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

For the quarterly period ended March 31, 2023

or

☐  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 ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). 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,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller Reporting Company ☐

Emerging 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 May 3, 2023, 60,035,492 shares of the registrant’s common stock with a par value of $0.001455 per share were outstanding.

TABLE OF CONTENTS

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

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)

	Three-Months Ended						Six-Months Ended
	March 31,						March 31,
	2023			2022			2023			2022
Net sales	$	718,214		$	586,839		$	1,336,833		$	1,128,425
Costs and expenses:
Cost of goods sold		559,149			453,425			1,051,812			872,576
Selling, general and administrative expenses		75,578			44,124			138,765			106,430
Research and development costs		37,777			32,384			66,411			57,776
Restructuring charges		5,172			—			5,172			—
Interest expense		12,845			8,197			23,987			16,503
Interest income		(508	)		(500	)		(874	)		(1,141	)
Other (income) expense, net		(12,040	)		(4,887	)		(20,430	)		(15,561	)
Total costs and expenses		677,973			532,743			1,264,843			1,036,583
Earnings before income taxes		40,241			54,096			71,990			91,842
Income tax expense		4,730			6,190			6,873			13,631
Net earnings	$	35,511		$	47,906		$	65,117		$	78,211
Earnings per share:
Basic earnings per share	$	0.59		$	0.77		$	1.09		$	1.24
Diluted earnings per share	$	0.58		$	0.74		$	1.07		$	1.21
Weighted Average Common Shares Outstanding:
Basic		59,807			62,550			59,736			62,825
Diluted		61,227			64,618			61,083			64,863

See accompanying Notes to Condensed Consolidated Financial Statements

1

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In thousands)

(Unaudited)

	Three-Months Ended						Six-Months Ended
	March 31,						March 31,
	2023			2022			2023			2022
Net earnings	$	35,511		$	47,906		$	65,117		$	78,211
Other comprehensive earnings:
Foreign currency translation adjustments		8,495			(4,621	)		38,722			(7,059	)
Net (loss) gain on foreign currency transactions designated as hedges of net investments in foreign subsidiaries		(807	)		673			(4,432	)		1,744
Taxes on changes in foreign currency translation adjustments		928			(463	)		2,272			(1,449	)
Foreign currency translation and transactions adjustments, net of tax		8,616			(4,411	)		36,562			(6,764	)
Unrealized (loss) gain on fair value adjustment of derivative instruments		(2,096	)		12,411			(34,684	)		24,780
Reclassification of net realized loss (gain) on derivatives to earnings		7,620			(6,256	)		45,806			(16,331	)
Taxes on changes in derivative transactions		(221	)		(215	)		(334	)		(295	)
Derivative adjustments, net of tax		5,303			5,940			10,788			8,154
Amortization of pension and other postretirement plan:
Net prior service cost		181			251			360			502
Net (gain) loss		(204	)		187			(403	)		374
Foreign currency exchange rate changes on pension and other postretirement benefit plan liabilities		70			592			511			622
Taxes on changes in pension and other postretirement benefit plan liability adjustments, net of foreign currency exchange rate changes		48			(292	)		127			(406	)
Pension and other postretirement benefit plan adjustments, net of tax		95			738			595			1,092
Total comprehensive earnings	$	49,525		$	50,173		$	113,062		$	80,693

See accompanying Notes to Condensed Consolidated Financial Statements

2

WOODWARD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

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

See accompanying Notes to Condensed Consolidated Financial Statements

3

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six-Months Ended March 31,
	2023			2022
Cash flows from operating activities:
Net earnings	$	65,117		$	78,211
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		59,257			61,331
Net loss (gain) on sales of assets and businesses		890			(1,541	)
Stock-based compensation		15,538			13,957
Deferred income taxes		545			(55	)
Changes in operating assets and liabilities:
Trade accounts receivable		(26,467	)		(1,562	)
Unbilled receivables (contract assets)		(18,015	)		(48,742	)
Costs to fulfill a contract		(4,193	)		(10,884	)
Inventories		(42,408	)		(67,263	)
Accounts payable and accrued liabilities		5,426			15,454
Contract liabilities		9,769			9,779
Income taxes		(34,886	)		(725	)
Retirement benefit obligations		(615	)		(2,495	)
Other		10,192			4,643
Net cash provided by operating activities		40,150			50,108
Cash flows from investing activities:
Payments for purchase of property, plant, and equipment		(44,046	)		(24,150	)
Proceeds from sale of assets		199			5
Business acquisition, net of cash acquired		878			—
Payments for short-term investments		—			(8	)
Proceeds from sales of short-term investments		7,733			11,305
Net cash (used in) investing activities		(35,236	)		(12,848	)
Cash flows from financing activities:
Cash dividends paid		(24,537	)		(22,134	)
Proceeds from sales of treasury stock		14,067			19,399
Payments for repurchases of common stock		(26,369	)		(273,535	)
Borrowings on revolving lines of credit and short-term borrowings		1,031,800			11,500
Payments on revolving lines of credit and short-term borrowings		(968,100	)		(11,500	)
Payments of debt financing costs		(2,236	)		—
Payments of long-term debt and finance lease obligations		(288	)		(564	)
Net cash provided by (used in) financing activities		24,337			(276,834	)
Effect of exchange rate changes on cash and cash equivalents		(7,668	)		(533	)
Net change in cash and cash equivalents		21,583			(240,107	)
Cash and cash equivalents, including restricted cash, at beginning of year		107,844			448,462
Cash and cash equivalents, including restricted cash, at end of period	$	129,427		$	208,355

See accompanying Notes to Condensed Consolidated Financial Statements

4

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

Number of shares			Stockholders' equity
					Accumulated other comprehensive (loss) earnings
Common stock	Treasury stock	Treasury stock held for deferred compensation	Common stock	Additional  paid-in capital	Foreign currency translation adjustments	Unrealized derivative gains (losses)