Woodward is primarily a lessee in lease arrangements but has some embedded lessor 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, 2021, 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.

	Classification on Consolidated Balance Sheets	September 30, 2021		September 30, 2020
Assets:
Operating lease assets	Other assets	$	19,370	$	18,918
Finance lease assets	Property, plant and equipment, net		781		1,201
Total lease assets			20,151		20,119

Current liabilities:
Operating lease liabilities	Accrued liabilities		5,260		4,925
Finance lease liabilities	Current portion of long-term debt		728		1,634
Noncurrent liabilities:
Operating lease liabilities	Other liabilities		14,770		14,569
Finance lease liabilities	Long-term debt, less current portion		475		1,173
Total lease liabilities		$	21,233	$	22,301

In 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 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 ROU assets of the disposal group were not recoverable, and a $639 non-cash impairment charge was recorded during the fiscal year ended September 30, 2020.

	September 30, 2021			September 30, 2020
Weighted average remaining lease term
Operating leases	4.3 years			5.5 years
Finance leases	1.7 years			2.1 years
Weighted average discount rate
Operating leases		3.2	%		3.2	%
Finance leases		2.8	%		3.0	%

	Year Ended September 30,
	2021			2020
Operating lease expense	$	6,559		$	6,164
Amortization of financing lease assets		425			476
Interest on financing lease liabilities		58			87
Variable lease expense		1,495			1,101
Short-term lease expense		283			466
Sublease income¹		(680	)		(697	)
Total lease expense	$	8,140		$	7,597

	Year Ended September 30,
	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	5,707	$	5,622
Operating cash flows for finance leases		58		87
Financing cash flows for finance leases		1,639		1,590
Right-of-use assets obtained in exchange for recorded lease obligations:
Operating leases		6,871		6,501
Finance leases		35		1,244

Year Ending September 30:	Operating Leases			Finance Leases
2022	$	5,759		$	747
2023		4,470			334
2024		3,716			143
2025		3,048			5
2026		2,356			3
Thereafter		2,155			—
Total lease payments		21,504			1,232
Less: imputed interest		(1,474	)		(29	)
Total lease obligations	$	20,030		$	1,203

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, 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.

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 $6,305 for the fiscal year ended September 30, 2021, compared to $6,823 for the fiscal year ended September 30, 2020.

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, follows:

	September 30, 2021			September 30, 2020
Property, plant and equipment leased to others through embedded leasing arrangements	$	93,732		$	76,655
Less accumulated depreciation		(35,733	)		(29,819	)
Property, plant and equipment leased to others through embedded leasing arrangements, net	$	57,999		$	46,836