UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☒~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the quarterly period ended ~~December~~March 31, ~~2017~~2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the transition period from _____ to _____

Commission file number 000-08408

WOODWARD, INC.

(Exact name of registrant as specified in its charter)


Delaware		36-1984010


~~Commission file number~~ ~~000-08408~~
~~WOODWARD, INC.~~
~~(Exact name of registrant as specified in its charter)~~
~~Delaware~~	~~36-1984010~~
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
~~1081 Woodward Way, Fort Collins, Colorado~~		~~80524~~
1081 Woodward Way, Fort Collins, Colorado		80524
(Address of principal executive offices)		(Zip Code)


(970) 482-5811
~~(970) 482-5811~~
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Common Stock, par value $0.001455 per share	WWD	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

~~Yes~~ ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).Yes☒ No ☐

~~Yes~~ ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting ~~company”~~company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large ~~accelerated filer~~☒Accelerated ~~filer~~ Filer☒ Accelerated Filer ☐ Non-accelerated ~~filer~~ Filer ☐ Smaller ~~reporting company~~ Reporting Company ☐

Emerging ~~growth company~~ Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of ~~January 18, 2018, 61,272,503~~May 3, 2023, 60,035,492 shares of the registrant’s common stock with a par value of $0.001455 per share were outstanding.

TABLE OF CONTENTS


			Page
~~TABLE OF CONTENTS~~
	~~Page~~
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	2	1
	Condensed Consolidated Statements of Earnings	2	1
	Condensed Consolidated Statements of Comprehensive Earnings	3	2
	Condensed Consolidated Balance Sheets	4	3
	Condensed Consolidated Statements of Cash Flows	5	4
	Condensed Consolidated Statements of Stockholders’ Equity	6	5
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27	29
	Forward Looking Statements	27	29
	Overview	29	30
	Results of Operations	30	31
	Liquidity and Capital Resources	34	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37	41
Item 4.	Controls and Procedures	38	41
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	38	41
Item 1A.	Risk Factors	38	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39	42
Item 6.	Exhibits	39	42
	Signatures	41	43

PART I – FINANCIAL INFORMATION

Item 1.~~Financial~~Financial Statements

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)


	Three-Months Ended						Six-Months Ended
	March 31,						March 31,
	2023			2022			2023			2022
Net sales	$	718,214		$	586,839		$	1,336,833		$	1,128,425
Costs and expenses:
Cost of goods sold		559,149			453,425			1,051,812			872,576
Selling, general and administrative expenses		75,578			44,124			138,765			106,430
Research and development costs		37,777			32,384			66,411			57,776
Restructuring charges		5,172			—			5,172			—
Interest expense		12,845			8,197			23,987			16,503
Interest income		(508	)		(500	)		(874	)		(1,141	)
Other (income) expense, net		(12,040	)		(4,887	)		(20,430	)		(15,561	)
Total costs and expenses		677,973			532,743			1,264,843			1,036,583
Earnings before income taxes		40,241			54,096			71,990			91,842
Income tax expense		4,730			6,190			6,873			13,631
Net earnings	$	35,511		$	47,906		$	65,117		$	78,211

Earnings per share:
Basic earnings per share	$	0.59		$	0.77		$	1.09		$	1.24
Diluted earnings per share	$	0.58		$	0.74		$	1.07		$	1.21

Weighted Average Common Shares Outstanding:
Basic		59,807			62,550			59,736			62,825
Diluted		61,227			64,618			61,083			64,863

Three-Months Ended

December 31,

2017

2016

Net sales
$
470,148

$
442,894
Costs and expenses:

    Cost of goods sold

346,784

329,148
    Selling, general and administrative expenses

46,276

38,300
    Research and development costs

34,786

26,540
    Interest expense

6,750

6,840
    Interest income

(363)

(405)
    Other (income) expense, net (Note 16)

(1,572)

(4,588)
Total costs and expenses

432,661

395,835
Earnings before income taxes

37,487

47,059
Income tax expense

19,227

511
Net earnings
$
18,260

$
46,548

Earnings per share (Note 3):

Basic earnings per share
$
0.30

$
0.76
Diluted earnings per share
$
0.29

$
0.73

Weighted Average Common Shares Outstanding (Note 3):

Basic

61,246

61,559
Diluted

63,709

63,671
Cash dividends per share paid to Woodward common stockholders
$
0.125

$
0.110

See accompanying Notes to Condensed Consolidated Financial Statements

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In thousands)

(Unaudited)


	Three-Months Ended						Six-Months Ended
	March 31,						March 31,
	2023			2022			2023			2022
Net earnings	$	35,511		$	47,906		$	65,117		$	78,211

Other comprehensive earnings:
Foreign currency translation adjustments		8,495			(4,621	)		38,722			(7,059	)
Net (loss) gain on foreign currency transactions designated as hedges of net investments in foreign subsidiaries		(807	)		673			(4,432	)		1,744
Taxes on changes in foreign currency translation adjustments		928			(463	)		2,272			(1,449	)
Foreign currency translation and transactions adjustments, net of tax		8,616			(4,411	)		36,562			(6,764	)

Unrealized (loss) gain on fair value adjustment of derivative instruments		(2,096	)		12,411			(34,684	)		24,780
Reclassification of net realized loss (gain) on derivatives to earnings		7,620			(6,256	)		45,806			(16,331	)
Taxes on changes in derivative transactions		(221	)		(215	)		(334	)		(295	)
Derivative adjustments, net of tax		5,303			5,940			10,788			8,154

Amortization of pension and other postretirement plan:
Net prior service cost		181			251			360			502
Net (gain) loss		(204	)		187			(403	)		374
Foreign currency exchange rate changes on pension and other postretirement benefit plan liabilities		70			592			511			622
Taxes on changes in pension and other postretirement benefit plan liability adjustments, net of foreign currency exchange rate changes		48			(292	)		127			(406	)
Pension and other postretirement benefit plan adjustments, net of tax		95			738			595			1,092
Total comprehensive earnings	$	49,525		$	50,173		$	113,062		$	80,693

Three-Months Ended

December 31,

2017

2016

Net earnings
$
18,260

$
46,548

Other comprehensive earnings:

Foreign currency translation adjustments

5,103

(18,635)
Net (loss) gain on foreign currency transactions designated as hedges of net
investments in foreign subsidiaries (Note 6)

(743)

3,830
Taxes on changes in foreign currency translation adjustments

187

(306)
Foreign currency translation and transactions adjustments, net of tax

4,547

(15,111)

Reclassification of net realized gains on derivatives to earnings (Note 6)

(18)

(18)
Taxes on changes in derivative transactions

7

7
Derivative adjustments, net of tax

(11)

(11)

Curtailment of postretirement benefit plan arising during the period

59

-
Amortization of pension and other postretirement plan:

Net prior service cost

137

56
Net loss

246

641
Foreign currency exchange rate changes on pension and other postretirement
benefit plan liabilities

(99)

1,255
Taxes on changes in pension and other postretirement benefit plan liability
adjustments, net of foreign currency exchange rate changes

(132)

(693)
Pension and other postretirement benefit plan adjustments, net of tax

211

1,259
Total comprehensive earnings
$
23,007

$
32,685

See accompanying Notes to Condensed Consolidated Financial Statements

WOODWARD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)


	March 31,			September 30,
	2023			2022
ASSETS
Current assets:
Cash and cash equivalents	$	129,427		$	107,844
Accounts receivable, less allowance for uncollectible amounts of $9,949 and $3,922, respectively		663,419			609,964
Inventories		567,784			514,287
Income taxes receivable		33,287			5,179
Other current assets		76,770			74,695
Total current assets		1,470,687			1,311,969
Property, plant and equipment, net		919,672			910,472
Goodwill		799,147			772,559
Intangible assets, net		483,884			460,580
Deferred income tax assets		25,052			23,447
Other assets		313,091			327,419
Total assets	$	4,011,533		$	3,806,446
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt	$	130,500		$	66,800
Current portion of long-term debt		75,978			856
Accounts payable		220,386			230,519
Income taxes payable		33,692			34,655
Accrued liabilities		206,388			206,283
Total current liabilities		666,944			539,113
Long-term debt, less current portion		652,119			709,760
Deferred income tax liabilities		138,863			127,195
Other liabilities		541,553			529,256
Total liabilities		1,999,479			1,905,324
Commitments and contingencies (Note 22)
Stockholders' equity:
Preferred stock, par value $0.003 per share, 10,000 shares authorized, no shares issued		—			—
Common stock, par value $0.001455 per share, 150,000 shares authorized, 72,960 shares issued		106			106
Additional paid-in capital		321,441			293,540
Accumulated other comprehensive losses		(44,618	)		(92,563	)
Deferred compensation		3,319			6,781
Retained earnings		2,767,813			2,727,233
		3,048,061			2,935,097
Treasury stock at cost, 13,022 shares and 13,207 shares, respectively		(1,032,688	)		(1,027,194	)
Treasury stock held for deferred compensation, at cost, 67 shares and 139 shares, respectively		(3,319	)		(6,781	)
Total stockholders' equity		2,012,054			1,901,122
Total liabilities and stockholders' equity	$	4,011,533		$	3,806,446

December 31,

September 30,

2017

2017
ASSETS

Current assets:

Cash and cash equivalents
$
85,779

$
87,552
Accounts receivable, less allowance for uncollectible amounts of $3,793 and $3,776, respectively

331,438

402,182
Inventories

503,523

473,505
Income taxes receivable

18,842

19,376
Other current assets

39,660

38,574
Total current assets

979,242

1,021,189
Property, plant and equipment, net

930,158

922,043
Goodwill

556,759

556,545
Intangible assets, net

165,633

171,882
Deferred income tax assets

20,473

19,950
Other assets

72,909

65,500
Total assets
$
2,725,174

$
2,757,109
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Short-term borrowings
$
66,300

$
32,600
Accounts payable

182,144

232,788
Income taxes payable

5,891

6,774
Accrued liabilities

98,785

155,072
Total current liabilities

353,120

427,234
Long-term debt, less current portion

583,339

580,286
Deferred income tax liabilities

21,901

33,408
Other liabilities

366,268

344,798
Total liabilities

1,324,628

1,385,726
Commitments and contingencies (Note 20)

Stockholders' equity:

Preferred stock, par value $0.003 per share, 10,000 shares authorized, no shares issued

-

-
Common stock, par value $0.001455 per share, 150,000 shares authorized, 72,960 shares issued

106

106
Additional paid-in capital

176,473

163,836
Accumulated other comprehensive losses

(48,439)

(53,186)
Deferred compensation

8,173

7,135
Retained earnings

1,830,872

1,820,268

1,967,185

1,938,159
Treasury stock at cost, 11,706 shares and 11,739 shares, respectively

(558,466)

(559,641)
Treasury stock held for deferred compensation, at cost, 200 shares and 186 shares, respectively

(8,173)

(7,135)
Total stockholders' equity

1,400,546

1,371,383
Total liabilities and stockholders' equity
$
2,725,174

$
2,757,109

~~See accompanying Notes to Condensed Consolidated Financial Statements.~~

~~WOODWARD, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(In thousands)~~

~~(Unaudited)~~

Three-Months Ended December 31,

2017

2016
Cash flows from operating activities:

Net earnings
$
18,260

$
46,548
Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization

21,070

18,913��
Gain due to curtailment of postretirement plan

(330)

-
Net gain on sales of assets

(58)

(3,699)
Stock-based compensation

12,423

1,261
Deferred income taxes

(11,681)

4,777
Gain on derivatives reclassified from accumulated comprehensive earnings into earnings

(18)

(18)
Changes in operating assets and liabilities:

Accounts receivable

72,714

87,615
Inventories

(28,796)

(37,632)
Accounts payable and accrued liabilities

(104,150)

(54,563)
Income taxes

25,597

(5,731)
Retirement benefit obligations

(673)

(897)
Other

(6,891)

(4,223)
Net cash (used in) provided by operating activities

(2,533)

52,351
Cash flows from investing activities:

Payments for purchase of property, plant, and equipment

(28,450)

(21,058)
Proceeds from sale of assets

132

3,682
Proceeds from sales of short-term investments

-

758
Payments for purchases of short-term investments

(791)

-
Net cash used in investing activities

(29,109)

(16,618)
Cash flows from financing activities:

Cash dividends paid

(7,656)

(6,779)
Proceeds from sales of treasury stock

1,389

4,843
Payments for repurchases of common stock

-

(24,004)
Borrowings on revolving lines of credit and short-term borrowings

458,950

316,650
Payments on revolving lines of credit and short-term borrowings

(425,250)

(312,800)
Payments of long-term debt and capital lease obligations

(106)

(102)
Net cash provided by (used in) financing activities

27,327

(22,192)
Effect of exchange rate changes on cash and cash equivalents

2,542

(13,746)
Net change in cash and cash equivalents

(1,773)

(205)
Cash and cash equivalents at beginning of year

87,552

81,090
Cash and cash equivalents at end of period
$
85,779

$
80,885

See accompanying Notes to Condensed Consolidated Financial Statements

WOODWARD, INC.

CONDENSED CONSOLIDATED ~~STATEMENTS~~STATEMENTS OF ~~STOCKHOLDERS’ EQUITY~~CASH FLOWS

(In thousands)

(Unaudited)


	Six-Months Ended March 31,
	2023			2022
Cash flows from operating activities:
Net earnings	$	65,117		$	78,211
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		59,257			61,331
Net loss (gain) on sales of assets and businesses		890			(1,541	)
Stock-based compensation		15,538			13,957
Deferred income taxes		545			(55	)
Changes in operating assets and liabilities:
Trade accounts receivable		(26,467	)		(1,562	)
Unbilled receivables (contract assets)		(18,015	)		(48,742	)
Costs to fulfill a contract		(4,193	)		(10,884	)
Inventories		(42,408	)		(67,263	)
Accounts payable and accrued liabilities		5,426			15,454
Contract liabilities		9,769			9,779
Income taxes		(34,886	)		(725	)
Retirement benefit obligations		(615	)		(2,495	)
Other		10,192			4,643
Net cash provided by operating activities		40,150			50,108

Cash flows from investing activities:
Payments for purchase of property, plant, and equipment		(44,046	)		(24,150	)
Proceeds from sale of assets		199			5
Business acquisition, net of cash acquired		878			—
Payments for short-term investments		—			(8	)
Proceeds from sales of short-term investments		7,733			11,305
Net cash (used in) investing activities		(35,236	)		(12,848	)

Cash flows from financing activities:
Cash dividends paid		(24,537	)		(22,134	)
Proceeds from sales of treasury stock		14,067			19,399
Payments for repurchases of common stock		(26,369	)		(273,535	)
Borrowings on revolving lines of credit and short-term borrowings		1,031,800			11,500
Payments on revolving lines of credit and short-term borrowings		(968,100	)		(11,500	)
Payments of debt financing costs		(2,236	)		—
Payments of long-term debt and finance lease obligations		(288	)		(564	)
Net cash provided by (used in) financing activities		24,337			(276,834	)
Effect of exchange rate changes on cash and cash equivalents		(7,668	)		(533	)
Net change in cash and cash equivalents		21,583			(240,107	)
Cash and cash equivalents, including restricted cash, at beginning of year		107,844			448,462
Cash and cash equivalents, including restricted cash, at end of period	$	129,427		$	208,355

Number of shares

Stockholders' equity

Accumulated other comprehensive (loss) earnings

Preferred
stock

Common
stock

Treasury
stock

Treasury
stock held for
deferred
compensation

Common
stock

Additional
paid-in
capital

Foreign
currency
translation
adjustments

Unrealized
derivative
gains
(losses)

Minimum
retirement
benefit
liability
adjustments

Total
accumulated
other
comprehensive
(loss) earnings

Deferred compensation

Retained
earnings

Treasury
stock at
cost

Treasury
stock held for
deferred
compensation

Total
stockholders'
equity

Balances as of October 1, 2016

-

72,960

(11,374)

(157)

$
106

$
141,570

$
(25,971)

$
179

$
(39,913)

$
(65,705)

$
5,089

$
1,649,506

$
(512,882)

$
(5,089)

$
1,212,595
Net earnings

-

-

-

-

-

-

-

-

-

-

-

46,548

-

-

46,548
Other comprehensive income (loss), net of tax

-

-

-

-

-

-

(15,111)

(11)

1,259

(13,863)

-

-

-

-

(13,863)
Cash dividends paid ($0.110 per share)

-

-

-

-

-

-

-

-

-

-

-

(6,779)

-

-

(6,779)
Purchases of treasury stock

-

-

(350)

-

-

-

-

-

-

-

-

-

(24,004)

-

(24,004)
Sales of treasury stock

-

-

139

-

-

(907)

-

-

-

-

-

-

5,750

-

4,843
Common shares issued from treasury stock to settle employee liabilities

-

-

26

(26)

-

740

-

-

-

-

1,767

-

1,027

(1,767)

1,767
Stock-based compensation

-

-

-

-

-

1,261

-

-

-

-

-

-

-

-

1,261
Purchases and transfers of stock by/to deferred compensation plan

-

-

-

-

-

-

-

-

-

-

37

-

-

(37)

-
Distribution of stock from deferred compensation plan

-

-

-

-

-

-

-

-

-

-

(4)

-

-

4

-
Balances as of December 31, 2016

-

72,960

(11,559)

(183)

$
106

$
142,664

$
(41,082)

$
168

$
(38,654)

$
(79,568)

$
6,889

$
1,689,275

$
(530,109)

$
(6,889)

$
1,222,368

Balances as of October 1, 2017

-

72,960

(11,739)

(186)

$
106

$
163,836

$
(27,280)

$
135

$
(26,041)

$
(53,186)

$
7,135

$
1,820,268

$
(559,641)

$
(7,135)

$
1,371,383
Net earnings

-

-

-

-

-

-

-

-

-

-

-

18,260

-

-

18,260
Other comprehensive income (loss), net of tax

-

-

-

-

-

-

4,547

(11)

211

4,747

-

-

-

-

4,747
Cash dividends paid ($0.125 per share)

-

-

-

-

-

-

-

-

-

-

-

(7,656)

-

-

(7,656)
Sales of treasury stock

-

-

33

-

-

214

-

-

-

-

-

-

1,175

-

1,389
Stock-based compensation

-

-

-

-

-

12,423

-

-

-

-

-

-

-

-

12,423
Purchases and transfers of stock by/to deferred compensation plan

-

-

-

(14)

-

-

-

-

-

-

1,041

-

-

(1,041)

-
Distribution of stock from deferred compensation plan

-

-

-

-

-

-

-

-

-

-

(3)

-

-

3

-
Balances as of December 31, 2017

-

72,960

(11,706)

(200)

$
106

$
176,473

$
(22,733)

$
124

$
(25,830)

$
(48,439)

$
8,173

$
1,830,872

$
(558,466)

$
(8,173)

$
1,400,546

See accompanying Notes to Condensed Consolidated Financial Statements

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Number of shares								Stockholders' equity
													Accumulated other comprehensive (loss) earnings
	Common stock		Treasury stock			Treasury stock held for deferred compensation			Common stock		Additional paid-in capital		Foreign currency translation adjustments			Unrealized derivative gains (losses)			Minimum retirement benefit liability adjustments			Total accumulated other comprehensive (loss) earnings			Deferred compensation			Retained earnings			Treasury stock at cost			Treasury stock held for deferred compensation			Total stockholders' equity
Balances as of January 1, 2022		72,960		(9,877	)		(167	)	$	106	$	274,366	$	(35,257	)	$	(23,383	)	$	(6,764	)		(65,404	)	$	7,960		$	2,620,571		$	(606,207	)	$	(7,960	)	$	2,223,432
Net earnings		—		—			—			—		—		—			—			—			—			—			47,906			—			—			47,906
Other comprehensive earnings (loss), net of tax		—		—			—			—		—		(4,411	)		5,940			738			2,267			—			—			—			—			2,267
Cash dividends paid ($0.1900 per share)		—		—			—			—		—		—			—			—			—			—			(11,887	)		—			—			(11,887	)
Sales of treasury stock		—		347			—			—		734		—			—			—			—			—			—			15,551			—			16,285
Common shares issued for benefit plans		—		150			—			—		10,601		—			—			—			—			—			—			6,567			—			17,168
Purchase of treasury stock		—		(2,047	)		—			—		—		—			—			—			—			—			—			(245,357	)		—			(245,357	)
Stock-based compensation		—		—			—			—		2,065		—			—			—			—			—			—			—			—			2,065
Purchases/transfers of stock by/to deferred compensation		—		—			(1	)		—		—		—			—			—			—			68			—			—			(68	)		—
Distribution of stock from deferred compensation plan		—		—			28			—		—		—			—			—			—			(1,350	)		—			—			1,350			—
Balances as of March 31, 2022		72,960		(11,427	)		(140	)	$	106	$	287,766	$	(39,668	)	$	(17,443	)	$	(6,026	)	$	(63,137	)	$	6,678		$	2,656,590		$	(829,446	)	$	(6,678	)	$	2,051,879

Balances as of January 1, 2023		72,960		(13,460	)		(122	)	$	106	$	305,100	$	(58,548	)	$	(730	)	$	646			(58,632	)	$	5,975		$	2,745,484		$	(1,052,623	)	$	(5,975	)	$	1,939,435
Net earnings		—		—			—			—		—		—			—			—			—			—			35,511			—			—			35,511
Other comprehensive earnings (loss), net of tax		—		—			—			—		—		8,616			5,303			95			14,014			—			—			—			—			14,014
Cash dividends paid ($0.2200 per share)		—		—			—			—		—		—			—			—			—			—			(13,182	)		—			—			(13,182	)
Sales of treasury stock		—		251			—			—		1,259		—			—			—			—			—			—			11,488			—			12,747
Common shares issued for benefit plans		—		187			—			—		10,860		—			—			—			—			—			—			8,447			—			19,307
Stock-based compensation		—		—			—			—		4,222		—			—			—			—			—			—			—			—			4,222
Purchases/transfers of stock by/to deferred compensation		—		—			—			—		—		—			—			—			—			42			—			—			(42	)		—
Distribution of stock from deferred compensation plan		—		—			55			—		—		—			—			—			—			(2,698	)		—			—			2,698			—
Balances as of March 31, 2023		72,960		(13,022	)		(67	)	$	106	$	321,441	$	(49,932	)	$	4,573		$	741		$	(44,618	)	$	3,319		$	2,767,813		$	(1,032,688	)	$	(3,319	)	$	2,012,054

See accompanying Notes to Condensed Consolidated Financial Statements

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Number of shares								Stockholders' equity
													Accumulated other comprehensive (loss) earnings
	Common stock		Treasury stock			Treasury stock held for deferred compensation			Common stock		Additional paid-in capital		Foreign currency translation adjustments			Unrealized derivative gains (losses)			Minimum retirement benefit liability adjustments			Total accumulated other comprehensive (loss) earnings			Deferred compensation			Retained earnings			Treasury stock at cost			Treasury stock held for deferred compensation			Total stockholders' equity

Balances as of September 30, 2021		72,960		(9,702	)		(167	)	$	106	$	261,735	$	(32,904	)	$	(25,597	)	$	(7,118	)	$	(65,619	)	$	7,949		$	2,600,513		$	(581,954	)	$	(7,949	)	$	2,214,781
Net earnings		—		—			—			—		—		—			—			—			—			—			78,211			—			—			78,211
Other comprehensive earnings (loss), net of tax		—		—			—			—		—		(6,764	)		8,154			1,092			2,482			—			—			—			—			2,482
Cash dividends paid ($0.3525 per share)		—		—			—			—		—		—			—			—			—			—			(22,134	)		—			—			(22,134	)
Sales of treasury stock		—		405			—			—		1,473		—			—			—			—			—			—			18,040			—			19,513
Common shares issued for benefit plans		—		150			—			—		10,601		—			—			—			—			—			—			6,567			—			17,168
Purchase of treasury stock		—		(2,280	)		—			—		—		—			—			—			—			—			—			(272,099	)		—			(272,099	)
Stock-based compensation		—		—			—			—		13,957		—			—			—			—			—			—			—			—			13,957
Purchases/transfers of stock by/to deferred compensation		—		—			(2	)		—		—		—			—			—			—			115			—			—			(115	)		—
Distribution of stock from deferred compensation plan		—		—			29			—		—		—			—			—			—			(1,386	)		—			—			1,386			—
Balances as of March 31, 2022		72,960		(11,427	)		(140	)	$	106	$	287,766	$	(39,668	)	$	(17,443	)	$	(6,026	)	$	(63,137	)	$	6,678		$	2,656,590		$	(829,446	)	$	(6,678	)	$	2,051,879

Balances as of September 30, 2022		72,960		(13,207	)		(139	)	$	106	$	293,540	$	(86,494	)	$	(6,215	)	$	146		$	(92,563	)	$	6,781		$	2,727,233		$	(1,027,194	)	$	(6,781	)	$	1,901,122
Net earnings		—		—			—			—		—		—			—			—			—			—			65,117			—			—			65,117
Other comprehensive earnings (loss), net of tax		—		—			—			—		—		36,562			10,788			595			47,945			—			—			—			—			47,945
Cash dividends paid ($0.4100 per share)		—		—			—			—		—		—			—			—			—			—			(24,537	)		—			—			(24,537	)
Sales of treasury stock		—		270			—			—		1,420		—			—			—			—			—			—			12,351			—			13,771
Common shares issued for benefit plans		—		189			—			—		10,943		—			—			—			—			—			—			8,524			—			19,467
Purchase of treasury stock		—		(274	)		—			—		—		—			—			—			—			—			—			(26,369	)		—			(26,369	)
Stock-based compensation		—		—			—			—		15,538		—			—			—			—			—			—			—			—			15,538
Purchases/transfers of stock by/to deferred compensation		—		—			(1	)		—		—		—			—			—			—			112			—			—			(112	)		—
Distribution of stock from deferred compensation plan		—		—			73			—		—		—			—			—			—			(3,574	)		—			—			3,574			—
Balances as of March 31, 2023		72,960		(13,022	)		(67	)	$	106	$	321,441	$	(49,932	)	$	4,573		$	741		$	(44,618	)	$	3,319		$	2,767,813		$	(1,032,688	)	$	(3,319	)	$	2,012,054

See accompanying Notes to Condensed Consolidated Financial Statements

WOODWARD, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Note 1. Basis of presentation

The Condensed Consolidated Financial Statements of Woodward, Inc. (“Woodward” or the “Company”) as of ~~December~~March 31, ~~2017~~2023 and for the three ~~months~~and six-months ended ~~December~~March 31, ~~2017~~2023 and ~~December 31, 2016,~~2022, included herein, have not been audited by an independent registered public accounting firm. These unaudited Condensed Consolidated Financial Statements reflect all normal recurring adjustments that, in the opinion of management, are necessary to present fairly Woodward’s financial position as of ~~December~~March 31, ~~2017,~~2023, and the statements of earnings, comprehensive earnings, cash flows, and changes in stockholders’ equity for the periods presented herein. The results of operations for the three ~~months~~and six-months ended ~~December~~March 31, ~~2017~~2023 and 2022 are not necessarily indicative of the operating results to be expected for other interim periods or for the full fiscal year. Dollar and share amounts contained in these unaudited Condensed Consolidated Financial Statements are in thousands, except per share ~~amounts.~~amounts, unless otherwise noted.

The unaudited Condensed Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations.

~~These~~ Accordingly, these unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in Woodward’s most recent Annual Report on Form 10-K filed with the SEC and other financial information filed with the SEC.

Management is required to use estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the reported revenues and expenses recognized during the reporting period, and certain financial statement disclosures, in the preparation of the unaudited Condensed Consolidated Financial Statements included herein. Significant estimates in these unaudited Condensed Consolidated Financial Statements include allowances for ~~uncollectible amounts,~~credit losses; net realizable value of ~~inventories,~~inventories; variable consideration including customer rebates earned and payable and early payment discounts; warranty ~~reserves,~~reserves; useful lives of property and identifiable intangible ~~assets,~~assets; the evaluation of impairments of property, intangible assets, and goodwill; the provision for income tax and related valuation ~~reserves,~~reserves; the valuation of derivative instruments; assumptions used in the determination of the funded status and annual expense of pension and postretirement employee benefit ~~plans,~~plans; the valuation of stock compensation instruments granted to employees, ~~and~~ board members and any other eligible recipients; estimates of incremental borrowing rates used when estimating the present value of future lease payments; assumptions used when including renewal options or non-exercise of termination options in lease terms; estimates of total lifetime sales used in the recognition of revenue of deferred material rights and balance sheet classification of the related contract liability; estimates of total sales contract costs when recognizing revenue under the cost-to-cost method; and contingencies. Actual results could vary from Woodward’s estimates.

~~As disclosed in Note 1,~~ ~~Operations~~Global Business Conditions

We continue to monitor a variety of external issues impacting our business, including the ongoing global supply chain and ~~summary of significant accounting policies~~ ~~in the Notes~~labor disruptions, rising labor costs, and material inflation, which together have led to ~~the Consolidated Financial Statements in Part II, Item 8 of Woodward’s most recent Annual Report on Form 10-K, the amortization of intangible assets has been reclassified from~~ a separate line in the condensed consolidated statement of earnings for the three-months ended December 31, 2016 to an allocated expense/cost component of cost of goods sold and selling, general and administrative expenses based on the nature of the intangible asset that is being amortized. The reclassification of these amounts conforms to the current period presentation.challenging industry-wide operating environment.

Note 2. New accounting standards

From time to time, the Financial Accounting Standards Board (“FASB”) or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through issuance of an Accounting Standards Update (“ASU”).

In ~~August 2017,~~ the ~~FASB~~time since the Company filed its most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2022, no new accounting standards have been issued, ~~ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements~~or are pending issuance, that are expected to ~~Accounting for Hedging Activities.” ASU 2017-12 is intended to more closely align~~have a material impact on the ~~financial statement reporting~~Condensed Consolidated Financial Statements upon adoption.

Note 3. Revenue

The amount of ~~hedging relationships with the economic results of an entity’s risk management activities and to make certain targeted improvements to simplify the application of hedge accounting guidance~~revenue recognized as point in ~~current U.S. GAAP. ASU 2017-12 is also intended to increase standardization of financial statement disclosures including requiring a tabular disclosure~~time or over time follows:


	Three-Months Ended March 31, 2023						Three-Months Ended March 31, 2022
	Aerospace		Industrial		Consolidated		Aerospace		Industrial		Consolidated
Point in time	$	188,248	$	177,660	$	365,908	$	148,244	$	122,219	$	270,463
Over time		248,769		103,537		352,306		224,513		91,863		316,376
Total net sales	$	437,017	$	281,197	$	718,214	$	372,757	$	214,082	$	586,839


	Six-Months Ended March 31, 2023						Six-Months Ended March 31, 2022
	Aerospace		Industrial		Consolidated		Aerospace		Industrial		Consolidated
Point in time	$	358,088	$	317,499	$	675,587	$	273,889	$	247,211	$	521,100
Over time		474,614		186,632		661,246		435,303		172,022		607,325
Total net sales	$	832,702	$	504,131	$	1,336,833	$	709,192	$	419,233	$	1,128,425

Accounts Receivable

Accounts receivable consisted of the ~~income statement effects~~following:


	March 31, 2023			September 30, 2022
Billed receivables
Trade accounts receivable	$	405,246		$	359,364
Other (Chinese financial institutions)		3,654			9,405
Total billed receivables		408,900			368,769
Current unbilled receivables (contract assets)		264,468			245,117
Total accounts receivable		673,368			613,886
Less: Allowance for uncollectible amounts		(9,949	)		(3,922	)
Total accounts receivable, net	$	663,419		$	609,964

As of fair value and cash flow hedges. Woodward early adopted the new guidance in the first quarter of fiscal year 2018. The application of the new guidance did not have any impact on Woodward’s current hedging arrangements orMarch 31, 2023, “Other assets” on the ~~disclosures related to such arrangements.~~

~~In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation~~Condensed Consolidated Balance Sheets includes $9,558 of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” ASU 2017-07 requires that the service cost component of net periodic benefit costs from defined benefit and other postretirement benefit plans be included

in the same statement of earnings captions as other compensation costs arising from services rendered by the covered employees during the period. The other components of net benefit cost will be presented in the statement of earnings separately from service costs. ASU 2017-07 is effective for fiscal years beginning after December 31, 2017 (fiscal year 2019 for Woodward). Following adoption, only service costs will be eligible for capitalization into manufactured inventories, which should reduce diversity in practice. The amendments of ASU 2017-07 should be applied retrospectively for the presentation of the service cost component and the other components of net periodic benefit costs from defined benefit and other postretirement benefit plans in the statement of earnings and prospectively, on and after the effective date, for the capitalization of the service cost component into manufactured inventories. Early adoption is permitted as of the beginning of Woodward’s fiscal year 2018. Woodward will adopt the new guidance in fiscal year 2019, and expects changes to earnings before income taxes to be insignificant in the year of adoption.

In October 2016, the FASB issued ASU 2016-16, “Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory.” ASU 2016-16 eliminates the current U.S. GAAP exception deferring the tax effects of intercompany asset transfers (other than inventory) until the transferred asset is sold to a third party or otherwise recovered through use. After adoption of ASU 2016-16, Woodward will recognize the tax consequences of intercompany asset transfers in the buyer’s and seller’s tax jurisdictions when the transfer occurs, even though the pre-tax effects of these transactions are eliminated in consolidation. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017 (fiscal year 2019 for Woodward), including interim periods within the year of adoption. Early adoption is permitted as of the beginning of Woodward’s fiscal year 2018. Woodward will adopt the new guidance in fiscal year 2019. Modified retrospective adoption is required with any cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. Woodward has not determined in which period it will adopt the new guidance. Woodward currently anticipates the adoption of ASU 2016-16 will result in balance sheet reclassifications, but based on Woodward’s current transactional activity, such adjustments areunbilled receivables not expected to be ~~significant.~~

~~In June 2016, the FASB issued ASU 2016-13, “Measurement~~invoiced and collected within a period of ~~Credit Losses on Financial Instruments.” ASU 2016-13 adds a current expected credit loss (“CECL”) impairment model~~twelve months, compared to ~~U.S. GAAP that is based on expected losses rather than incurred losses. Modified retrospective adoption is required with any cumulative-effect adjustment recorded to retained earnings~~$6,649 as of September 30, 2022.

Accounts receivable in Woodward’s Condensed Consolidated Financial Statements represent the beginning of the period of adoption. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 (fiscal year 2021 for Woodward), including interim periods within the year of adoption. Early adoption is permitted for fiscal years beginning after December 15, 2018 (fiscal year 2020 for Woodward), including interim periods within those fiscal years. Woodward has not determined in which period it will adopt the new guidance but does not expect the application of the CECL impairment modelnet amount expected to ~~have a significant impact on Woodward’s~~be collected, and an allowance for uncollectible amounts related to credit losses is established based on expected losses. Expected losses are estimated by reviewing specific customer accounts, taking into consideration accounts receivable aging, credit risk of the customers, and historical payment history, as well as current and forecasted economic conditions and other relevant factors.

The allowance for uncollectible amounts and change in expected credit losses for trade accounts receivable and ~~notes receivable from municipalities.~~

~~In February 2016,~~unbilled receivables (contract assets) consisted of the ~~FASB issued ASU 2016-02, “Leases (Topic 842).” The purpose~~following:


	Three-Months Ended March 31,						Six-Months Ended March 31,
	2023			2022			2023			2022
Balance, beginning	$	4,203		$	3,309		$	3,922		$	3,664
Changes in estimates		6,042			192			6,470			427
Write-offs		(247	)		(26	)		(330	)		(43	)
Other1		(49	)		(334	)		(113	)		(907	)
Balance, ending	$	9,949		$	3,141		$	9,949		$	3,141

(1)

Includes effects of ~~ASU 2016-02 is to increase transparency and comparability among organizations by recognizing lease assets and lease~~foreign exchange rate changes during the period.

Contract liabilities on

Contract liabilities consisted of the ~~balance sheet and disclosing key information about leasing arrangements. In addition, ASU 2016-02 modifies the definition~~following:


	March 31, 2023				September 30, 2022
	Current		Noncurrent		Current		Noncurrent
Deferred revenue from material rights from GE joint venture formation	$	5,950	$	237,179	$	5,754	$	234,516
Deferred revenue from advanced invoicing and/or prepayments from customers		3,570		63		4,120		38
Liability related to customer supplied inventory		14,779		—		12,442		—
Deferred revenue from material rights related to engineering and development funding		5,249		172,020		8,347		161,791
Net contract liabilities	$	29,548	$	409,262	$	30,663	$	396,345

Woodward recognized revenue of a lease to clarify that an arrangement contains a lease when such arrangement conveys the right to control the use of an identified asset. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (fiscal year 2020 for Woodward), including interim periods within the year of adoption. In transition, Woodward will be required to recognize and measure leases beginning$5,299 in the ~~earliest period presented using a modified retrospective approach; therefore, Woodward anticipates restating its Consolidated Financial Statements for~~three-months and $14,184 in the ~~two fiscal years prior~~six-months ended March 31, 2023 from contract liabilities balances recorded as of October 1, 2022, compared to $4,426 in the three-months ended and $13,219 in the six-months ended March 31, 2022 from contract liabilities balances recorded as of October 1, 2021.

Remaining performance obligations

Remaining performance obligations related to the ~~year~~aggregate amount of ~~adoption. However, during December 2017,~~ the ~~FASB proposed amending ASU 2016-02 such that restatement~~total contract transaction price of ~~fiscal years 2018 and 2019 would~~firm orders for which the performance obligation has not ~~be required upon adoption. Although early adoption is permitted,~~yet been recognized in revenue as of March 31, 2023 was $1,916,470, compared to $1,558,588 as of September 30, 2022, the majority of which relates to Woodward’s Aerospace segment in both periods. Woodward expects to ~~adopt~~recognize almost all of these remaining performance obligations within two years after March 31, 2023.

Remaining performance obligations related to material rights that have not yet been recognized in revenue as of March 31, 2023 was $474,767, compared to $448,370 as of September 30, 2022, of which $6,876 is expected to be recognized in the ~~new guidance~~remainder of fiscal year 2023, $14,985 is expected to be recognized in fiscal year ~~2020~~2024, and the remaining balance is currently assessing the impact this guidance may have on its Consolidated Financial Statements, including which of its existing lease arrangements will be impacted by the new guidance and whether other arrangements not currently classified as leases may become subject to the guidance of ASU 2016-02. Rent expense for all operating leases in fiscal year 2017, none of which was recognized on the balance sheet, was $8,302. As of September 30, 2017, future minimum rental payments required under operating leases, none of which were recognized on the balance sheet, were $23,215.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” and has subsequently issued several supplemental and/or clarifying ASUs (collectively “ASC 606”). ASC 606 prescribes a single common revenue standard that replaces most existing U.S. GAAP revenue recognition guidance. ASC 606 outlines a five-step model, under which Woodward will recognize revenue as performance obligations within a customer contract are satisfied. ASC 606 is intended to provide more consistent interpretation and application of the principles outlined in the standard across filers in multiple industries and within the same industries compared to current practices, which should improve comparability. Adoption of ASC 606 is required for annual reporting periods beginning after December 15, 2017 (fiscal year 2019 for Woodward), including interim periods within the reporting period. Woodward has determined it will elect to adopt using the cumulative effect transition method with the cumulative effect of initial adoption recognized at the date of initial application.

Further, under the cumulative effect transition method, Woodward will disclose the impact of changes to financial statement line items as a result of applying ASC 606 (rather than previous U.S. GAAP) and include an explanation of the reasons for significant changes.

Woodward is currently assessing the impact that the future adoption of ASC 606 may have on its Consolidated Financial Statements by analyzing its current portfolio of customer contracts, including a review of historical accounting policies and practices to identify potential differences in applying the guidance of ASC 606. Woodward is also performing a comprehensive review of its current processes and systems to determine and implement changes required to support the adoption of ASC 606 on October 1, 2018, the first day of Woodward’s fiscal year 2019. As part of this review process, Woodward is implementing new software solutions to support revenue reporting after adoption.

~~Based on Woodward’s review of its customer contracts, Woodward has determined that revenue on the majority of its customer contracts will continue~~expected to be recognized at a point in time, generally upon shipment of products, consistent with Woodward’s current revenue recognition model. Upon adoption of ASC 606, however, Woodward also believes some of its revenues from sales of products and services to customers will be recognized over time, rather than at a point in time, due primarily to the terms of certain customer contracts. As a result of recognizing some revenue over time, various balance sheet line items will be impacted. As such, Woodward believes the adoption of ASC 606 will have an impact on both the timing of revenue recognition and various line items within the Consolidated Balance Sheet.

Woodward generally expenses costs as incurred for the engineering and development of new products. Customer funding received for such engineering and development efforts is currently recognized as revenue when earned, with the corresponding costs recognized as cost of sales. ASC 606 requires customer funding of product engineering and development to be deferred and recognized as revenue as the related products are delivered to the customer. ASC 606 also requires product engineering and development costs to be capitalized as contract fulfillment costs, to the extent recoverable from the deferred customer funding, and subsequently amortized as the related products are delivered to the customer. Therefore, under ASC 606,thereafter. Woodward expects to ~~record both contract assets and contract liabilities~~recognize revenue from performance obligations related to ~~such funded engineering~~material rights over the life of the underlying programs, which may be as long as forty years.

Disaggregation of Revenue

Woodward designs, produces, and ~~development efforts, which are expected to become material over time. Recognized revenues~~services reliable, efficient, low-emission, and ~~research~~high-performance energy control products for diverse applications in markets throughout the world. Woodward reports financial results for each of its Aerospace and development costs are both expected to decrease in the year of adoption and for at least several years thereafter, due to the recognition of these contract assets and liabilities. However, recognition of these contract assets and liabilities are expected to have an immaterial impact on pre-tax earnings in future periods.

~~In addition, ASC 606 will require more comprehensive disclosures about~~Industrial reportable segments. Woodward further disaggregates its revenue ~~streams and~~from contracts with customers ~~including significant judgments required.~~by primary market as Woodward ~~is currently implementing changes to~~believes this best depicts how the nature, amount, timing, and uncertainty of its ~~processes~~revenue and cash flows are affected by economic factors.

Revenue by primary market for ~~preparing required disclosures and to information systems that support~~ the ~~financial reporting process.~~ Aerospace reportable segment was as follows:


	Three-Months Ended March 31,				Six-Months Ended March 31,
	2023		2022		2023		2022
Commercial OEM	$	159,271	$	122,889	$	298,146	$	227,715
Commercial aftermarket		139,445		108,554		266,088		194,640
Defense OEM		87,807		97,812		177,569		203,187
Defense aftermarket		50,494		43,502		90,899		83,650
Total Aerospace segment net sales	$	437,017	$	372,757	$	832,702	$	709,192

~~Woodward is also evaluating implications to~~9

Revenue by primary market for the ~~Company’s system~~Industrial reportable segment was as follows:


	Three-Months Ended March 31,				Six-Months Ended March 31,
	2023		2022		2023		2022
Reciprocating engines	$	209,238	$	156,663	$	370,615	$	314,997
Industrial turbines		71,959		57,419		133,516		104,236
Total Industrial segment net sales	$	281,197	$	214,082	$	504,131	$	419,233

The customers who each account for approximately 10% or more of ~~internal controls, relative to revenue recognition and the related revenue disclosures, which~~net sales of each of Woodward’s reportable segments are ~~based on the criteria outlined in the Committee of Sponsoring Organizations of the Treadway Commission’s 2013 Internal Control – Integrated Framework.~~

as follows:

9
Three-Months Ended March 31, 2023
Three-Months Ended March 31, 2022
Aerospace
Raytheon Technologies, General Electric Company, The Boeing Company
Raytheon Technologies, The Boeing Company, General Electric Company
Industrial
Rolls-Royce PLC, Caterpillar, Inc.
Rolls-Royce PLC, Caterpillar, Inc., Wartsila


	Six-Months Ended March 31, 2023	Six-Months Ended March 31, 2022
Aerospace	Raytheon Technologies, General Electric, The Boeing Company	Raytheon Technologies, The Boeing Company, General Electric Company
Industrial	Rolls-Royce PLC, Caterpillar, Inc., Wartsila	Rolls-Royce PLC, Wartsila

Note 3.4. Earnings per share

Basic earnings per share is computed by dividing net earnings available to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

Diluted earnings per share reflects the weighted-average number of shares outstanding after consideration of the dilutive effect of stock options and restricted stock.

The following is a reconciliation of net earnings to basic earnings per share and diluted earnings per share:


	Three-Months Ended March 31,				Six-Months Ended March 31,
	2023		2022		2023		2022
Numerator:
Net earnings	$	35,511	$	47,906	$	65,117	$	78,211
Denominator:
Basic shares outstanding		59,807		62,550		59,736		62,825
Dilutive effect of stock options and restricted stock		1,420		2,068		1,347		2,038
Diluted shares outstanding		61,227		64,618		61,083		64,863
Income per common share:
Basic earnings per share	$	0.59	$	0.77	$	1.09	$	1.24
Diluted earnings per share	$	0.58	$	0.74	$	1.07	$	1.21

Three-Months Ended

December 31,

2017

2016
Numerator:

Net earnings

$
18,260

$
46,548
Denominator:

Basic shares outstanding

61,246

61,559
Dilutive effect of stock options and restricted stock

2,463

2,112
Diluted shares outstanding

63,709

63,671
Income per common share:

Basic earnings per share

$
0.30

$
0.76
Diluted earnings per share

$
0.29

$
0.73

The following stock option grants were outstanding ~~during the three-months ended December 31, 2017 and 2016,~~ but were excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive.


	Three-Months Ended March 31,				Six-Months Ended March 31,
	2023		2022		2023		2022
Options		1,560		464		1,592		466
Weighted-average option price	$	102.01	$	117.92	$	101.95	$	117.95

Three-Months Ended

December 31,

2017

2016
Options

754

-
Weighted-average option price

$
78.75

$
n/a

The weighted-average shares of common stock outstanding for basic and diluted earnings per share included the weighted-average treasury stock shares held for deferred compensation obligations of the following:


	Three-Months Ended March 31,				Six-Months Ended March 31,
	2023		2022		2023		2022
Weighted-average treasury stock shares held for deferred compensation obligations		94		153		109		158

Three-Months Ended

December 31,

2017

2016
Weighted-average treasury stock shares held for
deferred compensation obligations

193

170

Note 5. Leases

Lessee arrangements

Woodward has entered into operating leases for certain facilities and equipment with terms in excess of one year under agreements that expire at various dates. Some leases require the payment of property taxes, insurance, maintenance costs, or other similar costs in addition to rental payments. Woodward has also entered into finance leases for equipment with terms in excess of one year under agreements that expire at various dates.

Lease-related assets and liabilities were as follows:


	Classification on the Condensed Consolidated Balance Sheets	March 31, 2023		September 30, 2022
Assets:
Operating lease	Other assets	$	24,363	$	25,144
Finance lease	Property, plant and equipment, net		5,263		5,474
Total lease assets			29,626		30,618

Current liabilities:
Operating lease	Accrued liabilities		4,686		4,587
Finance lease	Current portion of long-term debt		978		856
Noncurrent liabilities:
Operating lease	Other liabilities		20,863		21,443
Finance lease	Long-term debt, less current portion		3,960		4,405
Total lease liabilities		$	30,487	$	31,291

Lease-related expenses were as follows:


	Three-Months Ended March 31,				Six-Months Ended March 31,
	2023		2022		2023		2022
Operating lease expense	$	1,586	$	1,653	$	3,073	$	3,260
Amortization of finance lease assets		156		95		412		174
Interest on finance lease liabilities		40		8		74		16
Variable lease expense		245		203		455		606
Short-term lease expense		51		50		108		90
Sublease (income)1		—		—		—		(192	)
Total lease expense	$	2,078	$	2,009	$	4,122	$	3,954

(1)

Relates to two separate subleases Woodward entered into for a leased manufacturing building in Niles, Illinois, each of which expired during fiscal year 2022.

Lease-related supplemental cash flow information was as follows:


	Six-Months Ended March 31,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	2,621	$	2,776
Operating cash flows for finance leases		74		16
Financing cash flows for finance leases		284		574
Right-of-use assets obtained in exchange for recorded lease obligations:
Operating leases		714		7,999
Finance leases		43		1,260

Lessor arrangements

Woodward has assessed its manufacturing contracts and concluded that certain of the contracts for the manufacture of customer products met the criteria to be considered a leasing arrangement (“embedded leases”) with Woodward as the lessor. The specific manufacturing contracts that met the criteria were those that utilized Woodward property, plant, and equipment and which are substantially (more than 90%) dedicated to the manufacturing of the product(s) for a single customer. Woodward has dedicated manufacturing lines with four of its customers representing embedded leases, all of which qualified as operating leases with undefined quantities of future customer purchase commitments.

Although Woodward expects to allocate some portion of future net sales to these customers to embedded lessor arrangements, it cannot provide expected future undiscounted lease payments from property, plant, and equipment leased to customers as of March 31, 2023. If, in the future, customers reduce purchases of related products from Woodward, the Company believes it will derive additional value from the underlying equipment by repurposing its use to support other customer arrangements.

Revenue from contracts with customers that included embedded operating leases, which is included in “Net sales” in the Condensed Consolidated Statements of Earnings, was $1,398 for the three-months and $2,786 for the six-months ended March 31, 2023, compared to $1,323 for the three-months and $2,666 for the six-months ended March 31, 2022.

The carrying amount of property, plant, and equipment leased to others through embedded leasing arrangements, included in “Property, plant, and equipment, net” on the Condensed Consolidated Balance Sheets, follows:


	March 31, 2023			September 30, 2022
Property, plant and equipment leased through embedded leasing arrangements	$	47,391		$	44,912
Less accumulated depreciation		(28,195	)		(25,508	)
Property, plant and equipment leased through embedded leasing arrangements, net	$	19,196		$	19,404

Note 4.6. Joint venture

~~On January 4,~~In fiscal year 2016, Woodward and General Electric Company (“GE”), acting through its GE Aviation business unit, consummated the formation of a strategic joint venture between Woodward and GE (the “JV”) to ~~design,~~ develop, manufacture, and ~~source~~support fuel systems for specified existing and all future GE commercial aircraft engines that produce thrust in excess of fifty thousand pounds.

Unamortized deferred revenue from material rights in connection with the JV formation included:


	March 31, 2023		September 30, 2022
Accrued liabilities	$	5,950	$	5,754
Other liabilities		237,179		234,516

Amortization of the deferred revenue (material right) recognized as an increase to sales was $1,203 for the three-months and $2,034 for the six-months ended March 31, 2023, and $791 for the three-months and $1,727 for the six-months ended March 31, 2022.

As part of the JV formation, ~~Woodward contributed to the JV certain contractual rights and intellectual property applicable to the existing~~ GE commercial aircraft engine programs within the scope of the JV. Woodward had no initial cost basis in the JV because Woodward had no cost basis in the contractual rights and intellectual property contributed to the JV. GE purchased from Woodward a 50% ownership interest in the JV for a $250,000 cash payment to Woodward. In addition, GE will paypays contingent consideration to Woodward consisting of fifteen annual payments of ~~$4,894~~$4,894 per year, which began ~~on January 4,~~in the second quarter of fiscal year 2017, subject to certain claw-back conditions. Woodward ~~records~~received its annual payments ~~received~~of $4,894 during the three-months ended March 31, 2023 and 2022, which were recorded as deferred income and ~~includes them~~included in ~~Net~~“Net cash provided by operating ~~activities under the caption “Other”~~activities” on the Condensed Consolidated ~~Statement~~Statements of Cash Flows. ~~Neither Woodward nor GE contributed any tangible assets to the JV.~~

Woodward determined that the JV formation was not the culmination of an earnings event because Woodward has significant performance obligations to support the future operations of the JV. Therefore, Woodward recorded the $250,000 consideration received from GE, in January of 2016, for its purchase of a 50% equity interest in the JV as deferred income. The $250,000 deferred income will be recognized as an increase to net sales in proportion to revenue realized on sales of applicable fuel systems within the scope of the JV in a particular period as a percentage of total revenue expected to be realized by Woodward over the estimated remaining lives of the underlying commercial aircraft engine programs assigned to the JV. Unamortized deferred income recorded in connection with the JV formation included accrued liabilities of $6,439 as of December 31, 2017 and $6,451 as of September 30, 2017, and other liabilities of $235,855 as of December 31, 2017 and $236,896 as of September 30, 2017. Amortization of the deferred income recognized as an increase to sales was $1,053 for the three-months ended December 31, 2017, and $1,496 for the three-months ended December 31, 2016.

Woodward and GE jointly manage the JV and any significant decisions and/or actions of the JV require the mutual consent of both parties. Neither Woodward nor GE has a controlling financial interest in the JV, but both Woodward and GE do have the ability to significantly influence the operating and financial decisions of the JV. Therefore, Woodward is accounting for its 50% ownership interest in the JV using the equity method of accounting. The JV is a related party to Woodward. Other income ~~includes income of $596 for the three-months ended December 31, 2017, and income of $684 for the three-months ended December 31, 2016~~ related to Woodward’s equity interest in the earnings of the ~~JV.~~JV was as follows:


	Three-Months Ended March 31,				Six-Months Ended March 31,
	2023		2022		2023		2022
Other income	$	8,468	$	4,140	$	13,041	$	8,815

Cash distributions to Woodward ~~received no cash distributions~~ from the JV, recognized in “Other, net” in “Net cash provided by operating activities” on the ~~three-months ended December 31, 2017 or 2016. Woodward’s net investment in the JV, which is included in other assets, was $6,868~~Condensed Consolidated Statements of Cash Flows, were as ~~of December 31, 2017 and $6,272 as of September 30, 2017.~~ follows:


	Three-Months Ended March 31,				Six-Months Ended March 31,
	2023		2022		2023		2022
Cash distributions	$	5,500	$	6,500	$	10,000	$	9,000

~~Woodward’s net sales include $12,975 for the three-months ended December 31, 2017 of~~12

Net sales to the JV ~~compared to $15,302~~were as follows:


	Three-Months Ended March 31,				Six-Months Ended March 31,
	2023		2022		2023		2022
Net sales1	$	7,320	$	5,273	$	13,797	$	12,547

(1)

Net sales included a reduction of $12,888 for the three-months ~~ended December 31, 2016. Woodward recorded a reduction to sales of $5,408~~and $20,458 for the ~~three-months~~six-months ended ~~December~~March 31, ~~2017~~2023 related to royalties ~~paid~~owed to the JV by Woodward on sales by Woodward directly to third party aftermarket customers, compared to ~~$5,403~~a reduction to sales of $7,200 for the three-months and $13,146 for the six-months ended ~~December~~March 31, ~~2016.~~ 2022.

The Condensed Consolidated Balance Sheets include “Accounts receivable” ~~of $6,728 at December 31, 2017, and $8,554 at September 30, 2017,~~ related to amounts the JV owed Woodward, ~~and include~~ “Accounts payable” ~~of $3,984 at December 31, 2017, and $6,741 at September 30, 2017,~~ related to amounts Woodward owed the ~~JV.~~JV, and “Other assets” related to Woodward’s net investment in the JV, as follows:


	March 31, 2023		September 30, 2022
Accounts receivable	$	4,427	$	4,172
Accounts payable		4,155		4,069
Other assets		11,223		8,181

Note 5.7. Financial instruments and fair value measurements

Financial assets and liabilities recorded at fair value in the Condensed Consolidated Balance Sheets are categorized based upon a fair value hierarchy established by U.S. GAAP, which prioritizes the inputs used to measure fair value into the following levels:

~~Level 1: Inputs based on quoted market prices in active markets for identical assets or liabilities at the measurement date.~~

Level 2: Quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable and can be corroborated by observable market data.

Level 3: Inputs that reflect management’s best estimates and assumptions of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.

The table below presents information about Woodward’s financial assets that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques Woodward utilized to determine such fair ~~value. Woodward had no financial liabilities required to be measured at~~value as defined by the U.S. GAAP fair value ~~on a recurring basis as of December 31, 2017 or September 30, 2017.~~hierarchy.



	At December 31, 2017								At September 30, 2017								At March 31, 2023								At September 30, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Financial assets:
Cash	$	77,411	$	-	$	-	$	77,411	$	79,822	$	-	$	-	$	79,822
Investments in reverse repurchase agreements		847		-		-		847		1		-		-		1
Investments in term deposits with foreign banks		7,521		-		-		7,521		7,729		-		-		7,729	$	41,909	$	—	$	—	$	41,909	$	37,605	$	—	$	—	$	37,605
Equity securities		19,133		-		-		19,133		16,600		-		-		16,600		26,171		—		—		26,171		22,800		—		—		22,800
Cross-currency interest rate swaps																		—		7,546		—		7,546		—		38,168		—		38,168
Total financial assets	$	104,912	$	-	$	-	$	104,912	$	104,152	$	-	$	-	$	104,152	$	68,080	$	7,546	$	—	$	75,626	$	60,405	$	38,168	$	—	$	98,573

~~Investments in reverse repurchase agreements:~~ Woodward sometimes invests excess cash in reverse repurchase agreements. Under the terms of Woodward’s reverse repurchase agreements, Woodward purchases an interest in a pool of securities and is granted a security interest in those securities by the counterparty to the reverse repurchase agreement. At an agreed upon date, generally the next business day, the counterparty repurchases Woodward’s interest in the pool of securities at a price equal to what Woodward paid to the counterparty plus a rate of return determined daily per the terms of the reverse repurchase agreement. Woodward believes that the investments in these reverse repurchase agreements are with creditworthy financial institutions and that the funds invested are highly liquid. The investments in reverse repurchase agreements are reported at fair value, with realized gains from interest income recognized in earnings, and are included in “Cash and cash equivalents.” Since the investments are generally overnight, the carrying value is considered to be equal to the fair value as the amount is deemed to be a cash deposit with no risk of change in value as of the end of each fiscal quarter.

Investments in term deposits with foreign banks: Woodward’s foreign subsidiaries sometimes invest excess cash in various highly liquid financial instruments that Woodward believes are with creditworthy financial institutions. Such investments are reported in “Cash and cash equivalents” at fair value, with realized gains from interest income recognized in earnings. The carrying value of Woodward’s investments in term deposits with foreign banks are considered equal to the fair value given the highly liquid nature of the investments.

Equity securities: Woodward holds marketable equity securities, through investments in various mutual funds, related to its deferred compensation program. Based on Woodward’s intentions regarding these instruments, marketable equity securities are classified as trading securities. The trading securities are reported at fair value, with realized gains and losses recognized in “Other (income) expense, ~~net.”~~net” on the Condensed Consolidated Statements of Earnings. The trading securities are included in “Other ~~assets.”~~assets” in the Condensed Consolidated Balance Sheets. The fair values of Woodward’s trading securities are based on the quoted market prices for the net asset value of the various mutual funds.

~~Accounts~~Cross-currency interest rate swaps: Woodward holds cross-currency interest rate swaps, which are accounted for at fair value. The swaps in an asset position are included in “Other current assets” and “Other assets,” and swaps in a liability position are included in “Accrued liabilities” and “Other liabilities” in the Condensed Consolidated Balance Sheets. The fair values of Woodward’s cross currency interest rate swaps are determined using a market approach that is based on observable inputs other than quoted market prices, including contract terms, interest rates, currency rates, and other market factors.

Cash, trade accounts receivable, accounts payable, and short-term borrowings are not remeasured to fair value, as the carrying cost of each approximates its respective fair value.

The estimated fair values and carrying costs of other financial instruments that are not required to be remeasured at fair value in the Condensed Consolidated Balance Sheets were as follows:



		At December 31, 2017				At September 30, 2017					At March 31, 2023				At September 30, 2022
	Fair Value Hierarchy Level	Estimated Fair Value		Carrying Cost		Estimated Fair Value		Carrying Cost		Fair Value Hierarchy Level	Estimated Fair Value		Carrying Cost		Estimated Fair Value		Carrying Cost
Assets:
Notes receivable from municipalities	2	$	14,771	$	14,217	$	15,848	$	14,507	2	$	8,992	$	8,716	$	9,010	$	8,992
Investments in short-term time deposits	2		9,191		9,219		8,227		8,223	2		101		102		8,026		7,893
Liabilities:
Long-term debt	2	$	(596,136)	$	(585,059)	$	(592,317)	$	(582,080)	2		678,164		729,410		646,696		712,054

In ~~fiscal years 2014 and 2013, Woodward received long-term notes from municipalities within the states of Illinois and Colorado in~~ connection with certain economic incentives related to Woodward’s development of a second campus in the greater-Rockford, Illinois area for its Aerospace segment and Woodward’s development of a new campus at its corporate headquarters in Fort Collins, Colorado, Woodward received long-term notes from municipalities within the states of Illinois and Colorado. The fair value of the long-term notes was estimated based on a model that discounted future principal and interest payments received at an interest rate available to ~~the Company~~Woodward at the end of the period for similarly rated municipal notes of similar maturity, which is a level 2 input as defined by the U.S. GAAP fair value hierarchy. The interest rates used to estimate the fair value of the long-term notes were ~~2.5%~~2.4% at ~~December~~March 31, ~~2017~~2023 and ~~2.6%~~3.5% at September 30, ~~2017.~~ 2022.

From time to time, certain of Woodward’s foreign subsidiaries will invest excess cash in short-term time deposits with a fixed maturity date of longer than three months but less than one year from the date of the deposit. Woodward believes that the investments are with creditworthy financial institutions. The fair value of the investments in short-term time deposits was estimated based on a model that discounted future principal and interest payments to be received at an interest rate available to the foreign subsidiary entering into the investment for similar short-term time deposits of similar maturity. This was determined to be a level 2 input as defined by the U.S. GAAP fair value hierarchy. The interest rates used to estimate the fair value of the short-term time deposits were ~~5.6%~~6.3% at ~~December~~March 31, ~~2017~~2023 and ~~5.3%~~6.1% at September 30, ~~2017.~~ 2022.

The fair value of long-term debt was estimated based on ~~a model that discounted future principal~~the prices of debt of comparable type and ~~interest payments at interest rates~~maturity available to ~~the Company~~Woodward at the end of the period, ~~for similar debt of the same maturity,~~ which is a level 2 input as defined by the U.S. GAAP fair value hierarchy. The weighted-average interest rates used to estimate the fair value of long-term debt were ~~2.3%~~5.3% at ~~December~~March 31, ~~2017~~2023 and ~~2.4%~~5.6% at September 30, ~~2017.~~2022.

Woodward does not have expected credit losses related to any financial assets that are not required to be remeasured at fair value.

Note 6.8. Derivative instruments and hedging activities

Derivative instruments not designated or qualifying as hedging instruments

In May 2020, Woodward ~~has exposures related to global market risks, including~~entered into a floating-rate cross-currency interest rate swap (the “2020 Floating-Rate Cross-Currency Swap”), with a notional value of $45,000, and five fixed-rate cross-currency interest rate swap agreements (the “2020 Fixed-Rate Cross-Currency Swaps”), with an aggregate notional value of $400,000, which effectively reduced the ~~effect of changes in~~ interest rates on the underlying fixed and floating-rate debt, respectively, under the 2018 Notes (as defined in Note 15, Credit Facilities, short-term borrowings and long-term debt, in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of Woodward’s most recently filed Form 10-K) and Woodward’s then existing revolving credit agreement.

The net interest income of the cross-currency interest rate swaps is recorded as a reduction to “Interest expense” in Woodward’s Condensed Consolidated Statements of Earnings. As of March 31, 2023, the total notional value of the 2020 Floating-Rate Cross-Currency Swap and the 2020 Fixed-Rate Cross-Currency Swaps was $3,750 and $400,000, respectively. See Note 7, Financial Instruments and fair value measurements for the related fair value of the derivative instruments as of March 31, 2023.

Derivatives instruments in fair value hedging relationships

In May 2020, Woodward entered into a US dollar denominated intercompany loan payable with identical terms and notional value as the 2020 Floating-Rate Cross-Currency Swap, together with a reciprocal intercompany floating-rate cross-currency interest rate swap. The agreements were entered into by Woodward Barbados Euro Financing SRL (“Euro Barbados”), a wholly owned subsidiary of Woodward. The US dollar denominated intercompany loan and reciprocal intercompany floating-rate cross-currency interest rate swap are designated as a fair value hedge under the criteria prescribed in ASC 815. The objective of the derivative instrument is to hedge against the foreign currency exchange ~~rates, changes in certain commodity prices and fluctuations in various producer indices. From time~~risk

attributable to ~~time, Woodward enters into derivative instruments for risk management purposes only, including derivatives designated~~the spot remeasurement of the US dollar denominated intercompany loan, as ~~accounting hedges and/or those utilized as economic hedges. Woodward uses~~Euro Barbados maintains a Euro functional currency.

For each floating-rate intercompany cross-currency interest rate swap, only the change in the fair value related ~~derivative instruments~~ to ~~manage its exposure to fluctuations of interest rates. Woodward does not enter into~~the cross-currency basis spread, or ~~issue derivatives for trading or speculative purposes.~~

By using derivative and/or hedging instruments to manage its risk exposure, Woodward is subject, from time to time, to credit risk and market risk on those derivative instruments. Credit risk arises from the potential failure of the counterparty to perform under the termsexcluded component, of the derivative ~~and/or hedging instrument. When~~instrument is recognized in accumulated other comprehensive income (“OCI”). The remaining change in the fair value of athe derivative ~~contract~~instrument is positive, the counterparty owes Woodward, which creates credit risk for Woodward. Woodward mitigates this credit risk by entering into transactions with only counterparties that are believed to be creditworthy. Market risk arises from the potential adverse effects on the value of derivative and/or hedging instruments that result from a changerecognized in ~~interest rates, commodity prices, or~~ foreign currency ~~exchange rates. Woodward minimizes this market risk by establishing~~transaction gain or loss included in “Selling, general and ~~monitoring parameters that limit the types and degree of market risk that may be undertaken.~~

~~Woodward did not enter into any derivatives or hedging transactions during the three-months ended December 31, 2017 or 2016.~~

~~The remaining unrecognized gains and losses~~administrative costs” in Woodward’s Condensed Consolidated ~~Balance Sheets~~Statements of Earnings. The change in the fair value of the derivative instrument in foreign currency transaction gain or loss offsets the change in the spot remeasurement of the intercompany Euro and US dollar denominated loans. Hedge effectiveness is assessed based on the fair value changes of the derivative instrument, after excluding any fair value changes related to the cross-currency basis spread. The initial cost of the cross-currency basis spread is recorded in earnings each period through the swap accrual process. There are no credit-risk-related contingent features associated with derivative instruments that were previously entered into by Woodward, which are classified in accumulated other comprehensive (losses) earnings (“accumulated OCI”), were net gains of $200 as of December 31, 2017 and $218 as of September 30, 2017.the intercompany floating-rate cross-currency interest rate swap.

~~The following table discloses the impact of derivative~~Derivative instruments in cash flow hedging relationships on

In May 2020, Woodward entered into five US dollar intercompany loans payable, with identical terms and notional values of each tranche of the 2020 Fixed-Rate Cross-Currency Swaps, together with reciprocal fixed-rate intercompany cross-currency interest rate swaps. The agreements were entered into by Euro Barbados and are designated as cash flow hedges under the criteria prescribed in ASC 815. The objective of these derivative instruments is to hedge the risk of variability in cash flows attributable to the foreign currency exchange risk of cash flows for future principal and interest payments associated with the US dollar denominated intercompany loans over a thirteen-year period, as Euro Barbados maintains a Euro functional currency.

For each of the fixed-rate intercompany cross-currency interest rate swaps, changes in the fair values of the derivative instruments are recognized in accumulated OCI and reclassified to foreign currency transaction gain or loss included in “Selling, general and administrative costs” in Woodward’s Condensed Consolidated Statements of ~~Earnings, recognized~~Earnings. Reclassifications out of accumulated OCI of the change in ~~interest expense:~~

Three-Months Ended December 31,

2017

2016
Amount of (income) expense recognized in earnings on derivative

$
(18)

$
(18)
Amount of (gain) loss recognized in accumulated OCI on derivative

-

-
Amount of (gain) loss reclassified from accumulated OCI into earnings

(18)

(18)

~~Based~~fair value occur each reporting period based upon changes in the spot rate remeasurement of the Euro and US dollar denominated intercompany loans, including associated interest. Hedge effectiveness is assessed based on the ~~carrying~~fair value changes of the ~~realized but unrecognized gains on terminated~~ derivative instruments ~~designated as cash flow~~and such hedges ~~as of December 31, 2017, Woodward expects~~are deemed to ~~reclassify $72 of~~be highly effective in offsetting exposure to variability in foreign exchange rates. There are no credit-risk-related contingent features associated with these fixed-rate cross-currency interest rate swaps.

Derivatives instruments in net ~~unrecognized gains on terminated derivative instruments from accumulated other comprehensive (losses) earnings to earnings during the next twelve months.~~investment hedging relationships

On September 23, 2016, Woodward and Woodward International Holding B.V., a wholly owned subsidiary of Woodward organized under the laws of The Netherlands (the “BV Subsidiary”), each entered into a note purchase agreement (the “2016 Note Purchase Agreement”) relating to the sale by Woodward and the BV Subsidiary of an aggregate principal amount of ~~€160,000~~€160,000 of senior unsecured notes in a series of private placement transactions. Woodward issued ~~€40,000~~€40,000 aggregate principal amount of Woodward’s Series M Senior Notes due September 23, ~~2026.~~2026 (the “Series M Notes”). Woodward designated the ~~€40,000~~ Series M Notes as a hedge of a foreign currency exposure of Woodward’s net investment in its Euro denominated functional currency subsidiaries. OnRelated to the Series M Notes, ~~a foreign exchange loss of $743 for the three-months ended December 31, 2017 and a foreign exchange gain of $2,814 for the three-months ended December 31, 2016 are~~ included in foreign currency translation adjustments within total comprehensive (losses) ~~earnings.~~

~~In July 2016, Woodward designated an intercompany loan~~earnings are net foreign exchange losses of ~~160,000 renminbi between two wholly owned subsidiaries as a hedge of a foreign currency exposure of~~$807 for the ~~net investment of~~three-months and $4,432 for the ~~borrower in the lender. Unrealized~~six-months ended March 31, 2023, compared to net foreign exchange gains ~~on the loan~~ of ~~$1,016~~$673 for the three-months and $1,744 for the six-months ended ~~December~~March 31, ~~2016 are included in foreign currency translation adjustments within total comprehensive (losses) earnings. The intercompany loan was repaid in July 2017.~~2022.

Impact of derivative instruments designated as qualifying hedging instruments

13The following table discloses the amount of (income) expense recognized in earnings on derivative instruments designated as qualifying hedging instruments:


		Three-months ended March 31,					Six-months ended March 31,
Derivatives in:	Location	2023		2022			2023		2022
Cross-currency interest rate swap agreement designated as fair value hedges	Selling, general and administrative expenses	$	36	$	(297	)	$	937	$	(919	)
Cross-currency interest rate swap agreements designated as cash flow hedges	Selling, general and administrative expenses		7,584		(5,959	)		44,869		(15,412	)
		$	7,620	$	(6,256	)	$	45,806	$	(16,331	)

The following table discloses the amount of (gain) loss recognized in accumulated OCI on derivative instruments designated as qualifying hedging instruments:


		Three-months ended March 31,					Six-months ended March 31,
Derivatives in:	Location	2023		2022			2023		2022
Cross-currency interest rate swap agreement designated as fair value hedges	Selling, general and administrative expenses	$	21	$	(557	)		917	$	(1,057	)
Cross-currency interest rate swap agreements designated as cash flow hedges	Selling, general and administrative expenses		2,075		(11,854	)		33,767		(23,723	)
		$	2,096	$	(12,411	)	$	34,684	$	(24,780	)

The following table discloses the amount of (gain) loss reclassified from accumulated OCI into earnings on derivative instruments designated as qualifying hedging instruments:


		Three-months ended March 31,					Six-months ended March 31,
Derivatives in:	Location	2023		2022			2023		2022
Cross-currency interest rate swap agreement designated as fair value hedges	Selling, general and administrative expenses	$	36	$	(297	)	$	937	$	(919	)
Cross-currency interest rate swap agreements designated as cash flow hedges	Selling, general and administrative expenses		7,584		(5,959	)		44,869		(15,412	)
		$	7,620	$	(6,256	)	$	45,806	$	(16,331	)

The remaining unrecognized gains and losses in Woodward’s Condensed Consolidated Balance Sheets associated with derivative instruments that were previously entered into by Woodward, which are classified in accumulated OCI, were net gains of $4,783 as of March 31, 2023 and losses of $6,338 as of September 30, 2022.

Note 7.9. Supplemental statement of cash flows information


	Six-Months Ended March 31,
	2023		2022
Interest paid, net of amounts capitalized	$	17,689	$	12,458
Income taxes paid		44,589		20,914
Income tax refunds received		1,392		6,517
Non-cash activities:
Purchases of property, plant and equipment on account		3,743		1,072
Common shares issued from treasury to settle benefit obligations		19,467		17,168
Purchases of treasury stock on account		—		11,080

Note 10. Acquisitions

On August 2, 2022, we entered into a series of Purchase Agreements with one of our Asia pacific channel partners, PM Control PLC (the “PM Agreements”). Pursuant to the PM Agreements, we agreed to acquire business assets and shares of stock of PM Control PLC and its affiliates (collectively, “PM Control”), for a total consideration (net of a working capital adjustment, excluding cash acquired from the acquisition, and including the settlement of pre‐existing relationships) of $21,421 (the “PM Acquisition”). The PM Acquisition closed on August 31, 2022 (the “PM Closing”), and PM Control PLC became a wholly owned subsidiary of the Company.

ASC Topic 805, “Business Combinations” (“ASC 805”), provides a framework to account for acquisition transactions under U.S. GAAP. The purchase price of PM Control, prepared consistent with the required ASC 805 framework, is allocated as follows:


Cash paid to Sellers	$	22,890
Working capital adjustment		(878	)
Less acquired cash and restricted cash		(1,341	)
Plus settlement of pre-existing relationships		750
Total purchase price	$	21,421

Three-Months Ended December 31,

2017

2016
Interest paid, net of amounts capitalized

$
11,302

$
10,317
Income taxes paid

7,695

6,047
Income tax refunds received

1,772

59
Non-cash activities:

Purchases of property, plant and equipment on account

10,631

6,130
Common shares issued from treasury to settle employee liabilities

-

1,767

~~Note 8. Accounts receivable~~

~~Almost all~~The allocation of ~~Woodward’s sales are made~~the purchase price to the assets acquired and liabilities assumed was recorded as of the end of business on ~~credit~~August 31, 2022 using the purchase method of accounting in accordance with ASC 805. Assets acquired and ~~result~~liabilities assumed in ~~accounts receivable, which are~~the transaction were recorded at their acquisition date fair values, while transaction costs associated with the ~~amount invoiced~~acquisition were expensed as incurred. Woodward’s allocation was based on an evaluation of the appropriate fair values and ~~are generally not collateralized. In~~represents management’s best estimate.

The following table summarizes, as of August 31, 2022, the ~~normal course~~estimated fair values of ~~business, not all accounts receivable are collected~~the assets acquired and ~~therefore, an allowance for uncollectible amounts is provided equal~~liabilities assumed at the PM Closing.


Accounts receivable	$	4,334
Inventories		2,464
Other current assets		386
Property, plant, and equipment		2,488
Goodwill		8,705
Intangible assets		8,874
Total assets acquired		27,251
Other current liabilities		(2,703	)
Deferred income tax liabilities		(1,842	)
Other noncurrent liabilities		(1,285	)
Total liabilities assumed		(5,830	)
Net assets acquired	$	21,421

During the first quarter of fiscal year 2023, we made certain measurement period adjustments to the ~~amount that Woodward believes ultimately will not be collected. In establishing~~acquired assets and the ~~amount~~assumed liabilities due to clarification of information utilized to determine fair value during the ~~allowance~~measurement period. The measurement period adjustment was related to the ~~credit risk~~PM Control trade name. Management determined that the PM Control trade name would no longer be used after calendar year 2023, thus resulting in a measurement period adjustment of ~~accounts receivable, customer-specific~~$1,042, which reduced intangible assets and increased goodwill. Additionally, in the first quarter of 2023, a working capital adjustment was made that resulted in a reduction of goodwill of $863.

The fair values assigned to tangible and intangible assets acquired, and liabilities assumed, are based on management’s estimates and assumptions and may be subject to change as additional information is ~~considered related~~received. Additional information that existed as of the closing date but not known at the time of this filing may become known to ~~delinquent accounts, past loss experience, bankruptcy filings, deterioration~~the Company during the remainder of the 12-month measurement period. The Company will continue to collect information and re-evaluate these estimates and assumptions quarterly.

The preliminary purchase price allocation resulted in the ~~customer’s operating results or financial position,~~recognition of $8,705 of goodwill, which is expected to be non‐deductible for tax purposes. The Company has included all the goodwill in its Industrial segment. The goodwill represents the estimated value of potential expansion with new customers, the opportunity to further develop sales opportunities with new customers, and ~~current economic conditions. Accounts receivable losses are deducted from~~other synergies expected to be achieved through the ~~allowance,~~integration of PM Control with Woodward’s Industrial segment.

A summary of the intangible assets acquired, weighted‐average useful lives, and the related accounts receivable balances are written off when the receivables are deemed uncollectible. Recoveries of accounts receivable previously written off are recognized when received. In addition, an allowanceamortization methods follows:


	Estimated Amounts		Weighted- Average Useful Life	Amortization Method
Intangible assets with finite lives:
Customer relationships and contracts	$	8,332	11 years	Straight-line
Trade name		542	15 months	Straight-line
Total	$	8,874

Future amortization expense associated with ~~anticipated future sales returns~~the acquired intangibles for the fiscal year ended September 30, 2023, is ~~also established~~expected to be $1,191, $865 for the fiscal year ended September 30, 2024, and is$757 for the next three fiscal years ended.

We have not presented pro forma results because the PM Acquisition was not deemed significant at the date of PM Closing.

Note 11. Inventories


	March 31, 2023			September 30, 2022
Raw materials	$	146,695		$	126,264
Work in progress		130,962			123,005
Component parts(1)		343,456			329,962
Finished goods		89,392			70,019
Customer supplied inventory		14,779			12,442
On-hand inventory for which control has transferred to the customer		(157,500	)		(147,405	)
	$	567,784		$	514,287

(1)

Component parts include items that can be sold separately as finished goods or included in the ~~allowance for uncollectible amounts.~~

~~Consistent with common business practice in China, Woodward’s Chinese subsidiary accepts from Chinese customers, in settlement~~manufacture of certain customer accounts receivable, bankers’ acceptance notes issued by Chinese banks that are believed to be creditworthy. Bankers’ acceptance notes are financial instruments issued by Chinese financial institutions as part of financing arrangements between the financial institution and a customer of the financial institution. Bankers’ acceptance notes represent a commitment by the issuing financial institution to pay a certain amount of money at a specified future maturity date to the legal owner of the bankers’ acceptance note as of the maturity date. The maturity date of bankers’ acceptance notes varies, but it is Woodward’s policy to only accept bankers’ acceptance notes with maturity dates no more than 180 days from the date of Woodward’s receipt of such draft. The issuing financial institution is the obligor, not Woodward’s customers. Upon Woodward’s acceptance of a banker’s acceptance note from a customer, such customer has no further obligation to pay Woodward for the related accounts receivable balance. Woodward only accepts bankers’ acceptance notes issued by banks that are believed to be creditworthy and to which the credit risks associated with the bankers’ acceptance notes are believed to be minimal.

~~The composition of Woodward’s accounts receivable at December 31, 2017 and September 30, 2017 follows:~~

December 31,

September 30,

2017

2017
Accounts receivable from:

Customers

$
275,433

$
367,715
Other (Chinese financial institutions)

59,798

38,243
Allowance for uncollectible customer amounts

(3,793)

(3,776)

$
331,438

$
402,182
other products.

~~Note 9. Inventories~~

December 31,

September 30,

2017

2017
Raw materials

$
60,355

$
59,034
Work in progress

106,065

103,790
Component parts (1)

285,674

262,755
Finished goods

51,429

47,926

$
503,523

$
473,505

~~(1)~~

~~Component parts include items that can be sold separately as finished goods or included in the manufacture of other products.~~

Note ~~10.~~12. Property, plant, and equipment



	December 31,		September 30,
	2017		2017		March 31, 2023			September 30, 2022
Land and land improvements	$	88,536	$	88,326	$	86,174		$	84,057
Buildings and building improvements		515,338		514,453		582,574			555,387
Leasehold improvements		16,425		16,142		20,814			19,392
Machinery and production equipment		560,264		543,641		795,173			779,514
Computer equipment and software		125,628		124,723		119,439			122,670
Office furniture and equipment		24,455		24,308		41,513			39,749
Other		19,423		19,393		20,152			20,162
Construction in progress		117,085		111,910		60,818			58,789
		1,467,154		1,442,896		1,726,657			1,679,720
Less accumulated depreciation		(536,996)		(520,853)		(806,985	)		(769,248	)
Property, plant, and equipment, net	$	930,158	$	922,043	$	919,672		$	910,472

Included in “Office furniture and equipment” and “Other” is $1,653 at each of December 31, 2017 and September 30, 2017, of gross assets acquired on capital leases, and accumulated depreciation included $844 at December 31, 2017 and $739 at September 30, 2017 of amortization associated with the capital lease assets.

In fiscal year 2015, Woodward completed and placed into service a manufacturing and office building on a second campus in the greater-Rockford, Illinois area and has occupied the new facility for its Aerospace segment. This campus is intended to support Woodward’s expected growth in its Aerospace segment over the next ten years and beyond, required as a result of Woodward being awarded a substantial number of new system platforms, particularly on narrow-body aircraft. Included in “Construction in progress” are costs of $48,971 at December 31, 2017 and $49,347 at September 30, 2017 associated with new equipment purchases for the second campus.

For the ~~three-months~~three and six-months ended ~~December~~March 31, ~~2017~~2023 and ~~2016,~~2022, Woodward had depreciation expense as follows:


	Three-Months Ended March 31,				Six-Months Ended March 31,
	2023		2022		2023		2022
Depreciation expense	$	20,535	$	21,023	$	40,661	$	42,056

Note 13. Goodwill

Three-Months Ended

December 31,

2017

2016
Depreciation expense

$
14,827

$
12,455


	September 30, 2022		Additions		Effects of Foreign Currency Translation		March 31, 2023
Aerospace	$	455,423	$	—	$	—	$	455,423
Industrial		317,136		180		26,408		343,724
Consolidated	$	772,559	$	180	$	26,408	$	799,147

~~For the three-months ended December 31, 2017 and 2016, Woodward capitalized interest that would have otherwise been included in interest expense of the following:~~

Three-Months Ended

December 31,

2017

2016
Capitalized interest

$
601

$
472

~~Note 11. Goodwill~~

September 30, 2017

Effects of Foreign Currency Translation

December 31, 2017
Aerospace

$
455,423

$
-

$
455,423
Industrial

101,122

214

101,336
Consolidated

$
556,545

$
214

$
556,759

Woodward tests goodwill for impairment during the fourth quarter of each fiscal year orand at any time there is an indication that goodwill is more-likely-than-not impaired ~~commonly~~(commonly referred to as a triggering ~~events. There have been no such triggering events during any of~~event). Woodward’s goodwill impairment test in the ~~periods presented and Woodward’s~~ fourth quarter of fiscal year ~~2017 impairment test~~2022 resulted in no impairment.

Note ~~12.~~14. Intangible assets, net


													March 31, 2023							September 30, 2022
	December 31, 2017						September 30, 2017						Gross Carrying Value		Accumulated Amortization			Net Carrying Amount		Gross Carrying Value		Accumulated Amortization			Net Carrying Amount
	Gross Carrying Value		Accumulated Amortization		Net Carrying Amount		Gross Carrying Value		Accumulated Amortization		Net Carrying Amount
Intangible assets with finite lives:
Customer relationships and contracts:
Aerospace	$	282,225	$	(155,183)	$	127,042	$	282,225	$	(151,155)	$	131,070	$	281,683	$	(229,858	)	$	51,825	$	281,683	$	(223,565	)	$	58,118
Industrial		40,944		(34,615)		6,329		40,962		(34,407)		6,555		390,123		(82,639	)		307,484		352,917		(66,812	)		286,105
Total	$	323,169	$	(189,798)	$	133,371	$	323,187	$	(185,562)	$	137,625	$	671,806	$	(312,497	)	$	359,309	$	634,600	$	(290,377	)	$	344,223

Intellectual property:
Aerospace	$	-	$	-	$	-	$	-	$	-	$	-	$	—	$	—		$	—	$	—	$	—		$	—
Industrial		19,459		(18,315)		1,144		19,422		(18,196)		1,226		12,428		(12,428	)		—		12,361		(12,361	)		—
Total	$	19,459	$	(18,315)	$	1,144	$	19,422	$	(18,196)	$	1,226	$	12,428	$	(12,428	)	$	—	$	12,361	$	(12,361	)	$	—

Process technology:
Aerospace	$	76,605	$	(50,619)	$	25,986	$	76,605	$	(49,124)	$	27,481	$	76,370	$	(70,410	)	$	5,960	$	76,370	$	(69,471	)	$	6,899
Industrial		22,910		(18,118)		4,792		22,950		(17,756)		5,194		85,596		(30,543	)		55,053		78,524		(27,464	)		51,060
Total	$	99,515	$	(68,737)	$	30,778	$	99,555	$	(66,880)	$	32,675	$	161,966	$	(100,953	)	$	61,013	$	154,894	$	(96,935	)	$	57,959

Other intangibles:
Aerospace	$	-	$	-	$	-	$	-	$	-	$	-	$	—	$	—		$	—	$	—	$	—		$	—
Industrial		1,332		(992)		340		1,312		(956)		356		571		(255	)		316		1,560		—			1,560
Total	$	1,332	$	(992)	$	340	$	1,312	$	(956)	$	356	$	571	$	(255	)	$	316	$	1,560	$	—		$	1,560

Intangible asset with indefinite life:
Tradename:
Aerospace													$	—	$	—		$	—	$	—	$	—		$	—
Industrial														63,246		—			63,246		56,838		—			56,838
Total													$	63,246	$	—		$	63,246	$	56,838	$	—		$	56,838
Total intangibles:
Aerospace	$	358,830	$	(205,802)	$	153,028	$	358,830	$	(200,279)	$	158,551	$	358,053	$	(300,268	)	$	57,785	$	358,053	$	(293,036	)	$	65,017
Industrial		84,645		(72,040)		12,605		84,646		(71,315)		13,331		551,964		(125,865	)		426,099		502,200		(106,637	)		395,563
Consolidated Total	$	443,475	$	(277,842)	$	165,633	$	443,476	$	(271,594)	$	171,882	$	910,017	$	(426,133	)	$	483,884	$	860,253	$	(399,673	)	$	460,580

Woodward tests the indefinite lived tradename intangible asset for impairment during the fourth quarter of each fiscal year and at any time there is an indication the indefinite lived tradename intangible asset is more-likely-than-not impaired (commonly referred to as a triggering event). Woodward’s impairment test for the indefinite lived tradename intangible asset in the fourth quarter of fiscal year 2022 resulted in no impairment.

For the ~~three-months~~three and six-months ended ~~December~~March 31, ~~2017~~2023 and ~~2016,~~2022, Woodward recorded amortization expense associated with intangibles of the following:

Three-Months Ended

December 31,

2017

2016
Amortization expense
$
6,243

$
6,458


	Three-Months Ended March 31,				Six-Months Ended March 31,
	2023		2022		2023		2022
Amortization expense	$	9,418	$	9,587	$	18,596	$	19,275

Future amortization expense associated with intangibles is expected to be:


Year Ending September 30:
2023 (remaining)	$	19,075
2024		33,282
2025		28,132
2026		28,073
2027		28,020
Thereafter		284,056
	$	420,638

Year Ending September 30:

2018 (remaining)

$
18,782
2019

23,156
2020

20,373
2021

18,404
2022

16,249
Thereafter

68,669

$
165,633

Note ~~13.~~15. Credit facilities, short-term borrowings and long-term debt

Revolving credit facility

Woodward maintains a ~~$1,000,000~~$1,000,000 revolving credit facility established under a revolving credit agreement among Woodward, a syndicate of lenders and Wells Fargo Bank, National Association, as administrative agent, ~~(the “Revolving Credit Agreement”). The Revolving Credit Agreement~~which provides for the option to increase available borrowings to up to ~~$1,200,000,~~$1,500,000, subject to lenders’ ~~participation.~~participation (as amended in November 2021, the “Amended and Restated Revolving Credit Agreement”). On October 21, 2022, Woodward amended the Amended and Restated Revolving Credit Agreement (the “Second Amended and Restated Revolving Credit Agreement”) to, among other things, (i) extend the termination date of the revolving loan commitments of all the lenders from June 19, 2024 to October 21, 2027, (ii) remove the covenants restricting investments, acquisitions, dividends, and distributions, and (iii) subject to removal from the Company’s existing note purchase agreements or the termination or maturation of such note purchase agreements, remove the minimum consolidated net worth covenant. Borrowings under the Second Amended and Restated Revolving Credit Agreement can be made by Woodward and certain of its foreign subsidiaries in U.S. dollars or in foreign currencies other than the U.S. dollar and generally bear interest at ~~LIBOR~~the Euro Interbank Offered Rate (“Euribor”), Sterling Overnight Index Average (“SONIA”), Tokyo Interbank Offered Rate (“TIBOR”), and Secured Overnight Financing Rate (“SOFR”) base rates plus ~~0.85%~~0.875% to ~~1.65%~~1.75%. ~~The Revolving Credit Agreement matures in April 2020.~~

Under the Second Amended and Restated Revolving Credit Agreement, there were ~~$66,300~~$130,500 in principal amount of borrowings outstanding as of ~~December~~March 31, ~~2017,~~2023 at an effective interest rate of ~~2.52%, and $32,600 in principal amount of borrowings outstanding as of September 30, 2017, at an effective interest rate of 2.29%~~5.88%. As of ~~December~~March 31, ~~2017 and September 30, 2017,~~2023, all of the borrowings ~~under the Revolving Credit Agreement~~outstanding were classified as short-term borrowings based on ~~Woodward’s~~Woodward's intent and ability to pay this amount in the next twelve months. As of September 30, 2022, there were $66,800 in principal amount of borrowings outstanding under the Amended and Restated Revolving Credit Agreement at an effective interest rate of 4.24%.

Short-term borrowings

Woodward has other foreign lines of credit and foreign overdraft facilities at various financial institutions, which are generally reviewed annually for renewal and are subject to the usual terms and conditions applied by the financial institutions. Pursuant to the terms of the related facility agreements, Woodward’s foreign performance guarantee facilities are limited in use to providing performance guarantees to third parties. There were no borrowings outstanding ~~as of December 31, 2017 and September 30, 2017~~ on Woodward’s foreign lines of credit and foreign overdraft ~~facilities.~~facilities as of March 31, 2023 and September 30, 2022.

~~Long-term~~Debt issuance costs

In connection with the Second Amended and Restated Revolving Credit Agreement, Woodward incurred $2,236 in debt

December 31,

September 30,

2017

2017
Series D notes – 6.39%, due October 2018; unsecured

$
100,000

$
100,000
Series F notes – 8.24%, due April 2019; unsecured

43,000

43,000
Series G notes – 3.42%, due November 2020; unsecured

50,000

50,000
Series H notes – 4.03%, due November 2023; unsecured

25,000

25,000
Series I notes – 4.18%, due November 2025; unsecured

25,000

25,000
Series J notes – Floating rate (LIBOR plus 1.25%), due November 2020; unsecured

50,000

50,000
Series K notes – 4.03%, due November 2023; unsecured

50,000

50,000
Series L notes – 4.18%, due November 2025; unsecured

50,000

50,000
Series M notes – 1.12% due September 2026; unsecured

48,015

47,270
Series N notes – 1.31% due September 2028; unsecured

92,428

90,995
Series O notes – 1.57% due September 2031; unsecured

51,616

50,815
Unamortized debt issuance costs

(1,720)

(1,794)
Total long-term debt

583,339

580,286
Less: Current portion of long-term debt

-

-
Long-term debt, less current portion

$
583,339

$
580,286

~~The Notes~~

~~In October 2008, Woodward entered into a note purchase agreement relating to the Series D Notes. The Series D Notes mature~~ issuance costs, which are deferred and are ~~payable in October 2018.~~being amortized using the straight-line method over the life of the agreement. As of ~~December~~March 31, ~~2017, the entire amount~~2023, Woodward also had $1,046 of deferred debt ~~under the Series D Notes has~~

~~been classified as long-term based on Woodward’s intent and ability to refinance this debt using cash proceeds from its existing revolving credit facility which,~~issuance costs remaining that were incurred in ~~turn, is expected to be repaid beyond the next twelve months. In April 2009, Woodward entered into a note purchase agreement relating to the Series F Notes.~~

On October 1, 2013, Woodward entered into a note purchase agreement relating to the sale by Woodward of an aggregate principal amount of $250,000 of its senior unsecured notes in a series of private placement transactions. Woodward issued the Series G, H and I Notes (the “First Closing Notes”) on October 1, 2013. Woodward issued the Series J, K and L Notes (the “Second Closing Notes,” and togetherconnection with the ~~Series D Notes, the Series F Notes~~Amended and ~~the First Closing Notes, the “USD Notes”) on November 15, 2013.~~

On September 23, 2016, Woodward and the BV Subsidiary each entered into note purchase agreements relating to the sale by Woodward and the BV Subsidiary of an aggregate principal amount of €160,000 of senior unsecured notes in a series of private placement transactions. Woodward issued €40,000 aggregate principal amount of Woodward’s Series M Senior Notes (the “Series M Notes”). The BV Subsidiary issued (a) €77,000 aggregate principal amount of the BV Subsidiary’s Series N Senior Notes (the “Series N Notes”) and (b) €43,000 aggregate principal amount of the BV Subsidiary’s Series O Senior Notes (the “Series O Notes” and togetherRestated Credit Agreement, which have been combined with the ~~Series M Notes and the Series N Notes, the “2016 Notes,” and, together with the USD Notes, collectively, the “Notes”).~~

Interest on the Series D Notes, the First Closing Notes, and the Series K and L Notes is payable semi-annually on April 1 and October 1 of each year until all principal is paid. Interest on the Series F Notes is payable semi-annually on April 15 and October 15 of each year until all principal is paid. Interest on the 2016 Notes is payable semi-annually on March 23 and September 23 of each year, until all principal is paid. Interest on the Series J Notes is payable quarterly on January 1, April 1, July 1 and October 1 of each year until all principal is paid. As of December 31, 2017, the Series J Notes bore interest at an effective rate of 2.69%.

~~Debt Issuance Costs~~

~~Unamortized~~deferred debt issuance costs associated with the ~~Notes~~Second Amended and Restated Revolving Credit Agreement and are being amortized using the straight-line method over the life of ~~$1,720 as of December 31, 2017~~the Second Amended and ~~$1,794 as of September 30, 2017 were recorded as a reduction in “Long-term debt, less current portion” in the Condensed Consolidated Balance Sheets.~~Restated Revolving Credit Agreement. Unamortized debt issuance costs of ~~$2,041~~$1,313 associated with ~~the Revolving Credit Agreement~~these revolving credit agreements as of ~~December~~March 31, ~~2017~~2023 and ~~$2,259~~$1,046 as of September 30, ~~2017~~2022 were recorded as “Other current assets” and “Other assets” in the Condensed Consolidated Balance Sheets. Amortization of debt issuance costs is included in operating activities in the Condensed Consolidated Statements of Cash Flows.

Note ~~14.~~16. Accrued liabilities



	December 31,		September 30,
	2017		2017		March 31, 2023		September 30, 2022
Salaries and other member benefits	$	43,844	$	91,285	$	70,768	$	75,665
Warranties		13,017		13,597
Product warranties and related liabilities(1)						46,492		40,042
Interest payable		5,392		9,626		13,599		13,481
Current portion of acquired performance obligations and unfavorable contracts (1)		1,627		1,627
Accrued retirement benefits		2,379		2,413		2,889		2,779
Current portion of loss reserve on contractual lease commitments		1,244		1,343
Current portion of deferred income from JV formation (Note 4)		6,439		6,451
Deferred revenues		3,568		4,625
Net current contract liabilities						29,548		30,663
Current portion of restructuring charges						2,336		1,083
Taxes, other than income		10,934		14,401		18,273		21,159
Other		10,341		9,704		22,483		21,411
	$	98,785	$	155,072	$	206,388	$	206,283

(1)

Product warranties and related liabilities includes estimates related to product liabilities expected to be fully recoverable from insurance.

~~(1)~~

In connection with Woodward’s acquisition of GE Aviation Systems LLC’s (the “Seller”) thrust reverser actuation systems business located in Duarte, California (the “Duarte Acquisition”) in fiscal year 2013, Woodward assumed current and long-term performance obligations for contractual commitments that are expected to result in future economic losses. In addition, Woodward assumed current and long-term performance obligations for services to be provided to the Seller and others, partially offset by current and long-term assets related to contractual payments due from the Seller. The current portion of both obligations is included in Accrued liabilities.

Product warranties and related liabilities

~~Warranties~~

Provisions of Woodward’s sales agreements include product warranties customary to these types of agreements. Accruals are established for specifically identified warranty issues ~~that~~and related liabilities for which are probable to result in future costs. Warranty costs are accrued as revenue is recognized on a non-specific basis whenever past experience indicates a normal and predictable pattern exists.

Changes in accrued product warranties and related liabilities were as follows:


	Three-Months Ended March 31,						Six-Months Ended March 31,
	2023			2022			2023			2022
Beginning of period	$	49,526		$	13,203		$	40,042		$	17,481
Additions, net of recoveries		3,413			984			20,423			222
Reductions for settlement		(6,501	)		(1,190	)		(14,203	)		(4,669	)
Foreign currency exchange rate changes		54			(13	)		230			(50	)
End of period	$	46,492		$	12,984		$	46,492		$	12,984

Restructuring charges

During the second quarter of fiscal year 2023, the Company committed to a cost reduction plan ("Cost Reduction Plan") to better align the cost structure and recorded $5,172 of restructuring charges. The charges recognized under the Cost Reduction Plan consist of workforce management costs primarily related to aligning the cost structure of the Company’s Industrial segment with the current market conditions. All of the restructuring charges were recorded as nonsegment expenses and are expected to be paid within twelve months.

Three-Months Ended December 31,

2017

2016
Warranties, beginning of period
$
13,597

$
15,993
Expense, net of recoveries

(2,030)

1,923
Reductions for settling warranties

1,377

(2,032)
Foreign currency exchange rate changes

73

(356)
Warranties, end of period
$
13,017

$
15,528

~~Loss reserve on contractual lease commitments~~

In fiscal year 2022, the Company determined to implement a streamlined Aerospace and Industrial organizational and leadership structure designed to enhance the sales experience for customers, simplify operations, and increase profitability through improved execution. In connection with ~~the construction~~leadership changes arising from such reorganization, we recorded $1,083 of a new production facility in Niles, Illinois, Woodward vacated a leased facility in Skokie, Illinois and recognized a loss reserve against the estimated remaining contractual lease commitments, less anticipated sublease income. Changes in the loss reserverestructuring charges as nonsegment expenses, which were ~~as follows:~~

Three-Months Ended December 31,

2017

2016
Loss reserve on contractual lease commitments, beginning of period
$
5,270

$
9,242
Payments, net of sublease income

(553)

(402)
Loss reserve on contractual lease commitments, end of period
$
4,717

$
8,840

~~Other liabilities included $3,473 and $3,927 of accrued loss reserve on contractual lease commitments~~paid as of December 31, ~~2017~~2022.

In fiscal year 2021, the Company recorded aggregate restructuring charges totaling $5,008 as nonsegment expenses for two separate workforce management actions, one in our hydraulics systems business and ~~September 30, 2017, respectively,~~one in our engine systems business. In fiscal year 2022, we experienced a challenging operating environment that included the ongoing impact of global supply chain and labor disruptions, along with high inflation, which resulted in changed business conditions compared to when we initially recorded the restructuring charges in fiscal year 2021. We adapted to the changed business conditions by, among other initiatives, (i) developing and implementing plans to insource select machined components, (ii) redeploying talent and adding indirect resources to our factories to stabilize the production environment, and (iii) determining to retain employees that otherwise would have been impacted by the planned restructuring activities to support a stable workforce and effectively manage through attrition. As such, the previously remaining unpaid accrued restructuring charges, which amounted to $4,503, were no longer needed and were reversed in fiscal year 2022.

The summary of activity in accrued restructuring charges are ~~not expected to be settled or paid within twelve months of the respective balance sheet date.~~as follows:


			Period Activity
	Balances as of September 30, 2022		Charges		Payments			Non-cash activity		Balances as of March 31, 2023
Workforce management costs associated with:
Cost reduction plan	$	—	$	5,172	$	(2,836	)	$	—	$	2,336
Aerospace		139		—		(139	)		—		—
Industrial		944		—		(944	)		—		—
Total	$	1,083	$	5,172	$	(3,919	)	$	—	$	2,336


			Period Activity
	Balances as of September 30, 2021		Charges		Payments			Non-cash activity		Balances as of March 31, 2022
Workforce management costs associated with:
Hydraulics Systems Realignment	$	3,758	$	—	$	(505	)	$	—	$	3,253
Engine Systems Realignment		1,250		—		—			—		1,250
Total	$	5,008	$	—	$	(505	)	$	—	$	4,503

Note ~~15.~~17. Other liabilities

December 31,

September 30,

2017

2017
Net accrued retirement benefits, less amounts recognized within accrued liabilities

$
54,396

$
52,211
Noncurrent portion of deferred income from JV formation (1)

235,855

236,896
Total unrecognized tax benefits

20,003

20,949
Noncurrent income taxes payable (2)

26,000

-
Acquired unfavorable contracts (3)

1,562

2,076
Deferred economic incentives (4)

14,337

14,574
Loss reserve on contractual lease commitments (5)

3,473

3,927
Other

10,642

14,165

$
366,268

$
344,798


	March 31, 2023		September 30, 2022
Net accrued retirement benefits, less amounts recognized within accrued liabilities	$	76,616	$	70,168
Total unrecognized tax benefits		7,672		9,757
Noncurrent income taxes payable		10,714		14,329
Deferred economic incentives (1)		6,451		7,029
Noncurrent operating lease liabilities		20,863		21,443
Net noncurrent contract liabilities		409,262		396,345
Other		9,975		10,185
	$	541,553	$	529,256

(1)

Woodward receives certain economic incentives from various state and local authorities related to capital expansion projects. Such amounts are initially recorded as deferred credits and are being recognized as a reduction to pre-tax expense over the economic lives of the related capital expansion projects.

~~(1)~~

~~See Note 4,~~ ~~Joint venture~~ ~~for more information on the deferred income from JV formation.~~

~~(2)~~

~~See Note 17,~~ ~~Income taxes~~ ~~for more information on the noncurrent income taxes payable.~~

~~(3)~~

In connection with the Duarte Acquisition in fiscal year 2013, Woodward assumed current and long-term performance obligations for contractual commitments that are expected to result in future economic losses. The long-term portion of the acquired unfavorable contracts is included in Other liabilities.

~~(4)~~

~~(5)~~

~~See Note 14,~~ ~~Accrued liabilities~~ ~~for more information on the loss reserve on contractual lease commitments.~~

Note ~~16.~~18. Other (income) expense, net

Three-Months Ended

December 31,

2017

2016
Equity interest in the earnings of the JV (Note 4)

$
(596)

$
(684)
Net gain on sales of assets

(58)

(3,699)
Rent income

(54)

(73)
Net gain on investments in deferred compensation program

(654)

(24)
Other

(210)

(108)

$
(1,572)

$
(4,588)


	Three-Months Ended March 31,						Six-Months Ended March 31,
	2023			2022			2023			2022
Equity interest in the earnings of the JV	$	(8,468	)	$	(4,140	)	$	(13,041	)	$	(8,815	)
Net loss (gain) on sales of assets and businesses		857			(3	)		890			(1,541	)
Rent income		(93	)		(69	)		(181	)		(412	)
Net (gain) loss on investments in deferred compensation program		(1,679	)		2,451			(2,870	)		1,376
Other components of net periodic pension and other postretirement benefit, excluding service cost and interest expense		(2,675	)		(2,935	)		(5,160	)		(5,836	)
Other		18			(191	)		(68	)		(333	)
	$	(12,040	)	$	(4,887	)	$	(20,430	)	$	(15,561	)

Note ~~17.~~19. Income taxes

On December 22, 2017, the United States (“U.S.”) enacted significant changes to the U.S. tax law following the passage and signing of H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”) (previously known as “The Tax Cuts and Jobs Act”). The Tax Act included significant changes to existing tax law, including a permanent reduction to the U.S. federal corporate income tax rate from 35% to 21%, a one-time repatriation tax on deferred foreign income (“Transition Tax”), deductions, credits and business-related exclusions.

~~U.S. GAAP requires that the interim period tax provision be determined as follows:~~

At the end of each quarter, Woodward estimates the tax that will be provided for the current fiscal year stated as a percentage of estimated “ordinary income.” The term ordinary income refers to earnings from continuing operations before income taxes, excluding significant unusual or infrequently occurring items.

The estimated annual effective rate is applied to the year-to-date ordinary income at the end of each quarter to compute the estimated year-to-date tax applicable to ordinary income. The tax expense or benefit related to ordinary income in each quarter is the difference between the most recent year-to-date and the prior quarter year-to-date computations.

The tax effects of significant unusual or infrequently occurring items are recognized as discrete items in the interim period in which the events occur. The impact of changes in tax laws or rates on deferred tax amounts, the effects of changes in judgment about beginning of the year valuation allowances, and changes in tax reserves resulting from the finalization of tax audits or reviews are examples of significant unusual or infrequently occurring items that are recognized as discrete items in the interim period in which the event occurs. Enactment of the Tax Act during December 2017 resulted in a provisional discrete net charge to Woodward’s income tax expense in the amount of $14,778.

The determination of the estimated annual effective tax rate is based upon a number of significant estimates and ~~judgments, including the estimated annual pretax income of Woodward in each tax jurisdiction in which it operates, and the development of tax planning strategies during the year.~~judgments. In addition, as a global commercial enterprise, Woodward’s tax expense can be impacted by changes in tax

rates or laws, the finalization of tax audits and reviews, changes in the estimate of the amount of undistributed foreign earnings that Woodward considers indefinitely reinvested, issuance of future guidance, interpretation, and rule-making, and other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions.

The permanent reduction to the U.S. federal corporate income tax rate from 35% to 21% is effective January 1, 2018 (the “Effective Date”). When a U.S. federal tax rate change occurs during a fiscal year, taxpayers are required to compute a weighted daily average rate for the fiscal year of enactment. As a result of the Tax Act, Woodward has calculated a U.S. federal statutory corporate income tax rate of 24.5% for the fiscal year ending September 30, 2018 and applied this rate in computing the first quarter of fiscal year 2018 income tax provision. The U.S. federal statutory corporate income tax rate of 24.5% is the weighted daily average rate between the pre-enactment U.S. federal statutory tax rate of 35% applicable to Woodward’s 2018 fiscal year prior to the Effective Date and the post-enactment U.S. federal statutory tax rate of 21% applicable to the 2018 fiscal year thereafter. Woodward expects the U.S. federal statutory rate to be 21% for fiscal years beginning after September 30, 2018.

On December 22, 2017, the SEC issued Staff Accounting Bulletin 118 (“SAB 118”). SAB 118 expresses views of the SEC regarding ASC Topic 740, Income Taxes (“ASC 740”) in the reporting period that includes the enactment date of the

Tax Act. The SEC staff issuing SAB 118 (the “Staff”) recognized that a registrant’s review of certain income tax effects of the Tax Act may be incomplete at the time financial statements are issued for the reporting period that includes the enactment date, including interim periods therein. The Staff’s view of the enactment of the Tax Act has been developed considering the principles of ASC Topic 805, ~~Business Combinations~~, which addresses the accounting for certain items in a business combination for which the accounting is incomplete upon issuance of the financial statements that include the reporting period in which the business combination occurs. Specifically, the Staff provides that the accounting guidance in ASC Topic 805 may be analogized to the accounting for impacts of the Tax Act. If a company does not have the necessary information available, prepared or analyzed for certain income tax effects of the Tax Act, SAB 118 allows a company to report provisional numbers and adjust those amounts during the measurement period not to extend beyond one year. For the three-months ended December 31, 2017, Woodward has recorded all known and estimable impacts of the Tax Act that are effective for fiscal year 2018. Future adjustments to the provisional numbers will be recorded as discrete adjustments to income tax expense in the period in which those adjustments become estimable and/or are finalized.

Accordingly, Woodward’s income tax provision as of December 31, 2017 reflects (i) the current year impacts of the Tax Act on the estimated annual effective tax rate and (ii) the following discrete items resulting directly from the enactment of the Tax Act based on the information available, prepared, or analyzed (including computations) in reasonable detail.



	~~Three-Months Ended~~
	~~December 31, 2017~~
~~Transition Tax (provisional)~~	$	~~26,000~~
~~Net impact on U.S. deferred tax assets and liabilities (provisional)~~		~~(16,260)~~
~~Net changes in deferred tax liability associated with anticipated repatriation taxes (provisional)~~		~~5,038~~
~~Net discrete impacts of the enactment of the Tax Act~~	$	~~14,778~~

Woodward determined that the Transition Tax is provisional because various components of the computation are unknown as of December 31, 2017, including the following significant items: the exchange rates for fiscal year 2018, the actual aggregate foreign cash position and the earnings and profits of the foreign entities as of September 30, 2018, the interpretation and identification of cash positions as of September 30, 2018, and incomplete computations of accumulated earnings and profits balances as of November 2, 2017 and December 31, 2017. Consistent with provisions allowed under the Tax Act, the $26,000 estimated Transition Tax liability will be paid over an eight year period beginning in fiscal year 2019. The entire amount of the estimated Transition Tax liability has been included in “Other liabilities” in the Condensed Consolidated Balance Sheets.

Woodward also determined that the impact of the U.S. federal corporate income tax rate change on the U.S. deferred tax assets and liabilities is provisional because the number cannot be calculated until the underlying timing differences are known rather than estimated.

Given the Tax Act’s significant changes and potential opportunities to repatriate cash tax free, Woodward is in the process of evaluating its current indefinite assertions. As a result of the Tax Act, Woodward now expects to repatriate certain earnings which will be subject to withholding taxes. These additional withholding taxes are being recorded as an additional deferred tax liability associated with the basis difference in such jurisdictions. The uncertainty related to the taxation of such withholding taxes on distributions under the Tax Act and finalization of the cash repatriation plan makes the deferred tax liability a provisional amount.

Woodward continues to review the anticipated impacts of the global intangible low taxed income (“GILTI”) and base erosion anti-abuse tax (“BEAT”) on Woodward, which are not effective until fiscal year 2019. Woodward has not recorded any impact associated with either GILTI or BEAT in the tax rate for the first quarter of fiscal year 2018.

Within the calculation of Woodward’s annual effective tax rate Woodward has used assumptions and estimates that may change as a result of future guidance, interpretation, and rule-making from the Internal Revenue Service, the SEC, and the FASB and/or various other taxing jurisdictions. For example, Woodward anticipates that the state jurisdictions will continue to determine and announce their conformity to the Tax Act which could have an impact on the annual effective tax rate.

The following table sets forth the tax expense and the effective tax rate for Woodward’s earnings before income taxes:



	Three-Months Ended
	December 31,				Three-Months Ended March 31,						Six-Months Ended March 31,
	2017		2016		2023			2022			2023			2022
Earnings before income taxes	$	37,487	$	47,059	$	40,241		$	54,096		$	71,990		$	91,842
Income tax expense		19,227		511		4,730			6,190			6,873			13,631
Effective tax rate		51.3%		1.1%		11.8	%		11.4	%		9.5	%		14.8	%

The increase in the year-over-year effective tax rate for the three-months ended December 31, 2017 is primarily attributable to the $14,778 discrete net impact resulting from the enactment of the Tax Act partially offset by benefits of the current year effect of the U.S. federal corporate tax rate reduction resulting from the enactment of the Tax Act on the estimated annual effective tax rate. In addition, the effective tax rate for the three-months ended ~~December~~March 31, ~~2016 includes the impact of the repatriation~~2023 compared to the ~~U.S. of certain net foreign profits and losses. The U.S. foreign~~three-months ended March 31, 2022 is primarily attributable to a smaller stock-based compensation tax benefit, primarily offset by larger state income tax credits ~~available as a result of the repatriation of the foreign net earnings~~and Foreign Derived Intangible Income benefit.

The decrease in the ~~first quarter~~effective tax rate for the six-months ended March 31, 2023 compared to the six-months ended March 31, 2022 is primarily attributable to the release of ~~last year were greater than the U.S. taxes payable on these net foreign earnings.~~ uncertain tax positions, larger state income tax credits, and a larger Foreign Derived Intangible Income benefit, partially offset by a smaller stock-based compensation tax benefit.

Gross unrecognized tax benefits were ~~$18,997~~$10,102 as of ~~December~~March 31, ~~2017,~~2023, and ~~$20,132~~$11,938 as of September 30, ~~2017. Included in~~2022. At March 31, 2023, the ~~balance~~amount of the liability for unrecognized ~~tax benefits were $8,949 as of December 31, 2017 and $9,677 as of September 30, 2017 of~~ tax benefits that, if recognized, would ~~affect the~~impact Woodward’s effective tax ~~rate.~~rate was $6,470. At this time, Woodward ~~estimates that~~believes it is reasonably possible that the liability for unrecognized tax benefits will decrease by as much as ~~$8,901~~$2,522 in the next twelve months due to the completion of ~~reviews~~review by tax authorities, lapses of statutes, and the settlement of tax positions. ~~Woodward accrues~~Woodward’s tax expense includes accruals for potential interest and penalties related to unrecognized tax benefits and all other interest and penalties related to tax ~~payments in tax expense. Woodward had accrued gross interest and penalties of $1,243 as of December 31, 2017 and $1,123 as of September 30, 2017.~~payments.

Woodward’s tax returns are subject to audits by U.S. federal, state, and foreign tax authorities, and these audits are at various stages of completion at any given time. Reviews of tax matters by authorities and lapses of the applicable statutes of ~~limitations~~limitation may result in changes to tax expense. ~~Fiscal~~Generally, Woodward’s fiscal years remaining open to examination for U.S. Federal income taxes include fiscal years 2019 and thereafter. Woodward’s fiscal years remaining open to examination for significant U.S. state income tax jurisdictions include fiscal years 2018 and thereafter. Woodward’s fiscal years remaining open to examination in significant foreign jurisdictions include ~~2008~~2017 and thereafter. Woodward’s fiscal years remaining open to examination in the United States include fiscal years 2014 and thereafter. Woodward is currently under examination by the Internal Revenue Service for fiscal year 2014. Woodward has concluded U.S. federal income tax examinations through fiscal year 2012. Woodward is generally subject to U.S. state income tax examinations for fiscal years 2012 and the periods thereafter.

Note ~~18.~~20. 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~~non-U.S. employees are also eligible to participate in similar ~~foreign~~non-U.S. plans.

Woodward’s U.S. employees receive an annual contribution of Woodward stock, equal to 5% of their eligible prior year wages, to their personal Woodward Retirement Savings Plan accounts. Woodward fulfilled its annual Woodward stock contribution obligation using shares held in treasury stock by issuing a total of 187 shares of common stock for a value of $19,307 in the second quarter of fiscal year 2023, compared to a total of 150 shares of common stock for a value of $17,168 in the second quarter of fiscal year 2022.

The amount of expense associated with defined contribution plans was as follows:


	Three-Months Ended March 31,				Six-Months Ended March 31,
	2023		2022		2023		2022
Company costs	$	11,838	$	9,499	$	21,940	$	20,450

Three-Months Ended

December 31,

2017

2016
Company costs

$
7,879

$
7,249

Defined benefit plans

Woodward has defined benefit plans that provide pension benefits for certain retired employees in the United States, the United Kingdom, Japan, and ~~Japan.~~Germany. 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.~~States. 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.

U.S. GAAP requires that, for obligations outstanding as of September 30, ~~2017,~~2022, the funded status reported in interim periods shall be the same asset or liability recognized in the previous year end statement of financial position adjusted for (a) subsequent accruals of net periodic benefit cost that exclude the amortization of amounts previously recognized in other comprehensive income (for example, subsequent accruals of service cost, interest cost, and return on plan assets) and (b) contributions to a funded plan or benefit payments.

During the third quarter of fiscal year 2016, Woodward opened a lump-sum buy-out window, which closed in the fourth quarter of fiscal year 2016 and was fully settled during the first quarter of fiscal year 2017, 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 were provided the opportunity to elect to receive a one-time lump-sum payment or an immediate annuity in lieu of future pension benefit payments. Pension benefit payments paid from available pension plan assets under the lump-sum buy-out options were $670 during the first quarter of fiscal year 2017. Woodward made no further pension benefit payments under the lump-sum buy-out options.

The components of the net periodic retirement pension costs recognized are as follows:


	Three-Months Ended March 31,
	United States						Other Countries						Total
	2023			2022			2023			2022			2023			2022
Service cost	$	224		$	388		$	332		$	609		$	556		$	997
Interest cost		1,825			1,321			778			422			2,603			1,743
Expected return on plan assets		(2,075	)		(2,714	)		(573	)		(640	)		(2,648	)		(3,354	)
Amortization of:
Net actuarial loss (gain)		73			64			(153	)		146			(80	)		210
Prior service cost		175			245			6			6			181			251
Net periodic retirement pension cost (benefit)	$	222		$	(696	)	$	390		$	543		$	612		$	(153	)
Contributions paid	$	—		$	—		$	736		$	811		$	736		$	811

	Six-Months Ended March 31,
	United States						Other Countries						Total
	2023			2022			2023			2022			2023			2022
Service cost	$	447		$	777		$	652		$	1,230		$	1,099		$	2,007
Interest cost		3,649			2,641			1,528			848			5,177			3,489
Expected return on plan assets		(4,149	)		(5,427	)		(1,124	)		(1,285	)		(5,273	)		(6,712	)
Amortization of:
Net actuarial loss (gain)		146			129			(301	)		292			(155	)		421
Prior service cost		349			490			11			12			360			502
Net periodic retirement pension cost (benefit)	$	442		$	(1,390	)	$	766		$	1,097		$	1,208		$	(293	)
Contributions paid	$	—		$	—		$	1,298		$	1,499		$	1,298		$	1,499

The components of net periodic retirement pension costs other than the service cost and interest cost components are included in the line item “Other (income) expense, net”, and the interest component is included in the line item “Interest expense” in the Condensed Consolidated Statements of Earnings.

Three-Months Ended December 31,

United States

Other Countries

Total

2017

2016

2017

2016

2017

2016
Service cost

$
411

$
419

$
158

$
192

$
569

$
611
Interest cost

1,501

1,439

329

296

1,830

1,735
Expected return on plan assets

(2,904)

(2,632)

(686)

(641)

(3,590)

(3,273)
Amortization of:

Net actuarial loss

150

464

72

127

222

591
Prior service cost

177

96

-

-

177

96
Net periodic retirement pension benefit

$
(665)

$
(214)

$
(127)

$
(26)

$
(792)

$
(240)
Contributions paid

$
-

$
-

$
312

$
365

$
312

$
365

The components of the net periodic other postretirement benefit costs recognized are as follows:


	Three-Months Ended March 31,						Six-Months Ended March 31,
	2023			2022			2023			2022
Service cost	$	—		$	—		$	—		$	—
Interest cost		226			145			452			289
Amortization of:
Net actuarial gain		(124	)		(23	)		(248	)		(47	)
Prior service cost		—			—			—			—
Net periodic other postretirement cost	$	102		$	122		$	204		$	242
Contributions paid	$	444		$	457		$	885		$	928

The components of net periodic other postretirement benefit costs other than the service cost and interest cost components are included in the line item “Other (income) expense, net”, and the interest cost component is included in the line item “Interest expense” in the Condensed Consolidated Statements of Earnings.

Three-Months Ended

December 31,

2017

2016
Service cost

$
2

$
4
Interest cost

292

311
Amortization of:

Net actuarial loss

24

50
Prior service benefit

(40)

(40)
Curtailment gain

(330)

-
Net periodic other postretirement (benefit) cost

$
(52)

$
325
Contributions paid

$
226

$
615

The amount of cash contributions made to these plans in any year is dependent upon a number of factors, including minimum funding requirements in the jurisdictions in which Woodward operates and arrangements made with trustees of certain foreign plans. As a result, the actual funding in fiscal year ~~2018~~2023 may differ from the current estimate. Woodward estimates its remaining cash contributions in fiscal year ~~2018~~2023 will be as follows:


Retirement pension benefits:
United States		$	—
~~Retirement pension benefits:~~United Kingdom			481
~~United States~~Japan		$	-—
~~United Kingdom~~Germany			~~297~~
~~Japan~~	401		-
Other postretirement benefits			~~3,645~~ 1,931

~~Multiemployer defined benefit plans~~

~~Woodward operates multiemployer defined benefit plans for certain employees in both the Netherlands and Japan. The amounts of contributions associated with the multiemployer plans were as follows:~~

Three-Months Ended

December 31,

2017

2016
Company contributions

$
79

$
68

Note ~~19.~~21. Stockholders’ equity

Stock repurchase program

In November 2019, the ~~first quarter of fiscal year 2017, Woodward’s~~Woodward board of directors ~~terminated the Company’s prior stock repurchase program and replaced it with~~(the “Board”) had authorized a ~~new~~ program for the repurchase of up to ~~$500,000~~$500,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a three-year period that ~~will end~~was scheduled to expire in November ~~2019~~2022 (the ~~“2017~~“2019 Authorization”). InDuring the first ~~quarter~~six months of fiscal year ~~2017,~~2022, Woodward ~~purchased 350~~repurchased 233 shares of its common stock for ~~$24,004 pursuant to a 10b5-1 plan~~$26,742 under the ~~2017~~2019 Authorization. ~~Woodward repurchased no~~

In January 2022, the Board terminated the 2019 Authorization and concurrently authorized a new program for the repurchase of up to $800,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a two-year period ending in January 2024 (the “2022 Authorization”). During the first ~~quarter~~six months of fiscal year ~~2018.~~2023, Woodward repurchased 274 shares of its common stock for $26,369 under the 2022 Authorization, compared to 2,047 shares of its common stock for $245,357 during the first six months of fiscal year 2022.

Stock-based compensation

Provisions governing outstanding stock option awards are included in the 2017 Omnibus Incentive Plan, as amended from time to time (the “2017 Plan”), and the 2006 Omnibus Incentive Plan (the “2006 Plan”) and the 2002 Stock Option Plan (the “2002 Plan”). The 2002 Plan provided that no further grants would be made after December 31, 2006. No further grants will be made under the 2006 Plan, which expired in fiscal year 2016. , as applicable.

~~Woodward has reserved a total of 2,000 shares of Woodward’s common stock for issuance under the~~The 2017 Plan ~~which~~ was first approved by Woodward’s stockholders in January 2017 and is athe successor plan to the 2006 Plan.

~~Stock options~~

ToAs of September 14, 2016, the effective date ~~equity awards under~~of the 2017 Plan, ~~have consisted~~the Board delegated authority to administer the 2017 Plan to the Compensation Committee of the Board, including, but not limited to, the power to determine the recipients of awards and the terms of those awards. On January 26, 2022 and January 25, 2023, Woodward’s stockholders approved an additional 800 and 500 shares, respectively, of Woodward’s common stock to be made available for future grants. Under the 2017 Plan, there were approximately 2,709 shares of Woodward’s common stock available for future grants as of ~~stock~~March 31, 2023 and 2,938 shares as of September 30, 2022.

Stock options ~~to Woodward’s employees and directors.~~

Woodward believes that ~~these~~ stock options align the interests of its employees and directors with the interests of its stockholders. Stock option awards are granted with an exercise price equal to the market price of Woodward’s stock at the date the grants are awarded, a ten-year term, and generally have a four-year vesting schedule at a rate of ~~25%~~25% per year.

The fair value of options granted is estimated as of the grant date using the Black-Scholes-Merton option-valuation ~~model using the assumptions in the following table.~~model. Woodward calculates the expected term, which represents the average period of time that stock options granted are expected to be outstanding, based upon historical experience of plan participants. Expected volatility is based on historical volatility using daily stock price observations. The estimated dividend yield is based upon Woodward’s historical dividend practice and the market value of its common stock. The risk-free rate is based on the U.S. treasury yield curve, for periods within the contractual life of the stock option, at the time of grant.

Three-Months Ended

December 31, 2017
Weighted-average exercise price per share
$
78.97

Weighted-average grant date market value of Woodward stock
$
78.97

Expected term (years)

6.4
-
8.7

Estimated volatility

30.3%
-
32.7%

Estimated dividend yield

0.6%

Risk-free interest rate

2.1%
-
2.3%

The following is a summary of the activity for stock option ~~awards during the three-months ended December 31, 2017:~~awards:

Three-Months Ended

December 31, 2017

Number of options

Weighted-Average Exercise Price per Share
Options, beginning balance

5,236

$
39.58
Options granted

744

78.97
Options exercised

(34)

41.13
Options forfeited

(9)

55.61
Options, ending balance

5,937

44.48


	Three-Months Ended March 31, 2023					Six-Months Ended March 31, 2023
	Number of options			Weighted-Average Exercise Price per Share		Number of options			Weighted-Average Exercise Price per Share
Beginning balance		5,836		$	75.27		5,339		$	74.40
Granted		4			100.49		522			83.76
Exercised		(251	)		50.82		(270	)		51.14
Forfeited		(15	)		90.71		(17	)		91.90
Ending balance		5,574		$	76.35		5,574		$	76.35

Changes in non-vested stock options ~~during the three-months ended December 31, 2017~~ were as follows:


	Three-Months Ended March 31, 2023					Six-Months Ended March 31, 2023
	Number of options			Weighted-Average Grant Date Fair Value per Share		Number of options			Weighted-Average Grant Date Fair Value Per Share
Beginning balance		1,751		$	30.98		1,812		$	30.03
Granted		4			40.23		522			33.67
Exercised		(65	)		22.13		(642	)		29.07
Forfeited		(15	)		32.89		(17	)		33.23
Ending balance		1,675		$	31.39		1,675		$	31.39

Three-Months Ended

December 31, 2017

Number of options

Weighted-Average Grant Date Fair Value per Share
Options outstanding, beginning balance

2,072

$
18.61
Options granted

744

25.68
Options vested

(787)

17.54
Options forfeited

(9)

19.82
Options outstanding, ending balance

2,020

21.63

Information about stock options that have vested, or are expected to vest, and are exercisable at ~~December~~March 31, ~~2017~~2023 was as follows:


	Number of options		Weighted-Average Exercise Price		Weighted-Average Remaining Life in Years		Aggregate Intrinsic Value
Options outstanding		5,574	$	76.35		5.6	$	130,942
Options vested and exercisable		3,899		71.14		4.5		107,908
Options vested and expected to vest		5,503		76.16		5.6		130,216

Restricted stock

The Company has granted restricted stock units (“RSUs”) to certain employees under its form attraction and retention RSU agreement, which is generally used for new hires and specific retention purposes, and under its form RSU agreement, which is generally used for annual grants and promotional awards. The RSUs granted under these programs are generally scheduled to fully vest on the third or fourth anniversary of the respective grant dates, subject to continued employment.

A summary of the activity for restricted stock units for the three and six-months ended March 31, 2023:


	Three-Months Ended March 31, 2023					Six-Months Ended March 31, 2023
	Number of options			Weighted-Average Grant Date Fair Value		Number of options			Weighted-Average Grant Date Fair Value
Beginning balance		171		$	91.96		59		$	98.29
Granted		1			100.55		113			88.91
Forfeited		(1	)		83.24		(1	)		83.24
Ending balance		171		$	92.19		171		$	92.19

Number

Weighted- Average Exercise Price

Weighted- Average Remaining Life in Years

Aggregate Intrinsic Value
Options outstanding

5,937

$
44.48

6.2

$
192,105
Options vested and exercisable

3,917

35.64

4.9

160,206
Options vested and expected to vest

5,823

44.07

6.1

190,725

Stock-based compensation expense

Woodward recognizes stock-based compensation expense on a straight-line basis over the requisite service period. Pursuant to form stock option agreements and form RSU agreements used by the Company, with terms approved by the administrator of the applicable plan, the requisite service period can be less than the four-year vesting period based on grantee’s retirement eligibility. As such, the recognition of stock-based compensation expense associated with some stock option grants and RSU grants can be accelerated to a period of less than four years, including immediate recognition of stock-based compensation expense on the date of grant.

Upon approving the 2017 Plan, Woodward’s board of directors delegated authority to administer the 2017 Plan to the compensation committee of the board, including, but not limited to, the power to determine the recipients of awards and the terms of those awards. The compensation committee approved issuance of options in the first quarter of fiscal year 2017 under the 2017 Plan,In connection with an ~~award date of October 3, 2016 conditional upon~~executive separation and ~~subject to approval of the 2017 Plan~~release agreement entered into by the ~~stockholders. The~~Company, Woodward recognized an additional $1,265 of stock ~~options conditionally awarded under the 2017 Plan were not granted or outstanding for accounting purposes prior to stockholder approval of the 2017 Plan, and as such no stock-based~~ compensation expense, ~~related to such awards was recognized on these stock options~~before tax, during ~~the three-months ended December 31, 2016, but rather the expense was recognized in~~ the three-months ended March 31, ~~2017. Options granted in the three-months ended December~~2023.

At March 31, 2017 were not conditionally granted and, therefore, stock-based compensation expense related to these awards was recognized during the three-months ended December 31, 2017. Total stock-based compensation expense was $12,423 for the three-months ended December 31, 2017 and $1,261 for the three-months ended December 31, 2016.

~~At December 31, 2017,~~2023, there was approximately ~~$14,234~~$26,750 of total unrecognized compensation expense related to non-vested stock-based compensation ~~arrangements.~~arrangements, including both stock options and RSUs. The pre-vesting forfeiture rates for purposes of determining stock-based compensation expense recognized were estimated to be 0%0.0% for members of ~~Woodward’s board of directors~~the Board and 9%7.3% for all others. The remaining unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately ~~2.4~~1.8 years.

Note ~~20.~~22. Commitments and contingencies

Woodward is currently involved in claims, pending or threatened litigation or other legal proceedings, investigations and/or regulatory proceedings arising in the normal course of business, including, among others, those relating to product liability claims, employment matters, worker’s compensation claims, contractual disputes, product warranty claims, and alleged violations of various laws and regulations. Woodward accrues for known individual matters using estimates of the most likely amount of loss where it believes that it is probable the matter will result in a loss when ultimately resolved and such loss is reasonably estimable.

Legal costs are expensed as incurred and are classified in “Selling, general and administrative expenses” on the Condensed Consolidated Statements of Earnings.

Woodward is partially self-insured in the United States for healthcare and worker’s compensation up to predetermined amounts, above which third party insurance applies. Management regularly reviews the probable outcome of ~~these~~related claims and proceedings, the expenses expected to be incurred, the availability and limits of the insurance coverage, and the established accruals for liabilities.

While the outcome of pending claims, legal and regulatory proceedings, and investigations cannot be predicted with certainty, management believes that any liabilities that may result from these claims, proceedings, and investigations will not have a material effect on ~~Woodward's~~Woodward’s liquidity, financial condition, or results of operations.

InUnder the ~~event of a~~Company’s severance and change in control ~~of Woodward, as defined in change-in-control~~ agreements with its current corporate officers (the “Amended and Restated Executive Separation and Change in Control Agreements”), Woodward ~~may~~would be required to pay termination benefits to any such ~~officers.~~officer if such officer’s employment is terminated without Cause (as defined therein). The amount of such benefits would vary depending on whether such termination occurs within a specified period prior to or after a change of control.

Note ~~21.~~23. Segment information

Woodward serves the aerospace and industrial markets through its two reportable segments -– Aerospace and Industrial. When appropriate, Woodward’s reportable segments are aggregations of Woodward’s operating segments. Woodward uses operating segment information internally to manage its business, including the assessment of operating segment performance and decisions for the allocation of resources between operating segments.

The accounting policies of the reportable segments are the same as those of the Company. Woodward evaluates segment profit or loss based on internal performance measures for each segment in a given period. In connection with that assessment, Woodward generally excludes matters such as certain charges for restructuring, ~~costs,~~ interest income and expense, certain gains and losses from asset dispositions, or other non-recurring and/or non-operationally related expenses.

A summary of consolidated net sales and earnings by segment follows:


	Three-Months Ended March 31,						Six-Months Ended March 31,
	2023			2022			2023			2022
Segment external net sales:
Aerospace	$	437,017		$	372,757		$	832,702		$	709,192
Industrial		281,197			214,082			504,131			419,233
Total consolidated net sales	$	718,214		$	586,839		$	1,336,833		$	1,128,425
Segment earnings:
Aerospace	$	73,314		$	59,809		$	128,748		$	110,892
Industrial		37,571			17,234			48,973			40,927
Nonsegment expenses		(58,307	)		(15,250	)		(82,618	)		(44,615	)
Interest expense, net		(12,337	)		(7,697	)		(23,113	)		(15,362	)
Consolidated earnings before income taxes	$	40,241		$	54,096		$	71,990		$	91,842

Three-Months Ended

December 31,

2017

2016
Segment external net sales:

Aerospace

$
305,905

$
266,680
Industrial

164,243

176,214
Total consolidated net sales

$
470,148

$
442,894
Segment earnings:

Aerospace

$
43,553

$
46,877
Industrial

19,344

17,998
Nonsegment expenses

(19,023)

(11,381)
Interest expense, net

(6,387)

(6,435)
Consolidated earnings before income taxes

$
37,487

$
47,059

Segment assets consist of accounts receivable, inventories, property, plant, and equipment, net, goodwill, and other intangibles, net. A summary of consolidated total assets by segment follows:



	December 31, 2017		September 30, 2017		March 31, 2023		September 30, 2022
Segment assets:
Aerospace	$	1,673,675	$	1,722,789	$	1,817,510	$	1,773,854
Industrial		695,167		695,264		1,510,413		1,380,446
Unallocated corporate property, plant and equipment, net		113,790		104,755		106,055		111,760
Other unallocated assets		242,542		234,301		577,555		540,386
Consolidated total assets	$	2,725,174	$	2,757,109	$	4,011,533	$	3,806,446

26Note 24. Subsequent events

On April 26, 2023, the Board approved a cash dividend of $0.22 per share for the quarter, payable on June 5, 2023, for stockholders of record as of May 22, 2023.

On May 2, 2023, The Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) extended, for an additional 12-month period, the relocation benefits previously approved for Charles P. Blankenship, Jr., the Company’s Chairman and Chief Executive Officer.

Effective upon Mr. Blankenship’s appointment as CEO on May 9, 2022, and in order to accommodate a transition period for Mr. Blankenship and his family to relocate to the Fort Collins, Colorado area, the Compensation Committee previously authorized certain limited relocation benefits to Mr. Blankenship, which included the reimbursement of his commute between his current state of residence and Fort Collins, Colorado, as well as temporary housing, in each case for up to 12 months from his employment start date (the “Relocation Benefits”). To enable Mr. Blankenship to remain focused on his responsibilities to the Company, without increased distraction associated with a relocation process that has been delayed due to circumstances beyond Mr. Blankenship’s control, the Compensation Committee authorized an extension of the Relocation Benefits, which will now expire on May 9, 2024.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations~~(Amounts in thousands, except per share amounts)~~

Forward Looking Statements

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are statements that are deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of management. Words such as “anticipate,” “believe,” “estimate,” “seek,” “goal,” “expect,” “forecast,” “intend,” “continue,” “outlook,” “plan,” “project,” “target,” “strive,” “can,” “could,” “may,” “should,” “will,” “would,” variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characteristics of future events or circumstances are forward-looking statements. Forward-looking statements may include, among others, statements relating to:

~~future sales, earnings, cash flow, uses of cash, and other measures of financial performance;~~

•

the impacts on our business relating to the ongoing global supply chain and labor disruptions, rising labor costs, and material inflation;

~~trends in our business and the markets in which we operate, including expectations in those markets in future periods;~~

•

the effect of economic trends, including rising inflation and global supply chain and labor pressures;

~~our expected expenses in future periods and trends in such expenses over time;~~

•

the effect of geopolitical events, including the Russia-Ukraine conflict on our business and the markets in which we operate;

~~descriptions of our plans and expectations for future operations;~~

•

future sales, earnings, cash flow, uses of cash, and other measures of financial performance, including our ability to accurately forecast such performance;

~~plans and expectations relating to the performance of our joint venture with General Electric Company;~~

•

trends in our business and the markets in which we operate, including expectations in those markets in future periods;

~~investments in new campuses, business sites and related business developments;~~

•

our expected expenses in future periods and trends in such expenses over time;

~~the effect of economic trends or growth;~~

•

descriptions of our plans and expectations for future operations;

~~the expected levels of activity in particular industries or markets and the effects of changes in those levels;~~

•

plans and expectations relating to the performance of our joint venture with General Electric Company;

~~the scope, nature, or impact of acquisition activity and integration of such acquisition into our business;~~

•

the expected levels of activity in particular industries or markets and the effects of changes in those levels;

~~the research, development, production, and support of new products and services;~~

•

the scope, nature, or impact of acquisition activity and integration of such acquisition into our business;

~~new business opportunities;~~

•

the research, development, production, and support of new products and services;

~~restructuring and alignment costs and savings;~~

•

restructuring and alignment costs and savings;

~~our plans, objectives, expectations and intentions with respect to business opportunities that may be available to us;~~

•

our plans, objectives, expectations and intentions with respect to business opportunities that may be available to us;

~~our liquidity, including our ability to meet capital spending requirements and operations;~~

•

our liquidity, including our ability to meet capital spending requirements and operations;

~~future repurchases of common stock;~~

•

future repurchases of common stock;

~~future levels of indebtedness and capital spending;~~

•

future levels of indebtedness and capital spending;

~~the stability of financial institutions, including those lending to us;~~

•

the stability of financial institutions, including those lending to us;

~~pension and other postretirement plan assumptions and future contributions; and~~

•

pension and other postretirement plan assumptions and future contributions; and

~~our tax rate and other effects of the changes to U.S. federal tax law.~~

•

our tax rate and other effects of changes in applicable tax laws.

~~Readers are cautioned that these~~These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to ~~predict, including:~~

~~a decline in business with, or financial distress of, our significant customers;~~

~~global economic uncertainty and instability in the financial markets;~~

~~our ability to manage product liability claims, product recalls or other liabilities associated with the products and services that we provide;~~

our ability to obtain financing, on acceptable terms or at all, to implement our business plans, complete acquisitions, or otherwise take advantage of business opportunities or respond to business pressures;

~~the long sales cycle, customer evaluation process, and implementation period of some of our products and services;~~

~~our ability to implement and realize the intended effects of any restructuring and alignment efforts;~~

~~our ability to successfully manage competitive factors, including prices, promotional incentives, competitor product development, industry consolidation, and commodity and other input cost increases;~~

~~our ability to manage our expenses and product mix while responding to sales increases or decreases;~~

the ability of our subcontractors to perform contractual obligations and our suppliers to provide us with materials of sufficient quality or quantity required to meet our production needs at favorable prices or at all;

~~our ability to monitor our technological expertise and the success of, and/or costs associated with, our product development activities;~~

consolidation in the aerospace market and our participation in a strategic joint venture with General Electric Company may make it more difficult to secure long-term sales in certain aerospace markets;

our debt obligations, our debt service requirements, and our ability to operate our business, pursue business strategies and incur additional debt in light of covenants contained in our outstanding debt agreements;

~~our ability to manage additional tax expense and exposures;~~

~~risks related to our U.S. Government contracting activities, including liabilities resulting from legal and regulatory proceedings, inquiries, or investigations related to such activities;~~

the potential of a significant reduction in defense sales due to decreases in the amount of U.S. Federal defense spending or other specific budget cuts impacting defense programs in which we participate;

~~changes in government spending patterns, priorities, subsidy programs and/or regulatory requirements;~~

~~future impairment charges resulting from changes in the estimates of fair value of reporting units or of long-lived assets;~~

~~future results of our subsidiaries;~~

~~environmental liabilities related to manufacturing activities and/or real estate acquisitions;~~

~~our continued access to a stable workforce and favorable labor relations with our employees;~~

~~physical and other risks related to our operations and suppliers, including natural disasters, which could disrupt production;~~

~~our ability to successfully manage regulatory and legal matters (including the adequacy of amounts accrued for contingencies, the U.S. Foreign Corrupt Practices Act, U.S. and other tax laws~~, ~~international trade regulations, and product liability, patent, and intellectual property matters);~~

~~changes in accounting standards, which could adversely impact our profitability or financial position;~~

~~risks related to our common stock, including changes in prices and trading volumes;~~

risks from operating internationally, including the impact on reported earnings from fluctuations in foreign currency exchange rates, tariffs, and compliance with and changes in the legal and regulatory environments of the United States and the countries in which we operate;

~~risks associated with global political and economic uncertainty in the European Union and elsewhere;~~

fair value of defined benefit plan assets and assumptions used in determining our retirement pension and other postretirement benefit obligations and related expenses including, among others, discount rates and investment return on pension assets;

~~industry risks, including changes in commodity prices for oil, natural gas, and other minerals, unforeseen events that may reduce commercial aviation, and changing emissions standards;~~

~~possible information systems interruptions or intrusions, which may adversely affect our operations; and~~

~~certain provisions of our charter documents and Delaware law that could discourage or prevent others from acquiring our company.~~

~~These factors are representative of the risks, uncertainties, and assumptions~~predict. Factors that could cause actual ~~outcomes~~results and ~~results~~the timing of certain events to differ materially from ~~what is expressed or forecast~~the forward-looking statements include, but are not limited to, risk factors described in our forward-looking statements. Other factors are discussed elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”), under the caption “Risk Factors” in Part I, Item 1A in our most recent Annual Report on Form 10-K filedWoodward's filings with the Securities and Exchange Commission, ~~(“SEC”) (our “Form 10-K”), as updated from time to time in our subsequent SEC filings,~~including its Annual Report on Form 10-K for the year ended September 30, 2022, which was filed on November 18, 2022, and other ~~documents we have filed or will file~~risks described in Woodward’s filings with the ~~SEC.~~ Securities and Exchange Commission.

We undertake no obligation to revise or update any forward-looking statements for any reason, except as required by applicable law.

Unless we have indicated otherwise or the context otherwise requires, references in this Form 10-Q to “Woodward,” “the Company,” “we,” “us,” and “our” refer to Woodward, Inc. and its consolidated subsidiaries.

Except where we have otherwise indicated or the context otherwise requires, amounts presented in this Form 10-Q are in thousands, except per share amounts.

~~This discussion should be read~~29

OVERVIEW

Global Business Conditions

We continue to monitor a variety of external issues impacting our business, including the ongoing global supply chain and labor disruptions, rising labor costs, and material inflation which together ~~with Management’s Discussion~~have led to a challenging industry-wide operating environment. We remain focused on operational excellence initiatives, talent development, and ~~Analysis~~innovation. We are unable to predict the full extent to which these issues will continue to adversely impact our business, including our operational performance, results of ~~Financial Condition~~operations, cash flows, financial position, and ~~Results of Operations in Part II, Item 7~~the achievement of our ~~most recent Form 10-K~~strategic objectives. Such uncertainty may affect our ability to accurately predict our future performance and ~~the Condensed Consolidated Financial Statements and Notes included therein and in this report.~~forecast our financial results.

~~OVERVIEW~~

~~Operational Highlights~~

~~Net sales for~~During the first ~~quarter~~half of fiscal year ~~2018 were $470,148, an~~2023, we experienced continued robust demand for our products and services across aerospace and industrial markets; however, our financial performance continued to be adversely affected by the issues noted above. We are actively implementing strategies to mitigate our supply chain risk, reduce complexity, increase efficiency, and improve operational performance to better position us for future success. We remain focused on delivering further operational improvements to drive value for our shareholders. We also continue to assess the environment and are taking appropriate price actions in response to rising costs, we are executing multiple work streams to capture prices that better reflect the value we deliver.

We may take further actions with respect to our business operations if we determine such actions are in the best interests of ~~6.2% from $442,894 for~~our stockholders, employees, customers, and other stakeholders as appropriate. It is not currently clear what the ~~prior year’s first quarter. Aerospace segment sales for~~potential effects of any such actions may have on our business in future periods, including the ~~first quarter of fiscal year 2018 were up 14.7%~~effects on our customers, employees and prospects, or on our financial results.

Operational Highlights

Quarter and Year to $305,905, compared to $266,680 for the first quarter of the prior fiscal year. Industrial segment sales for the first quarter of fiscal year 2018 were down 6.8% to $164,243, compared to $176,214 for the first quarter of the prior fiscal year. Date Highlights


	Three-Months Ended March 31,						Six-Months Ended March 31,
	2023			2022			2023			2022
Net sales:
Aerospace segment	$	437,017		$	372,757		$	832,702		$	709,192
Industrial segment		281,197			214,082			504,131			419,233
Consolidated net sales	$	718,214		$	586,839		$	1,336,833		$	1,128,425

Earnings:
Aerospace segment	$	73,314		$	59,809		$	128,748		$	110,892
Segment earnings as a percent of segment net sales		16.8	%		16.0	%		15.5	%		15.6	%
Industrial segment	$	37,571		$	17,234		$	48,973		$	40,927
Segment earnings as a percent of segment net sales		13.4	%		8.1	%		9.7	%		9.8	%
Consolidated net earnings	$	35,511		$	47,906		$	65,117		$	78,211
Adjusted net earnings	$	61,719		$	46,610		$	91,325		$	82,901

Effective tax rate		11.8	%		11.4	%		9.5	%		14.8	%
Adjusted effective tax rate		17.8	%		11.0	%		14.5	%		15.5	%
Consolidated diluted earnings per share	$	0.58		$	0.74		$	1.07		$	1.21
Consolidated adjusted diluted earnings per share	$	1.01		$	0.72		$	1.50		$	1.28

Earnings before interest and taxes ("EBIT")	$	52,578		$	61,793		$	95,103		$	107,204
Adjusted EBIT	$	87,454		$	60,065		$	129,979		$	113,458
Earnings before interest, taxes, depreciation, and amortization ("EBITDA")	$	82,531		$	92,403		$	154,360		$	168,535
Adjusted EBITDA	$	117,407		$	90,675		$	189,236		$	174,789

~~Net~~Adjusted net earnings, ~~for the first quarter of fiscal year 2018 were $18,260, or $0.29~~adjusted earnings per ~~diluted~~ share, ~~compared to $46,548, or $0.73 per diluted share, for the first quarter of fiscal year 2017. The~~adjusted effective tax rate, ~~in the first quarter~~EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA are non-U.S. GAAP financial measures. A description of ~~fiscal year 2018 was 51.3% compared to 1.1% for the first quarter of the prior fiscal year, primarily due to discrete charges related to recent changes in the U.S. federal tax law.~~

~~Earnings before interest and taxes (“EBIT”) for the first quarter of fiscal year 2018 were $43,874,~~these measures as well as a decrease of 18.0% from $53,494 in the first quarter of fiscal year 2017. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the first quarter of fiscal year 2018 were $64,944, down 10.3% from $72,407 for the first quarter of fiscal year 2017. (A reconciliation of these non-U.S. GAAP financial measures to the ~~closest~~most directly comparable U.S. GAAP financial ~~measure~~measures can be found under the caption “Non-U.S. GAAP Financial Measures” in this Item 2 – Management’s Discussion and Analysis of Financial ~~Conditions~~Condition and Results of Operations.)

Aerospace segment earnings as a percent of segment net sales decreased to 14.2% in the first quarter of fiscal year 2018 from 17.6% in the first quarter of the prior fiscal year. Industrial segment earnings as a percent of segment net sales increased to 11.8% in the first quarter of fiscal year 2018 from 10.2% in the first quarter of the prior fiscal year.30

Liquidity Highlights

Net cash ~~used in~~provided by operating activities for the first ~~quarter~~half of fiscal year ~~2018~~2023 was ~~$2,533,~~$40,150, compared to $50,108 for the first half of fiscal year 2022. The decrease in net cash provided by operating activities ~~of $52,351 for~~in the first ~~quarter~~half of fiscal year ~~2017. The increase in net cash used in operating activities in the first quarter of fiscal year 2018~~2023 compared to the first half of the prior ~~year’s first quarter~~fiscal year is primarily attributable to ~~a decrease in net earnings in the current fiscal quarter and higher working capital used primarily due to~~ the timing of tax payments ~~for accounts payable~~ and ~~accrued liabilities.~~working capital increases to support this year's anticipated growth.

For the first ~~quarter~~half of fiscal year ~~2018,~~2023, free cash flow ~~which we~~was negative $3,896, compared to free cash flow of $25,958 for the first half of fiscal year 2022. We define free cash flow as net cash ~~flows~~flow from operating activities less payments for property, plant and ~~equipment, was an outflow of $30,983, compared to an inflow of $31,293~~equipment. The decrease in free cash flow for the first ~~quarter~~half of fiscal year ~~2017. (A reconciliation~~2023 as compared to the same period of ~~this~~the prior fiscal year was primarily due to increased capital expenditures. Adjusted free cash flow, which we define as free cash flow plus cash payments for costs related to business development activities and restructuring charges, was negative $1,060 for the first half of fiscal year 2023, compared to $27,233 for the first half of fiscal year 2022. Free cash flow and adjusted free cash flow are non-U.S. GAAP financial ~~measure~~measures. A description of these measures as well as a reconciliation of these non-U.S. GAAP financial measures to the ~~closest~~most directly comparable U.S. GAAP financial ~~measure~~measures can be found under the caption “Non-U.S. GAAP Financial Measures” in this Item 2 – Management’s Discussion and Analysis of Financial ~~Conditions~~Condition and Results of Operations.)

At ~~December~~March 31, ~~2017,~~2023, we held ~~$85,779~~$129,427 in cash and cash equivalents and had total outstanding debt of ~~$649,639 with~~$858,597. We have additional borrowing availability of ~~$922,377,~~$860,721, net of outstanding letters of credit, under our revolving credit agreement. At ~~December~~March 31, ~~2017,~~2023, we also had additional borrowing capacity of ~~$7,516~~$27,460 under various foreign lines of credit and foreign overdraft facilities.

RESULTS OF OP~~ERATIONS~~OPERATIONS

The following table sets forth ~~selected~~condensed consolidated statements of earnings data as a percentage of net sales for each period indicated:


	Three-Months Ended												Six-Months Ended
	March 31, 2023			% of Net Sales			March 31, 2022			% of Net Sales			March 31, 2023			% of Net Sales			March 31, 2022			% of Net Sales
Net sales	$	718,214			100	%	$	586,839			100	%	$	1,336,833			100	%	$	1,128,425			100	%
Costs and expenses:
Cost of goods sold		559,149			77.9	%		453,425			77.3	%		1,051,812			78.7	%		872,576			77.3	%
Selling, general, and administrative expenses		75,578			10.5	%		44,124			7.5	%		138,765			10.4	%		106,430			9.4	%
Research and development costs		37,777			5.3	%		32,384			5.5	%		66,411			5.0	%		57,776			5.1	%
Restructuring charges		5,172			0.7	%		—			0.0	%		5,172			0.4	%		—			0.0	%
Interest expense		12,845			1.8	%		8,197			1.4	%		23,987			1.8	%		16,503			1.5	%
Interest income		(508	)		(0.1	)%		(500	)		(0.1	)%		(874	)		(0.1	)%		(1,141	)		(0.1	)%
Other (income) expense, net		(12,040	)		(1.7	)%		(4,887	)		(0.8	)%		(20,430	)		(1.5	)%		(15,561	)		(1.4	)%
Total costs and expenses		677,973			94.4	%		532,743			90.8	%		1,264,843			94.6	%		1,036,583			91.9	%
Earnings before income taxes		40,241			5.6	%		54,096			9.2	%		71,990			5.4	%		91,842			8.1	%
Income tax expense		4,730			0.7	%		6,190			1.1	%		6,873			0.5	%		13,631			1.2	%
Net earnings	$	35,511			4.9	%	$	47,906			8.2	%	$	65,117			4.9	%	$	78,211			6.9	%

Three-Months Ended

December 31, 2017

% of Net Sales

December 31, 2016

% of Net Sales
Net sales

$
470,148

100
%

$
442,894

100
%
Costs and expenses:

Cost of goods sold

346,784

73.8

329,148

74.3

Selling, general, and administrative expenses

46,276

9.8

38,300

8.6

Research and development costs

34,786

7.4

26,540

6.0

Interest expense

6,750

1.4

6,840

1.5

Interest income

(363)

(0.1)

(405)

(0.1)

Other (income) expense, net

(1,572)

(0.3)

(4,588)

(1.0)

Total costs and expenses

432,661

92.0

395,835

89.4

Earnings before income taxes

37,487

8.0

47,059

10.6

Income tax expense

19,227

4.1

511

0.1

Net earnings

$
18,260

3.9

$
46,548

10.5

Other select financial data:


	March 31, 2023		September 30, 2022
Working capital	$	803,743	$	772,856
Total debt		858,597		777,416
Total stockholders' equity		2,012,054		1,901,122

December 31,

September 30,

2017

2017
Working capital
$
626,122

$
593,955
Short-term borrowings

66,300

32,600
Total debt

649,639

612,886
Total stockholders' equity

1,400,546

1,371,383

Net Sales

Consolidated net sales for the ~~first~~second quarter of fiscal year ~~2018~~2023 increased by ~~$27,254,~~$131,375, or ~~6.2%~~22.4%, compared to the same period of fiscal year ~~2017.~~ 2022. Consolidated net sales for the first half of fiscal year 2023 increased by $208,408, or 18.5%, compared to the same period of fiscal year 2022.

Details of the changes in consolidated net sales are as follows:


	Three-Month Period			Six-Month Period
Consolidated net sales for the period ended March 31, 2022	$	586,839		$	1,128,425
Aerospace volume		41,747			78,727
Industrial volume		67,438			96,753
Noncash consideration		(3,883	)		(4,357	)
Effects of changes in price		39,882			70,144
Effects of changes in foreign currency rates		(13,809	)		(32,859	)
Consolidated net sales for the period ended March 31, 2023	$	718,214		$	1,336,833



	~~Three-Month Period~~
~~Consolidated net sales for~~In the Aerospace segment, the ~~period ended December 31, 2016~~	$	~~442,894~~
~~Aerospace volume~~		~~36,317~~
~~Industrial volume~~		~~(15,615)~~
~~Effects of changes in price and sales mix~~		~~960~~
~~Effects of changes in foreign currency rates~~		~~5,592~~
~~Consolidated net sales for the period ended December 31, 2017~~	$	~~470,148~~

~~The~~ increase in net sales for the second quarter and first half of fiscal year 2023 as compared to the same periods of the prior fiscal year is primarily attributable to an increase in commercial OEM and aftermarket sales driven by continued recovery in passenger traffic, increasing aircraft utilization, and price realization, partially offset by lower defense OEM sales primarily driven by reduced demand for guided weapons.

In the Industrial segment, the increase in net sales for the second quarter and first half of fiscal year 2023 as compared to the same periods of the prior fiscal year is primarily attributable to volume increases across all markets, partially offset by unfavorable foreign currency impacts.

In recent quarters, we disclosed the dollar value impact of ongoing global supply chain and labor disruptions on segment net sales in our Aerospace and Industrial segments. We now are experiencing stabilization in our supply chain and labor force, and as a result, we have begun to gradually reduce our late deliveries. Because supply chain and labor disruptions are no longer creating material quarterly variability on our results, we do not intend to continue providing this measure, as it is no longer meaningful.

Costs and Expenses

Cost of goods sold increased by $105,724 to $559,149, or 77.9% of net sales, for the second quarter of fiscal year 2018 was primarily attributable to increased defense original equipment manufacturer (“OEM”) sales boosted by continued momentum in smart weapon sales and increased commercial aftermarket and OEM sales in the Aerospace segment, partially offset by2023, from $453,425, or 77.3% of net sales, ~~declines in~~for the ~~Industrial segment. The Industrial segment experienced decreased industrial gas turbine sales and renewables sales, which were partially offset by increased sales~~second quarter of ~~large gas engines and fuel systems for Compressed Natural Gas (“CNG”) trucks in Asia.~~

~~Costs and Expenses~~

fiscal year 2022. Cost of goods sold increased by ~~$17,636~~$179,236 to ~~$346,784,~~$1,051,812, or ~~73.8%~~78.7% of net sales, for the first ~~quarter~~half of fiscal year ~~2018~~2023, from ~~$329,148,~~$872,576, or ~~74.3%~~77.3% of net sales, for the first ~~quarter~~half of fiscal year ~~2017.~~2022. The increase in cost of goods sold isas a percentage of net sales in the second quarter and first half of fiscal year 2023 compared to the same periods of the prior fiscal year was primarily ~~attributable~~due to higher sales volume, net inflationary impacts on material and ~~planned production facility capacity expansion~~labor costs, ~~partially offset by savings from cost reduction initiatives~~as well as increases in ~~our Industrial segment.~~ manufacturing costs related to global supply chain and labor disruptions.

Gross margin (as measured by net sales less cost of goods sold, divided by net sales) was ~~26.2%~~22.1% for the ~~first~~second quarter of fiscal year ~~2018,~~2023 and 21.3% for the first half of fiscal year 2023, compared to ~~25.7%~~22.7% for both the second quarter and the first half of fiscal year 2022. The decrease in gross margin for the second quarter and first half of fiscal year 2023 as compared to the same periods of the prior fiscal year is primarily attributable to higher sales volume, net inflationary impacts on material and labor costs, increases in manufacturing costs related to global supply chain and labor disruptions, as well as non-recurring, specific charges for excess and obsolete inventory and product rationalization.

Selling, general and administrative expenses increased by $31,454, or 71.3%, to $75,578 for the second quarter of fiscal year ~~2017. Gross margin~~2023, compared to $44,124 for the ~~first~~second quarter of fiscal year

2018 was higher compared to the first quarter of fiscal year 2017, primarily related to increased sales volume partially offset by planned production facility capacity expansion costs and unfavorable product mix.

~~Selling, general, and administrative expenses~~ ~~increased by $7,976, or 20.8%, to $46,276 for the first quarter of fiscal year 2018, as compared to $38,300 for the first quarter of fiscal year 2017.~~ 2022. Selling, general, and administrative expenses as a percentage of net sales ~~was 9.8%~~increased to 10.5% for the ~~first~~second quarter of fiscal year ~~2018 as~~2023, compared to ~~8.6%~~7.5% for the ~~first~~second quarter of fiscal year ~~2017.~~2022. Selling, general, and administrative expenses increased by $32,335, or 30.4%, to $138,765 for the first half of fiscal year 2023, compared to $106,430 for the first half of fiscal year 2022. Selling, general, and administrative expenses as a percentage of net sales increased to 10.4% for the first half of fiscal year 2023, compared to 9.4% for the first half of fiscal year 2022. The increase in selling, general and administrative expenses for the second quarter and first half of fiscal year 2023 as compared to the same periods of the prior fiscal year is primarily due to increased annual variable incentive compensation costs, a non-recurring charge related to customer collections, and a product rationalization charge related to the write-off of an asset, which in each case did not occur in the prior fiscal periods.

Research and development costs increased by $5,393, or 16.7%, to $37,777 for the second quarter of fiscal year ~~2018 was primarily due~~2023, as compared to $32,384 for the ~~timing of the recognition of stock-based compensation expense. We recognized the majority of our annual stock-based compensation expense in the first~~second quarter of fiscal year ~~2018, whereas~~2022. The increase in ~~fiscal year 2017 the majority of this expense was recognized in the second quarter of the fiscal year.~~

~~Research~~research and development costs ~~increased by $8,246, or 31.1%, to $34,786~~ for the ~~first~~

second quarter of fiscal year ~~2018,~~2023 as compared to ~~$26,540 for~~ the ~~first quarter~~same period of the prior fiscal year 2017. Research and development costs as a percentage of net sales increased to 7.4% for the first quarter of fiscal year 2018 as compared to 6.0% for the first quarter of fiscal year 2017. Research and development costs in the first quarter of fiscal year 2018 were higheris primarily due to ~~increased spending on new awards and opportunities being pursued within both of our business segments as well as~~ variability in the timing of projects and expenses. As a percentage of net sales, research and development costs decreased to 5.3% for the second quarter of fiscal year 2023, as compared to 5.5% for the same period of the prior fiscal year.

Research and development costs increased by $8,635, or 14.9%, to $66,411 for the first half of fiscal year 2023, as compared to $57,776 for the first half of fiscal year 2022. The increase in research and development costs, for the first half of fiscal year 2023 as compared to the same period of the prior fiscal year is primarily due to variability in the timing of projects and expenses. As a percentage of net sales, research and development costs decreased slightly to 5.0% for the first half of fiscal year 2023, as compared to 5.1% for the first half of fiscal year 2022.

Our research and development activities extend across almost all of our customer base, and we anticipate ongoing variability in research and development costs due to the timing of customer business needs on current and future ~~programs~~programs.

~~Interest expense~~ ~~was$6,750, or 1.4%~~Restructuring charges of ~~net sales, for~~$5,172 recognized in the ~~first~~second quarter of fiscal year ~~2018, compared~~2023 primarily related to ~~$6,840,~~workforce management to better align the cost structure with the current market conditions. All of the restructuring charges recorded in fiscal year 2023 were recorded as nonsegment expenses and there were no such restructuring charges recorded in fiscal year 2022.

Interest expense increased by $4,648, or ~~1.5% of net sales,~~56.7%, to $12,845 for the ~~first~~second quarter of fiscal year ~~2017. The slight decrease in interest expense was primarily attributable~~2023, compared to ~~lower average borrowings under our revolving credit facility in~~$8,197 for the ~~first~~second quarter of fiscal year ~~2018 compared to~~2022. Interest expense as a percentage of net sales was 1.8% for the ~~first~~second quarter of fiscal year ~~2017.~~2023, compared to 1.4% for the second quarter of fiscal year 2022. Interest expense increased by $7,484, or 45.3%, to $23,987 for the first half of fiscal year 2023, compared to $16,503 for the first half of fiscal year 2022. Interest expense as a percentage of net sales was 1.8% for the first half of fiscal year 2023, compared to 1.5% for the first half of fiscal year 2022. The increase in interest expense for the second quarter and first half of fiscal year 2023 as compared to the same periods of the prior fiscal year is primarily attributable to increased borrowings on the revolving credit facility that occurred during the second quarter and first half of fiscal 2023.

Other income increased by $7,153 to $12,040 for the second quarter of fiscal year 2023, compared to $4,887 for the second quarter of fiscal year 2022. Other income increased by $4,869 to $20,430 for the first half of fiscal year 2023, compared to $15,561 for the first half of fiscal year 2022. The increase in other income for the second quarter and first half of fiscal year 2023 as compared to the same periods of the prior fiscal year is primarily attributable to increased earnings in the joint venture and a gain on investments in our deferred compensation program, whereas a loss on investments were recognized in the prior fiscal year.

Income taxes were provided at an effective rate on earnings before income taxes of ~~51.3%~~11.8% for the second quarter and 9.5% for the first ~~quarter~~half of fiscal year ~~2018, compared to 1.1%~~2023, and 11.4% for the second quarter and 14.8% for the first ~~quarter~~half of fiscal year ~~2017. The changes in components of our effective tax rate (as a percentage of earnings before income taxes) were attributable to the following:~~



		~~Three-Month~~
		~~Period~~
~~Effective tax rate for the period ended December 31, 2016~~		~~1.1~~	%
~~Current year effect of U.S. federal corporate rate reduction~~		~~(9.3)~~
~~Discrete impact of the Tax Act:~~
~~Effect of U.S. federal corporate rate reduction on net U.S. deferred tax liability~~	~~(43.8)~~
~~Transition Tax~~	~~69.4~~
~~Increased deferred tax liability associated with anticipated repatriation taxes~~	~~13.0~~
~~Net discrete impact of enactment of the Tax Act~~		~~38.6~~
~~Taxes on international activities~~		~~22.9~~
~~Research and experimentation credit~~		~~(0.1)~~
~~State and local taxes~~		~~(0.1)~~
~~Adjustment of prior period tax items~~		~~(3.1)~~
~~Net excess income tax benefit from stock-based compensation~~		~~1.3~~
~~Effective tax rate for the period ended December 31, 2017~~		~~51.3~~	%

2022. The increase in the year-over-year effective tax rate for the three-months ended December 31, 2017 is primarily attributable to the $14,778 discrete net impact resulting from the enactment of “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”) partially offset by benefits of the current year effect of the U.S. federal corporate rate reduction resulting from the enactment of the Tax Act on the estimated annual effective tax rate. In addition, the effective tax rate for the ~~three-months ended December 31, 2016 includes~~second quarter compared to the ~~impact~~same period of the ~~repatriation~~prior year is primarily attributable to a smaller stock-based compensation tax ~~on deferred foreign profits and losses. The U.S. foreign~~benefit, partially offset by larger state income tax credits ~~available as a result of the repatriation of the foreign net earnings in the first quarter of last year were greater than the U.S. taxes payable on these net foreign earnings.~~

~~As a result of the Tax Act, we have calculated a U.S. federal statutory corporate income tax rate of 24.5% for the fiscal year ending September 30, 2018~~ and ~~we expect the U.S. federal statutory rate to be 21% for fiscal years beginning after September 30, 2018. Overall, we anticipate the~~Foreign Derived Intangible Income benefit. The decrease in the ~~U.S. federal statutory rate resulting from the enactment of the Tax Act will have favorable impact on our future U.S. tax expense and operating cash flows.~~

~~Within the calculation of our annual~~ effective tax rate ~~we have used assumptions and estimates that may change as a result~~for the first half of ~~future guidance, interpretation, and rule-making from the Internal Revenue Service, the SEC, the Financial~~

~~Accounting Standards Board (“FASB”) and/or various other taxing jurisdictions. The Tax Act contains many significant changes~~fiscal year 2023 compared to the ~~U.S.~~same period of the prior year is primarily attributable to the release of uncertain tax ~~laws, the consequences of which have not yet been fully determined. Changes in corporate~~positions, larger state income tax ~~rates, the net deferred~~credits, and a larger Foreign Derived Intangible Income benefit, partially offset by a smaller stock-based compensation tax assets and/or liabilities relating to our U.S. operations, the taxation of foreign earnings, and the deductibility of expenses contained in the Tax Act or other future tax reform legislation could have a material impact on our future U.S. tax expense.benefit.

Segment Results

The following table presents sales by segment:


	Three-Months Ended March 31,								Six-Months Ended March 31,
	2023				2022				2023				2022
Net sales:
Aerospace	$	437,017	60.8	%	$	372,757	63.5	%	$	832,702	62.3	%	$	709,192	62.8	%
Industrial		281,197	39.2	%		214,082	36.5	%		504,131	37.7	%		419,233	37.2	%
Consolidated net sales	$	718,214	100	%	$	586,839	100	%	$	1,336,833	100	%	$	1,128,425	100	%

Three-Months Ended December 31,

2017

2016
Net sales:

Aerospace

$
305,905

65.1
%

$
266,680

60.2
%
Industrial

164,243

34.9

176,214

39.8

Consolidated net sales

$
470,148

100.0
%

$
442,894

100.0
%

The following table presents earnings by segment and reconciles segment earnings to consolidated net earnings:


	Three-Months Ended March 31,						Six-Months Ended March 31,
	2023			2022			2023			2022
Aerospace	$	73,314		$	59,809		$	128,748		$	110,892
Industrial		37,571			17,234			48,973			40,927
Nonsegment expenses		(58,307	)		(15,250	)		(82,618	)		(44,615	)
Interest expense, net		(12,337	)		(7,697	)		(23,113	)		(15,362	)
Consolidated earnings before income taxes		40,241			54,096			71,990			91,842
Income tax expense		(4,730	)		(6,190	)		(6,873	)		(13,631	)
Consolidated net earnings	$	35,511		$	47,906		$	65,117		$	78,211

Three-Months Ended December 31,

2017

2016
Aerospace
$
43,553

$
46,877
Industrial

19,344

17,998
Nonsegment expenses

(19,023)

(11,381)
Interest expense, net

(6,387)

(6,435)
Consolidated earnings before income taxes

37,487

47,059
Income tax expense

(19,227)

(511)
Consolidated net earnings
$
18,260

$
46,548

The following table presents segment earnings ~~by segment~~ as a percent of segment net sales:


	Three-Months Ended March 31,						Six-Months Ended March 31,
	2023			2022			2023			2022
Aerospace		16.8	%		16.0	%		15.5	%		15.6	%
Industrial		13.4	%		8.1	%		9.7	%		9.8	%

Aerospace

Three-Months Ended December 31,

2017

2016
Aerospace

14.2%

17.6%
Industrial

11.8%

10.2%

Aerospace

segment net sales increased by $64,260, or 17.2%, to $437,017 for the second quarter of fiscal year 2023, compared to $372,757 for the second quarter of fiscal year 2022. Aerospace segment net sales ~~were $305,905~~increased by $123,510, or 17.4%, to $832,702 for the first ~~quarter~~half of fiscal year ~~2018, up 14.7%~~2023, compared to ~~$266,680~~$709,192 for the first ~~quarter~~half of fiscal year ~~2017.~~2022. The increase in Aerospace segment net sales ~~for~~in the second quarter and first ~~quarter~~half of fiscal year ~~2018~~2023 as compared to the ~~first quarter~~same periods of the prior fiscal year ~~2017 was driven~~is primarily ~~by increased~~due to higher commercial OEM and aftermarket sales ~~and increased defense~~as well as price realization, partially offset by the reduced demand for guided weapons.

Defense OEM sales decreased in the second quarter and first ~~quarter~~half of fiscal year ~~2018. Defense aftermarket sales were down in the first quarter of fiscal year 2018~~2023 as compared to the same ~~period~~periods of the prior fiscal year, ~~2017.~~

~~Commercial~~primarily driven by the reduced demand for guided weapons. However, with the exception of guided weapons, defense OEM sales were up for the first quarter of fiscal year 2018 as compared to the first quarter of fiscal year 2017. The strong commercial OEM sales in the quarter benefitted from the accelerating deliveries of certain key next generation aircraft on which we have increased content, as well as some improvement in business jets as compared to a weak first quarter of fiscal year 2017.

~~Commercial~~demand remained stable at elevated levels. Our defense aftermarket sales increased significantly in the first quarter of fiscal year 2018 as compared to the first quarter of fiscal year 2017, benefitting from both the initial provisioning for new platforms and increased utilization of existing fleets.

~~U.S. government funds continue to be prioritized for defense platforms on which we have content. Defense OEM~~ sales increased in the second quarter and first ~~quarter~~half of fiscal year ~~2018 compared to the first quarter of fiscal year 2017, driven primarily by continued strong demand for smart weapons, as well as growing international demand for various other military programs.~~

Defense aftermarket sales decreased in the first quarter of fiscal year 2018 as compared to the first quarter of fiscal year 2017, reflecting variability in the timing of continued maintenance needs and upgrade programs.

~~Aerospace segment earnings~~ decreased by $3,324, or 7.1%, to $43,553 for the first quarter of fiscal year 2018, compared to $46,877 for the first quarter of fiscal year 2017. The net decrease in Aerospace segment earnings for the first quarter of fiscal year 2018 was due to the following:



	~~Three-Month~~
	~~Period~~
~~Earnings for the period ended December 31, 2016~~	$	~~46,877~~
~~Sales volume~~		~~18,207~~
~~Price, sales mix and productivity~~		~~(4,952)~~
~~Production capacity expansion costs~~		~~(5,138)~~
~~Increases in research and development expenses~~		~~(5,876)~~
~~Other, net~~		~~(5,565)~~
~~Earnings for the period ended December 31, 2017~~	$	~~43,553~~

Aerospace segment earnings as a percentage of sales were 14.2% for the first quarter of fiscal year 2018, compared to 17.6% for the first quarter of fiscal year 2017. Aerospace segment earnings benefitted from higher sales volume which was partially offset by unfavorable product sales mix and higher production capacity expansion costs to support new program awards. Aerospace segment earnings were also negatively impacted by increased investment in research and development for new program awards and opportunities being pursued.

~~Industrial~~

~~Industrial segment net sales~~ decreased by 6.8% to $164,243 for the first quarter of fiscal year 2018, compared to $176,214 for the first quarter of fiscal year 2017 due primarily to declines in industrial gas turbine and renewables sales. The decline in industrial gas turbine sales was the result of increased efficiency leading to lower overall demand for electricity, the increased utilization of renewable power sources, and excess inventory in the channel. The sales decline in our renewables business was due to the short-term unfavorable impact of platform transitions by some of our customers. Sales of fuel systems for CNG trucks in Asia increased in the first quarter of fiscal year 2018 as compared to the first quarter of fiscal year 2017 as the Chinese government continues to encourage natural gas usage. In addition, sales of reciprocating engines used in both power generation and oil and gas applications were up in the first quarter of fiscal year 2018 as2023 compared to the same period of the prior fiscal ~~year.~~year, primarily driven by increased defense budgets resulting in operations and maintenance upgrades.

~~Industrial~~Aerospace segment earnings increased by ~~$1,346,~~$13,505, or ~~7.5%~~22.6%, to ~~$19,344~~$73,314 for the ~~first~~second quarter of fiscal year ~~2018,~~2023, compared to ~~$17,998~~$59,809 for the ~~first~~second quarter of fiscal year ~~2017.~~ 2022. Aerospace segment earnings increased by $17,856, or 16.1%, to $128,748 for the first half of fiscal year 2023, compared to $110,892 for the first half of fiscal year 2022.

The increase in Aerospace segment earnings for the second quarter and first half of fiscal year 2023 as compared to the same periods of the prior fiscal year was due to the following:


	Three-Month Period			Six-Month Period
Earnings for the period ended March 31, 2022	$	59,809		$	110,892
Sales volume		17,591			34,272
Price, sales mix, inflation and productivity		7,171			13,811
Manufacturing costs related to hiring and training		(5,196	)		(11,014	)
Annual variable incentive compensation costs		(4,586	)		(12,252	)
Other, net		(1,475	)		(6,961	)
Earnings for the period ended March 31, 2023	$	73,314		$	128,748

Aerospace segment earnings as a percentage of segment net sales were 16.8% for the second quarter and 15.5% for the first half of fiscal year 2023, compared to 16.0% for the second quarter and 15.6% for the first half of fiscal year 2022.

Industrial

Industrial segment net sales increased by $67,115, or 31.4%, to $281,197 for the second quarter of fiscal year 2023, compared to $214,082 for the second quarter of fiscal year 2022. Industrial segment net sales increased by $84,898, or 20.3%, to $504,131 for the first half of fiscal year 2023, compared to $419,233 for the first half of fiscal year 2022. The increase in Industrial segment net sales in the second quarter and first half of fiscal year 2023 as compared to the same periods of the prior fiscal year was primarily attributable to volume increases across all markets, partially offset by unfavorable foreign currency impacts of $11,426 in the second quarter and $28,092 in the first half of fiscal year 2023.

Industrial segment earnings increased by $20,337, or 118.0%, to $37,571 for the second quarter of fiscal year 2023, compared to $17,234 for the second quarter of fiscal year 2022. Segment earnings increased by $8,046, or 19.7%, to $48,973 for the first half of fiscal year 2023, compared to $40,927 for the first half of fiscal year 2022.

The increase in Industrial segment earnings for the second quarter and first ~~quarter~~half of fiscal year ~~2018~~2023 compared to the same periods of the prior fiscal year was due to the following:


	Three-Month Period			Six-Month Period
Earnings for the period ended March 31, 2022	$	17,234		$	40,927
Sales volume		30,104			42,739
Price, sales mix, inflation and productivity		3,242			(3,846	)
Manufacturing costs related to hiring and training		(5,600	)		(10,193	)
Effects of changes in foreign currency rates		(3,356	)		(7,956	)
Annual variable incentive compensation costs		(3,687	)		(7,651	)
Other, net		(366	)		(5,047	)
Earnings for the period ended March 31, 2023	$	37,571		$	48,973



	~~Three-Month~~
	~~Period~~
~~Earnings for the period ended December 31, 2016~~	$	~~17,998~~
~~Sales volume~~		~~(7,319)~~
~~Price, sales mix and productivity~~		~~166~~
~~Savings from cost reduction initiatives~~		~~3,765~~
~~Effects of changes in foreign currency rates~~		~~754~~
~~Other, net~~		~~3,980~~
~~Earnings for the period ended December 31, 2017~~	$	~~19,344~~

Industrial segment earnings as a percentage of segment net sales were ~~11.8%~~13.4% for the second quarter and 9.7% for the first half of fiscal year 2023, compared to 8.1% for the second quarter and 9.8% for the first half of fiscal year 2022.

Nonsegment

Nonsegment expenses increased by $43,057 to $58,307 for the second quarter of fiscal year ~~2018,~~2023, compared to ~~10.2%~~$15,250 for the ~~first~~second quarter of fiscal year ~~2017. The increase in segment earnings~~2022. Nonsegment expenses increased by $38,003 to $82,618 for the first ~~quarter~~half of fiscal year ~~2018 was largely driven by savings from prior year cost reduction initiatives.~~

~~Nonsegment expenses~~

~~Nonsegment expenses~~ ~~increased~~2023, compared to ~~$19,023~~$44,615 for the first ~~quarter~~half of fiscal year ~~2018, compared to $11,381~~2022. Nonsegment expenses for the second quarter and first ~~quarter~~half of fiscal year ~~2017. As~~2023 included a ~~percent~~specific charge for excess and obsolete inventory of ~~sales,~~$11,995, a product rationalization charge of $10,504, a restructuring charge of $5,172, a non-recurring charge related to customer collections of $4,997, and certain non-restructuring separation costs of $2,208. Excluding these charges from 2023, nonsegment expenses increased to 4.0% of net sales for the first quarter of fiscal year 2018, compared to 2.6% of net sales for the first quarter of fiscal year 2017. The increase in nonsegment expenses in the first quarter of fiscal year 2018 as compared to the first quarter of fiscal year 2017 is due to the recognition of the

~~majority of our annual stock-based compensation expense in the first quarter of fiscal year 2018, whereas in fiscal year 2017 the majority of this expense was recognized~~by $8,181 and $3,127 in the second quarter and first half of fiscal year 2023, respectively, compared to the second quarter and first half of fiscal ~~year.~~ year 2022.

~~LIQUIDI~~TYLIQUIDITY AND CAPITAL RESOURCES

Historically, we have satisfied our working capital needs, as well as capital expenditures, product development, and other liquidity requirements associated with our operations, with cash flow provided by operating activities and borrowings under our credit facilities. ~~Historically,~~From time to time, we have also issued debt to supplement our cash needs, or repay our other ~~indebtedness.~~indebtedness, or finance our acquisitions. We continue to expect that cash generated from our operating activities, together with borrowings under our revolving credit facility and other borrowing capacity, will be sufficient to fund our continuing operating needs ~~including capital expansion funding~~ for the foreseeable future.

~~Our aggregate cash and cash equivalents were $85,779 at December 31, 2017 and 87,552 at September 30, 2017, and~~In addition to our working capital was $626,122 at December 31, 2017 and $593,955 at September 30, 2017. Of the $85,779 of cash and cash equivalents held at December 31, 2017, $82,024 was held by our foreign locations. We are not presently aware of any significant restrictions on the repatriation of these funds, although a portion is considered indefinitely reinvested in these foreign subsidiaries. If these funds were needed to fund our operations or satisfy obligations in the United States, then they could be repatriated and their repatriation into the United States may cause us to incur additional U.S. income taxes or foreign withholding taxes. Any additional U.S. taxes could be offset, in part or in whole, by foreign tax credits. The amount of such taxes and application of tax credits would be dependent on the income tax laws and other circumstances at the time these amounts are repatriated. Based on these variables, it is impractical to determine the income tax liability that might be incurred if these funds were to be repatriated. The additional uncertainty associated with the Tax Act increases the impracticality of determining this income tax liability.

~~We do not believe the Transition Tax, which is expected to be paid over and eight year period beginning in January 2019, will have a significant impact on our cash flows in any individual fiscal year.~~

Consistent with common business practice in China, our Chinese subsidiary accepts bankers’ acceptance notes from Chinese customers, in settlement of certain customer accounts receivable. Bankers’ acceptance notes are financial instruments issued by Chinese financial institutions as part of financing arrangements between the financial institution and a customer of the financial institution. Bankers’ acceptance notes represent a commitment by the issuing financial institution to pay a certain amount of money at a specified future maturity date to the legal owner of the bankers’ acceptance note as of the maturity date. The maturity date of bankers’ acceptance notes varies, but it is our policy to only accept bankers’ acceptance notes with maturity dates no more than 180 days from the date of our receipt of such draft. The issuing financial institution is the obligor, not our customers. Upon our acceptance of a bankers’ acceptance note from a customer, such customer has no further obligation to pay us for the related accounts receivable balance. We had bankers’ acceptance notes of $59,798 at December 31, 2017 and $38,243 at September 30, 2017 recorded as non-customer accounts receivable on our condensed consolidated balance sheets. The increase in the amount of bankers’ acceptance notes is due to the higher sales of natural gas truck and bus systems in China. We only accept bankers’ acceptance notes issued by banks that are believed to be creditworthy and to which the credit risks associated with the bankers’ acceptance notes are believed to be low.

~~Our~~ revolving credit facility, matures in April 2020 and provides a borrowing capacity of up to $1,000,000 with the option to increase total available borrowings to up to $1,200,000, subject to lenders’ participation. We can borrow against our $1,000,000 revolving credit facility as long as we are in compliance with all of our debt covenants. Historically, we have used borrowings under our revolving credit facilities to meet certain short-term working capital needs, as well as for strategic uses, including repurchases of our common stock, payments of dividends, acquisitions, and facilities expansions. In addition, we have various foreign credit facilities, some of which are tied to net amounts on deposit at certain foreign financial institutions. These foreign credit facilities are reviewed annually for renewal. We use borrowings under these foreign credit facilities to finance certain local operations on a periodic basis. For further discussion of our ~~$1,000,000~~ revolving credit facility and our other credit facilities, see Note ~~13,~~ 15, Credit facilities, short-term borrowings and long-term debt in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item I of this Form 10-Q.

At ~~December~~March 31, ~~2017,~~2023, we had total outstanding debt of ~~$649,639~~$858,597 consisting of ~~amounts borrowed under our revolving credit facility and~~ various series of unsecured notes due between ~~2018~~2023 and ~~2031, with~~2033 and obligations under our finance leases.

At March 31, 2023, we had $130,500 outstanding on our revolving credit facility, all of which is classified as short-term borrowings based on our intent and ability to repay this amount in the next twelve months. Revolving credit facility and short-term borrowing activity during the six-months ended March 31, 2023 were as follows:


Maximum daily balance during the period	$	317,800
Average daily balance during the period	$	241,014
Weighted average interest rate on average daily balance		5.41	%

At March 31, 2023, we had additional borrowing availability of ~~$922,377~~$860,721 under our revolving credit facility, net of outstanding letters of credit, and additional borrowing availability of ~~$7,516~~$27,460 under various foreign credit facilities. ~~As of December 31, 2017, the $100,000 in debt related to~~

To our Series D Notes, which mature and are payable in October 2018, has been classified as long-term based on our intent and ability to refinance this debt using cash proceeds from our existing revolving credit facility which, in turn, is expected to be repaid beyond the next twelve months. For further discussion of our notes, see Note 13, ~~Credit facilities, short-term borrowings and long-term debt~~ ~~in the Notes to the Condensed Consolidated Financial Statements in Part I, Item I of this Form 10-Q.~~

~~At December 31, 2017, we had $66,300 of borrowings outstanding under our revolving credit facility, all of which was classified as short-term.Revolving credit facility and short-term borrowing activity during the three-months ended December 31, 2017 were as follows:~~



~~Maximum daily balance during the period~~	$	~~194,950~~
~~Average daily balance during the period~~	$	~~163,406~~
~~Weighted average interest rate on average daily balance~~		~~2.29%~~

~~We believe~~knowledge, we were in compliance with all our debt covenants as of ~~December~~March 31, ~~2017.~~2023. See Note ~~12,~~ 15, Credit facilities, short-term borrowings and long-term debt in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our most ~~recent~~recently filed Form 10-K, for more information about our covenants.

In addition to utilizing our cash resources to fund the working capital needs of our business, we evaluate additional strategic uses of our funds, including the repurchase of our common stock, payment of dividends, significant capital expenditures, consideration of strategic acquisitions, and other potential uses of cash.

From time to time, the Company enters into various factoring agreements with third-party financial institutions to sell certain of its receivables. Factoring activity resulted in an increase of approximately $1,569 in cash provided by operating activities during the six-months ended March 31, 2023, compared to an increase in cash provided by operating activities of approximately $25,759 during the six-months ended March 31, 2022.

Our ability to service our long-term debt, to remain in compliance with the various restrictions and covenants contained in our debt agreements, and to fund working capital, capital expenditures and product development efforts will depend on our ability to generate cash from operating activities, which in turn is subject to, among other things, future operating performance as well as general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control.

In November 2019, the ~~first quarter of fiscal year 2017, our board of directors terminated the Company’s prior stock repurchase program and replaced it with~~Board had authorized a ~~new~~ program for the repurchase of up to $500,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a three-year period that ~~will end~~was scheduled to expire in November ~~2019~~2022 (the ~~“2017~~“2019 Authorization”). InDuring the ~~three-months ended December 31, 2016,~~first half of fiscal year 2022, we ~~purchased 350~~repurchased 233 shares of our common stock for ~~$24,004,~~$26,742 under the ~~2017 Authorization pursuant to a 10b5-1 plan.~~2019 Authorization. We repurchased no ~~stock in~~shares under the ~~three-months ended December 31, 2017.~~2019 Authorization during the first half of fiscal year 2023.

~~For our Aerospace segment, we have been purchasing production equipment~~In January 2022, the Board terminated the 2019 Authorization and concurrently authorized a program for ~~our second campus in~~ the ~~greater-Rockford, Illinois area and anticipate continuing such purchases as new aircraft platforms ramp~~repurchase of up to ~~full production volumes. The second campus, completed~~$800,000 of Woodward’s outstanding shares of common stock on the open market or in ~~2015, was built to support~~privately negotiated transactions over a two-year period ending in January 2024 (the “2022 Authorization”). During the ~~expected growth in our Aerospace segment over the next ten years and beyond, as a result~~first half of fiscal year 2023, we repurchased 274 shares of our ~~being awarded a substantial number~~common stock for $26,369 under the 2022 Authorization, as compared to 2,047 shares of ~~new system platforms, particularly on narrow-body aircraft.~~our common stock for $245,357 under the 2022 Authorization during the first half of fiscal year 2022.

We believe that cash flows from operations, along with our contractually committed borrowings and other borrowing capability, will continue to be sufficient to fund anticipated capital spending requirements and our operations for the foreseeable future. However, we could be adversely affected if the financial institutions providing our capital requirements refuse to honor their contractual commitments, cease lending, or declare bankruptcy. We believe the lending institutions participating in our credit arrangements are financially ~~stable.~~stable and do not currently foresee adverse impacts to financial institutions supporting our capital requirements.

Cash Flows


	Six-Months Ended March 31,
	2023			2022
Net cash provided by operating activities	$	40,150		$	50,108
Net cash (used in) investing activities		(35,236	)		(12,848	)
Net cash provided by (used in) financing activities		24,337			(276,834	)
Effect of exchange rate changes on cash and cash equivalents		(7,668	)		(533	)
Net change in cash and cash equivalents		21,583			(240,107	)
Cash and cash equivalents, including restricted cash, at beginning of year		107,844			448,462
Cash and cash equivalents, including restricted cash, at end of period	$	129,427		$	208,355

Three-Months Ended

December 31,

2017

2016
Net cash (used in) provided by operating activities
$
(2,533)

$
52,351
Net cash used in investing activities

(29,109)

(16,618)
Net cash provided by (used in) financing activities

27,327

(22,192)
Effect of exchange rate changes on cash and cash equivalents

2,542

(13,746)
Net change in cash and cash equivalents

(1,773)

(205)
Cash and cash equivalents at beginning of year

87,552

81,090
Cash and cash equivalents at end of period
$
85,779

$
80,885

Net ~~cash flows used in operating activities~~ ~~for the first quarter of fiscal year 2018 was $2,533, compared to net~~ cash flows provided by operating activities for the first half of ~~$52,351~~fiscal year 2023 was $40,150, compared to $50,108 for the same period of fiscal year 2022. The decrease in net cash provided by operating activities in the first ~~quarter~~half of fiscal year ~~2017. The change in cash flows from operating activities~~2023 as compared to the first half of the prior fiscal year is primarily attributable to ~~a decrease in net earnings in the first quarter~~timing of ~~fiscal year 2018 compared to the prior fiscal year~~tax payments and working capital ~~changes which had an increase in cash use in the first quarter of 2018 due mainly~~increases to ~~increased payments of accounts payable and accrued liabilities compared to the first quarter of last year.~~support this year's anticipated growth.

Net cash flows used in investing activities for the first ~~quarter~~half of fiscal year ~~2018~~2023 was ~~$29,109,~~$35,236, compared to ~~$16,618 in~~$12,848 for the ~~first quarter~~same period of fiscal year ~~2017.~~2022. The increase in cash flows used in investing activities in the first ~~quarter~~half of fiscal year ~~2018~~2023 as compared to the first ~~quarter~~half of the prior fiscal year is primarily due to increased payments for ~~capital expenditures. Payments for~~ property, plant and equipment increased by $7,392 from $21,058 in the first quarter of fiscal year 2017 to $28,450 in the first quarter of this year. In addition, the first quarter of fiscal year 2018 had lower cash proceeds from the sale of assets compared to the first quarter of fiscal year 2017.equipment.

Net cash flows provided by financing activities for the first ~~quarter~~half of fiscal year ~~2018~~2023 was ~~$27,327,~~$24,337, compared to net cash flows used in financing activities of ~~$22,192~~$276,834 for the same period of fiscal year 2022. The increase in net cash flows provided by financing activities in the first ~~quarter~~half of fiscal year ~~2017.~~2023 as compared to the first half of the prior fiscal year is primarily attributable to the change in net debt borrowings, partially offset by a decrease in repurchases of common stock. During the first ~~quarter~~half of fiscal year ~~2018,~~2023, we had net debt borrowings in the amount of ~~$33,594 compared to~~$63,412, while we had net debt ~~borrowings~~payments of ~~$3,748~~$564 in the first ~~quarter~~half of fiscal year ~~2017. We utilized $24,004 to repurchase 350 shares of our common stock in~~2022. During the first ~~quarter~~half of fiscal year ~~2017 under the 2017 Authorization. We~~2023, we made no$26,369 of cash repurchases of common stock, as compared to $273,535 of cash repurchases inof common stock during the first ~~quarter~~half of fiscal year ~~2018.~~2022.

~~Contractual Obligations~~

We have various contractual obligations, including obligations related to long-term debt, operating and capital leases, purchases, retirement pension benefit plans, and other postretirement benefit plans. These contractual obligations are summarized and discussed more fully in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our most recent Form 10-K. There have been no material changes to our various contractual obligations during the three-months ended December 31, 2017.

Non-U.S. GAAP Financial Measures

Adjusted net earnings, adjusted earnings per share, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, adjusted EBITDA, free cash flow, and adjusted free cash flow are financial measures not prepared and presented in accordance with U.S. GAAP. However, we believe these non-U.S. GAAP financial measures provide additional information that enables readers to evaluate our business from the perspective of management.

Earnings based ~~non-U.S.~~non‐U.S. GAAP financial measures

Adjusted net earnings is defined by the Company as net earnings excluding, as applicable, (i) a specific charge for excess and obsolete inventory, (ii) product rationalization, (iii) a restructuring charge, (iv) a non-recurring charge related to customer collections, (v) certain non-restructuring separation costs, (vi) a charge and partial reversal in connection with a non-recurring matter unrelated to the ongoing operations of the business, and (vii) costs related to business development activities. The product rationalization adjustment pertains to a non-recurring write-off of inventory and assets related to the elimination of certain product lines. The specific charge for excess and obsolete inventory pertains to a non-recurring process change that resulted in the identification and write down of certain excess inventory unrelated to product rationalization. The non-recurring charge related to customer collections pertains to a discrete process issue that was identified and corrected. The Company believes that these excluded items are short‐term in nature, not directly related to the ongoing operations of the business, and therefore, the exclusion of them illustrates more clearly how the underlying business of Woodward is performing. Management uses adjusted net earnings to evaluate the Company’s performance excluding these infrequent or unusual period expenses that are not necessarily indicative of the Company’s operating performance for the period. Management defines adjusted earnings per share as adjusted net earnings, as defined above, divided by the weighted‐average number of diluted shares of common stock outstanding for the period. Management uses both adjusted net earnings and adjusted earnings per share when comparing operating performance to other periods which may not have similar, infrequent or unusual charges.

The reconciliation of net earnings and earnings per share to adjusted net earnings and adjusted earnings per share, respectively, is shown in the tables below:


	Three-Months Ended March 31,
	2023				2022
	Net Earnings		Earnings Per Share		Net Earnings			Earnings Per Share
Net earnings (U.S. GAAP)	$	35,511	$	0.58	$	47,906		$	0.74
Non-U.S. GAAP adjustments, net of tax:
Specific charge for excess and obsolete inventory		9,016		0.15		—			—
Product rationalization		7,896		0.13		—			—
Restructuring charge		3,874		0.06		—			—
Non-recurring charge related to customer collections		3,761		0.06		—			—
Certain non-restructuring separation costs		1,661		0.03		—			—
Non-recurring matter unrelated to the ongoing operations of the business		—		—		(1,296	)		(0.02	)
Business development activities		—		—		—			—
Non-U.S. GAAP adjustments		26,208		0.43		(1,296	)		(0.02	)
Adjusted net earnings (Non-U.S. GAAP)	$	61,719	$	1.01	$	46,610		$	0.72


	Six-Months Ended March 31,
	2023				2022
	Net Earnings		Earnings Per Share		Net Earnings		Earnings Per Share
Earnings per share (U.S. GAAP)	$	65,117	$	1.07	$	78,211	$	1.21
Non-U.S. GAAP adjustments, net of tax:
Specific charge for excess and obsolete inventory		9,016		0.15		—		—
Product rationalization		7,896		0.13		—		—
Restructuring charge		3,874		0.06		—		—
Non-recurring charge related to customer collections		3,761		0.06		—		—
Certain non-restructuring separation costs		1,661		0.03		—		—
Non-recurring matter unrelated to the ongoing operations of the business		—		—		2,454		0.04
Business development activities		—		—		2,236		0.03
Total non-U.S. GAAP adjustments		26,208		0.43		4,690		0.07
Adjusted earnings per share (Non-U.S. GAAP)	$	91,325	$	1.50	$	82,901	$	1.28

Management uses EBIT to evaluate Woodward’s performance without financing and tax related considerations, as these elements ~~may~~do not fluctuate with operating results. Management uses EBITDA in evaluating Woodward’s operating performance, making business decisions, including developing budgets, managing expenditures, forecasting future periods, and evaluating capital structure impacts of various strategic scenarios. Securities analysts, investors, and others frequently use EBIT and EBITDA in their evaluation of companies, particularly those with significant property, plant, and equipment, and intangible assets subject to amortization.

The Company believes that EBIT and EBITDA are useful measures to the investor when measuring operating performance as they eliminate the impact of financing and tax expenses, which are non-operating expenses and may be driven by factors outside of the Company’s operations, such as changes in tax laws or regulations, and, in the case of EBITDA, the noncash charges associated with depreciation and amortization. Further, as interest from financing, income taxes, depreciation, and amortization can vary dramatically between companies and between periods, management believes that the removal of these items can improve comparability.

Adjusted EBIT and adjusted EBITDA represent further non-U.S. GAAP adjustments to EBIT and EBITDA, in each case adjusted to exclude, as applicable, (i) a specific charge for excess and obsolete inventory, (ii) product rationalization, (iii) a restructuring charge, (iv) a non-recurring charge related to customer collections, (v) certain non-restructuring separation costs, (vi) a charge and partial reversal in connection with a non-recurring matter unrelated to the ~~three-months ended December 31, 2017~~ongoing operations of the business, and ~~December 31, 2016~~(vii) costs related to business development activities. The product rationalization adjustment pertains to a non-recurring write-off of inventory and assets related to the elimination of certain product lines. The specific charge for excess and obsolete inventory pertains to a non-recurring process change that resulted in the identification and write down of certain excess inventory unrelated to product rationalization. The non-recurring charge related to customer collections pertains to a discrete process issue that was identified and corrected. As these charges are infrequent or unusual items that can be variable from period to period and do not fluctuate with operating results, management believes removing these gains and charges from EBIT and EBITDA improves comparability of past, present, and future operating results and provides consistency when comparing EBIT and EBITDA between periods.

EBIT and adjusted EBIT reconciled to net earnings were as follows:


	Three-Months Ended March 31,						Six-Months Ended March 31,
	2023			2022			2023			2022
Net earnings (U.S. GAAP)	$	35,511		$	47,906		$	65,117		$	78,211
Income tax expense		4,730			6,190			6,873			13,631
Interest expense		12,845			8,197			23,987			16,503
Interest income		(508	)		(500	)		(874	)		(1,141	)
EBIT (Non-U.S. GAAP)		52,578			61,793			95,103			107,204
Non-U.S. GAAP adjustments:
Specific charge for excess and obsolete inventory		11,995			—			11,995			—
Product rationalization		10,504			—			10,504			—
Restructuring charge		5,172			—			5,172			—
Non-recurring charge related to customer collections		4,997			—			4,997			—
Certain non-restructuring separation costs		2,208			—			2,208			—
Non-recurring matter unrelated to the ongoing operations of the business		—			(1,728	)		—			3,272
Business development activities		—			—			—			2,982
Total non-U.S. GAAP adjustments		34,876			(1,728	)		34,876			6,254
Adjusted EBIT (Non-U.S. GAAP)	$	87,454		$	60,065		$	129,979		$	113,458

EBITDA and adjusted EBITDA reconciled to net earnings were as follows:


	Three-Months Ended March 31,						Six-Months Ended March 31,
	2023			2022			2023			2022
Net earnings (U.S. GAAP)	$	35,511		$	47,906		$	65,117		$	78,211
Income tax expense		4,730			6,190			6,873			13,631
Interest expense		12,845			8,197			23,987			16,503
Interest income		(508	)		(500	)		(874	)		(1,141	)
Amortization of intangible assets		9,418			9,587			18,596			19,275
Depreciation expense		20,535			21,023			40,661			42,056
EBITDA (Non-U.S. GAAP)		82,531			92,403			154,360			168,535
Non-U.S. GAAP adjustments:
Specific charge for excess and obsolete inventory		11,995			—			11,995			—
Product rationalization		10,504			—			10,504			—
Restructuring charge		5,172			—			5,172			—
Non-recurring charge related to customer collections		4,997			—			4,997			—
Certain non-restructuring separation costs		2,208			—			2,208			—
Non-recurring matter unrelated to the ongoing operations of the business		—			(1,728	)		—			3,272
Business development activities		—			—			—			2,982
Total non-U.S. GAAP adjustments		34,876			(1,728	)		34,876			6,254
Adjusted EBITDA (Non-U.S. GAAP)	$	117,407		$	90,675		$	189,236		$	174,789

Three-Months Ended December 31,

2017

2016
Net earnings (U.S. GAAP)

$
18,260

$
46,548
Income tax expense

19,227

511
Interest expense

6,750

6,840
Interest income

(363)

(405)
EBIT (Non-U.S. GAAP)

43,874

53,494
Amortization of intangible assets

6,243

6,458
Depreciation expense

14,827

12,455
EBITDA (Non-U.S. GAAP)

$
64,944

$
72,407

The use of these non-U.S. GAAP financial measures is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. As adjusted net earnings, adjusted net earnings per share, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA exclude certain financial information compared with net earnings, the most directly comparable U.S. GAAP financial measure, users of this financial information should consider the information that is excluded. Our calculations of adjusted net earnings, adjusted net earnings per share, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA may differ from similarly titled measures used by other companies, limiting their usefulness as comparative measures.

Cash ~~flow-based non-U.S.~~flow‐based non‐U.S. GAAP financial measures

Management uses free cash flow, which is defined by the Company as net cash flows provided by operating activities less payments for property, plant, and equipment, in reviewing the financial performance of and cash generation by Woodward’s various business groups and evaluating cash levels. We believe free cash flow is a useful measure for investors because it portrays our ability

to grow organically and generate cash from our businesses for purposes such as paying interest on our indebtedness, repaying maturing debt, funding business acquisitions, purchasing our common stock, paying dividends, and ~~paying dividends.~~investing in additional research and development. In addition, securities analysts, investors, and others frequently use free cash flow in their evaluation of companies. Adjusted free cash flow represents a further non-U.S. GAAP adjustment to free cash flow to exclude the effect of cash paid for business development activities and restructuring activities. Management believes that excluding these infrequent or unusual items from free cash flow better portrays our ability to generate cash, as such items are not indicative of the Company’s operating performance for the period.

The use of ~~this non-U.S.~~these non‐U.S. GAAP financial ~~measure~~measures is not intended to be considered in isolation of, or as substitutes for, the financial information prepared and presented in accordance with U.S. GAAP. Free cash flow ~~does~~and adjusted free cash flow do not necessarily represent funds available for discretionary use and isare not necessarily a measure of our ability to fund our cash needs. Our calculation of free cash flow and adjusted free cash flow may differ from similarly titled measures used by other companies, limiting ~~its~~their usefulness as a comparative ~~measure.~~measures.

Free cash flow ~~for the three-months ended December 31, 2017~~ and ~~December 31, 2016~~adjusted free cash flow reconciled to net cash provided by operating activities were as follows:


	Six-Months Ended March 31,
	2023			2022
Net cash provided by operating activities (U.S. GAAP)	$	40,150		$	50,108
Payments for property, plant and equipment		(44,046	)		(24,150	)
Free cash flow (Non-U.S. GAAP)	$	(3,896	)	$	25,958
Cash paid for business development activities		—			770
Cash paid for restructuring charges		2,836			505
Adjusted free cash flow (Non-U.S. GAAP)	$	(1,060	)	$	27,233

Three-Months Ended December 31,

2017

2016
Net cash (used in) provided by operating activities (U.S. GAAP)
$
(2,533)

$
52,351
Payments for property, plant and equipment

(28,450)

(21,058)
Free cash flow (Non-U.S. GAAP)
$
(30,983)

$
31,293

CRITICAL ACCOUNTING ~~POLICIES AND~~ ESTIMATES

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Note 1, Operations and summary of significant accounting policies, in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our most ~~recent~~recently filed Form 10-K, describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Our critical accounting estimates, identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our most ~~recent~~recently filed Form 10-K, include the discussion of estimates used for revenue recognition, inventory valuation, ~~depreciation and amortization,~~ reviews for impairment of goodwill ~~postretirement benefit obligations,~~and other indefinitely lived intangible assets, and our provision for income taxes. Such accounting ~~policies and~~ estimates require significant judgments and assumptions to be used in the preparation of the Condensed Consolidated Financial Statements included in this Form 10-Q, and actual results could differ materially from the amounts reported.

New Accounting Standards

From time to time, the FASB or other standards-setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update.

To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note 2, New accounting standards, in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our Condensed Consolidated Financial Statements upon adoption.

~~Off-Balance Sheet Arrangements~~40

As of December 31, 2017, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or capital resources, that are material to investors.

Item 3.~~Quantitative~~Quantitative and ~~Qualitative~~Qualitative Disclosures About Market Risk

In the normal course of business, we have exposures to interest rate risk from our long-term and short-term debt and our postretirement benefit plans, and foreign currency exchange rate risk related to our foreign operations and foreign currency transactions. We are also exposed to various market risks that arise from transactions entered into in the normal course of business related to items such as the cost of raw materials and changes in inflation. Certain contractual relationships with customers and vendors mitigate risks from changes in raw material costs and foreign currency exchange rate changes that arise from normal purchasing and normal sales activities.

These market risks are discussed more fully in “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our most recent Form 10-K. These market risks have not materially changed since the date our most recent Form 10-K was filed with the SEC.

Item 4.~~Controls~~Controls and Procedures

We have established disclosure controls and procedures, which are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Act”) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Act is accumulated and communicated to management, including our Principal Executive Officer ~~(Thomas A. Gendron,~~(Charles (“Chip”) P. Blankenship, Jr., Chairman of the Board, Chief Executive Officer and President) and Principal Financial and Accounting Officer ~~(Robert F. Weber, Jr., Vice Chairman,~~(Mark D. Hartman, Chief Financial ~~Officer and Treasurer)~~Officer), as appropriate, to allow timely decisions regarding required disclosures.

~~Thomas A. Gendron~~Chip P. Blankenship, Jr. and ~~Robert F. Weber, Jr.,~~Mark D. Hartman evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15 under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on their evaluations, they concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of ~~December~~March 31, ~~2017.~~2023.

~~Furthermore, there~~There have not been noany changes in our internal ~~control~~controls over financial reporting during the ~~fiscal~~ quarter ~~covered by this Form 10-Q~~ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OT~~HER~~OTHER INFORMATION

Item 1.Legal Proceedings

Woodward is currently involved in claims, pending or threatened litigation or other legal proceedings, investigations, and/or regulatory proceedings arising in the normal course of business, including, among others, those relating to product liability claims, employment matters, worker’s compensation claims, contractual disputes, product warranty claims, and alleged violations of various laws and regulations. Woodward accrues for known individual matters using estimates of the most likely amount of loss where it believes that it is probable the matter will result in a loss when ultimately resolved and such loss is reasonably estimable.

While the outcome of pending claims, legal and regulatory proceedings, and investigations cannot be predicted with certainty, management believes that any liabilities that may result from these claims, proceedings, and investigations will not have a material effect on Woodward's liquidity, financial condition, or results of operations.

Item 1A.Risk Factors

Investment in our securities involves risk. An investor or potential investor should consider the risks summarized under the caption “Risk Factors” in Part I, Item 1A of our most recent Form 10-K when making investment decisions regarding our securities. The risk factors that were disclosed in our most recent Form 10-K have not materially changed since the date our most recent Form 10-K was filed with the SEC.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

Sales of Unregistered Securities

None.


Issuer Purchases of Equity Securities (In thousands, except for shares and per share amounts)	Total Number of Shares Purchased		Weighted Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased under the Plans or Programs at Period End (1)
January 1, 2023 through January 31, 2023 (2)		191	$	102.26		—	$	327,590
February 1, 2023 through February 28, 2023 (2)		226		99.00		—		327,590
March 1, 2023 through March 31, 2023 (2)		—		—		—		327,590

Issuer Purchases of Equity Securities
(In thousands, except for shares and per share amounts)

Total Number of Shares Purchased

Weighted Average Price Paid Per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)

Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased under the Plans or Programs at Period End (1)
October 1, 2017 through October 31, 2017 (2)

258

$
77.33

-

$
428,803
November 1, 2017 through November 30, 2017 (2)

1,805

77.35

-

428,803
December 1, 2017 through December 31, 2017 (2)

11,520

76.54

-

428,803
(1)

In January 2022, the Board terminated the 2019 Authorization and concurrently authorized a program for the repurchase of up to $800,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a two-year period ending in January 2024 (the “2022 Authorization”).

(2)

Under a trust established for the purposes of administering the Woodward Executive Benefit Plan, 191 shares of common stock were acquired in January 2023, no shares of common stock were acquired in February 2023, and no shares of common stock were acquired in March 2023 on the open market related to the deferral of compensation by certain eligible members of Woodward’s management who irrevocably elected to invest some or all of their deferred compensation in Woodward common stock. In addition, 226 shares of common stock were acquired in February 2023 on the open market related to the reinvestment of dividends for shares of treasury stock held for deferred compensation. Shares owned by the trust, which is a separate legal entity, are included in "Treasury stock held for deferred compensation" in the Condensed Consolidated Balance Sheets.

~~(1)~~

In November 2016, our board of directors approved a stock repurchase program for the repurchase of up to $500,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a three-year period that will end in November 2019.

~~(2)~~

Under a trust established for the purposes of administering the Woodward Executive Benefit Plan, 258 shares of common stock were acquired in October 2017, 1,505 shares of common stock were acquired in November 2017 and 11,520 shares of common stock were acquired in December 2017, each on the open market related to the deferral of compensation by certain eligible members of Woodward’s management who irrevocably elected to invest some or all of their deferred compensation in Woodward common stock. In addition, 300 shares of common stock were acquired in November 2017 on the open market related to the reinvestment of dividends for shares of treasury stock held for deferred compensation. Shares owned by the trust, which is a separate legal entity, are included in "Treasury stock held for deferred compensation" in the Condensed Consolidated Balance Sheets.

Item 6.Exhi~~bits~~Exhibits

Exhibits filed as part of this Report are listed in the Exhibit Index.

WOODWARD, INC.

EXHIBIT INDEX


	Exhibit Number	Description
*	~~Exhibit Number~~	~~Description~~
*	31.1		Rule 13a-14(a)/15d-14(a) certification of ~~Thomas A. Gendron~~Charles P. Blankenship, Jr.
*	31.2	Rule 13a-14(a)/15d-14(a) certification of ~~Robert F. Weber, Jr.~~Mark D. Hartman
*	32.1	Section 1350 certifications
*	~~101.INS~~101	~~XBRL Instance Document.~~
*	~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document~~
*	~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase Document~~
*	~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document~~
*	~~101.LAB~~		~~XBRL Taxonomy Extension Label Linkbase Document~~
*	~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document~~

	~~Attached as Exhibit 101 to this report are~~The following financial statements from the ~~following materials from Woodward, Inc.’s~~Company’s Quarterly Report on Form 10-Q for the quarter ended ~~December~~March 31, ~~2017~~2023, formatted in ~~XBRL (eXtensible Business Reporting Language):~~Inline XBRL: (i) ~~the~~Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Earnings, ~~(ii) the~~(iii) Condensed Consolidated Statements of Comprehensive Earnings, ~~(iii) the Condensed Consolidated Balance Sheets,~~ (iv) ~~the~~ Condensed Consolidated Statements of Cash Flows, (v) ~~the~~ Condensed Consolidated Statements of Stockholders’ Equity, and (vi) ~~the~~ Notes to ~~the~~ Condensed Consolidated Financial Statements.
*
104
*		~~Filed~~Cover page Interactive Data File (formatted as ~~an exhibit to this Report~~Inline XBRL and contained in Exhibit 101)

* Filed as an exhibit to this Report

40SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



			WOODWARD, INC.
Date: ~~January 23, 2018~~May 5, 2023			/s/ ~~Thomas A. Gendron~~Charles P. Blankenship, Jr.
			~~Thomas A. Gendron~~Charles P. Blankenship, Jr.
			Chairman of the Board, Chief Executive Officer, and President (on behalf of the registrant and as the registrant’s Principal Executive Officer)

Date: ~~January 23, 2018~~May 5, 2023			/s/ ~~Robert F. Weber, Jr.~~Mark D. Hartman
			~~Robert F. Weber, Jr.~~Mark D. Hartman
			~~Vice Chairman,~~ Chief Financial Officer (on behalf of the registrant and ~~Treasurer~~ (as the registrant’s Principal Financial and Accounting Officer)



	Three-Months Ended December 31,
	2017		2016
Cash flows from operating activities:
Net earnings	$	18,260	$	46,548
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		21,070		18,913��
Gain due to curtailment of postretirement plan		(330)		-
Net gain on sales of assets		(58)		(3,699)
Stock-based compensation		12,423		1,261
Deferred income taxes		(11,681)		4,777
Gain on derivatives reclassified from accumulated comprehensive earnings into earnings		(18)		(18)
Changes in operating assets and liabilities:
Accounts receivable		72,714		87,615
Inventories		(28,796)		(37,632)
Accounts payable and accrued liabilities		(104,150)		(54,563)
Income taxes		25,597		(5,731)
Retirement benefit obligations		(673)		(897)
Other		(6,891)		(4,223)
Net cash (used in) provided by operating activities		(2,533)		52,351
Cash flows from investing activities:
Payments for purchase of property, plant, and equipment		(28,450)		(21,058)
Proceeds from sale of assets		132		3,682
Proceeds from sales of short-term investments		-		758
Payments for purchases of short-term investments		(791)		-
Net cash used in investing activities		(29,109)		(16,618)
Cash flows from financing activities:
Cash dividends paid		(7,656)		(6,779)
Proceeds from sales of treasury stock		1,389		4,843
Payments for repurchases of common stock		-		(24,004)
Borrowings on revolving lines of credit and short-term borrowings		458,950		316,650
Payments on revolving lines of credit and short-term borrowings		(425,250)		(312,800)
Payments of long-term debt and capital lease obligations		(106)		(102)
Net cash provided by (used in) financing activities		27,327		(22,192)
Effect of exchange rate changes on cash and cash equivalents		2,542		(13,746)
Net change in cash and cash equivalents		(1,773)		(205)
Cash and cash equivalents at beginning of year		87,552		81,090
Cash and cash equivalents at end of period	$	85,779	$	80,885



	September 30, 2017		Effects of Foreign Currency Translation		December 31, 2017
Aerospace	$	455,423	$	-	$	455,423
Industrial		101,122		214		101,336
Consolidated	$	556,545	$	214	$	556,759



Year Ending September 30:
2018 (remaining)	$	18,782
2019		23,156
2020		20,373
2021		18,404
2022		16,249
Thereafter		68,669
	$	165,633



	Three-Months Ended
	December 31, 2017
Weighted-average exercise price per share	$	78.97
Weighted-average grant date market value of Woodward stock	$	78.97
Expected term (years)		6.4	-	8.7
Estimated volatility		30.3%	-	32.7%
Estimated dividend yield		0.6%
Risk-free interest rate		2.1%	-	2.3%



	Number		Weighted- Average Exercise Price		Weighted- Average Remaining Life in Years		Aggregate Intrinsic Value
Options outstanding		5,937	$	44.48		6.2	$	192,105
Options vested and exercisable		3,917		35.64		4.9		160,206
Options vested and expected to vest		5,823		44.07		6.1		190,725



	Three-Months Ended
	December 31, 2017		% of Net Sales		December 31, 2016		% of Net Sales
Net sales	$	470,148	100	%	$	442,894	100	%
Costs and expenses:
Cost of goods sold		346,784	73.8			329,148	74.3
Selling, general, and administrative expenses		46,276	9.8			38,300	8.6
Research and development costs		34,786	7.4			26,540	6.0
Interest expense		6,750	1.4			6,840	1.5
Interest income		(363)	(0.1)			(405)	(0.1)
Other (income) expense, net		(1,572)	(0.3)			(4,588)	(1.0)
Total costs and expenses		432,661	92.0			395,835	89.4
Earnings before income taxes		37,487	8.0			47,059	10.6
Income tax expense		19,227	4.1			511	0.1
Net earnings	$	18,260	3.9		$	46,548	10.5



Issuer Purchases of Equity Securities (In thousands, except for shares and per share amounts)	Total Number of Shares Purchased	Weighted Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased under the Plans or Programs at Period End (1)
October 1, 2017 through October 31, 2017 (2)	258	$	77.33	-	$	428,803
November 1, 2017 through November 30, 2017 (2)	1,805		77.35	-		428,803
December 1, 2017 through December 31, 2017 (2)	11,520		76.54	-		428,803