Note 13. Long-term debt

Long-term debt consisted of the following:



	September 30,		September 30,
	2013		2012
2008 Term loan – Variable rate of 1.47% at September 30, 2012, matured October 2013; unsecured	$	-	$	41,875
Series B notes – 5.63%, due October 2013; unsecured		100,000		100,000
Series C notes – 5.92%, due October 2015; unsecured		50,000		50,000
Series D notes – 6.39%, due October 2018; unsecured		100,000		100,000
Series E notes – 7.81%, due April 2016; unsecured		57,000		57,000
Series F notes – 8.24%, due April 2019; unsecured		43,000		43,000
Long-term borrowings under Line of Credit - Variable rate of 1.06% at September 30, 2013, unsecured		200,000		-
Total long-term debt		550,000		391,875
Less: current portion		(100,000)		(7,500)
Long-term debt, less current portion	$	450,000	$	384,375

Required future principal payments of outstanding long-term debt as of September 30, 2013 are as follows:



Year Ending September 30:
2014	$	100,000
2015		-
2016		107,000
2017		-
2018		200,000
Thereafter		143,000
	$	550,000

In October 2008, Woodward entered into a term loan credit agreement (the “2008 Term Loan Credit Agreement”). During the second quarter of fiscal year 2013, the remaining outstanding indebtedness under the 2008 Term Loan Credit Agreement, which generally bore interest at LIBOR plus 1.00% to 2.25%, was repaid and terminated, without penalty, and the remaining balance of unamortized debt issuance costs of $128 were written off to interest expense.

Certain financial and other covenants under Woodward's debt agreements contain customary restrictions on the operation of its business. In the event of non-compliance with these covenants, certain additional restrictions might apply, including restrictions on the Company's ability to pay dividends or make distributions on its capital stock. Management believes that Woodward was in compliance with the covenants under the long-term debt agreements at September 30, 2013.

The Notes

In October 2008, Woodward entered into a note purchase agreement (the “2008 Note Purchase Agreement”) relating to the Series B, C, and D Notes (the “2008 Notes”). In April 2009, Woodward entered into a note purchase agreement (the “2009 Note Purchase Agreement”) relating to the Series E and F Notes (the “2009 Notes”).

On October 1, 2013, Woodward entered into a note purchase agreement (the “2013 Note Purchase Agreement” and, together with the 2008 Note Purchase Agreement and the 2009 Note Purchase Agreement, the “Note Purchase Agreements”) relating to the sale by Woodward of an aggregate principal amount of $250,000 of its senior unsecured notes in a series of private placement transactions. The aggregate principal amount is comprised of the following:



	Amount		Maturity Date	Interest Rate
Series G notes	$	50,000	November 15, 2020	3.42%
Series H notes		25,000	November 15, 2023	4.03%
Series I notes		25,000	November 15, 2025	4.18%
Series J notes		50,000	November 15, 2020	Floating rate - LIBOR plus 1.25%
Series K notes		50,000	November 15, 2023	4.03%
Series L notes		50,000	November 15, 2025	4.18%
	$	250,000

Woodward issued the Series G, H and I Notes (the “First Closing Notes”) on October 1, 2013 and used the proceeds to repay all of the outstanding balance on the Series B Notes due October 1, 2013.

Under the terms of the 2013 Note Purchase Agreement, Woodward intends to issue under a delayed draw, the Series J, K and L Notes (the “Second Closing Notes” and, together with the 2008 Notes, 2009 Notes and First Closing Notes, the “Notes”) in an additional $150,000 aggregate principal amount on November 15, 2013.

Interest on the 2008 Notes and the First Closing Notes is, and interest on the Series K Notes and Series L Notes will be, payable semi-annually on April 1 and October 1 of each year until all principal is paid. Interest on the 2009 Notes is payable semi-annually on April 15 and October 15 of each year until all principal is paid. Interest on the Series J Notes will be payable quarterly on January 1, April 1, July 1 and October 1 of each year until all principal is paid.

None of the Notes were registered under the Securities Act of 1933 and they may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. Holders of the Notes do not have any registration rights.

All of the issued Notes are or are expected to be held by multiple institutions.

Woodward’s obligations under the Notes are, or when issued will be, guaranteed by Woodward FST, Inc., Woodward MPC, Inc., and Woodward HRT, Inc., each of which is a wholly owned subsidiary of Woodward. Woodward’s obligations under the Notes rank, or when issued will rank, equal in right of payment with all of Woodward’s other unsecured unsubordinated debt, including its outstanding debt under the Line of Credit and revolving credit facility (see Note 12, Credit facilities and short-term borrowings).

On October 1, 2013, Woodward also entered into amendments to the 2008 Note Purchase Agreement and 2009 Note Purchase Agreement that, among other things, conform certain of the affirmative and negative covenants in the 2008 Note Purchase Agreement and the 2009 Note Purchase Agreement, respectively, to the corresponding covenant provisions in the 2013 Note Purchase Agreement.

The Note Purchase Agreements contain restrictive covenants customary for such financings, including, among other things, covenants that place limits on Woodward’s ability to incur liens on assets, incur additional debt (including a leverage or coverage based maintenance test), transfer or sell Woodward’s assets, merge or consolidate with other persons and enter into material transactions with affiliates. Under the financial covenants contained in the Note Purchase Agreements, Woodward’s priority debt may not exceed, at any time, 25% of its consolidated net worth. Woodward’s leverage ratio cannot exceed 4.0 to 1.0 during any material acquisition period, or 3.5 to 1.0 at any other time on a rolling four quarter basis. In the event that Woodward’s leverage ratio exceeds 3.5 to 1.0 during any material acquisition period, the interest rate on each series of Notes will increase. Further, Woodward’s consolidated net worth must at all times equal or exceed $800,000 plus 50% of Woodward’s consolidated net earnings for each fiscal year beginning with the fiscal year ending September 30, 2013. The Note Purchase Agreements also contain customary events of default, including certain cross-default provisions related to Woodward’s other outstanding debt arrangements in excess of $60,000, the occurrence of which would permit the holders of the respective Notes to accelerate the amounts due.

Woodward, at its option, is permitted at any time to prepay all, or from time to time to prepay any part of, the then outstanding principal amount of any series of the Notes at 100% of the principal amount of the series of Notes to be prepaid (but, in the case of partial prepayment, not less than $1,000), together with interest accrued on such amount to be prepaid to the date of payment, plus any applicable prepayment compensation amount. The prepayment compensation amount, as to the Notes other than the floating rate Notes, is computed by discounting the remaining scheduled payments of interest and principal of the Notes being prepaid at a discount rate equal to the sum of 50 basis points and the yield to maturity of U.S. Treasury securities having a maturity equal to the remaining average life of the Notes being prepaid. The prepayment compensation amount, as to the floating rate Notes, generally is computed as a percentage of the principal amount of such the floating rate Notes equal to (a) 2%, on or prior to November 15, 2014, (b) 1%, after November 15, 2014 and on or prior to November 15, 2015, and (c) 0% after November 15, 2015.

Line of Credit

In connection with the acquisition of the Duarte Business, on December 21, 2012 Woodward entered into a 364 day uncommitted line of credit with JPMorgan Chase Bank, N.A. (the “Line of Credit”). The Line of Credit provides for unsecured loans to Woodward of up to $200,000 on a revolving basis. Loans made under the Line of Credit bear interest at a floating rate based, at the Company’s option, on either the prime rate or an adjusted LIBOR. The Line of Credit under which Woodward may borrow terminates on December 20, 2013. There was $200,000 outstanding on the Line of Credit as of September 30, 2013, which consisted of an adjusted LIBOR loan bearing interest at 1.06% and maturing on October 31, 2013. Subsequently, the Company renewed the loan to extend the maturity to November 15, 2013. The Company cannot repay the adjusted LIBOR loan prior to the November 15, 2013 maturity date without incurring a prepayment penalty. Subject to lender participation, Woodward may renew the loan on the Line of Credit for one additional period prior to its termination on December 20, 2013.

The Line of Credit contains customary terms and conditions, as well as events of default customary for such financing arrangements, including cross-default provisions based on certain covenants and provisions contained in the Third Amended and Restated Credit Agreement the occurrence of which would permit the lenders to accelerate the amounts due thereunder.

The proceeds from the Line of Credit were used to finance the acquisition of the Duarte Business as discussed in Note 4, Business acquisitions. The Company incurred no financing fees in association with the Line of Credit.

Woodward classified the $200,000 outstanding on the Line of Credit as long-term as of September 30, 2013 based on its intention to refinance the $200,000 using new long-term debt facilities and/or its existing revolving credit facility. Woodward currently has the ability to utilize its $600,000 revolving credit facility, which matures in July 2018, to refinance the entire $200,000 outstanding balance, if necessary.

Debt Issuance Costs

In connection with the Revolving Credit Agreement, Woodward incurred $1,651 in financing costs, which are deferred and will be amortized using the straight-line method over the life of the agreement. Woodward also had remaining $1,529 of deferred financing costs incurred in connection with the 2012 Credit Facility, which have been combined with the financing costs associated with the Revolving Credit Agreement and are being amortized using the straight-line method over the life of the Revolving Credit Agreement. The remaining $100 of deferred financing costs incurred in connection with the prior $225,000 revolving credit facility, which was amended and restated by the Third Amended and Restated Credit Agreement in fiscal year 2012, were expensed in the first quarter of fiscal year 2012.

In connection with the 2013 Note Purchase Agreement, Woodward incurred approximately $1,400 in financing costs, which will be deferred and amortized using the straight-line method over the life of the agreement. As of September 30, 2013, $200 of financing costs were included in “Other assets” on the Consolidated Balance Sheet.

Amounts recognized as interest expense from the amortization of debt issuance costs were $1,045 in fiscal year 2013, $1,074 in fiscal year 2012, and $764 in fiscal year 2011. Woodward had $3,869 of unamortized debt issuance costs as of September 30, 2013 and $3,263 of unamortized debt issuance costs as of September 30, 2012. Amortization of debt issuance costs is included in operating activities in the Consolidated Statements of Cash Flows.