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 DecemberMarch 31, 20172024
or
☐ 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 | |
| ||
| ||
| ||
|
| |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
|
| |
1081 Woodward Way, Fort Collins, Colorado | 80524 | |
(Address of principal executive offices) | (Zip Code) |
(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, 61,272,503May 2, 2024, 60,919,845 shares of the registrant’s common stock with a par value of $0.001455 per share were outstanding.
TABLE OF CONTENTS
Page | ||||
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PART I – FINANCIAL INFORMATION | ||||
Item 1. | 1 | |||
1 | ||||
2 | ||||
3 | ||||
4 | ||||
5 | ||||
7 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 27 | ||
27 | ||||
28 | ||||
29 | ||||
33 | ||||
Item 3. | 38 | |||
Item 4. | 38 | |||
PART II – OTHER INFORMATION | ||||
Item 1. | 39 | |||
Item 1A. | 39 | |||
Item 2. | 39 | |||
Item | 40 | |||
Item 6. | 40 | |||
41 |
1
PART I – FINANCIAL INFORMATION
Item 1.FinancialFinancial 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, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Net sales |
| $ | 835,343 |
|
| $ | 718,214 |
|
| $ | 1,622,073 |
|
| $ | 1,336,833 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of goods sold |
|
| 600,954 |
|
|
| 559,149 |
|
|
| 1,183,335 |
|
|
| 1,051,812 |
|
Selling, general and administrative expenses |
|
| 81,447 |
|
|
| 75,578 |
|
|
| 155,958 |
|
|
| 138,765 |
|
Research and development costs |
|
| 36,465 |
|
|
| 37,777 |
|
|
| 67,259 |
|
|
| 66,411 |
|
Restructuring charges |
|
| — |
|
|
| 5,172 |
|
|
| — |
|
|
| 5,172 |
|
Interest expense |
|
| 11,530 |
|
|
| 12,845 |
|
|
| 22,966 |
|
|
| 23,987 |
|
Interest income |
|
| (1,293 | ) |
|
| (508 | ) |
|
| (2,766 | ) |
|
| (874 | ) |
Other (income) expense, net |
|
| (14,384 | ) |
|
| (12,040 | ) |
|
| (35,023 | ) |
|
| (20,430 | ) |
Total costs and expenses |
|
| 714,719 |
|
|
| 677,973 |
|
|
| 1,391,729 |
|
|
| 1,264,843 |
|
Earnings before income taxes |
|
| 120,624 |
|
|
| 40,241 |
|
|
| 230,344 |
|
|
| 71,990 |
|
Income tax expense |
|
| 23,068 |
|
|
| 4,730 |
|
|
| 42,744 |
|
|
| 6,873 |
|
Net earnings |
| $ | 97,556 |
|
| $ | 35,511 |
|
| $ | 187,600 |
|
| $ | 65,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per share |
| $ | 1.61 |
|
| $ | 0.59 |
|
| $ | 3.12 |
|
| $ | 1.09 |
|
Diluted earnings per share |
| $ | 1.56 |
|
| $ | 0.58 |
|
| $ | 3.02 |
|
| $ | 1.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted Average Common Shares Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 60,427 |
|
|
| 59,807 |
|
|
| 60,223 |
|
|
| 59,736 |
|
Diluted |
|
| 62,365 |
|
|
| 61,227 |
|
|
| 62,106 |
|
|
| 61,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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
2
1
WOODWARD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
(Unaudited)
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Net earnings |
| $ | 97,556 |
|
| $ | 35,511 |
|
| $ | 187,600 |
|
| $ | 65,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive earnings: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustments |
|
| (11,759 | ) |
|
| 8,495 |
|
|
| 12,082 |
|
|
| 38,722 |
|
Net gain (loss) on foreign currency transactions designated as hedges of net investments in foreign subsidiaries |
|
| 978 |
|
|
| (807 | ) |
|
| (888 | ) |
|
| (4,432 | ) |
Taxes on changes in foreign currency translation adjustments |
|
| 108 |
|
|
| 928 |
|
|
| (179 | ) |
|
| 2,272 |
|
Foreign currency translation and transactions adjustments, net of tax |
|
| (10,673 | ) |
|
| 8,616 |
|
|
| 11,015 |
|
|
| 36,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized gain (loss) on fair value adjustment of derivative instruments |
|
| 7,349 |
|
|
| (2,096 | ) |
|
| (11,161 | ) |
|
| (34,684 | ) |
Reclassification of net realized (gain) loss on derivatives to earnings |
|
| (8,875 | ) |
|
| 7,620 |
|
|
| 9,024 |
|
|
| 45,806 |
|
Taxes on changes in derivative transactions |
|
| 414 |
|
|
| (221 | ) |
|
| 414 |
|
|
| (334 | ) |
Derivative adjustments, net of tax |
|
| (1,112 | ) |
|
| 5,303 |
|
|
| (1,723 | ) |
|
| 10,788 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Amortization of pension and other postretirement plan: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net prior service cost |
|
| 180 |
|
|
| 181 |
|
|
| 360 |
|
|
| 360 |
|
Net (gain) |
|
| (254 | ) |
|
| (204 | ) |
|
| (504 | ) |
|
| (403 | ) |
Foreign currency exchange rate changes on pension and other postretirement benefit plan liabilities |
|
| (243 | ) |
|
| 70 |
|
|
| 79 |
|
|
| 511 |
|
Taxes on changes in pension and other postretirement benefit plan liability adjustments, net of foreign currency exchange rate changes |
|
| 85 |
|
|
| 48 |
|
|
| 43 |
|
|
| 127 |
|
Pension and other postretirement benefit plan adjustments, net of tax |
|
| (232 | ) |
|
| 95 |
|
|
| (22 | ) |
|
| 595 |
|
Total comprehensive earnings |
| $ | 85,539 |
|
| $ | 49,525 |
|
| $ | 196,870 |
|
| $ | 113,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
| (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
3
2
WOODWARD, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
|
| March 31, |
|
| September 30, |
| ||
|
| 2024 |
|
| 2023 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 316,932 |
|
| $ | 137,447 |
|
Accounts receivable, less allowance for uncollectible amounts of $7,126 and $5,847, respectively |
|
| 831,777 |
|
|
| 749,859 |
|
Inventories |
|
| 580,377 |
|
|
| 517,843 |
|
Income taxes receivable |
|
| 32,816 |
|
|
| 14,120 |
|
Other current assets |
|
| 50,072 |
|
|
| 50,183 |
|
Total current assets |
|
| 1,811,974 |
|
|
| 1,469,452 |
|
Property, plant and equipment, net |
|
| 921,355 |
|
|
| 913,094 |
|
Goodwill |
|
| 796,706 |
|
|
| 791,468 |
|
Intangible assets, net |
|
| 443,414 |
|
|
| 452,363 |
|
Deferred income tax assets |
|
| 58,911 |
|
|
| 58,550 |
|
Other assets |
|
| 333,899 |
|
|
| 325,276 |
|
Total assets |
| $ | 4,366,259 |
|
| $ | 4,010,203 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Short-term debt |
| $ | 141,300 |
|
| $ | — |
|
Current portion of long-term debt |
|
| 699 |
|
|
| 75,817 |
|
Accounts payable |
|
| 258,670 |
|
|
| 234,328 |
|
Income taxes payable |
|
| 54,242 |
|
|
| 44,435 |
|
Accrued liabilities |
|
| 236,944 |
|
|
| 262,616 |
|
Total current liabilities |
|
| 691,855 |
|
|
| 617,196 |
|
Long-term debt, less current portion |
|
| 649,039 |
|
|
| 645,709 |
|
Deferred income tax liabilities |
|
| 135,022 |
|
|
| 132,819 |
|
Other liabilities |
|
| 560,930 |
|
|
| 543,490 |
|
Total liabilities |
|
| 2,036,846 |
|
|
| 1,939,214 |
|
Commitments and contingencies (Note 21) |
|
|
|
|
|
| ||
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 |
|
| 374,278 |
|
|
| 327,941 |
|
Accumulated other comprehensive losses |
|
| (61,401 | ) |
|
| (70,671 | ) |
Deferred compensation |
|
| 3,032 |
|
|
| 2,776 |
|
Retained earnings |
|
| 3,067,847 |
|
|
| 2,908,574 |
|
|
| 3,383,862 |
|
|
| 3,168,726 |
| |
Treasury stock at cost, 12,185 shares and 13,070 shares, respectively |
|
| (1,051,417 | ) |
|
| (1,094,961 | ) |
Treasury stock held for deferred compensation, at cost, 53 shares and 55 shares, respectively |
|
| (3,032 | ) |
|
| (2,776 | ) |
Total stockholders' equity |
|
| 2,329,413 |
|
|
| 2,070,989 |
|
Total liabilities and stockholders' equity |
| $ | 4,366,259 |
|
| $ | 4,010,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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.
4
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
5
3
WOODWARD, INC.
CONDENSED CONSOLIDATED STATEMENTSSTATEMENTS OF STOCKHOLDERS’ EQUITYCASH FLOWS
(In thousands)
(Unaudited)
|
| Six Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net earnings |
| $ | 187,600 |
|
| $ | 65,117 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 58,050 |
|
|
| 59,257 |
|
Net (gain) loss on sales of assets and businesses |
|
| (872 | ) |
|
| 890 |
|
Stock-based compensation |
|
| 19,903 |
|
|
| 15,538 |
|
Deferred income taxes |
|
| 43 |
|
|
| 545 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Trade accounts receivable |
|
| (40,619 | ) |
|
| (26,467 | ) |
Unbilled receivables (contract assets) |
|
| (39,289 | ) |
|
| (18,015 | ) |
Costs to fulfill a contract |
|
| (7,572 | ) |
|
| (4,193 | ) |
Inventories |
|
| (59,841 | ) |
|
| (42,408 | ) |
Accounts payable and accrued liabilities |
|
| 12,131 |
|
|
| 5,426 |
|
Contract liabilities |
|
| 26,748 |
|
|
| 9,769 |
|
Income taxes |
|
| (14,210 | ) |
|
| (34,886 | ) |
Retirement benefit obligations |
|
| (1,240 | ) |
|
| (615 | ) |
Other |
|
| 3,286 |
|
|
| 10,192 |
|
Net cash provided by operating activities |
|
| 144,118 |
|
|
| 40,150 |
|
|
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
|
| ||
Payments for purchase of property, plant, and equipment |
|
| (56,301 | ) |
|
| (44,046 | ) |
Proceeds from sale of assets |
|
| 51 |
|
|
| 199 |
|
Proceeds from business divestiture |
|
| 600 |
|
|
| — |
|
Business acquisition, net of cash acquired |
|
| — |
|
|
| 878 |
|
Payments for short-term investments |
|
| (3,723 | ) |
|
| — |
|
Proceeds from sales of short-term investments |
|
| 9,732 |
|
|
| 7,733 |
|
Net cash (used in) investing activities |
|
| (49,641 | ) |
|
| (35,236 | ) |
|
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
|
| ||
Cash dividends paid |
|
| (28,327 | ) |
|
| (24,537 | ) |
Proceeds from sales of treasury stock |
|
| 43,087 |
|
|
| 14,067 |
|
Payments for repurchases of common stock |
|
| — |
|
|
| (26,369 | ) |
Borrowings on revolving lines of credit and short-term borrowings |
|
| 1,539,100 |
|
|
| 1,031,800 |
|
Payments on revolving lines of credit and short-term borrowings |
|
| (1,397,800 | ) |
|
| (968,100 | ) |
Payments of debt financing costs |
|
| — |
|
|
| (2,236 | ) |
Payments of long-term debt and finance lease obligations |
|
| (75,472 | ) |
|
| (288 | ) |
Net cash provided by financing activities |
|
| 80,588 |
|
|
| 24,337 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| 4,420 |
|
|
| (7,668 | ) |
Net change in cash and cash equivalents |
|
| 179,485 |
|
|
| 21,583 |
|
Cash and cash equivalents at beginning of year |
|
| 137,447 |
|
|
| 107,844 |
|
Cash and cash equivalents at end of period |
| $ | 316,932 |
|
| $ | 129,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Number of shares |
| Stockholders' equity | |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated other comprehensive (loss) earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Preferred |
| Common |
| Treasury |
| Treasury |
| Common |
| Additional |
| Foreign |
| Unrealized |
| Minimum |
| Total |
| Deferred compensation |
| Retained |
| Treasury |
| Treasury |
| Total | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
6
4
WOODWARD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
| Stockholders' equity |
| |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| Accumulated other comprehensive (loss) earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
| 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, 2023 | $ | 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 ($0.22 per share) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13,182 | ) |
|
| — |
|
|
| — |
|
|
| (13,182 | ) |
Sales of treasury stock |
| — |
|
|
| 1,259 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,488 |
|
|
| — |
|
|
| 12,747 |
|
Common shares issued for benefit plans |
| — |
|
|
| 10,860 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,447 |
|
|
| — |
|
|
| 19,307 |
|
Stock-based compensation |
| — |
|
|
| 4,222 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,222 |
|
Purchases of stock by deferred compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 42 |
|
|
| — |
|
|
| — |
|
|
| (42 | ) |
|
| — |
|
Distribution of stock from deferred compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,698 | ) |
|
| — |
|
|
| — |
|
|
| 2,698 |
|
|
| — |
|
Balances as of March 31, 2023 | $ | 106 |
|
| $ | 321,441 |
|
| $ | (49,932 | ) |
| $ | 4,573 |
|
| $ | 741 |
|
| $ | (44,618 | ) |
| $ | 3,319 |
|
| $ | 2,767,813 |
|
| $ | (1,032,688 | ) |
| $ | (3,319 | ) |
| $ | 2,012,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Balances as of January 1, 2024 | $ | 106 |
|
| $ | 337,038 |
|
| $ | (45,705 | ) |
| $ | (10,330 | ) |
| $ | 6,651 |
|
| $ | (49,384 | ) |
| $ | 3,049 |
|
| $ | 2,985,409 |
|
| $ | (1,083,107 | ) |
| $ | (3,049 | ) |
|
| 2,190,062 |
|
Net earnings |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 97,556 |
|
|
| — |
|
|
| — |
|
|
| 97,556 |
|
Other comprehensive earnings (loss), net of tax |
| — |
|
|
| — |
|
|
| (10,673 | ) |
|
| (1,112 | ) |
|
| (232 | ) |
|
| (12,017 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12,017 | ) |
Cash dividends paid ($0.25 per share) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (15,118 | ) |
|
| — |
|
|
| — |
|
|
| (15,118 | ) |
Sales of treasury stock |
| — |
|
|
| 8,308 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 23,769 |
|
|
| — |
|
|
| 32,077 |
|
Common shares issued for benefit plans |
| — |
|
|
| 13,966 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,921 |
|
|
| — |
|
|
| 21,887 |
|
Stock-based compensation |
| — |
|
|
| 14,966 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,966 |
|
Purchases of stock by deferred compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 47 |
|
|
| — |
|
|
| — |
|
|
| (47 | ) |
|
| — |
|
Distribution of stock from deferred compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (64 | ) |
|
| — |
|
|
| — |
|
|
| 64 |
|
|
| — |
|
Balances as of March 31, 2024 | $ | 106 |
|
| $ | 374,278 |
|
| $ | (56,378 | ) |
| $ | (11,442 | ) |
| $ | 6,419 |
|
| $ | (61,401 | ) |
| $ | 3,032 |
|
| $ | 3,067,847 |
|
| $ | (1,051,417 | ) |
| $ | (3,032 | ) |
| $ | 2,329,413 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
5
WOODWARD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
| Stockholders' equity |
| |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| Accumulated other comprehensive (loss) earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
| Common |
|
| Additional |
|
| Foreign |
|
| Unrealized |
|
| Minimum retirement benefit liability adjustments |
|
| Total |
|
| Deferred |
|
| Retained |
|
| Treasury |
|
| Treasury |
|
| Total stockholders' |
| |||||||||||
Balances as of September 30, 2022 | $ | 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 ($0.41 per share) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (24,537 | ) |
|
| — |
|
|
| — |
|
|
| (24,537 | ) |
Sales of treasury stock |
| — |
|
|
| 1,420 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12,351 |
|
|
| — |
|
|
| 13,771 |
|
Common shares issued for benefit plans |
| — |
|
|
| 10,943 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,524 |
|
|
| — |
|
|
| 19,467 |
|
Purchase of treasury stock |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (26,369 | ) |
|
| — |
|
|
| (26,369 | ) |
Stock-based compensation |
| — |
|
|
| 15,538 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,538 |
|
Purchases of stock by deferred compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 112 |
|
|
| — |
|
|
| — |
|
|
| (112 | ) |
|
| — |
|
Distribution of stock from deferred compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,574 | ) |
|
| — |
|
|
| — |
|
|
| 3,574 |
|
|
| — |
|
Balances as of March 31, 2023 | $ | 106 |
|
| $ | 321,441 |
|
| $ | (49,932 | ) |
| $ | 4,573 |
|
| $ | 741 |
|
| $ | (44,618 | ) |
| $ | 3,319 |
|
| $ | 2,767,813 |
|
| $ | (1,032,688 | ) |
| $ | (3,319 | ) |
| $ | 2,012,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Balances as of September 30, 2023 | $ | 106 |
|
| $ | 327,941 |
|
| $ | (67,393 | ) |
| $ | (9,719 | ) |
| $ | 6,441 |
|
| $ | (70,671 | ) |
| $ | 2,776 |
|
| $ | 2,908,574 |
|
| $ | (1,094,961 | ) |
| $ | (2,776 | ) |
| $ | 2,070,989 |
|
Net earnings |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 187,600 |
|
|
| — |
|
|
| — |
|
|
| 187,600 |
|
Other comprehensive earnings (loss), net of tax |
| — |
|
|
| — |
|
|
| 11,015 |
|
|
| (1,723 | ) |
|
| (22 | ) |
|
| 9,270 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,270 |
|
Cash dividends paid ($0.47 per share) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (28,327 | ) |
|
| — |
|
|
| — |
|
|
| (28,327 | ) |
Sales of treasury stock |
| — |
|
|
| 12,468 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 35,623 |
|
|
| — |
|
|
| 48,091 |
|
Common shares issued for benefit plans |
| — |
|
|
| 13,966 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,921 |
|
|
| — |
|
|
| 21,887 |
|
Stock-based compensation |
| — |
|
|
| 19,903 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 19,903 |
|
Purchases of stock by deferred compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 79 |
|
|
| — |
|
|
| — |
|
|
| (79 | ) |
|
| — |
|
Distribution of stock from deferred compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 177 |
|
|
| — |
|
|
| — |
|
|
| (177 | ) |
|
| — |
|
Balances as of March 31, 2024 | $ | 106 |
|
| $ | 374,278 |
|
| $ | (56,378 | ) |
| $ | (11,442 | ) |
| $ | 6,419 |
|
| $ | (61,401 | ) |
| $ | 3,032 |
|
| $ | 3,067,847 |
|
| $ | (1,051,417 | ) |
| $ | (3,032 | ) |
| $ | 2,329,413 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
6
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 DecemberMarch 31, 20172024 and for the three and six months ended DecemberMarch 31, 20172024 and December 31, 2016,2023, 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 DecemberMarch 31, 2017,2024, 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 and six months ended DecemberMarch 31, 20172024 and 2023 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 and summary of significant accounting policies in the Notes 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.
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,November 2023, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements2023-07, "Improvements to Accounting for Hedging Activities.”Reportable Segment Disclosures." The purpose of ASU 2017-122023-07 is intended to more closely align the financial statement reporting 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 in current U.S. GAAP. ASU 2017-12 is also intended to increase standardization of financial statementprovide enhanced disclosures including requiring a tabular disclosure of the income statement effects 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 or on the disclosures related to such arrangements.
In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation 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
7
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.about significant segment expenses. The amendments ofin 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 transactions2023-07 are eliminated in consolidation. ASU 2016-16 is effective for fiscal years beginning after December 15, 20172023 (fiscal year 20192025 for Woodward), includingand interim periods within thefiscal years beginning after December 15, 2024 (fiscal year of adoption. Early2026 for Woodward), with 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 adjustmentsand are not expected to be significant.applied on a retrospective basis to all periods presented. Woodward is currently assessing the impact on its segment reporting disclosures.
In June 2016,December 2023, the FASB issued ASU 2016-13, “Measurement2023-09, "Improvements to Income Tax Disclosures." The purpose of Credit Losses on Financial Instruments.” ASU 2016-13 adds a current expected credit loss (“CECL”) impairment model2023-09 is to U.S. GAAP that is based on expected losses rather than incurred losses. Modified retrospective adoption is required with any cumulative-effect adjustment recordedprovide enhanced disclosures surrounding income taxes by requiring consistent categories and greater disaggregation of information in the rate reconciliation, the disaggregation of income taxes paid by jurisdiction, as well as several other changes to retained earnings as of the beginning of the period of adoption.income tax disclosure. The amendments in ASU 2016-13 is2023-09 are effective for fiscal years beginning after December 15, 20192024 (fiscal year 20212026 for Woodward), including interim periods within the year of adoption. Earlywith early adoption is permitted, for fiscal years beginning after December 15, 2018 (fiscal year 2020 for Woodward), including interim periods within those fiscal years. Woodward has not determined in which period it will adopt the new guidance but does not expect the application of the CECL impairment model to have a significant impact on Woodward’s allowance for uncollectible amounts for accounts receivable and notes receivable from municipalities.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The purpose of ASU 2016-02 is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. In addition, ASU 2016-02 modifies the definition 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 in the earliest period presented using a modified retrospective approach; therefore, Woodward anticipates restating its Consolidated Financial Statements for the two fiscal years prior to the year of adoption. However, during December 2017, the FASB proposed amending ASU 2016-02 such that restatement of fiscal years 2018 and 2019 would not be required upon adoption. Although early adoption is permitted, Woodward expects to adopt the new guidance in fiscal year 2020 and 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 methodapplied prospectively with the cumulative effectoption of initial adoption recognized at the date of initialretrospective application.
8
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 thaton its income tax disclosures.
7
Note 3. Revenue
The amount of revenue recognized as point in time or over time follows:
|
| Three Months Ended March 31, 2024 |
|
| Three Months Ended March 31, 2023 |
| ||||||||||||||||||
|
| Aerospace |
|
| Industrial |
|
| Consolidated |
|
| Aerospace |
|
| Industrial |
|
| Consolidated |
| ||||||
Point in time |
| $ | 229,171 |
|
| $ | 203,232 |
|
| $ | 432,403 |
|
| $ | 188,248 |
|
| $ | 177,660 |
|
| $ | 365,908 |
|
Over time |
|
| 268,341 |
|
|
| 134,599 |
|
|
| 402,940 |
|
|
| 248,769 |
|
|
| 103,537 |
|
|
| 352,306 |
|
Total net sales |
| $ | 497,512 |
|
| $ | 337,831 |
|
| $ | 835,343 |
|
| $ | 437,017 |
|
| $ | 281,197 |
|
| $ | 718,214 |
|
|
| Six Months Ended March 31, 2024 |
|
| Six Months Ended March 31, 2023 |
| ||||||||||||||||||
|
| Aerospace |
|
| Industrial |
|
| Consolidated |
|
| Aerospace |
|
| Industrial |
|
| Consolidated |
| ||||||
Point in time |
| $ | 417,674 |
|
| $ | 389,862 |
|
| $ | 807,536 |
|
| $ | 358,088 |
|
| $ | 317,499 |
|
| $ | 675,587 |
|
Over time |
|
| 540,594 |
|
|
| 273,943 |
|
|
| 814,537 |
|
|
| 474,614 |
|
|
| 186,632 |
|
|
| 661,246 |
|
Total net sales |
| $ | 958,268 |
|
| $ | 663,805 |
|
| $ | 1,622,073 |
|
| $ | 832,702 |
|
| $ | 504,131 |
|
| $ | 1,336,833 |
|
Accounts Receivable
Accounts receivable consisted of the future adoptionfollowing:
|
| March 31, 2024 |
|
| September 30, 2023 |
| ||
Billed receivables |
|
|
|
|
|
| ||
Trade accounts receivable |
| $ | 478,207 |
|
| $ | 434,287 |
|
Other (Chinese financial institutions) |
|
| 51,920 |
|
|
| 50,940 |
|
Total billed receivables |
|
| 530,127 |
|
|
| 485,227 |
|
Current unbilled receivables (contract assets) |
|
| 308,776 |
|
|
| 270,479 |
|
Total accounts receivable |
|
| 838,903 |
|
|
| 755,706 |
|
Less: Allowance for uncollectible amounts |
|
| (7,126 | ) |
|
| (5,847 | ) |
Total accounts receivable, net |
| $ | 831,777 |
|
| $ | 749,859 |
|
As of ASC 606 may haveMarch 31, 2024, “Other assets” on itsthe Condensed Consolidated Balance Sheets includes $8,953 of unbilled receivables not expected to be invoiced and collected within a period of twelve months, compared to $7,332 as of September 30, 2023.
Accounts receivable in Woodward’s Condensed Consolidated Financial Statements represent the net amount expected to be collected, and an allowance for uncollectible amounts related to credit losses is established based on expected losses. Expected losses are estimated by analyzing itsreviewing specific customer accounts, taking into consideration accounts receivable aging, credit risk of the customers, and historical payment history, as well as current portfolioand forecasted economic conditions and other relevant factors.
The allowance for uncollectible amounts and change in expected credit losses for trade accounts receivable and unbilled receivables (contract assets) consisted of customer contracts, including a reviewthe following:
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Balance, beginning |
| $ | 5,777 |
|
| $ | 4,203 |
|
| $ | 5,847 |
|
| $ | 3,922 |
|
Changes in estimates |
|
| 1,398 |
|
|
| 6,042 |
|
|
| 1,696 |
|
|
| 6,470 |
|
Write-offs |
|
| (16 | ) |
|
| (247 | ) |
|
| (475 | ) |
|
| (330 | ) |
Other1 |
|
| (33 | ) |
|
| (49 | ) |
|
| 58 |
|
|
| (113 | ) |
Balance, ending |
| $ | 7,126 |
|
| $ | 9,949 |
|
| $ | 7,126 |
|
| $ | 9,949 |
|
8
Contract liabilities
Contract liabilities consisted of the following:
|
| March 31, 2024 |
|
| September 30, 2023 |
| ||||||||||
|
| Current |
|
| Noncurrent |
|
| Current |
|
| Noncurrent |
| ||||
Deferred revenue from material rights from GE joint venture formation |
| $ | 6,364 |
|
| $ | 235,837 |
|
| $ | 6,147 |
|
| $ | 233,997 |
|
Deferred revenue from advanced invoicing and/or prepayments from customers |
|
| 17,414 |
|
|
| 4,333 |
|
|
| 6,868 |
|
|
| 2,196 |
|
Liability related to customer supplied inventory |
|
| 17,941 |
|
|
| — |
|
|
| 14,543 |
|
|
| — |
|
Deferred revenue from material rights related to engineering and development funding |
|
| 7,102 |
|
|
| 186,640 |
|
|
| 6,190 |
|
|
| 178,464 |
|
Net contract liabilities |
| $ | 48,821 |
|
| $ | 426,810 |
|
| $ | 33,748 |
|
| $ | 414,657 |
|
Woodward recognized revenue of $8,232 in the three months and practices to identify potential differences$21,265 in applying the guidancesix months ended March 31, 2024 from contract liabilities balances recorded as 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, 2018,2023, compared to $5,299 in the first daythree months and $14,184 in the six months ended March 31, 2023 from contract liabilities balances recorded as of Woodward’s fiscal year 2019. As partOctober 1, 2022.
Remaining performance obligations
Remaining performance obligations related to the aggregate amount of this review process, Woodward is implementing new software solutionsthe total contract transaction price of firm orders for which the performance obligation has not yet been recognized in revenue as of March 31, 2024 was $2,376,029, compared to support revenue reporting after adoption.
Based on Woodward’s review$2,325,533 as of its customer contracts, Woodward has determined that revenue onSeptember 30, 2023, the majority of its customer contracts will continuewhich relates to Woodward’s Aerospace segment in both periods. Woodward expects to recognize almost all of these remaining performance obligations within two years after March 31, 2024.
Remaining performance obligations related to material rights that have not yet been recognized in revenue as of March 31, 2024 was $519,887 of which $8,471 is expected to be recognized at a point in time, generally upon shipmentthe remainder 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 productsfiscal year 2024, $15,986 is expected to be recognized in fiscal year 2025, and servicesthe remaining balance is expected 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 liabilitiesrecognize revenue from performance obligations related to such funded engineeringmaterial 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 revenuesservices reliable, efficient, low-emission, and researchhigh-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 aboutIndustrial reportable segments. Woodward further disaggregates its revenue streams andfrom contracts with customers including significant judgments required.by primary market as Woodward is currently implementing changesbelieves this best depicts how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors.
Revenue by primary market for the Aerospace reportable segment was as follows:
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Commercial OEM |
| $ | 183,517 |
|
| $ | 159,271 |
|
| $ | 354,871 |
|
| $ | 298,146 |
|
Commercial aftermarket |
|
| 163,886 |
|
|
| 139,445 |
|
|
| 301,430 |
|
|
| 266,088 |
|
Defense OEM |
|
| 91,017 |
|
|
| 87,807 |
|
|
| 184,442 |
|
|
| 177,569 |
|
Defense aftermarket |
|
| 59,092 |
|
|
| 50,494 |
|
|
| 117,525 |
|
|
| 90,899 |
|
Total Aerospace segment net sales |
| $ | 497,512 |
|
| $ | 437,017 |
|
| $ | 958,268 |
|
| $ | 832,702 |
|
Revenue by primary market for the Industrial reportable segment was as follows:
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Power generation |
| $ | 106,811 |
|
| $ | 94,013 |
|
| $ | 204,917 |
|
| $ | 175,590 |
|
Transportation |
|
| 173,786 |
|
|
| 118,777 |
|
|
| 348,255 |
|
|
| 207,692 |
|
Oil and gas |
|
| 57,234 |
|
|
| 68,407 |
|
|
| 110,633 |
|
|
| 120,849 |
|
Total Industrial segment net sales |
| $ | 337,831 |
|
| $ | 281,197 |
|
| $ | 663,805 |
|
| $ | 504,131 |
|
During fiscal year 2023, for purposes of how we assess performance, we determined that certain revenue was better aligned with our markets consisting of power generation, transportation, and oil and gas, rather than the reciprocating engines and industrial turbines, as previously reported. For comparability, we have reclassified revenue for the three
9
months and six months ended March 31, 2023 to its processes for preparing required disclosures and to information systems that support the financial reporting process.
Woodward is also evaluating implicationsconform to the Company’s systemnew presentation. This reclassification of internal controls, relative to revenue recognition and the related revenue disclosures, which are basedhad no impact on the criteria outlined in the Committee of Sponsoring Organizations of the Treadway Commission’s 2013 Internal Control – Integrated Framework.
our consolidated financial results.
9The customers who each account for approximately 10% or more of net sales of each of Woodward’s reportable segments are as follows:
Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | |||
Aerospace | RTX Corporation, General Electric Company | RTX Corporation, General Electric Company, The Boeing Company | ||
Industrial | Weichai Westport, Rolls-Royce PLC | Rolls-Royce PLC, Caterpillar, Inc. |
Six Months Ended March 31, 2024 | Six Months Ended March 31, 2023 | |||
Aerospace | General Electric Company, RTX Corporation, The Boeing Company | RTX Corporation, General Electric Company, The Boeing Company | ||
Industrial | Weichai Westport, Rolls-Royce PLC | Rolls-Royce PLC, Caterpillar, Inc., 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, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net earnings |
| $ | 97,556 |
|
| $ | 35,511 |
|
| $ | 187,600 |
|
| $ | 65,117 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic shares outstanding |
|
| 60,427 |
|
|
| 59,807 |
|
|
| 60,223 |
|
|
| 59,736 |
|
Dilutive effect of stock options, restricted units, and performance units |
|
| 1,938 |
|
|
| 1,420 |
|
|
| 1,883 |
|
|
| 1,347 |
|
Diluted shares outstanding |
|
| 62,365 |
|
|
| 61,227 |
|
|
| 62,106 |
|
|
| 61,083 |
|
Income per common share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per share |
| $ | 1.61 |
|
| $ | 0.59 |
|
| $ | 3.12 |
|
| $ | 1.09 |
|
Diluted earnings per share |
| $ | 1.56 |
|
| $ | 0.58 |
|
| $ | 3.02 |
|
| $ | 1.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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.anti-dilutive:
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Options |
|
| 14 |
|
|
| 1,560 |
|
|
| 37 |
|
|
| 1,592 |
|
Weighted-average option price |
| $ | 122.38 |
|
| $ | 102.01 |
|
| $ | 131.03 |
|
| $ | 101.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Weighted-average treasury stock shares held for deferred compensation obligations |
|
| 54 |
|
|
| 94 |
|
|
| 54 |
|
|
| 109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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.
10
Lease-related assets and liabilities were as follows:
|
| Classification on the Condensed Consolidated Balance Sheets |
| March 31, 2024 |
|
| September 30, 2023 |
| ||
Assets: |
|
|
|
|
|
|
|
| ||
Operating lease |
| Other assets |
| $ | 23,326 |
|
| $ | 24,680 |
|
Finance lease |
| Property, plant, and equipment, net |
|
| 2,863 |
|
|
| 3,337 |
|
Total lease assets |
|
|
|
| 26,189 |
|
|
| 28,017 |
|
|
|
|
|
|
|
|
| |||
Current liabilities: |
|
|
|
|
|
|
| |||
Operating lease |
| Accrued liabilities |
|
| 4,567 |
|
|
| 4,594 |
|
Finance lease |
| Current portion of long-term debt |
|
| 699 |
|
|
| 817 |
|
Noncurrent liabilities: |
|
|
|
|
|
|
|
| ||
Operating lease |
| Other liabilities |
|
| 19,202 |
|
|
| 20,685 |
|
Finance lease |
| Long-term debt, less current portion |
|
| 2,380 |
|
|
| 2,733 |
|
Total lease liabilities |
|
|
| $ | 26,848 |
|
| $ | 28,829 |
|
Lease-related expenses were as follows:
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Operating lease expense |
| $ | 1,656 |
|
| $ | 1,586 |
|
| $ | 3,288 |
|
| $ | 3,073 |
|
Amortization of finance lease assets |
|
| 222 |
|
|
| 156 |
|
|
| 470 |
|
|
| 412 |
|
Interest on finance lease liabilities |
|
| 32 |
|
|
| 40 |
|
|
| 73 |
|
|
| 74 |
|
Variable lease expense |
|
| 301 |
|
|
| 245 |
|
|
| 529 |
|
|
| 455 |
|
Short-term lease expense |
|
| 45 |
|
|
| 51 |
|
|
| 83 |
|
|
| 108 |
|
Total lease expense |
| $ | 2,256 |
|
| $ | 2,078 |
|
| $ | 4,443 |
|
| $ | 4,122 |
|
Lease-related supplemental cash flow information was as follows:
|
| Six Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
| ||
Operating cash flows for operating leases |
| $ | 2,660 |
|
| $ | 2,621 |
|
Operating cash flows for finance leases |
|
| 73 |
|
|
| 74 |
|
Financing cash flows for finance leases |
|
| 472 |
|
|
| 284 |
|
Right-of-use assets obtained in exchange for recorded lease obligations: |
|
|
|
|
|
| ||
Operating leases |
|
| 966 |
|
|
| 714 |
|
Finance leases |
|
| — |
|
|
| 43 |
|
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, 2024. 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 $1,365 for the three months and $2,729 for the six months ended March 31, 2024, compared to $1,398 for the three months and $2,786 for the six months ended March 31, 2023.
11
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, 2024 |
|
| September 30, 2023 |
| ||
Property, plant, and equipment |
| $ | 46,544 |
|
| $ | 45,766 |
|
Less accumulated depreciation |
|
| (29,981 | ) |
|
| (28,128 | ) |
Property, plant, and equipment, net |
| $ | 16,563 |
|
| $ | 17,638 |
|
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 at the time, consummated the formation of a strategic joint venture between Woodward and GE (the “JV”) to design, develop, manufacture, and sourcesupport 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, 2024 |
|
| September 30, 2023 |
| ||
Accrued liabilities |
| $ | 6,364 |
|
| $ | 6,147 |
|
Other liabilities |
|
| 235,837 |
|
|
| 233,997 |
|
Amortization of the deferred revenue (material right) recognized as an increase to sales was $1,502 for the three months and $2,837 for the six months ended March 31, 2024, and $1,203 for the three months and $2,034 for the six months ended March 31, 2023.
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 recordsreceived its annual payments receivedof $4,894 during the three-months ended March 31, 2024 and 2023, which were recorded as deferred income and includes themincluded in Net“Net cash provided by operating activities under the caption “Other”activities” on the Condensed Consolidated StatementStatements of Cash Flows. Neither Woodward nor GE contributed any tangible assets to the JV.
10
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, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Other income |
| $ | 8,701 |
|
| $ | 8,468 |
|
| $ | 18,856 |
|
| $ | 13,041 |
|
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 $6,868Condensed 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, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Cash distributions |
| $ | 12,000 |
|
| $ | 5,500 |
|
| $ | 18,500 |
|
| $ | 10,000 |
|
Woodward’s net sales include $12,975 for the three-months ended December 31, 2017 ofNet sales to the JV compared to $15,302were as follows:
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Net sales1 |
| $ | 22,080 |
|
| $ | 7,320 |
|
| $ | 42,352 |
|
| $ | 13,797 |
|
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, 2024 |
|
| September 30, 2023 |
| ||
Accounts receivable |
| $ | 5,279 |
|
| $ | 3,666 |
|
Accounts payable |
|
| 7,324 |
|
|
| 6,276 |
|
Other assets |
|
| 16,384 |
|
|
| 16,028 |
|
12
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 and liabilities 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 atvalue 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, 2024 |
|
| At September 30, 2023 |
| ||||||||||||||||||||||||||||||||||||||||||||||
|
| 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 | ||||||||||||||||||||||||||||||||||||||||
Investments in banks and financial institutions |
| $ | 204,724 |
|
| $ | — |
|
| $ | — |
|
| $ | 204,724 |
|
| $ | 28,560 |
|
| $ | — |
|
| $ | — |
|
| $ | 28,560 |
| ||||||||||||||||||||||||
Equity securities |
|
| 19,133 |
|
| - |
|
| - |
|
| 19,133 |
|
| 16,600 |
|
| - |
|
| - |
|
| 16,600 |
|
| 29,902 |
|
|
| — |
|
|
| — |
|
|
| 29,902 |
|
|
| 24,913 |
|
|
| — |
|
|
| — |
|
|
| 24,913 |
|
Cross-currency interest rate swaps |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,389 |
|
|
| — |
|
|
| 5,389 |
| ||||||||||||||||||||||||
Total financial assets |
| $ | 104,912 |
| $ | - |
| $ | - |
| $ | 104,912 |
| $ | 104,152 |
| $ | - |
| $ | - |
| $ | 104,152 |
| $ | 234,626 |
|
| $ | — |
|
| $ | — |
|
| $ | 234,626 |
|
| $ | 53,473 |
|
| $ | 5,389 |
|
| $ | — |
|
| $ | 58,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||
Cross-currency interest rate swaps |
| $ | — |
|
| $ | 4,968 |
|
| $ | — |
|
| $ | 4,968 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
| ||||||||||||||||||||||||
Total financial liabilities |
| $ | — |
|
| $ | 4,968 |
|
| $ | — |
|
| $ | 4,968 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
11
Investments in reverse repurchase agreements:banks and financial institutions: 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 foreignits 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.
AccountsCross-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, 2024 |
|
| At September 30, 2023 |
| ||||||||||||||||||
|
| Fair Value Hierarchy Level |
| Estimated Fair Value |
| Carrying Cost |
| Estimated Fair Value |
| Carrying Cost |
| Fair Value |
| Estimated |
|
| Carrying |
|
| Estimated |
|
| Carrying |
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Notes receivable from municipalities |
| 2 |
| $ | 14,771 |
| $ | 14,217 |
| $ | 15,848 |
| $ | 14,507 |
| 2 |
| $ | 7,859 |
|
| $ | 7,410 |
|
| $ | 7,794 |
|
| $ | 7,688 |
|
Investments in short-term time deposits |
| 2 |
|
| 9,191 |
|
| 9,219 |
|
| 8,227 |
|
| 8,223 |
| 2 |
|
| 88 |
|
|
| 88 |
|
|
| 6,095 |
|
|
| 6,107 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Long-term debt |
| 2 |
| $ | (596,136) |
| $ | (585,059) |
| $ | (592,317) |
| $ | (582,080) |
| 2 |
|
| 612,200 |
|
|
| 650,754 |
|
|
| 661,507 |
|
|
| 722,671 |
|
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
13
payments received at an interest rate available to the CompanyWoodward 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%2.6% at DecemberMarch 31, 20172024 and 2.6%3.6% at September 30, 2017. 2023.
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%5.9% at DecemberMarch 31, 20172024 and 5.3%6.8% at September 30, 2017. 2023.
The fair value of long-term debt was estimated based on a model that discounted future principalthe prices of debt of comparable type and interest payments at interest ratesmaturity available to the CompanyWoodward 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%5.2% at DecemberMarch 31, 20172024 and 2.4%5.9% at September 30, 2017.2023.
12
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, includingentered 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. The 2020 Floating-Rate Cross-Currency Swap expired on May 31, 2023 and, as such, is no longer recorded on the Condensed Consolidated Balance Sheets. As of March 31, 2024, the total notional value of the 2020 Fixed-Rate Cross-Currency Swaps was $400,000. See Note 7, Financial Instruments and fair value measurements for the related fair value of the derivative instruments as of March 31, 2024.
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 timerisk attributable to time, Woodward enters into derivative instruments for risk management purposes only, including derivatives designatedthe spot remeasurement of the US dollar denominated intercompany loan, as accounting hedges and/or those utilized as economic hedges. Woodward usesEuro 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 intothe 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. Wheninstrument is recognized in accumulated other comprehensive income (“OCI”). The remaining change in the fair value of athe derivative contractinstrument 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 establishingtransaction 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 lossesadministrative costs” in Woodward’s Condensed Consolidated Balance SheetsStatements 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 following table discloses the impact of derivativeintercompany floating-rate cross-currency interest rate swap.
14
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, recognizedEarnings. 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) |
Basedfair 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 carryingfair value changes of the realized but unrecognized gains on terminated derivative instruments designated as cash flowand such hedges as of December 31, 2017, Woodward expectsare deemed to reclassify $72 ofbe 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 loanearnings is a net foreign exchange gain of 160,000 renminbi between two wholly owned subsidiaries as a hedge of$978 for the three months and a foreign currency exposureexchange loss of $888 for the net investment of the borrower in the lender. Unrealizedsix months ended March 31, 2024, compared to foreign exchange gains on the loanlosses of $1,016$807 for the three-monthsthree months and $4,432 for the six months ended DecemberMarch 31, 20162023.
Impact of derivative instruments designated as qualifying hedging instruments
The 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 |
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Cross-currency interest rate swap agreement designated as fair value hedges |
| Selling, general and administrative expenses |
| $ | — |
|
| $ | 36 |
|
| $ | — |
|
| $ | 937 |
|
Cross-currency interest rate swap agreements designated as cash flow hedges |
| Selling, general and administrative expenses |
|
| (8,875 | ) |
|
| 7,584 |
|
|
| 9,024 |
|
|
| 44,869 |
|
|
|
|
| $ | (8,875 | ) |
| $ | 7,620 |
|
| $ | 9,024 |
|
| $ | 45,806 |
|
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 |
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Cross-currency interest rate swap agreement designated as fair value hedges |
| Selling, general and administrative expenses |
| $ | — |
|
| $ | 21 |
|
| $ | — |
|
| $ | 917 |
|
Cross-currency interest rate swap agreements designated as cash flow hedges |
| Selling, general and administrative expenses |
|
| (7,349 | ) |
|
| 2,075 |
|
|
| 11,161 |
|
|
| 33,767 |
|
|
|
|
| $ | (7,349 | ) |
| $ | 2,096 |
|
| $ | 11,161 |
|
| $ | 34,684 |
|
15
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 |
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Cross-currency interest rate swap agreement designated as fair value hedges |
| Selling, general and administrative expenses |
| $ | — |
|
| $ | 36 |
|
| $ | — |
|
| $ | 937 |
|
Cross-currency interest rate swap agreements designated as cash flow hedges |
| Selling, general and administrative expenses |
|
| (8,875 | ) |
|
| 7,584 |
|
|
| 9,024 |
|
|
| 44,869 |
|
|
|
|
| $ | (8,875 | ) |
| $ | 7,620 |
|
| $ | 9,024 |
|
| $ | 45,806 |
|
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 includedclassified in foreign currency translation adjustments within total comprehensive (losses) earnings. The intercompany loan was repaid in July 2017.
13
accumulated OCI, were net losses of $11,838 as of March 31, 2024 and $9,701 as of September 30, 2023.
Note 7.9. Supplemental statement of cash flows information
|
|
|
|
|
|
|
|
|
|
| |||
|
| 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 |
|
| Six Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Interest paid, net of amounts capitalized |
| $ | 18,068 |
|
| $ | 17,689 |
|
Income taxes paid |
|
| 59,677 |
|
|
| 44,589 |
|
Income tax refunds received |
|
| 3,662 |
|
|
| 1,392 |
|
Non-cash activities: |
|
|
|
|
|
| ||
Purchases of property, plant and equipment on account |
|
| 2,127 |
|
|
| 3,743 |
|
Common shares issued from treasury to settle benefit obligations |
|
| 21,887 |
|
|
| 19,467 |
|
Note 8. Accounts receivable10. Inventories
Almost all of Woodward’s sales are made on credit and result in accounts receivable, which are recorded at the amount invoiced and are generally not collateralized. In the normal course of business, not all accounts receivable are collected and, therefore, an allowance for uncollectible amounts is provided equal to the amount
|
| March 31, 2024 |
|
| September 30, 2023 |
| ||
Raw materials |
| $ | 159,355 |
|
| $ | 133,699 |
|
Work in progress |
|
| 140,322 |
|
|
| 127,438 |
|
Component parts(1) |
|
| 352,269 |
|
|
| 327,522 |
|
Finished goods |
|
| 88,978 |
|
|
| 74,594 |
|
Customer supplied inventory |
|
| 17,941 |
|
|
| 14,543 |
|
On-hand inventory for which control has transferred to the customer |
|
| (178,488 | ) |
|
| (159,953 | ) |
| $ | 580,377 |
|
| $ | 517,843 |
|
Consistent with common business practice in China, Woodward’s Chinese subsidiary accepts from Chinese customers, in settlementmanufacture 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 |
14
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 |
|
|
Note 10.11. Property, plant, and equipment
|
|
|
|
| ||||||||||
|
|
|
|
| ||||||||||
|
| December 31, |
| September 30, | ||||||||||
|
| 2017 |
| 2017 |
| March 31, 2024 |
|
| September 30, 2023 |
| ||||
Land and land improvements |
| $ | 88,536 |
| $ | 88,326 |
| $ | 89,899 |
|
| $ | 89,352 |
|
Buildings and building improvements |
| 515,338 |
| 514,453 |
|
| 591,225 |
|
|
| 589,735 |
| ||
Leasehold improvements |
| 16,425 |
| 16,142 |
|
| 21,445 |
|
|
| 21,079 |
| ||
Machinery and production equipment |
| 560,264 |
| 543,641 |
|
| 808,980 |
|
|
| 807,244 |
| ||
Computer equipment and software |
| 125,628 |
| 124,723 |
|
| 117,694 |
|
|
| 120,290 |
| ||
Office furniture and equipment |
| 24,455 |
| 24,308 |
|
| 41,303 |
|
|
| 41,943 |
| ||
Other |
| 19,423 |
| 19,393 |
|
| 38,253 |
|
|
| 20,073 |
| ||
Construction in progress |
|
| 117,085 |
|
| 111,910 |
|
| 64,847 |
|
|
| 55,487 |
|
|
|
| 1,467,154 |
|
| 1,442,896 |
|
| 1,773,646 |
|
|
| 1,745,203 |
|
Less accumulated depreciation |
|
| (536,996) |
|
| (520,853) |
|
| (852,291 | ) |
|
| (832,109 | ) |
Property, plant, and equipment, net |
| $ | 930,158 |
| $ | 922,043 |
| $ | 921,355 |
|
| $ | 913,094 |
|
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 ended December 31, 2017 and 2016, Woodward had depreciation expense as follows:
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Depreciation expense |
| $ | 20,607 |
|
| $ | 20,535 |
|
| $ | 40,833 |
|
| $ | 40,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three-Months Ended | ||||
|
| December 31, | ||||
|
| 2017 |
| 2016 | ||
Depreciation expense |
| $ | 14,827 |
| $ | 12,455 |
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 |
15
16
Note 11.12. 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 |
|
| September 30, |
|
| Effects of Foreign |
|
| March 31, |
| |||
Aerospace |
| $ | 455,423 |
|
| $ | — |
|
| $ | 455,423 |
|
Industrial |
|
| 336,045 |
|
|
| 5,238 |
|
|
| 341,283 |
|
Consolidated |
| $ | 791,468 |
|
| $ | 5,238 |
|
| $ | 796,706 |
|
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 ofevent). Woodward’s goodwill impairment test in the periods presented and Woodward’s fourth quarter of fiscal year 2017 impairment test2023 resulted in no impairment.
Note 12.13. Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2024 |
|
| September 30, 2023 |
| |||||||||||||||||||||||
| December 31, 2017 |
| September 30, 2017 |
| Gross |
|
| Accumulated |
|
| Net |
|
| Gross |
|
| Accumulated |
|
| Net |
| ||||||||||||||||||||
| 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 |
|
| $ | (241,513 | ) |
| $ | 40,170 |
|
| $ | 281,683 |
|
| $ | (236,143 | ) |
| $ | 45,540 |
|
Industrial |
| 40,944 |
|
| (34,615) |
|
| 6,329 |
|
| 40,962 |
|
| (34,407) |
|
| 6,555 |
|
| 386,267 |
|
|
| (101,363 | ) |
|
| 284,904 |
|
|
| 378,804 |
|
|
| (90,084 | ) |
|
| 288,720 |
|
Total | $ | 323,169 |
| $ | (189,798) |
| $ | 133,371 |
| $ | 323,187 |
| $ | (185,562) |
| $ | 137,625 |
| $ | 667,950 |
|
| $ | (342,876 | ) |
| $ | 325,074 |
|
| $ | 660,487 |
|
| $ | (326,227 | ) |
| $ | 334,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Intellectual property: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Aerospace | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Industrial |
| 19,459 |
|
| (18,315) |
|
| 1,144 |
|
| 19,422 |
|
| (18,196) |
|
| 1,226 |
|
| 3,139 |
|
|
| (3,139 | ) |
|
| — |
|
|
| 3,139 |
|
|
| (3,139 | ) |
|
| — |
|
Total | $ | 19,459 |
| $ | (18,315) |
| $ | 1,144 |
| $ | 19,422 |
| $ | (18,196) |
| $ | 1,226 |
| $ | 3,139 |
|
| $ | (3,139 | ) |
| $ | — |
|
| $ | 3,139 |
|
| $ | (3,139 | ) |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Process technology: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Aerospace | $ | 76,605 |
| $ | (50,619) |
| $ | 25,986 |
| $ | 76,605 |
| $ | (49,124) |
| $ | 27,481 |
| $ | 44,570 |
|
| $ | (40,026 | ) |
| $ | 4,544 |
|
| $ | 44,570 |
|
| $ | (39,551 | ) |
| $ | 5,019 |
|
Industrial |
| 22,910 |
|
| (18,118) |
|
| 4,792 |
|
| 22,950 |
|
| (17,756) |
|
| 5,194 |
|
| 84,877 |
|
|
| (33,676 | ) |
|
| 51,201 |
|
|
| 83,456 |
|
|
| (31,709 | ) |
|
| 51,747 |
|
Total | $ | 99,515 |
| $ | (68,737) |
| $ | 30,778 |
| $ | 99,555 |
| $ | (66,880) |
| $ | 32,675 |
| $ | 129,447 |
|
| $ | (73,702 | ) |
| $ | 55,745 |
|
| $ | 128,026 |
|
| $ | (71,260 | ) |
| $ | 56,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Other intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Aerospace | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Industrial |
| 1,332 |
|
| (992) |
|
| 340 |
|
| 1,312 |
|
| (956) |
|
| 356 |
|
| 561 |
|
|
| (561 | ) |
|
| — |
|
|
| 554 |
|
|
| (524 | ) |
|
| 30 |
|
Total | $ | 1,332 |
| $ | (992) |
| $ | 340 |
| $ | 1,312 |
| $ | (956) |
| $ | 356 |
| $ | 561 |
|
| $ | (561 | ) |
| $ | — |
|
| $ | 554 |
|
| $ | (524 | ) |
| $ | 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Intangible asset with indefinite life: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Trade name: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Aerospace |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
| |||||||||||||||||
Industrial |
|
| 62,595 |
|
|
| — |
|
|
| 62,595 |
|
|
| 61,307 |
|
|
| — |
|
|
| 61,307 |
| |||||||||||||||||
Total |
| $ | 62,595 |
|
| $ | — |
|
| $ | 62,595 |
|
| $ | 61,307 |
|
| $ | — |
|
| $ | 61,307 |
| |||||||||||||||||
Total intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Aerospace | $ | 358,830 |
| $ | (205,802) |
| $ | 153,028 |
| $ | 358,830 |
| $ | (200,279) |
| $ | 158,551 |
| $ | 326,253 |
|
| $ | (281,539 | ) |
| $ | 44,714 |
|
| $ | 326,253 |
|
| $ | (275,694 | ) |
| $ | 50,559 |
|
Industrial |
| 84,645 |
|
| (72,040) |
|
| 12,605 |
|
| 84,646 |
|
| (71,315) |
|
| 13,331 |
|
| 537,439 |
|
|
| (138,739 | ) |
|
| 398,700 |
|
|
| 527,260 |
|
|
| (125,456 | ) |
|
| 401,804 |
|
Consolidated Total | $ | 443,475 |
| $ | (277,842) |
| $ | 165,633 |
| $ | 443,476 |
| $ | (271,594) |
| $ | 171,882 |
| $ | 863,692 |
|
| $ | (420,278 | ) |
| $ | 443,414 |
|
| $ | 853,513 |
|
| $ | (401,150 | ) |
| $ | 452,363 |
|
ForWoodward tests the three-months ended December 31, 2017indefinite lived trade name intangible asset for impairment during the fourth quarter of each fiscal year and 2016, at any time there is an indication the indefinite lived trade name intangible asset is more-likely-than-not impaired (commonly referred to as a triggering event). Woodward’s impairment test for the indefinite lived trade name intangible asset in the fourth quarter of fiscal year 2023 resulted in no impairment.
Woodward recorded amortization expense associated with intangibles of the following:
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Amortization expense |
| $ | 8,618 |
|
| $ | 9,418 |
|
| $ | 17,217 |
|
| $ | 18,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three-Months Ended | ||||
| December 31, | ||||
| 2017 |
| 2016 | ||
Amortization expense | $ | 6,243 |
| $ | 6,458 |
16
17
Future amortization expense associated with intangibles is expected to be:
Year Ending September 30: |
|
|
| |
2024 (remaining) |
| $ | 16,305 |
|
2025 |
|
| 28,293 |
|
2026 |
|
| 28,283 |
|
2027 |
|
| 28,232 |
|
2028 |
|
| 27,636 |
|
Thereafter |
|
| 252,070 |
|
| $ | 380,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 13.14. 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 Agreementwhich 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 October 2022, the “Second Amended and Restated Revolving Credit Agreement”). 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 LIBORthe 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. on October 21, 2027.
Under the Second Amended and Restated Revolving Credit Agreement, there were $66,300$141,300 in principal amount of borrowings outstanding as of DecemberMarch 31, 2017,2024 at an effective interest rate of 2.52%, and $32,600 in principal amount of6.46% as compared to no borrowings outstanding as of September 30, 2017, at an effective interest rate of 2.29%.2023. As of DecemberMarch 31, 2017 and September 30, 2017,2024, all of the borrowings under the Revolving Credit Agreementoutstanding were classified as short-term borrowings based on Woodward’sWoodward's intent and ability to pay this amount in the next twelve months.
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, 2024 and September 30, 2023.
Long-term 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,On November 15, 2023, Woodward entered into a note purchase agreement relating topaid the entire principal balance of $75,000 on the Series D Notes. The Series DH and K Notes mature and are payable in October 2018. As of December 31, 2017, the entire amount of debt under the Series D Notes has
17
been classified as long-term based on Woodward’s intent and ability to refinance this debt using cash proceeds from borrowings under its existing revolving credit facility which, 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. facility.
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 together with the Series D Notes, the Series F Notes 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 together 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 debt issuance costs associated with the Notes of $1,720 as of December 31, 2017 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. Unamortized debt issuance costs of $2,041 associated with the Revolving Credit Agreement as of December 31, 2017 and $2,259 as of September 30, 2017 were recorded as “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 14.15. Accrued liabilities
|
|
|
|
| |||||||||
|
|
|
|
| |||||||||
| December 31, |
| September 30, | ||||||||||
| 2017 |
| 2017 |
| March 31, 2024 |
|
| September 30, 2023 |
| ||||
Salaries and other member benefits | $ | 43,844 |
| $ | 91,285 |
| $ | 98,019 |
|
| $ | 146,713 |
|
Warranties |
| 13,017 |
| 13,597 | |||||||||
Product warranties and related liabilities |
|
| 19,800 |
|
|
| 18,162 |
| |||||
Interest payable |
| 5,392 |
| 9,626 |
|
| 12,199 |
|
|
| 13,611 |
| |
Current portion of acquired performance obligations and unfavorable contracts (1) |
| 1,627 |
| 1,627 | |||||||||
Accrued retirement benefits |
| 2,379 |
| 2,413 |
|
| 2,844 |
|
|
| 2,822 |
| |
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 |
|
| 48,821 |
|
|
| 33,748 |
| |||||
Taxes, other than income |
| 10,934 |
| 14,401 |
|
| 18,981 |
|
|
| 13,436 |
| |
Other |
| 10,341 |
|
| 9,704 |
|
| 36,280 |
|
|
| 34,124 |
|
| $ | 98,785 |
| $ | 155,072 |
| $ | 236,944 |
|
| $ | 262,616 |
|
|
|
18
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 thatand related liabilities for which are probable to result in future costs. Warranty costs are accrued because 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, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Beginning of period |
| $ | 21,802 |
|
| $ | 49,526 |
|
| $ | 18,162 |
|
| $ | 40,042 |
|
Additions, net of recoveries |
|
| 4,653 |
|
|
| 3,413 |
|
|
| 9,959 |
|
|
| 20,423 |
|
Reductions for settlement |
|
| (6,579 | ) |
|
| (6,501 | ) |
|
| (8,406 | ) |
|
| (14,203 | ) |
Foreign currency exchange rate changes |
|
| (76 | ) |
|
| 54 |
|
|
| 85 |
|
|
| 230 |
|
End of period |
| $ | 19,800 |
|
| $ | 46,492 |
|
| $ | 19,800 |
|
| $ | 46,492 |
|
Restructuring charges
|
|
|
|
|
|
|
|
|
|
|
|
| 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 constructionleadership 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 commitmentspaid as of December 31, 20172022.
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 September 30, 2017, respectively, which are not expectedrecorded $5,172 of restructuring charges. The charges recognized under the Cost Reduction Plan consist of workforce management costs primarily related to be settled oraligning the cost structure of the Company's Industrial segment with the current market conditions. All of the restructuring charges were recorded as nonsegment expenses. As of March 31, 2023, $2,836 was paid and the remaining restructuring charges were paid within the next twelve months of the respective balance sheet date.months.
Note 15.16. 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, 2024 |
|
| September 30, 2023 |
| ||
Net accrued retirement benefits, less amounts recognized within accrued liabilities |
| $ | 78,464 |
|
| $ | 72,570 |
|
Total unrecognized tax benefits |
|
| 9,351 |
|
|
| 8,020 |
|
Noncurrent income taxes payable |
|
| 5,894 |
|
|
| 10,714 |
|
Deferred economic incentives (1) |
|
| 5,151 |
|
|
| 5,797 |
|
Noncurrent operating lease liabilities |
|
| 19,202 |
|
|
| 20,685 |
|
Net noncurrent contract liabilities |
|
| 426,810 |
|
|
| 414,657 |
|
Cross-currency swap derivative liability |
|
| 4,968 |
|
|
| — |
|
Other |
|
| 11,090 |
|
|
| 11,047 |
|
|
| $ | 560,930 |
|
| $ | 543,490 |
|
|
|
|
|
|
|
|
|
|
|
19
Note 16.17. Other (income) expense, net
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
| ||||||||||||
|
| Three-Months Ended |
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||||||
|
| 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) | ||||||||||||||||||
Equity interest in the earnings of the JV |
| $ | (8,701 | ) |
| $ | (8,468 | ) |
| $ | (18,856 | ) |
| $ | (13,041 | ) | ||||||
Net (gain) loss on sales of assets and businesses |
|
| (863 | ) |
|
| 857 |
|
|
| (872 | ) |
|
| 890 |
| ||||||
Gain on non-recurring matter related to a previous acquisition |
|
| — |
|
|
| — |
|
|
| (4,803 | ) |
|
| — |
| ||||||
Rent income |
| (54) |
| (73) |
|
| (88 | ) |
|
| (93 | ) |
|
| (170 | ) |
|
| (181 | ) | ||
Net gain on investments in deferred compensation program |
| (654) |
| (24) |
|
| (1,785 | ) |
|
| (1,679 | ) |
|
| (4,394 | ) |
|
| (2,870 | ) | ||
Other components of net periodic pension and other postretirement benefit, excluding service cost and interest expense |
|
| (2,947 | ) |
|
| (2,675 | ) |
|
| (5,866 | ) |
|
| (5,160 | ) | ||||||
Other |
|
| (210) |
|
| (108) |
|
| — |
|
|
| 18 |
|
|
| (62 | ) |
|
| (68 | ) |
|
| $ | (1,572) |
| $ | (4,588) |
| $ | (14,384 | ) |
| $ | (12,040 | ) |
| $ | (35,023 | ) |
| $ | (20,430 | ) |
19
Note 17.18. 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:
|
|
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 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
20
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.
| |||
| |||
|
| ||
| |||
| |||
|
|
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 |
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||||
Earnings before income taxes |
| $ | 37,487 |
| $ | 47,059 |
| $ | 120,624 |
|
| $ | 40,241 |
|
| $ | 230,344 |
|
| $ | 71,990 |
|
Income tax expense |
| 19,227 |
| 511 |
|
| 23,068 |
|
|
| 4,730 |
|
|
| 42,744 |
|
|
| 6,873 |
| ||
Effective tax rate |
| 51.3% |
| 1.1% |
|
| 19.1 | % |
|
| 11.8 | % |
|
| 18.6 | % |
|
| 9.5 | % |
21
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 31, 2016 includessecond quarter as compared to the impactsame period of the repatriationprior fiscal year is primarily attributable to higher projected full-year earnings taxed at statutory rates ranging between approximately 19% and 35%. These higher projected earnings and higher actual quarterly earnings resulted in lower current quarter tax benefits as a percent of earnings when compared to the U.S.prior quarter. Additionally, the increase is attributable to projected future withholding taxes on unremitted foreign earnings.
The increase in the effective tax rate for the first half of certain net foreign profitsfiscal year 2024 as compared to the same period of the prior fiscal year is primarily attributable to higher projected full-year earnings taxed at statutory rates ranging between approximately 19% and losses. The U.S. foreign35%. These higher projected earnings and higher actual year-to-date earnings resulted in lower current year-to-date tax credits availablebenefits as a resultpercent of earnings when compared to the repatriationprior year. Additionally, the increase is attributable to projected future withholding taxes on unremitted foreign earnings and the release of the foreign net earningsuncertain tax positions that did not recur in the first quarter of last year were greater than the U.S. taxes payable on these net foreign earnings. current fiscal year.
Gross unrecognized tax benefits were $18,997$12,715 as of DecemberMarch 31, 2017,2024, and $20,132$11,112 as of September 30, 2017. Included in2023. At March 31, 2024, the balanceamount 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 theimpact Woodward’s effective tax rate. At this time,rate was $8,110. Woodward estimates thatbelieves it is reasonably possible that the liability for unrecognized tax benefits will decrease by as much as $8,901$2,178 in the next twelve months due to the completion of reviewsreview by tax authorities, lapses of statutes, and the settlement of tax positions. Woodward accruesWoodward’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 limitationslimitation may result in changes to tax expense. FiscalGenerally, Woodward’s fiscal years remaining open to examination for U.S. Federal income taxes include fiscal years 2020 and thereafter. Woodward’s fiscal years remaining open to examination for significant U.S. state income tax jurisdictions include fiscal years 2019 and thereafter. Woodward’s fiscal years remaining open to examination in significant foreign jurisdictions include 20082018 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 18.19. 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.plan (the "Retirement Savings Plan"). The U.S. defined contribution planRetirement Savings 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 foreignnon-U.S. employees are also eligible to participate in similar foreignnon-U.S. plans.
20
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 159 shares of common stock for a value of $21,887 in the second quarter of fiscal year 2024, compared to a total of 187 shares of common stock for a value of $19,307 in the second quarter of fiscal year 2023.
The amount of expense associated with defined contribution plans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three-Months Ended | ||||
|
| December 31, | ||||
|
| 2017 |
| 2016 | ||
Company costs |
| $ | 7,879 |
| $ | 7,249 |
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Company costs |
| $ | 12,902 |
|
| $ | 11,838 |
|
| $ | 24,077 |
|
| $ | 21,940 |
|
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, 2017,2023, 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.
22
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 |
| |||||||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||||
Service cost |
| $ | 194 |
|
| $ | 224 |
|
| $ | 312 |
|
| $ | 332 |
|
| $ | 506 |
|
| $ | 556 |
|
Interest cost |
|
| 1,900 |
|
|
| 1,825 |
|
|
| 803 |
|
|
| 778 |
|
|
| 2,703 |
|
|
| 2,603 |
|
Expected return on plan assets |
|
| (2,271 | ) |
|
| (2,075 | ) |
|
| (602 | ) |
|
| (573 | ) |
|
| (2,873 | ) |
|
| (2,648 | ) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net actuarial loss (gain) |
|
| 56 |
|
|
| 73 |
|
|
| (171 | ) |
|
| (153 | ) |
|
| (115 | ) |
|
| (80 | ) |
Prior service cost |
|
| 175 |
|
|
| 175 |
|
|
| 5 |
|
|
| 6 |
|
|
| 180 |
|
|
| 181 |
|
Net periodic retirement pension cost |
| $ | 54 |
|
| $ | 222 |
|
| $ | 347 |
|
| $ | 390 |
|
| $ | 401 |
|
| $ | 612 |
|
Contributions paid |
| $ | — |
|
| $ | — |
|
| $ | 746 |
|
| $ | 736 |
|
| $ | 746 |
|
| $ | 736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Six Months Ended March 31, |
| |||||||||||||||||||||
|
| United States |
|
| Other Countries |
|
| Total |
| |||||||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||||
Service cost |
| $ | 388 |
|
| $ | 447 |
|
| $ | 621 |
|
| $ | 652 |
|
| $ | 1,009 |
|
| $ | 1,099 |
|
Interest cost |
|
| 3,799 |
|
|
| 3,649 |
|
|
| 1,596 |
|
|
| 1,528 |
|
|
| 5,395 |
|
|
| 5,177 |
|
Expected return on plan assets |
|
| (4,542 | ) |
|
| (4,149 | ) |
|
| (1,194 | ) |
|
| (1,124 | ) |
|
| (5,736 | ) |
|
| (5,273 | ) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net actuarial loss (gain) |
|
| 113 |
|
|
| 146 |
|
|
| (339 | ) |
|
| (301 | ) |
|
| (226 | ) |
|
| (155 | ) |
Prior service cost |
|
| 349 |
|
|
| 349 |
|
|
| 11 |
|
|
| 11 |
|
|
| 360 |
|
|
| 360 |
|
Net periodic retirement pension cost |
| $ | 107 |
|
| $ | 442 |
|
| $ | 695 |
|
| $ | 766 |
|
| $ | 802 |
|
| $ | 1,208 |
|
Contributions paid |
| $ | — |
|
| $ | — |
|
| $ | 1,339 |
|
| $ | 1,298 |
|
| $ | 1,339 |
|
| $ | 1,298 |
|
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 |
21
The components of the net periodic other postretirement benefit costs recognized are as follows:
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Interest cost |
| $ | 225 |
|
| $ | 226 |
|
| $ | 451 |
|
| $ | 452 |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net actuarial gain |
|
| (139 | ) |
|
| (124 | ) |
|
| (278 | ) |
|
| (248 | ) |
Net periodic other postretirement cost |
| $ | 86 |
|
| $ | 102 |
|
| $ | 173 |
|
| $ | 204 |
|
Contributions paid |
| $ | 413 |
|
| $ | 444 |
|
| $ | 825 |
|
| $ | 885 |
|
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 20182024 may differ from the current estimate. Woodward estimates its remaining cash contributions in fiscal year 20182024 will be as follows:
Retirement pension benefits: | ||||
United States | $ | — | ||
| 558 | |||
|
|
| ||
| ||||
| 493 |
| ||
Other postretirement benefits | 1,851 |
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 |
23
Note 19.20. Stockholders’ equity
Common stock and treasury stock
Activity in common stock and treasury stock share are as follows:
|
| Common Stock |
|
| Treasury Stock |
|
| Treasury stock held for deferred compensation |
| |||
Balances as of January 1, 2023 |
|
| 72,960 |
|
|
| (13,460 | ) |
|
| (122 | ) |
Sales of treasury stock |
|
| — |
|
|
| 251 |
|
|
| — |
|
Common shares issued for benefit plans |
|
| — |
|
|
| 187 |
|
|
| — |
|
Purchases of stock by deferred compensation |
|
| — |
|
|
| — |
|
|
| — |
|
Distribution of stock from deferred compensation |
|
| — |
|
|
| — |
|
|
| 55 |
|
Balances as of March 31, 2023 |
|
| 72,960 |
|
|
| (13,022 | ) |
|
| (67 | ) |
|
|
|
|
|
|
|
|
|
| |||
Balances as of January 1, 2024 |
|
| 72,960 |
|
|
| (12,823 | ) |
|
| (54 | ) |
Sales of treasury stock |
|
| — |
|
|
| 479 |
|
|
| — |
|
Common shares issued for benefit plans |
|
| — |
|
|
| 159 |
|
|
| — |
|
Purchases of stock by deferred compensation |
|
| — |
|
|
| — |
|
|
| — |
|
Distribution of stock from deferred compensation |
|
| — |
|
|
| — |
|
|
| 1 |
|
Balances as of March 31, 2024 |
|
| 72,960 |
|
|
| (12,185 | ) |
|
| (53 | ) |
22
|
| Common Stock |
|
| Treasury Stock |
|
| Treasury stock held for deferred compensation |
| |||
Balances as of September 30, 2022 |
|
| 72,960 |
|
|
| (13,207 | ) |
|
| (139 | ) |
Sales of treasury stock |
|
| — |
|
|
| 270 |
|
|
| — |
|
Purchase of treasury stock |
|
| — |
|
|
| (274 | ) |
|
| — |
|
Common shares issued for benefit plans |
|
| — |
|
|
| 189 |
|
|
| — |
|
Purchases of stock by deferred compensation |
|
| — |
|
|
| — |
|
|
| (1 | ) |
Distribution of stock from deferred compensation |
|
| — |
|
|
| — |
|
|
| 73 |
|
Balances as of March 31, 2023 |
|
| 72,960 |
|
|
| (13,022 | ) |
|
| (67 | ) |
|
|
|
|
|
|
|
|
|
| |||
Balances as of September 30, 2023 |
|
| 72,960 |
|
|
| (13,070 | ) |
|
| (55 | ) |
Sales of treasury stock |
|
| — |
|
|
| 726 |
|
|
| — |
|
Common shares issued for benefit plans |
|
| — |
|
|
| 159 |
|
|
| — |
|
Purchases of stock by deferred compensation |
|
| — |
|
|
| — |
|
|
| (1 | ) |
Distribution of stock from deferred compensation |
|
| — |
|
|
| — |
|
|
| 3 |
|
Balances as of March 31, 2024 |
|
| 72,960 |
|
|
| (12,185 | ) |
|
| (53 | ) |
Stock repurchase program
In January 2022, the first quarter of fiscal year 2017, Woodward’sWoodward board of directors terminated the Company’s prior stock repurchase program and replaced it with(the "Board") authorized a new program for the repurchase of up to $500,000$800,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a three-yeartwo-year period that will endending in November 2019January 2024 (the “2017“2022 Authorization”). InDuring the first quartersix months of fiscal year 2017,2023, Woodward purchased 350repurchased 274 shares of its common stock for $24,004 pursuant$26,369.
In January 2024, the Board terminated the 2022 Authorization, which was nearing expiration, and concurrently authorized a new program for the repurchase of up to $600,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a 10b5-1 plan under the 2017 Authorization. Woodward repurchased no stockthree-year period ending in January 2027 (the “2024 Authorization”). During the first quartersix months of fiscal year 2018.2024, Woodward repurchased no shares of its common stock.
Stock-based compensation
Provisions governing outstanding stock option awards, restricted stock units ("RSUs"), and performance restricted stock units ("PSUs") are included in the 2017 Omnibus Incentive Plan, as amended from time to time (the “2017 Plan”), and, with respect to outstanding stock options awarded in or prior to 2016, 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.
Woodward has reserved a total of 2,000 shares of Woodward’s common stock for issuance under theThe 2017 Plan which was first approved by Woodward’s stockholders in January 2017 and is athe successor plan to the 2006 Plan.
Stock options
To date, equity awards underThe Board has delegated authority to administer the 2017 Plan have consistedto 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 25, 2023, Woodward’s stockholders approved an additional 500 shares of Woodward’s common stock to be made available for future grants. Under the 2017 Plan, there were approximately 2,209 shares of Woodward’s common stock available for future grants as of stockMarch 31, 2024 and 2,689 shares as of September 30, 2023.
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% |
|
23
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, 2024 |
|
| Six Months Ended March 31, 2024 |
| ||||||||||
|
| Number of options |
|
| Weighted-Average Exercise Price per Share |
|
| Number of options |
|
| Weighted-Average Exercise Price per Share |
| ||||
Beginning balance |
|
| 4,611 |
|
| $ | 80.99 |
|
|
| 4,842 |
|
| $ | 80.48 |
|
Granted |
|
| 81 |
|
|
| 137.76 |
|
|
| 87 |
|
|
| 137.36 |
|
Exercised |
|
| (475 | ) |
|
| 67.93 |
|
|
| (710 | ) |
|
| 69.19 |
|
Forfeited |
|
| (4 | ) |
|
| 91.51 |
|
|
| (6 | ) |
|
| 91.84 |
|
Ending balance |
|
| 4,213 |
|
| $ | 83.54 |
|
|
| 4,213 |
|
| $ | 83.54 |
|
24
Changes in non-vested stock options during the three-months ended December 31, 2017 were as follows:
|
| Three Months Ended March 31, 2024 |
|
| Six Months Ended March 31, 2024 |
| ||||||||||
|
| Number of options |
|
| Weighted-Average Grant Date Fair Value per Share |
|
| Number of options |
|
| Weighted-Average Grant Date Fair Value Per Share |
| ||||
Beginning balance |
|
| 858 |
|
| $ | 35.37 |
|
|
| 1,393 |
|
| $ | 33.96 |
|
Granted |
|
| 81 |
|
|
| 58.15 |
|
|
| 87 |
|
|
| 58.34 |
|
Vested |
|
| (9 | ) |
|
| 31.78 |
|
|
| (549 | ) |
|
| 32.01 |
|
Forfeited |
|
| (4 | ) |
|
| 35.54 |
|
|
| (5 | ) |
|
| 35.24 |
|
Ending balance |
|
| 926 |
|
| $ | 37.40 |
|
|
| 926 |
|
| $ | 37.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 DecemberMarch 31, 20172024 was as follows:
|
| Number of options |
|
| Weighted-Average Exercise Price |
|
| Weighted-Average Remaining Life in Years |
|
| Aggregate Intrinsic Value |
| ||||
Options outstanding |
|
| 4,213 |
|
| $ | 83.54 |
|
|
| 5.5 |
|
| $ | 297,376 |
|
Options vested and exercisable |
|
| 3,287 |
|
|
| 79.53 |
|
|
| 4.8 |
|
|
| 245,191 |
|
Options vested and expected to vest |
|
| 4,177 |
|
|
| 83.37 |
|
|
| 5.5 |
|
|
| 295,556 |
|
Restricted stock units
The Company generally grants RSUs to eligible employees under its form RSU agreement for employees (the “Standard Form RSU Agreement”). RSUs granted under the Standard Form RSU Agreement prior to November 14, 2023, generally have a four-year vesting schedule at a rate of 25% per year, and RSUs granted after November 14, 2023 have a three-year vesting schedule at a rate of 33.3% per year, in each case generally subject to continued employment.
The Company has also granted RSUs to certain employees under its form attraction and retention RSU agreement (the “Form Attraction and Retention RSU Agreement”), which has from time to time been used for new hires and specific retention purposes. RSUs granted under the Form Attraction and Retention Agreement are generally scheduled to fully vest on the third or fourth anniversary of the respective grant dates, and in each case, subject to continued employment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
A summary of the activity for RSUs:
|
| Three Months Ended March 31, 2024 |
|
| Six Months Ended March 31, 2024 |
| ||||||||||
|
| Number of units |
|
| Weighted-Average Grant Date Fair Value |
|
| Number of units |
|
| Weighted-Average Grant Date Fair Value |
| ||||
Beginning balance |
|
| 170 |
|
| $ | 96.95 |
|
|
| 177 |
|
| $ | 93.46 |
|
Granted |
|
| 155 |
|
|
| 137.76 |
|
|
| 167 |
|
|
| 137.33 |
|
Released |
|
| (5 | ) |
|
| 89.03 |
|
|
| (24 | ) |
|
| 86.59 |
|
Forfeited |
|
| (1 | ) |
|
| 111.78 |
|
|
| (1 | ) |
|
| 108.48 |
|
Ending balance |
|
| 319 |
|
| $ | 116.90 |
|
|
| 319 |
|
| $ | 116.90 |
|
Performance restricted stock units
In November 2023, the Company granted PSUs to certain employees under its form PSU agreement that generally will vest subject to a market condition and a service condition through the performance period. The market condition associated with the awards is based on the Company's relative total shareholder return ("TSR") compared to the TSR
24
generated by the other companies that comprise the S&P 400 Midcap Index over a three-year performance period. Performance at target will result in vesting and issuance of the number of PSUs granted, equal to 100% payout. Performance below or above target can result in an issuance of between 0% - 150% of the target number of PSUs granted. Expense is recognized based on the weighted average grant date fair value on a straight line basis over the service period, irrespective as to whether the market condition is achieved.
The fair value of the PSUs for the November 2023 grant was determined based upon a Monte Carlo valuation method. The assumptions used in the Monte Carlo method to value the PSUs granted, which includes the grant date fair value outcome from the Monte Carlo method, were as follows:
|
| March 31, 2024 |
| |
Expected volatility |
|
| 30.2 | % |
Risk free interest rate |
|
| 4.5 | % |
Expected life |
| 3 years |
| |
Grant date fair value |
| $ | 146.47 |
|
The PSUs granted receive dividend equivalent units; therefore, no discount was applied for Woodward’s dividends.
A summary of the activity for PSUs:
|
| Three Months Ended March 31, 2024 |
|
| Six Months Ended March 31, 2024 |
| ||||||||||
|
| Number of units |
|
| Weighted-Average Grant Date Fair Value |
|
| Number of units |
|
| Weighted-Average Grant Date Fair Value |
| ||||
Beginning balance |
|
| 66 |
|
| $ | 146.47 |
|
|
| — |
|
| $ | — |
|
Granted |
|
| — |
|
|
| — |
|
|
| 66 |
|
|
| 146.47 |
|
Forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Ending balance |
|
| 66 |
|
| $ | 146.47 |
|
|
| 66 |
|
| $ | 146.47 |
|
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, form RSU agreements, and form PSU 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 defined in the applicable award agreement based on grantee’s retirement eligibility. As such, the recognition of stock-based compensation expense associated with some stock option grants, RSU grants, and PSU grants can be accelerated to a period of less than four years,the vesting period, including immediate recognition of stock-based compensation expense on the date of grant.
Upon approvingIn connection with an executive separation and release agreement entered into by the 2017 Plan, Woodward’s board of directors delegated authority to administerCompany during 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 firstsecond quarter of fiscal year 2017 under the 2017 Plan, with2024, Woodward recognized an award dateadditional $1,682 of October 3, 2016 conditional upon and subject to approval of the 2017 Plan by the stockholders. The 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 during the three-months ended December 31, 2016, but rather the expense was recognized in the three-months endedbefore tax.
At March 31, 2017. Options granted in the three-months ended December 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, 2017,2024, there was approximately $14,234$39,926 of total unrecognized compensation expense related to non-vested stock-based compensation arrangements.arrangements, including stock options, RSUs, and PSUs. 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 directorsthe 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 2.41.6 years.
Note 20.21. 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.
25
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 theserelated 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'sWoodward’s liquidity, financial condition, or results of operations.
InUnder the event of aCompany’s severance and change in control of Woodward, as defined in change-in-control agreements with its current corporate officers, Woodward maywould be required to pay termination benefits to any such officers.officer if such officer’s employment is terminated without Cause or for Good Reason (as each term is defined therein). The amount of such benefits would vary depending on whether such termination occurs during a specified period within a change of control.
Note 21.22. 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, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Segment external net sales: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Aerospace |
| $ | 497,512 |
|
| $ | 437,017 |
|
| $ | 958,268 |
|
| $ | 832,702 |
|
Industrial |
|
| 337,831 |
|
|
| 281,197 |
|
|
| 663,805 |
|
|
| 504,131 |
|
Total consolidated net sales |
| $ | 835,343 |
|
| $ | 718,214 |
|
| $ | 1,622,073 |
|
| $ | 1,336,833 |
|
Segment earnings: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Aerospace |
| $ | 98,451 |
|
| $ | 73,314 |
|
| $ | 177,453 |
|
| $ | 128,748 |
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Industrial |
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| 65,244 |
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| 37,571 |
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| 132,125 |
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| 48,973 |
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Nonsegment expenses |
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| (32,834 | ) |
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| (58,307 | ) |
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| (59,034 | ) |
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| (82,618 | ) |
Interest expense, net |
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| (10,237 | ) |
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| (12,337 | ) |
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| (20,200 | ) |
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| (23,113 | ) |
Consolidated earnings before income taxes |
| $ | 120,624 |
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| $ | 40,241 |
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| $ | 230,344 |
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| $ | 71,990 |
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| Three-Months Ended | ||||
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| December 31, | ||||
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| 2017 |
| 2016 | ||
Segment external net sales: |
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Aerospace |
| $ | 305,905 |
| $ | 266,680 |
Industrial |
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| 164,243 |
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| 176,214 |
Total consolidated net sales |
| $ | 470,148 |
| $ | 442,894 |
Segment earnings: |
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Aerospace |
| $ | 43,553 |
| $ | 46,877 |
Industrial |
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| 19,344 |
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| 17,998 |
Nonsegment expenses |
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| (19,023) |
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| (11,381) |
Interest expense, net |
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| (6,387) |
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| (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:
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| ||||||||||
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| ||||||||||
|
| December 31, 2017 |
| September 30, 2017 |
| March 31, 2024 |
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| September 30, 2023 |
| ||||
Segment assets: |
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|
|
|
|
|
|
| ||
Aerospace |
| $ | 1,673,675 |
| $ | 1,722,789 |
| $ | 1,890,089 |
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| $ | 1,829,410 |
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Industrial |
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| 695,167 |
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| 695,264 |
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| 1,563,424 |
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| 1,490,341 |
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Unallocated corporate property, plant and equipment, net |
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| 113,790 |
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| 104,755 | ||||||||
Unallocated corporate property, plant, and equipment, net |
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| 120,202 |
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| 104,962 |
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Other unallocated assets |
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| 242,542 |
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| 234,301 |
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| 792,544 |
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| 585,490 |
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Consolidated total assets |
| $ | 2,725,174 |
| $ | 2,757,109 |
| $ | 4,366,259 |
|
| $ | 4,010,203 |
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26Note 23. Subsequent events
On April 23, 2024, the Board approved a cash dividend of $0.25 per share for the quarter, payable on June 5, 2024, for stockholders of record as of May 22, 2024.
26
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:
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Readers are cautioned that theseThese forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict, including:
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These factors are representative of the risks, uncertainties, and assumptionspredict. Factors that could cause actual outcomesresults and resultsthe timing of certain events to differ materially from what is expressed or forecastthe 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, 2023, which was filed on November 17, 2023, and other documents we have filed or will filerisks 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 together with Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our most recent Form 10-K and the Condensed Consolidated Financial Statements and Notes included therein and in this report.
28
27
OVERVIEW
Global Business Conditions
Operational Highlights
Net sales forDuring the first quarterhalf of fiscal year 2018 were $470,148, an increase of 6.2% from $442,894 for the prior year’s first quarter. Aerospace segment2024, we achieved significant sales for the first quarter of fiscal year 2018 were up 14.7% to $305,905,growth and margin expansion as compared to $266,680 for the first quartersame period of the prior fiscal year. Industrial segment salesThe compounding impacts of our focused efforts on operational excellence enabled us to increase output and capitalize on continued strong end market demand for our products and services across the first quarteraerospace and industrial markets. Further, we continue to better align price to the value of fiscal year 2018 were down 6.8%our products which helps to $164,243, comparedmitigate the ongoing impacts of inflation. We remain committed to $176,214 forgrowth, operational excellence, and innovation to deliver long-term success and enhanced shareholder value. We also continue to monitor the first quartermacroeconomic environment such as inflation, uncertain future demand relating to on-highway natural gas trucks in China, and economic uncertainty as they continue to impact certain aspects of the prior fiscal year. our business.
NetOperational Highlights
Quarter and Year to Date Highlights
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Net sales: |
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|
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|
|
|
|
|
|
| ||||
Aerospace segment |
| $ | 497,512 |
|
| $ | 437,017 |
|
| $ | 958,268 |
|
| $ | 832,702 |
|
Industrial segment |
|
| 337,831 |
|
|
| 281,197 |
|
|
| 663,805 |
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|
| 504,131 |
|
Consolidated net sales |
| $ | 835,343 |
|
| $ | 718,214 |
|
| $ | 1,622,073 |
|
| $ | 1,336,833 |
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| ||||
Earnings: |
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|
|
|
|
| ||||
Aerospace segment |
| $ | 98,451 |
|
| $ | 73,314 |
|
| $ | 177,453 |
|
| $ | 128,748 |
|
Segment earnings as a percent of segment net sales |
|
| 19.8 | % |
|
| 16.8 | % |
|
| 18.5 | % |
|
| 15.5 | % |
Industrial segment |
| $ | 65,244 |
|
| $ | 37,571 |
|
| $ | 132,125 |
|
| $ | 48,973 |
|
Segment earnings as a percent of segment net sales |
|
| 19.3 | % |
|
| 13.4 | % |
|
| 19.9 | % |
|
| 9.7 | % |
Consolidated net earnings |
| $ | 97,556 |
|
| $ | 35,511 |
|
| $ | 187,600 |
|
| $ | 65,117 |
|
Adjusted net earnings |
| $ | 100,825 |
|
| $ | 61,719 |
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| $ | 190,636 |
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| $ | 91,325 |
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|
| ||||
Effective tax rate |
|
| 19.1 | % |
|
| 11.8 | % |
|
| 18.6 | % |
|
| 9.5 | % |
Adjusted effective tax rate |
|
| 19.3 | % |
|
| 17.8 | % |
|
| 18.6 | % |
|
| 14.5 | % |
Consolidated diluted earnings per share |
| $ | 1.56 |
|
| $ | 0.58 |
|
| $ | 3.02 |
|
| $ | 1.07 |
|
Consolidated adjusted diluted earnings per share |
| $ | 1.62 |
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| $ | 1.01 |
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| $ | 3.07 |
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| $ | 1.50 |
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| ||||
Earnings before interest and taxes ("EBIT") |
| $ | 130,861 |
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| $ | 52,578 |
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| $ | 250,544 |
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| $ | 95,103 |
|
Adjusted EBIT |
| $ | 135,191 |
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| $ | 87,454 |
|
| $ | 254,309 |
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| $ | 129,979 |
|
Earnings before interest, taxes, depreciation, and amortization ("EBITDA") |
| $ | 160,086 |
|
| $ | 82,531 |
|
| $ | 308,594 |
|
| $ | 154,360 |
|
Adjusted EBITDA |
| $ | 164,416 |
|
| $ | 117,407 |
|
| $ | 312,359 |
|
| $ | 189,236 |
|
Adjusted net earnings, for the first quarter of fiscal year 2018 were $18,260, or $0.29adjusted earnings per diluted share, compared to $46,548, or $0.73 per diluted share, for the first quarter of fiscal year 2017. Theadjusted effective tax rate, in the first quarterEBIT, 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 closestmost directly comparable U.S. GAAP financial measuremeasures can be found under the caption “Non-U.S. GAAP Financial Measures” in this Item 2 – Management’s Discussion and Analysis of Financial ConditionsCondition 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.
Liquidity Highlights
Net cash used inprovided by operating activities for the first quarterhalf of fiscal year 20182024 was $2,533,$144,118, compared to $40,150 for the first half of fiscal year 2023. The increase in net cash provided by operating activities of $52,351 forin the first quarterhalf of fiscal year 2017. The increase in net cash used in operating activities in the first quarter of fiscal year 20182024 compared to the first half of the prior year’s first quarterfiscal 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 payments for accounts payable and accrued liabilities.increased earnings.
For the first quarterhalf of fiscal year 2018,2024, free cash flow which wewas $87,817, compared to negative $3,896 for the first half of fiscal year 2023. We define free cash flow as net cash flowsflow from operating activities less payments for property, plant, and equipment,equipment. Adjusted free cash flow, which we define as free cash flow excluding cash payments pertaining to a non-recurring matter unrelated to the ongoing operations, payments for business development activities, payments for restructuring charges, and cash received for a non-recurring matter related to a previous acquisition, was an outflow of $30,983, compared to an inflow of $31,293$90,032 for the first quarterhalf of fiscal year 2017. (A reconciliation2024, compared to a negative $1,060 for the first half of thisfiscal year 2023. The increase in free cash flow and adjusted free cash flow for the first half of fiscal year 2024 as compared to the same period of the prior fiscal year
28
was primarily due to increased earnings, partially offset by higher capital expenditures. Free cash flow and adjusted free cash flow are non-U.S. GAAP financial measuremeasures. A description of these measures as well as a reconciliation of these non-U.S. GAAP financial measures to the closestmost directly comparable U.S. GAAP financial measuremeasures can be found under the caption “Non-U.S. GAAP Financial Measures” in this Item 2 – Management’s Discussion and Analysis of Financial ConditionsCondition and Results of Operations.)
At DecemberMarch 31, 2017,2024, we held $85,779$316,932 in cash and cash equivalents and had total outstanding debt of $649,639 with$791,038. We have additional borrowing availability of $922,377,$850,764, net of outstanding letters of credit, under our revolving credit agreement. At DecemberMarch 31, 2017,2024, we also had additional borrowing capacity of $7,516$25,585 under various foreign lines of credit and foreign overdraft facilities.
29
RESULTS OF OPERATIONSOPERATIONS
The following table sets forth selectedcondensed consolidated statements of earnings data as a percentage of net sales for each period indicated:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||||||||
|
| March 31, 2024 |
|
| % of Net Sales |
|
| March 31, 2023 |
|
| % of Net Sales |
|
| March 31, |
|
| % of Net |
|
| March 31, |
|
| % of Net |
| ||||||||
Net sales |
| $ | 835,343 |
|
|
| 100 | % |
| $ | 718,214 |
|
|
| 100 | % |
| $ | 1,622,073 |
|
|
| 100 | % |
| $ | 1,336,833 |
|
|
| 100 | % |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cost of goods sold |
|
| 600,954 |
|
|
| 71.9 | % |
|
| 559,149 |
|
|
| 77.9 | % |
|
| 1,183,335 |
|
|
| 73.0 | % |
|
| 1,051,812 |
|
|
| 78.7 | % |
Selling, general, and administrative expenses |
|
| 81,447 |
|
|
| 9.8 | % |
|
| 75,578 |
|
|
| 10.5 | % |
|
| 155,958 |
|
|
| 9.6 | % |
|
| 138,765 |
|
|
| 10.4 | % |
Research and development costs |
|
| 36,465 |
|
|
| 4.4 | % |
|
| 37,777 |
|
|
| 5.3 | % |
|
| 67,259 |
|
|
| 4.1 | % |
|
| 66,411 |
|
|
| 5.0 | % |
Restructuring charges |
|
| — |
|
|
| 0.0 | % |
|
| 5,172 |
|
|
| 0.7 | % |
|
| — |
|
|
| 0.0 | % |
|
| 5,172 |
|
|
| 0.4 | % |
Interest expense |
|
| 11,530 |
|
|
| 1.4 | % |
|
| 12,845 |
|
|
| 1.8 | % |
|
| 22,966 |
|
|
| 1.4 | % |
|
| 23,987 |
|
|
| 1.8 | % |
Interest income |
|
| (1,293 | ) |
|
| (0.2 | )% |
|
| (508 | ) |
|
| (0.1 | )% |
|
| (2,766 | ) |
|
| (0.2 | )% |
|
| (874 | ) |
|
| (0.1 | )% |
Other (income) expense, net |
|
| (14,384 | ) |
|
| (1.7 | )% |
|
| (12,040 | ) |
|
| (1.7 | )% |
|
| (35,023 | ) |
|
| (2.2 | )% |
|
| (20,430 | ) |
|
| (1.5 | )% |
Total costs and expenses |
|
| 714,719 |
|
|
| 85.6 | % |
|
| 677,973 |
|
|
| 94.4 | % |
|
| 1,391,729 |
|
|
| 85.8 | % |
|
| 1,264,843 |
|
|
| 94.6 | % |
Earnings before income taxes |
|
| 120,624 |
|
|
| 14.4 | % |
|
| 40,241 |
|
|
| 5.6 | % |
|
| 230,344 |
|
|
| 14.2 | % |
|
| 71,990 |
|
|
| 5.4 | % |
Income tax expense |
|
| 23,068 |
|
|
| 2.8 | % |
|
| 4,730 |
|
|
| 0.7 | % |
|
| 42,744 |
|
|
| 2.6 | % |
|
| 6,873 |
|
|
| 0.5 | % |
Net earnings |
| $ | 97,556 |
|
|
| 11.7 | % |
| $ | 35,511 |
|
|
| 4.9 | % |
| $ | 187,600 |
|
|
| 11.6 | % |
| $ | 65,117 |
|
|
| 4.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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, 2024 |
|
| September 30, 2023 |
| ||
Working capital |
| $ | 1,120,119 |
|
| $ | 852,256 |
|
Total debt |
|
| 791,038 |
|
|
| 721,526 |
|
Total stockholders' equity |
|
| 2,329,413 |
|
|
| 2,070,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 firstsecond quarter of fiscal year 20182024 increased by $27,254,$117,129, or 6.2%16.3%, compared to the same period of fiscal year 2017. 2023. Consolidated net sales for the first half of fiscal year 2024 increased by $285,240, or 21.3%, compared to the same period of fiscal year 2023.
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, 2023 |
| $ | 718,214 |
|
| $ | 1,336,833 |
|
Aerospace volume |
|
| 29,145 |
|
|
| 63,638 |
|
Industrial volume |
|
| 34,299 |
|
|
| 113,489 |
|
Effects of changes in price |
|
| 56,958 |
|
|
| 106,763 |
|
Effects of changes in foreign currency rates |
|
| (3,273 | ) |
|
| 1,350 |
|
Consolidated net sales for the period ended March 31, 2024 |
| $ | 835,343 |
|
| $ | 1,622,073 |
|
| |||
|
| ||
| |||
| |||
| |||
| |||
|
|
The increase in net sales for the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior fiscal year is primarily attributable to increased aircraft utilization, as a result of continued growth in passenger traffic, and price realization.
In the Industrial segment, the increase in net sales for the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior fiscal year is primarily attributable to growth in transportation, particularly in the
29
on-highway natural gas truck business in China, strong sales in power generation, and price realization, partially offset by a decrease in oil and gas sales.
Costs and Expenses
Cost of goods sold increased by $41,805 to $600,954, 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 in2024, from $559,149, for the Aerospace segment, partially offset by net sales declines in the Industrial segment. The Industrial segment experienced decreased industrial gas turbine sales and renewables sales, which were partially offset by increased salessecond quarter of large gas engines and fuel systems for Compressed Natural Gas (“CNG”) trucks in Asia.
Costs and Expenses
fiscal year 2023. Cost of goods sold decreased to 71.9% of net sales, for the second quarter of fiscal year 2024, compared to 77.9% of net sales for the second quarter of fiscal year 2023.
Cost of goods sold increased by $17,636$131,523 to $346,784, or 73.8%$1,183,335, for the first half of fiscal year 2024, from $1,051,812, for the first half of fiscal year 2023. Cost of goods sold decreased to 73.0% of net sales, for the first quarterhalf of fiscal year 2018 from $329,148, or 74.3%2024, compared to 78.7% of net sales for the first quarterhalf of fiscal year 2017. 2023.
The increase in cost of goods sold on an absolute basis in the second quarter and first half of fiscal year 2024 compared to the same periods of the prior fiscal year is primarily attributabledue to higher sales volume and planned production facility capacity expansion costs, partially offset by savings fromnet inflationary impacts on material and labor costs. The decrease in cost reduction initiativesof goods sold as a percent of net sales in our Industrial segment. the second quarter and first half of fiscal year 2024 compared to the same periods of the prior fiscal year is primarily due to price realization.
Gross margin (as measured by net sales less cost of goods sold, divided by net sales) was 26.2%28.1% for the firstsecond quarter of fiscal year 2018,2024 and 27.0% for the first half of fiscal year 2024, compared to 25.7%22.1% for the firstsecond quarter of fiscal year 2017. Gross2023 and 21.3% for the first half of fiscal year 2023. The increase in gross margin for the second quarter and first quarterhalf of fiscal year
30
2018 was higher 2024 as compared to the firstsame periods of the prior fiscal year is primarily attributable to higher sales volume and price realization, partially offset by net inflationary impacts on material and labor costs.
Selling, general, and administrative expenses increased by $5,869, or 7.8%, to $81,447 for the second quarter of fiscal year 2017, primarily related2024, compared 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$75,578 for the firstsecond quarter of fiscal year 2018, as compared to $38,300 for the first quarter of fiscal year 2017.2023. Selling, general, and administrative expenses as a percentage of net sales wasdecreased to 9.8% for the firstsecond quarter of fiscal year 2018 as2024, compared to 8.6%10.5% for the firstsecond quarter of fiscal year 2017.2023. The increase in selling, general, and administrative expenses on an absolute basis for the firstsecond quarter of fiscal year 2018 was2024 compared to the same period of the prior fiscal year is primarily due to the timing of the recognition of stock-basedincreased annual variable incentive compensation expense. We recognized the majority of our annual stock-based compensation expense incosts.
Selling, general, and administrative expenses increased by $17,193, or 12.4%, to $155,958 for the first quarterhalf of fiscal year 2018, whereas in fiscal year 2017 the majority of this expense was recognized in the second quarter of the fiscal year.
Research and development costs increased by $8,246, or 31.1%,2024, compared to $34,786$138,765 for the first quarterhalf of fiscal year 2018, as compared to $26,540 for the first quarter of fiscal year 2017. Research2023. Selling, general, and development costsadministrative expenses as a percentage of net sales increaseddecreased to 7.4%9.6% for the first half of fiscal year 2024, compared to 10.4% for the first half of fiscal year 2023. The increase in selling, general, and administrative expenses on an absolute basis for the first half of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily due to increased annual variable incentive compensation costs, increased expenses relating to business development activities, and increased headcount.
Research and development costs decreased by $1,312, or 3.5%, to $36,465 for the second quarter of fiscal year 2018 as2024, compared to 6.0%$37,777 for the firstsecond quarter of fiscal year 2017. Research2023. The decrease in research and development costs infor the firstsecond quarter of fiscal year 2018 were higher2024 as compared to the same period of the prior fiscal year is 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 4.4% for the second quarter of fiscal year 2024, as compared to 5.3% for the same period of the prior fiscal year.
Research and development costs increased by $848, or 1.3%, to $67,259 for the first half of fiscal year 2024, compared to $66,411 for the first half of fiscal year 2023. The increase in research and development costs for the first half of fiscal year 2024 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 to 4.1% for the first half of fiscal year 2024, as compared to 5.0% for the first half of fiscal year 2023.
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 programsprograms.
Interest expensewas$6,750, decreased by $1,315, or 1.4% of net sales,10.2%, to $11,530 for the firstsecond quarter of fiscal year 2018,2024, compared to $6,840, or 1.5% of net sales,$12,845 for the firstsecond quarter of fiscal year 2017.2023. Interest expense decreased by $1,021, or 4.3%, to $22,966 for the first half of fiscal year 2024, compared to $23,987 for the first half of fiscal year 2023. Interest expense as a percentage of net sales was 1.4% for each of the second quarter and first half of fiscal year 2024, compared to 1.8% for each of the second quarter and first half of fiscal year 2023. The slight decrease in interest expense wasfor the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior fiscal year is primarily attributable to lower average borrowings underincreased payments on our revolving credit facility induring the second quarter and first half of fiscal year 2024. During the first six months of fiscal year 2024, we paid the entire balance of two series of private placement notes totaling $75,000.
30
Other income increased by $2,344 to $14,384 for the second quarter of fiscal year 20182024, compared to $12,040 for the firstsecond quarter of fiscal year 2017.2023. The increase in other income for the second quarter of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily attributable to a gain on sales of assets and businesses whereas in the prior year we had a loss on the sale of assets and businesses.
Other income increased by $14,593 to $35,023 for the first half of fiscal year 2024, compared to $20,430 for the first half of fiscal year 2023. The increase in other income for the second quarter of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily attributable to increased earnings in the joint venture with General Electric and a non-recurring gain related to a previous acquisition that was recognized during the first half of fiscal year 2024.
Income taxes were provided at an effective rate on earnings before income taxes of 51.3%19.1% for the second quarter and 18.6% for the first quarterhalf of fiscal year 2018, compared to 1.1%2024, and 11.8% for the second quarter and 9.5% for the first quarterhalf 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:2023.
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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 includessecond quarter as compared to the impactsame period of the repatriationprior fiscal year is primarily attributable to higher projected full-year earnings taxed at statutory rates ranging between approximately 19% and 35%. These higher projected earnings and higher actual quarterly earnings resulted in lower current quarter tax on deferred foreign profits and losses. The U.S. foreign tax credits availablebenefits as a resultpercent of earnings when compared to the repatriation ofprior year quarter. Additionally, the increase is attributable to projected future withholding taxes on unremitted foreign net earningsearnings.
The increase 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 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 assumptionsfor the first half of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily attributable to higher projected full-year earnings taxed at statutory rates ranging between approximately 19% and estimates that may change35%. These higher projected earnings and higher actual year-to-date earnings resulted in lower current year-to-date tax benefits as a resultpercent of future guidance, interpretation, and rule-making from the Internal Revenue Service, the SEC, the Financial
31
Accounting Standards Board (“FASB”) and/or various other taxing jurisdictions. The Tax Act contains many significant changesearnings when compared to the U.S. tax laws,prior year. Additionally, the consequences of which have not yet been fully determined. Changes in corporate tax rates, the net deferred tax assets and/or liabilities relatingincrease is attributable to our U.S. operations, the taxation ofprojected future withholding taxes on unremitted foreign earnings and the deductibilityrelease of expenses containeduncertain tax positions that did not recur in the Tax Act or other future tax reform legislation could have a material impact on our future U.S. tax expense.current fiscal year.
Segment Results
The following table presents sales by segment:
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
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| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
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Net sales: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Aerospace |
| $ | 497,512 |
|
|
| 59.6 | % |
| $ | 437,017 |
|
|
| 60.8 | % |
| $ | 958,268 |
|
|
| 59.1 | % |
| $ | 832,702 |
|
|
| 62.3 | % |
Industrial |
|
| 337,831 |
|
|
| 40.4 | % |
|
| 281,197 |
|
|
| 39.2 | % |
|
| 663,805 |
|
|
| 40.9 | % |
|
| 504,131 |
|
|
| 37.7 | % |
Consolidated net sales |
| $ | 835,343 |
|
|
| 100 | % |
| $ | 718,214 |
|
|
| 100 | % |
| $ | 1,622,073 |
|
|
| 100 | % |
| $ | 1,336,833 |
|
|
| 100 | % |
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|
|
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| Three-Months Ended December 31, | ||||||||||
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| 2017 |
| 2016 | ||||||||
Net sales: |
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|
|
|
|
|
|
|
|
|
| |
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, |
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| Six Months Ended March 31, |
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| 2024 |
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| 2023 |
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| 2024 |
|
| 2023 |
| ||||
Aerospace |
| $ | 98,451 |
|
| $ | 73,314 |
|
| $ | 177,453 |
|
| $ | 128,748 |
|
Industrial |
|
| 65,244 |
|
|
| 37,571 |
|
|
| 132,125 |
|
|
| 48,973 |
|
Nonsegment expenses |
|
| (32,834 | ) |
|
| (58,307 | ) |
|
| (59,034 | ) |
|
| (82,618 | ) |
Interest expense, net |
|
| (10,237 | ) |
|
| (12,337 | ) |
|
| (20,200 | ) |
|
| (23,113 | ) |
Consolidated earnings before income taxes |
|
| 120,624 |
|
|
| 40,241 |
|
|
| 230,344 |
|
|
| 71,990 |
|
Income tax expense |
|
| (23,068 | ) |
|
| (4,730 | ) |
|
| (42,744 | ) |
|
| (6,873 | ) |
Consolidated net earnings |
| $ | 97,556 |
|
| $ | 35,511 |
|
| $ | 187,600 |
|
| $ | 65,117 |
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|
| 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, |
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| Six Months Ended March 31, |
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| 2024 |
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| 2023 |
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| 2024 |
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| 2023 |
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Aerospace |
|
| 19.8 | % |
|
| 16.8 | % |
|
| 18.5 | % |
|
| 15.5 | % |
Industrial |
|
| 19.3 | % |
|
| 13.4 | % |
|
| 19.9 | % |
|
| 9.7 | % |
Aerospace
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| Three-Months Ended December 31, | ||||
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| 2017 |
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| 2016 |
Aerospace |
| 14.2% |
|
| 17.6% |
Industrial |
| 11.8% |
|
| 10.2% |
Aerospace
segment net sales increased by $60,495, or 13.8%, to $497,512 for the second quarter of fiscal year 2024, compared to $437,017 for the second quarter of fiscal year 2023. Aerospace segment net sales were $305,905increased by $125,566, or 15.1%, to $958,268 for the first quarterhalf of fiscal year 2018, up 14.7%2024, compared to $266,680$832,702 for the first quarterhalf of fiscal year 2017.2023. The increase in Aerospace segment net sales forin the second quarter and first quarterhalf of fiscal year 2018 as compared to the first quarter of fiscal year 2017 was driven primarily by increased commercial OEM and aftermarket sales and increased defense OEM sales in the first quarter of fiscal year 2018. Defense aftermarket sales were down in the first quarter of fiscal year 20182024 as compared to the same periodperiods of the prior fiscal year 2017.
Commercial OEM sales were up for the first quarteris primarily attributable to increased aircraft utilization, as a result of fiscal year 2018 as compared to the first quarter of fiscal year 2017. The strong commercial OEM salescontinued growth 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 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 platformspassenger traffic, and increased utilization of existing fleets. price realization.
U.S. government funds continue to be prioritized for defense platforms on which we have content. 31
Defense OEM sales increased in the second quarter and were approximately flat for the first half of fiscal year 2024 as compared to the same periods of the prior fiscal year, primarily driven by increased demand for ground vehicle components, partially offset by reduced demand for smart defense. Our defense aftermarket sales increased in the second quarter and first half of fiscal year 2024 compared to the same periods of the prior fiscal year, primarily driven by supply chain stabilization and increased output.
Aerospace segment earnings increased by $25,137, or 34.3%, to $98,451 for the second quarter of fiscal year 20182024, compared to $73,314 for the firstsecond quarter of fiscal year 2017, driven primarily2023. Aerospace segment earnings increased by continued strong demand$48,705, or 37.8%, to $177,453 for smart weapons, as well as growing international demand for various other military programs.
32
Defense aftermarket sales decreased in the first quarterhalf of fiscal year 2018 as2024, compared to $128,748 for the first quarterhalf of fiscal year 2017, reflecting variability in the timing of continued maintenance needs and upgrade programs.2023.
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 decreaseincrease in Aerospace segment earnings for the first quarter of fiscal year 2018 was due to the following:
|
| Three-Month Period |
|
| Six-Month Period |
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Earnings for the period ended March 31, 2023 |
| $ | 73,314 |
|
| $ | 128,748 |
|
Sales volume and mix |
|
| 17,159 |
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|
| 31,289 |
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Price, inflation, and productivity |
|
| 16,775 |
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|
| 28,846 |
|
Other, net |
|
| (8,797 | ) |
|
| (11,430 | ) |
Earnings for the period ended March 31, 2024 |
| $ | 98,451 |
|
| $ | 177,453 |
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Aerospace segment earnings as a percentage of segment net sales were 14.2%19.8% for the second quarter and 18.5% for the first half of fiscal year 2024, compared to 16.8% for the second quarter and 15.5% for the first half of fiscal year 2023.
Industrial
Industrial segment net sales increased by $56,634, or 20.1%, to $337,831 for the second quarter of fiscal year 2018,2024, compared to 17.6%$281,197 for the firstsecond quarter of fiscal year 2017. Aerospace2023. Industrial segment earnings benefitted from highernet sales volume whichincreased by $159,674, or 31.7%, to $663,805 for the first half of fiscal year 2024, compared to $504,131 for the first half of fiscal year 2023. The increase in Industrial segment net sales in the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior fiscal year was primarily attributable to growth in transportation, particularly in the on-highway natural gas truck business in China, as well as strong sales in power generation and price realization, partially offset by unfavorable product sales mixdecreased oil and higher production capacity expansion costs to support new program awards. Aerospace segment earnings were also negatively impacted by increased investmentgas sales.
Future demand for on-highway natural gas trucks in research and development for new program awards and opportunities being pursued.
Industrial
Industrial segment net sales decreased by 6.8% to $164,243 forChina beyond the firstthird quarter of fiscal year 2018, compared2024 remains uncertain.
Industrial segment earnings increased by $27,673, or 73.7%, to $176,214$65,244 for the firstsecond quarter of fiscal year 2017 due primarily2024, compared to declines$37,571 for the second quarter of fiscal year 2023. Segment earnings increased by $83,152, or 169.8%, to $132,125 for the first half of fiscal year 2024, compared to $48,973 for the first half of fiscal year 2023.
The increase 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 businessIndustrial segment earnings was due to the short-term unfavorable impactfollowing:
|
| Three-Month Period |
|
| Six-Month Period |
| ||
Earnings for the period ended March 31, 2023 |
| $ | 37,571 |
|
| $ | 48,973 |
|
Sales volume and mix |
|
| 11,629 |
|
|
| 55,374 |
|
Price, inflation, and productivity |
|
| 24,609 |
|
|
| 38,527 |
|
Other, net |
|
| (8,565 | ) |
|
| (10,749 | ) |
Earnings for the period ended March 31, 2024 |
| $ | 65,244 |
|
| $ | 132,125 |
|
Industrial segment earnings as a percentage of platform transitions by somesegment net sales were 19.3% for the second quarter and 19.9% for the first half of our customers. Salesfiscal year 2024, compared to 13.4% for the second quarter and 9.7% for the first half of fuel systemsfiscal year 2023. Industrial earnings benefited significantly from increased demand for CNGon-highway natural gas trucks in AsiaChina as well as from operational improvements including increased output and other efficiency gains, and favorable product mix. Future demand for on-highway natural gas trucks in China beyond the firstthird quarter of fiscal year 20182024 remains uncertain.
32
Nonsegment
Nonsegment expenses decreased by $25,473 to $32,834 for the second quarter of fiscal year 2024, compared to $58,307 for the second quarter of fiscal year 2023. Nonsegment expenses decreased by $23,584 to $59,034 for the first half of fiscal year 2024 compared to $82,618 for the first half of fiscal year 2023.
The decrease in nonsegment expenses for the second quarter and first half of fiscal year 2024 as compared to the firstsame periods of the prior year was primarily due to significant costs that occurred in the second 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 up2023 that did not reoccur in the second quarter or first half of fiscal year 2024.
The significant charges that impacted nonsegment expenses are as follows:
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Nonsegment expenses |
| $ | (32,834 | ) |
| $ | (58,307 | ) |
| $ | (59,034 | ) |
| $ | (82,618 | ) |
Non-recurring gain related to a previous acquisition |
|
| — |
|
|
| — |
|
|
| (4,803 | ) |
|
| — |
|
Business development activities |
|
| 1,664 |
|
|
| — |
|
|
| 5,902 |
|
|
| — |
|
Certain non-recurring separation costs |
|
| 2,666 |
|
|
| 2,208 |
|
|
| 2,666 |
|
|
| 2,208 |
|
Specific charge for excess and obsolete inventory |
|
| — |
|
|
| 11,995 |
|
|
| — |
|
|
| 11,995 |
|
Product rationalization |
|
| — |
|
|
| 10,504 |
|
|
| — |
|
|
| 10,504 |
|
Restructuring charges |
|
| — |
|
|
| 5,172 |
|
|
| — |
|
|
| 5,172 |
|
Non-recurring charge related to customer collections |
|
| — |
|
|
| 4,997 |
|
|
| — |
|
|
| 4,997 |
|
Nonsegment expenses excluding one time significant charges |
| $ | (28,504 | ) |
| $ | (23,431 | ) |
| $ | (55,269 | ) |
| $ | (47,742 | ) |
Excluding these charges, nonsegment expenses increased $5,073 in the second quarter of fiscal year 20182024 as compared to the same period of the prior fiscal year.
Industrial segment earnings Excluding these charges, nonsegment expenses increased by $1,346, or 7.5%, to $19,344 for$7,527 in the first quarterhalf of fiscal year 2018,2024 as compared to $17,998 for the first quartersame period of the prior fiscal year 2017.year. The net increase in Industrial segment earnings for the first quarter of fiscal year 2018 was due to the following:
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Industrial segment earnings as a percentage of sales were 11.8% for the first quarter of fiscal year 2018, compared to 10.2% for the first quarter of fiscal year 2017. The increase in segment earnings for the first quarter of fiscal year 2018 was largely driven by savings from prior year cost reduction initiatives.
Nonsegment expenses
Nonsegment expenses increased to $19,023 for the first quarter of fiscal year 2018, compared to $11,381 for the first quarter of fiscal year 2017. As a percent of sales, 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. Theremaining increase in nonsegment expenses infor the second quarter and first quarterhalf of fiscal year 20182024 as compared to the first quartersame periods of the prior fiscal year 2017 is primarily due to the recognition of theincreased annual variable incentive compensation costs.
33
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 in the second quarter of the fiscal year.
LIQUIDITYLIQUIDITY 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, andIn 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, 14, 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 DecemberMarch 31, 2017,2024, we had total outstanding debt of $649,639$791,038 consisting of amounts borrowed under our revolving credit facility and various series of unsecured notes due between 20182025 and 2031, with2033 and obligations under our finance leases.
At March 31, 2024, we had $141,300 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, 2024 were as follows:
Maximum daily balance during the period |
| $ | 284,800 |
|
Average daily balance during the period |
| $ | 185,846 |
|
Weighted average interest rate on average daily balance |
|
| 6.45 | % |
33
At March 31, 2024, we had additional borrowing availability of $922,377$850,764 under our revolving credit facility, net of outstanding letters of credit, and additional borrowing availability of $7,516$25,585 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.
34
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:
|
| |
|
| |
|
We believeknowledge, we were in compliance with all our debt covenants as of DecemberMarch 31, 2017.2024. 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 recentrecently 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 $1,917 in cash provided by operating activities during the six months ended March 31, 2024, compared to an increase in cash provided by operating activities of approximately $1,569 during the six months ended March 31, 2023.
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 the first quarter of fiscal year 2017, our board of directors terminated the Company’s prior stock repurchase program and replaced it with 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 in November 2019 (the “2017 Authorization”). In the three-months ended December 31, 2016, we purchased 350 shares of our common stock for $24,004, under the 2017 Authorization pursuant to a 10b5-1 plan. We repurchased no stock in the three-months ended December 31, 2017.
For our Aerospace segment, we have been purchasing production equipment for our second campus in the greater-Rockford, Illinois area and anticipate continuing such purchases as new aircraft platforms ramp up to full production volumes. The second campus, completed in 2015, was built to support the expected growth in our Aerospace segment over the next ten years and beyond, as a result of our being awarded a substantial number of new system platforms, particularly on narrow-body aircraft.
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, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Net cash provided by operating activities |
| $ | 144,118 |
|
| $ | 40,150 |
|
Net cash (used in) investing activities |
|
| (49,641 | ) |
|
| (35,236 | ) |
Net cash provided by financing activities |
|
| 80,588 |
|
|
| 24,337 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| 4,420 |
|
|
| (7,668 | ) |
Net change in cash and cash equivalents |
|
| 179,485 |
|
|
| 21,583 |
|
Cash and cash equivalents at beginning of year |
|
| 137,447 |
|
|
| 107,844 |
|
Cash and cash equivalents at end of period |
| $ | 316,932 |
|
| $ | 129,427 |
|
|
|
|
|
|
|
| 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 $52,351fiscal year 2024 was $144,118, compared to $40,150 for the same period of fiscal year 2023. The increase in net cash provided by operating activities in the first quarterhalf of fiscal year 2017. The change in cash flows from operating activities2024 as compared to the first half of the prior fiscal year is primarily attributable to a decrease in net earnings in the first quarter of fiscal year 2018 compared to the prior fiscal year and working capital changes which had an increase in cash use in the first quarter of 2018 due mainly to increased payments of accounts payable and accrued liabilities compared to the first quarter of last year.earnings.
35
Net cash flows used in investing activities for the first quarterhalf of fiscal year 20182024 was $29,109,$49,641 compared to $16,618 in$35,236 for the first quartersame period of fiscal year 2017.2023. The increase in cash flows used in investing activities in the first quarterhalf of fiscal year 20182024 as compared to the first quarterhalf 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 quarterhalf of fiscal year 20182024 was $27,327,$80,588, compared to $24,337 for the same period of fiscal year 2023. The increase in net cash flows used inprovided by financing activities of $22,192 in the first quarterhalf of fiscal year 2017.2024 as compared to the first half of the prior fiscal year is primarily attributable to the decrease in repurchases of common stock and an increase in borrowings on revolving lines of credit, partially offset by an increase in payments on revolving lines of credit. During the first quarterhalf of fiscal year 2018,2024, we did not repurchase any common stock, compared to $26,369 of repurchases of common stock during the first half of fiscal year 2023. During the first half of fiscal year 2024, we had net debt borrowings in the amount of $33,594$65,828, compared to net debt borrowings of $3,748$63,412 in the first quarterhalf of fiscal year 2017. We utilized $24,004 to repurchase 350 shares of our common stock in the first quarter of fiscal year 2017 under the 2017 Authorization. We made no stock repurchases in the first quarter of fiscal year 2018.2023.
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
34
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 non-recurring gain related to a previous acquisition, (ii) costs related to business development activities, (iii) certain non-restructuring separation costs, (iv) a specific charge for excess and obsolete inventory, (v) product rationalization, (vi) restructuring charges, and (vii) a non-recurring charge related to customer collections. 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, |
| |||||||||||||
|
| 2024 |
|
| 2023 |
| ||||||||||
|
| Net Earnings |
|
| Earnings Per Share |
|
| Net Earnings |
|
| Earnings Per Share |
| ||||
Net earnings (U.S. GAAP) |
| $ | 97,556 |
|
| $ | 1.56 |
|
| $ | 35,511 |
|
| $ | 0.58 |
|
Non-U.S. GAAP adjustments, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Business development activities |
|
| 1,256 |
|
|
| 0.02 |
|
|
| — |
|
|
| — |
|
Certain non-restructuring separation costs |
|
| 2,013 |
|
|
| 0.04 |
|
|
| 1,661 |
|
|
| 0.03 |
|
Specific charge for excess and obsolete inventory |
|
| — |
|
|
| — |
|
|
| 9,016 |
|
|
| 0.15 |
|
Product rationalization |
|
| — |
|
|
| — |
|
|
| 7,896 |
|
|
| 0.13 |
|
Restructuring charges |
|
| — |
|
|
| — |
|
|
| 3,874 |
|
|
| 0.06 |
|
Non-recurring charge related to customer collections |
|
| — |
|
|
| — |
|
|
| 3,761 |
|
|
| 0.06 |
|
Non-U.S. GAAP adjustments |
|
| 3,269 |
|
|
| 0.06 |
|
|
| 26,208 |
|
|
| 0.43 |
|
Adjusted net earnings (Non-U.S. GAAP) |
| $ | 100,825 |
|
| $ | 1.62 |
|
| $ | 61,719 |
|
| $ | 1.01 |
|
|
| Six Months Ended March 31, |
| |||||||||||||
|
| 2024 |
|
| 2023 |
| ||||||||||
|
| Net Earnings |
|
| Earnings Per Share |
|
| Net Earnings |
|
| Earnings Per Share |
| ||||
Earnings per share (U.S. GAAP) |
| $ | 187,600 |
|
| $ | 3.02 |
|
| $ | 65,117 |
|
| $ | 1.07 |
|
Non-U.S. GAAP adjustments, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Non-recurring gain related to a previous acquisition |
|
| (3,433 | ) |
|
| (0.06 | ) |
|
| — |
|
|
| — |
|
Business development activities |
|
| 4,456 |
|
|
| 0.07 |
|
|
| — |
|
|
| — |
|
Certain non-restructuring separation costs |
|
| 2,013 |
|
|
| 0.04 |
|
|
| 1,661 |
|
|
| 0.03 |
|
Specific charge for excess and obsolete inventory |
|
| — |
|
|
| — |
|
|
| 9,016 |
|
|
| 0.15 |
|
Product rationalization |
|
| — |
|
|
| — |
|
|
| 7,896 |
|
|
| 0.13 |
|
Restructuring charges |
|
| — |
|
|
| — |
|
|
| 3,874 |
|
|
| 0.06 |
|
Non-recurring charge related to customer collections |
|
| — |
|
|
| — |
|
|
| 3,761 |
|
|
| 0.06 |
|
Total non-U.S. GAAP adjustments |
|
| 3,036 |
|
|
| 0.05 |
|
|
| 26,208 |
|
|
| 0.43 |
|
Adjusted earnings per share (Non-U.S. GAAP) |
| $ | 190,636 |
|
| $ | 3.07 |
|
| $ | 91,325 |
|
| $ | 1.50 |
|
35
Management uses EBIT to evaluate Woodward’s performance without financing and tax related considerations, as these elements maydo 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 non-recurring gain related to a previous acquisition, (ii) costs related to business development activities, (iii) certain non-restructuring separation costs, (iv) a specific charge for excess and obsolete inventory, (v) product rationalization, (vi) restructuring charges, and (vii) a non-recurring charge related to customer collections. The product rationalization adjustment pertains to a non-recurring write-off of inventory and assets related to the three-months ended December 31, 2017elimination of certain product lines. The specific charge for excess and December 31, 2016obsolete 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, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Net earnings (U.S. GAAP) |
| $ | 97,556 |
|
| $ | 35,511 |
|
| $ | 187,600 |
|
| $ | 65,117 |
|
Income tax expense |
|
| 23,068 |
|
|
| 4,730 |
|
|
| 42,744 |
|
|
| 6,873 |
|
Interest expense |
|
| 11,530 |
|
|
| 12,845 |
|
|
| 22,966 |
|
|
| 23,987 |
|
Interest income |
|
| (1,293 | ) |
|
| (508 | ) |
|
| (2,766 | ) |
|
| (874 | ) |
EBIT (Non-U.S. GAAP) |
|
| 130,861 |
|
|
| 52,578 |
|
|
| 250,544 |
|
|
| 95,103 |
|
Non-U.S. GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Non-recurring gain related to a previous acquisition |
|
| — |
|
|
| — |
|
|
| (4,803 | ) |
|
| — |
|
Business development activities |
|
| 1,664 |
|
|
| — |
|
|
| 5,902 |
|
|
| — |
|
Certain non-recurring separation costs |
|
| 2,666 |
|
|
| 2,208 |
|
|
| 2,666 |
|
|
| 2,208 |
|
Specific charge for excess and obsolete inventory |
|
| — |
|
|
| 11,995 |
|
|
| — |
|
|
| 11,995 |
|
Product rationalization |
|
| — |
|
|
| 10,504 |
|
|
| — |
|
|
| 10,504 |
|
Restructuring charges |
|
| — |
|
|
| 5,172 |
|
|
| — |
|
|
| 5,172 |
|
Non-recurring charge related to customer collections |
|
| — |
|
|
| 4,997 |
|
|
| — |
|
|
| 4,997 |
|
Total non-U.S. GAAP adjustments |
|
| 4,330 |
|
|
| 34,876 |
|
|
| 3,765 |
|
|
| 34,876 |
|
Adjusted EBIT (Non-U.S. GAAP) |
| $ | 135,191 |
|
| $ | 87,454 |
|
| $ | 254,309 |
|
| $ | 129,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
36
EBITDA and adjusted EBITDA reconciled to net earnings were as follows:
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Net earnings (U.S. GAAP) |
| $ | 97,556 |
|
| $ | 35,511 |
|
| $ | 187,600 |
|
| $ | 65,117 |
|
Income tax expense |
|
| 23,068 |
|
|
| 4,730 |
|
|
| 42,744 |
|
|
| 6,873 |
|
Interest expense |
|
| 11,530 |
|
|
| 12,845 |
|
|
| 22,966 |
|
|
| 23,987 |
|
Interest income |
|
| (1,293 | ) |
|
| (508 | ) |
|
| (2,766 | ) |
|
| (874 | ) |
Amortization of intangible assets |
|
| 8,618 |
|
|
| 9,418 |
|
|
| 17,217 |
|
|
| 18,596 |
|
Depreciation expense |
|
| 20,607 |
|
|
| 20,535 |
|
|
| 40,833 |
|
|
| 40,661 |
|
EBITDA (Non-U.S. GAAP) |
|
| 160,086 |
|
|
| 82,531 |
|
|
| 308,594 |
|
|
| 154,360 |
|
Non-U.S. GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Non-recurring gain related to a previous acquisition |
|
| — |
|
|
| — |
|
|
| (4,803 | ) |
|
| — |
|
Business development activities |
|
| 1,664 |
|
|
| — |
|
|
| 5,902 |
|
|
| — |
|
Certain non-recurring separation costs |
|
| 2,666 |
|
|
| 2,208 |
|
|
| 2,666 |
|
|
| 2,208 |
|
Specific charge for excess and obsolete inventory |
|
| — |
|
|
| 11,995 |
|
|
| — |
|
|
| 11,995 |
|
Product rationalization |
|
| — |
|
|
| 10,504 |
|
|
| — |
|
|
| 10,504 |
|
Restructuring charges |
|
| — |
|
|
| 5,172 |
|
|
| — |
|
|
| 5,172 |
|
Non-recurring charge related to customer collections |
|
| — |
|
|
| 4,997 |
|
|
| — |
|
|
| 4,997 |
|
Total non-U.S. GAAP adjustments |
|
| 4,330 |
|
|
| 34,876 |
|
|
| 3,765 |
|
|
| 34,876 |
|
Adjusted EBITDA (Non-U.S. GAAP) |
| $ | 164,416 |
|
| $ | 117,407 |
|
| $ | 312,359 |
|
| $ | 189,236 |
|
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
36
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, as applicable, the effect of cash received for a non-recurring matter related to a previous acquisition, and cash payments for (i) business development activities, (ii) a non-recurring matter unrelated to the ongoing operations of the business, and (iii) restructuring charges. 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 measuremeasures 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 doesand 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 itstheir usefulness as a comparative measure.measures.
37
Free cash flow for the three-months ended December 31, 2017 and December 31, 2016adjusted free cash flow reconciled to net cash provided by operating activities were as follows:
|
| Six Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Net cash provided by operating activities (U.S. GAAP) |
| $ | 144,118 |
|
| $ | 40,150 |
|
Payments for property, plant and equipment |
|
| (56,301 | ) |
|
| (44,046 | ) |
Free cash flow (Non-U.S. GAAP) |
|
| 87,817 |
|
|
| (3,896 | ) |
Cash received for a non-recurring matter related to a previous acquisition |
|
| (4,803 | ) |
|
| — |
|
Cash paid for business development activities |
|
| 4,293 |
|
|
| — |
|
Cash paid for a non-recurring matter unrelated to the ongoing operations of the business |
|
| 2,725 |
|
|
| — |
|
Cash paid for restructuring charges |
|
| — |
|
|
| 2,836 |
|
Adjusted free cash flow (Non-U.S. GAAP) |
| $ | 90,032 |
|
| $ | (1,060 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| 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 recentrecently 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 recentrecently 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
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.QuantitativeQuantitative and QualitativeQualitative 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.
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Item 4.ControlsControls 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(William F. Weber, Jr., Vice Chairman,Lacey, Chief Financial Officer and Treasurer)Officer), as appropriate, to allow timely decisions regarding required disclosures.
Thomas A. Gendron38
Chip P. Blankenship, Jr. and RobertWilliam F. Weber, Jr.,Lacey 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 DecemberMarch 31, 2017.2024.
Furthermore, thereThere have not been noany changes in our internal controlcontrols over financial reporting during the fiscal quarter covered by this Form 10-Qended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHEROTHER INFORMATION
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.
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.
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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities |
| 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, 2024 through January 31, 2024 (2) |
|
| 195 |
|
| $ | 141.46 |
|
|
| — |
|
| $ | 227,578 |
|
February 1, 2024 through February 29, 2024 (2) |
|
| 115 |
|
|
| 141.52 |
|
|
| — |
|
|
| 227,578 |
|
March 1, 2024 through March 31, 2024 (2) |
|
| 20 |
|
|
| 155.38 |
|
|
| — |
|
|
| 227,578 |
|
39
Item 5.Other Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer Purchases of Equity Securities |
| 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 |
|
|
|
|
During the three months ended March 31, 2024, no directors or officers, as defined in Rule 16a-1(f), adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Regulation S-K Item 408.
Exhibits filed as part of this Report are listed in the Exhibit Index.
39
WOODWARD, INC.
EXHIBIT INDEX
Exhibit Number | Description | ||
* |
|
| |
* | 31.1 | Rule 13a-14(a)/15d-14(a) certification of | |
* | 31.2 | Rule 13a-14(a)/15d-14(a) certification of | |
* | 32.1 | ||
* |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
| |||
* | |||
104 | |||
|
|
* Filed as an exhibit to this Report
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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: | /s/ | ||
| |||
Chairman of the Board, Chief Executive Officer, and President (on behalf of the registrant and as the registrant’s Principal Executive Officer) | |||
Date: | /s/ | ||
| |||
(on behalf of the registrant and
|
41