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What changed in Woodward, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Woodward, Inc.'s 2023 and 2024 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 2024 report.

+223 added−233 removedSource: 10-K (2024-11-26) vs 10-K (2023-11-17)

Top changes in Woodward, Inc.'s 2024 10-K

223 paragraphs added · 233 removed · 190 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

37 edited+6 added−3 removed52 unchanged
Biggest changeCompliance with these existing laws has not had a material impact on our capital expenditures, earnings or global competitive position. We use hazardous materials and/or regulated materials in our manufacturing operations. We also own, operate, have acquired, and may in the future acquire facilities that were formerly owned and operated by others that used such materials.
Biggest changeEnvironmental 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. Compliance with these existing laws has not had a material impact on our capital expenditures, earnings or global competitive position. We use hazardous materials and/or regulated materials in our manufacturing operations.
We also developed actuation system, combustion system, and oil system components for Pratt & Whitney’s Geared Turbo Fan (“GTF” or “PurePower”) engine program. We continue to support GE and CFM for improvements to the LEAP fuel system, and Collins Aerospace and Pratt & Whitney for improvements to the PurePower engine programs.
We also developed actuation system, combustion system, and oil system components for Pratt & Whitney’s Geared Turbo Fan (“GTF” or “PurePower”) engine program. We continue to support GE Aerospace and CFM for improvements to the LEAP fuel system, and Collins Aerospace and Pratt & Whitney for improvements to the PurePower engine programs.
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.
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 3 in the aerospace and defense industry.
Further, we believe our close collaboration with our customers during preliminary design stages allows us to provide products that deliver the component and system 5 performance necessary to bring greater value to our customers. This preliminary work may include opportunities to test new products in order to validate concepts and demonstrate performance in challenging environments.
Further, we believe our close collaboration with our customers during preliminary design stages allows us to provide products that deliver the component and system performance necessary to bring greater value to our customers. This preliminary work may include opportunities to test new products in order to validate concepts and demonstrate performance in challenging environments.
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.
We continually strive to harness the 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.
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.
Our competitors in aerospace include divisions of Eaton, Honeywell, Moog, Parker Hannifin, and RTX Corporation. In addition, some of our OEM 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.
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.
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 industrial reciprocating engines fueled by bio-diesel and dual-fuel; • 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.
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.
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 6 Tenure of all employees averages ten years, reflective of our positive workplace culture.
OEM customers with internal capabilities for similar products include Caterpillar, Cummins, GE, Rolls-Royce Power Systems, Wärtsilä, and Weichai Westport. We believe we are a market leader in providing our customers advanced technology and superior product performance at a competitive price. We focus on developing and maintaining close relationships with our OEM customers’ engineering teams.
OEM customers with internal capabilities for similar products include Caterpillar, Cummins, GE Vernova, Rolls-Royce Power Systems, Wärtsilä, and Weichai Power. We believe we are a market leader in providing our customers advanced technology and superior product performance at a competitive price. We focus on developing and maintaining close relationships with our OEM customers’ engineering teams.
We believe GE, RTX Corporation, and our other significant customers are creditworthy and will be able to satisfy their credit obligations to us.
We believe RTX Corporation, and our other significant customers are creditworthy and will be able to satisfy their credit obligations to us.
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 also have significant content on defense applications such as Blackhawk and Apache helicopters, F-35 and F-15 fighter jets, and smart defense 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.
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.
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, Boeing 787, Bell 429, and Bombardier Global 7500.
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.
The equipment on which our products are found is used to generate power; to extract, distribute, and refine energy sources; to mine other commodities; and to convert fuel to work in transportation and freight (both marine and locomotives), mobile, and industrial equipment applications.
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.
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. 7 As of September 30, 2024, our Consolidated Balance Sheets includes $440,419 of net intangible assets.
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 also have partnered with our customers in the past, such as our strategic joint venture with one of our largest customers, GE which, following the split of GE is acting now through GE Aerospace. We believe our products offer high levels of field reliability, which provides end users with an advantage in life-cycle cost.
Our products are used on industrial gas turbines (including heavy frame, aeroderivative, and small industrial gas turbines), steam turbines, compressors, and reciprocating engines (including low speed, medium speed, and high-speed engines, that operate on various fuels, including natural gas, diesel, heavy fuel oil and dual-fuel).
Our products are used on industrial gas turbines (including heavy frame, aeroderivative, and small industrial gas turbines), steam turbines, compressors, and reciprocating engines (including low speed, medium speed, and high-speed engines, that operate on various fuels, including natural gas, diesel, heavy fuel oil, and new lower carbon alternative fuels in both single and dual-fuel applications).
Government contracts; • impose manufacturing specifications and other quality standards that may be more restrictive than for non-government business activities; and • restrict the use and dissemination of information classified for national security purposes due to the regulations of the U.S.
Government contracts; 4 • impose manufacturing specifications and other quality standards that may be more restrictive than for non-government business activities; and • restrict the use and dissemination of information classified for national security purposes due to the regulations of the U.S. Government and foreign governments pertaining to the export of certain products and technical data.
We carry certain finished goods and component parts in inventory to meet these rapid delivery requirements of our customers. Research and Development We finance our research and development activities primarily with our own funds. Our research and development costs include basic research, applied research, component and systems development, and concept formulation studies.
We carry certain finished goods and component parts in inventory to meet these rapid delivery requirements of our customers. Research and Development We finance our research and development activities primarily with our own funds.
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.
Our remaining performance obligations by segment, excluding material rights, is shown in the table below: October 31, 2024 Percent Expected to be satisfied by September 30, 2025 October 31, 2023 Percent Expected to be satisfied by September 30, 2024 Aerospace $ 2,240,597 55 % $ 1,716,613 63 % Industrial 662,750 85 % 773,240 93 % $ 2,903,347 62 % $ 2,489,853 73 % 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.
Revenues from our Industrial segment are generated primarily by sales to OEMs and by providing aftermarket products and other related services to our OEM customers. Our Industrial segment also sells products through an independent network of distributors and, in some cases, directly to end users.
Revenues from our Industrial segment are generated primarily by sales to OEMs and by providing aftermarket products and other related services to our OEM customers. Our Industrial segment also sells products through an independent network of distributors and authorized system integrators, repairs and overhaul facilities, and directly to end users around the globe.
Seasonality We believe our sales, in total or in either reportable segment, are not subject to significant seasonal variation. However, our sales have generally been lower in the first quarter of our fiscal year as compared to the immediately preceding quarter due to fewer working days resulting from the observance of various holidays and scheduled plant shutdowns for annual maintenance.
However, our sales have generally been lower in the first quarter of our fiscal year as compared to the immediately preceding quarter due to fewer working days resulting from the observance of various holidays and scheduled plant shutdowns for annual maintenance.
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.
RTX Corporation was our largest customer during the fiscal year ended September 30, 2024 and accounted for approximately 9% of our consolidated net sales and 10% in the fiscal year ended September 30, 2023. Accounts receivable from RTX Corporation represented approximately 6% of accounts receivable at September 30, 2024 and 4% at September 30, 2023.
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.
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, 2024 2023 Aerospace RTX Corporation, The Boeing Company RTX Corporation, GE, The Boeing Company Industrial Weichai Power, Rolls-Royce PLC Rolls-Royce PLC, Caterpillar Inc., Weichai Power On April 2, 2024, The General Electric Company ("GE") split into two separate companies, GE Aerospace and GE Vernova.
In addition, we may be exposed to other environmental costs including participation in superfund sites or other similar jurisdictional initiatives. When it is reasonably probable that we will incur remediation costs at a site, and those costs can be reasonably estimated, we accrue a liability for such future costs with a related charge against our earnings.
When it is reasonably probable that we will incur remediation costs at a site, and those costs can be reasonably estimated, we accrue a liability for such future costs with a related charge against our earnings.
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.
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: X.com/@woodward_inc • Facebook: Facebook.com/woodwardinc • Instagram: Instagram.com/@woodward_inc • LinkedIn: Linkedin.com/company/woodwardinc • YouTube: YouTube.com/user/woodwardinc All links to websites are intended to be inactive.
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.
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. The MPC Employees Representative Union contract, which covered approximately 800 members as of October 31, 2024, expires September 30, 2025.
Our executive officers each have severance and change-in-control agreements which have been filed with the SEC. Outside of the United States, we enter into employment contracts and agreements in those countries in which such relationships are mandatory or customary, including coordination through local works’ councils.
Outside of the United States, we enter into employment contracts and agreements in those countries in which such relationships are mandatory or customary, including coordination through local works’ councils. The provisions of these agreements correspond in each case with the required or customary terms in the subject jurisdiction.
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.
Sales to our five largest customers represented approximately 35% of our consolidated net sales for the fiscal year ended September 30, 2024 and 40% in fiscal year ended September 30, 2023. We had no customers who accounted for approximately 10% or more of our consolidated net sales for the fiscal year ended September 30, 2024.
We collaborate closely with our customers as they develop their technology plans, which leads to new product concepts.
Our research and development costs include basic research, applied research, component and systems development, and concept formulation studies. 5 We collaborate closely with our customers as they develop their technology plans, which leads to new product concepts.
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.
Almost all of our other members in the United States were at-will members as of October 31, 2024, and therefore, not subject to any type of employment contract or agreement. Our executive officers each have severance and change-in-control agreements which have been filed with the SEC.
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.
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, 2024.
In addition to owning a large portfolio of intellectual property, we also license intellectual property to and from third parties. For example, the U.S.
Patents, Intellectual Property, and Licensing We own numerous patents and other intellectual property, and have licenses for the use of patents and other intellectual property owned by others, which relate to our products and their manufacture. In addition to owning a large portfolio of intellectual property, we also license intellectual property to and from third parties. For example, the U.S.
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.
Sales made directly to U.S. Government agencies and entities, or indirectly through third party manufacturers utilizing our parts and subassemblies, collectively represented 17% of our sales for both fiscal year 2024 and fiscal year 2023. Seasonality We believe our sales, in total or in either reportable segment, are not subject to significant seasonal variation.
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.
As of October 31, 2024, we employed approximately 9,300 full-time members of which approximately 2,880 were located outside of the United States, with the majority of such members located in Germany, Poland, and China. In the United States, approximately 13% of our total full-time workforce were union members as of October 31, 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.
The Local Lodge 727-N International Association of Machinists and Aerospace Workers agreement, which covers approximately 400 members as of October 31, 2024, expires April 23, 2027. In Germany, approximately 13% of our total full-time workforce were union members as of October 31, 2024, all of whom work for our Industrial segment.
We believe the risk that a significant release of regulated materials has occurred in the past or will occur in the future cannot be completely eliminated or prevented. From time to time, we engage in environmental remediation activities, generally in coordination with other companies, pursuant to federal and state laws.
We also own, operate, have acquired, and may in the future acquire facilities that were formerly owned and operated by others that used such materials. We believe the risk that a significant release of regulated materials has occurred in the past or will occur in the future cannot be completely eliminated or prevented.
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.
Our Woodward L’Orange members are part of the IG Metall union in Germany. IG Metall covered approximately 1,200 members as of October 31, 2024. We believe we have good, collaborative relationships with our union members and the representative unions.
Removed
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.
Added
Customers Our customers include leading original equipment manufacturers and end users of their products that require technological solutions to meet their needs for performance, efficiency, reliability, and reduced cost of operations.
Removed
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.
Added
During fiscal year 2024, we engaged in transactions with GE prior to its split, and subsequently engaged in transactions with both GE Aerospace and GE Vernova. Sales listed with "GE" represent the legacy General Electric Company, and any sales following the split will be listed as GE Aerospace and GE Vernova as applicable.
Removed
The provisions of these agreements correspond in each case with the required or customary terms in the subject jurisdiction. Patents, Intellectual Property, and Licensing We own numerous patents and other intellectual property, and have licenses for the use of patents and other intellectual property owned by others, which relate to our products and their manufacture.
Added
From time to time, we engage in environmental remediation activities, generally in coordination with other companies, pursuant to federal and state laws. In addition, we may be exposed to other environmental costs including participation in superfund sites or other similar jurisdictional initiatives.
Added
In 2023, we released our fourth sustainability report, where we continue to build upon our commitments to sustainability in areas of environmental stewardship, social responsibility, and corporate governance. We apply a systematic approach to identifying, evaluating, and managing risks across our operations, with the goal to be a supplier, community partner, and employer of choice.
Added
The full report can be found on the Sustainability at Woodward section of our website.
Added
None of the information contained on our website, or the above-mentioned social media sites, is incorporated into this document by reference. 8

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

37 edited+2 added−3 removed134 unchanged
Biggest changeIn addition, we have, among other things, endeavored to align our practices and procedures with recognized IT security frameworks and recommended practices, and the corroboration with local and federal agencies. Although we have implemented measures to prevent, detect, and respond to malicious activity, we cannot guarantee that such measures will be effective or sufficient to prevent a cyberattack.
Biggest changeAlthough we have implemented measures to prevent, detect, and respond to malicious activity, we cannot guarantee that such measures will be effective or sufficient to prevent a cyberattack or other means of effecting cybersecurity breaches or 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.
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 15 incidents.
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.
If any of our IT infrastructure or systems are damaged, disrupted, or are otherwise 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.
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.
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 17 operations, and cash flows.
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.
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 Aerospace competitors on similar product applications both within and outside the specific markets the JV operates.
Defense budgets tend to rise when perceived threats to national security increase the level of concern over the country’s safety, but we can provide no assurance that an increase in defense spending will be allocated to programs that would benefit our business. Decreases in U.S.
Defense budgets tend to rise when perceived threats to national security increase the level of concern over the country’s safety, but we can provide no assurance that an increase in defense spending will be allocated to programs that 10 would benefit our business. Decreases in 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.
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 the U.S.
Any actual or perceived failure to comply with laws, regulations, or contractual or other actual or asserted obligations to which we are or are alleged to be subject relating to privacy, data protection, or cybersecurity could result in claims, 16 litigation, and regulatory investigations and other proceedings, as well as damage to our reputation.
Any actual or perceived failure to comply with laws, regulations, or contractual or other actual or asserted obligations to which we are or are alleged to be subject relating to privacy, data protection, or cybersecurity could result in claims, litigation, and regulatory investigations and other proceedings, as well as damage to our reputation.
These could result in substantial costs, diversion of resources, fines, penalties, and other damages and liabilities, and harm to our customer relationships, our market position, and our ability to attract new customer engagements. Any of these could harm our business, financial condition, results of operations, and cash flows, potentially in a material manner.
These could result in substantial costs, diversion of resources, fines, penalties, and other damages and liabilities, and harm to our customer 16 relationships, our market position, and our ability to attract new customer engagements. Any of these could harm our business, financial condition, results of operations, and cash flows, potentially in a material manner.
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.
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.
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.
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.
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.
The level of U.S. defense spending is 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.
Data privacy, data protection, and information security may require significant resources and present certain risks. We collect, store, and otherwise process certain confidential or sensitive data, including personal data and other information that is subject to laws, regulations, customer-imposed controls, or other actual or asserted obligations.
Data privacy, data protection, and cybersecurity may require significant resources and present certain risks. We collect, store, and otherwise process certain confidential or sensitive data, including personal data and other information that is subject to laws, regulations, customer-imposed controls, or other actual or asserted obligations.
Our 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.
Our 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 IT and computerized systems to communicate and operate effectively.
Any such security breach or incident or the perception that it has occurred, also may result in diminished competitive advantages through reputational damage and increased operational costs, regulatory investigations, proceedings, and orders, litigation or other demands, indemnity obligations, damages for contract breach, fines or penalties relating to actual or alleged violation of applicable laws, regulations, or contractual obligations, incentives offered to customers or other business partners in an effort to maintain business relationships, and other costs and liabilities.
Any such security breach or incident or the perception that it has occurred, also may result reputational damage and increased operational costs, regulatory investigations, proceedings, and orders, litigation or other demands, indemnity obligations, damages for contract breach, fines or penalties relating to actual or alleged violation of applicable laws, regulations, or contractual obligations, incentives offered to customers or other business partners in an effort to maintain business relationships, and other costs and liabilities.
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.
Natural disasters, public health concerns and pandemics, war, political unrest, terrorist activity, equipment failures, power outages, threats to physical security of our facilities, assets or people, or the security of our information technology ("IT") infrastructure and 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.
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.
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.
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.
In fiscal year 2024, approximately 49% 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.
Any inadequacies in our systems and policies could result in withholds on billed receivables, penalties, and reduced future business.
Any inadequacies in our systems and policies could result in withholdings on billed receivables, penalties, and reduced future business.
From time to time, we have implemented restructuring and other actions designed to reduce structural costs, improve operational efficiency, and position the Company for long-term profitable growth. Historically, our restructuring activities have included workforce management and other restructuring charges related to acquired businesses.
Our restructuring activities may reduce our profitability, and may not have the intended effects. From time to time, we have implemented restructuring and other actions designed to reduce structural costs, improve operational efficiency, and position the Company for long-term profitable growth. Historically, our restructuring activities have included workforce management and other restructuring charges related to acquired businesses.
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.
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. Item 1B. Unresolve d Staff Comments None.
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.
Government agencies and entities, or indirectly through third party manufacturers, such as tier-one prime contractors, utilizing our parts and subassemblies, accounted for approximately 17% of total sales in both fiscal year 2024 and fiscal year 2023. The U.S.
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.
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, 2024, we had $806,643 of goodwill, representing approximately 18% of our total assets.
The laws, regulations, standards, and other actual and asserted obligations relating to privacy and information security to which we may be subject, in the U.S. and globally, are evolving.
The laws, regulations, standards, and other actual and asserted obligations relating to privacy, data protection, and cybersecurity to which we may be subject, in the U.S. and globally, are evolving.
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”).
Our strategic joint venture with GE Aerospace may make it more difficult to secure long-term sales in certain aerospace markets. In January 2016, Woodward and GE, consummated the formation of a strategic joint venture (the “JV”) and since April 2024, GE has been acting through GE Aerospace.
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.
For the fiscal year ended September 30, 2024, sales to our largest 5 customers represented approximately 35% of our consolidated net sales and approximately 31% of our accounts receivable.
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.
In addition, 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, or we may remain liable for certain matters.
Due to cost reduction measures or changes in the industries and markets in which we compete, we may decide to implement restructuring or alignment activities in the future, such as closing plants, moving production lines, or making additions, reductions, or other changes to our management or workforce.
Further, we may decide to implement restructuring or alignment activities in the future, which may involve, among other things, closing plants, moving production lines, or making additions, reductions, or other changes to our management or workforce.
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.
As of September 30, 2024, our total debt was $872,470, including $475,000 in unsecured notes denominated in U.S. dollars issued in private placements and $178,624 of unsecured notes denominated in Euros issued in private placements.
Nonperformance by those divested businesses could affect our future financial results through additional payment obligations, higher costs or asset write-downs, any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows. Our restructuring activities may increase our expenses and reduce our profitability, and may not have the intended effects.
We are not likely to have the same level of control over the divested business, and the performance of those divested businesses could affect our future financial results through additional payment obligations, higher costs or asset write-downs, any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Such events could result in fines, penalties, litigation or governmental investigations and proceedings, diminished competitive advantages through reputational damages, and increased operational costs, any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Such impacts could result in diminished competitive advantages and could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Our existing revolving credit facility and note purchase agreements impose financial covenants on us and our subsidiaries that require us to maintain certain leverage ratios and minimum levels of consolidated net worth.
Further, we may require additional capital to repay our debt obligations when they mature, and such capital may not be available on terms acceptable to us or at all. 11 Our existing revolving credit facility and note purchase agreements impose financial covenants on us and our subsidiaries that require us to maintain certain leverage ratios and minimum levels of consolidated net worth.
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.
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.
As a result, we are subject to a substantial number of costly regulations and we must conform our operations to applicable regulatory requirements in all countries in which we operate.
We also own, operate, have acquired, and may in the future acquire facilities that were formerly owned and operated by others that used such materials. We are subject to a substantial number of costly regulations and we must conform our operations to applicable regulatory requirements in all countries in which we operate.
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.
Further increases in labor costs could significantly reduce our profit margins if we are unable to flow such costs through to our customers. Our operations and suppliers may be subject to physical and other risks that could disrupt our operations.
Nonetheless, our IT infrastructure, systems, networks, products, solutions, and services remain potentially vulnerable to numerous additional known or unknown threats.
In addition, we have, among other things, endeavored to align our practices and procedures with recognized IT security frameworks and select recommended practices, and through corroboration of our policies and procedures with local and federal agencies. Nonetheless, our IT infrastructure, systems, networks, products, solutions, and services remain potentially vulnerable to numerous additional known or unknown threats.
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.
The risk that a significant release of regulated materials has occurred in the past or will occur in the future cannot be completely eliminated or prevented. Accordingly, we cannot be certain that we will not incur additional material costs or liabilities as a result of complying with these requirements.
Removed
Further, we may require additional capital to repay our debt obligations when they mature, and such capital may not be available on terms acceptable to us or at all.
Added
Additionally, if GE 9 Aerospace 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.
Removed
Our operations and suppliers may be subject to physical and other risks that could disrupt our operations.
Added
We may experience difficulty separating out portions of, or entire, businesses, incur loss of revenue or experience negative impact on margins, or we may not achieve the desired strategic and financial benefits.
Removed
We also own, operate, have acquired, and may in the future acquire facilities that were formerly owned and operated by others that used such materials. The risk that a significant release of regulated materials has occurred in the past or will occur in the future cannot be completely eliminated or prevented.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWhile 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
Biggest changeWhile 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 our liquidity, financial condition, or results of operations. Item 4. Mine Saf ety Disclosures Not applicable. 21 PART II
Item 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.
Item 3. Leg al Proceedings We are 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.
Woodward accrues for known individual matters using estimates of the most likely amount of loss where it believes that it is probable the matter will result in a loss when ultimately resolved and such loss is reasonably estimable.
We accrue for known individual matters using estimates of the most likely amount of loss where it believes that it is probable the matter will result in a loss when ultimately resolved and such loss is reasonably estimable.

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 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”).
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, 2024 - July 31, 2024 (2) 177 $ 155.99 — $ 295,189 August 1, 2024 - August 31, 2024 (2) 383,734 154.48 383,639 235,927 September 1, 2024 - September 30, 2024 (2) 161,157 165.98 161,139 209,181 (1) In January 2024, the Board of Directors terminated the prior share repurchase authorization, which was nearing expiration, and concurrently authorized a new program for the repurchase of up to $600,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated transactions over a three-year period ending in January 2027 (the “2024 Authorization”).
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.
In addition, 76 shares of common stock were acquired in August 2024 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.
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.
The graph shows total stockholder return assuming an investment of $100 (with reinvestment of all dividends) was made on September 30, 2014 in our common stock and in each of the two indexes and tracks relative performance through September 30, 2024.
(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.
(2) Under a trust established for the purposes of administering the Woodward Executive Benefit Plan (the "Executive Benefit Plan Trust"), 177 shares of common stock were acquired in July 2024, and 18 shares of common stock were acquired in August and September 2024, on the open market related to the deferral of compensation by certain eligible members of 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 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.
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 25, 2024, there were approximately 600 holders of record.
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.
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. 9/14 9/15 9/16 9/17 9/18 9/19 9/20 9/21 9/22 9/23 9/24 Woodward, Inc. $ 100.00 $ 86.13 $ 133.33 $ 166.82 $ 175.06 $ 234.96 $ 175.77 $ 249.43 $ 178.04 $ 277.81 $ 385.92 S&P Midcap 400 100.00 101.40 116.94 137.42 156.95 153.04 149.73 215.13 182.33 210.62 267.03 S&P Industrials 100.00 96.35 115.37 141.16 156.94 159.12 161.23 207.92 179.08 223.11 303.18 The stock price performance included in this graph is not necessarily indicative of future stock price performance 22 Sales of Unregistered Securities None.

Item 7. Management's Discussion & Analysis

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

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Biggest changeFurther, nonsegment expenses for fiscal year 2023 included a specific charge for excess and obsolete inventory of $11,995, a product rationalization charge of $10,504, a restructuring charge of $5,172, a non-recurring charge related to customer collections of $4,997, and certain non-restructuring separation costs of $2,208.
Biggest changeThe decrease in nonsegment expenses is primarily due to significant costs that occurred in fiscal year 2023 that did not reoccur in fiscal year 2024. 30 The significant costs that impacted nonsegment expense are as follows: Year Ended September 30, 2024 2023 Nonsegment expenses $ (119,745 ) $ (130,811 ) Non-recurring gain related to a previous acquisition (4,803 ) — Business development activities 5,902 — Non-recurring charge related to a previous acquisition 4,378 — Certain non-restructuring separation costs 2,666 2,208 Specific charge for excess and obsolete inventory — 11,995 Product rationalization — 10,504 Restructuring charges — 5,172 Non-recurring charge related to customer collections — 4,997 Nonsegment expenses excluding infrequent significant charges $ (111,602 ) $ (95,935 ) Excluding these charges in the above table, nonsegment expenses increased $15,667 in fiscal year 2024 as compared to the prior fiscal year, primarily due to increased annual variable incentive compensation costs.
The product rationalization adjustment pertains to a non-recurring write-off of inventory and assets related to the elimination of certain product lines. The specific charge for excess and obsolete inventory pertains to a non-recurring process change that resulted in the identification and write down of certain excess inventory unrelated to product rationalization.
The product rationalization adjustment pertains to a non-recurring write-off of inventory and assets related to the elimination of certain product lines. The specific charge for excess and obsolete inventory pertains to a non-recurring process change that resulted in the identification and write down of certain excess inventory unrelated to product rationalization.
Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Inventory Inventories are valued at the lower of cost or net realizable value. Inventory cost is determined using methods that approximate the first-in, first-out basis. We include product costs, labor, and related fixed and variable overhead in the cost of inventories.
Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Inventories Inventories are valued at the lower of cost or net realizable value. Inventory cost is determined using methods that approximate the first-in, first-out basis. We include product costs, labor, and related fixed and variable overhead in the cost of inventories.
We believe free cash flow is a useful measure for investors because it portrays our ability to grow organically and generate cash from our businesses for purposes such as paying interest on our indebtedness, repaying maturing debt, funding business acquisitions, investing in research and development, purchasing our common stock, and paying dividends.
We believe free cash flow is a useful measure for investors because it portrays our ability to grow organically and generate cash from our businesses for purposes such as paying interest on our indebtedness, repaying maturing debt, funding business acquisitions, investing in research and 34 development, purchasing our common stock, and paying dividends.
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.
Management uses adjusted net earnings to evaluate the Company’s performance excluding these infrequent or unusual period expenses that are not necessarily indicative of the Company’s operating performance for the period. Management defines adjusted earnings per share as adjusted net earnings, as defined above, divided by the weighted-average number of diluted shares of common stock outstanding for the period.
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
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.
Global conflicts and growing international demand for various other military programs continue to drive demand for operations of defense aircraft, including fighter jets, transports and both utility and attack rotorcraft, which are all supported by our products and systems.
Global conflicts and growing international demand for various other 25 military programs continue to drive demand for operations of defense aircraft, including fighter jets, transports and both utility and attack rotorcraft, which are all supported by our products and systems.
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.
The results of our annual goodwill impairment test performed as of July 31, 2024, 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.
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.
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 we continue to be well positioned to meet these market needs on the existing and next generation turbines.
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.
OVERVIEW We enhance 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.
The increase in cost of goods sold on an absolute basis in fiscal year 2023 compared to the prior fiscal year was primarily due to higher sales volume and net inflationary impacts on material and labor costs.
The increase in cost of goods sold on an absolute basis in fiscal year 2024 compared to the prior fiscal year was primarily due to higher sales volume and net inflationary impacts on material and labor costs.
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 the annual impairment test performed as of July 31, 2024 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.
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.
In addition, our products have been selected for new aerospace platforms and our content has increased across existing platforms, which drives increased aftermarket sales. With the entry into service of 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.
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).
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 between twenty and twenty-five years).
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.
During the fourth quarter, we completed the annual impairment test, for the fiscal year ended September 30, 2024, of the Woodward L’Orange trade name intangible asset as of July 31, 2024.
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.
The decrease in research and development costs as a percentage of net sales for fiscal year 2024 as compared to the prior fiscal year is primarily due to net sales increases in fiscal year 2024 compared to fiscal year 2023.
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.
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. 36 During the fourth quarter, we completed our annual goodwill impairment test as of July 31, 2024 for the fiscal year ended September 30, 2024.
If the carrying amount of the Woodward L’Orange trade name intangible asset exceeds its fair value, an impairment loss would be recognized to reduce the carrying amount to its fair value. Woodward has not recorded any impairment charges associated with the indefinitely lived intangible asset.
If the carrying amount of the Woodward L’Orange trade name intangible asset exceeds its fair value, an impairment loss would be recognized to reduce the carrying amount to its fair value. We have not recorded any impairment charges associated with the indefinitely lived intangible asset.
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.
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 also increased significantly during fiscal year 2024 due to increased defense budgets resulting in operations and maintenance upgrades.
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.
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. Smart defense programs for which we have sales include the Joint Direct Attack Munition (“JDAM”), Small Diameter Bomb (“SDB”), and AIM-9X smart defense systems.
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.
For a discussion of the 2023 Results of Operations, including a discussion of the financial results for the fiscal year ended September 30, 2023 compared to the fiscal year ended September 30, 2022, refer to Part I, Item 7 of our Form 10-K filed with the SEC on November 17, 2023.
Both commercial and defense marine customers continue to launch additional projects to support new programs or modernize fleets, including incorporating alternative fuels capability, which should drive expanded OEM and service opportunities, as multi-fuel engines contain greater Woodward content.
Both commercial and defense marine customers continue to launch additional projects to support new programs or modernize fleets, including incorporating alternative fuels capability, which should drive expanded OEM and service opportunities, as multi-fuel engines contain more of our content.
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.
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 $609,092 at September 30, 2024 and $517,843 at September 30, 2023.
There can be no assurance that these items will remain stable over time. Additionally, Woodward records through income tax expense all future excess tax benefits and tax deficiencies from stock options exercised.
There can be no assurance that these items will remain stable over time. Additionally, we record through income tax expense all future excess tax benefits and tax deficiencies from stock options exercised.
The increase in free cash flow and adjusted free cash flow for fiscal year 2023 as compared to the prior fiscal year was primarily due to increased earnings, partially offset by higher capital expenditures.
The increase in free cash flow for fiscal year 2024 as compared to the prior fiscal year was primarily due to increased earnings and improved working capital, partially offset by higher capital expenditures.
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.
However, in the past few years, aircraft retirements have lagged historical levels because passenger demand has outpaced deliveries of the newest generation aircraft, forcing airlines to keep older generation legacy aircraft 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.
Power Generation – The demand for power generation, which consists mainly of heavy frame, aero derivative, and steam industrial gas turbines, increased in fiscal year 2023 due to increased demand from power generation and process 24 industries, particularly in Asia, and more broadly in support of fixed generation capacity to backstop the growing renewable energy installed base.
Power Generation – The demand for power generation, which consists mainly of heavy frame, aero derivative, and small industrial gas turbines, increased in fiscal year 2024 due to increased demand from power generation and process industries, particularly in North America, the Middle East, Asia, and more broadly in support of fixed generation capacity to backstop the growing renewable energy installed base.
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.
At September 30, 2024, we had total outstanding debt of $872,470 consisting of various series of unsecured notes due between 2025 and 2033, and amounts borrowed under our revolving credit facility, and our finance leases.
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.
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.
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.
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.
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.
Income taxes were provided at an effective rate on earnings before income taxes of 17.8% for fiscal year 2024, compared to 15.7% for fiscal year 2023.
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.
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, 2024 2023 Net Earnings Earnings Per Share Net Earnings Earnings Per Share Net earnings (U.S. GAAP) $ 372,971 $ 6.01 $ 232,368 $ 3.78 Non-U.S.
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.
Revolving credit facility and short-term borrowing activity during the fiscal year ended September 30, 2024 were as follows: Maximum daily balance during the period $ 387,100 Average daily balance during the period $ 225,025 Weighted average interest rate on average daily balance 5.96 % We believe we were in compliance with all our debt covenants as of September 30, 2024.
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.
GAAP adjustments to EBIT and EBITDA, in each case adjusted to exclude, as applicable, (i) a non-recurring gain related to a previous acquisition, (ii) costs related to business development activities, (iii) a non-recurring charge related to a previous acquisition, (iv) certain non-restructuring separation costs, (v) a specific charge for excess and obsolete inventory, (vi) product rationalization, (vii) a non-recurring charge related to customer collections, and (viii) restructuring charges.
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.
GAAP financial measures Adjusted net earnings is defined by the Company as net earnings excluding, as applicable, (i) a non-recurring gain related to a previous acquisition, (ii) costs related to business development activities, (iii) a non-recurring charge related to 32 a previous acquisition, (iv) certain non-restructuring separation costs, (v) a specific charge for excess and obsolete inventory, (vi) product rationalization, (vii) a non-recurring charge related to customer collections, and (viii) restructuring charges.
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.
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 33 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.
Further, demand in the global marine market increased due to increased ship build rates and higher ship utilization, driving current and future aftermarket activity.
In global marine markets, demand in fiscal year 2024 increased due to increased ship build rates and higher ship utilization, driving current and future aftermarket activity.
Reviews for impairment of goodwill and other indefinitely lived intangible assets Goodwill At September 30, 2023, we had $791,468 of goodwill representing approximately 20% of our total assets.
Reviews for impairment of goodwill and other indefinitely lived intangible assets Goodwill At September 30, 2024, we had $806,643 of goodwill representing approximately 18% of our total assets.
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 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.
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.
At September 30, 2024, the carrying value of the Woodward L’Orange trade name intangible asset was $64,751, representing approximately 1% of our total assets.
GAAP adjustments, net of tax: Specific charge for excess and obsolete inventory 1 9,016 0.15 — — Product rationalization 2 7,896 0.13 — — Non-recurring charge related to customer collections 3 3,761 0.06 — — Certain non-restructuring separation costs 3 1,661 0.03 — — Restructuring activities 3,874 0.06 (2,565 ) (0.04 ) Non-recurring matter unrelated to the ongoing operations of the business 3 — — 2,454 0.04 Business development activities 3 — — 2,236 0.04 Total non-U.S.
GAAP adjustments, net of tax: Non-recurring gain related to a previous acquisition (3,433 ) (0.06 ) — — Business development activities 4,456 0.07 — — Non-recurring charge related to a previous acquisition 3,129 0.05 — — Certain non-restructuring separation costs 2,013 0.04 1,661 0.03 Specific charge for excess and obsolete inventory — — 9,016 0.15 Product rationalization — — 7,896 0.13 Non-recurring charge related to customer collections — — 3,761 0.06 Restructuring charges — — 3,874 0.06 Total non-U.S.
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.
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.
Note 1, Operations and summary of significant accounting policies, to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The estimates and assumptions described below are those that we consider to be most critical to an understanding of our financial statements because they involve significant judgments and uncertainties.
The estimates and assumptions described below are those that we consider to be most critical to an understanding of our financial statements because they involve significant judgments and uncertainties.
The increase in net cash provided by operating activities in fiscal year 2023 compared to fiscal year 2022 is primarily attributable to increased earnings, partially offset by working capital increases, and timing of tax payments. Net cash flows used in investing activities for fiscal year 2023 was $73,551, compared to $65,449 in fiscal year 2022.
The increase in net cash provided by operating activities in fiscal year 2024 compared to fiscal year 2023 is primarily attributable to increased earnings and improved working capital. Net cash flows used in investing activities for fiscal year 2024 was $89,217, compared to $73,551 in fiscal year 2023.
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.
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, smart defense, and other defense systems.
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, and free cash flow, are financial measures not prepared and presented in accordance with U.S. GAAP. However, we believe these non-U.S. GAAP financial measures provide additional information that enables readers to evaluate our business from the perspective of management.
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.
The increase in net cash flows used in financing activities in fiscal year 2024 compared to fiscal year 2023 was attributable to the increase in repurchases of common stock partially offset by a change in net debt borrowings as compared to payments.
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.
During fiscal year 2024, we made $390,819 of cash repurchases of common stock, compared to $126,380 of cash repurchases of common stock during fiscal year 2023. During fiscal year 2024, we had net debt borrowings in the amount of $141,183, compared to net debt payments in the amount of $67,579 in fiscal year 2023. Non-U.S.
GAAP adjustments: Specific charge for excess and obsolete inventory 1 11,995 — Product rationalization 2 10,504 — Non-recurring charge related to customer collections 3 4,997 — Certain non-restructuring separation costs 3 2,208 — Restructuring activities 5,172 (3,420 ) Non-recurring matter unrelated to the ongoing operations of the business 3 — 3,272 Business development activities 3 — 2,982 Total non-U.S.
GAAP adjustments: Non-recurring gain related to a previous acquisition (4,803 ) — Business development activities 5,902 — Non-recurring charge related to a previous acquisition 4,378 — Certain non-restructuring separation costs 2,666 2,208 Specific charge for excess and obsolete inventory — 11,995 Product rationalization — 10,504 Non-recurring charge related to customer collections — 4,997 Restructuring charges — 5,172 Total non-U.S.
GAAP adjustments: Specific charge for excess and obsolete inventory 1 11,995 — Product rationalization 2 10,504 — Non-recurring charge related to customer collections 3 4,997 — Certain non-restructuring separation costs 3 2,208 — Restructuring activities 5,172 (3,420 ) Non-recurring matter unrelated to the ongoing operations of the business 3 — 3,272 Business development activities 3 — 2,982 Total non-U.S.
GAAP adjustments: Non-recurring gain related to a previous acquisition (4,803 ) — Business development activities 5,902 — Non-recurring charge related to a previous acquisition 4,378 — Certain non-restructuring separation costs 2,666 2,208 Specific charge for excess and obsolete inventory — 11,995 Product rationalization — 10,504 Non-recurring charge related to customer collections — 4,997 Restructuring charges — 5,172 Total 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. GAAP Measures” in this Item 7 – Management’s Discussion and Analysis of Financial Conditions and Results of Operations.
We regularly review our estimates of variable consideration on the transaction price and recognize changes in estimates on a cumulative catch-up basis as if the most current estimate of the transaction price adjusted for variable consideration had been known as of the inception of the contract.
We regularly review our estimates of variable consideration on the transaction price and recognize changes in estimates on a cumulative catch-up basis as if the most current estimate of the transaction price adjusted for variable consideration had been known as of the inception of the contract. 35 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.
Segment net sales increased for fiscal year 2023 as compared to fiscal year 2022, primarily due to higher commercial OEM and aftermarket sales as well as price realization, partially offset by the reduced demand for guided weapons. Defense OEM sales decreased in fiscal year 2023 compared to prior fiscal year, primarily driven by the reduced demand for guided weapons.
Segment net sales increased for fiscal year 2024 as compared to fiscal year 2023 primarily due to price realization and increases in both commercial and defense aftermarket volumes due to higher aircraft utilization. Defense OEM sales increased in fiscal year 2024 compared to prior fiscal year, primarily driven by the increased demand for smart defense.
This creates unpredictable volatility in the effective tax rate because the additional expense or benefit recognized each quarter is based on the timing of the employee’s election to exercise any vested stock options outstanding, which is outside Woodward’s control, and the market price of Woodward’s shares at the time of exercise, which is subject to market volatility.
This creates unpredictable volatility in the effective tax rate because the additional expense or benefit recognized each quarter is based on the timing of the employee’s election to exercise any vested stock options outstanding, which is outside our control, and the market price of our shares at the time of exercise, which is subject to market volatility. 37 Our effective tax rates differ from the U.S. statutory rate primarily due to the tax impact of foreign operations, adjustments of valuation allowances, research tax credits, state taxes, and tax audit settlements.
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.
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.
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.
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.
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.
At September 30, 2024, we had additional borrowing availability of $775,136 under our revolving credit facility, net of outstanding letters of credit, and additional borrowing availability of $19,771 under various foreign credit facilities. 31 At September 30, 2024, we had $217,000 outstanding amount borrowed under our revolving credit facility.
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.
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.
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.
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.
We also continue to assess the environment and are executing multiple work streams to capture prices that better reflect the value we deliver. We are unable to predict the full extent to which macroeconomic factors will continue to adversely impact our business, including our operational performance, results of operations, cash flows, financial position, and the achievement of our strategic objectives.
We are unable to predict the full extent to which macroeconomic factors will continue to adversely impact our business, including our operational performance, results of operations, cash flows, financial position, and the achievement of our strategic objectives. Such uncertainty may affect our ability to accurately predict our future performance and forecast our financial results.
Our aggregate cash and cash equivalents were $137,447 at September 30, 2023 and $107,844 at September 30, 2022, and our working capital was $852,256 at September 30, 2023 and $772,856 at September 30, 2022. Of the cash and cash equivalents held at September 30, 2023, $132,069 was held by our foreign locations.
Our total cash and cash equivalents were $282,270 at September 30, 2024 and $137,447 at September 30, 2023, and our working capital was $820,101 at September 30, 2024 and $852,256 at September 30, 2023. Of the cash and cash equivalents held at September 30, 2024, $279,070 was held by our foreign locations.
Our innovative motion, fluid, combustion, and electrical energy control systems help our customers offer more cost-effective, cleaner, and more reliable equipment.
Our innovative motion, fluid, combustion, and electrical energy control systems help our customers offer more cost-effective, cleaner, and more reliable equipment. Global Business Conditions During fiscal year 2024, we saw significant sales growth and margin expansion.
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.
Selling, general and administrative expenses increased by $37,807, or 14.0%, to $307,499 for fiscal year 2024, compared to $269,692 for fiscal year 2023. Selling, general, and administrative expenses as a percentage of net sales were flat at 9.3% for fiscal year 2024 and fiscal year 2023.
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.
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.
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.
At September 30, 2024, we also had additional borrowing capacity of $19,771 under various foreign lines of credit and foreign overdraft facilities. 27 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, 2024 % of Net Sales 2023 % of Net Sales Net sales $ 3,324,249 100 % $ 2,914,566 100 % Costs and expenses: Cost of goods sold 2,447,770 73.6 2,236,983 76.8 Selling, general, and administrative expenses 307,499 9.3 269,692 9.3 Research and development costs 140,676 4.2 132,095 4.5 Restructuring charges — — 5,172 0.2 Interest expense 47,959 1.4 47,898 1.6 Interest income (6,458 ) (0.2 ) (2,751 ) (0.1 ) Other (income) expense, net (67,168 ) (2.0 ) (50,291 ) (1.7 ) Total costs and expenses 2,870,278 86.3 2,638,798 90.5 Earnings before income taxes 453,971 13.7 275,768 9.5 Income tax expense 81,000 2.4 43,400 1.5 Net earnings $ 372,971 11.2 $ 232,368 8.0 Other select financial data: September 30, 2024 September 30, 2023 Working capital $ 820,101 $ 852,256 Total debt 872,470 721,526 Total stockholders' equity 2,176,416 2,070,989 2024 RESULTS OF OPERATIONS 2024 Net Sales Compared to 2023 Consolidated net sales for fiscal year 2024 increased by $409,683, or 14.1%, compared to fiscal year 2023.
The increase in the effective tax rate for fiscal year 2023 compared to fiscal year 2022 is primarily attributable to projected future withholding taxes on unremitted earnings recorded in fiscal year 2023, 27 partially offset by a larger stock-based compensation tax benefit and larger favorable return to provision adjustments in fiscal year 2023.
The increase in the effective tax rate for fiscal year 2024 compared to fiscal year 2023 is primarily attributable to a smaller research and development credit, smaller net excess income tax benefit from stock-based compensation as a percent of current year earnings, fewer resolutions of tax items with taxing authorities, and increased return to provision items, partially offset by smaller current fiscal year projected future withholding taxes on unremitted earnings.
(3) Presented in the line item "Selling, general, and administrative" expenses in Woodward's Consolidated Statements of Earnings. 33 The use of these non-U.S. GAAP financial measures is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP.
GAAP adjustments 8,143 34,876 Adjusted EBITDA (Non-U.S. GAAP) $ 619,785 $ 475,534 The use of these non-U.S. GAAP financial measures is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP.
Segment Results The following table presents sales by segment: Year Ended September 30, 2023 2022 Net sales: Aerospace $ 1,768,103 60.7% $ 1,519,322 63.8% Industrial 1,146,463 39.3% 863,468 36.2% Consolidated net sales $ 2,914,566 100% $ 2,382,790 100% The following table presents earnings by segment and reconciles segment earnings to consolidated net earnings: Year Ended September 30, 2023 2022 Aerospace $ 290,104 $ 230,933 Industrial 161,622 82,788 Nonsegment expenses (130,811 ) (81,092 ) Interest expense, net (45,147 ) (32,731 ) Consolidated earnings before income taxes 275,768 199,898 Income tax expense 43,400 28,200 Consolidated net earnings $ 232,368 $ 171,698 The following table presents segment earnings as a percent of segment net sales: Year Ended September 30, 2023 2022 Aerospace 16.4% 15.2% Industrial 14.1% 9.6% 2023 Segment Results Compared to 2022 Aerospace Aerospace segment net sales increased by $248,781, or 16.4% to $1,768,103 for fiscal year 2023, compared to $1,519,322 for fiscal year 2022.
Segment Results The following table presents sales by segment: Year Ended September 30, 2024 2023 Net sales: Aerospace $ 2,028,618 61.0% $ 1,768,103 60.7% Industrial 1,295,631 39.0% 1,146,463 39.3% Consolidated net sales $ 3,324,249 100% $ 2,914,566 100% The following table presents earnings by segment and reconciles segment earnings to consolidated net earnings: Year Ended September 30, 2024 2023 Aerospace $ 385,360 $ 290,104 Industrial 229,857 161,622 Nonsegment expenses (119,745 ) (130,811 ) Interest expense, net (41,501 ) (45,147 ) Consolidated earnings before income taxes 453,971 275,768 Income tax expense 81,000 43,400 Consolidated net earnings $ 372,971 $ 232,368 The following table presents segment earnings as a percent of segment net sales: Year Ended September 30, 2024 2023 Aerospace 19.0% 16.4% Industrial 17.7% 14.1% 29 2024 Segment Results Compared to 2023 Aerospace Aerospace segment net sales increased by $260,515, or 14.7% to $2,028,618 for fiscal year 2024, compared to $1,768,103 for fiscal year 2023.
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.
The increase in cash used in investing activities in fiscal year 2024 compared to fiscal year 2023 is primarily due to increased payments for property, plant, and equipment. Net cash flows used in financing activities for fiscal year 2024 was $218,047, compared to $196,473 in fiscal year 2023.
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.
Cash Flows Year Ended September 30, 2024 2023 Net cash provided by operating activities $ 439,089 $ 308,543 Net cash used in investing activities (89,217 ) (73,551 ) Net cash used in financing activities (218,047 ) (196,473 ) Effect of exchange rate changes on cash and cash equivalents 12,998 (8,916 ) Net change in cash and cash equivalents 144,823 29,603 Cash and cash equivalents at beginning of year 137,447 107,844 Cash and cash equivalents at end of year $ 282,270 $ 137,447 2024 Cash Flows Compared to 2023 Net cash flows provided by operating activities for fiscal year 2024 was $439,089, compared to $308,543 for fiscal year 2023.
The increase in gross margin for fiscal year 2023 is primarily attributable to higher sales volume and price realization, partially offset by net inflationary impacts on material and labor costs, as well as non-recurring, specific charges for excess and obsolete inventory and product rationalization.
Gross margin (as measured by net sales less cost of goods sold, divided by net sales) was 26.4% for fiscal year 2024, compared to 23.2% for fiscal year 2023. The increase in gross margin for fiscal year 2024 is primarily attributable to price realization and higher sales volume, partially offset by net inflationary impacts on material and labor.
GAAP financial measures is not intended to be considered in isolation of, or as substitutes for, the financial information prepared and presented in accordance with U.S. GAAP. Free cash flow and adjusted free cash flow do not necessarily represent funds available for discretionary use and are not necessarily a measure of our ability to fund our cash needs.
In addition, securities analysts, investors, and others frequently use free cash flow in their evaluation of companies. The use of this non-U.S. GAAP financial measures is not intended to be considered in isolation of, or as substitutes for, the financial information prepared and presented in accordance with U.S. GAAP.
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.
Research and development costs increased by $8,581, or 6.5%, to $140,676 for fiscal year 2024, as compared to $132,095 for fiscal year 2023. The increase in research and development costs on an absolute basis for fiscal year 2024 as compared to the prior fiscal year is primarily due to variability in the timing of projects and expenses.
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 requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note 1, Operations and summary of significant accounting policies, to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements.
Securities analysts, investors and others frequently use EBIT and EBITDA in their evaluation of companies, particularly those with significant property, plant, and equipment, and intangible assets subject to amortization.
Management uses EBITDA in evaluating our operating performance, making business decisions, including developing budgets, managing expenditures, forecasting future periods, and evaluating capital structure impacts of various strategic scenarios. Securities analysts, investors and others frequently use EBIT and EBITDA in their evaluation of companies, particularly those with significant property, plant, and equipment, and intangible assets subject to amortization.
Industrial earnings in the fiscal year benefited from significant operational improvements including increased output and other efficiency gains as well as significantly increased demand for on-highway natural gas truck production in China in the second half of 2023. Nonsegment Nonsegment expenses increased by $49,719 to $130,811 for fiscal year 2023, compared to $81,092 for fiscal year 2022.
Industrial earnings in fiscal year 2024 benefited significantly from increases in transportation due to increased demand for on-highway natural gas trucks in China, as well as operational improvements including increased output and other efficiency gains.
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.
GAAP) $ 372,971 $ 232,368 Income tax expense 81,000 43,400 Interest expense 47,959 47,898 Interest income (6,458 ) (2,751 ) Amortization of intangible assets 33,592 37,589 Depreciation expense 82,578 82,154 EBITDA (Non-U.S. GAAP) 611,642 440,658 Non-U.S.
Following multiple years of decline from very strong demand levels, we expect overall demand to flatten for these weapons programs, with production of some programs decreasing and other programs increasing. Aftermarket – Our commercial aftermarket business increased significantly in fiscal year 2023, as global air traffic continued to grow and OEM production rates have increased.
During fiscal year 2024, we experienced significant growth in smart defense programs following multiple years of decline. We expect overall demand to increase in the near term for these weapons programs. Aftermarket – Our commercial aftermarket business increased significantly in fiscal year 2024, as global air traffic continued to grow and initial provisioning sales have increased.
The net increase in Aerospace segment earnings for fiscal year 2023 was due to the following: Earnings for the period ended September 30, 2022 $ 230,933 Sales volume 62,420 Price, sales mix, inflation, and productivity 55,040 Manufacturing costs related to hiring and training (20,326 ) Annual variable incentive compensation costs (44,667 ) Other, net 6,704 Earnings for the period ended September 30, 2023 $ 290,104 28 Aerospace segment earnings as a percentage of segment net sales were 16.4% for fiscal year 2023 and 15.2% for fiscal year 2022.
The net increase in Aerospace segment earnings for fiscal year 2024 was due to the following: Earnings for the period ended September 30, 2023 $ 290,104 Sales volume 49,469 Price, sales mix, inflation, and productivity 62,989 Other, net (17,202 ) Earnings for the period ended September 30, 2024 $ 385,360 Aerospace segment earnings as a percentage of segment net sales were 19.0% for fiscal year 2024 and 16.4% for fiscal year 2023.
At September 30, 2023, we held $137,447 in cash and cash equivalents and had total outstanding debt of $721,526 with additional borrowing availability of $991,044, net of outstanding letters of credit, under our revolving credit agreement. At September 30, 2023, we also had additional borrowing capacity of $25,143 under various foreign lines of credit and foreign overdraft facilities.
At September 30, 2024, we held $282,270 in cash and cash equivalents and had total outstanding debt of $872,470 with additional borrowing availability of $775,136, net of outstanding letters of credit, under our revolving credit agreement.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+0 added−0 removed11 unchanged
Biggest changeThe 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.
Biggest changeThe percentages of our net sales denominated in a currency other than the USD were as follows: For the Year Ended September 30, 2024 2023 Functional currency: EUR 14.1 % 14.8 % RMB 8.7 % 6.3 % JPY 2.3 % 2.4 % GBP 2.0 % 2.1 % All other foreign currencies 2.7 % 2.9 % 29.8 % 28.5 % Currency exchange rates vary daily and often one currency strengthens against the USD while another currency weakens.
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
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. 39
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.
As of September 30, 2024 and 2023, we had no open foreign currency exchange rate contracts and all previous exchange rate derivative instruments were settled or terminated.

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