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What changed in Woodward, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Woodward, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+294 added−290 removedSource: 10-K (2023-11-17) vs 10-K (2022-11-18)

Top changes in Woodward, Inc.'s 2023 10-K

294 paragraphs added · 290 removed · 217 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

37 edited+1 added−2 removed54 unchanged
Biggest changeWe also compete in part by establishing relationships with our customers’ engineering organizations, and by offering innovative technical and commercial solutions to meet their market requirements. Our ability to design, develop and test an integrated system with a customer is a competitive differentiator, offering the customer savings in both resources and time.
Biggest changeOur ability to design, develop, and test an integrated system with a customer is a competitive differentiator, offering the customer savings in both resources and time. Industrial Industrial operates in the global markets for industrial turbines and reciprocating engines, which are used in power generation systems, transportation, and oil and gas markets.
Products, Services and Applications Aerospace Our Aerospace segment designs, manufactures, and services systems and products for the management of fuel, air, and combustion and motion control.
Products, Services and Applications Aerospace Our Aerospace segment designs, manufactures, and services systems and products for the management of fuel, air, combustion, and motion control.
These products are used on commercial and private aircraft and rotorcraft, as well as on military fixed-wing aircraft and rotorcraft, guided weapons, and other defense systems. We have significant content on a wide variety of commercial aircraft, rotorcraft and business jet platforms, such as the Airbus A320neo, Boeing 737 MAX and 787, Bell 429 and Gulfstream G650.
These products are used on commercial and private aircraft and rotorcraft, as well as on military fixed-wing aircraft and rotorcraft, guided weapons, and other defense systems. We have significant content on a wide variety of commercial aircraft, rotorcraft, and business jet platforms, such as the Airbus A320neo, Boeing 737 MAX, 787, Bell 429, and Gulfstream G650.
We also have significant content on defense applications such as Blackhawk and Apache helicopters, F-15 and F-35 fighter jets, and guided tactical weapons. Revenues from the Aerospace segment are generated by sales to OEMs, tier-one suppliers, and prime contractors, and through aftermarket sales of components, such as provisioning spares or replacements.
We also have significant content on defense applications such as Blackhawk and Apache helicopters, F-35 and F-15 fighter jets, and guided tactical weapons. Revenues from the Aerospace segment are generated by sales to OEMs, tier-one suppliers, and prime contractors, and through aftermarket sales of components, such as provisioning spares or replacements.
We view the combination of diverse perspectives and backgrounds as a powerful force for innovation. To promote diversity and our core principles, we emphasize dignity, value, and equality of all members, regardless of race, color, religion, age, gender or sexual 6 orientation, through our actions and the workplace training programs we provide.
We view the combination of diverse perspectives and backgrounds as a powerful force for innovation. To promote diversity and our core principles, we emphasize dignity, value, and equality of all members, regardless of race, color, religion, age, gender or sexual orientation, through our actions and the workplace training programs we provide.
This value represents the carrying values, net of amortization, of certain assets acquired in various business acquisitions and does not purport to represent the fair value of our acquired intellectual property as of September 30, 2022. 7 Environmental Matters and Climate Change The Company is regulated by federal, state and international environmental laws governing our use, transport and disposal of substances and control of emissions.
This value represents the carrying values, net of amortization, of certain assets acquired in various business acquisitions and does not purport to represent the fair value of our acquired intellectual property as of September 30, 2023. 7 Environmental Matters and Climate Change The Company is regulated by federal, state, and international environmental laws governing our use, transport and disposal of substances and control of emissions.
We believe we have good, collaborative relationships with our union members and the representative unions. Almost all of our other members in the United States were at-will members as of October 31, 2022, and therefore, not subject to any type of employment contract or agreement.
We believe we have good, collaborative relationships with our union members and the representative unions. Almost all of our other members in the United States were at-will members as of October 31, 2023, and therefore, not subject to any type of employment contract or agreement.
We have used, and intend to continue to use, our investor relations website, as well as the following as of the date of this filing, as means of disclosing material non-public information and for complying with the disclosure obligations under Regulation FD: • Twitter: @woodward_inc • Facebook: Facebook.com/woodwardinc • Instragram: @woodward_inc • LinkedIn: Linkedin.com/company/woodward • YouTube: YouTube.com/user/woodwardinc None of the information contained on our website, or the above-mentioned social media sites, is incorporated into this document by reference. 8
We have used, and intend to continue to use, our investor relations website, as well as the following as of the date of this filing, as means of disclosing material non-public information and for complying with the disclosure obligations under Regulation FD: • X: Twitter.com/@woodward_inc • Facebook: Facebook.com/woodwardinc • Instagram: Instagram.com/@woodward_inc • LinkedIn: Linkedin.com/company/woodwardinc • YouTube: YouTube.com/user/woodwardinc None of the information contained on our website, or the above-mentioned social media sites, is incorporated into this document by reference.
Item 1. Business General We are an independent designer, manufacturer, and service provider of control solutions for the aerospace and industrial markets. Our innovative fluid energy, combustion control, electrical energy, and motion control systems help customers offer cleaner, more reliable, and more efficient equipment. Our customers include leading original equipment manufacturers and end users of their products.
Item 1. B usiness General We are an independent designer, manufacturer, and service provider of control solutions for the aerospace and industrial markets. Our innovative fluid energy, combustion control, electrical energy, and motion control systems help customers offer cleaner, more reliable, and more efficient equipment. Our customers include leading original equipment manufacturers and end users of their products.
We also provide aftermarket maintenance, repair and overhaul, as well as other services to commercial airlines, repair facilities, military depots, third party repair shops, and other end users. 2 Industrial Our Industrial segment designs, produces, and services systems and products for the management of fuel, air, fluids, gases, motion, combustion and electricity.
We also provide aftermarket maintenance, repair and overhaul, as well as other services to commercial airlines, repair facilities, military depots, third party repair shops, and other end users. 2 Industrial Our Industrial segment designs, produces, and services systems and products for the management of energy in the form of fuel, air, fluids, gases, motion, combustion, and electricity.
We continually strive to harness the diversity of our global workforce by cultivating a climate that permits all our member s to bring their authentic selves to work every day . The health and safety of our members is also a top priority. We have implemented appropriate procedures and precautions to ensure the continued safety and well-being of members.
We continually strive to harness the 6 diversity of our global workforce by cultivating a climate that permits all our members to bring their authentic selves to work every day. The health and safety of our members is also a top priority. We have implemented appropriate procedures and precautions to ensure the continued safety and well-being of members.
Notable programs we offer to our full-time members include: • employer sponsored health insurance; • employer 401(k) matching contributions; • annual Woodward stock contributions for U.S. members; • a tuition assistance program; • training and professional development courses through our Woodward University curriculum; and • other values-based and technical development training Tenure of all employees averages nearly 11 years, reflective of our positive workplace culture.
Notable programs we offer to our full-time members include: • employer sponsored health insurance; • employer 401(k) matching contributions; • annual Woodward stock contributions for U.S. members; • a tuition assistance program; • training and professional development courses through our Woodward University curriculum; and • other values-based and technical development training Tenure of all employees averages over ten years, reflective of our positive workplace culture.
In 2022, more than 68% of our members participated in our employee engagement surveys. These surveys help identify key engagement drivers at Woodward and areas where we have opportunity to improve. This has resulted in action plans at all levels of the organization and drives continuous conversations on the things that matter most to members and their teams.
In 2023, more than 71% of our members participated in our employee engagement surveys. These surveys help identify key engagement drivers at Woodward and areas where we have opportunity to improve. This has resulted in action plans at all levels of the organization and drives continuous conversations on the things that matter most to members and their teams.
The equipment on which our products are found is used to generate power; to extract and distribute fossil fuels; in the mining of other commodities; and to convert fuel to work in transportation and freight (both marine and locomotives), mobile, and industrial equipment applications.
The equipment on which our products are found is used to generate power; to extract and distribute fossil fuels; to mine other commodities; and to convert fuel to work in transportation and freight (both marine and locomotives), mobile, and industrial equipment applications.
Our development efforts support technology for a wide range of: • products that improve the quality of combustion processes and provide more precise flow of various fuels and gases in our customers’ gas turbines and industrial reciprocating engines; • electronic devices and software solutions that provide improved control and protection of reciprocating engines, gas turbines, steam turbines, and engine- and turbine-powered equipment; and • advanced prognostic and predictive intelligence that is integrated into many of our complex products and systems.
Our development efforts support technology for a wide range of: • products that improve the quality of combustion processes and provide more precise flow of various fuels and gases in our customers’ gas turbines and bio-diesel and dual-fuel industrial reciprocating engines; • electronic devices and software solutions that provide improved control and protection of reciprocating engines, gas turbines, steam turbines, and engine- and turbine-powered equipment; and • advanced predictive intelligence that is integrated into many of our complex products and systems.
In the United States, approximately 13% of our total full-time workforce were union members as of October 31, 2022. All union members in the United States work for our Aerospace segment. The collective bargaining agreements with our union members are generally renewed through contract renegotiation near the contract expiration dates.
In the United States, approximately 14% of our total full-time workforce were union members as of October 31, 2023. All union members in the United States work for our Aerospace segment. The collective bargaining agreements with our union members are generally renewed through contract renegotiation near the contract expiration dates.
As of October 31, 2022, we employed approximately 8,300 full-time members of which approximately 2,500 were located outside of the United States, with the majority of such members located in Germany, Poland and China. Member engagement drives better business results, and Woodward conducts biannual employee engagement surveys to give our members a voice in their work experience.
As of October 31, 2023, we employed approximately 8,800 full-time members of which approximately 2,600 were located outside of the United States, with the majority of such members located in Germany, Poland, and China. Member engagement drives better business results, and Woodward conducts biannual employee engagement surveys to give our members a voice in their work experience.
While our intellectual property assets taken together are important, we do not believe our business or either of our segments would be materially affected by the expiration of any particular intellectual property right or termination of any particular intellectual property patent license agreement. As of September 30, 2022, our Consolidated Balance Sheets includes $460,580 of net intangible assets.
While our intellectual property assets taken together are important, we do not believe our business or either of our segments would be materially affected by the expiration of any particular intellectual property right or termination of any particular intellectual property patent license agreement. As of September 30, 2023, our Consolidated Balance Sheets includes $452,363 of net intangible assets.
In Germany, approximately 12% of our total full-time workforce were union members as of October 31, 2022, all of whom work for our Industrial segment. Our Woodward L’Orange members are part of the IG Metall union in Germany. IG Metall covered 961 members as of October 31, 2022.
In Germany, approximately 12% of our total full-time workforce were union members as of October 31, 2023, all of whom work for our Industrial segment. Our Woodward L’Orange members are part of the IG Metall union in Germany. IG Metall covered 1,086 members as of October 31, 2023.
The MPC Employees Representative Union contract, which covered 710 members as of October 31, 2022, expires September 30, 2025. The Local Lodge 727-N International Association of Machinists and Aerospace Workers agreement, which covers 407 members as of October 31, 2022, expires April 23, 2024.
The MPC Employees Representative Union contract, which covered 773 members as of October 31, 2023, expires September 30, 2025. The Local Lodge 727-N International Association of Machinists and Aerospace Workers agreement, which covers 427 members as of October 31, 2023, expires April 23, 2024.
These products include actuators, valves, pumps, fuel injection systems, solenoids, ignition systems, speed controls, electronics and software, and sensors.
These products include actuators, valves, pumps, fuel injection systems, solenoids, ignition systems, control systems, electronics and software, and sensors.
We believe GE, Raytheon Technologies, and our other significant customers are creditworthy and will be able to satisfy their credit obligations to us.
We believe GE, RTX Corporation, and our other significant customers are creditworthy and will be able to satisfy their credit obligations to us.
In all markets, we compete on the basis of differentiated technology and design, product performance and conformity with customer specifications. Additional factors are customer service and support, including on-time delivery and customer partnering, product quality, price, reputation and local presence. Both of our segments operate in uniquely competitive environments.
Competitive Environment Our products and product support services are sold worldwide into a variety of markets. In all markets, we compete on the basis of differentiated technology and design, product performance, and conformity with customer specifications. Additional factors are customer service and support, including on-time delivery and customer partnering, product quality, price, reputation, and local presence.
Sales to our largest customer, General Electric Company (“GE”), in each of the fiscal years ended September 30, 2022 and September 30, 2021, accounted for approximately 11% of our consolidated net sales. Accounts receivable from GE represented approximately 10% of accounts receivable at September 30, 2022 and September 30, 2021.
Sales to GE accounted for approximately 12% of our consolidated net sales in the fiscal year ended September 30, 2023 and 11% in the fiscal year ended September 30, 2022. Accounts receivable from GE represented approximately 7% of accounts receivable at September 30, 2023 and 10% at September 30, 2022.
Sales to our second largest customer in fiscal year 2022, Raytheon Technologies, accounted for approximately 11% of our consolidated net sales in the fiscal year ended September 30, 2022 and 9% in the fiscal year ended September 30, 2021. Accounts receivable from Raytheon Technologies totaled approximately 6% of accounts receivable at September 30, 2022, and 5% at September 30, 2021.
Sales to RTX Corporation accounted for approximately 10% of our consolidated net sales in the fiscal year ended September 30, 2023 and 11% in the fiscal year ended September 30, 2022. Accounts receivable from RTX Corporation totaled approximately 4% of accounts receivable at September 30, 2023, and 6% at September 30, 2022.
October 31, 2022 October 31, 2022 Percent Expected to be satisfied by September 30, 2023 October 31, 2021 Aerospace $ 1,198,571 74 % $ 1,009,101 Industrial 374,324 94 261,074 $ 1,572,895 79 % $ 1,270,175 Our remaining performance obligations relate 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.
Our remaining performance obligations by segment, excluding material rights, is shown in the table below: October 31, 2023 Percent Expected to be satisfied by September 30, 2024 October 31, 2022 Percent Expected to be satisfied by September 30, 2023 Aerospace $ 1,716,613 63 % $ 1,198,571 74 % Industrial 773,240 93 % 374,324 94 % $ 2,489,853 73 % $ 1,572,895 79 % Our remaining performance obligations relate 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.
The customers who account for approximately 10% or more of net sales of each of Woodward’s reportable segments are as follows: For the Year Ended September 30, 2022 2021 Aerospace Raytheon Technologies, The Boeing Company, GE The Boeing Company, Raytheon Technologies, GE Industrial Rolls-Royce PLC, Wärtsilä, Caterpillar Rolls-Royce PLC, Weichai Westport, GE Competitive Environment Our products and product support services are sold worldwide into a variety of markets.
The customers who account for approximately 10% or more of net sales of each of Woodward’s reportable segments are as follows: For the Year Ended September 30, 2023 2022 Aerospace RTX Corporation, GE, The Boeing Company RTX Corporation, The Boeing Company, GE Industrial Rolls-Royce PLC, Caterpillar Inc., Weichai Westport Rolls-Royce PLC, Wärtsilä, Caterpillar Inc.
Sales Order Backlog For each of our reportable segments, we have elected to quantify backlog in a manner consistent with the definition of remaining performance obligations. Our remaining performance obligations by segment, excluding material rights, as of October 31, 2022 and 2021 is shown in the table below.
Sales Order Backlog For each of our reportable segments, we have elected to quantify backlog in a manner consistent with the definition of remaining performance obligations.
We believe that new competitors face significant barriers to entry into many of our markets, including various government mandated certification requirements to compete in the aerospace and industrial markets in which we participate. Aerospace Aerospace has significant product certification requirements to meet safety regulations, which form a basis for competition as well as a barrier to entry.
Both of our segments operate in uniquely competitive environments. We believe that new competitors face significant barriers to entry into many of our markets, including various government mandated certification requirements to compete in the aerospace and industrial markets in which we participate.
Customers Sales to our five largest customers represented approximately 43% of our consolidated net sales for the fiscal year ended September 30, 2022 and 45% in fiscal year ended September 30, 2021.
Customers Sales to our five largest customers represented approximately 40% of our consolidated net sales for the fiscal year ended September 30, 2023 and 43% in fiscal year ended September 30, 2022. The customers who account for approximately 10% or more of our consolidated net sales are the General Electric Company ("GE") and RTX Corporation.
We compete with numerous companies that specialize in various engine, turbine, and power management products, and our OEM customers are often capable of developing and manufacturing similar products internally.
Many of these markets are subject to regulatory product and performance certifications to meet emissions and safety requirements, which form a basis for competition as well as a barrier to entry. We compete with numerous companies that specialize in various engine, turbine, and power management products, and our OEM customers are often capable of developing and manufacturing similar products internally.
Several competitors are also customers for our products, such as Honeywell, Parker Hannifin, and Raytheon Technologies . Some of our customers are affiliated with our competitors through ownership or joint venture agreements. For example, Pratt & Whitney, one of our customers, is affiliated with Raytheon Technologies, one of our competitors.
Some of our customers are affiliated with our competitors through ownership or joint venture agreements. For example, Pratt & Whitney, one of our customers, is affiliated with RTX Corporation, one of our competitors. Similarly, GE Aerospace has a joint venture with Parker Hannifin for the supply of fuel nozzles.
We compete with numerous companies around the world that specialize in fuel and air management, combustion, electronic control, aircraft motion control, flight deck control, and thrust reverser products. Our competitors in aerospace include divisions of Eaton, Honeywell, Moog, Parker Hannifin, and Raytheon Technologies. In addition, some of our OEM 3 customers are capable of developing and manufacturing similar products internally.
In addition, on-time delivery, pricing, and joint development capabilities with customers are points of competition within this market. We compete with numerous companies around the world that specialize in fuel and air management, combustion, electronic control, aircraft motion control, flight deck control, and thrust reverser products.
Similarly, GE Aviation has a joint venture (“JV”) with Parker Hannifin for the supply of fuel nozzles. We also have partnered with our customers in the past, such as our strategic JV with one of our largest customers, GE, acting through its GE Aerospace business unit.
We also have partnered with our customers in the past, such as our strategic joint venture with one of our largest customers, GE, acting through its GE Aerospace business unit. We believe our products offer high levels of field reliability, which provides end users with an advantage in life-cycle cost.
We believe our products offer high levels of field reliability, which provides end users with an advantage in life-cycle cost. We address competition in aftermarket service through responsiveness to our customers’ needs, providing short turnaround times, greater performance such as longer time between repairs, and maintaining a global presence.
We address competition in aftermarket service through responsiveness to our customers’ needs, providing short turnaround times, greater performance such as longer time between repairs, and maintaining a global presence. We also compete in part by establishing relationships with our customers’ engineering organizations, and by offering innovative technical and commercial solutions to meet their market requirements.
Government agencies and entities, or indirectly through third party manufacturers utilizing Woodward parts and subassemblies, collectively represented 2 3 % of our sales for fiscal year 202 2 and 2 9 % of our sales for fiscal year 20 2 1 .
Government and foreign governments pertaining to the export of certain products and technical data. 4 Sales made directly to U.S. Government agencies and entities, or indirectly through third party manufacturers utilizing Woodward parts and subassemblies, collectively represented 17% of our sales for fiscal year 2023 and 23% of our sales for fiscal year 2022.
Technological innovation and design, product performance including increased efficiency and thrust, conformity with customer specifications, and product quality and reliability are of utmost importance in the aerospace and defense industry. In addition, on-time delivery, pricing, and joint development capabilities with customers are points of competition within this market.
Aerospace Aerospace has significant product certification requirements to meet safety regulations, which form a basis for competition as well as a barrier to entry. Technological innovation and design, product performance including increased efficiency and thrust, conformity with customer specifications, and product quality and reliability are of utmost importance in the aerospace and defense industry.
Removed
Industrial Industrial operates in the global markets for industrial turbines and reciprocating engines, which are used in power generation systems, transportation, and oil and gas markets. Many of these markets are subject to regulatory product and performance certifications to meet emissions and safety requirements, which form a basis for competition as well as a barrier to entry.
Added
Our competitors in aerospace include divisions of Eaton, Honeywell, Moog, Parker Hannifin, and RTX Corporation. In addition, some of our OEM 3 customers are capable of developing and manufacturing similar products internally. Several competitors are also customers for our products, such as Honeywell, Parker Hannifin, and RTX Corporation.
Removed
Government and foreign governments pertaining to the export of certain products and technical data. 4 Sales made directly to U.S.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

62 edited+28 added−17 removed84 unchanged
Biggest changeThere may be additional losses that have not been accrued, or liabilities may exceed our estimates, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows. Our business and operations may be adversely affected by cybersecurity breaches or other information technology system or network interruptions or intrusions.
Biggest changeOur business and operations may be adversely affected by cybersecurity breaches or other information technology system or network interruptions or intrusions. We depend heavily on the confidentiality, integrity and availability of our information technology (“IT”) and computerized systems to communicate and operate effectively.
Such actions could harm our reputation, even if such allegations are later determined to be unfounded, and could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Such actions could harm our reputation, even if such allegations are later determined to be unfounded, and could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
We are subject to and must comply with U.S. laws restricting or otherwise prohibiting companies from doing business in certain countries, including those on exports imposed under the U.S. Export Control Laws and Sanctions Programs. These laws and regulations change from time to time and may restrict sales to other countries or parties. We are subject to the U.S.
We are subject to and must comply with U.S. laws restricting or otherwise prohibiting companies from doing business in certain countries and with certain parties, including those on exports imposed under the U.S. Export Control Laws and Sanctions Programs. These laws and regulations change from time to time and may restrict sales to other countries or parties.
In addition, we may incur unanticipated costs or expenses following an acquisition, including post-closing asset impairment charges, expenses associated with eliminating duplicate facilities, and other liabilities. 18 Many of these factors are outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues, and diversion of management’s time and attention.
In addition, we may incur unanticipated costs or expenses following an acquisition, including post-closing asset impairment charges, expenses associated with eliminating duplicate facilities, and other liabilities. Many of these factors are outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues, and diversion of management’s time and attention.
A delay in obtaining, or the failure to obtain a necessary quality certification or registration could result in significant out-of-sequence work and increased production costs, as well as delayed deliveries to customers, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. 19
A delay in obtaining, or the failure to obtain a necessary quality certification or registration could result in significant out-of-sequence work and increased production costs, as well as delayed deliveries to customers, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
These restructuring and/or alignment activities generally result in charges and expenditures that may adversely affect our financial results for one or more periods. Restructuring and/or alignment activities can also create unanticipated consequences, such as instability or distraction among our workforce, and we cannot be sure that any restructuring or alignment efforts that we undertake will be successful.
These restructuring and/or alignment activities generally result in charges and expenditures that may adversely affect our financial results for one or more periods. 18 Restructuring and/or alignment activities can also create unanticipated consequences, such as instability or distraction among our workforce, and we cannot be sure that any restructuring or alignment efforts that we undertake will be successful.
We currently have and have had in the past product liability claims relating to our products, and we will likely be subject to additional product liability claims in the future for past, current and future products. Some of these claims may have a material adverse effect on our business, financial condition, results of operations and cash flows.
We currently have and have had in the past product liability claims relating to our 17 products, and we will likely be subject to additional product liability claims in the future for past, current, and future products. Some of these claims may have a material adverse effect on our business, financial condition, results of operations, and cash flows.
These techniques include, but are not limited to, the use of malicious software, destructive malware, ransomware, denial of service attacks, phishing and other means of social engineering, and other means of causing system or network disruptions, obtaining unauthorized access to data or systems, or causing other cybersecurity breaches and incidents.
These techniques include, but are not limited to, the use of malicious software, destructive malware, ransomware, denial of service attacks, phishing and other means of social engineering, and other means of causing system 15 or network disruptions, obtaining unauthorized access to data or systems, or causing other cybersecurity breaches and incidents.
We face intense competition from a number of established competitors in the United States and abroad, some of which are larger in size or are divisions of large, diversified companies with substantially greater financial resources. In addition, global competition continues to increase.
We face intense competition from a number of established competitors in the United States and abroad, some of which are larger in size or are divisions of large, diversified companies with substantially greater financial resources. In 8 addition, global competition continues to increase.
Our participation in a strategic joint venture with GE may make it more difficult to secure long-term sales in certain aerospace markets. In January 2016, Woodward and GE, acting through its GE Aerospace business unit, consummated the formation of a strategic joint venture between Woodward and GE (the “JV”).
Our strategic joint venture with GE may make it more difficult to secure long-term sales in certain aerospace markets. In January 2016, Woodward and GE, acting through its GE Aerospace business unit, consummated the formation of a strategic joint venture between Woodward and GE (the “JV”).
Any significant increases in labor costs, deterioration of employee relations, including any conflicts with works’ councils or unions, or slowdowns or work stoppages at any of our locations, whether due to employee turnover, changes in availability of qualified technical personnel, failure to have a collaborative and effective relationship with our employees, including our union employees, or an effective collective bargaining agreement in place with our union employees, or otherwise, could impair our ability to supply products or fulfil orders, and could otherwise have a material adverse effect on our business, our relationships with customers, and our financial condition, results of operations, and cash flows.
Any significant increases in labor costs, deterioration of employee relations, including any conflicts with works’ councils or unions, or slowdowns or work stoppages at any of our locations, whether due to employee turnover, changes in availability of qualified technical personnel, failure to have a collaborative and effective relationship with our employees, including our union employees, or an effective collective bargaining agreement in place with our union employees, or otherwise, could impair our ability to supply products or fulfill orders, and could otherwise have a material adverse effect on our business, our relationships with customers, and our financial condition, results of operations, and cash flows.
Any such impairment charges could have a material adverse effect on our business, financial condition and results of operations. 14 There can be no assurance that our estimates and assumptions of the fair value of our reporting units, the current economic environment, or the other inputs used in forecasting the present value of forecasted cash flows used to estimate the fair value of our reporting units will prove to be accurate projections of future performance, and any material error in our estimates and assumptions, could result in us needing to take a material impairment charge, which would have the effects discussed above.
Any such impairment charges could have a material adverse effect on our business, financial condition, and results of operations. 13 There can be no assurance that our estimates and assumptions of the fair value of our reporting units, the current economic environment, or the other inputs used in forecasting the present value of forecasted cash flows used to estimate the fair value of our reporting units will prove to be accurate projections of future performance, and any material error in our estimates and assumptions, could result in us needing to take a material impairment charge, which would have the effects discussed above.
Further, the markets in which we operate experience rapidly changing technologies and frequent introductions of new products and services. The technological expertise we have developed and maintained could become less valuable if a competitor were to develop a breakthrough technology that would allow it to match or exceed the performance of existing technologies at a lower cost.
Further, the markets in which we operate experience rapidly changing technologies and frequent introductions of new products and services. Our technologies and the technological expertise we have developed and maintained could become less valuable if a competitor were to develop a new technology that would allow it to match or exceed the performance of existing technologies at a lower cost.
Government defense spending, changes in the spending allocation, phase-outs or terminations of certain aerospace and defense programs on which we have content could have a material adverse effect on our sales unless they are offset by other aerospace and defense programs and opportunities. If the priorities of 11 the U.S.
Government defense spending, changes in the spending allocation, phase-outs or terminations of certain aerospace and defense programs on which we have content could have a material adverse effect on our sales unless they are offset by other aerospace and defense programs and opportunities. If the priorities of 10 the U.S.
Prospective customers generally must commit significant resources to test and evaluate our products and to install and integrate them into larger systems. Accordingly, customers often require a significant number of product presentations and demonstrations before reaching a sufficient level of confidence in the product’s performance and compatibility.
Prospective customers generally must commit significant resources to test and evaluate our products and to install and integrate them into larger systems. Accordingly, customers often require a significant number of product presentations and demonstrations before reaching a sufficient level of confidence in the product’s performance and compatibility to commit to an order.
Additionally, if GE fails to win new content in the market space covered by the JV, Woodward may be prevented from expanding content on future commercial aircraft engines in those markets. 10 General Commercial, Financial, and Regulatory Risks Suppliers may be unable to provide us with materials of sufficient quality or quantity to meet our production needs at favorable prices or at all which may adversely affect our revenue and margins.
Additionally, if GE fails to win new content in the market space covered by the JV, Woodward may be prevented from expanding content on future commercial aircraft engines in those markets. 9 Commercial, Financial, and Regulatory Risks Suppliers may be unable to provide us with materials of sufficient quality or quantity to meet our production needs at favorable prices or at all which may adversely affect our revenue and margins.
GAAP; • changes in the projected realization of deferred tax assets and liabilities; • changes in management’s assessment of the amount of earnings indefinitely reinvested offshore; • changes in management’s intentions regarding the amount of earnings reinvested offshore; and • the results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures. 13 We derive a significant amount of revenue and obtain components from outside of the United States; accordingly, we are subject to the risks inherent in doing business in other countries.
GAAP; • changes in the projected realization of deferred tax assets and liabilities; • changes in management’s assessment of the amount of earnings indefinitely reinvested offshore; • changes in management’s intentions regarding the amount of earnings reinvested offshore; and • the results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures. 12 We derive a significant amount of revenue and obtain components from outside of the United States; accordingly, we are subject to the risks of doing business in other countries.
The JV agreement does not restrict Woodward from entering into any market; however, consolidation in the aircraft engine market is increasingly prevalent, resulting in fewer engine manufacturers, and thus it may become more difficult for Woodward to secure new business with GE competitors on similar product applications both within and outside the specific JV market space.
The JV agreement does not restrict Woodward from entering into any market; however, consolidation in the aircraft engine market is increasingly prevalent, resulting in fewer engine manufacturers, and thus it may become more difficult for Woodward to secure new business with GE competitors on similar product applications both within and outside the specific markets the JV operates.
Natural disasters, public health concerns, war, political unrest, terrorist activity, equipment failures, power outages, or other unforeseen events could result in physical damage to or other disruption of, and complete or partial closure of, one or more of our manufacturing facilities, or could cause temporary or long-term disruption in the supply of component products from some local and international suppliers, disruption in the transport of our products and significant delays in the shipment of products and the provision of services, which could in turn cause the loss of sales and customers.
Natural disasters, public health concerns and pandemics, war, political unrest, terrorist activity, equipment failures, power outages, threats to physical security or our information security systems or other unforeseen events could result in physical damage to or other disruption of, and complete or partial closure of, one or more of our manufacturing facilities, or could cause temporary or long-term disruption in the supply of component products from some local and international suppliers, disruption in the transport of our products and significant delays in the shipment of products and the provision of services, which could in turn cause the loss of sales and customers.
Some of our suppliers have experienced, and others may similarly experience, financial difficulties, delivery delays or other performance problems, and we have from time to time been, and may in the future be, unable to meet commitments to our customers and/or incur additional costs.
Some of our suppliers have experienced, and others may similarly experience, financial difficulties, delivery delays or other performance problems, and, as a result, we have from time to time been, and may in the future be, unable to meet commitments to our customers and/or incur additional costs.
Accordingly, our business and results of operations are subject to risks associated with doing business internationally, including: • transportation delays and interruptions; • political, social and economic instability and disruptions; • acts of terrorism or war; • the imposition of taxes, import and export controls, duties and tariffs, embargoes, sanctions and other trade restrictions; • fluctuations in currency exchange rates; • changes in regulatory environments; • cost of compliance with increasingly complex and often conflicting regulations governing various matters worldwide; • cost of labor, labor shortages and other changes in labor conditions; • the potential for nationalization of enterprises; • potential limitations on the Company’s ability to enforce legal rights and remedies, including protection of intellectual property; • difficulty of enforcing agreements and collecting receivables through some foreign legal systems; • potentially adverse tax consequences, including limitations on repatriations of earnings; and • difficulties in implementing restructuring actions on a timely basis.
Accordingly, our business and results of operations are subject to risks associated with doing business internationally, including: • transportation delays and interruptions; • political, social and economic instability and disruptions; • natural disasters or pandemics; • terrorism, war, and international tensions and conflicts; • the imposition of taxes, import and export controls, duties and tariffs, embargoes, sanctions and other trade restrictions; • fluctuations in currency exchange rates; • different and changing regulatory environments; • cost of compliance with increasingly complex and often conflicting regulations governing various matters worldwide; • cost of labor, labor shortages, and other changes in labor conditions; • the potential for nationalization of enterprises; • potential limitations on the Company’s ability to enforce legal rights and remedies, including protection of intellectual property; • difficulty of enforcing agreements and collecting receivables through some foreign legal systems; • potentially adverse tax consequences, including limitations on repatriations of earnings; and • difficulties in implementing restructuring actions on a timely basis.
These transactions may result in continued financial involvement in the divested businesses, such as through guarantees or other financial arrangements, following the transaction.
These types of transactions may result in continued financial involvement in the divested businesses, such as through guarantees or other financial arrangements, following the transaction.
Government agencies and entities, or indirectly through third party manufacturers, such as tier-one prime contractors, utilizing Woodward parts and subassemblies, accounted for approximately 23% of total sales in fiscal year 2022 and 29% in fiscal year 2021. The U.S.
Government agencies and entities, or indirectly through third party manufacturers, such as tier-one prime contractors, utilizing Woodward parts and subassemblies, accounted for approximately 17% of total sales in fiscal year 2023 and 23% in fiscal year 2022. The U.S.
In fiscal year 2022, approximately 45% of our total sales were made to customers in jurisdictions outside of the United States (including products manufactured in the United States and sold outside the United States as well as products manufactured in international locations). We also purchase raw materials and components from suppliers outside the United States.
In fiscal year 2023, approximately 47% of our total sales were made to customers in jurisdictions outside of the United States (including products manufactured in the United States and sold outside the United States as well as products manufactured in international locations). We also purchase raw materials and components from suppliers outside the United States.
W e periodically need to renegotiate our collective bargaining agreements, and any failure to negotiate new agreements or extensions in a timely manner could result in work stoppages or slowdowns.
We periodically need to renegotiate our collective bargaining agreements, and any failure to negotiate new agreements or extensions in a timely manner could result in work stoppages or slowdowns.
Foreign Corrupt Practices Act (“FCPA”) and similar anti-bribery and anti-corruption laws and regulations in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business or securing an improper business advantage.
We are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”) and similar anti-bribery and anti-corruption laws and regulations in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business or securing an improper business advantage.
Future goodwill impairment charges may occur if estimates of fair values decrease, which would reduce future earnings. Future asset impairment charges may occur if asset utilization declines, if customer demand decreases, or for a number of other reasons, which would reduce future earnings.
Future goodwill impairment charges may occur if estimates of fair values decrease, which would reduce future earnings. In addition, we may incur asset impairment charges if asset utilization declines, if customer demand decreases, or for a number of other reasons, which would reduce future earnings.
During an economic downturn or a subsequent recovery, we may need to maintain our investment in research and development, which may limit our ability to reduce these expenses in proportion to a sales shortfall.
Maintaining our market position requires continued investment in research and development. During an economic downturn or a subsequent recovery, we may need to maintain our investment in research and development, which may limit our ability to reduce these expenses in proportion to a sales shortfall.
We may experience security breaches or incidents resulting from tools, services, or other third-party components and security vulnerabilities within, or introduced by, such tools, services, or components. 16 If any of our IT infrastructure or systems are damaged, disrupted, or are impacted by security breaches or incidents, whether from cybersecurity attacks or other causes, or if we suffer any security breach or incident involving unauthorized access to, misuse, acquisition, disclosure, loss, alteration, or destruction of our data or other data we maintain or otherwise process, we could experience significant operational stoppages, disruptions, delays, and/or other detrimental impacts on our operations, and may face increased costs, including increased costs of implementing new data protection and security measures, policies, and procedures, and costs associated with remediating and otherwise responding to the security breach or incident.
If any of our IT infrastructure or systems are damaged, disrupted, or are impacted by security breaches or incidents, whether from cybersecurity attacks or other causes, or if we suffer any security breach or incident involving unauthorized access to, misuse, acquisition, disclosure, loss, alteration, or destruction of our data or other data we maintain or otherwise process, we could experience significant operational stoppages, disruptions, delays, and/or other detrimental impacts on our operations or investment in research, and may face increased costs, including increased costs of implementing new data protection and security measures, policies, and procedures, and costs associated with remediating and otherwise responding to the security breach or incident.
Over the longer term, tariffs could significantly increase our costs and our ability to pass such increased costs along to our customers may be limited, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The implementation of tariffs could increase the cost of certain commodities and/or limit their supply. Over the longer term, tariffs could significantly increase our costs and our ability to pass such increased costs along to our customers may be limited, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Failure to successfully implement our acquisition strategy, including successfully integrating acquired businesses, could have a material adverse effect on our business, financial condition, results of operations, and cash flows. We also may make strategic divestitures from time to time, such as the divestiture of our renewable power systems business and related businesses.
Failure to successfully implement our acquisition strategy, including successfully integrating acquired businesses, could have a material adverse effect on our business, financial condition, results of operations, and cash flows. We also may make strategic divestitures from time to time.
At September 30, 2022, we had $772,559 of goodwill, representing 20% of our total assets. We test goodwill for impairment at the reporting unit level on at least an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
We test goodwill for impairment at the reporting unit level on at least an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
We are dependent upon suppliers for parts and raw materials used in the manufacture of products that we sell to our customers, and our raw material costs are subject to commodity market fluctuations and were impacted by the current inflationary environment. We have experienced shortages of certain parts and raw materials due to the ongoing supply chain disruptions.
We are dependent upon suppliers for parts and raw materials used in the manufacture of products that we sell to our customers, and our raw material costs are subject to commodity market fluctuations and have been impacted by the current inflationary environment.
The level of U.S. defense spending may be impacted by numerous factors outside of our control such as changes in the perceived threat environment, U.S. foreign policy, changes in security, defense, and intelligence priorities, shifts in domestic and international spending and tax policy, budget deficits and competing budget priorities, and the overall economic and political environment.
The level of U.S. defense spending are hard to predict and may be impacted by numerous factors outside of our control such as changes in the perceived threat environment, prevailing U.S. foreign policy, changes in security, defense, and intelligence strategies and priorities, shifts in domestic and international spending, the macroeconomic environment, tax policy, budget deficits and competing budget priorities, and the political environment and future potential government shutdowns.
Government change and/or defense spending is reduced, this may adversely affect our business, financial condition, results of operations, and cash flows. Our business may be adversely affected by risks unique to government contracting. Our contracts with the U.S.
Government change and/or defense spending is reduced or delayed for any of the reasons discussed above, our business, financial condition, results of operations, and cash flows may be adversely affected. Our business may be adversely affected by risks unique to government contracting. As a result of our contracts with the U.S.
In the event of such infringement or violation, we may face expensive litigation or indemnification obligations and may be prevented from selling existing products and pursuing product development or commercialization.
In the event we face claims of infringement or misappropriation, we may face expensive litigation or indemnification obligations, be required to enter into licenses, and may be prevented from selling existing products and pursuing product development or commercialization.
As of September 30, 2022, our total debt was $777,416, including $550,000 in unsecured notes denominated in U.S. dollars issued in private placements and $156,793 of unsecured notes denominated in Euros issued in private placements.
As of September 30, 2023, our total debt was $721,526, including $550,000 in unsecured notes denominated in U.S. dollars issued in private placements and $169,121 of unsecured notes denominated in Euros issued in private placements.
Changes in the estimates of fair value of reporting units or of long-lived assets, particularly goodwill, may result in future impairment charges, which could have a material adverse effect on our business, financial condition, and results of operation. Over time, the fair values of long-lived assets change.
Changes in the estimates of fair value of reporting units or of long-lived assets, particularly goodwill, may result in future impairment charges, which could have a material adverse effect on our business, financial condition, and results of operation. At September 30, 2023, we had $791,468 of goodwill, representing approximately 20% of our total assets.
If we are unable to sufficiently protect our patent and other proprietary rights or if we infringe on the patent or proprietary rights of others, our business, financial condition, results of operations, and cash flows could be materially adversely affected. Amounts accrued for contingencies may be inadequate to cover the amount of loss when the matters are ultimately resolved.
If we are unable to sufficiently protect our patent and other proprietary rights or if we infringe on or misappropriate proprietary rights of others, our business, financial condition, results of operations, and cash flows could be materially adversely affected.
If we are unable to develop competitive technologies, future sales or earnings could be lower than expected, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows. 9 A significant portion of our revenue is concentrated among a relatively small number of customers , which makes our business more vulnerable to fluctuations in sales to these customers and changes in their financial condition.
If we are unable to develop competitive technologies, future sales or earnings could be lower than expected, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Product liability claims, product recalls or other liabilities associated with the products and services we provide may force us to pay substantial damage awards and other expenses that could exceed our accruals and insurance coverage.
Product liability claims, product recalls or other liabilities associated with the products and services we provide may force us to pay substantial damage awards and other expenses. The manufacture and sale of our products and the services we provide expose us to risks of product and other tort claims, and any resulting liability.
We are currently involved or may become involved in legal, regulatory and other proceedings arising in the ordinary course of business. These proceedings may include, without limitation, product liability matters, intellectual property matters, contract disputes or claims, pending or threatened litigation, governmental investigations, as well as employment, tax, environmental, or other matters.
These proceedings may include, without limitation, product liability matters, intellectual property matters, contract disputes or claims, pending or threatened litigation, governmental investigations, as well as employment, tax, environmental, or other matters.
Additionally, it is important we hire and retain personnel with relevant experience in local laws, regulations, customs, traditions and business practices to support our international operations. Our ability to hire, train, assimilate and retain a qualified workforce has been impacted by the ongoing labor market disruptions.
Additionally, it is important we hire and retain personnel with relevant experience in local laws, regulations, customs, traditions, and business practices to support our international operations.
Certain of these agreements require us to repay outstanding borrowings with portions of the proceeds we receive from certain sales of property or assets and specified future debt offerings. 12 These financial covenants place certain restrictions on our business that may affect our ability to execute our business strategy successfully or take other actions that we believe would be in the best interests of our Company.
These financial covenants place certain restrictions on our business that may affect our ability to execute our business strategy successfully or take other actions that we believe would be in the best interests of our Company.
To the best of our knowledge, we have been and will be at all times, in complete compliance with all environmental requirements, or that we will not incur additional material costs or liabilities in connection with these requirements. In addition, we may be subject to other environmental remediation costs such as participation in superfund sites or other similar jurisdictional initiatives.
To the best of our knowledge, we have been and should be at all times, in complete compliance with all environmental requirements; however, we cannot be certain that we will not incur additional material costs or liabilities as a result of complying with these requirements.
Our financial and operating performance depends on continued access to a stable workforce and on favorable labor relations with our employees. Due to the specialized nature of our business, competition for technical personnel is intense and our future performance is highly dependent on our ability to hire, train, assimilate, and retain a qualified workforce.
Our financial and operating performance depends on continued access to a stable workforce and on favorable labor relations with our employees. We rely on a highly trained workforce due to the specialized nature of our business.
There is no assurance that we will continue to be successful in recruiting qualified employees in the future. Further, approximately 13% of our workforce in the United States is unionized, and certain of our operations in the United States and internationally involve different employee/employer relationships and the existence of works’ councils.
Further, approximately 14% of our workforce in the United States is unionized, and certain of our operations in the United States and internationally involve different employee/employer relationships and the existence of works’ councils.
Moreover, we expect that the effects of the COVID-19 pandemic will heighten many of the other risks described herein. Industry Risks We operate in highly competitive industries and, if we are unable to compete effectively in one or more of our markets, our business, financial condition and results of operations will be adversely affected.
Ri sk Factors The following summarizes important factors that could individually, or together with one or more other factors, affect our business, financial condition, results of operations, and/or cash flows: Industry Risks We operate in highly competitive industries and, if we are unable to compete effectively in one or more of our markets, our business, financial condition, and results of operations will be adversely affected.
We may become the target of cyber-attacks by third parties seeking unauthorized access to our data or our customers’ data or to disrupt our operations or our ability to provide services.
From time to time, we have experienced cyberattacks on our IT infrastructure and systems. We may become the target of cyber-attacks by third parties, either directly or indirectly via our supply chain or third-party vendors, seeking unauthorized access to our data or our customers’ data or to disrupt our operations or our ability to provide services.
Moreover, the laws of certain foreign jurisdictions do not recognize intellectual property rights or protect them to the same extent as do the laws of the United States. 15 Additionally, our current or future technologies may, regardless of our intent, infringe upon the patents or violate other proprietary rights of third parties.
Moreover, the laws of certain foreign jurisdictions do not recognize intellectual property rights or protect them to the same extent as do the laws of the United States.
Additionally, our competitors may develop new technology, or more efficient ways to produce their existing products that could cause our existing products or services to become less desirable or obsolete. Maintaining our market position requires continued investment in research and development.
Industry standards, customer expectations, or other products may emerge that could render one or more of our products or services less desirable or obsolete. Additionally, our competitors may develop new technology, or more efficient ways to produce their existing products that could cause our existing products or services to become less desirable or obsolete.
Government are subject to certain unique risks, including the risks set forth below, some of which are beyond our control, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows. • Our U.S. Government contracts and the U.S.
The occurrence of one or more of these risks, some of which are out of our control, could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Additionally, there have been and may continue to be significant cyberattacks on, and other attempts to compromise the security of, the supply chain.
Additionally, system and service disruptions, and cybersecurity breaches or incidents, may result from employee or contractor error, negligence, or malfeasance. Further, there have been and may continue to be cyberattacks on, and other attempts to compromise the security of, the supply chain.
Long-term lower prices for commodities such as oil, natural gas, gold, tin, and various other minerals could reduce exploration activities and place downward pressure on demand for our goods and services that support exploration and extraction activities. 17 Business Risks Our product development activities may not be successful, may be more costly than currently anticipated, or we may not be able to produce newly developed products at a cost that meets the anticipated product cost structure.
Long-term lower prices for commodities such as oil, natural gas, gold, tin, and various other minerals could reduce exploration activities and place downward pressure on demand for our goods and services that support exploration and extraction activities.
There is no certainty that the results of these matters will be favorable to the Company. We accrue for known individual matters if we believe it is probable that the matter will result in a loss when ultimately resolved using estimates of the most likely amount of loss.
We accrue for known individual matters if we believe it is probable that the matter will result in a loss when ultimately resolved using estimates of the most likely amount of loss. However, estimating possible losses involves significant judgment and outcomes are unpredictable, therefore, actual losses may exceed our estimates.
Additionally, system and service disruptions, and cybersecurity breaches or incidents, may result from employee or contractor error, negligence, or malfeasance. Due to the rapidly evolving threat environment and other factors, we may not be successful in defending against all such attacks.
We may experience security breaches or incidents resulting from tools, services, or other third-party components and security vulnerabilities within, or introduced by, such tools, services, or components. Due to the rapidly evolving threat environment and other factors, we may not be successful in defending against all such attacks.
We employ a number of measures, including technical security controls, employee training, comprehensive monitoring of our networks and systems, and maintenance of backup and protective systems. However, our IT infrastructure, systems, networks, products, solutions and services remain potentially vulnerable to numerous additional known or unknown threats.
Nonetheless, our IT infrastructure, systems, networks, products, solutions, and services remain potentially vulnerable to numerous additional known or unknown threats.
A significant portion of our revenue is concentrated among a relatively small number of customers. We have fewer customers than many companies with similar sales volumes. For the fiscal year ended September 30, 2022, sales to our largest 5 customers represented approximately 43% of our consolidated net sales and approximately 41% of our accounts receivable.
For the fiscal year ended September 30, 2023, sales to our largest 5 customers represented approximately 40% of our consolidated net sales and approximately 38% of our accounts receivable.
We depend heavily on information technology (“IT”) and computerized systems to communicate and operate effectively. We store sensitive data including proprietary business information, intellectual property, classified information, customer information, supplier information, and confidential employee or other personal data on our servers and databases.
We store sensitive data including proprietary business information, intellectual property, classified information, customer information, supplier information, and confidential employee or other personal data on our servers and databases. Also, due to political uncertainty and hostile military actions, we may be subject to heightened risks of cybersecurity incidents and security breaches initiated by nation-state or affiliated actors.
Our success depends in part on our ability to obtain patents or rights to patents, protect trade secrets and know-how, and prevent others from infringing on our patents, trademarks, and other intellectual property rights.
Failure to develop, obtain, enforce, and protect intellectual property rights or third parties claims that we are infringing their intellectual property could harm our business. Our success depends in part on our ability to develop technologies and inventions and other intellectual property, and obtain intellectual property rights and enforce such intellectual property rights worldwide.
Our business involves a significant level of product development activities, generally in connection with our customers’ development activities. Industry standards, customer expectations, or other products may emerge that could render one or more of our products or services less desirable or obsolete.
Business Risks Our product development activities may not be successful, may be more costly than anticipated, or we may not be able to produce newly developed products at a cost that meets the anticipated product cost structure. Our business involves a significant level of product development activities, generally in connection with our customers’ development activities.
We may be unable to successfully execute or effectively integrate acquisitions, and divestitures may not occur as planned. As part of our business strategy, we have pursued, and expect to pursue acquisitions of other companies and assets.
Acquisitions, joint ventures, divestitures, and other transactions we enter into could fail to achieve strategic objectives, disrupt our ongoing operations, result in operating difficulties, harm our business, and negatively impact our results of operations. As part of our business strategy, we have pursued, and expect to pursue acquisitions of other companies and assets.
Removed
Risk Factors The following summarizes important factors that could individually, or together with one or more other factors, affect our business, results of operations, financial condition, and/or cash flows: COVID-19 Pandemic Risks The global COVID-19 pandemic (COVID-19) has led to significant volatility in virtually all product, service and economic markets, including financial markets, commodities (including oil and gas) and other industries (including the aviation industry), which has impacted our business, financial results and the achievement of our strategic objectives.
Added
A significant portion of our revenue is concentrated among a relatively small number of customers, which makes our business more vulnerable to fluctuations in sales to these customers and changes in their financial condition. A significant portion of our revenue is concentrated among a relatively small number of customers. We have fewer customers than many companies with similar sales volumes.
Removed
Global health concerns pertaining to COVID-19 and related government actions taken to reduce the spread of the virus and otherwise in response to the effects of the virus have impacted the economic environment, significantly increased economic uncertainty and reduced economic activity. The pandemic has also caused disruptions in global trade and labor markets.
Added
We have experienced shortages of certain parts and raw materials due to challenges in our supply chain, although we have made strategic investments to simplify and strengthen our supply chain.
Removed
These have impacted global supply chain, which could impact the timeliness of shipments. COVID-19 has adversely impacted, and will continue to adversely impact, our business, operations, financial condition, capital and results of operations.
Added
Government, we are subject to certain unique risks, including the risks set forth below: • Our U.S. Government contracts and the U.S.
Removed
The extent of these impacts, particularly over time, depends on future developments, which are highly uncertain and difficult to predict, including, but not limited to, (i) the duration and magnitude of the pandemic, (ii) the actions taken to contain the virus or treat its impact, (iii) the impact of economic stimulus measures, and (iv) the extent to which economic and operating conditions and consumer and business spending return to their pre-pandemic levels.
Added
Certain of 11 these agreements require us to repay outstanding borrowings with portions of the proceeds we receive from certain sales of property or assets and specified future debt offerings.
Removed
The spread of COVID-19 has caused us to modify our business practices and operations, including enhancing our operations management teams and global supply chain to ensure the Company is efficiently utilizing inventory on hand, as well as increasing our internal processing capabilities.
Added
Our inability to retain key personnel or attract and retain new qualified personnel could adversely affect our business and limit our ability to operate successfully. Due to the specialized nature of our business, competition for technical personnel is intense and our future performance is highly dependent on our ability to hire, train, assimilate, and retain a qualified workforce.
Removed
In October 2018 and March 2019, two commercial aircraft accidents led to the grounding by the Federal Aviation Administration (“FAA”) and other regulators of the Boeing 737 MAX aircraft, on which we have significant content.
Added
Achieving this objective may be difficult due to many factors, including fluctuations in global economic and industry conditions, management changes, increasing local and global competition for talent, the availability of qualified employees, challenges associated with retaining qualified employees, restructuring and alignment activities, and the attractiveness of our compensation and benefit programs.
Removed
The grounding of the Boeing 737 MAX aircraft by the FAA and other regulators, which started in March of 2019 and continued through November 2020, caused deliveries of that aircraft to be zero in fiscal year 2020.
Added
In 2023, we experienced an increase in labor costs in the countries in which we operate due to rising labor inflation. Further increases in labor costs could significantly reduce our profit margins if we are unable to flow such costs through to our customers.
Removed
As the aircraft return to service progresses, having been recertified in every jurisdiction except China, we anticipate a large majority of the deliveries missed in fiscal years 2019 through 2022 will be fulfilled in future periods, although at a slower rate than previously estimated.
Added
In this regard, we rely on patent, trademark, copyright, and trade secret laws in the United States and in other jurisdictions where we do business, as well as license agreements, nondisclosure agreements, and confidentiality and other contractual provisions.
Removed
Although we anticipate a slow recovery of the OEM and a slightly better recovery of the initial provisioning sales as the aircraft’s return to service progresses, the previous grounding of the Boeing 737 MAX could further decrease our OEM and initial provisioning sales for the 737 MAX and CFM LEAP engines in the near term, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Added
However, we cannot be certain we will be able to obtain patents or other intellectual property rights in our new technologies and inventions or, if we do, the scope of such rights may not be sufficiently broad to afford us any significant commercial advantage over our competitors.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings Woodward is currently involved in pending or threatened litigation or other legal proceedings, investigations, claims 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.
Biggest changeItem 3. Leg al Proceedings Woodward is currently involved in pending or threatened litigation or other legal proceedings, investigations, claims 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.
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. Item 4. Mine Safety Disclosures Not applicable. 20 PART II
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. Item 4. Mine Saf ety Disclosures Not applicable. 20 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities ( In thousands, except per share amounts ) 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) July 1, 2022 through July 31, 2022 (2) 387 $ 104.70 — $ 399,025 August 1, 2022 through August 31, 2022 (2) 448,709 100.50 448,416 353,959 September 1, 2022 through September 30, 2022 (2) 13 80.26 — 353,959 (1) In November 2019, our board of directors (“the Board”) approved a stock repurchase 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 will end in November 2022 (the “2019 Authorization”).
Biggest changeIssuer Purchases of Equity Securities ( In thousands, except 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) July 1, 2023 through July 31, 2023 (2) 162 $ 120.38 — $ 327,590 August 1, 2023 through August 31, 2023 (2) 716,394 126.94 716,300 236,664 September 1, 2023 through September 30, 2023 (2) 71,962 126.26 71,962 227,578 (1) In January 2022, the Board of Directors (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”).
The graph shows total stockholder return assuming an investment of $100 (with reinvestment of all dividends) was made on September 30, 2012 in our common stock and in each of the two indexes and tracks relative performance through September 30, 2022.
The graph shows total stockholder return assuming an investment of $100 (with reinvestment of all dividends) was made on September 30, 2013 in our common stock and in each of the two indexes and tracks relative performance through September 30, 2023.
(2) Under a trust established for the purposes of administering the Woodward Executive Benefit Plan, 387 shares of common stock were acquired in July 2022, 11 shares of common stock were acquired in August 2022, and 13 shares of common stock were acquired in September 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.
(2) Under a trust established for the purposes of administering the Woodward Executive Benefit Plan (the "Executive Benefit Plan Trust"), 162 shares of common stock were acquired in July 2023, and no shares of common stock were acquired in August or September 2023, 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.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on The NASDAQ Global Select Market and is traded under the symbol “WWD.” At November 17, 2022, there were approximately 500 holders of record.
Item 5. Market for Registrant’s Common Equity, Related Sto ckholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on The NASDAQ Global Select Market and is traded under the symbol “WWD.” At November 16, 2023, there were approximately 500 holders of record.
In addition, 282 shares of common stock were acquired in August 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 Consolidated Balance Sheets. Ite m 6 .
In addition, 94 shares of common stock were acquired in August 2023 on the open market related to the reinvestment of dividends for shares of treasury stock held for deferred compensation. Shares owned by the Executive Benefit Plan Trust, which is a separate legal entity, are included in "Treasury stock held for deferred compensation" in the Consolidated Balance Sheets.
We have used a period of 10 years as we believe that our stock performance should be reviewed over a period that is reflective of our long-term business cycle. 9/12 9/13 9/14 9/15 9/16 9/17 9/18 9/19 9/20 9/21 9/22 Woodward, Inc. $ 100.00 $ 121.19 $ 142.36 $ 122.62 $ 189.82 $ 237.50 $ 249.23 $ 334.50 $ 250.23 $ 355.10 $ 253.47 S&P Midcap 400 100.00 127.68 142.77 144.76 166.95 196.19 224.07 218.48 213.76 307.14 260.30 S&P Industrials 100.00 128.50 150.07 144.59 173.13 211.83 235.52 238.79 241.95 312.02 268.75 The stock price performance included in this graph is not necessarily indicative of future stock price performance 21 Sales of Unregistered Securities None.
We have used a period of 10 years as we believe that our stock performance should be reviewed over a period that is reflective of our long-term business cycle. 9/13 9/14 9/15 9/16 9/17 9/18 9/19 9/20 9/21 9/22 9/23 Woodward, Inc. $ 100.00 $ 117.47 $ 101.18 $ 156.63 $ 195.98 $ 205.65 $ 276.02 $ 206.48 $ 293.02 $ 209.16 $ 326.35 S&P Midcap 400 100.00 111.82 113.38 130.76 153.66 175.49 171.12 167.42 240.56 203.87 235.50 S&P Industrials 100.00 116.78 112.52 134.73 164.85 183.28 185.82 188.28 242.81 209.14 260.55 The stock price performance included in this graph is not necessarily indicative of future stock price performance 21 Sales of Unregistered Securities None.
Removed
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”).

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

110 edited+34 added−52 removed55 unchanged
Biggest changeWe expect market share gains by our customers and increased scope on the next generation reciprocating engines as energy policies in some countries encourage the use of compressed natural gas, liquefied natural gas, and other alternative fuels over carbon-rich petroleum fuels, which we expect will drive increased demand for our alternative fuel clean engine control technologies. 25 RESULTS OF OPERATIONS Financial Highlights Year Ended September 30, 2022 2021 Net sales: Aerospace segment $ 1,519,322 $ 1,404,117 Industrial segment 863,468 841,715 Consolidated net sales $ 2,382,790 $ 2,245,832 Earnings: Aerospace segment $ 230,933 $ 234,356 Segment earnings as a percent of segment net sales 15.2 % 16.7 % Industrial segment $ 82,788 $ 108,672 Segment earnings as a percent of segment net sales 9.6 % 12.9 % Consolidated net earnings $ 171,698 $ 208,649 Adjusted net earnings $ 173,823 $ 212,385 Effective tax rate 14.1 % 15.1 % Adjusted effective tax rate 14.3 % 15.3 % Consolidated diluted earnings per share $ 2.71 $ 3.18 Consolidated adjusted diluted earnings per share $ 2.75 $ 3.24 Earnings before interest and taxes ("EBIT") $ 232,629 $ 278,586 Adjusted EBIT $ 235,463 $ 283,594 Earnings before interest, taxes, depreciation, and amortization ("EBITDA") $ 353,257 $ 408,110 Adjusted EBITDA $ 356,091 $ 413,118 Adjusted net earnings, adjusted earnings per share, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA are non-U.S.
Biggest changeRESULTS OF OPERATIONS Financial Highlights Year Ended September 30, 2023 2022 Net sales: Aerospace segment $ 1,768,103 $ 1,519,322 Industrial segment 1,146,463 863,468 Consolidated net sales $ 2,914,566 $ 2,382,790 Earnings: Aerospace segment $ 290,104 $ 230,933 Segment earnings as a percent of segment net sales 16.4 % 15.2 % Industrial segment $ 161,622 $ 82,788 Segment earnings as a percent of segment net sales 14.1 % 9.6 % Consolidated net earnings $ 232,368 $ 171,698 Adjusted net earnings $ 258,576 $ 173,823 Effective tax rate 15.7 % 14.1 % Adjusted effective tax rate 16.8 % 14.3 % Consolidated diluted earnings per share $ 3.78 $ 2.71 Consolidated adjusted diluted earnings per share $ 4.21 $ 2.75 Earnings before interest and taxes ("EBIT") $ 320,915 $ 232,629 Adjusted EBIT $ 355,791 $ 235,463 Earnings before interest, taxes, depreciation, and amortization ("EBITDA") $ 440,658 $ 353,257 Adjusted EBITDA $ 475,534 $ 356,091 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 non-U.S.
The increase in research and development costs in dollars for fiscal year 2022 as compared to the prior year is primarily due to variability in the timing of projects and expenses.
The increase in research and development costs in dollars for fiscal year 2022 as compared to the prior fiscal year is primarily due to variability in the timing of projects and expenses.
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 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.
As new aircraft production levels increase to accommodate rising passenger demand and to mitigate higher operating costs driven largely by higher fuel costs on older and less fuel-efficient aircraft, we expect airlines will retire older generation aircraft as they reach certain age thresholds (typically around twenty-five years on average).
As aircraft production levels increase to accommodate rising passenger demand and to mitigate higher operating costs driven largely by higher fuel costs on older and less fuel-efficient aircraft, we expect airlines will retire older generation aircraft as they reach certain age thresholds (typically around twenty-five years on average).
To facilitate a cleaner, decarbonized world, we are partnering with our customers to enable their equipment to be more efficient, capable of utilizing clean burning fuels, advancing fuel cells, and the integration of renewable power in both commercial and defense operations.
To facilitate a cleaner world, we are partnering with our customers to enable their equipment to be more efficient, capable of utilizing clean burning fuels, advancing fuel cells, and the integration of renewable power in both commercial and defense operations.
We have concluded that this measure of progress best depicts the transfer of assets to the customer, because 35 incurred costs are integral to our completion of the performance obligation under the specific customer contract and correlate directly to the transfer of control to the customer. Contract costs include labor, material and overhead.
We have concluded that this measure of progress best depicts the transfer of assets to the customer, because incurred costs are integral to our completion of the performance obligation under the specific customer contract and correlate directly to the transfer of control to the customer. Contract costs include labor, material, and overhead.
Point in time and over time revenue recognition Control of the products generally transfers to the customer at a point in time, as the customer does not control the products as they are produced.
Point in time and over time revenue recognition Control of the products generally transfers to the customer at a point in time, if the customer does not control the products as they are produced.
Start reliability, fuel flexibility, safety, and part-load efficiency are all key drivers of the turbine market as the conversion from coal to natural gas usage continues, and we believe Woodward continues to be well positioned to meet these market needs on the existing and next generation turbines.
Start reliability, fuel flexibility, safety, and part-load efficiency are all key drivers of the power generation market as the conversion from coal to natural gas usage continues, and we believe Woodward continues to be well positioned to meet these market needs on the existing and next generation turbines.
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 a comparative measure. Free cash flow and adjusted free cash flow were as follows: Year Ended September 30, 2022 2021 Net cash provided by operating activities (U.S.
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 a comparative measure. Free cash flow and adjusted free cash flow were as follows: Year Ended September 30, 2023 2022 Net cash provided by operating activities (U.S.
The precise and efficient control of energy, including motion, fluid, combustion and electrical energy, is a growing requirement in the markets we serve, and we have developed and are executing on strategies to leverage the macro trends of eliminating greenhouse gases, commercializing space, and accelerating the digital age.
The precise and efficient control of energy, including motion, fluid, combustion, and electrical energy, is a growing requirement in the markets we serve, and we have developed and are executing on strategies to leverage the macro trends of reducing greenhouse gases, commercializing space, and accelerating the digital age.
If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss would be recognized to reduce the carrying amount to its implied fair value. During the fourth quarter, we completed our annual goodwill impairment test as of July 31, 2022 for the fiscal year ended September 30, 2022.
If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss would be recognized to reduce the carrying amount to its implied fair value. During the fourth quarter, we completed our annual goodwill impairment test as of July 31, 2023 for the fiscal year ended September 30, 2023.
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.
Management believes that excluding these infrequent or unusual items from free cash flow 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.
The results of the annual impairment test performed as of July 31, 2022 indicated the estimated fair value of the Woodward L’Orange trade name intangible asset was in excess of its carrying value, and accordingly, no impairment existed.
The results of the annual impairment test performed as of July 31, 2023 indicated the estimated fair value of the Woodward L’Orange trade name intangible asset was in excess of its carrying value, and accordingly, no impairment existed.
The results of our annual goodwill impairment test performed as of July 31, 2022, indicated the estimated fair value of each reporting unit was in excess of its carrying value, and accordingly, no impairment existed. 36 Indefinitely lived intangible asset We have one indefinitely lived intangible asset consisting of the Woodward L’Orange trade name.
The results of our annual goodwill impairment test performed as of July 31, 2023, indicated the estimated fair value of each reporting unit was in excess of its carrying value, and accordingly, no impairment existed. Indefinitely lived intangible asset We have one indefinitely lived intangible asset consisting of the Woodward L’Orange trade name.
During the fourth quarter, we completed the annual impairment test, for the fiscal year ended September 30, 2022, of the Woodward L’Orange trade name intangible asset as of July 31, 2022.
During the fourth quarter, we completed the annual impairment test, for the fiscal year ended September 30, 2023, of the Woodward L’Orange trade name intangible asset as of July 31, 2023.
The decrease in research and development costs as a percentage of net sales for fiscal year 2022 as compared to the prior year is primarily due to net sales increases in fiscal year 2022 compared to fiscal year 2021.
The decrease in research and development costs as a percentage of net sales for fiscal year 2023 as compared to the prior fiscal year is primarily due to net sales increases in fiscal year 2023 compared to fiscal year 2022.
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.
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, restructuring activities, and certain non-restructuring separation costs.
Our core technologies leverage well across our markets and customer applications, enabling us to develop and integrate cost-effective and state-of-the-art fuel, combustion, fluid, actuation and electronic systems. We focus primarily on serving OEMs and equipment packagers, partnering with them to bring superior component and system solutions to their demanding applications.
Our core technologies can be leveraged across our markets and customer applications, enabling us to develop and integrate cost-effective and state-of-the-art fuel, combustion, fluid, actuation, and electronic systems. We focus primarily on serving OEMs and equipment packagers, partnering with them to bring superior component and system solutions to their demanding applications.
Other programs are relatively steady (e.g., UH-60 Black Hawk and A-64 Apache helicopter programs) and some legacy programs, such as the F-15, will maintain or potentially increase production. Weapons programs for which we have significant sales include the Joint Direct Attack Munition (“JDAM”), Small Diameter Bomb (“SDB”) and AIM-9X guided tactical weapon systems.
Other programs are relatively steady (e.g., KC-46A Tanker, UH-60 Black Hawk and A-64 Apache helicopter programs) and some legacy programs, such as the F-15, should maintain or potentially increase production. Guided tactical weapons programs for which we have sales include the Joint Direct Attack Munition (“JDAM”), Small Diameter Bomb (“SDB”), and AIM-9X guided tactical weapon systems.
For a discussion of the 2021 Results of Operations, including a discussion of the financial results for the fiscal year ended September 30, 2021 compared to the fiscal year ended September 30, 2020, refer to Part I, Item 7 of our Form 10-K filed with the SEC on November 19, 2021.
For a discussion of the 2022 Results of Operations, including a discussion of the financial results for the fiscal year ended September 30, 2022 compared to the fiscal year ended September 30, 2021, refer to Part I, Item 7 of our Form 10-K filed with the SEC on November 18, 2022.
Income taxes were provided at an effective rate on earnings before income taxes of 14.1% for fiscal year 2022, compared to 15.1% for fiscal year 2021.
Income taxes were provided at an effective rate on earnings before income taxes of 15.7% for fiscal year 2023, compared to 14.1% for fiscal year 2022.
When inventory is written down below cost, such reduced amount is considered the cost for subsequent accounting purposes. Our recording of inventory at the lower of cost or net realizable value has not historically required material adjustments once initially established. The carrying value of inventory was $514,287 at September 30, 2022 and $419,971 at September 30, 2021.
When inventory is written down below cost, such reduced amount is considered the cost for subsequent accounting purposes. Our recording of inventory at the lower of cost or net realizable value has not historically required material adjustments once initially established. The carrying value of inventory was $517,843 at September 30, 2023 and $514,287 at September 30, 2022.
Our involvement with a wide variety of defense programs in fixed-wing aircraft, rotorcraft and weapons systems has provided relative stability for our defense market sales, as some newer programs increase (e.g., F-35 Lightning II, KC-46A Tanker, and T-7A Trainer), some legacy programs are 24 decreased (e.g., F/A-18 E/F Super Hornet and V-22 Osprey).
Our involvement with a wide variety of defense programs in fixed-wing aircraft, rotorcraft, and weapons systems has provided relative stability for our defense market sales, as some newer programs increase (e.g., F-35 Lightning II and T-7A Trainer), and some legacy programs decrease (e.g., F/A-18 E/F Super Hornet and V-22 Osprey).
At September 30, 2022, we had total outstanding debt of $777,416 consisting of various series of unsecured notes due between 2023 and 2033, and amounts borrowed under our revolving credit facility, and our finance leases.
At September 30, 2023, we had total outstanding debt of $721,526 consisting of various series of unsecured notes due between 2023 and 2033, and amounts borrowed under our revolving credit facility, and our finance leases.
However, in the past few years, aircraft retirements have decreased because passenger demand has outpaced deliveries of next generation aircraft, forcing older generation legacy aircraft to remain in service longer than anticipated. This has led to increased demand–for repairs and spare parts for older engine programs remaining in service–consistent with air traffic recovery from the post-COVID-19 low levels.
However, in the past few years, aircraft retirements have decreased because passenger demand has outpaced deliveries of next generation aircraft, forcing older generation legacy aircraft to remain in service longer than anticipated. This has led to increased demand for repairs and spare parts for older engine programs remaining in service, consistent with air traffic growth.
GAAP) $ 144,257 $ 426,980 34 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 Consolidated Financial Statements and accompanying notes.
GAAP) $ 238,227 $ 144,257 CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes.
GAAP) $ 173,823 $ 2.75 $ 212,385 $ 3.24 Management uses EBIT to evaluate Woodward’s performance without financing and tax related considerations, as these elements may 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.
Management uses EBIT to evaluate Woodward’s performance without financing and tax related considerations, as these elements may 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.
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 closest U.S. GAAP financial measures can be found under the caption “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 closest U.S. GAAP financial measures can be found under the caption “Non-U.S.
Gross margin (as measured by net sales less cost of goods sold, divided by net sales) was 22.0% for fiscal year 2022, compared to 24.5% for fiscal year 2021.
Gross margin (as measured by net sales less cost of goods sold, divided by net sales) was 23.2% for fiscal year 2023, compared to 22.0% for fiscal year 2022.
There can be no assurance that our estimates and assumptions regarding forecasted cash flows of certain reporting units or the Woodward L’Orange business, the current economic environment, or the other inputs used in forecasting the present value of forecasted cash flows will prove to be accurate projections of future performance.
There can be no assurance that our estimates and assumptions regarding forecasted cash flows of certain reporting units or the Woodward L’Orange business, the current economic environment, or the other inputs used in forecasting the present value of forecasted cash flows will prove to be accurate projections of future performance. 36 Income taxes We are subject to income taxes in the United States and numerous foreign jurisdictions.
For fiscal year 2022, free cash flow, which we define as net cash flows from operating activities less payments for property, plant and equipment, was $140,770, compared to $426,980 for 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 activities, was $144,257.
We define free cash flow as net cash flows from operating activities less payments for property, plant and equipment. Adjusted free cash flow, which we define as free cash flow, plus the payments for costs related to business development activities, restructuring activities, and certain non-restructuring separation costs, was $238,227, compared to $144,257 for fiscal year 2022.
The reconciliation of net earnings and earnings per share to adjusted net earnings and adjusted earnings per share, respectively, for the fiscal years ended and are shown in the tables below. Year Ended September 30, 2022 2021 Net Earnings Earnings Per Share Net Earnings Earnings Per Share Net earnings (U.S. GAAP) $ 171,698 $ 2.71 $ 208,649 $ 3.18 Non-U.S.
The reconciliation of net earnings and earnings per share to adjusted net earnings and adjusted earnings per share, respectively, for the fiscal years ended and are shown in the table below: Year Ended September 30, 2023 2022 Net Earnings Earnings Per Share Net Earnings Earnings Per Share Net earnings (U.S. GAAP) $ 232,368 $ 3.78 $ 171,698 $ 2.71 Non-U.S.
In addition to potential local country tax law and policy changes that could impact the provision for income taxes, management’s judgment about 37 and intentions concerning the repatriation of foreign earnings could also significantly impact the provision for income taxes.
In addition to potential local country tax law and policy changes that could impact the provision for income taxes, management’s judgment about and intentions concerning the repatriation of foreign earnings could also significantly impact the provision for income taxes. Management reassesses its judgment regularly, taking into consideration the potential tax impacts of these judgments, and intentions. 37
National Defense Authorization Act for fiscal year 2022 resulted in higher levels of funding for both procurement and research and development, and we believe budget increases in recent years will support growth in fiscal year 2023, with the exception of our guided tactical weapons programs.
Global conflicts are leading to higher global defense budgets. The U.S. National Defense Authorization Act for fiscal year 2023 resulted in higher levels of funding for procurement, research and development, and maintenance, and we believe budget increases in recent years will support growth in fiscal year 2024, with the exception of our guided tactical weapons programs.
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.
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. 32 EBIT and adjusted EBIT reconciled to net earnings were as follows: Year Ended September 30, 2023 2022 Net earnings (U.S.
At September 30, 2022, the carrying value of the Woodward L’Orange trade name intangible asset was $56,838, representing 2% of our total assets.
At September 30, 2023, the carrying value of the Woodward L’Orange trade name intangible asset was $61,307, representing approximately 2% of our total assets.
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, 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.
Our calculations of adjusted net earnings, adjusted net earnings per share, 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.
Revolving credit facility and short-term borrowing activity during the fiscal year ended September 30, 2022 were as follows: Maximum daily balance during the period $ 264,500 Average daily balance during the period $ 86,795 Weighted average interest rate on average daily balance 2.88 % We believe we were in compliance with all our debt covenants as of September 30, 2022.
Revolving credit facility and short-term borrowing activity during the fiscal year ended September 30, 2023 were as follows: Maximum daily balance during the period $ 317,800 Average daily balance during the period 210,924 Weighted average interest rate on average daily balance 5.79 % We believe we were in compliance with all our debt covenants as of September 30, 2023.
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, (ii) costs related to business development activities, and (iii) restructuring activities.
GAAP financial measures Adjusted net earnings is defined by the Company as net earnings excluding, as applicable, (i) a specific charge for excess and obsolete inventory, (ii) product rationalization, (iii) a restructuring charge, (iv) a non-recurring charge related to customer collections, (v) certain non-restructuring separation costs, (vi) a charge in connection with a non-recurring matter unrelated to the ongoing operations of the business, and (vii) costs related to business development activities.
We monitor inventory for events or circumstances, such as negative margins, recent sales history suggesting lower sales value, or changes in customer preferences, which would indicate the net realizable value of inventory is less than the carrying value of inventory, and management records adjustments as necessary.
Actual results may differ from our estimates due to changes in resale or market value and the mix of these factors. 35 We monitor inventory for events or circumstances, such as negative margins, recent sales history suggesting lower sales value, or changes in customer preferences, which would indicate the net realizable value of inventory is less than the carrying value of inventory, and management records adjustments as necessary.
We design, produce and service reliable, efficient, low-emission, and high-performance energy control products for diverse applications in challenging environments. We have production and assembly facilities primarily in the United States, Europe and Asia, and promote our products and services through our worldwide locations. Our strategic focus is providing energy control and optimization solutions for the aerospace and industrial markets.
We have production and assembly facilities primarily in the United States, Europe, and Asia, and promote our products and services through our worldwide locations. Our strategic focus is providing energy control and optimization solutions for the aerospace and industrial markets.
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.
The non-recurring charge related to customer collections pertains to a discrete process issue that was identified and corrected. The Company believes that these excluded items are short-term in nature, not directly related to the ongoing operations of the business and therefore, the exclusion of them illustrates more clearly how the underlying business of Woodward is performing.
We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or refinement of an estimate. Although we believe our reserves are reasonable, no assurance can be given that the final outcome of these matters will be consistent with what is reflected in our historical income tax provisions and accruals.
Although we believe our reserves are reasonable, no assurance can be given that the final outcome of these matters will be consistent with what is reflected in our historical income tax provisions and accruals.
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, (ii) costs related to business development activities, and (iii) restructuring activities.
GAAP adjustments to EBIT and EBITDA, in each case adjusted to exclude, as applicable, (i) a specific charge for excess and obsolete inventory, (ii) product rationalization, (iii) a restructuring charge, (iv) a non-recurring charge related to customer collections, (v) certain non-restructuring separation costs, (vi) a charge in connection with a non-recurring matter unrelated to the ongoing operations of the business, and (vii) costs related to business development activities.
We believe the lending institutions participating in our credit arrangements are financially stable. 31 Cash Flows Year Ended September 30, 2022 2021 Net cash provided by operating activities $ 193,638 $ 464,669 Net cash used in investing activities (65,449 ) (35,297 ) Net cash used in financing activities (442,378 ) (136,318 ) Effect of exchange rate changes on cash and cash equivalents (26,429 ) 2,138 Net change in cash and cash equivalents (340,618 ) 295,192 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 year $ 107,844 $ 448,462 2022 Cash Flows Compared to 2021 Net cash flows provided by operating activities for fiscal year 2022 was $193,638, compared to $464,669 for fiscal year 2021.
We believe the lending institutions participating in our credit arrangements are financially stable. 30 Cash Flows Year Ended September 30, 2023 2022 Net cash provided by operating activities $ 308,543 $ 193,638 Net cash used in investing activities (73,551 ) (65,449 ) Net cash used in financing activities (196,473 ) (442,378 ) Effect of exchange rate changes on cash and cash equivalents (8,916 ) (26,429 ) Net change in cash and cash equivalents 29,603 (340,618 ) Cash and cash equivalents, including restricted cash, at beginning of year 107,844 448,462 Cash and cash equivalents, including restricted cash, at end of year $ 137,447 $ 107,844 2023 Cash Flows Compared to 2022 Net cash flows provided by operating activities for fiscal year 2023 was $308,543, compared to $193,638 for fiscal year 2022.
With the entry into service of the new single aisle aircraft (Boeing 737 MAX and Airbus A320neo), we have seen a significant increase in initial provisioning sales to the operators of these new aircraft.
In addition, our products have been selected for new aerospace platforms and our content has increased across existing platforms. With the entry into service of the new single aisle aircraft (Boeing 737 MAX and Airbus A320neo), we have seen a significant increase in initial provisioning sales to the operators of these new aircraft.
During fiscal year 2022, we made $485,300 of cash repurchases of common stock, compared to $33,344 of cash repurchases of common stock during fiscal year 2021. During fiscal year 2022, we had net debt payments in the amount of $66,003, compared to net debt payments in the amount of $101,639 in fiscal year 2021.
During fiscal year 2023, we made $126,380 of cash repurchases of common stock, compared to $485,300 of cash repurchases of common stock during fiscal year 2022. During fiscal year 2023, we had net debt payments in the amount of $67,579, compared to net debt borrowings in the amount of $66,003 in fiscal year 2022.
The decrease in other income in fiscal year 2022 compared to fiscal year 2021 was primarily due to a loss on investments in our deferred compensation program, whereas a gain on investments was recognized in the prior fiscal year.
The increase in other income in fiscal year 2023 compared to fiscal year 2022 was primarily attributable to increased earnings in the JV and a gain on investments in our deferred compensation program, whereas a loss on such investments was recognized in the prior fiscal year.
This dynamic applies to commercial aftermarket related to repairs and spare parts for mature legacy programs with large in-service fleets, such as the Airbus A320 and the Boeing 777. Our defense aftermarket was down during fiscal year 2022 due to global supply chain and labor disruptions.
This dynamic applies to commercial aftermarket related to repairs and spare parts for mature legacy programs with large in-service fleets, such as the Airbus A320 and the Boeing 777. Our defense aftermarket sales increased during fiscal year 2023 due to increased defense budgets resulting in operations and maintenance upgrades.
We project continued growth as demand for electricity is met through a balance of renewable power sources and newer industrial gas turbines for which Woodward has been awarded increased content.
We project continued growth as demand for electricity is met through a balance of renewable power sources and newer industrial gas turbines for which Woodward has been awarded increased content. Transportation – Woodward’s key markets for transportation include compressed natural gas and liquified natural gas trucks in Asia, mining, and commercial and defense marine markets.
Selling, general and administrative expenses increased by $16,139, or 8.6%, to $203,005 for fiscal year 2022, compared to $186,866 for fiscal year 2021. Selling, general, and administrative expenses as a percentage of net sales increased to 8.5% for fiscal year 2022, compared to 8.3% for fiscal year 2021.
Selling, general and administrative expenses increased by $66,687, or 32.8%, to $269,692 for fiscal year 2023, compared to $203,005 for fiscal year 2022. Selling, general, and administrative expenses as a percentage of net sales increased to 9.3% for fiscal year 2023, compared to 8.5% for fiscal year 2022.
Of the cash and cash equivalents held at September 30, 2022 , $87,639 was held by our foreign locations. We are not presently aware of any significant restrictions on the repatriation of these funds, although a portion is considered indefinitely reinvested in certain foreign subsidiaries.
We are not presently aware of any significant restrictions on the repatriation of these funds, although a portion is considered indefinitely reinvested in certain foreign subsidiaries.
We expect business jet, turboprop and helicopter deliveries to further improve in fiscal year 2023 as aircraft operations continue to recover. We have content on the Airbus A220, A320neo, and A330neo, Bell 429, Boeing 737 MAX, 777, 787, and 747-8. We have been awarded content on the 777-9, the Comac C919, and a variety of business jet platforms, among others.
We expect narrowbody deliveries to further improve in fiscal year 2024 due to backlog associated with single aisle programs and planned production ramps. We have content on the Airbus A220, A320neo, A330neo, Bell 429, Boeing 737 MAX, 777, 787, and Comac C919. We have been awarded content on the 777-9 and a variety of business jet platforms, among others.
Income taxes We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain.
Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due.
The amount of such taxes and application of tax credits would be dependent on the income tax laws and other circumstances at the time these amounts are repatriated. Based on these variables, it is impractical to determine the income tax liability that might be incurred if these funds were to be repatriated.
The amount of such taxes and application of tax credits would be dependent on the income tax laws and other circumstances at the time these amounts are repatriated.
Revenue recognition Revenue is recognized on contracts with customers for arrangements in which quantities and pricing are fixed and/or determinable and are generally based on customer purchase orders, often within the framework of a long-term supply arrangement with the customer.
Our management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed our disclosures in this Management’s Discussion and Analysis. 34 Revenue recognition Revenue is recognized on contracts with customers for arrangements in which quantities and pricing are fixed and/or determinable and are generally based on customer purchase orders, often within the framework of a long-term supply arrangement with the customer.
At September 30, 2022, we had additional borrowing availability of $923,506 under our revolving credit facility, net of outstanding letters of credit, and additional borrowing availability of $27,266 under various foreign credit facilities.
At September 30, 2023, we had additional borrowing availability of $991,044 under our revolving credit facility, net of outstanding letters of credit, and additional borrowing availability of $25,143 under various foreign credit facilities. At September 30, 2023, we had no outstanding amount borrowed under our revolving credit facility.
GAAP) $ 193,638 $ 464,669 Payments for property, plant and equipment (52,868 ) (37,689 ) Free cash flow (Non-U.S. GAAP) $ 140,770 $ 426,980 Cash paid for business development activities 2,982 — Cash paid for restructuring activities 505 — Adjusted free cash flow (Non-U.S.
GAAP) $ 308,543 $ 193,638 Payments for property, plant and equipment (76,500 ) (52,868 ) Free cash flow (Non-U.S. GAAP) $ 232,043 $ 140,770 Cash paid for certain non-restructuring separation costs 977 — Cash paid for restructuring activities 5,207 505 Cash paid for business development activities — 2,982 Adjusted free cash flow (Non-U.S.
We attempt to maintain inventory quantities at levels considered necessary to fill firm and expected orders in a reasonable time frame, which we believe mitigates our exposure to future inventory carrying cost adjustments. Reviews for impairment of goodwill and other indefinitely lived intangible assets Goodwill At September 30, 2022, we had $772,559 of goodwill representing 20% of our total assets.
We attempt to maintain inventory quantities at levels considered necessary to fill firm and expected orders in a reasonable time frame, which we believe mitigates our exposure to future inventory carrying cost adjustments.
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 Consolidated Financial Statements included in “Item 8 – Financial Statements and Supplementary Data.” Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our Consolidated Financial Statements upon adoption.
Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our Consolidated Financial Statements upon adoption. Non-U.S.
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 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 31 weighted-average number of diluted shares of common stock outstanding for the period.
The increase in cash used in investing activities in fiscal year 2022 compared to fiscal year 2021 is primarily due to the purchase of PM Control as well as 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.
The increase in cash used in investing activities in fiscal year 2023 compared to fiscal year 2022 is primarily due to increased payments for property, plant, and equipment, partially offset by the purchase of PM Control in the prior fiscal year.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW Woodward enhances the global quality of life and sustainability by optimizing energy use through improved efficiency and lower emissions. We are an independent designer, manufacturer, and service provider of control solutions for the aerospace and industrial markets.
OVERVIEW Woodward enhances the global quality of life and sustainability by optimizing energy use through improved efficiency and lower emissions. We are an independent designer, manufacturer, and service provider of control solutions for the aerospace and industrial markets. We design, produce, and service reliable, efficient, low-emission, and high-performance energy control products for diverse applications in challenging environments.
On November 15, 2020, we paid the entire principal balance of $100,000 on our Series G and J Notes using primarily free cash flow and proceeds from borrowings under our existing revolving credit facility.
On November 15, 2023, Woodward paid the entire principal balance of $75,000 on the Series H and K Notes using proceeds from borrowings under its existing revolving credit facility.
The increase in net cash flows used in financing activities in fiscal year 2022 compared to fiscal year 2021 was attributable to repurchases of common stock, partially offset by the change in net debt payments.
Net cash flows used in financing activities for fiscal year 2023 was $196,473, compared to $442,378 in fiscal year 2022. The decrease in net cash flows used in financing activities in fiscal year 2023 compared to fiscal year 2022 was attributable to the decrease in repurchases of common stock and a change in net debt payments as compared to borrowings.
Aerospace Markets Our aerospace products and systems are primarily used to provide propulsion, actuation and motion control in both commercial and defense fixed-wing aircraft, rotorcraft, guided weapons, and other defense systems.
Such uncertainty may affect our ability to accurately predict our future performance and forecast our financial results. BUSINESS ENVIRONMENT AND TRENDS We serve the aerospace and industrial markets. Aerospace Markets Our aerospace products and systems are primarily used to provide propulsion, actuation and motion control in both commercial and defense fixed-wing aircraft, rotorcraft, guided weapons, and other defense systems.
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. 32 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.
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.
Interest expense increased by $263, or 0.8%, to $34,545, for fiscal year 2022, compared to $34,282 for fiscal year 2021. Interest expense decreased as a percentage of net sales at 1.4% for fiscal year 2022, as compared to 1.5% for fiscal year 2021.
Interest expense increased by $13,353, or 38.7%, to $47,898, for fiscal year 2023, compared to $34,545 for fiscal year 2022. Interest expense as a percentage of net sales increased to 1.6% for fiscal year 2023, as compared to 1.4% for fiscal year 2022.
We continue to explore opportunities on new engine and aircraft programs that are under consideration or have been recently announced. The Boeing 737 MAX has returned to service in every jurisdiction except China.
We continue to explore opportunities on new engine and aircraft programs that are under consideration or have been recently announced. The Boeing 737 MAX has returned to service in every jurisdiction. As the aircraft’s return to service progresses, we anticipate a large majority of the deliveries missed in fiscal year 2019 through 2022 will be fulfilled in future periods.
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. We have also issued debt to supplement our cash needs, repay our other indebtedness, or finance our acquisitions.
Excluding these charges from 2023, nonsegment expenses increased by $14,843 in fiscal year 2023 compared to the prior fiscal year. 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.
At September 30, 2022, we also had additional borrowing capacity of $27,266 under various foreign lines of credit and foreign overdraft facilities. 26 Consolidated Statements of Earnings and Other Selected Financial Data The following table sets forth consolidated statements of earnings data as a percentage of net sales for each period indicated: Year Ended September 30, 2022 2021 % of Net Sales % of Net Sales Net sales $ 2,382,790 100 % $ 2,245,832 100 % Costs and expenses: Cost of goods sold 1,857,485 78.0 1,694,774 75.5 Selling, general, and administrative expenses 203,005 8.5 186,866 8.3 Research and development costs 119,782 5.0 117,091 5.2 Restructuring charges (3,420 ) (0.1 ) 5,008 0.2 Interest expense 34,545 1.4 34,282 1.5 Interest income (1,814 ) (0.1 ) (1,495 ) (0.1 ) Other expense (income), net (26,691 ) (1.1 ) (36,493 ) (1.6 ) Total costs and expenses 2,182,892 91.6 2,000,033 89.1 Earnings before income taxes 199,898 8.4 245,799 10.9 Income tax expense 28,200 1.2 37,150 1.7 Net earnings $ 171,698 7.2 $ 208,649 9.3 Other select financial data: September 30, 2022 September 30, 2021 Working capital $ 772,856 $ 1,098,466 Total debt 777,416 734,122 Total stockholders' equity 1,901,122 2,214,781 2022 RESULTS OF OPERATIONS 2022 Net Sales Compared to 2021 Consolidated net sales for fiscal year 2022 increased by $136,958, or 6.1%, compared to fiscal year 2021.
Consolidated Statements of Earnings and Other Selected Financial Data The following table sets forth consolidated statements of earnings data as a percentage of net sales for each period indicated: Year Ended September 30, 2023 % of Net Sales 2022 % of Net Sales Net sales $ 2,914,566 100 % $ 2,382,790 100 % Costs and expenses: Cost of goods sold 2,236,983 76.8 1,857,485 78.0 Selling, general, and administrative expenses 269,692 9.3 203,005 8.5 Research and development costs 132,095 4.5 119,782 5.0 Restructuring charges 5,172 0.2 (3,420 ) (0.1 ) Interest expense 47,898 1.6 34,545 1.4 Interest income (2,751 ) (0.1 ) (1,814 ) (0.1 ) Other (income) expense, net (50,291 ) (1.7 ) (26,691 ) (1.1 ) Total costs and expenses 2,638,798 90.5 2,182,892 91.6 Earnings before income taxes 275,768 9.5 199,898 8.4 Income tax expense 43,400 1.5 28,200 1.2 Net earnings $ 232,368 8.0 $ 171,698 7.2 Other select financial data: September 30, 2023 September 30, 2022 Working capital $ 852,256 $ 772,856 Total debt 721,526 777,416 Total stockholders' equity 2,070,989 1,901,122 2023 RESULTS OF OPERATIONS 2023 Net Sales Compared to 2022 Consolidated net sales for fiscal year 2023 increased by $531,776, or 22.3%, compared to fiscal year 2022.
Research and development costs increased by $2,691, or 2.3%, to $119,782 for fiscal year 2022, as compared to $117,091 for fiscal year 2021. Research and development costs as a percentage of net sales decreased to 5.0% for fiscal year 2022, as compared to 5.2% for fiscal year 2021.
Such charges did not occur in the prior fiscal year. Research and development costs increased by $12,313, or 10.3%, to $132,095 for fiscal year 2023, as compared to $119,782 for fiscal year 2022. Research and development costs as a percentage of net sales decreased to 4.5% for fiscal year 2023, as compared to 5.0% for fiscal year 2022.
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. Restructuring activities decreased by $8,428, to a benefit of $3,420 for fiscal year 2022, compared to charges of $5,008 for fiscal year 2021.
Our research and development activities extend across both our operating segments and almost all of our customer base, and we anticipate ongoing variability in research and development costs due to the timing of customer business needs on current and future programs.
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.
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.
Dollar and number of share amounts contained in this discussion and elsewhere in this Annual Report on Form 10-K are in thousands, except per share amounts.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis should be read together with the Consolidated Financial Statements and Notes included in this report. Dollar and number of share amounts contained in this discussion and elsewhere in this Annual Report on Form 10-K are in thousands, except per share amounts.
GAAP) $ 171,698 $ 208,649 Income tax expense 28,200 37,150 Interest expense 34,545 34,282 Interest income (1,814 ) (1,495 ) Amortization of intangible assets 37,609 41,893 Depreciation expense 83,019 87,631 EBITDA (Non-U.S. GAAP) 353,257 408,110 Non-U.S.
GAAP) $ 232,368 $ 171,698 Income tax expense 43,400 28,200 Interest expense 47,898 34,545 Interest income (2,751 ) (1,814 ) Amortization of intangible assets 37,589 37,609 Depreciation expense 82,154 83,019 EBITDA (Non-U.S. GAAP) 440,658 353,257 Non-U.S.
We expect commercial aircraft production to continue to increase and to exceed pre-COVID production levels in the coming years. Aircraft operators are taking delivery of next generation aircraft models to meet the growing demand for passenger air travel, the need to replace aging aircraft, and the demand for more fuel efficient and lower emission aircraft.
Aircraft 23 operators are taking delivery of next generation aircraft models to meet the growing demand for passenger air travel, the need to replace aging aircraft, and the demand for more fuel efficient and lower emission aircraft. The delivery of the newest generation of aircraft is expected to favor our product offerings because we have more content on those aircraft.
Our innovative motion, fluid, combustion and electrical energy control systems help our customers offer more cost-effective, cleaner, and more reliable equipment. Management’s discussion and analysis should be read together with the Consolidated Financial Statements and Notes included in this report.
Our innovative motion, fluid, combustion, and electrical energy control systems help our customers offer more cost-effective, cleaner, and more reliable equipment.
We expect that cash generated from our operating activities, together with borrowings under our revolving credit facility and other borrowing capacity, will be sufficient to fund our continuing operating needs for the next 12 months and the foreseeable future. 30 Our aggregate cash and cash equivalents were $107,844 at September 30, 2022 and $448,462 at September 30, 2021 , and our working capital was $7 72,856 at September 30, 2022 and $1,098,466 at September 30, 2021 .
We have also issued debt to supplement our cash needs, repay our other indebtedness, or finance our acquisitions. We expect that cash generated from our operating activities, together with borrowings under our revolving credit facility and other borrowing capacity, will be sufficient to fund our continuing operating needs for the next 12 months and the foreseeable future.
The net decrease in Industrial segment earnings for fiscal year 2022 was due to the following: Earnings for the period ended September 30, 2021 $ 108,672 Sales volume 29,229 Price, sales mix and productivity (24,222 ) Manufacturing costs related to hiring and training (19,400 ) Effects of changes in foreign currency rates (8,809 ) Annual variable incentive compensation costs (3,762 ) Other, net 1,080 Earnings for the period ended September 30, 2022 $ 82,788 The decrease in Industrial segment earnings for fiscal year 2022 as compared to fiscal year 2021 was primarily due to net inflationary impacts, increases in manufacturing costs related to global supply chain disruptions and inefficiencies related to hiring and training, as well as unfavorable foreign currency impacts.
The net increase in Industrial segment earnings for fiscal year 2023 was due to the following: Earnings for the period ended September 30, 2022 $ 82,788 Sales volume 110,970 Price, sales mix, inflation, and productivity 29,918 Manufacturing costs related to hiring and training (19,000 ) Effects of changes in foreign currency rates (6,808 ) Annual variable incentive compensation costs (26,503 ) Other, net (9,743 ) Earnings for the period ended September 30, 2023 $ 161,622 Industrial segment earnings as a percentage of segment net sales were 14.1% for fiscal year 2023, compared to 9.6% for fiscal year 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk 39 Item 8. Financial Statements and Supplementary Data 40 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 94 Item 9A. Controls and Procedures 94 Item 9B. Other Information 95
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Item 7A. Quantitative and Qualitat ive 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.
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Foreign Currency Exchange Rate Risk, Interest Rate Risk, and Related Hedging Activities We are impacted by changes in foreign currency exchange rates when we sell product in currencies different from the currency in which product and manufacturing costs were incurred. The functional currencies and our purchasing and sales activities primarily include USD, EUR, RMB, JPY, and GBP.
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We may also be impacted by changes in the relative buying power of our customers, which may impact sales volumes either positively or negatively. As these currencies fluctuate against each other, and other currencies, we are exposed to foreign currency exchange rate risk on sales, purchasing transactions, and labor.
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Foreign currency exchange rate risk is reduced through the maintenance of local production facilities in the markets we serve, which we believe creates a natural hedge to our foreign currency exchange rate exposure.
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The percentages of our net sales denominated in a currency other than the USD were as follows: For the Year Ended September 30, 2023 2022 Functional currency: EUR 14.8 % 15.7 % RMB 6.3 % 3.4 % JPY 2.4 % 2.9 % GBP 2.1 % 1.7 % All other foreign currencies 2.9 % 1.9 % 28.5 % 25.6 % Currency exchange rates vary daily and often one currency strengthens against the USD while another currency weakens.
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Because of the complex interrelationship of our worldwide supply chains and distribution channels, it is difficult to quantify the impact of a particular change in exchange rates. We use derivative instruments as risk management tools that involve complexity and are not used for trading or speculative purposes.
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From time to time, we will enter into a foreign currency exchange rate contract to hedge against changes in foreign currency exchange rates on liabilities expected to be settled at a future date. Market risk arises from the potential adverse effects on the value of derivative instruments that result from a change in foreign currency exchange rates.
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We minimize this market risk by establishing and monitoring parameters that limit the types of, and degree to which we enter into, derivative instruments. We enter into derivative instruments for risk management purposes only. We do not enter into or issue derivatives for trading or speculative purposes.
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As of September 30, 2023 and 2022, we had no open foreign currency exchange rate contracts and all previous exchange rate derivative instruments were settled or terminated.
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For more information on derivative instruments, see Note 8, Derivative instruments and hedging activities , in the Notes to the Consolidated Financial Statements in “Item 8 – Financial Statements and Supplementary Data.” Our reported financial results of operations, including the reported value of our assets and liabilities, are also impacted by changes in foreign currency exchange rates.
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The assets and liabilities of substantially all of our subsidiaries outside the United States are translated at period end rates of exchange for each reporting period. Earnings and cash flow statements are translated at weighted-average rates of exchange.
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Although these translation changes have no immediate cash impact, the translation changes may impact future borrowing capacity, debt covenants, and the overall value of our net assets.
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In addition, we also have assets and liabilities, specifically accounts receivable, accounts payable, and current inter-company receivables and payables, whose carrying amounts approximate their fair value, which are denominated in currencies other than their relevant functional currencies.
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Foreign currency exchange rate risk is mitigated through several means, including the invoicing of customers in the same currency as the source of the products, and the prompt settlement of inter-company balances utilizing a global netting system. 38

Other WWD 10-K year-over-year comparisons