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Retirement Benefits | 12 Months Ended
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Sep. 30, 2016
Retirement Benefits - General |
Retirement Benefits | Note 1 7. Retirement benefits Woodward provides various retirement benefits to eligible members of the Company, including contributions to various defined contribution plans, pension benefits associated with defined benefit plans, postretirement medical benefits and postretirement life insurance benefits. Eligibility requirements and benefit levels vary depending on employee location. Defined contribution plans Most of the Company’s U.S. employees are eligible to participate in the U.S. defined contribution plan. The U.S. defined contribution plan allows employees to defer part of their annual income for income tax purposes into their personal 401(k) accounts. The Company makes matching contributions to eligible employee accounts, which are also deferred for employee personal income tax purposes. Certain foreign employees are also eligible to participate in foreign plans. Most of Woodward’s U.S. employees with at least two years of service receive an annual contribution of Woodward stock, equal to 5% of their eligible prior year wages, to their personal Woodward Retirement Savings Plan accounts. In the second quarter of fiscal years 2016, 2015 and 201 4, Woodward fulfilled its annual Woodward stock contribution obligation using shares held in treasury stock by issuing 317 shares of common stock for a total value of $13,999 in fiscal year 2016, 259 shares of common stock for a total value of $12,574 in fiscal year 2015, and 260 shares of common stock for a total value of $11,193 in fiscal year 2014. The Woodward Retirement Savings Plan (the “WRS Plan”) held 4,48 8 shares of Woodward stock as of September 30, 2016 and 4,887 shares as of September 30, 2015. The shares held in the WRS Plan participate in dividends and are considered issued and outstanding for purposes of calculating basic and diluted earnings per share. Accrued liabilities included obligations to contribute shares of Woodward common stock to the WRS Plan of $11,314 as of September 30, 2016 and $11,342 as of September 30, 2015. The amount of expense associated with defined contribution plans was as follows: ﻿ ﻿
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﻿ |  |  |  |  |  |  |  |  |
﻿ |  |  | Year Ended September 30,
﻿ |  | 2016 |  | 2015 |  | 2014
﻿Company costs |  | $ | 31,893 |  | $ | 30,933 |  | $ | 24,921
﻿ Defined benefit plans Woodward has defined benefit plans that provide pension benefits for certain retired employees in the United States, the United Kingdom, and Japan. Woodward also provides other postretirement benefits to its employees including postretirement medical benefits and life insurance benefits. Postretirement medical benefits are provided to certain current and retired employees and their covered dependents and beneficiaries in the United States and the United Kingdom. Life insurance benefits are provided to certain retirees in the United States under frozen plans, which are no longer available to current employees. A September 30 measurement date is utilized to value plan assets and obligations for all of Woodward’s defined benefit pension and other postretirement benefit plans. During the third quarter of fiscal year 2016, Woodward opened a lump-sum buy-out window for certain former U.S. employees and/or their dependents eligible to receive postretirement defined benefit pension payments for past employment services to the Company. Eligible pension plan participants may elect to receive a one-time lump-sum payment or an immediate annuity in lieu of future pension benefit payments. Pension benefit payments under the lump-sum buy-out options were $5,008 during the fourth quarter of fiscal year 2016. Woodward estimates that pension benefit payments under the lump-sum buy-out options may be up to approximately $700 during fiscal year 2017. Such lump-sum payments will be paid from available pension plan assets. Effective June 30, 2015, the Company terminated the defined benefit pension plan for employees at its Duarte, California manufacturing facility (the “Duarte Pension Plan”). The plan, which was established in fiscal year 2013 in connection with the December 2012 acquisition of the Duarte business, was amended in fiscal year 2013 to cease all future benefit accruals under the plan and was at that time closed to new entrants. R egulatory approval of the plan termination was received in the fourth quarter of fiscal year 2016. In exchange for the freeze and termination of the plan, which were agreed upon through negotiations with the applicable employee union, the employees were provided replacement benefits through full participation in the Woodward U.S. defined contribu tion plan. Woodward recorded settlement costs of $47 in fiscal year 2016 in connection with cash payouts to the beneficiaries of the plan and associated termination costs. As of September 30, 2016 Woodward had no liability associated with the Duarte Pension Plan. In addition to the Duarte Pension Plan, excluding the Woodward HRT Plan, the defined benefit plans in the United States were frozen in fiscal year 2007 and no additional employees may participate in the U.S. plans and no additional service costs will be incurred. Pension plans The actuarial assumptions used in measuring the net periodic benefit cost and plan obligations of retirement pension benefits were as follows: ﻿ ﻿
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﻿ |  |  |  |  |  |  |  |
﻿ | 2016 |  | 2015 |  | 2014
﻿United States: |  |  |  |  |  |  |  |
﻿Weighted-average assumptions to determine benefit obligation at September 30: |  |  |  |  |  |  |  |
﻿Discount rate | 3.65 | % |  | 4.39 | % |  | 4.40 | %
﻿Rate of compensation increase | n/a |  |  | n/a |  |  | 3.50 |
﻿Weighted-average assumptions to determine periodic benefit costs for years ended September 30: |  |  |  |  |  |  |  |
﻿Discount rate | 4.39 |  |  | 4.40 |  |  | 5.15 |
﻿Rate of compensation increase | n/a |  |  | n/a |  |  | 3.50 |
﻿Long-term rate of return on plan assets | 7.62 |  |  | 7.62 |  |  | 7.62 |
﻿ The discount rate assumption is intended to reflect the rate at which the retirement benefits could be effectively settled based upon the assumed timing of the benefit payments. In the United States, Woodward uses a bond portfolio matching analysis based on recently traded, non-callable bonds rated AA or better that have at least $50 million outstanding t o determine the benefit obligations at year end. ﻿
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﻿ |  |  |  |  |  |  |  |
﻿ | 2016 |  | 2015 |  | 2014
﻿United Kingdom: |  |  |  |  |  |  |  |
﻿Weighted-average assumptions to determine benefit obligation at September 30: |  |  |  |  |  |  |  |
﻿Discount rate | 2.28 | % |  | 3.75 | % |  | 4.10 | %
﻿Rate of compensation increase | 3.40 |  |  | 3.40 |  |  | 3.50 |
﻿Weighted-average assumptions to determine periodic benefit costs for years ended September 30: |  |  |  |  |  |  |  |
﻿Discount rate - service cost | 3.86 |  |  | 4.10 |  |  | 4.50 |
﻿Discount rate - interest cost | 3.63 |  |  | 4.10 |  |  | 4.50 |
﻿Rate of compensation increase | 3.40 |  |  | 3.50 |  |  | 3.50 |
﻿Long-term rate of return on plan assets | 5.00 |  |  | 5.50 |  |  | 5.50 |
﻿ ﻿
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﻿ |  |  |  |  |  |  |  |
﻿ | 2016 |  | 2015 |  | 2014
﻿Japan: |  |  |  |  |  |  |  |
﻿Weighted-average assumptions to determine benefit obligation at September 30: |  |  |  |  |  |  |  |
﻿Discount rate | 0.46 | % |  | 0.97 | % |  | 1.10 | %
﻿Rate of compensation increase | 2.02 |  |  | 2.00 |  |  | 2.00 |
﻿Weighted-average assumptions to determine periodic benefit costs for years ended September 30: |  |  |  |  |  |  |  |
﻿Discount rate - service cost | 1.27 |  |  | 1.10 |  |  | 1.25 |
﻿Discount rate - interest cost | 0.59 |  |  | 1.10 |  |  | 1.25 |
﻿Rate of compensation increase | 2.00 |  |  | 2.00 |  |  | 2.00 |
﻿Long-term rate of return on plan assets | 3.00 |  |  | 3.00 |  |  | 3.00 |
﻿ In the United Kingdom and Japan, Woodward uses a high-quality corporate bond yield curve matched with separate cash flows to develop a single rate to determine the single rate equivalent to settle the entire benefit obligations in each jurisdiction. For the fiscal year ended September 30, 2016, t he discount rate used to determine periodic service cost and interest cost components of the overall benefit costs was based on spot rates derived from the same high-quality corporate bond yield curve used to determine th e September 30, 2015 benefit obligation matched with separate cash flows for each future year. Prior to this change in method, the discount rate used to determine the periodic benefit costs for the years ending September 30, 2015 and 2014 was based on a single rate equivalent. ﻿ ﻿
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﻿ |  |  |  |  |  |  |  |
﻿ | 2016 |  | 2015 |  | 2014
﻿Switzerland: |  |  |  |  |  |  |  |
﻿Weighted-average assumptions to determine benefit obligation at September 30: |  |  |  |  |  |  |  |
﻿Discount rate | n/a |  |  | n/a |  |  | n/a |
﻿Rate of compensation increase | n/a |  |  | n/a |  |  | n/a |
﻿Weighted-average assumptions to determine periodic benefit costs for years ended September 30: |  |  |  |  |  |  |  |
﻿Discount rate | n/a |  |  | n/a |  |  | 2.25 | %
﻿Rate of compensation increase | n/a |  |  | n/a |  |  | 2.00 |
﻿Long-term rate of return on plan assets | n/a |  |  | n/a |  |  | 2.25 |
In Switzerland, Woodward used high quality swap rates plus a credit spread of 0.20% in fiscal year 2013 as high quality swaps are available in Switzerland at various durations and trade at higher volumes than bonds. Woodward’s assumed rate in Switzerland did not differ significantly from this benchmark. As of September 30, 2014 Woodward no longer sponsors a defined benefit plan is Switzerland. Compensation increase assumptions, where applicable, are based upon historical experience and anticipated future management actions. In determining the long-term rate of return on plan assets, Woodward assumes that the historical long-term compound growth rates of equity and fixed-income securities will predict the future returns of similar investments in the plan portfolio. Investment management and other fees paid out of the plan assets are factored into the determination of asset return assumptions. Mortality assumptions are based on published mortality studies developed primarily based on past experience of the broad population and modified for projected longevity trends. The projected benefit obligations in the United States as of September 30, 2016 and September 30, 2015 w ere based on the Society of Actuaries (“SOA”) RP-2014 Mortality Tables Report projected back to 200 6 using the SOA’s Mortality Improvement Scale MP-2014 (“MP-2014”) and projected forward using a custom projection scale based on MP-2014 with a 10-year convergence period and a long-term rate of 0.75%. As of September 30, 201 6 and September 30, 201 5, mortality assumptions in Japan were based on the Standard rates 2014, and mortality assumptions for the United Kingdom pension scheme were based on the Self-administered pension scheme (“SAPS”) S2 “all” tables with a projected 1.5% annual improvement rate. Net periodic benefit costs consist of the following components reflected as expense in Woodward’s Consolidated Statements of Earnings: ﻿
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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Year Ended September 30,
﻿ |  | United States |  | Other Countries |  | Total
﻿ |  | 2016 |  | 2015 |  | 2014 |  | 2016 |  | 2015 |  | 2014 |  | 2016 |  | 2015 |  | 2014
﻿Service cost |  | $ | 1,695 |  | $ | 2,018 |  | $ | 3,516 |  | $ | 749 |  | $ | 784 |  | $ | 988 |  | $ | 2,444 |  | $ | 2,802 |  | $ | 4,504
﻿Interest cost |  |  | 5,236 |  |  | 5,956 |  |  | 6,382 |  |  | 1,637 |  |  | 2,128 |  |  | 2,410 |  |  | 6,873 |  |  | 8,084 |  |  | 8,792
﻿Expected return on plan assets |  |  | (10,140) |  |  | (10,647) |  |  | (9,813) |  |  | (2,659) |  |  | (3,032) |  |  | (3,070) |  |  | (12,799) |  |  | (13,679) |  |  | (12,883)
﻿Amortization of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Net losses |  |  | 1,292 |  |  | 396 |  |  | 330 |  |  | 246 |  |  | 190 |  |  | 655 |  |  | 1,538 |  |  | 586 |  |  | 985
﻿Net prior service (benefit) cost |  |  | 384 |  |  | 383 |  |  | 97 |  |  | - |  |  | - |  |  | (4) |  |  | 384 |  |  | 383 |  |  | 93
﻿Settlement loss |  |  | 47 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 47 |  |  | - |  |  | -
﻿Curtailment gain |  |  | - |  |  | - |  |  | (6,624) |  |  | - |  |  | - |  |  | (915) |  |  | - |  |  | - |  |  | (7,539)
﻿Net periodic (benefit) cost |  | $ | (1,486) |  | $ | (1,894) |  | $ | (6,112) |  | $ | (27) |  | $ | 70 |  | $ | 64 |  | $ | (1,513) |  | $ | (1,824) |  | $ | (6,048)
﻿ The settlement loss in “United States” in the year ended September 30, 201 6 pertained to cash payouts to the beneficiaries of the Duarte Pension Plan and associated termination costs. The curtailment gain in “United States” in the year ended September 30, 2014 pertained to amendments made to one of Woodward’s plans that resulted in a freeze to the benefits of certain U.S. employees in California. The curtailment gain in “Other Countries” in the year ended September 30, 2014 pertained to workforce reductions related to the closure of Woodward’s Swiss facility in connection with the realignment of the renewable power business that occurred in the third quarter of fiscal year 2013. The following tables provide a reconciliation of the changes in the projected benefit obligation and fair value of assets for the defined benefit pension plans: ﻿
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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | At or for the Year Ended September 30,
﻿ |  | United States |  | Other Countries |  | Total
﻿ |  | 2016 |  | 2015 |  | 2016 |  | 2015 |  | 2016 |  | 2015
﻿Changes in projected benefit obligation: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Projected benefit obligation at beginning of year |  | $ | 145,870 |  | $ | 137,740 |  | $ | 62,231 |  | $ | 63,535 |  | $ | 208,101 |  | $ | 201,275
﻿Service cost |  |  | 1,695 |  |  | 2,018 |  |  | 749 |  |  | 784 |  |  | 2,444 |  |  | 2,802
﻿Interest cost |  |  | 5,236 |  |  | 5,956 |  |  | 1,637 |  |  | 2,128 |  |  | 6,873 |  |  | 8,084
﻿Net actuarial losses |  |  | 17,786 |  |  | 4,206 |  |  | 17,190 |  |  | 2,715 |  |  | 34,976 |  |  | 6,921
﻿Contribution by participants |  |  | 47 |  |  | 28 |  |  | 20 |  |  | 23 |  |  | 67 |  |  | 51
﻿Benefits paid |  |  | (9,789) |  |  | (4,078) |  |  | (2,656) |  |  | (2,424) |  |  | (12,445) |  |  | (6,502)
﻿Settlements |  |  | 47 |  |  | - |  |  | - |  |  | - |  |  | 47 |  |  | -
﻿Foreign currency exchange rate changes |  |  | - |  |  | - |  |  | (7,114) |  |  | (4,530) |  |  | (7,114) |  |  | (4,530)
﻿Projected benefit obligation at end of year |  | $ | 160,892 |  | $ | 145,870 |  | $ | 72,057 |  | $ | 62,231 |  | $ | 232,949 |  | $ | 208,101
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Changes in fair value of plan assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Fair value of plan assets at beginning of year |  | $ | 135,590 |  | $ | 142,090 |  | $ | 60,663 |  | $ | 63,071 |  | $ | 196,253 |  | $ | 205,161
﻿Actual return (loss) on plan assets |  |  | 19,859 |  |  | (2,535) |  |  | 10,202 |  |  | 2,975 |  |  | 30,061 |  |  | 440
﻿Contributions by the Company |  |  | 226 |  |  | 85 |  |  | 773 |  |  | 1,483 |  |  | 999 |  |  | 1,568
﻿Contributions by plan participants |  |  | 47 |  |  | 28 |  |  | 20 |  |  | 23 |  |  | 67 |  |  | 51
﻿Benefits paid |  |  | (9,789) |  |  | (4,078) |  |  | (2,656) |  |  | (2,424) |  |  | (12,445) |  |  | (6,502)
﻿Settlements |  |  | (47) |  |  | - |  |  | - |  |  | - |  |  | (47) |  |  | -
﻿Foreign currency exchange rate changes |  |  | - |  |  | - |  |  | (6,076) |  |  | (4,465) |  |  | (6,076) |  |  | (4,465)
﻿Fair value of plan assets at end of year |  | $ | 145,886 |  | $ | 135,590 |  | $ | 62,926 |  | $ | 60,663 |  | $ | 208,812 |  | $ | 196,253
﻿Net underfunded status at end of year |  | $ | (15,006) |  | $ | (10,280) |  | $ | (9,131) |  | $ | (1,568) |  | $ | (24,137) |  | $ | (11,848)
At September 30, 201 6, the Company’s defined benefit pension plans in the United Kingdom represented $59,896 of the total projected benefit obligation and in Japan represented $12,161 of the total projected benefit obligation. At September 30, 201 6, the United Kingdom represented $50,91 4 of the total fair value of plan assets and Japan represented $12,012 of the total fair value of plan assets. The accumulated benefit obligations of the Company’s defined benefit pension plans at September 30, 201 6 was $160,892 in the United States and $68,801 in Other Countries, and at September 30, 201 5 was $145,870 in the United States and $59,742 in Other Countries. ﻿ ﻿ ﻿
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Plans with accumulated benefit obligation in excess of plan assets |  | Plans with accumulated benefit obligation less than plan assets
﻿ |  | At September 30, |  | At September 30,
﻿ |  | 2016 |  | 2015 |  | 2016 |  | 2015
﻿Projected benefit obligation |  | $ | (220,788) |  | $ | (198,165) |  | $ | (12,161) |  | $ | (9,936)
﻿Accumulated benefit obligation |  |  | (218,769) |  |  | (196,694) |  |  | (10,924) |  |  | (8,918)
﻿Fair value of plan assets |  |  | 196,800 |  |  | 185,623 |  |  | 12,012 |  |  | 10,630
The following tables provide the amounts recognized in the statement of financial position and accumulated other comprehensive losses for the defined benefit pension plans: ﻿ ﻿
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | At or for the Year Ended September 30,
﻿ |  | United States |  | Other Countries |  | Total
﻿ |  | 2016 |  | 2015 |  | 2016 |  | 2015 |  | 2016 |  | 2015
﻿Amounts recognized in statement of financial position consist of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Other non-current assets |  | $ | - |  | $ | - |  | $ | - |  | $ | 694 |  | $ | - |  | $ | 694
﻿Other non-current liabilities |  |  | (15,006) |  |  | (10,280) |  |  | (9,131) |  |  | (2,262) |  |  | (24,137) |  |  | (12,542)
﻿Net underfunded status at end of year |  | $ | (15,006) |  | $ | (10,280) |  | $ | (9,131) |  | $ | (1,568) |  | $ | (24,137) |  | $ | (11,848)
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Amounts recognized in accumulated other comprehensive losses consist of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Unrecognized net prior service cost |  | $ | 3,857 |  | $ | 4,241 |  | $ | - |  | $ | - |  | $ | 3,857 |  | $ | 4,241
﻿Unrecognized net losses |  |  | 33,682 |  |  | 26,861 |  |  | 20,795 |  |  | 13,618 |  |  | 54,477 |  |  | 40,479
﻿Total amounts recognized |  |  | 37,539 |  |  | 31,102 |  |  | 20,795 |  |  | 13,618 |  |  | 58,334 |  |  | 44,720
﻿Deferred taxes |  |  | (14,305) |  |  | (11,890) |  |  | (7,303) |  |  | (4,817) |  |  | (21,608) |  |  | (16,707)
﻿Amounts recognized in accumulated other comprehensive losses |  | $ | 23,234 |  | $ | 19,212 |  | $ | 13,492 |  | $ | 8,801 |  | $ | 36,726 |  | $ | 28,013
The following table reconciles the changes in accumulated other comprehensive losses for the defined benefit pension plans: ﻿
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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Year Ended September 30,
﻿ |  | United States |  | Other Countries |  | Total
﻿ |  | 2016 |  | 2015 |  | 2016 |  | 2015 |  | 2016 |  | 2015
﻿Accumulated other comprehensive losses at beginning of year |  | $ | 31,102 |  | $ | 14,491 |  | $ | 13,618 |  | $ | 11,902 |  | $ | 44,720 |  | $ | 26,393
﻿Net loss |  |  | 8,160 |  |  | 17,390 |  |  | 9,646 |  |  | 2,771 |  |  | 17,806 |  |  | 20,161
﻿Loss due to settlement or curtailment arising during the period |  |  | (47) |  |  | - |  |  | - |  |  | - |  |  | (47) |  |  | -
﻿Amortization of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Net losses |  |  | (1,292) |  |  | (396) |  |  | (246) |  |  | (190) |  |  | (1,538) |  |  | (586)
﻿Prior service cost |  |  | (384) |  |  | (383) |  |  | - |  |  | - |  |  | (384) |  |  | (383)
﻿Foreign currency exchange rate changes |  |  | - |  |  | - |  |  | (2,223) |  |  | (865) |  |  | (2,223) |  |  | (865)
﻿Accumulated other comprehensive losses at end of year |  | $ | 37,539 |  | $ | 31,102 |  | $ | 20,795 |  | $ | 13,618 |  | $ | 58,334 |  | $ | 44,720
The amounts expected to be amortized from accumulated other comprehensive losses and reported as a component of net periodic benefit cost during fiscal year 2017 are as follows: ﻿
﻿ |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |
﻿ |  | United States |  | Other Countries |  | Total
﻿Prior service cost |  | $ | 383 |  | $ | - |  | $ | 383
﻿Net actuarial losses |  |  | 1,854 |  |  | 533 |  |  | 2,387
Pension benefit payments are made from the assets of the pension plans. Using foreign exchange rates as of September 30, 2016 and expected future service assumptions, it is anticipated that the future benefit payments will be as follows: ﻿
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﻿ |  |  |  |  |  |  |  |  |
﻿Year Ending September 30, |  | United States |  | Other Countries |  | Total
﻿2017 |  | $ | 6,344 |  | $ | 2,315 |  | $ | 8,659
﻿2018 |  |  | 6,319 |  |  | 2,249 |  |  | 8,568
﻿2019 |  |  | 6,980 |  |  | 2,847 |  |  | 9,827
﻿2020 |  |  | 7,589 |  |  | 2,311 |  |  | 9,900
﻿2021 |  |  | 8,127 |  |  | 2,442 |  |  | 10,569
﻿2022 – 2026 |  |  | 46,705 |  |  | 12,791 |  |  | 59,496
Woodward expects its pension plan contributions in fiscal year 201 7 will be $425 in the United Kingdom and $288 in Japan. Woodward expects to have no pension plan contributions in fiscal year 2017 in the United States. Pension plan assets The overall investment objective of the pension plan assets is to earn a rate of return over time which, when combined with Company contributions, satisfies the benefit obligations of the pension plans and maintains sufficient liquidity to pay benefits. As the timing and nature of the plan obligations varies for each Company sponsored pension plan, investment strategies have been individually designed for each pension plan with a common focus on maintaining diversified investment portfolios that provide for long-term growth while minimizing the risk to principal associated with short-term market behavior. The strategy for each of the plans balances the requirements to generate returns, using investments expected to produce higher returns, such as equity securities, with the need to control risk within the pension plans using less volatile investment assets, such as debt securities. A strategy of more equity-oriented allocation is adopted for those plans which have a longer-term investment plan based on the timing of the associated benefit obligations. A pension oversight committee is assigned by the Company to each pension plan. Among other responsibilities, each committee is responsible for all asset class allocation decisions. Asset class allocations, which are reviewed by the respective pension committee on at least an annual basis, are designed to meet or exceed certain market benchmarks and align with each plan’s investment objectives. In evaluating the asset allocation choices, consideration is given to the proper long-term level of risk for each plan, particularly with respect to the long-term nature of each plan’s liabilities, the impact of asset allocation on investment results and the corresponding impact on the volatility and magnitude of plan contributions and expense and the impact certain actuarial techniques may have on the plans’ recognition of investment experience. From time to time, the plans may move outside the prescribed asset class allocation in order to meet significant liabilities with respect to one or more individuals approaching retirement. Risks associated with the plan assets include interest rate fluctuation risk, market fluctuation risk, risk of default by debt issuers and liquidity risk. To manage these risks, the assets are managed by established, professional investment firms and performance is evaluated regularly by the Company’s pension oversight committee against specific benchmarks and each plan’s investment objectives. Liability management and asset class diversification are central to the Company’s risk management approach and overall investment strategy. The assets of the U.S. plans are invested in actively managed mutual funds. The assets of the plan s in Japan and the plan in the United Kingdom are invested in actively managed pooled investment funds. Each individual mutual fund or pooled investment fund has been selected based on the investment strategy of the related plan, which mirrors a specific asset class within the associated target allocation. Pension plan assets at September 30, 201 6 and 201 5 do not include any direct investment in Woodward’s common stock. The asset allocations are monitored and rebalanced regularly by investment managers assigned to the individual pension plans. The actual allocations of pension plan assets and target allocation ranges by asset class, are as follows: ﻿
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﻿ |  | At September 30,
﻿ |  | 2016 |  | 2015
﻿ |  | Percentage of Plan Assets |  | Target Allocation Ranges |  | Percentage of Plan Assets |  | Target Allocation Ranges
﻿United States: |  |  |  |  |  |  |  |  |  |  |  |
﻿Asset Class |  |  |  |  |  |  |  |  |  |  |  |
﻿Equity Securities |  | 56.4% |  | 40.8% | - | 80.8% |  | 58.2% |  | 40.7% | - | 80.7%
﻿Debt Securities |  | 39.0% |  | 29.2% | - | 49.2% |  | 41.5% |  | 29.3% | - | 49.3%
﻿Other |  | 4.6% |  | 0.0% |  | 0.3% |  | 0.0%
﻿ |  | 100.0% |  |  |  |  |  | 100.0% |  |  |  |
﻿United Kingdom: |  |  |  |  |  |  |  |  |  |  |  |
﻿Asset Class |  |  |  |  |  |  |  |  |  |  |  |
﻿Equity Securities |  | 34.7% |  | 25.0% | - | 45.0% |  | 36.0% |  | 40.0% | - | 70.0%
﻿Debt Securities |  | 65.2% |  | 40.0% | - | 80.0% |  | 63.8% |  | 35.0% | - | 65.0%
﻿Other |  | 0.1% |  | 0.0% |  | 0.2% |  | 0.0%
﻿ |  | 100.0% |  |  |  |  |  | 100.0% |  |  |  |
﻿Japan: |  |  |  |  |  |  |  |  |  |  |  |
﻿Asset Class |  |  |  |  |  |  |  |  |  |  |  |
﻿Equity Securities |  | 40.0% |  | 36.0% | - | 44.0% |  | 38.6% |  | 36.0% | - | 44.0%
﻿Debt Securities |  | 59.1% |  | 55.0% | - | 63.0% |  | 60.4% |  | 55.0% | - | 63.0%
﻿Other |  | 0.9% |  | 0.0% | - | 2.0% |  | 1.0% |  | 0.0% | - | 2.0%
﻿ |  | 100.0% |  |  |  |  |  | 100.0% |  |  |  |
Actual allocations to each asset class can vary from target allocations due to periodic market value fluctuations, investment strategy changes, and the timing of benefit payments and contributions. The following table presents Woodward’s pension plan assets using the fair value hierarchy established by U.S. GAAP as of September 30, 2016 and September 30, 2015. ﻿
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | At September 30, 2016
﻿ |  | Level 1 |  | Level 2 |  | Level 3 |  |  |
﻿ |  | United States |  | Other Countries |  | United States |  | Other Countries |  | United States |  | Other Countries |  | Total
﻿Asset Category: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Cash and cash equivalents |  | $ | 6,741 |  | $ | 163 |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | 6,904
﻿Mutual funds: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿U.S. corporate bond fund |  |  | 56,813 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 56,813
﻿U.S. equity large cap fund |  |  | 48,506 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 48,506
﻿International equity large cap growth fund |  |  | 33,834 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 33,834
﻿Pooled funds: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Japanese equity securities |  |  | - |  |  | - |  |  | - |  |  | 2,536 |  |  | - |  |  | - |  |  | 2,536
﻿International equity securities |  |  | - |  |  | - |  |  | - |  |  | 2,258 |  |  | - |  |  | - |  |  | 2,258
﻿Japanese fixed income securities |  |  | - |  |  | - |  |  | - |  |  | 5,321 |  |  | - |  |  | - |  |  | 5,321
﻿International fixed income securities |  |  | - |  |  | - |  |  | - |  |  | 1,777 |  |  | - |  |  | - |  |  | 1,777
﻿Index linked U.K. equity fund |  |  | - |  |  | - |  |  | - |  |  | 7,982 |  |  | - |  |  | - |  |  | 7,982
﻿Index linked international equity fund |  |  | - |  |  | - |  |  | - |  |  | 9,694 |  |  | - |  |  | - |  |  | 9,694
﻿Index linked U.K. corporate bonds fund |  |  | - |  |  | - |  |  | - |  |  | 16,180 |  |  | - |  |  | - |  |  | 16,180
﻿Index linked U.K. government securities fund |  |  | - |  |  | - |  |  | - |  |  | 5,009 |  |  | - |  |  | - |  |  | 5,009
﻿Index linked U.K. long-term government securities fund |  |  | - |  |  | - |  |  | - |  |  | 11,998 |  |  | - |  |  | - |  |  | 11,998
﻿Total assets |  | $ | 145,894 |  | $ | 163 |  | $ | - |  | $ | 62,755 |  | $ | - |  | $ | - |  | $ | 208,812
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | At September 30, 2015
﻿ |  | Level 1 |  | Level 2 |  | Level 3 |  |  |
﻿ |  | United States |  | Other Countries |  | United States |  | Other Countries |  | United States |  | Other Countries |  | Total
﻿Asset Category: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Cash and cash equivalents |  | $ | 467 |  | $ | 201 |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | 668
﻿Mutual funds: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿U.S. corporate bond fund |  |  | 56,210 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 56,210
﻿U.S. equity large cap fund |  |  | 47,517 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 47,517
﻿International equity large cap growth fund |  |  | 31,396 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 31,396
﻿Pooled funds: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Japanese equity securities |  |  | - |  |  | - |  |  | - |  |  | 2,116 |  |  | - |  |  | - |  |  | 2,116
﻿International equity securities |  |  | - |  |  | - |  |  | - |  |  | 1,982 |  |  | - |  |  | - |  |  | 1,982
﻿Japanese fixed income securities |  |  | - |  |  | - |  |  | - |  |  | 4,805 |  |  | - |  |  | - |  |  | 4,805
﻿International fixed income securities |  |  | - |  |  | - |  |  | - |  |  | 1,624 |  |  | - |  |  | - |  |  | 1,624
﻿Index linked U.K. equity fund |  |  | - |  |  | - |  |  | - |  |  | 8,687 |  |  | - |  |  | - |  |  | 8,687
﻿Index linked international equity fund |  |  | - |  |  | - |  |  | - |  |  | 9,336 |  |  | - |  |  | - |  |  | 9,336
﻿Index linked U.K. corporate bonds fund |  |  | - |  |  | - |  |  | - |  |  | 16,613 |  |  | - |  |  | - |  |  | 16,613
﻿Index linked U.K. government securities fund |  |  | - |  |  | - |  |  | - |  |  | 4,716 |  |  | - |  |  | - |  |  | 4,716
﻿Index linked U.K. long-term government securities fund |  |  | - |  |  | - |  |  | - |  |  | 10,583 |  |  | - |  |  | - |  |  | 10,583
﻿Total assets |  | $ | 135,590 |  | $ | 201 |  | $ | - |  | $ | 60,462 |  | $ | - |  | $ | - |  | $ | 196,253
﻿ Cash and cash equivalents: Cash and cash equivalents held by the Company's pension plans are held on deposit with creditworthy financial institutions. The fair value of the cash and cash equivalents are based on the quoted market price of the respective currency in which the cash is maintained. Pension assets invested in mutual funds: The assets of the Company’s U.S. pension plans are invested in various mutual funds which invest in both equity and debt securities. The fair value of the mutual funds is determined based on the quoted market price of each fund. Pension assets invested in pooled funds: The assets of the Company’s Japan and United Kingdom pension plans are invested in pooled investment funds, which include both equity and debt securities. The assets of the United Kingdom pension plan are invested in index-linked pooled funds which aim to replicate the movements of an underlying market index to which the fund is linked. Fair value of the pooled funds is based on the net asset value of shares held by the plan as reported by the fund sponsors. All pooled funds held by plans outside of the United States are considered to be invested in international equity and debt securities. Although the underlying securities may be largely domestic to the plan holding the investment assets, the underlying assets are considered international from the perspective of the Company. There were no transfers into or out of Level 3 assets in fiscal years 201 6 or 201 5. Other postretirement benefit plans Woodward provides other postretirement benefits to its employees including postretirement medical benefits and life insurance benefits. Postretirement medical benefits are provided to certain current and retired employees and their covered dependents and beneficiaries in the United States and the United Kingdom. Benefits include the option to elect company provided medical insurance coverage to age 65 and a Medicare supplemental plan after age 65. Life insurance benefits are provided to certain retirees in the United States under frozen plans which are no longer available to current employees. A September 30 measurement date is utilized to value plan assets and obligations for Woodward’s other postretirement benefit plans. The postretirement medical benefit plans, other than the plan assumed in an acquisition in fiscal year 2009, were frozen in fiscal year 2006 and no additional employees may participate in the plans. Generally, employees who had attained age 55 and had rendered 10 or more years of service before the plans were frozen were eligible for these postretirement medical benefits. Certain participating retirees are required to contribute to the plans in order to maintain coverage. The plans provide postretirement medical benefits for approximately 800 retired employees and their covered dependents and beneficiaries and may provide future benefits to approximately 20 active employees and their covered dependents and beneficiaries, upon retirement, if the employees elect to participate. All the postretirement medical plans are fully insured for retirees who have attained age 65. The actuarial assumptions used in measuring the net periodic benefit cost and plan obligations of postretirement benefits were as follows: ﻿
﻿ |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |
﻿ | 2016 |  | 2015 |  | 2014
﻿Weighted-average discount rate used to determine benefit obligation at September 30 | 3.63 | % |  | 4.01 | % |  | 4.40 | %
﻿Weighted-average discount rate used to determine net periodic benefit cost for years ended September 30 | 4.01 |  |  | 4.40 |  |  | 5.14 |
The discount rate assumption is intended to reflect the rate at which the postretirement benefits could be effectively settled based upon the assumed timing of the benefit payments. In the United St ates, Woodward used a bond portfolio matching analysis based on recently traded, non-callable bonds rated AA or better that have at least $50 million outstanding t o determine the benefit obligations at year end. In the United Kingdom, Woodward uses a high-quality corporate bond yield curve matched with separate cash flows to develop a single rate to determine the single rate equivalent to settle the entire benefit obligations in each jurisdiction. For the fiscal year ended September 30, 2016, t he discount rate used to determine periodic service cost and interest cost components of the overall benefit costs was based on spot rates derived from the same high-quality corporate bond yield curve used to determine the September 30, 2015 benefit obligation matched with separate cash flows for each future year. Prior to this change in method, the discount rate used to determine the periodic benefit costs for the years ending September 30, 2015 and 2014 was based on a single rate equivalent. Mortality assumptions are based on published mortality studies developed primarily based on past experience of the broad population and modified for projected longevity trends. The projected benefit obligations in the United States as of September 30, 2016 and September 2015 was based on the SOA’s RP-2014 Mortality Tables Report projected back to 2006 using the SOA’s MP-2014 and projected forward using a custom projection scale based on MP-2014 with a 10-year convergence period and a long-term rate of 0.75%. As of September 30, 2016 and September 30, 2015, mortality assumptions for the United Kingdom postretirement medical plan were based on the SAPS S2 “all” tables with a projected 1.5% annual improvement rate. Assumed healthcare cost trend rates at September 30, were as follows: ﻿
﻿ |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |
﻿ |  |  |  | 2016 |  | 2015
﻿Health care cost trend rate assumed for next year |  |  |  | 7.00 | % |  | 7.00 | %
﻿Rate to which the cost trend rate is assumed to decline |  |  |  |  |  |  |  |
﻿(the ultimate trend rate) |  |  |  | 5.00 | % |  | 5.00 | %
﻿Year that the rate reaches the ultimate trend rate |  |  |  | 2025 |  |  | 2024 |
Healthcare costs have generally trended upward in recent years, sometimes by amounts greater than 5%. Assumed health care cost trend rates have a significant effect on the amounts reported for postretirement medical plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects: ﻿
﻿ |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |
﻿ |  |  | Change In Health Care Cost Trend Rate
﻿ |  |  | 1% increase |  | 1% decrease
﻿Effect on projected fiscal year 2017 service and interest cost |  |  | $ | 126 |  | $ | (110)
﻿Effect on accumulated postretirement benefit obligation at September 30, 2016 |  |  |  | 3,415 |  |  | (2,993)
Net periodic benefit costs consist of the following components reflected as expense in Woodward’s Consolidated Statements of Earnings: ﻿ ﻿ ﻿
﻿ |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |
﻿ |  | Year Ended September 30,
﻿ |  | 2016 |  | 2015 |  | 2014
﻿Service cost |  | $ | 22 |  | $ | 30 |  | $ | 47
﻿Interest cost |  |  | 1,048 |  |  | 1,233 |  |  | 1,432
﻿Amortization of: |  |  |  |  |  |  |  |  |
﻿Net (gains) losses |  |  | 156 |  |  | (73) |  |  | (200)
﻿Net prior service benefit |  |  | (158) |  |  | (158) |  |  | (158)
﻿Net periodic cost |  | $ | 1,068 |  | $ | 1,032 |  | $ | 1,121
The following table provides a reconciliation of the changes in the accumulated postretirement benefit obligation and fair value of assets for the postretirement benefits for the fiscal years ended September 30: ﻿
﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  |
﻿ |  | Year Ended September 30,
﻿ |  | 2016 |  | 2015
﻿Changes in accumulated postretirement benefit obligation: |  |  |  |  |  |
﻿Accumulated postretirement benefit obligation at beginning of year |  | $ | 34,927 |  | $ | 29,225
﻿Service cost |  |  | 22 |  |  | 30
﻿Interest cost |  |  | 1,048 |  |  | 1,233
﻿Premiums paid by plan participants |  |  | 1,299 |  |  | 1,613
﻿Net actuarial losses |  |  | 1,912 |  |  | 6,705
﻿Benefits paid |  |  | (3,503) |  |  | (3,848)
﻿Foreign currency exchange rate changes |  |  | (75) |  |  | (31)
﻿Accumulated postretirement benefit obligation at end of year |  | $ | 35,630 |  | $ | 34,927
﻿Changes in fair value of plan assets: |  |  |  |  |  |
﻿Fair value of plan assets at beginning of year |  | $ | - |  | $ | -
﻿Contributions by the Company |  |  | 2,204 |  |  | 2,235
﻿Premiums paid by plan participants |  |  | 1,299 |  |  | 1,613
﻿Benefits paid |  |  | (3,503) |  |  | (3,848)
﻿ Fair value of plan assets at end of year |  | $ | - |  | $ | -
﻿Net underfunded status at end of year |  | $ | (35,630) |  | $ | (34,927)
The Company’s postretirement medical plan in the United Kingdom represents $467 of the total benefit obligation at September 30, 201 6. The Company paid $14 in medical benefits to participants of the United Kingdom postretirement medical plan in fiscal year 201 6. The following tables provide the amounts recognized in the statement of financial position and accumulated other comprehensive losses for the postretirement plans: ﻿ ﻿
﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  |
﻿ |  | Year Ended September 30,
﻿ |  | 2016 |  | 2015
﻿Amounts recognized in statement of financial position consist of: |  |  |  |  |  |
﻿Accrued liabilities |  | $ | (2,505) |  | $ | (2,481)
﻿Other non-current liabilities |  |  | (33,125) |  |  | (32,446)
﻿Funded status at end of year |  | $ | (35,630) |  | $ | (34,927)
﻿ |  |  |  |  |  |
﻿Amounts recognized in accumulated other comprehensive losses consist of: |  |  |  |  |  |
﻿Unrecognized net prior service benefit |  | $ | (318) |  | $ | (477)
﻿Unrecognized net losses |  |  | 5,484 |  |  | 3,745
﻿Total amounts recognized |  |  | 5,166 |  |  | 3,268
﻿Deferred taxes |  |  | (1,979) |  |  | (1,267)
﻿Amounts recognized in accumulated other comprehensive losses |  | $ | 3,187 |  | $ | 2,001
Woodward pays plan benefits from its general funds; therefore, there are no segregated plan assets as of September 30, 201 6 or September 30, 201 5. The accumulated benefit obligations of the Company’s p ostretirement plans were $35,630 a t September 30, 2016 and $34,927 at September 30, 201 5. The following table reconciles the changes in accumulated other comprehensive losses (earnings) for the other postretirement benefit plans: ﻿
﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  |
﻿ |  | Year Ended September 30,
﻿ |  | 2016 |  | 2015
﻿Accumulated other comprehensive losses (earnings) at beginning of year |  | $ | 3,268 |  | $ | (3,666)
﻿Net (gain) loss |  |  | 1,912 |  |  | 6,705
﻿Amortization of: |  |  |  |  |  |
﻿Net gains (losses) |  |  | (156) |  |  | 73
﻿Prior service benefit (cost) |  |  | 158 |  |  | 158
﻿Foreign currency exchange rate changes |  |  | (16) |  |  | (2)
﻿Accumulated other comprehensive losses at end of year |  | $ | 5,166 |  | $ | 3,268
Using foreign currency exchange rates as of September 30, 2016 and expected future service, it is anticipated that the future Company contributions to pay benefits, excluding participate contributions, will be as follows: ﻿
﻿ |  |  |
﻿ |  |  |
﻿Year Ending September 30, |  |  |
﻿2017 |  | $ | 4,039
﻿2018 |  |  | 4,066
﻿2019 |  |  | 4,096
﻿2020 |  |  | 4,080
﻿2021 |  |  | 4,060
﻿2022 – 2026 |  |  | 19,306
Multiemployer defined benefit plans Woodward operates two multiemployer defined benefit plans for certain employees in the Netherlands and Japan. The amounts of contributions associated with the multiemployer plans were as follows: ﻿
﻿ |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |
﻿ |  |  | Year Ended September 30,
﻿ |  | 2016 |  | 2015 |  | 2014
﻿Company contributions |  | $ | 475 |  | $ | 600 |  | $ | 728
The plan in the Netherlands is a quasi-mandatory plan that covers all of Woodward’s employees in the Netherlands and is part of the Dutch national pension system. The Company may elect to withdraw from its multiemployer plan in Japan, although it has no plans to do so. If the Company elects to withdraw from the Japanese plan, it would incur an immaterial one-time contribution cost. Changes in Japanese regulations could trigger reorganization of or abolishment of the Japanese multiemployer plan, which could impact future funding levels. ﻿

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