Woodward, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.1 - EX-32.1 - Woodward, Inc.	wwd-20160630xex32_1.htm
EX-31.2 - EX-31.2 - Woodward, Inc.	wwd-20160630xex31_2.htm
EX-31.1 - EX-31.1 - Woodward, Inc.	wwd-20160630xex31_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 June 30, 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.)

1081 Woodward Way, Fort Collins, Colorado

80524

(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 July 19, 2016, 61,481,213 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	30
	Forward Looking Statements	30
	Overview	33
	Results of Operations	35
	Liquidity and Capital Resources	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6.	Exhibits	45
	Signatures	46

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				Nine-Months Ended
	June 30,				June 30,
	2016		2015		2016		2015

Net sales	$	507,664	$	494,810	$	1,432,156	$	1,475,678
Costs and expenses:
Cost of goods sold		370,722		351,421		1,050,238		1,050,783
Selling, general and administrative expenses		36,415		39,305		114,020		117,598
Research and development costs		29,928		33,555		93,287		97,912
Amortization of intangible assets		6,887		7,224		20,759		22,026
Interest expense		6,522		6,077		19,664		17,355
Interest income		(610)		(219)		(1,498)		(567)
Other (income) expense, net (Note 16)		(5,608)		(112)		(10,044)		(1,651)
Total costs and expenses		444,256		437,251		1,286,426		1,303,456
Earnings before income taxes		63,408		57,559		145,730		172,222
Income tax expense		12,361		13,806		28,039		40,830
Net earnings	$	51,047	$	43,753	$	117,691	$	131,392

Earnings per share (Note 3):
Basic earnings per share	$	0.83	$	0.68	$	1.90	$	2.02
Diluted earnings per share	$	0.81	$	0.66	$	1.85	$	1.98

Weighted Average Common Shares Outstanding (Note 3):
Basic		61,341		64,781		62,015		65,088
Diluted		63,109		66,227		63,560		66,504
Cash dividends per share paid to Woodward common stockholders	$	0.11	$	0.10	$	0.32	$	0.28

See accompanying Notes to Condensed Consolidated Financial Statements

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In thousands)

(Unaudited)



	Three-Months Ended				Nine-Months Ended
	June 30,				June 30,
	2016		2015		2016		2015

Net earnings	$	51,047	$	43,753	$	117,691	$	131,392
Other comprehensive earnings:
Foreign currency translation adjustments		(9,359)		6,979		(9,488)		(27,966)
Gain (loss) on foreign currency transaction designated as a hedge of a net investment in a foreign subsidiary (Note 6)		395		11		912		11
Taxes on changes in foreign currency translation adjustments		444		240		149		1,500
		(8,520)		7,230		(8,427)		(26,455)
Reclassification of net realized (gains) losses on derivatives to earnings (Note 6)		(18)		25		39		74
Taxes on changes in derivative transactions		7		(10)		(14)		(28)
		(11)		15		25		46
Minimum retirement benefit liability adjustments (Note 18)
Amortization of:
Net prior service cost (benefit)		56		56		169		169
Net loss		424		128		1,276		385
Foreign currency exchange rate changes on minimum retirement benefit liabilities		657		(604)		1,228		454
Taxes on changes in minimum retirement liability adjustments, net of foreign currency exchange rate changes		(421)		141		(997)		(368)
		716		(279)		1,676		640
Total comprehensive earnings	$	43,232	$	50,719	$	110,965	$	105,623

See accompanying Notes to Condensed Consolidated Financial Statements

WOODWARD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)



	June 30,		September 30,
	2016		2015
ASSETS				(a)
Current assets:
Cash and cash equivalents	$	118,119	$	82,202
Accounts receivable, less allowance for uncollectible amounts of $2,798 and $3,841, respectively		291,181		322,215
Inventories		500,043		447,664
Income taxes receivable		4,740		21,838
Other current assets		36,433		43,791
Total current assets		950,516		917,710
Property, plant and equipment, net		844,455		756,100
Goodwill		555,530		556,977
Intangible assets, net		204,310		225,138
Deferred income tax assets		43,934		13,105
Other assets		47,321		44,886
Total assets	$	2,646,066	$	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		178,095		173,287
Income taxes payable		47,921		6,555
Accrued liabilities		125,760		155,936
Total current liabilities		451,776		338,208
Long-term debt, less current portion		685,000		850,000
Deferred income tax liabilities		1,081		56,414
Other liabilities		349,685		116,190
Total liabilities		1,487,542		1,360,812
Commitments and contingencies (Note 20)
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		141,895		131,231
Accumulated other comprehensive losses		(58,184)		(51,458)
Deferred compensation		5,061		4,322
Retained earnings		1,593,124		1,495,274
		1,682,002		1,579,475
Treasury stock at cost, 11,501 shares and 9,763 shares, respectively		(518,417)		(422,049)
Treasury stock held for deferred compensation, at cost, 157 shares and 173 shares, respectively		(5,061)		(4,322)
Total stockholders' equity		1,158,524		1,153,104
Total liabilities and stockholders' equity	$	2,646,066	$	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)



	Nine-Months Ended June 30,
	2016		2015
Cash flows from operating activities:				(a)
Net earnings	$	117,691	$	131,392
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		49,921		55,754
Net gain on sales of assets		(4,188)		(766)
Stock-based compensation		13,267		11,086
Deferred income taxes		(87,338)		1,623
Loss on derivatives reclassified from accumulated comprehensive earnings into earnings		39		74
Proceeds from formation of joint venture (Note 4)		250,000		-
Changes in operating assets and liabilities:
Accounts receivable		40,012		65,345
Inventories		(56,187)		(44,630)
Accounts payable and accrued liabilities		(6,548)		(41,868)
Current income taxes		58,184		(10,897)
Retirement benefit obligations		(2,903)		(3,365)
Other		(9,469)		7,742
Net cash provided by operating activities		362,481		171,490
Cash flows from investing activities:
Payments for purchase of property, plant, and equipment		(128,628)		(190,865)
Proceeds from sale of assets		5,747		2,486
Net cash used in investing activities		(122,881)		(188,379)
Cash flows from financing activities:
Cash dividends paid		(19,841)		(18,285)
Proceeds from sales of treasury stock		12,532		7,936
Payments for repurchases of common stock		(125,542)		(157,118)
Borrowings on revolving lines of credit and short-term borrowings		560,000		869,970
Payments on revolving lines of credit and short-term borrowings		(520,596)		(701,610)
Payments of long-term debt and capital lease obligations		(107,188)		-
Payments of debt financing costs		-		(2,359)
Net cash used in financing activities		(200,635)		(1,466)
Effect of exchange rate changes on cash and cash equivalents		(3,048)		(9,548)
Net change in cash and cash equivalents		35,917		(27,903)
Cash and cash equivalents at beginning of period		82,202		115,287
Cash and cash equivalents at end of period	$	118,119	$	87,384

(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	-	-	-	-		-		-		-		-		-		-		-		131,392		-		-		131,392
Other comprehensive income (loss), net of tax	-	-	-	-		-		-		(26,455)		46		640		(25,769)		-		-		-		-		(25,769)
Cash dividends paid	-	-	-	-		-		-		-		-		-		-		-		(18,285)		-		-		(18,285)
Purchases of treasury stock	-	-	(2,670)	-		-		-		-		-		-		-		-		-		(157,118)		-		(157,118)
Sales of treasury stock	-	-	428	-		-		(4,841)		-		-		-		-		-		-		12,777		-		7,936
Common shares issued from treasury stock for benefit plans	-	-	259	-		-		4,490		-		-		-		-		-		-		8,084		-		12,574
Tax benefit attributable to stock-based compensation	-	-	-	-		-		4,511		-		-		-		-		-		-		-		-		4,511
Stock-based compensation	-	-	-	-		-		11,086		-		-		-		-		-		-		-		-		11,086
Purchases of stock by deferred compensation plan	-	-	-	(18)		-		-		-		-		-		-		876		-		-		(876)		-
Distribution of stock from deferred compensation plan	-	-	-	43		-		-		-		-		-		-		(477)		-		-		477		-
Balances as of June 30, 2015	-	72,960	(9,380)	(173)	$	106	$	127,737	$	(15,636)	$	151	$	(13,817)	$	(29,302)	$	4,314	$	1,451,575	$	(422,845)	$	(4,314)	$	1,127,271

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	-	-	-	-		-		-		-		-		-		-		-		117,691		-		-		117,691
Other comprehensive income (loss), net of tax	-	-	-	-		-		-		(8,427)		25		1,676		(6,726)		-		-		-		-		(6,726)
Cash dividends paid	-	-	-	-		-		-		-		-		-		-		-		(19,841)		-		-		(19,841)
Purchases of treasury stock	-	-	(2,660)	-		-		-		-		-		-		-		-		-		(126,295)		-		(126,295)
Sales of treasury stock	-	-	605	-		-		(7,961)		-		-		-		-		-		-		21,247		-		13,286
Common shares issued from treasury stock for benefit plans	-	-	317	-		-		5,319		-		-		-		-		-		-		8,680		-		13,999
Tax benefit attributable to stock-based compensation	-	-	-	-		-		39		-		-		-		-		-		-		-		-		39
Stock-based compensation	-	-	-	-		-		13,267		-		-		-		-		-		-		-		-		13,267
Purchases of stock by deferred compensation plan	-	-	-	(25)		-		-		-		-		-		-		1,232		-		-		(1,232)		-
Distribution of stock from deferred compensation plan	-	-	-	41		-		-		-		-		-		-		(493)		-		-		493		-
Balances as of June 30, 2016	-	72,960	(11,501)	(157)	$	106	$	141,895	$	(30,037)	$	191	$	(28,338)	$	(58,184)	$	5,061	$	1,593,124	$	(518,417)	$	(5,061)	$	1,158,524

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 June 30, 2016 and for the three and nine-months ended June 30, 2016 and June 30, 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 June 30, 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 nine-months ended June 30, 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 and payable, warranty reserves, useful lives of property and identifiable intangible assets, the evaluation of impairments of property, the provision for income tax and related valuation reserves, the valuation of assets and liabilities acquired in business combinations, including identifiable intangible assets and goodwill, 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 from Woodward’s estimates.

In the first quarter of fiscal year 2016, Woodward 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 June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 adds a current expected credit loss (“CECL”) impairment model to U.S. GAAP that is based on expected losses rather than incurred losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 (fiscal year 2021 for Woodward), including interim periods within the year of adoption. Early adoption is permitted for fiscal years beginning after December 15, 2018 (fiscal year 2020 for Woodward), including interim periods within those fiscal years. Woodward has not determined in which period it will adopt the new guidance but does not expect the application of the CECL impairment model to have a significant impact on Woodward’s allowance for uncollectible amounts for accounts receivable and notes receivable from municipalities.

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)

Woodward, Inc. - FORM 10-Q - July 20, 2016

Attached files