Business Acquisitions

12 Months Ended

Sep. 30, 2014

Business Combinations

Business Acquisitions

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	$	198,900
Less cash acquired		(40)
Total purchase price	$	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.

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	$	14,245
Inventories		30,149
Other current assets		10,370
Property, plant, and equipment		11,804
Goodwill		98,310
Intangible assets		89,700
Other noncurrent assets		18,097
Total assets acquired		272,675
Other current liabilities		32,509
Other noncurrent liabilities		41,306
Total liabilities assumed		73,815
Net assets acquired	$	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	$	77,000	20	years	Straight-line
Process technology		5,000	25	years	Straight-line
Backlog		7,700	3	years	Accelerated
Total	$	89,700

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 $18,097of 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.

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:

	Year Ended September 30,
	2014				2013				2012
	As reported		Pro forma		As reported		Pro forma		As reported		Pro forma
Net sales	$	2,001,240	$	2,001,240	$	1,935,976	$	1,966,376	$	1,865,627	$	1,978,169
Net earnings		165,844		167,047		145,942		152,431		141,589		131,384
Earnings per share:
Basic earnings per share	$	2.50	$	2.51	$	2.13	$	2.23	$	2.06	$	1.91
Diluted earnings per share		2.45		2.46		2.10		2.19		2.01		1.87