Woodward, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward Looki ng Statements This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are statements that are deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of management. Words such as “anticipate,” “believe,” “estimate,” “seek,” “goal,” “expect,” “forecast,” “intend,” “continue,” “outlook,” “plan,” “project,” “target,” “strive,” “can,” “could,” “may,” “should,” “will,” “would,” variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characteristics of future events or circumstances are forward-looking statements. Forward-looking statements may include, among others, statements relating to: • future sales, earnings, cash flow, uses of cash, and other measures of financial performance, including our assumptions underlying our expectations; • trends in our business and the markets in which we operate, including expectations for those markets, our customers and their business and products; • our ability to manage risks from operating internationally, including the impacts of tariffs on our markets in which we operate as well as our supply chain; • expectations regarding demand for our products, in particular our expectations with respect to natural gas trucks in China; • our expected expenses in future periods and trends in such expenses over time; • our expectations regarding margins and the impact of specific products, product mix, and our strategic actions on margins; • 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 GE Aerospace; • the expected levels of activity in particular industries or markets and the effects of changes in those levels; • the scope, nature, or impact of acquisition activity and integration of such acquisition into our business; • the research, development, production, and support of new products and services; • our plans, objectives, expectations, and intentions with respect to business opportunities that may be available to us; • our liquidity, including our ability to meet capital spending requirements and operations; • future dividends and repurchases of common stock; • future levels of indebtedness and capital spending; • the stability of financial institutions, including those lending to us; • pension and other postretirement plan assumptions and future contributions; • our tax rate and other effects of the changes in U.S. federal tax law; • availability of raw materials and components used in our products; • expectations relating to environmental and emissions regulations; • 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; • our ability to manage risks related to U.S. Government contracting, including defense activity and spending patterns; • 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; and • impact of any potential physical or cybersecurity attacks on our operations, business, including our financial condition, operating results, and reputation. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Factors that could cause actual results and the timing of certain events to differ materially from the forward-looking statements include, but are not limited to, risk factors described in Woodward's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended September 30, 2024, which was filed on November 26, 2024, and other risks described in Woodward’s filings with the Securities and Exchange Commission. We undertake no obligation to revise or update any forward-looking statements for any reason, except as required by applicable law. Unless we have indicated otherwise or the context otherwise requires, references in this Form 10-Q to “Woodward,” “the Company,” “we,” “us,” and “our” refer to Woodward, Inc. and its consolidated subsidiaries. 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. 28 OVERV IEW Global Business Conditions As global trade dynamics continue to evolve, the impact of increased trade tensions and related tariffs with U.S. trading partners remains a key factor in shaping global economic activity, supply chains, and market stability. Future tariff adjustments may emerge as countries negotiate trade agreements, respond to geopolitical shifts, and address the challenges of inflation and global competition. 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 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 Quarter and Year to Date Highlights Three Months Ended June 30, Nine Months Ended June 30, 2025 2024 2025 2024 Net sales: Aerospace segment $ 595,990 $ 517,560 $ 1,651,601 $ 1,475,828 Industrial segment 319,456 330,128 920,199 993,933 Consolidated net sales $ 915,446 $ 847,688 $ 2,571,800 $ 2,469,761 Earnings: Aerospace segment $ 125,740 $ 101,842 $ 345,081 $ 279,295 Segment earnings as a percent of segment net sales 21.1 % 19.7 % 20.9 % 18.9 % Industrial segment $ 47,622 $ 59,717 $ 133,786 $ 191,842 Segment earnings as a percent of segment net sales 14.9 % 18.1 % 14.5 % 19.3 % Consolidated net earnings $ 108,448 $ 102,075 $ 304,488 $ 289,675 Adjusted net earnings $ 108,448 $ 102,075 $ 294,404 $ 292,711 Effective tax rate 14.5 % 16.4 % 15.8 % 17.8 % Adjusted effective tax rate 14.5 % 16.4 % 15.5 % 17.8 % Consolidated diluted earnings per share $ 1.76 $ 1.63 $ 4.96 $ 4.65 Consolidated adjusted diluted earnings per share $ 1.76 $ 1.63 $ 4.80 $ 4.70 Earnings before interest and taxes ("EBIT") $ 137,232 $ 131,884 $ 393,881 $ 382,428 Adjusted EBIT $ 137,232 $ 131,884 $ 380,667 $ 386,193 Earnings before interest, taxes, depreciation, and amortization ("EBITDA") $ 165,886 $ 160,676 $ 477,977 $ 469,270 Adjusted EBITDA $ 165,886 $ 160,676 $ 464,763 $ 473,035 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. A description of these measures as well as a reconciliation of these non-U.S. GAAP financial measures to the most directly comparable U.S. GAAP financial measures can be found under the caption “Non-U.S. GAAP Financial Measures” in this Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations. 29 Liquidity Highlights 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 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. GAAP financial measure. A description of this measure as well as a reconciliation of this non-U.S. GAAP financial measure to the most directly comparable U.S. GAAP financial measure can be found under the caption “Non-U.S. GAAP Financial Measures” in this Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations. At 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 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 The following table sets forth condensed consolidated statements of earnings data as a percentage of net sales for each period indicated: Three Months Ended Nine Months Ended June 30, 2025 % of Net Sales June 30, 2024 % of Net Sales June 30, 2025 % of Net Sales June 30, 2024 % of Net Sales Net sales $ 915,446 100 % $ 847,688 100 % $ 2,571,800 100 % $ 2,469,761 100 % Costs and expenses: Cost of goods sold 666,287 72.8 % 617,702 72.9 % 1,892,908 73.6 % 1,801,037 72.9 % Selling, general, and administrative expenses 88,703 9.7 % 73,812 8.7 % 242,241 9.4 % 229,770 9.3 % Research and development costs 41,088 4.5 % 38,728 4.6 % 108,525 4.2 % 105,987 4.3 % Interest expense 11,234 1.2 % 11,516 1.4 % 35,464 1.4 % 34,482 1.4 % Interest income (838 ) (0.1 )% (1,728 ) (0.2 )% (3,236 ) (0.1 )% (4,494 ) (0.2 )% Other (income) expense, net (17,864 ) (2.0 )% (14,438 ) (1.7 )% (65,755 ) (2.6 )% (49,461 ) (2.0 )% Total costs and expenses 788,610 86.1 % 725,592 85.6 % 2,210,147 85.9 % 2,117,321 85.7 % Earnings before income taxes 126,836 13.9 % 122,096 14.4 % 361,653 14.1 % 352,440 14.3 % Income tax expense 18,388 2.0 % 20,021 2.4 % 57,165 2.2 % 62,765 2.5 % Net earnings $ 108,448 11.8 % $ 102,075 12.0 % $ 304,488 11.8 % $ 289,675 11.7 % Other select financial data: June 30, 2025 September 30, 2024 Net working capital $ 1,050,959 $ 820,101 Total debt 932,871 872,470 Total stockholders' equity 2,468,566 2,176,416 30 Net Sales 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 Nine-Month Period Consolidated net sales for the period ended June 30, 2024 $ 847,688 $ 2,469,761 Aerospace volume 32,955 47,836 Industrial volume (36,819 ) (118,441 ) Effects of changes in price 62,308 171,243 Effects of changes in foreign currency rates 9,314 1,401 Consolidated net sales for the period ended June 30, 2025 $ 915,446 $ 2,571,800 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. Future demand remains uncertain due to the volatility of this business. We also continue to monitor the evolving trade policy between the U.S. and China. Costs and Expenses 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. Our 31 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 June 30, Nine Months Ended June 30, 2025 2024 2025 2024 Net sales: Aerospace $ 595,990 65.1 % $ 517,560 61.1 % $ 1,651,601 64.2 % $ 1,475,828 59.8 % Industrial 319,456 34.9 % 330,128 38.9 % 920,199 35.8 % 993,933 40.2 % Consolidated net sales $ 915,446 100 % $ 847,688 100 % $ 2,571,800 100 % $ 2,469,761 100 % 32 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, 2025 2024 2025 2024 Aerospace $ 125,740 $ 101,842 $ 345,081 $ 279,295 Industrial 47,622 59,717 133,786 191,842 Nonsegment expenses (36,130 ) (29,675 ) (84,986 ) (88,709 ) Interest expense, net (10,396 ) (9,788 ) (32,228 ) (29,988 ) Consolidated earnings before income taxes 126,836 122,096 361,653 352,440 Income tax expense (18,388 ) (20,021 ) (57,165 ) (62,765 ) Consolidated net earnings $ 108,448 $ 102,075 $ 304,488 $ 289,675 The following table presents segment earnings as a percent of segment net sales: Three Months Ended June 30, Nine Months Ended June 30, 2025 2024 2025 2024 Aerospace 21.1 % 19.7 % 20.9 % 18.9 % Industrial 14.9 % 18.1 % 14.5 % 19.3 % Aerospace 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 Nine-Month Period Earnings for the period ended June 30, 2024 $ 101,842 $ 279,295 Sales volume and mix 8,261 405 Price, inflation, and productivity 28,227 79,667 Manufacturing expenses (10,047 ) (26,577 ) Other, net (2,543 ) 12,291 Earnings for the period ended June 30, 2025 $ 125,740 $ 345,081 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. 33 Industrial 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. and China. 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 Nine-Month Period Earnings for the period ended June 30, 2024 $ 59,717 $ 191,842 Sales volume and mix (16,754 ) (82,962 ) Price, inflation, and productivity 12,813 40,155 Effects of changes in foreign currency rates 1,832 3,451 Other, net (9,986 ) (18,700 ) Earnings for the period ended June 30, 2025 $ 47,622 $ 133,786 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. and China. Nonsegment 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 June 30, Nine Months Ended June 30, 2025 2024 2025 2024 Nonsegment expenses $ (36,130 ) $ (29,675 ) $ (84,986 ) $ (88,709 ) Product rationalization — — (20,524 ) — Business development activities — — 7,310 5,902 Non-recurring gain related to a previous acquisition — — — (4,803 ) Certain non-recurring separation costs — — — 2,666 Nonsegment expenses excluding infrequent significant items $ (36,130 ) $ (29,675 ) $ (98,200 ) $ (84,944 ) 34 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 Historically, we have satisfied our working capital needs, as well as capital expenditures, product development, and other liquidity requirements associated with our operations, with cash flow provided by operating activities and borrowings under our credit facilities. From time to time, we have also issued debt to supplement our cash needs, repay our other indebtedness, or finance our acquisitions. We continue to expect that cash generated from our operating activities, together with borrowings under our revolving credit facility and other borrowing capacity, will be sufficient to fund our continuing operating needs for the foreseeable future. In addition to our revolving credit facility, we have various foreign credit facilities, some of which are tied to net amounts on deposit at certain foreign financial institutions. These foreign credit facilities are reviewed annually for renewal. We use borrowings under these foreign credit facilities to finance certain local operations on a periodic basis. 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, 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 $ 359,100 Average daily balance during the period $ 286,838 Weighted average interest rate on average daily balance 5.4 % 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. However, we could be adversely affected if the financial institutions providing our capital requirements refuse to honor their contractual commitments, cease lending, or declare bankruptcy. 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. 35 Cash Flows Nine Months Ended June 30, 2025 2024 Net cash provided by operating activities $ 237,976 $ 297,329 Net cash (used in) investing activities (27,518 ) (68,239 ) Net cash (used in) financing activities (26,126 ) (58,970 ) Effect of exchange rate changes on cash and cash equivalents 6,557 765 Net change in cash and cash equivalents 190,889 170,885 Cash and cash equivalents at beginning of year 282,270 137,447 Cash and cash equivalents at end of period $ 473,159 $ 308,332 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. Non-U.S. GAAP Financial Measures Adjusted net earnings, adjusted earnings per share, adjusted income tax expense, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, adjusted EBITDA, and free cash flow are financial measures not prepared and presented in accordance with U.S. GAAP. However, we believe these non-U.S. GAAP financial measures provide additional information that enables readers to evaluate our business from the perspective of management. Earnings based non‐U.S. GAAP financial measures 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 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. 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. 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. 36 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: Nine Months Ended June 30, 2025 2024 Net Earnings Earnings Per Share Net Earnings Earnings Per Share Earnings per share (U.S. GAAP) $ 304,488 $ 4.96 $ 289,675 $ 4.65 Non-U.S. GAAP adjustments, net of tax: Product rationalization 1 (20,524 ) (0.33 ) — — Non-recurring gain related to a previous acquisition 1 — — (4,803 ) (0.08 ) Business development activities 2 7,310 0.12 5,902 0.09 Certain non-restructuring separation costs 2 — — 2,666 0.05 Tax effect of Non-U.S. GAAP net earnings adjustments 3,130 0.05 (729 ) (0.01 ) Total non-U.S. GAAP adjustments (10,084 ) (0.16 ) 3,036 0.05 Adjusted earnings per share (Non-U.S. GAAP) $ 294,404 $ 4.80 $ 292,711 $ 4.70 (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. 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, 2025 2024 2025 2024 Income tax expense (U.S. GAAP) $ 18,388 $ 20,021 $ 57,165 $ 62,765 Tax effect of Non-U.S. GAAP net income adjustments — — (3,130 ) 729 Adjusted income tax expense (Non-U.S. GAAP) $ 18,388 $ 20,021 $ 54,035 $ 63,494 Adjusted effective tax rate (Non-U.S. GAAP) 14.5 % 16.4 % 15.5 % 17.8 % Management uses EBIT to evaluate Woodward’s performance without financing and tax related considerations, as these elements do not fluctuate with operating results. Management uses EBITDA in evaluating Woodward’s operating performance, making business decisions, including developing budgets, managing expenditures, forecasting future periods, and evaluating capital structure impacts of various strategic scenarios. Securities analysts, investors, and others frequently use EBIT and EBITDA in their evaluation of companies, particularly those with significant property, plant, and equipment, and intangible assets subject to amortization. The Company believes that EBIT and EBITDA are useful measures to the investor when measuring operating performance as they eliminate the impact of financing and tax expenses, which are non-operating expenses and may be driven by factors outside of the Company’s operations, such as changes in tax laws or regulations, and, in the case of EBITDA, the noncash charges associated with depreciation and amortization. Further, as interest from financing, income taxes, depreciation, and amortization can vary dramatically between companies and between periods, management believes that the removal of these items can improve comparability. 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) 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. 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. 37 EBIT and adjusted EBIT reconciled to net earnings were as follows: Three Months Ended June 30, Nine Months Ended June 30, 2025 2024 2025 2024 Net earnings (U.S. GAAP) $ 108,448 $ 102,075 $ 304,488 $ 289,675 Income tax expense 18,388 20,021 57,165 62,765 Interest expense 11,234 11,516 35,464 34,482 Interest income (838 ) (1,728 ) (3,236 ) (4,494 ) EBIT (Non-U.S. GAAP) 137,232 131,884 393,881 382,428 Non-U.S. GAAP adjustments: Product rationalization 1 — — (20,524 ) — Non-recurring gain related to a previous acquisition 1 — — — (4,803 ) Business development activities 2 — — 7,310 5,902 Certain non-recurring separation costs 2 — — — 2,666 Total non-U.S. GAAP adjustments — — (13,214 ) 3,765 Adjusted EBIT (Non-U.S. GAAP) $ 137,232 $ 131,884 $ 380,667 $ 386,193 (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. EBITDA and adjusted EBITDA reconciled to net earnings were as follows: Three Months Ended June 30, Nine Months Ended June 30, 2025 2024 2025 2024 Net earnings (U.S. GAAP) $ 108,448 $ 102,075 $ 304,488 $ 289,675 Income tax expense 18,388 20,021 57,165 62,765 Interest expense 11,234 11,516 35,464 34,482 Interest income (838 ) (1,728 ) (3,236 ) (4,494 ) Amortization of intangible assets 7,172 8,131 20,858 25,348 Depreciation expense 21,482 20,661 63,238 61,494 EBITDA (Non-U.S. GAAP) 165,886 160,676 477,977 469,270 Non-U.S. GAAP adjustments: Product rationalization 1 — — (20,524 ) — Non-recurring gain related to a previous acquisition 1 — — — (4,803 ) Business development activities 2 — — 7,310 5,902 Certain non-recurring separation costs 2 — — — 2,666 Total non-U.S. GAAP adjustments — — (13,214 ) 3,765 Adjusted EBITDA (Non-U.S. GAAP) $ 165,886 $ 160,676 $ 464,763 $ 473,035 (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. The use of these non-U.S. GAAP financial measures is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. As adjusted net earnings, adjusted net earnings per share, adjusted income tax expense, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA exclude certain financial information compared with net earnings, the most directly comparable U.S. GAAP financial measure, users of this financial information should consider the information that is excluded. Our calculations of adjusted net earnings, adjusted net earnings per share, adjusted income tax expense, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA may differ from similarly titled measures used by other companies, limiting their usefulness as comparative measures. Cash flow‐based non‐U.S. 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 38 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. 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. GAAP. Free cash flow does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs. Our calculation of free cash flow may differ from similarly titled measures used by other companies, limiting their usefulness as comparative measures. Free cash flow reconciled to net cash provided by operating activities were as follows: Nine Months Ended June 30, 2025 2024 Net cash provided by operating activities (U.S. GAAP) $ 237,976 $ 297,329 Payments for property, plant and equipment (78,537 ) (72,193 ) Free cash flow (Non-U.S. GAAP) $ 159,439 $ 225,136 CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Note 1, Operations and summary of significant accounting policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our most recently filed Form 10-K, describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Our critical accounting estimates, identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our most recently filed Form 10-K, include the discussion of estimates used for revenue recognition, inventory valuation, reviews for impairment of goodwill and other indefinitely lived intangible assets, and our provision for income taxes. Such accounting estimates require significant judgments and assumptions to be used in the preparation of the Condensed Consolidated Financial Statements included in this Form 10-Q, and actual results could differ materially from the amounts reported. New Accounting Standards From time to time, the FASB or other standards-setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update. 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.