UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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|
|
þ
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|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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|
|
For the quarterly period ended
December 31, 2009
|
OR
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
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|
For the transition period
from to
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Commission file number 0-8408
WOODWARD GOVERNOR
COMPANY
(Exact name of registrant as
specified in its charter)
|
|
|
Delaware
|
|
36-1984010
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(State or other jurisdiction
of
incorporation or organization)
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|
(I.R.S. Employer
Identification No.)
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|
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|
1000 East Drake Road, Fort Collins, Colorado
(Address of principal
executive offices)
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80525
(Zip Code)
|
Registrants telephone number, including area code:
(970) 482-5811
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class:
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Name of Each Exchange on Which Registered:
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Common stock, par value $0.001455 per share
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The NASDAQ Global Select Market
|
Securities registered pursuant to Section 12(g) of the
Act:
None
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
þ
No
o
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
o
No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2
of the
Exchange Act. (Check one):
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|
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|
Large
accelerated
filer
þ
|
Accelerated
filer
o
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Non-accelerated
filer
o
|
Smaller
reporting
company
o
|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes
o
No
þ
As of January 18, 2010, 68,409,032 shares of the
common stock with a par value of $0.001455 per share were
outstanding.
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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Three Months Ended
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December 31,
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2009
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2008
|
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(As recast, Note 2)
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|
(In thousands, except per share amounts)
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|
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(Unaudited)
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Net sales
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$
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339,308
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$
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344,744
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Costs and expenses:
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Cost of goods sold
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239,552
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244,286
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Selling, general and administrative expenses
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32,835
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32,460
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Research and development costs
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18,314
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19,084
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Amortization of intangible assets
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9,181
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4,828
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Interest expense
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8,251
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|
6,537
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Interest income
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|
(110
|
)
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|
|
(662
|
)
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Other income
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|
(354
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)
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|
(31
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)
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Other expense
|
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149
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|
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|
84
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|
|
|
|
|
|
|
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Total costs and expenses
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307,818
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306,586
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|
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Earnings before income taxes
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31,490
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38,158
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Income taxes
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(9,044
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)
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(11,055
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)
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|
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|
|
|
|
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Net earnings
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22,446
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|
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27,103
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Net earnings attributable to noncontrolling interests, net of
tax
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(90
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)
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(39
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)
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Net earnings attributable to Woodward
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$
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22,356
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$
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27,064
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Comprehensive Earnings (Note 19):
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Comprehensive earnings attributable to Woodward
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$
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19,783
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$
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19,923
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Comprehensive earnings attributable to noncontrolling interests
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132
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|
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(11
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)
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|
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Comprehensive earnings
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$
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19,915
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$
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19,912
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Earnings per share (Note 6):
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Basic earnings per share attributable to Woodward
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$
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0.33
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$
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0.40
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Diluted earnings per share attributable to Woodward
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$
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0.32
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|
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$
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0.39
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Weighted Average Common Shares Outstanding
(Note 6):
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Basic
|
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68,361
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|
|
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67,796
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Diluted
|
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69,710
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|
|
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69,236
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Cash dividends per share
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$
|
0.060
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|
|
$
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0.060
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|
See accompanying Notes to Consolidated Financial Statements.
3
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December 31,
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September 30,
|
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2009
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2009
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(As recast, Note 2)
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(In thousands, except per share amounts)
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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76,620
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|
$
|
100,863
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|
Accounts receivable, less allowance for losses of $2,478 and
$2,660, respectively
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178,382
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209,626
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Inventories
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295,179
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302,339
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Income taxes receivable
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17,024
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|
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16,302
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Deferred income tax assets
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34,717
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45,413
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Other current assets
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24,284
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21,701
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|
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Total current assets
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626,206
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696,244
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Property, plant and equipment, net
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204,889
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208,885
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Goodwill
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442,973
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442,802
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Intangible assets, net
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318,498
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327,773
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Deferred income tax assets
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|
|
9,983
|
|
|
|
8,200
|
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Other assets
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|
14,204
|
|
|
|
12,518
|
|
|
|
|
|
|
|
|
|
|
Total assets
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|
$
|
1,616,753
|
|
|
$
|
1,696,422
|
|
|
|
|
|
|
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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|
|
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Short-term borrowings
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$
|
|
|
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$
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Current portion of long-term debt
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28,549
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|
|
|
45,569
|
|
Accounts payable
|
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|
75,354
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|
|
|
81,108
|
|
Income taxes payable
|
|
|
7,400
|
|
|
|
8,084
|
|
Accrued liabilities
|
|
|
86,996
|
|
|
|
127,317
|
|
|
|
|
|
|
|
|
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Total current liabilities
|
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|
198,299
|
|
|
|
262,078
|
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Long-term debt, less current portion
|
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|
496,155
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|
|
|
526,771
|
|
Deferred income tax liabilities
|
|
|
85,684
|
|
|
|
86,048
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Other liabilities
|
|
|
105,649
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|
|
|
110,010
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|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
885,787
|
|
|
|
984,907
|
|
|
|
|
|
|
|
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Commitments and contingencies (Note 20)
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|
|
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Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.003 per share, 10,000 shares
authorized, no shares issued
|
|
|
|
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|
|
|
|
Common stock, par value $0.001455 per share, 150,000 share
authorized, 72,960 shares issued and outstanding
|
|
|
106
|
|
|
|
106
|
|
Additional paid-in capital
|
|
|
75,895
|
|
|
|
73,197
|
|
Accumulated other comprehensive earnings
|
|
|
7,556
|
|
|
|
10,129
|
|
Deferred compensation
|
|
|
4,876
|
|
|
|
4,904
|
|
Retained earnings
|
|
|
759,759
|
|
|
|
741,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
848,192
|
|
|
|
829,841
|
|
Treasury stock at cost, 4,552 shares and 4,621 shares,
respectively
|
|
|
(114,538
|
)
|
|
|
(115,478
|
)
|
Treasury stock held for deferred compensation, at cost,
387 shares and 389 shares, respectively
|
|
|
(4,876
|
)
|
|
|
(4,904
|
)
|
|
|
|
|
|
|
|
|
|
Total Woodward stockholders equity
|
|
|
728,778
|
|
|
|
709,459
|
|
Noncontrolling interest in consolidated subsidiary (Note 2)
|
|
|
2,188
|
|
|
|
2,056
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
730,966
|
|
|
|
711,515
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,616,753
|
|
|
$
|
1,696,422
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
4
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(As recast, Note 2)
|
|
|
|
(In thousands)
|
|
|
|
(Unaudited)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
22,446
|
|
|
$
|
27,103
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18,936
|
|
|
|
14,005
|
|
Net (gain) loss on sale of property, plant and equipment
|
|
|
154
|
|
|
|
(56
|
)
|
Stock-based compensation
|
|
|
2,540
|
|
|
|
1,968
|
|
Excess tax benefits from stock-based compensation
|
|
|
(288
|
)
|
|
|
(207
|
)
|
Deferred income taxes
|
|
|
9,014
|
|
|
|
3,670
|
|
Reclassification of unrealized losses on derivatives to earnings
|
|
|
71
|
|
|
|
37
|
|
Changes in operating assets and liabilities, net of business
acquisitions:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
30,820
|
|
|
|
22,678
|
|
Inventories
|
|
|
6,196
|
|
|
|
(13,332
|
)
|
Accounts payable and accrued liabilities
|
|
|
(19,266
|
)
|
|
|
(47,252
|
)
|
Current income taxes
|
|
|
(1,011
|
)
|
|
|
1,804
|
|
Other
|
|
|
(8,343
|
)
|
|
|
(4,948
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
61,269
|
|
|
|
5,470
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Payments for purchases of property, plant and equipment
|
|
|
(8,980
|
)
|
|
|
(8,505
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
66
|
|
|
|
184
|
|
Business acquisitions, net of cash acquired
|
|
|
(25,000
|
)
|
|
|
(369,043
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(33,914
|
)
|
|
|
(377,364
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
(4,102
|
)
|
|
|
(4,068
|
)
|
Proceeds from sales of treasury stock
|
|
|
809
|
|
|
|
760
|
|
Excess tax benefits from stock compensation
|
|
|
288
|
|
|
|
207
|
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
400,000
|
|
Borrowings on revolving lines of credit and short-term borrowings
|
|
|
30,610
|
|
|
|
31,853
|
|
Payments on revolving lines of credit and short-term borrowings
|
|
|
(30,610
|
)
|
|
|
(35,884
|
)
|
Payments of long-term debt
|
|
|
(47,589
|
)
|
|
|
(10,714
|
)
|
Payments of long-term debt assumed in MPC acquisition
|
|
|
|
|
|
|
(18,494
|
)
|
Debt issuance costs
|
|
|
|
|
|
|
(3,063
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(50,594
|
)
|
|
|
360,597
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1,004
|
)
|
|
|
(1,016
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(24,243
|
)
|
|
|
(12,313
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
100,863
|
|
|
|
109,833
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
76,620
|
|
|
$
|
97,520
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
5
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(As recast, Note 2)
|
|
|
|
(Unaudited)
|
|
|
Common stock:
|
|
|
|
|
|
|
|
|
Beginning and ending balance
|
|
$
|
106
|
|
|
$
|
106
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
73,197
|
|
|
$
|
68,520
|
|
Gain on sales of treasury stock
|
|
|
(130
|
)
|
|
|
(503
|
)
|
Tax benefits applicable to exercise of stock options
|
|
|
288
|
|
|
|
207
|
|
Stock-based compensation
|
|
|
2,540
|
|
|
|
1,968
|
|
Deferred compensation transfer
|
|
|
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
75,895
|
|
|
$
|
70,490
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
10,129
|
|
|
$
|
20,485
|
|
Foreign currency translation adjustments, net
|
|
|
(2,626
|
)
|
|
|
(7,057
|
)
|
Reclassification of unrecognized losses on derivatives to
earnings, net
|
|
|
44
|
|
|
|
23
|
|
Minimum post-retirement benefits liability adjustments, net
|
|
|
9
|
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
7,556
|
|
|
$
|
13,344
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
4,904
|
|
|
$
|
5,283
|
|
Deferred compensation invested in the companys common stock
|
|
|
23
|
|
|
|
632
|
|
Deferred compensation settled with the companys common
stock
|
|
|
(51
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
4,876
|
|
|
$
|
5,908
|
|
|
|
|
|
|
|
|
|
|
Retained earnings:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
741,505
|
|
|
$
|
663,442
|
|
Net earnings attributable to Woodward
|
|
|
22,356
|
|
|
|
27,064
|
|
Cash dividends $0.06 and $0.06 per common share,
respectively
|
|
|
(4,102
|
)
|
|
|
(4,068
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
759,759
|
|
|
$
|
686,438
|
|
|
|
|
|
|
|
|
|
|
Treasury stock:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
(115,478
|
)
|
|
$
|
(122,759
|
)
|
Purchases of treasury stock
|
|
|
|
|
|
|
|
|
Sales of treasury stock
|
|
|
940
|
|
|
|
654
|
|
Deferred compensation transfer
|
|
|
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(114,538
|
)
|
|
$
|
(121,795
|
)
|
|
|
|
|
|
|
|
|
|
Treasury stock held for deferred compensation:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
(4,904
|
)
|
|
$
|
(5,283
|
)
|
Deferred compensation transfer
|
|
|
|
|
|
|
(608
|
)
|
Stock distributions
|
|
|
51
|
|
|
|
7
|
|
Automatic dividend reinvestment
|
|
|
(23
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(4,876
|
)
|
|
$
|
(5,908
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity attributable to Woodward:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
709,459
|
|
|
$
|
629,794
|
|
Effect of changes among components of stockholders equity
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
2,698
|
|
|
|
1,970
|
|
Accumulated other comprehensive earnings
|
|
|
(2,573
|
)
|
|
|
(7,141
|
)
|
Deferred compensation
|
|
|
(28
|
)
|
|
|
625
|
|
Retained earnings
|
|
|
18,254
|
|
|
|
22,996
|
|
Treasury stock
|
|
|
940
|
|
|
|
964
|
|
Treasury stock held for deferred compensation
|
|
|
28
|
|
|
|
(625
|
)
|
|
|
|
|
|
|
|
|
|
Total effect of changes among components of stockholders
equity attributable to Woodward
|
|
|
19,319
|
|
|
|
18,789
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
728,778
|
|
|
$
|
648,583
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
2,056
|
|
|
$
|
2,622
|
|
Net earnings
|
|
|
90
|
|
|
|
39
|
|
Foreign currency translation adjustments, net
|
|
|
42
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
2,188
|
|
|
$
|
2,611
|
|
|
|
|
|
|
|
|
|
|
Total stockholderss equity
|
|
$
|
730,966
|
|
|
$
|
651,194
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
6
Woodward
Governor Company
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, except per share amounts)
|
|
Note 1.
|
Basis of
presentation and nature of operations
|
Basis
of presentation
The Condensed Consolidated Financial Statements of Woodward
Governor Company (Woodward or the
Company) as of December 31, 2009 and for the
three months ended December 31, 2009 and 2008, included
herein, have not been audited by an independent registered
public accounting firm. These Condensed Consolidated Financial
Statements reflect all normal recurring adjustments which are,
in the opinion of management, necessary to present fairly
Woodwards financial position as of December 31, 2009,
and the results of operations and cash flows for the periods
presented herein. The Condensed Consolidated Balance Sheet as of
September 30, 2009 was derived from Woodwards Annual
Report on
Form 10-K
for the fiscal year ended September 30, 2009, adjusted to
reflect the October 1, 2009 adoption of authoritative
guidance relative to accounting and reporting standards for the
noncontrolling interest in a subsidiary and authoritative
guidance relative to inclusion of participating securities in
the calculation of earnings per share, as discussed in
Note 2. The results of operations for the three month
period ended December 31, 2009 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). 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 Woodwards Annual Report on
Form 10-K
for the fiscal year ended September 30, 2009 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 and the reported revenues and
expenses recognized during the reporting period, and certain
financial statement disclosures, in the preparation of the
Condensed Consolidated Financial Statements. Significant
estimates in these Condensed Consolidated Financial Statements
include allowances for doubtful accounts, net realizable value
of inventories, percent complete on long-term contracts, cost of
sales incentives, useful lives of property and identifiable
intangible assets, the evaluation of impairments of property,
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
contingencies. Actual results could vary materially from
Woodwards estimates.
Nature
of operations
Woodward is an independent designer, manufacturer, and service
provider of energy control and optimization solutions for
commercial and military aircraft and ground vehicles, turbines,
reciprocating engines, and electrical power system equipment.
Woodwards innovative fluid energy, combustion control,
electrical energy, and motion control systems help customers
offer cleaner, more reliable and more cost-effective equipment.
Leading original equipment manufacturers use Woodwards
products and services in the aerospace, power generation and
distribution, and transportation markets.
Woodward has four operating business segments
Turbine Systems, Airframe Systems, Electrical Power Systems, and
Engine Systems:
|
|
|
|
|
Turbine Systems
develops and manufactures systems and
components that provide energy control and optimization
solutions for aircraft propulsion applications, including fuel
and combustion systems for turbine engines, as well as
industrial gas and steam turbine markets.
|
7
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
|
|
|
|
|
Airframe Systems
develops and manufactures
high-performance cockpit, electromechanical and hydraulic motion
control systems, and mission-critical actuation systems and
controls for weapons, aircraft, turbine engines and combat
vehicles, primarily for aerospace and military applications.
|
|
|
|
Electrical Power Systems
develops and manufactures
systems and components that provide power sensing and energy
control systems that improve the security, quality, reliability,
and availability of electrical power networks for industrial
markets, which include the power generation, power distribution,
and power conversion industries.
|
|
|
|
Engine Systems
develops and manufactures systems and
components that provide energy control and optimization
solutions for the industrial engine markets, which include the
power generation, transportation, and process industries.
|
On April 3, 2009, Woodward acquired all of the outstanding
capital stock of HR Textron Inc. from Textron Inc., its parent
company, and the United Kingdom assets and certain liabilities
related to HR Textron Inc.s business (collectively
HRT). HR Textron Inc. became a wholly owned
subsidiary of Woodward and was renamed Woodward HRT, Inc.
following the consummation of the acquisition. HRT is being
integrated into Woodward within its Airframe Systems business
segment.
On August 10, 2009, Woodward HRT sold the Fuel and
Pneumatics product line (the F&P product line)
acquired in April 2009 by Woodward as part of the HRT
acquisition.
Additional information about the acquisition of HRT and the sale
of the F&P product line is included in Note 4,
Business acquisitions and dispositions
.
To provide better focus and alignment of its business segment
operations, Woodward moved the development and manufacture of
systems and components for steam turbine markets from Engine
Systems to Turbine Systems in the fourth quarter of fiscal 2009.
All segment information for the quarter ended December 31,
2008 has been recast to reflect the realigned segment structure.
The Company evaluated all events or transactions that occurred
from December 31, 2009 through January 19, 2010.
During this period, Woodward did not have any material
subsequent events.
|
|
Note 2.
|
New
accounting standards
|
Accounting
changes and recently adopted accounting
standards
In September 2006, the Financial Accounting Standards Board
(FASB) issued authoritative guidance which defines
fair value, establishes a framework for measuring fair value,
and requires additional disclosures about a companys
financial and nonfinancial assets and liabilities that are
measured at fair value. In February 2008, the FASB issued
authoritative guidance which delayed the effective date of this
guidance for nonfinancial assets and liabilities, except for
items that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually),
to fiscal years, and interim periods within those fiscal years,
beginning after November 15, 2008. On October 1, 2008,
Woodward adopted the measurement and disclosure impact of this
guidance with respect to financial assets and liabilities. On
October 1, 2009, Woodward adopted the measurement and
disclosure of fair value with respect to non-financial assets
and liabilities. This guidance did not change existing guidance
on whether or not an instrument is carried at fair value. The
adoption had no impact on Woodwards financial position and
results of operations and required no additional disclosures in
these Condensed Consolidated Financial Statements.
In November 2007, the FASB issued authoritative guidance to
address accounting for collaborative arrangement activities that
are conducted without the creation of a separate legal entity
for the arrangement. Revenues and costs incurred with third
parties in connection with the collaborative arrangement should
be presented gross or net by the collaborators pursuant to
pre-existing accounting standards. Payments to or from
collaborators should be presented in the income statement based
on the nature of the arrangement, the nature of the
companys business and
8
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
whether the payments are within the scope of other accounting
literature. Other detailed information related to the
collaborative arrangement is also required to be disclosed. The
requirements under this guidance must be applied to
collaborative arrangements in existence at the beginning of
Woodwards fiscal 2010 using a modified version of
retrospective application. Woodward is currently not a party to
significant collaborative arrangement activities, as defined by
this guidance, and therefore, the adoption of this guidance had
no impact on its Condensed Consolidated Financial Statements.
In December 2007, the FASB issued authoritative guidance to
affirm that the acquisition method of accounting (previously
referred to as the purchase method) be used for all business
combinations and for an acquirer to be identified for each
business combination. This guidance defines the acquirer as the
entity that obtains control of one or more businesses in the
business combination and establishes the acquisition date as the
date that the acquirer achieves control. Among other
requirements, this guidance requires the acquiring entity in a
business combination to recognize the identifiable assets
acquired, liabilities assumed and any noncontrolling interest in
the acquiree at their acquisition-date fair values, and with
limited exceptions, acquisition-related costs will generally be
expensed as incurred. This guidance requires certain financial
statement disclosures to enable users to evaluate and understand
the nature and financial effects of the business combination.
This guidance must be applied prospectively to business
combinations that are consummated on or after October 1,
2009. Accordingly, Woodward will record and disclose business
combinations under the revised standard for any transactions
consummated on or after October 1, 2009. In addition,
adjustments of certain income tax balances related to acquired
deferred assets, including those acquired prior to the adoption
of this new authoritative guidance, will be reported as an
increase or decrease to income tax expense. Accordingly,
Woodward will record adjustments of certain income tax balances
under the revised authoritative guidance beginning
October 1, 2009.
In December 2007, the FASB issued authoritative guidance to
establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. Among other requirements, this
guidance clarifies that a noncontrolling interest in a
subsidiary, which is sometimes referred to as minority interest,
is to be reported in the Condensed Consolidated Balance Sheets
within stockholders equity, but separate from
Woodwards stockholders equity. This guidance also
requires consolidated net earnings and comprehensive earnings to
include the amounts attributable to both the parent and the
noncontrolling interest. Woodward adopted this guidance
effective October 1, 2009. This guidance must be applied
prospectively for fiscal years, and interim periods within those
fiscal years, beginning in fiscal 2010, except for the
presentation and disclosure requirements, which have been
applied retrospectively for all periods presented. Accordingly,
the following have been retrospectively adjusted: the Condensed
Consolidated Statement of Earnings for the three months ended
December 31, 2008, the Condensed Consolidated Balance Sheet
as of September 30, 2009, the Condensed Consolidated
Statement of Cash Flows for the three months ended
December 31, 2008, the Condensed Consolidated Statement of
Stockholders Equity for the three months ended
December 31, 2008, accumulated other comprehensive earnings
for the three months ended December 31, 2008 as presented
in Note 18, and total comprehensive earnings for the
9
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
three months ended December 31, 2008 as presented in
Note 19. In accordance with the authoritative guidance,
Woodwards Consolidated Financial Statements have been
recast from amounts previously reported as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
As Previously
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
Reported
|
|
|
As Recast
|
|
|
Reported
|
|
|
As Recast
|
|
|
Reported
|
|
|
As Recast
|
|
|
Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,696,422
|
|
|
$
|
1,696,422
|
|
|
$
|
927,017
|
|
|
$
|
927,017
|
|
|
$
|
829,767
|
|
|
$
|
829,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
987,184
|
|
|
$
|
984,907
|
|
|
$
|
297,389
|
|
|
$
|
294,601
|
|
|
$
|
285,336
|
|
|
$
|
282,554
|
|
Total stockholders equity
|
|
|
709,238
|
|
|
|
711,515
|
|
|
|
629,628
|
|
|
|
632,416
|
|
|
|
544,431
|
|
|
|
547,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,696,422
|
|
|
$
|
1,696,422
|
|
|
$
|
927,017
|
|
|
$
|
927,017
|
|
|
$
|
829,767
|
|
|
$
|
829,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Common stock
|
|
|
106
|
|
|
|
106
|
|
|
|
106
|
|
|
|
106
|
|
|
|
106
|
|
|
|
106
|
|
Additional paid-in capital
|
|
|
73,197
|
|
|
|
73,197
|
|
|
|
68,520
|
|
|
|
68,520
|
|
|
|
48,641
|
|
|
|
48,641
|
|
Accumulated other comprehensive earnings
|
|
|
9,908
|
|
|
|
10,129
|
|
|
|
20,319
|
|
|
|
20,485
|
|
|
|
23,010
|
|
|
|
22,892
|
|
Deferred compensation
|
|
|
4,904
|
|
|
|
4,904
|
|
|
|
5,283
|
|
|
|
5,283
|
|
|
|
4,752
|
|
|
|
4,752
|
|
Retained earnings
|
|
|
741,505
|
|
|
|
741,505
|
|
|
|
663,442
|
|
|
|
663,442
|
|
|
|
565,136
|
|
|
|
565,136
|
|
Treasury Stock
|
|
|
(120,382
|
)
|
|
|
(120,382
|
)
|
|
|
(128,042
|
)
|
|
|
(128,042
|
)
|
|
|
(97,214
|
)
|
|
|
(97,214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Woodward stockholders equity
|
|
|
709,238
|
|
|
|
709,459
|
|
|
|
629,628
|
|
|
|
629,794
|
|
|
|
544,431
|
|
|
|
544,313
|
|
Noncontrolling interest in consolidated subsidiary
|
|
|
|
|
|
|
2,056
|
|
|
|
|
|
|
|
2,622
|
|
|
|
|
|
|
|
2,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
$
|
709,238
|
|
|
$
|
711,515
|
|
|
$
|
629,628
|
|
|
$
|
632,416
|
|
|
$
|
544,431
|
|
|
$
|
547,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
As previously
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
Reported
|
|
|
As Recast
|
|
|
Reported
|
|
|
As Recast
|
|
|
Reported
|
|
|
As Recast
|
|
|
Statements of Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,430,125
|
|
|
$
|
1,430,125
|
|
|
$
|
1,258,204
|
|
|
$
|
1,258,204
|
|
|
$
|
1,042,337
|
|
|
$
|
1,042,337
|
|
Total costs and expenses
|
|
|
1,307,713
|
|
|
|
1,307,649
|
|
|
|
1,076,294
|
|
|
|
1,075,619
|
|
|
|
910,349
|
|
|
|
909,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
122,412
|
|
|
|
122,476
|
|
|
|
181,910
|
|
|
|
182,585
|
|
|
|
131,988
|
|
|
|
132,680
|
|
Income taxes
|
|
|
(28,060
|
)
|
|
|
(28,060
|
)
|
|
|
(60,030
|
)
|
|
|
(60,030
|
)
|
|
|
(33,831
|
)
|
|
|
(33,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
94,352
|
|
|
|
94,416
|
|
|
|
121,880
|
|
|
|
122,555
|
|
|
|
98,157
|
|
|
|
98,849
|
|
Net earnings attributable to noncontrolling interests
|
|
|
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
(675
|
)
|
|
|
|
|
|
|
(692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Woodward
|
|
$
|
94,352
|
|
|
$
|
94,352
|
|
|
$
|
121,880
|
|
|
$
|
121,880
|
|
|
$
|
98,157
|
|
|
$
|
98,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings attributable to Woodward
|
|
$
|
83,941
|
|
|
$
|
83,996
|
|
|
$
|
119,189
|
|
|
$
|
119,473
|
|
|
$
|
109,528
|
|
|
$
|
109,319
|
|
Comp. earnings attributable to noncontrolling interests
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
391
|
|
|
|
|
|
|
|
901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings
|
|
$
|
83,941
|
|
|
$
|
84,005
|
|
|
$
|
119,189
|
|
|
$
|
119,864
|
|
|
$
|
109,528
|
|
|
$
|
110,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to Woodward:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.39
|
|
|
$
|
1.39
|
|
|
$
|
1.80
|
|
|
$
|
1.80
|
|
|
$
|
1.43
|
|
|
$
|
1.43
|
|
Diluted
|
|
$
|
1.37
|
|
|
$
|
1.37
|
|
|
$
|
1.75
|
|
|
$
|
1.75
|
|
|
$
|
1.39
|
|
|
$
|
1.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by operating activities
|
|
$
|
218,652
|
|
|
$
|
218,652
|
|
|
$
|
125,354
|
|
|
$
|
125,354
|
|
|
$
|
117,718
|
|
|
$
|
117,718
|
|
Cash used in investing activities
|
|
|
(714,130
|
)
|
|
|
(714,130
|
)
|
|
|
(35,909
|
)
|
|
|
(35,909
|
)
|
|
|
(67,048
|
)
|
|
|
(67,048
|
)
|
Cash provided by (used in) financing activities
|
|
|
487,940
|
|
|
|
487,940
|
|
|
|
(48,904
|
)
|
|
|
(48,904
|
)
|
|
|
(66,496
|
)
|
|
|
(66,496
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1,432
|
)
|
|
|
(1,432
|
)
|
|
|
(2,343
|
)
|
|
|
(2,343
|
)
|
|
|
3,743
|
|
|
|
3,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
(8,970
|
)
|
|
$
|
(8,970
|
)
|
|
$
|
38,198
|
|
|
$
|
38,198
|
|
|
$
|
(12,083
|
)
|
|
$
|
(12,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
In April 2008, the FASB issued authoritative guidance to amend
the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a
recognized intangible asset and to require additional
disclosures. The guidance for determining useful lives must be
applied prospectively to intangible assets acquired after the
effective date. The disclosure requirements must be applied
prospectively to all intangible assets recognized as of the
effective date. Woodward adopted this guidance as of
October 1, 2009. The adoption of this guidance had no
impact on its Condensed Consolidated Financial Statements.
In November 2008, the FASB issued authoritative guidance
regarding the accounting for defensive intangible assets.
Defensive intangible assets are assets acquired in a business
combination that the acquirer (a) does not intend to use or
(b) intends to use in a way other than the assets
highest and best use as determined by an evaluation of market
participant assumptions. While defensive intangible assets are
not being actively used, they are likely contributing to an
increase in the value of other assets owned by the acquiring
entity. This guidance requires defensive intangible assets to be
accounted for as separate units of accounting at the time of
acquisition and the useful life of such assets to be based on
the period over which the assets will directly or indirectly
affect the entitys cash flows. Woodward will record and
disclose defensive intangible assets under the revised standard
for transactions consummated, if any, on or after
October 1, 2009.
In November 2008, the FASB issued authoritative guidance
addressing whether securities granted in share-based payment
transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in
computing earnings per share under the two class method. This
guidance became effective for Woodward on October 1, 2009.
Upon the adoption of this guidance, all outstanding restricted
stock, which are participating securities, are considered in the
calculation of both the basic and fully diluted earnings per
share calculations in these Condensed Consolidated Financial
Statements. The effects of this change are required to be
applied retrospectively. Accordingly, the historical earnings
per share presented in the Condensed Consolidated Statements of
Earnings and in Note 6,
Earnings per share
have been
recast to reflect the retrospective application of this guidance.
In April 2009, the FASB issued authoritative guidance to require
that assets acquired and liabilities assumed in a business
combination that arise from contingencies be recognized at fair
value if fair value can be reasonably determined. If the fair
value of such assets or liabilities cannot be reasonably
determined, then they would generally be recognized in
accordance with certain other pre-existing accounting standards.
This guidance also amends the subsequent accounting for assets
and liabilities arising from contingencies in a business
combination and certain other disclosure requirements. This
guidance became effective for assets or liabilities arising from
contingencies in business combinations that are consummated on
or after October 1, 2009. Accordingly, Woodward will record
and disclose assets acquired and liabilities assumed in business
combinations that arise from contingencies under the revised
standard for any transactions consummated on or after
October 1, 2009.
Issued
but not yet effective accounting standards:
In December 2008, the FASB issued authoritative guidance to
require employers to provide additional disclosures about plan
assets of a defined benefit pension or other post-retirement
plan. These disclosures should principally include information
detailing investment policies and strategies, the major
categories of plan assets, the inputs and valuation techniques
used to measure the fair value of plan assets and an
understanding of significant concentrations of risk within plan
assets. The required disclosures must be provided for fiscal
years ending after December 15, 2009 (Woodwards
fiscal 2010, the anticipated period of adoption). These
disclosures will be presented in Woodwards Consolidated
Financial Statements for the year ended September 30, 2010.
Upon initial application, this guidance is not required to be
applied to earlier periods that are presented for comparative
purposes. Woodward does not expect this guidance to have a
significant impact on its September 30, 2010 Consolidated
Financial Statements.
In June 2009, the FASB issued authoritative guidance to
eliminate the exception to consolidate a qualifying
special-purpose entity, change the approach to determining the
primary beneficiary of a variable interest entity and
11
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
require companies to more frequently re-assess whether they must
consolidate variable interest entities. Under the new guidance,
the primary beneficiary of a variable interest entity is
identified qualitatively as the enterprise that has both
(a) the power to direct the activities of a variable
interest entity that most significantly impact the entitys
economic performance, and (b) the obligation to absorb
losses of the entity that could potentially be significant to
the variable interest entity or the right to receive benefits
from the entity that could potentially be significant to the
variable interest entity. This guidance becomes effective for
Woodwards fiscal year 2011 and interim reporting periods
thereafter. Woodward does not expect this guidance to have a
material impact on its Condensed Consolidated Financial
Statements.
In June 2009, the FASB issued authoritative guidance to require
an analysis to determine whether a variable interest gives the
entity a controlling financial interest in a variable interest
entity. This guidance requires an ongoing reassessment and
eliminates the quantitative approach previously required for
determining whether an entity is the primary beneficiary. This
guidance will be effective for fiscal years beginning after
November 15, 2009 (fiscal year 2011 for Woodward). Woodward
is currently assessing the impact that this guidance may have on
its Condensed Consolidated Financial Statements.
In October 2009, the FASB issued authoritative guidance that
enables vendors to account for products or services sold to
customers (deliverables) separately rather than as a combined
unit, as was generally required by past guidance. The revised
guidance provides for two significant changes to the existing
multiple element revenue arrangements guidance. The first change
relates to the determination of when the individual deliverables
included in a multiple element arrangement may be treated as
separate units of accounting. The second change modifies the
manner in which the transaction consideration is allocated
across the separately identified deliverables. The first change
will likely result in the requirement to separate more
deliverables within an arrangement, ultimately leading to less
revenue deferral. Together, these changes are likely to result
in earlier recognition of revenue and related costs for
multiple-element arrangements than under previous guidance. This
guidance also significantly expands the disclosures required for
multiple-element revenue arrangements. This guidance is required
to be adopted in fiscal years beginning on or after
June 15, 2010 (fiscal year 2011 for Woodward). Woodward
expects to adopt the guidance as of October 1, 2010.
Woodward is currently assessing the impact this guidance may
have on its Condensed Consolidated Financial Statements.
In October 2009, the FASB issued authoritative guidance that
changes the accounting model for revenue arrangements that
include both tangible products and software elements. The
revised guidance provides that tangible products containing
software components and nonsoftware components that function
together to deliver the tangible products essential
functionality are no longer within the scope of the software
revenue guidance in Accounting Standards Codification
(ASC) Subtopic
985-605.
In
addition, the guidance requires that hardware components of a
tangible product containing software components always be
excluded from the software revenue guidance. This guidance also
significantly expands the disclosures required for
multiple-element revenue arrangements. This guidance is required
to be adopted in fiscal years beginning on or after
June 15, 2010 (fiscal year 2011 for Woodward).
Woodward is currently assessing the impact this guidance may
have on its Condensed Consolidated Financial Statements.
12
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
|
|
Note 3.
|
Supplemental
statements of cash flows information
|
Supplemental cash flow information follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Interest expense paid
|
|
$
|
14,128
|
|
|
$
|
1,754
|
|
Income taxes paid
|
|
|
4,490
|
|
|
|
5,219
|
|
Income tax refunds received
|
|
|
5,636
|
|
|
|
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
Long-term debt assumed in business acquisition
|
|
|
|
|
|
|
18,610
|
|
Purchases of property, plant and equipment on account
|
|
|
1,789
|
|
|
|
271
|
|
Sales of assets on account
|
|
|
75
|
|
|
|
189
|
|
|
|
Note 4.
|
Business
acquisitions and dispositions
|
Woodward has recorded the acquisition described below using the
purchase method of accounting and, accordingly, has included the
results of operations of the acquired business in its
consolidated results as of the date of the acquisition. In
accordance with authoritative accounting guidance for business
combinations in effect during its fiscal year 2009, the
respective purchase prices for this acquisition is allocated to
the tangible assets, liabilities, and intangible assets acquired
based on their estimated fair values. The excess purchase price
over the respective fair values of assets is recorded as
goodwill. Goodwill is not amortized under U.S. GAAP but is
tested for impairment at least annually (See Note 9.
Goodwill)
. The goodwill resulting from the HRT
acquisition is tax deductible.
Woodward continues to evaluate pre-acquisition contingencies
related to its fiscal year 2009 acquisition of HRT that may have
existed as of the acquisition date. If pre-acquisition
contingencies related to HRT become probable in nature and able
to be estimated during the remainder of the purchase price
allocation period, amounts will be recorded to goodwill for such
matters. If these pre-acquisition contingencies become probable
in nature and able to be estimated after the end of the purchase
price allocation period, amounts will be recorded for such
matters in Woodwards results of operations.
HRT
acquisition
On April 3, 2009, Woodward acquired all of the outstanding
stock of HR Textron Inc. from Textron Inc., its parent company,
and the United Kingdom assets and certain liabilities related to
HR Textron Inc.s business for approximately $380,749.
HRT is an industry leader in advanced technology, engineering
development, and manufacturing of mission-critical actuation
systems and controls for aircraft, turbine engines, weapons and
combat vehicles. It is recognized for hydraulic and electric
primary flight control actuation products, including
electro-mechanical actuation systems for unmanned combat air
vehicles and weapons, such as the Joint Direct Attack Munitions
(JDAM) and the AIM-9X Sidewinder; hydraulic and electric flight
controls for fixed and rotor wing aircraft; servovalves for
global aerospace; turret controls and stabilization systems for
the U.S. M1 Abrams Main Battle Tank and other armored
vehicles worldwide; and fuel and pneumatics valves for aircraft
and helicopters. HRT is being integrated into Woodward within
its Airframe Systems business segment.
13
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
The preliminary purchase price for the HRT acquisition is as
follows:
|
|
|
|
|
Cash paid to owners
|
|
$
|
377,660
|
|
Cash acquired
|
|
|
(11
|
)
|
Estimated direct transaction costs
|
|
|
3,100
|
|
|
|
|
|
|
Total estimated purchase price
|
|
$
|
380,749
|
|
|
|
|
|
|
During the first quarter of fiscal 2010, acquired current assets
were increased by $267, accrued restructuring charges were
increased by $1,400, and other current liabilities were
decreased by $831 to reflect updated estimates of anticipated
fair value of assets acquired and liabilities assumed as of
April 3, 2009. The following table summarizes preliminary
estimated fair values of the assets acquired and liabilities
assumed on April 3, 2009, the date of the HRT acquisition,
including accrued restructuring charges:
|
|
|
|
|
Current assets
|
|
$
|
114,739
|
|
Property, plant, and equipment
|
|
|
41,926
|
|
Goodwill
|
|
|
145,062
|
|
Intangible assets
|
|
|
128,400
|
|
Other assets
|
|
|
13
|
|
|
|
|
|
|
Total assets acquired
|
|
|
430,140
|
|
|
|
|
|
|
Other current liabilities
|
|
|
21,344
|
|
Accrued restructuring charges
|
|
|
8,900
|
|
Postretirement benefits
|
|
|
13,077
|
|
Other noncurrent liabilities
|
|
|
6,070
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
49,391
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
380,749
|
|
|
|
|
|
|
A summary of the intangible assets acquired, weighted average
useful lives and amortization methods follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average Useful
|
|
|
Amortization
|
|
|
Amount
|
|
|
Life
|
|
|
Method
|
|
Customer relationships
|
|
$
|
70,900
|
|
|
|
15 years
|
|
|
Accelerated
|
Process technology
|
|
|
29,000
|
|
|
|
15 years
|
|
|
Accelerated
|
Product software
|
|
|
4,200
|
|
|
|
20 years
|
|
|
Accelerated
|
Backlog
|
|
|
21,900
|
|
|
|
5 years
|
|
|
Accelerated
|
Favorable lease contracts
|
|
|
1,400
|
|
|
|
7 years
|
|
|
Straight Line
|
Non-compete agreements
|
|
|
1,000
|
|
|
|
3 years
|
|
|
Straight Line
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
128,400
|
|
|
|
13 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated amortization is calculated based on the pattern of
estimated future economic benefits of the related intangible
asset.
Woodward made a 338(h)(10) election with the U.S. Internal
Revenue Service, which allows the HRT acquisition to be treated
as an asset purchase for income tax purposes. Accordingly, any
deferred tax assets and liabilities recorded by Textron Inc. at
the acquisition date are not available to Woodward because the
election causes the HRT acquisition to be treated, for income
tax purposes, as though Woodward did not purchase an ongoing
business.
14
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
In connection with the HRT acquisition, Woodward assumed certain
defined benefit pension obligations contingent upon transfer of
related pension plan assets. In September 2009, the trustee of
the related Textron-sponsored defined benefit plan transferred
$46,788 to the Woodward HRT Plan. An additional $1,019 was
transferred by the Textron-sponsored defined benefit plan to the
Woodward HRT Plan in October 2009 and was recorded as a Woodward
HRT Plan receivable as of September 30, 2009.
Woodward is in the process of finalizing valuations of defined
benefit plan assets and liabilities, estimates of other
liabilities, including restructuring reserves, and related
income tax adjustments associated with the HRT acquisition.
The results of HRTs operations are included in
Woodwards Consolidated Statements of Earnings as of
April 3, 2009.
On August 10, 2009, Woodward HRT sold the F&P product
line for $48,000. The F&P product line provided a variety
of off-turbine fuel management and pneumatic actuation
components to producers of military and commercial aircraft and
helicopters, as well as their suppliers.
Pro
forma results for Woodward giving effect to the HRT
acquisition
The following unaudited pro forma financial information presents
the combined results of operations of Woodward and HRT as if the
acquisition had occurred as of the beginning of each of the
fiscal periods presented. The pro forma financial information is
presented for informational purposes and is not indicative of
the results of operations that would have been achieved if the
acquisition and related borrowings had taken place at the
beginning of each of the fiscal periods presented. The unaudited
pro forma financial information for the period ended
December 31, 2009 includes the historical results of
Woodward, which include the post-acquisition historical results
of HRT for the full period and exclude the historical results of
the F&P product line. The unaudited pro forma financial
information for the period ended December 31, 2008 combines
the historical results of Woodward with the historical results
of HRT for that period and excludes the historical results of
the F&P product line.
Prior to the HRT acquisition by Woodward, HRT was a wholly owned
subsidiary of Textron Inc., and as such was not a stand-alone
entity. Accordingly, the historical operating results of HRT may
not be indicative of the results that might have been achieved,
historically or in the future, if HRT had been a stand-alone
entity. The unaudited pro forma results for the period ended
December 31, 2008 include amortization charges for acquired
intangible assets, eliminations of intercompany transactions,
adjustments for stock options issued, adjustments for
depreciation expense for property, plant, and equipment,
adjustments to interest expense, adjustments for estimated
general and administrative costs for HRTs historical
management and administrative structure and functions, disposal
of the F&P product line, and related tax effects.
The unaudited pro forma results follow:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Revenue
|
|
$
|
339,308
|
|
|
$
|
406,009
|
|
Net earnings
|
|
$
|
22,446
|
|
|
$
|
28,073
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.33
|
|
|
$
|
0.41
|
|
Diluted
|
|
$
|
0.32
|
|
|
$
|
0.41
|
|
15
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
U.S. GAAP requires that the interim period tax provision be
determined as follows:
|
|
|
|
|
At the end of each quarter, Woodward estimates the tax that will
be provided for the fiscal year stated as a percent of estimated
ordinary income for the fiscal year. The term
ordinary income refers to earnings from continuing operations
before income taxes, excluding significant unusual or
infrequently occurring items.
|
The estimated annual effective rate is applied to the
year-to-date
ordinary income at the end of each quarter to
compute the
year-to-date
tax applicable to ordinary income. The tax expense or benefit
related to ordinary income in each quarter is the difference
between the most recent
year-to-date
and the prior quarter
year-to-date
computations.
|
|
|
|
|
The tax effects of significant unusual or infrequently occurring
items are recognized as discrete items in the interim period in
which the events occur. The impact of changes in tax laws or
rates on deferred tax amounts, the effects of changes in
judgment about beginning of the year valuation allowances and
changes in tax reserves resulting from the finalization of tax
audits or reviews are examples of significant unusual or
infrequently occurring items that are recognized as discrete
items in the interim period in which the event occurs.
|
The determination of the annual effective tax rate is based upon
a number of significant estimates and judgments, including the
estimated annual pretax income of Woodward in each tax
jurisdiction in which it operates and the development of tax
planning strategies during the year. In addition, as a global
commercial enterprise, Woodwards tax expense can be
impacted by changes in tax rates or laws, the finalization of
tax audits and reviews, as well as other factors that cannot be
predicted with certainty. As such, there can be significant
volatility in interim tax provisions.
The following table sets out the tax expense and the effective
tax rate for Woodwards income from operations:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
Earnings before income taxes
|
|
$
|
31,490
|
|
|
$
|
38,158
|
|
Income tax expense
|
|
|
9,044
|
|
|
|
11,055
|
|
Effective tax rate
|
|
|
28.7
|
%
|
|
|
29.0
|
%
|
The effective tax rates in both the three months ended
December 31, 2009 and the three months ended
December 31, 2008 benefited from favorable resolutions of
tax matters of $1,353 and $3,334, respectively.
The total amount of the gross liability for worldwide
unrecognized tax benefits was $19,065 at December 31, 2009
and $19,783 at September 30, 2009.
The amount of unrecognized tax benefits that would impact
Woodwards effective tax rate if recognized, net of
expected offsetting benefits, was $14,910 at December 31,
2009 and $15,550 at September 30, 2009. At this time,
Woodward estimates that it is reasonably possible that the
liability for unrecognized tax benefits will decrease by as much
as $3,335 in the next twelve months through completion of
reviews by various worldwide tax authorities.
Woodward recognizes interest and penalties related to
unrecognized tax benefits in tax expense. Woodward had accrued
interest and penalties of $3,930 and $3,804 as of
December 31, 2009 and September 30, 2009, respectively.
Woodwards tax returns are audited by U.S., state, and
foreign tax authorities and these audits are at various stages
of completion at any given time. Fiscal years remaining open to
examination in significant foreign jurisdictions include 2002
and forward. Woodward is subject to U.S. Federal income tax
examinations for fiscal years 2006 and forward and is subject to
U.S. state income tax examinations for fiscal years 2005
and forward.
16
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
|
|
Note 6.
|
Earnings
per share
|
Earnings per share basic is computed by dividing net
earnings available to common stockholders by the weighted
average number of shares of common stock outstanding for the
period. Earnings per share diluted reflects the
weighted average number of shares outstanding after
consideration of the dilutive effect of stock options.
In November 2008, the FASB issued authoritative guidance
addressing whether securities granted in share-based payment
transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in
computing earnings per share under the two class method. This
guidance became effective for Woodward on October 1, 2009
and is required to be applied retrospectively. Upon the adoption
of this guidance shares of restricted stock, which are
participating securities, are considered in the calculation of
both the basic and fully diluted earnings per share
calculations. The December 31, 2008 historical earnings per
share amounts presented below have been recast to reflect the
retrospective application of this guidance for 70 shares of
restricted stock outstanding as of December 31, 2008. The
inclusion of this participating security did not impact
previously reported basic and diluted earnings per share for the
three months ended December 31, 2008, and there is no
impact for the previously reported quarters ended March 31,
2009 or June 30, 2009, nor for the fiscal years ended
September 30, 2009, 2008 and 2007.
The following is a reconciliation of net earnings to net
earnings per share basic and net earnings per
share diluted:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net earnings attributable to Woodward
|
|
$
|
22,356
|
|
|
$
|
27,064
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
68,361
|
|
|
|
67,796
|
|
Assumed exercise of dilutive stock options
|
|
|
1,349
|
|
|
|
1,440
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
69,710
|
|
|
|
69,236
|
|
|
|
|
|
|
|
|
|
|
Income per common share:
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to Woodward
|
|
$
|
0.33
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to Woodward
|
|
$
|
0.32
|
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
|
|
The following stock option grants were outstanding during the
three month periods ended December 31, 2009 and 2008, but
were excluded from the computation of diluted earnings per share
because their inclusion would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Options
|
|
|
446,605
|
|
|
|
591,559
|
|
|
|
|
|
|
|
|
|
|
Weighted-average option price
|
|
$
|
32.53
|
|
|
$
|
29.59
|
|
|
|
|
|
|
|
|
|
|
17
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
Raw materials
|
|
$
|
42,666
|
|
|
$
|
44,608
|
|
Work in progress
|
|
|
71,717
|
|
|
|
71,270
|
|
Component parts and finished goods
|
|
|
180,796
|
|
|
|
186,461
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
295,179
|
|
|
$
|
302,339
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8.
|
Property,
plant, and equipment net
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
Land
|
|
$
|
11,054
|
|
|
$
|
11,231
|
|
Buildings and equipment
|
|
|
177,711
|
|
|
|
178,410
|
|
Machinery and equipment
|
|
|
332,963
|
|
|
|
336,903
|
|
Construction in progress
|
|
|
20,234
|
|
|
|
16,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
541,962
|
|
|
|
542,877
|
|
Less accumulated depreciation
|
|
|
(337,073
|
)
|
|
|
(333,992
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
204,889
|
|
|
$
|
208,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Depreciation expense
|
|
$
|
9,755
|
|
|
$
|
9,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Additions/
|
|
|
Translation
|
|
|
December 31,
|
|
|
|
2009
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
2009
|
|
|
Turbine Systems
|
|
$
|
86,565
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
86,565
|
|
Airframe Systems
|
|
|
297,412
|
|
|
|
302
|
|
|
|
79
|
|
|
|
297,793
|
|
Electrical Power Systems
|
|
|
17,733
|
|
|
|
|
|
|
|
(345
|
)
|
|
|
17,388
|
|
Engine Systems
|
|
|
41,092
|
|
|
|
|
|
|
|
135
|
|
|
|
41,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
442,802
|
|
|
$
|
302
|
|
|
$
|
(131
|
)
|
|
$
|
442,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Woodward tests goodwill for impairment on the reporting unit
level on an annual basis and more often if an event occurs or
circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. The
impairment tests consist of comparing the fair value of
reporting units, determined using discounted cash flows, with
its carrying amount including goodwill. If the carrying amount
of the reporting unit exceeds its fair value, Woodward compares
the implied value of goodwill with its carrying amount. If the
carrying amount of goodwill exceeds the implied fair value of
goodwill, an impairment loss would be recognized to reduce the
carrying amount to its implied fair value. There was no
impairment charge recorded in fiscal 2009 or in the first three
months of fiscal 2010.
18
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
|
|
Note 10.
|
Other
intangibles net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
September 30, 2009
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Value
|
|
|
Amortization
|
|
|
Amount
|
|
|
Value
|
|
|
Amortization
|
|
|
Amount
|
|
|
Customer relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turbine Systems
|
|
$
|
44,327
|
|
|
$
|
(17,115
|
)
|
|
$
|
27,212
|
|
|
$
|
44,327
|
|
|
$
|
(16,746
|
)
|
|
$
|
27,581
|
|
Airframe Systems
|
|
|
176,677
|
|
|
|
(5,030
|
)
|
|
|
171,647
|
|
|
|
176,661
|
|
|
|
(2,068
|
)
|
|
|
174,593
|
|
Electrical Power Systems
|
|
|
2,272
|
|
|
|
(719
|
)
|
|
|
1,553
|
|
|
|
2,319
|
|
|
|
(676
|
)
|
|
|
1,643
|
|
Engine Systems
|
|
|
20,675
|
|
|
|
(12,182
|
)
|
|
|
8,493
|
|
|
|
20,675
|
|
|
|
(11,718
|
)
|
|
|
8,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
243,951
|
|
|
$
|
(35,046
|
)
|
|
$
|
208,905
|
|
|
$
|
243,982
|
|
|
$
|
(31,208
|
)
|
|
$
|
212,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intellectual property:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turbine Systems
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Airframe Systems
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical Power Systems
|
|
|
7,847
|
|
|
|
(3,198
|
)
|
|
|
4,649
|
|
|
|
7,941
|
|
|
|
(3,073
|
)
|
|
|
4,868
|
|
Engine Systems
|
|
|
12,621
|
|
|
|
(6,389
|
)
|
|
|
6,232
|
|
|
|
12,613
|
|
|
|
(6,180
|
)
|
|
|
6,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,468
|
|
|
$
|
(9,587
|
)
|
|
$
|
10,881
|
|
|
$
|
20,554
|
|
|
$
|
(9,253
|
)
|
|
$
|
11,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Process technology:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turbine Systems
|
|
$
|
11,941
|
|
|
$
|
(4,611
|
)
|
|
$
|
7,330
|
|
|
$
|
11,941
|
|
|
$
|
(4,511
|
)
|
|
$
|
7,430
|
|
Airframe Systems
|
|
|
62,988
|
|
|
|
(3,659
|
)
|
|
|
59,329
|
|
|
|
62,981
|
|
|
|
(2,590
|
)
|
|
|
60,391
|
|
Electrical Power Systems
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,390
|
|
|
|
(1,346
|
)
|
|
|
44
|
|
Engine Systems
|
|
|
12,593
|
|
|
|
(4,045
|
)
|
|
|
8,548
|
|
|
|
12,593
|
|
|
|
(3,797
|
)
|
|
|
8,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
87,522
|
|
|
$
|
(12,315
|
)
|
|
$
|
75,207
|
|
|
$
|
88,905
|
|
|
$
|
(12,244
|
)
|
|
$
|
76,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turbine Systems
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Airframe Systems
|
|
|
39,651
|
|
|
|
(17,792
|
)
|
|
|
21,859
|
|
|
|
39,646
|
|
|
|
(14,325
|
)
|
|
|
25,321
|
|
Electrical Power Systems
|
|
|
1,591
|
|
|
|
(336
|
)
|
|
|
1,255
|
|
|
|
1,623
|
|
|
|
(316
|
)
|
|
|
1,307
|
|
Engine Systems
|
|
|
460
|
|
|
|
(69
|
)
|
|
|
391
|
|
|
|
460
|
|
|
|
(51
|
)
|
|
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
41,702
|
|
|
$
|
(18,197
|
)
|
|
$
|
23,505
|
|
|
$
|
41,729
|
|
|
$
|
(14,692
|
)
|
|
$
|
27,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
393,643
|
|
|
$
|
(75,145
|
)
|
|
$
|
318,498
|
|
|
$
|
395,170
|
|
|
$
|
(67,397
|
)
|
|
$
|
327,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Amortization expense
|
|
$
|
9,181
|
|
|
$
|
4,828
|
|
|
|
|
|
|
|
|
|
|
19
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
Future amortization expense associated with intangibles is
expected to be:
|
|
|
|
|
Year Ending September 30:
|
|
|
|
|
2010 (remaining)
|
|
$
|
25,993
|
|
2011
|
|
|
34,200
|
|
2012
|
|
|
31,393
|
|
2013
|
|
|
29,149
|
|
2014
|
|
|
26,052
|
|
Thereafter
|
|
|
171,711
|
|
|
|
|
|
|
|
|
$
|
318,498
|
|
|
|
|
|
|
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008 Term loan Variable rate of 1.99% at
December 31, 2009, matures October 2013; unsecured
|
|
$
|
142,500
|
|
|
$
|
144,375
|
|
2009 Term loan Variable rate of 2.98% at
December 31, 2009, matures April 2012; unsecured
|
|
|
10,000
|
|
|
|
45,000
|
|
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
|
|
Senior notes 6.39%, due October 2011; unsecured
|
|
|
21,429
|
|
|
|
32,143
|
|
Term notes 5.95%, due June 2012, secured by land and
buildings
|
|
|
611
|
|
|
|
624
|
|
Fair value hedge adjustment for unrecognized discontinued hedge
gains
|
|
|
164
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
524,704
|
|
|
|
572,340
|
|
Less: current portion
|
|
|
(28,549
|
)
|
|
|
(45,569
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
$
|
496,155
|
|
|
$
|
526,771
|
|
|
|
|
|
|
|
|
|
|
Under certain circumstances, the interest rate on each series of
the Series B, C and D Notes is subject to increase if
Woodwards leverage ratio of consolidated net debt to
consolidated earnings before interest, taxes, depreciation and
amortization, plus any unusual non-cash charges to the extent
deducted in computing net income minus any unusual non-cash
gains to the extent added in computing net income
(EBITDA) increases beyond 3.5 to 1.0.
20
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
During the first quarter of fiscal 2010, Woodward prepaid
$29,000 against the 2009 term loan. Required future principal
payments of outstanding long-term debt as of December 31,
2009, after giving effect to this prepayment, are as follows:
|
|
|
|
|
Year Ending September 30:
|
|
|
|
|
2010 (remainder)
|
|
$
|
15,847
|
|
2011
|
|
|
18,437
|
|
2012
|
|
|
18,381
|
|
2013
|
|
|
7,500
|
|
2014
|
|
|
214,375
|
|
Thereafter
|
|
|
250,000
|
|
|
|
|
|
|
|
|
$
|
524,540
|
|
|
|
|
|
|
The current portion of long-term debt includes $114 and $128 at
December 31, 2009 and September 30, 2009,
respectively, related to the fair value hedge adjustment for
unrecognized discontinued hedge gains.
The 2008 term loan, the 2009 term loan, the Series B, C, D,
E and F Notes (together, the Notes) and the senior
notes due October 2011 are held by multiple institutions. The
term notes are held by banks in Germany.
Woodwards obligations under the 2008 term loan, the 2009
term loan, the Notes and the senior notes due October 2011 are
guaranteed by Woodward FST, Inc., MPC Products Corporation and
Woodward HRT, Inc., each of which is a wholly owned subsidiary
of Woodward.
Woodward was in compliance with its financial debt covenants at
December 31, 2009.
2008
and 2009 Term Loans
In October 2008, Woodward entered into a term loan credit
agreement (the 2008 Term Loan Credit Agreement),
which provides for an initial $150,000 unsecured term loan
facility, and may, from time to time, be expanded by up to
$50,000 of additional indebtedness, subject to the
Companys compliance with certain conditions and the
lenders participation. The 2008 Term Loan Credit Agreement
bears interest at LIBOR plus 1.00% to 2.25% and requires
quarterly principal payments of $1,875.
In April 2009, Woodward entered into a term loan credit
agreement (the 2009 Term Loan Credit Agreement and,
together with the 2008 Term Loan Credit Agreement, the
Term Loan Credit Agreements), by and among Woodward,
the institutions from time to time parties thereto, as lenders,
and JPMorgan Chase Bank, National Association, as administrative
agent. The 2009 Term Loan Credit Agreement provides for an
initial $120,000 unsecured term loan facility, and may be
expanded by up to $50,000 of additional indebtedness from time
to time, subject to the Companys compliance with certain
conditions and the lenders participation. The 2009 Term
Loan Credit Agreement generally bears interest at LIBOR plus
2.50% to 3.50% and requires quarterly principal payments of
$6,000 through June 30, 2010 and quarterly principal
payments of $9,000 beginning September 30, 2010 until
maturity.
The Term Loan Credit Agreements contain customary terms and
conditions, including, among others, covenants that place limits
on the Companys ability to incur liens on assets, incur
additional debt (including a leverage or coverage based
maintenance test), transfer or sell the Companys assets,
merge or consolidate with other persons, make certain
investments, make certain restricted payments, and enter into
material transactions with affiliates. The Term Loan Credit
Agreements contain financial covenants requiring that
(a) the Companys ratio of consolidated net debt to
EBITDA, not exceed 3.5 to 1.0 and (b) the Company have a
minimum consolidated net worth of $400,000 with respect to the
2008 Term Loan Credit Agreement and $510,000 with respect to the
2009 Term Loan Credit Agreement, plus 50% of net income for
any fiscal year and 50% of the net proceeds of certain issuances
of capital stock, in each case on a rolling four quarter basis.
The Term Loan Credit Agreements also contain customary events of
default, including certain cross default provisions related to
Woodwards other
21
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
outstanding debt arrangements in excess of $15,000, the
occurrence of which would permit the lenders to accelerate the
amounts due thereunder.
The loans under the Term Loan Credit Agreements can be prepaid
without penalty.
Series B,
C, D, E and F 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. In April 2009, Woodward entered
into a note purchase agreement (the 2009 Note Purchase
Agreement and, together with the 2008 Note Purchase
Agreement, the Note Purchase Agreements) relating to
the Series E and F Notes.
The Notes have not been registered under the Securities Act of
1933 and 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.
Woodwards obligations under the Notes rank equal in right
of payment with all of Woodwards other unsecured
unsubordinated debt, including its outstanding debt under the
Term Loan Credit Agreements, revolving credit facility and note
purchase agreement relating to the senior notes due October 2011.
The Note Purchase Agreements contain customary restrictive
covenants, including, among other things, covenants that place
limits on Woodwards ability to incur liens on assets,
incur additional debt (including a leverage or coverage based
maintenance test), transfer or sell Woodwards assets,
merge or consolidate with other persons, and enter into material
transactions with affiliates. The Note Purchase Agreements also
contain customary events of default, including certain cross
default provisions related to Woodwards other outstanding
debt arrangements in excess of $25,000 with respect to the 2008
Note Purchase Agreement and $30,000 with respect to the 2009
Note Purchase Agreement, the occurrence of which would permit
the holders of the respective Notes to accelerate the amounts
due.
The 2008 Note Purchase Agreement contains financial covenants
requiring that Woodwards (a) ratio of consolidated
net debt to consolidated EBITDA not 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, and (b) consolidated net
worth at any time equal or exceed $425,000 plus 50% of
consolidated net earnings for each fiscal year beginning with
the fiscal year ended September 30, 2008. Additionally,
under the 2008 Note Purchase Agreement, Woodward may not permit
the aggregate amount of priority debt to at any time exceed 20%
of its consolidated net worth at the end of the then most
recently ended fiscal quarter. Priority debt generally refers to
certain unsecured debt of Woodwards subsidiaries and all
debt of Woodward and its subsidiaries secured by liens other
than certain permitted liens.
The 2009 Note Purchase Agreement contains financial covenants
requiring that Woodwards (a) ratio of consolidated
net debt to consolidated EBITDA not exceed 3.5 to 1.0 at any
time on a rolling four quarter basis, and (b) consolidated
net worth at any time equal or exceed $485,940 plus 50% of
consolidated net earnings for each fiscal year beginning with
the fiscal year ending September 30, 2009. Additionally,
under the 2009 Note Purchase Agreement, Woodward may not permit
the aggregate amount of priority debt to at any time exceed 20%
of its consolidated net worth at the end of the then most
recently ended fiscal quarter. Priority debt generally refers to
certain unsecured debt of Woodwards subsidiaries and all
debt of Woodward and its subsidiaries secured by liens other
than certain permitted liens.
Woodward is permitted at any time, at its option, to prepay all,
or from time to time 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 the 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 make-whole amount. The
make-whole amount is computed by discounting the remaining
scheduled payments of interest and principal of the Notes being
prepaid at a
22
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
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.
|
|
Note 12.
|
Line of
credit facilities and short-term borrowings
|
Woodward has a $225,000 revolving credit facility related to
unsecured financing arrangements with a syndicate of
U.S. banks. The revolving credit facility agreement
provides for an option to increase the amount to $350,000,
subject to the lenders participation, and has an
expiration date of October 2012. The interest rate on borrowings
under the revolving credit facility agreement varies with LIBOR,
the federal funds rate, or the prime rate. The revolving credit
facility agreement contains certain covenants customary with
such agreements, which are generally consistent with the
covenants applicable to Woodwards long-term debt
agreements, and contains customary events of default including
certain cross default provisions related to Woodwards
other outstanding debt arrangements in excess of $15,000, the
occurrence of which would permit the lenders to accelerate the
amounts due thereunder.
Woodward also has various foreign lines of credit. The lines are
generally reviewed annually for renewal and are subject to the
usual terms and conditions applied by the banks.
No borrowings were outstanding under the revolving credit
facility or the foreign lines of credit as of December 31,
2009 or as of September 30, 2009. As of December 31,
2009, Woodward had borrowing availability of $222,300 under its
$225,000 revolving credit facility, net of outstanding letters
of credit.
|
|
Note 13.
|
Derivative
instruments and hedging 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 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 minimizes this credit risk by
entering into transactions with only high quality
counterparties. Market risk arises from the potential adverse
effect on the value of derivative
and/or
hedging instruments that results 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. As of September 30, 2009,
Woodward was a party to the forward foreign currency exchange
contract described below. As of September 30, 2008, all
previous derivative instruments into which Woodward had entered
were terminated.
In 2001, Woodward entered into treasury lock agreements that
were designated as cash flow hedges of its long-term debt. The
discontinuance of these treasury lock agreements resulted in
losses that are recognized as an increase of interest expense
over the term of the associated debt (10 years) using the
effective interest method. The unrecognized portion of the loss
is recorded in accumulated other comprehensive earnings.
In 2002, Woodward entered into certain interest rate swaps that
were designated as fair value hedges of its long-term debt. The
discontinuance of these interest rate swaps resulted in gains
that are recognized as a reduction of interest expense over the
term of the associated debt (10 years) using the effective
interest method. The unrecognized portion of the gain is
presented as an adjustment to long-term debt based on the
accounting guidance in effect at the time the interest rate
swaps were terminated.
23
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
In September 2008, the Company entered into treasury lock
agreements with a notional amount totaling $100,000 that
qualified as cash flow hedges under authoritative guidance for
derivatives and hedging. The objective of this derivative
instrument was to hedge the risk of variability in cash flows
related to future interest payments of a portion of the
anticipated future debt issuances attributable to changes in the
designated benchmark interest rate associated with the expected
issuance of long-term debt. The hedges were terminated prior to
September 30, 2008 resulting in a realized gain of
approximately $108 and the gain was recorded in accumulated
other comprehensive earnings as of September 30, 2008, net
of tax. The realized gain on the termination of the treasury
lock agreements will be recognized as a reduction of interest
expense over a seven-year period on the hedged debt issued on
October 1, 2008 using the effective interest method.
In March 2009, Woodward entered into LIBOR lock agreements with
a total notional amount of $50,000 that qualified as cash flow
hedges under authoritative guidance for derivatives and hedging.
The objective of this derivative instrument was to hedge the
risk of variability in cash flows over a seven-year period
related to future interest payments of a portion of anticipated
future debt issuances attributable to changes in the designated
benchmark interest rate associated with the expected issuance of
long-term debt to acquire HRT. The hedges were terminated in
March 2009, resulting in a loss of $1,308. The realized loss was
recorded in accumulated other comprehensive earnings, net of
tax. The realized loss on the terminated LIBOR lock agreements
is being recognized as an increase of interest expense over a
seven-year period on the hedged debt, which was issued on
April 3, 2009, using the effective interest method.
In September 2009, Woodward entered into a foreign currency
exchange rate contract to purchase 7,900 for approximately
$11,662 in early October 2009. The objective of this derivative
instrument, which was not designated as an accounting hedge, was
to limit the risk of currency fluctuations on certain short-term
intercompany loan balances. An unrealized loss of $173 on the
derivative instrument was carried at fair market value in
Accrued liabilities as of September 30, 2009. A
loss of $71 was realized on the settlement of the forward
contract in October 2009.
The following table discloses the remaining unrecognized gains
and losses associated with derivative instruments on
Woodwards Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
Derivatives Designated as Hedging Instruments
|
|
Balance Sheet Location
|
|
2009
|
|
|
2009
|
|
|
|
|
|
Unrecognized Gain (Loss)
|
|
|
2001 Treasury lock
|
|
Accumulated other comprehensive earnings
|
|
$
|
(142
|
)
|
|
$
|
(171
|
)
|
2002 Interest rate swap
|
|
Long-term debt
|
|
|
164
|
|
|
|
197
|
|
2008 Treasury lock
|
|
Accumulated other comprehensive earnings
|
|
|
89
|
|
|
|
93
|
|
2009 LIBOR lock
|
|
Accumulated other comprehensive earnings
|
|
|
(1,168
|
)
|
|
|
(1,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,057
|
)
|
|
$
|
(1,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative not Designated as Hedging Instrument
|
|
|
|
Recognized Gain (Loss)
|
|
|
Foreign exchange forward contract
|
|
Accrued liabilities
|
|
$
|
|
|
|
$
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
24
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
The following tables disclose the impact of derivative
instruments on Woodwards Condensed Consolidated Statements
of Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
Amount of
|
|
|
Amount of
|
|
|
Gain (Loss)
|
|
|
|
|
|
Income
|
|
|
Gain (Loss)
|
|
|
Reclassified
|
|
|
|
|
|
(Expense)
|
|
|
Recognized in
|
|
|
from
|
|
|
|
Location of Gain
|
|
Recognized
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
|
(Loss) Recognized in
|
|
in Earnings
|
|
|
OCI on
|
|
|
OCI into
|
|
|
|
Earnings
|
|
on Derivative
|
|
|
Derivative
|
|
|
Earnings
|
|
|
Derivatives in fair value hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 Interest rate swap
|
|
Interest expense
|
|
$
|
33
|
|
|
$
|
|
|
|
$
|
|
|
Derivatives in cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Treasury lock
|
|
Interest expense
|
|
|
(29
|
)
|
|
|
|
|
|
|
(29
|
)
|
2008 Treasury lock
|
|
Interest expense
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
2009 LIBOR lock
|
|
Interest expense
|
|
|
(47
|
)
|
|
|
|
|
|
|
(47
|
)
|
Derivative in foreign currency relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contract
|
|
Other income
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63
|
|
|
$
|
|
|
|
$
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
Amount of
|
|
|
Amount of
|
|
|
Gain (Loss)
|
|
|
|
|
|
Income
|
|
|
Gain (Loss)
|
|
|
Reclassified
|
|
|
|
|
|
(Expense)
|
|
|
Recognized in
|
|
|
from
|
|
|
|
Location of Gain
|
|
Recognized
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
|
(Loss) Recognized in
|
|
in Earnings
|
|
|
OCI on
|
|
|
OCI into
|
|
|
|
Earnings
|
|
on Derivative
|
|
|
Derivative
|
|
|
Earnings
|
|
|
Derivatives in fair value hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 Interest rate swap
|
|
Interest expense
|
|
$
|
47
|
|
|
$
|
|
|
|
$
|
|
|
Derivatives in cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Treasury lock
|
|
Interest expense
|
|
|
(41
|
)
|
|
|
|
|
|
|
(41
|
)
|
2008 Treasury lock
|
|
Interest expense
|
|
|
4
|
|
|
|
109
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10
|
|
|
$
|
109
|
|
|
$
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on the carrying value of the unrecognized gains and losses
on terminated derivative instruments designated as cash flow
hedges as of December 31, 2009, Woodward expects to
reclassify $269 of net unrecognized losses on terminated
derivative instruments from accumulated other comprehensive
earnings to earnings during the next twelve months.
25
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
|
|
Note 14.
|
Accrued
liabilities
|
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
Salaries and other member benefits
|
|
$
|
23,372
|
|
|
$
|
32,135
|
|
Department of Justice matter (see Note 20)
|
|
|
|
|
|
|
25,000
|
|
Current portion of restructuring and other charges
|
|
|
11,181
|
|
|
|
11,619
|
|
Warranties
|
|
|
9,187
|
|
|
|
10,005
|
|
Interest payable
|
|
|
5,708
|
|
|
|
12,376
|
|
Accrued retirement benefits
|
|
|
2,733
|
|
|
|
2,734
|
|
Taxes, other than income
|
|
|
6,789
|
|
|
|
5,910
|
|
Other
|
|
|
28,026
|
|
|
|
27,538
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
86,996
|
|
|
$
|
127,317
|
|
|
|
|
|
|
|
|
|
|
Warranties
Provisions of Woodwards 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
on a non-specific basis whenever past experience indicates a
normal and predictable pattern exists. Changes in accrued
product warranties were as follows:
|
|
|
|
|
Warranties, September 30, 2009
|
|
$
|
10,005
|
|
Increases to accruals related to warranties during the period
|
|
|
699
|
|
Settlements of amounts accrued
|
|
|
(1,471
|
)
|
Foreign currency exchange rate changes
|
|
|
(46
|
)
|
|
|
|
|
|
Warranties, December 31, 2009
|
|
$
|
9,187
|
|
|
|
|
|
|
Restructuring
and other charges
The main components of accrued non-acquisition related
restructuring charges include workforce management costs
associated with the early retirement and the involuntary
separation of employees in connection with a strategic
realignment of global workforce capacity. Restructuring charges
related to business acquisitions include a number of items such
as those associated with integrating similar operations,
workforce management, vacating certain facilities, and the
cancellation of some contracts. During the first quarter of
fiscal 2010, accrued restructuring charges were increased by
$1,400 to reflect updated estimates of anticipated costs in
connection with the HRT acquisition.
The summary of the activity in accrued restructuring charges
during the three months ended December 31, 2009 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
Business
|
|
|
|
|
|
|
Charges
|
|
|
Acquisitions
|
|
|
Total
|
|
|
Accrued restructuring charges, September 30, 2009
|
|
$
|
3,196
|
|
|
$
|
9,668
|
|
|
$
|
12,864
|
|
Purchase accounting adjustments
|
|
|
|
|
|
|
1,400
|
|
|
|
1,400
|
|
Payments
|
|
|
(1,000
|
)
|
|
|
(932
|
)
|
|
|
(1,932
|
)
|
Foreign currency exchange rates
|
|
|
(9
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring charges, December 31, 2009
|
|
$
|
2,187
|
|
|
$
|
10,136
|
|
|
|
12,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
$1,142 and $1,245 of accrued restructuring charges not
expected to be paid within twelve months are included as
non-current liabilities in other liabilities as of
December 31, 2009 and September 30, 2009, respectively.
|
|
Note 15.
|
Other
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
Net accrued retirement benefits, less amounts recognized with
accrued liabilities
|
|
$
|
83,678
|
|
|
$
|
83,837
|
|
Uncertain tax positions, net of offsetting benefits, less
amounts recognized with accrued liabilities
|
|
|
14,660
|
|
|
|
15,550
|
|
Other
|
|
|
7,311
|
|
|
|
10,623
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
105,649
|
|
|
$
|
110,010
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 16.
|
Retirement
benefits
|
Woodward provides various benefits to certain current and former
employees through defined benefit plans, retirement healthcare
benefit plans and various defined contribution plans.
Eligibility requirements and benefit levels vary depending on
employee location. A September 30 measurement date is utilized
to value plan assets and obligations for all of Woodwards
defined benefit and retirement healthcare benefit plans.
U.S. GAAP requires that, for obligations outstanding as of
September 30, 2009, 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.
In connection with the acquisition of HRT (see Note 4.
Business acquisitions and dispositions), Woodward assumed
pension benefit obligations and postretirement healthcare
benefit obligation that contributed to increases in recognized
expenses for the three months ended December 31, 2009
compared to the three months ended December 31, 2008.
Effective January 1, 2010, the HRT pension plan was amended
so that non-bargained HRT employees hired after
December 31, 2009 will not participate in the plan. Also,
effective January 1, 2010, non-bargained HRT employees
hired before January 1, 2010 will not be eligible for
matching contributions for participation in defined contribution
plans. Non-bargained HRT employees hired after December 31,
2009 will be eligible to fully participate in Woodwards
defined contribution plans.
27
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
The components of the net periodic pension costs recognized are
as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Retirement pension benefits United States:
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
912
|
|
|
$
|
|
|
Interest cost
|
|
|
1,222
|
|
|
|
287
|
|
Expected return on plan assets
|
|
|
(1,190
|
)
|
|
|
(282
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
|
132
|
|
|
|
84
|
|
Prior service cost
|
|
|
(65
|
)
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
Net periodic benefit
|
|
$
|
1,011
|
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
|
Contributions
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Retirement pension benefits other countries:
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
201
|
|
|
$
|
179
|
|
Interest cost
|
|
|
590
|
|
|
|
549
|
|
Expected return on plan assets
|
|
|
(616
|
)
|
|
|
(550
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
Transition obligation
|
|
|
21
|
|
|
|
20
|
|
Net actuarial loss
|
|
|
195
|
|
|
|
34
|
|
Prior service cost
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Net periodic benefit
|
|
$
|
389
|
|
|
$
|
230
|
|
|
|
|
|
|
|
|
|
|
Contributions
|
|
$
|
1,392
|
|
|
$
|
829
|
|
|
|
|
|
|
|
|
|
|
The components of the net periodic retirement healthcare benefit
costs recognized are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Retirement healthcare benefits:
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
30
|
|
|
$
|
42
|
|
Interest cost
|
|
|
520
|
|
|
|
563
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
|
47
|
|
|
|
24
|
|
Prior service cost
|
|
|
(312
|
)
|
|
|
(808
|
)
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (cost)
|
|
$
|
285
|
|
|
$
|
(179
|
)
|
|
|
|
|
|
|
|
|
|
Contributions
|
|
$
|
555
|
|
|
$
|
745
|
|
|
|
|
|
|
|
|
|
|
28
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
The exact 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 2010 may
differ from the current estimate. Woodward estimates its cash
contributions in fiscal 2010 will be as follows:
|
|
|
|
|
Retirement pension benefits:
|
|
|
|
|
Other countries
|
|
$
|
3,000
|
|
United States
|
|
|
2,750
|
|
Retirement healthcare benefits
|
|
|
2,769
|
|
|
|
Note 17.
|
Stock-based
compensation
|
Stock
options
Stock option awards are granted with an exercise price equal to
the market price of Woodwards stock at the date of grant,
and generally with a four-year graded vesting schedule and a
term of 10 years.
The fair value of options granted was estimated on the date of
grant using the Black-Scholes-Merton option-pricing model using
the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Expected term
|
|
|
6.5 years
|
|
|
|
7 years
|
|
Estimated volatility
|
|
|
51.0%
|
|
|
|
43.0%
|
|
Estimated dividend yield
|
|
|
1.4%
|
|
|
|
1.4%
|
|
Risk-free interest rate
|
|
|
3.4%
|
|
|
|
3.1%
|
|
Weighted-average forfeiture rate
|
|
|
8.1%
|
|
|
|
8.2%
|
|
The following is a summary of the activity for stock option
awards during the three months ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted-Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Balance at September 30, 2009
|
|
|
4,068
|
|
|
$
|
14.48
|
|
Options granted
|
|
|
662
|
|
|
|
23.18
|
|
Options exercised
|
|
|
(69
|
)
|
|
|
11.54
|
|
Options cancelled
|
|
|
|
|
|
|
n/a
|
|
Options forfeited
|
|
|
(2
|
)
|
|
|
32.73
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
4,659
|
|
|
|
15.75
|
|
|
|
|
|
|
|
|
|
|
29
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
Restricted
stock
The following is a summary of the activity for restricted stock
awards during the three months ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Number of
|
|
|
Grant Date Fair
|
|
|
|
Shares
|
|
|
Value per Share
|
|
|
Balance at September 30, 2009
|
|
|
70
|
|
|
$
|
33.49
|
|
Shares granted
|
|
|
|
|
|
|
n/a
|
|
Shares vested
|
|
|
|
|
|
|
n/a
|
|
Shares forfeited
|
|
|
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
70
|
|
|
|
33.49
|
|
|
|
|
|
|
|
|
|
|
Restricted stock shares participate in dividends during the
vesting period.
|
|
Note 18.
|
Accumulated
other comprehensive earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2009
|
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Woodward
|
|
|
Interest
|
|
|
Total
|
|
|
Accumulated foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009
|
|
$
|
29,464
|
|
|
$
|
(221
|
)
|
|
$
|
29,243
|
|
Translation adjustments, net of reclassification to earnings
|
|
|
(3,100
|
)
|
|
|
65
|
|
|
|
(3,035
|
)
|
Taxes associated with translation adjustments
|
|
|
474
|
|
|
|
(23
|
)
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
26,838
|
|
|
|
(179
|
)
|
|
|
26,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated unrealized derivative losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009
|
|
|
(801
|
)
|
|
|
|
|
|
|
(801
|
)
|
Reclassification to interest expense
|
|
|
71
|
|
|
|
|
|
|
|
71
|
|
Taxes associated with interest reclassification
|
|
|
(27
|
)
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
(757
|
)
|
|
|
|
|
|
|
(757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated minimum post-retirement benefit liability
adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009
|
|
|
(18,534
|
)
|
|
|
|
|
|
|
(18,534
|
)
|
Minimum benefit liability adjustment
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
Taxes associated with benefit adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
(18,525
|
)
|
|
|
|
|
|
|
(18,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive earnings
|
|
$
|
7,556
|
|
|
$
|
(179
|
)
|
|
$
|
7,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2008
|
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Woodward
|
|
|
Interest
|
|
|
Total
|
|
|
Accumulated foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2008
|
|
$
|
23,709
|
|
|
$
|
(166
|
)
|
|
$
|
23,543
|
|
Translation adjustments, net of reclassification to earnings
|
|
|
(3,484
|
)
|
|
|
(78
|
)
|
|
|
(3,562
|
)
|
Taxes associated with translation adjustments
|
|
|
(3,573
|
)
|
|
|
28
|
|
|
|
(3,545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
16,652
|
|
|
|
(216
|
)
|
|
|
16,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated unrealized derivative losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2008
|
|
|
(137
|
)
|
|
|
|
|
|
|
(137
|
)
|
Reclassification to interest expense
|
|
|
37
|
|
|
|
|
|
|
|
37
|
|
Taxes associated with interest reclassification
|
|
|
(14
|
)
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
(114
|
)
|
|
|
|
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated minimum post-retirement benefit liability
adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2008
|
|
|
(3,087
|
)
|
|
|
|
|
|
|
(3,087
|
)
|
Minimum benefit liability adjustment
|
|
|
(107
|
)
|
|
|
|
|
|
|
(107
|
)
|
Taxes associated with benefit adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
(3,194
|
)
|
|
|
|
|
|
|
(3,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive earnings
|
|
$
|
13,344
|
|
|
$
|
(216
|
)
|
|
$
|
13,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 19.
|
Total
comprehensive earnings
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Comprehensive earnings:
|
|
|
|
|
|
|
|
|
Net earnings attributable to Woodward
|
|
$
|
22,356
|
|
|
$
|
27,064
|
|
Other comprehensive earnings:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments,net
|
|
|
(2,626
|
)
|
|
|
(7,057
|
)
|
Reclassification of unrealized losses on derivatives to earnings
|
|
|
44
|
|
|
|
23
|
|
Minimum pension liability adjustment
|
|
|
9
|
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings attributable to Woodward
|
|
$
|
19,783
|
|
|
$
|
19,923
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings attributable to noncontrolling
interest:
|
|
|
|
|
|
|
|
|
Net earnings attributable to noncontrolling interests
|
|
$
|
90
|
|
|
$
|
39
|
|
Foreign currency translation adjustments,net
|
|
|
42
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings attributable to noncontrolling interests
|
|
$
|
132
|
|
|
$
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings
|
|
$
|
19,915
|
|
|
$
|
19,912
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 20.
|
Commitments
and contingencies
|
Woodward is currently involved in claims, pending or threatened
litigation or other legal proceedings, or regulatory proceedings
arising in the normal course of business, including, among
others, those relating to product
31
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
liability claims, employment matters, workers compensation
claims, contractual disputes, product warranty claims and
alleged violations of various environmental laws. Woodward has
accrued for individual matters that it believes are likely to
result in a loss when ultimately resolved using estimates of the
most likely amount of loss.
Woodward is partially self-insured in the U.S. for
healthcare and workers compensation up to predetermined
amounts, above which third party insurance applies. Management
regularly reviews the probable outcome of these 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 and proceedings cannot be
predicted with certainty, management believes that any
liabilities that may result from these claims and proceedings
will not have a material adverse effect on its liquidity,
financial condition, or results of operations.
In addition, MPC Products Corporation (MPC
Products), one of Woodwards subsidiaries acquired in
fiscal year 2009, was previously subject to an investigation by
the Department of Justice (DOJ) regarding certain of
its government contract pricing practices prior to June 2005,
and related administrative actions by the U.S. Department
of Defense (DOD). In October 2009, MPC Products
reached an agreement with the DOJ to resolve the criminal and
civil claims related to the investigation. As part of the
settlement of the civil claims, MPC Products paid approximately
$22,500 in compensation. The civil settlement was approved by
the United States District Court for the Northern District of
Illinois (the District Court) on October 7,
2009. In connection with the settlement of the criminal claims,
on November 4, 2009, MPC Products pled guilty to one count
of wire fraud related to its pre-June 2005 government contract
pricing practices, and paid a fine of $2,500. Pursuant to the
plea agreement, MPC Products was also placed on probation for
two years. The criminal case plea agreement and sentencing were
approved by the District Court in November 2009, concluding the
DOJs investigation of these matters.
On October 7, 2009, Woodward and MPC Products entered into
a three-year administrative agreement with the DOD. The
administrative agreement lifted a suspension, which was in place
from July 8, 2009 until October 7, 2009, of MPC
Products from receiving new government contracts. Accordingly,
MPC Products is again fully eligible to bid, receive and perform
on U.S. government contracts. The administrative agreement
requires, among other things, that Woodward and its affiliates,
including MPC Products, implement certain enhancements to
existing ethics and compliance programs and make periodic
reports to the DOD. Woodward and its affiliates have been
implementing these enhancements and furnishing reports as
required by the administrative agreement.
The purchase price Woodward paid in connection with the
acquisition of MPC Products was reduced by $25,000 at the time
of the acquisition, which represents the amounts discussed
above. Payment of this amount during the three months ended
December 31, 2009 is reflected as an investing activity in
the Condensed Consolidated Statement of Cash Flows.
In the event of a change in control of Woodward, as defined in
change-in-control
severance agreements with our current corporate officers, we may
be required to pay termination benefits to such officers.
|
|
Note 21.
|
Financial
instruments
|
The estimated fair values of Woodwards financial
instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
At September 30, 2009
|
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Cash and cash equivalents
|
|
$
|
76,620
|
|
|
$
|
76,620
|
|
|
$
|
100,863
|
|
|
$
|
100,863
|
|
Investments in deferred compensation program
|
|
|
5,694
|
|
|
|
5,694
|
|
|
|
5,331
|
|
|
|
5,331
|
|
Long-term debt, including current portion
|
|
|
(556,200
|
)
|
|
|
(524,540
|
)
|
|
|
(588,229
|
)
|
|
|
(572,142
|
)
|
32
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
The fair values of cash and cash equivalents, which include
investments in money market funds, and short-term borrowings at
variable interest rates are assumed to be equal to their
carrying amounts. Cash and cash equivalents have short-term
maturities and short-term borrowings have short-term maturities
and market interest rates.
Investments related to the deferred compensation program used to
provide deferred compensation benefits to certain employees are
assumed to be equal to their carrying amounts since the assets
are marked to market value each reporting period.
The fair value of long-term debt at fixed interest rates was
estimated based on a model that discounted future principal and
interest payments at interest rates available to the Company at
the end of the period for similar debt of the same maturity. The
weighted-average interest rates used to estimate the fair value
of long-term debt at fixed interest rates were 4.2% at
December 31, 2009 and 4.8% at September 30, 2009.
|
|
Note 22.
|
Fair
value measurements
|
Financial assets and liabilities recorded at fair value in the
Consolidated Balance Sheet are categorized based upon a fair
value hierarchy established by U.S. GAAP, which prioritizes
the inputs used to measure fair value into the following levels:
Level 1:
Inputs based on quoted market
prices in active markets for identical assets or liabilities at
the measurement date.
Level 2:
Quoted prices included in
Level 1, such as quoted prices for similar assets or
liabilities in active markets; quoted prices for identical or
similar assets and liabilities in markets that are not active;
or other inputs that are observable and can be corroborated by
observable market data.
Level 3:
Inputs reflect managements
best estimates and assumptions of what market participants would
use in pricing the asset or liability at the measurement date.
The inputs are unobservable in the market and significant to the
valuation of the instruments.
The following table presents information about Woodwards
assets and liabilities measured at fair value on a recurring
basis as of September 30, 2009 and indicates the fair value
hierarchy of the valuation techniques Woodward utilized to
determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in money market funds
|
|
$
|
5,773
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,773
|
|
Trading securities
|
|
|
5,694
|
|
|
|
|
|
|
|
|
|
|
|
5,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
11,467
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in money market funds:
Woodward
sometimes invests excess cash in money market funds not insured
by the Federal Deposit Insurance Corporation (FDIC).
Woodward believes that the investments in money market funds are
on deposit with credit worthy financial institutions and that
the funds are highly liquid. The investments in money market
funds are reported at fair value, with realized gains from
interest income realized in earnings and are included in
Cash and cash equivalents. The fair values of
Woodwards investments in money market funds are based on
the quoted market prices for the net asset value of the various
money market funds.
Trading securities:
Woodward holds marketable
equity securities, through investments in various mutual funds,
related to its deferred compensation program. Based on
Woodwards 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 earnings. The
trading securities are included in Other current
assets. The fair values of Woodwards trading
securities are based on the quoted market prices for the net
asset value of the various mutual funds.
33
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
|
|
Note 23.
|
Segment
information
|
Segment profit is determined based on internal performance
measures used by the Chief Executive Officer to assess the
performance of each business in a given period. In connection
with that assessment, the Chief Executive Officer excludes
matters such as charges for restructuring costs, interest income
and expense, and certain gains and losses from asset
dispositions.
To provide better focus and alignment of its business segment
operations, Woodward moved the development and manufacture of
systems and components for steam turbine markets from Engine
Systems to Turbine Systems in the fourth quarter of fiscal 2009.
All segment information for the quarter ended December 31,
2008 has been recast to reflect the realigned segment structure.
A summary of consolidated net sales follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Segment net sales:
|
|
|
|
|
|
|
|
|
Turbine Systems
|
|
|
|
|
|
|
|
|
External net sales
|
|
$
|
140,086
|
|
|
$
|
152,282
|
|
Intersegment sales
|
|
|
2,330
|
|
|
|
4,537
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales
|
|
|
142,416
|
|
|
|
156,819
|
|
Airframe Systems
|
|
|
|
|
|
|
|
|
External net sales
|
|
|
91,049
|
|
|
|
51,660
|
|
Intersegment sales
|
|
|
678
|
|
|
|
658
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales
|
|
|
91,727
|
|
|
|
52,318
|
|
Electrical Power Systems
|
|
|
|
|
|
|
|
|
External net sales
|
|
|
48,881
|
|
|
|
47,917
|
|
Intersegment sales
|
|
|
7,922
|
|
|
|
13,925
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales
|
|
|
56,803
|
|
|
|
61,842
|
|
Engine Systems
|
|
|
|
|
|
|
|
|
External net sales
|
|
|
59,292
|
|
|
|
92,885
|
|
Intersegment sales
|
|
|
8,587
|
|
|
|
12,409
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales
|
|
|
67,879
|
|
|
|
105,294
|
|
Consolidated
|
|
|
|
|
|
|
|
|
External net sales
|
|
|
339,308
|
|
|
|
344,744
|
|
Intersegment sales
|
|
|
19,517
|
|
|
|
31,529
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales
|
|
$
|
358,825
|
|
|
$
|
376,273
|
|
|
|
|
|
|
|
|
|
|
34
Woodward
Governor Company
Notes to
Condensed Consolidated Financial
Statements (Continued)
A summary of consolidated earnings follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Segment earnings:
|
|
|
|
|
|
|
|
|
Turbine Systems
|
|
$
|
32,074
|
|
|
$
|
33,244
|
|
Airframe Systems
|
|
|
2,409
|
|
|
|
1,801
|
|
Electrical Power Systems
|
|
|
7,323
|
|
|
|
9,166
|
|
Engine Systems
|
|
|
3,235
|
|
|
|
7,586
|
|
|
|
|
|
|
|
|
|
|
Total segment earnings
|
|
|
45,041
|
|
|
|
51,797
|
|
Nonsegment expenses
|
|
|
(5,410
|
)
|
|
|
(7,764
|
)
|
Interest expense and income, net
|
|
|
(8,141
|
)
|
|
|
(5,875
|
)
|
|
|
|
|
|
|
|
|
|
Consolidated earnings before income taxes
|
|
$
|
31,490
|
|
|
$
|
38,158
|
|
|
|
|
|
|
|
|
|
|
Segment assets consist of accounts receivable, inventories,
property, plant, and equipment net, goodwill, and
other intangibles net. A summary of consolidated
total assets follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
Segment assets:
|
|
|
|
|
|
|
|
|
Turbine Systems
|
|
$
|
333,046
|
|
|
$
|
344,789
|
|
Airframe Systems
|
|
|
772,237
|
|
|
|
801,300
|
|
Electrical Power Systems
|
|
|
134,003
|
|
|
|
135,808
|
|
Engine Systems
|
|
|
190,919
|
|
|
|
200,226
|
|
|
|
|
|
|
|
|
|
|
Total segment assets
|
|
|
1,430,205
|
|
|
|
1,482,123
|
|
Unallocated corporate property, plant, and equipment, net
|
|
|
7,141
|
|
|
|
6,857
|
|
Other unallocated assets
|
|
|
179,407
|
|
|
|
207,442
|
|
|
|
|
|
|
|
|
|
|
Consolidated total assets
|
|
$
|
1,616,753
|
|
|
$
|
1,696,422
|
|
|
|
|
|
|
|
|
|
|
35
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
(Amounts in thousands, except per share
amounts)
|
Forward
Looking Statements
This Quarterly Report on
Form 10-Q,
including Managements Discussion and Analysis of
Financial Condition and Results of Operations, contains
forward-looking statements regarding future events and our
future results within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements other than
statements of historical fact are statements that are deemed
forward-looking statements. These statements are based on
current expectations, estimates, forecasts, and projections
about the industries in which we operate and the beliefs and
assumptions of management. Words such as anticipate,
believe, estimate, seek,
goal, expect, forecasts,
intend, continue, outlook,
plan, project, target,
can, could, may,
should, will, would,
variations of such words, and similar expressions are intended
to identify such forward-looking statements. In addition, any
statements that refer to projections of our future financial
performance, our anticipated growth and trends in our
businesses, and other characteristics of future events or
circumstances are forward-looking statements. Forward-looking
statements may include, among others, statements relating to:
|
|
|
|
|
future sales, earnings, cash flow, uses of cash, and other
measures of financial performance;
|
|
|
|
description of our plans and expectations for future
operations;
|
|
|
|
the effect of economic downturns or growth in particular
regions;
|
|
|
|
the effect of changes in the level of activity in particular
industries or markets;
|
|
|
|
the availability and cost of materials, components, services,
and supplies;
|
|
|
|
the scope, nature, or impact of acquisition activity and
integration into our businesses;
|
|
|
|
the development, production, and support of advanced
technologies and new products and services;
|
|
|
|
new business opportunities;
|
|
|
|
restructuring costs and savings;
|
|
|
|
our plans, objectives, expectations and intentions with
respect to recent acquisitions and expected business
opportunities that may be available to us;
|
|
|
|
the outcome of contingencies;
|
|
|
|
future repurchases of common stock;
|
|
|
|
future levels of indebtedness and capital spending; and
|
|
|
|
pension plan assumptions and future contributions.
|
Readers are cautioned that these forward-looking statements
are only predictions and are subject to risks, uncertainties,
and assumptions that are difficult to predict, including:
|
|
|
|
|
a decline in business with, or financial distress of, our
significant customers;
|
|
|
|
the continued instability in the financial markets and
prolonged unfavorable economic and other industry conditions;
|
|
|
|
our ability to obtain financing, on acceptable terms or at
all, to implement our business plans, complete acquisitions, or
otherwise take advantage of business opportunities or respond to
business pressures;
|
|
|
|
the long sales cycle, customer evaluation process, and
implementation period of some of our products and services;
|
|
|
|
our ability to implement, and realize the intended effects
of, our restructuring efforts;
|
36
|
|
|
|
|
any failure to fully comply, to the
U.S. Governments satisfaction, with any of the terms
of the civil and criminal settlements related to the
U.S. Department of Justice (DOJ) investigation
of the pre-June 2005 government contract pricing practices of
MPC Products Corporation (MPC Products) and the
related administrative agreement with the U.S. Department
of Defense (DOD);
|
|
|
|
our ability to successfully manage competitive factors,
including prices, promotional incentives, industry
consolidation, and commodity and other input cost increases;
|
|
|
|
our ability to reduce our expenses in proportion to any sales
shortfalls;
|
|
|
|
the ability of our subcontractors to perform contractual
obligations and our suppliers to provide us with materials of
sufficient quality or quantity required to meet our production
needs at favorable prices or at all;
|
|
|
|
the success of, or expenses associated with, our product
development activities;
|
|
|
|
our ability to integrate acquisitions and manage costs
related thereto;
|
|
|
|
our substantial debt obligations, our debt service
requirements, and our ability to operate our business, pursue
business strategies and incur additional debt in the light of
covenants contained in our outstanding debt agreements;
|
|
|
|
future impairment charges resulting from changes in the
estimates of fair value of reporting units or of long-lived
assets;
|
|
|
|
changes in domestic or international tax statutes;
|
|
|
|
changes in future subsidiary results;
|
|
|
|
environmental liabilities related to manufacturing
activities;
|
|
|
|
our continued access to a stable workforce and favorable
labor relations with our employees;
|
|
|
|
the geographical location of a significant portion of the
Woodward HRT business in California, which historically has been
susceptible to natural disasters;
|
|
|
|
our ability to successfully manage regulatory, tax, and legal
matters (including government contracting, product liability,
patent, and intellectual property matters);
|
|
|
|
risks from operating internationally, including the impact on
reported earnings from fluctuations in foreign currency exchange
rates, and changes in the legal and regulatory environments of
countries in which we operate; and
|
|
|
|
certain provisions of our charter documents and Delaware law
that could discourage or prevent others from acquiring our
company.
|
These factors are representative of the risks, uncertainties,
and assumptions that could cause actual outcomes and results to
differ materially from what is expressed or forecast in our
forward-looking statements. Other factors are discussed under
Risk Factors in our SEC filings and are incorporated
by reference.
Therefore, actual results could differ materially and
adversely from those expressed in any forward-looking
statements. For additional information regarding factors that
may affect our actual financial condition and results of
operations, see the information under the caption Risk
Factors in Item 1A in our Annual Report on
Form 10-K
for the year ended September 30, 2009. We undertake no
obligation to revise or update any forward-looking statements
for any reason.
Unless we have indicated otherwise or the context otherwise
requires, references in this Quarterly Report on
Form 10-Q
to Woodward, the Company,
we, us, and our refer to
Woodward Governor Company and its consolidated subsidiaries.
Amounts presented in this Quarterly Report on
Form 10-Q
are in thousands except per share amounts.
37
OVERVIEW
We are an independent designer, manufacturer, and service
provider of energy control and optimization solutions for
commercial and military aircraft and ground vehicles, turbines,
reciprocating engines, and electrical power system equipment.
Our innovative fluid energy, combustion control, electrical
energy, and motion control systems help customers offer cleaner,
more reliable and more cost-effective equipment. Leading
original equipment manufacturers (OEMs) use our
products and services in the aerospace, power generation and
distribution, and transportation markets.
Our strategic focus is energy control and optimization
solutions. The control of energy, including fluid and electrical
energy, combustion, and motion, is a growing requirement in the
markets we serve. Our customers look to us to optimize the
efficiency, emissions, and operation of power equipment in both
commercial and military operations. Our core technologies
leverage well across our markets and customer applications,
enabling us to develop and integrate cost-effective and
state-of-the-art
fuel, combustion, fluid, actuation, and electronic systems. We
focus primarily on OEMs and equipment packagers, partnering with
them to bring superior component and system solutions to their
demanding applications.
We have four operating business segments Turbine
Systems, Airframe Systems, Electrical Power Systems, and Engine
Systems:
|
|
|
|
|
Turbine Systems
develops and manufactures systems and
components that provide energy control and optimization
solutions for aircraft propulsion applications, including fuel
and combustion systems for turbine engines, as well as
industrial gas and steam turbine markets.
|
|
|
|
Airframe Systems
develops and manufactures
high-performance cockpit, electromechanical and hydraulic motion
control systems, and mission-critical actuation systems and
controls for weapons, aircraft, turbine engines, and combat
vehicles, primarily for aerospace and military applications.
|
|
|
|
Electrical Power Systems
develops and manufactures
systems and components that provide power sensing and energy
control systems that improve the security, quality, reliability,
and availability of electrical power networks for industrial
markets, which include the power generation, power distribution,
and power conversion industries.
|
|
|
|
Engine Systems
develops and manufactures systems and
components that provide energy control and optimization
solutions for the industrial engine markets, which include the
power generation, transportation, and process industries.
|
To provide better focus and alignment of our business segment
operations, we moved the development and manufacture of systems
and components for steam turbine markets from Engine Systems to
Turbine Systems in the fourth quarter of fiscal 2009. All
segment information for the quarter ended December 31, 2008
has been recast to reflect the realigned segment structure.
We use segment information internally to assess the performance
of each segment and to make decisions on the allocation of
resources.
This discussion should be read together with Managements
Discussion and Analysis of Financial Condition and Results of
Operations contained in Part II, Item 7 of our Annual
Report on
Form 10-K
for the year ended September 30, 2009, and the Condensed
Consolidated Financial Statements and Notes included in this
report. Financial information for the acquired HRT business is
reflected in our financial statements from the April 3,
2009 acquisition date. As a result of this acquisition, a
comparison of results for the three month ended
December 31, 2009 to the three months ended
December 31, 2008 may not be particularly meaningful.
References to organic net sales or net earnings
refer to financial information of Woodward businesses excluding
the business acquired in the HRT acquisition, which is being
integrated into Woodward within the Airframe Systems business
segment.
38
Quarterly
Highlights
Net sales for the first quarter of fiscal 2010 were $339,308,
which was a decrease of 1.6% from $344,744 for the first quarter
of the prior year. Without the effects of foreign currency
exchange rates, net sales for the current quarter would have
been approximately $9,000 lower, compared to the first quarter
of fiscal 2009. Organic net sales were down approximately
$63,636 or 18.5% for the three months ended December 31,
2009 compared to the three months ended December 31, 2008.
The acquisition of HRT during fiscal year 2009 contributed
$58,200 in sales during the three months ended December 31,
2009.
Net earnings for the first quarter of fiscal 2010 were $22,356,
or $0.32 per diluted share, compared to $27,064, or $0.39 per
diluted share, for the first quarter of fiscal 2009.
Our focus on generating cash from both operations and working
capital continued. Net cash provided by operating activities for
the quarter was $61,269 compared to $5,470 for the prior year
period, reflecting improvements in inventories, receivables, and
lower variable compensation payments compared to the prior year
period.
At December 31, 2009, our total assets were $1,616,753,
including $76,620 in cash and cash equivalents, and our total
debt was $524,704. During the quarter, we reduced our total debt
by $47,589 through scheduled and unscheduled repayments. As of
December 31, 2009, we had borrowing availability of
$222,300 under our $225,000 revolving credit facility, net of
outstanding letters of credit. We believe liquidity and cash
generation are important to our strategy of self-funding our
ongoing operating needs. We also believe that the restructuring
actions we implemented in fiscal 2009 have and will continue to
generate improved cash flows from operations and that this level
of cash generation, together with our existing cash and
available borrowings, will adequately support our operations.
Results
of Operations
Net
Sales
The following table presents the breakdown of consolidated net
sales by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Segment net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turbine Systems
|
|
$
|
142,416
|
|
|
|
42
|
%
|
|
$
|
156,819
|
|
|
|
45
|
%
|
Airframe Systems
|
|
|
91,727
|
|
|
|
27
|
|
|
|
52,318
|
|
|
|
15
|
|
Electrical Power Systems
|
|
|
56,803
|
|
|
|
17
|
|
|
|
61,842
|
|
|
|
18
|
|
Engine Systems
|
|
|
67,879
|
|
|
|
20
|
|
|
|
105,294
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales
|
|
|
358,825
|
|
|
|
106
|
|
|
|
376,273
|
|
|
|
109
|
|
Less intersegment net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turbine Systems
|
|
|
(2,330
|
)
|
|
|
(1
|
)
|
|
|
(4,537
|
)
|
|
|
(1
|
)
|
Airframe Systems
|
|
|
(678
|
)
|
|
|
(0
|
)
|
|
|
(658
|
)
|
|
|
(0
|
)
|
Electrical Power Systems
|
|
|
(7,922
|
)
|
|
|
(2
|
)
|
|
|
(13,925
|
)
|
|
|
(4
|
)
|
Engine Systems
|
|
|
(8,587
|
)
|
|
|
(3
|
)
|
|
|
(12,409
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net external sales
|
|
$
|
339,308
|
|
|
|
100
|
%
|
|
$
|
344,744
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
Consolidated net external sales decreased by $5,436 or 1.6% for
the first three months of fiscal 2010 compared to the same
period in fiscal 2009. Details of the changes in consolidated
net external sales are as follows:
|
|
|
|
|
Consolidated net external sales for the three months ended
December 31, 2008
|
|
$
|
344,744
|
|
Turbine Systems volume changes
|
|
|
(14,554
|
)
|
Airframe Systems volume changes
|
|
|
(18,811
|
)
|
Electrical Power Systems volume changes
|
|
|
(3,476
|
)
|
Engine Systems volume changes
|
|
|
(36,034
|
)
|
Acquisition of HRT
|
|
|
58,200
|
|
Price changes and sales mix
|
|
|
347
|
|
Foreign currency
|
|
|
8,892
|
|
|
|
|
|
|
Consolidated net external sales for the three months ended
December 31, 2009
|
|
$
|
339,308
|
|
|
|
|
|
|
Sales volume decreases for each of our business segments were
partially offset by sales increases associated with the
acquisition of HRT in April 2009. Total organic net sales
decreased 18.5% for the three months ended December 31,
2009 compared to the three months ended December 31, 2008.
Intersegment sales primarily reflect contract manufacturing
activity across business segments. As part of their component
and system offerings, Turbine Systems and Engine Systems sell
electronic controls manufactured by Electrical Power Systems.
Engine Systems also manufactures certain components of larger
systems ultimately sold by Turbine Systems. These intersegment
activities have historically increased growth in our Turbine
Systems and Engine Systems segments. Further integration of our
Airframe Systems segment is also expected to result in the
manufacture of additional electronic controls by Electrical
Power Systems.
Turbine Systems segment net sales
(including
intersegment sales) were $142,416 for the three months ended
December 31, 2009 compared to $156,819 in the same period
last year. We believe our experience is consistent with
underlying economic market trends, which have been driven by
slowing deliveries of new aerospace equipment. The first quarter
of fiscal 2010 was the first period of this economic cycle that
sales in the industrial gas turbine market declined from the
prior year following a period of continued growth in 2009.
Year-over-year
declines were experienced in both the aerospace and industrial
markets, although we experienced a lower rate of change in
aerospace markets as compared to the last two quarters of fiscal
year 2009.
Airframe Systems segment net sales
(including
intersegment sales) were $91,727 for the three month period
ended December 31, 2009 compared to $52,318 in the same
period a year ago. On April 3, 2009, we acquired HRT and
have been integrating this business into Woodward within our
Airframe Systems segment. On August 10, 2009, we sold the
F&P product line acquired as part of the HRT acquisition.
Airframe Systems organic net sales for the three months
ended December 31, 2009 were down $18,791 or 35.9% compared
to the three months ended December 31, 2008. The sales
decline in the organic business was due primarily to continued
production softness in the overall commercial, regional, and
business jet OEM markets that, coupled with reduced aftermarket
volume resulting from significant declines in passenger and
cargo airlines removing planes from service and deferring
discretionary maintenance, affected sales of various platforms
supplied by Airframe Systems to airframers.
While net sales for HRT were not reported as part of Airframe
Systems in the three months ended December 31, 2008, on a
comparable basis, HRT net sales of $58,200 were down slightly
compared with the prior year. The
year-over-year
decline was driven mainly by continued overall softness in the
commercial, regional, and business jet markets. These decreases
in sales volume were partially offset by modest gains in our
rotorcraft, military aircraft, and other markets. Aftermarket
net sales experienced slight declines due to passenger and cargo
carriers removing planes from service, partially offset by
moderate increases in the military aftermarket.
Electrical Power Systems segment net sales
(including intersegment sales) were $56,803 for the three
month period ended December 31, 2009, compared to $61,842
in the same period a year ago. Wind converter sales declined in
the three months ended December 31, 2009 as compared to the
prior year, excluding the effects of foreign currency exchange
rates. During the first three quarters of fiscal 2009,
Electrical Power Systems
40
experienced growth in demand for wind converters, but saw a
significant demand slowdown during the fourth quarter of fiscal
2009. In the first quarter of fiscal 2010, however, net sales
increased $3,085 compared to the fourth quarter of fiscal 2009,
including the impact of foreign currency exchange rates. Without
the effects of foreign currency exchange rates, net sales for
the current quarter would have been approximately $6,000 lower,
compared to the first three months of fiscal 2009.
Intersegment sales declined $6,003 during the three month period
ended December 31, 2009 compared to the three month period
ended December 31, 2008, reflecting decreased sales to our
other business segments.
Demand for power generation and distribution products was lower
during the first quarter of fiscal 2010 compared to the same
period last year. Sales of system solutions for stationary power
generation supplied by our power solutions business were flat
compared to fiscal year 2009. In addition, we saw significant
growth during the quarter ended December 31, 2009 in our
power station project business where revenues can be somewhat
volatile
quarter-to-quarter.
Engine Systems segment net sales
(including
intersegment sales) were $67,879 for the three months ended
December 31, 2009 compared to $105,294 in the same period a
year ago. The lower sales levels were attributable to continued
broad declines in demand across the transportation and power
generation markets for industrial engines compared to the first
quarter of fiscal 2009.
Price changes:
Selling price increases across
several products in Turbine Systems and Engine Systems were in
response to prevailing market conditions, partially offset by
price decreases in Electrical Power Systems.
Foreign currency exchange rates:
Our worldwide
sales activities are primarily denominated in the
U.S. dollars (USD), European Monetary Units
(the Euro), and Great Britain pounds
(GBP). As these currencies fluctuate against each
other and other currencies, we are exposed to gains or losses on
sales transactions. During the first three months of fiscal
2010, our organic net sales were positively impacted by
approximately $9,000 due to changes in foreign currency exchange
rates, compared to the same period in the prior year.
Costs
and Expenses
The following table presents costs and expenses in relation to
net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
2009
|
|
|
Sales
|
|
|
2008
|
|
|
Sales
|
|
|
Net sales
|
|
$
|
339,308
|
|
|
|
100.0
|
%
|
|
$
|
344,744
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
$
|
239,552
|
|
|
|
70.6
|
%
|
|
$
|
244,286
|
|
|
|
70.9
|
%
|
Selling, general, and administrative expenses
|
|
|
32,835
|
|
|
|
9.7
|
|
|
|
32,460
|
|
|
|
9.4
|
|
Research and development costs
|
|
|
18,314
|
|
|
|
5.4
|
|
|
|
19,084
|
|
|
|
5.5
|
|
Amortization of intangible assets
|
|
|
9,181
|
|
|
|
2.7
|
|
|
|
4,828
|
|
|
|
1.4
|
|
Interest and other income
|
|
|
(464
|
)
|
|
|
(0.1
|
)
|
|
|
(693
|
)
|
|
|
(0.2
|
)
|
Interest and other expenses
|
|
|
8,400
|
|
|
|
2.5
|
|
|
|
6,621
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated costs and expenses
|
|
$
|
307,818
|
|
|
|
90.7
|
%
|
|
$
|
306,586
|
|
|
|
88.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
as a percent of sales for the three
months ended December 31, 2009 decreased to 70.6% from
70.9% in the same period a year ago on lower sales.
Correspondingly, gross margins (as measured by net sales less
cost of goods sold divided by net sales) increased to 29.4% for
the three months ended December 31, 2009, compared to 29.1%
for the same period last year, largely as a result of our focus
on cost control. During the first three months of fiscal 2010,
cost of goods sold increased by approximately $5,000 due to
changes in foreign currency exchange rates, compared to the same
period in the prior year.
Selling, general, and administrative expenses
were
essentially flat, but increased as a percent of sales to 9.7%
for the three months ended December 31, 2009 as compared to
9.4% in the same period a year ago. Selling, general, and
administrative expenses for the three months ended
December 31, 2009 increased 1.2% compared with the
41
same period in the prior year, reflecting the addition of the
related expenses of the HRT business, partially offset by the
impact of cost reduction efforts taken during fiscal 2009.
Research and development costs
as a percent of sales were
5.4% for the three month period ended December 31, 2009
compared to 5.5% in the same period a year ago. Research and
development costs decreased $770 for the three months ended
December 31, 2009 compared to the same period in the prior
year. The change reflects the impact of reduced workforce
triggered by 2009 restructuring activities, partially offset by
the acquisition of HRT. Our research and development activities
extend across virtually our entire customer base, and our
current level of spending is consistent with our strategy of
continuing to invest in future technologies.
Amortization of intangible assets
as a percent of sales
was 2.7% for the three months ended December 31, 2009
compared to 1.4% in the same period a year ago, reflecting
increased amortization expense related to $128,400 of intangible
assets acquired in the HRT acquisition in April 2009.
Interest and other expense
as a percent of sales was 2.5%
for the three months ended December 31, 2009 compared to
1.9% in the same period a year ago, reflecting interest on
$220,000 of long-term debt issued in April 2009, which was used
primarily to finance the HRT acquisition.
Earnings
The following table presents earnings by segment:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Segment earnings:
|
|
|
|
|
|
|
|
|
Turbine Systems
|
|
$
|
32,074
|
|
|
$
|
33,244
|
|
Airframe Systems
|
|
|
2,409
|
|
|
|
1,801
|
|
Electrical Power Systems
|
|
|
7,323
|
|
|
|
9,166
|
|
Engine Systems
|
|
|
3,235
|
|
|
|
7,586
|
|
|
|
|
|
|
|
|
|
|
Total segment earnings
|
|
|
45,041
|
|
|
|
51,797
|
|
Nonsegment expenses
|
|
|
(5,410
|
)
|
|
|
(7,764
|
)
|
Interest expense and income, net
|
|
|
(8,141
|
)
|
|
|
(5,875
|
)
|
|
|
|
|
|
|
|
|
|
Consolidated earnings before income taxes
|
|
$
|
31,490
|
|
|
$
|
38,158
|
|
|
|
|
|
|
|
|
|
|
The following table presents earnings by segment as a percent of
segment net sales, including intersegment sales:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
Turbine Systems
|
|
|
22.5
|
%
|
|
|
21.2
|
%
|
Airframe Systems
|
|
|
2.6
|
%
|
|
|
3.4
|
%
|
Electrical Power Systems
|
|
|
12.9
|
%
|
|
|
14.8
|
%
|
Engine Systems
|
|
|
4.8
|
%
|
|
|
7.2
|
%
|
Organic total segment earnings decreased approximately 24.6% for
the three months ended December 31, 2009 as compared to the
same period last year.
42
Turbine Systems segment earnings
decreased $1,170
or 3.5% in the three month period ended December 31, 2009,
as compared to the same period last year due to the following:
|
|
|
|
|
Earnings for the three months ended December 31, 2008
|
|
$
|
33,244
|
|
Sales volume changes
|
|
|
(5,315
|
)
|
Selling price changes
|
|
|
1,142
|
|
Sales mix
|
|
|
988
|
|
Changes in variable compensation
|
|
|
(453
|
)
|
Foreign currency
|
|
|
(148
|
)
|
Savings related to workforce management
|
|
|
2,300
|
|
Other, net
|
|
|
316
|
|
|
|
|
|
|
Earnings for the three months ended December 31, 2009
|
|
$
|
32,074
|
|
|
|
|
|
|
Turbine Systems segment earnings decreased in the first
quarter of fiscal 2010 compared to the same period in fiscal
2009 primarily as a result of the decrease in net sales volume.
However, our earnings as a percentage of net segment sales in
the first quarter improved from the same quarter a year ago,
increasing from 21.2% to 22.5%. The sales volume impact was
largely offset by the impacts of workforce management and other
cost control initiatives taken and a more favorable sales mix.
Changes in our selling prices were made in response to
prevailing market conditions.
Airframe Systems segment earnings
increased $608 or
33.8% in the three month period ended December 31, 2009 as
compared to the same period last year due to the following:
|
|
|
|
|
Earnings for the three months ended December 31, 2008
|
|
$
|
1,801
|
|
Acquisition of HRT
|
|
|
6,100
|
|
Organic sales volume changes
|
|
|
(10,653
|
)
|
Changes in variable compensation
|
|
|
(383
|
)
|
Savings related to workforce management
|
|
|
7,321
|
|
Other, net
|
|
|
(1,777
|
)
|
|
|
|
|
|
Earnings for the three months ended December 31, 2009
|
|
$
|
2,409
|
|
|
|
|
|
|
Airframe Systems segment earnings were $2,409 for the
three month period ended December 31, 2009 compared to
$1,801 for the same period in the prior year. Non-cash
intangible amortization in the three month period ended
December 31, 2009 of $7,498 was related to the MPC and HRT
acquisitions. Our Airframe Systems integration is expected to
contribute to improved profitability, broader control system
content, and better aftermarket presence and support. Airframe
Systems has begun to realize previously anticipated benefits
from cost reduction efforts and the operational integration of
the MPC and HRT businesses is proceeding consistently with our
expectations.
Organic segment earnings resulted in a loss of $3,691 during the
three months ended December 31, 2009 compared to earnings
of $1,801 in the same period in the prior year. The decrease in
organic earnings was driven primarily by the decrease in sales
volumes, partially offset by the impacts of workforce management
actions taken during fiscal year 2009 in response to declining
sales.
43
Electrical Power Systems segment earnings
decreased
$1,843 or 20.1% in the three month period ended
December 31, 2009 as compared to the same period last year
due to the following:
|
|
|
|
|
Earnings for the three months ended December 31, 2008
|
|
$
|
9,166
|
|
Sales volume changes
|
|
|
(3,547
|
)
|
Sales mix
|
|
|
(318
|
)
|
Changes in variable compensation
|
|
|
(216
|
)
|
Foreign currency
|
|
|
608
|
|
Savings related to workforce management
|
|
|
717
|
|
Other, net
|
|
|
913
|
|
|
|
|
|
|
Earnings for the three months ended December 31, 2009
|
|
$
|
7,323
|
|
|
|
|
|
|
The decrease in earnings was driven primarily by the decrease in
sales volumes, which was primarily due to reduced current market
demand for wind turbines, and price changes. This decrease was
partially offset by foreign currency exchange rates and savings
realized as a result of workforce management actions taken
during fiscal year 2009 in response to declining sales.
Engine Systems segment earnings
decreased $4,351 or
57.4% in the three month period ended December 31, 2009 as
compared to the same period last year due to the following:
|
|
|
|
|
Earnings for the three months ended December 31, 2008
|
|
$
|
7,586
|
|
Sales volume changes
|
|
|
(16,022
|
)
|
Selling price changes
|
|
|
593
|
|
Sales mix
|
|
|
2,677
|
|
Changes in variable compensation
|
|
|
(331
|
)
|
Foreign currency
|
|
|
1,105
|
|
Decreased infrastructure and overhead related expenses
|
|
|
326
|
|
Decrease in freight and duty
|
|
|
1,400
|
|
Savings related to workforce management
|
|
|
6,146
|
|
Other, net
|
|
|
(245
|
)
|
|
|
|
|
|
Earnings for the three months ended December 31, 2009
|
|
$
|
3,235
|
|
|
|
|
|
|
The decrease in earnings in Engine Systems was primarily the
result of lower sales volumes attributable to broad declines in
demand across the major end markets for industrial engines. The
volume driven earnings decline was partially offset by cost
savings related to workforce management activities, reduced
infrastructure and overhead spending, and lower freight and duty
expenses resulting from lower volumes and lower global fuel
costs, all partially offset by the volume driven earnings
decline.
Nonsegment expenses
for the three months ended
December 31, 2009 were $5,410 or 1.6% of net sales, down
from $7,764 or 2.3% of net sales in the same period last year.
This decline results mainly from reductions in variable
compensation as well as cost reduction efforts and lower
intercompany profit eliminations. We anticipate that our ongoing
rate of spend will be slightly above the spend rate experienced
during the three months ended December 31, 2009.
44
Income taxes
were provided at an effective rate on
earnings before income taxes of 28.7% for the three month period
ended December 31, 2009 compared to 29.0% for the same
period last year. The change in the effective tax rate (as a
percent of earnings before income taxes) was attributable to the
following:
|
|
|
|
|
|
|
Three Month
|
|
|
|
Period
|
|
|
Effective tax rate at December 31, 2008
|
|
|
29.0
|
%
|
Retroactive extension of research credit recorded in fiscal 2009
|
|
|
5.3
|
|
Research credit in fiscal 2010 as compared to fiscal 2009
|
|
|
(0.7
|
)
|
Resolution of tax issue recorded in quarter ended
December 31, 2008
|
|
|
3.1
|
|
Resolution of tax issue recorded in quarter ended
December 31, 2009
|
|
|
(4.0
|
)
|
Foreign earnings mix
|
|
|
(3.9
|
)
|
Other changes, net
|
|
|
(0.1
|
)
|
|
|
|
|
|
Effective tax rate at December 31, 2009
|
|
|
28.7
|
%
|
|
|
|
|
|
The total amount of the gross liability for worldwide
unrecognized tax benefits reported in other liabilities in the
Condensed Consolidated Balance Sheet was $19,065 at
December 31, 2009, and $19,783 at September 30, 2009.
At December 31, 2009, the amount of unrecognized tax
benefits that would impact Woodwards effective tax rate,
if recognized, was $14,910. At this time, we estimate that it is
reasonably possible that the liability for unrecognized tax
benefits will decrease by as much as $3,335 in the next twelve
months through completion of reviews by various worldwide tax
authorities.
We recognize interest and penalties related to unrecognized tax
benefits in tax expense. Woodward had accrued interest and
penalties of $3,930 and $3,804 as of December 31, 2009 and
September 30, 2009, respectively.
Woodwards tax returns are audited by U.S., state, and
foreign tax authorities, and these audits are at various stages
of completion at any given time. Fiscal years remaining open to
examination in significant foreign jurisdictions include 2002
and forward. Woodward is subject to U.S. Federal income tax
examinations for fiscal years 2006 and forward, and is subject
to U.S. state income tax examinations for fiscal years 2005
and forward.
Financial
Condition, Liquidity, and Capital Resources
Our ability to service our long-term debt, to remain in
compliance with the various restrictions and covenants contained
in our debt agreements and to fund working capital, capital
expenditures and product development efforts will depend on our
ability to generate cash from operating activities which in turn
is subject to, among other things, future operating performance
as well as general economic, financial, competitive,
legislative, regulatory, and other conditions, some of which may
be beyond our control.
Historically, we have been able to finance our ongoing
businesses, including capital expenditures and product
development, with cash flows provided by operating activities.
We expect that cash generated from our operating activities will
continue to fund our operating needs. In the event we are unable
to generate sufficient cash flows from operating activities, we
have a revolving credit facility comprised of unsecured
financing arrangements with a syndicate of U.S. banks
totaling $225,000, with an option to increase the amount to
$350,000, subject to the lenders participation. In
addition, we have various foreign lines of credit tied to net
amounts on deposit at certain foreign financial institutions,
which are generally reviewed annually for renewal. Historically,
we have used borrowings under these foreign lines of credit to
finance certain local operations.
During fiscal 2009 we incurred $620,000 of long-term debt in
connection with our 2009 acquisitions. Since April 2009, we have
made non-scheduled principal prepayments of $98,000, including
$29,000 during the first three months of fiscal year 2010.
During the first quarter of fiscal 2010, total principal
payments on our outstanding debt were $47,589.
At December 31, 2009, we were in compliance with the
financial covenants under our existing long-term debt agreements
and revolving credit facility.
45
We believe liquidity and cash generation are important to fund
our ongoing operating needs. We also believe that the
restructuring and other cost reduction actions we have been
taking will continue to generate cash flow from operations and
that this level of cash generation, together with our existing
cash and available borrowings, will adequately support our
operations.
We believe we have adequate access to several sources of
contractually committed borrowings and other available credit
facilities. However, we could be adversely affected if our banks
supplying our short-term borrowing requirements refuse to honor
their contract commitments, cease lending, or declare
bankruptcy. While we believe the lending institutions
participating in our credit arrangements are financially
capable, events in the global credit markets during fiscal year
2009 and the first quarter of fiscal 2010, including the
failure, takeover or rescue by various government entities of
major financial institutions, have created uncertainty of credit
availability.
Assets
The following table presents assets by segment:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
Turbine Systems
|
|
$
|
333,046
|
|
|
$
|
344,789
|
|
Airframe Systems
|
|
|
772,237
|
|
|
|
801,300
|
|
Electrical Power Systems
|
|
|
134,003
|
|
|
|
135,808
|
|
Engine Systems
|
|
|
190,919
|
|
|
|
200,226
|
|
|
|
|
|
|
|
|
|
|
Total segment assets
|
|
|
1,430,205
|
|
|
|
1,482,123
|
|
Nonsegment assets
|
|
|
186,548
|
|
|
|
214,299
|
|
|
|
|
|
|
|
|
|
|
Consolidated total assets
|
|
$
|
1,616,753
|
|
|
$
|
1,696,422
|
|
|
|
|
|
|
|
|
|
|
Turbine Systems segment assets
decreased $11,743
during the three months ended December 31, 2009, reflecting
lower accounts receivable and inventories. Accounts receivable
collections exceeded customer billings as a result of the timing
of sales and shorter average collection periods. The decrease in
inventories reflects the slowing of incoming material and
production activities relative to current sales to better align
inventories with current sales demand.
Airframe Systems segment assets
decreased $29,063
during the three months ended December 31, 2009 as a result
of lower accounts receivable, inventories, intangible assets,
and property, plant, and equipment. The decrease in accounts
receivable and inventories is primarily due to lower sales
volume. The decrease in intangible assets was due to
amortization expense. The decrease in property, plant, and
equipment was due to depreciation expense outpacing capital
expenditures.
Electrical Power Systems segment assets
decreased
$1,805 during the three months ended December 31, 2009
primarily due to reduced accounts receivable, partially offset
by increased property, plant and equipment related to the
expansion of operations in Poland.
Engine Systems segment assets
decreased by $9,307
during the three months ended December 31, 2009 due to
lower levels of accounts receivable balances resulting from
year-over-year
decreases in sales, and lower property, plant and equipment
balances which are due primarily to capital expenditures being
lower than depreciation expense during the three months ended
December 31, 2009.
Nonsegment assets
decreased $27,751 during the three
months ended December 31, 2009 primarily because of
decreases in cash and cash equivalents related to payment of
$25,000 in connection with MPC Products settlement with
the DOJ and payments of long-term debt, partially offset by cash
provided by operating activities. Changes in cash are discussed
more fully in a separate section of this Managements
Discussion and Analysis.
46
Other
Balance Sheet Measures
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
September 30,
|
|
|
2009
|
|
2009
|
|
Working capital
|
|
$
|
427,907
|
|
|
$
|
434,166
|
|
Long-term debt, less current portion
|
|
|
496,155
|
|
|
|
526,771
|
|
Other liabilities
|
|
|
105,649
|
|
|
|
110,010
|
|
Total Stockholders equity
|
|
|
730,966
|
|
|
|
711,515
|
|
Working capital
(current assets less current liabilities)
decreased to $427,907 at December 31, 2009 from $434,166 at
September 30, 2009. Lower levels of cash, accounts
receivable and inventories were partially offset by reductions
in accrued liabilities and the current portion of long-term debt.
Long-term debt, less current portion
decreased in the
three months ended December 31, 2009 due primarily to
scheduled reclassifications of long-term debt to current portion
of long-term debt and unscheduled debt prepayments made during
the period.
Short-term borrowings:
We have a $225,000 revolving
credit facility, with an option to increase the amount to
$350,000, subject to the lenders participation. In
addition, we have further short-term borrowing capabilities
under various foreign lines of credit tied to net amounts on
deposit at certain foreign financial institutions, which are
generally reviewed annually for renewal. We use these facilities
to meet short-term funding requirements. As of December 31,
2009 and September 30, 2009, no short-term borrowings were
outstanding. As of December 31, 2009, we had borrowing
availability of $222,300 under our $225,000 revolving credit
facility, net of outstanding letters of credit.
Provisions of our short-term and long-term debt agreements
include covenants customary to such agreements, including
certain cross default provisions, which require us to maintain
specified minimum or maximum financial measures and place
limitations on various investing and financing activities. The
agreements also permit the lenders to accelerate repayment
requirements in the event of a material adverse event. Our most
restrictive covenants require us to maintain a minimum
consolidated net worth, a maximum consolidated debt to
consolidated operating cash flow ratio, and a maximum ratio of
consolidated debt to consolidated earnings before interest,
taxes, depreciation and amortization, plus any unusual non-cash
charges to the extent deducted in computing net income, minus
any unusual non-cash gains to the extent added in computing net
income (EBITDA). See additional discussion in
Notes 11 and 12 to the Condensed Consolidated Financial
Statements in Item 1 Financial
Statements.
Commitments, contingencies and guarantees
at
December 31, 2009 include claims, pending or threatened
litigation or other legal proceedings, or regulatory proceedings
arising in the normal course of business, including, among
others, those relating to product liability claims, employment
matters, workers compensation claims, contractual
disputes, product warranty claims and alleged violations of
various environmental laws. We have accrued for individual
matters that we believe are likely to result in a loss when
ultimately resolved using estimates of the most likely amount of
loss.
Woodward is partially self-insured in the U.S. for
healthcare and workers compensation up to predetermined
amounts, above which third party insurance applies. Management
regularly reviews the probable outcome of these 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 and proceedings cannot be
predicted with certainty, management believes that any
liabilities that may result from these claims and proceedings
will not have a material adverse effect on our liquidity,
financial condition, or results of operations.
In addition, MPC Products, one of Woodwards subsidiaries
acquired in fiscal year 2009, was previously subject to an
investigation by the DOJ regarding certain of its government
contract pricing practices prior to June 2005, and related
administrative actions by the DOD. In October 2009, MPC Products
reached an agreement with the DOJ to resolve the criminal and
civil claims related to the investigation. As part of the
settlement of the civil claims, MPC Products paid approximately
$22,500 in compensation. The civil settlement was approved by
the
47
United States District Court for the Northern District of
Illinois (the District Court) on October 7,
2009. In connection with the settlement of the criminal claims,
on November 4, 2009, MPC Products pled guilty to one count
of wire fraud related to its pre-June 2005 government contract
pricing practices, and paid a fine of $2,500. Pursuant to the
plea agreement, MPC Products was also placed on probation for
two years. The criminal case plea agreement and sentencing were
approved by the District Court in November 2009, concluding the
DOJs investigation of these matters.
On October 7, 2009, Woodward and MPC Products entered into
a three-year administrative agreement with the DOD. The
administrative agreement lifted a suspension, which was in place
from July 8, 2009 until October 7, 2009, of MPC
Products from receiving new government contracts. Accordingly,
MPC Products is again fully eligible to bid, receive and perform
on U.S. government contracts. The administrative agreement
requires, among other things, that Woodward and its affiliates,
including MPC Products, implement certain enhancements to
existing ethics and compliance programs and make periodic
reports to the DOD. Woodward and its affiliates have been
implementing these enhancements and furnishing reports as
required by the administrative agreement.
The purchase price Woodward paid in connection with the
acquisition of MPC Products was reduced by $25,000 at the time
of the acquisition, which represents the amounts discussed
above. Payment of this amount during the three months ended
December 31, 2009 is reflected as an investing activity in
the Condensed Consolidated Statement of Cash Flows.
In the event of a change in control of Woodward, as defined in
change-in-control
severance agreements with our current corporate officers, we may
be required to pay termination benefits to such officers. We
believe the
change-in-control
agreements are appropriate to enable our executives to remain
focused on running the business, and to protect the value of the
Company by retaining key talent, in the event of a change in
control. We further believe that change in control agreements
are necessary to help ensure actions and behaviors that are
aligned with and in the best interests of a companys
stockholders in the event of a change of control and to
facilitate a smooth transition.
Stockholders equity
increased by $19,451 in the
three month period ended December 31, 2009, primarily due
to net earnings during the period, which were partially offset
by cash dividend payments to stockholders.
Contractual
Obligations
We have various contractual obligations, including obligations
related to long-term debt, operating leases, purchases,
retirement pensions, and retirement healthcare. These
contractual obligations are summarized and discussed more fully
in the Managements Discussion and Analysis of Financial
Condition and Results of Operations in Part II, Item 7
of our Annual Report on
Form 10-K
for the year ended September 30, 2009.
Cash
Flows
Cash flows were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net cash provided by operating activities
|
|
$
|
61,269
|
|
|
$
|
5,470
|
|
Net cash used in investing activities
|
|
|
(33,914
|
)
|
|
|
(377,364
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(50,594
|
)
|
|
|
360,597
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1,004
|
)
|
|
|
(1,016
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(24,243
|
)
|
|
|
(12,313
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
100,863
|
|
|
|
109,833
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
76,620
|
|
|
$
|
97,520
|
|
|
|
|
|
|
|
|
|
|
48
Net cash flows provided by operating activities
increased
by $55,799 for the three month period compared to the same
period last year, driven mainly by strong collections on
accounts receivable, lower cash payments for variable
compensation programs and reduced inventory levels, compared to
the first quarter of 2009.
As credit and the economy have tightened during fiscal year 2009
and the first quarter of fiscal 2010, we continue to believe
that adequate liquidity and cash generation will be important to
the execution of our strategic initiatives. We believe the
restructuring and other cost reduction actions we have taken
during fiscal year 2009 and the first quarter of fiscal 2010
will permit us to continue to generate adequate cash flow from
operations. We believe that this level of cash generation,
together with our existing cash and available borrowings, will
adequately support our operations.
Net cash flows used in investing activities
decreased by
$343,450 compared to the same period last year. During the three
months ended December 31, 2008, we completed two
acquisitions which used $369,043 of cash. During the three
months ended December 31, 2009 we paid $25,000 to the DOJ
to settle a liability assumed in the MPC acquisition. The
purchase price we paid in connection with the acquisition of MPC
Products was reduced by $25,000 at the time of the acquisition
to account for this contingent liability.
Capital expenditures increased by $475 during the three months
ended December 31, 2009 to $8,980, compared to $8,505
during the same period last year. We intend to remain focused on
our low cost strategy, continuing our expansion in Poland.
Future capital expenditures are expected to be funded through
cash flows from operations, borrowings under our revolving
credit facility and available foreign lines of credit.
Net cash flows provided by (used in) financing activities
decreased by $411,191 during the three months ended
December 31, 2009 compared to the same period last year.
During the three months ended December 31, 2008, we issued
$400,000 of long-term debt, which was used primarily to finance
business acquisitions. During the three months ended
December 31, 2009, we reduced outstanding debt by $47,589,
including unscheduled prepayments of $29,000.
As a result of the decreases in outstanding current and
long-term debt during the three months ended December 31,
2009, our debt to total capitalization ratio decreased to 41.8%
as of December 31, 2009 compared to 44.6% as of
September 30, 2009.
Critical
Accounting Policies
The preparation of financial statements and related disclosures
in conformity with U.S. GAAP requires us to make judgments,
assumptions, and estimates that affect the amounts reported in
the Condensed Consolidated Financial Statements and accompanying
notes. Note 1 to the Consolidated Financial Statements in
our Annual Report on
Form 10-K
for the year ended September 30, 2009 describes the
significant accounting policies and methods used in the
preparation of the Consolidated Financial Statements. Our
critical accounting estimates, discussed in the
Managements Discussion and Analysis of Financial Condition
and Results of Operations in Part II, Item 7 of our
Annual Report on
Form 10-K
for the year ended September 30, 2009, include estimates
for revenue recognition, purchase accounting, inventory
valuation, postretirement benefit obligations, reviews for
impairment of goodwill, and our provision for income taxes. Such
accounting policies and estimates require significant judgments
and assumptions to be used in the preparation of the Condensed
Consolidated Financial Statements, and actual results could
differ materially from the amounts reported based on variability
in factors affecting these estimates.
Our management discusses the development and selection of our
critical accounting policies and estimates with the Audit
Committee of our Board of Directors at least annually.
Market
Risks
In the normal course of business, we have exposures to interest
rate risk from our long-term debt and foreign currency exchange
rate risk related to our foreign operations and foreign currency
transactions. We are also exposed to various market risks that
arise from transactions entered into in the normal course of
business related to items such as the cost of raw materials and
changes in inflation. Certain contractual relationships with
customers and
49
vendors mitigate risks from changes in raw material costs and
foreign currency exchange rate changes that arise from normal
purchasing and normal sales activities.
Our market risks are discussed more fully in the
Managements Discussion and Analysis of Financial Condition
and Results of Operations in Part II, Item 7 of our
Annual Report on
Form 10-K
for the year ended September 30, 2009.
New
accounting standards
Accounting
changes and recently adopted accounting standards
In September 2006, the Financial Accounting Standards Board
(FASB) issued authoritative guidance which defines
fair value, establishes a framework for measuring fair value,
and requires additional disclosures about a companys
financial and nonfinancial assets and liabilities that are
measured at fair value. In February 2008, the FASB issued
authoritative guidance which delayed the effective date of this
guidance for nonfinancial assets and liabilities, except for
items that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually),
to fiscal years, and interim periods within those fiscal years,
beginning after November 15, 2008. On October 1, 2008,
we adopted the measurement and disclosure impact of this
guidance with respect to financial assets and liabilities. On
October 1, 2009, we adopted the measurement and disclosure
of fair value with respect to non-financial assets and
liabilities. This guidance did not change existing guidance on
whether or not an instrument is carried at fair value. The
adoption had no impact on our financial position and results of
operations and required no additional disclosures in our
Condensed Consolidated Financial Statements.
In November 2007, the FASB issued authoritative guidance to
address accounting for collaborative arrangement activities that
are conducted without the creation of a separate legal entity
for the arrangement. Revenues and costs incurred with third
parties in connection with the collaborative arrangement should
be presented gross or net by the collaborators pursuant to
pre-existing accounting standards. Payments to or from
collaborators should be presented in the income statement based
on the nature of the arrangement, the nature of the
companys business and whether the payments are within the
scope of other accounting literature. Other detailed information
related to the collaborative arrangement is also required to be
disclosed. The requirements under this guidance must be applied
to collaborative arrangements in existence at the beginning of
our fiscal 2010 using a modified version of retrospective
application. We are currently not a party to significant
collaborative arrangement activities, as defined by this
guidance, and therefore, the adoption of this guidance had no
impact on our Condensed Consolidated Financial statements.
In December 2007, the FASB issued authoritative guidance to
affirm that the acquisition method of accounting (previously
referred to as the purchase method) be used for all business
combinations and for an acquirer to be identified for each
business combination. This guidance defines the acquirer as the
entity that obtains control of one or more businesses in the
business combination and establishes the acquisition date as the
date that the acquirer achieves control. Among other
requirements, this guidance requires the acquiring entity in a
business combination to recognize the identifiable assets
acquired, liabilities assumed and any noncontrolling interest in
the acquiree at their acquisition-date fair values, and with
limited exceptions, acquisition-related costs will generally be
expensed as incurred. This guidance requires certain financial
statement disclosures to enable users to evaluate and understand
the nature and financial effects of the business combination.
This guidance must be applied prospectively to business
combinations that are consummated on or after October 1,
2009. Accordingly, we will record and disclose business
combinations under the revised standard for any transactions
consummated on or after October 1, 2009. In addition,
adjustments of certain income tax balances related to acquired
deferred assets, including those acquired prior to the adoption
of this new authoritative guidance, will be reported as an
increase or decrease to income tax expense. Accordingly, we will
record adjustments of certain income tax balances under the
revised authoritative guidance beginning October 1, 2009.
In December 2007, the FASB issued authoritative guidance to
establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. Among other requirements, this
guidance clarifies that a noncontrolling interest in a
subsidiary, which is sometimes referred to as minority interest,
is to be reported in the Condensed Consolidated Balance Sheets
within stockholders equity, but separate from our
stockholders equity. This guidance also requires
consolidated net earnings and comprehensive earnings to include
the amounts attributable to both the parent and the
noncontrolling interest. We adopted this guidance
50
effective October 1, 2009. This guidance must be applied
prospectively for fiscal years, and interim periods within those
fiscal years, beginning in fiscal 2010, except for the
presentation and disclosure requirements, which has been applied
retrospectively for all periods presented. Accordingly, the
following have been retrospectively adjusted: our Condensed
Consolidated Statement of Earnings for the three months ended
December 31, 2008, our Condensed Consolidated Balance Sheet
as of September 30, 2009, our Condensed Consolidated
Statement of Cash Flows for the three months ended
December 31, 2008, our Condensed Consolidated Statement of
Stockholders Equity for the three months ended
December 31, 2008, accumulated other comprehensive earnings
for the three months ended December 31, 2008 as presented
in Note 18, and total comprehensive earnings for the three
months ended December 31, 2008 as presented in Note 19
in Condensed Consolidated Financial Statements in Part I,
Item 1 of this Quarterly Report on
Form 10-Q.
In April 2008, the FASB issued authoritative guidance to amend
the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a
recognized intangible asset and to require additional
disclosures. The guidance for determining useful lives must be
applied prospectively to intangible assets acquired after the
effective date. The disclosure requirements must be applied
prospectively to all intangible assets recognized as of the
effective date. We adopted this guidance as of October 1,
2009. The adoption of this guidance had no impact on our
Condensed Consolidated Financial Statements.
In November 2008, the FASB issued authoritative guidance
regarding the accounting for defensive intangible assets.
Defensive intangible assets are assets acquired in a business
combination that the acquirer (a) does not intend to use or
(b) intends to use in a way other than the assets
highest and best use as determined by an evaluation of market
participant assumptions. While defensive intangible assets are
not being actively used, they are likely contributing to an
increase in the value of other assets owned by the acquiring
entity. This guidance requires defensive intangible assets to be
accounted for as separate units of accounting at the time of
acquisition and the useful life of such assets to be based on
the period over which the assets will directly or indirectly
affect the entitys cash flows. We will record and disclose
defensive intangible assets under the revised standard for
transactions consummated, if any, on or after October 1,
2009.
In November 2008, the FASB issued authoritative guidance
addressing whether securities granted in share-based payment
transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in
computing earnings per share under the two class method. This
guidance became effective for us on October 1, 2009. Upon
the adoption of this guidance all outstanding restricted stock,
which are participating securities, are considered in the
calculation of both the basic and fully diluted earnings per
share calculations in our Condensed Consolidated Financial
Statements. The effects of this change are required to be
applied retrospectively. Accordingly, the historical earnings
per share presented have been recast to reflect the
retrospective application of this guidance.
In April 2009, the FASB issued authoritative guidance to require
that assets acquired and liabilities assumed in a business
combination that arise from contingencies be recognized at fair
value if fair value can be reasonably determined. If the fair
value of such assets or liabilities cannot be reasonably
determined, then they would generally be recognized in
accordance with certain other pre-existing accounting standards.
This guidance also amends the subsequent accounting for assets
and liabilities arising from contingencies in a business
combination and certain other disclosure requirements. This
guidance became effective for assets or liabilities arising from
contingencies in business combinations that are consummated on
or after October 1, 2009. Accordingly, we will record and
disclose assets acquired and liabilities assumed in business
combinations that arise from contingencies under the revised
standard for any transactions consummated on or after
October 1, 2009.
Issued
but not yet effective accounting standards:
In December 2008, the FASB issued authoritative guidance to
require employers to provide additional disclosures about plan
assets of a defined benefit pension or other post-retirement
plan. These disclosures should principally include information
detailing investment policies and strategies, the major
categories of plan assets, the inputs and valuation techniques
used to measure the fair value of plan assets and an
understanding of significant concentrations of risk within plan
assets. The required disclosures must be provided for fiscal
years ending after December 15, 2009 (our fiscal
2010 year-end). These disclosures will be presented in our
Consolidated Financial Statements for the year ended
September 30, 2010. Upon initial application, this guidance
is not required to be
51
applied to earlier periods that are presented for comparative
purposes. We do not expect this guidance to have a significant
impact on our September 30, 2010 Consolidated Financial
Statements.
In June 2009, the FASB issued authoritative guidance to
eliminate the exception to consolidate a qualifying
special-purpose entity, change the approach to determining the
primary beneficiary of a variable interest entity and require
companies to more frequently re-assess whether they must
consolidate variable interest entities. Under the new guidance,
the primary beneficiary of a variable interest entity is
identified qualitatively as the enterprise that has both
(a) the power to direct the activities of a variable
interest entity that most significantly impact the entitys
economic performance, and (b) the obligation to absorb
losses of the entity that could potentially be significant to
the variable interest entity or the right to receive benefits
from the entity that could potentially be significant to the
variable interest entity. This guidance becomes effective for
our fiscal year 2011 and interim reporting periods thereafter.
We do not expect this guidance to have a material impact on our
Condensed Consolidated Financial Statements.
In June 2009, the FASB issued authoritative guidance to require
an analysis to determine whether a variable interest gives the
entity a controlling financial interest in a variable interest
entity. This guidance requires an ongoing reassessment and
eliminates the quantitative approach previously required for
determining whether an entity is the primary beneficiary. This
guidance will be effective for fiscal years beginning after
November 15, 2009 (our fiscal year 2011). We are currently
assessing the impact that this guidance may have on our
Condensed Consolidated Financial Statements.
In October 2009, the FASB issued authoritative guidance that
enables vendors to account for products or services sold to
customers (deliverables) separately rather than as a combined
unit, as was generally required by past guidance. The revised
guidance provides for two significant changes to the existing
multiple element revenue arrangements guidance. The first change
relates to the determination of when the individual deliverables
included in a multiple element arrangement may be treated as
separate units of accounting. The second change modifies the
manner in which the transaction consideration is allocated
across the separately identified deliverables. The first change
will likely result in the requirement to separate more
deliverables within an arrangement, ultimately leading to less
revenue deferral. Together, these changes are likely to result
in earlier recognition of revenue and related costs for
multiple-element arrangements than under previous guidance. This
guidance also significantly expands the disclosures required for
multiple-element revenue arrangements. This guidance is required
to be adopted in fiscal years beginning on or after
June 15, 2010 (fiscal year 2011 for Woodward). We expect to
adopt the guidance as of October 1, 2010. We are currently
assessing the impact this guidance may have on our Condensed
Consolidated Financial Statements.
In October 2009, the FASB issued authoritative guidance that
changes the accounting model for revenue arrangements that
include both tangible products and software elements. The
revised guidance provides that tangible products containing
software components and nonsoftware components that function
together to deliver the tangible products essential
functionality are no longer within the scope of the software
revenue guidance in Accounting Standards Codification
(ASC) Subtopic
985-605.
In
addition, the guidance requires that hardware components of a
tangible product containing software components always be
excluded from the software revenue guidance. This guidance is
required to be adopted in fiscal years beginning on or after
June 15, 2010 (fiscal year 2011 for Woodward). We expect to
adopt the guidance as of October 1, 2010. We are currently
assessing the impact this guidance may have on our Condensed
Consolidated Financial Statements.
Item 3.
Quantitative
and Qualitative Disclosures About Market Risk
In the normal course of business, we have exposures to interest
rate risk from our long-term debt, and foreign currency exchange
rate risk related to our foreign operations and foreign currency
transactions. We are also exposed to various market risks that
arise from transactions entered into in the normal course of
business related to items such as the cost of raw materials and
changes in inflation. Certain contractual relationships with
customers and vendors mitigate risks from changes in raw
material costs and foreign currency exchange rate changes that
arise from normal purchasing and normal sales activities.
52
These market risks are discussed more fully in the
Managements Discussion and Analysis of Financial Condition
and Results of Operations in Part II, Item 7 of our
Annual Report on
Form 10-K
for the year ended September 30, 2009.
Item 4.
Controls
and Procedures
We have established disclosure controls and procedures, which
are designed to ensure that information required to be disclosed
in reports filed or submitted under the Securities Exchange Act
of 1934 is recorded, processed, summarized, and reported, within
the time periods specified in the Securities and Exchange
Commissions rules and forms. These disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in
the reports that we file or submit under the Act is accumulated
and communicated to management, including our Principal
Executive Officer (Thomas A. Gendron, Chief Executive Officer
and President) and Principal Financial Officer (Robert F.
Weber, Jr., Chief Financial Officer and Treasurer), as
appropriate, to allow timely decisions regarding required
disclosures.
Thomas A. Gendron and Robert F. Weber, Jr., evaluated the
effectiveness of our disclosure controls and procedures as of
the end of the period covered by this
Form 10-Q.
Based on their evaluations, they concluded that our disclosure
controls and procedures were effective as of December 31,
2009.
Furthermore, there have been no changes in our internal control
over financial reporting, except as discussed below, during the
fiscal quarter covered by this
Form 10-Q
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Management included the internal controls of MPC in its
assessment of the effectiveness of Woodwards internal
controls over financial reporting, beginning in the first
quarter of fiscal year 2010. Beginning in the third quarter of
fiscal year 2010, management will include the internal controls
of HRT in its assessment of the effectiveness of Woodwards
internal controls over financial reporting. MPC and HRT were
acquired in the prior fiscal year and were excluded from
managements annual report on internal control over
financial reporting for the fiscal year ended September 30,
2009, in accordance with the general guidance issued by the SEC
regarding exclusion of certain acquired businesses. MPC and HRT
will be included in managements annual report on internal
control over financial reporting for the fiscal year ending
September 30, 2010. We considered the results of our
pre-acquisition due diligence activities, the continuation by
HRT of its established internal control over financial
reporting, and our implementation of additional internal control
over financial reporting activities as part of our overall
evaluation of disclosure controls and procedures as of
December 31, 2009. The objectives of HRTs established
internal control over financial reporting are consistent, in all
material respects, with Woodwards objectives. However, we
believe the design of HRTs established internal control
over financial reporting is sufficiently different from
Woodwards overall design to conclude that Woodwards
internal control over financial reporting materially changed
during the quarter in which we completed our acquisition of HRT,
which was the quarter ended June 30, 2009. We are in the
process of completing a more complete review of HRTs
internal control over financial reporting and will be
implementing changes to better align its reporting and controls
with the rest of Woodward. The financial statements of HRT
constitute 22.1% of total assets and 17.2% of total net sales in
Woodwards Condensed Consolidated Financial Statements as
of and for the three months ended December 31, 2009.
PART II
OTHER INFORMATION
Item 1.
Legal
Proceedings
Woodward is currently involved in claims, pending or threatened
litigation or other legal proceedings, or regulatory proceedings
arising in the normal course of business, including, among
others, those relating to product liability claims, employment
matters, workers compensation claims, contractual
disputes, product warranty claims and alleged violations of
various environmental laws. We have accrued for individual
matters that we believe are likely to result in a loss when
ultimately resolved using estimates of the most likely amount of
loss.
53
While the outcome of pending claims and proceedings cannot be
predicted with certainty, management believes that any
liabilities that may result from these claims and proceedings
will not have a material adverse effect on our liquidity,
financial condition, or results of operations.
In addition, MPC Products, one of our subsidiaries acquired in
fiscal year 2009, was previously subject to an investigation by
the DOJ regarding certain of its government contract pricing
practices prior to June 2005, and related administrative actions
by the DOD. In October 2009, MPC Products reached an agreement
with the DOJ to resolve the criminal and civil claims related to
the investigation. As part of the settlement of the civil
claims, MPC Products paid approximately $22,500 in compensation.
The civil settlement was approved by the District Court on
October 7, 2009. In connection with the settlement of the
criminal claims, on November 4, 2009, MPC Products pled
guilty to one count of wire fraud related to its pre-June 2005
government contract pricing practices, and paid a fine of
$2,500. Pursuant to the plea agreement, MPC Products was also
placed on probation for two years. The criminal case plea
agreement and sentencing were approved by the District Court in
November 2009, concluding the DOJs investigation of these
matters.
On October 7, 2009, Woodward and MPC Products entered into
a three-year administrative agreement with the DOD. The
administrative agreement lifted a suspension, which was in place
from July 8, 2009 until October 7, 2009, of MPC
Products from receiving new government contracts. Accordingly,
MPC Products is again fully eligible to bid, receive and perform
on U.S. government contracts. The administrative agreement
requires, among other things, that Woodward and its affiliates,
including MPC Products, implement certain enhancements to
existing ethics and compliance programs and make periodic
reports to the DOD. Woodward and its affiliates have been
implementing these enhancements and furnishing reports as
required by the administrative agreement.
The purchase price we paid in connection with the acquisition of
MPC Products was reduced by $25,000 at the time of the
acquisition, which represents the amounts discussed above.
Item 1A.
Risk
Factors
Investment in our securities involves risk.
An
investor or potential investor should consider the risks
summarized in Item 1A. Risk Factors in
Part I, Item 1A. of our Annual Report on
Form 10-K
for the year ended September 30, 2009, when making
investment decisions regarding our securities. The risk factors
that were disclosed in our
Form 10-K
have not materially changed since the date our
Form 10-K
was filed.
Item 2.
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
(a)
|
Recent
Sales of Unregistered Securities
|
Sales of common stock issued from treasury to one of our
directors during the first quarter of fiscal 2010 consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
Total Shares
|
|
Consideration
|
|
|
Sold
|
|
Received
|
|
|
|
|
(In thousands)
|
|
October 1, 2009 through October 31, 2009
|
|
|
|
|
|
$
|
|
|
November 1, 2009 through November 30, 2009
|
|
|
519
|
|
|
|
12
|
|
December 1, 2009 through December 31, 2009
|
|
|
|
|
|
|
|
|
The securities were sold in reliance upon the exemption
contained in Section 4(2) of the Securities Act of 1933.
54
|
|
(b)
|
Issuer
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
|
|
Number (or
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
Dollar Value)
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
|
of Shares that
|
|
|
|
|
|
|
|
|
|
Part of
|
|
|
may yet be
|
|
|
|
|
|
|
|
|
|
Publicly
|
|
|
Purchased
|
|
|
|
Total Number
|
|
|
|
|
|
Announced
|
|
|
Under the
|
|
|
|
of Shares
|
|
|
Average Price
|
|
|
Plans or
|
|
|
Plans or
|
|
|
|
Purchased
|
|
|
Paid per Share
|
|
|
Programs
|
|
|
Programs(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
October 1, 2009 through October 31, 2009
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
168,075
|
|
November 1, 2009 through November 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,075
|
|
December 1, 2009 through December 31, 2009(2)
|
|
|
897
|
|
|
|
25.77
|
|
|
|
|
|
|
|
168,075
|
|
|
|
|
(1)
|
|
During September 2007, the Board of Directors authorized a stock
repurchase program of up to $200,000 of our outstanding shares
of common stock on the open market or privately negotiated
transactions over a three-year period that will end in October
2010.
|
|
(2)
|
|
The Woodward Governor Company Executive Benefit Plan, which is a
separate legal entity, acquired shares of common stock on the
open market related to the reinvestment of dividends for
treasury stock shares under our deferred compensation plan.
|
Item 4.
Submission
of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders.
Item 6.
Exhibits
(a) Exhibits filed as Part of this Report are listed in the
Exhibit Index.
55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
WOODWARD GOVERNOR COMPANY
Thomas A. Gendron
Chief Executive Officer and President
(Principal Executive Officer)
Date: January 20, 2010
Robert F. Weber, Jr.
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Date: January 20, 2010
56
WOODWARD
GOVERNOR COMPANY
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description:
|
|
|
10
|
.1
|
|
Form of Change in Control Agreement for the Companys
principal executive officer and principal financial officer
(filed as Exhibit 10.1 to the Current Report on Form 8-K filed
on December 18, 2009 and incorporated herein by reference).
|
|
10
|
.2
|
|
Form of Change in Control Agreement for the Companys named
executive officers other than the Companys principal
executive officer and principal financial officer (filed as
Exhibit 10.2 to the Current Report on Form 8-K filed on December
18, 2009 and incorporated herein by reference).
|
|
31
|
.1
|
|
Rule 13a-14(a)/15d-14(a) certification of Thomas A. Gendron,
filed as an exhibit.
|
|
31
|
.2
|
|
Rule 13a-14(a)/15d-14(a) certification of Robert F. Weber, Jr.,
filed as an exhibit.
|
|
32
|
.1
|
|
Section 1350 certifications, filed as an exhibit.
|
57
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