Woodward, Inc. - FORM 10-Q

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EX-32.1 - EX-32.1 - Woodward, Inc.	c312-20150331xex321.htm
EX-31.2 - EX-31.2 - Woodward, Inc.	c312-20150331xex312.htm
EX-31.1 - EX-31.1 - Woodward, Inc.	c312-20150331xex311.htm
EXCEL - IDEA: XBRL DOCUMENT - Woodward, Inc.	Financial_Report.xls

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 March 31, 2015

☐ 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 April 16, 2015, 65,320,656 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	28
	Liquidity and Capital Resources	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 6.	Exhibits	29
	Signatures	29

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				Six-Months Ended
	March 31,				March 31,
	2015		2014		2015		2014

Net sales	$	493,222	$	482,467	$	980,868	$	911,509
Costs and expenses:
Cost of goods sold		355,602		340,028		699,362		655,494
Selling, general and administrative expenses		38,450		35,283		78,293		72,611
Research and development costs		30,328		35,805		64,357		65,229
Amortization of intangible assets		7,227		8,657		14,802		17,141
Interest expense		5,329		6,185		11,278		12,247
Interest income		(221)		(57)		(348)		(116)
Other (income) expense, net (Note 15)		(1,084)		(190)		(1,539)		(797)
Total costs and expenses		435,631		425,711		866,205		821,809
Earnings before income taxes		57,591		56,756		114,663		89,700
Income tax expense		13,736		11,958		27,024		21,519
Net earnings	$	43,855	$	44,798	$	87,639	$	68,181

Earnings per share (Note 3):
Basic earnings per share	$	0.67	$	0.67	$	1.34	$	1.01
Diluted earnings per share	$	0.66	$	0.66	$	1.32	$	1.00

Weighted Average Common Shares Outstanding (Note 3):
Basic		65,159		66,633		65,242		67,182
Diluted		66,540		67,905		66,641		68,463
Cash dividends per share paid to Woodward common stockholders	$	0.10	$	0.08	$	0.18	$	0.16

See accompanying Notes to Condensed Consolidated Financial Statements

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In thousands)

(Unaudited)



	Three-Months Ended				Six-Months Ended
	March 31,				March 31,
	2015		2014		2015		2014

Net earnings	$	43,855	$	44,798	$	87,639	$	68,181
Other comprehensive earnings:
Foreign currency translation adjustments		(22,012)		(243)		(34,945)		4,231
Taxes on changes in foreign currency translation adjustments		411		(139)		1,260		294
		(21,601)		(382)		(33,685)		4,525
Reclassification of net realized losses on derivatives to earnings		24		24		49		49
Taxes on changes in derivative transactions		(8)		(9)		(18)		(18)
		16		15		31		31
Minimum retirement benefit liability adjustments (Note 17)
Amortization of:
Net prior service cost (benefit)		57		(22)		113		(44)
Net loss		127		195		257		389
Foreign currency exchange rate changes on minimum retirement benefit liabilities		518		(124)		1,058		(220)
Taxes on changes in minimum retirement liability adjustments, net of foreign currency exchange rate changes		(252)		(18)		(509)		(45)
		450		31		919		80
Total comprehensive earnings	$	22,720	$	44,462	$	54,904	$	72,817

See accompanying Notes to Condensed Consolidated Financial Statements

WOODWARD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)



	March 31,		September 30,
	2015		2014
ASSETS
Current assets:
Cash and cash equivalents	$	80,761	$	115,287
Accounts receivable, less allowance for uncollectible amounts of $6,546 and $7,078, respectively		311,078		346,858
Inventories		475,957		451,944
Income taxes receivable		20,298		6,574
Deferred income tax assets		41,157		40,774
Other current assets		43,822		47,207
Total current assets		973,073		1,008,644
Property, plant and equipment, net		632,638		513,279
Goodwill		556,500		559,724
Intangible assets, net		239,515		254,772
Deferred income tax assets		6,576		6,292
Other assets		56,346		54,491
Total assets	$	2,464,648	$	2,397,202
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	-	$	-
Accounts payable		237,915		160,683
Income taxes payable		9,583		6,130
Deferred income tax liabilities		418		472
Accrued liabilities		124,373		172,731
Total current liabilities		372,289		340,016
Long-term debt, less current portion		713,000		710,000
Deferred income tax liabilities		89,423		85,031
Other liabilities		94,347		101,211
Total liabilities		1,269,059		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		124,712		112,491
Accumulated other comprehensive earnings (losses)		(36,268)		(3,533)
Deferred compensation		4,485		3,915
Retained earnings		1,414,355		1,338,468
		1,507,390		1,451,447
Treasury stock at cost, 7,653 shares and 7,397 shares, respectively		(307,316)		(286,588)
Treasury stock held for deferred compensation, at cost, 191 shares and 198 shares, respectively		(4,485)		(3,915)
Total stockholders' equity		1,195,589		1,160,944
Total liabilities and stockholders' equity	$	2,464,648	$	2,397,202

See accompanying Notes to Condensed Consolidated Financial Statements.

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Six-Months Ended March 31,
	2015		2014
Cash flows from operating activities:
Net earnings	$	87,639	$	68,181
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		37,249		38,835
Net (gain) loss on sales of assets		(718)		136
Stock-based compensation		7,890		6,330
Excess tax benefits from stock-based compensation		(736)		(2,163)
Deferred income taxes		3,628		(2,306)
Loss on derivatives reclassified from accumulated comprehensive earnings into earnings		49		49
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable		26,417		59,408
Inventories		(36,085)		(27,698)
Accounts payable and accrued liabilities		6,231		(23,884)
Current income taxes		(9,173)		15,158
Retirement benefit obligations		(2,490)		(2,486)
Other		2,639		(4,916)
Net cash provided by operating activities		122,540		124,644
Cash flows from investing activities:
Payments for purchase of property, plant, and equipment		(109,402)		(68,560)
Proceeds from sale of assets		2,345		154
Net cash used in investing activities		(107,057)		(68,406)
Cash flows from financing activities:
Cash dividends paid		(11,752)		(10,754)
Proceeds from sales of treasury stock		2,460		6,147
Payments for repurchases of common stock		(32,118)		(99,655)
Excess tax benefits from stock compensation		736		2,163
Borrowings on revolving lines of credit and short-term borrowings		255,000		256,071
Payments on revolving lines of credit and short-term borrowings		(252,000)		(151,069)
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		(37,674)		(48,394)
Effect of exchange rate changes on cash and cash equivalents		(12,335)		265
Net change in cash and cash equivalents		(34,526)		8,109
Cash and cash equivalents at beginning of period		115,287		48,556
Cash and cash equivalents at end of period	$	80,761	$	56,665

See accompanying Notes to Condensed Consolidated Financial Statements.

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	-		-	-	-			-		-			-			-		-		-		-			68,181			-			-			68,181
Other comprehensive income (loss), net of tax	-		-	-	-			-		-			4,525			31		80		4,636		-			-			-			-			4,636
Cash dividends paid	-		-	-	-			-		-			-			-		-		-		-			(10,754)			-			-			(10,754)
Purchases of treasury stock	-		-	(2,388)	-			-		-			-			-		-		-		-			-			(101,241)			-			(101,241)
Sales of treasury stock	-		-	354	-			-		(4,203)			-			-		-		-		-			-			11,065			-			6,862
Common shares issued from treasury stock for benefit plans	-		-	260	-			-		2,837			-			-		-		-		-			-			8,356			-			11,193
Tax benefit attributable to exercise of stock options	-		-	-	-			-		2,046			-			-		-		-		-			-			-			-			2,046
Stock-based compensation	-		-	-	-			-		6,330			-			-		-		-		-			-			-			-			6,330
Purchases of stock by deferred compensation plan	-		-	-	(6)			-		-			-			-		-		-		276			-			-			(276)			-
Distribution of stock from deferred compensation plan	-		-	-	23			-		-			-			-		-		-		(274)			-			-			274			-
Balances as of March 31, 2014	-		72,960	(6,657)	(215)		$	106	$	108,157		$	30,267	$		74	$	(10,590)	$	19,751	$	4,009	$		1,251,314	$		(249,530)	$		(4,009)	$		1,129,798

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	-		-	-	-			-		-			-			-		-		-		-			87,639			-			-			87,639
Other comprehensive income (loss), net of tax	-		-	-	-			-		-			(33,685)			31		919		(32,735)		-			-			-			-			(32,735)
Cash dividends paid	-		-	-	-			-		-			-			-		-		-		-			(11,752)			-			-			(11,752)
Purchases of treasury stock	-		-	(622)	-			-		-			-			-		-		-		-			-			(32,118)			-			(32,118)
Sales of treasury stock	-		-	107	-			-		(846)			-			-		-		-		-			-			3,306			-			2,460
Common shares issued from treasury stock for benefit plans	-		-	259	-			-		4,490			-			-		-		-		-			-			8,084			-			12,574
Tax benefit attributable to exercise of stock options	-		-	-	-			-		687			-			-		-		-		-			-			-			-			687
Stock-based compensation	-		-	-	-			-		7,890			-			-		-		-		-			-			-			-			7,890
Purchases of stock by deferred compensation plan	-		-	-	(17)			-		-			-			-		-		-		859			-			-			(859)			-
Distribution of stock from deferred compensation plan	-		-	-	24			-		-			-			-		-		-		(289)			-			-			289			-
Balances as of March 31, 2015	-		72,960	(7,653)	(191)		$	106	$	124,712		$	(22,866)	$		136	$	(13,538)	$	(36,268)	$	4,485	$		1,414,355	$		(307,316)	$		(4,485)	$		1,195,589

See accompanying Notes to Condensed Consolidated Financial Statements.

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 March 31, 2015 and for the three and six-months ended March 31, 2015 and March 31, 2014, 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 March 31, 2015, and the statements of earnings, comprehensive earnings, cash flows, and changes in 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 and six-months ended March 31, 2015 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 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 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 April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” Under ASU 2015-03 Woodward will present debt issuance costs in the balance sheet as a reduction from the related debt liability rather than as an asset. Amortization of such costs will continue to be reported as interest expense. ASU 2015-03 is effective for fiscal years − and interim periods within those fiscal years − beginning after December 15, 2015 (fiscal year 2017 for Woodward), but early adoption is allowed. Woodward has not determined in which period the new guidance will be adopted. Retrospective adoption is required. Woodward had unamortized debt issuance costs of $3,769 as of March 31, 2015 and $4,276 as of September 30 2014, these costs will be reclassified from other assets to long-term debt upon adoption.

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 practices 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. In April 2015, the FASB announced it plans to propose extending the deadline for the adoption of ASU 2014-09 by one year.

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				Six-Months Ended
	March 31,				March 31,
	2015		2014		2015		2014
Numerator:
Net earnings	$	43,855	$	44,798	$	87,639	$	68,181
Denominator:

Woodward, Inc. - FORM 10-Q - April 20, 2015

Attached files