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Item 2. Management’s Discussion and Analysis

2026-02-04 compared with 2025-08-01 · 125 added, 175 removed, 227 unchanged (57% of the section changed)

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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.

This Quarterly Report on Form 10-Q (this "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.

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• the scope, nature, or impact of acquisition activity and integration of such acquisition into our business;

• the impact of restructuring activities;

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

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• our tax rate and other effects of the changes in U.S.

federal tax law;

federal tax law and other tax law;

• availability of raw materials and components used in our products;

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

• our ability to develop competitive technologies;

• our ability to develop competitive technologies or products and to compete effectively in our markets;

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

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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 attract, retain, and develop qualified personnel;

• our continued access to a stable workforce and our ability to 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;

• 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.

• our ability to mitigate the ongoing impacts of inflation and tariffs;

• the impact of legal proceedings, investigations, claims and other regulatory proceedings;

• the impact of future prices for fossil fuels and commodity prices for oil, natural gas, and other minerals;

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

• the impact of any potential physical or cybersecurity attacks and other information technology system or network interruptions or intrusions on our operations, business, including our financial condition, operating results, and reputation.

All these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

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, 2025, which was filed on November 25, 2025, and other risks described in Woodward’s filings with the Securities and Exchange Commission.

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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 have experienced and are expecting minimal levels of cost pressure as a result of the 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.

On January 12, 2026, the Company approved a plan to wind-down our on-highway natural gas truck manufacturing operations in China (the “China OH Business”).

This decision follows prior unsuccessful efforts to divest the China OH Business and is a strategic step to align the Industrial segment portfolio with priority end-markets and long-term growth opportunities.

The China OH Business has not significantly contributed to our overall financial performance on a consistent basis.

The wind-down is expected to be substantially completed by the end of fiscal year 2026.

In connection with this action, we expect to incur pre-tax charges of approximately $20,000 to $25,000.

The majority of these charges are expected to be recognized in the second and third quarters of fiscal year 2026.

Operational Highlights

Quarter and Year to Date Highlights

Quarter Highlights

Three Months Ended

Nine Months Ended

Aerospace segment

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Adjusted EBITDA

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

Adjusted net earnings, adjusted earnings per share, adjusted effective tax rate, 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.

A description of these measures as well as a reconciliation of these

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

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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.

Net cash provided by operating activities for the first three months of fiscal year 2026 was $114,437, compared to $34,516 for the first three months of fiscal year 2025.

The increase in cash provided by operating activities for the first three months of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily attributable to increased earnings and the timing of certain tax payments.

For the first quarter of fiscal year 2026, free cash flow was $70,308, compared to $942 for the first quarter of fiscal year 2025.

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

The increase in free cash flow for the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily attributable to increased earnings and the timing of certain tax payments, partially offset by higher capital expenditures.

Free cash flow is a non-U.S.

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

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

At December 31, 2025, we held $454,245 in cash and cash equivalents and had total outstanding debt of $888,038.

We have additional borrowing availability of $609,131, 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.

At December 31, 2025, we also had additional borrowing capacity of $25,315 under various foreign lines of credit and foreign overdraft facilities.

RESULTS OF OPERATIONS

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Three Months Ended

Nine Months Ended

June 30, 2025

% of Net Sales

June 30, 2024

% of Net Sales

June 30, 2025

December 31, 2025

% of Net Sales

June 30, 2024

December 31, 2024

% of Net Sales

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Interest income

Other (income) expense, net

Other income, net

Total costs and expenses

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Other select financial data:

June 30, 2025

December 31, 2025

September 30, 2025

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Total stockholders' equity

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.

Consolidated net sales for the first quarter of fiscal year 2026 increased by $223,729, or 29.0%, compared to the same period of fiscal year 2025.

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

Consolidated net sales for the three months ended December 31, 2024

Aerospace volume

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Effects of changes in foreign currency rates

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.

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

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

Consolidated net sales for the three months ended December 31, 2025

The increase in both Aerospace and Industrial segment net sales in the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily attributable to higher sales volumes and price realization.

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.

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.

Cost of goods sold increased by $121,202 to $704,293 for the first quarter of fiscal year 2026, from $583,091 for the first quarter of fiscal year 2025.

Cost of goods sold decreased to 70.7% of net sales for the first quarter of fiscal year 2026, compared to 75.5% of net sales for the first quarter of fiscal year 2025.

The increase in cost of goods sold on an absolute basis in the first quarter of fiscal year 2026 compared to the same period of fiscal year 2025 is primarily due to higher sales volumes 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 29.3% for the first quarter of fiscal year 2026, compared to 24.5% for the first quarter of fiscal year 2025.

The increase in gross margin for the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 is primarily attributable to higher sales volumes and price realization.

Selling, general, and administrative expenses increased by $25,289, or 36.3%, to $94,985 for the first quarter of fiscal year 2026, compared to $69,696 for the first quarter of fiscal year 2025.

Selling, general, and administrative expenses as a percentage of net sales increased to 9.5% for the first quarter of fiscal year 2026, compared to 9.0% for the first quarter of fiscal year 2025.

The increase in selling, general, and administrative expenses for the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 is primarily due to higher project-related costs and labor costs.

Research and development costs were $37,756, or 3.8% of net sales, for the first quarter of fiscal year 2026, as compared to $30,207, or 3.9% of net sales, for the first quarter of fiscal year 2025.

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

Interest expense decreased by $1,997, or 16.2%, to $10,344 for the first quarter of fiscal year 2026, compared to $12,341 for the first quarter of fiscal year 2025.

Interest expense as a percentage of net sales was 1.0% for the first quarter of fiscal year 2026, compared to 1.6% for the first quarter of fiscal year 2025.

The decrease is primarily attributable to a lower long-term debt balance, as on November 17, 2025, we paid the entire principal balance of $75,000 on the Series I and L Notes.

Other income, net decreased by $3,713 to $19,374 for the first quarter of fiscal year 2026, compared to $23,087 for the first quarter of fiscal year 2025.

The decrease in other income for the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 is primarily attributable to a one-time gain related to product rationalization activities that were recognized in the prior year first quarter that did not occur in the current year first quarter, partially offset by an increase in earnings of the JV.

Income taxes were provided at an effective rate of 20.9% on earnings before income taxes for the first quarter of fiscal year 2026, compared to 14.5% for the first quarter of fiscal year 2025.

The increase in the effective tax rate for the first quarter of fiscal year 2026, compared to the same period of fiscal year 2025 was primarily attributable to higher current quarter earnings relative to the tax benefit of stock-based compensation, unfavorable state tax law changes, the current year elimination of the U.S.

intangible income tax benefit due to the one-time reversal of research costs previously capitalized, and a reduction to the U.S.

Federal Research and Development Credit.

Segment Results

The following table presents sales by segment:

Three Months Ended June 30,

Nine Months Ended June 30,

Three Months Ended December 31,

Consolidated net sales

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

Three Months Ended June 30,

Nine Months Ended June 30,

Three Months Ended December 31,

Nonsegment expenses

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

Three Months Ended June 30,

Nine Months Ended June 30,

Aerospace segment net sales increased by $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.

Three Months Ended December 31,

Aerospace segment net sales increased by $141,015, or 28.6%, to $634,897 for the first quarter of fiscal year 2026, compared to $493,882 for the first quarter of fiscal year 2025.

The increase in Aerospace segment net sales in the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 were primarily attributable to increased sales volumes and price realization.

Commercial OEM sales increased in the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025, primarily due to a tapering of destocking efforts by airframers and increased airframer production rates.

Commercial services sales increased in the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025, primarily due to higher volume supported by sustained high aircraft utilization of legacy aircraft, increased Leading Edge Aviation Propulsion ("LEAP") and Pratt & Whitney’s Geared Turbo Fan ("GTF") activity, and price realization.

Defense OEM sales increased in the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025, primarily driven by new increased Joint Direct Attack Munition ("JDAM") pricing, which took effect during the fourth quarter of fiscal year 2025.

Defense services sales were generally flat in the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 due to timing of sales.

We expect variability in Defense services sales, which is generally attributable to the cycling of various maintenance and upgrade programs, as well as actual usage.

Aerospace segment earnings increased by $53,670, or 56.7%, to $148,395 for the first quarter of fiscal year 2026, compared to $94,725 for the first quarter of fiscal year 2025.

The increase in segment earnings was a result of price realization, favorable mix, and higher sales volume, partially offset by strategic investments in manufacturing capabilities and inflation.

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

Earnings for the three months ended December 31, 2024

Sales volume and mix

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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 $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:

Earnings for the three months ended December 31, 2025

Aerospace segment earnings as a percentage of segment net sales were 23.4% for the first quarter of fiscal year 2026, compared to 19.2% for the first quarter of fiscal year 2025.

Industrial segment net sales increased by $82,714, or 29.7%, to $361,557 for the first quarter of fiscal year 2026, compared to $278,843 for the first quarter of fiscal year 2025.

The increase in Industrial segment net sales in the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily attributable to higher sales volumes and price realization.

Industrial segment earnings increased by $26,797, or 66.7%, to $66,994 for the first quarter of fiscal year 2026, compared to $40,197 for the first quarter of fiscal year 2025.

The increase in Industrial earnings was primarily attributable to higher sales volume, including increased output and other efficiency gains, price realization, and favorable mix, partially offset by inflation.

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

Three-Month Period

Nine-Month Period

Earnings for the period ended June 30, 2024

Earnings for the three months ended December 31, 2024

Sales volume and mix

Price, inflation, and productivity

Effects of changes in foreign currency rates

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 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,

Earnings for the three months ended December 31, 2025

Industrial segment earnings as a percentage of segment net sales were 18.5% for the first quarter of fiscal year 2026, compared to 14.4% for the first quarter of fiscal year 2025.

Nonsegment expenses increased by $14,491 to $36,595 for the first quarter of fiscal year 2026, compared to $22,104 for the first quarter of fiscal year 2025.

The significant items that impacted nonsegment expenses in the prior fiscal year period but did not reoccur in the current fiscal year period were as follows:

Three Months Ended December 31,

Nonsegment expenses

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Business development activities

Non-recurring gain related to a previous acquisition

Certain non-recurring separation costs

Nonsegment expenses excluding infrequent significant items

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.

Excluding these items, nonsegment expenses increased $8,648 in the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025.

These increases were primarily attributable to 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.

Historically, we have satisfied our working capital needs, as well as capital expenditures, product development, and other liquidity requirements associated with our operations, with net cash 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.

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For further discussion of our revolving credit facility and our other credit facilities, see Note 15, Credit facilities, short-term borrowings, and long-term debt in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item I of this Form 10-Q.

At June 30, 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:

At December 31, 2025, we had total outstanding debt of $888,038, consisting of outstanding balances on our revolving credit facility, various series of unsecured notes due between 2026 and 2033, and obligations under our finance leases.

At December 31, 2025, we had $383,000 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 12 months.

Revolving credit facility and short-term borrowing activity during the three months ended December 31, 2025 were as follows:

Maximum daily balance during the period

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Weighted average interest rate on average daily balance

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.

At December 31, 2025, we had additional borrowing availability of $609,131 under our revolving credit facility, net of outstanding letters of credit, and additional borrowing availability of $25,315 under various foreign credit facilities.

We were compliant with all our debt covenants as of December 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 of our Annual Report on Form 10-K for fiscal year 2025, 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.

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

Nine Months Ended June 30,

Three Months Ended December 31,

Net cash provided by operating activities

Net cash used in investing activities

Net cash (used in) financing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

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Cash and cash equivalents at end of period

Net cash flows provided by operating activities for the first nine months of fiscal year 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.

Net cash provided by operating activities for the first three months of fiscal year 2026 were $114,437, compared to $34,516 for the same period of fiscal year 2025.

The increase in net cash provided by operating activities in the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily attributable to increased earnings and the timing of certain tax payments.

Net cash used in investing activities for the first three months of fiscal year 2026 were $48,329, compared to $32,100 for the same period of fiscal year 2025.

The increase in net cash used in investing activities in the first quarter of fiscal year

2026 as compared to the same period of fiscal year 2025 was primarily due to higher capital expenditures and a payment for a business acquisition.

Net cash provided by financing activities for the first three months of fiscal year 2026 were $60,156, compared to $19,386 for the same period of fiscal year 2025.

The increase in net cash provided by financing activities for the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily attributable to an increase in net debt borrowings, partially offset by increased repurchases of common stock.

During the first quarter of fiscal year 2026, we had net debt borrowings in the amount of $185,448, compared to net debt borrowings of $40,764 in the first quarter of fiscal year 2025.

During the first quarter of fiscal year 2026, we repurchased $129,387 of our common stock, whereas in the first quarter of fiscal year 2025, we repurchased $35,473.

GAAP Financial Measures

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GAAP financial measures

Adjusted net earnings is defined by the Company as net earnings excluding, as applicable, (i) 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.

Adjusted net earnings is defined by the Company as net earnings excluding, as applicable, (i) product rationalization and (ii) costs related to business development activities.

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

The Company believes that these excluded items are short‐term in nature, not directly related to the ongoing operations of the business, and therefore, 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 elimination of certain product lines.

Adjusted income tax expense is defined by the Company as income tax expense excluding, as applicable, (i) product rationalization and (ii) costs related to business development activities.

The product rationalization adjustment pertains to the elimination and divestiture 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:

Nine Months Ended June 30,

Three Months Ended December 31,

Earnings Per Share

Earnings per share (U.S.

GAAP adjustments, net of tax:

Net earnings (U.S.

GAAP adjustments:

Product rationalization 1

Non-recurring gain related to a previous acquisition 1

Business development activities 2

Certain non-restructuring separation costs 2

Tax effect of Non-U.S.

GAAP net earnings adjustments

Total non-U.S.

GAAP adjustments

Adjusted earnings per share (Non-U.S.

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

Adjusted net earnings (Non-U.S.

(1) Presented in the line item "Other income, 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,

Three Months Ended December 31,

Income tax expense (U.S.

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

GAAP adjustments to EBIT and EBITDA, in each case adjusted to exclude, as applicable, (i) 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.

GAAP adjustments to EBIT and EBITDA, in each case adjusted to exclude, as applicable, (i) product rationalization and (ii) costs related to business development activities.

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

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

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

Three Months Ended June 30,

Nine Months Ended June 30,

Three Months Ended December 31,

Net earnings (U.S.

5 unchanged sentences

Product rationalization 1

Non-recurring gain related to a previous acquisition 1

Business development activities 2

Certain non-recurring separation costs 2

Total non-U.S.

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Adjusted EBIT (Non-U.S.

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

(1) Presented in the line item "Other income, 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,

Three Months Ended December 31,

Net earnings (U.S.

7 unchanged sentences

Product rationalization 1

Non-recurring gain related to a previous acquisition 1

Business development activities 2

Certain non-recurring separation costs 2

Total non-U.S.

1 unchanged sentence

Adjusted EBITDA (Non-U.S.

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

(1) Presented in the line item "Other income, 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.

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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.

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.

GAAP financial measures, 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.

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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.

Management uses free cash flow, which is defined by the Company as net cash 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.

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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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,

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

Three Months Ended December 31,

Net cash provided by operating activities (U.S.

4 unchanged sentences

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.

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 Annual Report on 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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis