Leases

9 Months Ended

Jun. 30, 2023

Leases [Abstract]

Lease

Note 5. Leases

Lessee arrangements

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

Lease-related assets and liabilities were as follows:

	Classification on the Condensed Consolidated Balance Sheets	June 30, 2023		September 30, 2022
Assets:
Operating lease	Other assets	$	25,100	$	25,144
Finance lease	Property, plant and equipment, net		4,396		5,474
Total lease assets		$	29,496	$	30,618
Current liabilities:
Operating lease	Accrued liabilities	$	4,764	$	4,587
Finance lease	Current portion of long-term debt		914		856
Noncurrent liabilities:
Operating lease	Other liabilities		20,924		21,443
Finance lease	Long-term debt, less current portion		3,770		4,405
Total lease liabilities		$	30,372	$	31,291

Lease-related expenses were as follows:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
Operating lease expense	$	1,563	$	1,549	$	4,636	$	4,809
Amortization of finance lease assets		251		116		663		290
Interest on finance lease liabilities		43		14		117		30
Variable lease expense		225		226		680		832
Short-term lease expense		44		44		152		134
Sublease (income)1		—		—		—		(192	)
Total lease expense	$	2,126	$	1,949	$	6,248	$	5,903

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

Lease-related supplemental cash flow information was as follows:

	Nine Months Ended June 30,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	3,879	$	4,136
Operating cash flows for finance leases		117		30
Financing cash flows for finance leases		535		690
Right-of-use assets obtained in exchange for recorded lease obligations:
Operating leases		1,841		9,997
Finance leases		48		1,260

Lessor arrangements

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

Although Woodward expects to allocate some portion of future net sales to these customers to embedded lessor arrangements, it cannot provide expected future undiscounted lease payments from property, plant, and equipment leased to customers as of June 30, 2023. If, in the future, customers reduce purchases of related products from Woodward, the Company believes it will derive additional value from the underlying equipment by repurposing its use to support other customer arrangements.

Revenue from contracts with customers that included embedded operating leases, which is included in “Net sales” in the Condensed Consolidated Statements of Earnings, was $1,466 for the three months and $4,252 for the nine months ended June 30, 2023, compared to $1,303 for the three months and $3,969 for the nine months ended June 30, 2022.

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

	June 30, 2023			September 30, 2022
Property, plant and equipment leased through embedded leasing arrangements	$	46,916		$	44,912
Less accumulated depreciation		(28,249	)		(25,508	)
Property, plant and equipment leased through embedded leasing arrangements, net	$	18,667		$	19,404