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 December 31, 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 February 2, 2022, 63,104,719 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	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
	Forward Looking Statements	24
	Overview	25
	Results of Operations	26
	Liquidity and Capital Resources	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 6.	Exhibits	36
	Signatures	36

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
	December 31,
	2021			2020
Net sales	$	541,586		$	537,619
Costs and expenses:
Cost of goods sold		419,151			401,640
Selling, general and administrative expenses		62,306			56,111
Research and development costs		25,392			31,996
Interest expense		8,306			8,906
Interest income		(641	)		(495	)
Other (income) expense, net		(10,674	)		(8,123	)
Total costs and expenses		503,840			490,035
Earnings before income taxes		37,746			47,584
Income tax expense		7,441			6,014
Net earnings	$	30,305		$	41,570
Earnings per share:
Basic earnings per share	$	0.48		$	0.66
Diluted earnings per share	$	0.47		$	0.64
Weighted-Average Common Shares Outstanding:
Basic		63,094			62,812
Diluted		65,099			64,892

See accompanying Notes to Condensed Consolidated Financial Statements

1

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In thousands)

(Unaudited)

	Three-Months Ended
	December 31,
	2021			2020
Net earnings	$	30,305		$	41,570
Other comprehensive earnings:
Foreign currency translation adjustments		(2,438	)		21,782
Net gain/(loss) on foreign currency transactions designated as hedges of net investments in foreign subsidiaries		1,071			(2,227	)
Taxes on changes in foreign currency translation adjustments		(986	)		1,684
Foreign currency translation and transactions adjustments, net of tax		(2,353	)		21,239
Unrealized gain/(loss) on fair value adjustment of derivative instruments		12,369			(30,658	)
Reclassification of net realized (gain)/loss on derivatives to earnings		(10,075	)		20,960
Taxes on changes in derivative transactions		(80	)		(1,340	)
Derivative adjustments, net of tax		2,214			(11,038	)
Amortization of pension and other postretirement plan:
Net prior service cost		251			248
Net loss		187			370
Foreign currency exchange rate changes on pension and other postretirement benefit plan liabilities		30			(1,697	)
Taxes on changes in pension and other postretirement benefit plan liability adjustments, net of foreign currency exchange rate changes		(114	)		356
Pension and other postretirement benefit plan adjustments, net of tax		354			(723	)
Total comprehensive earnings	$	30,520		$	51,048

See accompanying Notes to Condensed Consolidated Financial Statements

2

WOODWARD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

	December 31,			September 30,
	2021			2021
ASSETS
Current assets:
Cash and cash equivalents, including restricted cash of $907 and $1,907, respectively	$	426,982		$	448,462
Accounts receivable, less allowance for uncollectible amounts of $3,309 and $3,664, respectively		506,216			523,051
Inventories		451,834			419,971
Income taxes receivable		8,928			12,071
Other current assets		52,771			61,168
Total current assets		1,446,731			1,464,723
Property, plant and equipment, net		934,403			950,569
Goodwill		800,022			805,333
Intangible assets, net		538,782			559,289
Deferred income tax assets		13,970			14,066
Other assets		301,332			297,024
Total assets	$	4,035,240		$	4,091,004
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	424		$	728
Accounts payable		165,867			170,909
Income taxes payable		17,004			11,481
Accrued liabilities		146,213			183,139
Total current liabilities		329,508			366,257
Long-term debt, less current portion		729,826			734,122
Deferred income tax liabilities		156,169			157,936
Other liabilities		596,305			617,908
Total liabilities		1,811,808			1,876,223
Commitments and contingencies (Note 21)
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		274,366			261,735
Accumulated other comprehensive losses		(65,404	)		(65,619	)
Deferred compensation		7,960			7,949
Retained earnings		2,620,571			2,600,513
		2,837,599			2,804,684
Treasury stock at cost, 9,877 shares and 9,702 shares, respectively		(606,207	)		(581,954	)
Treasury stock held for deferred compensation, at cost, 167 shares, respectively		(7,960	)		(7,949	)
Total stockholders' equity		2,223,432			2,214,781
Total liabilities and stockholders' equity	$	4,035,240		$	4,091,004

See accompanying Notes to Condensed Consolidated Financial Statements

3

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three-Months Ended December 31,
	2021			2020
Cash flows from operating activities:
Net earnings	$	30,305		$	41,570
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		30,721			33,077
Net gain on sales of assets and businesses		(1,538	)		(588	)
Stock-based compensation		11,892			13,469
Deferred income taxes		—			1,332
Changes in operating assets and liabilities:
Trade accounts receivable		55,907			57,001
Unbilled receivables (contract assets)		(37,067	)		(17,468	)
Costs to fulfill a contract		(4,782	)		(5,321	)
Inventories		(32,890	)		(2,528	)
Accounts payable and accrued liabilities		(32,142	)		22,725
Contract liabilities		4,029			8,509
Income taxes		8,813			1,795
Retirement benefit obligations		(1,163	)		(1,317	)
Other		7,205			(5,531	)
Net cash provided by operating activities		39,290			146,725
Cash flows from investing activities:
Payments for purchase of property, plant, and equipment		(13,123	)		(7,263	)
Proceeds from sale of assets		1			48
Payments for purchases of short-term investments		—			(2,740	)
Proceeds from sales of short-term investments		7			—
Net cash used in investing activities		(13,115	)		(9,955	)
Cash flows from financing activities:
Cash dividends paid		(10,247	)		(5,102	)
Proceeds from sales of treasury stock		3,198			10,855
Purchase of treasury stock		(39,258	)		—
Borrowings on revolving lines of credit and short-term borrowings		—			74,400
Payments on revolving lines of credit and short-term borrowings		—			(74,400	)
Payments of long-term debt and finance lease obligations		(381	)		(100,395	)
Net cash used in financing activities		(46,688	)		(94,642	)
Effect of exchange rate changes on cash and cash equivalents		(967	)		6,483
Net change in cash and cash equivalents		(21,480	)		48,611
Cash and cash equivalents, including restricted cash, at beginning of year		448,462			153,270
Cash and cash equivalents, including restricted cash, at end of period	$	426,982		$	201,881

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 September 30, 2020		72,960		(10,277	)		(199	)	$	106	$	231,936		$	(40,691	)	$	(20,457	)	$	(28,646	)		(89,794	)	$	9,222		$	2,427,905		$	(577,476	)	$	(9,222	)	$	1,992,677
Net earnings		—		—			—			—		—			—			—			—			—			—			41,570			—			—			41,570
Other comprehensive earnings (loss), net of tax		—		—			—			—		—			21,239			(11,038	)		(723	)		9,478			—			—			—			—			9,478
Cash dividends paid ($0.0813 per share)		—		—			—			—		—			—			—			—			—			—			(5,102	)		—			—			(5,102	)
Sales of treasury stock		—		285			—			—		(1,011	)		—			—			—			—			—			—			12,381			—			11,370
Stock-based compensation		—		—			—			—		13,469			—			—			—			—			—			—			—			—			13,469
Purchases/transfers of stock by/to deferred compensation plan		—		—			(3	)		—		—			—			—			—			—			276			—			—			(276	)		—
Distribution of stock from deferred compensation plan		—		—			1			—		—			—			—			—			—			(13	)		—			—			13			—
Balances as of December 31, 2020		72,960		(9,992	)		(201	)	$	106	$	244,394		$	(19,452	)	$	(31,495	)	$	(29,369	)	$	(80,316	)	$	9,485		$	2,464,373		$	(565,095	)	$	(9,485	)	$	2,063,462
Balances as of September 30, 2021		72,960		(9,702	)		(167	)	$	106	$	261,735		$	(32,904	)	$	(25,597	)	$	(7,118	)		(65,619	)	$	7,949		$	2,600,513		$	(581,954	)	$	(7,949	)	$	2,214,781
Net earnings		—		—			—			—		—			—			—			—			—			—			30,305			—