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.

	Classification on the Condensed Consolidated Balance Sheets	June 30, 2021		September 30, 2020
Assets:
Operating lease assets	Other assets	$	21,220	$	18,918
Finance lease assets	Property, plant and equipment, net		886		1,201
Total lease assets			22,106		20,119

Current liabilities:
Operating lease liabilities	Accrued liabilities		5,571		4,925
Finance lease liabilities	Current portion of long-term debt		1,050		1,634
Noncurrent liabilities:
Operating lease liabilities	Other liabilities		16,342		14,569
Finance lease liabilities	Long-term debt, less current portion		556		1,173
Total lease liabilities		$	23,519	$	22,301

During the first quarter of fiscal year 2020, Woodward determined that the approved plan to divest of the renewable power systems business and other related businesses (as described more fully in Note 10, Sale of businesses, and defined therein as the “disposal group”) represented a triggering event requiring that the long-lived assets attributable to the disposal group be assessed for impairment. Given the facts and circumstances at that time, Woodward determined that the remaining value of the right-of-use (“ROU”) assets of the disposal group were not recoverable and a $639 non-cash impairment charge was recorded during fiscal year 2020.

	Three-Months Ended June 30,						Nine-Months Ended June 30,
	2021			2020			2021			2020
Operating lease expense	$	1,729		$	1,511		$	4,897		$	4,562
Amortization of finance lease assets		102			110			322			358
Interest on finance lease liabilities		13			25			48			65
Variable lease expense		282			192			1,100			787
Short-term lease expense		75			63			233			400
Sublease income¹		(104	)		(236	)		(486	)		(561	)
Total lease expense	$	2,097		$	1,665		$	6,114		$	5,611

	Nine-Months Ended June 30,
	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	4,229	$	3,622
Operating cash flows for finance leases		48		65
Financing cash flows for finance leases		1,236		1,187
Right-of-use assets obtained in exchange for recorded lease obligations:
Operating leases		6,759		4,825
Finance leases		35		1,243

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 three 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, 2021. 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 $1,519 for the three-months and $4,828 for the nine-months ended June 30, 2021, compared to $1,638 for the three-months and $4,763 for the nine-months ended June 30, 2020.

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, 2021			September 30, 2020
Property, plant and equipment leased to others through embedded leasing arrangements	$	77,859		$	76,655
Less accumulated depreciation		(34,327	)		(29,819	)
Property, plant and equipment leased to others through embedded leasing arrangements, net	$	43,532		$	46,836