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EX-32.1 - EX-32.1 - Woodward, Inc.wwd-20160331xex32_1.htm

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, 2016

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 April 18, 2016, 61,103,960 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



Condensed Consolidated Statements of Earnings



Condensed Consolidated Statements of Comprehensive Earnings



Condensed Consolidated Balance Sheets



Condensed Consolidated Statements of Cash Flows



Condensed Consolidated Statements of Stockholders’ Equity



Notes to Condensed Consolidated Financial Statements

Item 2.

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

28 



Forward Looking Statements

28 



Overview

31 



Results of Operations

33 



Liquidity and Capital Resources

38 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41 

Item 4.

Controls and Procedures

41 

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

42 

Item 1A.

Risk Factors

42 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42 

Item 6.

Exhibits

43 



Signatures

44 

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

 

Six-Months Ended



March 31,

 

March 31,



2016

 

2015

 

2016

 

2015



 

 

 

 

 

 

 

 

 

 

 

Net sales

$

479,382 

 

$

493,222 

 

$

924,492 

 

$

980,868 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

    Cost of goods sold

 

346,139 

 

 

355,602 

 

 

679,516 

 

 

699,362 

    Selling, general and administrative expenses

 

36,823 

 

 

38,450 

 

 

77,605 

 

 

78,293 

    Research and development costs

 

31,762 

 

 

30,328 

 

 

63,359 

 

 

64,357 

    Amortization of intangible assets

 

6,926 

 

 

7,227 

 

 

13,872 

 

 

14,802 

    Interest expense

 

6,234 

 

 

5,329 

 

 

13,142 

 

 

11,278 

    Interest income

 

(441)

 

 

(221)

 

 

(888)

 

 

(348)

    Other (income) expense, net (Note 15)

 

(2,427)

 

 

(1,084)

 

 

(4,436)

 

 

(1,539)

Total costs and expenses

 

425,016 

 

 

435,631 

 

 

842,170 

 

 

866,205 

Earnings before income taxes

 

54,366 

 

 

57,591 

 

 

82,322 

 

 

114,663 

Income tax expense

 

13,542 

 

 

13,736 

 

 

15,678 

 

 

27,024 

Net earnings

$

40,824 

 

$

43,855 

 

$

66,644 

 

$

87,639 



 

 

 

 

 

 

 

 

 

 

 

Earnings per share (Note 3):

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

0.66 

 

$

0.67 

 

$

1.07 

 

$

1.34 

Diluted earnings per share

$

0.65 

 

$

0.66 

 

$

1.05 

 

$

1.32 



 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding (Note 3):

 

 

 

 

 

 

 

 

 

 

 

Basic

 

61,639 

 

 

65,159 

 

 

62,351 

 

 

65,242 

Diluted

 

63,064 

 

 

66,540 

 

 

63,768 

 

 

66,641 

Cash dividends per share paid to Woodward common stockholders

$

0.11 

 

$

0.10 

 

$

0.21 

 

$

0.18 









See accompanying Notes to Condensed Consolidated Financial Statements

2

 


 



WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In thousands)

(Unaudited)































 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three-Months Ended

 

Six-Months Ended



March 31,

 

March 31,



2016

 

2015

 

2016

 

2015



 

 

 

 

 

 

 

 

 

 

 

Net earnings

$

40,824 

 

$

43,855 

 

$

66,644 

 

$

87,639 

Other comprehensive earnings:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

10,125 

 

 

(22,012)

 

 

(129)

 

 

(34,945)

Unrealized gain (loss) on foreign currency transaction designated as a hedge of a net investment in a foreign subsidiary (Note 6)

 

(345)

 

 

 -

 

 

517 

 

 

 -

Taxes on changes in foreign currency translation adjustments

 

(601)

 

 

411 

 

 

(295)

 

 

1,260 



 

9,179 

 

 

(21,601)

 

 

93 

 

 

(33,685)

Reclassification of net realized losses on derivatives to earnings (Note 6)

 

28 

 

 

24 

 

 

57 

 

 

49 

Taxes on changes in derivative transactions

 

(10)

 

 

(8)

 

 

(21)

 

 

(18)



 

18 

 

 

16 

 

 

36 

 

 

31 

Minimum retirement benefit liability adjustments (Note 17)

 

 

 

 

 

 

 

 

 

 

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

 

Net prior service cost (benefit)

 

57 

 

 

57 

 

 

113 

 

 

113 

Net loss

 

425 

 

 

127 

 

 

852 

 

 

257 

Foreign currency exchange rate changes on minimum retirement benefit liabilities

 

287 

 

 

518 

 

 

571 

 

 

1,058 

Taxes on changes in minimum retirement liability adjustments, net of foreign currency exchange rate changes

 

(290)

 

 

(252)

 

 

(576)

 

 

(509)



 

479 

 

 

450 

 

 

960 

 

 

919 

Total comprehensive earnings

$

50,500 

 

$

22,720 

 

$

67,733 

 

$

54,904 



See accompanying Notes to Condensed Consolidated Financial Statements



3

 


 

WOODWARD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)





 

 

 

 

 



 

 

 

 

 



March 31,

 

September 30,



2016

 

2015

ASSETS

 

 

 

 

(a)

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

84,745 

 

$

82,202 

Accounts receivable, less allowance for uncollectible amounts of $2,759 and $3,841, respectively

 

276,848 

 

 

322,215 

Inventories

 

492,660 

 

 

447,664 

Income taxes receivable

 

1,687 

 

 

21,838 

Other current assets

 

36,281 

 

 

43,791 

Total current assets

 

892,221 

 

 

917,710 

Property, plant and equipment, net

 

825,972 

 

 

756,100 

Goodwill

 

556,720 

 

 

556,977 

Intangible assets, net

 

211,289 

 

 

225,138 

Deferred income tax assets

 

38,311 

 

 

13,105 

Other assets

 

44,903 

 

 

44,886 

Total assets

$

2,569,416 

 

$

2,513,916 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Short-term borrowings and current portion of long-term debt

$

100,000 

 

$

2,430 

Accounts payable

 

177,423 

 

 

173,287 

Income taxes payable

 

78,430 

 

 

6,555 

Accrued liabilities

 

123,397 

 

 

155,936 

Total current liabilities

 

479,250 

 

 

338,208 

Long-term debt, less current portion

 

617,000 

 

 

850,000 

Deferred income tax liabilities

 

936 

 

 

56,414 

Other liabilities

 

353,269 

 

 

116,190 

Total liabilities

 

1,450,455 

 

 

1,360,812 

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

 

145,606 

 

 

131,231 

Accumulated other comprehensive losses

 

(50,369)

 

 

(51,458)

Deferred compensation

 

5,219 

 

 

4,322 

Retained earnings

 

1,548,832 

 

 

1,495,274 



 

1,649,394 

 

 

1,579,475 

Treasury stock at cost, 11,735  shares and 9,763 shares, respectively

 

(525,214)

 

 

(422,049)

Treasury stock held for deferred compensation, at cost, 174 shares and 173 shares, respectively

 

(5,219)

 

 

(4,322)

Total stockholders' equity

 

1,118,961 

 

 

1,153,104 

Total liabilities and stockholders' equity

$

2,569,416 

 

$

2,513,916 



 

 

 

 

 

(a)  Retrospectively adjusted as discussed in Note 2, Recent accounting pronouncements

 

 

 

 

 



See accompanying Notes to Condensed Consolidated Financial Statements.

4

 


 

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)









 

 

 

 

 



 

 

 

 

 



Six-Months Ended March 31,



2016

 

2015

Cash flows from operating activities:

 

 

 

 

(a)

Net earnings

$

66,644 

 

$

87,639 

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

 

 

 

 

 

Depreciation and amortization

 

32,621 

 

 

37,249 

Net gain on sales of assets

 

(1,601)

 

 

(718)

Stock-based compensation

 

11,422 

 

 

7,890 

Deferred income taxes

 

(81,496)

 

 

3,628 

Loss on derivatives reclassified from accumulated comprehensive earnings into earnings

 

57 

 

 

49 

Proceeds from formation of joint venture (Note 4)

 

250,000 

 

 

 -

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

53,666 

 

 

26,417 

Inventories

 

(45,918)

 

 

(36,085)

Accounts payable and accrued liabilities

 

(10,734)

 

 

6,231 

Current income taxes

 

91,800 

 

 

(9,173)

Retirement benefit obligations

 

(1,969)

 

 

(2,490)

Other

 

(2,810)

 

 

2,639 

Net cash provided by operating activities

 

361,682 

 

 

123,276 

Cash flows from investing activities:

 

 

 

 

 

Payments for purchase of property, plant, and equipment

 

(99,316)

 

 

(109,402)

Proceeds from sale of assets

 

2,112 

 

 

2,345 

Net cash used in investing activities

 

(97,204)

 

 

(107,057)

Cash flows from financing activities:

 

 

 

 

 

Cash dividends paid

 

(13,086)

 

 

(11,752)

Proceeds from sales of treasury stock

 

5,288 

 

 

2,460 

Payments for repurchases of common stock

 

(117,820)

 

 

(32,118)

Borrowings on revolving lines of credit and short-term borrowings

 

300,000 

 

 

255,000 

Payments on revolving lines of credit and short-term borrowings

 

(385,596)

 

 

(252,000)

Payments of long-term debt and capital lease obligations

 

(50,075)

 

 

 -

Net cash used in financing activities

 

(261,289)

 

 

(38,410)

Effect of exchange rate changes on cash and cash equivalents

 

(646)

 

 

(12,335)

Net change in cash and cash equivalents

 

2,543 

 

 

(34,526)

Cash and cash equivalents at beginning of period

 

82,202 

 

 

115,287 

Cash and cash equivalents at end of period

$

84,745 

 

$

80,761 



 

 

 

 

 

(a)  Retrospectively adjusted as discussed in Note 2, Recent accounting pronouncements

 

 

 

 

 





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, 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 stock-based compensation

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

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 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of October 1, 2015

 

 -

 

72,960 

 

(9,763)

 

(173)

 

$

106 

 

$

131,231 

 

$

(21,610)

 

$

166 

 

$

(30,014)

 

$

(51,458)

 

$

4,322 

 

$

1,495,274 

 

$

(422,049)

 

$

(4,322)

 

$

1,153,104 

Net earnings

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

66,644 

 

 

 -

 

 

 -

 

 

66,644 

Other comprehensive income (loss), net of tax

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

93 

 

 

36 

 

 

960 

 

 

1,089 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

1,089 

Cash dividends paid

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(13,086)

 

 

 -

 

 

 -

 

 

(13,086)

Purchases of treasury stock

 

 -

 

 -

 

(2,543)

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(120,119)

 

 

 -

 

 

(120,119)

Sales of treasury stock

 

 -

 

 -

 

254 

 

 -

 

 

 -

 

 

(2,366)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

8,274 

 

 

 -

 

 

5,908 

Common shares issued from treasury stock for benefit plans

 

 -

 

 -

 

317 

 

 -

 

 

 -

 

 

5,319 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

8,680 

 

 

 -

 

 

13,999 

Stock-based compensation

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

11,422 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

11,422 

Purchases of stock by deferred compensation plan

 

 -

 

 -

 

 -

 

(24)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

1,195 

 

 

 -

 

 

 -

 

 

(1,195)

 

 

 -

Distribution of stock from deferred compensation plan

 

 -

 

 -

 

 -

 

23 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(298)

 

 

 -

 

 

 -

 

 

298 

 

 

 -

Balances as of March 31, 2016

 

 -

 

72,960 

 

(11,735)

 

(174)

 

$

106 

 

$

145,606 

 

$

(21,517)

 

$

202 

 

$

(29,054)

 

$

(50,369)

 

$

5,219 

 

$

1,548,832 

 

$

(525,214)

 

$

(5,219)

 

$

1,118,961 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 





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 March 31, 2016 and for the three and six-months ended March 31, 2016 and March 31, 2015, 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, 2016, 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 and six-months ended March 31, 2016 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 Condensed Consolidated Financial Statements are in thousands, except per share amounts.

The Condensed Consolidated Balance Sheet as of September 30, 2015 was derived from Woodward’s Annual Report on Form 10-K for the fiscal year then ended.  During the three-months ended March 31, 2016, Woodward adopted Accounting Standards Update (“ASU”) 2015-17, “Balance Sheet Classification of Deferred Taxes,” and retrospectively applied the guidance to its deferred tax assets and liabilities as of September 30, 2015.  For further discussion of the impact of adopting this new accounting guidance, see Note 2, Recent accounting pronouncements.    

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, estimates to support unit-of-production depreciation, 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.

Woodward has changed the name of its Energy segment to Industrial.  The term “energy” is largely viewed as “oil and gas” and therefore was not representative of the broader markets Woodward serves in this segment.



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 March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” to simplify financial reporting of the income tax impacts of share-based compensation arrangements.  As early adoption is allowed,  Woodward adopted ASU 2016-09 during the second quarter of fiscal year 2016.  Under ASU 2016-09 Woodward classifies the excess income tax benefits from stock-based compensation arrangements as a discrete item within income tax expense, rather than recognizing such excess income tax benefits in additional paid-in capital.  As required by ASU 2016-09, Woodward applied this classification guidance effective as of October 1, 2015.

Under ASU 2016-09, excess income tax benefits from stock-based compensation arrangements are classified as cash flow from operations, rather than as cash flow from financing activities.  In addition, when Woodward withholds shares from an employee’s exercise of stock options to fund payment by Woodward of the employee’s taxes, the payment is classified as

7

 


 

a financing activity.  Woodward has elected to apply the cash flow classification guidance of ASU 2016-09 retrospectively to any prior periods presented.  

Woodward has elected to continue to estimate the number of stock-based awards expected to vest, as permitted by ASU 2016-09, rather than electing to account for forfeitures as they occur.

The following table shows the impact of retrospectively applying this guidance to the Condensed Consolidated Statement of Earnings and Condensed Consolidated Statement of Cash Flows for the three-months ended December 31, 2015.





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



Three-Months Ended December 31, 2015



As previously reported

 

Adjustment

 

As recast

Statement of Earnings:

 

 

 

 

 

 

 

 

Earnings before income taxes

$

27,956 

 

$

 -

 

$

27,956 

Income tax expense

 

2,345 

 

 

(209)

 

 

2,136 

Net earnings

$

25,611 

 

$

209 

 

$

25,820 



 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic earnings per share

$

0.41 

 

$

 -

 

$

0.41 

Diluted earnings per share

$

0.40 

 

$

 -

 

$

0.40 



 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

63,054 

 

 

 -

 

 

63,054 

Diluted

 

64,373 

 

 

79 

 

 

64,452 



 

 

 

 

 

 

 

 

Statement of Cash Flows:

 

 

 

 

 

 

 

 

Net cash provided by operating activities

$

37,112 

 

$

248 

 

$

37,360 

Net cash used in investing activities

 

(31,279)

 

 

 -

 

 

(31,279)

Net cash used in financing activities

 

(1,131)

 

 

(248)

 

 

(1,379)

Effect of exchange rate changes on cash and cash equivalents

 

(2,482)

 

 

 -

 

 

(2,482)

Net change in cash and cash equivalents

$

2,220 

 

$

 -

 

$

2,220 

The following table shows the impact of retrospectively applying this guidance to the Condensed Consolidated Statement of Cash Flows for the six-months ended March 31, 2015.





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



Six-Months Ended March 31, 2015



As previously reported

 

Adjustment

 

As recast

Statement of Cash Flows:

 

 

 

 

 

 

 

 

Net cash provided by operating activities

$

122,540 

 

$

736 

 

$

123,276 

Net cash used in investing activities

 

(107,057)

 

 

 -

 

 

(107,057)

Net cash used in financing activities

 

(37,674)

 

 

(736)

 

 

(38,410)