Woodward(WWD) - 2024 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents Woodward, Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter and nine months ended June 30, 2024 Item 1. Financial Statements This section presents Woodward, Inc.'s unaudited condensed consolidated financial statements for the quarter and nine months ended June 30, 2024 and 2023, including statements of earnings, comprehensive earnings, balance sheets, cash flows, and stockholders' equity, along with accompanying notes detailing accounting policies, revenue recognition, financial instruments, and segment information Condensed Consolidated Statements of Earnings This statement provides a summary of Woodward's revenues, costs, and net earnings for the three and nine months ended June 30, 2024 and 2023 | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net sales | $847,688 | $800,663 | $2,469,761 | $2,137,496 | | Total costs and expenses | $725,592 | $694,925 | $2,117,321 | $1,959,768 | | Earnings before income taxes | $122,096 | $105,738 | $352,440 | $177,728 | | Income tax expense | $20,021 | $21,139 | $62,765 | $28,012 | | Net earnings | $102,075 | $84,599 | $289,675 | $149,716 | | Basic earnings per share | $1.69 | $1.41 | $4.80 | $2.50 | | Diluted earnings per share | $1.63 | $1.37 | $4.65 | $2.44 | Condensed Consolidated Statements of Comprehensive Earnings This statement details net earnings and other comprehensive income components, including foreign currency and derivative adjustments, for the specified periods | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net earnings | $102,075 | $84,599 | $289,675 | $149,716 | | Foreign currency translation and transactions adjustments, net of tax | $(6,223) | $(5,868) | $4,792 | $30,694 | | Derivative adjustments, net of tax | $2,930 | $(10,385) | $1,207 | $403 | | Pension and other postretirement benefit plan adjustments, net of tax | $(134) | $(57) | $(156) | $538 | | Total comprehensive earnings | $98,648 | $68,289 | $295,518 | $181,351 | Condensed Consolidated Balance Sheets This statement presents Woodward's financial position, including assets, liabilities, and stockholders' equity, as of June 30, 2024, and September 30, 2023 | Metric (in thousands) | June 30, 2024 | September 30, 2023 | | :-------------------- | :------------ | :----------------- | | ASSETS | | | | Total current assets | $1,788,359 | $1,469,452 | | Total assets | $4,320,309 | $4,010,203 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $913,092 | $617,196 | | Total liabilities | $2,161,098 | $1,939,214 | | Total stockholders' equity | $2,159,211 | $2,070,989 | Condensed Consolidated Statements of Cash Flows This statement outlines cash flows from operating, investing, and financing activities for the nine months ended June 30, 2024 and 2023 | Metric (in thousands) | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :-------------------- | :------------------------------ | :------------------------------ | | Net cash provided by operating activities | $297,329 | $155,630 | | Net cash (used in) investing activities | $(68,239) | $(54,204) | | Net cash (used in) financing activities | $(58,970) | $(83,315) | | Net change in cash and cash equivalents | $170,885 | $6,263 | | Cash and cash equivalents at end of period | $308,332 | $114,107 | Condensed Consolidated Statements of Stockholders' Equity This statement details changes in common stock, additional paid-in capital, retained earnings, and treasury stock for the period | Metric (in thousands) | Balances as of September 30, 2023 | Balances as of June 30, 2024 | | :-------------------- | :-------------------------------- | :--------------------------- | | Common stock | $106 | $106 | | Additional paid-in capital | $327,941 | $394,224 | | Accumulated other comprehensive losses | $(70,671) | $(64,828) | | Retained earnings | $2,908,574 | $3,154,792 | | Treasury stock at cost | $(1,094,961) | $(1,325,083) | | Total stockholders' equity | $2,070,989 | $2,159,211 | - For the nine months ended June 30, 2024, net earnings were $289,675 thousand, and total comprehensive earnings were $295,518 thousand. Cash dividends paid amounted to $(43,457) thousand, while sales of treasury stock generated $90,109 thousand and purchases of treasury stock totaled $(304,811) thousand[9] Notes to Condensed Consolidated Financial Statements These notes provide detailed disclosures on accounting policies, revenue, financial instruments, and segment information supporting the financial statements Note 1. Basis of presentation This note describes the basis for preparing the unaudited interim financial statements, including significant estimates and assumptions - The unaudited Condensed Consolidated Financial Statements for Woodward, Inc. reflect all normal recurring adjustments necessary for fair presentation as of June 30, 2024, and for the three and nine months ended June 30, 2024 and 2023. These statements are prepared under SEC interim reporting rules, condensing or omitting certain U.S. GAAP disclosures, and should be read with the most recent Form 10-K[10] - Management uses significant estimates and assumptions in preparing these financial statements, including allowances for credit losses, inventory valuation, warranty reserves, useful lives of assets, impairment evaluations, income tax provisions, derivative valuations, and pension/postretirement benefit assumptions. Actual results may vary from these estimates[10] Note 2. New accounting standards This note outlines recently issued accounting standards, ASU 2023-07 and ASU 2023-09, and their potential impact on future disclosures - ASU 2023-07, "Improvements to Reportable Segment Disclosures," effective for fiscal year 2025 (interim periods in fiscal year 2026), requires enhanced disclosures about significant segment expenses. Woodward is currently assessing its impact[11] - ASU 2023-09, "Improvements to Income Tax Disclosures," effective for fiscal year 2026, mandates consistent categories and greater disaggregation of income tax information, including rate reconciliation and taxes paid by jurisdiction. Woodward is assessing its impact[11] Note 3. Revenue This note details revenue recognition by timing and segment, including remaining performance obligations and material rights Revenue Recognition by Timing (in thousands) | Timing | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :-------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Point in time | $426,064 | $403,404 | $1,233,600 | $1,078,991 | | Over time | $421,624 | $397,259 | $1,236,161 | $1,058,505 | | Total net sales | $847,688 | $800,663 | $2,469,761 | $2,137,496 | Aerospace Segment Revenue by Market (in thousands) | Market | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :--------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Commercial OEM | $189,697 | $186,173 | $544,568 | $484,319 | | Commercial aftermarket | $165,718 | $139,518 | $467,148 | $405,606 | | Defense OEM | $96,557 | $101,008 | $280,999 | $278,577 | | Defense aftermarket | $65,588 | $53,832 | $183,113 | $144,731 | | Total Aerospace segment net sales | $517,560 | $480,531 | $1,475,828 | $1,313,233 | Industrial Segment Revenue by Market (in thousands) | Market | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Power generation | $109,583 | $101,387 | $314,500 | $276,977 | | Transportation | $163,310 | $158,039 | $511,565 | $365,731 | | Oil and gas | $57,235 | $60,706 | $167,868 | $181,555 | | Total Industrial segment net sales | $330,128 | $320,132 | $993,933 | $824,263 | - Remaining performance obligations as of June 30, 2024, were $2,298,270 thousand, primarily for the Aerospace segment, with most expected to be recognized within two years. Material rights obligations were $510,405 thousand, with recognition extending up to forty years[16] Note 4. Earnings per share This note provides a reconciliation of basic and diluted earnings per share, including net earnings and shares outstanding Earnings Per Share Reconciliation | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :--------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net earnings (in thousands) | $102,075 | $84,599 | $289,675 | $149,716 | | Basic shares outstanding (in thousands) | 60,425 | 60,056 | 60,290 | 59,843 | | Diluted shares outstanding (in thousands) | 62,522 | 61,591 | 62,295 | 61,250 | | Basic earnings per share | $1.69 | $1.41 | $4.80 | $2.50 | | Diluted earnings per share | $1.63 | $1.37 | $4.65 | $2.44 | Note 5. Leases This note presents information on lease-related assets, liabilities, and total lease expenses for the reported periods Lease-Related Assets and Liabilities (in thousands) | Category | June 30, 2024 | September 30, 2023 | | :-------------------- | :------------ | :----------------- | | Total lease assets | $29,430 | $28,017 | | Total lease liabilities | $30,186 | $28,829 | Total Lease Expense (in thousands) | Period | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Total lease expense | $2,368 | $2,126 | $6,811 | $6,248 | - Woodward recognized $1,370 thousand in revenue from embedded operating leases for the three months ended June 30, 2024, a decrease from $1,466 thousand in the prior year period. For the nine months, revenue was $4,099 thousand, down from $4,252 thousand[24] Note 6. Joint venture This note details Woodward's joint venture with GE, including equity interest in earnings, cash distributions, and net sales - Woodward's joint venture with General Electric Company (GE) focuses on developing, manufacturing, and supporting fuel systems for GE commercial aircraft engines. Deferred revenue from material rights related to the JV formation was $240,631 thousand as of June 30, 2024[26] JV Related Financials (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Other income (equity interest in JV earnings) | $10,788 | $8,836 | $29,644 | $21,877 | | Cash distributions from JV | $8,000 | $9,000 | $26,500 | $19,000 | | Net sales to the JV | $19,465 | $11,568 | $61,817 | $25,365 | - In Q2 fiscal year 2024, Woodward recognized a $9,680 thousand reduction in contract liabilities and costs to fulfill a contract due to the cancellation of a JV engineering and development project[29] Note 7. Financial instruments and fair value measurements This note provides fair value measurements for financial assets and liabilities, including investments and long-term debt Financial Assets and Liabilities at Fair Value (in thousands) | Category | June 30, 2024 | September 30, 2023 | | :---------------------------- | :------------ | :----------------- | | Total financial assets | $94,421 | $58,862 | | Total financial liabilities | $440 | $0 | - Investments in banks and financial institutions (Level 1) increased from $28,560 thousand to $63,166 thousand. Equity securities (Level 1) increased from $24,913 thousand to $29,855 thousand. Cross-currency interest rate swaps (Level 2) shifted from an asset of $5,389 thousand to an asset of $1,400 thousand and a liability of $440 thousand[30] Estimated Fair Values and Carrying Costs of Other Financial Instruments (in thousands) | Instrument | Fair Value Hierarchy Level | June 30, 2024 Estimated Fair Value | June 30, 2024 Carrying Cost | September 30, 2023 Estimated Fair Value | September 30, 2023 Carrying Cost | | :---------------------------- | :------------------------- | :--------------------------------- | :-------------------------- | :-------------------------------------- | :------------------------------- | | Notes receivable from municipalities | 2 | $7,913 | $7,487 | $7,794 | $7,688 | | Investments in short-term time deposits | 2 | $3,082 | $3,082 | $6,095 | $6,107 | | Long-term debt | 2 | $609,012 | $649,273 | $661,507 | $722,671 | Note 8. Derivative instruments and hedging activities This note describes the company's use of cross-currency interest rate swaps for hedging interest rate and foreign currency risks - Woodward uses cross-currency interest rate swaps to manage interest rate and foreign currency exchange risks. The 2020 Floating-Rate Cross-Currency Swap expired on May 31, 2023. As of June 30, 2024, the total notional value of the 2020 Fixed-Rate Cross-Currency Swaps was $400,000 thousand[33] - Derivative instruments are designated as fair value hedges (for intercompany loans), cash flow hedges (for future principal and interest payments on intercompany loans), and net investment hedges (for foreign currency exposure of Euro-denominated subsidiaries)[34][36][37] Impact of Derivative Instruments on Earnings (in thousands) | Derivative Type (Location: Selling, general and administrative expenses) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :--------------------------------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Cross-currency interest rate swap agreement designated as fair value hedges | $0 | $2 | $0 | $939 | | Cross-currency interest rate swap agreements designated as cash flow hedges | $(2,997) | $(1,431) | $6,027 | $43,438 | | Total | $(2,997) | $(1,429) | $6,027 | $44,377 | Note 9. Supplemental statement of cash flows information This note provides additional details on cash flows, including interest paid, income taxes, and property, plant, and equipment purchases Supplemental Cash Flow Information (in thousands) | Metric | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :----------------------------------------- | :------------------------------ | :------------------------------ | | Interest paid, net of amounts capitalized | $30,021 | $31,116 | | Income taxes paid | $105,554 | $60,334 | | Income tax refunds received | $6,171 | $1,459 | | Purchases of property, plant and equipment on account | $4,208 | $2,612 | | Common shares issued from treasury to settle benefit obligations | $22,937 | $19,467 | Note 10. Inventories This note details the composition of inventories, including raw materials, work in progress, and finished goods, as of period end Inventories (in thousands) | Category | June 30, 2024 | September 30, 2023 | | :---------------------------------------- | :------------ | :----------------- | | Raw materials | $168,332 | $133,699 | | Work in progress | $150,256 | $127,438 | | Component parts | $371,247 | $327,522 | | Finished goods | $93,793 | $74,594 | | Customer supplied inventory | $19,198 | $14,543 | | On-hand inventory for which control has transferred to the customer | $(187,845) | $(159,953) | | Total inventories | $614,981 | $517,843 | Note 11. Property, plant, and equipment This note presents the net carrying amount of property, plant, and equipment by category and associated depreciation expense Property, Plant, and Equipment, Net (in thousands) | Category | June 30, 2024 | September 30, 2023 | | :-------------------------------- | :------------ | :----------------- | | Land and land improvements | $89,819 | $89,352 | | Buildings and building improvements | $591,415 | $589,735 | | Machinery and production equipment | $818,103 | $807,244 | | Construction in progress | $67,595 | $55,487 | | Total gross PP&E | $1,786,909 | $1,745,203 | | Less accumulated depreciation | $(869,179) | $(832,109) | | Property, plant, and equipment, net | $917,730 | $913,094 | Depreciation Expense (in thousands) | Period | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Depreciation expense | $20,661 | $20,551 | $61,494 | $61,212 | Note 12. Goodwill This note provides goodwill balances by segment and discusses the company's annual impairment testing process Goodwill by Segment (in thousands) | Segment | September 30, 2023 | Effects of Foreign Currency Translation | June 30, 2024 | | :----------- | :----------------- | :-------------------------------------- | :------------ | | Aerospace | $455,423 | $0 | $455,423 | | Industrial | $336,045 | $3,329 | $339,374 | | Consolidated | $791,468 | $3,329 | $794,797 | - Woodward tests goodwill for impairment annually in the fourth quarter and upon triggering events. The fiscal year 2023 impairment test resulted in no impairment[45] Note 13. Intangible assets, net This note details the net carrying amount of intangible assets by category and projected future amortization expense Intangible Assets, Net (in thousands) | Category | June 30, 2024 Net Carrying Amount | September 30, 2023 Net Carrying Amount | | :------------------------------------- | :-------------------------------- | :------------------------------------- | | Customer relationships and contracts | $315,836 | $334,260 | | Intellectual property | $0 | $0 | | Process technology | $54,396 | $56,766 | | Other intangibles | $0 | $30 | | Trade name (indefinite life) | $62,120 | $61,307 | | Consolidated Total Intangibles, Net | $432,352 | $452,363 | Amortization Expense (in thousands) | Period | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Amortization expense | $8,131 | $9,493 | $25,348 | $28,089 | - Future amortization expense associated with intangibles is expected to be $8,505 thousand for the remainder of fiscal year 2024, $28,264 thousand in 2025, and $28,254 thousand in 2026[48] Note 14. Credit facilities, short-term borrowings and long-term debt This note outlines the company's revolving credit facility, outstanding borrowings, and debt repayment activities - Woodward maintains a $1,000,000 thousand revolving credit facility, maturing October 21, 2027, with an option to increase borrowings up to $1,500,000 thousand. As of June 30, 2024, $274,800 thousand was outstanding at an effective interest rate of 6.4%, classified as short-term borrowings[49] - The Company paid the entire $75,000 thousand principal balance on Series H and K Notes on November 15, 2023, using proceeds from the revolving credit facility[51] - No borrowings were outstanding on Woodward's other foreign lines of credit and foreign overdraft facilities as of June 30, 2024, or September 30, 2023[50] Note 15. Accrued liabilities This note details accrued liabilities, including salaries, product warranties, and contract liabilities, and changes in warranty reserves Accrued Liabilities (in thousands) | Category | June 30, 2024 | September 30, 2023 | | :-------------------------------- | :------------ | :----------------- | | Salaries and other member benefits | $115,758 | $146,713 | | Product warranties and related liabilities | $21,221 | $18,162 | | Interest payable | $4,155 | $13,611 | | Net current contract liabilities | $49,665 | $33,748 | | Total accrued liabilities | $248,440 | $262,616 | Changes in Accrued Product Warranties (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Beginning of period | $19,800 | $46,492 | $18,162 | $40,042 | | Additions, net of recoveries | $3,808 | $2,424 | $13,767 | $22,847 | | Reductions for settlement | $(2,333) | $(9,433) | $(10,739) | $(23,636) | | End of period | $21,221 | $39,424 | $21,221 | $39,424 | - In fiscal year 2023, Woodward committed to a Cost Reduction Plan, recording $5,172 thousand in restructuring charges, primarily for workforce management in the Industrial segment. All charges were recorded as nonsegment expenses and largely paid by June 30, 2023[54] Note 16. Other liabilities This note presents a breakdown of other noncurrent liabilities, including retirement benefits, tax benefits, and lease liabilities Other Liabilities (in thousands) | Category | June 30, 2024 | September 30, 2023 | | :---------------------------------------- | :------------ | :----------------- | | Net accrued retirement benefits, less amounts recognized within accrued liabilities | $78,450 | $72,570 | | Total unrecognized tax benefits | $10,231 | $8,020 | | Noncurrent income taxes payable | $5,894 | $10,714 | | Deferred economic incentives | $5,125 | $5,797 | | Noncurrent operating lease liabilities | $22,415 | $20,685 | | Net noncurrent contract liabilities | $420,328 | $414,657 | | Cross-currency swap derivative liability | $440 | $0 | | Other | $11,593 | $11,047 | | Total other liabilities | $554,476 | $543,490 | Note 17. Other (income) expense, net This note details components of other income and expense, including equity interest in JV earnings and gains on investments Other (Income) Expense, Net (in thousands) | Category | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Equity interest in the earnings of the JV | $(10,788) | $(8,836) | $(29,644) | $(21,877) | | Net loss (gain) on sales of assets and businesses | $307 | $(218) | $(565) | $672 | | Gain on non-recurring matter related to a previous acquisition | $0 | $0 | $(4,803) | $0 | | Net gain on investments in deferred compensation program | $(511) | $(1,257) | $(4,905) | $(4,127) | | Other components of net periodic pension and other postretirement benefit, excluding service cost and interest expense | $(2,939) | $(2,521) | $(8,805) | $(7,681) | | Total Other (income) expense, net | $(14,438) | $(13,001) | $(49,461) | $(33,431) | Note 18. Income taxes This note provides income tax expense, effective tax rates, and factors influencing rate changes, including unrecognized tax benefits Income Tax Expense and Effective Tax Rate | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :--------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Earnings before income taxes | $122,096 | $105,738 | $352,440 | $177,728 | | Income tax expense | $20,021 | $21,139 | $62,765 | $28,012 | | Effective tax rate | 16.4% | 20.0% | 17.8% | 15.8% | - The effective tax rate decreased for the three months ended June 30, 2024, primarily due to a larger stock-based compensation tax benefit, partially offset by higher accrued future withholding taxes on unremitted foreign earnings[57] - The effective tax rate increased for the nine months ended June 30, 2024, mainly due to higher accrued future withholding taxes on unremitted foreign earnings and the non-recurrence of a release of uncertain tax positions from the prior year, partially offset by a larger stock-based compensation tax benefit[58] - Gross unrecognized tax benefits were $13,723 thousand as of June 30, 2024, with $8,718 thousand impacting the effective tax rate if recognized. A decrease of up to $2,178 thousand is reasonably possible within the next twelve months[58] Note 19. Retirement benefits This note describes the company's defined contribution and defined benefit plans, including associated costs and contributions - Woodward provides defined contribution plans (including a 401(k) with matching contributions and an annual 5% stock contribution for U.S. employees) and defined benefit plans (pension and postretirement medical/life insurance benefits) to eligible employees[60][61][62] Defined Contribution Plan Costs (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Company costs | $14,020 | $11,602 | $38,097 | $33,542 | Net Periodic Retirement Pension Costs (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net periodic retirement pension cost | $400 | $627 | $1,202 | $1,835 | | Contributions paid | $315 | $470 | $1,654 | $1,763 | Net Periodic Other Postretirement Benefit Costs (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net periodic other postretirement cost | $87 | $103 | $260 | $307 | | Contributions paid | $409 | $415 | $1,234 | $1,300 | Note 20. Stockholders' equity This note details common stock and treasury stock activity, including share repurchases and stock-based compensation plans Common Stock and Treasury Stock Activity (in thousands of shares) | Category | Balances as of April 1, 2024 | Purchase of treasury stock | Sales of treasury stock | Common shares issued for benefit plans | Distribution of stock from deferred compensation | Balances as of June 30, 2024 | | :---------------------------------------- | :--------------------------- | :------------------------- | :---------------------- | :------------------------------------- | :----------------------------------------------- | :--------------------------- | | Common Stock | 72,960 | — | — | — | — | 72,960 | | Treasury Stock | (12,185) | (1,692) | 606 | 21 | — | (13,250) | | Treasury stock held for deferred compensation | (53) | — | — | — | 1 | (52) | - In January 2024, the Board authorized a new stock repurchase program for up to $600,000 thousand of common stock, replacing the expiring 2022 Authorization. During the first nine months of fiscal year 2024, Woodward repurchased 1,692 thousand shares for $304,811 thousand under the new authorization[69] - As of June 30, 2024, approximately 2,158 thousand shares of common stock were available for future grants under the 2017 Omnibus Incentive Plan. Total unrecognized compensation expense related to non-vested stock-based compensation was approximately $31,716 thousand, expected to be recognized over a weighted-average period of 1.9 years[70][80] Note 21. Commitments and contingencies This note discusses various claims, litigation, and regulatory proceedings, and the company's accrual policy for potential losses - Woodward is involved in various claims, litigation, and regulatory proceedings arising in the normal course of business, including product liability, employment, worker's compensation, contractual disputes, and warranty claims. Accruals are made for probable and estimable losses[81] - Management believes that any liabilities from these matters will not materially affect Woodward's liquidity, financial condition, or results of operations. The company is partially self-insured for healthcare and worker's compensation in the U.S.[81] Note 22. Segment information This note provides financial data by operating segment, including external net sales, earnings, and total assets Segment External Net Sales (in thousands) | Segment | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :--------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Aerospace | $517,560 | $480,531 | $1,475,828 | $1,313,233 | | Industrial | $330,128 | $320,132 | $993,933 | $824,263 | | Total | $847,688 | $800,663 | $2,469,761 | $2,137,496 | Segment Earnings (in thousands) | Segment | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :--------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Aerospace | $101,842 | $83,075 | $279,295 | $211,823 | | Industrial | $59,717 | $58,197 | $191,842 | $107,170 | Segment Earnings as a Percent of Net Sales | Segment | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :--------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Aerospace | 19.7% | 17.3% | 18.9% | 16.1% | | Industrial | 18.1% | 18.2% | 19.3% | 13.0% | Consolidated Total Assets by Segment (in thousands) | Category | June 30, 2024 | September 30, 2023 | | :---------------------------------------- | :------------ | :----------------- | | Aerospace | $1,913,483 | $1,829,410 | | Industrial | $1,487,143 | $1,490,341 | | Unallocated corporate property, plant, and equipment, net | $119,330 | $104,962 | | Other unallocated assets | $800,353 | $585,490 | | Consolidated total assets | $4,320,309 | $4,010,203 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Woodward's financial performance, condition, and operational results for the periods presented. It covers global business conditions, operational and liquidity highlights, detailed results of operations by segment, and an analysis of liquidity and capital resources, including non-U.S. GAAP financial measures Forward Looking Statements This section highlights forward-looking statements regarding future events, financial performance, and market trends, subject to inherent risks - The report contains forward-looking statements regarding future events, financial performance, market trends, operational plans, and strategic initiatives, based on current expectations and management assumptions. These statements are subject to risks and uncertainties detailed in SEC filings, including the Form 10-K[86] - Key forward-looking topics include future sales, earnings, cash flow, market demand (especially for natural gas trucks in China), expected expenses, margins, international operating risks, joint venture performance, and the impact of strategic actions and technological developments[86] Overview This overview summarizes Woodward's sales growth, margin expansion, and cash flow improvements, while noting future market challenges - For the first nine months of fiscal year 2024, Woodward achieved significant sales growth and margin expansion due to operational excellence and strong end-market demand in aerospace and industrial sectors. Price realization helped mitigate inflation[87] - Expected declines in demand for on-highway natural gas trucks in China and ongoing supply chain challenges in aerospace may impact future performance. The company remains focused on growth, operational excellence, and innovation[87] Operational Highlights (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Consolidated net sales | $847,688 | $800,663 | $2,469,761 | $2,137,496 | | Consolidated net earnings | $102,075 | $84,599 | $289,675 | $149,716 | | Consolidated diluted earnings per share | $1.63 | $1.37 | $4.65 | $2.44 | | EBIT | $131,884 | $117,397 | $382,428 | $212,500 | | EBITDA | $160,676 | $147,441 | $469,270 | $301,801 | - Net cash provided by operating activities increased to $297,329 thousand for the first nine months of fiscal year 2024, up from $155,630 thousand in the prior year, primarily due to increased earnings. Free cash flow also increased to $225,136 thousand from $98,488 thousand[88] Results of Operations This section analyzes consolidated net sales growth, gross margin, operating expenses, and segment earnings drivers for the periods Consolidated Net Sales Growth (in thousands) | Period | Three-Month Period | Nine-Month Period | | :---------------------------------------- | :----------------- | :---------------- | | Consolidated net sales for the period ended June 30, 2023 | $800,663 | $2,137,496 |\ | Aerospace volume | $2,745 | $66,383 |\ | Industrial volume | $(4,748) | $108,741 |\ | Effects of changes in price | $54,569 | $161,332 |\ | Effects of changes in foreign currency rates | $(5,541) | $(4,191) |\ | Consolidated net sales for the period ended June 30, 2024 | $847,688 | $2,469,761 | - Consolidated net sales increased by 5.9% for the third quarter and 15.5% for the first nine months of fiscal year 2024, driven by price realization and increased aftermarket sales in Aerospace, and growth in transportation (China natural gas trucks) and power generation in Industrial[91][92] - Gross margin improved to 27.1% for both the third quarter and first nine months of fiscal year 2024, up from 25.5% and 22.8% respectively, primarily due to higher sales volume and price realization, partially offset by inflationary impacts[93] - Selling, general, and administrative expenses increased by 13.6% for the third quarter and 12.8% for the first nine months, mainly due to increased headcount and variable incentive compensation. Research and development costs increased by 10.5% and 6.0% respectively, due to project timing[93] - Other income increased by $1,437 thousand for the third quarter and $16,030 thousand for the first nine months, primarily from increased earnings in the GE joint venture and a non-recurring gain from a previous acquisition in the nine-month period[94] Aerospace Segment Earnings Drivers (in thousands) | Driver | Three-Month Period | Nine-Month Period | | :-------------------------------- | :----------------- | :---------------- | | Earnings for the period ended June 30, 2023 | $83,075 | $211,823 |\ | Sales volume and mix | $852 | $32,141 |\ | Price, inflation, and productivity | $21,758 | $50,604 |\ | Other, net | $(3,843) | $(15,273) |\ | Earnings for the period ended June 30, 2024 | $101,842 | $279,295 | Industrial Segment Earnings Drivers (in thousands) | Driver | Three-Month Period | Nine-Month Period | | :-------------------------------- | :----------------- | :---------------- | | Earnings for the period ended June 30, 2023 | $58,197 | $107,170 |\ | Sales volume and mix | $(11,798) | $43,576 |\ | Price, inflation, and productivity | $17,799 | $56,326 |\ | Other, net | $(4,481) | $(15,230) |\ | Earnings for the period ended June 30, 2024 | $59,717 | $191,842 | - Nonsegment expenses decreased by $17,784 thousand for the first nine months of fiscal year 2024, primarily due to significant non-recurring costs in the prior year that did not reoccur, such as a specific charge for excess and obsolete inventory ($11,995 thousand) and product rationalization ($10,504 thousand)[101][102] Liquidity and Capital Resources This section discusses Woodward's liquidity sources, cash flow activities, debt, and non-U.S. GAAP financial measures - Woodward's liquidity is primarily supported by cash flow from operating activities and borrowings under its $1,000,000 thousand revolving credit facility, which had $274,800 thousand outstanding as of June 30, 2024[103][105] - As of June 30, 2024, the company had $308,332 thousand in cash and cash equivalents, $923,126 thousand in total outstanding debt, and $717,338 thousand in additional borrowing availability under its revolving credit facility[89][105] Cash Flow Summary (in thousands) | Category | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :---------------------------------------- | :------------------------------ | :------------------------------ | | Net cash provided by operating activities | $297,329 | $155,630 | | Net cash (used in) investing activities | $(68,239) | $(54,204) | | Net cash (used in) financing activities | $(58,970) | $(83,315) | | Net change in cash and cash equivalents | $170,885 | $6,263 | - Net cash used in financing activities decreased due to increased net debt borrowings ($199,156 thousand in 2024 vs. net payments of $43,836 thousand in 2023), partially offset by higher common stock repurchases ($304,811 thousand in 2024 vs. $26,369 thousand in 2023)[107] Non-U.S. GAAP Financial Measures (in thousands, except per share) | Metric | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :-------------------------------------- | :------------------------------ | :------------------------------ | | Adjusted net earnings | $292,711 | $175,924 | | Adjusted diluted earnings per share | $4.70 | $2.87 | | Adjusted EBIT | $386,193 | $247,376 | | Adjusted EBITDA | $473,035 | $336,677 | | Free cash flow | $225,136 | $98,488 | Item 3. Quantitative and Qualitative Disclosures About Market Risk Woodward is exposed to market risks including interest rate risk from debt and postretirement plans, and foreign currency exchange rate risk from international operations. These risks, along with raw material cost and inflation risks, are managed through contractual relationships and have not materially changed since the last Form 10-K filing - Woodward faces interest rate risk from long-term and short-term debt and postretirement benefit plans, and foreign currency exchange rate risk from foreign operations and transactions[120] - The company is also exposed to market risks related to raw material costs and inflation, with certain contractual relationships mitigating these risks. These market risks have not materially changed since the most recent Form 10-K[120] Item 4. Controls and Procedures Management, including the Principal Executive Officer and Principal Financial and Accounting Officer, evaluated the effectiveness of Woodward's disclosure controls and procedures as of June 30, 2024, concluding they were effective at a reasonable assurance level. No material changes to internal controls over financial reporting occurred during the quarter - Woodward's disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of June 30, 2024, ensuring timely and accurate reporting under the Exchange Act[121][122] - No material changes to internal controls over financial reporting occurred during the quarter ended June 30, 2024[122] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, other information, and exhibits for the reporting period Item 1. Legal Proceedings Woodward is involved in various legal proceedings and claims in the normal course of business, for which accruals are made for probable and estimable losses. Management believes these matters will not materially impact the company's liquidity, financial condition, or results of operations - Woodward is engaged in claims, litigation, investigations, and regulatory proceedings typical of its business, including product liability, employment, and contractual disputes[123] - Accruals are established for known matters where a loss is probable and estimable. Management does not expect these legal proceedings to have a material effect on the company's liquidity, financial condition, or operating results[123] Item 1A. Risk Factors Investment in Woodward's securities carries risks, which are summarized in the company's most recent Form 10-K. These risk factors have not materially changed since the filing of that report - Investors should consider the risk factors outlined in Woodward's most recent Annual Report on Form 10-K. These risks have not materially changed since the Form 10-K was filed[124] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Woodward did not have any unregistered sales of equity securities. The company repurchased common stock under its 2024 Authorization, with significant activity in May and June 2024, reducing the remaining authorized repurchase value - No unregistered sales of equity securities occurred during the period[124] Issuer Purchases of Equity Securities (in thousands, except for shares and per share amounts) | Period | Total Number of Shares Purchased | Weighted Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Number (or Approximate Dollar Value) of Shares that may yet be Purchased under the Plans or Programs at Period End | | :-------------------------------------- | :------------------------------- | :------------------------------------ | :------------------------------------------------------------------------------- | :----------------------------------------------------------------------------------------------------------------- | | April 1, 2024 through April 30, 2024 | 170 | $162.36 | — | $600,000 | | May 1, 2024 through May 31, 2024 | 1,202,038 | $178.97 | 1,201,944 | $384,887 | | June 1, 2024 through June 30, 2024 | 490,006 | $183.06 | 489,989 | $295,189 | - The 2024 Authorization allows for the repurchase of up to $600,000 thousand of common stock, replacing the 2022 Authorization which was terminated in January 2024[125] Item 5. Other Information Thomas G. Cromwell, EVP and COO, entered into a Rule 10b5-1 trading plan on May 17, 2024, for the sale of up to 75,841 shares upon stock option exercise, terminating on August 15, 2025. No other directors or officers adopted or terminated trading arrangements during the quarter - Thomas G. Cromwell, EVP and COO, adopted a Rule 10b5-1 trading plan on May 17, 2024, to sell up to 75,841 shares from non-qualified stock option exercises, with the plan terminating on August 15, 2025[127] - No other directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2024[127] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications and the Interactive Data File - Exhibits include Rule 13a-14(a)/15d-14(a) certifications from Charles P. Blankenship, Jr. and William F. Lacey, Section 1350 certifications, and the Interactive Data File (Inline XBRL) for the financial statements[129] SIGNATURES This section confirms the official signing of the report by the Chairman, CEO, President, and Chief Financial Officer of Woodward, Inc - The report was duly signed on August 2, 2024, by Charles P. Blankenship, Jr., Chairman of the Board, Chief Executive Officer, and President, and William F. Lacey, Chief Financial Officer, on behalf of Woodward, Inc[131]