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 March 31, 2022

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 May 4, 2022, 60,645,061 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	27
	Forward Looking Statements	27
	Overview	28
	Results of Operations	30
	Liquidity and Capital Resources	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 6.	Exhibits	40
	Signatures	41

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						Six-Months Ended
	March 31,						March 31,
	2022			2021			2022			2021
Net sales	$	586,839		$	581,321		$	1,128,425		$	1,118,940
Costs and expenses:
Cost of goods sold		453,425			434,243			872,576			835,883
Selling, general and administrative expenses		44,124			44,329			106,430			100,440
Research and development costs		32,384			27,627			57,776			59,623
Interest expense		8,197			8,249			16,503			17,155
Interest income		(500	)		(283	)		(1,141	)		(778	)
Other (income) expense, net		(4,887	)		(11,331	)		(15,561	)		(19,454	)
Total costs and expenses		532,743			502,834			1,036,583			992,869
Earnings before income taxes		54,096			78,487			91,842			126,071
Income tax expense		6,190			10,174			13,631			16,188
Net earnings	$	47,906		$	68,313		$	78,211		$	109,883
Earnings per share:
Basic earnings per share	$	0.77		$	1.08		$	1.24		$	1.74
Diluted earnings per share	$	0.74		$	1.04		$	1.21		$	1.68
Weighted Average Common Shares Outstanding:
Basic		62,550			63,278			62,825			63,043
Diluted		64,618			65,654			64,863			65,274

See accompanying Notes to Condensed Consolidated Financial Statements

1

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In thousands)

(Unaudited)

	Three-Months Ended						Six-Months Ended
	March 31,						March 31,
	2022			2021			2022			2021
Net earnings	$	47,906		$	68,313		$	78,211		$	109,883
Other comprehensive earnings:
Foreign currency translation adjustments		(4,621	)		(8,789	)		(7,059	)		8,539
Net gain (loss) on foreign currency transactions designated as hedges of net investments in foreign subsidiaries		673			(2,329	)		1,744			(102	)
Taxes on changes in foreign currency translation adjustments		(463	)		(2,555	)		(1,449	)		(871	)
Foreign currency translation and transactions adjustments, net of tax		(4,411	)		(13,673	)		(6,764	)		7,566
Unrealized gain/(loss) on fair value adjustment of derivative instruments		12,411			8,892			24,780			(21,766	)
Reclassification of net realized (gain)/loss on derivatives to earnings		(6,256	)		(20,683	)		(16,331	)		277
Taxes on changes in derivative transactions		(215	)		1,543			(295	)		203
Derivative adjustments, net of tax		5,940			(10,248	)		8,154			(21,286	)
Amortization of pension and other postretirement plan:
Net prior service cost		251			250			502			498
Net loss		187			377			374			747
Foreign currency exchange rate changes on pension and other postretirement benefit plan liabilities		592			453			622			(1,244	)
Taxes on changes in pension and other postretirement benefit plan liability adjustments, net of foreign currency exchange rate changes		(292	)		(284	)		(406	)		72
Pension and other postretirement benefit plan adjustments, net of tax		738			796			1,092			73
Total comprehensive earnings	$	50,173		$	45,188		$	80,693		$	96,236

See accompanying Notes to Condensed Consolidated Financial Statements

2

WOODWARD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

	March 31,			September 30,
	2022			2021
ASSETS
Current assets:
Cash and cash equivalents, including restricted cash of $522 and $1,907, respectively	$	208,355		$	448,462
Accounts receivable, less allowance for uncollectible amounts of $3,141 and $3,664, respectively		575,174			523,051
Inventories		484,933			419,971
Income taxes receivable		17,415			12,071
Other current assets		45,513			61,168
Total current assets		1,331,390			1,464,723
Property, plant and equipment, net		923,651			950,569
Goodwill		796,028			805,333
Intangible assets, net		522,502			559,289
Deferred income tax assets		13,798			14,066
Other assets		303,175			297,024
Total assets	$	3,890,544		$	4,091,004
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	459		$	728
Accounts payable		188,543			170,909
Income taxes payable		17,701			11,481
Accrued liabilities		162,343			183,139
Total current liabilities		369,046			366,257
Long-term debt, less current portion		728,247			734,122
Deferred income tax liabilities		155,092			157,936
Other liabilities		586,280			617,908
Total liabilities		1,838,665			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		287,766			261,735
Accumulated other comprehensive losses		(63,137	)		(65,619	)
Deferred compensation		6,678			7,949
Retained earnings		2,656,590			2,600,513
		2,888,003			2,804,684
Treasury stock at cost, 11,427 shares and 9,702 shares, respectively		(829,446	)		(581,954	)
Treasury stock held for deferred compensation, at cost, 140 shares and 167 shares, respectively		(6,678	)		(7,949	)
Total stockholders' equity		2,051,879			2,214,781
Total liabilities and stockholders' equity	$	3,890,544		$	4,091,004

See accompanying Notes to Condensed Consolidated Financial Statements

3

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six-Months Ended March 31,
	2022			2021
Cash flows from operating activities:
Net earnings	$	78,211		$	109,883
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		61,331			65,556
Net (gain) on sales of assets and businesses		(1,541	)		(1,942	)
Stock-based compensation		13,957			16,438
Deferred income taxes		(55	)		1,622
Changes in operating assets and liabilities:
Trade accounts receivable		(1,562	)		(10,565	)
Unbilled receivables (contract assets)		(48,742	)		(32,565	)
Costs to fulfill a contract		(10,884	)		(9,226	)
Inventories		(67,263	)		16,877
Accounts payable and accrued liabilities		15,454			53,555
Contract liabilities		9,779			14,370
Income taxes		(725	)		4,700
Retirement benefit obligations		(2,495	)		(3,450	)
Other		4,643			(6,256	)
Net cash provided by operating activities		50,108			218,997
Cash flows from investing activities:
Payments for purchase of property, plant, and equipment		(24,150	)		(13,313	)
Proceeds from sale of assets		5			86
Payments for purchases of short-term investments		(8	)		(2,750	)
Proceeds from sales of short-term investments		11,305			16,566
Net cash (used in) provided by investing activities		(12,848	)		589
Cash flows from financing activities:
Cash dividends paid		(22,134	)		(15,404	)
Proceeds from sales of treasury stock		19,399			28,454
Payments for repurchases of common stock		(273,535	)		—
Borrowings on revolving lines of credit and short-term borrowings		11,500			74,400
Payments on revolving lines of credit and short-term borrowings		(11,500	)		(74,400	)
Payments of long-term debt and finance lease obligations		(564	)		(100,835	)
Net cash used in financing activities		(276,834	)		(87,785	)
Effect of exchange rate changes on cash and cash equivalents		(533	)		2,524
Net change in cash and cash equivalents		(240,107	)		134,325
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	$	208,355		$	287,595

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 January 1, 2021		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
Net earnings		—		—			—			—		—		—			—			—			—			—		68,313		—			—			68,313
Other comprehensive earnings (loss), net of tax		—		—			—			—		—		(13,673	)		(10,248	)		796			(23,125	)		—