Woodward, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.1 - EX-31.1 - Woodward, Inc.	wwd-20160331xex31_1.htm
EX-31.2 - EX-31.2 - Woodward, Inc.	wwd-20160331xex31_2.htm
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

☐ 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	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	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

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

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

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.

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.

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

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

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

Woodward, Inc. - FORM 10-Q - April 19, 2016

Attached files