Derivative Instruments and Hedging Activities

6 Months Ended

Mar. 31, 2013

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

Note 6.  Derivative instruments andhedging activities

Woodward is exposed to global market risks, including the effect of changes in interest rates, foreign currency exchange rates, changes in certain commodity prices and fluctuations in various producer indices.  From time to time, Woodward enters into derivative instruments for risk management purposes only, including derivatives designated as accounting hedges and/or those utilized as economic hedges.  Woodward uses interest rate related derivative instruments to manage its exposure to fluctuations of interest rates.  Woodward does not enter into or issue derivatives for trading or speculative purposes.

By using derivative and/or hedging instruments to manage its risk exposure, Woodward is subject, from time to time, to credit risk and market risk on those derivative instruments.  Credit risk arises from the potential failure of the counterparty to perform under the terms of the derivative and/or hedging instrument.  When the fair value of a derivative contract is positive, the counterparty owes Woodward, which creates credit risk for Woodward.  Woodward mitigates this credit risk by entering into transactions with only creditworthy counterparties.  Market risk arises from the potential adverse effects on the value of derivative and/or hedging instruments that result from a change in interest rates, commodity prices, or foreign currency exchange rates.  Woodward minimizes this market risk by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

Woodward did not enter into any hedging transactions during the three or six-months ended March 31, 2013 or 2012.  As of March 31, 2013 and September 30, 2012, all previous derivative instruments that Woodward had entered into were settled or terminated.

The remaining unrecognized losses in Woodward’s Condensed Consolidated Balance Sheets associated with terminated derivative instruments that were previously entered into by Woodward, which are classified in accumulated other comprehensive loss, were $521 and $607 as of March 31, 2013 and September 30, 2012, respectively.

The following tables disclose the impact of derivative instruments on Woodward’s Condensed Consolidated Statements of Earnings:

		Three-Months Ended March 31, 2013						Three-Months Ended March 31, 2012
Derivatives in:	Location of (Gain) Loss Recognized in Earnings	Amount of (Income) Expense Recognized in Earnings on Derivative		Amount of (Gain) Loss Recognized in Accumulated OCI on Derivative		Amount of (Gain) Loss Reclassified from Accumulated OCI into Earnings		Amount of (Income) Expense Recognized in Earnings on Derivative		Amount of (Gain) Loss Recognized in Accumulated OCI on Derivative		Amount of (Gain) Loss Reclassified from Accumulated OCI into Earnings
Fair value hedging relationships	Interest expense	$	-	$	-	$	-	$	-	$	-	$	-
Cash flow hedging relationships	Interest expense		43		-		43		43		-		43
		$	43	$	-	$	43	$	43	$	-	$	43

		Six-Months Ended March 31, 2013						Six-Months Ended March 31, 2012
Derivatives in:	Location of (Gain) Loss Recognized in Earnings	Amount of (Income) Expense Recognized in Earnings on Derivative		Amount of (Gain) Loss Recognized in Accumulated OCI on Derivative		Amount of (Gain) Loss Reclassified from Accumulated OCI into Earnings		Amount of (Income) Expense Recognized in Earnings on Derivative		Amount of (Gain) Loss Recognized in Accumulated OCI on Derivative		Amount of (Gain) Loss Reclassified from Accumulated OCI into Earnings
Fair value hedging relationships	Interest expense	$	-	$	-	$	-	$	(3)	$	-	$	-
Cash flow hedging relationships	Interest expense		86		-		86		88		-		88
		$	86	$	-	$	86	$	85	$	-	$	88

Based on the carrying value of the unrecognized gains and losses on terminated derivative instruments designated as cash flow hedges as of March 31, 2013, Woodward expects to reclassify$171of net unrecognized losses on terminated derivative instruments from accumulated other comprehensive earnings to earnings during the next twelve months.