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Item 2. Management’s Discussion and Analysis

2024-08-02 compared with 2024-05-03 · 139 added, 141 removed, 266 unchanged (51% of the section changed)

44 unchanged sentences

Global Business Conditions

During the first half of fiscal year 2024, we achieved significant sales growth and margin expansion as compared to the same period of the prior year.

During the first nine months of fiscal year 2024, we achieved significant sales growth and margin expansion as compared to the same period of the prior year.

The compounding impacts of our focused efforts on operational excellence enabled us to increase output and capitalize on continued strong end market demand for our products and services across the aerospace and industrial markets.

Further, we continue to better align price to the value of our products which helps to mitigate the ongoing impacts of inflation.

We continue to better align price to the value of our products which helps to mitigate the ongoing impacts of inflation.

We expect declines in demand in our on-highway natural gas trucks business in China for the remainder of the fiscal year, and future demand beyond the fiscal year remains uncertain.

Additionally, ongoing supply chain challenges in the broader aerospace industry may impact the timing of certain shipments in our Aerospace segment.

We continue to monitor the macroeconomic environment as inflation and economic uncertainty continue to impact certain aspects of our business.

We remain committed to growth, operational excellence, and innovation to deliver long-term success and enhanced shareholder value.

We also continue to monitor the macroeconomic environment such as inflation, uncertain future demand relating to on-highway natural gas trucks in China, and economic uncertainty as they continue to impact certain aspects of our business.

Operational Highlights

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

Aerospace segment

22 unchanged sentences

Liquidity Highlights

Net cash provided by operating activities for the first half of fiscal year 2024 was $144,118, compared to $40,150 for the first half of fiscal year 2023.

The increase in net cash provided by operating activities in the first half of fiscal year 2024 compared to the first half of the prior fiscal year is primarily attributable to increased earnings.

For the first half of fiscal year 2024, free cash flow was $87,817, compared to negative $3,896 for the first half of fiscal year 2023.

Net cash provided by operating activities for the first nine months of fiscal year 2024 was $297,329, compared to $155,630 for the first nine months of fiscal year 2023.

The increase in net cash provided by operating activities in the first nine months of fiscal year 2024 compared to the first nine months of the prior fiscal year is primarily attributable to increased earnings.

For the first nine months of fiscal year 2024, free cash flow was $225,136, compared to $98,488 for the first nine months of fiscal year 2023.

We define free cash flow as net cash flow from operating activities less payments for property, plant, and equipment.

Adjusted free cash flow, which we define as free cash flow excluding cash payments pertaining to a non-recurring matter unrelated to the ongoing operations, payments for business development activities, payments for restructuring charges, and cash received for a non-recurring matter related to a previous acquisition, was $90,032 for the first half of fiscal year 2024, compared to a negative $1,060 for the first half of fiscal year 2023.

The increase in free cash flow and adjusted free cash flow for the first half of fiscal year 2024 as compared to the same period of the prior fiscal year

was primarily due to increased earnings, partially offset by higher capital expenditures.

Free cash flow and adjusted free cash flow are non-U.S.

GAAP financial measures.

A description of these measures as well as a reconciliation of these non-U.S.

GAAP financial measures to the most directly comparable U.S.

GAAP financial measures can be found under the caption “Non-U.S.

The increase in free cash flow for the first nine months of fiscal year 2024 as compared to the same period of the prior fiscal year was primarily due to increased earnings and improved working capital, partially offset by

higher capital expenditures.

Free cash flow is a non-U.S.

GAAP financial measure.

A description of this measure as well as a reconciliation of this non-U.S.

GAAP financial measure to the most directly comparable U.S.

GAAP financial measure can be found under the caption “Non-U.S.

GAAP Financial Measures” in this Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

At March 31, 2024, we held $316,932 in cash and cash equivalents and had total outstanding debt of $791,038.

At June 30, 2024, we held $308,332 in cash and cash equivalents and had total outstanding debt of $923,126.

We have additional borrowing availability of $717,338, net of outstanding letters of credit, under our revolving credit agreement.

At March 31, 2024, we also had additional borrowing capacity of $25,585 under various foreign lines of credit and foreign overdraft facilities.

At June 30, 2024, we also had additional borrowing capacity of $25,176 under various foreign lines of credit and foreign overdraft facilities.

RESULTS OF OPERATIONS

1 unchanged sentence

Three Months Ended

Six Months Ended

March 31, 2024

Nine Months Ended

June 30, 2024

% of Net Sales

March 31, 2023

June 30, 2023

% of Net Sales

11 unchanged sentences

Other select financial data:

March 31, 2024

June 30, 2024

September 30, 2023

1 unchanged sentence

Total stockholders' equity

Consolidated net sales for the second quarter of fiscal year 2024 increased by $117,129, or 16.3%, compared to the same period of fiscal year 2023.

Consolidated net sales for the first half of fiscal year 2024 increased by $285,240, or 21.3%, compared to the same period of fiscal year 2023.

Consolidated net sales for the third quarter of fiscal year 2024 increased by $47,025, or 5.9%, compared to the same period of fiscal year 2023.

Consolidated net sales for the first nine months of fiscal year 2024 increased by $332,265, or 15.5%, compared to the same period of fiscal year 2023.

Details of the changes in consolidated net sales are as follows:

Three-Month Period

Six-Month Period

Consolidated net sales for the period ended March 31, 2023

Nine-Month Period

Consolidated net sales for the period ended June 30, 2023

Aerospace volume

2 unchanged sentences

Effects of changes in foreign currency rates

Consolidated net sales for the period ended March 31, 2024

In the Aerospace segment, the increase in net sales for the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior fiscal year is primarily attributable to increased aircraft utilization, as a result of continued growth in passenger traffic, and price realization.

In the Industrial segment, the increase in net sales for the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior fiscal year is primarily attributable to growth in transportation, particularly in the

on-highway natural gas truck business in China, strong sales in power generation, and price realization, partially offset by a decrease in oil and gas sales.

Consolidated net sales for the period ended June 30, 2024

In the Aerospace segment, the increase in net sales for the third quarter of fiscal year 2024 as compared to the same period of the prior fiscal year is attributable to price realization as well as increases in aftermarket sales, both commercial and defense, due to higher aircraft utilization.

The increase in net sales for the first nine months of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily attributable to price realization as well as increases in aftermarket sales, both commercial and defense, due to higher aircraft utilization, and increases in commercial OEM due to higher production rates.

In the Industrial segment, the increase in net sales for the third quarter of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily attributable to price realization as well as growth in power generation, partially offset by decreased oil and gas sales.

The increase in net sales for the first nine months of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily attributable to growth in transportation, particularly in the on-highway natural gas truck business in China, strong sales in power generation, and price realization, partially offset by a decrease in oil and gas sales.

Costs and Expenses

Cost of goods sold increased by $41,805 to $600,954, for the second quarter of fiscal year 2024, from $559,149, for the second quarter of fiscal year 2023.

Cost of goods sold decreased to 71.9% of net sales, for the second quarter of fiscal year 2024, compared to 77.9% of net sales for the second quarter of fiscal year 2023.

Cost of goods sold increased by $131,523 to $1,183,335, for the first half of fiscal year 2024, from $1,051,812, for the first half of fiscal year 2023.

Cost of goods sold decreased to 73.0% of net sales, for the first half of fiscal year 2024, compared to 78.7% of net sales for the first half of fiscal year 2023.

The increase in cost of goods sold on an absolute basis in the second quarter and first half of fiscal year 2024 compared to the same periods of the prior fiscal year is primarily due to higher sales volume and net inflationary impacts on material and labor costs.

The decrease in cost of goods sold as a percent of net sales in the second quarter and first half of fiscal year 2024 compared to the same periods of the prior fiscal year is primarily due to price realization.

Gross margin (as measured by net sales less cost of goods sold, divided by net sales) was 28.1% for the second quarter of fiscal year 2024 and 27.0% for the first half of fiscal year 2024, compared to 22.1% for the second quarter of fiscal year 2023 and 21.3% for the first half of fiscal year 2023.

The increase in gross margin for the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior fiscal year is primarily attributable to higher sales volume and price realization, partially offset by net inflationary impacts on material and labor costs.

Selling, general, and administrative expenses increased by $5,869, or 7.8%, to $81,447 for the second quarter of fiscal year 2024, compared to $75,578 for the second quarter of fiscal year 2023.

Selling, general, and administrative expenses as a percentage of net sales decreased to 9.8% for the second quarter of fiscal year 2024, compared to 10.5% for the second quarter of fiscal year 2023.

The increase in selling, general, and administrative expenses on an absolute basis for the second quarter of fiscal year 2024 compared to the same period of the prior fiscal year is primarily due to increased annual variable incentive compensation costs.

Selling, general, and administrative expenses increased by $17,193, or 12.4%, to $155,958 for the first half of fiscal year 2024, compared to $138,765 for the first half of fiscal year 2023.

Selling, general, and administrative expenses as a percentage of net sales decreased to 9.6% for the first half of fiscal year 2024, compared to 10.4% for the first half of fiscal year 2023.

The increase in selling, general, and administrative expenses on an absolute basis for the first half of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily due to increased annual variable incentive compensation costs, increased expenses relating to business development activities, and increased headcount.

Research and development costs decreased by $1,312, or 3.5%, to $36,465 for the second quarter of fiscal year 2024, compared to $37,777 for the second quarter of fiscal year 2023.

The decrease in research and development costs for the second quarter of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily due to variability in the timing of projects and expenses.

As a percentage of net sales, research and development costs decreased to 4.4% for the second quarter of fiscal year 2024, as compared to 5.3% for the same period of the prior fiscal year.

Research and development costs increased by $848, or 1.3%, to $67,259 for the first half of fiscal year 2024, compared to $66,411 for the first half of fiscal year 2023.

The increase in research and development costs for the first half of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily due to variability in the timing of projects and expenses.

As a percentage of net sales, research and development costs decreased to 4.1% for the first half of fiscal year 2024, as compared to 5.0% for the first half of fiscal year 2023.

Cost of goods sold increased by $21,451 to $617,702 for the third quarter of fiscal year 2024, compared to $596,251, for the third quarter of fiscal year 2023.

Cost of goods sold decreased to 72.9% of net sales for the third quarter of fiscal year 2024, compared to 74.5% of net sales for the third quarter of fiscal year 2023.

The increase in cost of goods sold on an absolute basis in the third quarter of fiscal year 2024 compared to the same period of the prior fiscal year is primarily net inflationary impacts on material and labor costs.

Cost of goods sold increased by $151,564 to $1,801,037 for the first nine months of fiscal year 2024, compared to $1,649,473, for the first nine months of fiscal year 2023.

Cost of goods sold decreased to 72.9% of net sales for the first nine months of fiscal year 2024, compared to 77.2% of net sales for the first nine months of fiscal year 2023.

The increase in cost of goods sold on an absolute basis in the first nine months of fiscal year 2024 compared to the same period of the prior fiscal year is primarily due to higher sales volume and net inflationary impacts on material and labor costs.

The decrease in cost of goods sold as a percent of net sales in the third quarter and first nine months of fiscal year 2024 compared to the same periods of the prior fiscal year is primarily due to price realization.

Gross margin (as measured by net sales less cost of goods sold, divided by net sales) was 27.1% for the third quarter and first nine months of fiscal year 2024, compared to 25.5% for the third quarter of fiscal year 2023 and 22.8% for the first nine months of fiscal year 2023.

The increase in gross margin for the third quarter and first nine months of fiscal year 2024 as compared to the same periods of the prior fiscal year is primarily attributable to higher sales volume and price realization, partially offset by net inflationary impacts on material and labor costs.

Selling, general, and administrative expenses increased by $8,829, or 13.6%, to $73,812 for the third quarter of fiscal year 2024, compared to $64,983 for the third quarter of fiscal year 2023.

Selling, general, and administrative expenses as a percentage of net sales increased to 8.7% for the third quarter of fiscal year 2024, compared to 8.1% for the third quarter of fiscal year 2023.

The increase in selling, general, and administrative expenses on an absolute basis for the third quarter of fiscal year 2024 compared to the same period of the prior fiscal year is primarily due to increased headcount and increased annual variable incentive compensation costs.

Selling, general, and administrative expenses increased by $26,022, or 12.8%, to $229,770 for the first nine months of fiscal year 2024, compared to $203,748 for the first nine months of fiscal year 2023.

Selling, general, and administrative expenses as a percentage of net sales decreased to 9.3% for the first nine months of fiscal year 2024, compared to 9.5% for the first nine months of fiscal year 2023.

The increase in selling, general, and administrative expenses on an absolute basis for the first nine months of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily due to increased headcount, increased annual variable incentive compensation costs, and increased expenses relating to business development activities.

Research and development costs increased by $3,695, or 10.5%, to $38,728 for the third quarter of fiscal year 2024, compared to $35,033 for the third quarter of fiscal year 2023.

The increase in research and development costs for the third quarter of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily due to variability in the timing of projects and expenses.

As a percentage of net sales, research and development costs increased to 4.6% for the third quarter of fiscal year 2024, as compared to 4.4% for the same period of the prior fiscal year.

Research and development costs increased by $5,953, or 6.0%, to $105,987 for the first nine months of fiscal year 2024, compared to $100,034 for the first nine months of fiscal year 2023.

The increase in research and development costs for the first nine months of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily due to variability in the timing of projects and expenses.

As a percentage of net sales, research and development costs decreased to 4.3% for the first nine months of fiscal year 2024, as compared to 4.7% for the first nine months of fiscal year 2023.

Our research and development activities extend across almost all of our customer base, and we anticipate ongoing variability in research and development costs due to the timing of customer business needs on current and future programs.

Interest expense decreased by $1,315, or 10.2%, to $11,530 for the second quarter of fiscal year 2024, compared to $12,845 for the second quarter of fiscal year 2023.

Interest expense decreased by $1,021, or 4.3%, to $22,966 for the first half of fiscal year 2024, compared to $23,987 for the first half of fiscal year 2023.

Interest expense as a percentage of net sales was 1.4% for each of the second quarter and first half of fiscal year 2024, compared to 1.8% for each of the second quarter and first half of fiscal year 2023.

The decrease in interest expense for the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior fiscal year is primarily attributable to increased payments on our revolving credit facility during the second quarter and first half of fiscal year 2024.

Interest expense decreased by $659, or 5.4%, to $11,516 for the third quarter of fiscal year 2024, compared to $12,175 for the third quarter of fiscal year 2023.

Interest expense decreased by $1,680, or 4.6%, to $34,482 for the first nine months

of fiscal year 2024, compared to $36,162 for the first nine months of fiscal year 2023.

Interest expense as a percentage of net sales was 1.4% for each of the third quarter and first nine months of fiscal year 2024, compared to 1.5% for the third quarter of fiscal year 2023 and 1.7% for the first nine months of fiscal year 2023.

The decrease in interest expense for the third quarter and first nine months of fiscal year 2024 as compared to the same periods of the prior fiscal year is primarily attributable to increased payments on our revolving credit facility during the third quarter and first nine months of fiscal year 2024.

During the first six months of fiscal year 2024, we paid the entire balance of two series of private placement notes totaling $75,000.

Other income increased by $2,344 to $14,384 for the second quarter of fiscal year 2024, compared to $12,040 for the second quarter of fiscal year 2023.

The increase in other income for the second quarter of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily attributable to a gain on sales of assets and businesses whereas in the prior year we had a loss on the sale of assets and businesses.

Other income increased by $14,593 to $35,023 for the first half of fiscal year 2024, compared to $20,430 for the first half of fiscal year 2023.

The increase in other income for the second quarter of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily attributable to increased earnings in the joint venture with General Electric and a non-recurring gain related to a previous acquisition that was recognized during the first half of fiscal year 2024.

Income taxes were provided at an effective rate on earnings before income taxes of 19.1% for the second quarter and 18.6% for the first half of fiscal year 2024, and 11.8% for the second quarter and 9.5% for the first half of fiscal year 2023.

The increase in the effective tax rate for the second quarter as compared to the same period of the prior fiscal year is primarily attributable to higher projected full-year earnings taxed at statutory rates ranging between approximately 19% and 35%.

These higher projected earnings and higher actual quarterly earnings resulted in lower current quarter tax benefits as a percent of earnings when compared to the prior year quarter.

Additionally, the increase is attributable to projected future withholding taxes on unremitted foreign earnings.

The increase in the effective tax rate for the first half of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily attributable to higher projected full-year earnings taxed at statutory rates ranging between approximately 19% and 35%.

These higher projected earnings and higher actual year-to-date earnings resulted in lower current year-to-date tax benefits as a percent of earnings when compared to the prior year.

Additionally, the increase is attributable to projected future withholding taxes on unremitted foreign earnings and the release of uncertain tax positions that did not recur in the current fiscal year.

Other income increased by $1,437 to $14,438 for the third quarter of fiscal year 2024, compared to $13,001 for the third quarter of fiscal year 2023.

The increase in other income for the third quarter of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily attributable to increased earnings in our joint venture with General Electric.

Other income increased by $16,030 to $49,461 for the first nine months of fiscal year 2024, compared to $33,431 for the first nine months of fiscal year 2023.

The increase in other income for the first nine months of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily attributable to increased earnings in our joint venture with General Electric and a non-recurring gain related to a previous acquisition that was recognized during the first nine months of fiscal year 2024.

Income taxes were provided at an effective rate on earnings before income taxes of 16.4% for the third quarter and 17.8% for the first nine months of fiscal year 2024, and 20.0% for the third quarter and 15.8% for the first nine months of fiscal year 2023.

The decrease in the effective tax rate for the third quarter of fiscal year 2024 compared to the same period of the prior fiscal year is primarily attributable to a larger stock-based compensation tax benefit in the current quarter.

This decrease was partially offset by higher accrued future withholding taxes on unremitted foreign earnings in the current quarter.

The increase in the effective tax rate for the first nine months of fiscal year 2024 compared to the same period of the prior fiscal year is attributable to higher accrued future withholding taxes on unremitted foreign earnings in the current fiscal year.

Additionally, the increase is attributable to a release of uncertain tax positions during the nine months ended June 30, 2023 that did not reoccur in fiscal year 2024.

These increases were partially offset by a larger stock-based compensation tax benefit in the first nine months of fiscal year 2024.

Segment Results

The following table presents sales by segment:

Three Months Ended March 31,

Six Months Ended March 31,

Three Months Ended June 30,

Nine Months Ended June 30,

Consolidated net sales

The following table presents earnings by segment and reconciles segment earnings to consolidated net earnings:

Three Months Ended March 31,

Six Months Ended March 31,

Three Months Ended June 30,

Nine Months Ended June 30,

Nonsegment expenses

4 unchanged sentences

The following table presents segment earnings as a percent of segment net sales:

Three Months Ended March 31,

Six Months Ended March 31,

Aerospace segment net sales increased by $60,495, or 13.8%, to $497,512 for the second quarter of fiscal year 2024, compared to $437,017 for the second quarter of fiscal year 2023.

Aerospace segment net sales increased by $125,566, or 15.1%, to $958,268 for the first half of fiscal year 2024, compared to $832,702 for the first half of fiscal year 2023.

The increase in Aerospace segment net sales in the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior fiscal year is primarily attributable to increased aircraft utilization, as a result of continued growth in passenger traffic, and price realization.

Defense OEM sales increased in the second quarter and were approximately flat for the first half of fiscal year 2024 as compared to the same periods of the prior fiscal year, primarily driven by increased demand for ground vehicle components, partially offset by reduced demand for smart defense.

Our defense aftermarket sales increased in the second quarter and first half of fiscal year 2024 compared to the same periods of the prior fiscal year, primarily driven by supply chain stabilization and increased output.

Aerospace segment earnings increased by $25,137, or 34.3%, to $98,451 for the second quarter of fiscal year 2024, compared to $73,314 for the second quarter of fiscal year 2023.

Aerospace segment earnings increased by $48,705, or 37.8%, to $177,453 for the first half of fiscal year 2024, compared to $128,748 for the first half of fiscal year 2023.

Three Months Ended June 30,

Nine Months Ended June 30,

Aerospace segment net sales increased by $37,029, or 7.7%, to $517,560 for the third quarter of fiscal year 2024, compared to $480,531 for the third quarter of fiscal year 2023.

The increase in Aerospace segment net sales in the third quarter of fiscal year 2024 as compared to the same period of the prior fiscal year is attributable to price realization as well as increases in aftermarket sales, both commercial and defense, due to higher aircraft utilization.

Aerospace segment net sales increased by $162,595, or 12.4%, to $1,475,828 for the first nine months of fiscal year 2024, compared to $1,313,233 for the first nine months of fiscal year 2023.

Defense OEM sales decreased in the third quarter and the first nine months of fiscal year 2024 as compared to the same periods of the prior fiscal year, primarily driven by reduced demand for fixed wing and rotorcraft platforms, partially offset by an increase in smart defense.

Our defense aftermarket sales increased in the third quarter and first nine months of fiscal year 2024 compared to the same periods of the prior fiscal year, primarily driven by increased output and supply chain stabilization.

Aerospace segment earnings increased by $18,767, or 22.6%, to $101,842 for the third quarter of fiscal year 2024, compared to $83,075 for the third quarter of fiscal year 2023.

Aerospace segment earnings increased by $67,472, or 31.9%, to $279,295 for the first nine months of fiscal year 2024, compared to $211,823 for the first nine months of fiscal year 2023.

The increase in Aerospace segment earnings was due to the following:

Three-Month Period

Six-Month Period

Earnings for the period ended March 31, 2023

Nine-Month Period

Earnings for the period ended June 30, 2023

Sales volume and mix

Price, inflation, and productivity

Earnings for the period ended March 31, 2024

Aerospace segment earnings as a percentage of segment net sales were 19.8% for the second quarter and 18.5% for the first half of fiscal year 2024, compared to 16.8% for the second quarter and 15.5% for the first half of fiscal year 2023.

Industrial segment net sales increased by $56,634, or 20.1%, to $337,831 for the second quarter of fiscal year 2024, compared to $281,197 for the second quarter of fiscal year 2023.

Industrial segment net sales increased by $159,674, or 31.7%, to $663,805 for the first half of fiscal year 2024, compared to $504,131 for the first half of fiscal year 2023.

The increase in Industrial segment net sales in the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior fiscal year was primarily attributable to growth in transportation, particularly in the on-highway natural gas truck business in China, as well as strong sales in power generation and price realization, partially offset by decreased oil and gas sales.

Future demand for on-highway natural gas trucks in China beyond the third quarter of fiscal year 2024 remains uncertain.

Industrial segment earnings increased by $27,673, or 73.7%, to $65,244 for the second quarter of fiscal year 2024, compared to $37,571 for the second quarter of fiscal year 2023.

Segment earnings increased by $83,152, or 169.8%, to $132,125 for the first half of fiscal year 2024, compared to $48,973 for the first half of fiscal year 2023.

Earnings for the period ended June 30, 2024

Aerospace segment earnings as a percentage of segment net sales were 19.7% for the third quarter and 18.9% for the first nine months of fiscal year 2024, compared to 17.3% for the third quarter and 16.1% for the first nine months of fiscal year 2023.

Industrial segment net sales increased by $9,996, or 3.1%, to $330,128 for the third quarter of fiscal year 2024, compared to $320,132 for the third quarter of fiscal year 2023.

The increase in Industrial segment net sales in the third quarter of fiscal year 2024 as compared to the same period of the prior fiscal year is primarily attributable to price realization as well as growth in power generation, partially offset by decreased oil and gas sales.

Industrial segment net sales increased by $169,670, or 20.6%, to $993,933 for the first nine months of fiscal year 2024, compared to $824,263 for the first nine months of fiscal year 2023.

The increase in Industrial segment net sales for the first nine months of fiscal year 2024 as compared to the same period of the prior fiscal year was primarily attributable to growth in transportation, particularly in the on-highway natural gas truck business in China, as well as strong sales in power generation and price realization, partially offset by decreased oil and gas sales.

Demand for the remainder of fiscal year 2024 for on-highway natural gas trucks in China is expected to decline.

Industrial segment earnings increased by $1,520, or 2.6%, to $59,717 for the third quarter of fiscal year 2024, compared to $58,197 for the third quarter of fiscal year 2023.

Segment earnings increased by $84,672, or 79.0%, to $191,842 for the first nine months of fiscal year 2024, compared to $107,170 for the first nine months of fiscal year 2023.

The increase in Industrial segment earnings was due to the following:

Three-Month Period

Six-Month Period

Earnings for the period ended March 31, 2023

Nine-Month Period

Earnings for the period ended June 30, 2023

Sales volume and mix

Price, inflation, and productivity

Earnings for the period ended March 31, 2024

Industrial segment earnings as a percentage of segment net sales were 19.3% for the second quarter and 19.9% for the first half of fiscal year 2024, compared to 13.4% for the second quarter and 9.7% for the first half of fiscal year 2023.

Industrial earnings benefited significantly from increased demand for on-highway natural gas trucks in China as well as from operational improvements including increased output and other efficiency gains, and favorable product mix.

Future demand for on-highway natural gas trucks in China beyond the third quarter of fiscal year 2024 remains uncertain.

Nonsegment expenses decreased by $25,473 to $32,834 for the second quarter of fiscal year 2024, compared to $58,307 for the second quarter of fiscal year 2023.

Nonsegment expenses decreased by $23,584 to $59,034 for the first half of fiscal year 2024 compared to $82,618 for the first half of fiscal year 2023.

The decrease in nonsegment expenses for the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior year was primarily due to significant costs that occurred in the second quarter of fiscal year 2023 that did not reoccur in the second quarter or first half of fiscal year 2024.

Earnings for the period ended June 30, 2024

Industrial segment earnings as a percentage of segment net sales were 18.1% for the third quarter and 19.3% for the first nine months of fiscal year 2024, compared to 18.2% for the third quarter and 13.0% for the first nine months of fiscal year 2023.

Industrial earnings in the third quarter of fiscal year 2024 remained relatively flat as compared to the same period of the prior fiscal year as a result of price realization, which was largely offset by inflation and unfavorable mix.

Industrial earnings in the first nine months of fiscal year 2024 benefited significantly from increases in transportation due to increased demand for on-highway natural gas trucks in China as well as operational improvements including increased output and other efficiency gains.

Nonsegment expenses increased by $5,800 to $29,675 for the third quarter of fiscal year 2024, compared to $23,875 for the third quarter of fiscal year 2023.

The increase in nonsegment expenses for the third quarter of fiscal year 2024 as compared to the same period of the prior year was primarily due to increased annual variable incentive compensation costs.

Nonsegment expenses decreased by $17,784 to $88,709 for the first nine months of fiscal year 2024 compared to $106,493 for the first nine months of fiscal year 2023.

The decrease in nonsegment expenses for the first nine months of fiscal year 2024 as compared to the same period of the prior year was primarily due to significant costs that occurred in the first nine months of fiscal year 2023 that did not reoccur in the first nine months of fiscal year 2024.

The significant charges that impacted nonsegment expenses are as follows:

Three Months Ended March 31,

Six Months Ended March 31,

Three Months Ended June 30,

Nine Months Ended June 30,

Nonsegment expenses

6 unchanged sentences

Non-recurring charge related to customer collections

Nonsegment expenses excluding one time significant charges

Excluding these charges, nonsegment expenses increased $5,073 in the second quarter of fiscal year 2024 as compared to the same period of the prior fiscal year.

Excluding these charges, nonsegment expenses increased $7,527 in the first half of fiscal year 2024 as compared to the same period of the prior fiscal year.

The remaining increase in nonsegment expenses for the second quarter and first half of fiscal year 2024 as compared to the same periods of the prior fiscal year is primarily due to increased annual variable incentive compensation costs.

Nonsegment expenses excluding infrequent significant charges

Excluding these charges, nonsegment expenses increased $13,327 in the first nine months of fiscal year 2024 as compared to the same period of the prior fiscal year, primarily due to increased annual variable incentive compensation costs.

LIQUIDITY AND CA PITAL RESOURCES

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For further discussion of our revolving credit facility and our other credit facilities, see Note 14, Credit facilities, short-term borrowings and long-term debt in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item I of this Form 10-Q.

At March 31, 2024, we had total outstanding debt of $791,038 consisting of various series of unsecured notes due between 2025 and 2033 and obligations under our finance leases.

At March 31, 2024, we had $141,300 outstanding on our revolving credit facility, all of which is classified as short-term borrowings based on our intent and ability to repay this amount in the next twelve months.

Revolving credit facility and short-term borrowing activity during the six months ended March 31, 2024 were as follows:

At June 30, 2024, we had total outstanding debt of $923,126 consisting of various series of unsecured notes due between 2025 and 2033 and obligations under our finance leases.

At June 30, 2024, we had $274,800 outstanding on our revolving credit facility, all of which is classified as short-term borrowings based on our intent and ability to repay this amount in the next twelve months.

Revolving credit facility and short-term borrowing activity during the nine months ended June 30, 2024 were as follows:

Maximum daily balance during the period

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Weighted average interest rate on average daily balance

At March 31, 2024, we had additional borrowing availability of $850,764 under our revolving credit facility, net of outstanding letters of credit, and additional borrowing availability of $25,585 under various foreign credit facilities.

To our knowledge, we were in compliance with all our debt covenants as of March 31, 2024.

At June 30, 2024, we had additional borrowing availability of $717,338 under our revolving credit facility, net of outstanding letters of credit, and additional borrowing availability of $25,176 under various foreign credit facilities.

To our knowledge, we were in compliance with all our debt covenants as of June 30, 2024.

See Note 15, Credit facilities, short-term borrowings and long-term debt in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our most recently filed Form 10-K, for more information about our covenants.

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From time to time, the Company enters into various factoring agreements with third-party financial institutions to sell certain of its receivables.

Factoring activity resulted in an increase of approximately $1,917 in cash provided by operating activities during the six months ended March 31, 2024, compared to an increase in cash provided by operating activities of approximately $1,569 during the six months ended March 31, 2023.

Factoring activity resulted in an increase of approximately $8,793 in cash provided by operating activities during the nine months ended June 30, 2024, compared to an increase in cash provided by operating activities of approximately $18,096 during the nine months ended June 30, 2023.

Our ability to service our long-term debt, to remain in compliance with the various restrictions and covenants contained in our debt agreements, and to fund working capital, capital expenditures and product development efforts will depend on our ability to generate cash from operating activities, which in turn is subject to, among other things, future operating performance as well as general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control.

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We believe the lending institutions participating in our credit arrangements are financially stable and do not currently foresee adverse impacts to financial institutions supporting our capital requirements.

Six Months Ended March 31,

Nine Months Ended June 30,

Net cash provided by operating activities

Net cash (used in) investing activities

Net cash provided by financing activities

Net cash (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

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Cash and cash equivalents at end of period

Net cash flows provided by operating activities for the first half of fiscal year 2024 was $144,118, compared to $40,150 for the same period of fiscal year 2023.

The increase in net cash provided by operating activities in the first half of fiscal year 2024 as compared to the first half of the prior fiscal year is primarily attributable to increased earnings.

Net cash flows used in investing activities for the first half of fiscal year 2024 was $49,641 compared to $35,236 for the same period of fiscal year 2023.

The increase in cash flows used in investing activities in the first half of fiscal year 2024 as compared to the first half of the prior fiscal year is primarily due to increased payments for property, plant, and equipment.

Net cash flows provided by financing activities for the first half of fiscal year 2024 was $80,588, compared to $24,337 for the same period of fiscal year 2023.

The increase in net cash flows provided by financing activities in the first half of fiscal year 2024 as compared to the first half of the prior fiscal year is primarily attributable to the decrease in repurchases of common stock and an increase in borrowings on revolving lines of credit, partially offset by an increase in payments on revolving lines of credit.

During the first half of fiscal year 2024, we did not repurchase any common stock, compared to $26,369 of repurchases of common stock during the first half of fiscal year 2023.

During the first half of fiscal year 2024, we had net debt borrowings in the amount of $65,828, compared to $63,412 in the first half of fiscal year 2023.

Net cash flows provided by operating activities for the first nine months of fiscal year 2024 was $297,329, compared to $155,630 for the same period of fiscal year 2023.

The increase in net cash provided by operating activities in the first nine months of fiscal year 2024 as compared to the first nine months of the prior fiscal year is primarily attributable to increased earnings.

Net cash flows used in investing activities for the first nine months of fiscal year 2024 was $68,239, compared to $54,204 for the same period of fiscal year 2023.

The increase in cash flows used in investing activities in the first nine months of fiscal year 2024 as compared to the first nine months of the prior fiscal year is primarily due to increased payments for property, plant, and equipment.

Net cash flows used in financing activities for the first nine months of fiscal year 2024 was $58,970, compared to $83,315 for the same period of fiscal year 2023.

The decrease in net cash flows used in financing activities in the first nine months of fiscal year 2024 as compared to the first nine months of the prior fiscal year is primarily attributable to the increases in borrowings on revolving lines of credit, partially offset by increases in repurchases of common stock and in payments on revolving lines of credit.

During the first nine months of fiscal year 2024, we had net debt borrowings of $199,156, compared to net debt payments of $43,836 in the first nine months of fiscal year 2023.

During the first nine months of fiscal year 2024, we repurchased $304,811 of common stock compared to $26,369 of repurchases of common stock during the first nine months of fiscal year 2023.

GAAP Financial Measures

Adjusted net earnings, adjusted earnings per share, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, adjusted EBITDA, free cash flow, and adjusted free cash flow are financial measures not prepared and presented in accordance with

Adjusted net earnings, adjusted earnings per share, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, adjusted EBITDA, and free cash flow are financial measures not prepared and presented in accordance with U.S.

However, we believe these non-U.S.

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The non-recurring charge related to customer collections pertains to a discrete process issue that was identified and corrected.

The Company believes that these excluded items are short‐term in nature, not directly related to the ongoing operations of the business, and therefore, the exclusion of them illustrates more clearly how the underlying business of Woodward is performing.

The Company believes that these excluded items are short‐term in nature, not directly related to the ongoing, normal operations of the business, and therefore, the exclusion of them illustrates more clearly how the underlying business of Woodward is performing.

Management uses adjusted net earnings to evaluate the Company’s performance excluding these infrequent or unusual period expenses that are not necessarily indicative of the Company’s operating performance for the period.

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The reconciliation of net earnings and earnings per share to adjusted net earnings and adjusted earnings per share, respectively, is shown in the tables below:

Three Months Ended March 31,

Three Months Ended June 30,

Earnings Per Share

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GAAP adjustments, net of tax:

Non-recurring gain related to a previous acquisition

Business development activities

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Adjusted net earnings (Non-U.S.

Six Months Ended March 31,

Nine Months Ended June 30,

Earnings Per Share

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EBIT and adjusted EBIT reconciled to net earnings were as follows:

Three Months Ended March 31,

Six Months Ended March 31,

Three Months Ended June 30,

Nine Months Ended June 30,

Net earnings (U.S.

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EBITDA and adjusted EBITDA reconciled to net earnings were as follows:

Three Months Ended March 31,

Six Months Ended March 31,

Three Months Ended June 30,

Nine Months Ended June 30,

Net earnings (U.S.

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Cash flow‐based non‐U.S.

GAAP financial measures

GAAP financial measure

Management uses free cash flow, which is defined by the Company as net cash flows provided by operating activities less payments for property, plant, and equipment, in reviewing the financial performance of and cash generation by Woodward’s various business groups and evaluating cash levels.

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In addition, securities analysts, investors, and others frequently use free cash flow in their evaluation of companies.

Adjusted free cash flow represents a further non-U.S.

GAAP adjustment to free cash flow to exclude, as applicable, the effect of cash received for a non-recurring matter related to a previous acquisition, and cash payments for (i) business development activities, (ii) a non-recurring matter unrelated to the ongoing operations of the business, and (iii) restructuring charges.

Management believes that excluding these infrequent or unusual items from free cash flow better portrays our ability to generate cash, as such items are not indicative of the Company’s operating performance for the period.

The use of these non‐U.S.

GAAP financial measures is not intended to be considered in isolation of, or as substitutes for, the financial information prepared and presented in accordance with U.S.

Free cash flow and adjusted free cash flow do not necessarily represent funds available for discretionary use and are not necessarily a measure of our ability to fund our cash needs.

Our calculation of free cash flow and adjusted free cash flow may differ from similarly titled measures used by other companies, limiting their usefulness as comparative measures.

Free cash flow and adjusted free cash flow reconciled to net cash provided by operating activities were as follows:

Six Months Ended March 31,

The use of this non‐U.S.

GAAP financial measure is not intended to be considered in isolation of, or as substitutes for, the financial information prepared and presented in accordance with U.S.

Free cash flow does not necessarily

represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs.

Our calculation of free cash flow may differ from similarly titled measures used by other companies, limiting their usefulness as comparative measures.

Free cash flow reconciled to net cash provided by operating activities were as follows:

Nine Months Ended June 30,

Net cash provided by operating activities (U.S.

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Free cash flow (Non-U.S.

Cash received for a non-recurring matter related to a previous acquisition

Cash paid for business development activities

Cash paid for a non-recurring matter unrelated to the ongoing operations of the business

Cash paid for restructuring charges

Adjusted free cash flow (Non-U.S.

CRITICAL ACCOUNTING ESTIMATES

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis