and 7,397 shares, respectively

 

(316,741)

 

 

(286,588)

Treasury stock held for deferred compensation, at cost, 212 shares and 198 shares, respectively

 

(4,642)

 

 

(3,915)

Total stockholders' equity

 

1,162,452 

 

 

1,160,944 

Total liabilities and stockholders' equity

$

2,354,659 

 

$

2,397,202 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

4

 


 

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three-Months Ended December 31,

 

2014

 

2013

Cash flows from operating activities:

 

 

 

 

 

Net earnings

$

43,784 

 

$

23,383 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

18,573 

 

 

19,116 

Net gain on sales of assets

 

(60)

 

 

(29)

Stock-based compensation

 

4,809 

 

 

3,894 

Excess tax benefits from stock-based compensation

 

(522)

 

 

(280)

Deferred income taxes

 

3,676 

 

 

(413)

Loss on derivatives reclassified from accumulated comprehensive earnings into earnings

 

25 

 

 

25 

Changes in operating assets and liabilities, net of business acquisitions:

 

 

 

 

 

Accounts receivable

 

43,891 

 

 

73,226 

Inventories

 

(22,110)

 

 

(20,645)

Accounts payable and accrued liabilities

 

(56,248)

 

 

(53,274)

Current income taxes

 

1,342 

 

 

4,961 

Retirement benefit obligations

 

(1,600)

 

 

(1,524)

Other

 

2,296 

 

 

(4,007)

Net cash provided by operating activities

 

37,856 

 

 

44,433 

Cash flows from investing activities:

 

 

 

 

 

Payments for purchase of property, plant, and equipment

 

(46,621)

 

 

(37,149)

Proceeds from sale of assets

 

90 

 

 

40 

Net cash used in investing activities

 

(46,531)

 

 

(37,109)

Cash flows from financing activities:

 

 

 

 

 

Cash dividends paid

 

(5,250)

 

 

(5,448)

Proceeds from sales of treasury stock

 

1,391 

 

 

4,122 

Payments for repurchases of common stock

 

(32,118)

 

 

(43,616)

Excess tax benefits from stock compensation

 

522 

 

 

280 

Borrowings on revolving lines of credit and short-term borrowings

 

105,000 

 

 

165,094 

Payments on revolving lines of credit and short-term borrowings

 

(115,000)

 

 

(71,094)

Proceeds from issuance of long-term debt

 

 -

 

 

250,000 

Payments of long-term debt

 

 -

 

 

(300,000)

Payments of debt financing costs

 

 -

 

 

(1,297)

Net cash used in financing activities

 

(45,455)

 

 

(1,959)

Effect of exchange rate changes on cash and cash equivalents

 

(2,695)

 

 

669 

Net change in cash and cash equivalents

 

(56,825)

 

 

6,034 

Cash and cash equivalents at beginning of period

 

115,287 

 

 

48,556 

Cash and cash equivalents at end of period

$

58,462 

 

$

54,590 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

5

 


 

 

 

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares

 

Stockholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive (loss) earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

Common stock

 

Treasury stock

 

Treasury stock held for deferred compensation

 

Common stock

 

Additional paid-in capital

 

Foreign currency translation adjustments

 

Unrealized derivative gains (losses)

 

Minimum retirement benefit liability adjustments

 

Total accumulated other comprehensive (loss) earnings

 

Deferred compensation

 

Retained earnings

 

Treasury stock at cost

 

Treasury stock held for deferred compensation

 

Total stockholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of October 1, 2013

 

 -

 

72,960 

 

(4,883)

 

(232)

 

$

106 

 

$

101,147 

 

$

25,742 

 

$

43 

 

$

(10,670)

 

$

15,115 

 

$

4,007 

 

$

1,193,887 

 

$

(167,710)

 

$

(4,007)

 

$

1,142,545 

Net earnings

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

23,383 

 

 

 -

 

 

 -

 

 

23,383 

Other comprehensive income (loss), net of tax

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

4,907 

 

 

16 

 

 

49 

 

 

4,972 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

4,972 

Cash dividends paid

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(5,448)

 

 

 -

 

 

 -

 

 

(5,448)

Purchases of treasury stock

 

 -

 

 -

 

(1,037)

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(43,616)

 

 

 -

 

 

(43,616)

Sales of treasury stock

   

 -

 

 -

 

158 

 

 -

 

 

 -

 

 

(825)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

4,947 

 

 

 -

 

 

4,122 

Tax benefit attributable to exercise of stock options

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

280 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

280 

Stock-based compensation

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

3,894 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

3,894 

Purchases of stock by deferred compensation plan

 

 -

 

 -

 

 -

 

(3)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

145 

 

 

 -

 

 

 -

 

 

(145)

 

 

 -

Distribution of stock from deferred compensation plan

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(1)

 

 

 -

 

 

 -

 

 

 

 

 -

Balances as of December 31, 2013

 

 -

 

72,960 

 

(5,762)

 

(235)

 

$

106 

 

$

104,496 

 

$

30,649 

 

$

59 

 

$

(10,621)

 

$

20,087 

 

$

4,151 

 

$

1,211,822 

 

$

(206,379)

 

$

(4,151)

 

$

1,130,132 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of October 1, 2014

 

 -

 

72,960 

 

(7,397)

 

(198)

 

$

106 

 

$

112,491 

 

$

10,819 

 

$

105 

 

$

(14,457)

 

$

(3,533)

 

$

3,915 

 

$

1,338,468 

 

$

(286,588)

 

$

(3,915)

 

$

1,160,944 

Net earnings

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

43,784 

 

 

 -

 

 

 -

 

 

43,784 

Other comprehensive income (loss), net of tax

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

(12,084)

 

 

15 

 

 

469 

 

 

(11,600)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(11,600)

Cash dividends paid

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(5,250)

 

 

 -

 

 

 -

 

 

(5,250)

Purchases of treasury stock

 

 -

 

 -

 

(622)

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(32,118)

 

 

 -

 

 

(32,118)

Sales of treasury stock

 

 -

 

 -

 

66 

 

 -

 

 

 -

 

 

(574)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

1,965 

 

 

 -

 

 

1,391 

Tax benefit attributable to exercise of stock options

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

492 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

492 

Stock-based compensation

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

4,809 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

4,809 

Purchases of stock by deferred compensation plan

 

 -

 

 -

 

 -

 

(15)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

731 

 

 

 -

 

 

 -

 

 

(731)

 

 

 -

Distribution of stock from deferred compensation plan

 

 -

 

 -

 

 -

 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(4)

 

 

 -

 

 

 -

 

 

 

 

 -

Balances as of December 31, 2014

 

 -

 

72,960 

 

(7,953)

 

(212)

 

$

106 

 

$

117,218 

 

$

(1,265)

 

$

120 

 

$

(13,988)

 

$

(15,133)

 

$

4,642 

 

$

1,377,002 

 

$

(316,741)

 

$

(4,642)

 

$

1,162,452 

See accompanying Notes to Condensed Consolidated Financial Statements.

6

 


 

 

 

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, 2014 and for the three-months ended December 31, 2014 and December 31, 2013, included herein, have not been audited by an independent registered public accounting firm.  These Condensed Consolidated Financial Statements reflect all normal recurring adjustments that, in the opinion of management, are necessary to present fairly Woodward’s financial position as of December 31, 2014, and the statements of earnings, comprehensive earnings, cash flows, and changes in the statement of stockholders’ equity for the periods presented herein.  The Condensed Consolidated Balance Sheet as of September 30, 2014 was derived from Woodward’s Annual Report on Form 10-K for the fiscal year then ended.  The results of operations for the three-months ended December 31, 2014 are not necessarily indicative of the operating results to be expected for other interim periods or for the full fiscal year.  Dollar amounts contained in these Condensed Consolidated Financial Statements are in thousands, except per share amounts.

The Condensed Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations.

These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in Woodward’s most recent Annual Report on Form 10-K filed with the SEC and other financial information filed with the SEC.

Management is required to use estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements, the reported revenues and expenses recognized during the reporting period, and certain financial statement disclosures, in the preparation of the Condensed Consolidated Financial Statements included herein.  Significant estimates in these Condensed Consolidated Financial Statements include allowances for uncollectible amounts, net realizable value of inventories, customer rebates earned, warranty reserves, useful lives of property and identifiable intangible assets, the evaluation of impairments of property, valuation of identifiable intangible assets and goodwill, the provision for income tax and related valuation reserves, the valuation of assets and liabilities acquired in business combinations, assumptions used in the determination of the funded status and annual expense of pension and postretirement employee benefit plans, the valuation of stock compensation instruments granted to employees and board members, and contingencies.  Actual results could vary materially from Woodward’s estimates.

 

Note 2.  Recent accounting pronouncements

From time to time, the Financial Accounting Standards Board (“FASB”) or other standards setting bodies issue new accounting pronouncements.  Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through issuance of an Accounting Standards Update (“ASU”).

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.”  The purpose of ASU 2014-09 is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards.  The amendments (i) remove inconsistencies and weaknesses in revenue requirements, (ii) provide a more robust framework for addressing revenue issues, (iii) improve comparability of revenue recognition across entities, industries, jurisdictions, and capital markets, (iv) provide more useful information to users of financial statements through improved disclosure requirements, and (v) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer.  ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016 (fiscal year 2018 for Woodward), including interim periods within that reporting period.  Early adoption is not permitted.  An entity should adopt the amendments using one of the following methods: retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application.  Woodward has not determined what transition method it will use and is currently assessing the impact that this guidance may have on its Consolidated Financial Statements.   

 

 

 

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Note 3.  Earnings per share

Basic earnings per share is computed by dividing net earnings available to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

Diluted earnings per share reflects the weighted-average number of shares outstanding after consideration of the dilutive effect of stock options and restricted stock.

The following is a reconciliation of net earnings to basic earnings per share and diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three-Months Ended

 

 

 

December 31,

 

 

 

2014

 

2013

 

Numerator:

 

 

 

 

 

 

 

Net earnings 

 

$

43,784 

 

$

23,383 

 

Denominator:

 

 

 

 

 

 

 

Basic shares outstanding

 

 

65,322 

 

 

67,724 

 

Dilutive effect of stock options and restricted stock

 

 

1,417 

 

 

1,297 

 

Diluted shares outstanding

 

 

66,739 

 

 

69,021 

 

Income per common share:

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.67 

 

$

0.35 

 

Diluted earnings per share

 

$

0.66 

 

$

0.34 

 

The following stock option grants were outstanding during the three-months ended December 31, 2014 and 2013, but were excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three-Months Ended

 

 

 

December 31,

 

 

 

2014

 

2013

 

Options

 

 

704 

 

 

39 

 

Weighted-average option price

 

$

46.54 

 

$

41.33 

 

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,

 

 

 

2014

 

2013

 

Weighted-average treasury stock shares held for deferred compensation obligations

 

 

205 

 

 

234 

 

Note 4.  Financial instruments and fair value measurements

Financial assets and liabilities recorded at fair value in the Condensed Consolidated Balance Sheets are categorized based upon a fair value hierarchy established by U.S. GAAP, which prioritizes the inputs used to measure fair value into the following levels:

Level 1: Inputs based on quoted market prices in active markets for identical assets or liabilities at the measurement date.

Level 2: Quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable and can be corroborated by observable market data.

Level 3: Inputs reflect management’s best estimates and assumptions of what market participants would use in pricing the asset or liability at the measurement date.  The inputs are unobservable in the market and significant to the valuation of the instruments.

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The table below presents information about Woodward’s financial assets that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques Woodward utilized to determine such fair value.  Woodward had no financial liabilities required to be measured at fair value on a recurring basis as of December 31, 2014 or September 30, 2014.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2014

 

At September 30, 2014

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Total

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

51,041 

 

$

 -

 

$

 -

 

$

51,041 

 

$

92,590 

 

$

 -

 

$

 -

 

$

92,590 

Investments in money market funds

 

 

12 

 

 

 -

 

 

 -

 

 

12 

 

 

11,210 

 

 

 -

 

 

 -

 

 

11,210 

Investments in reverse repurchase agreements

 

 

7,409 

 

 

 -

 

 

 -

 

 

7,409 

 

 

11,487 

 

 

 -

 

 

 -

 

 

11,487 

Equity securities

 

 

10,498 

 

 

 -

 

 

 -

 

 

10,498 

 

 

9,645 

 

 

 -

 

 

 -

 

 

9,645 

Total financial assets

 

$

68,960 

 

$

 -

 

$

 -

 

$

68,960 

 

$

124,932 

 

$

 -

 

$

 -

 

$

124,932 

 

Investments in money market funds: Woodward sometimes invests excess cash in money market funds not insured by the Federal Depository Insurance Corporation (“FDIC”).  Woodward believes that the investments in money market funds are on deposit with creditworthy financial institutions and that the funds are highly liquid.  The investments in money market funds are reported at fair value, with realized gains from interest income realized in earnings and are included in “Cash and cash equivalents.”  The fair values of Woodward’s investments in money market funds are based on the quoted market prices for the net asset value of the various money market funds.

Investments in reverse repurchase agreements:  Woodward sometimes invests excess cash in reverse repurchase agreements.  Under the terms of Woodward’s reverse repurchase agreements, Woodward purchases an interest in a pool of securities and is granted a security interest in those securities by the counterparty to the reverse repurchase agreement.  At an agreed upon date, generally the next business day, the counterparty repurchases Woodward’s interest in the pool of securities at a price equal to what Woodward paid to the counterparty plus a rate of return determined daily per the terms of the reverse repurchase agreement.  Woodward believes that the investments in these reverse repurchase agreements are with creditworthy financial institutions and that the funds invested are highly liquid.  The investments in reverse repurchase agreements are reported at fair value, with realized gains from interest income realized in earnings, and are included in “Cash and cash equivalents.”  Since the investments are generally overnight, the carrying value is considered to be equal to the fair value as the amount is deemed to be a cash deposit with no risk of change in value as of the end of each fiscal quarter.

Equity securities: Woodward holds marketable equity securities, through investments in various mutual funds, related to its deferred compensation program.  Based on Woodward’s intentions regarding these instruments, marketable equity securities are classified as trading securities.  The trading securities are reported at fair value, with realized gains and losses recognized in “Other (income) expense, net.”  The trading securities are included in “Other assets.”  The fair values of Woodward’s trading securities are based on the quoted market prices for the net asset value of the various mutual funds.

Accounts receivable and accounts payable are not remeasured to fair value, as the carrying cost of each approximates its respective fair value.  The estimated fair values and carrying costs of other financial instruments that are not required to be remeasured at fair value in the Condensed Consolidated Balance Sheets were as follows: