Revenue (Tables)

3 Months Ended

Dec. 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

Schedule of Contract Asset and Liability


	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


	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

Schedule of Impact of the Adoption ASC 606 on Financial Statement

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		-		226,285
Income taxes payable (5)		16,745		4,141		20,886
Accrued liabilities (2)(3)		194,513		15,672		210,185
Total current liabilities		591,178		19,813		610,991
Long-term debt, less current portion		1,092,397		-		1,092,397
Deferred income tax liabilities (5)		170,915		3,833		174,748
Other liabilities (3)		398,055		78,631		476,686
Total liabilities		2,252,545		102,277		2,354,822
Stockholders’ equity:
Preferred stock		-		-		-
Common stock		106		-		106
Additional paid-in capital		185,705		-		185,705
Accumulated other comprehensive losses		(74,942)		(41)		(74,983)
Deferred compensation		8,431		-		8,431
Retained earnings		1,966,643		28,927		1,995,570
		2,085,943		28,886		2,114,829
Treasury stock at cost		(539,408)		-		(539,408)
Treasury stock held for deferred compensation		(8,431)		-		(8,431)
Total stockholders’ equity		1,538,104		28,886		1,566,990
Total liabilities and stockholders’ equity	$	3,790,649	$	131,163	$	3,921,812

(1)

The adoption of ASC 606 changed the revenue recognition practices for a number of revenue generating activities across Woodward’s businesses, although the most significant impacts are concentrated in product being produced for customers that have no alternative use to Woodward and Woodward has an enforceable right to payment with a profit, and MRO. The revenue related to these activities, which previously was accounted for on a point in time basis, is now required to use an over time model because the associated contracts meet one or more of the mandatory criteria established in ASC 606, as described above, and are included as current unbilled receivables in “Accounts receivable” and noncurrent unbilled receivables in “Other assets.” The change in the timing of revenue recognized in connection with over time contracts similarly changed the timing of manufacturing cost recognition and certain engineering and development costs, which are reflected as a reduction to inventory.

(2)

The value of noncash consideration in the form of exchanged products and other customer provided inventory is reflected in unbilled receivables included in “Accounts receivable,” “Other assets,” and “Inventories,” and in contract liabilities, which are included in “Accrued liabilities.”

(3)

Woodward recorded customer funding of product engineering and development identified as material rights as current and noncurrent deferred revenue contract liabilities included in “Accrued liabilities” and “Other liabilities.” The related customer funded product engineering and development costs were capitalized as costs to fulfill a contract, to the extent of the contractually committed customer funded payments, and are recorded as “Other assets.”

(4)

The net book value of the backlog and customer relationships and contracts intangible assets was adjusted concurrent with the change in the timing of the associated revenue, resulting in a reduction in the net book value of these assets as of the date of adoption.

(5)

The value of tax assets and tax liabilities was impacted by the change in timing of the recognition of assets and liabilities within tax jurisdictions.

The following schedule quantifies the impact of adopting ASC 606 on the Condensed Consolidated Statement of Earnings for the three-months ended December 31, 2018. The effect of the new standard represents the increase (decrease) in the line item based on the adoption of ASC 606.


	Three-Months Ended December 31, 2018, under previous standard		Effect of ASC 606		Three-Months Ended December 31, 2018, as reported
Net sales	$	632,641	$	20,170	$	652,811
Costs and expenses:
Cost of goods sold		468,690		23,484		492,174
Selling, general, and administrative expenses		52,026		(99)		51,927
Research and development costs		38,714		153		38,867
Interest expense		11,878		-		11,878
Interest income		(371)		-		(371)
Other expense (income), net		(3,179)		-		(3,179)
Total costs and expenses		567,758		23,538		591,296
Earnings before income taxes		64,883		(3,368)		61,515
Income tax expense		13,083		(688)		12,395
Net earnings	$	51,800	$	(2,680)	$	49,120

Earnings per share
Basic earnings per share	$	0.84	$	(0.04)	$	0.79
Diluted earnings per share	$	0.81	$	(0.04)	$	0.77

Weighted Average Common Shares Outstanding (Note 4):
Basic		61,818				61,818
Diluted		64,059				64,059

The adoption of ASC 606 resulted in an increase to net sales and cost of goods sold primarily due to the recognition of noncash consideration in the form of customer supplied inventory and the accelerated recognition of revenue and associated cost of goods sold for over time contracts, which would have been recognized at a point in time under the previous standard. The increases were offset by decreases in revenue and cost of goods sold related to the deferral of amounts due from customers recognized as material rights and over time contracts recognized as of the date of adoption, both of which would otherwise have been recognized as revenue during the period under the previous standard.

The following schedule quantifies the impact of adopting ASC 606 on the Condensed Consolidated Balance Sheet as of December 31, 2018. The effect of the new standard represents the increase (decrease) in the line item based on the adoption of ASC 606.


	December 31, 2018, under previous standard		Effect of ASC 606		December 31, 2018, as reported
ASSETS
Current assets:
Cash and cash equivalents	$	71,634	$	-	$	71,634
Accounts receivable, net		374,493		115,036		489,529
Inventories		589,207		(64,707)		524,500
Income taxes receivable		4,677		(908)		3,769
Other current assets		37,181		(177)		37,004
Total current assets		1,077,192		49,244		1,126,436
Property, plant and equipment, net		1,060,556		-		1,060,556
Goodwill		809,480		-		809,480
Intangible assets, net		675,653		(2,367)		673,286
Deferred income tax assets		16,161		(989)		15,172
Other assets		82,806		92,800		175,606
Total assets	$	3,721,848	$	138,688	$	3,860,536

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings	$	160,000	$	-	$	160,000
Accounts payable		224,890		-		224,890
Income taxes payable		16,393		3,506		19,899
Accrued liabilities		151,471		19,666		171,137
Total current liabilities		552,754		23,172		575,926
Long-term debt, less current portion		1,024,872		-		1,024,872
Deferred income tax liabilities		164,706		3,703		168,409
Other liabilities		374,841		85,621		460,462
Total liabilities		2,117,173		112,496		2,229,669
Stockholders' equity:
Preferred stock		-		-		-
Common stock		106		-		106
Additional paid-in capital		195,894		-		195,894
Accumulated other comprehensive losses		(64,593)		(55)		(64,648)
Deferred compensation		9,015		-		9,015
Retained earnings		2,008,630		26,247		2,034,877
		2,149,052		26,192		2,175,244
Treasury stock at cost		(535,362)		-		(535,362)
Treasury stock held for deferred compensation		(9,015)		-		(9,015)
Total stockholders' equity		1,604,675		26,192		1,630,867
Total liabilities and stockholders' equity	$	3,721,848	$	138,688	$	3,860,536

Schedule of Disaggregation of Revenue

Revenue by primary market for the Aerospace reportable segment was as follows:


	Three-Months Ended December 31, 2018

Commercial OEM	$	140,508
Commercial aftermarket		111,348
Defense OEM		101,836
Defense aftermarket		39,195
Total Aerospace segment net sales	$	392,887

Revenue by primary market for the Industrial reportable segment was as follows:


	Three-Months Ended December 31, 2018

Reciprocating engines	$	196,130
Industrial turbines		49,512
Renewables		14,282
Total Industrial segment net sales	$	259,924

The customers who account for approximately 10% or more of net sales to each of Woodward’s reportable segments for the three-months ended December 31, 2018 follow:


	Customer
Aerospace	The Boeing Company, General Electric Company, United Technologies Corporation
Industrial	Rolls-Royce PLC, Weichai Westport, General Electric Company

Net sales by geographic area, as determined based on the location of the customer, were as follows:



	Three-Months Ended December 31, 2018
	Aerospace		Industrial		Consolidated
United States	$	286,745	$	49,892	$	336,637
Germany		12,749		63,364		76,113
Europe, excluding Germany		39,612		59,348		98,960
Asia		24,006		79,418		103,424
Other countries		29,775		7,902		37,677
Total net sales	$	392,887	$	259,924	$	652,811