Leases

12 Months Ended

Sep. 30, 2023

Note 5. Leases

Woodward is primarily a lessee in lease arrangements but has some embedded lessor arrangements.

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.

None of Woodward’s lease agreements contain significant residual value guarantees, restrictions, or covenants. As of September 30, 2023, Woodward has not entered into any lease arrangements that have not yet commenced but would create significant rights and obligations. Woodward does not have any lease transactions between related parties.

Lease-related assets and liabilities follows:


	Classification on the Consolidated Balance Sheets	September 30, 2023		September 30, 2022
Assets:
Operating lease assets	Other assets	$	24,680	$	25,144
Finance lease assets	Property, plant, and equipment, net		3,337		5,474
Total lease assets			28,017		30,618

Current liabilities:
Operating lease liabilities	Accrued liabilities		4,594		4,587
Finance lease liabilities	Current portion of long-term debt		817		856
Noncurrent liabilities:
Operating lease liabilities	Other liabilities		20,685		21,443
Finance lease liabilities	Long-term debt, less current portion		2,733		4,405
Total lease liabilities		$	28,829	$	31,291

Supplemental lease-related information follows:


	September 30, 2023			September 30, 2022
Weighted average remaining lease term
Operating leases	8.6 years			8.3 years
Finance leases	4.6 years			9.7 years
Weighted average discount rate
Operating leases		4.0	%		3.6	%
Finance leases		4.6	%		3.4	%

Lease-related expenses were as follows:


	Year Ended September 30,
	2023		2022			2021
Operating lease expense	$	6,213	$	6,335		$	6,559
Amortization of financing lease assets		914		454			425
Interest on financing lease liabilities		157		51			58
Variable lease expense		917		929			1,495
Short-term lease expense		196		190			283
Sublease income1		—		(192	)		(680	)
Total lease expense	$	8,397	$	7,767		$	8,140

(1)

Relates to two separate subleases Woodward has 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:


	Year Ended September 30,
	2023		2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	5,151	$	5,303	$	5,707
Operating cash flows for finance leases		157		51		58
Financing cash flows for finance leases		779		796		1,639
Right-of-use assets obtained in exchange for recorded lease obligations:
Operating leases		2,230		14,678		6,871
Finance leases		48		4,046		35

Maturities of lease liabilities were as follows:


Year Ending September 30:	Operating Leases			Finance Leases
2024	$	5,329		$	954
2025		4,491			821
2026		3,823			822
2027		3,109			820
2028		2,662			234
Thereafter		10,491			258
Total lease payments		29,905			3,909
Less: imputed interest		(4,626	)		(359	)
Total lease obligations	$	25,279		$	3,550

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 is 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 September 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.

Woodward recognizes revenue from the embedded lessor arrangements based on the value of the underlying dedicated property, plant, and equipment. There are no fixed payments that the customers under the embedded lessor arrangements are obligated to pay. Therefore, all the customer payments under the embedded lessor arrangements are considered variable with the associated leasing revenue recognized when the revenue from underlying product sale related to variable lease payment is recognized. Revenue from contracts with customers that included embedded operating leases, which is included in “Net sales” at the Consolidated Statements of Earnings, was $5,030 for the fiscal year ended September 30, 2023, compared to $5,528 for the fiscal year ended September 30, 2022.

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


	September 30, 2023			September 30, 2022
Property, plant, and equipment	$	45,766		$	44,912
Less accumulated depreciation		(28,128	)		(25,508	)
Property, plant, and equipment, net	$	17,638		$	19,404