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Item 2. Management’s Discussion and Analysis

2025-02-04 compared with 2024-08-02 · 126 added, 194 removed, 211 unchanged (60% of the section changed)

14 unchanged sentences

• descriptions of our plans and expectations for future operations, including our strategic initiatives and impact of such initiatives;

• plans and expectations relating to the performance of our joint venture with General Electric Company;

• plans and expectations relating to the performance of our joint venture with GE Aerospace;

• the expected levels of activity in particular industries or markets and the effects of changes in those levels;

1 unchanged sentence

• the research, development, production, and support of new products and services;

• ability to implement and realize the intended effects of any restructuring efforts;

• our plans, objectives, expectations, and intentions with respect to business opportunities that may be available to us;

8 unchanged sentences

• expectations relating to environmental and emissions regulations;

• effects of data privacy, data protection, and information security regulations;

• our ability to increase automation and develop competitive technologies;

• effects of data privacy, data protection, and cybersecurity regulations;

• our ability to develop competitive technologies;

• our consolidated customer base and ability to enhance customer experience;

2 unchanged sentences

• our ability to attract, retain, and develop qualified personnel and maintain favorable labor relations;

• our ability to structure our operations in light of evolving market conditions;

• our ability to mitigate the ongoing impacts of inflation;

• impact of our ability to protect our intellectual property on our business, financial condition, results of operations, and cash flows;

6 unchanged sentences

Except where we have otherwise indicated or the context otherwise requires, amounts presented in this Form 10-Q are in thousands, except per share amounts.

Global Business Conditions

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.

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.

Operational Highlights

Quarter and Year to Date Highlights

Quarter to Date Highlights

Three Months Ended

Nine Months Ended

Aerospace segment

15 unchanged sentences

Adjusted EBITDA

Adjusted net earnings, adjusted earnings per share, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA are non-U.S.

Adjusted net earnings, adjusted effective tax rate, adjusted earnings per share, EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA are non-U.S.

GAAP financial measures.

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Liquidity Highlights

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.

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.

Net cash provided by operating activities for the first three months of fiscal year 2025 was $34,516, compared to $46,789 for the first three months of fiscal year 2024.

The decrease in net cash provided by operating activities in the first three months of fiscal year 2025 compared to the first three months of the prior fiscal year is primarily attributable to the timing of certain cash payments for accounts payable, partially offset by timing of cash received from customers as well as increases in working capital.

For the first three months of fiscal year 2025, free cash flow was $942, compared to $4,977 for the first three months of fiscal year 2024.

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

The decrease in free cash flow for the first three months of fiscal year 2025 as compared to the same period of the prior fiscal year was primarily attributable to lower earnings, partially offset by lower capital expenditures.

Free cash flow is a non-U.S.

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

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

At December 31, 2024, we held $283,726 in cash and cash equivalents and had total outstanding debt of $902,174.

We have additional borrowing availability of $734,108, net of outstanding letters of credit, under our revolving credit agreement.

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

At December 31, 2024, we also had additional borrowing capacity of $19,730 under various foreign lines of credit and foreign overdraft facilities.

RESULTS OF OPERATIONS

1 unchanged sentence

Three Months Ended

Nine Months Ended

June 30, 2024

December 31, 2024

% of Net Sales

June 30, 2023

December 31, 2023

% of Net Sales

3 unchanged sentences

Research and development costs

Restructuring charges

Interest expense

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Other select financial data:

June 30, 2024

December 31, 2024

September 30, 2024

Working capital

Net working capital

Total stockholders' equity

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.

Consolidated net sales for the first quarter of fiscal year 2025 decreased by $14,005, or 1.8%, compared to the same period of fiscal year 2024.

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

Three-Month Period

Nine-Month Period

Consolidated net sales for the period ended June 30, 2023

Consolidated net sales for the period ended December 31, 2023

Aerospace volume

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Effects of changes in foreign currency rates

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.

Consolidated net sales for the period ended December 31, 2024

In the Aerospace segment, the increase in net sales for the first quarter of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily attributable to price realization, partially offset by inflation, unfavorable mix, and lower volumes.

In the Industrial segment, the decrease in net sales for the first quarter of fiscal year 2025 as compared to the same period of the prior fiscal year was primarily a result of lower volumes and unfavorable mix, partially offset by price realization and favorable foreign currency exchange rates.

We expect significant sales and earnings decreases in our China on-highway natural gas truck business in fiscal year 2025 due to the deteriorating local Chinese economy.

Future demand remains uncertain due to the volatility of this business.

Costs and Expenses

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.

Cost of goods sold remained flat at $583,091, or 75.5% of net sales, for the first quarter of fiscal year 2025, as compared to $582,381, or 74.0% of net sales, for the first quarter of fiscal year 2024.

Gross margin (as measured by net sales less cost of goods sold, divided by net sales) was 24.5% for the first quarter of fiscal year 2025, compared to 26.0% for the first quarter of fiscal year 2024.

The decrease in gross margin for the first quarter of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily attributable to lower sales volume, partially offset by price realization.

Selling, general, and administrative expenses decreased by $4,815, or 6.5%, to $69,696 for the first quarter of fiscal year 2025, compared to $74,511 for the first quarter of fiscal year 2024.

Selling, general, and administrative expenses as a percentage of net sales decreased to 9.0% for the first quarter of fiscal year 2025, compared to 9.5% for the first quarter of fiscal year 2024.

The decrease in selling, general, and administrative expenses on an absolute basis for the first quarter of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily due to the positive effects of changes in foreign currency rates and decreased expenses relating to our deferred compensation program, partially offset by increased headcount.

Research and development costs were consistent at $30,207, or 3.9% of net sales, for the first quarter of fiscal year 2025, as compared to $30,794, or 3.9% of net sales, for the first quarter of fiscal year 2024 primarily due to variability in the timing of projects and expenses.

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 $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 $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.

Interest expense increased by $905, or 7.9%, to $12,341 for the first quarter of fiscal year 2025, compared to $11,436 for the first quarter of fiscal year 2024.

Interest expense as a percentage of net sales was 1.6% for the first quarter of fiscal year 2025, compared to 1.5% for the first quarter of fiscal year 2024.

The increase in interest expense on an absolute basis and percentage basis for the first quarter of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily attributable to increased average daily borrowings on the revolving credit facility during the first quarter of fiscal year 2025.

Other income increased by $2,448 to $23,087 for the first quarter of fiscal year 2025, compared to $20,639 for the first quarter of fiscal year 2024.

The increase in other income for the first quarter of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily attributable to a one-time gain related to product rationalization activities that was recognized in the current year first quarter that did not occur in the prior year first quarter, partially offset by a gain in the prior year first quarter associated with a non-recurring matter related to a previous acquisition that did not reoccur in the current year first quarter.

Income taxes were provided at an effective rate on earnings before income taxes of 14.5% for the first quarter of fiscal year 2025, and 17.9% for the first quarter of fiscal year 2024.

The decrease in the effective tax rate for the three months ended December 31, 2024 compared to the three months ended December 31, 2023 is primarily attributable to larger stock-based compensation tax benefit in the current quarter, partially offset by a smaller estimated Research and Development Credit as well as the impact of higher projected full year earnings on state income tax expense.

Segment Results

The following table presents sales by segment:

Three Months Ended June 30,

Nine Months Ended June 30,

Three Months Ended December 31,

Consolidated net sales

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

Three Months Ended June 30,

Nine Months Ended June 30,

Three Months Ended December 31,

Nonsegment expenses

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

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.

Three Months Ended December 31,

Aerospace segment net sales increased by $33,126, or 7.2%, to $493,882 for the first quarter of fiscal year 2025, compared to $460,756 for the first quarter of fiscal year 2024.

The increase in Aerospace segment net sales in the first quarter of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily attributable to price realization, partially offset by inflation, unfavorable mix, and lower volumes.

Commercial OEM sales decreased in the first quarter of fiscal year 2025 as compared to the same period of the prior fiscal year, primarily driven by the impacts from the Boeing work stoppage.

Commercial aftermarket sales increased in the first quarter of fiscal year 2025 as compared to the same period of the prior fiscal year, primarily due to high aircraft utilization rates.

Defense OEM and defense aftermarket sales increased in the first quarter of fiscal year 2025 as compared to the same period of the prior fiscal year, primarily driven by increased demand for smart defense and fixed wing aircraft, respectively.

Aerospace segment earnings increased by $15,723, or 19.9%, to $94,725 for the first quarter of fiscal year 2025, compared to $79,002 for the first quarter of fiscal year 2024.

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

Three-Month Period

Nine-Month Period

Earnings for the period ended June 30, 2023

Earnings for the period ended December 31, 2023

Sales volume and mix

Price, inflation, and productivity

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:

Earnings for the period ended December 31, 2024

Aerospace segment earnings as a percentage of segment net sales were 19.2% for the first quarter of fiscal year 2025, compared to 17.2% for the first quarter of fiscal year 2024.

Industrial segment net sales decreased by $47,131, or 14.5%, to $278,843 for the first quarter of fiscal year 2025, compared to $325,974 for the first quarter of fiscal year 2024.

The decrease in Industrial segment net sales in the first quarter of fiscal year 2025 as compared to the same period of the prior fiscal year was primarily attributable to lower volumes and unfavorable mix, partially offset by price realization and favorable foreign currency exchange rates.

In the first quarter of fiscal year 2025 as compared to the same period of the prior year, we saw a substantial sales decline in our on-highway natural gas truck business in China due to the deteriorating local Chinese economy.

Industrial segment earnings decreased by $26,684, or 39.9%, to $40,197 for the first quarter of fiscal year 2025, compared to $66,881 for the first quarter of fiscal year 2024.

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

Three-Month Period

Nine-Month Period

Earnings for the period ended June 30, 2023

Earnings for the period ended December 31, 2023

Sales volume and mix

Price, inflation, and productivity

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 June 30,

Nine Months Ended June 30,

Effects of changes in foreign currency rates

Earnings for the period ended December 31, 2024

Industrial segment earnings as a percentage of segment net sales were 14.4% for the first quarter of fiscal year 2025, compared to 20.5% for the first quarter of fiscal year 2024.

Industrial earnings were significantly impacted by the sales decline in our on-highway natural gas truck business in China, partially offset by price realization, volume increases in

power generation and oil and gas, as well as operational improvements, including increased output and other efficiency gains.

Future demand in our on-highway natural gas truck business in China remains uncertain due to the volatility of this business.

Nonsegment expenses decreased by $4,096 to $22,104 for the first quarter of fiscal year 2025, compared to $26,200 for the first quarter of fiscal year 2024.

The significant items that impacted nonsegment expenses in the current year first quarter compared to the prior year first quarter are as follows:

Three Months Ended December 31,

Nonsegment expenses

Non-recurring gain related to a previous acquisition

Business development activities

Certain non-recurring separation costs

Specific charge for excess and obsolete inventory

Product rationalization

Restructuring charges

Non-recurring charge related to customer collections

Business development activities

Non-recurring gain related to a previous acquisition

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.

Excluding these items, nonsegment expenses increased $1,182 in the first quarter of fiscal year 2025 as compared to the same period of the prior fiscal year.

The remaining increase in nonsegment expenses is due to increased headcount.

LIQUIDITY AND CA PITAL RESOURCES

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For further discussion of our revolving credit facility and our other credit facilities, see Note 15, 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 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:

At December 31, 2024, we had total outstanding debt of $902,174 consisting of various series of unsecured notes due between 2025 and 2033 and obligations under our finance leases.

At December 31, 2024, we had $258,000 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 three months ended December 31, 2024 were as follows:

Maximum daily balance during the period

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Weighted average interest rate on average daily balance

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.

At December 31, 2024, we had additional borrowing availability of $734,108 under our revolving credit facility, net of outstanding letters of credit, and additional borrowing availability of $19,730 under various foreign credit facilities.

To our knowledge, we were in compliance with all our debt covenants as of December 31, 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 our Annual Report on Form 10-K for fiscal year 2024, for more information about our covenants.

In addition to utilizing our cash resources to fund the working capital needs of our business, we evaluate additional strategic uses of our funds, including the repurchase of our common stock, payment of dividends, significant capital expenditures, strategic acquisitions, and other potential uses of cash.

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 $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.

Factoring activity resulted in a decrease of approximately $3,856 in cash provided by operating activities during the three months ended December 31, 2024, compared to a decrease in cash provided by operating activities of approximately $5,161 during the three months ended December 31, 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.

Nine Months Ended June 30,

Three Months Ended December 31,

Net cash provided by operating activities

Net cash (used in) investing activities

Net cash (used in) financing activities

Net cash provided by (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 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.

Net cash flows provided by operating activities for the first three months of fiscal year 2025 was $34,516, compared to $46,789 for the same period of fiscal year 2024.

The decrease in net cash provided by operating activities in the first three months of fiscal year 2025 as compared to the first three months of the prior fiscal year is primarily attributable to the timing of certain cash payments for accounts payable, partially offset by timing of cash received from customers as well as increases in working capital.

Net cash flows used in investing activities for the first three months of fiscal year 2025 was $32,100, compared to $41,776 for the same period of fiscal year 2024.

The decrease in cash flows used in investing activities in the first three months of fiscal year 2025 as compared to the first three months of the prior fiscal year is primarily due to decreased payments for property, plant, and equipment.

Net cash flows provided by financing activities for the first three months of fiscal year 2025 was $19,386, compared to net cash flows used in financing activities of $8,091 for the same period of fiscal year 2024.

The increase in net cash flows provided by financing activities in the first three months of fiscal year 2025 as compared to the first three months of the prior fiscal year is primarily attributable to the change in net debt borrowings as compared to payments partially offset by an increase in repurchases of common stock.

During the first three months of fiscal year 2025, we had net debt borrowings in the amount of $40,764, compared to net debt payments of $10,149 in the first three months of fiscal year 2024.

During the first three months of fiscal year 2025, we repurchased $35,473 of our common stock, whereas in the first three months of fiscal year 2024, we did not repurchase any common stock.

GAAP Financial Measures

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GAAP financial measures

Adjusted net earnings is defined by the Company as net earnings excluding, as applicable, (i) a non-recurring gain related to a previous acquisition, (ii) costs related to business development activities, (iii) certain non-restructuring separation costs, (iv) a specific charge for excess and obsolete inventory, (v) product rationalization, (vi) restructuring charges, and (vii) a non-recurring charge related to customer collections.

The product rationalization adjustment pertains to a non-recurring write-off of inventory and assets related to the elimination of certain product lines.

The specific charge for excess and obsolete inventory pertains to a non-recurring process change that resulted in the identification and write down of certain excess inventory unrelated to product rationalization.

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, normal operations of the business, and therefore, the exclusion of them illustrates more clearly how the underlying business of Woodward is performing.

product rationalization adjustment pertains to the divestiture of certain product lines.

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.

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.

Management defines adjusted earnings per share as adjusted net earnings, as defined above, divided by the weighted‐average number of diluted shares of common stock outstanding for the period.

Management uses both adjusted net earnings and adjusted earnings per share when comparing operating performance to other periods which may not have similar, infrequent or unusual charges.

Adjusted income tax expense is defined by the Company as income tax expense excluding, as applicable, (i) a non-recurring gain related to a previous acquisition, (ii) costs related to business development activities, and (iii) product rationalization.

The product rationalization adjustment pertains to the divestiture of certain product lines.

Management uses adjusted net earnings, adjusted earnings per share, and the adjusted effective tax rate when comparing operating performance to other periods.

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 June 30,

Three Months Ended December 31,

Earnings Per Share

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Net earnings (U.S.

GAAP adjustments, net of tax:

Non-recurring gain related to a previous acquisition

Business development activities

Certain non-restructuring separation costs

Specific charge for excess and obsolete inventory

Product rationalization

Restructuring charges

Non-recurring charge related to customer collections

GAAP adjustments:

Adjusted net earnings (Non-U.S.

Nine Months Ended June 30,

Earnings Per Share

Earnings per share (U.S.

GAAP adjustments, net of tax:

Non-recurring gain related to a previous acquisition

Business development activities

Certain non-restructuring separation costs

Specific charge for excess and obsolete inventory

Product rationalization 1

Restructuring charges

Non-recurring charge related to customer collections

Total non-U.S.

Business development activities 2

Non-recurring gain related to a previous acquisition 1

Tax effect of Non-U.S.

GAAP net earnings adjustments

GAAP adjustments

Adjusted earnings per share (Non-U.S.

Adjusted net earnings (Non-U.S.

(1) Presented in the line item "Other (income) expense, net" in Woodward's Condensed Consolidated Statement of Earnings.

(2) Presented in item "Selling, general and administrative" expenses in Woodward's Condensed Consolidated Statement of Earnings.

The reconciliation of income tax expense to adjusted income tax expense and the adjusted effective tax rate respectively, is shown in the tables below:

Three Months Ended December 31,

Income tax expense (U.S.

Tax effect of Non-U.S.

GAAP net income adjustments

Adjusted income tax expense (Non-U.S.

Adjusted effective tax rate (Non-U.S.

Management uses EBIT to evaluate Woodward’s performance without financing and tax related considerations, as these elements do not fluctuate with operating results.

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Adjusted EBIT and adjusted EBITDA represent further non-U.S.

GAAP adjustments to EBIT and EBITDA, in each case adjusted to exclude, as applicable, (i) a non-recurring gain related to a previous acquisition, (ii) costs related to business development activities, (iii) certain non-restructuring separation costs, (iv) a specific charge for excess and obsolete inventory, (v) product rationalization, (vi) restructuring charges, and (vii) a non-recurring charge related to customer collections.

The product rationalization adjustment pertains to a non-recurring write-off of inventory and assets related to the elimination of certain product lines.

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

As these charges are infrequent or unusual items that can be variable from period to period and do not fluctuate with operating results, management believes removing these gains and charges from EBIT and EBITDA improves comparability of past, present, and future operating results and provides consistency when comparing EBIT and EBITDA between periods.

The product rationalization adjustment pertains to the divestiture of certain product lines.

As these charges are infrequent or unusual items that can be variable from period to period and do not fluctuate with operating results, management believes removing these gains and costs from EBIT and EBITDA improves comparability of past, present, and future operating results and provides consistency when comparing EBIT and EBITDA between periods.

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

Three Months Ended June 30,

Nine Months Ended June 30,

Three Months Ended December 31,

Net earnings (U.S.

4 unchanged sentences

GAAP adjustments:

Non-recurring gain related to a previous acquisition

Business development activities

Certain non-recurring separation costs

Specific charge for excess and obsolete inventory

Product rationalization 1

Restructuring charges

Non-recurring charge related to customer collections

Business development activities 2

Non-recurring gain related to a previous acquisition 1

Total non-U.S.

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Adjusted EBIT (Non-U.S.

(1) Presented in the line item "Other (income) expense, net" in Woodward's Condensed Consolidated Statement of Earnings.

(2) Presented in item "Selling, general and administrative" expenses in Woodward's Condensed Consolidated Statement of Earnings.

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

Three Months Ended June 30,

Nine Months Ended June 30,

Three Months Ended December 31,

Net earnings (U.S.

6 unchanged sentences

GAAP adjustments:

Non-recurring gain related to a previous acquisition

Business development activities

Certain non-recurring separation costs

Specific charge for excess and obsolete inventory

Product rationalization 1

Restructuring charges

Non-recurring charge related to customer collections

Business development activities 2

Non-recurring gain related to a previous acquisition 1

Total non-U.S.

1 unchanged sentence

Adjusted EBITDA (Non-U.S.

(1) Presented in the line item "Other (income) expense, net" in Woodward's Condensed Consolidated Statement of Earnings.

(2) Presented in item "Selling, general and administrative" expenses in Woodward's Condensed Consolidated Statement of Earnings.

The use of these non-U.S.

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Cash flow‐based non‐U.S.

GAAP financial measure

GAAP financial measures

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.

1 unchanged sentence

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

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.

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 does 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 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,

Three Months Ended December 31,

Net cash provided by operating activities (U.S.

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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