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Item 2. Management’s Discussion and Analysis

2025-08-01 compared with 2025-05-01 · 138 added, 145 removed, 264 unchanged (52% of the section changed)

49 unchanged sentences

We expect increased cost pressure resulting from the already announced tariffs and there are uncertainties surrounding future tariff policy changes and enforcement.

However, the Company’s production and supply bases are largely in the same regions where our products are sold, which should mitigate our exposure.

Woodward is closely tracking early indicators from our end markets and customer forecasts regarding the potential impact of currently announced tariff levels, changes to such levels, and actual and potential retaliatory trade actions.

We are proactively working to mitigate cost pressure and any supply chain disruptions, as well as sales risks.

However, the Company’s production and supply bases are largely in the same regions where our products are sold, which we believe will mitigate our exposure.

Woodward is closely tracking costs from our supply base and customer forecasts regarding the potential impact of currently announced tariff levels, changes to such levels, and actual and potential retaliatory trade actions.

We have experienced and are expecting, minimal levels of cost pressure as a result of recently implemented tariffs.

We are proactively working to mitigate this cost pressure, potential sales risks, and potential supply chain disruptions.

On July 4, 2025 “One Big Beautiful Bill Act” was signed into law.

This new law made changes to various U.S.

federal income tax items that have effective dates in fiscal years 2025, 2026, and 2027.

Woodward is still assessing the impacts of this Act on our consolidated financial statements.

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 2025 was $112,341, compared to $144,118 for the first half of fiscal year 2024.

For the first half of fiscal year 2025, free cash flow was $60,351, compared to $87,817 for the first half of fiscal year 2024.

Net cash provided by operating activities for the first nine months of fiscal year 2025 was $237,976, compared to $297,329 for the first nine months of fiscal year 2024.

The decrease in cash provided by operating activities for the first nine months of fiscal year 2025 as compared to the same period of the prior fiscal year was primarily attributable to an increase in working capital.

For the first nine months of fiscal year 2025, free cash flow was $159,439, compared to $225,136 for the first nine 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 half of fiscal year 2025 as compared to the same period of the prior fiscal year was primarily attributable to an increase in working capital offset by lower capital expenditures.

The decrease in free cash flow for the first nine months of fiscal year 2025 as compared to the same period of the prior fiscal year was primarily attributable to an increase in working capital and higher capital expenditures.

Free cash flow is a non-U.S.

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

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

At March 31, 2025, we held $364,141 in cash and cash equivalents and had total outstanding debt of $911,910.

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

At June 30, 2025, we held $473,159 in cash and cash equivalents and had total outstanding debt of $932,871.

We have additional borrowing availability of $639,138, net of outstanding letters of credit, under our revolving credit agreement.

At March 31, 2025, we also had additional borrowing capacity of $22,853 under various foreign lines of credit and foreign overdraft facilities.

At June 30, 2025, we also had additional borrowing capacity of $21,353 under various foreign lines of credit and foreign overdraft facilities.

RESULTS OF OPERATIONS

1 unchanged sentence

Three Months Ended

Six Months Ended

March 31, 2025

Nine Months Ended

June 30, 2025

% of Net Sales

March 31, 2024

June 30, 2024

% of Net Sales

March 31, 2025

June 30, 2025

% of Net Sales

March 31, 2024

June 30, 2024

% of Net Sales

10 unchanged sentences

Other select financial data:

March 31, 2025

June 30, 2025

September 30, 2024

1 unchanged sentence

Total stockholders' equity

Consolidated net sales for the second quarter of fiscal year 2025 increased by $48,286, or 5.8%, compared to the same period of fiscal year 2024.

Consolidated net sales for the first half of fiscal year 2025 increased by $34,281, or 2.1%, compared to the same period of fiscal year 2024.

Consolidated net sales for the third quarter of fiscal year 2025 increased by $67,758, or 8.0%, compared to the same period of fiscal year 2024.

Consolidated net sales for the first nine months of fiscal year 2025 increased by $102,039, or 4.1%, compared to the same period of fiscal year 2024.

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

Three-Month Period

Six-Month Period

Consolidated net sales for the period ended March 31, 2024

Nine-Month Period

Consolidated net sales for the period ended June 30, 2024

Aerospace volume

2 unchanged sentences

Effects of changes in foreign currency rates

Consolidated net sales for the period ended March 31, 2025

The increase in Aerospace segment net sales in the second quarter of fiscal year 2025 as compared to the same period of the prior fiscal year was primarily attributable to price realization and volume, partially offset by unfavorable mix.

The increase in Aerospace segment net sales in the first half of fiscal year 2025 as compared to the same period of the prior fiscal year was primarily attributable to price realization, partially offset by unfavorable mix.

In the Industrial segment, the decrease in net sales for the second quarter and first half of fiscal year 2025 as compared to the same periods of the prior fiscal year was primarily a result of lower China on-highway volume and unfavorable mix, partially offset by price realization.

Consolidated net sales for the period ended June 30, 2025

The increase in Aerospace segment net sales in the third quarter and first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year was primarily attributable to price realization and increased volume supported by operational improvements including increased output and other efficiency gains.

In the Industrial segment, the decrease in net sales for the third quarter and first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year was primarily a result of lower China on-highway volume, partially offset by price realization.

We have experienced, and expect to continue to experience, significant sales and earnings decreases in our China on-highway natural gas truck business in fiscal year 2025 as compared to fiscal year 2024.

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Costs and Expenses

Cost of goods sold increased by $42,576 to $643,530 for the second quarter of fiscal year 2025, from $600,954, for the second quarter of fiscal year 2024.

Cost of goods sold increased to 72.8% of net sales, for the second quarter of fiscal year 2025, compared to 71.9% of net sales for the second quarter of fiscal year 2024.

Cost of goods sold increased by $43,286 to $1,226,621, for the first half of fiscal year 2025, from $1,183,335, for the first half of fiscal 2024.

Cost of goods sold increased to 74.1% of net sales, for the first half of fiscal year 2025, compared to 73.0% of net sales for the first half of fiscal year 2024.

The increase in cost of goods sold in the second quarter and first half of fiscal year 2025 compared to the same periods of the prior fiscal year is primarily due to net inflationary impacts on material and labor costs.

Gross margin (as measured by net sales less cost of goods sold, divided by net sales) was 27.2% for the second quarter of fiscal year 2025, compared to 28.1% for the second quarter of fiscal year 2024.

Gross margin was 25.9% for the first half of fiscal year 2025, compared to 27.0% for the first half of fiscal year 2024.

The decrease in gross margin for the second quarter and first half of fiscal year 2025 as compared to the same periods of the prior fiscal year is primarily attributable to unfavorable mix, partially offset by price realization.

Selling, general, and administrative expenses increased by $2,395, or 2.9%, to $83,842 for the second quarter of fiscal year 2025, compared to $81,447 for the second quarter of fiscal year 2024.

Selling, general, and administrative expenses as a percentage of net sales decreased to 9.5% for the second quarter of fiscal year 2025, compared to 9.8% for the second quarter of fiscal year 2024.

The increase in selling, general, and administrative expenses on an absolute basis for the second quarter of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily due to increased expenses relating to business development activities.

Selling, general, and administrative expenses decreased by $2,420, or 1.6%, to $153,538 for the first half of fiscal year 2025, compared to $155,958 for the first half of fiscal year 2024.

Selling, general, and administrative expenses as a percentage of net sales decreased to 9.3% for the first half of fiscal year 2025, compared to 9.6% for the first half of fiscal year 2024.

The decrease in selling, general, and administrative expenses for the first half of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily due to decreases in expenses relating to our deferred compensation program, partially offset by increased expenses relating to business development activities.

Research and development costs were roughly flat at $37,230, or 4.2% of net sales, for the second quarter of fiscal year 2025 and $67,437, or 4.1% of net sales, for the first half of fiscal year 2025, as compared to $36,465, or 4.4% of net sales, for the second quarter of fiscal year 2024 and $67,259, or 4.1% of net sales, for the first half of fiscal year 2024.

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 increased by $359, or 3.1%, to $11,889 for the second quarter of fiscal year 2025, compared to $11,530 for the second quarter of fiscal year 2024.

Interest expense as a percentage of net sales was 1.3% for the second quarter of fiscal year 2025, compared to 1.4% for the second quarter of fiscal year 2024.

Interest expense increased by $1,264, or 5.5%, to $24,230 for the first half of fiscal year 2025, compared to $22,966 for the first half of fiscal year 2024.

Interest expense as a percentage of net sales was 1.5% for the first half of fiscal year 2025, compared to 1.4% for the first half of fiscal year 2024.

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

Other income increased by $10,420 to $24,804 for the second quarter of fiscal year 2025, compared to $14,384 for the second quarter of fiscal year 2024.

Other income increased $12,868 to $47,891 for the first half of fiscal year 2025, compared to $35,023 for the first half of fiscal year 2024.

The increase in other income for the second quarter and first half of fiscal year 2025 as compared to the same periods of the prior fiscal year is primarily attributable to a one-time gain related to product rationalization activities that was recognized in the current fiscal year that did not occur in the prior year.

Income taxes were provided at an effective rate on earnings before income taxes of 18.1% for the second quarter of fiscal year 2025, compared to 19.1% for the second quarter of fiscal year 2024.

Income taxes were provided at an effective rate on earnings before income taxes of 16.5% for the first half of fiscal year 2025, as compared to 18.6% for the first half of fiscal year 2024.

The decrease in the effective tax rate for the second quarter of fiscal year 2025 compared to the second quarter of fiscal year 2024 is primarily attributable to a decrease to the projected future withholding taxes on unremitted foreign earnings, partially offset by a decrease to the research and development credit.

The decrease in the effective tax rate for first half of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily attributable to a larger stock-based compensation tax benefit and a decrease to projected future withholding taxes on unremitted foreign earnings, partially offset by a decrease to the research and development credit.

Cost of goods sold increased by $48,585 to $666,287 for the third quarter of fiscal year 2025, from $617,702, for the third quarter of fiscal year 2024.

Cost of goods sold decreased to 72.8% of net sales, for the third quarter of fiscal year 2025, compared to 72.9% of net sales for the third quarter of fiscal year 2024.

Cost of goods sold increased by $91,871 to $1,892,908, for the first nine months of fiscal year 2025, from $1,801,037, for the first nine months of fiscal 2024.

Cost of goods sold increased to 73.6% of net sales, for the first nine months of fiscal year 2025, compared to 72.9% of net sales for the first nine months of fiscal year 2024.

The increase in cost of goods sold on an absolute basis in the third quarter and first nine months of fiscal year 2025 compared to the same periods of the prior fiscal year is primarily due to higher sales and net inflationary impacts on material and labor costs.

Gross margin (as measured by net sales less cost of goods sold, divided by net sales) was 27.2% for the third quarter of fiscal year 2025, compared to 27.1% for the third quarter of fiscal year 2024, or essentially flat.

Gross margin was 26.4% for the first nine months of fiscal year 2025, compared to 27.1% for the first nine months of fiscal year 2024.

The decrease in gross margin for the first nine months of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily attributable to unfavorable mix, partially offset by price realization.

Selling, general, and administrative expenses increased by $14,891, or 20.2%, to $88,703 for the third quarter of fiscal year 2025, compared to $73,812 for the third quarter of fiscal year 2024.

Selling, general, and administrative expenses as a percentage of net sales increased to 9.7% for the third quarter of fiscal year 2025, compared to 8.7% for the third quarter of fiscal year 2024.

The increase in selling, general, and administrative expenses for the third quarter of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily due to higher project-related costs and payroll expenses.

Selling, general, and administrative expenses increased by $12,471, or 5.4%, to $242,241 for the first nine months of fiscal year 2025, compared to $229,770 for the first nine months of fiscal year 2024.

Selling, general, and administrative expenses as a percentage of net sales increased to 9.4% for the first nine months of fiscal year 2025, compared to 9.3% for the first nine months of fiscal year 2024.

The increase in selling, general, and administrative expenses for the first nine months of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily due to increased expenses relating to business development activities and higher project-related costs.

Research and development costs were $41,088, or 4.5% of net sales, for the third quarter of fiscal year 2025 and $108,525, or 4.2% of net sales, for the first nine months of fiscal year 2025, as compared to $38,728, or 4.6% of net sales, for the third quarter of fiscal year 2024 and $105,987, or 4.3% of net sales, for the first nine months of fiscal year 2024.

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 $282, or 2.4%, to $11,234 for the third quarter of fiscal year 2025, compared to $11,516 for the third quarter of fiscal year 2024.

Interest expense as a percentage of net sales was 1.2% for the third quarter of fiscal year 2025, compared to 1.4% for the third quarter of fiscal year 2024.

The decrease in interest expense for the third quarter of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily attributable to a lower long-term debt balance as we paid the entire balance of a series of private placement notes.

Interest expense increased by $982, or 2.8%, to $35,464 for the first nine months of fiscal year 2025, compared to $34,482 for the first nine months of fiscal year 2024.

Interest expense as a percentage of net sales was 1.4% for both the first nine months of fiscal year 2025 and for the first nine months of fiscal year 2024.

The increase in interest expense on an absolute basis for the first nine months 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 nine months of fiscal year 2025.

Other income increased by $3,426 to $17,864 for the third quarter of fiscal year 2025, compared to $14,438 for the third quarter of fiscal year 2024.

The increase in other income for the third quarter of fiscal year 2025 as compared to the same period of the prior fiscal year is primarily attributable to decreased expenses relating to our deferred compensation program.

Other income increased $16,294 to $65,755 for the first nine months of fiscal year 2025, compared to $49,461 for the first nine months of fiscal year 2024.

The increase in other income for the first nine months 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 fiscal year that did not occur in the prior fiscal year.

Income taxes were provided at an effective rate on earnings before income taxes of 14.5% for the third quarter of fiscal year 2025, compared to 16.4% for the third quarter of fiscal year 2024.

The decrease in the effective tax rate for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 were primarily attributable to a decrease to the projected future withholding taxes on unremitted foreign earnings, increased earnings in lower taxed foreign jurisdictions, an increase to the Poland research and development credit in the current fiscal year, and higher state income tax credits.

This decrease was partially offset by a lower U.S.

research and development credit and an increased apportionment to higher taxed states.

Income taxes were provided at an effective rate on earnings before income taxes of 15.8% for the first nine months of fiscal year 2025, as compared to 17.8% for the first nine months of fiscal year 2024.

The decrease in the effective tax rate for first nine months of fiscal year 2025 as compared to the same period of the prior fiscal year was primarily attributable to a larger stock-based compensation tax benefit, a decrease to projected future withholding taxes on unremitted foreign earnings, an increase to the Poland research and development credit in the current fiscal year, and higher state income tax credits.

This decrease was partially offset by a lower U.S.

research and development credit and an increased apportionment to higher taxed states.

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 $64,217, or 12.9%, to $561,729 for the second quarter of fiscal year 2025, compared to $497,512 for the second quarter of fiscal year 2024.

Aerospace segment net sales increased by $97,343, or 10.2%, to $1,055,611 for the first half of fiscal year 2025, compared to $958,268 for the first half of fiscal year 2024.

Commercial OEM sales decreased in the second quarter and first half of fiscal year 2025 as compared to the same periods of the prior fiscal year, primarily due to a measured ramp to customer demand following the Boeing work stoppage.

We expect commercial OEM sales to continue to grow in the second half of fiscal year 2025 as production continues to ramp.

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

Defense OEM sales increased in the second quarter and first half of fiscal year 2025 as compared to the same periods of the prior fiscal year, primarily driven by increased demand for smart defense.

Defense aftermarket sales were down in the second quarter of fiscal year 2025 as compared to the same period of the prior fiscal year.

Defense aftermarket sales were flat for the first half of fiscal year 2025 as compared to the first half of fiscal year 2024.

Aerospace segment earnings increased by $26,165, or 26.6%, to $124,616 for the second quarter of fiscal year 2025, compared to $98,451 for the second quarter of fiscal year 2024.

Aerospace segment earnings increased by $41,888, or 23.6%, to $219,341 for the first half of fiscal year 2025, compared to $177,453 for the first half of fiscal year 2024.

Three Months Ended June 30,

Nine Months Ended June 30,

Aerospace segment net sales increased by $78,430, or 15.2%, to $595,990 for the third quarter of fiscal year 2025, compared to $517,560 for the third quarter of fiscal year 2024.

Aerospace segment net sales increased by $175,773, or 11.9%, to $1,651,601 for the first nine months of fiscal year 2025, compared to $1,475,828 for the first nine months of fiscal year 2024.

The increase in Aerospace segment net sales in the third quarter of fiscal year 2025 and first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year were primarily attributable to price realization and increased volume supported by operational improvements including increased output and other efficiency gains.

Commercial OEM sales decreased in the third quarter and first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year, primarily due to supply chain disruptions and inventory management by our customers.

As production ramps, we expect Commercial OEM sales to grow sequentially in the last three months of fiscal year 2025 as compared to the third quarter of fiscal year 2025.

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

Defense OEM sales increased in the third quarter and first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year, primarily driven by increased demand for our smart defense products.

Defense aftermarket sales were down in the third quarter and first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year due to timing of sales.

Aerospace segment earnings increased by $23,898, or 23.5%, to $125,740 for the third quarter of fiscal year 2025, compared to $101,842 for the third quarter of fiscal year 2024.

Aerospace segment earnings increased by $65,786, or 23.6%, to $345,081 for the first nine months of fiscal year 2025, compared to $279,295 for the first nine months of fiscal year 2024.

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

Three-Month Period

Six-Month Period

Earnings for the period ended March 31, 2024

Nine-Month Period

Earnings for the period ended June 30, 2024

Sales volume and mix

Price, inflation, and productivity

Earnings for the period ended March 31, 2025

Aerospace segment earnings as a percentage of segment net sales were 22.2% for the second quarter and 20.8% for the first half of fiscal year 2025, compared to 19.8% for the second quarter and 18.5% for the first half of fiscal year 2024.

Industrial segment net sales decreased by $15,931, or 4.7%, to $321,900 for the second quarter of fiscal year 2025, compared to $337,831 for the second quarter of fiscal year 2024.

Industrial segment net sales decreased by $63,062, or 9.5%, to $600,743 for the first half of fiscal year 2025, compared to $663,805 for the first half of fiscal year 2024.

The decrease in Industrial segment net sales in the second quarter and first half of fiscal year 2025 as compared to the same periods of the prior fiscal year was primarily attributable to lower China on-highway volume and unfavorable mix, partially offset by price realization.

In the second quarter and first half of fiscal year 2025 as compared to the same periods of the prior fiscal year, we saw a substantial sales decline in our on-highway natural gas truck business in China.

Manufacturing expenses

Earnings for the period ended June 30, 2025

Aerospace segment earnings as a percentage of segment net sales were 21.1% for the third quarter and 20.9% for the first nine months of fiscal year 2025, compared to 19.7% for the third quarter and 18.9% for the first nine months of fiscal year 2024.

Industrial segment net sales decreased by $10,672, or 3.2%, to $319,456 for the third quarter of fiscal year 2025, compared to $330,128 for the third quarter of fiscal year 2024.

Industrial segment net sales decreased by $73,734, or 7.4%, to $920,199 for the first nine months of fiscal year 2025, compared to $993,933 for the first nine months of fiscal year 2024.

The decrease in Industrial segment net sales in the third quarter and first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year was primarily attributable to lower China on-highway volume partially offset by price realization, volume increases in oil and gas, as well as operational improvements, including increased output and other efficiency gains

In the third quarter and first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year, we saw a substantial sales decline in our on-highway natural gas truck business in China.

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

We also continue to monitor the evolving trade policy between the U.S.

Industrial segment earnings decreased by $19,277, or 29.5%, to $45,967 for the second quarter of fiscal year 2025, compared to $65,244 for the second quarter of fiscal year 2024.

Industrial segment earnings decreased by $45,961, or 34.8%, to $86,164 for the first half of fiscal year 2025, compared to $132,125 for the first half of fiscal year 2024.

Industrial segment earnings decreased by $12,095, or 20.3%, to $47,622 for the third quarter of fiscal year 2025, compared to $59,717 for the third quarter of fiscal year 2024.

Industrial segment earnings decreased by $58,056, or 30.3%, to $133,786 for the first nine months of fiscal year 2025, compared to $191,842 for the first nine months of fiscal year 2024.

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

Three-Month Period

Six-Month Period

Earnings for the period ended March 31, 2024

Nine-Month Period

Earnings for the period ended June 30, 2024

Sales volume and mix

1 unchanged sentence

Effects of changes in foreign currency rates

Earnings for the period ended March 31, 2025

Industrial segment earnings as a percentage of segment net sales were 14.3% for the second quarter and the first half of fiscal year 2025, compared to 19.3% for the second quarter and 19.9% for the first half 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.

Earnings for the period ended June 30, 2025

Industrial segment earnings as a percentage of segment net sales were 14.9% for the third quarter and 14.5% for the first nine months of fiscal year 2025, compared to 18.1% for the third quarter and 19.3% for the first nine months of fiscal year 2024.

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

We also continue to monitor the evolving trade policy between the U.S.

Nonsegment expenses decreased by $6,082 to $26,752 for the second quarter of fiscal year 2025, compared to $32,834 for the second quarter of fiscal year 2024.

Nonsegment expenses decreased by $10,178 to $48,856 for the first half of fiscal year 2025 compared to $59,034 for the first half of fiscal year 2024.

Nonsegment expenses increased by $6,455 to $36,130 for the third quarter of fiscal year 2025, compared to $29,675 for the third quarter of fiscal year 2024.

Nonsegment expenses decreased by $3,723 to $84,986 for the first nine months of fiscal year 2025 compared to $88,709 for the first nine months of fiscal year 2024.

The significant items that impacted nonsegment expenses in the current fiscal year as compared to the prior fiscal year were as follows:

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

Nonsegment expenses excluding infrequent significant items

Excluding these items, nonsegment expenses increased $5,618 in the second quarter of fiscal year 2025 as compared to the same period of the prior fiscal year.

Excluding these items, nonsegment expenses increased $6,801 in the first half of fiscal year 2025 as compared to the same period of the prior fiscal year.

These increases were primarily attributable to increased headcount.

Excluding these items, nonsegment expenses increased $6,455 in the third quarter and increased $13,256 in the first nine months of fiscal year 2025 as compared to the same periods of the prior fiscal year.

These increases were primarily attributable to increased headcount and higher project-related 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 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 March 31, 2025, we had total outstanding debt of $911,910 consisting of various series of unsecured notes due between 2025 and 2033 and obligations under our finance leases.

At March 31, 2025, we had $261,100 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, 2025 were as follows:

At June 30, 2025, we had total outstanding debt of $932,871 consisting of outstanding balances on our revolving credit facility, various series of unsecured notes due between 2025 and 2033, and obligations under our finance leases.

At June 30, 2025, we had $353,000 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 nine months ended June 30, 2025 were as follows:

Maximum daily balance during the period

1 unchanged sentence

Weighted average interest rate on average daily balance

At March 31, 2025, we had additional borrowing availability of $731,014 under our revolving credit facility, net of outstanding letters of credit, and additional borrowing availability of $22,853 under various foreign credit facilities.

To our knowledge, we were in compliance with all our debt covenants as of March 31, 2025.

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 $2,457 in cash provided by operating activities during the six months ended March 31, 2025, compared to an increase in cash provided by operating activities of approximately $1,917 during the six months ended March 31, 2024.

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.

At June 30, 2025, we had additional borrowing availability of $639,138 under our revolving credit facility, net of outstanding letters of credit, and additional borrowing availability of $21,353 under various foreign credit facilities.

To our knowledge, we were compliant with all our debt covenants as of June 30, 2025.

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 in 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, and from time to time, use cash for additional strategic uses, including the repurchase of our common stock under our authorized stock repurchase program, payment of dividends, significant capital expenditures, strategic acquisitions, and other potential uses of cash.

Our ability to service our long-term debt, to remain compliant 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.

We believe that cash flows from operations, along with our contractually committed borrowings and other borrowing capability, will continue to be sufficient to fund anticipated capital spending requirements and our operations for the foreseeable future.

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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 (used in) 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 2025 was $112,341, compared to $144,118 for the same period of fiscal year 2024.

The decrease in net cash flows provided by operating activities in the first half of fiscal year 2025 as compared to the first half of the prior fiscal year was primarily attributable to an increase in working capital.

Net cash flows used in investing activities for the first half of fiscal year 2025 was $4,138, compared to $49,641 for the same period of fiscal year 2024.

The decrease in net cash flows used in investing activities in the first half of fiscal year 2025 as compared to the first half of the prior fiscal year was primarily due to proceeds received from certain business divestitures as part of our product rationalization efforts, as well as decreased payments for property, plant, and equipment.

Net cash flows used in financing activities for the first half of fiscal year 2025 was $17,602, compared to net cash flows provided by financing activities of $80,588 for the same period of fiscal year 2024.

The change to net cash flows used in financing activities for the first half of fiscal year 2025 from net cash flows provided by financing activities for the first half of the prior fiscal year was primarily attributable to repurchases of common stock as well as a decrease in net debt borrowings.

During the first half of fiscal year 2025, we repurchased $79,493 of our common stock, whereas in the first half of fiscal year 2024, we did not repurchase any common stock.

During the first half of fiscal year 2025, we had net debt borrowings in the amount of $43,627, compared to net debt borrowings of $65,828 in the first half of fiscal year 2024.

Net cash flows provided by operating activities for the first nine months of fiscal year 2025 were $237,976, compared to $297,329 for the same period of fiscal year 2024.

The decrease in net cash flows provided by operating activities in the first nine months of fiscal year 2025 as compared to the first nine months of the prior fiscal year was primarily attributable to an increase in working capital.

Net cash flows used in investing activities for the first nine months of fiscal year 2025 were $27,518, compared to $68,239 for the same period of fiscal year 2024.

The decrease in net cash flows used in investing activities in the first nine months of fiscal year 2025 as compared to the first nine months of the prior fiscal year was primarily due to proceeds received from certain business divestitures as part of our product rationalization efforts.

Net cash flows used in financing activities for the first nine months of fiscal year 2025 were $26,126, compared to net cash flows used in financing activities of $58,970 for the same period of fiscal year 2024.

The decrease in net cash flows used in financing activities for the first nine months of fiscal year 2025 as compared to the first nine months of the prior fiscal year was primarily attributable to decreased repurchases of common stock as well as a decrease in net debt borrowings.

During the first nine months of fiscal year 2025, we repurchased $124,276 of our common stock, whereas in the first nine months of fiscal year 2024, we repurchased $304,811.

During the first nine months of fiscal year 2025, we had net debt borrowings in the amount of $50,281, compared to net debt borrowings of $199,156 in the first nine months of fiscal year 2024.

GAAP Financial Measures

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Adjusted net earnings is defined by the Company as net earnings excluding, as applicable, (i) product rationalization, (ii) a non-recurring gain related to a previous acquisition, (iii) costs related to business development activities, and (iv) certain non-restructuring separation costs.

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

The product rationalization adjustment pertains to the elimination 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, their exclusion illustrates more clearly how the underlying business of Woodward is performing.

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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.

Adjusted income tax expense is defined by the Company as income tax expense excluding, as applicable, (i) product rationalization, (ii) a non-recurring gain

related to a previous acquisition, (iii) costs related to business development activities, and (iv) certain non-restructuring separation costs.

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

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

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

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

There were no adjustments to net earnings, earnings per share, adjusted effective tax rate, and adjusted income tax expense in the three months ended June 30, 2025 or the three months ended June 30, 2024.

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,

Earnings Per Share

Net earnings (U.S.

GAAP adjustments:

Product rationalization 1

Certain non-restructuring separation costs 2

Business development activities 2

Tax effect of Non-U.S.

GAAP net earnings adjustments

GAAP adjustments

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 the line item "Selling, general and administrative expenses" in Woodward's Condensed Consolidated Statement of Earnings.

Six Months Ended March 31,

Nine Months Ended June 30,

Earnings Per Share

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(2) Presented in the line 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 March 31,

Six Months Ended March 31,

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

Three Months Ended June 30,

Nine Months Ended June 30,

Income tax expense (U.S.

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GAAP adjustments to EBIT and EBITDA, in each case adjusted to exclude, as applicable, (i) product rationalization, (ii) a non-recurring gain related to a previous acquisition, (iii) costs related to business development activities, and (iv) certain non-restructuring separation costs.

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

The product rationalization adjustment pertains to the elimination 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 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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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.

Woodward’s various business groups and evaluating cash levels.

We believe free cash flow is a useful measure for investors because it portrays our ability to grow organically and generate cash from our businesses for purposes such as paying interest on our indebtedness, repaying maturing debt, funding business acquisitions, repurchasing our common stock, paying dividends, and investing in additional research and development.

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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 are not necessarily a measure of our ability to fund our cash needs.

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:

Six Months Ended March 31,

Nine Months Ended June 30,

Net cash provided by operating activities (U.S.

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Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update.

To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note 2, New accounting standards in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our Condensed Consolidated Financial Statements upon adoption.

To understand the impact of recently issued standards, whether adopted or to be adopted, please review the information provided in Note 2, New accounting standards in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Unless otherwise discussed, we believe that the impact of recently issued standards, whether adopted or to be adopted in the future, is not expected to have a material impact on our Condensed Consolidated Financial Statements upon adoption.

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