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 June 30, 2021

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 July 29, 2021, 63,603,338 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	32
	Liquidity and Capital Resources	37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6.	Exhibits	45
	Signatures	46

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						Nine-Months Ended
	June 30,						June 30,
	2021			2020			2021			2020
Net sales	$	556,675		$	523,826		$	1,675,615		$	1,964,401
Costs and expenses:
Cost of goods sold		422,457			395,511			1,258,340			1,447,942
Selling, general and administrative expenses		48,021			57,361			148,461			177,035
Research and development costs		29,765			34,522			89,388			106,029
Impairment of assets sold		—			—			—			37,902
Restructuring charges		—			19,040			—			19,040
Gain on cross-currency interest rate swaps, net		—			(30,481	)		—			(30,481	)
Interest expense		8,397			8,737			25,552			26,502
Interest income		(308	)		(377	)		(1,086	)		(1,340	)
Other (income) expense, net		(10,355	)		(5,503	)		(29,809	)		(31,991	)
Total costs and expenses		497,977			478,810			1,490,846			1,750,638
Earnings before income taxes		58,698			45,016			184,769			213,763
Income tax expense		9,837			6,551			26,025			30,607
Net earnings	$	48,861		$	38,465		$	158,744		$	183,156
Earnings per share:
Basic earnings per share	$	0.77		$	0.62		$	2.51		$	2.95
Diluted earnings per share	$	0.74		$	0.61		$	2.42		$	2.85
Weighted Average Common Shares Outstanding:
Basic		63,559			62,309			63,215			62,188
Diluted		65,910			63,427			65,499			64,273

See accompanying Notes to Condensed Consolidated Financial Statements

1

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In thousands)

(Unaudited)

	Three-Months Ended						Nine-Months Ended
	June 30,						June 30,
	2021			2020			2021			2020
Net earnings	$	48,861		$	38,465		$	158,744		$	183,156
Other comprehensive earnings:
Foreign currency translation adjustments		8,255			8,057			16,590			5,855
Net loss on foreign currency transactions designated as hedges of net investments in foreign subsidiaries		(750	)		(792	)		(648	)		(1,187	)
Taxes on changes in foreign currency translation adjustments		476			(213	)		(395	)		(423	)
Foreign currency translation and transactions adjustments, net of tax		7,981			7,052			15,547			4,245
Unrealized gain/(loss) on fair value adjustment of derivative instruments		8,402			(26,011	)		(13,364	)		7,993
Reclassification of net realized loss/(gain) on derivatives to earnings		7,204			(22,649	)		7,481			(18,255	)
Taxes on changes in derivative transactions		(328	)		1,025			(125	)		253
Derivative adjustments, net of tax		15,278			(47,635	)		(6,008	)		(10,009	)
Amortization of pension and other postretirement plan:
Net prior service cost		248			240			746			721
Net loss		380			627			1,127			1,886
Foreign currency exchange rate changes on pension and other postretirement benefit plan liabilities		(363	)		(101	)		(1,607	)		(378	)
Taxes on changes in pension and other postretirement benefit plan liability adjustments, net of foreign currency exchange rate changes		(49	)		(192	)		23			(544	)
Pension and other postretirement benefit plan adjustments, net of tax		216			574			289			1,685
Total comprehensive earnings	$	72,336		$	(1,544	)	$	168,572		$	179,077

See accompanying Notes to Condensed Consolidated Financial Statements

2

WOODWARD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

	June 30,			September 30,
	2021			2020
ASSETS
Current assets:
Cash and cash equivalents, including restricted cash of $1,907 and $3,497, respectively	$	362,007		$	153,270
Accounts receivable, less allowance for uncollectible amounts of $3,831 and $8,359, respectively		571,943			537,987
Inventories		427,492			437,943
Income taxes receivable		31,329			28,879
Other current assets		50,757			52,786
Total current assets		1,443,528			1,210,865
Property, plant and equipment, net		952,800			997,415
Goodwill		812,516			808,252
Intangible assets, net		582,213			606,711
Deferred income tax assets		14,582			14,658
Other assets		283,016			265,435
Total assets	$	4,088,655		$	3,903,336
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	1,050		$	101,634
Accounts payable		163,248			134,242
Income taxes payable		12,699			4,662
Accrued liabilities		163,580			151,794
Total current liabilities		340,577			392,332
Long-term debt, less current portion		739,062			736,849
Deferred income tax liabilities		165,652			163,573
Other liabilities		641,677			617,905
Total liabilities		1,886,968			1,910,659
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		259,424			231,936
Accumulated other comprehensive losses		(79,966	)		(89,794	)
Deferred compensation		8,150			9,222
Retained earnings		2,560,915			2,427,905
		2,748,629			2,579,375
Treasury stock at cost, 9,361 shares and 10,277 shares, respectively		(538,792	)		(577,476	)
Treasury stock held for deferred compensation, at cost, 173 shares and 199 shares, respectively		(8,150	)		(9,222	)
Total stockholders' equity		2,201,687			1,992,677
Total liabilities and stockholders' equity	$	4,088,655		$	3,903,336

See accompanying Notes to Condensed Consolidated Financial Statements

3

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine-Months Ended June 30,
	2021			2020
Cash flows from operating activities:
Net earnings	$	158,744		$	183,156
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		97,799			97,582
Impairment of assets sold		—			37,902
Net gain on sales of assets and businesses		(4,073	)		(11,012	)
Net gain on cross-currency interest rate swaps		—			(30,481	)
Stock-based compensation		19,053			20,088
Deferred income taxes		137			(1,756	)
Changes in operating assets and liabilities:
Trade accounts receivable		4,107			63,253
Unbilled receivables (contract assets)		(25,159	)		(53,851	)
Costs to fulfill a contract		(14,750	)		(18,044	)
Inventories		13,562			(6,402	)
Accounts payable and accrued liabilities		51,308			(124,231	)
Contract liabilities		20,113			21,491
Income taxes		3,492			(33,085	)
Retirement benefit obligations		(5,221	)		(3,249	)
Other		(1,197	)		71,055
Net cash provided by operating activities		317,915			212,416
Cash flows from investing activities:
Payments for purchase of property, plant, and equipment		(21,347	)		(39,072	)
Proceeds from sale of assets		141			18,844
Proceeds from business divestiture		—			10,443
Proceeds from sales of short-term investments		16,566			12,700
Payments for purchases of short-term investments		(14,326	)		(13,109	)
Net cash (used in) investing activities		(18,966	)		(10,194	)
Cash flows from financing activities:
Cash dividends paid		(25,734	)		(32,587	)
Proceeds from sales of treasury stock		32,219			14,790
Payments for repurchases of common stock		—			(13,346	)
Borrowings on revolving lines of credit and short-term borrowings		74,400			1,027,342
Payments on revolving lines of credit and short-term borrowings		(74,400	)		(1,191,319	)
Payments of long-term debt and finance lease obligations		(101,214	)		(1,187	)
Net cash (used in) financing activities		(94,729	)		(196,307	)
Effect of exchange rate changes on cash and cash equivalents		4,517			(3,625	)
Net change in cash and cash equivalents		208,737			2,290
Cash and cash equivalents, including restricted cash, at beginning of year		153,270			99,073
Cash and cash equivalents, including restricted cash, at end of period	$	362,007		$	101,363

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)		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 April 1, 2020		72,960		(10,677	)		(216	)	$	106	$	227,494	$	(56,042	)	$	32,671	$	(44,005	)		(67,376	)	$	9,963	$	2,342,340	$	(594,870	)	$	(9,963	)