CLEAR PATH
TO GROWTH
ANNUAL REPORT 2014
FINANCIAL HIGHLIGHTS
in thousands except per share amounts and other year-end data
2014
2013
2012
2011
2010
Year Ended September 30,
Operating Results
Net sales
Net earnings(1)
Basic per share amount(1)
Diluted per share amount(1)
Cash Dividends Per Share
Year-end Financial Position
Working capital
Total assets
Long-term debt, less current portion
Stockholders’ equity
Other Year-end Data
Worker members
$2,001,240
165,844
2.50
2.45
0.32
$1,935,976
145,942
2.13
2.10
0.32
$1,865,627
141,589
2.06
2.01
0.31
$1,711,702
132,235
1.92
1.89
0.27
$1,457,030
110,844
1.62
1.59
0.24
668,628
2,397,202
710,000
1,160,944
541,183
2,218,518
450,000
1,142,545
623,609
1,859,964
384,375
1,008,115
536,936
1,781,434
406,875
919,097
456,577
1,663,233
425,250
803,194
6,701
6,736
6,650
6,199
5,433
(1) Represents net earnings or earnings per share (as applicable) attributable to Woodward, Inc. (i.e., excluding any non-controlling interests).
NET SALES
Dollars in Billions
NET EARNINGS
Dollars in Millions
FREE CASH FLOW
Dollars in Millions
$1.9
$1.7
$1.9
$2.0
$1.5
$142
$146
$132
$111
$166
$157
$79
$81
$66
$61
’10
’11
’12
’13
’14
’10
’11
’12
’13
’14
’10
’11
’12
’13
’14
COMPARISON OF 10-YEAR CUMULATIVE TOTAL RETURN*
Among Woodward, Inc., the S&P MidCap 400 Index and the S&P Industrial Machinery Index
$500
400
300
200
100
0
$464
$280
$266
9/04
9/05
9/06
9/07
9/08
9/09
9/10
9/11
9/12
9/13
9/14
*$100 invested on 9/30/04 in stock or index, including reinvestment of dividends. Fiscal year ending September 30.
Woodward, Inc.
S&P Industrial Machinery
S&P MidCap 400
2500
2000
1500
1000
500
0
200
150
100
50
0
200
150
100
50
0
500
400
300
200
100
0
DEAR SHAREHOLDERS,
We had a record year in 2014, even in
the face of some challenging end mar-
ket headwinds. We increased sales
and earnings and continued to capture
market share in our core businesses.
Notable highlights for FY 2014 include:
• Sales increased by 3%, reaching
$2 billion for the first time in
company history
• Earnings increased by 13%
• Cash flow from operations increased
by 21%
CLEAR PATH TO GROWTH
Our Aerospace and Energy segments
are strategically positioned to deliver
profitable growth. Over the next two
years, in both of our segments, we will
be transitioning many exciting devel-
opment programs from R&D to pro-
duction. In our Aerospace segment,
commercial aircraft orders and deliv-
eries remain historically strong. Our
significant system content across new
generation aircraft such as the A320neo
and the 737MAX firmly chart a path
to growth in the coming years. In our
Energy segment, the rapid growth of
unconventional oil and natural gas
resources is creating numerous new
opportunities across the energy value
stream. Woodward is again positioned
to take advantage of these opportunities
with the application of our advanced
controls and fuel system products.
VISION 2015
In 2010, we launched Vision 2015, the
company’s five year strategic plan.
We have been focused and committed
to delivering the results outlined in
Vision 2015. With Vision 2015, we estab-
lished a clear path to grow the company
and to deliver improved financial and
operational performance. Our growth
focus remains targeted on leading our
markets in control systems for power
equipment, aircraft motion control,
conventional and renewable power
generation control, and aircraft pro-
pulsion control. To secure our growth
strategy, we have invested significantly
in R&D over the last several years to
strengthen our product portfolio and
to bring new products to market. To
deliver on our growth and improve
our operating margins, we have driven
Lean throughout all of our operations.
We are investing in improved processes
and equipment to support our Lean
implementation and will see further
improvements as our new production
facilities come on line over the next year.
RESULTS
Implementation of Vision 2015 has
delivered exceptional system wins,
improved operational performance, and
provided a clear path to growth. We are
collaborating with our customers to
overcome the toughest technological
challenges in our industries. We are
self-funding a capacity expansion pro-
gram that is unprecedented in our
history to deliver on our commercial
Bob Weber
Vice Chairman,
Tom Gendron
Chairman,
Chief Financial Officer
Chief Executive
and Treasurer
Officer and
President
success and significantly enhance our
competitiveness. Our focus on leader-
ship and member development has
been successful in building a team
that is engaged, global and winning.
As we look to the future, Woodward
is stronger and better positioned to
deliver enhanced shareholder value.
I want to thank our Board of Directors
for their leadership, dedication and
valuable guidance to the entire
management team.
Thomas A. Gendron
Chairman, Chief Executive Officer
and President
01
15%
IMPROVEMENT
IN FUEL
EFFICIENCY
02
AEROSPACE
Woodward is launching new programs
that will contribute significantly to future
shareholder value.
The demand for greater fuel efficiency, cleaner emissions, and lower
cost of ownership is driving overall growth in aircraft orders. To meet
this market need, several significant aircraft launches, including the
Boeing 737MAX, the Airbus A320neo, and the Bombardier CSeries,
are scheduled for the next three years. Woodward is providing key
control systems across these new aircraft.
Woodward delivers optimized control solutions for aircraft engines,
large commercial transport, military aircraft, rotorcraft, regional jets,
business jets, and other aerospace applications. Our fuel systems,
actuation systems, pilot controls, and sensors are engineered to per-
form in the harshest environments.
Through dedicated long-term investments in product and process
innovation, and customer partnering, Woodward has been success-
fully increasing our market share with each new program. These new
platforms have extreme requirements that demand innovative solu-
tions. Woodward delivers on that innovation. These next generation
programs will represent over $30 billion in Woodward revenues over
their lifetimes.
To ensure flawless launches of these new programs, we have been
investing heavily in new capacity and process improvement. Our new
facilities are designed with state-of-the-art manufacturing and test
capabilities to meet customer demands, on-time delivery, and
improved productivity.
The aerospace industry is robust and thriving. Our customers rely on
Woodward as the industry leader in aircraft propulsion and motion
control. We are a trusted partner, bringing innovation and technology
to solve the most complex challenges in a demanding industry.
Woodward is well positioned with a clear path to growth in the
Aerospace industry.
03
ENERGY
Woodward is strategically positioned to
deliver significant value from the growing
global demand for cleaner, more reliable,
and lower cost energy.
The world is transitioning from traditional energy sources of coal
and oil to more emissions-friendly sources such as natural gas and
renewables. Industry initiatives such as clean diesel, dual-fuel engine
systems, and the utilization of natural gas are also contributing to
more efficient energy use.
As a result of new extraction technologies, natural gas is more
abundant, reducing cost and driving it to become a global commodity.
Enormous infrastructure investment is required to bring natural
gas from the well head to the point of use including pipelines, liquid
natural gas tankers, processing plants and natural gas power plants.
These investments require a tremendous amount of process control.
Woodward delivers solutions to efficiently control all sources of energy.
Common rail diesel technology is expanding into larger engines
and power generation applications, and dual-fuel systems are being
dev el oped to further reduce emissions and increase fuel flexibility.
Woodward provides highly engineered pumps, fuel injectors and
controls that require the highest level of performance, reliability
and safety.
Renewable power continues to grow as a percent of global energy
production. Woodward supplies the power converters, which are
critical to bringing renewable power to the grid.
The energy industry is dynamic and growing. Our customers call on
Woodward as the industry leader in energy control and optimization.
We bring the product innovation, experience and reliability that our
customers demand to help solve the most complex challenges they
face in this rapidly changing environment.
Woodward is well positioned with a clear path to growth in the
Energy industry.
04
68%
LESS
EMISSIONS
SINCE 1970
05
COMMITMENT TO SUSTAINABILITY
Woodward’s mission is to enhance the global quality of life and sustainability
by optimizing energy use through improved efficiency and lower emissions.
The Woodward Constitution, first published in 1971, defines our core values and
principles, which are embraced by our Board of Directors, members, and other
representatives. Woodward is committed to sustainability through initiatives
focusing on the environment, our culture and communities, and governance.
CULTURE &
COMMUNITY
Woodward is globally committed to
the development of its members
through
and
part nership, collaboration and
active engagement at all levels.
communities
ENVIRONMENT
GOVERNANCE
Woodward’s clean energy technol-
ogies and facility designs contrib-
ute to the reduction of harmful
emissions and the more efficient
use of energy and other natural
resources.
Woodward’s governance structure
enables sustainable growth by
optimizing relationships with
members, customers and other
stakeholders which, we believe,
ultimately leads to enhanced
shareholder value.
06
ALWAYS INNOVATING FOR A BETTER FUTURE
CLEAR PATH
TO GROWTH
FORM 10-K 2014
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2014
For the transition period from _____ to _____
Commission file number 000-08408
WOODWARD, INC.
(Exact name of registrant as specified in its charter)
Delaware
36-1984010
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1000 East Drake Road, Fort Collins, Colorado
(Address of principal executive offices)
80525
(Zip Code)
(970) 482-5811
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Name of each exchange on which registered:
Common stock, par value $.001455 per share
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
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 No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act (Check one):
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
Aggregate market value of registrant’s common stock held by non-affiliates of the registrant, based upon the closing price of a share
of the registrant’s common stock on March 31, 2014 as reported on The NASDAQ Global Select Market on that date: $1,829,752,615.
For purposes of this calculation, shares of common stock held by (i) persons holding more than 5% of the outstanding shares of stock, (ii)
officers and directors of the registrant, and (iii) the Woodward Governor Company Profit Sharing Trust, Woodward Governor Company
Deferred Shares Trust, or the Woodward Charitable Trust, as of March 31, 2014, are excluded in that such persons may be deemed to be
affiliates. This determination is not necessarily conclusive of affiliate status.
Number of shares of the registrant’s common stock outstanding as of November 10, 2014: 65,587,860.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our proxy statement for the Annual Meeting of Stockholders to be held January 21, 2015, are incorporated by reference
into Parts II and III of this Form 10-K, to the extent indicated.
TABLE OF CONTENTS
PART I
Forward Looking Statements
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
PART II
Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
Signatures
PART IV
Page
2
3
11
23
23
24
24
24
26
27
48
51
98
98
100
100
100
100
100
101
102
106
1
PART I
Forward Looking Statements
This Annual Report on Form 10-K, including “Management’s 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,” “forecast,” “intend,” “continue,” “outlook,”
“plan,” “project,” “target,” “strive,” “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;
descriptions 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 of such acquisitions into our businesses;
the development, production, and support of advanced technologies and new products and services;
new business opportunities;
restructuring and alignment 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;
global economic uncertainty and instability in the financial markets;
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 any restructuring and alignment efforts;
our ability to successfully manage competitive factors, including prices, promotional incentives, industry
consolidation, and commodity and other input cost increases;
our ability to manage our expenses and product mix while responding to sales increases or decreases;
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;
our ability to monitor our technological expertise and the success of, and/or costs associated with, our product
development activities;
2
our ability to integrate acquisitions and manage costs related thereto;
our debt obligations, our debt service requirements, and our ability to operate our business, pursue business
strategies and incur additional debt in light of covenants contained in our outstanding debt agreements;
risks related to our U.S. Government contracting activities, including liabilities resulting from legal and regulatory
proceedings, inquiries, or investigations related to such activities;
the potential of a significant reduction in defense sales due to decreases in the amount of U.S. Federal defense
spending or other specific budget cuts impacting defense programs in which we participate;
changes in government spending patterns and/or priorities;
future impairment charges resulting from changes in the estimates of fair value of reporting units or of long-lived
assets;
future results of our subsidiaries;
environmental liabilities related to manufacturing activities and/or real estate acquisitions;
our continued access to a stable workforce and favorable labor relations with our employees;
physical and other risks related to our operations and suppliers, including natural disasters, which could disrupt
production;
our ability to successfully manage regulatory, tax, and legal matters (including 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 compliance with and changes in the legal and regulatory environments of the United
States and the countries in which we operate;
fair value of defined benefit plan assets and assumptions used in determining our retirement pension and other
postretirement benefit obligations and related expenses including, among others, discount rates and investment
return on pension assets;
our operations may be adversely affected by information systems interruptions or intrusions; 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 the caption “Risk Factors” in Part I, Item 1A in this Annual Report on Form 10-K for the fiscal year ended September
30, 2014 (this “Form 10-K). 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 Form 10-K to “Woodward,”
“the Company,” “we,” “us,” and “our” refer to Woodward, Inc. and its consolidated subsidiaries.
Except where we have otherwise indicated or the context otherwise requires, amounts presented in this Form 10-K are in
thousands, except per share amounts.
Item 1.
General
Business
Woodward enhances the global quality of life and sustainability by optimizing energy use through improved efficiency
and lower emissions. We are an independent designer, manufacturer, and service provider of energy control and optimization
solutions. We design, produce and service reliable, efficient, low-emission, and high-performance energy control products
for diverse applications in challenging environments. We have significant production and assembly facilities in the United
States, Europe and Asia, and promote our products and services through our worldwide locations.
Our strategic focus is providing energy control and optimization solutions for the aerospace and energy markets. The
precise and efficient 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 defense 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 serving original equipment manufacturers (“OEMs”) and equipment packagers,
3
partnering with them to bring superior component and system solutions to their demanding applications. We also provide
aftermarket repair, replacement and other service support for our installed products.
Our components and integrated systems optimize performance of commercial aircraft, defense aircraft, ground vehicles
and other equipment, gas and steam turbines, wind turbines, including converters and power grid related equipment,
industrial diesel, gas, alternative and dual fuel reciprocating engines, and electrical power systems. Our innovative fluid
energy, combustion control, electrical energy, and motion control systems help our customers offer more cost-effective,
cleaner, and more reliable equipment.
We were established in 1870, incorporated in 1902, and are headquartered in Fort Collins, Colorado. The mailing
address of our world headquarters is 1000 East Drake Road, Fort Collins, Colorado 80525. Our telephone number at that
location is (970) 482-5811, and our website is www.woodward.com. None of the information contained on our website is
incorporated into this document by reference.
Markets and Principal Lines of Business
We serve two primary markets – aerospace and energy – which comprise our two reportable segments. Our customers
require technological solutions to meet their needs for performance, efficiency, and reliability, and to reduce their costs of
operation.
Within the aerospace market, we provide systems, components and solutions for both commercial and defense
applications. Our key focus areas within this market are:
Propulsion system control solutions for turbine powered aircraft; and
Actuation systems and motion control solutions.
Within the energy market, our key focus areas are:
Control solutions for equipment that produce electricity using conventional or renewable energy sources;
Solutions for the control of power quality, distribution and storage on the electrical grid; and
Control solutions for power equipment used in the extraction, distribution and conversion of renewable and
fossil fuels in marine, mobile, and industrial equipment applications.
Additional information about our operations in fiscal year 2014 and outlook for the future, including certain segment
information, is included in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of
Operations.” Additional information about our business segments and certain geographical information is included in Note
20, Segment information and Note 21, Supplemental quarterly financial data (Unaudited), to the Consolidated Financial
Statements in “Item 8 – Financial Statements and Supplementary Data.”
Products, Services and Applications
Aerospace
Our Aerospace segment designs, manufactures and services systems and products for the management of fuel, air,
combustion and motion control. These products include main fuel pumps, metering units, actuators, air valves, specialty
valves, fuel nozzles, and thrust reverser actuation systems for turbine engines and nacelles; as well as flight deck controls,
actuators, servocontrols, motors and sensors for aircraft. These products are used on commercial and private aircrafts and
helicopters, as well as in military fixed-wing aircraft and rotorcraft, weapons and defense systems.
We have significant content on a wide variety of commercial aircraft, rotorcraft and business jet platforms, including the
Airbus A320, Boeing 737 and 787, Bell 429 and Gulfstream G650. We also have significant content on such defense
applications as the Blackhawk and Apache helicopters, F-18 and F-35 fighter jets, M1A1 Abrams Tank and guided tactical
weapons (for example, the Joint Direct Attack Munition (“JDAM”)).
Revenues from the Aerospace segment are generated by sales to OEMs, tier-one suppliers, and prime contractors, and
through aftermarket sales of components, such as provisioning spares or replacements. We also provide aftermarket repair,
overhaul and other services to commercial airlines, turbine OEM repair facilities, military depots, third party repair shops,
and other end users.
Energy
Our Energy segment designs, produces and services systems and products for the management of fuel, air, fluids, gases,
electricity, motion, and combustion. These products include actuators, valves, pumps, injectors, solenoids, ignition systems,
governors, electronics and software, power converters, and devices that measure, communicate and protect electrical
distribution systems. Our products are used on industrial gas turbines, including heavy frame and aeroderivative turbines,
4
steam turbines, reciprocating engines, power generation and power distribution systems, wind turbines, and compressors.
The equipment on which our products are found is used to extract and distribute fossil and renewable fuels; generate and
distribute power; and convert fuel to work in marine, mobile, and industrial equipment applications.
Revenues from the Energy segment are generated primarily by sales to OEMs, tier-one suppliers, and prime contractors,
and by providing other related services to our OEM customers. The Energy segment also sells products through an
independent network of distributors, in some cases, directly to end users.
Sales Order Backlog
Our backlog of unshipped sales orders as of October 31, 2014 and 2013 by segment was as follows:
Aerospace
Energy
October 31, 2014
% Expected to be filled
by September 30, 2015
October 31, 2013
$
$
566,134
261,735
827,869
61%
$
92
71%
$
551,652
227,115
778,767
Our current estimate of the sales order backlog is based on unshipped sales orders that are open in our order entry
systems. Unshipped orders are not necessarily an indicator of future sales levels because of variations in lead times and
customer production schedules.
Seasonality
We do not believe that our sales, in total or in either business segment, are subject to significant seasonal variation.
However, our sales have generally been lower in the first quarter of our fiscal year as compared to the immediately preceding
quarter due to fewer working days resulting from the observance of various holidays and scheduled plant shutdowns for
annual maintenance.
Customers
For the fiscal year ended September 30, 2014, approximately 39% of our consolidated net sales were made to our five
largest customers. Sales to our five largest customers represented approximately 39% of our consolidated net sales for the
fiscal year ended September 30, 2013 and 36% for the fiscal year ended September 30, 2012.
Sales to our largest customer, General Electric, accounted for approximately 15% of our consolidated net sales in the
fiscal years ended September 30, 2014 and September 30, 2013 and 14% of our consolidated net sales in the fiscal year ended
September 30, 2012. Our accounts receivable from General Electric represented approximately 12% of total accounts
receivable as of September 30, 2014 and 11% as of September 30, 2013. We believe General Electric and our other
significant customers are creditworthy and will be able to satisfy their credit obligations to us.
The following customers account for approximately 10% or more of sales to each of our reporting segments for the fiscal
year ended September 30, 2014.
Aerospace
Energy
Government Contracts and Regulation
Customer
United Technologies, Boeing, General Electric
General Electric, Weichai Westport
Portions of our business, particularly in our Aerospace segment, are heavily regulated. We contract with numerous U.S.
Government agencies and entities, including all of the branches of the U.S. military, the National Aeronautics and Space
Administration (“NASA”), and the Departments of Defense, Homeland Security, and Transportation. We also contract with
similar government authorities outside the United States.
The U.S. Government, and other governments, may terminate any of our government contracts, or any government
contracts under which we are a subcontractor, at their convenience, as well as for default based on specified performance
measurements. If any of our government contracts were to be terminated for convenience, we generally would be entitled to
receive payment for work completed and allowable termination or cancellation costs. If any of our government contracts
were to be terminated for our default, the U.S. Government generally would pay only for the work accepted, and could
require us to pay the difference between the original contract price and the cost to re-procure the contract items, net of the
5
work accepted from the original contract. The U.S. Government could also hold us liable for damages resulting from the
default.
We must comply with, and are affected by, laws and regulations relating to the formation, administration and
performance of U.S. Government contracts. These laws and regulations, among other things:
require accurate, complete and current disclosure and certification of cost and pricing data in connection with certain
contracts;
impose specific and unique cost accounting practices that may differ from accounting principles generally accepted
in the United States (“U.S. GAAP”), and therefore require reconciliation;
impose regulations that define allowable and unallowable costs and otherwise govern our right to reimbursement
under certain cost-based U.S. Government contracts;
impose manufacturing specifications and other quality standards that may be more restrictive than for non-
government business activities; and
restrict the use and dissemination of information classified for national security purposes due to the regulations of
the U.S. Government and foreign governments pertaining to the export of certain products and technical data.
Sales made directly to U.S. Government agencies and entities, or indirectly through third party manufacturers utilizing
Woodward parts and subassemblies, collectively represented 17% of our sales for fiscal year 2014, 21% of our sales for fiscal
year 2013, and 18% of our sales for fiscal year 2012. The level of U.S. spending for defense, alternative energy and other
programs, and the mix of programs to which such funding is allocated, is subject to periodic congressional appropriation
actions, and is subject to change at any time.
U.S. Government related sales from our reporting segments for fiscal years 2014, 2013 and 2012 were as follows:
Direct U.S.
Government Sales
Indirect U.S.
Government Sales
Commercial Sales
Total
Fiscal year ended September 30, 2014
Aerospace
Energy
Total net external sales
Percentage of total net sales
Fiscal year ended September 30, 2013
Aerospace
Energy
Total net external sales
Percentage of total net sales
Fiscal year ended September 30, 2012
Aerospace
Energy
Total net external sales
Percentage of total net sales
Manufacturing
$
$
$
$
$
$
76,982 $
254,806 $
752,237 $
1,084,025
2,517
5,588
909,110
917,215
79,499 $
260,394 $
1,661,347 $
2,001,240
4%
13%
83%
100%
104,410 $
289,197 $
667,870 $
1,061,477
3,649
8,106
862,744
874,499
108,059 $
297,303 $
1,530,614 $
1,935,976
6%
15%
79%
100%
78,075 $
254,636 $
563,372 $
3,904
7,228
958,412
896,083
969,544
81,979 $
261,864 $
1,521,784 $
1,865,627
4%
14%
82%
100%
We operate manufacturing and assembly plants in the United States, Europe, and Asia. Our products consist of
mechanical, electronic and electromechanical systems and components.
Aluminum, iron and steel are primary raw materials used to produce our mechanical components. Other commodities,
such as gold, copper and nickel, are also used in the manufacture of our products, although in much smaller quantities. We
purchase various goods, including component parts and services used in production, logistics and product development
processes from third parties. Generally there are numerous sources for the raw materials and components used in our
products, which we believe are sufficiently available to meet current requirements.
We maintain global strategic sourcing models to meet our global facilities' production needs while building long-term
supplier relationships and efficiently managing our overall supply costs. We expect our suppliers to maintain adequate levels
of quality raw materials and component parts, and to deliver such parts on a timely basis to support production of our various
products. We use a variety of agreements with suppliers intended to protect our intellectual property and processes and to
6
monitor and mitigate risks of disruption in our supply base that could cause a business disruption to our production schedules
or to our customers. The risks monitored include supplier financial viability, business continuity, quality, delivery and
protection of our intellectual property and processes.
Our customers expect us to maintain adequate levels of certain finished goods and certain component parts to support our
warranty commitments and sales to our aftermarket customers, and to deliver such parts on a timely basis to support our
customers’ standard and customary needs. We carry certain finished goods and component parts in inventory to meet these
rapid delivery requirements of our customers.
The Securities and Exchange Commission (“SEC”) has adopted disclosure rules for companies that use tantalum, tin,
tungsten, and gold or their derivatives (referred to as conflict minerals) in their products, with substantial supply chain
verification requirements in the event the conflict minerals come or may come from the Democratic Republic of Congo or
adjoining countries; our first related report was filed with the SEC on June 2, 2014. Additional reporting obligations are
being considered by the European Union. Due to the complexity of our supply chain, we may face reputational challenges
with our customers, stockholders and other stakeholders if we are unable to sufficiently verify the origins of the conflict
minerals used in our products. Further, the implementation of the existing U.S. requirements and any additional European
requirements could affect the sourcing and availability of metals used in the manufacture of a number of parts contained in
our products. Regardless, we have and will continue to incur costs associated with compliance, including time-consuming
and costly efforts to determine the source of minerals used in our products.
Research and Development
We finance our research and development activities with our own independent research and development funds. Our
research and development costs include basic research, applied research, component and systems development, and other
concept formulation studies.
Company funded expenditures related to new product development activities are expensed as incurred and are separately
reported in the Company’s Consolidated Statements of Earnings. Across both of our segments, research and development
costs totaled $138,005 in fiscal year 2014, $130,250 in fiscal year 2013, and $143,274 in fiscal year 2012. Research and
development costs were 6.9% of consolidated net sales in fiscal year 2014 compared to 6.7% in fiscal year 2013 and 7.7% in
fiscal year 2012. See “Research and development costs” in Note 1, Operations and summary of significant accounting
policies, to the Consolidated Financial Statements in “Item 8 – Financial Statements and Supplementary Data.”
Aerospace is focused on developing systems and components that we believe will be instrumental in helping our
customers achieve their objectives of lower fuel consumption, lighter weight, more efficient performance, reduced emissions,
and improved operating economics. Our development efforts support technology for a wide range of:
aerospace turbine applications, which include commercial, business and military turbofan engines of various thrust
classes, turboshaft engines and turboprop engines;
electromechanical and hydraulic actuation systems for flight deck-to-flight surface control of fixed-wing aircraft and
rotorcraft, and turbine engine nacelles, as well as guidance for weapon systems; and
motion control components for integration into comprehensive actuation systems.
The aerospace industry is moving toward more electric (“fly-by-wire”), lighter weight aircraft, while demanding
increased reliability and redundancy. In response, we are developing an expanded family of intelligent flight deck control
products (including throttle and rudder controls) with both conventional and fly-by-wire technology, as well as motor driven
actuation systems.
We collaborate closely with our customers as they develop their technology plans, which leads to new product concepts.
We believe this collaboration allows us to develop technology that is aligned with our customers’ needs and therefore,
increases the likelihood that our systems and components will be selected for inclusion in the platforms developed by our
customers. Further, we believe our close collaboration with our customers during preliminary design stages allows us to
provide products that deliver the component and system performance necessary for our customers’ products.
Some technology development programs begin years before an expected entry to service, such as those for the next-
generation of commercial aircraft engines. Other development programs result in nearer-term product launches associated
with new OEM offerings, product upgrades, or product replacements on existing programs. Some of the major
projects/programs we are developing are listed below.
We are currently developing the fuel system, air management, and actuation hardware for CFM International’s LEAP
engine program, and actuation system, combustion system and oil system components for Pratt & Whitney’s PurePower
engine program. These programs target applications in the single aisle and regional aircraft markets with expected entry into
service in the 2015 to 2018 timeframe. Both the LEAP engine and the PurePower engine have been selected by Airbus as
options to power its re-engined A320neo aircraft. In addition, the LEAP engine has been selected exclusively by Boeing for
its re-engined 737 MAX and by Comac for its C919 aircraft. The PurePower engine has been selected exclusively by
7
Bombardier for its CSeries aircraft, by Embraer for its EJets E2 aircraft family, and by Irkut for the MS-21 aircraft. In
addition, we are the selected supplier for the thrust reverser actuation system (“TRAS”) for the Boeing 737 MAX and the
LEAP-engined Airbus A320neo. We continue to pursue and win major programs in our TRAS and motion control product
lines.
We are also currently developing the fuel system, air management, and actuation hardware for the Passport engine
program, as well as the thrust reverser actuation system for the integrated propulsion system. Passport is the next generation
GE Aviation engine for the large business aviation market, and has been selected by Bombardier to power its Global 7000
and 8000 long-range business aircraft, targeting entry into service in 2016 and 2017, respectively.
In addition, we are currently developing sensor solutions for the Airbus A350 high lift system, an actuation sub-system
for the Boeing 787-9 that improves fuel burn, flight deck components for the Bombardier CSeries and Global 7000 and 8000
aircraft, and control and sensing solutions for the KC-46A refueling tanker boom subsystem.
Energy is focused on developing improved technologies, including integrated control systems, and system components
that we believe will allow our OEM customers to cost-effectively meet mandated emissions regulations and fuel efficiency
demands, allow for usage of a wider range of fuel sources, increase reliability, reduce total cost of ownership, support global
infrastructure requirements, and safely distribute power on the electrical grid.
Our efforts include research and development of technologies and products that improve combustion processes and
provide more precise flow of various fuels and gases in our customers’ gas turbines and industrial reciprocating engines. We
also develop electronic devices and software algorithms that provide improved control and protection of reciprocating
engines, gas turbines, steam turbines, wind turbines, and engine- and turbine-powered equipment. Major development
projects include diesel common rail fuel injection systems, comprehensive gas engine control systems, fuel flow control
valves and actuators, and various other technologies that will help our OEM customers meet future global emissions
regulations expected to become effective in 2015 or thereafter. We believe our technologies also help our OEM customers’
engines, turbines, power generation, power distribution, compressor and other powered equipment operate more efficiently
and more reliably.
Competitive Environment
Our products and product support services are sold worldwide into a variety of competitive markets. In all markets, we
compete on the basis of differentiated technology and design, product performance and conformity with customer
specifications. Additional factors are customer service and support, including on-time delivery and customer partnering,
product quality, price, reputation and local presence. Both of our segments operate in uniquely competitive environments.
We believe that new competitors face significant barriers to entry into many of our markets, including various
government mandated certification requirements to compete in the aerospace markets in which we participate.
Aerospace industry safety regulations and manufacturing standards demand significant product certification
requirements, which form a basis for competition as well as a barrier to entry. Technological innovation and design, product
performance and conformity with customer specifications, and product quality and reliability are of utmost importance in the
aerospace and defense industry. In addition, on-time delivery, pricing, and joint development capabilities with customers are
points of competition within this market. Our customers include airframe and aircraft engine OEM manufacturers and
suppliers to these manufacturers. We supply these customers with technologically innovative system and component
solutions and align our technology roadmaps with our customers. We focus on responding to needs for reduced cost and
weight, emission control and reliability improvements. Our products achieve high levels of field reliability, which offers end
users an advantage in life-cycle cost. We compete with numerous companies around the world that specialize in fuel and air
management, combustion, and electronic control products. In addition, some of our OEM customers are capable of
developing and manufacturing these same products internally.
Our competitors in aerospace include divisions of United Technologies Corporation (“UTC”) Aerospace Systems,
Honeywell, Moog, Parker Hannifin and Eaton. We address competition in aftermarket service through responsiveness to our
customers’ needs, providing short turnaround times and maintaining a global presence.
Several competitors are also customers for our products, such as UTC Aerospace Systems, Parker Hannifin, and
Honeywell. Some of our customers are affiliated with our competitors through ownership or joint venture agreements. We
compete in part by establishing relationships with our customers’ engineering organizations, and by offering innovative
technical and commercial solutions to meet their market requirements.
Energy operates in the global markets for industrial turbines, industrial reciprocating engines, electric power generation
systems, power distribution networks, and wind turbines.
We compete with numerous companies that specialize in various engine, turbine, and power management products, and
our OEM customers are often capable of developing and manufacturing some of these same products internally. Many of our
8
OEM customers are large global OEMs that require suppliers to support them around the world and meet increasingly higher
requirements in terms of quality, delivery, reliability and cost improvements.
Competitors include Heinzmann GmbH & Co., Robert Bosch AG, L’Orange GmbH, Hoerbiger, General Electric, ABB,
Siemens, and Schweitzer Electric. OEM customers with internal capabilities for similar products include General Electric,
Caterpillar, Wartsila, Siemens, and Cummins.
We believe we are a market leader in providing our customers advanced technology and superior product performance at
a competitive price. We focus on developing and maintaining close relationships with our OEM customers’ engineering
teams. Competitive success is based on the development of innovative components and systems that are aligned with the
OEMs’ technology roadmaps to achieve future emission, efficiency, and fuel flexibility targets.
Employees
As of October 31, 2014, we employed approximately 6,700 full-time employees of which approximately 1,750 were
located outside of the United States. We consider the relationships with our employees to be good.
Approximately 16% of our total full-time workforce were union employees as of October 31, 2014, all of whom work
for our Aerospace segment. The collective bargaining agreements with our union employees are generally renewed through
contract renegotiation near the contract expiration dates. The MPC Employees Representative Union contract, which covers
451 employees as of October 31, 2014, expires September 30, 2017. The Local Lodge 727-N International Association of
Machinists and Aerospace Workers agreement, which covers 423 employees as of October 31, 2014, expires April 21, 2017.
The International Union, United Automobile, Aerospace and Agricultural Implement Workers of America and Local No. 509
agreement, which covers 226 employees as of October 31, 2014, expires June 3, 2017. We believe our relationships with our
employees and the representative unions are good.
All of our other employees in the United States were at-will employees as of October 31, 2014, and therefore, not subject
to any type of employment contract or agreement. Our executive officers and our other corporate officers each have change-
in-control agreements which have been filed with the SEC.
Outside of the United States, we enter into employment contracts and agreements in those countries in which such
relationships are mandatory or customary. The provisions of these agreements correspond in each case with the required or
customary terms in the subject jurisdiction.
Patents, Intellectual Property, and Licensing
We own numerous patents and have licenses for the use of patents owned by others, which relate to our products and
their manufacture. In addition to owning a large portfolio of intellectual property, we also license intellectual property to and
from third parties. For example, the U.S. Government has certain rights in our patents and other intellectual property
developed in performance of certain government contracts, and it may use or authorize others to use the inventions covered
by such patents for government purposes as allowed by law.
Some of our intellectual property is not covered by patents (or patent applications) and includes trade secrets and other
know-how that is not patentable or for which we have elected not to seek patent protection, including intellectual property
relating to our manufacturing processes and engineering designs. Such unpatented technology, including research,
development and engineering technical skills and know-how, as well as unpatented software, is important to our overall
business and to the operations of each of our segments.
While our intellectual property assets taken together are important, we do not believe our business or either of our
segments would be materially affected by the expiration of any particular intellectual property right or termination of any
particular intellectual property patent license agreement.
As of September 30, 2014, our Consolidated Balance Sheet includes $254,772 of net intangible assets. This value
represents the carrying values, net of amortization, of certain assets acquired in various business acquisitions and does not
purport to represent the fair value of our intellectual property as of September 30, 2014.
U.S. GAAP requires that research and development costs be expensed as incurred; therefore, as we develop new
intellectual property in the normal course of business, the costs of developing such assets are expensed as incurred, with no
corresponding intangible asset recorded.
Environmental Matters and Climate Change
The Company is regulated by federal, state and international environmental laws governing our use, transport and
disposal of substances and control of emissions. Compliance with these existing laws has not had a material impact on our
capital expenditures, earnings or global competitive position.
9
We are engaged in environmental remedial activities, generally in coordination with other companies, pursuant to federal
and state laws. When it is reasonably probable we will pay remediation costs at a site, and those costs can be reasonably
estimated, we accrue a liability for such future costs with a related charge against our earnings. In formulating that estimate
and recognizing those costs, we do not consider amounts expected to be recovered from insurance companies, or others, until
such recovery is assured. Our accrued liability for environmental remediation costs is not significant and is included in the
line item “Accrued liabilities” in the Consolidated Balance Sheets in “Item 8 – Financial Statements and Supplementary
Data.”
We generally cannot reasonably estimate costs at sites in the very early stages of remediation. Currently, we have two
sites undergoing remediation, and there is no more than a remote chance that remediation costs at any individual site, or at all
sites in the aggregate, will be material.
Our manufacturing facilities generally do not produce significant volumes or quantities of byproducts, including
greenhouse gases, that would be considered hazardous waste or otherwise harmful to the environment. We do not expect
legislation currently pending or expected in the next several years to have a significant negative impact on our operations in
any of our segments.
Domestic and foreign legislative initiatives on emissions control, renewable energy, and climate change tend to
favorably impact the sale of our energy control products. For example, our Energy segment produces inverters for wind
turbines and energy control products that help our customers maximize engine efficiency and minimize wasteful emissions,
including greenhouse gases.
Executive Officers of the Registrant
Information about our executive officers is provided below. There are no family relationships between any of the
executive officers listed below.
Thomas A. Gendron, Age 53. Chairman of the Board since January 2008; Chief Executive Officer, President, and
Director since July 2005; Chief Operating Officer and President September 2002 through June 2005; Vice President and
General Manager of Industrial Controls June 2001 through September 2002; Vice President of Industrial Controls April 2000
through May 2001; Director of Global Marketing and Industrial Controls’ Business Development February 1999 through
March 2000.
Robert F. Weber, Jr., Age 60. Vice Chairman, Chief Financial Officer and Treasurer since September 2011, and Chief
Financial Officer and Treasurer since August 2005. Prior to August 2005, Mr. Weber was employed at Motorola, Inc. for 17
years, where he held various positions, including Corporate Vice President and General Manager - EMEA Auto. Prior to this
role, Mr. Weber served in a variety of financial positions at both a corporate and operating unit level with Motorola.
Martin V. Glass, Age 57. President, Airframe Systems since April 2011; President, Turbine Systems October 2009
through April 2011; Group Vice President, Turbine Systems September 2007 through September 2009; Vice President of the
Aircraft Engine Systems Customer Business Segment December 2002 through August 2007; Director of Sales, Marketing,
and Engineering February 2000 through December 2002.
Sagar Patel, Age 48. President, Aircraft Turbine Systems since June 2011. Prior to this role, Mr. Patel was employed at
General Electric for 18 years, most recently serving as President, Mechanical Systems, GE Aviation, from March 2009
through June 2010. He served as President, Aerostructures, GE Aviation from July 2008 through July 2009 and as President
and General Manager, MRS Systems, Inc., GE Aircraft Engines, from October 2005 through June 2008.
Chad R. Preiss, Age 49. President, Engine Systems since October 2009; Group Vice President, Engine Systems October
2008 through September 2009; Vice President, Sales, Service, and Marketing, Engine Systems December 2007 through
September 2008; and Vice President, Industrial Controls September 2004 through December 2007. Prior to this role, Mr.
Preiss served in a variety of engineering and marketing/sales management roles, including Director of Business
Development, since joining Woodward in 1988.
James D. Rudolph, Age 53. President, Industrial Turbomachinery Systems since April 2011; Corporate Vice President,
Global Sourcing October 2009 through April 2011; Vice President, Global Sourcing April 2009 through October
2009; Director of Global Sourcing April 2005 through April 2009; Director of Engineering for Industrial Controls March
2000 through April 2005. Prior to March 2000, Mr. Rudolph served in a variety of engineering, operations and sales roles
since joining Woodward in 1984.
A. Christopher Fawzy, Age 45. Corporate Vice President, General Counsel, Corporate Secretary and Chief Compliance
Officer since October 2009; Vice President, General Counsel, and Corporate Secretary June 2007 through September 2009.
Mr. Fawzy became the Company’s Chief Compliance Officer in August 2009. Prior to joining Woodward, Mr. Fawzy was
employed by Mentor Corporation, a global medical device company. He joined Mentor in 2001 and served as Corporate
Counsel, then General Counsel in 2003, and was appointed Vice President, General Counsel and Secretary in 2004.
10
Other Corporate Officers of the Registrant
Information about our other corporate officers is provided below. There are no family relationships between any of the
corporate officers listed below or between any of the corporate officers listed below and the aforementioned executive
officers.
Steven J. Meyer, Age 54. Corporate Vice President, Human Resources since October 2009; Vice President, Human
Resources November 2006 through September 2009; Director, Global Human Resources November 2002 through October
2006; Director, Human Resources for Industrial Controls July 1997 through October 2002. Prior to joining Woodward, Mr.
Meyer was employed by PG&E Corporation and Nortel in a variety of roles in human resources.
Matthew F. Taylor, Age 52. Corporate Vice President, Supply Chain since February 2011; Vice President, Engine Fluid
Systems and Controls Center of Excellence (“CoE”) October 2009 through February 2011; General Manager, Fluid Systems
and Controls CoE December 2006 through October 2009; Director of Operations, Fluid Systems and Controls June 2005
through December 2006. Prior to joining Woodward in June 2005, Mr. Taylor was the Vice President and General Manager,
Warner Electric and served in a variety of general management roles at Eaton Corporation from February 1998 through
August 2003.
Matt R Cook, Age 43. Corporate Vice President, Information Technology since January 2014; Director, Global Business
Systems July 2012 through January 2014. Prior to joining Woodward, Mr. Cook was employed by Satcon Corporation as
Vice President, Global Information Technology. Prior to Satcon, Mr. Cook served in a variety of senior roles in information
technology and business development.
Information available on Woodward’s Website
Through a link on the Investor Information section of our website, www.woodward.com, we make available the
following filings as soon as reasonably practicable after they are electronically filed or furnished to the SEC: our Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule 14A,
and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934. None of the information contained on our website is incorporated into this document by reference.
Stockholders may obtain, without charge, a single copy of Woodward’s 2014 Annual Report on Form 10-K upon written
request to the Corporate Secretary, Woodward, Inc., 1000 East Drake Road, Fort Collins, Colorado 80525.
Item 1A.
Risk Factors
Investment in our securities involves risk. An investor or potential investor should consider the risks summarized in this
section when making investment decisions regarding our securities.
Important factors that could individually, or together with one or more other factors, affect our business, results of
operations, financial condition, and/or cash flows include, but are not limited to, the following:
Company Risks
A decline in business with, or financial distress of, our significant customers could decrease our consolidated net sales
or impair our ability to collect amounts due and payable and have a material adverse effect on our business, financial
condition, results of operations and cash flows.
We have fewer customers than many companies with similar sales volumes. For the fiscal year ended September 30,
2014, approximately 39% of our consolidated net sales were made to our five largest customers. Sales to these same five
largest customers represented approximately 39% of our consolidated net sales for the fiscal year ended September 30, 2013.
Sales to our largest customer, General Electric, accounted for approximately 15% of our consolidated net sales in the fiscal
year ended September 30, 2014, 15% in the fiscal year ended September 30, 2013, and 14% in the fiscal year ended
September 30, 2012. Accounts receivable from General Electric represented approximately 12% of accounts receivable at
September 30, 2014 and 11% at September 30, 2013. Sales to our next largest customer accounted for approximately 7% of
our consolidated net sales in the fiscal year ended September 30, 2014, 7% in the fiscal year ended September 30, 2013, and
6% in the fiscal year ended September 30, 2012. If any of our significant customers were to change suppliers, in-source
production, institute significant restructuring or cost-cutting measures, or experience financial distress, these significant
customers may substantially reduce or otherwise be unable to pay for purchases from us. Accordingly, our consolidated net
sales could decrease significantly or we may experience difficulty collecting or be unable to collect amounts due and payable,
which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
11
Instability in the financial markets and global economic uncertainty could have a material adverse effect on the ability
of our customers to perform their obligations to us and on their demand for our products and services.
During the last several years, there has been widespread concern over the instability in the financial markets and their
influence on the global economy. As a result of the extreme volatility in the credit and capital markets, sovereign credit
rating downgrades and uncertainty surrounding European sovereign and other debt defaults, and global economic uncertainty,
our current or potential customers may experience cash flow problems and, as a result, may modify, delay or cancel plans to
purchase our products. Additionally, if customers are not successful in generating sufficient revenue or are precluded from
securing necessary financing, they may not be able to pay, or may delay payment of, accounts receivable that are owed to us.
Any inability of current or potential customers to pay us for our products may adversely affect our earnings and cash flows.
In addition, the general economic environment significantly affects demand for our products and services. Periods of
slowing economic activity may cause global or regional slowdowns in spending on infrastructure development in the markets
in which we operate, and customers may reduce their purchases of our products and services.
There can be no assurance that any market and economic uncertainty in the United States or internationally would not
have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Our profitability may suffer if we are unable to manage our expenses or if we experience change in product mix as a
result of sales increases or decreases.
Some of our expenses are relatively fixed in relation to changes in sales volume and are difficult to adjust in the short
term. Expenses driven by business activity other than sales level, such as fixed manufacturing overhead and research and
development costs, may be difficult to reduce in a timely manner in response to a reduction in sales. Expenses such as
depreciation or amortization, which are the result of past capital expenditures or business acquisitions, are generally fixed
regardless of sales levels. Due to the nature of our sales cycle, in periods of sales increases it may be difficult to rapidly
increase our production of finished goods, particularly if such sales increases are unanticipated. An increase in the
production of our finished goods requires increases in both the purchases of raw materials and components and in the size of
our workforce. If a sudden, unanticipated need for raw materials, components and labor should arise in order to meet
unexpected sales demand, we could experience difficulties in sourcing raw materials, components and labor at a favorable
cost or to meet our production needs. These factors could result in delays in fulfilling customer sales contracts, damage to
our reputation and relationships with our customers, an inability to meet the demands of the markets that we serve, which in
turn could prevent us from taking advantage of business opportunities or responding to competitive pressures, and result in an
increase in variable and fixed costs leading to a decrease in net earnings or even net losses. In addition, we sell products that
have varying profit margins, and increases or decreases in sales of our various products may change the mix of products that
we sell during any period. Any of these events could have a material adverse effect on our business, financial condition,
results of operations, and cash flows.
The long sales cycle, customer evaluation process and implementation period of our products and services may
increase the costs of obtaining orders and reduce the predictability of sales cycles and our inventory requirements.
Our products and services are technologically complex. Prospective customers generally must commit significant
resources to test and evaluate our products and to install and integrate them into larger systems. Orders expected in one
quarter may shift to another quarter or be cancelled with little advance notice as a result of customers’ budgetary constraints,
internal acceptance reviews and other factors affecting the timing of customers’ purchase decisions. In addition, customers
often require a significant number of product presentations and demonstrations before reaching a sufficient level of
confidence in the product’s performance and compatibility with the approvals that typically accompany capital expenditure
approval processes. The difficulty in forecasting demand increases the challenge in anticipating sales cycles and our
inventory requirements, which may cause us to over-produce finished goods and could result in inventory write-offs, or could
cause us to under-produce finished goods. Any such over-production or under-production could have a material adverse
effect on our business, financial condition, results of operations, and cash flows.
Our product development activities may not be successful, may be more costly than currently anticipated, or we may
not be able to produce newly developed products at a cost that meets the anticipated product cost structure.
Our business involves a significant level of product development activities, generally in connection with our customers’
development activities. Industry standards, customer expectations, or other products may emerge that could render one or
more of our products or services less desirable or obsolete. Maintaining our market position requires continued investment in
research and development. During an economic downturn or a subsequent recovery, we may need to maintain our
investment in research and development, which may limit our ability to reduce these expenses in proportion to a sales
shortfall. In addition, increased investments in research and development may divert resources from other potential
investments in our business, such as acquisitions or investments in our facilities, processes and operations. If these activities
are not as successful as currently anticipated, are not completed on a timely basis, or are more costly than currently
anticipated, or if we are not able to produce newly developed products at a cost that meets the anticipated product cost
12
structure, then our future sales, margins and/or earnings could be lower than expected, which could have a material adverse
effect on our business, financial condition, results of operations, and cash flows.
Our business may be affected by government contracting risks.
Sales made directly to U.S. Government agencies and entities were 4% of total net sales during fiscal year 2014, 6%
during fiscal year 2013, and 4% during fiscal year 2012, primarily in the aerospace market. Sales made directly to U.S.
Government agencies and entities, or indirectly through third party manufacturers, such as tier-one prime contractors,
utilizing Woodward parts and subassemblies, accounted for approximately 17% of total sales in fiscal year 2014, 21% in
fiscal year 2013, and 18% in fiscal year 2012. Our contracts with the U.S. Government are subject to the following unique
risks, some of which are beyond our control, which could have a material adverse effect on our business, financial condition,
results of operations, and cash flows.
The level of U.S. defense spending is subject to periodic congressional appropriation actions, including significant
reductions in defense spending under the sequestration of appropriations in fiscal year 2013 under the Budget
Control Act of 2011 (the “Budget Act”), and is subject to change at any time. The mix of programs to which such
funding is allocated is also uncertain, and we can provide no assurance that an increase in defense spending will be
allocated to programs that would benefit our business. If the amount of spending were to decrease, or there were a
shift from certain aerospace and defense programs on which we have content to other programs on which we do not,
our sales could decrease. In addition, one or more of the aerospace or defense programs that we currently support
could be phased-out or terminated. Any such reductions in U.S. Government needs under these existing aerospace
and defense programs, unless offset by other aerospace and defense programs and opportunities, could have a
material adverse effect on our sales.
Our U.S. Government contracts and the U.S. Government contracts of our customers are subject to modification,
curtailment or termination by the government, either for the convenience of the government or for default as a result
of a failure by us or our customers to perform under the applicable contract. If any of our contracts are terminated
by the U.S. Government, our backlog would be reduced, in accordance with contract terms, by the expected value of
the remaining work under such contracts. In addition, we are not the prime contractor on most of our contracts for
supply to the U.S. Government, and the U.S. Government could terminate a prime contract under which we are a
subcontractor, irrespective of the quality of our products and services as a subcontractor.
We must comply with procurement laws and regulations relating to the formation, administration and performance
of our U.S. Government contracts and the U.S. Government contracts of our customers. The U.S. Government may
change procurement laws and regulations from time to time. A violation of U.S. Government procurement laws or
regulations, a change in U.S. Government procurement laws and regulations, or a termination arising out of our
default could expose us to liability, debarment, or suspension and could have an adverse effect on our ability to
compete for future contracts and orders.
We are sometimes subject to government inquiries, audits and investigations due to our business relationships with
the U.S. Government and the heavily regulated industries in which we do business. In addition, our contract costs
are subject to audits by the U.S. Government. U.S. Government agencies, including the Defense Contract Audit
Agency and the Defense Contract Management Agency, routinely audit government contractors and subcontractors.
These agencies review our performance under contracts, cost structure and compliance with applicable laws,
regulations, and standards, as well as the adequacy of and our compliance with our internal control systems and
policies. Any costs found to be misclassified or inaccurately allocated to a specific contract would be deemed non-
reimbursable, and to the extent already reimbursed, would be refunded. Any inadequacies in our systems and
policies could result in withholds on billed receivables, penalties and reduced future business. Any inquiries or
investigations, including those related to our contract pricing, could potentially result in civil and criminal penalties
and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines,
suspension, and/or debarment from participating in future business opportunities with the U.S. Government. Such
actions could harm our reputation, even if such allegations are later determined to be unfounded, and could have a
material adverse effect on our business, results of operations, financial condition and cash flows.
Product liability claims, product recalls or other liabilities associated with the products and services we provide may
force us to pay substantial damage awards and other expenses that could exceed our accruals and insurance coverage.
The manufacture and sale of our products and the services we provide expose us to risks of product liability and other
tort claims. We currently have and have had in the past product liability claims relating to our products, and we will likely be
subject to additional product liability claims in the future for both past and current products. Some of these claims may have
a material adverse effect on our business, financial condition, results of operations and cash flows. We also provide certain
services to our customers and are subject to claims with respect to the services provided. In providing such services, we may
rely on subcontractors to perform all or a portion of the contracted services. It is possible that we could be liable to our
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customers for work performed by a subcontractor. Regardless of the outcome, product liability claims can be expensive to
defend, can divert the attention of management and other personnel for significant periods of time, and can cause reputational
damage. While we believe that we have appropriate insurance coverage available to us related to any such claims, our
insurance may not cover all liabilities or be available in the future at a cost acceptable to us. An unsuccessful result in
connection with a product liability claim, where the liabilities are not covered by insurance or for which indemnification or
other recovery is not available, could have a material adverse effect on our business, financial condition, results of operations,
and cash flows.
Suppliers may be unable to provide us with materials of sufficient quality or quantity required to meet our production
needs at favorable prices or at all.
We are dependent upon suppliers for parts and raw materials used in the manufacture of components that we sell to our
customers, and our raw material costs are subject to commodity market fluctuations. We may experience an increase in costs
for parts or raw materials that we source from our suppliers, or we may experience a shortage of parts or raw materials for
various reasons, such as the loss of a significant supplier, high overall demand creating shortages in parts and supplies we
use, financial distress, work stoppages, natural disasters, fluctuations in commodity prices, or production difficulties that may
affect one or more of our suppliers. In particular, current or future global economic uncertainty may affect our key suppliers
in terms of their operating cash flow and access to financing. This may in turn affect their ability to perform their obligations
to us. Our customers rely on us to provide on-time delivery and have certain rights if our delivery standards are not
maintained. A significant increase in our supply costs, including for raw materials that are subject to commodity price
fluctuations, or a protracted interruption of supplies for any reason, could result in the delay of one or more of our customer
contracts or could damage our reputation and relationships with customers. In addition, quality and sourcing issues that our
suppliers may experience can also adversely affect the quality and effectiveness of our products and services and may result
in liability or reputational harm to us. Any of these events could have a material adverse effect on our business, financial
condition, results of operations, and cash flows.
Subcontractors may fail to perform contractual obligations, which would adversely affect our ability to meet our
obligations to our customers.
We frequently subcontract portions of work due under contracts with our customers and are dependent on the continued
availability and satisfactory performance by these subcontractors. Nonperformance or underperformance by subcontractors
could materially impact our ability to perform obligations to our customers. A subcontractor’s failure to perform could result
in a customer terminating our contract for default, expose us to liability, substantially impair our ability to compete for future
contracts and orders, and limit our ability to enforce fully all of our rights under these agreements, including any rights to
indemnification. Any of these events could have a material adverse effect on our business, financial condition, results of
operations, and cash flows.
We have engaged in restructuring and alignment activities from time to time and may need to implement further
restructurings or alignments in the future, and there can be no assurance that our restructuring or alignment efforts
will have the intended effects.
From time to time, we have responded to changes in our industry and the markets we serve by restructuring or aligning
our operations. Our restructuring activities have included workforce management and other restructuring charges related to
our recently acquired businesses, including, among others, changes associated with integrating similar operations, managing
our workforce, vacating or consolidating certain facilities and cancelling certain contracts. Based on cost reduction measures
or changes in the industry and markets in which we compete, we may decide to implement restructuring or alignment
activities in the future, such as closing plants, moving production lines, or making additions, reductions or other changes to
our management or workforce.
Restructuring and/or alignment activities can create unanticipated consequences, such as instability or distraction among
our workforce, and we cannot be sure that any restructuring or alignment efforts that we undertake will be successful. A
variety of risks could cause us not to realize an expected cost savings, including, among others, the following:
higher than expected severance costs related to staff reductions;
higher than expected retention costs for employees that will be retained;
higher than expected stand-alone overhead expenses;
delays in the anticipated timing of activities related to our cost-saving plan; and
other unexpected costs associated with operating the business.
If we are unable to structure our operations in the light of evolving market conditions, it could have a material adverse
effect on our business, financial condition, results of operations, and cash flows.
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Activities necessary to integrate acquisitions may result in costs in excess of current expectations or be less successful
than anticipated.
We completed an acquisition of a business from GE Aviation Systems LLC in fiscal year 2013 and we may acquire other
businesses in the future. The success of these transactions will depend on, among other things, our ability to integrate assets
and personnel acquired in these transactions and to apply our internal controls process to these acquired businesses. The
integration of these acquisitions may require significant attention from our management, and the diversion of management’s
attention and resources could have a material adverse effect on our ability to manage our business. In addition, we may incur
unanticipated costs or expenses following an acquisition, including post-closing asset impairment charges, expenses
associated with eliminating duplicate facilities, and other liabilities.
The risks associated with our past or future acquisitions also include, among others, the following:
technological and product synergies, economies of scale and cost reductions may not occur as expected;
unforeseen expenses, delays or conditions may be imposed upon the acquisition, including due to required
regulatory approvals or consents;
we may acquire or assume unexpected liabilities or be subject to unexpected penalties or other enforcement actions;
inaccurate assumptions may be made regarding the integration process;
unforeseen difficulties may arise in integrating operations, processes and systems;
higher than expected investments may be required to implement necessary compliance processes and related
systems, including information technology systems, accounting systems and internal controls over financial
reporting;
we may fail to retain, motivate and integrate key management and other employees of the acquired business;
higher than expected costs may arise due to unforeseen changes in tax, trade, environmental, labor, safety, payroll or
pension policies in any jurisdiction in which the acquired business conducts its operations; and
we may experience problems in retaining customers and integrating customer bases.
Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the
amount of expected revenues and diversion of management’s time and attention. Furthermore, we may not realize the degree
or timing of benefits we anticipate when we first enter into these transactions. Failure to implement our acquisition strategy,
including successfully integrating acquired businesses, could have a material adverse effect on our business, financial
condition, results of operations, and cash flows.
We may not be able 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 competitive pressures.
During the last several years, global financial markets, including the credit and debt and equity capital markets, and
economic conditions have been volatile. These issues, along with significant write-offs in the financial services sector, the
re-pricing of credit risk, sovereign credit rating downgrades, and the global economic uncertainty, have in the past made, and
may in the future make, it difficult to obtain financing. In addition, as a result of concerns about the stability of financial
markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets may
increase as many lenders and institutional investors have or may increase interest rates, enact tighter lending standards, refuse
to refinance existing debt at maturity either at all or on terms similar to existing debt, and reduce and, in some cases, cease to
provide financing to borrowers. Due to these factors, we cannot be certain that financing, to the extent needed, will be
available on acceptable terms or at all. If financing is not available when needed, or is available only on unacceptable terms,
we may be unable to implement our business plans, complete acquisitions, fund significant capital expenditures, or otherwise
take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse
effect on our business, financial condition, results of operations, and cash flows.
Our debt obligations and the restrictive covenants in the agreements governing our debt could limit our ability to
operate our business or pursue our business strategies, and could adversely affect our business, financial condition,
results of operations, and cash flows.
As of September 30, 2014, our total long-term debt was $710,000, including $210,000 of borrowings on our revolving
credit facility. Our debt obligations could require us to dedicate a portion of our cash flow from operations to payments on
our indebtedness, reducing the availability of our cash flow for other purposes, including business development efforts and
mergers and acquisitions. We are contractually obligated under the agreements governing our long-term debt to make
principal payments of $0 in fiscal year 2015, $107,000 in fiscal year 2016, $0 in fiscal year 2017, $0 in fiscal year 2018, and
$393,000 in fiscal year 2019 and thereafter. Interest on the majority of our long-term notes is payable semi-annually, with
the exception of the Series J Notes which is payable quarterly, each year until all principal is paid. Our debt obligations
could make us more vulnerable to general adverse economic and industry conditions and could limit our flexibility in
planning for, or reacting to, changes in our business and the industries in which we operate, thereby placing us at a
disadvantage to our competitors that have less indebtedness.
15
Our existing revolving credit facility and note purchase agreements impose financial covenants on us and our
subsidiaries that require us to maintain certain leverage ratios and minimum levels of consolidated net worth. Certain of
these agreements require us to repay outstanding borrowings with portions of the proceeds we receive from certain sales of
property or assets and specified future debt offerings.
These financial covenants place certain restrictions on our business that may affect our ability to execute our business
strategy successfully or take other actions that we believe would be in the best interests of our Company. These restrictions
include limitations or restrictions, among other things, on our ability and the ability of our subsidiaries to:
incur additional indebtedness;
pay dividends or make distributions on our capital stock or certain other restricted payments or investments;
purchase or redeem stock;
issue stock of our subsidiaries;
make domestic and foreign investments and extend credit;
engage in transactions with affiliates;
transfer and sell assets;
effect a consolidation or merger or sell, transfer, lease, or otherwise dispose of all or substantially all of our assets;
and
create liens on our assets to secure debt.
These agreements contain certain customary events of default, including certain cross-default provisions related to other
outstanding debt arrangements. Any breach of the covenants under these agreements or other event of default could cause a
default under these agreements and/or a cross-default under our other debt arrangements, which could restrict our ability to
borrow under our revolving credit facility. If there were an event of default under certain provisions of our debt
arrangements that was not cured or waived, the holders of the defaulted debt may be able to cause all amounts outstanding
with respect to the debt instrument to be due and payable immediately. Our assets and cash flow may not be sufficient to
fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default. If we are unable to
repay, refinance, or restructure our indebtedness as required, or amend the covenants contained in these agreements, the
lenders or note holders may be entitled to obtain a lien or institute foreclosure proceedings against our assets. Any of these
events could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Additional tax expense or additional tax exposures could affect our future profitability.
In fiscal year 2014, approximately 35% of our earnings before income taxes was earned in jurisdictions outside the
United States. Accordingly, we are subject to income taxes in both the United States and various non-U.S. jurisdictions. Our
tax liabilities are dependent upon the distribution mix of operating income among these different jurisdictions. Our tax
expense includes estimates of additional tax that may be incurred and reflects various estimates, projections, and assumptions
that could impact the valuation of our deferred tax assets and liabilities. Our future operating results could be adversely
affected by changes in the effective tax rate, including:
changes in the mix of earnings in countries with differing statutory tax rates;
changes in our overall profitability;
changes in tax legislation and tax rates;
changes in tax incentives;
changes in U.S. GAAP;
changes in the projected realization of deferred tax assets and liabilities;
changes in management’s assessment of the amount of earnings indefinitely reinvested offshore; and
the results of audits and examinations of previously filed tax returns and continuing assessments of our tax
exposures.
We derive a significant portion of our revenues from non-U.S. sales and are subject to the risks inherent in doing
business in other countries.
In 2014, approximately 49% of our total sales were made to customers in jurisdictions outside of the United States
(including products manufactured in the United States and sold outside the United States as well as products manufactured in
international locations). Accordingly, our business and results of operations are subject to risks associated with doing
business internationally, including:
fluctuations in foreign exchange rates;
limitations on ownership and on repatriation of earnings;
transportation delays and interruptions;
political, social and economic instability and disruptions;
government embargos or trade restrictions;
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the imposition of duties and tariffs and other trade barriers;
import and export controls;
changes in labor conditions;
changes in regulatory environments;
the potential for nationalization of enterprises;
difficulties in staffing and managing multi-national operations;
limitations on the Company’s ability to enforce legal rights and remedies, including protection of intellectual
property;
difficulty of enforcing agreements and collecting receivables through some foreign legal systems;
acts of terrorism;
potentially adverse tax consequences; and
difficulties in implementing restructuring actions on a timely basis.
We are also subject to U.S. laws prohibiting companies from doing business in certain countries, or restricting the type of
business that may be conducted in these countries. The cost of compliance with increasingly complex and often conflicting
regulations governing various matters worldwide, including foreign investment, employment, import, export, business
acquisitions, environmental and taxation matters, land use rights, property, and other matters, can also impair our flexibility
in modifying product, marketing, pricing or other strategies for growing our businesses, as well as our ability to improve
productivity and maintain acceptable operating margins. We must also comply with restrictions on exports imposed under
the U.S. Export Control Laws and Sanctions Programs. These laws and regulations change from time to time and may
restrict foreign sales.
In 2014, approximately 7% of our total sales were recorded in the Peoples’ Republic of China and we have significant
operations in the Peoples’ Republic of China. Our independent registered public accounting firm’s audit documentation
related to their audit report included in this annual report may be located in the Peoples’ Republic of China. The Public
Company Accounting Oversight Board (“PCAOB”) currently cannot inspect audit documentation located in China and, as
such, prevents the PCAOB from regularly evaluating audit work of any auditors that was performed in China, including that
performed by our independent auditors in China. As a result, investors may be deprived of the full benefits of PCAOB
oversight of our global audits via their inspections. The inability of the PCAOB to conduct inspections of audit work
performed in China makes it more difficult to evaluate the effectiveness of our Chinese independent auditor’s audit
procedures as compared to auditors in other jurisdictions that are subject to PCAOB inspections on all of their work.
In addition, in January 2014, an SEC Administrative Law Judge (“ALJ”) issued an initial decision concluding that each
of the firms in China that are members of four largest firms in the world, which includes our audit firm, violated the SEC’s
Rules of Practice by failing to produce audit work papers directly to the SEC. The ALJ further determined that each of the
four largest firms in China should be censured and barred from practicing before the SEC for a period of six months. The
sanctions set forth in the initial decision could be very serious for the Chinese audit firms with U.S. listings and U.S.
companies with Chinese subsidiaries audited in China. The initial decision has no binding legal effect until it is reviewed and
endorsed by the SEC. The SEC is currently facilitating settlement discussions among all parties.
Sales and purchases in currencies other than the U.S. dollar expose us to fluctuations in foreign currencies relative to the
U.S. dollar. These exposures may change over time as our business and business practices evolve, and they could have a
material adverse effect on our financial results and cash flows. An increase in the value of the U.S. dollar could increase the
real cost to our customers of our products in those markets outside the United States where we sell in U.S. dollars, and a
weakened U.S. dollar could increase the cost of local operating expenses and procurement of raw materials to the extent that
we must purchase components in foreign currencies. Foreign currency exchange rate risk is reduced through several means,
including the maintenance of local production facilities in the markets served, invoicing of customers in the same currency as
the source of the products, prompt settlement of inter-company balances utilizing a global netting system, and limited use of
foreign currency denominated debt. While we monitor our exchange rate exposures and seek to reduce the risk of volatility,
our actions may not be successful in significantly mitigating such volatility.
In addition, uncertain global economic conditions arising from circumstances such as slowing growth in emerging
regions and credit rating downgrades in certain European countries or speculation regarding changes to the composition or
viability of the Euro zone could result in reduced customer confidence and decreased demand for our products and services,
disruption in payment patterns and higher default rates, a tightening of credit markets, increased risk regarding supplier
performance, increased counterparty risk with respect to the financial institutions with which we do business, and exchange
rate fluctuations. While we employ comprehensive controls regarding global cash management to guard against cash or
investment loss and to ensure our ability to fund our operations and commitments, a material disruption to the financial
institutions with whom we transact business could have a material adverse effect on our international operations or on our
business, financial condition, results of operations, and cash flows.
17
Changes in the estimates of fair value of reporting units or of long-lived assets, specifically goodwill, may result in
future impairment charges, which could have a material adverse effect on our business, financial condition, results of
operations and cash flows.
Over time, the fair values of long-lived assets change. At September 30, 2014, we had $559,724 of goodwill,
representing 23% of our total assets. We test goodwill for impairment at 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. Based on the relevant U.S. GAAP authoritative guidance, we aggregate components of a single
operating segment into a reporting unit, if appropriate. Future goodwill impairment charges may occur if estimates of fair
values decrease, which would reduce future earnings. We also test property, plant, and equipment and other intangibles for
impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Future
asset impairment charges may occur if asset utilization declines, if customer demand decreases, or for a number of other
reasons, which would reduce future earnings. Any such impairment charges could have a material adverse effect on our
business, financial condition, results of operations, and cash flows. Impairment charges would also reduce our consolidated
stockholders’ equity and increase our debt-to-total-capitalization ratio, which could negatively impact our credit rating and
access to the debt and equity markets.
We completed our annual goodwill impairment test during the quarter ended September 30, 2014. In performing the
annual goodwill impairment test, we determined it was appropriate to aggregate certain components of the same operating
segment into a single aggregated reporting unit. The identification of reporting units and consideration of aggregation criteria
requires management’s judgment. Further, we use the income approach based on a discounted cash flow method that
incorporates various estimates and assumptions. The results of our fiscal year 2014 annual goodwill impairment test
performed as of July 31, 2014 indicated the estimated fair values of each of our reporting units were in excess of their
carrying amounts, and accordingly, no impairment existed. There can be no assurance that our estimates and assumptions of
the fair value of our reporting units, the current economic environment, the level of U.S. defense spending, or the other inputs
used in forecasting the present value of forecasted cash flows used to estimate the fair value of our reporting units will prove
to be accurate projections of future performance.
As part of our ongoing monitoring efforts, we will continue to consider the global economic environment and its
potential impact on our businesses, as well as other factors, in assessing goodwill and long-lived assets for possible
indications of impairment.
Manufacturing activities may result in future environmental costs or liabilities.
We use hazardous materials and/or regulated materials in our manufacturing operations. We also own, operate, and may
acquire facilities that were formerly owned and operated by others that used such materials. The risk that a significant release
of regulated materials has occurred in the past or will occur in the future cannot be completely eliminated or prevented. As a
result, we are subject to a substantial number of costly regulations. In particular, we are required to comply with increasingly
stringent requirements of federal, state, and local environmental, occupational health and safety laws and regulations in the
United States, the European Union, and other territories, including those governing emissions to air, discharges to water,
noise and odor emissions, the generation, handling, storage, transportation, treatment and disposal of waste materials, and the
cleanup of contaminated properties and human health and safety. Compliance with these laws and regulations results in
ongoing costs. We cannot be certain that we have been, or will at all times be, in complete compliance with all
environmental requirements, or that we will not incur additional material costs or liabilities in connection with these
requirements. As a result, we may incur material costs or liabilities or be required to undertake future environmental
remediation activities that could damage our reputation and have a material adverse effect on our business, financial
condition, results of operations, and cash flows.
Our performance depends on continued access to a stable workforce and on favorable labor relations with our
employees.
Certain of our operations in the United States and internationally involve different employee/employer relationships and
the existence of works’ councils. In addition, a portion of our workforce is unionized and is expected to remain unionized for
the foreseeable future. Competition for technical personnel in the industries in which we compete is intense. Our future
success depends in part on our continued ability to hire, train, assimilate, and retain qualified personnel. There is no
assurance that we will continue to be successful in recruiting qualified employees in the future. Any significant increases in
labor costs, deterioration of employee relations, including any conflicts with works’ councils or unions, or slowdowns or
work stoppages at any of our locations, whether due to employee turnover, changes in availability of qualified technical
personnel, or otherwise, could have a material adverse effect on our business, our relationships with customers, and our
financial condition, results of operations, and cash flows.
18
Operations and suppliers may be subject to physical and other risks, including natural disasters, that could disrupt
production and have a material adverse effect on our business, financial condition, results of operations and cash
flows.
Our operations include principal facilities in the United States, China, Germany, and Poland. In addition, we operate
sales and service facilities in Brazil, Bulgaria, India, Japan, the Netherlands, the Republic of Korea, Russia, Switzerland and
the United Kingdom. We also have suppliers for materials and parts inside and outside the United States. Our operations and
sources of supply could be disrupted by unforeseen events, including fires, tornadoes, tsunamis, hurricanes, earthquakes,
floods and other forms of severe weather in the United States or in other countries in which we operate or in which our
suppliers are located, any of which could adversely affect our operations and financial performance. Natural disasters, public
health concerns, war, political unrest, terrorist activity, equipment failures, power outages, or other unforeseen events could
result in physical damage to, and complete or partial closure of, one or more of our manufacturing facilities, or could cause
temporary or long-term disruption in the supply of component products from some local and international suppliers,
disruption in the transport of our products and significant delays in the shipment of products and the provision of services,
which could in turn cause the loss of sales and customers. Existing insurance arrangements may not provide protection for
all of the costs that may arise from such events. Accordingly, disruption of our operations or the operations of a significant
supplier could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Our intellectual property rights may not be sufficient to protect all our products or technologies.
Our success depends in part on our ability to obtain patents or rights to patents, protect trade secrets and know-how, and
prevent others from infringing on our patents, trademarks, and other intellectual property rights. Some of our intellectual
property is not covered by patents (or patent applications) and includes trade secrets and other know-how that is not
patentable or for which we have elected not to seek patent protection, including intellectual property relating to our
manufacturing processes and engineering designs. We will be able to protect our intellectual property from unauthorized use
by third parties only to the extent that it is covered by valid and enforceable patents, trademarks, or licenses. Patent
protection generally involves complex legal and factual questions and, therefore, enforceability of patent rights cannot be
predicted with certainty; thus, any patents that we own or license from others may not provide us with adequate protection
against competitors. Moreover, the laws of certain foreign countries do not recognize intellectual property rights or protect
them to the same extent as do the laws of the United States. Additionally, our commercial success depends significantly on
our ability to operate without infringing upon the patent and other proprietary rights of others. Our current or future
technologies may, regardless of our intent, infringe upon the patents or violate other proprietary rights of third parties. In the
event of such infringement or violation, we may face expensive litigation or indemnification obligations and may be
prevented from selling existing products and pursuing product development or commercialization. If we are unable to
sufficiently protect our patent and other proprietary rights or if we infringe on the patent or proprietary rights of others, our
business, financial condition, results of operations, and cash flows could be materially adversely affected.
Amounts accrued for contingencies may be inadequate to cover the amount of loss when the matters are ultimately
resolved.
In addition to intellectual property and product liability matters, we are currently involved or may become involved in
claims, pending or threatened litigation or other legal proceedings, investigations or regulatory proceedings regarding
employment or other regulatory, legal, or contractual matters arising in the ordinary course of business. There is no certainty
that the results of these matters will be favorable to the Company. We accrue for known individual matters if we believe it is
probable that the matter will result in a loss when ultimately resolved using estimates of the most likely amount of loss.
There may be additional losses that have not been accrued, or liabilities may exceed our estimates, which could have a
material adverse effect on our business, financial condition, results of operations, and cash flows.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-
bribery laws and regulations.
The U.S. Foreign Corrupt Practices Act (“FCPA”) and similar anti-bribery laws and regulations in other jurisdictions
generally prohibit companies and their intermediaries from making improper payments to non-U.S. government officials for
the purpose of obtaining or retaining business or securing an improper business advantage. Our policies mandate compliance
with these anti-bribery laws. However, we operate in many parts of the world and sell to industries that have experienced
corruption to some degree. If we are found to be liable for FCPA or other similar anti-bribery law or regulatory violations,
whether due to our or others’ actions or inadvertence, we could be subject to civil and criminal penalties or other sanctions
that could have a material adverse impact on our business, financial condition, results of operations and cash flows.
19
Our net postretirement benefit obligation liabilities may grow, and the fair value of our pension plan assets may
decrease, which could require us to make additional and/or unexpected cash contributions to our pension plans,
increase the amount of postretirement benefit expenses, affect our liquidity or affect our ability to comply with the
terms of our outstanding debt arrangements.
Accounting for retirement, pension and postretirement benefit obligations and related expense requires the use of
assumptions, including a weighted-average discount rate, an expected long-term rate of return on assets, and a net healthcare
cost trend rate, among others. Benefit obligations and benefit costs are sensitive to changes in these assumptions. As a
result, assumption changes could result in increases in our obligation amounts and expenses. If interest rates decline, the
present value of our postretirement benefit plan liabilities may increase faster than the value of plan assets, resulting in
significantly higher unfunded positions in some of our pension plans. As of September 30, 2014, we had $205,161 in
invested pension plan assets. Investment losses may result in decreases to our pension plan assets.
Funding estimates are based on certain assumptions, including discount rates, interest rates, mortality, fair value of assets
and expected return on plan assets and are subject to changes in government regulations in the countries in which our
employees work. Volatility in the financial markets may impact future discount and interest rate assumptions. Significant
changes in investment performance or a change in the portfolio mix of invested assets can result in increases or decreases in
the valuation of plan assets or in a change of the expected rate of return on plan assets. Also, new accounting standards on
fair value measurement may impact the calculation of future funding levels. We periodically review our assumptions, and
any such revision can significantly change the present value of future benefits, and in turn, the funded status of our pension
plans and the resulting periodic pension expense. Changes in our pension benefit obligations and the related net periodic
costs or credits may occur as a result of variances of actual results from our assumptions, and we may be required to make
additional cash contributions in the future beyond those which have been estimated.
In addition, our existing revolving credit facility and note purchase agreements contain continuing covenants and events
of default regarding our pension plans, including provisions regarding the unfunded liabilities related to those pension plans.
See the discussion above concerning “Our debt obligations and the restrictive covenants in the agreements governing our
debt could limit our ability to operate our business or pursue our business strategies, and could adversely affect our business,
financial condition, results of operations, and cash flows.”
To the extent that the present values of benefits incurred for pension obligations are greater than values of the assets
supporting those obligations or if we are required to make additional or unexpected contributions to our pension plans for any
reason, our ability to comply with the terms of our outstanding debt arrangements, and our business, financial condition,
results of operations, and cash flows may be adversely affected.
Our business operations may be adversely affected by information systems interruptions or intrusion.
We are dependent on various information technologies throughout our company to administer, store and support multiple
business activities. If these systems are damaged, cease to function properly or are subject to cybersecurity attacks, such as
unauthorized access, malicious software and other violations, we could experience production downtimes, operational delays,
other detrimental impacts on our operations or ability to provide products and services to our customers, the compromising of
confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or
improper use of our systems or networks, financial losses from remedial actions, loss of business or potential liability, and/or
damage to our reputation, any of which could have a material adverse effect on our business, financial condition, results of
operations, and cash flows. While we attempt to mitigate these risks by employing a number of measures, including
technical security controls, employee training, comprehensive monitoring of our networks and systems, and maintenance of
backup and protective systems, our systems, networks, products, solutions and services remain potentially vulnerable to
additional known or unknown threats.
Unforeseen events may occur that significantly reduce commercial aviation.
Industry Risks
A significant portion of our business is related to commercial aviation. Global economic downturn and uncertainty in
the marketplace typically lead to a general reduction in demand for air transportation services, leading some airlines to
withdraw aircraft from service, which negatively affects sales of our aerospace components and services. These economic
conditions can similarly affect our sales of systems and components for new business jet aircraft. The commercial airline
industry tends to be cyclical and capital spending by airlines and aircraft manufacturers may be influenced by a variety of
factors, including current and future traffic levels, aircraft fuel pricing, labor issues, competition, the retirement of older
aircraft, regulatory changes, terrorism and related safety concerns, general economic conditions, worldwide airline profits and
backlog levels. In the event these or other economic indicators stagnate or worsen, market demand for our components and
systems could be negatively affected by renewed reductions in demand for air transportation services or commercial airlines’
financial difficulties, which could have a material adverse effect on our business, financial condition, results of operations,
and cash flows.
20
The U.S. Government may change acquisition priorities and/or reduce spending.
The U.S. Government participates in a wide variety of operations, including homeland defense, counterinsurgency,
counterterrorism, and other defense-related operations that employ our products and services. U.S. defense spending has
historically been cyclical in nature, and defense budgets tend to rise when perceived threats to national security increase the
level of concern over the country’s safety. The U.S. Government continues to adjust its funding priorities in response to
changes in the perceived threat environment. In addition, defense spending currently faces pressures due to the overall
economic and political environment, budget deficits, and competing budget priorities. A decrease in U.S. Government
defense spending or changes in the spending allocation could result in one or more of our programs being reduced, delayed,
or terminated.
The Budget Act triggered automatic reductions, under sequestration, in both defense and discretionary spending in
March 2013. The resulting automatic across-the-board budget cuts in sequestration have had and will likely continue to have
significant consequences for the aerospace and defense industries. The effects of these actions on our fiscal year 2014 results
were realized in our reduced defense sales, and the impact in future years, could continue to have an adverse effect on our
business, financial condition, results of operations and cash flows.
Shifts in domestic and international spending and tax policy, changes in security, defense, and intelligence priorities,
changes in government budget appropriations, general and political economic conditions and developments, and other factors
may affect a decision to fund, or the level of funding for, existing or proposed programs. If the priorities of the U.S.
Government change and/or defense spending is reduced, this may adversely affect our business, financial condition, results of
operations, and cash flows.
Increasing emission standards that drive certain product sales may be eased or delayed.
We sell components and systems that have been designed to meet strict emission standards, including standards that have
not yet been implemented but are expected to be implemented soon. If these emission standards are eased, developed
products may become unnecessary and/or our future sales could be lower as potential customers select alternative products or
delay adoption of our products, which would have a material adverse effect on our business, financial condition, results of
operations, and cash flows.
Natural gas prices may increase significantly and disproportionately to other sources of fuels used for power
generation.
Commercial producers of electricity use many of our components and systems, most predominately in their power plants
that use natural gas as their fuel source. Commercial producers of electricity are often in a position to manage the use of
different power plant facilities and make decisions based on operating costs. Compared to other sources of fuels used for
power generation, natural gas prices have increased slower than fuel oil, but about the same as coal. This increase in natural
gas prices and any future increases could decrease the use of our components and systems, which could have a material
adverse affect on our business, financial condition, results of operations, and cash flows.
Changes in government subsidy programs and regulatory requirements may result in decreased demand for our
products.
The U.S. Government, as well as various foreign governments, provide for various stimulus programs or subsidies, such
as grants, loan guarantees and tax incentives, relating to renewable energy, alternative energy, energy efficiency and electric
power infrastructure. Some of these programs have expired, which may affect the economic feasibility or timing of future
projects. Additionally, while a significant amount of stimulus funds and subsidies are available to support various projects,
we cannot predict the timing and scope of any investments to be made by our customers under stimulus funding and subsidies
or whether stimulus funding and subsidies will result in increased demand for our products. Investments for renewable
energy, alternative energy and electric power infrastructure under stimulus programs and subsidies may not occur, may be
less than anticipated or may be delayed, any of which would negatively impact demand for our products.
Other current and potential regulatory initiatives may not result in increased demand for our products. It is not certain
whether existing regulatory requirements will create sufficient incentives for new projects, when or if proposed regulatory
requirements will be enacted, or whether any potentially beneficial provisions will be included in the regulatory requirement.
Uncertainty with respect to government subsidy programs and regulatory requirements could cause decreased demand
for our products as investments are delayed or become economically unfeasible, which could have a material adverse effect
on our business, financial condition, results of operations, and cash flows.
We operate in a highly competitive industry.
We face intense competition from a number of established competitors in the United States and abroad, some of which
are larger in size or are divisions of large diversified companies with substantially greater financial resources. In addition,
global competition continues to increase. Companies compete on the basis of providing products that meet the needs of
21
customers, as well as on the basis of price, quality, and customer service. Changes in competitive conditions, including the
availability of new products and services, the introduction of new channels of distribution, and changes in OEM and
aftermarket pricing, could impact our relationships with our customers and may adversely affect future sales, which could
have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Competitors may develop breakthrough technologies that are adopted by our customers.
The markets in which we operate experience rapidly changing technologies and frequent introductions of new products
and services. The technological expertise we have developed and maintained could become less valuable if a competitor
were to develop a breakthrough technology that would allow it to match or exceed the performance of existing technologies
at a lower cost. If we are unable to develop competitive technologies, future sales or earnings could be lower than expected,
which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Industry consolidation trends could reduce our sales opportunities, decrease sales prices, and drive down demand for
our products.
There has been consolidation and there may be further consolidation in the aerospace, power, and process industries.
The consolidation in these industries has resulted in customers with vertically integrated operations, including increased in-
sourcing capabilities, which may result in economies of scale for those companies. If our customers continue to seek to
control more aspects of vertically integrated projects, cost pressures resulting in further integration or industry consolidation
could reduce our sales opportunities, decrease sales prices, and drive down demand for our products, which could have a
material adverse effect on our business, financial condition, results of operations, and cash flows.
Investment Risks
The historic market price of our common stock may not be indicative of future market prices.
The market price of our common stock has fluctuated over time. Stock markets in general have experienced extreme
price and volume volatility particularly over the past few years. The trading price of our common stock ranged from a high
of $55.76 per share to a low of $38.80 per share during the twelve months ended September 30, 2014. The following factors,
among others, could cause the price of our common stock in the public market to fluctuate significantly:
general economic conditions, particularly in the aerospace, power generation and process and transportation
industries;
variations in our quarterly results of operation;
a change in sentiment in the market regarding our operations or business prospects;
the addition or departure of key personnel; and
announcements by us or our competitors of new business, acquisitions or joint ventures.
Fluctuations in our stock price often occur without regard to specific operating performance. The price of our common
stock could fluctuate based upon the above factors or other factors, including those that have little to do with our company,
and these fluctuations could be material.
The typical trading volume of our common stock may affect an investor’s ability to sell significant stock holdings in
the future without negatively affecting stock price.
As of September 30, 2014, we had 72,960 shares of common stock issued, of which 7,397 shares were held as treasury
shares. In addition, 4,525 shares were reserved for issuance upon exercise of outstanding stock-based compensation awards.
While the level of trading activity will vary each day, the typical trading level represents only a small percentage of total
shares of stock outstanding. As a result, a stockholder who sells a significant number of shares of stock in a short period of
time could negatively affect our share price.
Certain anti-takeover provisions of our charter documents and under Delaware law could discourage or prevent
others from acquiring our company.
Our certificate of incorporation and bylaws contain provisions that:
provide for a classified board;
provide that directors may be removed only for cause by holders of at least two-thirds of the outstanding shares of
common stock;
authorize our board of directors to fill vacant directorships or to increase or decrease the size of our board of
directors;
permit us to issue, without stockholder approval, up to 10,000 shares of preferred stock, in one or more series and,
with respect to each series, to fix the designation, powers, preferences and rights of the shares of the series;
require special meetings of stockholders to be called by holders of at least two-thirds of the outstanding shares of
common stock;
22
prohibit stockholders from acting by written consent;
require advance notice for stockholder proposals and nominations for election to the board of directors to be acted
upon at meetings of stockholders; and
require the affirmative vote of two-thirds of the outstanding shares of our common stock for amendments to our
certificate of incorporation and certain business combinations, including mergers, consolidations, sales of all or
substantially all of our assets or dissolution.
In addition, Section 203 of the Delaware General Corporation Law limits business combinations with owners of more
than 15% of our stock that have not been approved by the board of directors. These provisions and other similar provisions
make it more difficult for a third party to acquire us without negotiation. Our board of directors could choose not to negotiate
a potential acquisition that it does not believe to be in our best interest. Accordingly, the potential acquirer could be
discouraged from offering to acquire us, or could be prevented by the anti-takeover measures, from successfully completing a
hostile acquisition.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Our principal plants are as follows:
United States
Duarte, California – Aerospace segment manufacturing and engineering
Fort Collins, Colorado – Corporate headquarters and Energy segment manufacturing and engineering
Greenville, South Carolina (leased) – Energy segment manufacturing and Aerospace and Energy segments engineering
Loveland, Colorado – Energy segment manufacturing and engineering
Rockford, Illinois – Aerospace segment manufacturing and engineering
Santa Clarita, California – Aerospace segment manufacturing and engineering
Skokie, Illinois (leased) – Aerospace segment manufacturing and Aerospace and Energy segments engineering
Zeeland, Michigan – Aerospace segment manufacturing and engineering
Other Countries
Aken, Germany (leased) – Energy segment manufacturing and engineering
Kempen, Germany – Energy segment manufacturing and engineering
Krakow, Poland – Energy segment manufacturing and Aerospace and Energy segments engineering
Tianjin, Peoples’ Republic of China (leased) – Energy segment assembly
In addition to the principal plants listed above, we own or lease other facilities used primarily for sales and service
activities in Brazil, Bulgaria, China, India, Japan, the Netherlands, the Republic of Korea, Russia, the United Kingdom,
Germany, and the United States.
We are currently developing a second campus in the greater-Rockford, Illinois area for our Aerospace segment. This
campus is intended to support the growth expected over the next ten years and beyond stimulated by our being awarded a
substantial number of new system platforms, particularly on narrow-body aircraft. These investments are expected to result
in future productivity gains for our existing and new business. However, given the significance of the anticipated volumes
associated with the new system platforms, we still expect our Rockford area workforce to increase substantially, by as much
as 70%-90% from current levels, by the end of 2021. In addition, in September 2013, we invested in a building site in Niles,
Illinois. We are building a new facility on this site for our Aerospace segment and will relocate some of our operations
currently residing in nearby Skokie, Illinois, to this new facility. We are also developing a new campus at our corporate
headquarters in Fort Collins, Colorado to support the continued growth of our Energy segment by supplementing our existing
Colorado manufacturing facilities and corporate headquarters. We anticipate investing approximately $500,000 through
fiscal year 2016 in land, buildings and equipment among our two Rockford, Illinois area campuses, the facility in Niles,
Illinois, and a new campus at our corporate headquarters in Fort Collins, Colorado and to date have spent approximately
$200,000 related to these investments.
23
Our remaining principal plants are suitable and adequate for the manufacturing and other activities performed at those
plants, and we believe our utilization levels are generally high.
Item 3.
Legal Proceedings
Woodward is currently involved in claims, pending or threatened litigation or other legal proceedings, investigations
and/or regulatory proceedings arising in the normal course of business, including, among others, those relating to product
liability claims, employment matters, worker’s compensation claims, contractual disputes, product warranty claims and
alleged violations of various laws and regulations. We accrue for known individual matters where we believe that it is
probable the matter will result in a loss when ultimately resolved using estimates of the most likely amount of loss.
While the outcome of pending claims, legal and regulatory proceedings, and investigations cannot be predicted with
certainty, management believes that any liabilities that may result from these claims, proceedings and investigations will not
have a material effect on Woodward's liquidity, financial condition, or results of operations.
Item 4.
Mine Safety Disclosures
Not applicable.
PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock is listed on The NASDAQ Global Select Market and is traded under the symbol “WWD.” At
November 7, 2014, there were approximately 1,100 holders of record.
The following table sets forth the high and low sales prices of our common stock and dividends paid for the periods
indicated.
Fiscal Year Ended September 30,
High
2014
Low
Cash
Dividends
High
2013
Low
Cash
Dividends
First quarter
Second quarter
Third quarter
Fourth quarter
$
$
$
$
46.23 $
46.69 $
51.12 $
55.76 $
38.80
40.09
40.14
47.20
$
$
$
$
0.08 $
0.08 $
0.08 $
0.08 $
38.19 $
40.91 $
41.37 $
42.89 $
31.41 $
36.59 $
33.49 $
38.00 $
0.08
0.08
0.08
0.08
24
Performance Graph
The following graph compares the cumulative 10-year total return to stockholders on our common stock relative to the
cumulative total returns of the S&P Midcap 400 index and the S&P Industrial Machinery index. The graph shows total
stockholder return assuming an investment of $100 (with reinvestment of all dividends) was made on September 30, 2004
in our common stock and in each of the two indexes and tracks relative performance through September 30, 2014. We have
used a period of 10 years as we believe that our stock performance should be reviewed over a period that is reflective of our
long-term business cycle.
9/04
9/05
9/06
9/07
9/08
9/09
9/10
9/11
9/12
9/13
9/14
Woodward, Inc.
S&P Midcap 400
$ 100.00 $ 127.79 $ 152.87 $ 287.03 $ 326.29 $ 227.00 $ 306.05 $ 260.77 $ 325.91 $ 394.97 $ 463.99
100.00
122.16
130.17
154.59
128.81
124.80
146.99
145.11
186.52
238.15
266.29
S&P Industrial Machinery
100.00
104.84
116.75
155.17
114.52
112.80
144.37
126.77
185.02
254.15
279.61
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
25
Issuer Purchases of Equity Securities
(In thousands, except for shares and per share amounts)
July 1, 2014 through July 31, 2014 (2)
August 1, 2014 through August 31, 2014 (2)
September 1, 2014 through September 30, 2014 (2)
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs (1)
Maximum
Number (or
Approximate
Dollar Value) of
Shares that may
yet be Purchased
under the Plans or
Programs at
Period End (1)
- $
-
-
58,512
58,512
58,512
Total Number
of Shares
Purchased
Weighted Average
Price Paid Per
Share
469 $
66
403
49.96
52.23
47.62
(1) In July 2013, our Board of Directors authorized a program for the repurchase of up to $200,000 of our outstanding
shares of common stock on the open market or in privately negotiated transactions over a three-year period that will
expire in July 2016.
(2) Under a trust established for the purposes of administering the Woodward Executive Benefit Plan, 469 shares of
Woodward common stock were acquired on the open market in July 2014, 66 shares in August 2014, and 72 shares
in September 2014, all in relation to the deferral of compensation by certain eligible members who irrevocably
elected to invest some or all of their deferred compensation in Woodward common stock. In addition, 331 shares of
common stock were acquired on the open market related to the reinvestment of dividends for shares of treasury
stock held for deferred compensation in September 2014. Shares owned by the trust, which is a separate legal
entity, are included in "Treasury stock held for deferred compensation" in the Consolidated Balance Sheets.
Item 6.
Selected Financial Data
The following selected financial data should be read in conjunction with the Consolidated Financial Statements and
related notes which appear in “Item 8 – Financial Statements and Supplementary Data” of this Form 10-K.
Net sales (1)
Net Earnings:
Year Ended September 30,
2014
2013
2012
2011
2010
(In thousands except per share amounts)
$2,001,240 $ 1,935,976 $ 1,865,627 $ 1,711,702 $ 1,457,030
Net earnings attributable to Woodward (1)(2)(3)
165,844
145,942
141,589
132,235
110,844
Net earnings attributable to noncontrolling interests
-
-
-
-
318
Earnings per share attributable to Woodward:
Basic earnings per share attributable to Woodward
Diluted earnings per share attributable to Woodward
Cash dividends per share
Income taxes (3)
Interest expense
Interest income
Depreciation expense
Amortization expense
Capital expenditures
Weighted-average shares outstanding:
Basic shares outstanding
Diluted shares outstanding
\
2.50
2.45
0.32
61,400
22,804
271
43,773
33,580
2.13
2.10
0.32
53,629
26,703
273
37,254
36,979
207,106
141,600
2.06
2.01
0.31
56,218
26,003
542
35,808
32,809
64,900
1.92
1.89
0.27
55,332
25,399
534
40,400
34,993
48,255
1.62
1.59
0.24
43,713
29,385
509
40,502
35,114
28,104
66,432
67,776
68,392
69,602
68,880
70,307
68,797
70,140
68,472
69,864
26
Working capital
Total assets
Long-term debt, less current portion
Total debt
Total liabilities
Stockholders’ equity
Full-time worker members
At September 30,
2014
2013
2012
2011
2010
(Dollars in thousands)
$ 668,628 $ 541,183 $ 623,609 $ 536,936 $ 456,577
2,397,202
2,218,518
1,859,964
1,781,434
1,663,233
710,000
710,000
450,000
550,000
1,236,258
1,075,973
384,375
392,204
851,849
1,160,944
1,142,545
1,008,115
6,701
6,736
6,650
406,875
425,249
862,337
919,097
6,199
425,250
465,842
860,039
803,194
5,433
Notes:
1. On December 28, 2012, Woodward acquired from GE Aviation Systems LLC (the “Seller”) substantially all of the assets and certain
liabilities of the Seller's thrust reverser actuation systems business located in Duarte, California (the “Duarte Business”). On April 14,
2011, Woodward acquired Integral Drive Systems AG and its European companies, including their respective holding companies
(“IDS”), and the assets of IDS’ business in China (together, the “IDS Acquisition”).
2.
3.
In the third quarter of fiscal year 2013, Woodward recorded a specific charge of $15,707 related to the alignment of its renewable power
business to the economic environment and then foreseeable future.
In fiscal year 2013, Woodward recognized a tax benefit of $4,911, or $0.07 per basic and diluted share, related to the retroactive impact
from fiscal year 2012 of the reinstatement of the U.S. research and experimentation credit. In fiscal year 2011, Woodward recognized a
tax benefit of $3,088, or $0.04 per basic and diluted share, related to the retroactive impact from fiscal year 2010 of the reinstatement of
the U.S. research and experimentation credit.
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Woodward enhances the global quality of life and sustainability by optimizing energy use through improved efficiency
and lower emissions. We are an independent designer, manufacturer, and service provider of energy control and optimization
solutions. We design, produce and service reliable, efficient, low-emission, and high-performance energy control products
for diverse applications in challenging environments. We have significant production and assembly facilities in the United
States, Europe and Asia, and promote our products and services through our worldwide locations.
Our strategic focus is providing control solutions for the aerospace and energy markets. The precise and efficient 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
defense 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 serving OEMs and equipment packagers, partnering with them to bring superior component and system
solutions to their demanding applications. We also provide aftermarket repair, replacement and other service support for our
installed products.
Our components and integrated systems optimize performance of commercial aircraft, defense aircraft, ground vehicles
and other equipment, gas and steam turbines, wind turbines, including converters and power grid related equipment,
industrial diesel, gas, alternative and dual fuel reciprocating engines, and electrical power systems. Our innovative fluid
energy, combustion control, electrical energy, and motion control systems help our customers offer more cost-effective,
cleaner, and more reliable equipment.
Management’s discussion and analysis should be read together with the Consolidated Financial Statements and Notes
included in this report. Dollar and number of share amounts contained in this discussion and elsewhere in this Annual Report
on Form 10-K are in thousands, except per share amounts.
BUSINESS ENVIRONMENT AND TRENDS
We serve the aerospace and energy markets.
Aerospace Markets
Our aerospace products and systems are primarily used to provide propulsion, actuation and motion control in both
commercial and defense fixed-wing aircraft and rotorcraft, as well as in other defense systems.
27
Commercial and Civil Aircraft – In the commercial aerospace markets, global air traffic continued to grow in fiscal year
2014. Commercial aircraft production has increased as aircraft operators continue to take delivery of more fuel efficient
aircraft and retire older, less efficient aircraft. This trend toward more fuel efficient aircraft favors our product offerings
because we have more content on the newer generation of aircraft that have recently entered service or are scheduled to go
into production over the next several years. We have been awarded content on the Airbus A320neo, Bell 429, Boeing 737
MAX, 787 and 747-8, Bombardier CSeries, Comac 919, Irkut MS-21 and a variety of business jet platforms, among others.
We continue to explore opportunities on new engine and aircraft programs that are under consideration or have been recently
announced.
Defense – The defense industry has been negatively impacted by the sequestration of appropriations under the Budget
Act, as well as threats of additional budget cuts and related program delays. Our involvement with a wide variety of defense
programs in fixed-wing aircraft, rotorcraft and weapons systems has provided relative stability for our defense market sales,
although the levels of future defense spending remain uncertain. Key programs on which our deliveries have been stable or
growing include the F/A-18 E/F, the F-35 (Joint Strike Fighter), and the Black Hawk and Apache helicopter programs. We
have significant motion control system content for the refueling boom on the KC-46A refueling tanker program, which
continues in development. Weapons programs for which we have significant sales include the JDAM, SDB and AIM9X
guided tactical weapon systems.
Aftermarket – Our commercial aftermarket business has increased as our products have been selected for new aerospace
platforms and our content has increased across existing platforms. We have experienced the strongest gains in commercial
aftermarket sales related to programs like Airbus A320 and Boeing 777. While some legacy programs have been negatively
impacted by the availability of surplus hardware from aircraft retirements (and subsequent disassembly for parts re-use)
combined with increasingly tight budget control by airline maintenance departments, growth at better-than-market levels
returned in fiscal year 2014. U.S. Government sustainment funds continue to be prioritized to defense aircraft platforms on
which we have content and accordingly, our defense aftermarket has remained steady throughout this cycle. While fiscal
year 2014 sales were impacted by completion or peaking in fiscal year 2013 of some major upgrades/overhaul programs, we
expect such programs to resume in 2015 and to contribute to an improved defense aftermarket performance.
Energy Markets
Our energy products are used worldwide in various types of turbine- and engine-powered equipment, including electric
power generation and distribution systems, ships, locomotives, compressors, pumps, and other mobile and industrial
machines.
Industrial Turbines and Compressors – In fiscal year 2014, the industrial turbine and compressor market continued slow
growth with some positive signs of acceleration. Demand for rotating equipment is increasing in Asia and specifically China,
while Europe remains slow and North America steady.
We believe we are well positioned in the gas turbine market, supporting our customers with high reliability systems
enabling efficiency gains and maintaining emissions compliance. It is expected that demand for gas turbines will increase to
meet long-term power needs and due to the inherent flexibility of gas turbines. Start reliability, fuel flexibility, and part load
efficiency are all key drivers, and we believe Woodward is well positioned to meet these demands on the next generation gas
turbine. Additionally, gas turbine aftermarket sales and services demonstrated significant growth in 2014 as owner/operators
worked with the OEMs upgrading equipment to meet new demands, and this growth is expected to continue.
In the oil and gas process industry, demand for industrial gas, steam turbines and compressors is expected to grow,
primarily due to increased supply of non-conventional natural gas and oil and increased global trade of natural gas.
Extraction, production, distribution and processing of oil and gas products utilize both gas and steam turbines, as well as
compressors. Most of the current growth is in upstream (extraction/production) applications, although downstream
(petrochemical, refining) applications are also expected to increase in the coming period as the supporting infrastructure is
built out. Liquefied Natural Gas production, gas-to-liquids processing, gas processing, oil refining and other chemical
refining processes drive demand for gas/steam turbines and compressor applications. We believe we are well positioned to
capture many of these opportunities with a renewed steam turbine portfolio and expanded focus on compressor controls.
Reciprocating Engines – While industrial production strengthened slowly in the United States during fiscal year 2014,
there was slowing growth in the key China markets and a decline in much of Europe.
We experienced increased demand for control systems and components used on large industrial gas engines, which we
believe was driven by increased market interest in using a relatively clean burning and low cost fuel, as well as increased use
of low-heat-content gases recovered from coal mines and bio waste streams. We also experienced increased demand for
controls and systems used on large industrial diesel engines, which reflects strengthening in orders for ships and other large
engine-powered equipment.
28
While demand for our control systems used on natural gas-fueled mobile and industrial equipment remained very strong,
we believe short-term natural gas supply shortages and fuel price increases in some key international markets limited growth.
Demand for our controls used on small diesel engines in construction and other industrial equipment declined slightly this
year.
Longer term, government emissions requirements across many regions and engine applications is driving demand for
higher-technology control systems, as is customer demand for improved engine efficiencies. Energy policies in some
countries encourage the use of natural gas and other alternative fuels over carbon-rich petroleum fuels, which we expect will
drive increased demand for our alternative fuel clean engine control technologies over the next five years.
Renewable Power – The renewable power industry, although strengthened in fiscal year 2014, remains challenged as a
result of concerns regarding government support, competitive pricing, and capacity and credit availability in the credit
markets for wind and solar projects. We expect the uncertainty regarding government renewable mandates and subsidies will
contribute to continued volatility in the renewable energy industry. In the longer term, we anticipate improvement in the
market as demand for low emission power sources increases and technology advancements allow renewable energy to be
more competitive with conventional energy sources.
Electrical Power Generation and Distribution – While various OEM customers have indicated a weakness in the power
generation markets during fiscal year 2014, demand for Woodward controls for power generation and power distribution
applications has held fairly steady. While slow economic growth has moderated the stress on utility generation capacity and
electrical grid infrastructures, demand for power generation controls used on wind turbines and in critical power applications
– such as back-up power supply at data centers – has remained strong.
Looking forward, we anticipate that integration of renewable energy sources into the grid and increased global energy
demand will drive new opportunities for advanced control and protection solutions.
RESULTS OF OPERATIONS
Non-U.S. GAAP Financial Measures
EBIT, EBITDA, and free cash flow
Earnings before interest and taxes (“EBIT”), earnings before interest, taxes, depreciation and amortization (“EBITDA”),
Energy segment net sales without the renewable power business, Energy segment earnings without the renewable power
business, and free cash flow are financial measures not prepared and presented in accordance with U.S. GAAP.
Earnings based non-U.S. GAAP financial measures
Management uses EBIT to evaluate Woodward’s performance without financing and tax related considerations, as these
elements may not fluctuate with operating results. Management uses EBITDA in evaluating Woodward’s operating
performance, making business decisions, including developing budgets, managing expenditures, forecasting future periods,
and evaluating capital structure impacts of various strategic scenarios. Securities analysts, investors and others frequently use
EBIT and EBITDA in their evaluation of companies, particularly those with significant property, plant, and equipment, and
intangible assets subject to amortization.
EBIT and EBITDA for the fiscal years ended September 30, 2014, September 30, 2013 and September 30, 2012 were as
follows:
Net earnings
Income taxes
Interest expense
Interest income
EBIT
Amortization of intangible assets
Depreciation expense
EBITDA
Year Ended September 30,
2014
2013
2012
$
165,844
$
145,942
$
141,589
61,400
22,804
(271)
249,777
33,580
43,773
53,629
26,703
(273)
226,001
36,979
37,254
56,218
26,003
(542)
223,268
32,809
35,808
$
327,130
$
300,234
$
291,885
In addition to the above non-U.S. GAAP financial measures, in fiscal year 2013 we used the following financial
measures: Energy segment net sales without the renewable power business and Energy segment earnings without the
renewable power business, which are financial measures not prepared and presented in accordance with U.S. GAAP. For
29
further discussion of these non-U.S. GAAP measures, see the Energy discussion in “Segment Results” under the caption
“2013 Segment Results Compared to 2012.”
The use of any of these non-U.S. GAAP financial measures is not intended to be considered in isolation of, or as a
substitute for, the financial information prepared and presented in accordance with U.S. GAAP. As EBIT, EBITDA, Energy
segment net sales without the renewable power business, and Energy segment earnings without the renewable power business
exclude certain financial information compared with net earnings, segment net sales and segment earnings, the most
comparable U.S. GAAP financial measures, users of this financial information should consider the information that is
excluded. Our calculations of EBIT, EBITDA, Energy segment net sales without the renewable power business, and Energy
segment earnings may differ from similarly titled measures used by other companies, limiting their usefulness as comparative
measures.
Cash flow-based non-U.S. GAAP financial measures
Management uses free cash flow, which is defined as net cash flows provided by operating activities less payments for
property, plant and equipment, in reviewing the financial performance of Woodward’s various business groups and
evaluating cash levels. Securities analysts, investors, and others frequently use free cash flow in their evaluation of
companies. The use of this non-U.S. GAAP financial measure is not intended to be considered in isolation of, or as a
substitute for, the financial information prepared and presented in accordance with U.S. GAAP. Free cash flow does not
necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash
needs. Our calculation of free cash flow may differ from similarly titled measures used by other companies, limiting its
usefulness as a comparative measure.
Free cash flow for the fiscal years ended September 30, 2014, September 30, 2013 and September 30, 2012 were as
follows:
Net cash provided by operating activities
Payments for property, plant and equipment
Free cash flow
Operational Highlights
Year Ended September 30,
2014
2013
2012
$
$
268,083
(207,106)
60,977
$
$
222,592
(141,600)
80,992
$
$
144,113
(64,900)
79,213
Net sales for fiscal year 2014 increased 3.4% to $2,001,240 from $1,935,976 for fiscal year 2013. Net sales for fiscal
year 2014, excluding the Duarte Business (discussed below) for the first three months of fiscal year 2014, were $1,969,808,
an increase of 1.7% from the prior fiscal year.
Net earnings for fiscal year 2014 were $165,844, or $2.45 per diluted share, an increase in net earnings of 13.6%
compared to $145,942, or $2.10 per diluted share, in fiscal year 2013. During the third quarter of fiscal year 2013, net
earnings included specific charges of $15,707, or $0.17 per diluted share, related to the realignment of our renewable power
business. The effective tax rate in fiscal year 2014 was 27.0%, compared to 26.9% for the prior fiscal year.
EBIT increased by $23,776, or 10.5%, to $249,777 in fiscal year 2014, compared to $226,001 for fiscal year 2013. The
prior year’s EBIT included the $15,707 of specific charges related to our renewable power business. EBITDA for fiscal year
2014 was $327,130, an increase of 9.0% from $300,234 for the same period of fiscal year 2013.
Duarte Business Acquisition
On December 27, 2012, Woodward entered into a definitive asset purchase agreement with GE Aviation Systems LLC
(the “Seller”) and General Electric Company for the acquisition of substantially all of the assets and certain liabilities related
to the Seller’s thrust reverser actuation systems business located in Duarte, California (the “Duarte Business”) for an
aggregate purchase price of $200,000. The sale was completed on December 28, 2012, and we paid cash at closing in the
amount of $198,900.
The Duarte Business develops and manufactures motion control technologies and platforms, more specifically thrust
reverser actuation systems. The Duarte Business serves customers such as Airbus, Boeing, General Electric, Safran and the
U.S. Government. Its products are used primarily on commercial aircraft, such as the Boeing 737, 747 and 777, and the
Airbus A320. The Duarte Business has been integrated into Woodward’s Aerospace segment and included in our operating
results since the acquisition.
Due to the timing of the closing of the acquisition, for the first quarter of fiscal year 2013 the Duarte Business had no
impact on net sales, and except for acquisition costs of $1,707, had no impact on EBIT or net earnings. In comparison, fiscal
year 2014 includes a full year of Duarte Business operating results.
30
Liquidity Highlights
Net cash provided by operating activities for fiscal year 2014 was $268,083, compared to $222,592 for fiscal year 2013.
Free cash flow for fiscal year 2014 was $60,977, compared to $80,992 for fiscal year 2013, primarily attributable to
higher cash flow from operations in the current year related mostly to improved earnings and working capital management,
more than offset by higher levels of capital expenditures in the current year.
On October 1, 2013, we entered into a note purchase agreement (the “2013 Note Purchase Agreement”) relating to the
sale by Woodward of an aggregate principal amount of $250,000 of its senior unsecured notes in a series of private
placement transactions. We issued the Series G, H and I Notes on October 1, 2013 in an aggregate principal amount of
$100,000 and used the proceeds to repay all of the outstanding balance on the Series B Notes due October 1, 2013. We
issued the Series J, K and L Notes in an additional $150,000 aggregate principal amount on November 15, 2013 and used the
proceeds to partially repay the uncommitted line of credit discussed below.
In connection with the acquisition of the Duarte Business on December 21, 2012, we entered into a 364 day
uncommitted line of credit with JPMorgan Chase Bank, N.A. (the “Line of Credit”), which provided for unsecured loans to
the Company of up to $200,000 on a revolving basis. The Line of Credit was repaid in full and terminated on December 20,
2013.
At September 30, 2014, we held $115,287 in cash and cash equivalents, and had total outstanding debt of $710,000 with
additional borrowing availability of $384,592, net of outstanding letters of credit, under our $600,000 revolving credit
facility. There was additional borrowing capacity of $27,872 under various foreign lines of credit and foreign overdraft
facilities.
The following tables set forth selected consolidated statements of earnings data as a percentage of net sales for each
period indicated:
Net sales
Costs and expenses:
Cost of goods sold
Year Ended September 30,
2014
2013
2012
% of Net
Sales
% of Net
Sales
% of Net
Sales
$ 2,001,240
100 % $ 1,935,976
100 % $ 1,865,627
100 %
1,425,839
71.2
1,376,271
71.1
1,303,344
69.9
Selling, general, and administrative expenses
155,339
138,005
33,580
22,804
(271)
(1,300)
1,773,996
227,244
61,400
7.8
6.9
1.7
1.1
(0.0)
(0.1)
88.6
11.4
3.1
168,097
130,250
36,979
26,703
(273)
(1,622)
1,736,405
199,571
53,629
8.7
6.7
1.9
1.4
(0.0)
(0.1)
89.7
10.3
2.8
164,512
143,274
32,809
26,003
(542)
(1,580)
1,667,820
197,807
56,218
$
165,844
8.3
$
145,942
7.5
$
141,589
8.8
7.7
1.8
1.4
(0.0)
(0.1)
89.4
10.6
3.0
7.6
Research and development costs
Amortization of intangible assets
Interest expense
Interest income
Other (income) expense, net
Total costs and expenses
Earnings before income taxes
Income tax expense
Net earnings
Other select financial data:
Working capital
Total debt
Total stockholders' equity
September 30,
September 30,
2014
2013
$
668,628
$
710,000
1,160,944
541,183
550,000
1,142,545
31
2014 RESULTS OF OPERATIONS
2014 Sales Compared to 2013
Consolidated net sales in fiscal year 2014 increased 3.4% to $2,001,240 from $1,935,976 in fiscal year 2013. Details of
the changes in consolidated net sales are as follows:
Consolidated net sales for the period ended September 30, 2013
$
Aerospace volume
Energy volume
Price and sales mix
Duarte Business net sales from October 2013 through December 2013
Effects of changes in foreign currency rates
1,935,976
(30,394)
42,975
18,951
31,432
2,300
Consolidated net sales for the period ended September 30, 2014
$
2,001,240
Net sales in fiscal year 2014 include sales from the Duarte Business for the first quarter of fiscal year 2014 for which
there were no comparable sales in the first quarter of fiscal year 2013 due to the timing of the acquisition. The remaining
increase in net sales for fiscal year 2014 was primarily attributable to improvements in a number of markets within both our
Energy and Aerospace segments, mostly offset by decreased volumes in defense sales in our Aerospace segment and lower
sales of natural gas bus and truck systems in our Energy segment.
Price changes: Increases in selling prices were driven primarily by our Aerospace segment markets.
Foreign currency exchange rates: During the fiscal year ended September 30, 2014, our net sales were positively
impacted by $2,300 due to favorable fluctuations in foreign currency exchange rates compared to the same period of fiscal
year 2013.
Our worldwide sales activities are primarily denominated in U.S. dollars (“USD”), European Monetary Units (“EUR”),
Great Britain pounds (“GBP”), Japanese yen (“JPY”), and Chinese yuan (“CNY”). As the USD, EUR, GBP, JPY, and CNY
fluctuate against each other and other currencies, we are exposed to gains or losses on sales transactions. If the CNY, which
the Chinese government has not historically allowed to fluctuate significantly against USD, is allowed to fluctuate against
USD in the future, we would be exposed to greater variability on sales transactions denominated in CNY. For additional
information on foreign currency exchange rate risk, please refer to the risk factor titled, “We derive a significant portion of
our revenues from non-U.S. sales and are subject to the risks inherent in doing business in other countries” set forth under the
caption “Risk Factors” in Part I, Item 1A of this Form 10-K.
2014 Costs and Expenses Compared to 2013
As previously reported, the third quarter of fiscal year 2013 included specific charges of $15,707 related to our
renewable power business. Uncertainty with respect to U.S. and other government renewable power incentives and economic
factors associated with alternate energy sources resulted in significant overcapacity and financial distress in the renewable
power industry, particularly in our fiscal year 2013. As a result, we made a decision in fiscal year 2013 to align our
renewable power business appropriately for the then current environment and foreseeable future, through revaluation of its
assets and liabilities, including workforce management actions.
Variable compensation expense, which is tied to relative financial and operating performance, can vary significantly
from fiscal year to year. During fiscal year 2014, variable compensation increased $29,667 as compared to fiscal year 2013
and impacted cost of goods sold, selling, general and administrative expenses, and research and development costs.
During the fourth quarter of fiscal year 2014, we recorded the following in costs and expenses: a curtailment gain of
$6,624 that pertained to amendments made to one of our defined benefit pension plans that resulted in a freeze to the benefits
of certain U.S. employees, an impairment charge of $3,138 related to the write down to fair market value of certain non-U.S.
held for sale assets, and accelerated cost recognition on lease commitments and related assets for property no longer in use of
$2,651. The majority of these amounts were recorded in cost of goods sold.
Cost of goods sold increased by $49,568 to $1,425,839, or 71.2% of net sales, for fiscal year 2014 from $1,376,271, or
71.1% of net sales, for 2013. The increase in costs of goods sold is primarily attributable to increased sales in our Energy
segment and significant increases in variable compensation compared to the prior year periods. Cost of goods sold for the
fiscal year 2013 included $8,300 of the specific charges (discussed above) related to the realignment of the renewable power
business within our Energy segment.
Gross margins (as measured by net sales less cost of goods sold, divided by net sales) were 28.8% for fiscal year 2014
and 28.9% for fiscal year 2013. Gross margins for the fiscal year 2014 were down slightly compared to fiscal year 2013,
32
primarily related to significant increases in variable compensation in fiscal year 2014, partially offset by the $8,300 of
specific charges included in gross margin in fiscal year 2013.
Selling, general, and administrative expenses decreased by $12,758 or 7.6%, to $155,339 for fiscal year 2014 as
compared to $168,097 for fiscal year 2013. Selling, general and administrative expenses decreased as a percentage of net
sales to 7.8% for fiscal year 2014 as compared to 8.7% for fiscal year 2013. The decrease in selling, general and
administrative expenses in fiscal year 2014 is due to cost control initiatives as well as the $7,407 of specific charges
(discussed above) that were included in selling, general and administrative expenses in fiscal year 2013 and that more than
offset significantly higher levels of variable compensation in fiscal year 2014.
Research and development costs increased by $7,755, or 6.0%, to $138,005 for fiscal year 2014 as compared to
$130,250 for fiscal year 2013. Research and development costs increased as a percentage of net sales to 6.9% for fiscal year
2014 as compared to 6.7% for fiscal year 2013. Research and development costs for fiscal year 2014 reflected increased
variable compensation when compared to the prior fiscal year and ongoing variability in spending. Our research and
development activities extend across almost all of our customer base, and we anticipate ongoing variability in research and
development due to the timing of customer business needs on current and future programs.
Amortization of intangible assets decreased to $33,580 for fiscal year 2014, compared to $36,979 for fiscal year 2013.
As a percentage of net sales, amortization of intangible assets decreased to 1.7% for fiscal year 2014 as compared to 1.9%
fiscal year 2013. The decrease in amortization expense is primarily related to intangible assets becoming fully amortized in
the current year.
Interest expense decreased to $22,804, or 1.1% of net sales, for fiscal year 2014, compared to $26,703, or 1.4% of net
sales, for fiscal year 2013. The decrease in interest expense is primarily attributable to an increase in the amount of interest
capitalized on our current capital improvement projects partially offset by increased borrowing year over year.
Income taxes were provided at an effective rate on earnings before income taxes of 27.0% for fiscal year 2014,
compared to 26.9% for fiscal year 2013. The changes in components of our effective tax rate (as a percentage of earnings
before income taxes) were attributable to the following:
Effective tax rate at September 30, 2013
Research and experimentation credit
Retroactive extension of research and experimentation credit
Adjustment of prior period tax items
Taxes on international activities
Other
Effective tax rate at September 30, 2014
26.9 %
2.4
2.5
(1.9)
(2.0)
(0.9)
27.0 %
The year-over-year effective tax rate for fiscal year 2014 increased slightly due to the retroactive impact of the
reinstatement of the U.S. research and experimentation credit in fiscal year 2013, which did not recur in fiscal year 2014.
This increase was offset by larger net favorable resolutions and reviews of tax matters and lapses of applicable statutes of
limitations, higher earnings in jurisdictions with lower tax rates, and reduced taxes on current and anticipated future
distributions of foreign earnings to the U.S in the current year.
The total amount of the gross liability for worldwide unrecognized tax benefits reported in other liabilities in the
Consolidated Balance Sheet was $22,687 at September 30, 2014 and $22,694 at September 30, 2013. At September 30,
2014, the amount of unrecognized tax benefits that would impact Woodward’s effective tax rate, if recognized, was $12,807.
At this time, we estimate it is reasonably possible that the liability for unrecognized tax benefits will decrease by as much as
$114 in the next twelve months due primarily to the expiration of certain statutes of limitations. We accrue for potential
interest and penalties related to unrecognized tax benefits in tax expense. Woodward had accrued interest and penalties of
$1,158 as of September 30, 2014 and $2,066 as of September 30, 2013.
Woodward’s 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. Reviews of tax matters by authorities and lapses of the applicable statutes of limitations may
result in changes to tax expense. With a few exceptions, Woodward’s fiscal years remaining open to examination in the
United States include fiscal years 2011 and thereafter, and fiscal years remaining open to examination in significant foreign
jurisdictions include 2005 and thereafter.
33
SEGMENT RESULTS
Woodward serves the aerospace market and the energy market through its two reportable segments - Aerospace and
Energy. Woodward’s reportable segments are aggregations of Woodward’s operating segments. The following table
presents sales by segment:
2014
2013
2012
Year Ended September 30,
Net sales:
Aerospace
Energy
Consolidated net sales
$
$
1,084,025
54.2%
917,215
45.8
2,001,240
100.0 %
$
$
1,061,477
54.8 %
$
896,083
48.0 %
874,499
45.2
969,544
52.0
1,935,976
100.0 %
$
1,865,627
100.0 %
The following table presents earnings by segment:
Aerospace
Energy
Total segment earnings
Nonsegment expenses
Interest expense, net
Consolidated earnings before income taxes
Income tax expense
Consolidated net earnings
Year Ended September 30,
2014
2013
2012
$
159,200 $
166,122 $
134,278
293,478
(43,701)
(22,533)
227,244
61,400
98,940
265,062
(39,061)
(26,430)
199,571
53,629
$
165,844 $
145,942 $
130,192
126,441
256,633
(33,365)
(25,461)
197,807
56,218
141,589
The following table presents earnings by segment as a percent of segment net sales:
Aerospace
Energy
2014 Segment Results Compared to 2013
Aerospace
Year Ended September 30,
2014
2013
2012
14.7 %
14.6
15.7 %
11.3
14.5 %
13.0
Aerospace segment net sales were $1,084,025 for fiscal year 2014, compared to $1,061,477 for fiscal year 2013.
Segment net sales for fiscal year 2014, excluding the sales from the acquired Duarte Business for the first quarter of fiscal
year 2014, for which there were no comparable sales in the first quarter of fiscal year 2013 due to the timing of the
acquisition, were $1,052,593, a decrease of $8,884, or 0.8%, compared to the prior fiscal year. The decrease in segment net
sales for fiscal year 2014 compared to fiscal year 2013 after excluding the net sales from the acquired Duarte Business for the
first quarter of fiscal year 2014, was driven primarily by significantly lower defense sales in both aftermarket and OEM,
partially offset by increases in commercial OEM and aftermarket sales.
Defense sales continue to reflect the ongoing U.S. government budget constraints, which have impacted the timing of
contracts and upgrade programs and resulted in variability during the current fiscal year, causing lower defense sales in fiscal
year 2014 as compared to the prior fiscal year. Defense aftermarket sales in fiscal year 2013 were strong compared to fiscal
year 2012 levels. Fiscal year 2014 defense sales decreased significantly from the prior year, particularly related to sales for
rotorcraft programs, but were comparable to fiscal year 2012. The majority of the decline in fiscal year 2014 related to
defense aftermarket sales as defense OEM sales declined, but not as significantly.
Commercial OEM aircraft deliveries of narrow-body and wide-body aircraft have continued to increase based on
improved airline demand and new product introduction. The commercial aftermarket showed improvement as global
passenger traffic growth continues to drive aircraft utilization.
34
Aerospace segment earnings decreased by $6,922, or 4.2%, to $159,200 for fiscal year 2014, compared to $166,122 for
fiscal year 2013 due to the following:
Earnings at September 30, 2013
Sales volume
Price, sales mix and productivity
Research and development expense
Variable compensation
Cost control initiatives
Other, net
Earnings at September 30, 2014
$
$
166,122
(13,256)
5,502
4,578
(14,220)
4,755
5,719
159,200
Segment earnings as a percentage of sales were 14.7% for fiscal year 2014 compared to 15.7% for fiscal year 2013. The
decrease in Aerospace segment earnings in fiscal year 2014 compared to fiscal year 2013 was primarily attributable to the
impact of reduced defense sales volumes and increases in variable compensation, partially offset by cost control initiatives
and lower research and development expenses.
Energy
Energy segment net sales were $917,215 for fiscal year 2014, compared to $874,499 for fiscal year 2013. The increase
in sales is primarily attributable to improvements in several markets, including the wind turbine converter, aero-derivative
turbine, and large gas and diesel engine markets, partially offset by lower sales of natural gas bus and truck systems.
Energy segment earnings increased by $35,338, or 35.7%, to $134,278 for fiscal year 2014 as compared to $98,940 for
fiscal year 2013 due to the following:
Earnings at September 30, 2013
Sales volume
Price, sales mix and productivity
Research and development expense
Specific charges related to renewable power business in fiscal year 2013
Realignment savings
Variable compensation
Effects of changes in foreign currency rates
Other, net
Earnings at September 30, 2014
$
$
98,940
18,140
3,862
(6,758)
15,707
6,566
(10,738)
1,187
7,372
134,278
Segment earnings as a percentage of sales increased to 14.6% in fiscal year 2014 compared to 11.3% for fiscal year
2013.
Uncertainty with respect to U.S. and other government renewable power incentives and economic factors associated with
alternate energy sources resulted in significant overcapacity and financial distress in the renewable power industry,
particularly in our fiscal year 2013. As a result, we made a decision in fiscal year 2013 to align our renewable power
business appropriately for the then current environment and foreseeable future, through revaluation of its assets and
liabilities, including workforce management actions, which resulted in specific charges of $15,707 in the third quarter of
fiscal year 2013. The savings benefits of these realignment changes contributed to improved earnings results in fiscal year
2014.
The remaining increase for fiscal year 2014 compared to the prior year in the Energy segment earnings, excluding the
specific charges of $15,707 taken in fiscal year 2013, was driven primarily by increased sales volume and related fixed cost
leverage, lean implementation and productivity improvements and realignment savings, partially offset by increases in
variable compensation and research and development expenses. Foreign currency exchange rates had a favorable impact of
$1,187 in fiscal year 2014 compared to fiscal year 2013.
Nonsegment expenses
Nonsegment expenses for fiscal year 2014 increased to $43,701, or 2.2% of net sales, compared to $39,061, or 2.0% of
net sales, for fiscal year 2013. The increase in nonsegment expense was primarily related to increases in variable
compensation.
35
2013 RESULTS OF OPERATIONS
2013 Sales Compared to 2012
Consolidated net sales increased 3.8% from $1,865,627 in fiscal year 2012 to $1,935,976 in fiscal year 2013. Details of
the changes in consolidated net sales are as follows:
Consolidated net sales for the period ended September 30, 2012
$
1,865,627
Aerospace segment volume
Energy segment volume
Price and sales mix
Duarte Business acquisition
Effects of changes in foreign currency rates
Consolidated net sales for the period ended September 30, 2013
35,282
(96,538)
24,254
111,261
(3,910)
$
1,935,976
The increase in net sales for fiscal year 2013 was primarily attributable to the Duarte Business acquisition, increased
volumes in our Aerospace segment due to increased commercial OEM and defense aftermarket sales, partially offset by
decreased volumes in our Energy segment attributable to significantly lower wind turbine converter sales. Wind turbine
converter sales through our renewable power business were higher in fiscal year 2012 compared to fiscal year 2013 due to
accelerated ordering by our customers in an effort to take advantage of the then-expiring government incentives and to
comply with various renewable energy mandates. The balance of the decline in wind turbine converter sales in fiscal year
2013 reflected general uncertainty with respect to investments in large wind projects.
Price changes: Increases in selling prices were driven primarily by our Aerospace segment markets. Selling prices in
the Energy segment also increased due to standard business practice in response to inflationary increases in production and
material costs.
Foreign currency exchange rates: During the fiscal year ended September 30, 2013, our net sales were negatively
impacted by $3,910 due to unfavorable fluctuations in foreign currency exchange rates, compared to the same period of fiscal
year 2012.
2013 Costs and Expenses Compared to 2012
Cost of goods sold increased by $72,927 to $1,376,271 or 71.1% of net sales, for fiscal year 2013 from $1,303,344, or
69.9% of net sales, for fiscal year 2012. Gross margins (as measured by net sales less cost of goods sold, divided by net
sales) were 28.9% for fiscal year 2013 and 30.1% for fiscal year 2012. The decrease in gross margin in fiscal year 2013 as
compared to fiscal year 2012 was attributable to the decreased volume in our Energy segment, mostly due to reduced wind
turbine converter sales volumes and the loss of related fixed cost leverage, as well as charges of $8,300 associated with a
portion of the specific charges in the third quarter of fiscal year 2013 related to the renewable power business within the
Energy segment, partially offset by the effects of increased sales volume in our Aerospace segment, favorable product mix
and improved operational performance.
Selling, general, and administrative expenses increased by $3,585 or 2.2%, to $168,097 for fiscal year 2013 as
compared to $164,512 for fiscal year 2012. Selling, general and administrative expenses increased as a percentage of net
sales to 8.7% for fiscal year 2013 as compared to 8.8% for fiscal year 2012. The increase in expenses was primarily related
to charges of $7,407 associated with a portion of the specific charges in the third quarter of fiscal year 2013 related to our
renewable power business within the Energy segment. In addition, fiscal year 2013 selling, general, and administrative
expenses included approximately $1,944 of transaction costs related to the Duarte Acquisition as well as a general increase in
expenses related to the Duarte Business. These increases were partially offset by decreased bad debt expenses in fiscal year
2013 as compared to fiscal year 2012. Fiscal year 2012 expense included charges related to the bankruptcies of several
airlines and the credit issues of some of our renewable power customers that did not recur in fiscal year 2013.
Research and development costs decreased by $13,024, or 9.1%, to $130,250 for fiscal year 2013 as compared to
$143,274 for fiscal year 2012. Research and development costs decreased as a percentage of net sales to 6.7% for fiscal year
2013 as compared to 7.7% for fiscal year 2012. Research and development costs decreased primarily due to the completion
of development of certain programs and related decreases of materials purchases.
Amortization of intangible assets increased to $36,979 for fiscal year 2013 compared to $32,809 for fiscal year 2012.
As a percentage of net sales, amortization of intangible assets increased to 1.9% for fiscal year 2013 as compared to 1.8%
fiscal year 2012.
36
Interest expense increased to $26,703, or 1.4% of net sales, for fiscal year 2013 compared to $26,003, or 1.4% of net
sales, for fiscal year 2012.
Income taxes were provided at an effective rate on earnings before income taxes of 26.9% for fiscal year 2013 compared
to 28.4% for fiscal year 2012. The change in the effective tax rate (as a percentage of earnings before income taxes) was
attributable to the following:
Effective tax rate at September 30, 2012
Extension of research credit in fiscal year 2013
Taxes on international activities
Other changes, net
Effective tax rate at September 30, 2013
28.4 %
(4.8)
1.6
1.7
26.9 %
On January 2, 2013, the Taxpayer Relief Act was enacted, which retroactively extended the U.S. research and
experimentation tax credit through December 31, 2013. As a result, income taxes for fiscal year 2013 included a net expense
reduction related to the extension of the U.S. research and experimentation tax credit pursuant to the Taxpayer Relief Act,
including the fiscal year 2012 retroactive portion of the extension.
During the second quarter of fiscal year 2012, we re-evaluated our strategic alternatives in various international markets
and determined that a portion of the undistributed earnings of certain of our foreign subsidiaries that were previously
expected to be repatriated to the United States within the foreseeable future will remain indefinitely invested outside the
United States to support the growth of future foreign operations. We accordingly reversed the deferred tax liability
associated with repatriating those earnings, which resulted in a tax benefit of $3,326 for fiscal year 2012. This item is
included in the “Taxes on international activities” line in the rate reconciliation above.
2013 Segment Results Compared to 2012
Aerospace
Aerospace segment net sales increased $165,394, or 18.5%, to $1,061,477 for fiscal year 2013 from $896,083 for fiscal
year 2012. Segment net sales excluding the Duarte Business were $950,216 for fiscal year 2013. Segment sales, excluding
the Duarte Business sales, for fiscal year 2013 were higher compared to fiscal year 2012, driven primarily by defense
aftermarket sales and commercial OEM sales.
Defense aftermarket spare parts and repair sales were up significantly, particularly due to increases related to sales for
rotorcraft programs. Commercial OEM aircraft deliveries of narrow-body and wide-body aircraft have continued to increase
based on improved airline demand and new product introduction.
During our second quarter of fiscal year 2013, the sequestration of U.S. federal government appropriations took effect
under the Budget Act. The effect on our fiscal year 2013 results was limited, as we saw strong defense aftermarket sales and
slightly lower OEM defense sales.
Aerospace segment earnings increased by $35,930, or 27.6%, to $166,122 for fiscal year 2013 compared to fiscal year
2012 due to the following:
Earnings at September 30, 2012
Sales volume
Price and sales mix
Research and development expense
Other, net
Earnings at September 30, 2013
$
130,192
21,341
6,540
6,339
1,710
$
166,122
Segment earnings as a percentage of sales increased to 15.7% in fiscal year 2013 compared to 14.5% for fiscal year
2012. The increase in Aerospace segment earnings in fiscal year 2013 compared to fiscal year 2012 was primarily the result
of sales volume increases, the effects of increased selling prices and favorable mix, and decreased investment in research and
development.
37
Energy
The following table presents the Energy segment’s external net sales and earnings excluding the results of and charges
related to the renewable power business.
External net sales:
Energy segment net sales
Less: Renewable power business segment net sales
Energy segment net sales without the renewable power business
Segment earnings:
Energy segment earnings
Less: Renewable power business segment earnings
Renewable power business specific charges
Energy segment earnings without the renewable power business
Segment earnings as a percent of sales:
Energy
Energy without the renewable power business
$
$
$
$
Year Ended September 30,
2013
2012
874,499 $
117,086
757,413 $
98,940 $
(5,520)
(15,707)
120,167 $
11.3%
15.9%
969,544
210,629
758,915
126,441
13,901
-
112,540
13.0%
14.8%
Uncertainty with respect to U.S. and other government renewable power incentives and economic factors associated with
alternate energy sources resulted in significant overcapacity and financial distress in the renewable power industry,
particularly in our fiscal year 2013. As a result, we made a decision in fiscal year 2013 to align our renewable power
business appropriately for the then current environment and foreseeable future, through revaluation of its assets and
liabilities, including workforce management actions.
Energy segment net sales without the renewable power business and Energy segment earnings without the renewable
power business are financial measures not prepared and presented in accordance with U.S. GAAP. Management used these
financial measures to compare the performance of its business with and without the effects of significant discrete economic
events in order to analyze and understand Woodward’s Energy reportable segment results. Management identified the
changes in the market economics of its renewable power business as such a significant discrete economic
event. Management used this with and without the renewable power business segment net sales and segment net earnings
information in its decision to align its renewable power business appropriately for the current environment and foreseeable
future. In addition, management used this with and without the renewable power business information for prior year
comparative purposes for the Energy segment. As management believes Energy segment net sales without the renewable
power business and Energy segment earnings without the renewable power business provides more comparable year over
year information, we have included this non-U.S. GAAP measure in this “Management’s Discussion and Analysis” to
provide insight to securities analysts, investors, and others into how our management views our current financial condition
and results of operations.
The use of these non-U.S. GAAP financial measures is not intended to be considered in isolation of, or as a substitute
for, the financial information prepared and presented in accordance with U.S. GAAP. As Energy segment net sales without
the renewable power business and Energy segment earnings without the renewable power business exclude certain financial
information compared with segment net sales and segment earnings, respectively, the most comparable U.S. GAAP financial
measures, users of this financial information should consider the information that is excluded.
Energy segment net sales decreased $95,045, or 9.8%, to $874,499 for fiscal year 2013 from $969,544 for fiscal year
2012. Excluding the renewable power business sales for all periods, Energy segment net sales for fiscal year 2013 would
have been comparable to fiscal year 2012.
Wind turbine converter sales for fiscal year 2013 declined approximately $95,000 as compared to fiscal year 2012.
Wind turbine converter sales were higher in fiscal year 2012 partially due to accelerated ordering by our customers in an
effort to take advantage of the then expiring government incentives and to comply with various renewable energy mandates.
The balance of the decline in wind turbine converter sales in fiscal year 2013 was unanticipated and reflected general
uncertainty with respect to investments in large wind projects due to the volatility of government incentives, economic
uncertainty and overcapacity in the market.
The Taxpayer Relief Act extended the wind tax credit for projects that begin construction in calendar year 2013. Due to
the lengthy planning and ordering cycle involved in these wind turbine projects, the effect of this legislation on our sales in
fiscal year 2013 was not material.
38
Strong sales of compressed natural gas systems and aero-derivative gas turbine systems were offset by softness in other
reciprocating engine and heavy-frame industrial turbine systems sales. Other reciprocating engine and heavy-frame industrial
turbine systems sales were negatively impacted by weaker economic conditions, outside of the United States, in the global
economy. Growth in shipbuilding, petrochemical plants and heavy frame turbines, where long lead times and significant
investments are required, did not materialize as anticipated due to the continuing economic conditions.
Energy segment earnings increased by $27,501, or 21.8%, to $98,940 for fiscal year 2013 as compared to fiscal year
2012 due to the following:
Earnings at September 30, 2012
Sales volume
Price and sales mix
Specific charges related to the renewable power business
Research and development expense
Effects of changes in foreign currency rates
Other, net
Earnings at September 30, 2013
$
$
126,441
(39,635)
23,873
(15,707)
4,616
(3,099)
2,451
98,940
Segment earnings as a percentage of sales decreased to 11.3% in fiscal year 2013 compared to 13.0% for fiscal year
2012. The decrease in the Energy segment earnings for fiscal year 2013 as compared to fiscal year 2012 was driven
primarily by $15,707 of specific charges, as well as decreased volumes and the loss of related fixed cost leverage, related to
our renewable power business. This was partially offset by the effects of selling prices and favorable product mix and
reduced research and development expense. Foreign currency exchange rates had an unfavorable impact of $3,099 for fiscal
year 2013 compared to fiscal year 2012.
Excluding the specific charges in fiscal year 2013 and the operations of the renewable power business for all periods,
segment earnings were $120,167 for fiscal year 2013 compared to $112,540 for fiscal year 2012. Excluding the specific
charges in fiscal year 2013 and the operations of the renewable power business for all periods, earnings as a percentage of
sales were 15.9% for fiscal year 2013 compared to 14.8% for fiscal year 2012. The increase in segment earnings excluding
the specific charges and operations of the renewable power business was due to the effects of selling prices and favorable
product mix and reduced research and development expense.
Non segment expenses
Nonsegment expenses for fiscal year 2013 increased to $39,061, or 2.0% of net sales, compared to $33,365, or 1.8% of
net sales, for fiscal year 2012. The increase in nonsegment expenses as a percent of net sales for fiscal year 2013 is primarily
attributable to costs of $1,944 associated with the acquisition of the Duarte Business.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have been able to satisfy our working capital needs, as well as capital expenditures, product
development and other liquidity requirements associated with our operations, with cash flow provided by operating activities
and borrowings under our credit facilities. We expect that cash generated from our operating activities, together with
borrowings under our revolving credit facility, will be sufficient to fund our continuing operating needs, including capital
expansion funding.
Our aggregate cash and cash equivalents were $115,287 at September 30, 2014 and $48,556 at September 30, 2013, and
our working capital was $668,628 at September 30, 2014 and $541,183 at September 30, 2013. Of the $115,287 of cash and
cash equivalents held at September 30, 2014, $95,264 was held by our foreign locations. We are not presently aware of any
significant restrictions on the repatriation of these funds, although a portion is considered indefinitely reinvested in these
foreign subsidiaries. If these funds were needed to fund our operations or satisfy obligations in the United States, they could
be repatriated and their repatriation into the United States may cause us to incur additional U.S. income taxes or foreign
withholding taxes. Any additional U.S. taxes could be offset, in part or in whole, by foreign tax credits. The amount of such
taxes and application of tax credits would be dependent on the income tax laws and other circumstances at the time these
amounts are repatriated. Based on these variables, it is impractical to determine the income tax liability that might be
incurred if these funds were to be repatriated.
Consistent with business practice common in China, Woodward’s Chinese subsidiary accepts from Chinese customers,
in settlement of certain customer accounts receivable, bankers acceptance notes issued by creditworthy Chinese banks.
Bankers acceptance notes are financial instruments issued by Chinese financial institutions as part of financing arrangements
between the financial institution and a customer of the financial institution. Bankers acceptance notes represent a
39
commitment by the issuing financial institution to pay a certain amount of money at a specified future maturity date to the
legal owner of the bankers acceptance note as of the maturity date. The maturity date of bankers acceptance notes varies, but
it is Woodward’s policy to only accept bankers acceptance notes with maturity dates no more than 180 days from the date of
Woodward’s receipt of such draft. The issuing financial institution is the obligor, not Woodward’s customers. Upon
Woodward’s acceptance of a bankers acceptance note from a customer, such customer has no further obligation to pay
Woodward for the related accounts receivable balance. Woodward had bankers acceptance notes of $62,352 at September
30, 2014 and $72,954 at September 30, 2013 recorded as non-customer accounts receivable on its consolidated balance
sheets. Woodward only accepts bankers acceptance notes issued by creditworthy banks as to which the credit risk associated
with the bankers acceptance note is assessed to be minimal.
On October 1, 2013, we entered into the 2013 Note Purchase Agreement relating to the sale by Woodward of an
aggregate principal amount of $250,000 of its senior unsecured notes in a series of private placement transactions. We issued
the Series G, H and I Notes on October 1, 2013 in an aggregate principal amount of $100,000 and used the proceeds to repay
all of the outstanding balance on our Series B Notes due October 1, 2013. We issued the Series J, K and L Notes in an
additional $150,000 aggregate principal amount on November 15, 2013. The notes issued under the 2013 Note Purchase
Agreement have not been registered under the Securities Act of 1933 and they may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements. Holders of the notes under the 2013 Note
Purchase Agreement are not entitled to any registration rights. For further discussion of the 2013 Note Purchase Agreement,
see Note 12, Credit facilities, short-term borrowings and long-term debt to the Consolidated Financial Statements in “Item 8
– Financial Statements and Supplementary Data.”
Our revolving credit facility, which we entered into on July 10, 2013, matures in July 2018 and provides a borrowing
capacity of up to $600,000 with the option to increase total available borrowings to up to $800,000, subject to lenders’
participation. We can borrow against our $600,000 revolving credit facility as long as we are in compliance with all of our
debt covenants. Historically, we have used borrowings under our revolving credit facilities to meet certain short-term
working capital needs, as well as for strategic uses, including repurchases of our stock, payments of dividends, and
acquisitions. In addition, we have various foreign credit facilities, some of which are tied to net amounts on deposit at certain
foreign financial institutions. These foreign credit facilities are reviewed annually for renewal. We use borrowings under
these foreign credit facilities to finance certain local operations on a periodic basis. For further discussion of our revolving
and other credit facilities, see Note 12, Credit facilities, short-term borrowings and long-term debt, to the Consolidated
Financial Statements in “Item 8 – Financial Statements and Supplementary Data.”
At September 30, 2014, we had total outstanding debt of $710,000, with additional borrowing availability of $384,592
under our revolving credit facility, net of outstanding letters of credit, and additional borrowing availability of $27,872 under
various foreign credit facilities.
In connection with the acquisition of the Duarte Business on December 21, 2012, we entered into the Line of Credit.
The Line of Credit provided for unsecured loans to the Company of up to $200,000 on a revolving basis. Loans made under
the Line of Credit bore interest at a floating rate based, at the Company’s option, on either the prime rate or an adjusted
LIBOR. The Line of Credit was repaid in full and terminated on December 20, 2013.
At September 30, 2014, we had $210,000 of borrowings outstanding under our revolving credit facility, which was
classified as long-term, and no borrowings outstanding under our foreign credit facilities. Revolving credit facility and short-
term borrowing activity during the fiscal year ended September 30, 2014 was as follows:
Maximum daily balance during the period
Average daily balance during the period
Weighted average interest rate on average daily balance
$
$
220,000
149,893
1.31%
We were in compliance with all our debt covenants at September 30, 2014. See Note 12, Credit facilities, short-term
borrowings and long-term debt, to the Consolidated Financial Statements in “Item 8 – Financial Statements and
Supplementary Data” for more information about our covenants.
In addition to utilizing our cash resources to fund the working capital needs of our business, we evaluate additional
strategic uses of our funds, including the repurchase of our stock, payment of dividends, significant capital expenditures,
consideration of strategic acquisitions and other potential uses of cash.
We are currently developing a second campus in the greater-Rockford, Illinois area for our Aerospace segment. This
campus is intended to support the growth expected over the next ten years and beyond stimulated by our being awarded a
substantial number of new system platforms, particularly on narrow-body aircraft. These investments are expected to result
in future productivity gains for our existing and new business. However, given the significance of the anticipated volumes
associated with the new system platforms, we still expect our Rockford area workforce to increase substantially, by as much
as 70%-90% from current levels, by the end of 2021. In addition, in September 2013, we invested in a building site in Niles,
40
Illinois. We are building a new facility on this site for our Aerospace segment and will relocate some of our operations
currently residing in nearby Skokie, Illinois, to this new facility. We are also developing a new campus at our corporate
headquarters in Fort Collins, Colorado to support the continued growth of our Energy segment by supplementing our existing
Colorado manufacturing facilities and corporate headquarters. We anticipate investing approximately $500,000 through
fiscal year 2016 in land, buildings and equipment among our two Rockford, Illinois area campuses, the facility in Niles,
Illinois, and a new campus at our corporate headquarters in Fort Collins, Colorado and to date have spent approximately
$200,000 related to these investments.
We believe that cash flows from operations, along with our contractually committed borrowings and other borrowing
capability, will continue to be sufficient to fund anticipated capital spending requirements and our operations for the
foreseeable future. However, we could be adversely affected if the banks supplying our borrowing requirements refuse to
honor their contractual commitments, cease lending, or declare bankruptcy. While we believe the lending institutions
participating in our credit arrangements are financially stable, events in the global credit markets, including the failure,
takeover or rescue by various government entities of major financial institutions, have created uncertainty with respect to
credit availability.
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.
Cash Flows
Year Ended
September 30,
2014
2013
2012
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
$
268,083 $
222,592 $
(205,829)
9,477
(5,000)
66,731
48,556
(340,042)
102,473
1,704
(13,273)
61,829
Cash and cash equivalents at end of period
$
115,287 $
48,556 $
144,113
(64,617)
(90,461)
(1,745)
(12,710)
74,539
61,829
2014 Cash Flows Compared to 2013
Net cash flows provided by operating activities for fiscal year 2014 was $268,083, compared to $222,592 in fiscal year
2013. The increase of $45,491 is primarily attributable to improved working capital utilization and higher earnings in the
current fiscal year.
Accounts receivable provided $30,880 of cash in fiscal year 2014 compared to $9,774 of cash utilized in fiscal year
2013, accounting for the majority of the increase in operating cash flows. The amount of cash provided by accounts
receivable in fiscal year 2014 reflects a decrease in accounts receivable in fiscal year 2014 as compared to fiscal year 2013
due to better collections in fiscal year 2014. The increase in operating cash flows was also attributable to higher net earnings
in fiscal year 2014 as compared to fiscal year 2013. These increases in cash were partially offset by an increase in cash
utilized for inventory in fiscal year 2014. Inventory utilized $27,788 of cash in fiscal year 2014 compared to cash utilized of
$1,485 in fiscal year 2013. The increase in cash utilized is the result of inventory builds to meet the future demands of our
customers.
Net cash flows used in investing activities for fiscal year 2014 was $205,829, compared to $340,042 in fiscal year 2013.
The decrease in cash used in investing activities compared to the same period of the last fiscal year is due primarily to the
acquisition of the Duarte Business in the first quarter of fiscal year 2013, which utilized $198,860 of cash. This decrease was
partially offset by increased payments for property, plant and equipment of $65,506 to $207,106 in fiscal year 2014 as
compared to $141,600 in fiscal year 2013 related mainly to the development of a second campus in the greater-Rockford,
Illinois area, a new facility in Niles, Illinois, and a new campus at our headquarters in Fort Collins, Colorado.
Net cash flows provided by financing activities for fiscal year 2014 was $9,477 compared to $102,473 for fiscal year
2013. During fiscal year 2014, we had net short and long-term borrowings of $160,002 compared to net debt borrowings of
$157,713 in the prior year. Slightly higher borrowings in fiscal year 2014 were primarily attributable to increased payments
for property, plant and equipment. We utilized $141,488 to repurchase 3,272 shares of our common stock in fiscal year
41
2014, compared to $45,754 to repurchase 1,233 shares of our common stock in fiscal year 2013. The fiscal year 2014
repurchases were made under our existing stock repurchase program, which is described in greater detail under “Issuer
Purchases of Equity Securities” in Part II, Item 5 of this Form 10-K.
2013 Cash Flows Compared to 2012
Net cash flows provided by operating activities for fiscal year 2013 was $222,592 compared to $144,113 in fiscal year
2012. Accounts receivable utilized $9,774 of cash in fiscal year 2013 compared to $59,061 of cash utilized in fiscal year
2012, accounting for the majority of the change. The amount of cash utilized for accounts receivable in fiscal year 2013
reflects a slight increase in accounts receivable in fiscal year 2013 as compared to fiscal year 2012. The higher utilization in
fiscal year 2012 reflects the significant increase in accounts receivable in fiscal year 2012 when compared to fiscal year 2011
due to higher sales in fiscal year 2012 as compared to fiscal year 2011. The increase in operating cash flows was also
attributable to operational improvements, which lowered inventory requirements in fiscal year 2013. Inventory utilized
$1,485 of cash in fiscal year 2013 compared to $18,702 of cash utilized in fiscal year 2012.
Net cash flows used in investing activities for fiscal year 2013 was $340,042 compared to $64,617 in fiscal year 2012.
The increase in cash used in fiscal year 2013 compared to fiscal year 2012 is due primarily to the acquisition of the Duarte
Business in the first quarter of fiscal year 2013 which utilized $198,860 of cash. In addition, payments for property, plant
and equipment increased by $76,700 to $141,600 in fiscal year 2013 as compared to $64,900 in fiscal year 2012 related
mainly to the development of a second campus in the greater-Rockford, Illinois area, a new campus at our headquarters in
Fort Collins, Colorado and the purchase of a building site in Niles, Illinois.
Net cash flows provided by financing activities for fiscal year 2013 was $102,473 compared to net cash flows used for
financing activities of $90,461 for fiscal year 2012. During fiscal year 2013, we had net short and long-term borrowings of
$157,713 compared to net debt repayments of $33,091 in fiscal year 2012. The higher borrowings in fiscal year 2013 were
primarily attributable to the acquisition of the Duarte Business. We utilized $45,754 to repurchase 1,233 shares of our
common stock in fiscal year 2013, compared to $44,110 to repurchase 1,132 shares of our common stock in fiscal year 2012,
under our $200,000 stock repurchase program authorized by our Board of Directors in July 2010.
Off-Balance Sheet Arrangements and Contractual Obligations
Off-Balance Sheet Arrangements
As of September 30, 2014, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of
Regulation S-K promulgated by the SEC, that have or are reasonably likely to have a current or future effect on our financial
condition, changes in our financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or
capital resources, that are material to investors.
Contractual Obligations
A summary of our consolidated contractual obligations and commitments as of September 30, 2014 is as follows:
2015
2016
2017
2018
2019
Thereafter
Year Ending September 30,
(in thousands)
Long-term debt principal
$
- $
107,000 $
- $
- $
143,000 $
250,000
Interest on debt obligations (1)
Operating leases
Purchase obligations (2)
Construction contractual obligation (3)
Other (4)
Total
25,953
6,393
331,300
81,746
30
20,805
4,327
11,445
20,263
-
18,542
3,264
18,542
2,548
10,410
1,377
-
-
-
-
-
-
-
-
-
34,489
1,430
-
-
22,687
$
445,422 $
163,840 $
21,806 $
21,090 $
154,787 $
308,606
(1) Interest obligations on floating rate debt instruments are calculated for future periods using interest rates in effect as
of September 30, 2014. See Note 12, Credit facilities, short-term borrowings and long-term debt, to the
Consolidated Financial Statements in “Item 8 – Financial Statements and Supplementary Data” for further details on
our long-term debt.
(2) Purchase obligations include amounts committed under legally enforceable contracts or purchase orders for goods
and services with defined terms as to price, quantity, delivery, and termination liability.
42
(3) Construction contractual commitments represent estimated amounts to be paid under contracts to construct a second
campus in the greater-Rockford, Illinois area, a new campus at our corporate headquarters in Fort Collins, Colorado
and a new facility in Niles, Illinois. We anticipate investing approximately $500,000 through fiscal year 2016 in
land, buildings and equipment among our two Rockford, Illinois area campuses, the facility in Niles, Illinois, and a
new campus at our corporate headquarters in Fort Collins, Colorado and to date have spent approximately $200,000
related to these investments.
(4) The $22,687 included in other obligations in the “Thereafter” column represents our best reasonable estimate for
uncertain tax positions at this time and may change in future periods, as the timing of the payments and whether
such payments will actually be required cannot be reasonably estimated.
The above table does not reflect the following items:
Contributions to our retirement pension benefit plans, which we estimate will total approximately $2,573 in
2015. As of September 30, 2014 our pension plans were overfunded by $3,886 based on projected benefit
obligations. Statutory pension contributions in future fiscal years will vary as a result of a number of factors,
including actual plan asset returns and interest rates.
Contributions to our other postretirement benefit plans, which we estimate will total $3,778 in 2015. Other
postretirement contributions are made on a “pay-as-you-go” basis as payments are made to healthcare
providers, and such contributions will vary as a result of changes in the future cost of postretirement healthcare
benefits provided for covered retirees. As of September 30, 2014, our other postretirement benefit plans were
underfunded by $29,225 based on projected benefit obligations.
Business commitments made to certain customers to perform under long-term product development projects,
some of which may result in near-term financial losses. Such losses, if any, are recognized when they become
likely to occur.
In connection with the sale of the F&P product line during fiscal year 2009, Woodward assigned to a subsidiary of the
purchaser its rights and responsibilities related to certain contracts with the U.S. Government. Woodward provided to the
U.S. Government a customary guarantee of the purchaser’s subsidiary’s obligations under the contracts. The purchaser and
its affiliates have agreed to indemnify Woodward for any liability incurred with respect to the guarantee.
Guarantees and letters of credit totaling approximately $5,937 were outstanding as of September 30, 2014, some of
which were secured by parent guarantees from Woodward or by Woodward line of credit facilities.
In the event of a change in control of Woodward, as defined in change-in-control agreements with our current corporate
officers, we may be required to pay termination benefits to such officers.
New Accounting Standards
From time to time, the Financial Accounting Standards Board (“FASB”) or other standards setting bodies issue new
accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through
issuance of an Accounting Standards Update (“ASU”). Unless otherwise discussed, we believe that the impact of recently
issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our
Consolidated Financial Statements upon adoption.
To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information
provided in our Note 2, New accounting standards, to the Consolidated Financial Statements in “Item 8 – Financial
Statements and Supplementary Data.”
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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 Consolidated Financial Statements and
accompanying notes. Note 1, Operations and summary of significant accounting policies, to the Consolidated Financial
Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial
Statements. The estimates and assumptions described below are those that we consider to be most critical to an
understanding of our financial statements because they involve significant judgments and uncertainties. All of these
estimates reflect our best judgment about current, and for some estimates, future economic and market conditions and their
effects based on information available as of the date of these financial statements. As estimates are updated or actual
amounts are known, our critical accounting estimates are revised, and operating results may be affected by the revised
estimates. Actual results may differ from these estimates under different assumptions or conditions.
43
Our management has discussed the development and selection of these critical accounting estimates with the Audit
Committee of our Board of Directors, and the Audit Committee has reviewed our disclosures in this Management’s
Discussion and Analysis.
Revenue recognition
Woodward recognizes revenue when the following criteria are met:
1) persuasive evidence of an arrangement exists,
2) delivery of the product has occurred or services have been rendered,
3) price is fixed or determinable, and
4) collectability is reasonably assured.
In implementing the four criteria stated above, we have found that determining when the risks and rewards of ownership
have passed to the customer, which determines whether persuasive evidence of an arrangement exists and if delivery has
occurred, may require judgment. The passage of title indicates transfer of the risks and rewards of ownership from
Woodward to the customer; however, contract- and customer-specific circumstances are reviewed by management to ensure
that transfer of title constitutes the transfer of the risks and rewards of ownership.
Examples of situations requiring management review and judgment, with respect to the passage of the risks and rewards
of ownership, include: interpretation of customer-specific contract terms, situations where substantive performance
obligations exist, such as completion of product testing that remain after product delivery to the customer, situations that
require customer acceptance (or in some instances regulatory acceptance) of the product, and situations in countries whose
laws provide for retention of some form of title by sellers such that Woodward is able to recover goods in the event a
customer defaults on payment.
Based on management’s determination, if the risks and rewards of ownership have not passed to the customer, revenue is
deferred until this requirement is met.
Purchase accounting
During the first quarter of fiscal year 2013, we completed the Duarte Acquisition for an aggregate purchase price of
$200,000. The acquisition was completed on December 28, 2012, and, based on preliminary purchase adjustments, we paid
cash at closing in the amount of $198,900. For more information on the Duarte Acquisition see Note 4, Business
acquisitions, in the Notes to the Consolidated Financial Statements included in “Item 8 – Financial Statements and
Supplementary Data.”
Assigning fair values to the assets acquired and liabilities assumed at the date of an acquisition requires knowledge of
current market values, and the values of assets in use, and often requires the application of judgment regarding estimates and
assumptions. While the ultimate responsibility resides with management, for material acquisitions, we retain the services of
certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities,
including intangible assets and postretirement benefit plan assets and liabilities.
Acquired intangible assets, excluding goodwill, are valued using a discounted cash flow methodology based on future
cash flows specific to the type of intangible asset purchased. This methodology incorporates various estimates and
assumptions, the most significant being projected revenue growth rates, earnings margins, and forecasted cash flows based on
the discount rate and terminal growth rate. Management projects revenue growth rates, earnings margins and cash flows
based on the historical operating results of the acquired entity adjusted for synergies anticipated to be achieved through
integration, expected future performance, operational strategies, and the general macroeconomic environment. We review
finite-lived intangible assets for triggering events such as significant changes in operations, customers or future revenue that
might indicate the need to impair the assets acquired or change the useful lives of the assets acquired. There was no
impairment or change in useful lives recognized on other intangible assets acquired in fiscal years 2014, 2013 or 2012.
Estimated values for acquired property, plant and equipment are based on current market values and replacement costs of
similar assets. Estimated values for inventory acquired is subject to reliable estimates, as of the acquisition date, of future
sales volumes, replacement costs, costs of selling effort, anticipated selling prices, normal profit margins, the percent
complete, and costs to complete work-in-process inventory. Estimated values for accounts receivable are subject to reliable
estimates of collectability.
Assumed liabilities are valued based on estimates of anticipated expenditures to be incurred to satisfy the assumed
obligations, including estimation of any warranty or other contractual liabilities assumed, which require the exercise of
professional judgment. Valuation of postretirement benefit plan assets and liabilities is dependent on similar assumptions
and estimates as those used to value our non-acquisition postretirement benefit plan assets and liabilities.
44
Assumed contracts may have favorable or unfavorable terms that must be valued as of the acquisition date. Such
valuation is subject to management judgment regarding the evaluation and interpretation of contract terms in relation to other
economic circumstances, such as the market rates for office space leases.
If we assume a performance obligation to customers as of the acquisition date, a deferred revenue obligation is
recognized. Judgment is required to evaluate whether a future performance obligation exists and to assign a value to the
performance obligation.
Valuation of gain and loss contingencies, if not resolved during the purchase measurement period, requires exercise of
management judgment. We measure pre-acquisition contingencies at their acquisition date fair value if their fair value can be
determined during the measurement period. If we cannot determine the fair value of the pre-acquisition contingency during
the measurement period, we recognize an acquired asset or assumed liability if it is probable that an asset existed or that a
liability had been incurred at the acquisition date and the amount of the asset or liability can be reasonably estimated.
Assumed acquired tax liabilities for uncertain tax positions are dependent on assessing the past practices of the
acquisition target based on review of actual tax filings and information obtained through due diligence procedures.
Evaluation of the validity of tax positions taken by the acquisition target are subject to management judgment.
Inventory
Inventories are valued at the lower of cost or market value. Inventory cost is determined using methods that approximate
the first-in, first-out basis. We include product costs, labor and related fixed and variable overhead in the cost of inventories.
Inventory market values are determined by giving substantial consideration to the expected product selling price. We
estimate expected selling prices based on our historical recovery rates, general economic and market conditions, the expected
channel of disposition, and current customer contracts and preferences. Actual results may differ from our estimates due to
changes in resale or market value and the mix of these factors. Management monitors inventory for events or circumstances,
such as negative margins, recent sales history suggesting lower sales value, or changes in customer preferences, which would
indicate the market value of inventory is less than the carrying value of inventory, and management records adjustments as
necessary. When inventory is written down below cost, such reduced amount is considered the cost for subsequent
accounting purposes. Our recording of inventory at the lower of cost or market value has not historically required material
adjustments once initially established.
The carrying value of inventory was $451,944 at September 30, 2014 and $431,744 at September 30, 2013. If economic
conditions, customer product requirements, or other factors significantly reduce future customer demand for our products
from forecast levels, then future adjustments to the carrying value of inventory may become necessary. We attempt to
maintain inventory quantities at levels considered necessary to fill expected orders in a reasonable time frame, which we
believe mitigates our exposure to future inventory carrying cost adjustments.
Postretirement benefits
The Company provides various benefits to certain employees through defined benefit pension plans and other
postretirement benefit plans. A September 30 measurement date is used to value plan assets and obligations for all
Woodward defined benefit pension and other postretirement benefit plans. For financial reporting purposes, net periodic
benefits expense and related obligations are calculated using a number of significant actuarial assumptions, including
anticipated discount rates, rates of compensation increases, long-term return on defined benefit plan investments, and
anticipated healthcare cost increases. Based on these actuarial assumptions, at September 30, 2014, our recorded assets and
liabilities included a net asset of $3,886 for our defined benefit pension plans and a liability of $29,225 for other
postretirement benefit plans. Changes in net periodic expense or the amounts of recorded assets and liabilities may occur in
the future due to changes in these assumptions.
Estimates of the value of postretirement benefit obligations, and related net periodic benefits expense, are dependent on
actuarial assumptions, including future interest rates, compensation rates, mortality trends, healthcare cost trends, and returns
on defined benefit plan investments.
It should be noted that economic factors and conditions often affect multiple assumptions simultaneously, and the effects
of changes in assumptions are not necessarily linear due to factors such as the 10% corridor applied to the larger of the
postretirement benefit obligation or the fair market value of plan assets used to determine the amortization of actuarial net
gains or losses.
Primary actuarial assumptions for our defined benefit pension plans were determined as follows:
The discount rate assumption is intended to reflect the rate at which the retirement benefits could be effectively
settled based upon the assumed timing of the benefit payments. In the United States, we used a bond portfolio
matching analysis based on recently traded, non-callable bonds rated AA or better that have at least $50 million
outstanding. In the United Kingdom and Japan, we used cash flow matching to develop a single rate equivalent for
45
a theoretical portfolio of non-callable, AA-rated bonds for each jurisdiction. These discount rates are sensitive to
changes in interest rates.
Defined benefit pension benefits:
2015 Net Periodic Benefit Cost
2015 Projected Service and Interest Costs
Accumulated Post Retirement Benefit Obligation as of Sept. 30, 2014
Change In Discount Rate
1% increase
1% decrease
$
(252) $
225
(25,969)
933
(446)
31,766
Compensation increase assumptions are based upon historical experience and anticipated future management
actions. An increase in the rate would increase our obligation and expense.
Mortality trends assumptions are based on published actuarial data. Increases in life expectancy of participants
would increase our obligation and expense.
In determining the long-term rate of return on plan assets, we assume that the historical long-term compound growth
rates of equity and fixed-income securities will predict the future returns of similar investments in the plan portfolio.
Investment management and other fees paid out of the plan assets are factored into the determination of asset return
assumptions. This rate is impacted by changes in general market conditions, but because it represents a long-term
rate, it is not significantly impacted by short-term market volatility. Changes in our allocation of plan assets would
also impact this rate. For example, a shift to more fixed-income securities would lower the rate.
Defined benefit pension benefits:
2015 Net Periodic Benefit Cost
Change In Rate of Return on Plan
Assets
0.5% increase
0.5% decrease
$
(1,015)
$
1,015
Primary actuarial assumptions for our other postretirement benefit plans were determined as follows:
The discount rate assumption is intended to reflect the rate at which the postretirement benefits could be effectively
settled based upon the assumed timing of the benefit payments. In the United States, we used a bond portfolio
matching analysis based on recently traded, non-callable bonds rated AA or better that have at least $50 million
outstanding. In the United Kingdom, we used cash flow matching to develop a single rate equivalent for a
theoretical portfolio of non-callable, AA-rated bonds. These rates are sensitive to changes in interest rates.
Other postretirement benefits:
2015 Net Periodic Benefit Cost
2015 Projected Service and Interest Costs
Accumulated Post Retirement Benefit Obligation as of Sept. 30, 2014
Change In Discount Rate
1% increase
1% decrease
$
(76) $
153
(2,314)
11
(186)
2,683
Mortality trends assumptions are based on published actuarial data. Increases in life expectancy of participants
would increase our obligation and expense.
The assumed health care trend rate represents the rate at which health care costs are assumed to increase and is
based on historical and expected experience. Changes in our projections of future health care costs due to general
economic conditions and those specific to health care (e.g., technology driven cost changes) will impact this trend
rate.
Effect on projected fiscal year 2015 service and interest cost
$
121
$
Effect on accumulated postretirement benefit obligation at September 30, 2014
2,658
(106)
(2,336)
1% increase
1% decrease
46
Variances from our fiscal year end estimates for these variables could materially affect our recognized postretirement
benefit obligation liabilities. On a near-term basis, such changes are unlikely to have a material impact on reported earnings,
since such adjustments are recorded to other comprehensive earnings and recognized into expense over a number of years.
Significant changes in estimates could, however, materially affect the carrying amounts of benefit obligation liabilities,
including accumulated benefit obligations, which could affect compliance with the provisions of our debt arrangements and
future borrowing capacity.
Reviews for impairment of goodwill
At September 30, 2014, we had $559,724 of goodwill, representing 23% of our total assets. At September 30, 2013, we
had $561,458 of goodwill, representing 25% of our total assets. Goodwill is tested for impairment at 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. Based on the relevant U.S. GAAP authoritative guidance, we aggregate
components of a single operating segment into a reporting unit, if appropriate. For purposes of performing the impairment
tests, we identify reporting units in accordance with U.S. GAAP. The identification of reporting units and consideration of
aggregation criteria requires management judgment. The impairment tests consist of comparing the fair value of reporting
units, determined using discounted cash flows, with their carrying amount including goodwill. If the carrying amount of the
reporting unit exceeds its fair value, we compare the implied fair 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 years 2014, 2013, or 2012.
Woodward completed its annual goodwill impairment test as of July 31, 2014 for the fiscal year ended September 30,
2014 during the fourth quarter. At that date, Woodward determined it was appropriate to aggregate certain components of the
same operating segment into a single aggregated reporting unit. The fair value of each of Woodward’s reporting units was
determined using an income approach based on a discounted cash flow method. This method represents a Level 3 input and
incorporates various estimates and assumptions, the most significant being projected revenue growth rates, earnings margins,
future tax rates and the present value, based on an estimated weighted-average cost of capital (or the discount rate) and
terminal growth rate, of forecasted cash flows. Management projects revenue growth rates, earnings margins and cash flows
based on each reporting unit’s current operational results, expected performance and operational strategies over a five or ten-
year period. These projections are adjusted to reflect current economic conditions and demand for certain products, and
require considerable management judgment.
Forecasted cash flows used in the July 31, 2014 impairment test were discounted using weighted-average cost of capital
assumptions ranging from 8.93% to 11.04%. The terminal values of the forecasted cash flows were calculated using the
Gordon Growth Model and assumed an annual compound growth rate after five or ten years of 4.20%. These inputs, which
are unobservable in the market, represent management’s best estimate of what market participants would use in determining
the present value of the Company’s forecasted cash flows. Changes in these estimates and assumptions can have a significant
impact on the fair value of forecasted cash flows. Woodward evaluated the reasonableness of the reporting units resulting
fair values utilizing a market multiple method.
The results of Woodward’s annual goodwill impairment test performed as of July 31, 2014, indicated the estimated fair
value of each reporting unit was significantly in excess of its carrying value, and accordingly, no impairment existed.
Increasing the discount rate by 20%, decreasing the growth rate by 20%, or decreasing forecasted cash flow by 20%, would
also not have resulted in an impairment charge at July 31, 2014.
As part of the Company’s ongoing monitoring efforts, Woodward will continue to consider the global economic
environment and its potential impact on Woodward’s business in assessing goodwill for possible indications of impairment.
There can be no assurance that Woodward’s estimates and assumptions regarding forecasted cash flows of certain reporting
units, the current economic environment, or the other inputs used in forecasting the present value of forecasted cash flows
will prove to be accurate projections of future performance.
Income taxes
We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required
in evaluating our tax positions and determining our provision for income taxes.
During the ordinary course of business, there are many transactions and calculations for which the ultimate tax
determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent
to which, additional taxes will be due. The reserves are established when we believe that certain positions are likely to be
challenged and may not be fully sustained on review by tax authorities. We adjust these reserves in light of changing facts
and circumstances, such as the closing of a tax audit or refinement of an estimate. Although we believe our reserves are
reasonable, no assurance can be given that the final outcome of these matters will be consistent with what is reflected in our
historical income tax provisions and accruals. To the extent that the final tax outcome of these matters is different from the
amounts recorded, such differences will impact the current provision for income taxes. The provision for income taxes
47
includes the impact of reserve positions and changes to reserves that are considered appropriate. As of September 30, 2014
and September 30, 2013, unrecognized gross tax benefits for which recognition has been deferred were $22,687 and $22,694,
respectively.
Significant judgment is also required in determining any valuation allowance recorded against deferred tax assets. The
determination of the amount of valuation allowance to be provided on recorded deferred tax assets involves estimates
regarding the timing and amount of the reversal of taxable temporary differences, expected future taxable income, and the
impact of tax planning strategies. A valuation allowance is established to offset any deferred tax assets if, based upon the
available evidence, it is more likely than not that some or all of the deferred tax asset will not be realized. In assessing the
need for a valuation allowance, we consider all available evidence including past operating results, estimates of future taxable
income, and the feasibility of tax planning strategies. Changes in the relevant facts can significantly impact the judgment or
need for valuation allowances. In the event we change our determination as to the amount of deferred tax assets that can be
realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period
in which such determination is made. Our valuation allowance was $9,486 as of September 30, 2014 and $11,783 as of
September 30, 2013.
Our effective tax rates differ from the U.S. statutory rate primarily due to the tax impact of foreign operations,
adjustments of valuation allowances, research tax credits, state taxes, and tax audit settlements. In addition to potential local
country tax law and policy changes that could impact the provision for income taxes, management’s judgment about and
intentions concerning the repatriation of foreign earnings could also significantly impact the provision for income taxes.
Management reassesses its judgment regularly, taking into consideration the potential tax impacts of these judgments and
intentions.
Our provision for income taxes is subject to volatility and could be affected by earnings that are different than those
anticipated in countries which have lower or higher tax rates; by transfer pricing adjustments; by tax effects of share-based
compensation; and/or changes in tax laws, regulations, and accounting principles, including accounting for uncertain tax
positions, or interpretations thereof. There can be no assurance that these items will remain stable over time.
In addition, we are subject to examination of our income tax returns by the relevant tax authorities in the jurisdictions in
which we are subject to taxes. We regularly assess the likelihood of adverse outcomes resulting from these examinations to
determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these
examinations will not have a significant effect on our operating results, financial condition, and cash flows.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we have exposures to interest rate risk from our long-term and short-term debt, and our
postretirement benefit plans, and foreign currency exchange rate risk related to our foreign operations and foreign currency
transactions.
Interest Rate Risk
We use derivative instruments as risk management tools that involve little complexity, and are not used for trading or
speculative purposes. In June 2013, in connection with Woodward’s expected refinancing of current maturities on its
existing long-term debt, Woodward entered into a treasury lock agreement with a notional amount of $25,000 that qualified
as a cash flow hedge under ASC Topic 815, “Derivatives and Hedging.” The objective of this derivative instrument was to
hedge the risk of variability in cash flows attributable to changes in the designated benchmark interest rate over a seven-year
period related to the future interest payments on a portion of anticipated future debt issuances. To manage interest rate risk
related to the $400,000 of long-term debt issued in October 2008, we used a treasury lock, which locked in interest rates on
the then future debt. The treasury lock agreement was designated as a cash flow hedge against interest rate risk on a portion
of the debt issued in October 2008. Similarly, we used a LIBOR lock agreement with a notional amount of $50,000, which
hedged the risk of variability in cash flows over a seven-year period related to future interest payments of a portion of the
long-term debt issued in April of 2009 in connection with an acquisition.
A portion of our long and short-term debt is sensitive to changes in interest rates. As of September 30, 2014 our Series J
Notes of $50,000 and advances on our revolving credit facility are at interest rates that fluctuate with market rates. A
hypothetical 1% increase in the assumed effective interest rates that apply to the variable rate loan outstanding as of
September 30, 2014 and the average borrowings on our revolving credit facility in fiscal year 2014 would cause our annual
interest expense to increase approximately $1,981. A hypothetical 0.2% decrease in interest rates that apply to the variable
rate loan outstanding as of September 30, 2014 and the average borrowings on our revolving credit facility, which would
effectively reduce the variable component of the applicable interest rates to 0%, would decrease our annual interest expense
by approximately $403.
The discount rate and future return on plan asset assumptions used to calculate the funding status of our retirement
benefit plans are also sensitive to changes in interest rates. The discount rate assumption used to value the defined benefit
48
pension plans as of September 30, 2014 was 4.4% in the United States, 4.1% in the United Kingdom, and 1.1% in Japan. The
discount rate assumption used to value the other postretirement benefit plans was 4.4%.
The following information illustrates the sensitivity of the net periodic benefit cost and the projected accumulated benefit
obligation to a change in the discount rate assumed. Amounts relating to foreign plans are translated at the spot rate on
September 30, 2014. It should be noted that economic factors and conditions often affect multiple assumptions
simultaneously and the effects of changes in assumptions are not necessarily linear due to factors such as the 10% corridor
applied to the larger of the postretirement benefit obligation or the fair market value of plan assets when determining
amortization of actuarial net gains or losses.
Assumption
Defined benefit pension benefits:
Change in discount rate
Other postretirement benefits:
Change in discount rate
Foreign Currency Exchange Rate Risk
Increase/(Decrease) In
2015 Net
Periodic Benefit
Cost
2015 Projected
Service and
Interest Costs
Change
Accumulated Post
Retirement Benefit
Obligation as of
Sept. 30, 2014
1% increase
1% decrease
$
(252) $
933
225 $
(446)
1% increase
1% decrease
(76)
11
153
(186)
(25,969)
31,766
(2,314)
2,683
We are impacted by changes in foreign currency exchange rates when we sell product in currencies different from the
currency in which product and manufacturing costs were incurred. The functional currencies and our purchasing and sales
activities primarily include USD, EUR, CNY, JPY and GBP. We may also be impacted by changes in the relative buying
power of our customers, which may impact sales volumes either positively or negatively. As these currencies fluctuate
against each other, and other currencies, we are exposed to foreign currency exchange rate risk on sales, purchasing
transactions, and labor. Foreign currency exchange rate risk is reduced through the maintenance of local production facilities
in the markets we serve, which we believe creates a natural hedge to our foreign currency exchange rate exposure. For the
year ended September 30, 2014, the percentages of our net sales denominated in a currency other than the USD were as
follows:
Percentage of Net Sales
For the Year Ended September 30, 2014
Functional currency:
EUR
CNY
JPY
GBP
All other foreign currencies
12.5%
6.9%
3.2%
1.7%
1.8%
26.1%
Currency exchange rates vary daily and often one currency strengthens against the USD while another currency
weakens. Because of the complex interrelationship of our worldwide supply chains and distribution channels, it is difficult to
quantify the impact of a particular change in exchange rates.
From time to time, we will enter into a foreign currency exchange rate contract to hedge against changes in foreign
currency exchange rates on liabilities expected to be settled at a future date. Market risk arises from the potential adverse
effects on the value of derivative instruments that result from a change in foreign currency exchange rates. We minimize this
market risk by establishing and monitoring parameters that limit the types of, and degree to which we enter into, derivative
instruments. We enter into derivative instruments for risk management purposes only. We do not enter into or issue
derivatives for trading or speculative purposes. As of September 30, 2014 and 2013, we had no open foreign currency
exchange rate contracts and all previous derivative instruments were settled or terminated. For more information on
derivative instruments, see Note 6, Derivative instruments and hedging activities, to the Consolidated Financial Statements in
“Item 8 – Financial Statements and Supplementary Data.”
Our reported financial results of operations, including the reported value of our assets and liabilities, are also impacted
by changes in foreign currency exchange rates. The assets and liabilities of substantially all of our subsidiaries outside the
49
United States are translated at period end rates of exchange for each reporting period. Earnings and cash flow statements are
translated at weighted-average rates of exchange. Although these translation changes have no immediate cash impact, the
translation changes may impact future borrowing capacity, debt covenants, and the overall value of our net assets. In
addition, we also have assets and liabilities, specifically accounts receivable, accounts payable and current inter-company
receivables and payables, whose carrying amounts approximate their fair value, which are denominated in currencies other
than their relevant functional currencies. Foreign currency exchange rate risk is reduced through several means, including the
invoicing of customers in the same currency as the source of the products, the prompt settlement of inter-company balances
utilizing a global netting system, and limited use of foreign currency denominated debt. We recognized net foreign currency
losses of $1,089 in fiscal year 2014, $2,738 in fiscal year 2013 and $480 in fiscal year 2012 in “Selling, general, and
administrative expenses” of our Consolidated Statements of Earnings related to these assets and liabilities.
50
Item 8.
Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Woodward, Inc.
Fort Collins, Colorado
We have audited the accompanying consolidated balance sheets of Woodward, Inc. and subsidiaries (the "Company") as
of September 30, 2014 and 2013, and the related consolidated statements of earnings, comprehensive earnings, stockholders'
equity, and cash flows for each of the three years in the period ended September 30, 2014. Our audits also included the
financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements
and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
Woodward, Inc. and subsidiaries as of September 30, 2014 and 2013, and the results of their operations and their cash flows
for each of the three years in the period ended September 30, 2014, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information
set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company's internal control over financial reporting as of September 30, 2014, based on the criteria established in
Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated November 12, 2014 expressed an unqualified opinion on the Company's internal control
over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Denver, Colorado
November 12, 2014
51
WOODWARD, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
Net sales
Costs and expenses:
Cost of goods sold
Selling, general and administrative expenses
Research and development costs
Amortization of intangible assets
Interest expense
Interest income
Other (income) expense, net (Note 15)
Total costs and expenses
Earnings before income taxes
Income tax expense
Net earnings
Earnings per share (Note 3):
Basic earnings per share
Diluted earnings per share
Year Ended September 30,
2014
2013
2012
$
2,001,240
$
1,935,976
$
1,865,627
1,425,839
1,376,271
1,303,344
155,339
138,005
33,580
22,804
(271)
(1,300)
168,097
130,250
36,979
26,703
(273)
(1,622)
164,512
143,274
32,809
26,003
(542)
(1,580)
1,773,996
1,736,405
1,667,820
227,244
61,400
199,571
53,629
197,807
56,218
165,844
$
145,942
$
141,589
2.50
2.45
$
$
2.13
2.10
$
$
2.06
2.01
$
$
$
Weighted Average Common Shares Outstanding (Note 3):
Basic
Diluted
66,432
67,776
68,392
69,602
Cash dividends per share paid to Woodward common stockholders
$
0.32
$
0.32
$
68,880
70,307
0.31
See accompanying Notes to Consolidated Financial Statements.
52
WOODWARD, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
Net earnings
Other comprehensive earnings:
Foreign currency translation adjustments
Taxes on changes on foreign currency translation adjustments
Reclassification of realized losses on derivatives to earnings
Realized gain on cash flow hedge
Taxes on changes on derivative transactions
Minimum retirement benefit liability adjustments (Note 17):
Net gain (loss) arising during the period
Prior service cost arising during the period
Loss (gain) due to settlement or curtailment arising during the period
Amortization of:
Prior service benefit
Net loss
Foreign currency exchange rate changes on minimum retirement benefit liabilities
Taxes on changes on minimum retirement benefit liability adjustments
Year Ended September 30,
2014
2013
2012
$
165,844
$
145,942
$
141,589
(16,003)
1,080
(14,923)
99
-
(37)
62
3,746
(3,355)
(7,539)
(66)
785
104
2,538
(3,787)
7,337
958
8,295
171
507
(259)
419
(7,291)
2,635
(4,656)
174
-
(66)
108
26,756
(17,960)
-
36
(90)
1,770
673
(11,021)
-
56
(484)
1,280
(171)
6,478
18,124
(10,801)
Total comprehensive earnings
$
147,196
$
172,780
$
126,240
See accompanying Notes to Consolidated Financial Statements.
53
WOODWARD, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
Current assets:
Cash and cash equivalents
ASSETS
Accounts receivable, less allowance for uncollectible amounts of $7,078 and $8,872, respectively
Inventories
Income taxes receivable
Deferred income tax assets
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Deferred income tax assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
Accounts payable
Income taxes payable
Deferred income tax liabilities
Accrued liabilities
Total current liabilities
Long-term debt, less current portion
Deferred income tax liabilities
Other liabilities
Total liabilities
Commitments and contingencies (Note 19)
Stockholders' equity:
Preferred stock, par value $0.003 per share, 10,000 shares authorized, no shares issued
Common stock, par value $0.001455 per share, 150,000 shares authorized, 72,960 shares issued
Additional paid-in capital
Accumulated other comprehensive earnings (losses)
Deferred compensation
Retained earnings
Treasury stock at cost, 7,397 shares and 4,883 shares, respectively
Treasury stock held for deferred compensation, at cost, 198 shares and 232 shares, respectively
Total stockholders' equity
Total liabilities and stockholders' equity
(a) Retrospectively adjusted as discussed in Note 4, Business acquisitions
See accompanying Notes to Consolidated Financial Statements.
54
September 30,
September 30,
2014
2013
(a)
$
115,287 $
346,858
451,944
6,574
40,774
47,207
1,008,644
513,279
559,724
254,772
6,292
54,491
48,556
381,065
431,744
14,071
43,027
38,650
957,113
350,048
561,458
288,775
13,926
47,198
$
2,397,202 $
2,218,518
$
- $
160,683
6,130
472
172,731
340,016
710,000
85,031
101,211
100,000
145,541
7,848
800
161,741
415,930
450,000
104,533
105,510
1,236,258
1,075,973
-
106
112,491
(3,533)
3,915
1,338,468
1,451,447
(286,588)
(3,915)
1,160,944
$
2,397,202 $
-
106
101,147
15,115
4,007
1,193,887
1,314,262
(167,710)
(4,007)
1,142,545
2,218,518
WOODWARD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization
Loss (gain) due to settlements or curtailments of postretirement plan (Note 17)
Impairment of long-lived asset held for sale (Note 9)
Net (gain) loss on sales of assets
Stock-based compensation
Excess tax benefits from stock-based compensation
Deferred income taxes
Loss on derivatives reclassified from accumulated comprehensive earnings into earnings
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable
Inventories
Accounts payable and accrued liabilities
Current income taxes
Retirement benefit obligations, excluding settlements and curtailments
Other
Net cash provided by operating activities
Cash flows from investing activities:
Year Ended September 30,
2014
2013
2012
$
165,844
$
145,942
$
141,589
77,353
(7,539)
3,138
166
11,241
(3,751)
(6,704)
99
30,880
(27,788)
24,068
9,378
(2,788)
(5,514)
268,083
74,233
68,617
37
-
(100)
9,414
(5,154)
8,348
171
(9,774)
(1,485)
16,062
(9,020)
(15,974)
9,892
222,592
56
-
16
8,628
(3,990)
(3,730)
174
(59,061)
(18,702)
11,688
7,594
745
(9,511)
144,113
Payments for purchase of property, plant, and equipment
(207,106)
(141,600)
(64,900)
Proceeds from sale of assets
Business acquisitions, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities:
Cash dividends paid
Proceeds from sales of treasury stock
Payments for repurchases of common stock
Excess tax benefits from stock compensation
Borrowings on revolving lines of credit and short-term borrowings
1,277
-
(205,829)
(21,263)
9,772
(141,488)
3,751
431,071
418
(198,860)
(340,042)
(21,866)
8,370
(45,754)
5,154
179,072
283
-
(64,617)
(21,351)
6,286
(44,110)
3,990
187,865
Payments on revolving lines of credit and short-term borrowings
(221,069)
(179,484)
(187,591)
Proceeds from issuance of long-term debt
Payments of long-term debt
Proceeds from cash flow hedge
Payments of debt financing costs
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
250,000
(300,000)
-
(1,297)
9,477
(5,000)
66,731
48,556
200,000
(41,875)
507
(1,651)
102,473
1,704
(13,273)
61,829
$
115,287 $
48,556 $
-
(33,365)
-
(2,185)
(90,461)
(1,745)
(12,710)
74,539
61,829
See accompanying Notes to Consolidated Financial Statements.
55
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6
5
WOODWARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 1. Operations and summary of significant accounting policies
Basis of presentation
The Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) and include the accounts of Woodward, Inc. and its subsidiaries (collectively
“Woodward” or “the Company”). Dollar amounts contained in these Consolidated Financial Statements are in thousands,
except per share amounts.
Nature of operations
Woodward enhances the global quality of life and sustainability by optimizing energy use through improved efficiency
and lower emissions. Woodward is an independent designer, manufacturer, and service provider of energy control and
optimization solutions. Woodward designs, produces and services reliable, efficient, low-emission, and high-performance
energy control products for diverse applications in challenging environments. Woodward has significant production and
assembly facilities in the United States, Europe and Asia, and promotes its products and services through its worldwide
locations.
Woodward’s strategic focus is providing energy control and optimization solutions for the aerospace and energy markets.
The precise and efficient control of energy, including fluid and electrical energy, combustion, and motion, is a growing
requirement in the markets it serves. Woodward’s customers look to it to optimize the efficiency, emissions and operation of
power equipment in both commercial and defense operations. Woodward’s core technologies leverage well across its
markets and customer applications, enabling it to develop and integrate cost-effective and state-of-the-art fuel, combustion,
fluid, actuation and electronic systems. Woodward focuses its solutions and services primarily on serving original equipment
manufacturers (“OEMs”) and equipment packagers, partnering with them to bring superior component and system solutions
to their demanding applications. Woodward also provides aftermarket repair, replacement and other service support for its
installed products.
Woodward’s components and integrated systems optimize performance of commercial aircraft, defense aircraft, ground
vehicles and other equipment, gas and steam turbines, wind turbines, including converters and power grid related equipment,
industrial diesel, gas, alternative and dual fuel reciprocating engines, and electrical power systems. Woodward’s innovative
fluid energy, combustion control, electrical energy, and motion control systems help its customers offer more cost-effective,
cleaner, and more reliable equipment.
Summary of significant accounting policies
Principles of consolidation: These Consolidated Financial Statements are prepared in accordance with U.S. GAAP and
include the accounts of Woodward and its wholly and majority-owned subsidiaries. Transactions within and between these
companies are eliminated.
Use of estimates: The preparation of the Consolidated Financial Statements requires management to make use of
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.
Significant estimates include allowances for uncollectible amounts, net realizable value of inventories, customer rebates
earned, useful lives of property and identifiable intangible assets, the evaluation of impairments of property, identifiable
intangible assets and goodwill, the provision for income tax and related 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 Woodward’s estimates.
Foreign currency exchange rates: The assets and liabilities of substantially all subsidiaries outside the United States
are translated at fiscal year-end rates of exchange, and earnings and cash flow statements are translated at weighted-average
rates of exchange. Translation adjustments are accumulated with other comprehensive (loss) earnings as a separate
component of stockholders’ equity and are presented net of tax effects in the Consolidated Statements of Stockholders’
Equity. The effects of changes in foreign currency exchange rates on loans between consolidated subsidiaries, that are
considered permanent in nature, are also accumulated with other comprehensive earnings, net of tax.
57
The Company is exposed to market risks related to fluctuations in foreign currency exchange rates because some sales
transactions, and certain of the assets and liabilities of its domestic and foreign subsidiaries, are denominated in foreign
currencies. Selling, general, and administrative expenses include net foreign currency losses of $1,089 in fiscal year 2014,
$2,738 in fiscal year 2013, and $480 in fiscal year 2012.
Revenue recognition: Woodward recognizes revenue upon shipment or delivery of products or services and when
collectability is reasonably assured. Delivery is upon completion of manufacturing, customer acceptance, and the transfer of
the risks and rewards of ownership. In countries whose laws provide for retention of some form of title by sellers, enabling
recovery of goods in the event of customer default on payment, product delivery is considered to have occurred when the
customer has assumed the risks and rewards of ownership of the products.
Occasionally, Woodward transfers title of product to customers, but retains substantive performance obligations such as
completion of product testing, customer acceptance or in some instances regulatory acceptance. Revenue is deferred until the
performance obligations are satisfied. In addition, service revenue, which accounts for less than 1% of Woodward’s net
sales, is also recognized upon completion of applicable performance obligations.
Certain Woodward products include incidental software or firmware essential to the performance of the product as
designed, which are treated as units of accounting associated with the related tangible product with which the software is
included. Woodward does not sell software on a standalone basis, although software upgrades, if any, are generally paid for
by the customer.
Product freight costs are included in cost of goods sold. Freight costs charged to customers are included in net sales.
Taxes collected from customers and remitted to government authorities are excluded from revenue and are recorded as
liabilities until the taxes are remitted to the appropriate U.S. or foreign government authority.
Net sales from service activities were less than 10% of total net sales for fiscal years 2014, 2013 and 2012.
Customer payments: Woodward occasionally agrees to make payments to certain customers in order to participate in
anticipated sales activity. Payments made to customers are accounted for as a reduction of revenue unless they are made in
exchange for identifiable goods or services with fair values that can be reasonably estimated. Reductions in revenue
associated with these customer payments are recognized immediately to the extent that the payments cannot be attributed to
anticipated future sales, and are recognized in future periods to the extent that the payments relate to anticipated future sales.
Such determinations are based on the facts and circumstances underlying each payment.
Stock-based compensation: Compensation cost relating to stock-based payment awards made to employees and
directors is recognized in the financial statements using a fair value method. Non-qualified stock option awards and
restricted stock awards are issued under Woodward’s stock-based compensation plans. The cost of such awards, measured at
the grant date, is based on the estimated fair value of the award.
Forfeitures are estimated at the time of each grant in order to estimate the portion of the award that will ultimately vest.
The estimate is based on Woodward’s historical rates of forfeitures and is updated periodically. The portion of the award that
is ultimately expected to vest is recognized as expense over the requisite service periods, which is generally the vesting
period of the awards.
Research and development costs: Company funded expenditures related to new product development activities are
expensed as incurred and are separately reported in the Consolidated Statements of Earnings.
Income taxes: Deferred income taxes are provided for the temporary differences between the financial reporting basis
and the tax basis of Woodward’s assets, liabilities, and certain unrecognized gains and losses recorded in accumulated other
comprehensive earnings. Woodward provides for taxes that may be payable if undistributed earnings of overseas subsidiaries
were to be remitted to the United States, except for those earnings that it considers to be indefinitely invested.
Cash equivalents: Highly liquid investments purchased with an original maturity of three months or less are considered
to be cash equivalents.
Cash and cash equivalents are maintained with multiple financial institutions. Generally, these deposits may be
redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit
risk. Woodward holds cash and cash equivalents at financial institutions in excess of amounts covered by the Federal
Depository Insurance Corporation (the “FDIC”) and sometimes invests excess cash in money market funds not insured by the
FDIC.
Accounts receivable: Almost all of Woodward’s sales are made on credit and result in accounts receivable, which are
recorded at the amount invoiced. In the normal course of business, not all accounts receivable are collected and, therefore, an
allowance for uncollectible amounts is provided equal to the amount that Woodward believes ultimately will not be collected.
In establishing the amount of the allowance, customer-specific information is considered related to delinquent accounts, past
58
loss experience, bankruptcy filings, deterioration in the customer’s operating results or financial position, and current
economic conditions. Accounts receivable losses are deducted from the allowance, and the related accounts receivable
balances are written off when the receivables are deemed uncollectible. Recoveries of accounts receivable previously written
off are recognized when received.
Consistent with business practice common in China, Woodward’s Chinese subsidiary accepts from Chinese customers,
in settlement of certain customer accounts receivable, bankers acceptance notes issued by creditworthy Chinese banks.
Bankers acceptance notes are financial instruments issued by Chinese financial institutions as part of financing arrangements
between the financial institution and a customer of the financial institution. Bankers acceptance notes represent a
commitment by the issuing financial institution to pay a certain amount of money at a specified future maturity date to the
legal owner of the bankers acceptance note as of the maturity date. The maturity date of bankers acceptance notes varies, but
it is Woodward’s policy to only accept bankers acceptance notes with maturity dates no more than 180 days from the date of
Woodward’s receipt of such draft. The issuing financial institution is the obligor, not Woodward’s customers. Upon
Woodward’s acceptance of a bankers acceptance note from a customer, such customer has no further obligation to pay
Woodward for the related accounts receivable balance. Woodward only accepts bankers acceptance notes issued by
creditworthy banks as to which the credit risk associated with the bankers acceptance note is assessed to be minimal.
The composition of Woodward’s accounts receivable at September 30, 2014 and September 30, 2013 follows:
Accounts receivable from:
Customers
Other (Chinese financial institutions)
Allowance for uncollectible customer amounts
September 30,
September 30,
2014
2013
$
$
291,584
$
62,352
(7,078)
346,858
$
316,983
72,954
(8,872)
381,065
Inventories: Inventories are valued at the lower of cost or market, with cost being determined using methods that
approximate a first-in, first-out basis.
Customer deposits are recorded against inventory when the right of offset exists. There were no customer deposits
included in inventory as of September 30, 2014 and 2013. All other customer deposits are recorded in accrued liabilities.
Property, plant, and equipment: Property, plant, and equipment are recorded at cost and are depreciated over the
estimated useful lives of the assets. Assets are generally depreciated using the straight-line method. Assets are tested for
recoverability whenever events or circumstances indicate the carrying value may not be recoverable.
Estimated lives over which fixed assets are generally depreciated at September 30, 2014 were as follows:
Land improvements
Buildings and improvements
Leasehold improvements
Machinery and production equipment
Computer equipment and software
Office furniture and equipment
Other
3
3
1
3
2
3
3
-
-
-
-
-
-
-
40
40
25
15
10
13
13
years
years
years
years
years
years
years
Included in computer equipment and software are Woodward’s enterprise resource planning (“ERP”) systems, which
have an estimated useful life of 10 years. All other computer equipment and software is generally depreciated over three to
five years.
Purchase accounting: Business combinations are accounted for using the acquisition method of accounting. Under the
acquisition method, assets and liabilities, including intangible assets, are recorded at their fair values as of the acquisition
date. Acquisition costs in excess of amounts assigned to assets acquired and liabilities assumed are recorded as goodwill.
Goodwill: Woodward tests goodwill for impairment at 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. Based on the relevant U.S. GAAP authoritative guidance, Woodward sometimes aggregates components of
a single operating segment into a reporting unit, if appropriate. The impairment tests consist of comparing the implied fair
59
value of each reporting unit with its carrying amount including goodwill. If the carrying amount of the reporting unit exceeds
its implied fair value, Woodward compares the implied fair value of goodwill with the recorded carrying amount of goodwill.
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 years 2014, 2013, or
2012.
Other intangibles: Other intangibles are recognized apart from goodwill whenever an acquired intangible asset arises
from contractual or other legal rights, or whenever it is capable of being separated or divided from the acquired entity and
sold, transferred, licensed, rented, or exchanged, either individually or in combination with a related contract, asset, or
liability. All of Woodward’s intangibles have an estimated useful life and are being amortized using patterns that reflect the
periods over which the economic benefits of the assets are expected to be realized. Impairment losses are recognized if the
carrying amount of an intangible is both not recoverable and exceeds its fair value.
Estimated lives over which intangible assets are amortized at September 30, 2014 were as follows:
Customer relationships
Intellectual property
Process technology
Other
9
10
8
3
-
-
-
-
30
17
30
15
years
years
years
years
Impairment of long-lived assets: Woodward reviews the carrying amount of its long-lived assets or asset groups to be
used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets might not be
recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or
manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the
value of the asset, or a significant decline in the observable market value of an asset, among others. If such facts indicate a
potential impairment, the Company would assess the recoverability of an asset group by determining if the carrying amount
of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual
disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test
indicates that the carrying amount of the asset group is not recoverable, the Company will estimate the fair value of the asset
group using appropriate valuation methodologies, which would typically include an estimate of discounted cash flows. Any
impairment would be measured as the difference between the asset groups carrying amount and its estimated fair value.
There was an impairment charge of $3,138 recorded in fiscal year 2014 related to a write down to fair market value of assets
held for sale. There were no impairment charges recorded in fiscal years 2013 or 2012.
Investment in marketable equity securities: Woodward holds marketable equity securities related to its deferred
compensation program. Based on Woodward’s intentions regarding these instruments, marketable equity securities are
classified as trading securities. The trading securities are reported at fair value, with realized gains and losses recognized in
“Other (income) expense, net.” The trading securities are included in “Other assets.” The associated obligation to provide
benefits is included in “Other liabilities.”
Investments in unconsolidated subsidiaries: Investments in and operating results of entities in which Woodward does
not have a controlling financial interest or the ability to exercise significant influence over the operations are included in the
financial statements using the cost method of accounting. Investments and operating results of entities in which Woodward
does not have a controlling interest but does have the ability to exercise significant influence over operations are included in
the financial statements using the equity method of accounting.
Deferred compensation: The Company maintains a deferred compensation plan, or “rabbi trust,” as part of its overall
compensation package for certain employees.
Deferred compensation obligations will be settled either by delivery of a fixed number of shares of Woodward’s
common stock (in accordance with certain eligible members’ irrevocable elections) or in cash. Woodward has contributed
shares of its common stock into a trust established for the future settlement of deferred compensation obligations that are
payable in shares of Woodward’s common stock. Common stock held by the trust is reflected in the Consolidated Balance
Sheet as “Treasury stock held for deferred compensation” and the related deferred compensation obligation is reflected as a
separate component of equity in amounts equal to the fair value of the common stock at the dates of contribution. These
accounts are not adjusted for subsequent changes in the fair value of the common stock. Deferred compensation obligations
that will be settled in cash are accounted for on an accrual basis in accordance with the terms of the underlying contract and
are reflected in the Consolidated Balance Sheet as “Other liabilities.”
Derivatives: The Company is exposed to various market risks that arise from transactions entered into in the normal
course of business. The Company has historically utilized derivative instruments, such as treasury lock agreements to lock in
60
fixed rates on future debt issuances, which qualify as cash flow or fair value hedges to mitigate the risk of variability in cash
flows related to future interest payments attributable to changes in the designated benchmark rate. The Company records all
such interest rate hedge instruments on the balance sheet at fair value. Cash flows related to the instrument designated as a
qualifying hedge are reflected in the accompanying Consolidated Statements of Cash Flows in the same categories as the
cash flows from the items being hedged. Accordingly, cash flows relating to the settlement of interest rate derivatives
hedging the forecasted future interest payments on debt have been reflected upon settlement as a component of financing
cash flows. The resulting gain or loss from such settlement is deferred to other comprehensive income and reclassified to
interest expense over the term of the underlying debt. This reclassification of the deferred gains and losses impacts the
interest expense recognized on the underlying debt that was hedged and is therefore reflected as a component of operating
cash flows in periods subsequent to settlement. The periodic settlement of interest rate derivatives hedging outstanding
variable rate debt is recorded as an adjustment to interest expense and is therefore reflected as a component of operating cash
flows.
From time to time, Woodward will enter into foreign currency exchange rate contracts to hedge against changes in
foreign currency exchange rates on liabilities expected to be settled at a future date. Woodward has historically not
designated these transactions as accounting hedges. The fair value of foreign currency exchange rate contracts held at the
end of the period are recognized in the balance sheet and the unrealized gains or losses are recorded to “Other (income)
expense, net” in the Consolidated Statements of Earnings. Upon settlement of foreign currency exchange rate contracts, any
unrealized gains or losses previously recognized are reversed and the realized gain or loss is recorded to “Other (income)
expense, net” in the Consolidated Statement of Earnings. Further information on foreign currency exchange rate contracts
can be found at Note 6, Derivative instruments and hedging activities.
Financial instruments: The Company’s financial instruments include cash and cash equivalents, investments in the
deferred compensation program, notes receivable from municipalities, and debt. Because of their short-term maturity, the
carrying amount of cash and cash equivalents and short-term debt approximate fair value. The fair value of investments in
the deferred compensation program are adjusted to fair value based on the quoted market prices for the investments in the
various mutual funds owned. The fair value of the long-term notes from municipalities are estimated based on a model that
discounts future principal and interest payments received at interest rates available to the Company at the end of the period
for similarly rated municipality notes of similar maturity. The fair value of long-term debt is estimated based on a model that
discounts future principal and interest payments at interest rates available to the Company at the end of the period for similar
debt with the same maturity. Further information on the fair value of financial instruments can be found at Note 5, Financial
instruments and fair value measurements.
Financial assets and liabilities recorded at fair value in the Consolidated Balance Sheets 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 management’s 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.
Postretirement benefits: The Company provides various benefits to certain current and former employees through
defined benefit pension and postretirement plans. For financial reporting purposes, net periodic benefits expense and related
obligations are calculated using a number of significant actuarial assumptions. Changes in net periodic expense and funding
status may occur in the future due to changes in these assumptions. The funded status of defined pension and postretirement
plans recognized in the statement of financial position is measured as the difference between the fair market value of the plan
assets and the benefit obligation. For a defined benefit pension plan, the benefit obligation is the projected benefit obligation;
for any other defined benefit postretirement plan, such as a retiree health care plan, the benefit obligation is the accumulated
benefit obligation. Any over-funded status is recognized as an asset and any underfunded status is recognized as a liability.
Projected benefit obligation is the actuarial present value as of the measurement date of all benefits attributed by the plan
benefit formula to employee service rendered before the measurement date using assumptions as to future compensation
levels if the plan benefit formula is based on those future compensation levels. Accumulated benefit obligation is the
actuarial present value of benefits (whether vested or unvested) attributed by the plan benefit formula to employee service
rendered before the measurement date and based on employee service and compensation, if applicable, prior to that date.
Accumulated benefit obligation differs from projected benefit obligation in that it includes no assumption about future
compensation levels.
61
Note 2. New accounting standards
From time to time, the Financial Accounting Standards Board (“FASB”) or other standards setting bodies issue new
accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through
issuance of an Accounting Standards Update (“ASU”).
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” The purpose of ASU 2014-09
is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and
International Financial Reporting Standards. The amendments (i) remove inconsistencies and weaknesses in revenue
requirements, (ii) provide a more robust framework for addressing revenue issues, (iii) improve comparability of revenue
recognition across entities, industries, jurisdictions, and capital markets, (iv) provide more useful information to users of
financial statements through improved disclosure requirements, and (v) simplify the preparation of financial statements by
reducing the number of requirements to which an entity must refer. ASU 2014-09 is effective for annual reporting periods
beginning after December 15, 2016 (fiscal year 2018 for Woodward), including interim periods within that reporting period.
Early adoption is not permitted. An entity should adopt the amendments using one of the following methods: retrospectively
to each prior reporting period presented or retrospectively with the cumulative effect of initially applying ASU 2014-09
recognized at the date of initial application. Woodward has not determined what transition method it will use and is currently
assessing the impact that this guidance may have on its Consolidated Financial Statements.
In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other
Comprehensive Income.” ASU 2013-02 does not change the current requirements for reporting net income or other
comprehensive income in financial statements; however, the amendments require companies to provide information about the
amounts reclassified out of accumulated comprehensive income by component. ASU 2013-02 requires a company to present,
either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of
accumulated comprehensive income by respective line items of net income, but only if the amount so reclassified is required
under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not
required under U.S. GAAP to be reclassified in their entirety to net income, a company is required to cross-reference to other
disclosures required under U.S. GAAP that provide additional detail about those amounts. ASU 2013-02 is effective
prospectively for annual reporting periods beginning after December 15, 2012 (fiscal year 2014 for Woodward). The
disclosure requirement of ASU 2013-02, which Woodward has adopted, had no material impact on its Consolidated Financial
Statements.
Note 3. Earnings per share
Basic earnings per share is computed by dividing net earnings available to common stockholders by the weighted-
average number of shares of common stock outstanding for the period.
Diluted earnings per share reflects the weighted-average number of shares outstanding after consideration of the dilutive
effect of stock options and restricted stock.
The following is a reconciliation of net earnings to basic earnings per share and diluted earnings per share:
Numerator:
Net earnings
Denominator:
Basic shares outstanding
Dilutive effect of stock options and restricted stock
Diluted shares outstanding
Income per common share:
Basic earnings per share
Diluted earnings per share
2014
Year Ended September 30,
2013
2012
$
165,844
$
145,942
$
141,589
66,432
1,344
67,776
68,392
1,210
69,602
$
$
2.50
2.45
$
$
2.13
2.10
$
$
68,880
1,427
70,307
2.06
2.01
The following stock option grants were outstanding during the fiscal years ended September 30, 2014, 2013 and 2012,
but were excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive:
Options
Weighted-average option price
Year Ended September 30,
2014
2013
2012
12
44
44.04
$
40.21
$
50
36.33
$
62
The weighted-average shares of common stock outstanding for basic and diluted earnings per share included the
weighted-average treasury stock shares held for deferred compensation obligations of the following:
Year Ended September 30,
2014
2013
2012
Weighted-average treasury stock shares held for deferred compensation
obligations
216
256
295
Note 4. Business acquisitions
Woodward has recorded the acquisition described below using the acquisition method of accounting and, accordingly,
has included the results of operations of the acquired business in its consolidated results as of the date of acquisition. In
accordance with authoritative accounting guidance for business combinations, the purchase price for the 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 10, Goodwill).
Duarte Business Acquisition
On December 27, 2012, Woodward entered into a definitive asset purchase agreement (the “Asset Purchase Agreement”)
with GE Aviation Systems LLC (the “Seller”) and General Electric Company for the acquisition of substantially all of the
assets and certain liabilities related to the Seller’s thrust reverser actuation systems business located in Duarte, California (the
“Duarte Business”) for an aggregate purchase price of $200,000. The acquisition was completed on December 28, 2012 and,
based on customary purchase price adjustments, Woodward paid cash at closing in the amount of $198,900. Woodward and
the Seller have finalized the purchase price adjustment based on the customary post-closing provisions of the Asset Purchase
Agreement.
The purchase price of the Duarte Business is as follows:
Cash paid to Seller
Less cash acquired
Total purchase price
$
$
198,900
(40)
198,860
The allocation of the purchase price to the assets acquired and liabilities assumed was accounted for under the
acquisition method of accounting in accordance with ASC Topic 805, “Business Combinations.” Assets acquired and
liabilities assumed in the transaction were allocated and recorded at their estimated acquisition date fair values using
management’s best estimate based on available data. Transaction costs associated with the acquisition were expensed as
incurred. The Company incurred transaction costs of $1,944 during the fiscal year ended September 30, 2013, which are
included in “Selling, general and administrative expenses” in the Consolidated Statements of Earnings. No additional
transaction costs were incurred in the fiscal year ended September 30, 2014.
During the three-months ended December 31, 2013, Woodward completed its purchase accounting valuation estimates
and as a result, retrospectively adjusted the valuations of certain liabilities with a corresponding increase to goodwill and
intangible assets as of the acquisition date. The retrospective adjustments amounted to approximately $12,800 and primarily
relate to long-term performance obligations and other accrued liabilities. Changes since the acquisition date to the valuations
of the assets and liabilities acquired resulted in insignificant changes to Woodward’s previously reported earnings and
therefore prior reported earnings have not been restated. The allocation of the purchase price to the assets and liabilities
assumed was finalized as of December 27, 2013.
63
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of the
acquisition of the Duarte Business:
Accounts receivable
Inventories
Other current assets
Property, plant, and equipment
Goodwill
Intangible assets
Other noncurrent assets
Total assets acquired
Other current liabilities
Other noncurrent liabilities
Total liabilities assumed
Net assets acquired
$
$
14,245
30,149
10,370
11,804
98,310
89,700
18,097
272,675
32,509
41,306
73,815
198,860
Goodwill recorded in connection with the acquisition of the Duarte Business, which is deductible for income tax
purposes, represents the estimated value of potential expansion with new customers, the opportunity to further develop sales
opportunities with new and acquired Duarte Business customers, and other synergies expected to be achieved through the
integration of the Duarte Business into Woodward’s Aerospace segment.
A summary of the estimated intangible assets acquired, weighted-average useful lives, and amortization methods
follows:
Estimated Amounts
Weighted-Average Useful
Life
Amortization Method
Customer relationships and contracts
Process technology
Backlog
Total
$
$
77,000
5,000
7,700
89,700
20 years
25 years
3 years
Straight-line
Straight-line
Accelerated
Assumed liabilities include $4,758 and $17,939 of current and long-term performance obligations, respectively, for
contractual commitments that are expected to result in future economic losses.
The Asset Purchase Agreement included commitments for the Duarte Business to continue to provide services to the
Seller unrelated to the core business acquired, for which Woodward will continue to be paid by the Seller. Assumed
liabilities include $12,985 and $23,215 of current and long-term performance obligations, respectively, for services to be
provided to the Seller, offset by $8,103 and $18,097 of current and long-term assets, respectively, related to contractual
payments due from the Seller.
Net sales for the Duarte Business subsequent to the date it was acquired by Woodward were $145,998 for the fiscal year
ended September 30, 2014 and $111,261 for the fiscal year ended September 30, 2013. Earnings of the Duarte Business
subsequent to the date it was acquired by Woodward for the fiscal year ended September 30, 2014 cannot be determined on a
stand-alone basis due to the integration of the Duarte Business into Woodward’s Aerospace segment. Earnings of the Duarte
Business subsequent to the date it was acquired by Woodward for the fiscal year ended September 30, 2013 were slightly
accretive to the consolidated net earnings of Woodward. Due to the timing of the acquisition, there were no net sales or
operating expenses from the Duarte Business included in the Consolidated Statements of Earnings for the three-months ended
December 31, 2012. Fiscal year 2014 includes a full year of Duarte Business operating results.
Pro forma results for Woodward giving effect to the acquisition of the Duarte Business
The following unaudited pro forma financial information presents the combined results of operations of Woodward and
the Duarte Business as if the acquisition had occurred as of October 1, 2011, the beginning of fiscal year 2012. The pro
forma information is presented for information purposes only and is not indicative of the results of operations that would
have been achieved if the acquisition and the borrowings used to finance it had taken place at the beginning of fiscal year
2012. The pro forma information combines the historical results of Woodward with the historical results of the Duarte
Business for that period.
64
Prior to the acquisition of the Duarte Business, the Duarte Business was a wholly owned business of the Seller, and as
such was not a stand-alone entity for financial reporting purposes. Accordingly, the historical operating results of the Duarte
Business may not be indicative of the results that might have been achieved, historically or in the future, if the Duarte
Business had been a stand-alone entity. The unaudited pro forma results for the fiscal years ended September 30, 2014,
September 30, 2013 and September 30, 2012 include amortization charges for acquired intangible assets, eliminations of
intercompany transactions, adjustments for depreciation expense for property, plant and equipment, adjustments for acquired
performance obligations, transaction costs incurred, adjustments to interest expense, and related tax effects.
The unaudited pro forma results for the fiscal years ended September 30, 2014, September 30, 2013 and September 30,
2012, compared to the actual results reported in these Consolidated Financial Statements, follow:
2014
Year Ended September 30,
2013
2012
As reported
Pro forma As reported
Pro forma As reported
Pro forma
$ 2,001,240 $ 2,001,240 $ 1,935,976 $ 1,966,376 $ 1,865,627 $ 1,978,169
165,844
167,047
145,942
152,431
141,589
131,384
Net sales
Net earnings
Earnings per share:
Basic earnings per share
$
2.50 $
2.51 $
2.13 $
2.23 $
2.06 $
Diluted earnings per share
2.45
2.46
2.10
2.19
2.01
1.91
1.87
Note 5. Financial instruments and fair value measurements
Financial assets and liabilities recorded at fair value in the Consolidated Balance Sheets are categorized based upon a fair
value hierarchy established by U.S. GAAP.
The table below presents information about Woodward’s financial assets that are measured at fair value on a recurring
basis and indicates the fair value hierarchy of the valuation techniques Woodward utilized to determine such fair value.
Woodward had no financial liabilities required to be measured at fair value on a recurring basis as of September 30, 2014 or
September 30, 2013.
At September 30, 2014
At September 30, 2013
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Financial assets:
Cash
Investments in money market funds
Investments in reverse repurchase agreements
Equity securities
Total financial assets
$ 92,590 $
- $
- $ 92,590 $ 35,839 $
- $
- $ 35,839
11,210
11,487
9,645
-
-
-
-
-
-
11,210
2,950
11,487
9,767
9,645
8,285
-
-
-
-
-
-
2,950
9,767
8,285
$ 124,932 $
- $
- $ 124,932 $ 56,841 $
- $
- $ 56,841
Investments in money market funds: Woodward sometimes invests excess cash in money market funds not insured by the
FDIC. Woodward believes that the investments in money market funds are on deposit with creditworthy 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
Woodward’s investments in money market funds are based on the quoted market prices for the net asset value of the various
money market funds.
Investments in reverse repurchase agreements: Woodward sometimes invests excess cash in reverse repurchase
agreements. Under the terms of Woodward’s reverse repurchase agreements, Woodward purchases an interest in a pool of
securities and is granted a security interest in those securities by the counterparty to the reverse repurchase agreement. At an
agreed upon date, generally the next business day, the counterparty repurchases Woodward’s interest in the pool of securities
at a price equal to what Woodward paid to the counterparty plus a rate of return determined daily per the terms of the reverse
repurchase agreement. Woodward believes that the investments in these reverse repurchase agreements are with
creditworthy financial institutions and that the funds invested are highly liquid. The investments in reverse repurchase
agreements are reported at fair value, with realized gains from interest income realized in earnings, and are included in “Cash
65
and cash equivalents.” Since the investments are generally overnight, the carrying value is considered to be equal to the fair
value as the amount is deemed to be a cash deposit with no risk of change in value as of the end of each fiscal quarter.
Equity securities: Woodward holds marketable equity securities, through investments in various mutual funds, related to
its deferred compensation program. Based on Woodward’s intentions regarding these instruments, marketable equity
securities are classified as trading securities. The trading securities are reported at fair value, with realized gains and losses
recognized in “Other (income) expense, net.” The trading securities are included in “Other assets.” The fair values of
Woodward’s trading securities are based on the quoted market prices for the net asset value of the various mutual funds.
Accounts receivable and accounts payable are not remeasured to fair value, as the carrying cost of each approximates its
respective fair value. The estimated fair values and carrying costs of other financial instruments that are not required to be
remeasured at fair value in the Consolidated Balance Sheets were as follows:
Assets:
Notes receivable from municipalities
Liabilities:
Long-term debt, including current portion
Fair Value
Hierarchy
Level
2
2
At September 30, 2014
At September 30, 2013
Estimated Fair
Value
Carrying Cost
Estimated Fair
Value
Carrying Cost
15,988
15,228
6,718
8,114
(752,513)
(710,000)
(588,297)
(550,000)
In fiscal years 2014 and 2013, Woodward received long-term notes from a municipality within the state of Illinois in
connection with certain economic incentives related to Woodward’s development of a second campus in the greater-
Rockford, Illinois area for its Aerospace segment. The fair value of the long-term notes was estimated based on a model that
discounted future principal and interest payments received at an interest rate available to the Company at the end of the
period for similarly rated municipal notes of similar maturity, which is a level 2 input as defined by the U.S. GAAP fair value
hierarchy. The interest rates used to estimate the fair value of the long-term notes were 3.2% at September 30, 2014 and
4.3% at September 30, 2013.
In fiscal year 2013, Woodward received a long-term note from a municipality within the state of Colorado in connection
with certain economic incentives related to Woodward’s development of a new campus at its corporate headquarters in Fort
Collins, Colorado. The fair value of the long-term note was estimated based on a model that discounted future principal and
interest payments received at an interest rate available to the Company at the end of the period for similarly rated municipal
notes of similar maturity, which is a level 2 input as defined by the U.S. GAAP fair value hierarchy. The interest rates used
to estimate the fair value of the long-term note were 3.2% at September 30, 2014 and 4.3% at September 30, 2013.
The fair value of long-term debt 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, which is a level 2
input as defined by the U.S. GAAP fair value hierarchy. The weighted-average interest rates used to estimate the fair value
of long-term debt were 2.4% as of September 30, 2014 and 2.0% as September 30, 2013.
Note 6. 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 or speculative purposes.
By using derivative and/or hedging instruments to manage its risk exposure, Woodward is subject, from time to time, to
credit risk and market risk on those derivative instruments. Credit risk arises from the potential failure of the counterparty to
perform under the terms of the derivative and/or hedging instrument. When the fair value of a derivative contract is positive,
the counterparty owes Woodward, which creates credit risk for Woodward. Woodward mitigates this credit risk by entering
into transactions with only creditworthy counterparties. Market risk arises from the potential adverse effects on the value of
derivative and/or hedging instruments that result from a change in interest rates, commodity prices, or foreign currency
exchange rates. Woodward minimizes this market risk by establishing and monitoring parameters that limit the types and
degree of market risk that may be undertaken.
66
Other than the cash flow hedge discussed below, Woodward did not enter into any other derivatives or hedging
transactions during the fiscal years ended September 30, 2014, September 30, 2013 and September 30, 2012.
Derivatives in fair value hedging relationships
In 2002, Woodward entered into certain interest rate swaps that were designated as fair value hedges of its long-term
debt consisting of senior notes due in October 2011. The discontinuance of these interest rate swaps resulted in gains that
were 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 was presented as an adjustment to long-term debt.
As of September 30, 2014, September 30, 2013 and September 30, 2012 there was no remaining unrecognized portion of
the gain as it became fully amortized during the quarter ended December 31, 2011.
Derivatives in cash flow hedging relationships
In June 2013, in connection with Woodward’s expected refinancing of current maturities on its existing long-term debt,
Woodward entered into a treasury lock agreement with a notional amount of $25,000 that qualified as a cash flow hedge
under ASC Topic 815, “Derivatives and Hedging.” The objective of this derivative instrument was to hedge the risk of
variability in cash flows attributable to changes in the designated benchmark interest rate over a seven-year period related to
the future interest payments on a portion of anticipated future debt issuances. The treasury lock agreement was settled in
August 2013 and the resulting gain of $507 is being recognized as a reduction of interest expense over a seven-year period.
The unrecognized portion of the gain is recorded in accumulated other comprehensive earnings, net of tax.
In September 2008, the Company entered into treasury lock agreements 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 to acquire Techni-
Core, Inc. (“Techni-Core”) and MPC Products Corporation (“MPC Products” and, together with Techni-Core, “MPC”). The
discontinuance of these treasury lock agreements resulted in a gain that is being recognized as a reduction of interest expense
over a seven-year period on the hedged Series C and D Notes, which were issued on October 1, 2008, using the effective
interest method. The unrecognized portion of the gain is recorded in accumulated other comprehensive earnings, net of tax.
In March 2009, Woodward entered into LIBOR lock agreements 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 then expected issuance of long-term debt to acquire
HR Textron Inc. (“HRT”). The discontinuance of the LIBOR lock agreements resulted in a loss that is being recognized as
an increase of interest expense over a seven-year period on the hedged Series E and F Notes, which were issued on April 3,
2009, using the effective interest method. The unrecognized portion of the loss is recorded in accumulated other
comprehensive earnings, net of tax.
The remaining unrecognized gains and losses in Woodward’s Consolidated Balance Sheets associated with derivative
instruments that were previously entered into by Woodward, which are classified in accumulated other comprehensive losses
(“accumulated OCI”), were net gains of $170 as of September 30, 2014 and $71 as of September 30, 2013.
The following tables disclose the impact of derivative instruments on Woodward’s Consolidated Statements of Earnings:
Derivatives in:
Location of (Gain) Loss
Recognized in Earnings
Fair value hedging relationships Interest expense
Cash flow hedging relationships Interest expense
Year ended September 30, 2014
Amount of (Income)
Expense Recognized
in Earnings on
Derivative
Amount of (Gain)
Loss Recognized in
Accumulated OCI
on Derivative
Amount of (Gain)
Loss Reclassified
from Accumulated
OCI into Earnings
-
99
99
$
$
-
-
-
$
$
-
99
99
$
$
67
Derivatives in:
Location of (Gain) Loss
Recognized in Earnings
Fair value hedging relationships Interest expense
Cash flow hedging relationships Interest expense
Derivatives in:
Location of (Gain) Loss
Recognized in Earnings
Fair value hedging relationships Interest expense
Cash flow hedging relationships Interest expense
Year ended September 30, 2013
Amount of (Income)
Expense Recognized
in Earnings on
Derivative
Amount of (Gain)
Loss Recognized in
Accumulated OCI
on Derivative
Amount of (Gain)
Loss Reclassified
from Accumulated
OCI into Earnings
$
$
-
171
171
$
$
-
$
(507)
(507)
$
-
171
171
Year ended September 30, 2012
Amount of (Income)
Expense Recognized
in Earnings on
Derivative
Amount of (Gain)
Loss Recognized in
Accumulated OCI
on Derivative
Amount of (Gain)
Loss Reclassified
from Accumulated
OCI into Earnings
$
$
(3)
174
171
$
$
-
-
-
$
$
-
174
174
Based on the carrying value of the realized but unrecognized gains and losses on terminated derivative instruments
designated as cash flow hedges as of September 30, 2014, Woodward expects to reclassify $99 of net unrecognized losses on
terminated derivative instruments from accumulated other comprehensive earnings to earnings during the next twelve
months.
Note 7. Supplemental statement of cash flows information
Year Ended September 30,
2014
2013
2012
Interest paid, net of amounts capitalized
$
27,922 $
26,627 $
Income taxes paid
Income tax refunds received
Non-cash activities:
Purchases of property, plant and equipment on account
Common shares issued from treasury for benefit plans (Note 17)
Notes receivable from municipalities for economic development incentives
Cashless exercise of stock options
Settlement of receivable through cashless acquisition of treasury shares in
connection with the cashless exercise of stock options
66,477
2,303
13,437
11,193
6,596
1,286
1,736
52,355
6,336
5,345
9,780
8,114
2,645
3,447
25,665
52,705
3,183
6,065
9,335
-
-
-
Note 8. Inventories
Raw materials
Work in progress
Component parts (1)
Finished goods
September 30,
2014
September 30,
2013
$
$
60,442
93,836
247,299
50,367
451,944
$
$
67,599
87,808
229,508
46,829
431,744
(1) Component parts include items that can be sold separately as finished goods or included in the manufacture of other
products.
68
Note 9. Property, plant, and equipment
Land and land improvements
Buildings and improvements
Leasehold improvements
Machinery and production equipment
Computer equipment and software
Office furniture and equipment
Other
Construction in progress
Less accumulated depreciation
Property, plant and equipment, net
September 30,
2014
September 30,
2013
$
$
$
66,303
197,587
20,026
326,403
103,852
20,992
18,839
223,958
977,960
(464,681)
513,279
$
57,562
195,008
18,924
305,692
97,538
24,400
14,197
81,428
794,749
(444,701)
350,048
Included in “Land and land improvements” and “Buildings and improvements” at September 30, 2014 are held for sale
assets of $2,465. During the quarter ended September 30, 2014, Woodward recorded an impairment charge of $3,138, which
is included in cost of goods sold in the Consolidated Statement of Earnings, related to the write down to fair market value of
certain held for sale assets.
Woodward is developing a second campus in the greater-Rockford, Illinois area for its Aerospace segment in order to
address the growth expected over the next ten years and beyond and to support a substantial number of recently awarded new
system platforms, particularly on narrow-body aircraft. Included in construction in progress are $85,283 at September 30,
2014 and $15,691 at September 30, 2013, of costs associated with the construction of the second campus and new equipment
purchases, including capitalized interest of $2,963 at September 30, 2014 and $444 at September 30, 2013.
Woodward is also developing a new campus at its corporate headquarters in Fort Collins, Colorado to support the
continued growth of our Energy segment by supplementing its existing Colorado manufacturing facilities and corporate
headquarters. Included in construction in progress are $37,268 at September 30, 2014 and $10,514 at September 30, 2013, of
costs associated with the construction of the new campus, including capitalized interest of $2,392 at September 30, 2014 and
$394 at September 30, 2013.
In addition, in September 2013, Woodward invested in a building site in Niles, Illinois. Woodward is building a new
facility on this site for its Aerospace segment and will relocate some of its operations currently residing in nearby Skokie,
Illinois to this new facility. Included in construction in progress are $55,629 at September 30, 2014 and $12,067 at
September 30, 2013, of costs associated with the construction of the new facility, including capitalized interest of $1,688 at
September 30, 2014 and $0 at September 30, 2013.
For the fiscal years ended September 30, 2014, 2013 and 2012, Woodward had depreciation expense of the following:
Year Ended September 30,
2014
2013
2012
Depreciation expense
$
43,773
$
37,254 $
35,808
For the fiscal years ended September 30, 2014, 2013 and 2012, Woodward capitalized interest that would have otherwise
been included in interest expense of the following:
Capitalized interest
$
7,282
$
1,215 $
658
Year Ended September 30,
2014
2013
2012
69
Note 10. Goodwill
Aerospace
Energy
Consolidated
Aerospace
Energy
Consolidated
September 30, 2013
Additions
$
$
455,107 $
106,351
561,458 $
September 30, 2012
Additions
Effects of Foreign
Currency
Translation
September 30, 2014
- $
-
- $
316 $
(2,050)
(1,734) $
455,423
104,301
559,724
Effects of Foreign
Currency
Translation
September 30, 2013
$
$
356,773 $
98,310 $
104,601
-
461,374 $
98,310 $
23 $
1,750
1,773 $
455,107
106,351
561,458
On December 28, 2012, Woodward completed the acquisition of the Duarte Business (Note 4, Business acquisitions),
which resulted in the recognition of $98,310 in goodwill. The operations of the Duarte Business have been integrated into
Woodward’s Aerospace segment.
Woodward tests goodwill for impairment at 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.
Based on the relevant U.S. GAAP authoritative guidance, Woodward aggregates components of a single operating segment
into a reporting unit, if appropriate. The impairment tests consist of comparing the implied fair value of each reporting unit
with its carrying amount including goodwill. If the carrying amount of the reporting unit exceeds its implied fair value,
Woodward compares the implied fair value of goodwill with the recorded carrying amount of goodwill. 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.
Woodward completed its annual goodwill impairment test as of July 31, 2014 during the quarter ended September 30,
2014. At that date, Woodward determined it was appropriate to aggregate certain components of the same operating segment
into a single aggregated reporting unit. The fair value of each of Woodward’s reporting units was determined using a
discounted cash flow method. This method represents a Level 3 input and incorporates various estimates and assumptions,
the most significant being projected revenue growth rates, earnings margins, future tax rates, and the present value, based on
an estimated weighted-average cost of capital (or the discount rate) and terminal growth rate, of forecasted cash flows.
Management projects revenue growth rates, earnings margins and cash flows based on each reporting unit’s current
operational results, expected performance and operational strategies over a five or ten-year period. These projections are
adjusted to reflect current economic conditions and demand for certain products, and require considerable management
judgment.
Forecasted cash flows used in the July 31, 2014 impairment test were discounted using weighted-average cost of capital
assumptions ranging from 8.93% to 11.04%. The terminal values of the forecasted cash flows were calculated using the
Gordon Growth Model and assumed an annual compound growth rate after five or ten years of 4.20%. These inputs, which
are unobservable in the market, represent management’s best estimate of what market participants would use in determining
the present value of the Company’s forecasted cash flows. Changes in these estimates and assumptions can have a significant
impact on the fair value of forecasted cash flows. Woodward evaluated the reasonableness of the reporting unit’s resulting
fair values utilizing a market multiple method.
The results of Woodward’s goodwill impairment tests performed as of July 31, 2014 indicated the estimated fair value of
each reporting unit was substantially in excess of its carrying value, and accordingly, no impairment existed.
70
Note 11. Other intangibles, net
Customer relationships and contracts:
Aerospace
Energy
Total
Intellectual property:
Aerospace
Energy
Total
Process technology:
Aerospace
Energy
Total
Other intangibles:
Aerospace
Energy
Total
Total intangibles:
Aerospace
Energy
September 30, 2014
September 30, 2013
Gross
Carrying
Value
Accumulated
Amortization
Net Carrying
Amount
Gross
Carrying
Value
Accumulated
Amortization
Net Carrying
Amount
$
282,225 $
(97,281) $
184,944 $
282,225 $
(77,288) $
204,937
41,706
(32,032)
9,674
42,008
(29,711)
12,297
$
323,931 $
(129,313) $
194,618 $
324,233 $
(106,999) $
217,234
$
$
$
$
$
$
- $
- $
- $
- $
- $
19,954
(15,938)
4,016
20,218
(14,722)
19,954 $
(15,938) $
4,016 $
20,218 $
(14,722) $
76,605 $
(31,719) $
44,886 $
76,718 $
(26,129) $
23,078
(13,141)
9,937
23,458
(11,699)
99,683 $
(44,860) $
54,823 $
100,176 $
(37,828) $
9,100 $
(8,465) $
635 $
47,351 $
(44,572) $
1,519
(839)
680
2,631
(1,713)
10,619 $
(9,304) $
1,315 $
49,982 $
(46,285) $
-
5,496
5,496
50,589
11,759
62,348
2,779
918
3,697
$
367,930 $
(137,465) $
230,465 $
406,294 $
(147,989) $
258,305
86,257
(61,950)
24,307
88,315
(57,845)
30,470
Consolidated Total
$
454,187 $
(199,415) $
254,772 $
494,609 $
(205,834) $
288,775
Amortization expense
$
33,580 $
36,979 $
32,809
Year Ended September 30,
2014
2013
2012
Future amortization expense associated with intangibles is expected to be:
Year Ending September 30:
2015
2016
2017
2018
2019
Thereafter
$
$
29,309
27,606
25,862
25,035
23,199
123,761
254,772
71
Note 12. Credit facilities, short-term borrowings and long-term debt
As of September 30, 2014, Woodward’s short-term borrowings and availability under its various short-term credit
facilities follows:
Revolving credit facility
Foreign lines of credit and overdraft facilities
Foreign performance guarantee facilities
Revolving credit facility
Total availability
Outstanding
letters of credit
and guarantees
Outstanding
borrowings
Remaining
availability
$
$
600,000 $
(5,408) $
(210,000) $
27,959
9,678
(86)
(443)
-
-
637,637 $
(5,937) $
(210,000) $
384,592
27,872
9,235
421,699
Woodward maintains a $600,000 revolving credit facility established under a revolving credit agreement between
Woodward and a syndicate of lenders led by Wells Fargo Bank, National Association, as administrative agent (the
“Revolving Credit Agreement”). The Revolving Credit Agreement provides for the option to increase available borrowings
to up to $800,000, subject to lenders’ participation, and matures in July 2018. Borrowings under the Revolving Credit
Agreement generally bear interest at LIBOR plus 0.85% to 1.65%. Under the Revolving Credit Agreement, there were
$210,000 of borrowings outstanding as of September 30, 2014, at an effective interest rate of 1.21%, and no borrowings
outstanding as of September 30, 2013. As of September 30, 2014, the entire outstanding balance under the Revolving Credit
Agreement was classified as long-term.
The Revolving Credit Agreement contains certain covenants customary with such agreements, which are generally
consistent with the covenants applicable to Woodward’s long-term debt agreements, and contains customary events of
default, including certain cross default provisions related to Woodward’s other outstanding debt arrangements in excess of
$60,000, the occurrence of which would permit the lenders to accelerate the amounts due thereunder. In addition, the
Revolving Credit Agreement includes the following financial covenants: (i) a maximum permitted leverage ratio of
consolidated net debt to consolidated earnings before interest, taxes, depreciation, stock-based compensation, and
amortization, plus any usual non-cash charges to the extent deducted in computing net income minus any usual non-cash
gains to the extent added in computing net income (“Leverage Ratio”) for Woodward and its consolidated subsidiaries not to
exceed 3.5 to 1.0, which ratio, subject to certain restrictions, may increase to 4.0 to 1.0 for the fiscal quarter (and the
immediately following fiscal quarter) during which a permitted acquisition occurs and to 3.75 to 1.0 for the next two
succeeding fiscal quarters, and (ii) a minimum consolidated net worth of $800,000, plus 50% of Woodward’s positive net
income for the prior fiscal year and plus 50% of Woodward’s net cash proceeds resulting from certain issuances of stock,
subject to certain adjustments.
Woodward’s obligations under the Revolving Credit Agreement are guaranteed by Woodward FST, Inc., Woodward
MPC, Inc., and Woodward HRT, Inc., each of which is a wholly owned subsidiary of Woodward.
Short-term borrowings
A Chinese subsidiary of Woodward has a local credit facility with the Hong Kong and Shanghai Banking Company
under which it has the ability to borrow up to either $22,700, or the local currency equivalent of $22,700. Any cash
borrowings under the local Chinese credit facility are secured by a parent guarantee from Woodward. The Chinese
subsidiary may utilize the local facility for cash borrowings to support its operating cash needs. Local currency borrowings
on the Chinese credit facility are charged interest at the prevailing interest rate offered by the People’s Bank of China on the
date of borrowing, plus a margin equal to 25% of that prevailing rate. U.S. dollar borrowings on the credit facility are
charged interest at the lender’s cost of borrowing rate at the date of borrowing, plus 3%. The Chinese subsidiary had no
outstanding cash borrowings against the local credit facility at September 30, 2014 and September 30, 2013.
Woodward also has other foreign lines of credit and foreign overdraft facilities at various financial institutions, which are
generally reviewed annually for renewal and are subject to the usual terms and conditions applied by the financial
institutions. Pursuant to the terms of the related facility agreements, Woodward’s foreign performance guarantee facilities
are limited in use to providing performance guarantees to third parties. There were no borrowings outstanding as of
September 30, 2014 and September 30, 2013 on Woodward’s other foreign lines of credit and foreign overdraft facilities.
72
Long-term debt
Long-term debt consisted of the following:
Revolving credit facility - Floating rate (LIBOR plus 0.85% - 1.65%), due July 2018, unsecured
$
210,000 $
-
September 30,
September 30,
2014
2013
Series B notes – 5.63%, due October 2013; unsecured
Series C notes – 5.92%, due October 2015; unsecured
Series D notes – 6.39%, due October 2018; unsecured
Series E notes – 7.81%, due April 2016; unsecured
Series F notes – 8.24%, due April 2019; unsecured
Series G notes – 3.42%, due November 2020; unsecured
Series H notes – 4.03%, due November 2023; unsecured
Series I notes – 4.18%, due November 2025; unsecured
Series J notes – Floating rate (LIBOR plus 1.25%), due November 2020; unsecured
Series K notes – 4.03%, due November 2023; unsecured
Series L notes – 4.18%, due November 2025; unsecured
Long-term borrowings under Line of Credit - Variable rate of 1.06% at September 30, 2013;
unsecured
Total debt
Less: current portion of long-term debt
Long-term debt, excluding current portion
The Notes
-
50,000
100,000
57,000
43,000
50,000
25,000
25,000
50,000
50,000
50,000
-
710,000
100,000
50,000
100,000
57,000
43,000
-
-
-
-
-
-
200,000
550,000
-
(100,000)
$
710,000
$
450,000
In October 2008, Woodward entered into a note purchase agreement (the “2008 Note Purchase Agreement”) relating to
the Series B, C, and D Notes (the “2008 Notes”). In April 2009, Woodward entered into a note purchase agreement (the
“2009 Note Purchase Agreement”) relating to the Series E and F Notes (the “2009 Notes”).
On October 1, 2013, Woodward entered into a note purchase agreement (the “2013 Note Purchase Agreement” and,
together with the 2008 Note Purchase Agreement and the 2009 Note Purchase Agreement, the “Note Purchase Agreements”)
relating to the sale by Woodward of an aggregate principal amount of $250,000 of its senior unsecured notes in a series of
private placement transactions.
Woodward issued the Series G, H and I Notes (the “First Closing Notes”) on October 1, 2013 and used the proceeds to
repay all of the outstanding balance on the Series B Notes due October 1, 2013.
Woodward issued the Series J, K and L Notes (the “Second Closing Notes” and, together with the 2008 Notes, 2009
Notes and First Closing Notes, the “Notes”) on November 15, 2013 and used the proceeds to partially repay the uncommitted
line of credit as discussed below.
Interest on the 2008 Notes, the First Closing Notes, and the Series K and L Notes is payable semi-annually on April 1
and October 1 of each year until all principal is paid. Interest on the 2009 Notes is payable semi-annually on April 15 and
October 15 of each year until all principal is paid. Interest on the Series J Notes is payable quarterly on January 1, April 1,
July 1 and October 1 of each year until all principal is paid. As of September 30, 2014, the Series J Notes bore interest at an
effective rate of 1.49%.
None of the Notes were registered under the Securities Act of 1933 and they may not be offered or sold in the United
States absent registration or an applicable exemption from registration requirements. Holders of the Notes do not have any
registration rights.
All of the issued Notes are held by multiple institutions.
73
Woodward’s obligations under the Notes are guaranteed by Woodward FST, Inc., Woodward MPC, Inc., and Woodward
HRT, Inc., each of which is a wholly owned subsidiary of Woodward. Woodward’s obligations under the Notes rank equal
in right of payment with all of Woodward’s other unsecured unsubordinated debt, including its outstanding debt under its
revolving credit facility.
On October 1, 2013, Woodward also entered into amendments to the 2008 Note Purchase Agreement and 2009 Note
Purchase Agreement that, among other things, conformed certain of the affirmative and negative covenants in the 2008 Note
Purchase Agreement and the 2009 Note Purchase Agreement, respectively, to the corresponding covenant provisions in the
2013 Note Purchase Agreement.
The Note Purchase Agreements contain restrictive covenants customary for such financings, including, among other
things, covenants that place limits on Woodward’s ability to incur liens on assets, incur additional debt (including a leverage
or coverage based maintenance test), transfer or sell Woodward’s assets, merge or consolidate with other persons and enter
into material transactions with affiliates. Under the financial covenants contained in the Note Purchase Agreements,
Woodward’s priority debt may not exceed, at any time, 25% of its consolidated net worth. Woodward’s Leverage Ratio
cannot exceed 4.0 to 1.0 during any material acquisition period, or 3.5 to 1.0 at any other time on a rolling four quarter basis.
In the event that Woodward’s Leverage Ratio exceeds 3.5 to 1.0 during any material acquisition period, the interest rate on
each series of Notes will increase. Further, Woodward’s consolidated net worth must at all times equal or exceed $800,000
plus 50% of Woodward’s consolidated net earnings for each fiscal year beginning with the fiscal year ending September 30,
2014. The Note Purchase Agreements also contain customary events of default, including certain cross-default provisions
related to Woodward’s other outstanding debt arrangements in excess of $60,000, the occurrence of which would permit the
holders of the respective Notes to accelerate the amounts due.
Woodward, at its option, is permitted at any time to prepay all, or from time to time to prepay any part of, the then
outstanding principal amount of any series of the Notes at 100% of the principal amount of the series of Notes to be prepaid
(but, in the case of partial prepayment, not less than $1,000), together with interest accrued on such amount to be prepaid to
the date of payment, plus any applicable prepayment compensation amount. The prepayment compensation amount, as to the
Notes other than the floating rate Notes, is computed by discounting the remaining scheduled payments of interest and
principal of the Notes being prepaid at a discount rate equal to the sum of 50 basis points and the yield to maturity of U.S.
Treasury securities having a maturity equal to the remaining average life of the Notes being prepaid. The prepayment
compensation amount, as to the floating rate Notes, generally is computed as a percentage of the principal amount of such
floating rate Notes equal to (a) 2%, on or prior to November 15, 2014, (b) 1%, after November 15, 2014 and on or prior to
November 15, 2015, and (c) 0% after November 15, 2015.
Required future principal payments of the Notes as of September 30, 2014 are as follows:
Year Ending September 30:
2015
2016
2017
2018
2019
Thereafter
$
$
-
107,000
-
-
143,000
250,000
500,000
In October 2008, Woodward entered into a term loan credit agreement (the “2008 Term Loan Credit Agreement”).
During the second quarter of fiscal year 2013, the remaining outstanding indebtedness under the 2008 Term Loan Credit
Agreement, which generally bore interest at LIBOR plus 1.00% to 2.25%, was repaid and terminated, without penalty, and
the remaining balance of unamortized debt issuance costs of $128 were written off to interest expense.
Certain financial and other covenants under Woodward's debt agreements contain customary restrictions on the operation
of its business. In the event of non-compliance with these covenants, certain additional restrictions might apply, including
restrictions on the Company's ability to pay dividends or make distributions on its capital stock. Management believes that
Woodward was in compliance with the covenants under the long-term debt agreements at September 30, 2014.
Line of Credit
In connection with the acquisition of the Duarte Business, on December 21, 2012 Woodward entered into a 364 day
uncommitted line of credit with JPMorgan Chase Bank, N.A. (the “Line of Credit”). The Line of Credit provided for
unsecured loans to Woodward of up to $200,000 on a revolving basis. Loans made under the Line of Credit bore interest at a
74
floating rate based, at the Company’s option, on either the prime rate or an adjusted LIBOR. The Line of Credit was repaid
in full and terminated on December 20, 2013.
The proceeds from the Line of Credit were used to finance the acquisition of the Duarte Business as discussed in Note 4,
Business acquisitions. The Company incurred no financing fees in association with the Line of Credit.
Woodward classified the $200,000 outstanding on the Line of Credit as long-term as of September 30, 2013 based on its
intention to refinance in fiscal year 2014.
Debt Issuance Costs
In connection with the 2013 Note Purchase Agreement, in fiscal year 2014, Woodward incurred $1,297 in financing
costs, which are deferred and will be amortized using the straight-line method over the life of the agreement.
In connection with the Revolving Credit Agreement, in fiscal year 2013, Woodward incurred $1,651 in financing costs,
which are deferred and will be amortized using the straight-line method over the life of the agreement. Woodward also had
remaining $1,529 of deferred financing costs incurred in connection with its prior revolving credit facility, which have been
combined with the financing costs associated with the Revolving Credit Agreement and are being amortized using the
straight-line method over the life of the Revolving Credit Agreement.
Amounts recognized as interest expense from the amortization of debt issuance costs were $1,014 in fiscal year 2014,
$1,045 in fiscal year 2013, and $1,074 in fiscal year 2012. Woodward had $4,276 of unamortized debt issuance costs as of
September 30, 2014 and $3,869 of unamortized debt issuance costs as of September 30, 2013. Amortization of debt issuance
costs is included in operating activities in the Consolidated Statements of Cash Flows.
Note 13. Accrued liabilities
Salaries and other member benefits
Warranties
Interest payable
Current portion of acquired performance obligations and unfavorable contracts (1)
Accrued retirement benefits
Deferred revenues
Taxes, other than income
Other
At September 30,
2014
2013
95,031 $
16,916
12,487
16,432
2,286
6,108
8,557
14,914
172,731 $
66,212
15,224
11,437
23,977
2,276
6,304
6,504
29,807
161,741
$
$
(1) For more information about acquired performance obligations and unfavorable contracts, see Note 4, Business
acquisitions.
Warranties
Provisions of Woodward’s sales agreements include product warranties customary to these types of agreements.
Accruals are established for specifically identified warranty issues that are probable to result in future costs. Warranty costs
are accrued on a non-specific basis whenever past experience indicates a normal and predictable pattern exists. Changes in
accrued product warranties for the fiscal years ended September 30, 2014, September 30, 2013 and September 30, 2012 were
as follows:
Warranties, beginning of period
Expense
Increases due to acquisition of Duarte Business
Reductions for settling warranties
Foreign currency exchange rate changes
Warranties, end of period
At September 30,
2014
2013
2012
$
15,224 $
15,742 $
10,700
-
(8,448)
(560)
12,037
157
(13,051)
339
$
16,916 $
15,224 $
14,083
14,543
-
(12,587)
(297)
15,742
75
Note 14. Other liabilities
At September 30,
2014
2013
Net accrued retirement benefits, less amounts recognized within accrued liabilities
$
38,850 $
Total unrecognized tax benefits, net of offsetting adjustments
Acquired performance obligations and unfavorable contracts (1)
Deferred economic incentives (2)
Other
14,707
12,792
18,408
16,454
39,956
20,343
23,951
8,266
12,994
(1) For more information about acquired performance obligations and unfavorable contracts, see Note 4, Business
acquisitions.
(2) Woodward receives certain economic incentives from various state and local taxing authorities not included in
income tax expense related to capital expansion projects. Such amounts are initially recorded as deferred credits and
will be recognized as a reduction to expense over the economic lives of the related capital expansion projects.
$
101,211 $
105,510
Note 15. Other (income) expense, net
Net (gain) loss on sale of assets
Rent income
Net gain on investments in deferred compensation program
Other
Note 16. Income taxes
Income taxes consisted of the following:
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Year Ended September 30,
2014
2013
2012
$
166
$
(100) $
(565)
(794)
(107)
(555)
(946)
(21)
$
(1,300)
$
(1,622) $
16
(504)
(1,052)
(40)
(1,580)
Year Ended September 30,
2014
2013
2012
$
48,327
$
29,438
$
5,752
16,594
(4,378)
(2,966)
(1,929)
4,760
10,612
13,904
885
(5,970)
47,862
4,452
11,594
(9,632)
(200)
2,142
$
61,400
$
53,629
$
56,218
Earnings before income taxes by geographical area consisted of the following:
United States
Other countries
Year Ended September 30,
2014
2013
2012
$
148,837
$
148,604
$
146,535
78,407
50,967
51,272
$
227,244
$
199,571
$
197,807
76
Significant components of deferred income taxes presented in the Consolidated Balance Sheets are related to the
following:
Deferred tax assets:
Defined benefit plans, Other postretirement
Foreign net operating loss carryforwards
Inventory
Deferred and stock-based compensation
Defined benefit pension
Other reserves
Credits and incentives
Other
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Goodwill and intangibles - net
Property, plant and equipment
Other
Total deferred tax liabilities
Net deferred tax liabilities
At September 30,
2014
2013
$
10,762
$
5,552
21,608
24,987
227
10,513
8,178
11,422
(9,486)
83,763
(96,493)
(18,288)
(7,419)
(122,200)
10,563
7,058
16,944
18,657
866
9,055
8,046
10,584
(11,783)
69,990
(97,804)
(17,175)
(3,391)
(118,370)
$
(38,437)
$
(48,380)
Woodward has recorded a net operating loss (“NOL”) deferred tax asset of $5,552 as of September 30, 2014 and $7,058
as of September 30, 2013. A portion of these carryforwards will expire by 2020 and are currently offset by a valuation
allowance, while the remaining portion has an indefinite carryforward period and has no valuation allowance against it.
Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely
than not that some portion or all of the deferred tax assets will not be realized. Both positive and negative evidence are
considered in forming Woodward’s judgment as to whether a valuation allowance is appropriate, and more weight is given to
evidence that can be objectively verified. Valuation allowances are reassessed whenever there are changes in circumstances
that may cause a change in judgment. The change in the valuation allowance was primarily the result of current year
earnings in a wholly owned subsidiary that had net operating losses subject to a full valuation allowance, and a change in
judgment about the utilization of tax credits in various jurisdictions.
At September 30, 2014, Woodward has not provided for taxes on undistributed foreign earnings of $253,797 that it
considered indefinitely reinvested. These earnings could become subject to income taxes if they are remitted as dividends,
are loaned to Woodward or any of Woodward’s subsidiaries located in the United States, or if Woodward sells its stock in the
foreign subsidiaries. Any additional U.S. taxes could be offset, in part or in whole, by foreign tax credits. The amount of
such taxes and application of tax credits would be dependent on the income tax laws and other circumstances at the time
these amounts are repatriated. Based on these variables, it is impractical to determine the income tax liability that might be
incurred if these funds were to be repatriated.
77
The following is a reconciliation of the U.S. Federal statutory tax rate of 35 percent to Woodward’s effective income tax
rate:
Percent of pretax earnings
Statutory tax rate
State income taxes, net of federal tax benefit
Taxes on international activities
Research credit
Retroactive extension of research credit
Domestic production activities deduction
Adjustments of prior period tax items
Other items, net
Effective tax rate
Year Ending September 30,
2014
35.0 %
2013
35.0 %
2012
35.0 %
1.3
(3.7)
(0.7)
-
(1.3)
(2.9)
(0.7)
1.8
(1.7)
(3.1)
(2.5)
(2.0)
(0.6)
-
1.6
(3.3)
(0.8)
-
(1.9)
(1.5)
(0.7)
27.0 %
26.9 %
28.4 %
In determining the tax amounts in Woodward’s financial statements, estimates are sometimes used that are subsequently
adjusted in the actual filing of tax returns or by updated calculations. In addition, we occasionally have resolutions of tax
items with tax authorities related to prior years due to the conclusion of audits and the lapse of applicable statutes of
limitations. Such adjustments are included in the “Adjustments of prior period tax items” line in the above table. The
majority of the fiscal year 2014 adjustments are related to the conclusion of audits, effective settlement, and lapse of
applicable statutes of limitations in various tax jurisdictions.
On January 2, 2013, the American Taxpayer Relief Act of 2012 (the “Taxpayer Relief Act”) was enacted, which
retroactively extended the U.S. research and experimentation tax credit through December 31, 2013. As a result, income
taxes for the year ended September 30, 2013 included a net expense reduction related to the retroactive impact from the last
three quarters of fiscal year 2012 of the U.S. research and experimentation tax credit pursuant to the Taxpayer Relief Act.
Income taxes for the year ended September 30, 2012 included a tax benefit of $3,326 related to a reduction in the
anticipated amount of undistributed earnings of certain of Woodward’s foreign subsidiaries that were previously expected to
be repatriated to the United States within the foreseeable future. Woodward anticipates that a portion of those earnings will
remain indefinitely invested outside the United States and accordingly it reversed the deferred tax liability associated with
repatriating those earnings. This item is included in the “Taxes on international activities” line in the rate reconciliation
above.
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:
Beginning balance
Additions to current year tax positions
Reductions to prior year tax positions
Additions to prior year tax positions
Lapse of applicable statute of limitations
Ending balance
Year Ending September 30,
2014
2013
2012
$
22,694
$
18,069
$
16,931
8,830
(9,684)
1,844
(997)
5,587
-
1,079
(2,041)
1,444
(169)
-
(137)
$
22,687
$
22,694
$
18,069
Included in the balance of unrecognized tax benefits are $12,807 as of September 30, 2014 and $17,838 as of September
30, 2013 of tax benefits that, if recognized, would affect the effective tax rate. At this time, Woodward estimates that it is
reasonably possible that the liability for unrecognized tax benefits will decrease by as much as $114 in the next twelve
months due to the completion of reviews by tax authorities and the expiration of certain statutes of limitations. Woodward
accrues for potential interest and penalties related to unrecognized tax benefits in tax expense. Woodward had accrued
interest and penalties of $1,158 as of September 30, 2014 and $2,066 as of September 30, 2013.
Woodward’s 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. Reviews of tax matters by authorities and lapses of the applicable statutes of limitations may
result in changes to tax expense. With a few exceptions, Woodward’s fiscal years remaining open to examination in the
United States include fiscal years 2011 and thereafter, and fiscal years remaining open to examination in significant foreign
jurisdictions include 2005 and thereafter.
78
Note 17. Retirement benefits
Woodward provides various benefits to eligible members of the Company, including contributions to various defined
contribution plans, pension benefits associated with defined benefit plans, postretirement medical benefits and postretirement
life insurance benefits. Eligibility requirements and benefit levels vary depending on employee location.
Defined contribution plans
Most of the Company’s U.S. employees are eligible to participate in the U.S. defined contribution plan. The U.S.
defined contribution plan allows employees to defer part of their annual income for income tax purposes into their personal
401(k) accounts. The Company makes contributions to eligible employee accounts, which are also deferred for employee
personal income tax purposes. Certain foreign employees are also eligible to participate in foreign plans.
Most of Woodward’s U.S. employees with at least two years of service receive an annual contribution of Woodward
stock, equal to 5% of their eligible prior year wages, to their personal Woodward Retirement Savings Plan accounts. In the
second quarter of fiscal years 2014, 2013, and 2012, Woodward fulfilled the annual Woodward stock contribution using
shares held in treasury stock by issuing 260 shares of common stock for a total value of $11,193 in fiscal year 2014, 250
shares of common stock for a total value of $9,780 in fiscal year 2013, and 209 shares of common stock for a total value of
$9,335 in fiscal year 2012. The Woodward Retirement Savings Plan held 5,176 shares of Woodward stock as of September
30, 2014 and 5,681 shares as of September 30, 2013.
The amount of expense associated with defined contribution plans was as follows:
Company costs
Defined benefit plans
Year Ended September 30,
2014
2013
2012
$
24,921
$
20,012
$
18,296
Woodward has defined benefit plans that provide pension benefits for certain retired employees in the United States, the
United Kingdom, and Japan. During the fourth quarter of fiscal year 2014, a defined benefit pension plan for certain
employees in California was amended. The amendment froze the benefits of certain members and resulted in a curtailment
gain in the U.S. During the third quarter of fiscal year 2014, Woodward terminated it defined benefit pension plan in
Switzerland due to workforce reductions related to the closure of Woodward’s Swiss facility in connection with the
realignment of the renewable power business that occurred in the third quarter of fiscal year 2013. Woodward also provides
other postretirement benefits to its employees including postretirement medical benefits and life insurance benefits.
Postretirement medical benefits are provided to certain current and retired employees and their covered dependants and
beneficiaries in the United States and the United Kingdom. Life insurance benefits are provided to certain retirees in the
United States under frozen plans, which are no longer available to current employees. A September 30 measurement date is
utilized to value plan assets and obligations for all of Woodward’s defined benefit pension and other postretirement benefit
plans.
In connection with the acquisition of the Duarte Business (see Note 4, Business acquisitions), Woodward did not assume
the Seller’s postretirement benefit obligations under the Duarte Business’ defined benefit pension plan as they existed at the
time of closing of the transaction. Under the terms of the Asset Purchase Agreement, Woodward established a new defined
benefit pension plan for the Duarte Business employees who were beneficiaries of the Seller’s defined benefit pension plan
(the “Duarte Pension Plan”). Subsequently, Woodward and the Duarte Union agreed that, effective as of the close of
business on July 31, 2013, the Duarte Pension Plan was amended to cease all future benefit accruals to current participants in
the plan. In addition, the Duarte Pension Plan was frozen to new entrants as of July 31, 2013.
In addition to the Duarte Pension Plan, excluding the Woodward HRT Plan, the defined benefit plans in the United
States were frozen in fiscal year 2007 and no additional employees may participate in the U.S. plans and no additional service
costs will be incurred.
79
Pension plans
The actuarial assumptions used in measuring the net periodic benefit cost and plan obligations of retirement pension
benefits were as follows:
2014
2013
2012
United States:
Weighted-average assumptions to determine benefit obligation at
September 30:
Discount rate
Rate of compensation increase
Weighted-average assumptions to determine periodic benefit costs
for years ended September 30:
Discount rate
Rate of compensation increase
Long-term rate of return on plan assets
United Kingdom:
Weighted-average assumptions to determine benefit obligation at
September 30:
Discount rate
Rate of compensation increase
Weighted-average assumptions to determine periodic benefit costs
for years ended September 30:
Discount rate
Rate of compensation increase
Long-term rate of return on plan assets
Japan:
Weighted-average assumptions to determine benefit obligation at
September 30:
Discount rate
Rate of compensation increase
Weighted-average assumptions to determine periodic benefit costs
for years ended September 30:
Discount rate
Rate of compensation increase
Long-term rate of return on plan assets
Switzerland:
Weighted-average assumptions to determine benefit obligation at
September 30:
Discount rate
Rate of compensation increase
Weighted-average assumptions to determine periodic benefit costs
for years ended September 30:
Discount rate
Rate of compensation increase
Long-term rate of return on plan assets
4.40 %
3.50
5.15
3.50
7.62
4.10 %
3.50
4.50
3.50
5.50
1.10 %
2.00
1.25
2.00
3.00
n/a%
n/a
2.25
2.00
2.25
5.15 %
3.50
4.10
3.50
7.59
4.50 %
3.50
4.60
3.90
5.50
1.25 %
2.00
1.50
2.00
2.80
2.25 %
2.00
1.75
2.00
1.75
4.10 %
3.50
5.55
4.00
7.89
4.60 %
3.90
5.10
4.30
6.00
1.50 %
2.00
1.50
2.00
2.80
1.75 %
2.00
2.50
2.00
2.50
The discount rate assumption is intended to reflect the rate at which the retirement benefits could be effectively settled
based upon the assumed timing of the benefit payments. In the United States, Woodward used a bond portfolio matching
analysis based on recently traded, non-callable bonds rated AA or better that have at least $50 million outstanding. In the
United Kingdom and Japan, Woodward used cash flow matching to develop a single rate equivalent for a theoretical portfolio
of non-callable, AA-rated bonds for each jurisdiction. In Switzerland, Woodward used high quality swap rates plus a credit
spread of 0.20% in fiscal year 2013 and 0.46% in fiscal year 2012, as high quality swaps are available in Switzerland at
various durations and trade at higher volumes than bonds. Woodward’s assumed rate in Switzerland did not differ
significantly from this benchmark.
80
Compensation increase assumptions are based upon historical experience and anticipated future management actions.
In determining the long-term rate of return on plan assets, Woodward assumes that the historical long-term compound
growth rates of equity and fixed-income securities will predict the future returns of similar investments in the plan portfolio.
Investment management and other fees paid out of the plan assets are factored into the determination of asset return
assumptions.
Net periodic benefit costs consist of the following components reflected as expense in Woodward’s Consolidated
Statements of Earnings:
United States
2013
2012
2014
Year Ended September 30,
Other Countries
2013
2012
2014
2014
Total
2013
2012
Service cost
Interest cost
$ 3,516 $ 4,608 $ 3,530 $
988 $ 1,052 $ 1,136 $
4,504 $
5,660 $ 4,666
6,382
5,569
5,816
2,410
2,113
2,280
8,792
7,682
8,096
Expected return on plan assets
(9,813) (8,183) (7,008) (3,070)
(2,610)
(2,584) (12,883) (10,793) (9,592)
Amortization of:
Net (gains) losses
Net prior service (benefit) cost
Settlement costs
Curtailment (benefits)
330
1,374
97
-
(6,624)
75
-
-
524
75
-
-
655
465
665
985
1,839
1,189
(4)
-
(915)
(8)
37
-
(9)
56
93
-
-
(7,539)
67
37
-
66
56
-
Net periodic (benefit) cost
$ (6,112) $ 3,443 $ 2,937 $
64 $ 1,049 $ 1,544 $ (6,048) $
4,492 $ 4,481
The curtailment gain in “United States” in the year ended September 30, 2014 pertained to amendments made to one of
Woodward’s plans that resulted in a freeze to the benefits of certain U.S. employees in California.
The curtailment gain in “Other Countries” in the year ended September 30, 2014 pertained to workforce reductions
related to the closure of Woodward’s Swiss facility in connection with the realignment of the renewable power business that
occurred in the third quarter of fiscal year 2013.
Settlement costs were expensed in fiscal years 2013 and 2012 as a result of normal attrition among participants in the
Company's defined benefit plan in Switzerland.
81
The following tables provide a reconciliation of the changes in the projected benefit obligation and fair value of assets
for the defined benefit pension plans:
At or for the Year Ended September 30,
United States
2014
2013
Other Countries
2013
2014
Total
2014
2013
Changes in projected benefit obligation:
Projected benefit obligation at beginning of year
$ 126,532 $ 137,639 $ 63,891 $ 60,837 $ 190,423 $ 198,476
Service cost
Interest cost
Net actuarial (gains) losses
Contribution by participants
Benefits paid
Amounts paid by Company for Pension Protection Fund levy
Plan amendments
Settlements
Curtailments
3,516
4,608
988
1,052
4,504
5,660
6,382
5,569
2,410
2,113
8,792
7,682
12,446 (18,165)
3,015
5,550
15,461 (12,615)
-
12
91
241
91
253
(3,732)
(3,131)
(2,318)
(2,605)
(6,050)
(5,736)
-
3,355
-
-
(13)
(2)
(13)
-
-
3,355
(2)
-
-
-
(1,985)
(406)
(1,985)
(406)
(10,759)
-
(1,499)
(271) (12,258)
(271)
Foreign currency exchange rate changes
-
-
(1,045)
(2,618)
(1,045)
(2,618)
Projected benefit obligation at end of year
$ 137,740 $ 126,532 $ 63,535 $ 63,891 $ 201,275 $ 190,423
Changes in fair value of plan assets:
Fair value of plan assets at beginning of year
$ 129,518 $ 105,966 $ 60,657 $ 55,537 $ 190,175 $ 161,503
Actual return on plan assets
Contributions by the company
Contributions by plan participants
Benefits paid
Settlements
Foreign currency exchange rate changes
Fair value of plan assets at end of year
15,764
10,621
5,212
6,541
20,976
17,162
540
16,050
2,422
3,187
2,962
19,237
-
12
91
241
91
253
(3,732)
(3,131)
(2,318)
(2,605)
(6,050)
(5,736)
-
-
-
(1,985)
(406)
(1,985)
(406)
-
(1,008)
(1,838)
(1,008)
(1,838)
$ 142,090 $ 129,518 $ 63,071 $ 60,657 $ 205,161 $ 190,175
Net over/(under)funded status at end of year
$ 4,350 $ 2,986 $
(464) $ (3,234) $
3,886 $
(248)
At September 30, 2014, the Company’s defined benefit pension plans in the United Kingdom represented $52,710 of the
total projected benefit obligation and in Japan represented $10,825 of the total projected benefit obligation. At September 30,
2014, the United Kingdom represented $52,260 of the total fair value of plan assets and Japan represented $10,811 of the
total fair value of plan assets.
The accumulated benefit obligations of the Company’s defined benefit pension plans in the United States was $137,423
and in Other Countries was $61,041 at September 30, 2014, and in the United States was $116,061 and in Other Countries
was $60,701 at September 30, 2013.
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Plans with accumulated
benefit obligation in
excess of plan assets
Plans with accumulated
benefit obligation less
than plan assets
At September 30,
At September 30,
2014
2013
2014
2013
$ (25,955) $ (38,473) $ (175,320) $ (151,950)
(25,955)
(36,739) (172,509) (140,023)
24,671
34,717
180,490
155,458
82
The following tables provide the amounts recognized in the statement of financial position and accumulated
comprehensive income for the defined benefit pension plans:
At or for the Year Ended September 30,
United States
Other Countries
Total
2014
2013
2014
2013
2014
2013
Amounts recognized in statement of financial position
consist of:
Other non-current assets
Other non-current liabilities
$ 5,634 $ 4,154 $
- $
- $
5,634 $ 4,154
(1,284)
(1,168)
(464)
(3,234)
(1,748)
(4,402)
Net over/(under)funded status at end of year
$ 4,350 $ 2,986 $
(464) $ (3,234) $
3,886 $
(248)
Amounts recognized in accumulated other
comprehensive income consist of:
Unrecognized net prior service (benefit) cost
$ 4,624 $ 1,367 $
- $
(4) $
4,624 $ 1,363
Unrecognized net (gains) losses
Total amounts recognized
Deferred taxes
9,867
7,841
11,902
12,371
21,769
20,212
14,491
9,208
11,902
12,367
26,393
21,575
(5,527)
(3,499)
(4,131)
(4,203)
(9,658)
(7,702)
Amounts recognized in accumulated other comprehensive income
$ 8,964 $ 5,709 $ 7,771 $
8,164 $ 16,735 $ 13,873
Other changes in plan assets and benefit obligations recorded in accumulated other comprehensive income were as
follows:
Net (gain) loss
Prior service cost
Loss (gain) due to settlement or curtailment arising during the
period
Amortization of:
Net gains (losses)
Prior service benefit (cost)
Year Ended September 30,
United States
Other Countries
Total
2014
2013
2014
2013
2014
2013
$ (4,269) $ (20,604) $
(622) $
1,349 $ (4,891) $(19,255)
3,355
-
-
-
3,355 $
-
6,624
-
915
(36)
7,539
(36)
(330)
(1,374)
(655)
(464)
(985)
(1,838)
(97)
(75)
4
7
(93)
(68)
Foreign currency exchange rate changes
-
-
(107)
(673)
(107)
(673)
Total recorded in accumulated other comprehensive loss (income) $ 5,283 $ (22,053) $
(465) $
183 $
4,818 $(21,870)
The amounts expected to be amortized from Accumulated Other Comprehensive Income and reported as a component of
net periodic benefit cost during fiscal year 2015 are as follows:
Prior service (benefit) cost
Net actuarial (gains) losses
United States
Other Countries
Total
$
383 $
396
- $
466
383
862
Pension benefit payments are made from the assets of the pension plans. Using foreign exchange rates as of September
30, 2014 and expected future service assumptions, it is anticipated that the future benefit payments will be as follows:
Year Ending September 30,
United States
Other Countries
Total
2015
2016
2017
2018
2019
2020 – 2024
$
4,760 $
2,353 $
5,291
5,897
6,520
7,154
43,682
2,363
2,554
2,574
3,036
14,756
7,113
7,654
8,451
9,094
10,190
58,438
83
Woodward expects its pension plan contributions in fiscal year 2015 will be $21 in the United States, $1,507 in the
United Kingdom, and $1,045 in Japan.
Pension plan assets
The overall investment objective of the pension plan assets is to earn a rate of return over time which, when combined
with Company contributions, satisfies the benefit obligations of the pension plans and maintains sufficient liquidity to pay
benefits.
As the timing and nature of the plan obligations varies for each Company sponsored pension plan, investment strategies
have been individually designed for each pension plan with a common focus on maintaining diversified investment portfolios
that provide for long-term growth while minimizing the risk to principal associated with short-term market behavior. The
strategy for each of the plans balances the requirements to generate returns, using investments expected to produce higher
returns, such as equity securities, with the need to control risk within the pension plans using less volatile investment assets,
such as debt securities. A strategy of more equity-oriented allocation is adopted for those plans which have a longer-term
investment plan based on the timing of the associated benefit obligations.
A pension oversight committee is assigned by the Company to each pension plan. Among other responsibilities, each
committee is responsible for all asset class allocation decisions. Asset class allocations, which are reviewed by the respective
pension committee on at least an annual basis, are designed to meet or exceed certain market benchmarks which align with
each plan’s investment objectives. In evaluating the asset allocation choices, consideration is given to the proper long-term
level of risk for each plan, particularly with respect to the long-term nature of each plan’s liabilities, the impact of asset
allocation on investment results and the corresponding impact on the volatility and magnitude of plan contributions and
expense and the impact certain actuarial techniques may have on the plans’ recognition of investment experience. From time
to time, the plans may move outside the prescribed asset class allocation in order to meet significant liabilities with respect to
one or more individuals approaching retirement.
Risks associated with the plan assets include interest rate fluctuation risk, market fluctuation risk, risk of default by debt
issuers and liquidity risk. To manage these risks, the assets are managed by established, professional investment firms and
performance is evaluated regularly by the Company’s pension oversight committee against specific benchmarks and each
plan’s investment objectives. Liability management and asset class diversification are central to the Company’s risk
management approach and overall investment strategy.
The assets of the U.S. plans are invested in actively managed mutual funds. The assets of the plan in Japan and the plan
in the United Kingdom are invested in actively managed pooled investment funds. Each individual mutual fund or pooled
investment fund has been selected based on the investment strategy of the related plan, which mirrors a specific asset class
within the associated target allocation. The assets of the plan in Switzerland were insured through an insurance contract that
guaranteed a federally mandated annual rate of return. Pension plan assets at September 30, 2014 and 2013 do not include
any direct investment in Woodward’s common stock.
84
The asset allocations are monitored and rebalanced regularly by investment managers assigned to the individual pension
plans. The actual allocations of pension plan assets and target allocation ranges by asset class, are as follows:
At September 30,
2014
2013
Percentage of
Plan Assets
Target Allocation
Ranges
Percentage of
Plan Assets
Target Allocation
Ranges
United States:
Asset Class
Equity Securities
Debt Securities
Other
United Kingdom:
Asset Class
Equity Securities
Debt Securities
Other
Japan:
Asset Class
Equity Securities
Debt Securities
Other
Switzerland:
Asset Class
Equity Securities
Debt Securities
Other
60.0%
39.8%
0.2%
100.0%
40.7% -
29.3% -
80.7%
49.3%
0.0%
61.7%
40.7%
- 80.7%
38.1%
29.3%
- 49.3%
0.2%
100.0%
0.0%
48.2%
40.0%
- 70.0%
48.4%
40.0%
- 70.0%
51.7%
35.0%
- 65.0%
51.5%
35.0%
- 65.0%
0.1%
100.0%
0.0%
0.1%
100.0%
0.0%
40.7%
36.0%
- 44.0%
41.3%
36.0%
- 44.0%
58.4%
55.0%
- 63.0%
57.8%
55.0%
- 63.0%
0.9%
0.0%
-
2.0%
0.9%
0.0%
-
2.0%
100.0%
n/a
n/a
n/a
n/a
n/a
n/a
100.0%
0.0%
0.0%
100.0%
100.0%
0.0%
0.0%
100.0%
Actual allocations to each asset class can vary from target allocations due to periodic market value fluctuations,
investment strategy changes, and the timing of benefit payments and contributions.
85
The following table presents Woodward’s pension plan assets using the fair value hierarchy established by U.S. GAAP
as of September 30, 2014.
At September 30, 2014
Level 1
Level 2
Level 3
United
States
Other
Countries
United
States
Other
Countries
United
States
Other
Countries Total
Asset Category:
Cash and cash equivalents
Mutual funds:
U.S. corporate bond fund
U.S. equity large cap fund
International equity large cap growth fund
Pooled funds:
Japanese equity securities
International equity securities
Japanese fixed income securities
International fixed income securities
Global target return equity/bond fund
Index linked U.K. equity fund
Index linked international equity fund
Index linked U.K. corporate bonds fund
Index linked U.K. government securities fund
Index linked U.K. long-term government securities fund
Total assets
$
316 $
168 $
- $
- $
- $
- $
484
56,559
49,220
35,995
-
-
-
-
-
-
-
-
-
-
$142,090 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
168 $
2,330
2,067
4,676
1,638
12,327
6,240
6,593
16,897
4,566
5,569
-
-
-
-
-
-
-
-
-
-
- $ 62,903 $
-
-
-
-
-
-
-
-
-
-
-
-
-
- $
-
-
-
56,559
49,220
35,995
2,330
-
2,067
-
4,676
-
1,638
-
12,327
-
6,240
-
6,593
-
16,897
-
4,566
-
-
5,569
- $205,161
At September 30, 2013
Level 1
Level 2
Level 3
United
States
Other
Countries
United
States
Other
Countries
United
States
Other
Countries Total
Asset Category:
Cash and cash equivalents
Mutual funds:
U.S. corporate bond fund
U.S. equity large cap fund
International equity large cap growth fund
Pooled funds:
Japanese equity securities
International equity securities
Japanese fixed income securities
International fixed income securities
Global target return equity/bond fund
Index linked U.K. equity fund
Index linked international equity fund
Index linked U.K. corporate bonds fund
Index linked U.K. government securities fund
Index linked U.K. long-term government securities fund
Insurance backed assets:
Insurance backed assets
Total assets
$
273 $
149 $
- $
- $
- $
- $
422
49,328
44,140
35,777
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,269
1,989
4,414
1,535
11,324
6,060
6,047
15,810
4,176
4,908
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
49,328
44,140
35,777
-
-
-
-
-
-
-
-
-
-
2,269
1,989
4,414
1,535
11,324
6,060
6,047
15,810
4,176
4,908
-
$129,518 $
-
149 $
-
- $ 58,532 $
-
-
- $
1,976
1,976
1,976 $190,175
86
Cash and cash equivalents: Cash and cash equivalents held by the Company's pension plans are held on deposit with
creditworthy financial institutions. The fair value of the cash and cash equivalents are based on the quoted market price of
the respective currency in which the cash is maintained.
Pension assets invested in mutual funds: The assets of the Company’s U.S. pension plans are invested in various mutual
funds which invest in both equity and debt securities. The fair value of the mutual funds is determined based on the quoted
market price of each fund.
Pension assets invested in pooled funds: The assets of the Company’s Japan and United Kingdom pension plans are
invested in pooled investment funds, which include both equity and debt securities. The assets of the United Kingdom
pension plan are invested in index-linked pooled funds which aim to replicate the movements of an underlying market index
to which the fund is linked. Fair value of the pooled funds is based on the net asset value of shares held by the plan as
reported by the fund sponsors. All pooled funds held by plans outside of the United States are considered to be invested in
international equity and debt securities. Although the underlying securities may be largely domestic to the plan holding the
investment assets, the underlying assets are considered international from the perspective of the Company.
Pension assets invested in insurance backed assets: A reputable Swiss insurer insured the assets of the Company’s
Swiss pension plan. The insurance contract guaranteed a federally mandated annual rate of return. The value of the plan
assets was effectively the value of the insurance contract. The performance of the underlying assets held by the insurance
company had no direct impact on the surrender value of the insurance contract. The insurance backed assets were not traded
and therefore had no active market.
There were no transfers into or out of Level 3 assets in fiscal years 2014 or 2013.
Other postretirement benefit plans
Woodward provides other postretirement benefits to its employees including postretirement medical benefits and life
insurance benefits. Postretirement medical benefits are provided to certain current and retired employees and their covered
dependants and beneficiaries in the United States and the United Kingdom. Benefits include the option to elect company
provided medical insurance coverage to age 65 and a Medicare supplemental plan after age 65. Life insurance benefits are
provided to certain retirees in the United States under frozen plans which are no longer available to current employees. A
September 30 measurement date is utilized to value plan assets and obligations for Woodward’s other postretirement benefit
plans.
The postretirement medical benefit plans, other than the plan assumed in an acquisition in fiscal year 2009, were frozen
in fiscal year 2006 and no additional employees may participate in the plans. Generally, employees who had attained age 55
and had rendered 10 or more years of service before the plans were frozen were eligible for these postretirement medical
benefits.
Certain participating retirees are required to contribute to the plans in order to maintain coverage. The plans provide
postretirement medical benefits for approximately 900 retired employees and their covered dependants and beneficiaries and
may provide future benefits to approximately 45 active employees and their covered dependants and beneficiaries, upon
retirement, if the employees elect to participate. All the postretirement medical plans are fully insured for retirees who have
attained age 65.
The actuarial assumptions used in measuring the net periodic benefit cost and plan obligations of postretirement benefits
were as follows:
Weighted-average discount rate used to determine benefit
obligation at September 30
Weighted-average discount rate used to determine net periodic
benefit cost for years ended September 30
2014
2013
2012
4.40 %
5.14
5.14 %
4.11
4.11 %
5.54
The discount rate assumption is intended to reflect the rate at which the postretirement benefits could be effectively
settled based upon the assumed timing of the benefit payments. In the United States, Woodward used a bond portfolio
matching analysis based on recently traded, non-callable bonds rated AA or better that have at least $50 million outstanding.
In the United Kingdom Woodward used cash flow matching to develop a single rate equivalent for a theoretical portfolio of
non-callable, AA-rated bonds.
87
Assumed healthcare cost trend rates at September 30, were as follows:
Health care cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline
(the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
2014
7.00 %
5.00 %
2023
2013
7.00 %
5.00 %
2022
Healthcare costs have generally trended upward in recent years, sometimes by amounts greater than 5%. Assumed
health care cost trend rates have a significant effect on the amounts reported for postretirement medical plans. A one-
percentage-point change in assumed health care cost trend rates would have the following effects:
Effect on projected fiscal year 2015 service and interest cost
$
121
$
Effect on accumulated postretirement benefit obligation at September 30, 2014
2,658
(106)
(2,336)
1% increase
1% decrease
Net periodic benefit costs consist of the following components reflected as expense in Woodward’s Consolidated
Statements of Earnings:
Service cost
Interest cost
Amortization of:
Net (gains) losses
Net prior service (benefit) cost
Net periodic (benefit) cost
Year Ended September 30,
2014
2013
2012
$
47 $
71 $
1,432
1,244
(200)
(158)
(68)
(158)
$
1,121 $
1,089 $
70
1,798
91
(550)
1,409
The following table provides a reconciliation of the changes in the accumulated postretirement benefit obligation and fair
value of assets for the postretirement benefits for the fiscal years ended September 30:
Changes in accumulated postretirement benefit obligation:
Accumulated postretirement benefit obligation at beginning of year
$
28,996 $
37,550
Year Ended September 30,
2014
2013
Service cost
Interest cost
Premiums paid by plan participants
Net actuarial (gains) losses
Benefits paid
Foreign currency exchange rate changes
47
1,432
1,843
1,145
(4,243)
5
71
1,244
1,837
(7,501)
(4,206)
1
Accumulated postretirement benefit obligation at end of year
$
29,225 $
28,996
Changes in fair value of plan assets:
Fair value of plan assets at beginning of year
Contributions by the company
Premiums paid by plan participants
Benefits paid
Fair value of plan assets at end of year
Funded status at end of year
$
- $
2,400
1,843
(4,243)
- $
-
2,369
1,837
(4,206)
-
(29,225) $
(28,996)
$
$
88
The Company’s postretirement medical plan in the United Kingdom represents $438 of the total benefit obligation at
September 30, 2014. The Company paid $10 in medical benefits to participants of the United Kingdom postretirement
medical plan in fiscal year 2014.
The following tables provide the amounts recognized in the statement of financial position and accumulated
comprehensive loss (income) for the postretirement plans:
Amounts recognized in statement of financial position consist of:
Accrued liabilities
Other non-current liabilities
Funded status at end of year
Year Ended September 30,
2014
2013
$
(2,262) $
(2,231)
(26,963)
(26,765)
$
(29,225) $
(28,996)
Amounts recognized in accumulated other comprehensive loss (income) consist of:
Unrecognized net prior service (benefit) cost
$
(635) $
Unrecognized net (gains) losses
Total amounts recognized
Deferred taxes
(3,031)
(3,666)
1,388
(794)
(4,379)
(5,173)
1,970
Amounts recognized in accumulated other comprehensive loss (income)
$
(2,278) $
(3,203)
Woodward pays plan benefits from its general funds; therefore, there are no segregated plan assets as of September 30,
2014 or September 30, 2013.
The accumulated benefit obligations of the Company’s postretirement plans were $29,225 at September 30, 2014 and
$28,996 at September 30, 2013.
Other changes in plan assets and benefit obligations recorded in accumulated other comprehensive income were as
follows:
Net (gain) loss
Amortization of:
Net gains (losses)
Prior service benefit (cost)
Foreign currency exchange rate changes
Year Ended September 30,
2014
2013
$
1,145 $
(7,501)
200
159
3
68
158
-
Total recorded in accumulated other comprehensive loss (income)
$
1,507 $
(7,275)
Using foreign currency exchange rates as of September 30, 2014 and expected future service, it is anticipated that the
future Company contributions to pay benefits, excluding participate contributions, will be as follows:
Year Ending September 30,
2015
2016
2017
2018
2019
2020 – 2024
$
3,778
3,802
3,760
3,715
3,686
17,264
89
Multiemployer defined benefit plans
Woodward operates two multiemployer defined benefit plans for certain employees in the Netherlands and Japan. The
amounts of contributions associated with the multiemployer plans were as follows:
Year Ended September 30,
2014
2013
2012
Company contributions
$
728
$
797
$
792
The plan in the Netherlands is a quasi-mandatory plan that covers all of Woodward’s employees in the Netherlands and
is part of the Dutch national pension system.
The Company may elect to withdraw from its multiemployer plan in Japan, although it has no plans to do so. If the Company
elects to withdraw from the Japanese plan, it would incur a one-time contribution cost of between $500 and $1,500. Changes
in Japanese regulations could trigger reorganization of or abolishment of the Japanese multiemployer plan, which could
impact future funding levels.
Note 18. Stockholders’ equity
Common Stock
Holders of Woodward’s common stock are entitled to receive dividends when and as declared by the Board of Directors
and have the right to one vote per share on all matters requiring stockholder approval.
Dividends declared and paid during the 2014, 2013 and 2012 fiscal years were:
Dividends declared and paid
Dividend per share amount
Stock Repurchase Program
Year Ended September 30,
2014
2013
2012
$
21,263
$
21,866
$
0.32
0.32
21,351
0.31
In July 2010, the Board of Directors authorized the repurchase of up to $200,000 of Woodward’s outstanding shares of
common stock on the open market or in privately negotiated transactions over a three-year period that ended in July 2013 (the
“2010 Authorization”). Under the 2010 Authorization, Woodward purchased a total of 1,233 shares of its common stock
with an aggregate purchase price of $45,754 in fiscal year 2013 and 1,132 shares of its common stock with an aggregate
purchase price of $44,110 in fiscal year 2012.
On July 24, 2013, Woodward’s Board of Directors approved a new stock repurchase plan, that replaced the 2010
Authorization, that authorizes the repurchase of up to $200,000 of its outstanding shares of common stock on the open
market or in privately negotiated transactions over a three-year period that will end in July 2016 (the “2013 Authorization”).
In fiscal year 2014, Woodward purchased a total of 3,272 shares of its common stock with an aggregate purchase price of
$141,488 under the 2013 Authorization.
Stock-based compensation
Non-qualified stock option awards and restricted stock awards are granted to key management members and directors of
the Company. The grant date for these awards is used for the measurement date. Vesting would be accelerated in the event
of retirement, disability, or death of a participant, or change in control of the Company, as defined in the individual stock
option agreements. These awards are valued as of the measurement date and are amortized on a straight-line basis over the
requisite vesting period for all awards, including awards with graded vesting. Stock for exercised stock options and for
restricted stock awards is issued from treasury stock shares.
Provisions governing the outstanding awards are included in the 2006 Omnibus Incentive Plan (the “2006 Plan”) and the
2002 Stock Option Plan (the “2002 Plan”). The 2006 Plan was approved by stockholders and became effective on January
25, 2006. No further grants will be made under the 2002 Plan. The 2006 Plan made 7,410 shares of Woodward’s common
stock available for grants made on or after January 25, 2006, to members and directors of the Company, subject to annual
award limits as specified in the 2006 Plan. There were 2,455 shares of Woodward’s common stock available for future
grants as of September 30, 2014.
90
Stock-based compensation expense recognized was as follows:
Year Ended September 30,
2014
2013
2012
Employee stock-based compensation expense
$
11,241 $
9,414 $
8,628
Stock options
The 2006 Plan provides for the grant of up to 7,410 shares of Woodward’s common stock, including in the form of stock
options, to its employees and directors. Woodward believes that these stock options align the interests of its employees and
directors with those of its stockholders. Stock option awards are granted with an exercise price equal to the market price of
Woodward’s stock at the date of grant, a ten-year term, and generally a four-year vesting schedule at a rate of 25% per year.
The fair value of options granted was estimated on the date of grant using the Black-Scholes-Merton option-valuation
model using the assumptions in the following table. Woodward calculates the expected term, which represents the period of
time that stock options granted are expected to be outstanding, based upon historical experience of plan participants.
Expected volatility is based on historical volatility using daily stock price observations. The estimated dividend yield is
based upon Woodward’s historical dividend practice and the market value of its common stock. The risk-free rate is based
on the U.S. treasury yield curve, for periods within the contractual life of the stock option, at the time of grant.
Expected term (years)
Estimated volatility
Estimated dividend yield
Risk-free interest rate
2014
5.8
-
8.6
38.5%
0.8%
1.7%
-
2.5%
Year Ended September 30,
2013
-
-
-
-
8.6
54.9%
1.0%
1.3%
5.8
48.7%
0.8%
0.8%
2012
-
-
-
-
8.5
55.6%
1.1%
1.6%
5.9
48.9%
0.7%
0.8%
The weighted average grant date fair value of options granted follows:
Weighted-average grant date fair value of options
$
15.63 $
15.84 $
12.14
The following is a summary of the activity for stock option awards during the fiscal year ended September 30, 2014:
Year Ended September 30,
2014
2013
2012
Balance at September 30, 2013
Options granted
Options exercised
Options forfeited
Balance at September 30, 2014
Number
Weighted-Average
Exercise Price
4,423
$
694
(562)
(54)
4,501
25.06
40.99
19.67
34.06
28.08
Exercise prices of stock options outstanding as of September 30, 2014 range from $11.86 to $44.54.
Changes in non-vested stock options during the fiscal year ended September 30, 2014 were as follows:
Balance at September 30, 2013
Options granted
Options vested
Options forfeited
Balance at September 30, 2014
Number
Weighted-Average
Exercise Price
1,737
$
694
(698)
(54)
1,679
29.97
40.99
28.97
33.40
34.83
91
Information about stock options that have vested, or are expected to vest, and are exercisable at September 30, 2014 was
as follows:
Options outstanding
Options vested and exercisable
Options vested and expected to vest
Other information follows:
Weighted-
Average Exercise
Price
$
28.08
24.07
27.92
Weighted-
Average
Remaining Life
in Years
5.6
4.1
5.5
Aggregate
Intrinsic Value
$
87,923
66,458
87,066
Number
4,501
2,822
4,419
Year Ended September 30,
2014
2013
2012
Total fair value of stock options vested
$
9,459
$
7,271
$
Total intrinsic value of options exercised
Cash received from exercises of stock options
Excess tax benefit realized from exercise of stock options
14,549
9,772
3,751
19,692
8,272
5,154
5,907
12,521
6,180
3,990
Restricted Stock
In the first quarter of fiscal year 2014, Woodward granted an award of 24 shares of restricted stock to its Chief Executive
Officer and President, Thomas A. Gendron. Subject to Mr. Gendron’s continued employment by the Company, these shares
of restricted stock will vest 100% following the end of the Company’s fiscal year 2017 if a specified cumulative earnings per
share (“EPS”) target is met or exceeded for fiscal years 2014 through 2017. If this EPS target is not met, all shares of
restricted stock will be forfeited by Mr. Gendron.
The shares of restricted stock were awarded to Mr. Gendron pursuant to a form restricted stock agreement approved by
Woodward’s Compensation Committee (the “Committee”), which generally provides that: if the recipient of a restricted
stock award is terminated from the Company for any reason other than death or disability during the restricted period, all
shares of restricted stock will be immediately forfeited; if the recipient dies or becomes permanently disabled prior to the
recipient’s termination and during the restricted period, all restrictions will lapse and the shares of restricted stock will fully
vest immediately; similarly, in the event of a Change in Control (as defined in the form of restricted stock agreement) of the
Company during the restricted period and prior to the recipient’s termination for any reason, all restrictions will lapse and the
shares of restricted stock will fully vest immediately; during the restricted period, a recipient may exercise full voting rights
with respect to the shares of restricted stock; dividends on the shares of restricted stock will accrue, but will not be paid,
during the restricted period; and all dividends accrued during the restricted period will be paid upon any vesting of the shares
of restricted stock, without payment of interest, provided that if the shares of restricted stock are forfeited for any reason, all
accrued dividends will likewise be forfeited. The form of restricted stock agreement also includes adjustment provisions in
the event the Company engages in certain recapitalization or similar transactions or in the event of a change of law or
regulation. Upon vesting, shares become freely transferrable.
A summary of the activity for restricted stock awards in the fiscal year ended September 30, 2014 follows:
Balance at September 30, 2013
Shares granted
Shares vested
Shares forfeited
Balance at September 30, 2014
Number
Fair Value per Share
-
$
24
-
-
24
n/a
39.43
n/a
n/a
39.43
Woodward recognizes stock-based compensation on a straight-line basis over the requisite service period. Pursuant to
the form stock option agreements, the requisite service period can be less than the four year vesting period due to grantee’s
retirement eligibility. As such, the recognition of stock-based compensation expense associated with some grants can be
accelerated to a period of less than four years, including immediate recognition of stock-based compensation on the date of
grant.
92
At September 30, 2014, there was approximately $11,516 of total unrecognized compensation cost related to non-vested
stock-based compensation arrangements, both stock options and restricted stock awards, granted under the 2002 Plan (for
which no further grants will be made) and the 2006 Plan. The pre-vesting forfeiture rates for purposes of determining stock-
based compensation cost recognized were estimated to be 0% for members of Woodward’s board of directors and 9.0% for
all others. The remaining unrecognized compensation cost is expected to be recognized over a weighted-average period of
approximately 1.7 years.
Note 19. Commitments and contingencies
Woodward has entered into operating leases for certain facilities and equipment with terms in excess of one year under
agreements that expire at various dates. Some leases require the payment of property taxes, insurance, and maintenance costs
in addition to rental payments. Future minimum rental payments required under these leases, excluding available option
renewals, are as follows:
Year Ending September 30,
2015
2016
2017
2018
2019
Thereafter
Total
$
$
6,393
4,327
3,264
2,548
1,377
1,430
19,339
Rent expense for all operating leases totaled:
Year Ended September 30,
2014
2013
2012
Rent expense
$
10,897
$
10,243
$
10,247
Woodward enters into unconditional purchase obligation arrangements (i.e. issuance of purchase orders, obligations to
transfer funds in the future for fixed or minimum quantities of goods or services at fixed or minimum prices, such as "take-or-
pay" contracts) in the normal course of business to ensure that adequate levels of sourced product are available to Woodward.
Future minimum unconditional purchase obligations are as follows:
Year Ending September 30,
2015
2016
2017
2018
2019
Thereafter
Total
$
$
331,300
11,445
-
-
-
-
342,745
Woodward also has construction related contractual obligations of approximately $100,000 as of September 30, 2014
related to the development of a second campus in the greater-Rockford, Illinois area, a new campus at its corporate
headquarters in Fort Collins, Colorado, and a new facility in Niles, Illinois.
The U.S. Government, and other governments, may terminate any of Woodward’s government contracts (and, in general,
subcontracts) at their convenience, as well as for default based on specified performance measurements. If any of
Woodward’s government contracts were to be terminated for convenience, the Company generally would be entitled to
receive payment for work completed and allowable termination or cancellation costs. If any of Woodward’s government
contracts were to be terminated for Woodward’s default, the U.S. Government generally would pay only for the work
accepted, and could require Woodward to pay the difference between the original contract price and the cost to re-procure the
contract items, net of the work accepted from the original contract. The U.S. Government could also hold Woodward liable
for damages resulting from the default.
93
Woodward is currently involved in claims, pending or threatened litigation or other legal proceedings, investigations
and/or regulatory proceedings arising in the normal course of business, including, among others, those relating to product
liability claims, employment matters, worker’s compensation claims, contractual disputes, product warranty claims and
alleged violations of various laws and regulations. Woodward accrues for known individual matters where it believes that it
is probable the matter will result in a loss when ultimately resolved using estimates of the most likely amount of loss.
Legal costs are expensed as incurred and are classified in “Selling, general and administrative expenses” on the
Consolidated Statements of Earnings.
Woodward is partially self-insured in the United States for healthcare and worker’s compensation up to predetermined
amounts, above which third party insurance applies. Management regularly reviews the probable outcome of 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, legal and regulatory proceedings, and investigations cannot be predicted with
certainty, management believes that any liabilities that may result from these claims, proceedings and investigations will not
have a material effect on Woodward's liquidity, financial condition, or results of operations.
In the event of a change in control of Woodward, as defined in change-in-control agreements with its current corporate
officers, Woodward may be required to pay termination benefits to such officers.
Note 20. Segment information
Woodward serves the aerospace market and the energy market through its two reportable segments - Aerospace and
Energy. Woodward’s reportable segments are aggregations of Woodward’s operating segments. Woodward uses reportable
segment information internally to manage its business, including the assessment of business segment performance and
decisions for the allocation of resources between segments.
The accounting policies of the reportable segments are the same as those of the Company. Woodward evaluates segment
profit or loss based on internal performance measures for each segment in a given period. In connection with that
assessment, Woodward excludes matters such as charges for restructuring costs, interest income and expense, and certain
gains and losses from asset dispositions.
A summary of consolidated net sales and earnings by segment follows:
Segment external net sales:
Aerospace
Energy
Total consolidated net sales
Segment earnings:
Aerospace
Energy
Total segment earnings
Nonsegment expenses
Interest expense, net
$
$
$
Year Ended September 30,
2014
2013
2012
1,084,025
$
1,061,477
$
917,215
874,499
896,083
969,544
2,001,240
$
1,935,976
$
1,865,627
159,200
$
166,122
$
134,278
293,478
(43,701)
(22,533)
98,940
265,062
(39,061)
(26,430)
130,192
126,441
256,633
(33,365)
(25,461)
197,807
Consolidated earnings before income taxes
$
227,244
$
199,571
$
94
Segment assets consist of accounts receivable, inventories, property, plant, and equipment, net, goodwill, and other
intangibles, net. A summary of consolidated total assets, consolidated depreciation and amortization and consolidated capital
expenditures follows:
Segment assets:
Aerospace
Energy
Total segment assets
Unallocated corporate property, plant and equipment, net
Other unallocated assets
Consolidated total assets
Segment depreciation and amortization:
Aerospace
Energy
Total segment depreciation and amortization
Unallocated corporate amounts
Consolidated depreciation and amortization
Segment capital expenditures:
Aerospace
Energy
Total segment capital expenditures
Unallocated corporate amounts
Consolidated capital expenditures
2014
Year Ended September 30,
2013
2012
$
$
$
$
$
$
1,440,355
610,345
2,050,700
72,992
273,510
2,397,202
46,895
22,672
69,567
7,786
77,353
134,307
55,780
190,087
17,019
207,106
$
$
$
$
$
$
1,361,861
599,007
1,960,868
50,115
207,535
2,218,518
49,887
20,890
70,777
3,456
74,233
74,964
28,137
103,101
38,499
141,600
$
$
$
$
$
$
1,059,754
605,842
1,665,596
15,763
178,605
1,859,964
43,840
21,738
65,578
3,039
68,617
32,244
22,590
54,834
10,066
64,900
Sales to General Electric were made by all of Woodward’s reportable segments and totaled approximately 15% of net
sales in fiscal year 2014, 15% of net sales in fiscal year 2013, and 14% of net sales in fiscal year 2012. Accounts receivable
from General Electric totaled approximately 12% of accounts receivable at September 30, 2014 and 11% of accounts
receivable at September 30, 2013.
U.S. Government related sales from Woodward’s reportable segments were as follows:
Direct U.S.
Government Sales
Indirect U.S.
Government Sales
Total U.S.
Government Related
Sales
Fiscal year ended September 30, 2014
Aerospace
Energy
Total net external sales
Percentage of total net sales
Fiscal year ended September 30, 2013
Aerospace
Energy
Total net external sales
Percentage of total net sales
Fiscal year ended September 30, 2012
Aerospace
Energy
Total net external sales
Percentage of total net sales
76,982 $
2,517
79,499 $
4%
104,410 $
3,649
108,059 $
6%
78,075 $
3,904
81,979 $
4%
254,806 $
5,588
260,394 $
13%
289,197 $
8,106
297,303 $
15%
254,636 $
7,228
261,864 $
14%
331,788
8,105
339,893
17%
393,607
11,755
405,362
21%
332,711
11,132
343,843
18%
$
$
$
$
$
$
95
Accounts receivable from the U.S. Government totaled approximately 2% of accounts receivable at September 30, 2014
and 4% of accounts receivable at September 30, 2013.
The customers who account for approximately 10% or more of sales to each of Woodward’s reporting segments for the
fiscal year ended September 30, 2014 follow:
Aerospace
Energy
Customer
United Technologies, Boeing, General Electric
General Electric, Weichai Westport
Net sales by geographical area, as determined by the location of the customer invoiced, were as follows:
United States
Europe (1)
Asia
Other countries
Year Ended September 30,
2014
2013
2012
$
1,025,149
$
1,058,912
$
519,721
299,755
156,615
480,922
287,742
108,400
927,345
542,753
288,738
106,791
Consolidated net sales
$
2,001,240
$
1,935,976
$
1,865,627
(1) As a percentage of consolidated net sales, net sales to customers in Germany accounted for 9% for the year ended
September 30, 2014, 9% for the year ended September 30, 2013 and 13% for the year ended September 30, 2012.
Property, plant, and equipment, net by geographical area, as determined by the physical location of the assets, were as
follows:
United States
Germany
Other countries
Consolidated property, plant and equipment, net
Note 21. Supplemental quarterly financial data (Unaudited)
At September 30,
2014
2013
$
$
457,563
$
26,898
28,818
513,279
$
285,038
29,619
35,391
350,048
Quarterly results for the fiscal years ended September 30, 2014 and September 30, 2013 follow:
Net sales
Gross margin (1)
Earnings before income taxes
Net earnings
Earnings per share
Basic earnings per share
Diluted earnings per share
Cash dividends per share
2014 Fiscal Quarters
First
Second
Third
Fourth
$
429,042
$
482,467
$
524,284
$
565,447
113,576
142,439
151,713
167,673
32,944
23,383
56,756
44,798
62,468
46,001
75,076
51,662
0.35
0.34
0.08
0.67
0.66
0.08
0.70
0.69
0.08
0.79
0.77
0.08
96
Net sales
Gross margin (1)
Earnings before income taxes
Net earnings
Earnings per share
Basic earnings per share
Diluted earnings per share
Cash dividends per share
Notes:
2013 Fiscal Quarters
First
Second
Third
Fourth
$
408,339
$
485,513
$
483,759
$
558,365
118,766
137,413
134,277
169,249
38,537
27,368
50,336
42,446
35,497
23,663
75,201
52,465
0.40
0.39
0.08
0.62
0.61
0.08
0.35
0.34
0.08
0.77
0.76
0.08
1. Gross margin represents net sales less cost of goods sold excluding amortization expense.
Quarterly results by segment for the fiscal years ended September 30, 2014 and September 30, 2013 follow:
Segment external net sales:
Aerospace
Energy
Total
Segment earnings:
Aerospace
Energy
Total
Earnings reconciliation:
Total segment earnings
Nonsegment expenses
Interest expense, net
Consolidated earnings before income taxes
Segment external net sales:
Aerospace
Energy
Total
Segment earnings:
Aerospace
Energy
Total
Earnings reconciliation:
Total segment earnings
Nonsegment expenses
Interest expense, net
Consolidated earnings before income taxes
2014 Fiscal Quarters
First
Second
Third
Fourth
229,872 $
261,021 $
274,923 $
199,170
221,446
249,361
429,042 $
482,467 $
524,284 $
22,549 $
40,289 $
39,357 $
27,071
31,888
40,203
49,620 $
72,177 $
79,560 $
49,620 $
72,177 $
79,560 $
(10,673)
(6,003)
(9,293)
(6,128)
(11,193)
(5,899)
32,944 $
56,756 $
62,468 $
318,209
247,238
565,447
57,005
35,116
92,121
92,121
(12,542)
(4,503)
75,076
2013 Fiscal Quarters
First
Second
Third
Fourth
211,389 $
270,493 $
272,218 $
196,950
215,020
211,541
408,339 $
485,513 $
483,759 $
31,568 $
41,223 $
38,949 $
23,908
24,235
12,430
55,476 $
65,458 $
51,379 $
55,476 $
65,458 $
51,379 $
(10,551)
(6,388)
(8,174)
(6,948)
(9,227)
(6,655)
38,537 $
50,336 $
35,497 $
307,377
250,988
558,365
54,382
38,367
92,749
92,749
(11,109)
(6,439)
75,201
$
$
$
$
$
$
$
$
$
$
$
$
97
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There have been no disagreements or any reportable events requiring disclosure under Item 304(b) of Regulation S-K.
Item 9A.
Controls and Procedures
Evaluation of Disclosure 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 (the “Act”) is recorded, processed,
summarized, and reported within the time periods specified in the SEC’s 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, Chairman of the Board, Chief Executive Officer and President) and Principal
Financial and Accounting Officer (Robert F. Weber, Jr., Vice Chairman, 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-K. Based on their evaluations, they concluded that our disclosure controls and
procedures were effective as of September 30, 2014.
Furthermore, there have been no changes in our internal control over financial reporting during the fourth fiscal quarter
ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting for the Company.
We have evaluated the effectiveness of internal control over financial reporting using the criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) and, based on that evaluation, have concluded that the Company’s internal control over financial reporting was
effective as of September 30, 2014, the end of the Company’s most recent fiscal year.
Deloitte & Touche, LLP, an independent registered public accounting firm, conducted an audit of Woodward’s internal
control over financial reporting as of September 30, 2014, as stated in their report included in “Item 9A. – Controls and
Procedures.”
Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and
principal financial officers, or persons performing similar functions, and effected by our Board of Directors, management,
and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of
our financial statements for external purposes in accordance with generally accepted accounting principles. Internal control
over financial reporting includes those policies and procedures that:
•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being
made only in accordance with authorization of management and directors of the company; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the Company’s assets that could have a material effect on the financial statements.
There have been no changes in our internal control over financial reporting during the fourth fiscal quarter ended
September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
98
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Woodward, Inc.
Fort Collins, Colorado
We have audited the internal control over financial reporting of Woodward, Inc. and subsidiaries (the "Company") as of
September 30, 2014, based on criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the
company's principal executive and principal financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on
a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
September 30, 2014, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements and financial statement schedule as of and for the year ended September 30,
2014 of the Company and our report dated November 12, 2014 expressed an unqualified opinion on those financial
statements and financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
Denver, Colorado
November 12, 2014
99
Item 9B.
Other Information
On November 12, 2014, the Board of Directors the Company amended and restated the Company’s Bylaws to provide
that nominees for director must be elected by a majority of the votes cast in person or by proxy, other than with respect to
contested elections. In addition, the amended Bylaws provide that in order for any incumbent director to become a nominee
for the Board of Directors, such director must submit an irrevocable resignation contingent on (1) that person not receiving a
majority of the votes cast in an election that is not a contested election and (2) acceptance of the resignation by the Board of
Directors.
The Bylaws of the Company, as amended and restated on November 12, 2014, are filed as Exhibit 3.2 hereto and are
hereby incorporated by reference.
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
The information required by this item relating to our directors and nominees, regarding compliance with Section 16(a) of
the Securities Act of 1934, and regarding our Audit Committee is included under the captions “Board of Directors,” “Board
Meetings and Committees – Audit Committee” (including information with respect to audit committee financial experts),
“Stock Ownership of Management,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy
Statement related to the Annual Meeting of Stockholders to be held January 21, 2015 and is incorporated herein by reference.
There have been no material changes to the procedures by which security holders may recommend nominees to our board of
directors.
The information required by this item relating to the identities and background of our executive officers and other
corporate officers is included under the caption “Executive Officers of the Registrant” in Item 1 of this report.
We have adopted a code of ethics that applies to all of our employees, including our principal executive officer and our
principal financial and accounting officer. This code of ethics is posted on our Website. The Internet address for our
Website is www.woodward.com, and the code of ethics may be found from our main Web page by clicking first on
“Investors” and then on “Corporate Governance,” and then on “Woodward Codes of Business Conduct and Ethics.”
We intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver
from, a provision of this code of ethics by posting such information to our Website, at the address and location specified
above.
Item 11.
Executive Compensation
Information regarding executive compensation is under the captions “Board Meetings and Committees – Director
Compensation,” “Board Meetings and Committees – Compensation Committee Interlocks and Insider Participation,”
“Compensation Discussion and Analysis,” “Compensation Committee Report on Compensation Discussion and Analysis,”
“Executive Compensation” and “Board Meetings and Committees – Compensation Committee – Risk Assessment” in our
Proxy Statement for the Annual Meeting of Stockholders to be held January 21, 2015, and is incorporated herein by
reference, except the section captioned “Compensation Committee Report on Compensation Discussion and Analysis” is
hereby “furnished” and not “filed” with this Form 10-K.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Information regarding security ownership of certain beneficial owners and management and related stockholder matters
is under the tables captioned “Stock Ownership of Management,” “Persons Owning More Than Five Percent of Woodward
Stock,” and “Executive Compensation – Equity Compensation Plan Information” in our Proxy Statement for the Annual
Meeting of Stockholders to be held January 21, 2015, and is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information set forth under “Board Meetings and Committees – Related Person Transaction Policies and
Procedures,” “Board of Directors” and “Audit Committee Report to Stockholders” in our Proxy Statement for the Annual
Meeting of the Stockholders to be held January 21, 2015 is incorporated herein by reference except the section captioned
“Audit Committee Report” is hereby “furnished” and not “filed” with this Form 10-K.
100
Item 14.
Principal Accountant Fees and Services
Information regarding principal accountant fees and services is under the captions “Audit Committee Report to
Stockholders – Audit Committee’s Policy on Pre-Approval of Services Provided by Independent Registered Public
Accounting Firm” and “Audit Committee Report to Stockholders – Fees Paid to Independent Registered Public Accounting
Firm” in our Proxy Statement for the Annual Meeting of Stockholders to be held January 21, 2015, and is incorporated herein
by reference.
101
Item 15.
Exhibits and Financial Statement Schedules
PART IV
(a)
(1) Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Earnings for the fiscal years ended September 30, 2014,
2013, and 2012
Consolidated Statements of Comprehensive Earnings for the fiscal years ended
September 30, 2014, 2013, and 2012
Consolidated Balance Sheets at September 30, 2014 and 2013
Consolidated Statements of Cash Flows for the fiscal years ended September 30,
2014, 2013, and 2012
Consolidated Statements of Stockholders’ Equity for the fiscal years ended
September 30, 2014, 2013, and 2012
Notes to Consolidated Financial Statements
(a)
(2) Consolidated Financial Statement Schedule:
Valuation and Qualifying Accounts
Page Number in
Form 10-K
51
52
53
54
55
56
57
107
Financial statements and schedules other than those listed above are omitted for the reason that they are not
applicable, are not required, or the information is included in the financial statements or the footnotes.
(a)
(3)
Exhibits Filed as Part of This Report:
‡
*
‡
‡
3.1
3.2
3.3
3.4
†‡
10.1
†‡
10.2
†‡
10.3
†‡
10.4
†‡
10.5
Restated Certificate of Incorporation, as amended October 3, 2007, filed as Exhibit 3(i)(a) to
Annual Report on Form 10-K filed November 20, 2008
Bylaws of Woodward, Inc., as amended and restated on November 12, 2014
Certificate of Amendment of Certificate of Incorporation, dated January 23, 2008, filed as
Exhibit 3(i)(b) to Annual Report on Form 10-K filed November 20, 2008
Certificate of Amendment of the Restated Certificate of Incorporation, dated January 26, 2011,
filed as Exhibit 3.1 to Current Report on Form 8-K filed January 28, 2011
Long-Term Management Incentive Compensation Plan, filed as Exhibit 10(c) to Annual Report
on Form 10-K filed December 22, 2000
Summary Description of Management Incentive Plan, filed as Exhibit 10.2 to Annual Report on
Form 10-K filed November 18, 2010
2002 Stock Option Plan, effective January 1, 2002, filed as Exhibit 10(iii) to Quarterly Report on
Form 10-Q filed May 9, 2002
Form of Outside Director Stock Purchase Agreement with James L. Rulseh, filed as Exhibit 10(j)
to Annual Report on Form 10-K filed December 9, 2002
2006 Omnibus Incentive Plan, effective January 25, 2006, filed as Exhibit 4.1 to Registration
Statement on Form S-8 filed April 28, 2006
102
†‡
10.6
†‡
10.7
†‡
10.8
†‡
10.9
†‡
10.10
†‡
10.11
‡
10.12
†‡
10.13
†‡
10.14
†‡
10.15
‡
10.16
‡
10.17
‡
10.18
‡
‡
‡
10.19
10.20
10.21
Amendment No. 1 to the Woodward, Inc. 2006 Omnibus Incentive Plan, effective as of January
26, 2011, filed as Exhibit 10.10 to Annual Report on Form 10-K filed November 16, 2011
Material Definitive Agreement with A. Christopher Fawzy, filed as Exhibit 10.12 to Quarterly
Report on Form 10-Q filed July 25, 2007
Form of Non-Qualified Stock Option Agreement, filed as Exhibit 99.2 to Current Report on
Form 8-K filed November 21, 2007
Form of Non-Qualified Stock Option Agreement, filed as Exhibit 10.12 to Annual Report on
Form 10-K filed November 15, 2012
Form of Non-Qualified Stock Option Agreement, filed as Exhibit 10.13 to Annual Report on
Form 10-K filed November 14, 2013
Form of Restricted Stock Agreement, filed as Exhibit 10.1 to Quarterly Report on Form 10-Q
filed January 22, 2014
Credit Agreement, dated as of July 10, 2013, by and among the Company, the foreign subsidiary
borrowers party thereto, the institutions party thereto as lenders, and Wells Fargo Bank, National
Association, as administrative agent, filed as Exhibit 10.1 to Current Report on Form 8-K filed
July 16, 2013
Dennis Benning Post Retirement Relocation Agreement, filed as Exhibit 10.17 to Annual Report
on Form 10-K filed November 29, 2007
Dennis Benning Promotion Letter dated October 1, 2008, filed as Exhibit 10.18 to Annual
Report on Form 10-K filed November 20, 2008
Chad Preiss Promotion Letter dated October 1, 2008, filed as Exhibit 10.19 to Annual Report on
Form 10-K filed November 20, 2008
Term Loan Credit Agreement, dated October 1, 2008, by and among the Company, the
institutions from time to time parties thereto as lenders and JPMorgan Chase Bank, National
Association, as administrative agent, filed as Exhibit 10.1 to Current Report on Form 8-K filed
October 7, 2008
Amendment No. 1 to Term Loan Credit Agreement, dated as of March 30, 2009, by and among
the Company, the financial institutions party to credit agreement referenced therein, and
JPMorgan Chase Bank, National Association, as administrative agent, filed as Exhibit 10.2 to
Quarterly Report on Form 10-Q filed April 23, 2009
Amendment No. 2 to Term Loan Credit Agreement, dated as of January 4, 2012, by and among
the Company, the financial institutions party to the credit agreement referenced therein, and
JPMorgan Chase Bank, N.A., as administrative agent, filed as Exhibit 10.2 to Current Report on
Form 8-K filed January 10, 2012
Note Purchase Agreement, dated October 1, 2008, by and among the Company and the
purchasers named therein, filed as Exhibit 10.2 to Current Report on Form 8-K filed October 7,
2008
Amendment No. 1 to 2008 Note Purchase Agreement, dated as of October 1, 2013, by and
among the Company and the noteholders named therein, filed as Exhibit 10.2 to Current Report
on Form 8-K filed October 4, 2013
Note Purchase Agreement, dated April 3, 2009, by and among the Company and the purchasers
named therein, filed as Exhibit 10.2 to Current Report on Form 8-K filed April 8, 2009
103
‡
‡
‡
10.22
10.23
10.24
†*
10.25
†*
†‡
10.26
10.27
†‡
10.28
†‡
10.29
†‡
10.30
†‡
10.31
†‡
10.32
†‡
10.33
†‡
10.34
†‡
10.35
†‡
10.36
†‡
10.37
†‡
10.38
Amendment No. 1 to 2009 Note Purchase Agreement, dated as of October 1, 2013, by and
among the Company and the noteholders named therein, filed as Exhibit 10.3 to Current Report
on Form 8-K filed October 4, 2013
Note Purchase Agreement, dated October 1, 2013, by and among the Company and the
purchasers named therein, filed as Exhibit 10.1 to Current Report on Form 8-K filed October 4,
2013
Asset Purchase Agreement, dated as of December 27, 2012, by and among the Company,
Woodward HRT, Inc. GE Aviation Systems LLC and General Electric Company, filed as Exhibit
10.1 to Current Report on Form 8-K filed December 28, 2012
Form of Change in Control Agreement for the Company’s principal executive officer and other
executive officers other than the Company’s principal financial officer
Form of Change in Control Agreement for the Company’s principal financial officer
Executive Benefit Plan, as amended and restated as of September 18, 2013, filed as Exhibit
10.31 to Annual Report on Form 10-K filed November 14, 2013
Dennis Benning Confirmation of Assignment Extension Letter dated November 17, 2010, filed
as Exhibit 10.28 to Annual Report on Form 10-K filed November 18, 2010
James D. Rudolph Promotion Letter, dated February 10, 2011, filed as Exhibit 10.1 to Quarterly
Report on Form 10-Q filed April 27, 2011
Mr. Martin V. Glass employment letter, dated April 27, 2011, filed as Exhibit 10.1 to Quarterly
Report on Form 10-Q filed July 26, 2011
Sagar Patel employment letter, dated June 17, 2011, filed as Exhibit 10.2 to Quarterly Report on
Form 10-Q filed July 26, 2011
Gerhard Lauffer Supplemental Agreement, dated September 25, 2012, filed as Exhibit 10.30 to
Annual Report on Form 10-K filed November 15, 2012
Woodward Retirement Savings Plan, as amended and restated effective as of January 1, 2008,
filed as Exhibit 99.1 to Registration Statement on Form S-8 filed January 31, 2012 (File No. 333-
179248)
Amendment No. 1 to the Woodward Retirement Savings Plan, dated as of April 21, 2010, filed
as Exhibit 99.2 to Registration Statement on Form S-8 filed January 31, 2012 (File No. 333-
179248)
Amendment No. 2 to the Woodward Retirement Savings Plan, dated as of April 21, 2009, filed
as Exhibit 99.3 to Registration Statement on Form S-8 filed January 31, 2012 (File No. 333-
179248)
Amendment No. 3 to the Woodward Retirement Savings Plan, dated as of November 8, 2009,
filed as Exhibit 99.4 to Registration Statement on Form S-8 filed January 31, 2012 (File No. 333-
179248)
Amendment No. 4 to the Woodward Retirement Savings Plan, dated as of December 1, 2010,
filed as Exhibit 99.5 to Registration Statement on Form S-8 filed January 31, 2012 (File No. 333-
179248)
Amendment No. 5 to the Woodward Retirement Savings Plan, dated as of December 1, 2010,
filed as Exhibit 99.6 to Registration Statement on Form S-8 filed January 31, 2012 (File No. 333-
179248)
104
†‡
10.39
Amendment No. 6 to the Woodward Retirement Savings Plan, dated as of November 8, 2011,
filed as Exhibit 99.7 to Registration Statement on Form S-8 filed January 31, 2012 (File No. 333-
179248)
†‡
10.40
Amendment No. 7 to the Woodward Retirement Savings Plan, dated as of March 1, 2013, filed
as Exhibit 10.1 to Quarterly Report on Form 10-Q filed July 26, 2013
*
*
*
*
*
*
*
*
*
*
*
†
‡
*
21.1
23.1
31.1
31.2
32.1
Subsidiaries
Consent of Independent Registered Public Accounting Firm
Rule 13a-14(a)/15d-14(a) certification of Thomas A. Gendron
Rule 13a-14(a)/15d-14(a) certification of Robert F. Weber, Jr.
Section 1350 certifications
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
Attached as Exhibit 101 to this report are the following materials from Woodward, Inc.’s Annual Report on
Form 10-K for the year ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting
Language): (i) the Consolidated Statements of Earnings, (ii) the Consolidated Statements of Comprehensive
Earnings, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the
Consolidated Statements of Stockholders’ Equity, and (vi) the Notes to the Consolidated Financial Statements.
Management contract or compensatory plan or arrangement
Incorporated by reference as an exhibit to this Report (file number 000-08408, unless otherwise
indicated).
Filed as an exhibit to this Report
105
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.
SIGNATURES
Date: November 12, 2014
Date: November 12, 2014
WOODWARD, INC.
/s/ THOMAS A. GENDRON
Thomas A. Gendron
Chairman of the Board, Chief Executive Officer,
and President
(Principal Executive Officer)
/s/ ROBERT F. WEBER, JR.
Robert F. Weber, Jr.
Vice Chairman, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ John D. Cohn
John D. Cohn
/s/ Paul Donovan
Paul Donovan
/s/ Thomas A. Gendron
Thomas A. Gendron
/s/ John A. Halbrook
John A. Halbrook
/s/ Mary L. Petrovich
Mary L. Petrovich
/s/ Larry E. Rittenberg
Larry E. Rittenberg
/s/ James R. Rulseh
James R. Rulseh
/s/ Ronald M. Sega
Ronald M. Sega
/s/ Gregg C. Sengstack
Gregg C. Sengstack
Date
November 12, 2014
November 12, 2014
November 12, 2014
November 12, 2014
November 12, 2014
November 12, 2014
November 12, 2014
November 12, 2014
November 12, 2014
Title
Director
Director
Chairman of the Board
and Director
Director
Director
Director
Director
Director
Director
106
WOODWARD, INC. AND SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
For the years ended September 30, 2014, 2013, and 2012
(in thousands)
Column A
Column B
Column C
Additions
Column D
Column E
Description
Fiscal year 2014
Balance at
Beginning of
Year
Charged to
Costs and
Expenses
Charged to
Other Accounts
(a)
Deductions (b)
Balance at End
of Year
Allowance for doubtful accounts
$
$
8,872
$
1,283
$
916
$
(3,993)
Deferred tax asset valuation allowance
11,783
271
Fiscal year 2013
Allowance for doubtful accounts
Deferred tax asset valuation allowance
Fiscal year 2012
Allowance for doubtful accounts
Deferred tax asset valuation allowance
Notes:
7,217
2,752
2,322
3,201
3,408
9,031
4,139
7
-
5
-
1,074
-
(2,568)
(1,758)
-
(318)
(456)
7,078
9,486
8,872
11,783
7,217
2,752
(a) Includes recoveries of accounts previously written off.
(b) Represents accounts written off and foreign currency exchange rate adjustments. Currency translation adjustments resulted
in a decrease in the reserves of $704 in fiscal year 2014, an increase in the reserve of $155 in fiscal year 2013, and an
increase in the reserve of $4 in fiscal year 2012.
107
DIRECTORS
John D. Cohn
Senior Vice President,
Asia Business Planning and Execution
Rockwell Automation, Inc.
Mary L. Petrovich
Senior Advisor—Private Equity
Carlyle Group and
American Security Partners
Larry E. Rittenberg
Professor Emeritus
University of Wisconsin
James R. Rulseh
President
JRR & Associates, LLC
Ronald M. Sega
Director—Systems Engineering
Programs and Special Assistant to the
Chancellor for Strategic Initiatives
Colorado State University
Gregg C. Sengstack
President and Chief Executive Officer
Franklin Electric Co. Inc.
Paul Donovan
Retired Executive Vice President and
Chief Financial Officer
Wisconsin Energy Corporation
Thomas A. Gendron
Chairman, Chief Executive Officer
and President
Woodward, Inc.
John A. Halbrook
Retired Chairman and
Chief Executive Officer
Woodward, Inc.
OFFICERS
Thomas A. Gendron
Chairman, Chief Executive Officer
and President
Robert F. Weber, Jr.
Vice Chairman, Chief Financial Officer
and Treasurer
Martin V. Glass
President, Airframe Systems
Sagar A. Patel
President, Aircraft Turbine Systems
Chad R. Preiss
President, Engine Systems
James D. Rudolph
President, Industrial
Turbomachinery Systems
A. Christopher Fawzy
Corporate Vice President, General
Counsel, Corporate Secretary and
Chief Compliance Officer
Steven J. Meyer
Corporate Vice President,
Human Resources
Matthew F. Taylor
Corporate Vice President, Supply Chain
Matt R. Cook
Corporate Vice President,
Information Technology
INVESTOR INFORMATION
Woodward, Inc.
Corporate Headquarters
1000 East Drake Road
P.O. Box 1519
Fort Collins, CO 80522–1519
1-970-482-5811
www.woodward.com
Investor Information
Investor.Relations@woodward.com
1-815-639-2340
Transfer Agent and Registrar
American Stock Transfer & Trust Company
Shareholder Services
6201 15th Avenue
Brooklyn, NY 11219
1-800-937-5449
www.amstock.com
Stockholder Account Assistance
Stockholders who wish to change the
address or ownership of stock, report lost
certificates, eliminate duplicate mailings,
or for other account registration proce-
dures and assistance, should contact the
Transfer Agent at the address or phone
number listed.
Dividend Reinvestment Plan and
Direct Deposit of Dividends
Woodward offers stockholders of record
a convenient Dividend Reinvestment and
Direct Stock Purchase and Sale Plan.
Through this Plan, shareholders have
options to purchase or sell shares of
Woodward stock, have their dividends
automatically reinvested in Woodward,
and to make periodic supplemental cash
payments to purchase additional shares.
For further information and an authoriza-
tion form, contact the Transfer Agent at
the address or phone number on this page.
Annual Meeting
January 21, 2015, at 8:00 a.m. MST
Embassy Suites Loveland
4705 Clydesdale Parkway
Loveland, CO 80538
Stock Exchange
NASDAQ Global Select Market
Ticker Symbol: WWD
SEC filings are available on our website at
www.woodward.com
Equal Opportunity Employer
Statement
It is Woodward’s policy to provide equal
employment opportunity for all qualified
members and applicants without regard
to race, color, religion, age, sex, national
origin, disability, veteran’s or marital
status, genetic information, or other pro-
tected class, and to base all employment
decisions so as to further this principle of
equal employment opportunity.
Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com
BUSINESS DESCRIPTION
Woodward is an independent designer, manufacturer, and
service provider of control solutions for the aerospace and
energy markets. Our aerospace systems and components
optimize the performance of fixed wing and rotorcraft plat-
forms in commercial, business and military aircraft, ground
vehicles and other equipment. Our energy-related systems
and components enhance the performance of industrial
gas and steam turbines, reciprocating engines, compres-
sors, wind turbines, electrical grids and other energy-
related industrial equipment. The company’s innovative
fluid energy, combustion control, electrical energy, and
motion control systems help customers offer cleaner,
more reliable and more efficient equipment. Our customers
include leading original equipment manufacturers and end
users of their products.
1000 East Drake Road
P.O. Box 1519
Fort Collins, Colorado 80522–1519 USA
1-970-482-5811
www.woodward.com