Woodward, Inc. 10-Q

wwd-10q_20220630.htm UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number 000-08408 WOODWARD, INC. (Exact name of registrant as specified in its charter) Delaware 36-1984010 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 1081 Woodward Way , Fort Collins , Colorado 80524 (Address of principal executive offices) (Zip Code) ( 970 ) 482-5811 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.001455 per share WWD NASDAQ Global Select Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ As of August 3, 2022, 60,163,897 shares of the registrant’s common stock with a par value of $0.001455 per share were outstanding. TABLE OF CONTENTS Page PART I – FINANCIAL INFORMATION Item 1. Financial Statements 1 Condensed Consolidated Statements of Earnings 1 Condensed Consolidated Statements of Comprehensive Earnings 2 Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Cash Flows 4 Condensed Consolidated Statements of Stockholders’ Equity 5 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27 Forward Looking Statements 27 Overview 28 Results of Operations 30 Liquidity and Capital Resources 34 Item 3. Quantitative and Qualitative Disclosures About Market Risk 40 Item 4. Controls and Procedures 40 PART II – OTHER INFORMATION Item 1. Legal Proceedings 40 Item 1A. Risk Factors 40 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 41 Item 6. Exhibits 41 Signatures 42 PART I – FINANCIAL INFORMATION Item 1. Financial Statements WOODWARD, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share amounts) (Unaudited) Three-Months Ended Nine-Months Ended June 30, June 30, 2022 2021 2022 2021 Net sales $ 614,332 $ 556,675 $ 1,742,757 $ 1,675,615 Costs and expenses: Cost of goods sold 480,403 422,457 1,352,979 1,258,340 Selling, general and administrative expenses 46,490 48,021 152,920 148,461 Research and development costs 32,224 29,765 90,000 89,388 Interest expense 8,533 8,397 25,036 25,552 Interest income ( 353 ) ( 308 ) ( 1,494 ) ( 1,086 ) Other (income) expense, net ( 3,252 ) ( 10,355 ) ( 18,813 ) ( 29,809 ) Total costs and expenses 564,045 497,977 1,600,628 1,490,846 Earnings before income taxes 50,287 58,698 142,129 184,769 Income tax expense 10,841 9,837 24,472 26,025 Net earnings $ 39,446 $ 48,861 $ 117,657 $ 158,744 Earnings per share: Basic earnings per share $ 0.65 $ 0.77 $ 1.90 $ 2.51 Diluted earnings per share $ 0.64 $ 0.74 $ 1.84 $ 2.42 Weighted Average Common Shares Outstanding: Basic 60,506 63,559 62,052 63,215 Diluted 62,088 65,910 63,937 65,499 See accompanying Notes to Condensed Consolidated Financial Statements 1 WOODWARD, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (In thousands) (Unaudited) Three-Months Ended Nine-Months Ended June 30, June 30, 2022 2021 2022 2021 Net earnings $ 39,446 $ 48,861 $ 117,657 $ 158,744 Other comprehensive earnings: Foreign currency translation adjustments ( 27,648 ) 8,255 ( 34,707 ) 16,590 Net gain (loss) on foreign currency transactions designated as hedges of net investments in foreign subsidiaries 2,887 ( 750 ) 4,631 ( 648 ) Taxes on changes in foreign currency translation adjustments ( 2,424 ) 476 ( 3,873 ) ( 395 ) Foreign currency translation and transactions adjustments, net of tax ( 27,185 ) 7,981 ( 33,949 ) 15,547 Unrealized gain (loss) on fair value adjustment of derivative instruments 34,207 8,402 58,987 ( 13,364 ) Reclassification of net realized (gain) loss on derivatives to earnings ( 26,968 ) 7,204 ( 43,299 ) 7,481 Taxes on changes in derivative transactions ( 254 ) ( 328 ) ( 549 ) ( 125 ) Derivative adjustments, net of tax 6,985 15,278 15,139 ( 6,008 ) Amortization of pension and other postretirement plan: Net prior service cost 252 248 754 746 Net loss 177 380 551 1,127 Foreign currency exchange rate changes on pension and other postretirement benefit plan liabilities 1,834 ( 363 ) 2,456 ( 1,607 ) Taxes on changes in pension and other postretirement benefit plan liability adjustments, net of foreign currency exchange rate changes ( 668 ) ( 49 ) ( 1,074 ) 23 Pension and other postretirement benefit plan adjustments, net of tax 1,595 216 2,687 289 Total comprehensive earnings $ 20,841 $ 72,336 $ 101,534 $ 168,572 See accompanying Notes to Condensed Consolidated Financial Statements 2 WOODWARD, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) (Unaudited) June 30, September 30, 2022 2021 ASSETS Current assets: Cash and cash equivalents, including restricted cash of $ 359 and $ 1,907 , respectively $ 99,701 $ 448,462 Accounts receivable, less allowance for uncollectible amounts of $ 3,043 and $ 3,664 , respectively 587,546 523,051 Inventories 503,664 419,971 Income taxes receivable 13,408 12,071 Other current assets 49,396 61,168 Total current assets 1,253,715 1,464,723 Property, plant and equipment, net 913,468 950,569 Goodwill 779,144 805,333 Intangible assets, net 484,867 559,289 Deferred income tax assets 13,481 14,066 Other assets 311,114 297,024 Total assets $ 3,755,789 $ 4,091,004 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 49,200 $ - Current portion of long-term debt 458 728 Accounts payable 195,402 170,909 Income taxes payable 18,713 11,481 Accrued liabilities 160,701 183,139 Total current liabilities 424,474 366,257 Long-term debt, less current portion 716,744 734,122 Deferred income tax liabilities 150,469 157,936 Other liabilities 554,489 617,908 Total liabilities 1,846,176 1,876,223 Commitments and contingencies (Note 21) Stockholders' equity: Preferred stock, par value $ 0.003 per share, 10,000 shares authorized, no shares issued — — Common stock, par value $ 0.001455 per share, 150,000 shares authorized, 72,960 shares issued 106 106 Additional paid-in capital 290,900 261,735 Accumulated other comprehensive losses ( 81,742 ) ( 65,619 ) Deferred compensation 6,761 7,949 Retained earnings 2,684,598 2,600,513 2,900,623 2,804,684 Treasury stock at cost, 12,803 shares and 9,702 shares, respectively ( 984,249 ) ( 581,954 ) Treasury stock held for deferred compensation, at cost, 140 shares and 167 shares, respectively ( 6,761 ) ( 7,949 ) Total stockholders' equity 1,909,613 2,214,781 Total liabilities and stockholders' equity $ 3,755,789 $ 4,091,004 See accompanying Notes to Condensed Consolidated Financial Statements 3 WOODWARD, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine-Months Ended June 30, 2022 2021 Cash flows from operating activities: Net earnings $ 117,657 $ 158,744 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 91,258 97,799 Net (gain) on sales of assets and businesses ( 1,545 ) ( 4,073 ) Stock-based compensation 17,136 19,053 Deferred income taxes ( 56 ) 137 Changes in operating assets and liabilities: Trade accounts receivable ( 6,745 ) 4,107 Unbilled receivables (contract assets) ( 64,892 ) ( 25,159 ) Costs to fulfill a contract ( 13,541 ) ( 14,750 ) Inventories ( 93,818 ) 13,562 Accounts payable and accrued liabilities 36,117 51,308 Contract liabilities 8,420 20,113 Income taxes 5,277 3,492 Retirement benefit obligations ( 3,442 ) ( 5,221 ) Other ( 5,810 ) ( 1,197 ) Net cash provided by operating activities 86,016 317,915 Cash flows from investing activities: Payments for purchase of property, plant, and equipment ( 37,105 ) ( 21,347 ) Proceeds from sale of assets 4 141 Proceeds from the sale of the renewable power systems business and other related businesses 6,000 — Payments for purchases of short-term investments ( 9,619 ) ( 14,326 ) Proceeds from sales of short-term investments 11,305 16,566 Net cash used in investing activities ( 29,415 ) ( 18,966 ) Cash flows from financing activities: Cash dividends paid ( 33,572 ) ( 25,734 ) Proceeds from sales of treasury stock 20,283 32,219 Payments for repurchases of common stock ( 440,233 ) — Borrowings on revolving lines of credit and short-term borrowings 477,400 74,400 Payments on revolving lines of credit and short-term borrowings ( 428,200 ) ( 74,400 ) Payments of long-term debt and finance lease obligations ( 644 ) ( 101,214 ) Net cash used in financing activities ( 404,966 ) ( 94,729 ) Effect of exchange rate changes on cash and cash equivalents ( 396 ) 4,517 Net change in cash and cash equivalents ( 348,761 ) 208,737 Cash and cash equivalents, including restricted cash, at beginning of year 448,462 153,270 Cash and cash equivalents, including restricted cash, at end of period $ 99,701 $ 362,007 See accompanying Notes to Condensed Consolidated Financial Statements 4 WOODWARD, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) (Unaudited) Number of shares Stockholders' equity Accumulated other comprehensive (loss) earnings Common stock Treasury stock Treasury stock held for deferred compensation Common stock Additional paid-in capital Foreign currency translation adjustments Unrealized derivative gains (losses) Minimum retirement benefit liability adjustments Total accumulated other comprehensive (loss) earnings Deferred compensation Retained earnings Treasury stock at cost Treasury stock held for deferred compensation Total stockholders' equity Balances as of April 1, 2021 72,960 ( 9,454 ) ( 192 ) $ 106 $ 257,006 $ ( 33,125 ) $ ( 41,743 ) $ ( 28,573 ) $ ( 103,441 ) $ 9,103 $ 2,522,384 $ ( 542,754 ) $ ( 9,103 ) $ 2,133,301 Net earnings — — — — — — — — — — 48,861 — — 48,861 Other comprehensive earnings (loss), net of tax — — — — — 7,981 15,278 216 23,475 — — — — 23,475 Cash dividends paid ($ 0.1625 per share) — — — — — — — — — — ( 10,330 ) — — ( 10,330 ) Sales of treasury stock — 93 — — ( 197 ) — — — — — — 3,962 — 3,765 Stock-based compensation — — — — 2,615 — — — — — — — — 2,615 Purchases/transfers of stock by/to deferred compensation plan — — — — — — — — — 40 — — ( 40 ) — Distribution of stock from deferred compensation plan — — 19 — — — — — — ( 993 ) — — 993 — Balances as of June 30, 2021 72,960 ( 9,361 ) ( 173 ) $ 106 $ 259,424 $ ( 25,144 ) $ ( 26,465 ) $ ( 28,357 ) $ ( 79,966 ) $ 8,150 $ 2,560,915 $ ( 538,792 ) $ ( 8,150 ) $ 2,201,687 Balances as of April 1, 2022 72,960 ( 11,427 ) ( 140 ) $ 106 $ 287,766 $ ( 39,668 ) $ ( 17,443 ) $ ( 6,026 ) $ ( 63,137 ) $ 6,678 $ 2,656,590 $ ( 829,446 ) $ ( 6,678 ) $ 2,051,879 Net earnings — — — — — — — — — — 39,446 — — 39,446 Other comprehensive earnings (loss), net of tax — — — — — ( 27,185 ) 6,985 1,595 ( 18,605 ) — — — — ( 18,605 ) Cash dividends paid ($ 0.1900 per share) — — — — — — — — — — ( 11,438 ) — — ( 11,438 ) Sales of treasury stock — 18 — — ( 45 ) — — — — — — 815 — 770 Purchase of treasury stock — ( 1,394 ) — — — — — — — — — ( 155,618 ) — ( 155,618 ) Stock-based compensation — — — — 3,179 — — — — — — — — 3,179 Purchases/transfers of stock by/to deferred compensation plan — — ( 1 ) — — — — — — 68 — — ( 68 ) — Distribution of stock from deferred compensation plan — — 1 — — — — — — 15 — — ( 15 ) — Balances as of June 30, 2022 72,960 ( 12,803 ) ( 140 ) $ 106 $ 290,900 $ ( 66,853 ) $ ( 10,458 ) $ ( 4,431 ) $ ( 81,742 ) $ 6,761 $ 2,684,598 $ ( 984,249 ) $ ( 6,761 ) $ 1,909,613 See accompanying Notes to Condensed Consolidated Financial Statements 5 WOODWARD, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) (Unaudited) Number of shares Stockholders' equity Accumulated other comprehensive (loss) earnings Common stock Treasury stock Treasury stock held for deferred compensation Common stock Additional paid-in capital Foreign currency translation adjustments Unrealized derivative gains (losses) Minimum retirement benefit liability adjustments Total accumulated other comprehensive (loss) earnings Deferred compensation Retained earnings Treasury stock at cost Treasury stock held for deferred compensation Total stockholders' equity Balances as of September 30, 2020 72,960 ( 10,277 ) ( 199 ) $ 106 $ 231,936 $ ( 40,691 ) $ ( 20,457 ) $ ( 28,646 ) $ ( 89,794 ) $ 9,222 $ 2,427,905 $ ( 577,476 ) $ ( 9,222 ) $ 1,992,677 Net earnings — — — — — — — — — — 158,744 — — 158,744 Other comprehensive earnings (loss), net of tax — — — — — 15,547 ( 6,008 ) 289 9,828 — — — — 9,828 Cash dividends paid ($ 0.4063 per share) — — — — — — — — — — ( 25,734 ) — — ( 25,734 ) Sales of treasury stock — 788 — — ( 1,107 ) — — — — — — 33,326 — 32,219 Common shares issued from treasury stock for benefit plans — 128 — — 9,542 — — — — — — 5,358 — 14,900 Stock-based compensation — — — — 19,053 — — — — — — — — 19,053 Purchases and transfers of stock by/to deferred compensation plan — — ( 3 ) — — — — — — 357 — — ( 357 ) — Distribution of stock from deferred compensation plan — — 29 — — — — — — ( 1,429 ) — — 1,429 — Balances as of June 30, 2021 72,960 ( 9,361 ) ( 173 ) $ 106 $ 259,424 $ ( 25,144 ) $ ( 26,465 ) $ ( 28,357 ) $ ( 79,966 ) $ 8,150 $ 2,560,915 $ ( 538,792 ) $ ( 8,150 ) $ 2,201,687 Balances as of September 30, 2021 72,960 ( 9,702 ) ( 167 ) $ 106 $ 261,735 $ ( 32,904 ) $ ( 25,597 ) $ ( 7,118 ) $ ( 65,619 ) $ 7,949 $ 2,600,513 $ ( 581,954 ) $ ( 7,949 ) $ 2,214,781 Net earnings — — — — — — — — — — 117,657 — — 117,657 Other comprehensive earnings (loss), net of tax — — — — — ( 33,949 ) 15,139 2,687 ( 16,123 ) — — — — ( 16,123 ) Cash dividends paid ($ 0.5425 per share) — — — — — — — — — — ( 33,572 ) — — ( 33,572 ) Sales of treasury stock — 423 — — 1,428 — — — — — — 18,855 — 20,283 Common shares issued from treasury stock for benefit plans — 150 — — 10,601 — — — — — — 6,567 — 17,168 Purchase of treasury stock — ( 3,674 ) — — — — — — — — — ( 427,717 ) — ( 427,717 ) Stock-based compensation — — — — 17,136 — — — — — — — — 17,136 Purchases and transfers of stock by/to deferred compensation plan — — ( 2 ) — — — — — — 183 — — ( 183 ) — Distribution of stock from deferred compensation plan — — 29 — — — — — — ( 1,371 ) — — 1,371 — Balances as of June 30, 2022 72,960 ( 12,803 ) ( 140 ) $ 106 $ 290,900 $ ( 66,853 ) $ ( 10,458 ) $ ( 4,431 ) $ ( 81,742 ) $ 6,761 $ 2,684,598 $ ( 984,249 ) $ ( 6,761 ) $ 1,909,613 See accompanying Notes to Condensed Consolidated Financial Statements 6 WOODWARD, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) (Unaudited) Note 1. Basis of presentation The Condensed Consolidated Financial Statements of Woodward, Inc. (“Woodward” or the “Company”) as of June 30, 2022 and for the three and nine-months ended June 30, 2022 and 2021, included herein, have not been audited by an independent registered public accounting firm. These unaudited Condensed Consolidated Financial Statements reflect all normal recurring adjustments that, in the opinion of management, are necessary to present fairly Woodward’s financial position as of June 30, 2022, and the statements of earnings, comprehensive earnings, cash flows, and changes in stockholders’ equity for the periods presented herein. The results of operations for the three and nine-months ended June 30, 2022 and 2021 are not necessarily indicative of the operating results to be expected for other interim periods or for the full fiscal year. Dollar and share amounts contained in these unaudited Condensed Consolidated Financial Statements are in thousands, except per share amounts, unless otherwise noted. The unaudited Condensed Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. Accordingly, these unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in Woodward’s most recent Annual Report on Form 10-K filed with the SEC and other financial information filed with the SEC. Management is required to use estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the reported revenues and expenses recognized during the reporting period, and certain financial statement disclosures, in the preparation of the unaudited Condensed Consolidated Financial Statements included herein. Significant estimates in these unaudited Condensed Consolidated Financial Statements include allowances for credit losses; net realizable value of inventories; variable consideration including customer rebates earned and payable and early payment discounts; warranty reserves; useful lives of property and identifiable intangible assets; the evaluation of impairments of property, intangible assets, and goodwill; the provision for income tax and related valuation reserves; the valuation of derivative instruments; assumptions used in the determination of the funded status and annual expense of pension and postretirement employee benefit plans; the valuation of stock compensation instruments granted to employees, board members and any other eligible recipients; estimates of incremental borrowing rates used when estimating the present value of future lease payments; assumptions used when including renewal options or non-exercise of termination options in lease terms; estimates of total lifetime sales used in the recognition of revenue of deferred material rights and balance sheet classification of the related contract liability; estimates of total sales contract costs when recognizing revenue under the cost-to-cost method; and contingencies. Actual results could vary from Woodward’s estimates. Global Business Conditions We continue to monitor a variety of external issues impacting our business, including the ongoing global impact of the COVID-19 pandemic, rising inflation, and global supply chain and labor disruptions. Although we continue to see recovery across most of our end markets, our financial performance during the first nine-months of fiscal year 2022 was adversely affected by these issues. We are unable to predict the full extent to which these impacts will continue to adversely affect our business, including our operational performance, results of operations, cash flows, financial position, and the achievement of our strategic objectives. We continue to actively monitor the situation and may take further actions regarding our business operations if we determine such actions are in the best interests of our shareholders, employees, customers, communities, business partners, and suppliers, or as required by federal, state or local authorities. It is not currently clear what the potential effects of any such alterations or modifications may have on our business in future periods, including the effects on our customers, employees and prospects, or on our financial results. Note 2. New accounting standards From time to time, the Financial Accounting Standards Board (“FASB”) or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through issuance of an Accounting Standards Update (“ASU”). 7 In the time since the Company filed its most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2021, no new accounting standards have been issued, or are pending issuance, that are expected to have a material impact on the Condensed Consolidated Financial Statements upon adoption . Note 3. Revenue The amount of revenue recognized as point in time or over time follows: Three-Months Ended June 30, 2022 Three-Months Ended June 30, 2021 Aerospace Industrial Consolidated Aerospace Industrial Consolidated Point in time $ 154,323 $ 119,808 $ 274,131 $ 114,947 $ 128,868 $ 243,815 Over time 247,389 92,812 340,201 225,965 86,895 312,860 Total net sales $ 401,712 $ 212,620 $ 614,332 $ 340,912 $ 215,763 $ 556,675 Nine-Months Ended June 30, 2022 Nine-Months Ended June 30, 2021 Aerospace Industrial Consolidated Aerospace Industrial Consolidated Point in time $ 428,212 $ 367,019 $ 795,231 $ 336,477 $ 414,305 $ 750,782 Over time 682,692 264,834 947,526 690,808 234,025 924,833 Total net sales $ 1,110,904 $ 631,853 $ 1,742,757 $ 1,027,285 $ 648,330 $ 1,675,615 Accounts Receivable Accounts receivable consisted of the following: June 30, 2022 September 30, 2021 Billed receivables Trade accounts receivable $ 318,227 $ 298,951 Other (Chinese financial institutions) 3,042 23,168 Total billed receivables 321,269 322,119 Current unbilled receivables (contract assets) 269,320 204,596 Total accounts receivable 590,589 526,715 Less: Allowance for uncollectible amounts ( 3,043 ) ( 3,664 ) Total accounts receivable, net $ 587,546 $ 523,051 As of June 30, 2022, “Other assets” on the Condensed Consolidated Balance Sheets includes $ 4,832 of unbilled receivables not expected to be invoiced and collected within a period of twelve months, compared to $ 9,424 as of September 30, 2021. Accounts receivable in Woodward’s Condensed Consolidated Financial Statements represent the net amount expected to be collected, and an allowance for uncollectible amounts related to credit losses is established based on expected losses. Expected losses are estimated by reviewing specific customer accounts, taking into consideration accounts receivable aging, credit risk of the customers, and historical payment history, as well as current and forecasted economic conditions and other relevant factors. The allowance for uncollectible amounts and change in expected credit losses for trade accounts receivable and unbilled receivables (contract assets) consisted of the following: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Balance, beginning $ 3,141 $ 7,522 $ 3,664 $ 8,359 Charged to costs and expenses, or sales allowance 356 581 783 1,709 Deductions ( 302 ) ( 4,367 ) ( 1,410 ) ( 6,375 ) Other additions 1 ( 152 ) 95 6 138 Balance, ending $ 3,043 $ 3,831 $ 3,043 $ 3,831 (1) Includes effects of foreign exchange rate changes during the period. 8 Contract liabilities Contract liabilities consisted of the following: June 30, 2022 September 30, 2021 Current Noncurrent Current Noncurrent Deferred revenue from material rights from GE joint venture formation $ 5,508 $ 235,763 $ 4,771 $ 234,237 Deferred revenue from advanced invoicing and/or prepayments from customers 1,288 39 4,192 290 Liability related to customer supplied inventory 12,657 — 14,169 — Deferred revenue from material rights related to engineering and development funding 6,397 160,827 6,395 151,797 Net contract liabilities $ 25,850 $ 396,629 $ 29,527 $ 386,324 Woodward recognized revenue of $ 5,140 in the three-months and $ 18,359 in the nine-months ended June 30, 2022 from contract liabilities balances recorded as of October 1, 2021, compared to $ 3,135 in the three-months and $ 16,809 in the nine-months ended June 30, 2021 from contract liabilities balances recorded as of October 1, 2020. Remaining performance obligations Remaining performance obligations related to the aggregate amount of the total contract transaction price of firm orders for which the performance obligation has not yet been recognized in revenue as of June 30, 2022 was $ 1,595,880 , compared to $ 1,283,311 as of September 30, 2021, the majority of which relates to Woodward’s Aerospace segment in both periods. Woodward expects to recognize almost all of these remaining performance obligations within two years after June 30, 2022. Remaining performance obligations related to material rights that have not yet been recognized in revenue as of June 30, 2022 was $ 450,888 , compared to $ 471,133 as of September 30, 2021, of which $ 2,413 is expected to be recognized in the remainder of fiscal year 2022 , $ 12,681 is expected to be recognized in fiscal year 2023 , and the remaining balance is expected to be recognized thereafter. Woodward expects to recognize revenue from performance obligations related to material rights over the life of the underlying programs, which may be as long as forty years . Disaggregation of Revenue Woodward designs, produces and services reliable, efficient, low-emission, and high-performance energy control products for diverse applications in markets throughout the world. Woodward reports financial results for each of its Aerospace and Industrial reportable segments. Woodward further disaggregates its revenue from contracts with customers by primary market as Woodward believes this best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors. Revenue by primary market for the Aerospace reportable segment was as follows: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Commercial OEM $ 131,968 $ 96,290 $ 359,683 $ 274,278 Commercial aftermarket 108,695 75,508 303,335 218,602 Defense OEM 115,205 117,204 318,392 384,097 Defense aftermarket 45,844 51,910 129,494 150,308 Total Aerospace segment net sales $ 401,712 $ 340,912 $ 1,110,904 $ 1,027,285 Revenue by primary market for the Industrial reportable segment was as follows: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Reciprocating engines $ 154,090 $ 166,143 $ 469,087 $ 494,099 Industrial turbines 58,530 49,620 162,766 154,231 Total Industrial segment net sales $ 212,620 $ 215,763 $ 631,853 $ 648,330 9 The customers who each account for approximately 10% or more of net sales of each of Woodward’s reportable segments are as follows: Three and Nine-Months Ended June 30, 2022 Aerospace The Boeing Company, General Electric Company, Raytheon Technologies Industrial Rolls-Royce PLC, Wartsila, Caterpillar, Inc. Note 4. Earnings per share Basic earnings per share is computed by dividing net earnings available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted earnings per share reflects the weighted-average number of shares outstanding after consideration of the dilutive effect of stock options and restricted stock. The following is a reconciliation of net earnings to basic earnings per share and diluted earnings per share: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Numerator: Net earnings $ 39,446 $ 48,861 $ 117,657 $ 158,744 Denominator: Basic shares outstanding 60,506 63,559 62,052 63,215 Dilutive effect of stock options and restricted stock 1,582 2,351 1,885 2,284 Diluted shares outstanding 62,088 65,910 63,937 65,499 Income per common share: Basic earnings per share $ 0.65 $ 0.77 $ 1.90 $ 2.51 Diluted earnings per share $ 0.64 $ 0.74 $ 1.84 $ 2.42 The following stock option grants were outstanding but were excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive. Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Options 1,048 34 479 49 Weighted-average option price $ 110.49 $ 123.23 $ 117.45 $ 114.00 The weighted-average shares of common stock outstanding for basic and diluted earnings per share included the weighted-average treasury stock shares held for deferred compensation obligations of the following: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Weighted-average treasury stock shares held for deferred compensation obligations 140 182 154 191 Note 5. Leases Lessee arrangements Woodward has entered into operating leases for certain facilities and equipment with terms in excess of one year under agreements that expire at various dates. Some leases require the payment of property taxes, insurance, maintenance costs, or other similar costs in addition to rental payments. Woodward has also entered into finance leases for equipment with terms in excess of one year under agreements that expire at various dates. 10 Lease-related assets and liabilities were as follows: Classification on the Condensed Consolidated Balance Sheets June 30, 2022 September 30, 2021 Assets: Operating lease assets Other assets $ 24,108 $ 19,370 Finance lease assets Property, plant and equipment, net 1,733 781 Total lease assets 25,841 20,151 Current liabilities: Operating lease liabilities Accrued liabilities 4,896 5,260 Finance lease liabilities Current portion of long-term debt 458 728 Noncurrent liabilities: Operating lease liabilities Other liabilities 19,844 14,770 Finance lease liabilities Long-term debt, less current portion 1,303 475 Total lease liabilities $ 26,501 $ 21,233 Lease-related expenses were as follows: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Operating lease expense $ 1,549 $ 1,729 $ 4,809 $ 4,897 Amortization of finance lease assets 116 102 290 322 Interest on finance lease liabilities 14 13 30 48 Variable lease expense 226 282 832 1,100 Short-term lease expense 44 75 134 233 Sublease (income) 1 — ( 104 ) ( 192 ) ( 486 ) Total lease expense $ 1,949 $ 2,097 $ 5,903 $ 6,114 (1) Relates to two separate subleases Woodward entered into for a leased manufacturing building in Niles, Illinois. During the nine-months ended June 30, 2022, these subleases were terminated. Lease-related supplemental cash flow information was as follows: Nine-Months Ended June 30, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 4,136 $ 4,229 Operating cash flows for finance leases 30 48 Financing cash flows for finance leases 690 1,236 Right-of-use assets obtained in exchange for recorded lease obligations: Operating leases 9,997 6,759 Finance leases 1,260 35 Lessor arrangements Woodward has assessed its manufacturing contracts and concluded that certain of the contracts for the manufacture of customer products met the criteria to be considered a leasing arrangement (“embedded leases”) with Woodward as the lessor. The specific manufacturing contracts that met the criteria were those that utilized Woodward property, plant and equipment and which are substantially (more than 90%) dedicated to the manufacturing of the product(s) for a single customer. Woodward has dedicated manufacturing lines with four of its customers representing embedded leases, all of which qualified as operating leases with undefined quantities of future customer purchase commitments. Although Woodward expects to allocate some portion of future net sales to these customers to embedded lessor arrangements, it cannot provide expected future undiscounted lease payments from property, plant and equipment leased to customers as of June 30, 2022. If, in the future, customers reduce purchases of related products from Woodward, the Company believes it will derive additional value from the underlying equipment by repurposing its use to support other customer arrangements. Revenue from contracts with customers that included embedded operating leases, which is included in “Net sales” in the Condensed Consolidated Statements of Earnings, was $ 1,303 for the three-months and $ 3,969 for the nine-months ended June 30, 2022, compared to $ 1,519 for the three-months and $ 4,828 for the nine-months ended June 30, 2021. 11 The carrying amount of property, plant and equipment leased to others through embedded leasing arrangements, included in “Property, plant and equipment, net” on the Condensed Consolidated Balance Sheets, follows: June 30, 2022 September 30, 2021 Property, plant and equipment leased to others through embedded leasing arrangements $ 48,968 $ 93,732 Less accumulated depreciation ( 25,742 ) ( 35,733 ) Property, plant and equipment leased to others through embedded leasing arrangements, net $ 23,226 $ 57,999 Note 6. Joint venture In fiscal year 2016, Woodward and General Electric Company (“GE”), acting through its GE Aviation business unit, consummated the formation of a strategic joint venture between Woodward and GE (the “JV”) to develop, manufacture and support fuel systems for specified existing and all future GE commercial aircraft engines that produce thrust in excess of fifty thousand pounds. Unamortized deferred revenue from material rights in connection with the JV formation included: June 30, 2022 September 30, 2021 Accrued liabilities $ 5,508 $ 4,771 Other liabilities 235,763 234,237 Amortization of the deferred revenue (material right) recognized as an increase to sales was $ 905 for the three-months and $ 2,632 for the nine-months ended June 30, 2022, and $ 971 for the three-months and $ 3,142 for the nine-months ended June 30, 2021. As part of the JV formation, GE pays contingent consideration to Woodward consisting of fifteen annual payments of $4,894 per year, which began in the second quarter of fiscal year 2017, subject to certain claw-back conditions. Woodward received its annual payments of $ 4,894 during the three-months ended March 31, 2022 and 2021, which were recorded as deferred income and included in “Net cash provided by operating activities” on the Condensed Consolidated Statements of Cash Flows. Other income related to Woodward’s equity interest in the earnings of the JV was as follows: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Other income $ 3,860 $ 2,688 $ 12,675 $ 8,853 Cash distributions to Woodward from the JV, recognized in “Other, net” in “Net cash provided by operating activities” on the Condensed Consolidated Statements of Cash Flows, were as follows: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Cash distributions $ 4,000 $ 3,000 $ 13,000 $ 10,000 Net sales to the JV were as follows: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Net sales 1 $ 6,698 $ 8,441 $ 19,245 $ 26,825 (1) Net sales included a reduction of $ 7,912 for the three-months and $ 21,058 for the nine-months ended June 30, 2022 related to royalties owed to the JV by Woodward on sales by Woodward directly to third party aftermarket customers, compared to a reduction to sales of $ 3,944 for the three-months and $ 14,998 for the nine-months ended June 30, 2021. 12 The Condensed Consolidated Balance Sheets include “Accounts receivable” related to amounts the JV owed Woodward, “Accounts payable” related to amounts Woodward owed the JV, and “Other assets” related to Woodward’s net investment in the JV, as follows: June 30, 2022 September 30, 2021 Accounts receivable $ 3,857 $ 3,639 Accounts payable 3,163 2,823 Other assets 6,664 6,988 Note 7. Financial instruments and fair value measurements The table below presents information about Woodward’s financial assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques Woodward utilized to determine such fair value as defined by the U.S. GAAP fair value hierarchy. At June 30, 2022 At September 30, 2021 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Financial assets: Investments in term deposits with foreign banks $ 32,205 $ — $ — $ 32,205 $ 13,187 $ — $ — $ 13,187 Equity securities 24,192 — — 24,192 29,714 — — 29,714 Cross-currency interest rate swaps — 9,002 — 9,002 — — — — Total financial assets $ 56,397 $ 9,002 $ — $ 65,399 $ 42,901 $ — $ — $ 42,901 Financial liabilities: Cross-currency interest rate swaps $ — $ — $ — $ — $ — $ 50,185 $ — $ 50,185 Total financial liabilities $ — $ — $ — $ — $ — $ 50,185 $ — $ 50,185 Investments in term deposits with foreign banks: Woodward’s foreign subsidiaries sometimes invest excess cash in various highly liquid financial instruments that Woodward believes are with creditworthy financial institutions. Such investments are reported in “Cash and cash equivalents” at fair value, with realized gains from interest income recognized in earnings. The carrying value of Woodward’s investments in term deposits with foreign banks are considered equal to the fair value given the highly liquid nature of the investments. Equity securities: Woodward holds marketable equity securities, through investments in various mutual funds, related to its deferred compensation program. Based on Woodward’s intentions regarding these instruments, marketable equity securities are classified as trading securities. The trading securities are reported at fair value, with realized gains and losses recognized in “Other (income) expense, net” on the Condensed Consolidated Statements of Earnings. The trading securities are included in “Other assets” in the Condensed Consolidated Balance Sheets. The fair values of Woodward’s trading securities are based on the quoted market prices for the net asset value of the various mutual funds. Cross-currency interest rate swaps: Woodward holds cross-currency interest rate swaps, which are accounted for at fair value. In the Condensed Consolidated Balance Sheets, the swaps in an asset position are included in “Other assets,” and swaps in a liability position are included in “Other liabilities”. The fair values of Woodward’s cross-currency interest rate swaps are determined using a market approach that is based on observable inputs other than quoted market prices, including contract terms, interest rates, currency rates, and other market factors. Cash, trade accounts receivable, accounts payable, and short-term borrowings are not remeasured to fair value, as the carrying cost of each approximates its respective fair value. 13 The estimated fair values and carrying costs of other financial instruments that are not required to be remeasured at fair value in the Condensed Consolidated Balance Sheets were as follows: At June 30, 2022 At September 30, 2021 Fair Value Hierarchy Level Estimated Fair Value Carrying Cost Estimated Fair Value Carrying Cost Assets: Notes receivable from municipalities 2 $ 10,230 $ 10,030 $ 11,413 $ 10,193 Notes receivable from sale of the renewable power systems business and other related businesses 2 — — 6,288 6,061 Investments in short-term time deposits 2 9,196 9,341 11,587 11,580 Liabilities: Long-term debt 2 693,558 718,810 812,866 736,706 In connection with certain economic incentives related to Woodward’s development of a second campus in the greater-Rockford, Illinois area for its Aerospace segment and Woodward’s development of a new campus at its corporate headquarters in Fort Collins, Colorado, Woodward received long-term notes from municipalities within the states of Illinois and Colorado. The fair value of the long-term notes was estimated based on a model that discounted future principal and interest payments received at an interest rate available to Woodward at the end of the period for similarly rated municipal notes of similar maturity, which is a level 2 input as defined by the U.S. GAAP fair value hierarchy. The interest rates used to estimate the fair value of the long-term notes were 3.0 % at June 30, 2022 and 1.3 % at September 30, 2021. In connection with the sale of the renewable power systems business and other related businesses, Woodward received a promissory note from the buyer for deferral of a portion of the purchase price. The full amount of the promissory note was received during the three-months ended June 30, 2022. From time to time, certain of Woodward’s foreign subsidiaries will invest excess cash in short-term time deposits with a fixed maturity date of longer than three months but less than one year from the date of the deposit. Woodward believes that the investments are with creditworthy financial institutions. The fair value of the investments in short-term time deposits was estimated based on a model that discounted future principal and interest payments to be received at an interest rate available to the foreign subsidiary entering into the investment for similar short-term time deposits of similar maturity. This was determined to be a level 2 input as defined by the U.S. GAAP fair value hierarchy. The interest rates used to estimate the fair value of the short-term time deposits was 5.5 % at June 30, 2022 and 3.3 % at September 30, 2021. The fair value of long-term debt was estimated based on the prices of debt of comparable type and maturity available to Woodward at the end of the period, which is a level 2 input as defined by the U.S. GAAP fair value hierarchy. The weighted-average interest rate used to estimate the fair value of long-term debt was 4.2 % at June 30, 2022 and 1.6 % at September 30, 2021. Woodward does not have expected credit losses related to any financial assets that are not required to be remeasured at fair value. Note 8. Derivative instruments and hedging activities Derivative instruments not designated or qualifying as hedging instruments In May 2020, Woodward entered into a floating-rate cross-currency interest rate swap (the “2020 Floating-Rate Cross-Currency Swap”), with a notional value of $ 45,000 , and five fixed-rate cross-currency interest rate swap agreements (the “2020 Fixed-Rate Cross-Currency Swaps”), with an aggregate notional value of $ 400,000 , which effectively reduced the interest rates on the underlying fixed and floating-rate debt, respectively, under the 2018 Notes (as defined in 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 Woodward’s most recently filed Form 10-K) and Woodward’s then existing revolving credit agreement. The net interest income of the cross-currency interest rate swaps is recorded as a reduction to “Interest expense” in Woodward’s Condensed Consolidated Statements of Earnings. As of June 30, 2022, the total notional value of the 2020 Floating-Rate Cross-Currency Swap and the 2020 Fixed-Rate Cross-Currency Swaps was $ 15,000 and $ 400,000 , respectively. See Note 7, Financial Instruments and fair value measurements for the related fair value of the derivative instruments as of June 30, 2022. 14 Derivatives instruments in fair value hedging relationships In May 2020, Woodward entered into a US dollar denominated intercompany loan payable with identical terms and notional value as the 2020 Floating-Rate Cross-Currency Swap, together with a reciprocal intercompany floating-rate cross-currency interest rate swap. The agreements were entered into by Woodward Barbados Euro Financing SRL (“Euro Barbados”), a wholly owned subsidiary of Woodward. The US dollar denominated intercompany loan and reciprocal intercompany floating-rate cross-currency interest rate swap are designated as a fair value hedge under the criteria prescribed in ASC 815. The objective of the derivative instrument is to hedge against the foreign currency exchange risk attributable to the spot remeasurement of the US dollar denominated intercompany loan, as Euro Barbados maintains a Euro functional currency. For each floating-rate intercompany cross-currency interest rate swap, only the change in the fair value related to the cross-currency basis spread, or excluded component, of the derivative instrument is recognized in accumulated other comprehensive income (“OCI”). The remaining change in the fair value of the derivative instrument is recognized in foreign currency transaction gain or loss included in “Selling, general and administrative costs” in Woodward’s Condensed Consolidated Statements of Earnings. The change in the fair value of the derivative instrument in foreign currency transaction gain or loss offsets the change in the spot remeasurement of the intercompany Euro and US dollar denominated loans. Hedge effectiveness is assessed based on the fair value changes of the derivative instrument, after excluding any fair value changes related to the cross-currency basis spread. The initial cost of the cross-currency basis spread is recorded in earnings each period through the swap accrual process. There are no credit-risk-related contingent features associated with the intercompany floating-rate cross-currency interest rate swap. Derivative instruments in cash flow hedging relationships In May 2020, Woodward entered into five US dollar intercompany loans payable, with identical terms and notional values of each tranche of the 2020 Fixed-Rate Cross-Currency Swaps, together with reciprocal fixed-rate intercompany cross-currency interest rate swaps. The agreements were entered into by Euro Barbados and are designated as cash flow hedges under the criteria prescribed in ASC 815. The objective of these derivative instruments is to hedge the risk of variability in cash flows attributable to the foreign currency exchange risk of cash flows for future principal and interest payments associated with the US dollar denominated intercompany loans over a thirteen-year period, as Euro Barbados maintains a Euro functional currency. For each of the fixed-rate intercompany cross-currency interest rate swaps, changes in the fair values of the derivative instruments are recognized in accumulated OCI and reclassified to foreign currency transaction gain or loss included in “Selling, general and administrative costs” in Woodward’s Condensed Consolidated Statements of Earnings. Reclassifications out of accumulated OCI of the change in fair value occur each reporting period based upon changes in the spot rate remeasurement of the Euro and US dollar denominated intercompany loans, including associated interest. Hedge effectiveness is assessed based on the fair value changes of the derivative instruments and such hedges are deemed to be highly effective in offsetting exposure to variability in foreign exchange rates. There are no credit-risk-related contingent features associated with these fixed-rate cross-currency interest rate swaps. 15 Derivatives instruments in net investment hedging relationships On September 23, 2016 , Woodward and Woodward International Holding B.V., a wholly owned subsidiary of Woodward organized under the laws of The Netherlands (the “BV Subsidiary”), each entered into a note purchase agreement (the “2016 Note Purchase Agreement”) relating to the sale by Woodward and the BV Subsidiary of an aggregate principal amount of € 160,000 of senior unsecured notes in a series of private placement transactions. Woodward issued € 40,000 aggregate principal amount of Woodward’s Series M Senior Notes due September 23, 2026 (the “Series M Notes”). Woodward designated the Series M Notes as a hedge of a foreign currency exposure of Woodward’s net investment in its Euro denominated functional currency subsidiaries. Related to the Series M Notes, included in foreign currency translation adjustments within total comprehensive (losses) earnings are net foreign exchange gains of $ 2,887 for the three-months and $ 4,631 for the nine-months ended June 30, 2022, compared to net foreign exchange losses of $ 750 for the three-months and $ 648 for the nine-months ended June 30, 2021. Impact of derivative instruments designated as qualifying hedging instruments The following table discloses the amount of (income) expense recognized in earnings on derivative instruments designated as qualifying hedging instruments: Three-months ended June 30, Nine-months ended June 30, Derivatives in: Location 2022 2021 2022 2021 Cross-currency interest rate swap agreement designated as fair value hedges Selling, general and administrative expenses $ ( 1,087 ) $ 546 $ ( 2,006 ) $ 736 Cross-currency interest rate swap agreements designated as cash flow hedges Selling, general and administrative expenses ( 25,881 ) 6,658 ( 41,293 ) 6,745 $ ( 26,968 ) $ 7,204 $ ( 43,299 ) $ 7,481 The following table discloses the amount of (gain) loss recognized in accumulated OCI on derivative instruments designated as qualifying hedging instruments: Three-months ended June 30, Nine-months ended June 30, Derivatives in: Location 2022 2021 2022 2021 Cross-currency interest rate swap agreement designated as fair value hedges Selling, general and administrative expenses $ ( 903 ) $ 429 $ ( 1,960 ) $ 691 Cross-currency interest rate swap agreements designated as cash flow hedges Selling, general and administrative expenses ( 33,304 ) ( 8,831 ) ( 57,027 ) 12,673 $ ( 34,207 ) $ ( 8,402 ) $ ( 58,987 ) $ 13,364 The following table discloses the amount of (gain) loss reclassified from accumulated OCI into earnings on derivative instruments designated as qualifying hedging instruments: Three-months ended June 30, Nine-months ended June 30, Derivatives in: Location 2022 2021 2022 2021 Cross-currency interest rate swap agreement designated as fair value hedges Selling, general and administrative expenses $ ( 1,087 ) $ 546 $ ( 2,006 ) $ 736 Cross-currency interest rate swap agreements designated as cash flow hedges Selling, general and administrative expenses ( 25,881 ) 6,658 ( 41,293 ) 6,745 $ ( 26,968 ) $ 7,204 $ ( 43,299 ) $ 7,481 The remaining unrecognized gains and losses in Woodward’s Condensed Consolidated Balance Sheets associated with derivative instruments that were previously entered into by Woodward, which are classified in accumulated OCI, were net losses of $ 10,818 as of June 30, 2022 and $ 26,506 as of September 30, 2021. 16 Note 9. Supplemental statement of cash flows information Nine-Months Ended June 30, 2022 2021 Interest paid, net of amounts capitalized $ 23,509 $ 25,617 Income taxes paid 25,625 33,293 Income tax refunds received 7,240 13,788 Non-cash activities: Purchases of property, plant and equipment on account 4,386 1,993 Common shares issued from treasury to settle benefit obligations 17,168 14,900 Note 10. Inventories June 30, September 30, 2022 2021 Raw materials $ 122,584 $ 107,412 Work in progress 125,392 95,846 Component parts (1) 323,564 260,244 Finished goods 76,846 63,109 Customer supplied inventory 12,657 14,169 On-hand inventory for which control has transferred to the customer ( 157,379 ) ( 120,809 ) $ 503,664 $ 419,971 (1) Component parts include items that can be sold separately as finished goods or included in the manufacture of other products. Note 11. Property, plant, and equipment June 30, September 30, 2022 2021 Land and land improvements $ 84,663 $ 86,051 Buildings and building improvements 553,244 553,693 Leasehold improvements 20,249 19,159 Machinery and production equipment 776,186 795,128 Computer equipment and software 121,800 124,444 Office furniture and equipment 39,611 39,987 Other 19,941 20,012 Construction in progress 53,770 38,317 1,669,464 1,676,791 Less accumulated depreciation ( 755,996 ) ( 726,222 ) Property, plant, and equipment, net $ 913,468 $ 950,569 For the three and nine-months ended June 30, 2022 and 2021, Woodward had depreciation expense as follows: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Depreciation expense $ 20,618 $ 21,717 $ 62,674 $ 66,244 Note 12. Goodwill September 30, 2021 Effects of Foreign Currency Translation June 30, 2022 Aerospace $ 455,423 $ — $ 455,423 Industrial 349,910 ( 26,189 ) 323,721 Consolidated $ 805,333 $ ( 26,189 ) $ 779,144 17 Woodward tests goodwill for impairment during the fourth quarter of each fiscal year, and at any time there is an indication that goodwill is more-likely-than-not impaired, such indications commonly referred to as triggering events. Woodward’s goodwill impairment test in the fourth quarter of fiscal year 2021 resulted in no impairment. Note 13. Intangible assets, net June 30, 2022 September 30, 2021 Gross Carrying Value Accumulated Amortization Net Carrying Amount Gross Carrying Value Accumulated Amortization Net Carrying Amount Intangible assets with finite lives: Customer relationships and contracts: Aerospace $ 281,683 $ ( 220,270 ) $ 61,413 $ 281,683 $ ( 210,380 ) $ 71,303 Industrial 366,005 ( 65,751 ) 300,254 404,179 ( 56,515 ) 347,664 Total $ 647,688 $ ( 286,021 ) $ 361,667 $ 685,862 $ ( 266,895 ) $ 418,967 Intellectual property: Aerospace $ — $ — $ — $ — $ — $ — Industrial 12,414 ( 12,414 ) — 15,806 ( 15,806 ) — Total $ 12,414 $ ( 12,414 ) $ — $ 15,806 $ ( 15,806 ) $ — Process technology: Aerospace $ 76,370 $ ( 68,899 ) $ 7,471 $ 76,370 $ ( 67,177 ) $ 9,193 Industrial 82,627 ( 27,453 ) 55,174 90,008 ( 26,124 ) 63,884 Total $ 158,997 $ ( 96,352 ) $ 62,645 $ 166,378 $ ( 93,301 ) $ 73,077 Intangible asset with indefinite life: Tradename: Aerospace $ — $ — $ — $ — $ — $ — Industrial 60,555 — 60,555 67,245 — 67,245 Total $ 60,555 $ — $ 60,555 $ 67,245 $ — $ 67,245 Total intangibles: Aerospace $ 358,053 $ ( 289,169 ) $ 68,884 $ 358,053 $ ( 277,557 ) $ 80,496 Industrial 521,601 ( 105,618 ) 415,983 577,238 ( 98,445 ) 478,793 Consolidated Total $ 879,654 $ ( 394,787 ) $ 484,867 $ 935,291 $ ( 376,002 ) $ 559,289 Woodward tests the indefinite lived tradename intangible asset for impairment during the fourth quarter of each fiscal year, or at any time there is an indication the indefinite lived tradename intangible asset is more-likely-than-not impaired (commonly referred to as a triggering event). Woodward’s impairment test for the indefinite lived tradename intangible asset in the fourth quarter of fiscal year 2021 resulted in no impairment. For the three and nine-months ended June 30, 2022 and 2021, Woodward recorded amortization expense associated with intangibles of the following: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Amortization expense $ 9,309 $ 10,526 $ 28,584 $ 31,555 Future amortization expense associated with intangibles is expected to be: Year Ending September 30: 2022 (remaining) $ 9,208 2023 36,020 2024 32,269 2025 27,054 2026 27,044 Thereafter 292,717 $ 424,312 18 Note 14. Credit facilities, short-term borrowings and long-term debt Revolving credit facility Woodward maintains a $ 1,000,000 revolving credit facility established under a revolving credit agreement among Woodward, a syndicate of lenders and Wells Fargo Bank, National Association, as administrative agent (the “Revolving Credit Agreement”). The Revolving Credit Agreement provides for the option to increase available borrowings up to $ 1,500,000 , subject to lenders’ participation. On November 24, 2021, Woodward amended the Revolving Credit Agreement (such amended agreement, the “Amended and Restated Revolving Credit Agreement”) to, among other things, (i) replace the Euro London Interbank Offered Rate (“LIBOR”), the British pound sterling LIBOR, and the Japanese yen LIBOR rates with the Euro Interbank Offered Rate (“Euribor”), Sterling Overnight Index Average (“SONIA”), and Tokyo Interbank Offered Rate (“TIBOR”) rates, respectively, and (ii) introduce the term Secured Overnight Financing Rate (“SOFR”) as the replacement for US LIBOR. Borrowings under the Amended and Restated Revolving Credit Agreement can be made by Woodward and certain of its foreign subsidiaries in U.S. dollars or in foreign currencies other than the U.S. dollar and generally bear interest at the new base rates listed above plus 0.875 % to 1.75 %. The Amended and Restated Revolving Credit Agreement matures on June 19, 2024. Under the Revolving Credit Agreement and Amended and Restated Revolving Credit Agreement, there were $ 49,200 in principal amount of borrowings outstanding as of June 30, 2022, at an effective interest rate of 2.90 %. As of June 30, 2022, all of borrowings outstanding were classified as short-term borrowings based on Woodward’s intent and ability to pay this amount in the next twelve months. As of September 30, 2021, there were no borrowings outstanding. Short-term borrowings Woodward has other foreign lines of credit and foreign overdraft facilities at various financial institutions, which are generally reviewed annually for renewal and are subject to the usual terms and conditions applied by the financial institutions. Pursuant to the terms of the related facility agreements, Woodward’s foreign performance guarantee facilities are limited in use to providing performance guarantees to third parties. There were no borrowings outstanding on Woodward’s foreign lines of credit and foreign overdraft facilities as of June 30, 2022 and September 30, 2021. Note 15. Accrued liabilities June 30, September 30, 2022 2021 Salaries and other member benefits $ 66,191 $ 54,497 Warranties 14,645 17,481 Interest payable 5,568 14,822 Accrued retirement benefits 2,723 2,825 Net current contract liabilities 25,850 29,527 Current portion of restructuring charges 4,503 4,495 Taxes, other than income 19,563 19,453 Purchase of treasury stock in transit — 12,516 Other 21,658 27,523 $ 160,701 $ 183,139 Warranties Provisions of Woodward’s sales agreements include product warranties customary to these types of agreements. Accruals are established for specifically identified warranty issues that are probable to result in future costs. Warranty costs are accrued as revenue is recognized on a non-specific basis whenever past experience indicates a normal and predictable pattern exists. Changes in accrued product warranties were as follows: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Warranties, beginning of period $ 12,984 $ 18,576 $ 17,481 $ 18,972 Expense, net of recoveries 3,021 ( 798 ) 3,243 214 (Reductions) additions for settlement of previous warranty liabilities ( 1,239 ) ( 477 ) ( 5,908 ) ( 1,928 ) Foreign currency exchange rate changes ( 121 ) 113 ( 171 ) 156 Warranties, end of period $ 14,645 $ 17,414 $ 14,645 $ 17,414 19 Restructuring charges In fiscal year 2021, the Company recognized restructuring charges relating to workforce management costs to align the Company’s hydraulics and engine systems businesses with current market conditions. During such fiscal year, restructuring charges of $ 5,008 were recorded as nonsegment expenses, the majority of which are expected to be paid within twelve months . In fiscal year 2020, the Company committed to a plan of termination (the “Termination Plan”), as well as other cost savings actions, in response to the ongoing global economic challenges resulting from the COVID-19 pandemic and its impact on the Company’s business. The Termination Plan involved the termination and/or furlough of employees and contractors at certain of the Company’s operating facilities, primarily in the United States. As a result of the Termination Plan and other related actions, the Company incurred $ 23,673 of restructuring charges for employee severance and benefits costs. All of the restructuring charges recorded during the fiscal year ended September 30, 2020 were recorded as nonsegment expenses and were paid as of September 30, 2021. The summary of activity in accrued restructuring charges during the nine-months ended June 30, 2022 and 2021 are as follows: Period Activity Balances as of September 30, 2021 Charges Payments Foreign currency exchange rate changes Non-cash activity Balances as of June 30, 2022 Workforce management costs associated with: Hydraulics Systems Realignment $ 3,758 $ — $ ( 505 ) $ — $ — $ 3,253 Engine Systems Realignment 1,250 — — — — 1,250 Total $ 5,008 $ — $ ( 505 ) $ — $ — $ 4,503 Period Activity Balances as of September 30, 2020 Charges Payments Foreign currency exchange rate changes Non-cash activity Balances as of June 30, 2021 Workforce management costs associated with: COVID-19 pandemic $ 3,395 $ — $ ( 2,409 ) $ 180 $ ( 1,166 ) $ — Total $ 3,395 $ — $ ( 2,409 ) $ 180 $ ( 1,166 ) $ — Note 16. Other liabilities June 30, September 30, 2022 2021 Net accrued retirement benefits, less amounts recognized within accrued liabilities $ 94,057 $ 107,074 Total unrecognized tax benefits 12,145 13,412 Noncurrent income taxes payable 14,329 16,257 Deferred economic incentives (1) 7,304 8,173 Cross-currency swap derivative liability — 50,185 Noncurrent operating lease liabilities 19,844 14,770 Net noncurrent contract liabilities 396,629 386,324 Other 10,181 21,713 $ 554,489 $ 617,908 (1) Woodward receives certain economic incentives from various state and local authorities related to capital expansion projects. Such amounts are initially recorded as deferred credits and are being recognized as a reduction to pre-tax expense over the economic lives of the related capital expansion projects. 20 Note 17. Other (income) expense, net Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Equity interest in the earnings of the JV $ ( 3,860 ) $ ( 2,688 ) $ ( 12,675 ) $ ( 8,853 ) Net (gain) on sales of assets and businesses ( 4 ) ( 2,131 ) ( 1,545 ) ( 4,073 ) Rent income ( 168 ) ( 268 ) ( 580 ) ( 1,011 ) Net loss (gain) on investments in deferred compensation program 3,840 ( 1,850 ) 5,216 ( 5,107 ) Other components of net periodic pension and other postretirement benefit, excluding service cost and interest expense ( 2,884 ) ( 3,541 ) ( 8,720 ) ( 10,592 ) Other ( 176 ) 123 ( 509 ) ( 173 ) $ ( 3,252 ) $ ( 10,355 ) $ ( 18,813 ) $ ( 29,809 ) Note 18. Income taxes The determination of the estimated annual effective tax rate is based upon a number of significant estimates and judgments. In addition, as a global commercial enterprise, Woodward’s tax expense can be impacted by changes in tax rates or laws, the finalization of tax audits and reviews, changes in the estimate of the amount of undistributed foreign earnings that Woodward considers indefinitely reinvested, issuance of future guidance, interpretation, and rule-making, and other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions. The following table sets forth the tax expense and the effective tax rate for Woodward’s earnings before income taxes: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Earnings before income taxes $ 50,287 $ 58,698 $ 142,129 $ 184,769 Income tax expense 10,841 9,837 24,472 26,025 Effective tax rate 21.6 % 16.8 % 17.2 % 14.1 % The increase in the effective tax rate for the three-months ended June 30, 2022 compared to the three-months ended June 30, 2021 is primarily attributable to decreased stock-based compensation tax benefit and prior period tax items related to Global Intangible Low-Taxed Income (“GILTI”) that did not repeat in the current quarter. These unfavorable impacts to the effective tax rate were partially offset by the prior quarter discrete impact of the enactment of a retroactive law disallowing foreign interest expense. The increase in the effective tax rate for the nine-months ended June 30, 2022 compared to the nine-months ended June 30, 2021 is primarily attributable to decreased stock-based compensation tax benefit as a percent of year-to-date pre-tax earnings, prior period tax items related to GILTI that did not repeat in the current fiscal year, and increased state income taxes relative to full-year projected earnings. These unfavorable impacts to the effective tax rate were partially offset by a reduction in the U.S. tax on international activities. Gross unrecognized tax benefits were $ 13,729 as of June 30, 2022, and $ 15,199 as of September 30, 2021. At June 30, 2022, the amount of the liability for unrecognized tax benefits that, if recognized, would impact Woodward’s effective tax rate was $ 8,842 . At this time, Woodward believes it is reasonably possible that the liability for unrecognized tax benefits will decrease by as much as $ 4,345 in the next twelve months due to the completion of review by tax authorities, lapses of statutes, and the settlement of tax positions. Woodward’s tax expense includes accruals for potential interest and penalties related to unrecognized tax benefits and all other interest and penalties related to tax payments. Woodward’s tax returns are subject to audits by U.S. federal, state, and foreign tax authorities, and these audits are at various stages of completion at any given time. Reviews of tax matters by authorities and lapses of the applicable statutes of limitation may result in changes to tax expense. Woodward’s fiscal years remaining open to examination for U.S. Federal income taxes include fiscal years 2018 and thereafter. Woodward’s fiscal years remaining open to examination for significant U.S. state income tax jurisdictions include fiscal years 2017 and thereafter. Woodward’s fiscal years remaining open to examination in significant foreign jurisdictions include 2017 and thereafter. 21 Note 19. Retirement benefits Woodward provides various retirement benefits to eligible members of the Company, including contributions to various defined contribution plans, pension benefits associated with defined benefit plans, postretirement medical benefits and postretirement life insurance benefits. Eligibility requirements and benefit levels vary depending on employee location. Defined contribution plans Most of the Company’s U.S. employees are eligible to participate in the U.S. defined contribution plan. The U.S. defined contribution plan allows employees to defer part of their annual income for income tax purposes into their personal 401(k) accounts. The Company makes matching contributions to eligible employee accounts, which are also deferred for employee personal income tax purposes. Certain non-U.S. employees are also eligible to participate in similar non-U.S. plans. Woodward’s U.S. employees receive an annual contribution of Woodward stock, equal to 5 % of their eligible prior year wages, to their personal Woodward Retirement Savings Plan accounts. There is no longer a minimum service requirement to be eligible for this benefit. Woodward fulfilled its annual obligation under this benefit using shares held in treasury stock by issuing a total of 150 shares of common stock for a value of $ 17,168 in the second quarter of fiscal year 2022, compared to a total of 128 shares of common stock for a value of $ 14,900 in the second quarter of fiscal year 2021. The amount of expense associated with defined contribution plans was as follows: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Company costs $ 10,132 $ 8,647 $ 30,582 $ 25,180 Defined benefit plans Woodward has defined benefit plans that provide pension benefits for certain retired employees in the United States, the United Kingdom, Japan, and Germany. Woodward also provides other postretirement benefits to its employees including postretirement medical benefits and life insurance benefits. Postretirement medical benefits are provided to certain current and retired employees and their covered dependents and beneficiaries in the United States. Life insurance benefits are provided to certain retirees in the United States under frozen plans, which are no longer available to current employees. A September 30 measurement date is utilized to value plan assets and obligations for all of Woodward’s defined benefit pension and other postretirement benefit plans. U.S. GAAP requires that, for obligations outstanding as of September 30, 2021, the funded status reported in interim periods shall be the same asset or liability recognized in the previous year end statement of financial position adjusted for (a) subsequent accruals of net periodic benefit cost that exclude the amortization of amounts previously recognized in other comprehensive income (for example, subsequent accruals of service cost, interest cost, and return on plan assets) and (b) contributions to a funded plan or benefit payments. 22 The components of the net periodic retirement pension costs recognized are as follows: Three-Months Ended June 30, United States Other Countries Total 2022 2021 2022 2021 2022 2021 Service cost $ 389 $ 433 $ 573 $ 737 $ 962 $ 1,170 Interest cost 1,320 1,240 395 345 1,715 1,585 Expected return on plan assets ( 2,713 ) ( 3,536 ) ( 596 ) ( 632 ) ( 3,309 ) ( 4,168 ) Amortization of: Net actuarial loss 65 136 136 237 201 373 Prior service cost 246 242 6 6 252 248 Net periodic retirement pension (benefit) cost $ ( 693 ) $ ( 1,485 ) $ 514 $ 693 $ ( 179 ) $ ( 792 ) Contributions paid $ — $ — $ 434 $ 490 $ 434 $ 490 Nine-Months Ended June 30, United States Other Countries Total 2022 2021 2022 2021 2022 2021 Service cost $ 1,166 $ 1,297 $ 1,803 $ 2,202 $ 2,969 $ 3,499 Interest cost 3,961 3,718 1,243 1,021 5,204 4,739 Expected return on plan assets ( 8,140 ) ( 10,608 ) ( 1,881 ) ( 1,859 ) ( 10,021 ) ( 12,467 ) Amortization of: Net actuarial loss 194 406 428 699 622 1,105 Prior service cost 736 727 18 18 754 745 Net periodic retirement pension (benefit) cost $ ( 2,083 ) $ ( 4,460 ) $ 1,611 $ 2,081 $ ( 472 ) $ ( 2,379 ) Contributions paid $ — $ — $ 1,933 $ 1,708 $ 1,933 $ 1,708 The components of net periodic retirement pension costs other than the service cost and interest cost components are included in the line item “Other (income) expense, net”, and the interest component is included in the line item “Interest expense” in the Condensed Consolidated Statements of Earnings. The components of the net periodic other postretirement benefit costs recognized are as follows: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Service cost $ 1 $ — $ 1 $ 1 Interest cost 144 150 433 449 Amortization of: Net actuarial (gain) loss ( 24 ) 7 ( 71 ) 22 Prior service cost — — — 1 Net periodic other postretirement cost $ 121 $ 157 $ 363 $ 473 Contributions paid $ 451 $ 632 $ 1,379 $ 1,610 The components of net periodic other postretirement benefit costs other than the service cost and interest cost components are included in the line item “Other (income) expense, net”, and the interest cost component is included in the line item “Interest expense” in the Condensed Consolidated Statements of Earnings. The amount of cash contributions made to these plans in any year is dependent upon a number of factors, including minimum funding requirements in the jurisdictions in which Woodward operates and arrangements made with trustees of certain foreign plans. As a result, the actual funding in fiscal year 2022 may differ from the current estimate. Woodward estimates its remaining cash contributions in fiscal year 2022 will be as follows: Retirement pension benefits: United States $ — United Kingdom 332 Japan — Germany 201 Other postretirement benefits 1,420 23 Note 20. Stockholders’ equity Stock repurchase program In November 2019, the Woodward board of directors (the “Board”) had authorized a program for the repurchase of up to $ 500,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a three-year period that was scheduled to expire in November 2022 (the “2019 Authorization”). During the first nine-months of fiscal year 2022, Woodward repurchased 233 shares of its common stock for $ 26,742 under the 2019 Authorization. During the first nine-months of fiscal year 2021, Woodward repurchased no shares of its common stock under the 2019 Authorization. In January 2022, the Board terminated the 2019 Authorization and concurrently authorized a new program for the repurchase of up to $ 800,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a two-year period ending in January 2024 (the “2022 Authorization”). During the first nine-months of fiscal year 2022, Woodward repurchased 3,441 shares of its common stock for $ 400,975 under the 2022 Authorization. Stock-based compensation Provisions governing outstanding stock option awards are included in the 2017 Omnibus Incentive Plan, as amended from time to time (the “2017 Plan”) and the 2006 Omnibus Incentive Plan (the “2006 Plan”), as applicable. The 2017 Plan was first approved by Woodward’s stockholders in January 2017 and is the successor plan to the 2006 Plan. As of September 14, 2016, the effective date of the 2017 Plan, the Board delegated authority to administer the 2017 Plan to the Compensation Committee of the Board, including, but not limited to, the power to determine the recipients of awards and the terms of those awards. On January 27, 2021 and January 26, 2022, Woodward’s stockholders approved an additional 1,500 and 800 shares, respectively, of Woodward’s common stock to be made available for future grants. Under the 2017 Plan, there were approximately 2,933 shares of Woodward’s common stock available for future grants as of June 30, 2022 and 2,714 shares as of September 30, 2021. Stock options Woodward believes that stock options align the interests of its employees and directors with the interests of its stockholders. Stock option awards are granted with an exercise price equal to the market price of Woodward’s stock at the date the grants are awarded, a ten-year term, and generally have a four-year vesting schedule at a rate of 25 % per year. The fair value of options granted is estimated as of the grant date using the Black-Scholes-Merton option-valuation model using the assumptions in the following table. Woodward calculates the expected term, which represents the average period of time that stock options granted are expected to be outstanding, based upon historical experience of plan participants. Expected volatility is based on historical volatility using daily stock price observations. The estimated dividend yield is based upon Woodward’s historical dividend practice and the market value of its common stock. The risk-free rate is based on the U.S. treasury yield curve, for periods within the contractual life of the stock option, at the time of grant. The following is a summary of the activity for stock option awards: Three-Months Ended June 30, 2022 Nine-Months Ended June 30, 2022 Number of options Weighted-Average Exercise Price per Share Number of options Weighted-Average Exercise Price per Share Options, beginning balance 5,352 $ 73.71 5,339 $ 68.21 Options granted 72 101.54 513 115.30 Options exercised ( 18 ) 43.90 ( 422 ) 48.02 Options forfeited ( 10 ) 90.16 ( 34 ) 88.88 Options, ending balance 5,396 $ 74.15 5,396 $ 74.15 24 Changes in non-vested stock options were as follows: Three-Months Ended June 30, 2022 Nine-Months Ended June 30, 2022 Number of options Weighted-Average Grant Date Fair Value per Share Number of options Weighted-Average Grant Date Fair Value Per Share Non-vested options outstanding, beginning balance 1,767 $ 29.64 2,063 $ 25.77 Options granted 72 39.34 513 41.78 Options vested ( 1 ) 26.37 ( 714 ) 26.23 Options forfeited ( 10 ) 30.02 ( 34 ) 29.45 Non-vested options outstanding, ending balance 1,828 $ 30.02 1,828 $ 30.02 Information about stock options that have vested, or are expected to vest, and are exercisable at June 30, 2022 was as follows: Number of options Weighted-Average Exercise Price Weighted-Average Remaining Life in Years Aggregate Intrinsic Value Options outstanding 5,396 $ 74.15 5.8 118,422 Options vested and exercisable 3,569 65.45 4.7 100,271 Options vested and expected to vest 5,333 73.87 5.8 117,969 Restricted Stock During the three-months ended June 30, 2022, Woodward granted 48,156 restricted stock units (RSU) under its long-term incentive program as part of recent recruiting activities. The RSUs granted under this program have a weighted-average exercise price of $ 99.72 per unit and are generally scheduled to vest on the third or fourth anniversary of the respective grant dates, subject to continued employment. Stock-based compensation expense Woodward recognizes stock-based compensation expense on a straight-line basis over the requisite service period. Pursuant to form stock option agreements used by the Company, with terms approved by the administrator of the applicable plan, the requisite service period can be less than the four-year vesting period based on grantee’s retirement eligibility. As such, the recognition of stock-based compensation expense associated with some stock option grants can be accelerated to a period of less than four years, including immediate recognition of stock-based compensation expense on the date of grant. At June 30, 2022, there was approximately $ 18,764 of total unrecognized compensation expense related to non-vested stock-based compensation arrangements, including both stock options and restricted stock awards. The pre-vesting forfeiture rates for purposes of determining stock-based compensation expense recognized were estimated to be 0 % for members of the Board and 7.3 % for all others. The remaining unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 2.0 years. Note 21. Commitments and contingencies Woodward is currently involved in claims, pending or threatened litigation or other legal proceedings, investigations and/or regulatory proceedings arising in the normal course of business, including, among others, those relating to product liability claims, employment matters, worker’s compensation claims, contractual disputes, product warranty claims and alleged violations of various laws and regulations. Woodward accrues for known individual matters using estimates of the most likely amount of loss where it believes that it is probable the matter will result in a loss when ultimately resolved and such loss is reasonably estimable. Legal costs are expensed as incurred and are classified in “Selling, general and administrative expenses” on the Condensed Consolidated Statements of Earnings. 25 Woodward is partially self-insured in the United States for healthcare and worker’s compensation up to predetermined amounts, above which third party insurance applies. Management regularly reviews the probable outcome of related claims and proceedings, the expenses expected to be incurred, the availability and limits of the insurance coverage, and the established accruals for liabilities. While the outcome of pending claims, legal and regulatory proceedings, and investigations cannot be predicted with certainty, management believes that any liabilities that may result from these claims, proceedings and investigations will not have a material effect on Woodward’s liquidity, financial condition, or results of operations. In the event of a change in control of Woodward, as defined in change-in-control agreements with its corporate officers, Woodward may be required to pay termination benefits to such officers. Note 22. Segment information Woodward serves the aerospace and industrial markets through its two reportable segments – Aerospace and Industrial. When appropriate, Woodward’s reportable segments are aggregations of Woodward’s operating segments. Woodward uses operating segment information internally to manage its business, including the assessment of operating segment performance and decisions for the allocation of resources between operating segments. The accounting policies of the reportable segments are the same as those of the Company. Woodward evaluates segment profit or loss based on internal performance measures for each segment in a given period. In connection with that assessment, Woodward generally excludes matters such as certain charges for restructuring, interest income and expense, certain gains and losses from asset dispositions, or other non-recurring and/or non-operationally related expenses. A summary of consolidated net sales and earnings by segment follows: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Segment external net sales: Aerospace $ 401,712 $ 340,912 $ 1,110,904 $ 1,027,285 Industrial 212,620 215,763 631,853 648,330 Total consolidated net sales $ 614,332 $ 556,675 $ 1,742,757 $ 1,675,615 Segment earnings: Aerospace $ 56,566 $ 53,167 $ 167,458 $ 168,641 Industrial 21,102 27,166 62,029 87,925 Nonsegment expenses ( 19,201 ) ( 13,546 ) ( 63,816 ) ( 47,331 ) Interest expense, net ( 8,180 ) ( 8,089 ) ( 23,542 ) ( 24,466 ) Consolidated earnings before income taxes $ 50,287 $ 58,698 $ 142,129 $ 184,769 Segment assets consist of accounts receivable; inventories; property, plant, and equipment, net; goodwill; and other intangibles, net. A summary of consolidated total assets by segment follows: June 30, 2022 September 30, 2021 Segment assets: Aerospace $ 1,754,600 $ 1,698,833 Industrial 1,404,383 1,453,423 Unallocated corporate property, plant and equipment, net 109,777 106,014 Other unallocated assets 487,029 832,734 Consolidated total assets $ 3,755,789 $ 4,091,004 Note 23. Subsequent events On July 27, 2022, the Board approved a cash dividend of $ 0.19 per share for the quarter, payable on August 29, 2022 , for stockholders of record as of August 15, 2022 . 26 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward Looking 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: • the impacts on our business relating to the global COVID-19 pandemic, including the impacts thereof on our industries, to supply and demand, and measures taken by governments and private industry in response; • the effect of economic trends, including rising inflation, and global supply chain and labor pressures; • the effect of geopolitical events, including the Russia-Ukraine conflict on our business and the markets in which we operate; • future sales, earnings, cash flow, uses of cash, and other measures of financial performance, including our ability to accurately predict such performance; • trends in our business and the markets in which we operate, including expectations in those markets in future periods; • our expected expenses in future periods and trends in such expenses over time; • descriptions of our plans and expectations for future operations; • plans and expectations relating to the performance of our joint venture with General Electric Company; • 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; • restructuring and alignment costs and savings; • 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 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; and • our tax rate and other effects of changes in applicable tax laws. 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. 27 OVERV IEW Global Business Conditions We continue to monitor a variety of external issues impacting our business, including the ongoing global impact of the COVID-19 pandemic, rising inflation, and global supply chain and labor disruptions. Although we continue to see recovery across most of our end markets, our financial performance during the first nine-months of fiscal year 2022 was adversely affected by these issues. We continue to assess the environment and are taking appropriate price actions in response to rising costs; however, timing can be delayed due to certain pre-existing contractual arrangements. We are unable to predict the full extent to which these impacts will continue to adversely affect our business, including our operational performance, results of operations, cash flows, financial position, and the achievement of our strategic objectives. Such uncertainty may affect our ability to accurately predict our future performance and financial results. We continue to actively monitor the situation and may take further actions to alter our business operations if we determine such actions are in the best interests of our shareholders, employees, customers, communities, business partners, and suppliers, or as required by federal, state, or local authorities. It is not currently clear what the potential effects of any such alterations or modifications may have on our business in future periods, including the effects on our customers, employees and prospects, or on our financial results. The Russia-Ukraine Conflict In February 2022, in response to the military conflict between Russia and Ukraine, the United States, other North Atlantic Treaty Organization (“NATO”) members, and certain non-member countries announced targeted economic sanctions on Russia and Russian enterprises. The continuation of the conflict may trigger additional economic and other sanctions enacted by the United States, other NATO member states, and other countries. Our sales to Russia during each of the first nine-months of fiscal years 2022 and 2021 were less than 1% of our total sales. While the impact of any additional bans, sanction programs, and boycotts is uncertain at the current time due to the fluid nature of the military conflict as it continues to unfold, the potential impacts of the conflict have included and could continue to include supply chain and logistics disruptions, volatility in foreign exchange rates and interest rates, inflationary pressures on raw materials and energy, heightened cybersecurity threats, and other impacts. 28 Operational Highlights Quarter and Year to Date Highlights Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Net sales: Aerospace segment $ 401,712 $ 340,912 $ 1,110,904 $ 1,027,285 Industrial segment 212,620 215,763 631,853 648,330 Consolidated net sales $ 614,332 $ 556,675 $ 1,742,757 $ 1,675,615 Earnings: Aerospace segment $ 56,566 $ 53,167 $ 167,458 $ 168,641 Segment earnings as a percent of segment net sales 14.1 % 15.6 % 15.1 % 16.4 % Industrial segment $ 21,102 $ 27,166 $ 62,029 $ 87,925 Segment earnings as a percent of segment net sales 9.9 % 12.6 % 9.8 % 13.6 % Consolidated net earnings $ 39,446 $ 48,861 $ 117,657 $ 158,744 Adjusted net earnings $ 39,446 $ 48,861 $ 122,347 $ 158,744 Effective tax rate 21.6 % 16.8 % 17.2 % 14.1 % Adjusted effective tax rate 21.6 % 16.8 % 17.6 % 14.1 % Consolidated diluted earnings per share $ 0.64 $ 0.74 $ 1.84 $ 2.42 Consolidated adjusted diluted earnings per share $ 0.64 $ 0.74 $ 1.91 $ 2.42 Earnings before interest and taxes ("EBIT") $ 58,467 $ 66,787 $ 165,671 $ 209,235 Adjusted EBIT $ 58,467 $ 66,787 $ 171,925 $ 209,235 Earnings before interest, taxes, depreciation, and amortization ("EBITDA") $ 88,394 $ 99,030 $ 256,929 $ 307,034 Adjusted EBITDA $ 88,394 $ 99,030 $ 263,183 $ 307,034 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. 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. Liquidity Highlights Net cash provided by operating activities for the first nine-months of fiscal year 2022 was $86,016, compared to $317,915 for the first nine-months of fiscal year 2021. The decrease in net cash provided by operating activities in the first nine-months of fiscal year 2022 compared to the first nine-months of the prior fiscal year is primarily attributable to production delays from supply chain disruptions as well as increases in working capital (excluding cash) to support the growth we anticipate in the fourth quarter of this fiscal year and the next full fiscal year. For the first nine-months of fiscal year 2022, free cash flow, which we define as net cash flow from operating activities less payments for property, plant and equipment, was $48,911, compared to $296,568 for the first nine-months of fiscal year 2021. Adjusted free cash flow, which we define as free cash flow, plus the payments for costs related to business development activities and restructuring charges, was $52,398. No adjustments were made to free cash flow for the first nine-months of fiscal year 2021. The decrease in free cash flow for the first nine-months of fiscal year 2022 as compared to the same period of the prior fiscal year was primarily due to increases in working capital (excluding cash) to support the growth we anticipate in the fourth quarter of this fiscal year and the next full fiscal year, as well as production delays from supply chain disruptions, and higher payments for property, plant and equipment. Free cash flow and adjusted free cash flow are non-U.S. GAAP financial measures. A description of these measures as well as a reconciliation of these non-U.S. GAAP financial measures to the most directly comparable U.S. GAAP financial measures can be found under the caption “Non-U.S. GAAP Financial Measures” in this Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations. At June 30, 2022, we held $99,701 in cash and cash equivalents and had total outstanding debt of $766,402. We have additional borrowing availability of $940,684, net of outstanding letters of credit, under our revolving credit agreement. At June 30, 2022, we also had additional borrowing capacity of $27,387 under various foreign lines of credit and foreign overdraft facilities. 29 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, 2022 % of Net Sales June 30, 2021 % of Net Sales June 30, 2022 % of Net Sales June 30, 2021 % of Net Sales Net sales $ 614,332 100 % $ 556,675 100 % $ 1,742,757 100 % $ 1,675,615 100 % Costs and expenses: Cost of goods sold 480,403 78.2 % 422,457 75.9 % 1,352,979 77.6 % 1,258,340 75.1 % Selling, general, and administrative expenses 46,490 7.6 % 48,021 8.6 % 152,920 8.8 % 148,461 8.9 % Research and development costs 32,224 5.2 % 29,765 5.3 % 90,000 5.2 % 89,388 5.3 % Interest expense 8,533 1.4 % 8,397 1.5 % 25,036 1.4 % 25,552 1.5 % Interest income (353 ) (0.1 )% (308 ) (0.1 )% (1,494 ) (0.1 )% (1,086 ) (0.1 )% Other (income) expense, net (3,252 ) (0.5 )% (10,355 ) (1.9 )% (18,813 ) (1.1 )% (29,809 ) (1.8 )% Total costs and expenses 564,045 91.8 % 497,977 89.5 % 1,600,628 91.8 % 1,490,846 89.0 % Earnings before income taxes 50,287 8.2 % 58,698 10.5 % 142,129 8.2 % 184,769 11.0 % Income tax expense 10,841 1.8 % 9,837 1.8 % 24,472 1.4 % 26,025 1.6 % Net earnings $ 39,446 6.4 % $ 48,861 8.8 % $ 117,657 6.8 % $ 158,744 9.5 % Other select financial data: June 30, September 30, 2022 2021 Working capital $ 829,241 $ 1,098,466 Total debt 766,402 734,850 Total stockholders' equity 1,909,613 2,214,781 Net Sales Consolidated net sales for the third quarter of fiscal year 2022 increased by $57,657, or 10.4%, compared to the same period of fiscal year 2021. Consolidated net sales for the first nine-months of fiscal year 2022 increased by $67,142, or 4.0%, compared to the same period of fiscal year 2021. Details of the changes in consolidated net sales are as follows: Three-Month Period Nine-Month Period Consolidated net sales for the period ended June 30, 2021 $ 556,675 $ 1,675,615 Aerospace volume 43,478 50,670 Industrial volume 11,943 8,268 Noncash consideration 517 (381 ) Effects of changes in price and sales mix 19,418 38,970 Effects of changes in foreign currency rates (17,699 ) (30,385 ) Consolidated net sales for the period ended June 30, 2022 $ 614,332 $ 1,742,757 The increase in consolidated net sales for both the third quarter of fiscal year 2022 and the first nine-months of fiscal year 2022, in each case as compared to the same period of the prior fiscal year, is primarily due to an increase in Aerospace sales volume, as well as the impact of price increases and a favorable product mix. In the Aerospace segment, the increases in net sales for the third quarter of fiscal year 2022 and first nine-months of fiscal year 2022 as compared to the same periods of the prior fiscal year is primarily attributable to a significant increase in commercial OEM and aftermarket sales driven by higher OEM production rates and increasing aircraft utilization, partially offset by lower defense aftermarket sales primarily driven by global supply chain and labor disruptions. As of the third quarter of fiscal year 2022, Aerospace segment net sales were negatively impacted by approximately $55,000 due to ongoing global supply chain and labor disruptions. In the Industrial segment, the decreases in net sales for the third quarter of fiscal year 2022 and first nine-months of fiscal year 2022 as compared to the same periods of the prior fiscal year were primarily attributable to a weakness in 30 natural gas engine s in China and by unfavorable foreign currency impacts , partially offset by higher marine sales driven by increased utilization of the in-service fleet as well as increased industrial turbomachinery sales supporting increasing demand for power generation and process industries. As of the thir d quarter of fiscal year 202 2 , Industrial segment net sales were negatively impacted by approximately $ 45,000 due to ongoing global supply chain and labor disruptions . Costs and Expenses Cost of goods sold increased by $57,946 to $480,403, or 78.2% of net sales, for the third quarter of fiscal year 2022, from $422,457, or 75.9% of net sales, for the third quarter of fiscal year 2021. Cost of goods sold increased by $94,639 to $1,352,979, or 77.6% of net sales, for the first nine-months of fiscal year 2022, from $1,258,340, or 75.1% of net sales, for the first nine-months of fiscal year 2021. The increase in cost of goods sold as a percentage of net sales in the third quarter and first nine-months of fiscal year 2022 compared to the same periods of the prior fiscal year was primarily due to net inflationary impacts on material and labor costs, increased Aerospace commercial OEM sales volume, which traditionally have lower margins than other Aerospace segment sales, as well as increases in manufacturing costs related to supply chain disruptions and inefficiencies related to training new members. Gross margin (as measured by net sales less cost of goods sold, divided by net sales) was 21.8% for the third quarter of fiscal year 2022 and 22.4% for the first nine-months of fiscal year 2022, compared to 24.1% for the third quarter of fiscal year 2021 and 24.9% for the first nine-months of fiscal year 2021. The decrease in gross margin for the third quarter and first nine-months of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily attributable to net inflationary impacts on material and labor costs, increased Aerospace commercial OEM sales volume, which traditionally have lower margins than other Aerospace segment sales, as well as increases in manufacturing costs related to supply chain disruptions and inefficiencies related to training new members. Selling, general and administrative expenses decreased by $1,531, or 3.2%, to $46,490 for the third quarter of fiscal year 2022, compared to $48,021 for the third quarter of fiscal year 2021. Selling, general, and administrative expenses as a percentage of net sales decreased to 7.6% for the third quarter of fiscal year 2022, compared to 8.6% for the third quarter of fiscal year 2021. Selling, general, and administrative expenses increased by $4,459, or 3.0%, to $152,920 for the first nine-months of fiscal year 2022, compared to $148,461 for the first nine-months of fiscal year 2021. Selling, general, and administrative expenses as a percentage of net sales decreased to 8.8% for the first nine-months of fiscal year 2022, compared to 8.9% for the first nine-months of fiscal year 2021. The increase in selling, general and administrative expenses, for the first nine-months of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily due to the incurrence of a certain expense in the first nine-months of fiscal year 2022 in connection with a non-recurring matter unrelated to the ongoing operations of the business, as well as certain business development activities, which in each case did not occur in the prior fiscal year period. Research and development costs increased by $2,459, or 8.3%, to $32,224 for the third quarter of fiscal year 2022, as compared to $29,765 for the third quarter of fiscal year 2021. As a percentage of net sales, research and development costs decreased to 5.2% for the third quarter of fiscal year 2022, as compared to 5.3% for the same period of the prior fiscal year. The increase in research and development costs, for the third quarter of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily due to variability in the timing of projects and expenses. Research and development costs increased by $612, or 0.7%, to $90,000 for the first nine-months of fiscal year 2022, as compared to $89,388 for the first nine-months of fiscal year 2021. Research and development costs decreased as a percentage of net sales to 5.2% for the first nine-months of fiscal year 2022, as compared to 5.3% for the first nine-months of fiscal year 2021. The increase in research and development costs for the first nine-months of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily due to variability in the timing of projects and expenses. Our research and development activities extend across almost all of our customer base, and we anticipate ongoing variability in research and development due to the timing of customer business needs on current and future programs. 31 Interest expense increased by $136 , or 1.6% , to $8,533 for the third quarter of fiscal year 2022 , compared to $8,397 for the third quarter of fiscal year 2021 . Interest expense as a percentag e of net sales was 1.4% for the third quarter of fiscal year 2022 , co mpared to 1.5% for the third quarter of fiscal year 2021. Interest expense decreased by $516 , or 2.0% , to $25,036 for the first nine-months of fiscal year 2022, compared to $25,552 for first nine-months of fiscal year 2021. Interest expense as a percentage of net sales was 1.4% for the first nine-months of fiscal year 20 22 , co mpared to 1.5% for the first-nine months of fiscal year 2021. The increas e in interest expense for the third quarter of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily attributable to increased borrowings on the revolving credit facility that occurred during the quarter. The decrease in interest expense for the first nine-months of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily attributable to reduced long-term debt balances. In the first nine-months of fiscal year 2021 , we paid the entire balance of two series of private placement notes totaling $1 00 ,000 , primarily using cash from operations and proceeds from our revolving credit facility. Other income decreased by $7,103 to $3,252 for the third quarter of fiscal year 2022, compared to $10,355 for the third quarter of fiscal year 2021. Other income decreased by $10,996 to $18,813 for the first nine-months of fiscal year 2022, compared to $29,809 for the first nine-months of fiscal year 2021. The decrease in other income for the third quarter and first nine-months of fiscal year 2022 as compared to the same periods of the prior fiscal year is primarily attributable to a loss on investments in our deferred compensation program, whereas a gain on investments was recognized in the prior fiscal year. Income taxes were provided at an effective rate on earnings before income taxes of 21.6% for the third quarter of fiscal year 2022 and 17.2% for the first nine-months of fiscal year 2022, as compared to 16.8% for the third quarter of fiscal year 2021 and 14.1% for the first nine-months of fiscal year 2021. The increase in the effective tax rate for the three-months ended June 30, 2022 as compared to the three-months ended June 30, 2021 is primarily attributable to decreased stock-based compensation tax benefit and an adjustment to prior period tax items related to Global Intangible Low-Taxed Income (“GILTI”) that did not repeat in the current quarter. These unfavorable impacts to the effective tax rate were partially offset by the prior quarter discrete impact of the enactment of a retroactive law disallowing foreign interest expense. The increase in the effective tax rate for the nine-months ended June 30, 2022 as compared to the nine-months ended June 30, 2021 is primarily attributable to decreased stock-based compensation tax benefit as a percent of year-to-date pre-tax earnings, an adjustment to prior period tax items related to GILTI that did not repeat in the current fiscal year, and increased state income taxes relative to full-year projected earnings. These unfavorable impacts to the effective tax rate were partially offset by a reduction in the U.S. tax on international activities. Segment Results The following table presents sales by segment: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Net sales: Aerospace $ 401,712 65.4 % $ 340,912 61.2 % $ 1,110,904 63.7 % $ 1,027,285 61.3 % Industrial 212,620 34.6 % 215,763 38.8 % 631,853 36.3 % 648,330 38.7 % Consolidated net sales $ 614,332 100 % $ 556,675 100 % $ 1,742,757 100 % $ 1,675,615 100 % 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, 2022 2021 2022 2021 Aerospace $ 56,566 $ 53,167 $ 167,458 $ 168,641 Industrial 21,102 27,166 62,029 87,925 Nonsegment expenses (19,201 ) (13,546 ) (63,816 ) (47,331 ) Interest expense, net (8,180 ) (8,089 ) (23,542 ) (24,466 ) Consolidated earnings before income taxes 50,287 58,698 142,129 184,769 Income tax expense (10,841 ) (9,837 ) (24,472 ) (26,025 ) Consolidated net earnings $ 39,446 $ 48,861 $ 117,657 $ 158,744 32 The following table presents segment earnings as a percent of segment net sales: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Aerospace 14.1 % 15.6 % 15.1 % 16.4 % Industrial 9.9 % 12.6 % 9.8 % 13.6 % Aerospace Aerospace segment net sales increased by $60,800, or 17.8%, to $401,712 for the third quarter of fiscal year 2022 , compared to $340,912 for the third quarter of fiscal year 2021 . Aerospace segment net sales increased by $83,619, or 8.1%, to $1,110,904 for the first nine-months of fiscal year 2022, compared to $1,027,285 for the first nine-months of fiscal year 2021. The increase in segment net sales in the third quarter and first nine-months of fiscal year 2022 as compared to the same periods of the prior fiscal year is primarily due to significantly higher commercial OEM and aftermarket sales, partially offset by supply chain disruptions and inefficiencies related to training new members. Defense OEM sales decreased in the third quarter and first nine-months of fiscal year 2022 as compared to the same periods of the prior fiscal year, primarily driven by global supply chain and labor disruptions. Our defense aftermarket sales decreased in the third quarter and first nine-months of fiscal year 2022 as compared to the same periods of the prior fiscal year, primarily driven by global supply chain and labor disruptions. However, with the exception of guided weapons, defense demand remained stable at elevated levels. As of the third quarter of fiscal year 2022, Aerospace segment net sales were negatively impacted by approximately $55,000 due to global supply chain and labor disruptions. Aerospace segment earnings increased by $3,399, or 6.4%, to $56,566 for the third quarter of fiscal year 2022 , compared to $53,167 for the third quarter of fiscal year 2021 . Aerospace segment earnings decreased by $1,183, or 0.7%, to $167,458 for the first nine-months of fiscal year 2022, compared to $168,641 for the first nine-months of fiscal year 2021. The increase in Aerospace segment earnings for the third quarter of fiscal year 2022 and the decrease in Aerospace segment earnings for the first nine-months of fiscal year 2022, in each case as compared to the same period of the prior fiscal year, was due to the following: Three-Month Period Nine-Month Period Earnings for the period ended June 30, 2021 $ 53,167 $ 168,641 Sales volume 21,545 29,262 Price, sales mix and productivity (4,981 ) (13,451 ) Manufacturing costs related to hiring and training (5,581 ) (13,098 ) Annual variable incentive compensation costs (2,053 ) (4,608 ) Other, net (5,531 ) 712 Earnings for the period ended June 30, 2022 $ 56,566 $ 167,458 The increase in Aerospace segment earnings in the third quarter of fiscal year 2022 as compared to the same period of the prior fiscal year was primarily due to significantly higher commercial OEM and aftermarket sales, partially offset by increases in manufacturing costs related to supply chain disruptions and inefficiencies related to training new members, as well as net inflationary impacts on material and labor costs. The decrease in Aerospace segment earnings for the first nine-months of fiscal year 2022 as compared to the same period of the prior year was primarily due to net inflationary impacts, as well as increases in manufacturing costs related to supply chain disruptions and inefficiencies related to hiring and training, partially offset by higher commercial OEM and aftermarket sales volume. Aerospace segment earnings as a percentage of segment net sales were 14.1% for the third quarter of fiscal year 2022 and 15.1% for the first nine-months of fiscal year 2022, compared to 15.6% for the third quarter of fiscal year 2021 and 16.4% for the first nine-months of fiscal year 2021. 33 Industrial Industrial segment net sales decreased by $3,143, or 1.5%, to $212,620 for the third quarter of fiscal year 2022 , compared to $215,763 for the third quarter of fiscal year 2021 . Industrial segment net sales decreased by $16,477, or 2.5%, to $631,853 for the first nine-months of fiscal year 2022, compared to $648,330 for the first nine-months of fiscal year 2021. Foreign currency exchange rates had an unfavorable impact on segment net sales of $16,422 and $28,824 for the third quarter and first nine-months of fiscal year 2022, respectively, as compared to the same periods of the prior fiscal year. The decrease in Industrial segment net sales in the third quarter and first nine-months of fiscal year 2022 was primarily due to lower sales of natural gas-powered engines in China and unfavorable foreign currency exchange rates, partially offset by increased marine sales driven by higher utilization of the in-service fleet as well as greater industrial turbomachinery sales supporting increasing demand for power generation and process industries. As of the third quarter of fiscal year 2022, Industrial segment net sales were negatively impacted by approximately $45,000 due to global supply chain and labor disruptions. Industrial segment earnings decreased by $6,064, or 22.3%, to $21,102 for the third quarter of fiscal year 2022 , compared to $27,166 for the third quarter of fiscal year 2021 . Segment earnings decreased by $25,896, or 29.5%, to $62,029 for the first nine-months of fiscal year 2022, compared to $87,925 for the first nine-months of fiscal year 2021. The decrease in Industrial segment earnings for the third quarter and first nine-months of fiscal year 2022 compared to the same periods of the prior fiscal year was due to the following: Three-Month Period Nine-Month Period Earnings for the period ended June 30, 2021 $ 27,166 $ 87,925 Sales volume 6,380 4,801 Price, sales mix and productivity (2,944 ) (12,196 ) Manufacturing costs related to hiring and training (1,641 ) (5,369 ) Effects of changes in foreign currency rates (3,310 ) (5,186 ) Annual variable incentive compensation costs (581 ) (1,676 ) Other, net (3,968 ) (6,270 ) Earnings for the period ended June 30, 2022 $ 21,102 $ 62,029 The decrease in Industrial segment earnings in the third quarter was primarily due to net inflationary impacts on material and labor costs, as well as increases in manufacturing costs related to supply chain disruptions and inefficiencies related to training new members, partially offset by higher sales volume. The decrease in Industrial segment earnings for the first nine-months of fiscal year 2022 as compared to the same period of the prior year was primarily due to unfavorable product mix, unfavorable foreign currency impacts, net inflationary impacts, as well as increases in manufacturing costs related to supply chain disruptions and inefficiencies related to hiring and training. Industrial segment earnings as a percentage of segment net sales were 9.9% for the third quarter and 9.8% for the first nine-months of fiscal year 2022, compared to 12.6% for the third quarter and 13.6% for the first nine-months of fiscal year 2021. Nonsegment Nonsegment expenses increased by $5,655 to $19,201 for the third quarter of fiscal year 2022 , compared to $13,546 for the third quarter of fiscal year 2021 . The increase in nonsegment expenses for the third quarter was primarily a result of the timing of certain expenses and the return of annual variable incentive compensation costs. Nonsegment expenses increased by $16,485 to $63,816 for the first nine-months of fiscal year 2022, compared to $47,331 for the first nine-months of fiscal year 2021. The increase in nonsegment expenses in the first nine-months of fiscal year 2022 compared to the same period in the prior year was primarily a result of the timing of certain expenses, the return of annual variable incentive compensation costs, as well as a non-recurring matter unrelated to the ongoing operations of the business and certain business development activities, neither of which occurred in the first nine-months of fiscal year 2021. LIQUIDITY AND CAPITAL 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, 34 t ogether 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 14, Credit facilities, short-term borrowings and long-term debt in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item I of this Form 10-Q. At June 30, 2022, we had total outstanding debt of $766,402 consisting of various series of unsecured notes due between 2023 and 2033 and obligations under our finance leases. At June 30, 2022, we had $49,200 outstanding on our revolving credit facility, all of which is classified as short-term borrowings based on our intent and ability to pay this amount in the next twelve months. Revolving credit facility and short-term borrowing activity during the nine-months ended June 30, 2022 were as follows: Maximum daily balance during the period $ 208,100 Average daily balance during the period $ 43,384 Weighted average interest rate on average daily balance 1.99 % At June 30, 2022, we had additional borrowing availability of $940,684 under our revolving credit facility, net of outstanding letters of credit, and additional borrowing availability of $27,387 under various foreign credit facilities. To our knowledge, we were in compliance with all our debt covenants as of June 30, 2022. Additionally, we do not believe the current known impacts of the COVID-19 pandemic will affect our ability to remain in compliance with our debt covenants. See Note 15, Credit facilities, short-term borrowings and long-term debt in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our most recently filed Form 10-K, for more information about our covenants. In addition to utilizing our cash resources to fund the working capital needs of our business, we evaluate additional strategic uses of our funds, including the repurchase of our common stock, payment of dividends, significant capital expenditures, consideration of strategic acquisitions and other potential uses of cash. Our ability to service our long-term debt, to remain in compliance with the various restrictions and covenants contained in our debt agreements, and to fund working capital, capital expenditures and product development efforts will depend on our ability to generate cash from operating activities, which in turn is subject to, among other things, future operating performance as well as general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control. We do not believe the current known impacts of the COVID-19 pandemic will impact our ability to satisfy our long-term debt obligations. In November 2019, the Board had authorized a program for the repurchase of up to $500,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a three-year period that was scheduled to expire in November 2022 (the “2019 Authorization”). During the the first nine-months of fiscal year 2022, we repurchased 233 shares of our common stock for $26,742 under the 2019 Authorization. During the first nine-months of fiscal year 2021, we repurchased no shares of our common stock under the 2019 Authorization. In January 2022, the Board terminated the 2019 Authorization and concurrently authorized a program for the repurchase of up to $800,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a two-year period ending in January 2024 (the “2022 Authorization”). During the first nine-months of fiscal year 2022, we repurchased 3,441 shares of our common stock for $400,975 under the 2022 Authorization. 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, 2022 2021 Net cash provided by operating activities $ 86,016 $ 317,915 Net cash (used in) investing activities (29,415 ) (18,966 ) Net cash (used in) financing activities (404,966 ) (94,729 ) Effect of exchange rate changes on cash and cash equivalents (396 ) 4,517 Net change in cash and cash equivalents (348,761 ) 208,737 Cash and cash equivalents, including restricted cash, at beginning of year 448,462 153,270 Cash and cash equivalents, including restricted cash, at end of period $ 99,701 $ 362,007 Net cash flows provided by operating activities for the first nine-months of fiscal year 2022 was $86,016, compared to $317,915 for the same period of fiscal year 2021. The decrease in net cash provided by operating activities in the first nine-months of fiscal year 2022 as compared to the first nine-months of the prior fiscal year is primarily attributable to increases in working capital (excluding cash) to support anticipated growth in the fourth quarter of fiscal year 2022 and the next full fiscal year, and the timing of cash payments to suppliers. Net cash flows used in investing activities for the first nine-months of fiscal year 2022 was $29,415, compared to net cash flows used in investing activities of $18,966 for the same period of fiscal year 2021. The increase in cash flows used in investing activities in the first nine-months of fiscal year 2022 as compared to the first nine-months of the prior fiscal year is primarily due to increased payments for property, plant and equipment, partially offset by certain proceeds received in the third quarter of fiscal year 2022 in connection with the sale of the renewable power systems business and other related businesses. Net cash flows used in financing activities for the first nine-months of fiscal year 2022 was $404,966, compared to $94,729 for the same period of fiscal year 2021. The increase in net cash flows used in financing activities in the first nine-months of fiscal year 2022 as compared to the first nine-months of the prior fiscal year is primarily attributable to repurchases of common stock, partially offset by the change in net debt payments. During the first nine-months of fiscal year 2022, we made $440,233 of cash repurchases of common stock, while there were no such repurchases in the first nine-months of fiscal year 2021. During the first nine-months of fiscal year 2022, we had net debt payments in the amount of $48,566, compared to net debt payments in the amount of $101,214 in the first nine-months of fiscal year 2021. Non-U.S. GAAP Financial Measures Adjusted net earnings, adjusted earnings per share, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, adjusted EBITDA, free cash flow, and adjusted free cash flow are financial measures not prepared and presented in accordance with 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. 36 Earnings based non‐U.S. GAAP financial measures Adjusted net earnings is defined by the Company as net earnings excluding, as applicable, (i) a charge in connection with a non-recurring matter unrelated to the ongoing operations of the business, and (ii) costs related to business development activities. The Company believes that these excluded items are short‐term in nature, not directly related to the ongoing operations of the business and therefore, the exclusion of them illustrates more clearly how the underlying business of Woodward is performing. Management uses adjusted net earnings to evaluate the Company’s performance excluding these infrequent or unusual period expenses that are not necessarily indicative of the Company’s operating performance for the period. Management defines adjusted earnings per share as adjusted net earnings, as defined above, divided by the weighted‐average number of diluted shares of common stock outstanding for the period. Management uses both adjusted net earnings and adjusted earnings per share when comparing operating performance to other periods which may not have similar, infrequent or unusual charges. The reconciliation of net earnings and earnings per share to adjusted net earnings and adjusted earnings per share, respectively, is shown in the tables below: Three-Months Ended June 30, 2022 2021 Net Earnings Earnings Per Share Net Earnings Earnings Per Share Net earnings (U.S. GAAP) $ 39,446 $ 0.64 $ 48,861 $ 0.74 Non-U.S. GAAP adjustments: Non-recurring matter unrelated to the ongoing operations of the business, net of tax — — — — Business development activities, net of tax — — — — Non-U.S. GAAP adjustments — — — — Adjusted net earnings (Non-U.S. GAAP) $ 39,446 $ 0.64 $ 48,861 $ 0.74 Nine-Months Ended June 30, 2022 2021 Net Earnings Earnings Per Share Net Earnings Earnings Per Share Net earnings (U.S. GAAP) $ 117,657 $ 1.84 $ 158,744 $ 2.42 Non-U.S. GAAP adjustments: Non-recurring matter unrelated to the ongoing operations of the business, net of tax 2,454 0.04 — — Business development activities, net of tax 2,236 0.03 — — Total non-U.S. GAAP adjustments 4,690 0.07 — — Adjusted net earnings (Non-U.S. GAAP) $ 122,347 $ 1.91 $ 158,744 $ 2.42 37 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) a charge in connection with a non-recurring matter unrelated to the ongoing operations of the business, and (ii) costs related to business development activities. 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 that by removing these gains and charges from EBIT and EBITDA it 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, 2022 2021 2022 2021 Net earnings (U.S. GAAP) $ 39,446 $ 48,861 $ 117,657 $ 158,744 Income tax expense 10,841 9,837 24,472 26,025 Interest expense 8,533 8,397 25,036 25,552 Interest income (353 ) (308 ) (1,494 ) (1,086 ) EBIT (Non-U.S. GAAP) 58,467 66,787 165,671 209,235 Non-U.S. GAAP adjustments: Non-recurring matter unrelated to the ongoing operations of the business — — 3,272 — Business development activities — — 2,982 — Total non-U.S. GAAP adjustments — — 6,254 — Adjusted EBIT (Non-U.S. GAAP) $ 58,467 $ 66,787 $ 171,925 $ 209,235 EBITDA and adjusted EBITDA reconciled to net earnings were as follows: Three-Months Ended June 30, Nine-Months Ended June 30, 2022 2021 2022 2021 Net earnings (U.S. GAAP) $ 39,446 $ 48,861 $ 117,657 $ 158,744 Income tax expense 10,841 9,837 24,472 26,025 Interest expense 8,533 8,397 25,036 25,552 Interest income (353 ) (308 ) (1,494 ) (1,086 ) Amortization of intangible assets 9,309 10,526 28,584 31,555 Depreciation expense 20,618 21,717 62,674 66,244 EBITDA (Non-U.S. GAAP) 88,394 99,030 256,929 307,034 Non-U.S. GAAP adjustments: Non-recurring matter unrelated to the ongoing operations of the business — — 3,272 — Business development activities — — 2,982 — Total non-U.S. GAAP adjustments — — 6,254 — Adjusted EBITDA (Non-U.S. GAAP) $ 88,394 $ 99,030 $ 263,183 $ 307,034 38 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 effective tax rate, EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA exclude certain financial information compared with net earnings, the most 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 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 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, investing in research and development, purchasing our common stock, and paying dividends. In addition, securities analysts, investors, and others frequently use free cash flow in their evaluation of companies. Adjusted free cash flow represents a further non-U.S. GAAP adjustment to free cash flow to exclude the effect of cash paid for business development activities and cash paid for restructuring activities. Management believes that by excluding these infrequent or unusual items from free cash flow it better portrays our ability to generate cash, as such items are not indicative of the Company’s operating performance for the period. The use of these non‐U.S. GAAP financial measures is not intended to be considered in isolation of, or as substitutes for, the financial information prepared and presented in accordance with U.S. GAAP. Free cash flow and adjusted free cash flow do 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 and adjusted free cash flow may differ from similarly titled measures used by other companies, limiting their usefulness as comparative measures. Free cash flow and adjusted free cash flow reconciled to net cash provided by operating activities were as follows: Nine-Months Ended June 30, 2022 2021 Net cash provided by operating activities (U.S. GAAP) $ 86,016 $ 317,915 Payments for property, plant and equipment (37,105 ) (21,347 ) Free cash flow (Non-U.S. GAAP) $ 48,911 $ 296,568 Cash paid for business development activities 2,982 — Cash paid for restructuring charges 505 — Adjusted free cash flow (Non-U.S. GAAP) $ 52,398 $ 296,568 CRITICAL ACCOUNTING POLICIES AND 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 policies and 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 guidance, whether adopted or to be adopted, please review the information provided in Note 2, New accounting standards in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Unless otherwise discussed, we believe that the impact of recently 39 issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our Condensed Consolidated Financial Statements upon adoption. Item 3. Quantitative and Qualitative Disclosures About Market Risk In the normal course of business, we have exposures to interest rate risk from our long-term and short-term debt and our postretirement benefit plans, and foreign currency exchange rate risk related to our foreign operations and foreign currency transactions. We are also exposed to various market risks that arise from transactions entered into in the normal course of business related to items such as the cost of raw materials and changes in inflation. Certain contractual relationships with customers and vendors mitigate risks from changes in raw material costs and foreign currency exchange rate changes that arise from normal purchasing and normal sales activities. These market risks are discussed more fully in “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our most recent Form 10-K. These market risks have not materially changed since the date our most recent Form 10-K was filed with the SEC. Item 4. Controls and Procedures We have established disclosure controls and procedures, which are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Act”) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Act is accumulated and communicated to management, including our Principal Executive Officer (Charles (“Chip”) P. Blankenship, Jr., Chairman of the Board, Chief Executive Officer and President) and Principal Financial and Accounting Officer (Mark D. Hartman, Chief Financial Officer), as appropriate, to allow timely decisions regarding required disclosures. Chip P. Blankenship, Jr. and Mark D. Hartman evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15 under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on their evaluations, they concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2022. There have not been any changes in our internal controls over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II – OTHER INFORMATION Item 1. Legal Proceedings Woodward is currently involved in claims, pending or threatened litigation or other legal proceedings, investigations and/or regulatory proceedings arising in the normal course of business, including, among others, those relating to product liability claims, employment matters, worker’s compensation claims, contractual disputes, product warranty claims and alleged violations of various laws and regulations. Woodward accrues for known individual matters using estimates of the most likely amount of loss where it believes that it is probable the matter will result in a loss when ultimately resolved and such loss is reasonably estimable. While the outcome of pending claims, legal and regulatory proceedings, and investigations cannot be predicted with certainty, management believes that any liabilities that may result from these claims, proceedings and investigations will not have a material effect on Woodward's liquidity, financial condition, or results of operations. Ite m 1A. Risk Factors Investment in our securities involves risk. An investor or potential investor should consider the risks summarized under the caption “Risk Factors:” in Part I, Item 1A of our most recent Form 10-K when making investment decisions regarding our securities. The risk factors that were disclosed in our most recent Form 10-K have not materially changed since the date our most recent Form 10-K was filed with the SEC. 40 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Sales of Unregistered Securities None. Issuer Purchases of Equity Securities (In thousands, except for shares and per share amounts) Total Number of Shares Purchased Weighted Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased under the Plans or Programs at Period End (1) April 1, 2022 through April 30, 2022 (2) 892,965 $ 117.83 892,603 $ 449,462 May 1, 2022 through May 31, 2022 (2) 501,312 $ 100.66 501,043 $ 399,025 June 1, 2022 through June 30, 2022 (2) 433 $ 92.49 — $ 399,025 ( 1) In January 2022, the Board terminated the 2019 Authorization and concurrently authorized a program for the repurchase of up to $800,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a two-year period ending in January 2024 (the “2022 Authorization”). (2) Under a trust established for the purposes of administering the Woodward Executive Benefit Plan, 362 shares of common stock were acquired in April 2022, 10 shares of common stock were acquired in May 2022, and 433 shares of common stock were acquired in June 2022 on the open market related to the deferral of compensation by certain eligible members of Woodward’s management who irrevocably elected to invest some or all of their deferred compensation in Woodward common stock. In addition, 259 shares of common stock were acquired in May 2022 on the open market related to the reinvestment of dividends for shares of treasury stock held for deferred compensation. Shares owned by the trust, which is a separate legal entity, are included in "Treasury stock held for deferred compensation" in the Condensed Consolidated Balance Sheets. Item 6. Exhibits Exhibits filed as part of this Report are listed in the Exhibit Index. WOODWARD, INC. EXHIBIT INDEX Exhibit Number Description * 31.1 Rule 13a-14(a)/15d-14(a) certification of C harles P. Blankenship, Jr. * 31.2 Rule 13a-14(a)/15d-14(a) certification of Mark D. Hartman * 32.1 Section 1350 certifications * 101 The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Earnings, (iii) Condensed Consolidated Statements of Comprehensive Earnings, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Stockholders’ Equity, and (vi) Notes to Condensed Consolidated Financial Statements. * 104 Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * Filed as an exhibit to this Report 41 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WOODWARD, INC. Date: August 5, 2022 /s/ Charles P. Blankenship, Jr. Charles P. Blankenship, Jr. Chairman of the Board, Chief Executive Officer, and President (on behalf of the registrant and as the registrant’s Principal Executive Officer) Date: August 5, 2022 /s/ Mark D. Hartman Mark D. Hartman Chief Financial Officer (on behalf of the registrant and as the registrant’s Principal Financial and Accounting Officer) 42