0000108312-13-000004.txt : 20130123 0000108312-13-000004.hdr.sgml : 20130123 20130122192119 ACCESSION NUMBER: 0000108312-13-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20121231 FILED AS OF DATE: 20130123 DATE AS OF CHANGE: 20130122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Woodward, Inc. CENTRAL INDEX KEY: 0000108312 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 361984010 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-08408 FILM NUMBER: 13541323 BUSINESS ADDRESS: STREET 1: 1000 EAST DRAKE ROAD CITY: FORT COLLINS STATE: CO ZIP: 80525 BUSINESS PHONE: 970-482-5811 MAIL ADDRESS: STREET 1: 1000 EAST DRAKE ROAD CITY: FORT COLLINS STATE: CO ZIP: 80525 FORMER COMPANY: FORMER CONFORMED NAME: WOODWARD GOVERNOR CO DATE OF NAME CHANGE: 19920703 10-Q 1 wwd-20121231x10q.htm 10-Q 2c9726ffca03457

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2012

OR

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

For the transition period from _____ to _____

Commission file number 0-8408

WOODWARD, INC.

(Exact name of registrant as specified in its charter)

Delaware36-1984010

(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)

Registrant’s telephone number, including area code:

(970) 482-5811

 

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 x  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 x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definitions of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer x   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 Act).

Yes ¨ No x

As of January 18, 2013,  68,684,754 shares of the 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

27

 

Forward Looking Statements

27

 

Overview

30

 

Results of Operations

30

 

Liquidity and Capital Resources

35

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

37

Item 4.

Controls and Procedures

37

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

39

Item 1A.

Risk Factors

39

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 6.

Exhibits

39

 

Signatures

40

 

 

 

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,

 

2012

 

2011

 

 

 

 

 

 

Net sales

$

408,339 

 

$

407,896 

Costs and expenses:

 

 

 

 

 

    Cost of goods sold

 

289,573 

 

 

284,410 

    Selling, general and administrative expenses

 

36,418 

 

 

38,570 

    Research and development costs

 

30,018 

 

 

30,794 

    Amortization of intangible assets

 

7,667 

 

 

8,258 

    Interest expense

 

6,456 

 

 

6,308 

    Interest income

 

(68)

 

 

(126)

    Other (income) expense, net (Note 15)

 

(262)

 

 

(494)

Total costs and expenses

 

369,802 

 

 

367,720 

Earnings before income taxes

 

38,537 

 

 

40,176 

Income tax expense

 

11,169 

 

 

11,760 

Net earnings

$

27,368 

 

$

28,416 

 

 

 

 

 

 

Earnings per share (Note 3):

 

 

 

 

 

Basic earnings per share

$

0.40 

 

$

0.41 

Diluted earnings per share

$

0.39 

 

$

0.40 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding (Note 3):

 

 

 

 

 

Basic

 

68,461 

 

 

68,919 

Diluted

 

69,713 

 

 

70,393 

Cash dividends per share paid to Woodward common stockholders

$

0.08 

 

$

0.07 

 

 

 

 

 

 

 

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,

 

2012

 

2011

 

 

 

 

 

 

Net earnings

$

27,368 

 

$

28,416 

Other comprehensive earnings:

 

 

 

 

 

Foreign currency translation adjustments

 

4,451 

 

 

(8,381)

Taxes on changes on foreign currency translation adjustments

 

612 

 

 

945 

 

 

5,063 

 

 

(7,436)

Reclassification of realized losses on derivatives to earnings

 

43 

 

 

45 

Taxes on changes on derivative transactions

 

(17)

 

 

(17)

 

 

26 

 

 

28 

Minimum retirement benefit liability foreign currency

 

 

 

 

 

exchange rate changes

 

237 

 

 

31 

Total comprehensive earnings

$

32,694 

 

$

21,039 

 

 

 

 

 

 

 

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,

 

2012

 

2012

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

69,456 

 

$

61,829 

Accounts receivable, less allowance for losses of $7,315 and $7,217, respectively

 

300,062 

 

 

354,386 

Inventories

 

445,672 

 

 

398,229 

Income taxes receivable

 

5,949 

 

 

7,485 

Deferred income tax assets

 

41,146 

 

 

40,277 

Other current assets

 

35,702 

 

 

41,271 

Total current assets

 

897,987 

 

 

903,477 

Property, plant and equipment, net

 

265,497 

 

 

234,505 

Goodwill

 

544,393 

 

 

461,374 

Intangible assets, net

 

307,143 

 

 

235,563 

Deferred income tax assets

 

8,667 

 

 

9,129 

Other assets

 

25,130 

 

 

15,916 

Total assets

$

2,048,817 

 

$

1,859,964 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Short-term borrowings

$

 -

 

$

329 

Current portion of long-term debt

 

140,000 

 

 

7,500 

Accounts payable

 

112,183 

 

 

124,914 

Income taxes payable

 

16,863 

 

 

14,141 

Deferred income tax liabilities

 

800 

 

 

800 

Accrued liabilities

 

97,738 

 

 

132,184 

Total current liabilities

 

367,584 

 

 

279,868 

Long-term debt, less current portion

 

450,000 

 

 

384,375 

Deferred income tax liabilities

 

76,217 

 

 

78,163 

Other liabilities

 

115,386 

 

 

109,443 

Total liabilities

 

1,009,187 

 

 

851,849 

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

 

98,851 

 

 

97,826 

Accumulated other comprehensive loss

 

(6,397)

 

 

(11,723)

Deferred compensation

 

4,386 

 

 

4,344 

Retained earnings

 

1,091,705 

 

 

1,069,811 

 

 

1,188,651 

 

 

1,160,364 

Treasury stock at cost, 4,392  shares and 4,536 shares, respectively

 

(144,635)

 

 

(147,905)

Treasury stock held for deferred compensation, at cost, 277 shares and 276 shares, respectively

 

(4,386)

 

 

(4,344)

Total stockholders' equity

 

1,039,630 

 

 

1,008,115 

Total liabilities and stockholders' equity

$

2,048,817 

 

$

1,859,964 

 

 

 

 

 

 

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,

 

 

2012

 

2011

Cash flows from operating activities:

 

 

 

 

 

 

Net earnings

 

$

27,368 

 

$

28,416 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

17,941 

 

 

18,427 

Net (gain) loss on sales of assets

 

 

(1)

 

 

Stock-based compensation

 

 

3,438 

 

 

3,647 

Excess tax benefits from stock-based compensation

 

 

(2,088)

 

 

(1,691)

Deferred income taxes

 

 

(2,058)

 

 

917 

Loss on derivatives reclassified from accumulated comprehensive earnings into earnings

 

 

43 

 

 

45 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

71,423 

 

 

43,739 

Inventories

 

 

(15,543)

 

 

(29,436)

Accounts payable and accrued liabilities

 

 

(63,756)

 

 

(57,839)

Current income taxes

 

 

6,155 

 

 

2,209 

Retirement benefit obligations

 

 

(2,185)

 

 

(1,166)

Other

 

 

(763)

 

 

(4,948)

Net cash provided by operating activities

 

 

39,974 

 

 

2,328 

Cash flows from investing activities:

 

 

 

 

 

 

Payments for purchase of property, plant, and equipment

 

 

(29,894)

 

 

(17,254)

Proceeds from sale of assets

 

 

11 

 

 

60 

Business acquisitions, net of cash acquired

 

 

(198,860)

 

 

 -

Net cash used in investing activities

 

 

(228,743)

 

 

(17,194)

Cash flows from financing activities:

 

 

 

 

 

 

Cash dividends paid

 

 

(5,474)

 

 

(4,823)

Proceeds from sales of treasury stock

 

 

876 

 

 

2,211 

Payments for repurchases of common stock

 

 

 -

 

 

(4,663)

Excess tax benefits from stock compensation

 

 

2,088 

 

 

1,691 

Borrowings on revolving lines of credit and short-term borrowings

 

 

15,000 

 

 

74,821 

Payments on revolving lines of credit and short-term borrowings

 

 

(15,329)

 

 

(64,858)

Proceeds from issuance of long-term debt

 

 

200,000 

 

 

 -

Payments of long-term debt

 

 

(1,875)

 

 

(12,589)

Net cash provided by (used in) financing activities

 

 

195,286 

 

 

(8,210)

Effect of exchange rate changes on cash and cash equivalents

 

 

1,110 

 

 

(1,083)

Net change in cash and cash equivalents

 

 

7,627 

 

 

(24,159)

Cash and cash equivalents at beginning of period

 

 

61,829 

 

 

74,539 

Cash and cash equivalents at end of period

 

$

69,456 

 

$

50,380 

 

 

 

 

 

 

 

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, 2011

 

 -

 

72,960 

 

(4,070)

 

(315)

 

$

106 

 

$

81,453 

 

$

22,103 

 

$

(484)

 

$

(17,993)

 

$

3,626 

 

$

4,581 

 

$

949,573 

 

$

(115,661)

 

$

(4,581)

 

$

919,097 

Net earnings

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

28,416 

 

 

 -

 

 

 -

 

 

28,416 

Cash dividends paid

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(4,823)

 

 

 -

 

 

 -

 

 

(4,823)

Purchases of treasury stock

 

 -

 

 -

 

(122)

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(4,663)

 

 

 -

 

 

(4,663)

Sales of treasury stock

   

 -

 

 -

 

186 

 

 -

 

 

 -

 

 

(683)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

2,849 

 

 

 -

 

 

2,166 

Tax benefit attributable to exercise of stock options

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

1,691 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

1,691 

Stock-based compensation

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

3,647 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

3,647 

Purchases of stock by deferred compensation plan

 

 -

 

 -

 

 

(1)

 

 

 -

 

 

28 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

72 

 

 

 -

 

 

18 

 

 

(72)

 

 

46 

Distribution of stock from deferred compensation plan

 

 -

 

 -

 

 -

 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(11)

 

 

 -

 

 

 -

 

 

11 

 

 

 -

Foreign currency translation adjustments

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

(8,381)

 

 

 -

 

 

 -

 

 

(8,381)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(8,381)

Reclassification of unrecognized derivative losses to earnings

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

45 

 

 

 -

 

 

45 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

45 

Minimum retirement benefits liability adjustments

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

31 

 

 

31 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

31 

Taxes on changes in accumulated other comprehensive earnings

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

945 

 

 

(17)

 

 

 -

 

 

928 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

928 

Balances as of December 31, 2011

 

 -

 

72,960 

 

(4,005)

 

(314)

 

$

106 

 

$

86,136 

 

$

14,667 

 

$

(456)

 

$

(17,962)

 

$

(3,751)

 

$

4,642 

 

$

973,166 

 

$

(117,457)

 

$

(4,642)

 

$

938,200 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of October 1, 2012

 

 -

 

72,960 

 

(4,536)

 

(276)

 

$

106 

 

$

97,826 

 

$

17,447 

 

$

(376)

 

$

(28,794)

 

$

(11,723)

 

$

4,344 

 

$

1,069,811 

 

$

(147,905)

 

$

(4,344)

 

$

1,008,115 

Net earnings

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

27,368 

 

 

 -

 

 

 -

 

 

27,368 

Cash dividends paid

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(5,474)

 

 

 -

 

 

 -

 

 

(5,474)

Purchases of treasury stock

 

 -

 

 -

 

(109)

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(3,978)

 

 

 -

 

 

(3,978)

Sales of treasury stock

 

 -

 

 -

 

252 

 

 -

 

 

 -

 

 

(4,509)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

7,236 

 

 

 -

 

 

2,727 

Tax benefit attributable to exercise of stock options

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

2,088 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

2,088 

Stock-based compensation

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

3,438 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

3,438 

Purchases of stock by deferred compensation plan

 

 -

 

 -

 

 

(1)

 

 

 -

 

 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

43 

 

 

 -

 

 

12 

 

 

(43)

 

 

20 

Distribution of stock from deferred compensation plan

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(1)

 

 

 -

 

 

 -

 

 

 

 

 -

Foreign currency translation adjustments

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

4,451 

 

 

 -

 

 

 -

 

 

4,451 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

4,451 

Reclassification of unrecognized derivative losses to earnings

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

43 

 

 

 -

 

 

43 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

43 

Minimum retirement benefits liability adjustments

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

237 

 

 

237 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

237 

Taxes on changes in accumulated other comprehensive earnings

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

612 

 

 

(17)

 

 

 -

 

 

595 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

595 

Balances as of December 31, 2012

 

 -

 

72,960 

 

(4,392)

 

(277)

 

$

106 

 

$

98,851 

 

$

22,510 

 

$

(350)

 

$

(28,557)

 

$

(6,397)

 

$

4,386 

 

$

1,091,705 

 

$

(144,635)

 

$

(4,386)

 

$

1,039,630 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2012 and for the three-months ended December 31, 2012 and December 31, 2011, 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, 2012, 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, 2012 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, 2012 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 losses on receivables, net realizable value of inventories, warranty reserves, cost of sales incentives, useful lives of property and identifiable intangible assets, the evaluation of impairments of property, valuation of identifiable intangible assets and goodwill, income tax and 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 September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment.”  ASU 2011-08 allows companies to perform a “qualitative” assessment to determine whether or not the current two-step quantitative testing method, in which a company compares the fair value of reporting units to its carrying amount including goodwill, must be followed.  If a qualitative assessment indicates that it is more-likely-than-not that the fair value of a reporting unit is greater than its carrying amount, then the quantitative impairment test is not required.  A company may choose to use the qualitative assessment on none, some, or all if its reporting units or to bypass the qualitative assessment and proceed directly to the two-step quantitative testing method.  ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011; fiscal 2013 for Woodward.  The adoption of ASU 2011-08 is not expected to have a material impact on Woodward’s Consolidated Financial Statements.

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.

7


 

 

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

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three-Months Ended
December 31,

 

 

2012

 

2011

Numerator:

 

 

 

 

 

 

Net earnings 

 

$

27,368 

 

$

28,416 

Denominator:

 

 

 

 

 

 

Basic shares outstanding

 

 

68,461 

 

 

68,919 

Dilutive effect of stock options

 

 

1,252 

 

 

1,474 

Diluted shares outstanding

 

 

69,713 

 

 

70,393 

Income per common share:

 

 

 

 

 

 

Basic earnings per share

 

$

0.40 

 

$

0.41 

Diluted earnings per share

 

$

0.39 

 

$

0.40 

 

 

The following stock option grants were outstanding during the three-months ended December 31, 2012 and 2011, but were excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three-Months Ended
December 31,

 

 

2012

 

2011

Options

 

 

68 

 

 

638 

Weighted-average option price

 

$

37.20 

 

$

32.11 

 

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,

 

 

2012

 

2011

Weighted-average treasury stock shares held for deferred compensation obligations

 

 

276 

 

 

315 

 

8


 

 

Note 4.  Business acquisitions

Duarte Business Acquisition

On December 27, 2012, Woodward entered into a definitive asset purchase agreement (the “Asset Purchase Agreement”) with GE Aviation Systems LLC (the “Seller”) and General Electric Company for the acquisition of substantially all of the assets and certain liabilities related to the Seller’s thrust reverser actuation systems business located in Duarte, California (the “Duarte Business”) for an aggregate purchase price of $200,000.  The sale was completed on December 28, 2012 and based on customary purchase price adjustments, Woodward paid cash at closing in the amount of $198,900

The Duarte Business develops and manufactures motion control technologies and platforms, more specifically thrust reverser actuation systems.  The Duarte Business employs approximately 350 people and serves customers such as Airbus, Boeing, General Electric, Safran and the U.S. Government.  Its products are used primarily on commercial aircraft such as the Boeing 737, 747 and 777, and the Airbus A320.  The Duarte Business will be integrated into Woodward’s Aerospace segment. 

The Company believes the Duarte Business provides it with expanded motion control technologies and platforms, and that there will be operating synergies and significant opportunities to share technologies and leverage the customer base.  Goodwill recorded in connection with the acquisition of the Duarte Business, which is deductible for income tax purposes, represents the estimated value of such future opportunities, the value of potential expansion with new customers, the opportunity to further develop sales opportunities with new and acquired Duarte Business customers, and other synergies expected to be achieved through the integration of the Duarte Business into Woodward’s Aerospace segment.

The preliminary purchase price of the Duarte Business is as follows:

 

 

 

 

 

 

 

 

Cash paid to Seller

$

198,900 

Less cash acquired

 

(40)

Total preliminary purchase price

$

198,860 

 

The allocation of the purchase price to the assets acquired and liabilities assumed was accounted for under the purchase method of accounting in accordance with ASC Topic 805, Business Combinations.  Assets acquired and liabilities assumed in the transaction were recorded at their estimated acquisition date fair values, while transaction costs associated with the acquisition were expensed as incurred.  The Company’s preliminary allocation was based on an evaluation of the appropriate fair values and represents management’s best estimate based on available data.

Due to the timing of the transaction, Woodward is currently in the process of finalizing valuations of current assets, property, plant and equipment (including estimated useful lives), goodwill, intangible assets (including estimated useful lives), and all current and noncurrent liabilities.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition of the Duarte Business:

 

 

 

 

 

 

 

 

Current assets

$

49,234 

Property, plant, and equipment

 

14,264 

Goodwill

 

81,898 

Intangible assets

 

78,900 

Total assets acquired

 

224,296 

Other current liabilities

 

17,353 

Other noncurrent liabilities

 

8,083 

Total liabilities assumed

 

25,436 

Net assets acquired

$

198,860 

9


 

 

 

In connection with the acquisition of the Duarte Business, Woodward did not assume the postretirement benefit obligations of the Duarte Business’ defined benefit pension plan.  Under the terms of the Asset Purchase Agreement, Woodward is obligated to establish a new defined benefit pension plan for the Duarte Business employees who were beneficiaries of the Seller’s defined benefit pension plan.  Woodward’s new defined benefit pension plan will provide for similar benefits as those provided by the Seller.

A summary of the intangible assets acquired, weighted-average useful lives, and amortization methods follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Amounts

 

Weighted-Average Useful Life

 

Amortization Method

Customer relationships and contracts

$

67,000 

 

20 

years

 

Straight-line

Process technology

 

4,600 

 

25 

years

 

Straight-line

Backlog

 

7,300 

 

years

 

Accelerated

   Total

$

78,900 

 

19 

years

 

 

 

Future amortization expense associated with the acquired intangibles is expected to be:

 

 

 

 

 

 

 

 

Year Ending September 30:

 

 

2013 (remaining)

$

6,057 

2014

 

5,602 

2015

 

4,005 

2016

 

3,663 

2017

 

3,663 

Thereafter

 

55,910 

 

$

78,900 

 

Pro forma results for Woodward giving effect to the acquisition of the Duarte Business

The following unaudited pro forma financial information presents the combined results of operations of Woodward and the Duarte Business as if the acquisition had occurred as of October 1, 2011, the beginning of fiscal 2012.  The pro forma information is presented for information purposes only and is not indicative of the results of operations that would have been achieved if the acquisition and the borrowings used to finance it had taken place at the beginning of fiscal 2012.  The pro forma information combines the historical results of Woodward with the historical results of the Duarte Business for that period.

Prior to the acquisition of the Duarte Business,  the Duarte Business was a wholly owned business of the Seller, and as such was not a stand-alone entity for financial reporting purposes.  Accordingly, the historical operating results of the Duarte Business may not be indicative of the results that might have been achieved, historically or in the future, if the Duarte Business had been a stand-alone entity.  The unaudited pro forma results for the three-month periods ended December 31, 2012 and December 31, 2011 include amortization charges for acquired intangible assets, adjustments for depreciation expense for property, plant and equipment, transaction costs incurred, adjustments to interest expense, and related tax effects.

The unaudited pro forma results for the three-month periods ended December 31, 2012 and December 31, 2011, compared to the actual results reported in these Condensed Consolidated Financial Statements, follow:

 

10


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three-Months Ended December 31, 2012

 

Three-Months Ended December 31, 2011

 

As reported

 

Pro forma

 

As reported

 

Pro forma

Net sales

$

408,339 

 

$

438,739 

 

$

407,896 

 

$

432,015 

Net earnings

 

27,368 

 

 

28,153 

 

 

28,416 

 

 

23,987 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

0.40 

 

$

0.41 

 

$

0.41 

 

$

0.35 

Diluted earnings per share

 

0.39 

 

 

0.40 

 

 

0.40 

 

 

0.34 

 

These pro forma results do not reflect the favorable impact of various long-term agreements with customers of the Duarte Business that were recently renegotiated by the Seller prior to the acquisition and effective on or before January 1, 2013. Collectively, the renegotiation of the agreements would have had a significant positive impact on prior operating results of the Duarte Business if implemented earlier. 

The Company incurred transaction costs of $1,707 for the three-months ended December 31, 2012, which are included in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Earnings.  Due to the timing of the acquisition, there were no net sales or operating expenses from the Duarte Business included in the Condensed Consolidated Statements of Earnings in the first quarter of fiscal 2013.

Note 5.  Financial instruments and fair value measurements

The estimated fair values of Woodward’s financial instruments were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2012

 

At September 30, 2012

 

 

Estimated Fair Value

 

Carrying Cost

 

Estimated Fair Value

 

Carrying Cost

Cash and cash equivalents

 

$