wwd-10q_20220630.htm

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, 2022

☐ 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 August 3, 2022, 60,163,897 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	40
Item 4.	Controls and Procedures	40
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 6.	Exhibits	41
	Signatures	42

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,
	2022			2021			2022			2021
Net sales	$	614,332		$	556,675		$	1,742,757		$	1,675,615
Costs and expenses:
Cost of goods sold		480,403			422,457			1,352,979			1,258,340
Selling, general and administrative expenses		46,490			48,021			152,920			148,461
Research and development costs		32,224			29,765			90,000			89,388
Interest expense		8,533			8,397			25,036			25,552
Interest income		(353	)		(308	)		(1,494	)		(1,086	)
Other (income) expense, net		(3,252	)		(10,355	)		(18,813	)		(29,809	)
Total costs and expenses		564,045			497,977			1,600,628			1,490,846
Earnings before income taxes		50,287			58,698			142,129			184,769
Income tax expense		10,841			9,837			24,472			26,025
Net earnings	$	39,446		$	48,861		$	117,657		$	158,744

Earnings per share:
Basic earnings per share	$	0.65		$	0.77		$	1.90		$	2.51
Diluted earnings per share	$	0.64		$	0.74		$	1.84		$	2.42

Weighted Average Common Shares Outstanding:
Basic		60,506			63,559			62,052			63,215
Diluted		62,088			65,910			63,937			65,499

See accompanying Notes to Condensed Consolidated Financial Statements

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(In thousands)

(Unaudited)

	Three-Months Ended							Nine-Months Ended
	June 30,							June 30,
	2022			2021				2022				2021
Net earnings	$	39,446			$	48,861			$	117,657			$	158,744

Other comprehensive earnings:
Foreign currency translation adjustments		(27,648	)			8,255				(34,707	)			16,590
Net gain (loss) on foreign currency transactions designated as hedges of net investments in foreign subsidiaries		2,887				(750	)			4,631				(648	)
Taxes on changes in foreign currency translation adjustments		(2,424	)			476				(3,873	)			(395	)
Foreign currency translation and transactions adjustments, net of tax		(27,185	)			7,981				(33,949	)			15,547

Unrealized gain (loss) on fair value adjustment of derivative instruments		34,207				8,402				58,987				(13,364	)
Reclassification of net realized (gain) loss on derivatives to earnings		(26,968	)			7,204				(43,299	)			7,481
Taxes on changes in derivative transactions		(254	)			(328	)			(549	)			(125	)
Derivative adjustments, net of tax		6,985				15,278				15,139				(6,008	)

Amortization of pension and other postretirement plan:
Net prior service cost		252				248				754				746
Net loss		177				380				551				1,127
Foreign currency exchange rate changes on pension and other postretirement benefit plan liabilities		1,834				(363	)			2,456				(1,607	)
Taxes on changes in pension and other postretirement benefit plan liability adjustments, net of foreign currency exchange rate changes		(668	)			(49	)			(1,074	)			23
Pension and other postretirement benefit plan adjustments, net of tax		1,595				216				2,687				289
Total comprehensive earnings	$	20,841			$	72,336			$	101,534			$	168,572

See accompanying Notes to Condensed Consolidated Financial Statements

WOODWARD, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

	June 30,			September 30,
	2022			2021
ASSETS
Current assets:
Cash and cash equivalents, including restricted cash of $359 and $1,907, respectively	$	99,701		$	448,462
Accounts receivable, less allowance for uncollectible amounts of $3,043 and $3,664, respectively		587,546			523,051
Inventories		503,664			419,971
Income taxes receivable		13,408			12,071
Other current assets		49,396			61,168
Total current assets		1,253,715			1,464,723
Property, plant and equipment, net		913,468			950,569
Goodwill		779,144			805,333
Intangible assets, net		484,867			559,289
Deferred income tax assets		13,481			14,066
Other assets		311,114			297,024
Total assets	$	3,755,789		$	4,091,004
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings	$	49,200		$	-
Current portion of long-term debt		458			728
Accounts payable		195,402			170,909
Income taxes payable		18,713			11,481
Accrued liabilities		160,701			183,139
Total current liabilities		424,474			366,257
Long-term debt, less current portion		716,744			734,122
Deferred income tax liabilities		150,469			157,936
Other liabilities		554,489			617,908
Total liabilities		1,846,176			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		290,900			261,735
Accumulated other comprehensive losses		(81,742	)		(65,619	)
Deferred compensation		6,761			7,949
Retained earnings		2,684,598			2,600,513
		2,900,623			2,804,684
Treasury stock at cost, 12,803 shares and 9,702 shares, respectively		(984,249	)		(581,954	)
Treasury stock held for deferred compensation, at cost, 140 shares and 167 shares, respectively		(6,761	)		(7,949	)
Total stockholders' equity		1,909,613			2,214,781
Total liabilities and stockholders' equity	$	3,755,789		$	4,091,004

See accompanying Notes to Condensed Consolidated Financial Statements

WOODWARD, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine-Months Ended June 30,
	2022			2021
Cash flows from operating activities:
Net earnings	$	117,657		$	158,744
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		91,258			97,799
Net (gain) on sales of assets and businesses		(1,545	)		(4,073	)
Stock-based compensation		17,136			19,053
Deferred income taxes		(56	)		137
Changes in operating assets and liabilities:
Trade accounts receivable		(6,745	)		4,107
Unbilled receivables (contract assets)		(64,892	)		(25,159	)
Costs to fulfill a contract		(13,541	)		(14,750	)
Inventories		(93,818	)		13,562
Accounts payable and accrued liabilities		36,117			51,308
Contract liabilities		8,420			20,113
Income taxes		5,277			3,492
Retirement benefit obligations		(3,442	)		(5,221	)
Other		(5,810	)		(1,197	)
Net cash provided by operating activities		86,016			317,915

Cash flows from investing activities:
Payments for purchase of property, plant, and equipment		(37,105	)		(21,347	)
Proceeds from sale of assets		4			141
Proceeds from the sale of the renewable power systems business and other related businesses		6,000			—
Payments for purchases of short-term investments		(9,619	)		(14,326	)
Proceeds from sales of short-term investments		11,305			16,566
Net cash used in investing activities		(29,415	)		(18,966	)

Cash flows from financing activities:
Cash dividends paid		(33,572	)		(25,734	)
Proceeds from sales of treasury stock		20,283			32,219
Payments for repurchases of common stock		(440,233	)		—
Borrowings on revolving lines of credit and short-term borrowings		477,400			74,400
Payments on revolving lines of credit and short-term borrowings		(428,200	)		(74,400	)
Payments of long-term debt and finance lease obligations		(644	)		(101,214	)
Net cash used in financing activities		(404,966	)		(94,729	)
Effect of exchange rate changes on cash and cash equivalents		(396	)		4,517
Net change in cash and cash equivalents		(348,761	)		208,737
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	$	99,701		$	362,007

See accompanying Notes to Condensed Consolidated Financial Statements

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, 2021		72,960		(9,454	)		(192	)	$	106	$	257,006	$	(33,125	)	$	(41,743	)	$	(28,573	)	$	(103,441	)	$	9,103	$	2,522,384	$	(542,754	)	$	(9,103	)	$	2,133,301
Net earnings		—		—			—			—		—		—			—			—			—			—		48,861		—			—			48,861
Other comprehensive earnings (loss), net of tax		—		—			—			—