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, 2021 and for the three-months ended December 31, 2021 and 2020, included herein, have not been audited by an independent registered public accounting firm. These unaudited 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, 2021, 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-months ended December 31, 2021 and 2020 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 unaudited Condensed Consolidated Financial Statements are in thousands, except per share amounts, unless otherwise noted.
The unaudited 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. Accordingly, 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 unaudited Condensed Consolidated Financial Statements included herein. Significant estimates in these unaudited Condensed Consolidated Financial Statements include allowances for credit losses; net realizable value of inventories; variable consideration including customer rebates earned and payable and early payment discounts; warranty reserves; useful lives of property and identifiable intangible assets; the evaluation of impairments of property, intangible assets, and goodwill; the provision for income tax and related valuation reserves; the valuation of derivative instruments; 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, board members and any other eligible recipients; estimates of incremental borrowing rates used when estimating the present value of future lease payments; assumptions used when including renewal options or non-exercise of termination options in lease terms; estimates of total lifetime sales used in the recognition of revenue of deferred material rights and balance sheet classification of the related contract liability; estimates of total sales contract costs when recognizing revenue under the cost-to-cost method; and contingencies. Actual results could vary from Woodward’s estimates.
COVID-19 Pandemic
When combined with the various measures enacted by governments and private organizations to contain COVID-19 or slow its spread, the pandemic has adversely impacted global economic activity and contributed to volatility in financial markets; and the Company has likewise been significantly impacted by the global COVID-19 pandemic. The COVID-19 pandemic could continue to have a material adverse impact on economic and market conditions and presents uncertainty and risk with respect to the Company’s performance and financial results, including estimates and assumptions used by management for the reported amount of assets and liabilities.
Note 2. New accounting standards
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 the time since the Company filed its most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2021, no new accounting standards have been issued, or are pending issuance, that are expected to have a material impact on the Condensed Consolidated Financial Statements upon adoption.
6
Note 3. Revenue
The amount of revenue recognized as point in time or over time follows:
|
|
Three-Months Ended December 31, 2021
|
|
|
Three-Months Ended December 31, 2020
|
|
|
|
Aerospace
|
|
|
Industrial
|
|
|
Consolidated
|
|
|
Aerospace
|
|
|
Industrial
|
|
|
Consolidated
|
|
Point in time
|
|
$
|
125,645
|
|
|
$
|
124,992
|
|
|
$
|
250,637
|
|
|
$
|
106,967
|
|
|
$
|
154,195
|
|
|
$
|
261,162
|
|
Over time
|
|
|
210,790
|
|
|
|
80,159
|
|
|
|
290,949
|
|
|
|
214,700
|
|
|
|
61,757
|
|
|
|
276,457
|
|
Total net sales
|
|
$
|
336,435
|
|
|
$
|
205,151
|
|
|
$
|
541,586
|
|
|
$
|
321,667
|
|
|
$
|
215,952
|
|
|
$
|
537,619
|
|
Accounts Receivable
Accounts receivable consisted of the following:
|
|
December 31, 2021
|
|
|
September 30, 2021
|
|
Billed receivables
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
$
|
258,270
|
|
|
$
|
298,951
|
|
Other (Chinese financial institutions)
|
|
|
7,041
|
|
|
|
23,168
|
|
Total billed receivables
|
|
|
265,311
|
|
|
|
322,119
|
|
Current unbilled receivables (contract assets)
|
|
|
244,214
|
|
|
|
204,596
|
|
Total accounts receivable
|
|
|
509,525
|
|
|
|
526,715
|
|
Less: Allowance for uncollectible amounts
|
|
|
(3,309
|
)
|
|
|
(3,664
|
)
|
Total accounts receivable, net
|
|
$
|
506,216
|
|
|
$
|
523,051
|
|
As of December 31, 2021, “Other assets” on the Condensed Consolidated Balance Sheets includes $6,192 of unbilled receivables not expected to be invoiced and collected within a period of twelve months, compared to $9,424 as of September 30, 2021.
Accounts receivable in Woodward’s Condensed Consolidated Financial Statements represent the net amount expected to be collected, and an allowance for uncollectible amounts related to credit losses is established based on expected losses. Expected losses are estimated by reviewing specific customer accounts, taking into consideration accounts receivable aging, credit risk of the customers, and historical payment history, as well as current and forecasted economic conditions and other relevant factors.
The allowance for uncollectible amounts and change in expected credit losses for trade accounts receivable and unbilled receivables (contract assets) consisted of the following:
|
|
Three-Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Balance, beginning
|
|
$
|
3,664
|
|
|
$
|
8,359
|
|
Charged to costs and expenses, or sales allowance
|
|
|
212
|
|
|
|
88
|
|
Deductions
|
|
|
(576
|
)
|
|
|
(1,171
|
)
|
Other additions1
|
|
|
9
|
|
|
|
223
|
|
Balance, ending
|
|
$
|
3,309
|
|
|
$
|
7,499
|
|
|
(1)
|
Includes effects of foreign exchange rate changes during the period.
|
Contract liabilities
Contract liabilities consisted of the following:
|
|
December 31, 2021
|
|
|
September 30, 2021
|
|
|
|
Current
|
|
|
Noncurrent
|
|
|
Current
|
|
|
Noncurrent
|
|
Deferred revenue from material rights from GE joint venture formation
|
|
$
|
5,017
|
|
|
$
|
233,055
|
|
|
$
|
4,771
|
|
|
$
|
234,237
|
|
Deferred revenue from advanced invoicing and/or prepayments from customers
|
|
|
2,207
|
|
|
|
62
|
|
|
|
4,192
|
|
|
|
290
|
|
Liability related to customer supplied inventory
|
|
|
15,771
|
|
|
|
—
|
|
|
|
14,169
|
|
|
|
—
|
|
Deferred revenue from material rights related to engineering and development funding
|
|
|
7,070
|
|
|
|
156,320
|
|
|
|
6,395
|
|
|
|
151,797
|
|
Net contract liabilities
|
|
$
|
30,065
|
|
|
$
|
389,437
|
|
|
$
|
29,527
|
|
|
$
|
386,324
|
|
7
Woodward recognized revenue of $8,793 in the three-months ended December 31, 2021 from contract liabilities balances recorded as of October 1, 2021, compared to $6,528 in the three-months ended December 31, 2020 from contract liabilities balances recorded as of October 1, 2020.
Remaining performance obligations
Remaining performance obligations related to the aggregate amount of the total contract transaction price of firm orders for which the performance obligation has not yet been recognized in revenue as of December 31, 2021 was $1,388,495, compared to $1,283,311 as of September 30, 2021, the majority of which relates to Woodward’s Aerospace segment in both periods. Woodward expects to recognize almost all of these remaining performance obligations within two years after December 31, 2021.
Remaining performance obligations related to material rights that have not yet been recognized in revenue as of December 31, 2021 was $472,201, compared to $471,133 as of September 30, 2021, of which $7,924 is expected to be recognized in the remainder of fiscal year 2022, $14,825 is expected to be recognized in fiscal year 2023, and the remaining balance is expected to be recognized thereafter. Woodward expects to recognize revenue from performance obligations related to material rights over the life of the underlying programs, which may be as long as forty years.
Disaggregation of Revenue
Woodward designs, produces and services reliable, efficient, low-emission, and high-performance energy control products for diverse applications in markets throughout the world. Woodward reports financial results for each of its Aerospace and Industrial reportable segments. Woodward further disaggregates its revenue from contracts with customers by primary market as Woodward believes this best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.
Revenue by primary market for the Aerospace reportable segment was as follows:
|
|
Three-Months Ended
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Commercial OEM
|
|
$
|
104,826
|
|
|
$
|
76,081
|
|
Commercial aftermarket
|
|
|
86,086
|
|
|
|
65,515
|
|
Defense OEM
|
|
|
105,375
|
|
|
|
131,263
|
|
Defense aftermarket
|
|
|
40,148
|
|
|
|
48,808
|
|
Total Aerospace segment net sales
|
|
$
|
336,435
|
|
|
$
|
321,667
|
|
Revenue by primary market for the Industrial reportable segment was as follows:
|
|
Three-Months Ended
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Reciprocating engines
|
|
$
|
158,334
|
|
|
$
|
164,922
|
|
Industrial turbines
|
|
|
46,817
|
|
|
|
51,030
|
|
Total Industrial segment net sales
|
|
$
|
205,151
|
|
|
$
|
215,952
|
|
The customers who each account for approximately 10% or more of net sales of each of Woodward’s reportable segments are as follows:
|
|
Three-Months Ended December 31, 2021
|
|
Three-Months Ended December 31, 2020
|
Aerospace
|
|
The Boeing Company, General Electric Company, Raytheon Technologies
|
|
The Boeing Company, General Electric Company, Raytheon Technologies
|
Industrial
|
|
Rolls-Royce PLC, Wartsila
|
|
Rolls-Royce PLC, Weichai Westport, General Electric Company
|
Note 4. 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.
Diluted earnings per share reflects the weighted-average number of shares outstanding after consideration of the dilutive effect of stock options and restricted stock.
8
The following is a reconciliation of net earnings to basic earnings per share and diluted earnings per share:
|
|
Three-Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
30,305
|
|
|
$
|
41,570
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic shares outstanding
|
|
|
63,094
|
|
|
|
62,812
|
|
Dilutive effect of stock options and restricted stock
|
|
|
2,005
|
|
|
|
2,080
|
|
Diluted shares outstanding
|
|
|
65,099
|
|
|
|
64,892
|
|
Income per common share:
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.48
|
|
|
$
|
0.66
|
|
Diluted earnings per share
|
|
$
|
0.47
|
|
|
$
|
0.64
|
|
|
|
|
|
|
|
|
|
|
The following stock option grants were outstanding but were excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive.
|
|
Three-Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Options
|
|
|
477
|
|
|
|
587
|
|
Weighted-average option price
|
|
$
|
117.63
|
|
|
$
|
104.99
|
|
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,
|
|
|
|
2021
|
|
|
2020
|
|
Weighted-average treasury stock shares held for deferred compensation obligations
|
|
|
168
|
|
|
|
200
|
|
Note 5. Leases
Lessee arrangements
Woodward has entered into operating leases for certain facilities and equipment with terms in excess of one year under agreements that expire at various dates. Some leases require the payment of property taxes, insurance, maintenance costs, or other similar costs in addition to rental payments. Woodward has also entered into finance leases for equipment with terms in excess of one year under agreements that expire at various dates.
Lease-related assets and liabilities follows:
|
|
Classification on the Condensed Consolidated Balance Sheets
|
|
December 31, 2021
|
|
|
September 30, 2021
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Operating lease assets
|
|
Other assets
|
|
$
|
20,871
|
|
|
$
|
19,370
|
|
Finance lease assets
|
|
Property, plant and equipment, net
|
|
|
690
|
|
|
|
781
|
|
Total lease assets
|
|
|
|
|
21,561
|
|
|
|
20,151
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities
|
|
Accrued liabilities
|
|
|
5,270
|
|
|
|
5,260
|
|
Finance lease liabilities
|
|
Current portion of long-term debt
|
|
|
424
|
|
|
|
728
|
|
Noncurrent liabilities:
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities
|
|
Other liabilities
|
|
|
16,294
|
|
|
|
14,770
|
|
Finance lease liabilities
|
|
Long-term debt, less current portion
|
|
|
388
|
|
|
|
475
|
|
Total lease liabilities
|
|
|
|
$
|
22,376
|
|
|
$
|
21,233
|
|
9
Lease-related expenses were as follows:
|
|
Three-Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Operating lease expense
|
|
$
|
1,607
|
|
|
$
|
1,553
|
|
Amortization of finance lease assets
|
|
|
79
|
|
|
|
126
|
|
Interest on finance lease liabilities
|
|
|
8
|
|
|
|
18
|
|
Variable lease expense
|
|
|
403
|
|
|
|
322
|
|
Short-term lease expense
|
|
|
40
|
|
|
|
82
|
|
Sublease income1
|
|
|
(192
|
)
|
|
|
(168
|
)
|
Total lease expense
|
|
$
|
1,945
|
|
|
$
|
1,933
|
|
|
(1)
|
Relates to two separate subleases Woodward has entered into for a leased manufacturing building in Niles, Illinois.
|
Lease-related supplemental cash flow information was as follows:
|
|
Three-Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Operating cash flows for operating leases
|
|
$
|
1,343
|
|
|
$
|
1,151
|
|
Operating cash flows for finance leases
|
|
|
8
|
|
|
|
18
|
|
Financing cash flows for finance leases
|
|
|
382
|
|
|
|
396
|
|
Right-of-use assets obtained in exchange for recorded lease obligations:
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
3,082
|
|
|
|
1,130
|
|
Finance leases
|
|
|
—
|
|
|
|
12
|
|
Lessor arrangements
Woodward has assessed its manufacturing contracts and concluded that certain of the contracts for the manufacture of customer products met the criteria to be considered a leasing arrangement (“embedded leases”) with Woodward as the lessor. The specific manufacturing contracts that met the criteria were those that utilized Woodward property, plant and equipment and which is substantially (more than 90%) dedicated to the manufacturing of the product(s) for a single customer. Woodward has dedicated manufacturing lines with four of its customers representing embedded leases, all of which qualified as operating leases with undefined quantities of future customer purchase commitments. Although Woodward expects to allocate some portion of future net sales to these customers to embedded lessor arrangements, it cannot provide expected future undiscounted lease payments from property, plant and equipment leased to customers as of December 31, 2021. If, in the future, customers reduce purchases of related products from Woodward, the Company believes it will derive additional value from the underlying equipment by repurposing its use to support other customer arrangements.
Revenue from contracts with customers that included embedded operating leases, which is included in “Net sales” in the Condensed Consolidated Statements of Earnings, was $1,343 for the three-months ended December 31, 2021, compared to $1,798 for the three-months ended December 31, 2020.
The carrying amount of property, plant and equipment leased to others through embedded leasing arrangements, included in “Property, plant and equipment, net” on the Condensed Consolidated Balance Sheets, follows:
|
|
December 31, 2021
|
|
|
September 30, 2021
|
|
Property, plant and equipment leased to others through embedded leasing arrangements
|
|
$
|
71,958
|
|
|
$
|
93,732
|
|
Less accumulated depreciation
|
|
|
(27,070
|
)
|
|
|
(35,733
|
)
|
Property, plant and equipment leased to others through embedded leasing arrangements, net
|
|
$
|
44,888
|
|
|
$
|
57,999
|
|
|
|
|
|
|
|
|
|
|
Note 6. Joint venture
In fiscal year 2016, Woodward and General Electric Company (“GE”), acting through its GE Aviation business unit, consummated the formation of a strategic joint venture between Woodward and GE (the “JV”) to develop, manufacture and support fuel systems for specified existing and all future GE commercial aircraft engines that produce thrust in excess of fifty thousand pounds.
10
Unamortized deferred revenue from material rights in connection with the JV formation included:
|
|
December 31, 2021
|
|
|
September 30, 2021
|
|
Accrued liabilities
|
|
$
|
5,017
|
|
|
$
|
4,771
|
|
Other liabilities
|
|
|
233,055
|
|
|
|
234,237
|
|
Amortization of the deferred revenue (material right) recognized as an increase to sales was $936 for the three-months ended December 31, 2021, and $1,182 for the three-months ended December 31, 2020.
Other income related to Woodward’s equity interest in the earnings of the JV was as follows:
|
|
Three-Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Other income
|
|
$
|
4,675
|
|
|
$
|
2,386
|
|
Cash distributions to Woodward from the JV, recognized in “Other, net” in “Net cash provided by operating activities” on the Condensed Consolidated Statements of Cash Flows, were as follows:
|
|
Three-Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Cash distributions
|
|
$
|
2,500
|
|
|
$
|
3,500
|
|
Net sales to the JV were as follows:
|
|
Three-Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Net sales1
|
|
$
|
7,274
|
|
|
$
|
10,059
|
|
|
(1)
|
Net sales included a reduction of $5,946 for the three-months ended December 31, 2021 related to royalties owed to the JV by Woodward on sales by Woodward directly to third party aftermarket customers, compared to a reduction to sales of $4,420 for the three-months ended December 31, 2020.
|
The Condensed Consolidated Balance Sheets include “Accounts receivable” related to amounts the JV owed Woodward, “Accounts payable” related to amounts Woodward owed the JV, and “Other assets” related to Woodward’s net investment in the JV, as follows:
|
|
December 31, 2021
|
|
|
September 30, 2021
|
|
Accounts receivable
|
|
$
|
3,445
|
|
|
$
|
3,639
|
|
Accounts payable
|
|
|
2,726
|
|
|
|
2,823
|
|
Other assets
|
|
|
9,163
|
|
|
|
6,988
|
|
Note 7. Financial instruments and fair value measurements
The table below presents information about Woodward’s financial assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques Woodward utilized to determine such fair value as defined by the U.S. GAAP fair value hierarchy.
|
|
At December 31, 2021
|
|
|
At September 30, 2021
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in term deposits with foreign banks
|
|
$
|
53,145
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
53,145
|
|
|
$
|
13,187
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,187
|
|
Equity securities
|
|
|
31,355
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,355
|
|
|
|
29,714
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29,714
|
|
Total financial assets
|
|
$
|
84,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
84,500
|
|
|
$
|
42,901
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
42,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency interest rate swaps
|
|
$
|
—
|
|
|
$
|
37,426
|
|
|
$
|
—
|
|
|
$
|
37,426
|
|
|
$
|
—
|
|
|
$
|
50,185
|
|
|
$
|
—
|
|
|
$
|
50,185
|
|
Total financial liabilities
|
|
$
|
—
|
|
|
$
|
37,426
|
|
|
$
|
—
|
|
|
$
|
37,426
|
|
|
$
|
—
|
|
|
$
|
50,185
|
|
|
$
|
—
|
|
|
$
|
50,185
|
|
11
Investments in term deposits with foreign banks: Woodward’s foreign subsidiaries sometimes invest excess cash in various highly liquid financial instruments that Woodward believes are with creditworthy financial institutions. Such investments are reported in “Cash and cash equivalents” at fair value, with realized gains from interest income recognized in earnings. The carrying value of Woodward’s investments in term deposits with foreign banks are considered equal to the fair value given the highly liquid nature of the investments.
Equity securities: Woodward holds marketable equity securities, through investments in various mutual funds, related to its deferred compensation program. Based on Woodward’s intentions regarding these instruments, marketable equity securities are classified as trading securities. The trading securities are reported at fair value, with realized gains and losses recognized in “Other (income) expense, net” on the Condensed Consolidated Statements of Earnings. The trading securities are included in “Other assets” in the Condensed Consolidated Balance Sheets. The fair values of Woodward’s trading securities are based on the quoted market prices for the net asset value of the various mutual funds.
Cross-currency interest rate swaps: Woodward holds cross-currency interest rate swaps, which are accounted for at fair value. In the Condensed Consolidated Balance Sheets, the swaps in an asset position are included in “Other assets,” and swaps in a liability position are included in “Other liabilities”. The fair values of Woodward’s cross-currency interest rate swaps are determined using a market approach that is based on observable inputs other than quoted market prices, including contract terms, interest rates, currency rates, and other market factors.
Cash, trade accounts receivable, accounts payable, and short-term borrowings are not remeasured to fair value, as the carrying cost of each approximates its respective fair value.
The estimated fair values and carrying costs of other financial instruments that are not required to be remeasured at fair value in the Condensed Consolidated Balance Sheets were as follows:
|
|
|
|
At December 31, 2021
|
|
|
At September 30, 2021
|
|
|
|
Fair Value
Hierarchy
Level
|
|
Estimated
Fair Value
|
|
|
Carrying
Cost
|
|
|
Estimated
Fair Value
|
|
|
Carrying
Cost
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable from municipalities
|
|
2
|
|
$
|
10,728
|
|
|
$
|
9,851
|
|
|
$
|
11,413
|
|
|
$
|
10,193
|
|
Note receivable from sale of the renewable power systems business and other related businesses
|
|
2
|
|
|
6,165
|
|
|
|
6,059
|
|
|
|
6,288
|
|
|
|
6,061
|
|
Investments in short-term time deposits
|
|
2
|
|
|
11,568
|
|
|
|
11,560
|
|
|
|
11,587
|
|
|
|
11,580
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
2
|
|
$
|
793,605
|
|
|
$
|
732,028
|
|
|
$
|
812,866
|
|
|
$
|
736,706
|
|
In connection with certain economic incentives related to Woodward’s development of a second campus in the greater-Rockford, Illinois area for its Aerospace segment and Woodward’s development of a new campus at its corporate headquarters in Fort Collins, Colorado, Woodward received long-term notes from municipalities within the states of Illinois and Colorado. The fair value of the long-term notes was estimated based on a model that discounted future principal and interest payments received at an interest rate available to Woodward at the end of the period for similarly rated municipal notes of similar maturity, which is a level 2 input as defined by the U.S. GAAP fair value hierarchy. The interest rates used to estimate the fair value of the long-term notes were 1.2% at December 31, 2021 and 1.3% at September 30, 2021.
In connection with the sale of the renewable power systems business and other related businesses, Woodward received a promissory note from the buyer for deferral of a portion of the purchase price, which is due by April 30, 2022. The fair value of the note was estimated based on a model that discounted future principal and interest payments received at an interest rate available to Woodward at the end of the period for similarly rated promissory notes of similar maturity, which is a level 2 input as defined by the U.S. GAAP fair value hierarchy. The interest rate used to estimate the fair value of the note was 1.0% at both December 31, 2021 and at September 30, 2021.
From time to time, certain of Woodward’s foreign subsidiaries will invest excess cash in short-term time deposits with a fixed maturity date of longer than three months but less than one year from the date of the deposit. Woodward believes that the investments are with creditworthy financial institutions. The fair value of the investments in short-term time deposits was estimated based on a model that discounted future principal and interest payments to be received at an interest rate available to the foreign subsidiary entering into the investment for similar short-term time deposits of similar maturity. This was determined to be a level 2 input as defined by the U.S. GAAP fair value hierarchy. The interest rates used to estimate the fair value of the short-term time deposits was 3.2% at December 31, 2021 and 3.3% at September 30, 2021.
12
The fair value of long-term debt was estimated based on the prices of comparable debt available to Woodward at the end of the period of similar type and maturity, which is a level 2 input as defined by the U.S. GAAP fair value hierarchy. The weighted-average interest rate used to estimate the fair value of long-term debt was 1.9% at December 31, 2021 and 1.6% at September 30, 2021.
Woodward does not have expected credit losses related to any financial assets that are not required to be remeasured at fair value.
Note 8. Derivative instruments and hedging activities
Derivative instruments not designated or qualifying as hedging instruments
In May 2020, Woodward entered into a floating-rate cross-currency interest rate swap (the “2020 Floating-Rate Cross-Currency Swap”), with a notional value of $45,000, and five fixed-rate cross-currency interest rate swap agreements (the “2020 Fixed-Rate Cross-Currency Swaps”), with an aggregate notional value of $400,000, which effectively reduced the interest rates on the underlying fixed and floating-rate debt, respectively, under the 2018 Notes (as defined in Note 15, Credit Facilities, short-term borrowings and long-term debt, in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of Woodward’s most recently filed Form 10-K) and Woodward’s then existing revolving credit agreement.
The net interest income of the cross-currency interest rate swaps is recorded as a reduction to “Interest expense” in Woodward’s Condensed Consolidated Statements of Earnings. As of December 31, 2021, the total notional value of the 2020 Floating-Rate Cross-Currency Swap and the 2020 Fixed-Rate Cross-Currency Swaps was $22,500 and $400,000, respectively. See Note 7, Financial Instruments and fair value measurements for the related fair value of the derivative instruments as of December 31, 2021.
Derivatives instruments in fair value hedging relationships
In May 2020, Woodward entered into a US dollar denominated intercompany loan payable with identical terms and notional value as the 2020 Floating-Rate Cross-Currency Swap, together with a reciprocal intercompany floating-rate cross-currency interest rate swap. The agreements were entered into by Woodward Barbados Euro Financing SRL (“Euro Barbados”), a wholly owned subsidiary of Woodward. The US dollar denominated intercompany loan and reciprocal intercompany floating-rate cross-currency interest rate swap are designated as a fair value hedge under the criteria prescribed in ASC 815. The objective of the derivative instrument is to hedge against the foreign currency exchange risk attributable to the spot remeasurement of the US dollar denominated intercompany loan, as Euro Barbados maintains a Euro functional currency.
For each floating-rate intercompany cross-currency interest rate swap, only the change in the fair value related to the cross-currency basis spread, or excluded component, of the derivative instrument is recognized in accumulated other comprehensive income (“OCI”). The remaining change in the fair value of the derivative instrument is recognized in foreign currency transaction gain or loss included in “Selling, general and administrative costs” in Woodward’s Condensed Consolidated Statements of Earnings. The change in the fair value of the derivative instrument in foreign currency transaction gain or loss offsets the change in the spot remeasurement of the intercompany Euro and US dollar denominated loans. Hedge effectiveness is assessed based on the fair value changes of the derivative instrument, after excluding any fair value changes related to the cross-currency basis spread. The initial cost of the cross-currency basis spread is recorded in earnings each period through the swap accrual process. There are no credit-risk-related contingent features associated with the intercompany floating-rate cross-currency interest rate swap.
Derivative instruments in cash flow hedging relationships
In May 2020, Woodward entered into five US dollar intercompany loans payable, with identical terms and notional values of each tranche of the 2020 Fixed-Rate Cross-Currency Swaps, together with reciprocal fixed-rate intercompany cross-currency interest rate swaps. The agreements were entered into by Euro Barbados and are designated as cash flow hedges under the criteria prescribed in ASC 815. The objective of these derivative instruments is to hedge the risk of variability in cash flows attributable to the foreign currency exchange risk of cash flows for future principal and interest payments associated with the US dollar denominated intercompany loans over a thirteen-year period, as Euro Barbados maintains a Euro functional currency.
13
For each of the fixed-rate intercompany cross-currency interest rate swaps, changes in the fair values of the derivative instruments are recognized in accumulated OCI and reclassified to foreign currency transaction gain or loss included in “Selling, general and administrative costs” in Woodward’s Condensed Consolidated Statements of Earnings. Reclassifications out of accumulated OCI of the change in fair value occur each reporting period based upon changes in the spot rate remeasurement of the Euro and US dollar denominated intercompany loans, including associated interest. Hedge effectiveness is assessed based on the fair value changes of the derivative instruments and such hedges are deemed to be highly effective in offsetting exposure to variability in foreign exchange rates. There are no credit-risk-related contingent features associated with these fixed-rate cross-currency interest rate swaps.
Derivatives instruments in net investment hedging relationships
On September 23, 2016, Woodward and Woodward International Holding B.V., a wholly owned subsidiary of Woodward organized under the laws of The Netherlands (the “BV Subsidiary”), each entered into a note purchase agreement (the “2016 Note Purchase Agreement”) relating to the sale by Woodward and the BV Subsidiary of an aggregate principal amount of €160,000 of senior unsecured notes in a series of private placement transactions. Woodward issued €40,000 aggregate principal amount of Woodward’s Series M Senior Notes due September 23, 2026 (the “Series M Notes”). Woodward designated the Series M Notes as a hedge of a foreign currency exposure of Woodward’s net investment in its Euro denominated functional currency subsidiaries. Related to the Series M Notes, included in foreign currency translation adjustments within total comprehensive (losses) earnings are net foreign exchange gains of $1,071 for the three-months ended December 31, 2021, compared to net foreign exchange losses of $2,227 for the three-months ended December 31, 2020.
Impact of derivative instruments designated as qualifying hedging instruments
The following table discloses the amount of (income) expense recognized in earnings on derivative instruments designated as qualifying hedging instruments:
|
|
|
|
Three-months ended December 31,
|
|
Derivatives in:
|
|
Location
|
|
2021
|
|
|
2020
|
|
Cross-currency interest rate swap agreement designated as fair value hedges
|
|
Selling, general and administrative expenses
|
|
$
|
(622
|
)
|
|
$
|
1,850
|
|
Cross-currency interest rate swap agreements designated as cash flow hedges
|
|
Selling, general and administrative expenses
|
|
|
(9,453
|
)
|
|
|
19,110
|
|
|
|
|
|
$
|
(10,075
|
)
|
|
$
|
20,960
|
|
The following table discloses the amount of (gain) loss recognized in accumulated OCI on derivative instruments designated as qualifying hedging instruments:
|
|
|
|
Three-months ended December 31,
|
|
Derivatives in:
|
|
Location
|
|
2021
|
|
|
2020
|
|
Cross-currency interest rate swap agreement designated as fair value hedges
|
|
Selling, general and administrative expenses
|
|
$
|
(500
|
)
|
|
$
|
1,663
|
|
Cross-currency interest rate swap agreements designated as cash flow hedges
|
|
Selling, general and administrative expenses
|
|
|
(11,869
|
)
|
|
|
28,995
|
|
|
|
|
|
$
|
(12,369
|
)
|
|
$
|
30,658
|
|
The following table discloses the amount of (gain) loss reclassified from accumulated OCI into earnings on derivative instruments designated as qualifying hedging instruments:
|
|
|
|
Three-months ended December 31,
|
|
Derivatives in:
|
|
Location
|
|
2021
|
|
|
2020
|
|
Cross-currency interest rate swap agreement designated as fair value hedges
|
|
Selling, general and administrative expenses
|
|
$
|
(622
|
)
|
|
$
|
1,850
|
|
Cross-currency interest rate swap agreements designated as cash flow hedges
|
|
Selling, general and administrative expenses
|
|
|
(9,453
|
)
|
|
|
19,110
|
|
|
|
|
|
$
|
(10,075
|
)
|
|
$
|
20,960
|
|
The remaining unrecognized gains and losses in Woodward’s Condensed Consolidated Balance Sheets associated with derivative instruments that were previously entered into by Woodward, which are classified in accumulated OCI, were net losses of $24,212 as of December 31, 2021 and $26,506 as of September 30, 2021.
14
Note 9. Supplemental statement of cash flows information
|
|
Three-Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Interest paid, net of amounts capitalized
|
|
$
|
11,244
|
|
|
$
|
12,280
|
|
Income taxes paid
|
|
|
5,420
|
|
|
|
4,002
|
|
Income tax refunds received
|
|
|
6,428
|
|
|
|
—
|
|
Non-cash activities:
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment on account
|
|
|
1,521
|
|
|
|
1,699
|
|
Note 10. Inventories
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2021
|
|
Raw materials
|
|
$
|
120,633
|
|
|
$
|
107,412
|
|
Work in progress
|
|
|
105,488
|
|
|
|
95,846
|
|
Component parts(1)
|
|
|
274,955
|
|
|
|
260,244
|
|
Finished goods
|
|
|
74,060
|
|
|
|
63,109
|
|
Customer supplied inventory
|
|
|
15,771
|
|
|
|
14,169
|
|
On-hand inventory for which control has transferred to the customer
|
|
|
(139,073
|
)
|
|
|
(120,809
|
)
|
|
|
$
|
451,834
|
|
|
$
|
419,971
|
|
|
(1)
|
Component parts include items that can be sold separately as finished goods or included in the manufacture of other products.
|
Note 11. Property, plant, and equipment
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2021
|
|
Land and land improvements
|
|
$
|
85,829
|
|
|
$
|
86,051
|
|
Buildings and building improvements
|
|
|
554,026
|
|
|
|
553,693
|
|
Leasehold improvements
|
|
|
19,071
|
|
|
|
19,159
|
|
Machinery and production equipment
|
|
|
780,766
|
|
|
|
795,128
|
|
Computer equipment and software
|
|
|
124,590
|
|
|
|
124,444
|
|
Office furniture and equipment
|
|
|
40,033
|
|
|
|
39,987
|
|
Other
|
|
|
19,992
|
|
|
|
20,012
|
|
Construction in progress
|
|
|
40,364
|
|
|
|
38,317
|
|
|
|
|
1,664,671
|
|
|
|
1,676,791
|
|
Less accumulated depreciation
|
|
|
(730,268
|
)
|
|
|
(726,222
|
)
|
Property, plant, and equipment, net
|
|
$
|
934,403
|
|
|
$
|
950,569
|
|
For the three-months ended December 31, 2021 and 2020, Woodward had depreciation expense as follows:
|
|
Three-Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Depreciation expense
|
|
$
|
21,033
|
|
|
$
|
22,608
|
|
Note 12. Goodwill
|
|
September 30,
2021
|
|
|
Effects of Foreign
Currency
Translation
|
|
|
December 31,
2021
|
|
Aerospace
|
|
$
|
455,423
|
|
|
$
|
—
|
|
|
$
|
455,423
|
|
Industrial
|
|
|
349,910
|
|
|
|
(5,311
|
)
|
|
|
344,599
|
|
Consolidated
|
|
$
|
805,333
|
|
|
$
|
(5,311
|
)
|
|
$
|
800,022
|
|
Woodward tests goodwill for impairment during the fourth quarter of each fiscal year, and at any time there is an indication that goodwill is more-likely-than-not impaired, such indications commonly referred to as triggering events. Woodward’s goodwill impairment test in the fourth quarter of fiscal year 2021 resulted in no impairment.
15
Note 13. Intangible assets, net
|
|
December 31, 2021
|
|
|
September 30, 2021
|
|
|
|
Gross
Carrying
Value
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
|
Gross
Carrying
Value
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships and contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
281,683
|
|
|
$
|
(213,676
|
)
|
|
$
|
68,007
|
|
|
$
|
281,683
|
|
|
$
|
(210,380
|
)
|
|
$
|
71,303
|
|
Industrial
|
|
|
395,310
|
|
|
|
(60,396
|
)
|
|
|
334,914
|
|
|
|
404,179
|
|
|
|
(56,515
|
)
|
|
|
347,664
|
|
Total
|
|
$
|
676,993
|
|
|
$
|
(274,072
|
)
|
|
$
|
402,921
|
|
|
$
|
685,862
|
|
|
$
|
(266,895
|
)
|
|
$
|
418,967
|
|
Intellectual property:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Industrial
|
|
|
12,485
|
|
|
|
(12,485
|
)
|
|
|
—
|
|
|
|
15,806
|
|
|
|
(15,806
|
)
|
|
|
—
|
|
Total
|
|
$
|
12,485
|
|
|
$
|
(12,485
|
)
|
|
$
|
—
|
|
|
$
|
15,806
|
|
|
$
|
(15,806
|
)
|
|
$
|
—
|
|
Process technology:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
76,370
|
|
|
$
|
(67,752
|
)
|
|
$
|
8,618
|
|
|
$
|
76,370
|
|
|
$
|
(67,177
|
)
|
|
$
|
9,193
|
|
Industrial
|
|
|
88,295
|
|
|
|
(26,743
|
)
|
|
|
61,552
|
|
|
|
90,008
|
|
|
|
(26,124
|
)
|
|
|
63,884
|
|
Total
|
|
$
|
164,665
|
|
|
$
|
(94,495
|
)
|
|
$
|
70,170
|
|
|
$
|
166,378
|
|
|
$
|
(93,301
|
)
|
|
$
|
73,077
|
|
Intangible asset with indefinite life:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Industrial
|
|
|
65,691
|
|
|
|
—
|
|
|
|
65,691
|
|
|
|
67,245
|
|
|
|
—
|
|
|
|
67,245
|
|
Total
|
|
$
|
65,691
|
|
|
$
|
—
|
|
|
$
|
65,691
|
|
|
$
|
67,245
|
|
|
$
|
—
|
|
|
$
|
67,245
|
|
Total intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
358,053
|
|
|
$
|
(281,428
|
)
|
|
$
|
76,625
|
|
|
$
|
358,053
|
|
|
$
|
(277,557
|
)
|
|
$
|
80,496
|
|
Industrial
|
|
|
561,781
|
|
|
|
(99,624
|
)
|
|
|
462,157
|
|
|
|
577,238
|
|
|
|
(98,445
|
)
|
|
|
478,793
|
|
Consolidated Total
|
|
$
|
919,834
|
|
|
$
|
(381,052
|
)
|
|
$
|
538,782
|
|
|
$
|
935,291
|
|
|
$
|
(376,002
|
)
|
|
$
|
559,289
|
|
Woodward tests the indefinite lived tradename intangible asset for impairment during the fourth quarter of each fiscal year, or at any time there is an indication the indefinite lived tradename intangible asset is more-likely-than-not impaired, such indications commonly referred to as triggering events. Woodward’s impairment test for the indefinite lived tradename intangible asset in the fourth quarter of fiscal year 2021 resulted in no impairment.
For the three-months ended December 31, 2021 and 2020, Woodward recorded amortization expense associated with intangibles of the following:
|
|
Three-Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Amortization expense
|
|
$
|
9,688
|
|
|
$
|
10,469
|
|
Future amortization expense associated with intangibles is expected to be:
Year Ending September 30:
|
|
|
|
|
2022 (remaining)
|
|
$
|
28,905
|
|
2023
|
|
|
37,441
|
|
2024
|
|
|
33,690
|
|
2025
|
|
|
28,475
|
|
2026
|
|
|
28,465
|
|
Thereafter
|
|
|
316,115
|
|
|
|
$
|
473,091
|
|
16
Note 14. Credit facilities, short-term borrowings and long-term debt
Revolving credit facility
Woodward maintains a $1,000,000 revolving credit facility established under a revolving credit agreement among Woodward, a syndicate of lenders and Wells Fargo Bank, National Association, as administrative agent (the “Revolving Credit Agreement”). The Revolving Credit Agreement provides for the option to increase available borrowings up to $1,500,000, subject to lenders’ participation. On November 24, 2021, Woodward amended the Revolving Credit Agreement (such amended agreement, the “Amended and Restated Revolving Credit Agreement”) to, among other things, (i) replace the Euro London Interbank Offered Rate (“LIBOR”), the British pound sterling LIBOR, and the Japanese yen LIBOR, with the Euro Interbank Offered Rate (“Euribor”), Sterling Overnight Index Average (“SONIA”), and Tokyo Interbank Offered Rate (“TIBOR”) rates respectively, and (ii) introduce the term Secured Overnight Financing Rate (“SOFR”) as the replacement for US LIBOR. Borrowings under the Amended and Restated Revolving Credit Agreement can be made by Woodward and certain of its foreign subsidiaries in U.S. dollars or in foreign currencies other than the U.S. dollar and generally bear interest at the new base rates listed above plus 0.875% to 1.75%. The Amended and Restated Revolving Credit Agreement matures on June 19, 2024. Under the Revolving Credit Agreement and Amended and Restated Revolving Credit Agreement, there were no borrowings outstanding as of December 31, 2021 and September 30, 2021.
Short-term borrowings
Woodward has other foreign lines of credit and foreign overdraft facilities at various financial institutions, which are generally reviewed annually for renewal and are subject to the usual terms and conditions applied by the financial institutions. Pursuant to the terms of the related facility agreements, Woodward’s foreign performance guarantee facilities are limited in use to providing performance guarantees to third parties. There were no borrowings outstanding on Woodward’s foreign lines of credit and foreign overdraft facilities as of December 31, 2021 and September 30, 2021.
Note 15. Accrued liabilities
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2021
|
|
Salaries and other member benefits
|
|
$
|
42,167
|
|
|
$
|
54,497
|
|
Warranties
|
|
|
13,203
|
|
|
|
17,481
|
|
Interest payable
|
|
|
5,331
|
|
|
|
14,822
|
|
Accrued retirement benefits
|
|
|
2,801
|
|
|
|
2,825
|
|
Net current contract liabilities
|
|
|
30,065
|
|
|
|
29,527
|
|
Current portion of restructuring charges
|
|
|
3,990
|
|
|
|
4,495
|
|
Taxes, other than income
|
|
|
19,171
|
|
|
|
19,453
|
|
Purchase of treasury stock in transit
|
|
|
—
|
|
|
|
12,516
|
|
Other
|
|
|
29,485
|
|
|
|
27,523
|
|
|
|
$
|
146,213
|
|
|
$
|
183,139
|
|
Warranties
Provisions of Woodward’s sales agreements include product warranties customary to these types of agreements. Accruals are established for specifically identified warranty issues that are probable to result in future costs. Warranty costs are accrued as revenue is recognized on a non-specific basis whenever past experience indicates a normal and predictable pattern exists.
Changes in accrued product warranties were as follows:
|
|
Three-Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Warranties, beginning of period
|
|
$
|
17,481
|
|
|
$
|
18,972
|
|
Expense, net of (recoveries)
|
|
|
(762
|
)
|
|
|
1,389
|
|
(Reductions) additions for settlement of previous warranty liabilities
|
|
|
(3,479
|
)
|
|
|
392
|
|
Foreign currency exchange rate changes
|
|
|
(37
|
)
|
|
|
326
|
|
Warranties, end of period
|
|
$
|
13,203
|
|
|
$
|
21,079
|
|
17
Restructuring charges
In fiscal year 2021, the Company recognized restructuring charges relating to workforce management costs to align the Company’s hydraulics and engine systems businesses with current market conditions. During such fiscal year, restructuring charges of $5,008 were recorded as nonsegment expenses, the majority of which are expected to be paid within twelve months from December 31, 2021.
In fiscal year 2020, the Company committed to a plan of termination (the “Termination Plan”) as well as other cost savings actions, in response to the ongoing global economic challenges resulting from the COVID-19 pandemic and its impact on the Company’s business. The Termination Plan involved the termination and/or furlough of employees and contractors at certain of the Company’s operating facilities, primarily in the United States. As a result of the Termination Plan and other related actions, the Company incurred $23,673 of restructuring charges for employee severance and benefits costs. All of the restructuring charges recorded during the fiscal year ended September 30, 2020 were recorded as nonsegment expenses and were paid as of September 30, 2021.
The summary of activity in accrued restructuring charges during the three-months ended December 31, 2021 and 2020 are as follows:
|
|
|
|
|
|
Period Activity
|
|
|
|
|
|
|
|
Balances as of September 30, 2021
|
|
|
Charges
|
|
|
Payments
|
|
|
Foreign currency exchange rate changes
|
|
|
Non-cash
activity
|
|
|
Balances as of December 31, 2021
|
|
Workforce management costs associated with:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hydraulics Systems Realignment
|
|
$
|
3,758
|
|
|
$
|
—
|
|
|
$
|
(505
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,253
|
|
Engine Systems Realignment
|
|
|
1,250
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,250
|
|
Total
|
|
$
|
5,008
|
|
|
$
|
—
|
|
|
$
|
(505
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,503
|
|
Other liabilities included $513 of accrued restructuring charges that are not expected to be settled or paid within twelve months of December 31, 2021.
|
|
|
|
|
|
Period Activity
|
|
|
|
|
|
|
|
Balances as of September 30, 2020
|
|
|
Charges
|
|
|
Payments
|
|
|
Foreign currency exchange rate changes
|
|
|
Non-cash
activity
|
|
|
Balances as of December 31, 2020
|
|
Workforce management costs associated with:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COVID-19 pandemic
|
|
$
|
3,395
|
|
|
$
|
—
|
|
|
$
|
(1,742
|
)
|
|
$
|
45
|
|
|
$
|
(102
|
)
|
|
$
|
1,596
|
|
Total
|
|
$
|
3,395
|
|
|
$
|
—
|
|
|
$
|
(1,742
|
)
|
|
$
|
45
|
|
|
$
|
(102
|
)
|
|
$
|
1,596
|
|
Note 16. Other liabilities
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2021
|
|
Net accrued retirement benefits, less amounts recognized within accrued liabilities
|
|
$
|
106,815
|
|
|
$
|
107,074
|
|
Total unrecognized tax benefits
|
|
|
11,392
|
|
|
|
13,412
|
|
Noncurrent income taxes payable
|
|
|
16,257
|
|
|
|
16,257
|
|
Deferred economic incentives (1)
|
|
|
7,918
|
|
|
|
8,173
|
|
Cross-currency swap derivative liability
|
|
|
37,426
|
|
|
|
50,185
|
|
Noncurrent operating lease liabilities
|
|
|
16,294
|
|
|
|
14,770
|
|
Net noncurrent contract liabilities
|
|
|
389,437
|
|
|
|
386,324
|
|
Other
|
|
|
10,766
|
|
|
|
21,713
|
|
|
|
$
|
596,305
|
|
|
$
|
617,908
|
|
|
(1)
|
Woodward receives certain economic incentives from various state and local authorities related to capital expansion projects. Such amounts are initially recorded as deferred credits and are being recognized as a reduction to pre-tax expense over the economic lives of the related capital expansion projects.
|
18
Note 17. Other (income) expense, net
|
|
Three-Months Ended
|
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Equity interest in the earnings of the JV
|
|
$
|
(4,675
|
)
|
|
$
|
(2,386
|
)
|
Net gain on sales of assets and businesses
|
|
|
(1,538
|
)
|
|
|
(588
|
)
|
Rent income
|
|
|
(343
|
)
|
|
|
(350
|
)
|
Net gain on investments in deferred compensation program
|
|
|
(1,075
|
)
|
|
|
(983
|
)
|
Other components of net periodic pension and other postretirement benefit, excluding service cost and interest expense
|
|
|
(2,901
|
)
|
|
|
(3,650
|
)
|
Other
|
|
|
(142
|
)
|
|
|
(166
|
)
|
|
|
$
|
(10,674
|
)
|
|
$
|
(8,123
|
)
|
Note 18. Income taxes
The determination of the estimated annual effective tax rate is based upon a number of significant estimates and judgments. In addition, as a global commercial enterprise, Woodward’s tax expense can be impacted by changes in tax rates or laws, the finalization of tax audits and reviews, changes in the estimate of the amount of undistributed foreign earnings that Woodward considers indefinitely reinvested, issuance of future guidance, interpretation, and rule-making, and other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions.
The following table sets forth the tax expense and the effective tax rate for Woodward’s earnings before income taxes:
|
|
Three-Months Ended
|
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Earnings before income taxes
|
|
$
|
37,746
|
|
|
$
|
47,584
|
|
Income tax expense
|
|
|
7,441
|
|
|
|
6,014
|
|
Effective tax rate
|
|
|
19.7
|
%
|
|
|
12.6
|
%
|
The increase in the effective tax rate for the three-months ended December 31, 2021 compared to the three-months ended December 31, 2020 is primarily attributable to a reduction in the income tax benefit from stock-based compensation exercises and the net impact of increased projected full-year earnings.
Gross unrecognized tax benefits were $13,135 as of December 31, 2021, and $15,199 as of September 30, 2021. At December 31, 2021, the amount of the liability for unrecognized tax benefits that, if recognized, would impact Woodward’s effective tax rate was $8,356. At this time, Woodward believes it is reasonably possible that the liability for unrecognized tax benefits will decrease by as much as $4,345 in the next twelve months due to the completion of review by tax authorities, lapses of statutes, and the settlement of tax positions. Woodward’s tax expense includes accruals for potential interest and penalties related to unrecognized tax benefits and all other interest and penalties related to tax payments.
Woodward’s tax returns are subject to audits by U.S. federal, state, and foreign tax authorities, and these audits are at various stages of completion at any given time. Reviews of tax matters by authorities and lapses of the applicable statutes of limitation may result in changes to tax expense. Woodward’s fiscal years remaining open to examination for U.S. Federal income taxes include fiscal years 2018 and thereafter. Woodward’s fiscal years remaining open to examination for significant U.S. state income tax jurisdictions include fiscal years 2017 and thereafter. Woodward’s fiscal years remaining open to examination in significant foreign jurisdictions include 2017 and thereafter.
Note 19. Retirement benefits
Woodward provides various retirement benefits to eligible members of the Company, including contributions to various defined contribution plans, pension benefits associated with defined benefit plans, postretirement medical benefits and postretirement life insurance benefits. Eligibility requirements and benefit levels vary depending on employee location.
19
Defined contribution plans
Most of the Company’s U.S. employees are eligible to participate in the U.S. defined contribution plan. The U.S. defined contribution plan allows employees to defer part of their annual income for income tax purposes into their personal 401(k) accounts. The Company makes matching contributions to eligible employee accounts, which are also deferred for employee personal income tax purposes. Certain non-U.S. employees are also eligible to participate in similar non-U.S. plans.
The amount of expense associated with defined contribution plans was as follows:
|
|
Three-Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Company costs
|
|
$
|
10,951
|
|
|
$
|
8,036
|
|
Defined benefit plans
Woodward has defined benefit plans that provide pension benefits for certain retired employees in the United States, the United Kingdom, Japan, and Germany. Woodward also provides other postretirement benefits to its employees including postretirement medical benefits and life insurance benefits. Postretirement medical benefits are provided to certain current and retired employees and their covered dependents and beneficiaries in the United States. Life insurance benefits are provided to certain retirees in the United States under frozen plans, which are no longer available to current employees. A September 30 measurement date is utilized to value plan assets and obligations for all of Woodward’s defined benefit pension and other postretirement benefit plans.
U.S. GAAP requires that, for obligations outstanding as of September 30, 2021, the funded status reported in interim periods shall be the same asset or liability recognized in the previous year end statement of financial position adjusted for (a) subsequent accruals of net periodic benefit cost that exclude the amortization of amounts previously recognized in other comprehensive income (for example, subsequent accruals of service cost, interest cost, and return on plan assets) and (b) contributions to a funded plan or benefit payments.
The components of the net periodic retirement pension costs recognized are as follows:
|
|
Three-Months Ended December 31,
|
|
|
|
United States
|
|
|
Other Countries
|
|
|
Total
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Service cost
|
|
$
|
389
|
|
|
$
|
432
|
|
|
$
|
621
|
|
|
$
|
729
|
|
|
$
|
1,010
|
|
|
$
|
1,161
|
|
Interest cost
|
|
|
1,320
|
|
|
|
1,239
|
|
|
|
426
|
|
|
|
333
|
|
|
|
1,746
|
|
|
|
1,572
|
|
Expected return on plan assets
|
|
|
(2,713
|
)
|
|
|
(3,536
|
)
|
|
|
(645
|
)
|
|
|
(602
|
)
|
|
|
(3,358
|
)
|
|
|
(4,138
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
|
65
|
|
|
|
135
|
|
|
|
146
|
|
|
|
228
|
|
|
|
211
|
|
|
|
363
|
|
Prior service cost
|
|
|
245
|
|
|
|
242
|
|
|
|
6
|
|
|
|
6
|
|
|
|
251
|
|
|
|
248
|
|
Net periodic retirement pension (benefit) cost
|
|
$
|
(694
|
)
|
|
$
|
(1,488
|
)
|
|
$
|
554
|
|
|
$
|
694
|
|
|
$
|
(140
|
)
|
|
$
|
(794
|
)
|
Contributions paid
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
688
|
|
|
$
|
543
|
|
|
$
|
688
|
|
|
$
|
543
|
|
The components of net periodic retirement pension costs other than the service cost and interest cost components are included in the line item “Other (income) expense, net”, and the interest component is included in the line item “Interest expense” in the Condensed Consolidated Statements of Earnings.
The components of the net periodic other postretirement benefit costs recognized are as follows:
|
|
Three-Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
|
|
144
|
|
|
|
150
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss
|
|
|
(24
|
)
|
|
|
7
|
|
Prior service cost
|
|
|
—
|
|
|
|
—
|
|
Net periodic other postretirement cost
|
|
$
|
120
|
|
|
$
|
157
|
|
Contributions paid
|
|
$
|
471
|
|
|
$
|
38
|
|
20
The components of net periodic other postretirement benefit costs other than the service cost and interest cost components are included in the line item “Other (income) expense, net”, and the interest cost component is included in the line item “Interest expense” in the Condensed Consolidated Statements of Earnings.
The amount of cash contributions made to these plans in any year is dependent upon a number of factors, including minimum funding requirements in the jurisdictions in which Woodward operates and arrangements made with trustees of certain foreign plans. As a result, the actual funding in fiscal year 2022 may differ from the current estimate. Woodward estimates its remaining cash contributions in fiscal year 2022 will be as follows:
Retirement pension benefits:
|
|
|
|
|
United States
|
|
$
|
—
|
|
United Kingdom
|
|
|
943
|
|
Japan
|
|
|
—
|
|
Germany
|
|
|
832
|
|
Other postretirement benefits
|
|
|
2,328
|
|
Note 20. Stockholders’ equity
Stock repurchase program
In November 2019, the Woodward board of directors (the “Board”) authorized a program for the repurchase of up to $500,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a three-year period that was scheduled to expire in November 2022 (the “2019 Authorization”). During the three-months ended December 31, 2021, Woodward repurchased 233 shares of its common stock for $26,742 under the 2019 Authorization. During the first three-months ended December 31, 2020, Woodward repurchased no shares of its common stock under the 2019 Authorization.
In January 2022, the Board terminated the 2019 Authorization and concurrently authorized a new program for the repurchase of up to $800,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a two-year period that will end in January 2024 (the “2022 Authorization”).
Stock-based compensation
Provisions governing outstanding stock option awards are included in the 2017 Omnibus Incentive Plan, as amended from time to time (the “2017 Plan”) and the 2006 Omnibus Incentive Plan (the “2006 Plan”), as applicable.
The 2017 Plan was first approved by Woodward’s stockholders in January 2017 and is the successor plan to the 2006 Plan. As of September 14, 2016, the effective date of the 2017 Plan, the Board delegated authority to administer the 2017 Plan to the Compensation Committee of the Board (the “Committee”), including, but not limited to, the power to determine the recipients of awards and the terms of those awards. On January 27, 2021 and January 26, 2022, Woodward’s stockholders approved an additional 1,500 and 800 shares, respectively, of Woodward’s common stock to be made available for future grants. Under the 2017 Plan, there were approximately 2,281 shares of Woodward’s common stock available for future grants as of December 31, 2021 and 2,714 shares as of September 30, 2021.
Stock options
Woodward believes that stock options align the interests of its employees and directors with the interests of its stockholders. Stock option awards are granted with an exercise price equal to the market price of Woodward’s stock at the date the grants are awarded, a ten-year term, and generally have a four-year vesting schedule at a rate of 25% per year.
The fair value of options granted is estimated as of the grant date using the Black-Scholes-Merton option-valuation model using the assumptions in the following table. Woodward calculates the expected term, which represents the average period of time that stock options granted are expected to be outstanding, based upon historical experience of plan participants. Expected volatility is based on historical volatility using daily stock price observations. The estimated dividend yield is based upon Woodward’s historical dividend practice and the market value of its common stock. The risk-free rate is based on the U.S. treasury yield curve, for periods within the contractual life of the stock option, at the time of grant.
21
The following is a summary of the activity for stock option awards:
|
|
Three-Months Ended
|
|
|
|
December 31, 2021
|
|
|
|
Number of
options
|
|
|
Weighted-Average
Exercise Price
per Share
|
|
Options, beginning balance
|
|
|
5,339
|
|
|
$
|
68.21
|
|
Options granted
|
|
|
437
|
|
|
|
117.60
|
|
Options exercised
|
|
|
(57
|
)
|
|
|
55.89
|
|
Options forfeited
|
|
|
(8
|
)
|
|
|
83.89
|
|
Options, ending balance
|
|
|
5,711
|
|
|
|
72.10
|
|
Changes in non-vested stock options were as follows:
|
|
Three-Months Ended
|
|
|
|
December 31, 2021
|
|
|
|
Number of
options
|
|
|
Weighted-Average
Grant Date Fair
Value per Share
|
|
Non-vested options outstanding, beginning balance
|
|
|
2,063
|
|
|
$
|
25.77
|
|
Options granted
|
|
|
437
|
|
|
|
42.19
|
|
Options vested
|
|
|
(648
|
)
|
|
|
26.53
|
|
Options forfeited
|
|
|
(8
|
)
|
|
|
27.97
|
|
Non-vested options outstanding, ending balance
|
|
|
1,844
|
|
|
|
29.39
|
|
Information about stock options that have vested, or are expected to vest, and are exercisable at December 31, 2021 was as follows:
|
|
Number of options
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average
Remaining Life in
Years
|
|
|
Aggregate Intrinsic
Value
|
|
Options outstanding
|
|
|
5,711
|
|
|
$
|
72.10
|
|
|
|
6.1
|
|
|
$
|
217,330
|
|
Options vested and exercisable
|
|
|
3,867
|
|
|
|
63.41
|
|
|
|
4.9
|
|
|
|
178,128
|
|
Options vested and expected to vest
|
|
|
5,632
|
|
|
|
71.77
|
|
|
|
6.0
|
|
|
|
215,890
|
|
Stock-based compensation expense
Woodward recognizes stock-based compensation expense on a straight-line basis over the requisite service period. Pursuant to form stock option agreements used by the Company, with terms approved by the administrator of the applicable plan, the requisite service period can be less than the four-year vesting period based on grantee’s retirement eligibility. As such, the recognition of stock-based compensation expense associated with some stock option grants can be accelerated to a period of less than four years, including immediate recognition of stock-based compensation expense on the date of grant.
At December 31, 2021, there was approximately $16,449 of total unrecognized compensation expense related to non-vested stock-based compensation arrangements, including both stock options and restricted stock awards. The pre-vesting forfeiture rates for purposes of determining stock-based compensation expense recognized were estimated to be 0% for members of the Board and 7.3% for all others. The remaining unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 2.3 years.
Note 21. Commitments and contingencies
Woodward is currently involved in claims, pending or threatened litigation or other legal proceedings, investigations and/or regulatory proceedings arising in the normal course of business, including, among others, those relating to product liability claims, employment matters, worker’s compensation claims, contractual disputes, product warranty claims and alleged violations of various laws and regulations. Woodward accrues for known individual matters using estimates of the most likely amount of loss where it believes that it is probable the matter will result in a loss when ultimately resolved and such loss is reasonably estimable. Legal costs are expensed as incurred and are classified in “Selling, general and administrative expenses” on the Condensed Consolidated Statements of Earnings.
22
Woodward is partially self-insured in the United States for healthcare and worker’s compensation up to predetermined amounts, above which third party insurance applies. Management regularly reviews the probable outcome of related claims and proceedings, the expenses expected to be incurred, the availability and limits of the insurance coverage, and the established accruals for liabilities.
While the outcome of pending claims, legal and regulatory proceedings, and investigations cannot be predicted with certainty, management believes that any liabilities that may result from these claims, proceedings and investigations will not have a material effect on Woodward’s liquidity, financial condition, or results of operations.
In the event of a change in control of Woodward, as defined in change-in-control agreements with its corporate officers, Woodward may be required to pay termination benefits to such officers.
Note 22. Segment information
Woodward serves the aerospace and industrial markets through its two reportable segments – Aerospace and Industrial. When appropriate, Woodward’s reportable segments are aggregations of Woodward’s operating segments. Woodward uses operating segment information internally to manage its business, including the assessment of operating segment performance and decisions for the allocation of resources between operating segments.
The accounting policies of the reportable segments are the same as those of the Company. Woodward evaluates segment profit or loss based on internal performance measures for each segment in a given period. In connection with that assessment, Woodward generally excludes matters such as certain charges for restructuring, interest income and expense, certain gains and losses from asset dispositions, or other non-recurring and/or non-operationally related expenses.
A summary of consolidated net sales and earnings by segment follows:
|
|
Three-Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Segment external net sales:
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
336,435
|
|
|
$
|
321,667
|
|
Industrial
|
|
|
205,151
|
|
|
|
215,952
|
|
Total consolidated net sales
|
|
$
|
541,586
|
|
|
$
|
537,619
|
|
Segment earnings:
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
51,083
|
|
|
$
|
46,466
|
|
Industrial
|
|
|
23,693
|
|
|
|
32,888
|
|
Nonsegment expenses
|
|
|
(29,365
|
)
|
|
|
(23,359
|
)
|
Interest expense, net
|
|
|
(7,665
|
)
|
|
|
(8,411
|
)
|
Consolidated earnings before income taxes
|
|
$
|
37,746
|
|
|
$
|
47,584
|
|
Segment assets consist of accounts receivable; inventories; property, plant, and equipment, net; goodwill; and other intangibles, net. A summary of consolidated total assets by segment follows:
|
|
December 31, 2021
|
|
|
September 30, 2021
|
|
Segment assets:
|
|
|
|
|
|
|
|
|
Aerospace
|
|
$
|
1,680,730
|
|
|
$
|
1,698,833
|
|
Industrial
|
|
|
1,445,786
|
|
|
|
1,453,423
|
|
Unallocated corporate property, plant and equipment, net
|
|
|
104,813
|
|
|
|
106,014
|
|
Other unallocated assets
|
|
|
803,911
|
|
|
|
832,734
|
|
Consolidated total assets
|
|
$
|
4,035,240
|
|
|
$
|
4,091,004
|
|
Note 23. Subsequent events
On January 26, 2022, the Board approved a cash dividend of $0.19 per share for the quarter, payable on March 7, 2022, for stockholders of record as of February 21, 2022.
23