Note 12. Credit facilities, short-term borrowings and long-term debt

As of September 30, 2015, Woodward’s short-term borrowings and availability under its various short-term credit facilities follows:



	Total availability		Outstanding letters of credit and guarantees		Outstanding borrowings		Remaining availability
Revolving credit facility	$	1,000,000	$	(8,277)	$	(350,000)	$	641,723
Foreign lines of credit and overdraft facilities		40,189		-		(2,430)		37,759
Foreign performance guarantee facilities		8,619		(343)		-		8,276
	$	1,048,808	$	(8,620)	$	(352,430)	$	687,758

Revolving credit facility

Woodward maintains a 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”). On April 28, 2015, Woodward amended the Revolving Credit Agreement to increase its borrowing capacity from $600,000 to $1,000,000 (the “Amended Revolving Credit Agreement”). The terms and conditions of the Amended Revolving Credit Agreement are similar to the prior credit agreement. The Amended Revolving Credit Agreement matures in April 2020. The Amended Revolving Credit Agreement provides for the option to increase available borrowings to up to $1,200,000, subject to lenders’ participation. Borrowings under the Amended Revolving Credit Agreement generally bear interest at LIBOR plus 0.85% to 1.65%. Under the Amended Revolving Credit Agreement, there were $350,000 in principal amount of borrowings outstanding as of September 30, 2015, at an effective interest rate of 1.44%. Under the prior Revolving Credit Agreement, there were $210,000 in principal amount of borrowings outstanding as of September 30, 2014, at an effective interest rate of 1.21%. As of September 30, 2015 and September 30, 2014, the entire outstanding balance on both the Amended Revolving Credit Agreement and the prior Revolving Credit Agreement was classified as long-term debt.

The Amended 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 Amended 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 of 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 following two succeeding fiscal quarters, and (ii) a minimum consolidated net worth of $800,000 plus (a) 50% of Woodward’s positive net income for the prior fiscal year and (b) 50% of Woodward’s net cash proceeds resulting from certain issuances of stock, subject to certain adjustments.

Woodward’s obligations under the Amended 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 uncommitted 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 15% 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 local credit facility expires in September 2016. The Chinese subsidiary had no outstanding cash borrowings against the local credit facility at September 30, 2015 and September 30, 2014.

In fiscal year 2015, a Brazilian subsidiary of Woodward arranged a local uncommitted credit facility with the Banco J.P. Morgan S.A. under which it has the ability to borrow up to 52,000 Brazilian Real. Any cash borrowings under the local Brazilian credit facility will be secured by a parent guarantee from Woodward. The Brazilian subsidiary may utilize the local facility to support its operating cash needs. Local currency borrowings on the Brazilian credit facility are charged interest at the lender’s cost of borrowing rate at the date of borrowing, plus 1.75%. The local credit facility expires in January 2016. The Brazilian subsidiary had $2,430 outstanding cash borrowings against the local credit facility at September 30, 2015.

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, 2015 and September 30, 2014 on Woodward’s other foreign lines of credit and foreign overdraft facilities.

Long-term debt



	September 30,		September 30,
	2015		2014
Revolving credit facility - Floating rate (LIBOR plus 0.85% - 1.65%), due April 2020, unsecured		350,000		210,000
Series C notes – 5.92%, due October 2015; unsecured		50,000		50,000
Series D notes – 6.39%, due October 2018; unsecured		100,000		100,000
Series E notes – 7.81%, due April 2016; unsecured		57,000		57,000
Series F notes – 8.24%, due April 2019; unsecured		43,000		43,000
Series G notes – 3.42%, due November 2020; unsecured		50,000		50,000
Series H notes – 4.03%, due November 2023; unsecured		25,000		25,000
Series I notes – 4.18%, due November 2025; unsecured		25,000		25,000
Series J notes – Floating rate (LIBOR plus 1.25%), due November 2020; unsecured		50,000		50,000
Series K notes – 4.03%, due November 2023; unsecured		50,000		50,000
Series L notes – 4.18%, due November 2025; unsecured		50,000		50,000
Total long-term debt	$	850,000	$	710,000

The Notes

In October 2008, Woodward entered into a note purchase agreement (the “2008 Note Purchase Agreement”) relating to the Series B, C, and D Notes (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. 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.

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, 2015, the Series J Notes bore interest at an effective rate of 1.58%.

Principal payment of the Series C Notes is due on October 1, 2015 and on the Series E notes on April 1, 2016. These payments are classified as long-term based on Woodward’s intent and ability to refinance this debt for a longer term through payment of the principal amount with its existing revolving line of credit, which does not mature until July 2020.

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.

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, 2015 are as follows:



Year Ending September 30:
2016	$	107,000
2017		-
2018		-
2019		143,000
2020		-
Thereafter		250,000
	$	500,000

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, 2015.

Debt Issuance Costs

In connection with the Amended Revolving Credit Agreement, in fiscal year 2015, Woodward incurred $2,359 in financial costs, which are deferred and are being amortized using the straight-line method over the life of the agreement. As of April 28, 2015, Woodward also had $2,014 remaining of deferred financing costs incurred in connection with the Revolving Credit Agreement, which have been combined with the financing costs associated with the Amended Revolving Credit Agreement and are being amortized using the straight-line method over the lift of the Amended Revolving Credit Agreement.

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.

Amounts recognized as interest expense from the amortization of debt issuance costs were $1,114 in fiscal year 2015, $1,014 in fiscal year 2014, and $1,045 in fiscal year 2013. Woodward had $5,521 of unamortized debt issuance costs as of September 30, 2015 and $4,276 of unamortized debt issuance costs as of September 30, 2014. Amortization of debt issuance costs is included in operating activities in the Consolidated Statements of Cash Flows.