Company Quick10K Filing
Quick10K
Woodward
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$90.85 62 $5,620
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
8-K 2019-01-30 Other Events, Exhibits
8-K 2019-01-30 Shareholder Vote, Exhibits
8-K 2019-01-28 Earnings, Exhibits
8-K 2019-01-28 Earnings, Exhibits
8-K 2019-01-02 Officers, Exhibits
8-K 2018-11-07 Earnings, Exhibits
8-K 2018-09-18 Other Events, Exhibits
8-K 2018-07-30 Earnings, Exhibits
8-K 2018-07-25 Other Events, Exhibits
8-K 2018-05-31 Enter Agreement, M&A, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2018-04-25 Other Events, Exhibits
8-K 2018-04-23 Earnings, Exhibits
8-K 2018-04-08 Enter Agreement, Regulation FD, Exhibits
8-K 2018-01-29 Exit Costs, Exhibits
8-K 2018-01-24 Other Events, Exhibits
8-K 2018-01-22 Earnings, Exhibits
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PNR Pentair
MCRN Milacron Holdings
FARO Faro Technologies
KODK Eastman Kodak
CVV CVD Equipment
ELSE Electro Sensors
WWD 2018-12-31
Part I – Financial Information
Item 1.Financial Statements
Note 1. Basis of Presentation
Note 2. New Accounting Standards
Note 3. Revenue
Note 4. Earnings per Share
Note 5. Business Acquisition
Note 6. Joint Venture
Note 7. Financial Instruments and Fair Value Measurements
Note 8. Derivative Instruments and Hedging Activities
Note 9. Supplemental Statement of Cash Flows Information
Note 10. Inventories
Note 11. Property, Plant, and Equipment
Note 12. Goodwill
Note 13. Intangible Assets, Net
Note 14. Credit Facilities, Short-Term Borrowings and Long-Term Debt
Note 15. Accrued Liabilities
Note 16. Other Liabilities
Note 17. Other Expense (Income), Net
Note 18. Income Taxes
Note 19. Retirement Benefits
Note 20. Stockholders’ Equity
Note 21. Commitments and Contingencies
Note 22. Segment Information
Note 23. Subsequent Event
Item 2.Management’S Discussion and Analysis of Financial Condition and Results of Operations (Amounts in Thousands, Except per Share Amounts)
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part II – Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.Exhibits
EX-10.1 wwd-20181231xex10_1.htm
EX-31.1 wwd-20181231xex31_1.htm
EX-31.2 wwd-20181231xex31_2.htm
EX-32.1 wwd-20181231xex32_1.htm

Woodward Earnings 2018-12-31

WWD 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 wwd-20181231x10q.htm 10-Q wwd-20191231 Q1



UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2018

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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.)



1081 Woodward Way, Fort Collins, Colorado

 

80524



(Address of principal executive offices)

 

(Zip Code)

(970) 482-5811



(Registrant’s telephone number, including area code)

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 every Interactive Data File required to be submitted 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 such files).

Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer     Accelerated filer    Non-accelerated filer    Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No

As of February 5, 2019, 62,082,576 shares of the registrant’s common stock with a par value of $0.001455 per share were outstanding.




 







 

 

TABLE OF CONTENTS



 

Page

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements



Condensed Consolidated Statements of Earnings



Condensed Consolidated Statements of Comprehensive Earnings



Condensed Consolidated Balance Sheets



Condensed Consolidated Statements of Cash Flows



Condensed Consolidated Statements of Stockholders’ Equity



Notes to Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

43 



Forward Looking Statements

43 



Overview

46 



Results of Operations

48 



Liquidity and Capital Resources

53 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

59 

Item 4.

Controls and Procedures

59 

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

60 

Item 1A.

Risk Factors

60 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

60 

Item 6.

Exhibits

61 



Signatures

62 

1

 


 



PART I – FINANCIAL INFORMATION

Item 1.Financial Statements



WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)









 

 

 

 

 



 

 

 

 

 



Three-Months Ended



December 31,



2018

 

2017



 

 

 

 

 

Net sales

$

652,811 

 

$

470,148 

Costs and expenses:

 

 

 

 

 

    Cost of goods sold

 

492,174 

 

 

347,627 

    Selling, general and administrative expenses

 

51,927 

 

 

46,459 

    Research and development costs

 

38,867 

 

 

34,786 

    Interest expense

 

11,878 

 

 

8,872 

    Interest income

 

(371)

 

 

(363)

    Other expense (income), net (Note 17)

 

(3,179)

 

 

(4,720)

Total costs and expenses

 

591,296 

 

 

432,661 

Earnings before income taxes

 

61,515 

 

 

37,487 

Income tax expense

 

12,395 

 

 

19,227 

Net earnings

$

49,120 

 

$

18,260 



 

 

 

 

 

Earnings per share (Note 4):

 

 

 

 

 

Basic earnings per share

$

0.79 

 

$

0.30 

Diluted earnings per share

$

0.77 

 

$

0.29 



 

 

 

 

 

Weighted Average Common Shares Outstanding (Note 4):

 

 

 

 

 

Basic

 

61,818 

 

 

61,246 

Diluted

 

64,059 

 

 

63,709 



See accompanying Notes to Condensed Consolidated Financial Statements

2

 


 



WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In thousands)

(Unaudited)







































 

 

 

 

 



 

 

 

 

 



Three-Months Ended



December 31,



2018

 

2017



 

 

 

 

 

Net earnings

$

49,120 

 

$

18,260 



 

 

 

 

 

Other comprehensive earnings:

 

 

 

 

 

Foreign currency translation adjustments

 

(1,734)

 

 

5,103 

Net gain (loss) on foreign currency transactions designated as hedges of net investments in foreign subsidiaries (Note 8)

 

649 

 

 

(743)

Taxes on changes in foreign currency translation adjustments

 

383 

 

 

187 

Foreign currency translation and transactions adjustments, net of tax

 

(702)

 

 

4,547 



 

 

 

 

 

Unrealized gain (loss) on fair value adjustment of derivative instruments (Note 8)

 

18,563 

 

 

 -

Reclassification of net realized (gains) losses on derivatives to earnings (Note 8)

 

(7,826)

 

 

(18)

Taxes on changes in derivative transactions

 

(208)

 

 

Derivative adjustments, net of tax

 

10,529 

 

 

(11)



 

 

 

 

 

Curtailment of postretirement benefit plan arising during the period

 

 -

 

 

59 



 

 

 

 

 

Amortization of pension and other postretirement plan:

 

 

 

 

 

Net prior service cost

 

176 

 

 

137 

Net loss

 

239 

 

 

246 

Foreign currency exchange rate changes on pension and other postretirement benefit plan liabilities

 

303 

 

 

(99)

Taxes on changes in pension and other postretirement benefit plan liability adjustments, net of foreign currency exchange rate changes

 

(209)

 

 

(132)

Pension and other postretirement benefit plan adjustments, net of tax

 

509 

 

 

211 

Total comprehensive earnings

$

59,456 

 

$

23,007 



See accompanying Notes to Condensed Consolidated Financial Statements

3

 


 



WOODWARD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)





 

 

 

 

 



 

 

 

 

 



December 31,

 

September 30,



2018

 

2018

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents, including restricted cash of $0 and $3,635, respectively

$

71,634 

 

$

83,594 

Accounts receivable, less allowance for uncollectible amounts of $3,995 and $3,938, respectively

 

489,529 

 

 

432,003 

Inventories

 

524,500 

 

 

549,596 

Income taxes receivable

 

3,769 

 

 

6,397 

Other current assets

 

37,004 

 

 

43,207 

Total current assets

 

1,126,436 

 

 

1,114,797 

Property, plant and equipment, net

 

1,060,556 

 

 

1,060,005 

Goodwill

 

809,480 

 

 

813,250 

Intangible assets, net

 

673,286 

 

 

700,883 

Deferred income tax assets

 

15,172 

 

 

16,570 

Other assets

 

175,606 

 

 

85,144 

Total assets

$

3,860,536 

 

$

3,790,649 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Short-term borrowings

$

160,000 

 

$

153,635 

Accounts payable

 

224,890 

 

 

226,285 

Income taxes payable

 

19,899 

 

 

16,745 

Accrued liabilities

 

171,137 

 

 

194,513 

Total current liabilities

 

575,926 

 

 

591,178 

Long-term debt, less current portion

 

1,024,872 

 

 

1,092,397 

Deferred income tax liabilities

 

168,409 

 

 

170,915 

Other liabilities

 

460,462 

 

 

398,055 

Total liabilities

 

2,229,669 

 

 

2,252,545 

Commitments and contingencies (Note 21)

 

 

 

 

 

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

 

106 

 

 

106 

Additional paid-in capital

 

195,894 

 

 

185,705 

Accumulated other comprehensive losses

 

(64,648)

 

 

(74,942)

Deferred compensation

 

9,015 

 

 

8,431 

Retained earnings

 

2,034,877 

 

 

1,966,643 



 

2,175,244 

 

 

2,085,943 

Treasury stock at cost, 11,096 shares and 11,203 shares, respectively

 

(535,362)

 

 

(539,408)

Treasury stock held for deferred compensation, at cost, 209 shares and 202 shares, respectively

 

(9,015)

 

 

(8,431)

Total stockholders’ equity

 

1,630,867 

 

 

1,538,104 

Total liabilities and stockholders’ equity

$

3,860,536 

 

$

3,790,649 



 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

4

 


 



WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)





 

 

 

 

 



 

 

 

 

 



Three-Months Ended December 31,



2018

 

2017



 

 

 

 

 

Net cash provided by (used in) operating activities

$

84,712 

 

$

(2,533)



 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Payments for purchase of property, plant, and equipment

 

(31,346)

 

 

(28,450)

Proceeds from sale of assets

 

249 

 

 

132 

Proceeds from sales of short-term investments

 

27 

 

 

 -

Payments for purchases of short-term investments

 

(947)

 

 

(791)

Net cash used in investing activities

 

(32,017)

 

 

(29,109)



 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Cash dividends paid

 

(8,808)

 

 

(7,656)

Proceeds from sales of treasury stock

 

3,384 

 

 

1,389 

Borrowings on revolving lines of credit and short-term borrowings

 

542,847 

 

 

458,950 

Payments on revolving lines of credit and short-term borrowings

 

(501,218)

 

 

(425,250)

Payments of long-term debt and capital lease obligations

 

(100,132)

 

 

(106)

Net cash (used in) provided by financing activities

 

(63,927)

 

 

27,327 

Effect of exchange rate changes on cash and cash equivalents

 

(728)

 

 

2,542 

Net change in cash and cash equivalents

 

(11,960)

 

 

(1,773)

Cash and cash equivalents at beginning of year

 

83,594 

 

 

87,552 

Cash and cash equivalents, including restricted cash, at end of period

$

71,634 

 

$

85,779 



 

 

 

 

 



See accompanying Notes to Condensed Consolidated Financial Statements









 

5

 


 



WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Number of shares

 

Stockholders' equity



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive (loss) earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Preferred
stock

 

Common
stock

 

Treasury
stock

 

Treasury
stock held for
deferred
compensation

 

Common
stock

 

Additional
 paid-in
capital

 

Foreign
currency
translation
adjustments

 

Unrealized
derivative
gains
(losses)

 

Minimum
retirement
benefit
liability
adjustments

 

Total
accumulated
other
comprehensive
(loss) earnings

 

Deferred compensation

 

Retained
earnings

 

Treasury
 stock at
cost

 

Treasury
stock held for
deferred
compensation

 

Total stockholders'
equity



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of September 30, 2017

 

 -

 

72,960 

 

(11,739)

 

(186)

 

$

106 

 

$

163,836 

 

$

(27,280)

 

$

135 

 

$

(26,041)

 

$

(53,186)

 

$

7,135 

 

$

1,820,268

 

$

(559,641)

 

$

(7,135)

 

$

1,371,383 

Net earnings

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

18,260 

 

 

 -

 

 

 -

 

 

18,260 

Other comprehensive earnings (loss), net of tax

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

4,547 

 

 

(11)

 

 

211 

 

 

4,747 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

4,747 

Cash dividends paid ($0.1250 per share)

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(7,656)

 

 

 -

 

 

 -

 

 

(7,656)

Sales of treasury stock

   

 -

 

 -

 

33 

 

 -

 

 

 -

 

 

214 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

1,175 

 

 

 -

 

 

1,389 

Stock-based compensation

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

12,423 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

12,423 

Purchases and transfers of stock by/to deferred compensation plan

 

 -

 

 -

 

 -

 

(14)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

1,041 

 

 

 -

 

 

 -

 

 

(1,041)

 

 

 -

Distribution of stock from deferred compensation plan

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(3)

 

 

 -

 

 

 -

 

 

 

 

 -

Balances as of December 31, 2017

 

 -

 

72,960 

 

(11,706)

 

(200)

 

$

106 

 

$

176,473 

 

$

(22,733)

 

$

124 

 

$

(25,830)

 

$

(48,439)

 

$

8,173 

 

$

1,830,872 

 

$

(558,466)

 

$

(8,173)

 

$

1,400,546 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances as of September 30, 2018

 

 -

 

72,960 

 

(11,203)

 

(202)

 

$

106 

 

$

185,705 

 

$

(39,794)

 

$

(20,942)

 

$

(14,206)

 

$

(74,942)

 

$

8,431 

 

$

1,966,643

 

$

(539,408)

 

$

(8,431)

 

$

1,538,104 

Cumulative effect from adoption of ASC 606 (Note 3)

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

(42)

 

 

 -

 

 

 -

 

 

(42)

 

 

 -

 

 

28,927 

 

 

 -

 

 

 -

 

 

28,885 

Cumulative effect from adoption of ASU 2016-16 (Note 2)

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(1,005)

 

 

 -

 

 

 -

 

 

(1,005)

Net earnings

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

49,120 

 

 

 -

 

 

 -

 

 

49,120 

Other comprehensive earnings (loss), net of tax

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

(702)

 

 

10,529 

 

 

509 

 

 

10,336 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

10,336 

Cash dividends paid ($0.1425 per share)

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(8,808)

 

 

 -

 

 

 -

 

 

(8,808)

Sales of treasury stock

 

 -

 

 -

 

107 

 

 -

 

 

 -

 

 

(662)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

4,046 

 

 

 -

 

 

3,384 

Stock-based compensation

 

 -

 

 -

 

 -

 

 -

 

 

 -

 

 

10,851 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

10,851 

Purchases and transfers of stock by/to deferred compensation plan

 

 -

 

 -

 

 -

 

(8)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

591 

 

 

 -

 

 

 -

 

 

(591)

 

 

 -

Distribution of stock from deferred compensation plan

 

 -

 

 -

 

 -

 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(7)

 

 

 -

 

 

 -

 

 

 

 

 -

Balances as of December 31, 2018

 

 -

 

72,960 

 

(11,096)

 

(209)

 

$

106 

 

$

195,894 

 

$

(40,538)

 

$

(10,413)

 

$

(13,697)

 

$

(64,648)

 

$

9,015 

 

$

2,034,877 

 

$

(535,362)

 

$

(9,015)

 

$

1,630,867 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 





See accompanying Notes to Condensed Consolidated Financial Statements

 

6

 


 



WOODWARD, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Note 1.  Basis of presentation

The Condensed Consolidated Financial Statements of Woodward, Inc. (“Woodward” or the “Company”) as of December 31, 2018 and for the three-months ended December 31, 2018 and December 31, 2017, included herein, have not been audited by an independent registered public accounting firm.  These Condensed Consolidated Financial Statements reflect all normal recurring adjustments that, in the opinion of management, are necessary to present fairly Woodward’s financial position as of December 31, 2018, and the statements of earnings, comprehensive earnings, cash flows, and changes in stockholders’ equity for the periods presented herein.  The results of operations for the three-months ended December 31, 2018 are not necessarily indicative of the operating results to be expected for other interim periods or for the full fiscal year.  Dollar and share amounts contained in these Condensed Consolidated Financial Statements are in thousands, except per share amounts.

The Condensed Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations.

These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in Woodward’s most recent Annual Report on Form 10-K filed with the SEC and other financial information filed with the SEC.

Management is required to use estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the reported revenues and expenses recognized during the reporting period, and certain financial statement disclosures, in the preparation of the Condensed Consolidated Financial Statements included herein.  Significant estimates in these Condensed Consolidated Financial Statements include allowances for uncollectible amounts, net realizable value of inventories, variable consideration including customer rebates earned and payable and early payment discounts, warranty reserves, useful lives of property and identifiable intangible assets, the evaluation of impairments of property, the provision for income tax and related valuation reserves, the valuation of assets and liabilities acquired in business combinations, the valuation of derivative instruments, assumptions used in the determination of the funded status and annual expense of pension and postretirement employee benefit plans, the valuation of stock compensation instruments granted to employees, board members and any other eligible recipients, estimates of total lifetime sales used in the recognition of revenue of deferred material rights and balance sheet classification of the related contract liability, estimates of total sales contract costs when recognizing revenue under the cost-to-cost method and contingencies.  Actual results could vary from Woodward’s estimates.

In the September 30, 2018 Balance Sheet, “Accounts receivable” has increased by $183 and “Other current assets” has decreased by $183, reflecting the reclassification of current unbilled receivables to “Accounts receivable” in order to conform to the current year presentation.

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 ASC are communicated through issuance of an Accounting Standards Update (“ASU”).

In August 2018, the FASB issued ASU 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans - General (Topic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plan.”  ASU 2018-14 amends ASC 715 to add, remove, and modify disclosure requirements related to defined benefit pension and other postretirement plans.  The ASU’s changes to disclosures aim to improve the effectiveness of ASC 715’s disclosure requirements under the FASB’s disclosure framework project.  ASU 2018-14 is effective for public entities for fiscal years beginning after December 15, 2020 (fiscal year 2022 for Woodward).  ASU 2018-14 does not impact the interim disclosure requirements of ASC 715.  The amendments in ASU 2018-14 should be applied on a retrospective basis to all periods presented.  Early adoption is permitted.  Woodward expects to adopt the new and modified disclosures requirements of this new guidance in fiscal year 2022.

7

 


 

In February 2018, the FASB issued ASU 2018-02, “Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”  ASU 2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the enactment of tax reform under H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”) (also known as “The Tax Cuts and Jobs Act”), and provides guidance on the disclosure requirements regarding the stranded tax effects.  The amendments in ASU 2018-02 are effective for all entities for fiscal years beginning after December 15, 2018 (fiscal year 2020 for Woodward), and interim periods within those fiscal years.  Early adoption is permitted.  The amendments in ASU 2018-02 may be applied retrospectively in the period of adoption to all periods in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized or may be applied as of the beginning of the period of adoption.  Woodward is currently assessing the impact of the adoption of the new guidance and has not yet elected the method of adoption it will apply.  Woodward expects to adopt the new guidance under ASU 2018-02 in fiscal year 2020.  Upon adoption, if Woodward elects to reclassify under ASU 2018-02, a portion of accumulated other comprehensive earnings would be reclassified to retained earnings.   

In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.”  ASU 2017-07 requires that the service cost component of net periodic benefit costs from defined benefit and other postretirement benefit plans be included in the same statement of earnings captions as other compensation costs arising from services rendered by the covered employees during the period.  The other components of net benefit cost are presented in the statement of earnings separately from service costs.  ASU 2017-07 is effective for fiscal years beginning after December 31, 2017 (fiscal year 2019 for Woodward).  Following adoption, only service costs will be eligible for capitalization into manufactured inventories, which should reduce diversity in practice.  The amendments of ASU 2017-07 must be applied retrospectively for the presentation of the service cost component and the other components of net periodic benefit costs from defined benefit and other postretirement benefit plans in the statement of earnings and prospectively, on and after the effective date, for the capitalization of the service cost component into manufactured inventories.  Woodward adopted the new guidance effective October 1, 2018 and concluded it had no impact on net earnings.  As a result of the adoption of ASU 2017-07, only the service component of net periodic benefit costs from defined benefit and other postretirement benefit plans are included in cost of goods sold and selling, general and administrative expenses.  All other net periodic benefit costs, other than interest cost, are included on other expense (income), net.  The interest cost component of net periodic benefit costs is included in interest expense as Woodward believes it is more similar to the elements within interest expense than other expense (income), net, which combines several elements that are heterogeneous (see Note 17, Other (income) expense, net.), thus improving consistency for users of the financial statements.

The following table shows the impact of retrospectively applying this guidance to the Condensed Consolidated Statement of Earnings for the three-months ended December 31, 2017.





 

 

 

 

 

 

 

 

 



 

Three-Months Ended December 31, 2017



 

As previously reported

 

Adjustment

 

As recast

Net sales

 

$

470,148 

 

$

 -

 

$

470,148 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

346,784 

 

 

843 

 

 

347,627 

Selling, general, and administrative expenses

 

 

46,276 

 

 

183 

 

 

46,459 

Research and development costs

 

 

34,786 

 

 

 -

 

 

34,786 

Interest expense

 

 

6,750 

 

 

2,122 

 

 

8,872 

Interest income

 

 

(363)

 

 

 -

 

 

(363)

Other expense (income), net

 

 

(1,572)

 

 

(3,148)

 

 

(4,720)

Total costs and expenses

 

 

432,661 

 

 

 -

 

 

432,661 

Earnings before income taxes

 

 

37,487 

 

 

 -

 

 

37,487 

Income tax expense

 

 

19,227 

 

 

 -

 

 

19,227 

Net earnings

 

$

18,260 

 

$

 -

 

$

18,260 

In October 2016, the FASB issued ASU 2016-16, “Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory.”  ASU 2016-16 eliminates the current U.S. GAAP exception deferring the tax effects of intercompany asset transfers (other than inventory) until the transferred asset is sold to a third party or otherwise recovered through use.  After adoption of ASU 2016-16, Woodward will recognize the tax consequences of intercompany asset transfers in the buyer’s and seller’s tax jurisdictions when the transfer occurs, even though the pre-tax effects of these transactions are eliminated in consolidation.  ASU 2016-16 is effective for fiscal years beginning after December 15, 2017 (fiscal year 2019 for Woodward), including interim periods within the year of adoption.  Woodward adopted the new guidance on October 1,

8

 


 

2018.  Modified retrospective adoption is required with any cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption.  The cumulative impact of the adoption of ASU 2016-16 of $1,005 was recognized at the date of adoption as a decrease to both retained earnings and other current assets at the Condensed Consolidated Balance Sheet.

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.”  ASU 2016-13 adds a current expected credit loss (“CECL”) impairment model to U.S. GAAP that is based on expected losses rather than incurred losses.  Modified retrospective adoption is required with any cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption.  ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 (fiscal year 2021 for Woodward), including interim periods within the year of adoption.  Early adoption is permitted for fiscal years beginning after December 15, 2018 (fiscal year 2020 for Woodward), including interim periods within those fiscal years.  Woodward expects to adopt the new guidance in fiscal year 2021.  Woodward does not expect the application of the CECL impairment model to have a significant impact on Woodward’s allowance for uncollectible amounts for accounts receivable and notes receivable from municipalities.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).”  The purpose of ASU 2016-02 is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  In addition, ASU 2016-02 modifies the definition of a lease to clarify that an arrangement contains a lease when such arrangement conveys the right to control the use of an identified asset.  ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (fiscal year 2020 for Woodward), including interim periods within the year of adoption.  Originally under ASU 2016-02, an organization was required upon adoption to recognize and measure leases beginning in the earliest period presented using a modified retrospective approach and restate the financial statements for all periods presented.  In July 2018, the FASB issued ASU 2018-11, which amends ASU 2016-02 to provide organizations with an additional (and optional) transition method whereby it may elect to recognize and measure leases by applying the cumulative impact of adopting ASU 2016-02 to the opening retained earnings balance in the period of adoption, thereby removing the requirement that the financial statements of prior periods be restated.  Although early adoption is permitted, Woodward expects to adopt the new guidance in fiscal year 2020.  Woodward expects that it will elect to not restate fiscal years 2018 and 2019 and will recognize the cumulative impact of adopting the standard in Woodward’s opening retained earnings for fiscal year 2020.  Woodward is currently assessing the impact this guidance may have on its Condensed Consolidated Financial Statements, including which of its existing lease arrangements will be impacted by the new guidance and whether other arrangements not currently classified as leases may become subject to the guidance of ASU 2016-02, and the possible impacts to embedded leases within existing service arrangements not classified as leases under the previous guidance.  Rent expense for all operating leases in fiscal year 2018, none of which was recognized on the balance sheet, was $8,348.  As of September 30, 2018, future minimum rental payments required under operating leases, none of which were recognized on the balance sheet, were $26,020.  Woodward expects to recognize a higher level of lease commitments after the new guidance is adopted.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” and has subsequently issued several supplemental and/or clarifying ASUs (collectively “ASC 606”).  ASC 606 prescribes a single common revenue standard that replaces most existing U.S. GAAP revenue recognition guidance.  ASC 606 outlines a five-step model, under which Woodward will recognize revenue as performance obligations within a customer contract are satisfied.  ASC 606 is intended to provide more consistent interpretation and application of the principles outlined in the standard across filers in multiple industries and within the same industries compared to current practices, which should improve comparability.  Woodward adopted ASC 606 on October 1, 2018 using the modified retrospective transition method with the cumulative effect of initial adoption recognized at the date of initial application.  See Note 3, Revenue, for disclosures and financial statement impacts related to implementation and adoption of ASC 606.  

 

Note 3.  Revenue

Adoption of ASC 606

Woodward adopted ASC 606 on October 1, 2018 and elected the modified retrospective transition method.  The results for periods prior to fiscal year 2019 were not adjusted for the new standard and the cumulative effect of the change in accounting of $28,927 was recognized as a net increase to retained earnings at the date of adoption.

Woodward has elected to apply the modified retrospective method only to contracts that were not completed as of October 1, 2018.  As a practical expedient under ASC 606, Woodward elected to reflect the aggregate effect of all modifications that occurred before the beginning of fiscal year 2019 to contracts for which Woodward had not recognized all revenue as of October 1, 2018 as part of the adjustment to retained earnings at the date of adoption.

9

 


 

Revenue Recognition Policy 

Revenue is recognized on contracts with Woodward’s customers for arrangements in which quantities and pricing are fixed and/or determinable and are generally based on customer purchase orders, often within the framework of a long-term supply arrangement with the customer.  Woodward has determined that it is the principal in its sales transactions, as Woodward is primarily responsible for fulfilling the promised performance obligations, has discretion to establish the selling price, and generally assumes the inventory risk.  A performance obligation is a promise in a contract with a customer to transfer a distinct product or service to the customer.  Woodward recognizes revenue for performance obligations within a customer contract when control of the associated product or service is transferred to the customer.  Some of Woodward’s contracts with customers contain a single performance obligation, while other contracts contain multiple performance obligations.  Each product within a contract generally represents a separate performance obligation as Woodward does not provide significant installation and integration services, the products do not customize each other, and the products can function independently of each other. 

A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the customer obtains control of the associated product or service.  When there are multiple performance obligations within a contract, Woodward generally uses the observable standalone sales price for each distinct product or service within the contract to allocate the transaction price to the distinct products or services.  In instances when a standalone sales price for each product or service is not observable within the contract, Woodward allocates the transaction price to each performance obligation using an estimate of the standalone selling price for each product or service, which is generally based on incurred costs plus a reasonable margin, for each distinct product or service in the contract.

When determining the transaction price of each contract, Woodward considers contractual consideration payable by the customer and variable consideration that may affect the total transaction price.  Variable consideration, consisting of early payment discounts, rebates and other sources of price variability, are included in the estimated transaction price based on both customer-specific information as well as historical experience.  Woodward’s contracts with customers generally do not include a financing component.  Woodward regularly reviews its estimates of variable consideration on the transaction price and recognizes changes in estimates on a cumulative catch-up basis as if the most current estimate of the transaction price adjusted for variable consideration had been known as of the inception of the contract.  In the three-months ended December 31, 2018, Woodward did not recognize a significant amount of revenue due to changes in transaction price from performance obligations that were satisfied, or partially satisfied, in prior periods.

Customers sometimes trade in used products in exchange for new or refurbished products.  In addition, Woodward’s customers sometimes provide inventory to Woodward which will be integrated into final products sold to those customers.  Woodward obtains control of these exchanged products and customer provided inventory, and therefore, both are forms of noncash consideration.  Noncash consideration paid by customers on overall sales transactions is additive to the transaction price.  Woodward’s net sales and cost of goods sold include the value of such noncash consideration for the same amount, with no resulting impact to earnings before income taxes.  Upon receipt of such inventory, Woodward recognizes an inventory asset and a contract liability.  For the three-months ended December 31, 2018, Woodward recognized revenue of $17,057 related to noncash consideration received from customers, of which $16,706 was recognized in the Aerospace segment and $351 was recognized in the Industrial segment. 

Sales of Products

Woodward primarily generates revenue through the manufacture and sale of engineered aerospace and industrial products, including revenue derived from maintenance, repair and overhaul (“MRO”) performance obligations performed on products originally manufactured by Woodward and subsequently returned by original equipment manufacturer (“OEM”) or other end-user customers.  The majority of Woodward’s costs incurred to satisfy MRO performance obligations are related to replacing and/or refurbishing component parts of the returned products to restore the units back to a condition generally comparable to that of the unit upon its initial sale to an OEM customer.  Therefore, Woodward considers almost all of its revenue to be derived from product sales, including those related to MRO.

Revenue from manufactured and MRO products represented 87% and 11%, respectively, of Woodward’s net sales for the three-months ended December 31, 2018.

Many Woodward products include embedded software or firmware that is critical to the performance of the product as designed.  As the embedded software or firmware is essential to the functioning of the products sold it does not represent a distinct performance obligation separate from the related tangible product in which the software or firmware is embedded.  Woodward does not generally sell or license software or firmware on a standalone basis.  Software or firmware upgrades, if any, are generally paid for by the customer and treated as separate performance obligations. 

10

 


 

The products Woodward sells generally are not subject to risk of return, refund or other similar obligations.  Woodward’s sales include product warranty arrangements with customers which are generally assurance-type warranties, rather than service-type warranties.  Accordingly, Woodward accounts for warranty related promises to its customers as a guarantee for which a warranty liability is recorded when the related product or service is sold, rather than as a distinct performance obligation accounted for separately from the sale of the underlying product or service.  Warranty liabilities are accrued for based on specifically identified warranty issues that are probable to result in future costs, or on a non-specific basis whenever past experience indicates that a normal and predictable pattern exists.

Revenue from shipping and handling activities charged to customers are included in net sales when invoiced to the customer and the related costs are included in cost of goods sold.  As a practical expedient under ASC 606, Woodward has elected to account for the costs of shipping and handling activities as a cost to fulfill a contract and not a promised product or service.  Shipping and handling costs relating to the sale of products recognized at a point in time are recognized as incurred.  Shipping and handling costs relating to the sale of products or services recognized over time are accrued and recognized during the earnings process.

Material Rights and Costs to Fulfill a Contract

Customers sometimes pay consideration to Woodward for product engineering and development activities that do not result in the immediate transfer of distinct products or services to the customer.  There is an implicit assumption that without the customer making such advance payments to Woodward, Woodward’s future sales of products or services to the customer would be at a higher selling price; therefore, such payments create a “material right” to the customer that effectively gives the customer an option to acquire future products or services, at a discount, that are dependent upon the product engineering and development.  Material rights are recorded as contract liabilities and will be recognized when control of the related products or services are transferred to the customer. 

Woodward capitalizes costs of product engineering and development identified as material rights up to the amount of customer funding as costs to fulfill a contract because the costs incurred up to the amount of the customer funding commitment are recoverable.  Due to the uncertainty of the product success and/or demand, fulfillment costs in excess of the customer funding are expensed as incurred.  Woodward recognizes the deferred material rights as revenue based on a percentage of actual sales to total estimated lifetime sales of the related developed products as the customers exercise their option to acquire additional products or services at a discount.  Woodward amortizes the capitalized costs to fulfill a contract as cost of goods sold proportionally to the recognition of the associated deferred material rights.  Estimated total lifetime sales are reviewed at least annually and more frequently when circumstances warrant a modification to the previous estimate.  For the three-months ended December 31, 2018 Woodward recognized an increase in revenue of $620 and cost of goods sold of $182 related to changes in estimated total lifetime sales.

As of December 31, 2018, other assets included $92,091 of capitalized costs to fulfill contracts with customers.  Other than amounts related to changes in estimate, during the three-months ended December 31, 2018, Woodward amortized no capitalized costs to fulfill contracts with customers to cost of goods sold.

In 2016, Woodward contributed certain contractual rights and intellectual property to a joint venture with the General Electric Company (“GE”).  In exchange for a 50% ownership interest in the joint venture and future rights to purchase products from the joint venture at favorable pricing, GE agreed to pay total consideration of $323,410 to Woodward.  Under previous accounting guidance, Woodward concluded that the formation of the joint venture was not the culmination of an earnings event and deferred recognition of the consideration paid until earned in the future.  Under ASC 606, Woodward also concluded that the formation of the joint venture was not a culmination of an earnings event and has further concluded that the consideration paid or receivable from GE represents a material right.  Accordingly, under both ASC 606 and the previous standard, Woodward concluded it was appropriate to defer the consideration received as a liability and recognized it as an increase to net sales in proportion to revenue realized on sales of applicable fuel systems within the scope of the joint venture.  Recognition to net sales in a particular period is determined as a percentage of total revenue expected to be realized by Woodward over the estimated remaining lives of the underlying commercial aircraft engine programs assigned to the joint venture.  As of the adoption of ASC 606, Woodward has classified this as a contract liability with both a current and noncurrent portion.  For further discussion of Woodward’s joint venture, see Note 6, Joint venture.

Woodward does not record incremental costs of obtaining a contract, as Woodward does not pay sales commissions or incur other incremental costs related to contracts with Woodward’s customers for arrangements in which quantities and pricing are fixed and/or determinable.

11

 


 

Point in time and over time revenue recognition

Approximately one-half of Woodward’s customer contracts are recognized at the point in time when control of the products transfers to the customer, generally upon shipment of products, consistent with Woodward’s historical revenue recognition model.  The remaining portion of Woodward’s revenues from sales of products and services to customers are recognized over time, rather than at a point in time, due primarily to the terms of certain customer contracts and/or the type of performance obligation being satisfied, as described below. 

The following table reflects the amount of revenue recognized as point in time or over time for the three-months ended December 31, 2018:





 

 

 

 

 

 

 

 



Three-Months Ended December 31, 2018



Aerospace

 

Industrial

 

Consolidated

Point in time

$

164,014 

 

$

172,162 

 

$

336,176 

Over time

 

228,873 

 

 

87,762 

 

 

316,635 

Total net sales

$

392,887 

 

$

259,924 

 

$

652,811 

Point in time

Control of the products generally transfers to the customer at a point in time, as the customer does not control the products as they are produced.  Woodward exercises judgment and considers the timing of right of payment, transfer of the risk and rewards, transfers of title, transfer of physical possession, and customer acceptance when determining when control of the product transfers to the customer, generally upon shipment of products, consistent with Woodward’s historical revenue recognition model.

Over time

Performance obligations are satisfied and revenue is recognized over time if: (i) the customer receives the benefits as Woodward performs work, if the customer controls the asset as it is being enhanced, or if the product being produced for the customer has no alternative use to Woodward; and (ii) Woodward has an enforceable right to payment with a profit.  For products being produced for the customer that have no alternative use to Woodward and Woodward has an enforceable right to payment with a profit, and where the products are substantially the same and have the same pattern of transfer to the customer, revenue is recognized as a series of distinct products.  As Woodward satisfies MRO performance obligations, revenue is recognized over time, as the customer, rather than Woodward, controls the asset being enhanced.  When services are provided, revenue from those services is recognized over time because control is transferred continuously to customers as Woodward performs the work.  As a practical expedient, revenue for services that are short-term in nature are recognized using an output method as the customer is invoiced, as the invoiced amount corresponds directly to Woodward’s performance to date on the arrangement. 

For services that are not short-term in nature, MRO, and sales of products that have no alternative use to Woodward and an enforceable right to payment with a profit, Woodward uses an actual cost input measure to determine the extent of progress towards completion of the performance obligation.  For these revenue streams, revenue is recognized over time as work is performed based on the relationship between actual costs incurred to-date for each contract and the total estimated costs for such contract at completion of the performance obligation (the cost-to-cost method).  Woodward has concluded that this measure of progress best depicts the transfer of assets to the customer, because incurred costs are integral to Woodward’s completion of the performance obligation under the specific customer contract and correlate directly to the transfer of control to the customer.  Contract costs include labor, material and overhead.  Contract cost estimates are based on various assumptions to project the outcome of future events.  These assumptions include labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; the performance of subcontractors; and the availability and timing of funding from the customer.  Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred.

As a significant change in one or more of these estimates could affect the profitability of its contracts, Woodward reviews and updates its estimates regularly upon receipt of new contracts with customers.  Due to uncertainties inherent in the estimation process, it is reasonably possible that completion costs will be revised.  Such revisions to costs and revenue are recognized in the period in which the revisions are determined as a cumulative catch-up adjustment.  The impact of the adjustment on profit recorded to date on a contract is recognized in the period the adjustment is identified.  Revenue and profit in future periods of contract performance are recognized using the adjusted estimate.  If at any time the estimate of contract profitability indicates an anticipated loss on the contract, Woodward recognizes provisions for estimated losses on uncompleted contracts in the period in which such losses are determined.  For the three-months ended December 31, 2018, adjustments to revenue related to changes in estimates were immaterial.

12

 


 

Occasionally Woodward sells maintenance or service arrangements, extended warranties, or other stand ready services.  Woodward recognizes revenue from such arrangements as a series of performance obligations over the time period in which the services are available to the customer.

Contract assets

Customer receivables include amounts billed and currently due from customers as well as unbilled amounts (contract assets) and are included in “Accounts receivable” in Woodward’s Condensed Consolidated Balance Sheets.  Amounts are billed in accordance with contractual terms, which are generally tied to shipment of the products to the customer, or as work progresses in accordance with contractual terms.  Billed accounts receivable are typically due within 60 days. 

Consistent with common business practice in China, Woodward’s Chinese subsidiaries accept bankers’ acceptance notes from Chinese customers in settlement of certain customer billed accounts receivable.  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.  Woodward has elected to adopt the practical expedient to not adjust the promised amounts of consideration for the effects of a significant financing component at contract inception as the financing component associated with accepting bankers’ acceptance notes has a duration of less than one year.  Woodward’s contracts with customers generally have no other financing components.

Unbilled amounts arise when the timing of billing differs from the timing of revenue recognized, such as when contract provisions require revenue to be recognized over time rather than at a point in time.  Unbilled amounts primarily relate to performance obligations satisfied over time when the cost-to-cost method is utilized and the revenue recognized exceeds the amount billed to the customer as there is not yet a right to payment in accordance with contractual terms.  Unbilled amounts are recorded as a contract asset when the revenue associated with the contract is recognized prior to billing and derecognized when billed in accordance with the terms of the contract.

Accounts receivable consisted of the following: 





 

 

 

 

 

 



 

December 31, 2018

 

September 30, 2018

Billed receivables

 

 

 

 

 

 

Trade accounts receivable

 

$

332,792 

 

$

403,590 

Other (Chinese financial institutions)

 

 

40,542 

 

 

23,191 

Less: Allowance for uncollectible amounts

 

 

(3,995)

 

 

(3,938)

Net billed receivables

 

 

369,339 

 

 

422,843 

Current unbilled receivables (contract assets), net

 

 

120,190 

 

 

9,160 

Total accounts receivable, net

 

$

489,529 

 

$

432,003 

As of the October 1, 2018 adoption of ASC 606, Woodward recognized unbilled receivables of $104,907.  The remaining change in unbilled receivables was primarily driven by revenue recognized in excess of billings in Woodward’s Aerospace segment.

In addition, as of December 31, 2018 “Other assets” at the Condensed Consolidated Balance Sheets includes $444 of unbilled receivables not expected to be invoiced and collected within a period of twelve months.  As of September 30, 2018, there were no unbilled receivables not expected to be invoiced and collected within a period of twelve months.  

Customer billed receivables are recorded at face amounts, less an allowance for doubtful accounts.  In establishing the amount of the allowance related to the credit risk of accounts receivable, customer-specific information is considered related to delinquent accounts, past loss experience, bankruptcy filings, deterioration in the customer’s operating results or financial position, and current economic conditions.  Bad debt 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.  In the three-months ended December 31, 2018, receivables written off were immaterial.  An allowance associated with anticipated other adjustments to the selling price or cash discounts is also established and is included in the allowance for uncollectible amounts.  Changes to this allowance are recorded as increases or decreases to net sales as adjustments to the transaction price related to variable consideration.  In establishing this amount, both customer-specific information and historical experience are considered.

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Unbilled receivables are stated net of adjustments for credit risk and the anticipated impacts of variable consideration on the transaction price, as applicable.

Billed and unbilled accounts receivable from the U.S. Government were less than 10% of total billed and unbilled accounts receivable at December 31, 2018.

Contract liabilities

Advance payments and billings in excess of revenue recognized represent contract liabilities and are recorded as deferred revenues when customers remit contractual cash payments in advance of Woodward satisfying performance obligations under contractual arrangements, including those with performance obligations satisfied over time.  Woodward generally receives advance payments from customers related to maintenance or service arrangements, extended warranties, or other stand ready services, which it recognizes over the performance period.  Contract liabilities are derecognized when revenue is recognized and the performance obligation is satisfied.  Advance payments and billings in excess of revenue recognized are included in deferred revenue, which is classified as current or noncurrent based on the timing of when Woodward expects to recognize revenue.  The current portion is included in “Accrued liabilities” and the noncurrent portion is included in “Other liabilities” at Woodward’s Condensed Consolidated Balance Sheets.

Contract liabilities consisted of the following: 





 

 

 

 

 

 

 

 

 

 

 

 



 

December 31, 2018

 

September 30, 2018



 

 

Current

 

 

Noncurrent

 

 

Current

 

 

Noncurrent

Deferred revenue from material rights from GE joint venture formation

 

$

6,988 

 

$

232,897 

 

$

7,087 

 

$

235,300 

Deferred revenue advance invoicing and/or prepayments from customers

 

 

2,866 

 

 

 -

 

 

2,572 

 

 

 -

Liability related to customer supplied inventory

 

 

17,283 

 

 

 -

 

 

 -

 

 

 -

Deferred revenue from material rights related to engineering and development funding

 

 

1,053 

 

 

86,333 

 

 

 -

 

 

 -

Net contract liabilities

 

$

28,190 

 

$

319,230 

 

$

9,659 

 

$

235,300 

As of the October 1, 2018 adoption of ASC 606, Woodward recognized current liabilities for the noncash consideration provided to Woodward in the form of customer supplied inventory of $13,141 and current and noncurrent liabilities for deferred revenue from material rights related to engineering and development funding of $664 and $79,347, respectively.  All other changes in contract liability balances were due to normal operating activities.

Woodward recognized revenue of $9,760 in the three-months ended December 31, 2018 from contract liabilities balances recorded as of October 1, 2018.

Remaining performance obligations

Remaining performance obligations related to the aggregate amount of the total contract transaction price of firm orders for which the performance obligation has not yet been recognized in revenue as of December 31, 2018 was $1,630,741, the majority of which relate to Woodward’s Aerospace segment.  Woodward expects to recognize almost all of these remaining performance obligations within two years after December 31, 2018

Remaining performance obligations related to material rights that have not yet been recognized in revenue as of December 31, 2018 was $410,355, of which $6,585 is expected to be recognized in the remainder of fiscal year 2019, $9,800 is expected to be recognized in 2020, and the balance is expected to be recognized thereafter.  Woodward expects to recognize revenue from performance obligations related to material rights over the life of the underlying programs, which may be as long as forty years

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Financial statement impact of the adoption of ASC 606

The following schedule quantifies the impact of adopting ASC 606 on the Condensed Consolidated Balance Sheet as of October 1, 2018.  The effect of the new standard represents the increase (decrease) in the line item based on the adoption of ASC 606:





 

 

 

 

 

 

 

 

 



 

September 30, 2018
as reported

 

Effect of
ASC 606

 

October 1, 2018
as adjusted

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

83,594 

 

$

 -

 

$

83,594 

Accounts receivable, net (1)(2)

 

 

432,003 

 

 

104,907 

 

 

536,910 

Inventories (1)(2)

 

 

549,596 

 

 

(55,002)

 

 

494,594 

Income taxes receivable (5)

 

 

6,397 

 

 

(959)

 

 

5,438 

Other current assets

 

 

43,207 

 

 

(154)

 

 

43,053 

Total current assets

 

 

1,114,797 

 

 

48,792 

 

 

1,163,589 

Property, plant and equipment, net

 

 

1,060,005 

 

 

 -

 

 

1,060,005 

Goodwill

 

 

813,250 

 

 

 -

 

 

813,250 

Intangible assets, net (4)

 

 

700,883 

 

 

(2,519)

 

 

698,364 

Deferred income tax assets (5)

 

 

16,570 

 

 

(975)

 

 

15,595 

Other assets (1)(2)(3)

 

 

85,144 

 

 

85,865 

 

 

171,009 

Total assets

 

$

3,790,649 

 

$

131,163 

 

$

3,921,812 



 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

153,635 

 

$

 -

 

$

153,635 

Accounts payable

 

 

226,285 

 

 

 -