Note 2. Recent accounting pronouncements

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 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. 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 has not determined in which period it will adopt the new guidance but 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 March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” to simplify financial reporting of the income tax impacts of share-based compensation arrangements. As early adoption is allowed, Woodward adopted ASU 2016-09 during the second quarter of fiscal year 2016. Under ASU 2016-09 Woodward classifies the excess income tax benefits from stock-based compensation arrangements as a discrete item within income tax expense, rather than recognizing such excess income tax benefits in additional paid-in capital. As required by ASU 2016-09, Woodward applied this classification guidance effective as of October 1, 2015.

Under ASU 2016-09, excess income tax benefits from stock-based compensation arrangements are classified as cash flow from operations, rather than as cash flow from financing activities. In addition, when Woodward withholds shares from an employee’s exercise of stock options to fund payment by Woodward of the employee’s taxes, the payment is classified as a financing activity. Woodward has elected to apply the cash flow classification guidance of ASU 2016-09 retrospectively to any prior periods presented.

Woodward has elected to continue to estimate the number of stock-based awards expected to vest, as permitted by ASU 2016-09, rather than electing to account for forfeitures as they occur.

The following table shows the impact of retrospectively applying this guidance to the Condensed Consolidated Statement of Earnings and Condensed Consolidated Statement of Cash Flows for the three-months ended December 31, 2015.



	Three-Months Ended December 31, 2015
	As previously reported		Adjustment		As recast
Statement of Earnings:
Earnings before income taxes	$	27,956	$	-	$	27,956
Income tax expense		2,345		(209)		2,136
Net earnings	$	25,611	$	209	$	25,820

Earnings per share:
Basic earnings per share	$	0.41	$	-	$	0.41
Diluted earnings per share	$	0.40	$	-	$	0.40

Weighted average common shares outstanding:
Basic		63,054		-		63,054
Diluted		64,373		79		64,452

Statement of Cash Flows:
Net cash provided by operating activities	$	37,112	$	248	$	37,360
Net cash used in investing activities		(31,279)		-		(31,279)
Net cash used in financing activities		(1,131)		(248)		(1,379)
Effect of exchange rate changes on cash and cash equivalents		(2,482)		-		(2,482)
Net change in cash and cash equivalents	$	2,220	$	-	$	2,220

The following table shows the impact of retrospectively applying this guidance to the Condensed Consolidated Statement of Cash Flows for the nine-months ended June 30, 2015.



	Nine-Months Ended June 30, 2015
	As previously reported		Adjustment		As recast
Statement of Cash Flows:
Net cash provided by operating activities	$	167,320	$	4,170	$	171,490
Net cash used in investing activities		(188,379)		-		(188,379)
Net cash provided by (used in) financing activities		2,704		(4,170)		(1,466)
Effect of exchange rate changes on cash and cash equivalents		(9,548)		-		(9,548)
Net change in cash and cash equivalents	$	(27,903)	$	-	$	(27,903)

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. 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. In transition, Woodward will be required to recognize and measure leases beginning in the earliest period presented using a modified retrospective approach; therefore, Woodward anticipates restating its Consolidated Financial Statements for the two fiscal years prior to the year of adoption. Early adoption is permitted. Woodward has not determined in which period it will adopt the new guidance and is currently assessing the impact this guidance may have on its Consolidated Financial Statements, including which of its existing operating leases will be impacted by the new guidance. Rent expense for all operating leases in fiscal year 2015, none of which was recognized on the balance sheet, was $7,299. As of September 30, 2015, future minimum rental payments required under operating leases, none of which were recognized on the balance sheet, were $19,546.

In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes,” to simplify financial reporting and more closely conform U.S. GAAP with International Financial Reporting Standards (“IFRS”). Under ASU 2015-17, Woodward will classify all deferred tax assets and liabilities by taxing jurisdiction, along with any related valuation allowances, as either a single non-current asset or liability on the balance sheet. ASU 2015-17 is effective for fiscal years − and interim periods within those fiscal years − beginning after December 15, 2016 (fiscal year 2018 for Woodward). As early adoption is allowed, Woodward adopted ASU 2015-17 during its second quarter of fiscal year 2016, and retrospectively applied the guidance to its deferred tax assets and liabilities as of September 30, 2015. The following table shows the impact of retrospectively applying this guidance to the Condensed Consolidated Balance Sheet deferred tax assets and liabilities as of September 30, 2015.



	September 30, 2015
	As previously reported		Adjustment		As recast
Current deferred income tax assets	$	29,766	$	(29,766)	$	-
Total current assets		947,476		(29,766)		917,710
Noncurrent deferred income tax assets		9,388		3,717		13,105
Total assets		2,539,965		(26,049)		2,513,916

Current deferred income tax liabilities		14		(14)		-
Total current liabilities		338,222		(14)		338,208
Noncurrent deferred income tax liabilities		82,449		(26,035)		56,414
Total liabilities		1,386,861		(26,049)		1,360,812
Total liabilities and stockholders' equity		2,539,965		(26,049)		2,513,916

Net deferred tax liabilities		43,309		-		43,309

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” Under ASU 2015-03, Woodward will present debt issuance costs in the balance sheet as a reduction from the related debt liability rather than as an asset. Amortization of such costs will continue to be reported as interest expense. ASU 2015-03 is effective for fiscal years − and interim periods within those fiscal years − beginning after December 15, 2015 (fiscal year 2017 for Woodward). Early adoption is allowed. In August 2015, the FASB issued ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements.” ASU 2015-15 supplements the requirements of ASU 2015-03 by allowing an entity to defer and present debt issuance costs related to a line of credit arrangement as an asset and subsequently amortize the deferred costs ratably over the term of the line of credit arrangement. Woodward has not determined in which period it will adopt the new guidance. Retrospective adoption is required. Woodward had unamortized debt issuance costs of $4,638 as of June 30, 2016 and $5,521 as of September 30, 2015. Long-term debt issuance costs will be reclassified from other assets to long-term debt upon adoption.

In April 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis” in response to stakeholders’ concerns about current accounting for consolidation of certain legal entities and changes the analysis that a reporting entity must perform to determine whether it should consolidate such legal entities. ASU 2015-02 is effective for public business entities for fiscal years − and interim periods within those fiscal years − beginning after December 15, 2015, but early adoption is allowed. Woodward adopted ASU 2015-02 on January 1, 2016, concurrent with the consummation of the joint venture formation described in Note 4, “Joint ventures.” The adoption of ASU 2015-02 had no impact on Woodward’s conclusion that the joint venture described in Note 4 should not be consolidated following the guidance of ASC 810, Consolidation.

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. Adoption of ASC 606 is required for annual reporting periods beginning after December 15, 2017 (fiscal year 2019 for Woodward), including interim periods within the reporting period. Woodward may elect to adopt ASC 606 in fiscal year 2018, but does not expect to do so. Upon adoption, Woodward must elect to adopt either retrospectively to each prior reporting period presented or using the cumulative effect transition method with the cumulative effect of initial adoption recognized at the date of initial application. Woodward has not determined what transition method it will use. Woodward is currently assessing the impact that the future adoption of ASC 606 may have on its Condensed Consolidated Financial Statements by analyzing its current portfolio of customer contracts, including a review of historical accounting policies and practices to identify potential differences in applying the guidance of ASC 606.