A L W A Y S I N N O V A T I N G F O R A
BETTER FUTURE
2 0 2 1 A N N U A L R E P O R T
BUSINESS DESCRIPTION
WOODWARD IS THE GLOBAL LEADER IN ENERGY
CONVERSION AND CONTROL SOLUTIONS FOR THE
AEROSPACE AND INDUSTRIAL EQUIPMENT MARKETS.
TOGETHER WITH OUR CUSTOMERS, WE ARE ENABLING
THE PATH TO A CLEANER, DECARBONIZED WORLD. OUR
INNOVATIVE MEMBERS DRIVE OUR SUCCESS, DELIVERING
EXCELLENCE IN CUSTOMER SATISFACTION WHILE
PROVIDING SUPERIOR SHAREHOLDER RETURNS.
Aerospace
Our Aerospace systems and components optimize the performance
of commercial, business and military aircraft, missiles and weapons,
ground vehicles and other equipment.
Industrial
Our Industrial systems and components enhance the performance
of gas and steam turbines, reciprocating engines, compressors,
generator sets and other energy-related industrial equipment.
Customers
Our Customers include leading original equipment
manufacturers and end users of their products.
W W W. W O O D W A R D . C O M
1081 Woodward Way, PO Box 1519
Fort Collins, Colorado 80524-1519
970-482-5811
2
0
2
1
A
N
N
U
A
L
R
E
P
O
R
T
DEAR SHAREHOLDERS
2021 was another challenging year
for Woodward and our markets...
We are seeing improvements in our markets and the global
economy; however, pandemic challenges and supply chain
constraints persisted into 2021. While strict health and
safety protocols remained our top priority, we improved
operational performance, which resulted in robust free
cash fl ow1, improved liquidity, and maintained our strong
fi nancial position to allow us to invest for future growth and
shareholder returns. Highlights for the year include:
Strengthened our balance sheet: net debt to EBITDA1
leverage of 1.7
Adjusted free cash fl ow1 improved to $427 million,
a 36% increase
Sales declined 10% to $2.2 billion
Adjusted earnings per share1 decreased 18% to $3.24
Woodward Forward 2030
Woodward’s success comes from our ability to provide
innovative solutions to address the needs of our customers
in an evolving world. Looking forward to 2030 and beyond,
we have developed and are executing on strategies to
leverage the macro trends of eliminating greenhouse gases,
commercializing space, and accelerating the digital age. To
facilitate a cleaner, decarbonized world, we are partnering
with our customers to enable their equipment to be more
effi cient, capable of utilizing clean fuels, advancing fuel
cells, and the integration of renewable power. The growing
space market represents an opportunity for us to leverage
our core technology by designing innovative, reliable
products that operate in the harsh environment of space. We
will transform our culture through the digital transformation
of our manufacturing processes, product development and
customer experience. To enable these strategies, we will
build on our powerful global workforce through continued
investment in member development, digital tools, and a
world class work environment.
Attractive Markets
Aerospace markets are improving as passenger traffi c
and OEM build rates increase. We continue to be very well
positioned in aerospace due to our increased content on
key aerospace platforms, which will drive OEM and
aftermarket growth.
Industrial markets are poised for recovery, as economic
activity and oil and gas prices recover from pandemic lows.
The demand for gas turbines is increasing, cargo rates
are healthy, and more stringent emissions regulations are
being implemented, all of which we expect will drive the
growth of our industrial markets.
Continuing our True North Journey
Our True North vision is to achieve world class operational
performance, while ensuring the safety of our members.
Our dedication to operational excellence has resulted
in improved quality and delivery, as well as inventory
reductions. We will continue our focus on True North to
drive improved profi tability, free cash fl ow and value to
shareholders.
Turning Towards FY2022
Pandemic and supply chain impacts will continue into fi scal
2022, but we expect our fi nancial results to signifi cantly
improve from 2021, along with our markets. While the
recovery will remain challenging, we have demonstrated
over our 150 years that we successfully navigate through
diffi cult times and emerge stronger. We are positioned to
capitalize on growth opportunities as our markets continue
recovering and shift to eliminating greenhouse gases. Our
investments in new technology and operational excellence
enable us to maximize opportunities and deliver world-
class shareholder value.
I want to thank our members around the world for their
contributions and commitment over the last year, and as
always, I want to acknowledge our board of directors for
their leadership and dedication to delivering value to our
shareholders
THOMAS A. GENDRON
Chairman, CEO & President
NET SALES
DOLLARS IN BILLIONS
ADJUSTED EARNINGS PER SHARE1
DILUTED
ADJUSTED FREE CASH FLOW1
DOLLARS IN MILLIONS
$2.5
$2.2
$2.9
$2.3
$4.88
$3.96
$3.85
$3.24
$427
$315
$292
$172
’21
’20
’19
’18
’21
’20
’19
’18
’21
’20
’19
’18
1EBITDA, free cash fl ow, adjusted free cash fl ow and adjusted earnings
per share are defi ned in our 2021 annual report on Form 10-K
i CORPORATE INFORMATION
Board Of Directors
RAJEEV BHALLA
Operating Partner, Cerberus Operating
and Advisory Company
THOMAS A. GENDRON
Chairman, Chief Executive Offi cer
and President, Woodward, Inc.
MARY L. PETROVICH
Senior Advisor–Private Equity, Carlyle Group
and American Security Partners
JOHN D. COHN
President, CrossBorder Strategic
Solutions, LLC
PAUL DONOVAN
Retired Executive Vice President
and Chief Financial Offi cer,
Wisconsin Energy Corporation
EILEEN P. DRAKE
Chief Executive Offi cer and President,
Aerojet Rocketdyne Holdings, Inc.
Offi cers*
THOMAS A. GENDRON
Chairman, Chief Executive Offi cer
and President
MARK D. HARTMAN
Chief Financial Offi cer
THOMAS G. CROMWELL
Vice Chairman,
Chief Operating Officer
PAUL BENSON
Corporate Vice President,
Human Resources
Investor Information
WOODWARD, INC.
Corporate Headquarters
1081 Woodward Way
Fort Collins, CO 80524
1-970-482-5811
www.woodward.com
INVESTOR INFORMATION
Investor.Relations@woodward.com
1-970-498-3849
TRANSFER AGENT AND REGISTRAR
)
m
o
c
.
y
c
n
e
g
a
k
m
w
(
k
r
a
m
r
e
t
a
W
:
N
G
I
S
E
D
American Stock Transfer
& Trust Company
Shareholder Services
6201 15th Avenue
Brooklyn, NY 11219
1-800-937-5449
www.astfi nancial.com
STOCK EXCHANGE
NASDAQ Global Select Market
Ticker Symbol: WWD
SEC fi lings are available on our
website at www.woodward.com
DAVID P. HESS
Former Chief Executive Officer,
Arconic Corporation
DANIEL G. KORTE
Global Vice President, Aerospace
PPG Industries, Inc.
RONALD M. SEGA
Chief Technology Offi cer,
U.S. Army Futures Command
GREGG C. SENGSTACK
Chairman, Chief Executive Offi cer and
President, Franklin Electric Co., Inc.
DANIEL M. BOWMAN
Corporate Vice President, Strategy
and Business Development
A. CHRISTOPHER FAWZY
Corporate Vice President, General
Counsel, Corporate Secretary and
Chief Compliance Officer
SAGAR A. PATEL
President, Engine Systems
MATTEO R. PISCIOTTA
Corporate Vice President,
Global Sourcing
ROGER A. ROSS
President, Aero Systems
DOUGLAS W. SALTER
Corporate Vice President, Technology
TERENCE J. VOSKUIL
President, Aircraft Turbine Systems
*Officer titles as of October 1, 2021
STOCKHOLDER ACCOUNT ASSISTANCE
ANNUAL MEETING
The Annual Meeting of Stockholders
will be held virtually on January 26, 2022,
at 8:00 a.m. MST.
EQUAL OPPORTUNITY
EMPLOYER STATEMENT
It is Woodward’s policy to provide equal
employment opportunity for all qualified
members and applicants without regard
to race, color, religion, age, sex, gender
identity, national origin, disability,
veteran’s or marital status, genetic
information, or other protected class,
and to base all employment decisions
so as to further this principle of equal
employment opportunity.
Stockholders who wish to change the
address or ownership of stock, report
lost certificates, eliminate duplicate
mailings, or for other account registration
procedures and assistance, should
contact the Transfer Agent at the address
or phone number on this page.
DIVIDEND REINVESTMENT PLAN
AND DIRECT DEPOSIT OF DIVIDENDS
Woodward offers stockholders of record
a convenient Dividend Reinvestment and
Direct Stock Purchase and Sale Plan.
Through this Plan, shareholders have
options to purchase or sell shares of
Woodward stock, have their dividends
automatically reinvested in Woodward,
and to make periodic supplemental
cash payments to purchase additional
shares. For further information and an
authorization form, contact the Transfer
Agent at the address or phone number on
this page.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 000-08408
WOODWARD, INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Delaware
36-1984010
1081 Woodward Way, Fort Collins, Colorado
(Address of principal executive offices)
80524
(Zip Code)
(970) 482-5811
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of exchange on which registered
Common Stock, par value $0.001455 per share
WWD
NASDAQ Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and such
files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller Reporting Company ☐
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Aggregate market value of registrant’s common stock held by non-affiliates of the registrant, based upon the closing price of a share of the registrant’s
common stock on March 31, 2021 as reported on The NASDAQ Global Select Market on that date: $5,345,433,011. For purposes of this calculation,
shares of common stock held by (i) persons holding more than 5% of the outstanding shares of stock, (ii) officers and directors of the registrant, and (iii)
the Woodward Governor Company Profit Sharing Trust, Woodward Governor Company Deferred Shares Trust, or the Woodward Charitable Trust, as of
March 31, 2021, are excluded in that such persons may be deemed to be affiliates. This determination is not necessarily conclusive of affiliate status.
As of November 17, 2021, 63,069,870 shares of the registrant’s common stock with a par value of $0.001455 per share were outstanding.
Portions of our proxy statement for the Annual Meeting of Stockholders to be held virtually on January 22, 2022, are incorporated by reference into Parts
II and III of this Form 10-K, to the extent indicated.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
PART I
Forward Looking Statements
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 9C.
Disclosures Regarding Foreign Jurisdictions that Prevent Inspections
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13.
Certain Relationship and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
Signatures
Page
1
2
9
20
20
20
20
21
22
23
40
41
94
94
95
95
96
96
96
96
96
97
99
100
Forward Looking Statements
This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results
of Operations,” contains forward-looking statements regarding future events and our future results within the meaning of
the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are statements
that are deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts,
and projections about the industries in which we operate and the beliefs and assumptions of management. Words such as
“anticipate,” “believe,” “estimate,” “seek,” “goal,” “expect,” “forecast,” “intend,” “continue,” “outlook,” “plan,” “project,”
“target,” “strive,” “can,” “could,” “may,” “should,” “will,” “would,” variations of such words, and similar expressions are
intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future
financial performance, our anticipated growth and trends in our businesses, and other characteristics of future events or
circumstances are forward-looking statements. Forward-looking statements may include, among others, statements
relating to:
•
the impacts on our business relating to the global COVID-19 pandemic, including the impacts thereof to supply and
demand, and measures taken by governments and private industry in response;
future sales, earnings, cash flow, uses of cash, and other measures of financial performance;
trends in our business and the markets in which we operate, including expectations in those markets in future periods;
•
•
• our expected expenses in future periods and trends in such expenses over time;
• descriptions of our plans and expectations for future operations;
• our expectations with regard to the return to service of the Boeing 737 MAX aircraft, the related impact on our
original equipment manufacturer (“OEM”) and initial provisioning sales, and the aircraft’s return to service;
investments in new campuses, business sites and related business developments;
the effect of economic trends or growth;
the expected levels of activity in particular industries or markets and the effects of changes in those levels;
the scope, nature, or impact of acquisition activity and integration of such acquisition into our business;
the research, development, production, and support of new products and services;
• plans and expectations relating to the performance of our joint venture with General Electric Company;
•
•
•
•
•
• new business opportunities;
•
• our plans, objectives, expectations and intentions with respect to business opportunities that may be available to us;
• our liquidity, including our ability to meet capital spending requirements and operations;
•
•
•
• pension and other postretirement plan assumptions and future contributions; and
• our tax rate and other effects of the changes in U.S. federal tax law.
future repurchases of common stock;
future levels of indebtedness and capital spending;
the stability of financial institutions, including those lending to us;
restructuring and alignment costs and savings;
All these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that
are difficult to predict and are subject to a number of factors and uncertainties that could cause actual results to differ
materially from those described in the forward-looking statements. Factors that could cause actual results and the timing of
certain events to differ materially from the forward-looking statements include the factors described in Item 1A, Risk
Factors. We undertake no obligation to revise or update any forward-looking statements for any reason, except as required
by applicable law.
Unless we have indicated otherwise or the context otherwise requires, references in this Form 10-K to “Woodward,”
“the Company,” “we,” “us,” and “our” refer to Woodward, Inc. and its consolidated subsidiaries.
Except where we have otherwise indicated or the context otherwise requires, amounts presented in this Form 10-K are
in thousands, except per share amounts.
1
Item 1.
Business
General
We are an independent designer, manufacturer, and service provider of control solutions for the aerospace and
industrial markets. Our innovative fluid energy, combustion control, electrical energy, and motion control systems help
customers offer cleaner, more reliable, and more efficient equipment. Our customers include leading original equipment
manufacturers and end users of their products. We have production and assembly facilities primarily in the United States,
Europe and Asia, and promote our products and services through our worldwide locations.
Our strategic focus is providing energy control and optimization solutions for the aerospace and industrial markets.
The precise and efficient control of energy, including motion, fluid, combustion and electrical energy, is a growing
requirement in the markets we serve. Our customers look to us to optimize the efficiency, emissions and operation of
power equipment in both commercial and defense operations. Our core technologies leverage well across our markets and
customer applications, enabling us to develop and integrate cost-effective and state-of-the-art fuel, combustion, fluid,
actuation and electronic systems. We focus primarily on serving original equipment manufacturers (“OEMs”) and
equipment packagers, partnering with them to bring superior component and system solutions to their demanding
applications. We also provide aftermarket repair, maintenance, replacement and other service support for our installed
products.
Woodward was established in 1870, incorporated in 1902, and is headquartered in Fort Collins, Colorado. The mailing
address of our world headquarters is 1081 Woodward Way, Fort Collins, Colorado 80524. Our telephone number at that
location is (970) 482-5811, and our website is www.woodward.com. None of the information contained on our website is
incorporated into this document by reference.
Markets and Principal Lines of Business
We serve the aerospace and industrial markets through our two reportable segments – Aerospace and Industrial. Our
customers require technological solutions to meet their needs for performance, efficiency, and reliability, and reduce cost
of operation.
Within the aerospace market, we provide systems, components and solutions for both commercial and defense
applications. Our aerospace systems and components optimize the performance of fixed wing and rotorcraft platforms in
commercial, business and military aircraft, missiles and weapons, ground vehicles and other equipment. Our key focus
areas within this market are propulsion and combustion control solutions for turbine powered aircraft; and fluid and
motion control solutions for critical aerospace and defense applications.
Within the industrial market, our key focus areas are applications and control solutions for machines that produce
electricity utilizing conventional or alternative energy resources; and fluid, motion, and combustion control solutions for
complex oil and gas, industrial, power generation and transportation applications.
Products, Services and Applications
Aerospace
Our Aerospace segment designs, manufactures, and services systems and products for the management of fuel, air,
and combustion and motion control. These products include fuel pumps, metering units, actuators, air valves, specialty
valves, fuel nozzles, and thrust reverser actuation systems for turbine engines and nacelles, as well as flight deck controls,
actuators, servocontrols, motors and sensors for aircraft. These products are used on commercial and private aircraft and
rotorcraft, as well as on military fixed-wing aircraft and rotorcraft, guided weapons, and other defense systems.
We have significant content on a wide variety of commercial aircraft, rotorcraft and business jet platforms, such as the
Airbus A320neo, Boeing 737 MAX and 787, Bell 429 and Gulfstream G650. We also have significant content on defense
applications such as Blackhawk and Apache helicopters, F/A-18 and F-35 fighter jets, and guided tactical weapons (for
example, the Joint Direct Attack Munition (“JDAM”)).
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, and spare parts. We also provide
aftermarket maintenance, repair and overhaul, as well as other services to commercial airlines, repair facilities, military
depots, third party repair shops, and other end users.
2
Industrial
Our Industrial segment designs, produces, and services systems and products for the management of fuel, air, fluids,
gases, motion, combustion and electricity. These products include actuators, valves, pumps, fuel injection systems,
solenoids, ignition systems, speed controls, electronics and software, and sensors. 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). The equipment on which our products are found is used to generate
power; to extract and distribute fossil fuels; in the mining of other commodities; and to convert fuel to work in
transportation and freight (both marine and locomotives), mobile, and industrial equipment applications.
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.
Customers
Sales to our five largest customers represented approximately 45% of our consolidated net sales for the fiscal years
ended September 30, 2021 and September 30, 2020.
Sales to our largest customer in fiscal year ended September 30, 2021, The Boeing Company, accounted for
approximately 13% of our consolidated net sales, and 14% in the fiscal year ended September 30, 2020. Accounts
receivable from The Boeing Company represented approximately 14% of accounts receivable at September 30, 2021 and
13% at September 30, 2020. Sales to our second largest customer, General Electric Company, accounted for approximately
11% of our consolidated net sales in the fiscal years ended September 30, 2021 and September 30, 2020. Accounts
receivable from General Electric Company totaled approximately 10% of accounts receivable at September 30, 2021, and
9% at September 30, 2020. We believe The Boeing Company, General Electric Company, and our other significant
customers are creditworthy and will be able to satisfy their credit obligations to us.
The following customers account for approximately 10% or more of net sales to each of our reportable segments for
the fiscal years ended September 30, 2021 and September 30, 2020.
Aerospace
Industrial
Competitive Environment
Customer
The Boeing Company, General Electric Company, Raytheon Technologies
Rolls-Royce PLC, Weichai Westport, General Electric Company
Our products and product support services are sold worldwide into a variety of markets. In all markets, we compete
on the basis of differentiated technology and design, product performance and conformity with customer specifications.
Additional factors are customer service and support, including on-time delivery and customer partnering, product quality,
price, reputation and local presence. Both of our segments operate in uniquely competitive environments.
We believe that new competitors face significant barriers to entry into many of our markets, including various
government mandated certification requirements to compete in the aerospace and industrial markets in which we
participate.
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. In addition, on-time delivery, pricing, and joint development capabilities with
customers are points of competition within this market.
We compete with numerous companies around the world that specialize in fuel and air management, combustion,
electronic control, aircraft motion control, flight deck control, and thrust reverser products. Our competitors in aerospace
include divisions of Eaton, Honeywell, Moog, Parker Hannifin, and Raytheon Technologies. 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 Raytheon Technologies.
3
Some of our customers are affiliated with our competitors through ownership or joint venture agreements. For
example, Pratt & Whitney, one of our customers, is affiliated with Raytheon Technologies, one of our competitors.
Similarly, GE Aviation has a joint venture with Parker Hannifin for the supply of fuel nozzles. We also have partnered with
our customers in the past, such as our strategic joint venture (“JV”) with one of our largest customers, General Electric
Company (“GE”), acting through its GE Aviation business unit.
We believe our products offer high levels of field reliability, which provides end users with an advantage in life-cycle
cost. We address competition in aftermarket service through responsiveness to our customers’ needs, providing short
turnaround times, greater performance such as longer time between repairs, and maintaining a global presence. We also
compete in part by establishing relationships with our customers’ engineering organizations, and by offering innovative
technical and commercial solutions to meet their market requirements. Our ability to design, develop and test an
integrated system with a customer is a competitive differentiator, offering the customer savings in both resources and time.
Industrial
Industrial operates in the global markets for industrial turbines and reciprocating engines, which are used in power
generation systems, transportation, and oil and gas markets. Many of these markets are subject to regulatory product and
performance certifications to meet emissions and safety requirements, which form a basis for competition as well as a
barrier to entry.
We compete with numerous companies that specialize in various engine, turbine, and power management products,
and our OEM customers are often capable of developing and manufacturing similar products internally. Many of our
customers are large global OEMs that require suppliers to support them around the world and to meet increasingly higher
requirements in terms of safety, quality, delivery, reliability and cost. Competitors include Emerson, EControls, Heinzmann
GmbH & Co., Hoerbiger, Meggitt, Robert Bosch AG, and Triconix. OEM customers with internal capabilities for similar
products include Caterpillar, Cummins, General Electric, Rolls-Royce Power Systems, Wärtsilä, and Weichai.
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. Competitive success is based on the development of innovative components and systems that are
aligned with the OEMs’ technology roadmaps to achieve future reliability, emission, efficiency, and fuel flexibility targets.
For additional information about our markets and trends in our markets, please see Part II, Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
Government Contracts and Regulation
Portions of our business, particularly in our Aerospace segment, are heavily regulated. We contract with numerous
U.S. Government agencies and entities, including all of the branches of the U.S. military, the National Aeronautics and
Space Administration (“NASA”), and the Departments of Defense, Homeland Security, and Transportation. We also
contract with similar government authorities outside the United States, subject in all cases to applicable law.
We must comply with, and are affected by, laws and regulations relating to the formation, administration and
performance of U.S. Government contracts. These laws and regulations, among other things:
•
•
•
•
•
require accurate, complete and current disclosure and certification of cost and pricing data in connection with
certain contracts;
impose specific and unique cost accounting practices that may differ from accounting principles generally
accepted in the United States (“U.S. GAAP”), and therefore require robust systems to reconcile;
impose regulations that define allowable and unallowable costs and otherwise govern our right to reimbursement
under certain cost-based U.S. 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 and foreign governments pertaining to the export of certain products and technical data.
Sales made directly to U.S. Government agencies and entities, or indirectly through third party manufacturers utilizing
Woodward parts and subassemblies, collectively represented 29% of our sales for fiscal year 2021 and 28% of our sales for
fiscal year 2020.
4
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.
Sales Order Backlog
Beginning in fiscal year 2019, for each of our reportable segments, we have elected to quantify backlog in a manner
consistent with the definition of remaining performance obligations. Our remaining performance obligations by segment,
excluding material rights, as of October 31, 2021 and 2020 is shown in the table below.
Aerospace
Industrial
October 31,
2021
1,009,101
261,074
1,270,175
$
$
October 31, 2021
Percent Expected to be
satisfied by September
30, 2022
79% $
97
83% $
October 31,
2020
1,160,486
209,302
1,369,788
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.
Manufacturing
We operate manufacturing and assembly plants primarily in the United States, Europe and Asia. Our products consist
of mechanical, electronic and electromechanical systems and components.
Aluminum, iron and steel are primary raw materials used to produce our mechanical components. Other
commodities, such as gold, copper and nickel, are also used in the manufacture of our products, although in much smaller
quantities. We purchase various goods, including component parts and services used in production, logistics and product
development processes from third parties. Generally, there are numerous sources for the raw materials and components
used in our products, which we believe are sufficiently available to meet current requirements.
We maintain global strategic sourcing models to meet our global facilities' production needs while building long-term
supplier relationships and efficiently managing our overall supply costs. We expect our suppliers to maintain adequate
levels of quality raw materials and component parts, and to deliver such parts on a timely basis to support production of
our various products. We use a variety of agreements with suppliers intended to protect our intellectual property and
processes and to monitor and mitigate risks of disruption in our supply base that could cause a business disruption to our
production schedules or to our customers. The risks monitored include supplier financial viability, business continuity,
quality, delivery and protection of our intellectual property and processes.
Our customers expect us to maintain adequate levels of certain finished goods and certain component parts to
support our warranty commitments and sales to our aftermarket customers, and to deliver such parts on a timely basis to
support our customers’ standard and customary needs. 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 collaborate closely with our customers as they develop their technology plans, which leads to new product
concepts. We believe this collaboration allows us to develop technology, new systems, and products that are aligned with
our customers’ needs and future performance, which increases the likelihood that our systems and components will be
selected for inclusion in the platforms developed by our customers. 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 strive to stay
ahead of the competition through our modeling, prototyping, and state of the art test capabilities.
5
Aerospace is focused on developing systems and components that we believe will be instrumental in helping our
customers achieve their objectives of lower fuel consumption, lighter weight, more efficient performance, reduced
emissions, and improved operating economics. We support our engine and airframe customers as they develop next
generation designs across the commercial aviation, general aviation, civil private and military markets. Our development
efforts support technology for a wide range of:
•
•
aerospace turbine engine applications, which include commercial, business and military turbofan engines of
various thrust classes, turboshaft engines and turboprop engines;
electromechanical and hydraulic actuation systems for flight deck-to-flight surface control of fixed-wing aircraft
and rotorcraft, and turbine engine nacelles, as well as guidance for weapon systems; and
• motion control components for integration into comprehensive actuation systems.
Most technology development programs begin years before an expected entry to service, such as those for the next
generation of commercial aircraft. Other development programs result in nearer-term product launches associated with
new OEM offerings, product upgrades, or product replacements on existing programs.
We developed the fuel system, air management system, and actuation hardware for CFM International’s LEAP engine
program. We also developed the actuation system, combustion system and oil system components for Pratt & Whitney’s
Geared Turbo Fan (“GTF” or “PurePower”) engine program. These programs target applications in the single aisle and
regional aircraft markets with entry into service in the 2016 to 2022 timeframe. Both the LEAP engine and the PurePower
engine have been selected by Airbus as options to power its A320neo aircraft. In addition, the LEAP engine was selected by
Boeing exclusively for its 737 MAX aircraft.
Industrial is focused on developing innovative technologies, including integrated control systems and system
components, that enable our customers to cost-effectively meet mandated emissions regulations and fuel efficiency
demands, allow for usage of a wider range of fuel sources, increase reliability (particularly in harsh environments), and
reduce total cost of ownership. Our development efforts support technology for a wide range of:
•
•
•
products that improve the quality of combustion processes and provide more precise flow of various fuels and
gases in our customers’ gas turbines and industrial reciprocating engines;
electronic devices and software solutions that provide improved control and protection of reciprocating engines,
gas turbines, steam turbines, and engine- and turbine-powered equipment; and
advanced prognostic and predictive intelligence that is integrated into many of our complex products and
systems.
Human Capital
We consider our employees (whom we call “members”) to be the most valuable resource for current and future
success and we seek to provide a work environment that fosters growth, encourages self-development, and provides
meaningful work. We make significant investments in training and professional development, and provide competitive pay,
benefits, and other incentives. 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
In addition to our comprehensive investment in our members’ success, we strive to maintain an inclusive environment
that values and leverages the uniqueness of each member to the benefit of all our stakeholders. We view the combination
of diverse perspectives and backgrounds as a powerful force for innovation. To promote diversity and our core principles,
we emphasize dignity, value, and equality of all members, regardless of race, color, religion, age, gender or sexual
orientation, through our actions and the workplace training programs we provide. 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.
6
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 is a dedicated concern. We not only strive to
comply with all federal and local workplace laws and regulations where we do business, but continue to look for ways to
exceed compliance standards by utilizing continuous improvement discipline to proactively eliminate risks to our members.
The global economic effects associated with the COVID-19 pandemic have been unprecedented in their scope and
depth. We have been and will continue to be following recommendations of the U.S. Center for Disease Control and other
applicable agencies to maximize the safety and well-being of our members. We have implemented measures to mitigate
exposure risks and support operations. Throughout this crisis, our unwavering focus has been on keeping our workplace as
safe as possible, while ensuring we stabilize our business and position ourselves well for the future.
As of October 31, 2021, we employed approximately 7,200 full-time members of which approximately 2,000 were
located outside of the United States, with the majority of such members located in Germany, Poland and China.
Approximately 56% of our full-time members support our Aerospace segment and 38% support our Industrial segment,
while we have 6% of our full-time workforce included in our Corporate support function. We believe that our relationships
with our members are good.
Approximately 15% of our total full-time workforce were union members as of October 31, 2021, all of whom work for
our Aerospace segment and are located in the United States. 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 567 members as of October 31, 2021, expired October 1, 2021, and is
currently under negotiations for extension. The Local Lodge 727-N International Association of Machinists and Aerospace
Workers agreement, which covers 452 members as of October 31, 2021, expires April 23, 2024. We believe that our
relationships with our union members and the representative unions are good.
Almost all of our other members in the United States were at-will members as of October 31, 2021, and therefore, not
subject to any type of employment contract or agreement. Our executive officers each have 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. 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. 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 has certain rights in our patents and other intellectual property developed in performance of certain
government contracts, and it may use or authorize others to use the inventions covered by such patents for government
purposes as allowed by law.
Intellectual property not covered by patents (or patent applications) includes trade secrets and other technological
know-how that is not patentable or for which we have elected not to seek patent protection, including intellectual property
relating to our manufacturing processes and engineering designs. Such unpatented technology, including research,
development and engineering technical skills and know-how, as well as unpatented software, is important to our overall
business and to the operations of each of our segments.
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, 2021, our Consolidated Balance Sheets includes $559,289 of net intangible assets. 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, 2021.
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. 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 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. 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.
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. In formulating that estimate and
recognizing those costs, we do not consider amounts expected to be recovered from insurance companies, or others, until
such recovery is assured. Currently, we have no sites undergoing remediation.
Our manufacturing facilities generally do not produce volumes or quantities of byproducts, including greenhouse
gases, that would be considered hazardous waste or otherwise harmful to the environment. We do not expect legislation
currently pending or expected in the next several years to have a significant negative impact on our operations in any of our
segments.
Domestic and foreign legislative initiatives on emissions control, renewable energy, and climate change tend to
favorably impact the sale of our energy control products. For example, our Industrial segment produces energy control
products that help our customers maximize engine efficiency and minimize wasteful emissions, including greenhouse gases.
Available Information
Through a link on the Investor Information section of our website, www.woodward.com, we make available, free of
charge, the following filings as soon as reasonably practicable after they are electronically filed or furnished to the SEC: our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule
14A, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as well as Section 16 reports of our officers and directors. The Securities and Exchange Commission (the “SEC”)
also maintains a website that contains our SEC filings. The address of the site is www.sec.gov. We provide notifications of
news or announcements regarding our financial performance, including SEC filings, investor events, press and earnings
releases as part of our investor relations website. We have used, and intend to continue to use, our investor relations
website, as well as the following as of the date of this filing, as means of disclosing material non-public information and for
complying with the disclosure obligations under Regulation FD:
•
•
•
•
Twitter: @woodward_inc
Facebook: Facebook.com/woodwardinc
LinkedIn: Linkedin.com/company/woodward
YouTube: YouTube.com/user/woodwardinc
None of the information contained on our website, or the above-mentioned social media sites, is incorporated into
this document by reference.
8
Item 1A.
Risk Factors
The following summarizes important factors that could individually, or together with one or more other factors, affect
our business, results of operations, financial condition, and/or cash flows:
COVID-19 Pandemic Risks
The global COVID-19 pandemic (COVID-19) has led to significant volatility in virtually all product, service and economic
markets, including financial markets, commodities (including oil and gas) and other industries (including the aviation
industry), thereby impacting our business, financial results and the achievement of our strategic objectives. The extent
to which the pandemic and measures taken in response to the pandemic could materially and adversely impact our
business, financial condition, liquidity, capital and results of operations will depend on future developments, which are
highly uncertain and are difficult to predict.
Global health concerns pertaining to COVID-19 and related government actions taken to reduce the spread of the
virus have impacted the economic environment, significantly increased economic uncertainty and reduced economic
activity. The pandemic has also caused governmental authorities to implement numerous measures to try to contain the
virus, including ongoing travel bans and restrictions, quarantines, and business limitations and shutdowns. These measures
have negatively impacted and may further negatively impact consumer and business ordering and payment patterns.
COVID-19 has adversely impacted, and will continue to adversely impact, our business, operations, financial condition,
capital and results of operations. The extent of these impacts depends on future developments, which are highly uncertain
and difficult to predict, including, but not limited to, (i) the duration and magnitude of the pandemic, (ii) the actions taken
to contain the virus or treat its impact, (iii) the effectiveness of economic stimulus measures, and (iv) the extent to which
economic and operating conditions and consumer and business spending can return to their pre-pandemic levels.
The spread of COVID-19 has caused us to modify our business practices and operations, and to align our business with
the unfavorable economic conditions, including enhancing our operations management teams and global supply chain to
ensure the Company is efficiently utilizing inventory on hand, as well as increasing our internal processing capabilities. We
may take further actions as required by government authorities or that we otherwise determine are in the best interests of
our customers, employees and business partners. Moreover, we expect that the effects of the COVID-19 pandemic will
heighten many of the other risks described herein.
Industry Risks
We operate in highly competitive industries and, if we are unable to compete effectively in one or more of our markets,
our business, financial condition and results of operations will be adversely affected.
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. Changes in competitive conditions, including the availability of new
technologies, products and services, the introduction of new channels of distribution, changes in OEM and aftermarket
pricing, and further consolidation of companies in our industries, could impact our relationships with our customers and
may adversely affect future sales and margins, which could have a material adverse effect on our business, financial
condition, results of operations, and cash flows.
Further, the markets in which we operate experience rapidly changing technologies and frequent introductions of new
products and services. The technological expertise we have developed and maintained could become less valuable if a
competitor were to develop a breakthrough technology that would allow it to match or exceed the performance of existing
technologies at a lower cost. If we are unable to develop competitive technologies, future sales or earnings could be lower
than expected, which could have a material adverse effect on our business, financial condition, results of operations, and
cash flows.
9
A significant portion of our revenue is concentrated among a relatively small number of customers, which makes our
business more vulnerable to fluctuations in sales to these customers and changes in their financial condition.
A significant portion of our revenue is concentrated among a relatively small number of customers. We have fewer
customers than many companies with similar sales volumes. For the fiscal year ended September 30, 2021, sales to our
largest 5 customers represented approximately 45% of our consolidated net sales and approximately 39% of our accounts
receivable. If any of our significant customers were to change suppliers, in-source production, institute significant
restructuring or cost-cutting measures, or experience financial distress, these significant customers may substantially
reduce, or otherwise be unable to pay for, purchases from us. Accordingly, our consolidated net sales could decrease
significantly, or we may experience difficulty collecting, or be unable to collect, amounts due and payable, which could have
a material adverse effect on our business, financial condition, results of operations, and cash flows.
In October 2018 and March 2019, two commercial aircraft accidents led to the grounding by the Federal Aviation
Administration (“FAA”) and other regulators of the Boeing 737 MAX aircraft, on which we have significant content. The
grounding of the Boeing 737 MAX aircraft by the FAA and other regulators, which started in March of 2019 and continued
through November 2020, caused deliveries of that aircraft to be zero in fiscal year 2020. As the aircraft return to service
progresses, which includes the pending recertification of the aircraft in various international jurisdictions, we anticipate a
large majority of the deliveries missed in fiscal years 2019, 2020, and 2021 will be fulfilled in future periods, although at a
slower rate than previously estimated. Although we anticipate a slow recovery of the OEM and a slightly better recovery of
the initial provisioning sales as the aircraft’s return to service progresses, the previous grounding of the Boeing 737 MAX
could further decrease our OEM and initial provisioning sales for the 737 MAX and CFM LEAP engines in the near term,
which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
The long sales cycle, customer evaluation process, and implementation period of our products and services may increase
the costs of obtaining orders and reduce the predictability of sales cycles and our inventory requirements.
Our products and services are technologically complex and require significant capital commitments. Prospective
customers generally must commit significant resources to test and evaluate our products and to install and integrate them
into larger systems. Accordingly, customers often require a significant number of product presentations and
demonstrations before reaching a sufficient level of confidence in the product’s performance and compatibility. In
addition, orders expected in one quarter may shift to another quarter or be cancelled with little advance notice as a result
of customers’ budgetary constraints, internal acceptance reviews, and other factors affecting the timing of customers’
purchase decisions. The difficulty in forecasting demand increases the challenge in anticipating sales cycles and our
inventory requirements, which may cause us to over-produce finished goods and could result in inventory write-offs, or
could cause us to under-produce finished goods. Any such over-production or under-production could have a material
adverse effect on our business, financial condition, results of operations, and cash flows.
Our participation in a strategic joint venture with GE may make it more difficult to secure long-term sales in certain
aerospace markets.
In January 2016, Woodward and General Electric Company (“GE”), acting through its GE Aviation business unit,
consummated the formation of a strategic joint venture between Woodward and GE (the “JV”). The JV agreement does not
restrict Woodward from entering into any market; however, consolidation in the aircraft engine market is increasingly
prevalent, resulting in fewer engine manufacturers, and thus it may become more difficult for Woodward to secure new
business with GE competitors on similar product applications both within and outside the specific JV market space.
Additionally, if GE fails to win new content in the market space covered by the JV, Woodward may be prevented from
expanding content on future commercial aircraft engines in those markets.
10
General Commercial, Financial, and Regulatory Risks
Suppliers may be unable to provide us with materials of sufficient quality or quantity to meet our production needs at
favorable prices or at all which may adversely affect our revenue and margins.
We are dependent upon suppliers for parts and raw materials used in the manufacture of products that we sell to our
customers, and our raw material costs are subject to commodity market fluctuations. We may experience a shortage of
parts or raw materials for various reasons, such as the loss of a significant supplier, high overall demand creating shortages
in parts and supplies we use, financial distress, work stoppages, natural disasters, fluctuations in commodity prices, the
imposition of tariffs or other duties, or production or distribution difficulties that may affect one or more of our suppliers.
In some instances, we depend upon a single source of supply, manufacturing, or logistics support or participate in
commodity markets that may be subject to allocations of limited supplies by suppliers. If one or more of our suppliers
experiences financial difficulties, delivery delays or other performance problems, we may be unable to meet commitments
to our customers or incur additional costs. Our customers rely on us to provide on-time delivery and have certain rights if
our delivery standards are not maintained. A significant increase in our supply costs, including for raw materials that are
subject to commodity price fluctuations and/or the imposition of tariffs, or a protracted interruption of supplies for any
reason, could result in the delay of one or more of our customer contracts, increase our costs, result in lost revenue or
could damage our reputation and relationships with customers. In addition, quality and sourcing issues that our suppliers
may experience can also adversely affect the quality and effectiveness of our products and services and may result in
liability or reputational harm to us. Any of these events could have a material adverse effect on our business, financial
condition, results of operations, and cash flows.
Our profitability may suffer if we are unable to manage our expenses in connection with sales increases, sales decreases,
or if we experience change in product mix.
Some of our expenses are relatively fixed in relation to changes in sales volume and are difficult to adjust in the short
term. Expenses driven by business activity other than sales level and other long-term expenditures, such as fixed
manufacturing costs, capital expenditures and research and development expenses may be difficult to reduce in a timely
manner in response to a reduction in sales. In periods of rapid sales increases it may be difficult to quickly increase our
production of finished goods because of our long manufacturing lead times. If a sudden, unanticipated need for raw
materials, components and labor arises, we could experience difficulties in sourcing these items at a favorable cost, in
sufficient quantities or at all. These factors could result in delays in fulfilling customer sales contracts, lost revenue, damage
to our reputation and relationships with our customers, and an inability to meet market demand, which in turn could
prevent us from taking advantage of business opportunities or responding to competitive pressures and could result in an
increase in costs leading to a decrease in net earnings or even net losses. In addition, we sell products that have varying
profit margins, and fluctuations in the mix of sales of our various products may affect our overall profitability.
Reductions, delays or changes in U.S. Government spending could adversely affect our business.
Sales made directly to U.S. Government agencies and entities, or indirectly through third party manufacturers, such as
tier-one prime contractors, utilizing Woodward parts and subassemblies, accounted for approximately 29% of total sales in
fiscal year 2021 and 28% in fiscal year 2020.
The U.S. Government participates in a wide variety of operations, including homeland defense, counterinsurgency,
counterterrorism, and other defense-related operations that employ our products and services. U.S. defense spending has
historically been cyclical in nature and is subject to periodic congressional authorization and appropriation actions. The
level of U.S. defense spending may be impacted by numerous factors outside of our control such as changes in the
perceived threat environment, U.S. foreign policy, changes in security, defense, and intelligence priorities, shifts in domestic
and international spending and tax policy, budget deficits and competing budget priorities, and the overall economic and
political environment.
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. 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. Government change and/or defense spending is reduced, this may adversely affect our business, financial
condition, results of operations, and cash flows.
11
Our business may be adversely affected by risks unique to government contracting.
Our contracts with the U.S. Government are subject to certain unique risks, including the risks set forth below, some
of which are beyond our control, which could have a material adverse effect on our business, financial condition, results of
operations, and cash flows.
•
Our U.S. Government contracts and the U.S. Government contracts of our customers are subject to modification,
curtailment or termination by the government, either for the convenience of the government or for default as a
result of a failure by us or our customers to perform under the applicable contract. If any of our contracts are
terminated by the U.S. Government, our backlog would be reduced, in accordance with contract terms, by the
expected value of the remaining work under such contracts. In addition, we are not the prime contractor on most
of our contracts for supply to the U.S. Government, and the U.S. Government could terminate a prime contract
under which we are a subcontractor, irrespective of the quality of our products and services as a subcontractor.
• We must comply with procurement laws and regulations relating to the formation, administration and
performance of our U.S. Government contracts and the U.S. Government contracts of our customers. The U.S.
Government may change procurement laws and regulations from time to time. A violation of U.S. Government
procurement laws or regulations, a change in U.S. Government procurement laws and regulations, or a
termination arising out of our default could expose us to liability, debarment, or suspension and could have an
adverse effect on our ability to compete for future contracts and orders.
• We are subject to government inquiries, audits and investigations due to our business relationships with the U.S.
Government and the heavily regulated industries in which we do business. In addition, our contract costs are
subject to audits by the U.S. Government. U.S. Government agencies, including the Defense Contract Audit
Agency and the Defense Contract Management Agency, routinely audit government contractors and
subcontractors. These agencies review our performance under contracts, cost structure and compliance with
applicable laws, regulations, and standards, as well as the adequacy of and our compliance with our internal
control systems and policies. Any costs found to be misclassified or inaccurately allocated to a specific contract
would be deemed non-reimbursable, and to the extent already reimbursed, would be refunded. Any
inadequacies in our systems and policies could result in withholds on billed receivables, penalties and reduced
future business. Any inquiries or investigations, including those related to our contract pricing, could potentially
result in civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of
profits, suspension of payments, fines, suspension, and/or debarment from participating in future business
opportunities with the U.S. Government. Such actions could harm our reputation, even if such allegations are
later determined to be unfounded, and could have a material adverse effect on our business, results of
operations, financial condition and cash flows.
Our debt obligations and the restrictive covenants in the agreements governing our debt could limit our ability to
operate our business or pursue our business strategies, could adversely affect our business, financial condition, results of
operations, and cash flows, and could significantly reduce stockholder benefits from a change of control event.
As of September 30, 2021, our total debt was $734,850, including $550,000 in unsecured notes denominated in U.S.
dollars issued in private placements and $185,503 of unsecured notes denominated in Euros issued in private placements.
We are obligated to make interest and scheduled principal payments under the agreements governing our long-term debt,
which requires us to dedicate a portion of our cash flow from operations to payments on our indebtedness, and which may
reduce the availability of our cash flow for other purposes, including business development efforts and mergers and
acquisitions. These debt obligations could make us more vulnerable to general adverse economic and industry conditions
and could limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate,
thereby placing us at a disadvantage to our competitors that have less indebtedness. 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.
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. Certain of
these agreements require us to repay outstanding borrowings with portions of the proceeds we receive from certain sales
of property or assets and specified future debt offerings.
12
These financial covenants place certain restrictions on our business that may affect our ability to execute our business
strategy successfully or take other actions that we believe would be in the best interests of our Company. These covenants
include limitations or restrictions, among other things, on our ability and the ability of our subsidiaries to:
incur additional indebtedness;
pay dividends or make distributions on our capital stock or certain other restricted payments or investments;
purchase or redeem stock;
issue stock of our subsidiaries;
•
•
•
•
• make domestic and foreign investments and extend credit;
•
•
•
engage in transactions with affiliates;
transfer and sell assets;
effect a consolidation or merger or sell, transfer, lease, or otherwise dispose of all or substantially all of our
assets; and
create liens on our assets to secure debt.
•
These agreements contain certain customary events of default, including certain cross-default provisions related to
other outstanding debt arrangements. Any breach of the covenants under these agreements or other event of default
could cause a default under these agreements and/or a cross-default under our other debt arrangements, which could
restrict our ability to borrow under our revolving credit facility. If there were an event of default under certain provisions of
our debt arrangements that was not cured or waived, the holders of the defaulted debt may be able to cause all amounts
outstanding with respect to the debt instrument, plus any required settlement costs, to be due and payable immediately.
Our assets and available cash balances may not be sufficient to fully repay borrowings under our outstanding debt
instruments if accelerated upon an event of default. If we are unable to repay, refinance, or restructure our indebtedness
as required, or amend the covenants contained in these agreements, the lenders or note holders may be entitled to obtain
a lien or institute foreclosure proceedings against our assets. Any of these events could have a material adverse effect on
our business, financial condition, results of operations, and cash flows.
Additional tax expense or additional tax exposures could impact our future profitability.
We are subject to income taxes in both the United States and jurisdictions outside of the United States. Our tax
liabilities are dependent upon the distribution mix of operating income among these different jurisdictions. Our tax
expense includes estimates of additional tax that may be incurred and reflects various estimates, projections, and
assumptions that could impact the valuation of our deferred tax assets and liabilities. Our future operating results could be
adversely affected by changes in the effective tax rate, which could be caused by, among other things:
•
•
•
•
•
•
•
•
•
•
•
changes in the mix of earnings in countries with differing statutory tax rates;
changes in our overall profitability;
changes in rules or interpretations of existing tax laws;
changes in U.S. federal tax legislation and tax rates;
changes in state or non-U.S. government tax legislation and tax rates;
changes in tax incentives;
changes in U.S. GAAP;
changes in the projected realization of deferred tax assets and liabilities;
changes in management’s assessment of the amount of earnings indefinitely reinvested offshore;
changes in management’s intentions regarding the amount of earnings reinvested offshore; and
the results of audits and examinations of previously filed tax returns and continuing assessments of our tax
exposures.
13
We derive a significant amount of revenue and obtain components from outside of the United States; accordingly, we
are subject to the risks inherent in doing business in other countries.
In fiscal year 2021, approximately 43% 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. Accordingly, our business and results of operations are subject to risks associated with doing business
internationally, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
transportation delays and interruptions;
political, social and economic instability and disruptions;
acts of terrorism or war;
the imposition of taxes, import and export controls, duties and tariffs, embargoes, sanctions and other trade
restrictions;
fluctuations in currency exchange rates;
changes in regulatory environments;
cost of compliance with increasingly complex and often conflicting regulations governing various matters
worldwide;
cost of labor, labor shortages and other changes in labor conditions;
the potential for nationalization of enterprises;
potential limitations on the Company’s ability to enforce legal rights and remedies, including protection of
intellectual property;
difficulty of enforcing agreements and collecting receivables through some foreign legal systems;
potentially adverse tax consequences, including limitations on repatriations of earnings; and
difficulties in implementing restructuring actions on a timely basis.
The implementation of tariffs (such as those implemented by the United States and China in recent years) could
increase the cost of certain commodities and/or limit their supply. Over the longer term, tariffs could significantly increase
our costs and our ability to pass such increased costs along to our customers may be limited, which could have a material
adverse effect on our business, financial condition, results of operations and cash flows.
We are subject to and must comply with U.S. laws restricting or otherwise prohibiting companies from doing business
in certain countries, including those on exports imposed under the U.S. Export Control Laws and Sanctions Programs. These
laws and regulations change from time to time and may restrict sales to other countries or parties.
We are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”) and similar anti-bribery and anti-corruption laws and
regulations in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to
government officials for the purpose of obtaining or retaining business or securing an improper business advantage. We
operate in many parts of the world and sell to industries that have experienced corruption to some degree. If we are found
to be liable for FCPA or other similar anti-bribery law or regulatory violations, we could be subject to civil and criminal
penalties or other sanctions that could have a material adverse impact on our business, financial condition, results of
operations and cash flows.
Also, a material disruption to the financial institutions with whom we transact business could have a material adverse
effect on our international operations or on our business, financial condition, results of operations, and cash flows.
Changes in the estimates of fair value of reporting units or of long-lived assets, particularly goodwill, may result in future
impairment charges, which could have a material adverse effect on our business, financial condition, and results of
operation.
Over time, the fair values of long-lived assets change. At September 30, 2021, we had $805,333 of goodwill,
representing 20% of our total assets. We test goodwill for impairment at the reporting unit level on at least an annual basis
or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a
reporting unit below its carrying amount. Future goodwill impairment charges may occur if estimates of fair values
decrease, which would reduce future earnings. Future asset impairment charges may occur if asset utilization declines, if
customer demand decreases, or for a number of other reasons, which would reduce future earnings. Any such impairment
charges could have a material adverse effect on our business, financial condition and results of operations.
14
There can be no assurance that our estimates and assumptions of the fair value of our reporting units, the current
economic environment, or the other inputs used in forecasting the present value of forecasted cash flows used to estimate
the fair value of our reporting units will prove to be accurate projections of future performance, and any material error in
our estimates and assumptions, could result in us needing to take a material impairment charge, which would have the
effects discussed above.
Our financial and operating performance depends on continued access to a stable workforce and on favorable labor
relations with our employees.
Due to the specialized nature of our business, competition for technical personnel is intense and our future
performance is highly dependent on our ability to hire, train, assimilate, and retain a qualified workforce. Additionally, it is
important we hire and retain personnel with relevant experience in local laws, regulations, customs, traditions and business
practices to support our international operations. There is no assurance that we will continue to be successful in recruiting
qualified employees in the future. Further, approximately 15% 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. We periodically need to renegotiate our collective bargaining agreements, and any failure
to negotiate new agreements or extensions in a timely manner could result in work stoppages or slowdowns. Any
significant increases in labor costs, deterioration of employee relations, including any conflicts with works’ councils or
unions, or slowdowns or work stoppages at any of our locations, whether due to employee turnover, changes in availability
of qualified technical personnel, or otherwise, could have a material adverse effect on our business, our relationships with
customers, and our financial condition, results of operations, and cash flows.
Our operations and suppliers may be subject to physical and other risks that could disrupt our operations.
Our operations and sources of supply could be disrupted by unforeseen events, including fires, tornadoes, tsunamis,
hurricanes, earthquakes, floods and other forms of severe weather in countries in which we operate or in which our
suppliers are located, any of which could adversely affect our operations and financial performance. Natural disasters,
public health concerns, war, political unrest, terrorist activity, equipment failures, power outages, or other unforeseen
events could result in physical damage to or other disruption of, and complete or partial closure of, one or more of our
manufacturing facilities, or could cause temporary or long-term disruption in the supply of component products from some
local and international suppliers, disruption in the transport of our products and significant delays in the shipment of
products and the provision of services, which could in turn cause the loss of sales and customers. Existing insurance
arrangements may not provide protection for all the costs that may arise from such events. Accordingly, disruption of our
operations or the operations of a significant supplier could have a material adverse effect on our business, financial
condition, results of operations, and cash flows.
Our intellectual property rights may not be sufficient to protect all our products or technologies and we may, regardless
of intent, infringe on the intellectual property rights of others.
Our success depends in part on our ability to obtain patents or rights to patents, protect trade secrets and know-how,
and prevent others from infringing on our patents, trademarks, and other intellectual property rights. We cannot be
certain that our pending patent applications will result in the issuance of patents to us, that patents issued to or licensed by
us in the past or in the future will not be challenged or circumvented by competitors, or that these patents will be found to
be valid or sufficiently broad to preclude our competitors from introducing technologies similar to those covered by our
patents and patent applications. Some of our intellectual property is not covered by patents (or patent applications) and
includes trade secrets and other know-how that is not patentable or for which we have elected not to seek patent
protection, including intellectual property relating to our manufacturing processes and engineering designs. We will be
able to protect our intellectual property from unauthorized use by third parties only to the extent that it is covered by valid
and enforceable patents, trademarks, licenses or other valid intellectual property rights. Patent protection generally
involves complex legal and factual questions and, therefore, enforceability of patent rights cannot be predicted with
certainty; thus, any patents that we own or license from others may not provide us with adequate protection against
competitors. Moreover, the laws of certain foreign jurisdictions do not recognize intellectual property rights or protect
them to the same extent as do the laws of the United States.
15
Additionally, our current or future technologies may, regardless of our intent, infringe upon the patents or violate
other proprietary rights of third parties. In the event of such infringement or violation, we may face expensive litigation or
indemnification obligations and may be prevented from selling existing products and pursuing product development or
commercialization. If we are unable to sufficiently protect our patent and other proprietary rights or if we infringe on the
patent or proprietary rights of others, our business, financial condition, results of operations, and cash flows could be
materially adversely affected.
Amounts accrued for contingencies may be inadequate to cover the amount of loss when the matters are ultimately
resolved.
We are currently involved or may become involved in legal, regulatory and other proceedings arising in the ordinary
course of business. These proceedings may include, without limitation, product liability matters, intellectual property
matters, contract disputes or claims, pending or threatened litigation, governmental investigations, as well as employment,
tax, environmental, or other matters. There is no certainty that the results of these matters will be favorable to the
Company. We accrue for known individual matters if we believe it is probable that the matter will result in a loss when
ultimately resolved using estimates of the most likely amount of loss. There may be additional losses that have not been
accrued, or liabilities may exceed our estimates, which could have a material adverse effect on our business, financial
condition, results of operations, and cash flows.
Our business and operations may be adversely affected by cybersecurity breaches or other information technology
system or network interruptions or intrusions.
We depend heavily on information technology (“IT”) and computerized systems to communicate and operate
effectively. We store sensitive data including proprietary business information, intellectual property, classified information,
customer information, supplier information, and confidential employee or other personal data on our servers and
databases. The COVID-19 pandemic caused a shift in our business practices which required many of our employees to work
remotely. This increase in remote work presents increased security risks to our systems, networks, and data, and has
resulted in an increased dependence on the security, reliability and adequacy of our IT systems.
From time to time, we have experienced cyberattacks on our IT infrastructure and systems. We may become the
target of cyber-attacks by third parties seeking unauthorized access to our data or our customers’ data or to disrupt our
operations or our ability to provide services. There is also a danger of loss, misuse, theft, unavailability, or unauthorized
disclosure or other processing of information or assets (including source code), or damage to or other compromise of
systems, components and other IT assets, including the introduction of malicious code or other vulnerabilities by people
who obtain unauthorized access to our facilities, systems or information. There are many different techniques used to
obtain unauthorized access to systems and data, and such techniques continue to evolve and become more sophisticated,
and the adversaries are becoming more advanced, including nation states and actors sponsored by or affiliated with nation
states, which target us and other defense contractors because we protect national security information, and other actors
with substantial financial and technological resources. These techniques include, but are not limited to, the use of
malicious software, destructive malware, ransomware, denial of service attacks, phishing and other means of social
engineering, and other means of causing system or network disruptions, obtaining unauthorized access to data or systems,
or causing other cybersecurity breaches and incidents. Additionally, system and service disruptions, and cybersecurity
breaches or incidents, may result from employee or contractor error, negligence, or malfeasance. Due to the rapidly
evolving threat environment and other factors, we may not be successful in defending against all such attacks. Further, due
to the evolving nature of these security threats and the national security aspects of much of the data we protect, the full
impact of any future security breach or incident cannot be predicted. We employ a number of measures, including
technical security controls, employee training, comprehensive monitoring of our networks and systems, and maintenance
of backup and protective systems. However, our IT infrastructure, systems, networks, products, solutions and services
remain potentially vulnerable to numerous additional known or unknown threats. Additionally, there have been and may
continue to be significant cyberattacks on, and other attempts to compromise the security of, the supply chain. We may
experience security breaches or incidents resulting from tools, services, or other third-party components and security
vulnerabilities within, or introduced by, such tools, services, or components.
16
If any of our IT infrastructure or systems are damaged, disrupted, or experience are impacted by security breaches or
incidents, whether from cybersecurity attacks or other causes, or if we suffer any security breach or incident involving
unauthorized access to, misuse, acquisition, disclosure, loss, alteration, or destruction of our data or other data we
maintain or otherwise process, we could experience significant operational stoppages, disruptions, delays, and/or other
detrimental impacts on our operations, and may face increased costs, including increased costs of implementing new data
protection and security measures, policies, and procedures, and costs associated with remediating and otherwise
responding to the security breach or incident. 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. 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. Further, any
unauthorized disclosure or use or acquisition of our intellectual property and/or confidential business information could
harm our competitive position, result in a loss of intellectual property protection, and otherwise reduce the value of our
investment in research and development and other strategic initiatives or otherwise adversely affect our business.
Our insurance coverage may not be sufficient to compensate for all liability relating to any actual or potential
disruption or other security breach or incident. We cannot be certain that our coverage will be adequate for liabilities
actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any
insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that
exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or
the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business,
including our financial condition, operating results, and reputation.
Increasing emission standards that drive certain product sales may be eased or delayed, which could reduce our
competitive advantage.
We sell components and systems that have been designed to meet strict emission standards, including standards that
have not yet been implemented but are expected to be implemented soon. If these emission standards are eased,
developed products may become unnecessary and/or our future sales could be lower as potential customers select
alternative products or delay adoption of our products, which would have a material adverse effect on our business,
financial condition, results of operations, and cash flows.
Prices for fossil fuels may increase significantly and disproportionately to other sources of fuels used for power
generation, which could reduce our sales and adversely affect our business, financial condition, results of operations, and
cash flows.
Commercial producers of electricity use many of our components and systems, most predominately in their power
plants that use natural gas as their fuel source. Commercial producers of electricity are often in a position to manage the
use of different power plant facilities and make decisions based on operating costs. Compared to other sources of fuels
used for power generation, natural gas prices have increased slower than fuel oil, but about the same as coal. This increase
in natural gas prices and any future increases, whether in absolute dollars or relative to other fuel costs such as oil, could
impact the sales mix of our components and systems, which could have a material adverse effect on our business, financial
condition, results of operations, and cash flows.
Long-term reduced commodity prices for oil, natural gas, and other minerals may depress the markets for certain of our
products and services, particularly those from our Industrial segment.
Many of our Industrial segment OEM and aftermarket customers and our Aerospace segment rotorcraft product lines’
customers provide goods and services that support various industrial extraction activities, including mining, oil and gas
exploration and extraction, and transportation of raw materials from extraction sites to refineries and/or processing
facilities. Long-term lower prices for commodities such as oil, natural gas, gold, tin, and various other minerals could
reduce exploration activities and place downward pressure on demand for our goods and services that support exploration
and extraction activities.
17
Business Risks
Our product development activities may not be successful, may be more costly than currently anticipated, or we may not
be able to produce newly developed products at a cost that meets the anticipated product cost structure.
Our business involves a significant level of product development activities, generally in connection with our
customers’ development activities. Industry standards, customer expectations, or other products may emerge that could
render one or more of our products or services less desirable or obsolete. Additionally, our competitors may develop new
technology, or more efficient ways to produce their existing products that could cause our existing products or services to
become less desirable or obsolete. Maintaining our market position requires continued investment in research and
development. During an economic downturn or a subsequent recovery, we may need to maintain our investment in
research and development, which may limit our ability to reduce these expenses in proportion to a sales shortfall.
In addition, increased investments in research and development may divert resources from other potential
investments in our business, such as acquisitions or investments in our facilities, processes and operations. If these
activities are not as successful as currently anticipated, are not completed on a timely basis, or are more costly than
currently anticipated, or if we are not able to produce newly developed products at a cost that meets the anticipated
product cost structure, then our future sales, margins and/or earnings could be lower than expected, which could have a
material adverse effect on our business, financial condition, results of operations, and cash flows.
Product liability claims, product recalls or other liabilities associated with the products and services we provide may
force us to pay substantial damage awards and other expenses that could exceed our accruals and insurance coverage.
The manufacture and sale of our products and the services we provide expose us to risks of product and other tort
claims, and any resulting liability. We currently have and have had in the past product liability claims relating to our
products, and we will likely be subject to additional product liability claims in the future for past, current and future
products. Some of these claims may have a material adverse effect on our business, financial condition, results of
operations and cash flows. We also provide certain services to our customers and are subject to claims with respect to the
services provided. In providing such services, we may rely on subcontractors to perform all or a portion of the contracted
services. It is possible that we could be liable to our customers for work performed by a subcontractor.
Regardless of the outcome, product liability claims can be expensive to defend, can divert the attention of
management and other personnel for significant periods of time, and can cause reputational damage. While we believe
that we have appropriate insurance coverage available to us related to any such claims, our insurance may not cover all
liabilities or be available in the future at a cost acceptable to us. An unsuccessful result in connection with a product
liability claim, where the liabilities are not covered by insurance or for which indemnification or other recovery is not
available, could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
We may be unable to successfully execute or effectively integrate acquisitions, and divestitures may not occur as
planned.
As part of our business strategy, we have pursued, and expect to pursue acquisitions of other companies and assets.
The success of these transactions depends on, among other things, our ability to integrate these businesses into our
operations and realize the planned synergies. Integration of acquired operations may take longer, or be more costly or
disruptive to our business, than originally anticipated. The integration of these acquisitions may require significant
attention from our management, and the diversion of management’s attention and resources could have a material
adverse effect on our ability to manage our business. We may also incur costs and divert management attention to
acquisitions that are never consummated.
Difficulties in the integration of the acquired business may include consolidating the operations, processes and
systems of the acquired business, retaining and motivating key management and employees, and integrating existing
business relationships with suppliers and customers. Even if integration is successful, the financial and operational results
may differ materially from our assumptions and forecasts due to unforeseen expenses, delays, conditions and liabilities.
Evolving regulations such as changes in tax, trade, environmental, labor, safety, payroll or pension policies could increase
the expected costs of acquisitions, and fluctuations in foreign currency exchange rates may impact the agreed upon
purchase price. In addition, we may incur unanticipated costs or expenses following an acquisition, including post-closing
asset impairment charges, expenses associated with eliminating duplicate facilities, and other liabilities.
18
Many of these factors are outside of our control and any one of them could result in increased costs, decreases in the
amount of expected revenues, and diversion of management’s time and attention. Failure to successfully implement our
acquisition strategy, including successfully integrating acquired businesses, could have a material adverse effect on our
business, financial condition, results of operations, and cash flows.
We also may make strategic divestitures from time to time, such as the divestiture of our renewable power systems
business and related businesses. These transactions may result in continued financial involvement in the divested
businesses, such as through guarantees or other financial arrangements, following the transaction. 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.
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. 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. These restructuring and/or alignment activities generally
result in charges and expenditures that may adversely affect our financial results for one or more periods.
Restructuring and/or alignment activities can also create unanticipated consequences, such as instability or distraction
among our workforce, and we cannot be sure that any restructuring or alignment efforts that we undertake will be
successful. A variety of risks could cause us not to realize expected cost savings, including, among others, higher than
expected severance costs related to staff reductions, higher than expected costs of closing plants, higher costs to hire new
employees or delays or difficulty hiring the employees needed, higher than expected operating costs associated with
moving production lines, delays in the anticipated timing of activities related to our cost-saving plan, and other unexpected
costs associated with operating the business.
If we are unable to structure our operations in the light of evolving market conditions, it could have a material adverse
effect on our business, financial condition, results of operations, and cash flows.
Our manufacturing activities may result in future environmental costs or liabilities.
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. 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. 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. To the best of
our knowledge, we have been and will be at all times, in complete compliance with all environmental requirements, or that
we will not incur additional material costs or liabilities in connection with these requirements.
In addition, we may be subject to other environmental remediation costs such as participation in superfund sites or
other similar jurisdictional initiatives. As a result, we may incur material costs or liabilities or be required to undertake
future environmental remediation activities that could damage our reputation and have a material adverse effect on our
business, financial condition, results of operations, and cash flows.
Failure of our production lines, or those of our subcontractors, to meet required certification standards could disrupt
production.
Our existing production lines, as well as the production lines of our subcontractors, are sometimes required to pass
varying levels of qualification with certain of our customers. Some of our customers require that our production lines pass
their specific qualification standards and that we, and any subcontractors that we may use, be registered under or certified
to certain U.S. or international quality standards. We may be unable to obtain, maintain, or we may experience delays in
obtaining, a certification or registration to a required quality standard. A delay in obtaining, or the failure to obtain a
necessary quality certification or registration could result in significant out-of-sequence work and increased production
costs, as well as delayed deliveries to customers, which could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
19
Item 1B.
Unresolved Staff Comments
None.
Item 2
Properties
The following is a summary of our principal facilities as of September 30, 2021:
Country
United States Fort Collins, CO
Location
Plants
2
Owned/Leased
Owned
United States Greenville, SC
Loveland, CO
United States
United States Niles, IL
United States Rockford, IL
United States Santa Clarita, CA
United States Zeeland, MI
Germany
Germany
Poland
Aken
Glatten
Krakow
Germany
China
Stuttgart
Tianjin
1
1
1
2
1
1
1
1
1
2
1
Leased
Leased
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned/Leased
Leased
Segment
Aerospace &
Industrial
Industrial
Aerospace &
Industrial
Aerospace
Aerospace
Aerospace
Aerospace
Industrial
Industrial
Aerospace &
Industrial
Industrial
Industrial
Location Activity and Function
Corporate Headquarters;
Manufacturing and engineering
Manufacturing and engineering
Manufacturing and engineering
Manufacturing and engineering
Manufacturing and engineering
Manufacturing and engineering
Manufacturing and engineering
Manufacturing and engineering
Manufacturing
Manufacturing and engineering
Engineering
Assembly
In addition to the principal plants listed above, we own or lease other facilities used primarily for sales, service
activities, assembly, and/or engineering activities in Brazil, Bulgaria, China, India, Japan, the Netherlands, the Republic of
Korea, Saudi Arabia, the United Kingdom, Germany, and the United States.
Our principal plants are suitable and adequate for the manufacturing and other activities performed at those plants,
and we believe our utilization levels are generally high.
Item 3.
Legal Proceedings
Woodward is currently involved in pending or threatened litigation or other legal proceedings, investigations, claims
and/or regulatory proceedings arising in the normal course of business, including, among others, those relating to product
liability claims, employment matters, worker’s compensation claims, contractual disputes, product warranty claims and
alleged violations of various laws and regulations. Woodward accrues for known individual matters using estimates of the
most likely amount of loss where it believes that it is probable the matter will result in a loss when ultimately resolved and
such loss is reasonably estimable.
While the outcome of pending claims, legal and regulatory proceedings, and investigations cannot be predicted with
certainty, management believes that any liabilities that may result from these claims, proceedings and investigations will
not have a material effect on Woodward's liquidity, financial condition, or results of operations.
Item 4.
Mine Safety Disclosures
Not applicable.
20
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on The NASDAQ Global Select Market and is traded under the symbol “WWD.” At
November 16, 2021, there were approximately 800 holders of record.
Performance Graph
The following graph compares the cumulative 10-year total return to stockholders on our common stock relative to
the cumulative total returns of the S&P Midcap 400 index and the S&P Industrials index. The graph shows total stockholder
return assuming an investment of $100 (with reinvestment of all dividends) was made on September 30, 2011 in our
common stock and in each of the two indexes and tracks relative performance through September 30, 2021. 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.
Woodward, Inc.
S&P Midcap 400
S&P Industrials
9/11
9/12
9/13
9/16
$100.00 $124.98 $151.46 $177.93 $153.25 $237.24 $296.83 $311.49 $418.07 $312.74 $443.81
100.00 128.54 164.12 183.51 186.07 214.59 252.18 288.01 280.83 274.77 394.79
100.00 129.60 166.54 194.49 187.40 224.38 274.54 305.24 309.48 313.58 404.39
9/14
9/17
9/15
9/19
9/20
9/18
9/21
The stock price performance included in this graph is not necessarily indicative of future stock price performance
21
Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
(In thousands, except per share amounts)
Issuer Purchases of Equity Securities
(In thousands, except for shares and per share amounts)
July 1, 2021 through July 31, 2021 (2)
August 1, 2021 through August 31, 2021 (2)
September 1, 2021 through September 30, 2021 (2)
Maximum
Number (or
Approximate
Dollar
Value)
of Shares
that
may yet be
Purchased
under the
Plans or
Programs at
Period
End (1)
Total
Number
of Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs (1)
Total
Number
of Shares
Purchased
Weighted
Average
Price Paid
Per Share
36 $
248
26
121.56
120.94
113.20
— $
187
217
486,654
464,060
440,794
(1)
In November 2019, our board of directors approved a stock repurchase program for the repurchase of up to
$500,000 of Woodward’s outstanding shares of common stock on the open market or in privately negotiated
transactions over a three-year period that will end in November 2022.
(2) Under a trust established for the purposes of administering the Woodward Executive Benefit Plan, 36 shares of
common stock were acquired in July 2021, 24 shares of common stock were acquired in August 2021, and 26
shares of common stock were acquired in September 2021 on the open market related to the deferral of
compensation by certain eligible members of Woodward’s management who irrevocably elected to invest some or
all of their deferred compensation in Woodward common stock. In addition, 224 shares of common stock were
acquired in August 2021 on the open market related to the reinvestment of dividends for shares of treasury stock
held for deferred compensation. Shares owned by the trust, which is a separate legal entity, are included in
"Treasury stock held for deferred compensation" in the Consolidated Balance Sheets.
Item 6.
Reserved
22
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Woodward enhances the global quality of life and sustainability by optimizing energy use through improved efficiency
and lower emissions. We are an independent designer, manufacturer, and service provider of control solutions for the
aerospace and industrial markets. We design, produce and service reliable, efficient, low-emission, and high-performance
energy control products for diverse applications in challenging environments. We have production and assembly facilities
primarily in the United States, Europe and Asia, and promote our products and services through our worldwide locations.
Our strategic focus is providing energy control and optimization solutions for the aerospace and industrial markets.
The precise and efficient control of energy, including motion, fluid, combustion and electrical energy, is a growing
requirement in the markets we serve, and we have developed and are executing on strategies to leverage the macro trends
of eliminating greenhouse gases, commercializing space, and accelerating the digital age. To facilitate a cleaner,
decarbonized world, we are partnering with our customers to enable their equipment to be more efficient, capable of
utilizing clean burning fuels, advancing fuel cells, and the integration of renewable power in both commercial and defense
operations. Our core technologies leverage well across our markets and customer applications, enabling us to develop and
integrate cost-effective and state-of-the-art fuel, combustion, fluid, actuation and electronic systems. We focus primarily
on serving OEMs and equipment packagers, partnering with them to bring superior component and system solutions to
their demanding applications. We also provide aftermarket repair, maintenance, replacement and other service support
for our installed products.
Our components and integrated systems optimize performance of commercial aircraft, defense aircraft, military
ground vehicles and other equipment, gas and steam turbines, industrial diesel, gas, bio-diesel and dual-fuel reciprocating
engines, and electrical power systems. Our innovative motion, fluid, combustion and electrical energy control systems help
our customers offer more cost-effective, cleaner, and more reliable equipment.
Management’s discussion and analysis should be read together with the Consolidated Financial Statements and Notes
included in this report. Dollar and number of share amounts contained in this discussion and elsewhere in this Annual
Report on Form 10-K are in thousands, except per share amounts.
COVID-19 Pandemic
In March 2020, the World Health Organization declared COVID-19 to be a global pandemic. The pandemic has led to
significant volatility in financial markets, commodities (including oil and gas) and other markets and industries (including the
aviation industry) and has negatively affected the business and results of operations of the Company. As the COVID-19
pandemic progressed, we reacted quickly to navigate the uncertain market environment, reduce our cost structure,
increase our focus on operational excellence, and prioritize diligent cash management. The aggressive actions we
implemented continue to drive strong cash flow, improve our liquidity and overall financial position, and enable greater
investment to organically and inorganically grow our business.
The ongoing rollout of vaccines across many countries is driving optimism for economic recovery, but the enduring
turbulence caused by the COVID-19 pandemic, including significantly reduced global passenger travel and new viral variants
continue to cloud near-term forecasts. We are unable to predict the extent to which the pandemic and related impacts will
continue to adversely affect our business, including our operational performance, results of operations, financial position,
and the achievement of our strategic objectives.
We will continue to actively monitor the situation and may potentially take further actions to alter our business
operations if we determine such actions are in the best interests of our shareholders, employees, customers, communities,
business partners, and suppliers, or as required by federal, state, or local authorities. It is not clear what the potential
effects any such alterations or modifications may have on our business in future periods, including the effects on the
Company's customers, employees, and prospects, or on our financial results.
Divestiture of the Renewables business and related businesses
In fiscal year 2020, Woodward’s board of directors (the “Board”) approved a plan to divest our renewable power
systems business, protective relay business, and other businesses within the Industrial segment (collectively, the “disposal
group”). The assets of the disposal group were primarily located in Germany, Poland and Bulgaria, and the transactions
consummating the sale of the disposal group were completed on April 30, 2020 (the “Closing”). Financial information for
the disposal group is reflected in our financial statements prior to the date of Closing.
23
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.
Commercial and Civil Aircraft – In the commercial aerospace markets, the global COVID-19 pandemic and associated
mitigation efforts had a significant impact on global air traffic in fiscal year 2021, reducing total global passenger air miles
flown to nearly one-half of 2019 (pre-COVID) levels. Commercial aircraft production, which was reduced in fiscal year 2020
in response to the significant decrease in demand from airlines and aircraft manufacturers, stabilized in fiscal year 2021 and
has begun to slowly increase. Reductions in build rates ranging from twenty-five to forty percent of pre-COVID levels were
seen in most aircraft models at all aircraft OEMs. As a result of the decline in demand, governments offered various
financial support and stimulus to airlines and aircraft manufactures that, in some cases, incentivized the production of more
fuel efficient and lower emission aircraft. The trend toward the newer generation of aircraft that have recently entered
service or are scheduled to go into production over the next several years favors our product offerings because we have
more content on those more fuel efficient and lower emission aircraft. While production levels remain lower than pre-
COVID levels, order backlogs have begun to grow with increased new orders and fewer cancellations and deferrals. We
expect production levels to remain stable in the short-term and ramp up over the next few years to reach pre-pandemic
levels in fiscal year 2023 due to solid order backlogs for the new aircraft models.
The business and general aviation market demand was also impacted in fiscal year 2021 as business jet deliveries were
down as a result of the COVID-19 pandemic and increased availability of used aircraft, which was partially offset by the
ramp of some newer models. Turboprop and helicopter deliveries weakened again in fiscal year 2021. We expect business
jet, turboprop and helicopter deliveries to improve when economic stability returns and aircraft flight operations recover.
We have content on the Airbus A220, A320neo, A330neo, and A380, Bell 429, Boeing 737 MAX, 777, 787, and 747-8.
We have been awarded content on the 777X, Comac C919, Irkut MS-21 and a variety of business jet platforms, among
others. We continue to explore opportunities on new engine and aircraft programs that are under consideration or have
been recently announced.
The grounding of the Boeing 737 MAX was lifted by the FAA and other regulators beginning in November 2020, which
allowed deliveries of that aircraft to resume in fiscal year 2021. Customer orders resumed as demand for the aircraft began
to return during fiscal year 2021. As the aircraft’s return to service progresses, we anticipate a large majority of the
deliveries missed in fiscal year 2019 and 2020 will be fulfilled in future periods, although at a slower rate than previously
estimated. In fiscal year 2021, the return to service of the 737 MAX aircraft in many jurisdictions contributed to positive
impacts on OEM sales, while there was continuing unfavorable impact on initial provisioning sales related to the 737 MAX
aircraft and CFM LEAP engine. We anticipate a slow recovery of the OEM sales and a slightly better recovery of the initial
provisioning sales in fiscal year 2022. However, build rates are expected to improve further in fiscal year 2022 based on
announced increased and the anticipated certification of the 737 Max in China.
Defense – In recent years, the defense industry has been strong as budgetary allocations have generally increased
since 2016. The National Defense Authorization Act for Fiscal Year 2019, which was signed into law in August 2018,
resulted in slightly higher levels of funding for both procurement and research and development, and we believe budget
increases in recent years will support modest growth in fiscal year 2022, with the exception of our guided tactical weapons
programs. Our involvement with a wide variety of defense programs in fixed-wing aircraft, rotorcraft and weapons systems
has provided relative stability for our defense market sales, as some newer programs increase (e.g., F-35 Lightning II, KC-
46A Tanker, and T-7A Trainer) while some legacy programs are reduced (e.g., F/A-18 E/F Super Hornet and V-22
Osprey). Other programs are relatively steady (e.g., UH-60 Black Hawk and A-64 Apache helicopter programs) and some
legacy programs, such as the F-15, will maintain or potentially increase production. Weapons programs for which we have
significant sales include the Joint Direct Attack Munition (“JDAM”), Small Diameter Bomb (“SDB”) and AIM-9X guided
tactical weapon systems. We expect overall production rates to remain flat or decrease for some of these weapons
programs due to anticipated decline in demand, compared to the very strong production rates in recent years.
24
Aftermarket – The substantial reduction in global air passenger traffic due to the COVID-19 pandemic, with
corresponding reduction in required airliner capacity, significantly impacted our commercial aftermarket business in fiscal
year 2021, as airlines continued to park approximately 25% of the active fleet. Although improving, airliner capacity is
anticipated to remain below 2019 levels until approximately 2023 or later, with single aisle aircraft and domestic flights
expected to return to normal volumes sooner than twin aisle and international flights. As airline revenues and profitability
continue to be impacted, operators may elect to defer maintenance where possible, which will continue to pressure our
aftermarket sales even as capacity recovers.
We anticipate newer aerospace platforms, which include cleaner and more reliable systems, and contain more of our
products, will be preferred as aircrafts return to service. 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. Initial provisioning sales have slowed significantly, however, as airline profitability suffered during the COVID-
19 pandemic, although they are anticipated to return as the industry continues to recover. Among legacy aircraft, the A320
family and 737NG will continue to be in demand in current operating fleets, which will support demand for repairs and
spare parts for older engine programs remaining in service.
Our defense aftermarket was flat during fiscal year 2021 as the combat readiness of existing military programs on
which we have content continues to be prioritized by the U.S. Government, even amid troop withdrawals in foreign combat
zones. 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, supported by our
products and systems. Although we expect variability, which is generally attributable to the cycling of various maintenance
and upgrade programs, as well as actual usage, our outlook for defense aftermarket is strong. This is due primarily to the
service lives of existing military programs being extended and increased demand for repairs and spare parts for older
military aircraft programs remaining in service.
Industrial Markets
Our industrial products are used worldwide in various types of turbine and reciprocating engine-powered equipment,
including electric power generation and distribution systems, ships, locomotives, compressors, pumps, and other mobile
and industrial machines.
Industrial Turbines – The demand for industrial gas turbines for power generation, which consists mainly of heavy
frames, aero derivatives and steam, declined slightly in fiscal year 2021 due to the ongoing effects of the COVID-19
pandemic on the global economy. Start reliability, fuel flexibility, safety, and part-load efficiency are all key drivers of the
turbine market as the conversion from coal to natural gas usage continues, and we believe Woodward continues to be well
positioned to meet these market needs on the existing and next generation turbines. We project continued growth as
demand for electricity is met through a balance of renewable power sources and newer industrial gas turbines for which
Woodward has been awarded increased content.
Reciprocating Engines – Woodward’s key markets for engine control technologies are power generation,
transportation (including compressed natural gas (“CNG”) and liquified natural gas (“LNG”) trucks in Asia, mining, and
marine shipping), and oil and gas. We continue to expect the market demand for natural gas trucks to remain favorable
over the long-term as the Chinese government continues to implement more stringent emissions standards and encourage
natural gas usage under its initiative on air quality improvement. The demand for large reciprocating engines used in
marine, oil and gas, and prime power generation applications was impacted by the COVID-19 pandemic and the drop in oil
prices during fiscal year 2021. The demand from internet traffic and data storage is driving demand for data center power
generation. We anticipate some continued softening and stabilization of the large reciprocating engine market in fiscal year
2022 due to a more stable market environment. Government emissions requirements across many regions and new engine
applications are driving demand for more sophisticated control systems, as is customer demand for improved engine
efficiencies and increased reliability. We expect market share gains by our customers and increased scope on the latest
generation reciprocating engines as energy policies in some countries encourage the use of CNG, LNG, and other alternative
fuels over carbon-rich petroleum fuels, which we expect will drive increased demand for our alternative fuel clean engine
control technologies.
25
RESULTS OF OPERATIONS
Financial Highlights
Net sales for fiscal year 2021 were $2,245,832, a decrease of $249,833, or 10.0%, from $2,495,665 for the prior fiscal
year. Foreign currency exchange rates had a favorable impact on net sales of $36,641 for fiscal year 2021, as compared to
the same period of the prior year. There were no sales for the disposal group for fiscal year 2021 as compared to $67,663
for the prior fiscal year, as the disposal group was divested on April 30, 2020. Net sales excluding the disposal group for
fiscal year 2020 were $2,428,002. Aerospace segment net sales for the fiscal year 2021 were down 11.7% to $1,404,117,
compared to $1,590,963 for the prior fiscal year. Industrial segment net sales for fiscal year 2021 were down 7.0% to
$841,715, compared to $904,702 for the prior fiscal year. Industrial segment net sales excluding the disposal group for
fiscal year 2020 were $837,040. Foreign currency exchange rates had a favorable impact of $32,734 on Industrial segment
net sales for fiscal year 2021 as compared to the prior fiscal year.
Net earnings for the fiscal year 2021 were $208,649, or $3.18 per diluted share, compared to $240,395, or $3.74 per
diluted share for the prior fiscal year. Adjusted net earnings for the fiscal year 2021 were $212,385 or $3.24, per diluted
share and $254,037, or $3.96, per diluted share, for the prior fiscal year. Net earnings excluding the disposal group for
fiscal year 2020 were not materially different from reported net earnings for the same period.
The effective tax rate in fiscal year 2021 was 15.1%, compared to 14.7% in the prior fiscal year. The adjusted effective
tax rate was 15.3%, compared to 17.8% in the prior fiscal year.
Earnings before interest and taxes (“EBIT”) for the fiscal year 2021 were $278,586, a decrease of 11.8% from $315,928
in the prior fiscal year. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the fiscal year 2021
were $408,110, down 8.7% from $447,086 for the prior fiscal year. Adjusted EBIT and adjusted EBITDA for fiscal year 2021
were $283,594 and $413,118, respectively, compared to $343,158 and $474,316, respectively, for the prior fiscal year.
Aerospace segment earnings as a percent of segment net sales were 16.7% in fiscal year 2021, compared to 19.5% in
the prior fiscal year. Industrial segment earnings as a percent of segment net sales were 12.9% in the fiscal year 2021,
compared to 11.1% in the prior fiscal year. Industrial segment earnings excluding the disposal group were 11.6% of
Industrial segment net sales for fiscal year 2020.
Net sales excluding the disposal group, adjusted net earnings, adjusted earnings per share, EBIT, adjusted EBIT,
EBITDA, adjusted EBITDA, Industrial segment sales excluding the disposal group, and Industrial segment earnings excluding
the disposal group are non-U.S. GAAP financial measures. A description of these measures as well as a reconciliation of
these non-U.S. GAAP financial measures to the closest U.S. GAAP financial measures can be found under the caption “Non-
U.S. GAAP Measures” in this Item 7 – Management’s Discussion and Analysis of Financial Conditions and Results of
Operations.
Liquidity Highlights
Net cash provided by operating activities for fiscal year 2021 was $464,669, compared to $349,491 for fiscal year
2020. The increase in net cash provided by operating activities in fiscal year 2021 compared to fiscal year 2020 is primarily
attributable to the timing of cash payments to suppliers and certain tax payments, as well as improved working capital
utilization. This increase was partially offset by the net impact of cash payments for annual bonuses and proceeds from
settlement of cross-currency interest rate swaps, each of which occurred in fiscal year 2020, while no such activity occurred
in fiscal year 2021.
For fiscal year 2021, free cash flow, which we define as net cash flows from operating activities less payments for
property, plant and equipment, was $426,980, compared to $302,404 for the fiscal year 2020. The increase in free cash
flow for fiscal year 2021 as compared to prior fiscal year is primarily due to effective working capital management and
lower payments for property, plant and equipment, partially offset by lower net earnings. Adjusted free cash flow, which
we define as free cash flow, plus the proceeds from the sale of real property at our former Duarte, California operations
and excluding cash paid for merger and divestiture transaction costs, cash paid for restructuring charges, and net cash
proceeds received from settlement of our cross-currency interest rate swaps, was $315,220 for fiscal year 2020. No
adjustments were made to free cash flow for fiscal year 2021. Free cash flow and adjusted free cash flow are non-U.S.
GAAP financial measures. A description of these measures as well as a reconciliation of these non-U.S. GAAP financial
measures to the closest U.S. GAAP financial measures can be found under the caption “Non-U.S. GAAP Measures” in this
Item 2 – Management’s Discussion and Analysis of Financial Conditions and Results of Operations.
26
At September 30, 2021, we held $448,462 in cash and cash equivalents, including restricted cash of $1,907, and had
total outstanding debt of $734,850 with additional borrowing availability of $989,039, net of outstanding letters of credit,
under our revolving credit agreement. At September 30, 2021, we also had additional borrowing capacity of $7,413 under
various foreign lines of credit and foreign overdraft facilities.
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:
Net sales
Costs and expenses:
Cost of goods sold
Selling, general, and administrative expenses
Research and development costs
Impairment of assets sold
Restructuring charges
Gain on cross-currency interest rate swaps, net
Interest expense
Interest income
Other expense (income), net
Total costs and expenses
Earnings before income taxes
Income tax expense
Net earnings
Other select financial data:
Working capital
Total debt
Total stockholders' equity
2021 RESULTS OF OPERATIONS
2021 Net Sales Compared to 2020
Year Ended September 30,
2021
2020
% of Net
Sales
% of Net
Sales
$
2,245,832
100% $
2,495,665
100%
1,694,774
186,866
117,091
—
5,008
—
34,282
(1,495)
(36,493)
2,000,033
245,799
37,150
208,649
$
75.5
8.3
5.2
0.0
0.2
-
1.5
(0.1)
(1.6)
89.1
10.9
1.7
9.3
$
1,855,422
217,710
133,134
37,902
22,216
(30,481)
35,811
(1,764)
(56,166)
2,213,784
281,881
41,486
240,395
74.3
8.7
5.3
1.5
0.9
(1.2)
1.4
(0.1)
(2.3)
88.7
11.3
1.7
9.6
September 30, 2021
September 30, 2020
$
$
1,098,466
734,850
2,214,781
818,533
838,483
1,992,677
Consolidated net sales for fiscal year 2021 decreased by $249,833, or 10.0%, compared to fiscal year 2020.
Details of the changes in consolidated net sales are as follows:
Consolidated net sales for the year ended September 30, 2020
Aerospace volume
Industrial volume
Disposal group divestiture impact
Noncash consideration
Effects of changes in price and sales mix
Effects of changes in foreign currency rates
Consolidated net sales for the year ended September 30, 2021
$
$
2,495,665
(193,387)
(29,125)
(67,663)
(10,341)
16,042
34,641
2,245,832
In the Aerospace segment, the decrease in net sales for fiscal year 2021 as compared to fiscal year 2020 is primarily
attributable to a decrease in commercial sales resulting from the secular decline in global passenger traffic and OEM
production rates as a result of the global COVID-19 pandemic. In the Industrial segment, the decrease in net sales for fiscal
year 2021 as compared to fiscal year 2020 is primarily attributable to the divestiture of the disposal group, and continued
weakness in the oil and gas market and the associated aftermarket due to the ongoing impact of the COVID-19 pandemic,
partially offset by favorable effects of foreign currency exchange rates.
During fiscal year 2021, consolidated net sales were negatively impacted by approximately $32,000 due to global
supply chain disruptions, which delayed delivery of orders scheduled for shipment during the fiscal year.
27
2021 Costs and Expenses Compared to 2020
Cost of goods sold decreased by $160,648 to $1,694,774, or 75.5% of net sales, for fiscal year 2021, from $1,855,422,
or 74.3% of net sales, for fiscal year 2020. The decrease in cost of goods sold in fiscal year 2021, as compared to the same
period of the prior year, is primarily attributable to lower sales aerospace volume as a result of continued global disruption
from the COVID-19 pandemic.
Gross margin (as measured by net sales less cost of goods sold, divided by net sales) was 24.5% for fiscal year 2021,
compared to 25.7% for fiscal year 2020. The decrease in gross margin for fiscal year 2021 is primarily attributable to lower
aerospace sales volume as a result of global disruption caused by the COVID-19 pandemic.
Selling, general and administrative expenses decreased by $30,844, or 14.2%, to $186,866 for fiscal year 2021,
compared to $217,710 for fiscal year 2020. Selling, general, and administrative expenses as a percentage of net sales
decreased to 8.3% for fiscal year 2021, compared to 8.7% for fiscal year 2020. The decrease in selling, general and
administrative expenses, both in dollars and as a percentage of sales, for fiscal year 2021 compared to the same period of
the prior year is primarily due to a decrease in certain expenses related to merger and divestiture activities, fees incurred
on termination of the cross-currency interest rate swaps and acceleration of stock compensation expense related to
restructuring activities, none of which repeated in the current fiscal year.
Research and development costs decreased by $16,043, or 12.1%, to $117,091 for fiscal year 2021, as compared to
$133,134 for fiscal year 2020. Research and development costs as a percentage of net sales decreased to 5.2% for fiscal
year 2021, as compared to 5.3% for fiscal year 2020. The decrease in research and development costs, both in dollars and
as a percentage of net sales, for fiscal year 2021 as compared to the same periods of the prior year is primarily due to
savings from cost reduction initiatives. Our research and development activities extend across almost all of our customer
base, and we anticipate ongoing variability in research and development due to the timing of customer business needs on
current and future programs.
Impairment of assets sold of $37,902 recognized in fiscal year 2020 related to a non-cash impairment charge for the
net assets sold of the disposal group, representing the write down of the associated net assets held for sale to their fair
market value as of December 31, 2019. No non-cash impairment charges were recognized during fiscal year 2021. Refer to
Note 10, Sale of businesses in the Notes to the Consolidated Financial Statements in “Item 8 – Financial Statements and
Supplementary Data” for further details.
Restructuring charges decreased by $17,208, or 77.5%, to $5,008 for fiscal year 2021, compared to $22,216 for fiscal
year 2020. Charges for fiscal year 2021 related primarily to workforce management costs associated with business
realignments in the Aerospace and Industrial segments to support growth opportunities, while charges recorded in fiscal
year 2020 primarily related to workforce management actions as a result of volume and demand declines due to the global
COVID-19 pandemic. All of the restructuring charges in fiscal years 2021 and 2020 were recorded as nonsegment expenses.
Gain on cross-currency interest rate swaps, net of $30,481 recognized in fiscal year 2020 related to settlement and
termination of our cross-currency interest rate swaps designated in foreign currency hedging relationships. In the third
quarter of fiscal year 2020, as a result of the COVID-19 pandemic and future cash flow uncertainties, we elected to
terminate and settle our existing cross-currency interest rate swap derivative instruments. No gains on cross-currency
interest rate swaps were recognized during fiscal year 2021. Refer to Note 8, Derivative instruments and hedging activities,
in the Notes to the Consolidated Financial Statements in “Item 8 – Financial Statements and Supplementary Data” for
further details.
Interest expense decreased by $1,529, or 4.3%, to $34,282, for fiscal year 2021, compared to $35,811 for fiscal year
2020. Interest expense increased as a percentage of net sales to 1.5% for fiscal year 2021, as compared to 1.4% for fiscal
year 2020. During fiscal year 2021, we paid the entire balance of two series of private placement notes totaling $100,000
primarily using free cash flow and proceeds from our revolving credit facility. We did not borrow from the revolving credit
facility during the second, third, or fourth quarters of fiscal year 2021.
Other income, net was $36,493 for fiscal year 2021, compared to $56,166 for fiscal year 2020. The decrease in other
income in fiscal year 2021 compared to fiscal year 2020 was primarily due to a gain on the sale of a portion of our property
in Duarte, California in the amount of $22,323 and a gain on the sale of our property in Loveland, Colorado in the amount of
$2,330 that were each recognized in fiscal year 2020 and did not repeat again in the current fiscal year.
Income taxes were provided at an effective rate on earnings before income taxes of 15.1% for fiscal year 2021,
compared to 14.7% for fiscal year 2020.
28
The increase in the effective tax rate for fiscal year 2021 compared to fiscal year 2020 is primarily attributable to (i)
decreased current fiscal year foreign earnings in lower tax jurisdictions when compared to the prior fiscal year, and (ii)
decreased Research and Development Credit in the current fiscal year when compared to the prior fiscal year. This increase
is partially offset by (i) a larger favorable net excess income tax benefit from stock-based compensation, (ii) a favorable U.S.
current fiscal year state earnings mix when compared to the prior fiscal year, and (iii) a smaller detrimental adjustment to
prior period tax items when compared to the prior fiscal year.
Segment Results
The following table presents sales by segment:
Net sales:
Aerospace
Industrial
Consolidated net sales
Year Ended September 30,
2021
2020
$ 1,404,117
841,715
$ 2,245,832
62.5% $ 1,590,963
37.5%
904,702
100% $ 2,495,665
63.7%
36.3%
100%
The following table presents earnings by segment and reconciles segment earnings to consolidated net earnings:
Aerospace
Industrial
Nonsegment expenses
Interest expense, net
Consolidated earnings before income taxes
Income tax expense
Consolidated net earnings
Year Ended September 30,
2020
2021
$
$
234,356
108,672
(64,442)
(32,787)
245,799
37,150
208,649
$
$
310,137
100,321
(94,530)
(34,047)
281,881
41,486
240,395
The following table presents segment earnings as a percent of segment net sales:
Aerospace
Industrial
2021 Segment Results Compared to 2020
Aerospace
Year Ended September 30,
2020
2021
16.7%
12.9%
19.5%
11.1%
Aerospace segment net sales decreased by $186,846, or 11.7% to $1,404,117 for fiscal year 2021, compared to
$1,590,963 for fiscal year 2020. The decrease in segment net sales for fiscal year 2021 as compared to fiscal year 2020 was
primarily driven by lower commercial sales due to the substantial reduction in global passenger traffic, reduction in
required airliner capacity, and OEM production rates, all as a result of the global COVID-19 pandemic.
Defense OEM sales decreased in fiscal year 2021 compared to fiscal year 2020, driven primarily by lower sales for
guided weapons and ground transportation. Our defense aftermarket sales decreased in fiscal year 2021 compared to fiscal
year 2020 primarily due to the timing of U.S. government spending for maintenance needs and upgrade programs on which
we have content. Although we expect some ongoing variability in defense aftermarket sales due to the global COVID-19
pandemic and the timing of continued maintenance needs and upgrade programs, we expect U.S. government funding for
defense platforms on which we have content to remain stable under the current defense budget.
During fiscal year 2021, Aerospace segment net sales were negatively impacted by approximately $16,000 due to
global supply chain disruptions, which delayed delivery of orders scheduled for shipment during the fiscal year.
29
Aerospace segment earnings decreased by $75,781, or 24.4%, to $234,356 for fiscal year 2021, compared to $310,137
for fiscal year 2020.
The net decrease in Aerospace segment earnings for fiscal year 2021 was due to the following:
Earnings for the period ended September 30, 2020
Sales volume
Price, sales mix and productivity
Savings from cost reduction initiatives
Other, net
Earnings for the period ended September 30, 2021
$
$
310,137
(94,353)
(18,016)
22,069
14,519
234,356
Aerospace segment earnings as a percentage of segment net sales were 16.7% for fiscal year 2021 and 19.5% fiscal
year 2020. Aerospace segment earnings in fiscal year 2021 decreased primarily due to lower sales volume, including a
significant decline in commercial aftermarket, as a result of the COVID-19 pandemic, partially offset by savings from cost
reduction initiatives.
Industrial
Industrial segment net sales decreased by $62,987, or 7.0%, to $841,715 for fiscal year 2021, compared to $904,702
for fiscal year 2020. Industrial segment net sales for fiscal year 2021 were relatively flat compared to Industrial segment
net sales excluding the disposal group of $837,039 for fiscal year 2020. There were no sales for the disposal group in fiscal
year 2021 because the divestiture of the disposal group preceded the period. Foreign currency exchange rates had a
favorable impact on segment net sales of $32,734 for fiscal year 2021.
The decrease in Industrial segment net sales in fiscal year 2021 was primarily attributable to the divestiture of the
disposal group, and lower sales volumes as a result the ongoing impacts of the global COVID-19 pandemic, partially offset
by favorable effects of foreign currency exchange rates.
The demand for diesel fuel systems was negatively impacted by a softening of the oil and gas market amid a
recovering global economy, pricing volatility and decreased capital investments related to reduced drilling activity,
particularly within the North American fracking market.
Although there was a slight decline in industrial gas turbine sales in fiscal year 2021 as a result of the ongoing COVID-
19 pandemic, the market is anticipated to stabilize during fiscal year 2022 as global power demand increases and domestic
upgrade initiatives transition from planning to execution. We expect Industrial gas turbine sales to benefit from the
depletion of inventory in the market and increased Woodward content on certain newer industrial gas turbines.
During fiscal year 2021, Industrial segment net sales were negatively impacted by approximately $16,000 due to global
supply chain disruptions, which delayed delivery of orders scheduled for shipment during the fiscal year.
Industrial segment earnings increased by $8,351, or 8.3%, to $108,672 for fiscal year 2021, compared to $100,321 for
fiscal year 2020. There were no earnings for the disposal group in fiscal year 2021 because the divestiture of the disposal
group preceded the period. Industrial segment earnings excluding the disposal group for fiscal year 2020 were $96,719.
The net increase in Industrial segment earnings for fiscal year 2021 was due to the following:
Earnings for the period ended September 30, 2020
Sales volume
Price, sales mix and productivity
Research and development costs
Savings from cost reduction initiatives
Effects of changes in foreign currency rates
Other, net
Earnings for the period ended September 30, 2021
$
$
100,321
(21,400)
(1,180)
4,831
15,427
6,024
4,649
108,672
Industrial segment earnings as a percentage of segment net sales were 12.9% for fiscal year 2021, compared to 11.1%
for fiscal year 2020. Industrial segment earnings as a percentage of segment net sales, excluding the disposal group, were
11.6% for fiscal year 2020. The increase in Industrial segment earnings for fiscal year 2021 was primarily due to savings
from cost reduction initiatives, favorable effects from changes in foreign currency rates, and lower research and
development costs, partially offset by lower sales volume.
30
Nonsegment
Nonsegment expenses decreased to $64,442 for fiscal year 2021, compared to $94,530 for fiscal year 2020. Included
in nonsegment expenses for fiscal year 2021 was a restructuring charge of $5,008. Included in nonsegment expenses for
fiscal year 2020 were the impairment charge on assets held for sale associated with the divestiture of the disposal group in
the amount of $37,902, restructuring charges of $22,216, and merger and divestiture transaction costs of $16,355, partially
offset by the net gain on settlement of our cross-currency interest rate swaps of $27,481, and a gain on the sale of a portion
of our property in Duarte, California in the amount of $22,323. Excluding all of these charges and gains from each of fiscal
year 2021 and fiscal year 2020, nonsegment expenses decreased in fiscal year 2021 compared to fiscal year 2020 primarily
due to savings from cost reduction initiatives.
For a discussion of the 2020 Results of Operations, including a discussion of the financial results for the fiscal year
ended September 30, 2020 compared to the fiscal year ended September 30, 2019, refer to Part I, Item 7 of our Form 10-K
filed with the SEC on November 20, 2020.
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. 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, including
capital expansion funding for the next 12 months and the foreseeable future.
Our aggregate cash and cash equivalents were $448,462 at September 30, 2021 and $153,270 at September 30, 2020,
and our working capital was $1,098,466 at September 30, 2021 and $818,533 at September 30, 2020. Of the cash and cash
equivalents held at September 30, 2021, $172,761 was held by our foreign locations. We are not presently aware of any
significant restrictions on the repatriation of these funds, although a portion is considered indefinitely reinvested in these
foreign subsidiaries. If these funds were needed to fund our operations or satisfy obligations in the United States, then
they could be repatriated and their repatriation into the United States may cause us to incur additional U.S. income taxes or
foreign withholding taxes. Any additional U.S. taxes could be offset, in part or in whole, by foreign tax credits. 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.
Our revolving credit facility, as amended, provides a borrowing capacity of up to $1,000,000 with the option to
increase total available borrowings to up to $1,500,000, subject to lenders’ participation. We can borrow against our
revolving credit facility as long as we are in compliance with all of our debt covenants. Borrowings under the revolving
credit facility can be made in U.S. dollars or in foreign currencies other than the U.S. dollar provided that the U.S. dollar
equivalent of any foreign currency borrowings and U.S. dollar borrowings does not, in total, exceed the borrowing capacity
of the revolving credit facility. Historically, we have used borrowings under our revolving credit facilities to meet certain
short-term working capital needs, as well as for strategic uses, including repurchases of our common stock, payments of
dividends, acquisitions, and facility expansions.
In addition to our revolving credit facility, we have various foreign credit facilities, some of which are tied to net
amounts on deposit at certain foreign financial institutions. These foreign credit facilities are reviewed annually for
renewal. We use borrowings under these foreign credit facilities to finance certain local operations on a periodic basis. For
further discussion of our revolving credit facility and our other credit facilities, see Note 15, Credit facilities, short-term
borrowings and long-term debt in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.
At September 30, 2021, we had total outstanding debt of $734,850 consisting of various series of unsecured notes due
between 2023 and 2033, and amounts borrowed under our revolving credit facility, and our finance leases. On November
15, 2020, we paid the entire principal balance of $100,000 on our Series G and J Notes using primarily free cash flow and
proceeds from borrowings under our existing revolving credit facility. At September 30, 2021, we had additional borrowing
availability of $989,039 under our revolving credit facility, net of outstanding letters of credit, and additional borrowing
availability of $7,413 under various foreign credit facilities.
31
At September 30, 2021, we had no borrowings outstanding under our revolving credit facility. Revolving credit facility
and short-term borrowing activity during the fiscal year ended September 30, 2021 were as follows:
Maximum daily balance during the period
Average daily balance during the period
Weighted average interest rate on average daily balance
$
$
20,100
716
1.26%
We believe we were in compliance with all our debt covenants as of September 30, 2021. Additionally, we believe the
current known impacts of the COVID-19 pandemic will not affect our ability to remain in compliance with our debt
covenants. See Note 15, Credit facilities, short-term borrowings and long-term debt in the Notes to the Consolidated
Financial Statements in “Item 8 – Financial Statements and Supplemental Data,” for more information about our covenants.
In addition to utilizing our cash resources to fund the working capital needs of our business, we evaluate additional
strategic uses of our funds, including the repurchase of our common stock, payment of dividends, significant capital
expenditures, consideration of strategic acquisitions and other potential uses of cash.
Our ability to service our long-term debt, to remain in compliance with the various restrictions and covenants
contained in our debt agreements, and to fund working capital, capital expenditures and product development efforts will
depend on our ability to generate cash from operating activities, which in turn is subject to, among other things, future
operating performance as well as general economic, financial, competitive, legislative, regulatory, and other conditions,
some of which may be beyond our control.
We believe that cash flows from operations, along with our contractually committed borrowings and other borrowing
capability, will continue to be sufficient to fund anticipated capital spending requirements and our operations for the
foreseeable future. However, we could be adversely affected if the financial institutions providing our capital requirements
refuse to honor their contractual commitments, cease lending, or declare bankruptcy. We believe the lending institutions
participating in our credit arrangements are financially stable and do not currently foresee adverse impacts to financial
institutions providing our capital requirements as a result of the COVID-19 pandemic.
Cash Flows
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, including restricted cash, at beginning of year
Cash and cash equivalents, including restricted cash, at end of year
2021 Cash Flows Compared to 2020
Year Ended September 30,
2020
2021
464,669
(35,297)
(136,318)
2,138
295,192
153,270
448,462
$
$
349,491
(6,880)
(290,242)
1,828
54,197
99,073
153,270
$
$
Net cash flows provided by operating activities for fiscal year 2021 was $464,669, compared to $349,491 for fiscal
year 2020. The increase in net cash provided by operating activities in fiscal year 2021 compared to fiscal year 2020 is
primarily attributable to the timing of certain cash payments to suppliers and certain tax payments, as well as cash
payments for annual bonuses and proceeds from settlement of cross-currency interest rate swaps, which occurred in fiscal
year 2020, while no such activity occurred in fiscal year 2021.
Net cash flows used in investing activities for fiscal year 2021 was $35,297, compared to $6,880 in fiscal year 2020.
The increase in cash used in investing activities in fiscal year 2021 compared to fiscal year 2020 is primarily due to proceeds
in the amount of $30,089 from the sale of a parcel of our Duarte, California real property and proceeds in the amount of
$10,443 from divestiture of the disposal group, each of which were recognized in fiscal year 2020, while no such proceeds
were received in fiscal year 2021, partially offset by lower payments for property, plant, and equipment.
Net cash flows used in financing activities for fiscal year 2021 was $136,318, compared to net cash flows used in
financing activities of $290,242 in fiscal year 2020. During fiscal year 2021, we had net debt payments in the amount of
$101,639, compared to net debt payments in the amount of $264,201 in fiscal year 2020. This was partially offset by an
increase in share repurchases in fiscal year 2021, in which we repurchased 294 shares of our common stock in cash for
$33,344, compared to fiscal year 2020, in which we repurchased 124 shares of our common stock for $13,346.
32
New Accounting Standards
From time to time, the FASB or other standards-setting bodies issue new accounting pronouncements. Updates to the
FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update.
To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the
information provided in Note 2, New accounting standards, in the Notes to the Consolidated Financial Statements included
in “Item 8 – Financial Statements and Supplementary Data. Unless otherwise discussed, we believe that the impact of
recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our
Consolidated Financial Statements upon adoption.
Non-U.S. GAAP Financial Measures
Adjusted net earnings, adjusted earnings per share, adjusted effective tax rate, Industrial segment net sales excluding
the disposal group, Industrial segment earnings excluding the disposal group, EBIT, adjusted EBIT, EBITDA, adjusted EBITDA,
free cash flow, and adjusted free cash flow are financial measures not prepared and presented in accordance with U.S.
GAAP. However, we believe these non-U.S. GAAP financial measures provide additional information that enables readers
to evaluate our business from the perspective of management.
Industrial segment net sales excluding the disposal group
The Company presents certain sales measures excluding the disposal group net sales, which it refers to as “excluding
the disposal group” to show the changes to Woodward’s historical business without the businesses included in the disposal
group, which occurred in April 2020. The Company calculates Industrial segment net sales excluding net sales attributable
to the disposal group by removing the net sales of its disposal group from the net sales of its Industrial segment. The
Company believes that the exclusion of the disposal group net sales for the prior fiscal year illustrates more clearly how the
underlying business of its Industrial segment is performing in the current fiscal year, as the disposal group sales are no
longer related to the ongoing operations of the Industrial segment business. The Company’s calculation of Industrial
segment earnings and Industrial segment earnings excluding the disposal group is discussed below.
The reconciliation of Industrial segment net sales to Industrial segment net sales excluding the disposal group is shown
in the table below:
Industrial segment net sales (U.S. GAAP)
Disposal group net sales
Industrial segment net sales excluding the disposal group (Non-U.S. GAAP)
Earnings based non-U.S. GAAP financial measures
Year Ended September 30,
2020
2021
$
$
841,715
—
841,715
$
$
904,702
(67,663)
837,039
Adjusted net earnings is defined by the Company as net earnings excluding, as applicable, (i) the gain on sale of assets
associated with the sale of the Company’s real property, (ii) the charge from the impairment of assets held for sale, and the
losses from assets sold, associated with the Company’s divestiture of the disposal group, (iii) costs associated with the now-
terminated merger agreement with Hexcel, (iv) transaction costs associated with the divestiture of the disposal group, (v)
restructuring charges, (vi) acceleration of stock compensation expense related to restructuring activities, and (vii) the net
gain on settlement of cross-currency interest rate swaps.
The Company believes that these excluded items are short-term in nature, not directly related to the ongoing
operations of the business and therefore, the exclusion of them illustrates more clearly how the underlying business of
Woodward is performing. Management uses adjusted net earnings to evaluate the Company’s performance excluding
these infrequent or unusual period expenses that are not necessarily indicative of the Company’s operating performance
for the period. Management defines adjusted earnings per share as adjusted net earnings, as defined above, divided by the
weighted-average number of diluted shares of common stock outstanding for the period. Management uses both adjusted
net earnings and adjusted earnings per share when comparing operating performance to other periods which may not have
similar infrequent or unusual charges.
33
The reconciliation of net earnings and earnings per share to adjusted net earnings and adjusted earnings per share,
respectively, for the fiscal years ended and are shown in the tables below.
Year Ended September 30,
2021
2020
Net earnings (U.S. GAAP)
Non-U.S. GAAP adjustments:
Gain on sale of properties, net of tax
Impairment from assets sold, net of tax
Merger and divestiture transaction costs, net of tax
Restructuring charges, net of tax
Loss on sale of disposal group, net of tax
Acceleration of stock compensation, net of tax
Net gain on cross-currency interest rate swaps, net of tax
Total non-U.S. GAAP adjustments
Adjusted net earnings (Non-U.S. GAAP)
Industrial segment earnings excluding the disposal group
Net Earnings
$
208,649 $
—
—
—
3,736
—
—
—
3,736
212,385 $
$
Earnings Per
Share
Net Earnings
Earnings Per
Share
3.18 $
240,395 $
3.74
—
—
—
0.06
—
—
—
0.06
3.24 $
(18,551)
28,016
12,307
16,621
365
1,788
(26,904)
13,642
254,037 $
(0.29)
0.44
0.19
0.26
0.01
0.03
(0.42)
0.22
3.96
The Company also presents certain earnings measures excluding the disposal group for the prior year period to more
clearly show how the underlying business of its Industrial segment is performing in the current period. Industrial segment
earnings excluding the disposal group is defined by the Company as Industrial segment earnings excluding the earnings or
losses related to businesses included in the disposal group. The Company believes that these earnings or losses are no
longer related to the ongoing operations of the Industrial segment business and therefore, the exclusion of these earnings
illustrates more clearly how the underlying business of Woodward’s Industrial segment is performing. Industrial segment
earnings excluding the disposal group as a percentage of Industrial segment net sales excluding the disposal group is
defined by management as the percentage of segment earnings compared to segment net sales excluding the earnings (or
losses) and net sales related to businesses included in the disposal group.
The reconciliation of Industrial segment earnings to Industrial segment earnings excluding the disposal group is shown
in the table below.
Industrial segment earnings (U.S. GAAP)
Disposal group earnings
Adjusted Industrial segment earnings excluding disposal group (Non-U.S. GAAP)
Year Ended September 30,
2020
2021
$
$
108,672
—
108,672
$
$
100,321
(3,602)
96,719
Management uses EBIT to evaluate Woodward’s performance without financing and tax related considerations, as
these elements may not fluctuate with operating results. Management uses EBITDA in evaluating Woodward’s operating
performance, making business decisions, including developing budgets, managing expenditures, forecasting future periods,
and evaluating capital structure impacts of various strategic scenarios. Securities analysts, investors and others frequently
use EBIT and EBITDA in their evaluation of companies, particularly those with significant property, plant, and equipment,
and intangible assets subject to amortization. The Company believes that EBIT and EBITDA are useful measures to the
investor when measuring operating performance as they eliminate the impact of financing and tax expenses, which are
non-operating expenses and may be driven by factors outside of our operations, such as changes in tax laws or regulations,
and, in the case of EBITDA, the noncash charges associated with depreciation and amortization. Further, as interest from
financing, income taxes, depreciation and amortization can vary dramatically between companies and between periods,
management believes that the removal of these items can improve comparability.
Adjusted EBIT and adjusted EBITDA represent further non-U.S. GAAP adjustments to EBIT and EBITDA, in each case
adjusted to exclude, as applicable, (i) the gain on sale of assets associated with the sale of the Company’s real property, (ii)
the charge from the impairment of assets held for sale, and the losses from assets sold, associated with the Company’s
divestiture of the disposal group, (iii) costs associated with the now-terminated merger agreement with Hexcel, (iv)
transaction costs associated with the divestiture of the disposal group, (v) restructuring charges related to the COVID-19
pandemic, (vi) acceleration of stock compensation expense related to restructuring activities, and (vii) the net gain on
settlement of cross-currency interest rate swaps.
34
As these gains and charges are infrequent or unusual items that can be variable from period to period and do not
fluctuate with operating results, management believes that by removing these gains and charges from EBIT and EBITDA it
improves comparability of past, present and future operating results and provides consistency when comparing EBIT and
EBITDA between periods.
EBIT and adjusted EBIT reconciled to net earnings were as follows:
Net earnings (U.S. GAAP)
Income tax expense
Interest expense
Interest income
EBIT (Non-U.S. GAAP)
Non-U.S. GAAP adjustments:
Gain on sale of properties
Impairment from assets sold
Merger and divestiture transaction costs
Restructuring charges
Loss on sale of disposal group
Acceleration of stock compensation
Net gain on cross-currency interest rate swaps
Total non-U.S. GAAP adjustments
Adjusted EBIT (Non-U.S. GAAP)
EBITDA and adjusted EBITDA reconciled to net earnings were as follows:
Net earnings (U.S. GAAP)
Income tax expense
Interest expense
Interest income
Amortization of intangible assets
Depreciation expense
EBITDA (Non-U.S. GAAP)
Non-U.S. GAAP adjustments:
Gain on sale of properties
Impairment from assets sold
Merger and divestiture transaction costs
Restructuring charges
Loss on sale of disposal group
Acceleration of stock compensation
Net gain on cross-currency interest rate swaps
Total non-U.S. GAAP adjustments
Adjusted EBITDA (Non-U.S. GAAP)
Year Ended September 30,
2020
2021
208,649
37,150
34,282
(1,495)
278,586
—
—
—
5,008
—
—
—
5,008
283,594
$
$
240,395
41,486
35,811
(1,764)
315,928
(24,653)
37,902
16,355
22,216
515
2,376
(27,481)
27,230
343,158
Year Ended September 30,
2020
2021
208,649
37,150
34,282
(1,495)
41,893
87,631
408,110
—
—
—
5,008
—
—
—
5,008
413,118
$
$
240,395
41,486
35,811
(1,764)
39,458
91,700
447,086
(24,653)
37,902
16,355
22,216
515
2,376
(27,481)
27,230
474,316
$
$
$
$
The use of these non-U.S. GAAP financial measures is not intended to be considered in isolation of, or as a substitute
for, the financial information prepared and presented in accordance with U.S. GAAP. As adjusted net earnings, adjusted net
earnings per share, adjusted effective tax rate, Industrial segment sales excluding the disposal group, Industrial segment
earnings excluding the disposal group, EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA exclude certain financial
information compared with net earnings, the most comparable U.S. GAAP financial measure, users of this financial
information should consider the information that is excluded. Our calculations of adjusted net earnings, adjusted net
earnings per share, Industrial segment sales excluding the disposal group, Industrial segment earnings excluding the
disposal group, EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA may differ from similarly titled measures used by other
companies, limiting their usefulness as comparative measures.
35
Cash flow-based non-U.S. GAAP financial measures
Management uses free cash flow, which is defined by the Company as net cash flows provided by operating activities
less payments for property, plant and equipment, in reviewing the financial performance of and cash generation by
Woodward’s various business groups and evaluating cash levels. We believe free cash flow is a useful measure for investors
because it portrays our ability to grow organically and generate cash from our businesses for purposes such as paying
interest on our indebtedness, repaying maturing debt, funding business acquisitions, investing in research and
development, purchasing our common stock, and paying dividends. In addition, securities analysts, investors, and others
frequently use free cash flow in their evaluation of companies.
Adjusted free cash flow includes additional non-U.S. GAAP adjustments to free cash flow in the prior fiscal year to
include cash proceeds from the sale of real property located at our former operations in Duarte, California, and exclude
cash paid for merger and divestiture related transaction costs, cash paid for restructuring charges, and cash proceeds
received on settlement of our cross-currency interest rate swaps. Management believes that by including or excluding
these items, as applicable, in free cash flow it better portrays the cash impact of our fiscal year 2018 decision to relocate
our Duarte, California operations to the renovated Drake Campus in Fort Collins, Colorado and excludes the infrequent or
unusual cash payments for merger and divestiture transaction costs, restructuring charges, and proceeds from settlement
of derivative instruments, which are not indicative of the Company’s operating performance for the period.
The use of these non-U.S. GAAP financial measures is not intended to be considered in isolation of, or as substitutes
for, the financial information prepared and presented in accordance with U.S. GAAP. Free cash flow and adjusted free cash
flow do not necessarily represent funds available for discretionary use and are not necessarily a measure of our ability to
fund our cash needs. Our calculation of free cash flow and adjusted free cash flow may differ from similarly titled measures
used by other companies, limiting their usefulness as a comparative measure.
Free cash flow and adjusted free cash flow were as follows:
Net cash provided by operating activities (U.S. GAAP)
Payments for property, plant and equipment
Free cash flow (Non-U.S. GAAP)
Cash proceeds from the sale of the Duarte facility
Cash paid for merger and divestiture transaction costs
Cash paid for restructuring charges
Net cash proceeds from cross-currency interest rate swaps
Adjusted free cash flow (Non-U.S. GAAP)
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Year Ended September 30,
2020
2021
$
$
$
464,669
(37,689)
426,980
—
—
—
—
426,980
$
$
$
349,491
(47,087)
302,404
30,089
19,853
18,065
(55,191)
315,220
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. 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. All of these
estimates reflect our best judgment about current, and for some estimates, future economic and market conditions and
their effects based on information available as of the date of these financial statements. As estimates are updated or actual
amounts are known, our critical accounting estimates are revised, and operating results may be affected by the revised
estimates. Actual results may differ from these estimates under different assumptions or conditions.
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.
36
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 recognize revenue for performance obligations within a customer contract when
control of the associated product or service is transferred to the customer. Some of our contracts with customers contain a
single performance obligation, while other contracts contain multiple performance obligations. Each product within a
contract generally represents a separate performance obligation as we do not provide significant installation and
integration services, the products do not customize each other, and the products can function independently of each other.
A contract's transaction price is allocated to each performance obligation and recognized as revenue when, or as, the
customer obtains control of the associated product or service. When there are multiple performance obligations within a
contract, we generally use the observable standalone sales price for each distinct product or service within the contract to
allocate the transaction price to the distinct products or services. In instances when a standalone sales price for each
product or service is not observable within the contract, we allocate the transaction price to each performance obligation
using an estimate of the standalone selling price for each product or service, which is generally based on incurred costs plus
a reasonable margin, for each distinct product or service in the contract.
When determining the transaction price of each contract, we consider contractual consideration payable by the
customer and variable consideration that may affect the total transaction price. Variable consideration, consisting of early
payment discounts, rebates and other sources of price variability, are included in the estimated transaction price based on
both customer-specific information as well as historical experience. 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.
Point in time and over time revenue recognition
Control of the products generally transfers to the customer at a point in time, as the customer does not control the
products as they are produced. We exercise judgment and consider the timing of right of payment, transfer of the risk and
rewards, transfers of title, transfer of physical possession, and customer acceptance when determining when control of the
product transfers to the customer, generally upon shipment of products. Performance obligations are satisfied and
revenue is recognized over time if: (i) the customer receives the benefits as we perform work, if the customer controls the
asset as it is being enhanced, or if the product being produced for the customer has no alternative use to us; and (ii) we
have an enforceable right to payment with a profit. When services are provided, revenue from those services is recognized
over time because control is transferred continuously to customers as we perform the work.
For services that are not short-term in nature, manufacturing, repair and overhaul (“MRO”), and sales of products that
have no alternative use to us and an enforceable right to payment with a profit, we use an actual cost input measure to
determine the extent of progress towards completion of the performance obligation. For these revenue streams, revenue
is recognized over time as work is performed based on the relationship between actual costs incurred to-date for each
contract and the total estimated costs for such contract at completion of the performance obligation (the cost-to-cost
method). We have concluded that this measure of progress best depicts the transfer of assets to the customer, because
incurred costs are integral to our completion of the performance obligation under the specific customer contract and
correlate directly to the transfer of control to the customer. Contract costs include labor, material and overhead. Contract
cost estimates are based on various assumptions to project the outcome of future events. These assumptions include labor
productivity and availability; the complexity of the work to be performed; the cost and availability of materials; the
performance of subcontractors; and the availability and timing of funding from the customer. 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. Inventory net realizable values are determined by giving substantial consideration to the expected product
selling price. We estimate expected selling prices based on our historical recovery rates, general economic and market
conditions, the expected channel of disposition, and current customer contracts and preferences. Actual results may differ
from our estimates due to changes in resale or market value and the mix of these factors.
37
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. 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 $419,971 at September 30, 2021 and $437,943 at September 30, 2020. If
economic conditions, customer product requirements, or other factors significantly reduce future customer demand for our
products from forecast levels, then future adjustments to the carrying value of inventory may become necessary. We
attempt to maintain inventory quantities at levels considered necessary to fill firm and expected orders in a reasonable
time frame, which we believe mitigates our exposure to future inventory carrying cost adjustments.
Reviews for impairment of goodwill and other indefinitely lived intangible assets
Goodwill
At September 30, 2021, we had $805,333 of goodwill representing 20% of our total assets. Goodwill is tested for
impairment at the reporting unit level on an annual basis and more often if an event occurs or circumstances change that
indicate the fair value of a reporting unit may be below its carrying amount.
The identification of reporting units and consideration of the aggregation of components into a single reporting unit
under U.S. GAAP requires management judgment. The impairment test consists of comparing the fair value of reporting
units, determined using discounted cash flows, with their carrying amount including goodwill. If the carrying amount of the
reporting unit exceeds its fair value, we compare the implied fair value of goodwill with its carrying amount. 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, 2021 for the fiscal year
ended September 30, 2021. The results of our annual goodwill impairment test performed as of July 31, 2021, 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. At September 30,
2021, the carrying value of the Woodward L’Orange trade name intangible asset was $67,245, representing 2% of our total
assets. The Woodward L’Orange trade name intangible asset is tested for impairment on an annual basis and more often if
an event occurs or circumstances change that indicate the fair value of the Woodward L’Orange intangible asset may be
below its carrying amount. The impairment test consists of comparing the fair value of the Woodward L’Orange trade
name intangible asset, determined using discounted cash flows based on the relief from royalty method under the income
approach, with its carrying amount. 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.
During the fourth quarter, we completed the annual impairment test, for the fiscal year ended September 30, 2021, of
the Woodward L’Orange trade name intangible asset as of July 31, 2021. The results of the annual impairment test
performed as of July 31, 2021 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.
As part of our ongoing monitoring efforts to assess goodwill and the Woodward L’Orange trade name indefinite lived
asset for possible indications of impairment, we will continue to consider a wide variety of factors, including but not limited
to the global economic environment and its potential impact on our business. 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.
38
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. We establish reserves for tax-related uncertainties based on estimates of whether, and the
extent to which, additional taxes will be due. The reserves are established when we believe that certain positions are likely
to be challenged and may not be fully sustained on review by tax authorities. 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. To the extent that the final tax outcome of these matters is different
from the amounts recorded, such differences will impact the current provision for income taxes.
Significant judgment is also required in determining any valuation allowance recorded against deferred tax assets. The
determination of the amount of valuation allowance to be provided on recorded deferred tax assets involves estimates
regarding the timing and amount of the reversal of taxable temporary differences, expected future taxable income, and the
impact of tax planning strategies. A valuation allowance is established to offset any deferred tax assets if, based upon the
available evidence, it is more likely than not that some or all of the deferred tax asset will not be realized. In assessing the
need for a valuation allowance, we consider all available evidence including past operating results, estimates of future
taxable income, and the feasibility of tax planning strategies. Changes in the relevant facts can significantly impact the
judgment or need for valuation allowances. In the event we change our determination as to the amount of deferred tax
assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income
taxes in the period in which such determination is made.
Our provision for income taxes is subject to volatility and could be affected by earnings that are different than those
anticipated in countries which have lower or higher tax rates; by transfer pricing adjustments; and/or changes in tax laws,
regulations, and accounting principles, including accounting for uncertain tax positions, or interpretations thereof. 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. 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.
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. 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.
39
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we have exposures to interest rate risk from our long-term and short-term debt, and
our postretirement benefit plans, and foreign currency exchange rate risk related to our foreign operations and foreign
currency transactions.
Foreign Currency Exchange Rate Risk, Interest Rate Risk, and Related Hedging Activities
We are impacted by changes in foreign currency exchange rates when we sell product in currencies different from the
currency in which product and manufacturing costs were incurred. The functional currencies and our purchasing and sales
activities primarily include USD, EUR, RMB, JPY and GBP. We may also be impacted by changes in the relative buying power
of our customers, which may impact sales volumes either positively or negatively. As these currencies fluctuate against
each other, and other currencies, we are exposed to foreign currency exchange rate risk on sales, purchasing transactions,
and labor. Foreign currency exchange rate risk is reduced through the maintenance of local production facilities in the
markets we serve, which we believe creates a natural hedge to our foreign currency exchange rate exposure.
The percentages of our net sales denominated in a currency other than the USD were as follows:
For the Year Ended September 30,
2021
2020
Functional currency:
EUR
RMB
JPY
GBP
All other foreign currencies
14.2%
8.0%
1.3%
2.6%
1.5%
27.6%
14.7%
6.8%
1.7%
2.2%
1.3%
26.7%
Currency exchange rates vary daily and often one currency strengthens against the USD while another currency
weakens. Because of the complex interrelationship of our worldwide supply chains and distribution channels, it is difficult
to quantify the impact of a particular change in exchange rates.
We use derivative instruments as risk management tools that involve complexity and are not used for trading or
speculative purposes. From time to time, we will enter into a foreign currency exchange rate contract to hedge against
changes in foreign currency exchange rates on liabilities expected to be settled at a future date. Market risk arises from the
potential adverse effects on the value of derivative instruments that result from a change in foreign currency exchange
rates. We minimize this market risk by establishing and monitoring parameters that limit the types of, and degree to which
we enter into, derivative instruments. We enter into derivative instruments for risk management purposes only. We do
not enter into or issue derivatives for trading or speculative purposes. As of September 30, 2021 and 2020, we had no open
foreign currency exchange rate contracts and all previous exchange rate derivative instruments were settled or terminated.
For more information on derivative instruments, see Note 8, Derivative instruments and hedging activities, in the
Notes to the Consolidated Financial Statements in “Item 8 – Financial Statements and Supplementary Data.”
Our reported financial results of operations, including the reported value of our assets and liabilities, are also
impacted by changes in foreign currency exchange rates. The assets and liabilities of substantially all of our subsidiaries
outside the United States are translated at period end rates of exchange for each reporting period. Earnings and cash flow
statements are translated at weighted-average rates of exchange. Although these translation changes have no immediate
cash impact, the translation changes may impact future borrowing capacity, debt covenants, and the overall value of our
net assets. In addition, we also have assets and liabilities, specifically accounts receivable, accounts payable and current
inter-company receivables and payables, whose carrying amounts approximate their fair value, which are denominated in
currencies other than their relevant functional currencies. 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.
40
Item 8.
Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Woodward, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Woodward, Inc. and subsidiaries (the "Company") as of
September 30, 2021 and 2020, the related consolidated statements of earnings, comprehensive earnings, shareholders'
equity, and cash flows, for each of the three years in the period ended September 30, 2021, and the related notes
(collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial
reporting as of September 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three years
in the period ended September 30, 2021, in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of September 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued
by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express
an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was
maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe that
our audits provide a reasonable basis for our opinions.
41
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements
that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the
critical audit matter or on the accounts or disclosures to which it relates.
Intangible Assets, net – Trade name — Refer to Notes 1 and 14 to the financial statements
Critical Audit Matter Description
The Company has one indefinitely lived intangible asset consisting of the Woodward L’Orange trade name (“trade name”).
As of September 30, 2021, the carrying value of the trade name is $67.2 million. The trade name is tested for impairment
on an annual basis and more often if an event occurs or circumstances change that indicate the fair value of the trade name
may be below its carrying amount. The Company completed its annual impairment test of the trade name as of July 31,
2021. The results of impairment test indicated the estimated fair value of the trade name was in excess of its carrying value
and, accordingly, no impairment existed.
The fair value of the trade name was determined using discounted cash flows based on the relief from royalty method
under the income approach. This method incorporates various estimates and assumptions, the most significant being
projected revenue growth rates, royalty rates and the present value of the forecasted cash flows based on the discount rate
and terminal growth rate. The Company projects revenue growth rates and cash flows based on Woodward L’Orange’s
current operational results, expected performance and operational strategies over a five-year period. These projections are
adjusted to reflect current economic conditions and demand for certain products and require considerable management
judgment. Changes in these estimates and assumptions can have a significant impact on the fair value.
We identified the fair value of the trade name as a critical audit matter because of the significant judgments and
assumptions management makes related to the projection of revenue growth rates and the selection of the discount rate,
terminal growth rate and royalty rate. This required a high degree of auditor judgment and an increased extent of effort,
including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness
of management’s projection of revenue growth rates and selection of the discount rate, terminal growth rate and royalty
rate.
42
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the projection of revenue growth rates and selection of the discount rate, terminal growth
rate, and royalty rate used in determining the fair value of the trade name included the following, among others:
• We tested the effectiveness of controls over the fair value of the trade name, including those over the projection
of revenue growth rates and the selection of the discount rate, terminal growth rate and royalty rate.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate, terminal
growth rate, and royalty rate by:
−
Testing the source information underlying the determination of the discount rate, terminal growth rate and
royalty rate and recalculating the mathematical accuracy of management’s calculation of the discount rate
− Developing a range of independent estimates over the discount rate and terminal growth rate and comparing
those to the discount and terminal growth rates selected by management
−
−
Comparing the royalty rate from comparable licensing agreements to the rate selected by management
Searching for any events which could adversely impact the fair value of the brand
• We evaluated the reasonableness of management’s projected revenue growth rates by:
−
Comparing management’s projections to:
− Historical revenue results for Woodward L’Orange
−
−
−
Internal communications to management and the board of directors
Analyst and industry reports
Peer company forecasts
−
Considering the impact of changes in management’s projections from the July 31, 2021, annual assessment
date to September 30, 2021 by comparing actual results for the period to management projections within the
original valuation model.
/s/ DELOITTE & TOUCHE LLP
Denver, Colorado
November 19, 2021
We have served as the Company's auditor since 2008.
43
WOODWARD, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
Net sales
Costs and expenses:
Cost of goods sold
Selling, general and administrative expenses
Research and development costs
Impairment of assets sold
Restructuring charges
Gain on cross-currency interest rate swaps, net
Interest expense
Interest income
Other (income) expense, net
Total costs and expenses
Earnings before income taxes
Income tax expense
Net earnings
Earnings per share:
Basic earnings per share
Diluted earnings per share
$
$
$
$
Year Ended September 30,
2020
2,495,665
$
$
2021
2,245,832
1,694,774
186,866
117,091
—
5,008
—
34,282
(1,495)
(36,493)
2,000,033
245,799
37,150
208,649
3.30
3.18
$
$
$
1,855,422
217,710
133,134
37,902
22,216
(30,481)
35,811
(1,764)
(56,166)
2,213,784
281,881
41,486
240,395
3.86
3.74
$
$
$
2019
2,900,197
2,192,654
211,205
159,107
—
—
—
44,001
(1,413)
(25,969)
2,579,585
320,612
61,010
259,602
4.19
4.02
Weighted Average Common Shares Outstanding:
Basic
Diluted
63,287
65,555
62,267
64,209
61,950
64,498
See accompanying Notes to Consolidated Financial Statements
44
WOODWARD, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
Net earnings
Other comprehensive earnings:
Foreign currency translation adjustments
Net gain (loss) on foreign currency transactions designated as hedges of net
investments in foreign subsidiaries
Taxes on changes on foreign currency translation adjustments
Foreign currency translation and transactions adjustments, net of tax
Unrealized (loss) gain on fair value adjustment of derivative instruments
Reclassification of net realized (gains) losses on derivatives to earnings
Taxes on changes on derivative transactions
Derivative adjustments, net of tax
Minimum retirement benefit liability adjustments:
Net gain (loss) arising during the period
Prior service cost arising during the period
Amortization of:
Prior service cost
Net loss
Foreign currency exchange rate changes on minimum retirement benefit liabilities
Taxes on changes on minimum retirement benefit liability adjustments
Total comprehensive earnings
$
Year Ended September 30,
2020
2019
2021
$
208,649
$
240,395
$
259,602
8,628
15,668
(16,554)
592
(1,433)
7,787
(1,672)
(3,702)
234
(5,140)
27,809
(611)
995
1,502
(855)
(7,312)
21,528
232,824
$
(3,199)
75
12,544
(18,262)
2,134
626
(15,502)
20,179
—
962
2,523
(1,672)
(5,522)
16,470
253,907
$
2,682
476
(13,396)
47,759
(31,446)
(326)
15,987
(43,817)
(601)
704
955
1,318
10,531
(30,910)
231,283
See accompanying Notes to Consolidated Financial Statements
45
WOODWARD, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
September 30,
2021
September 30,
2020
Current assets:
ASSETS
Cash and cash equivalents, including restricted cash of $1,907 and $3,497, respectively
Accounts receivable, less allowance for uncollectible amounts of $3,664 and $8,359, respectively
Inventories
Income taxes receivable
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Deferred income tax assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
Accounts payable
Income taxes payable
Accrued liabilities
Total current liabilities
Long-term debt, less current portion
Deferred income tax liabilities
Other liabilities
Total liabilities
Commitments and contingencies (Note 22)
Stockholders' equity:
$
$
$
Preferred stock, par value $0.003 per share, 10,000 shares authorized, no shares issued
Common stock, par value $0.001455 per share, 150,000 shares authorized, 72,960 shares issued
Additional paid-in capital
Accumulated other comprehensive losses
Deferred compensation
Retained earnings
Treasury stock at cost, 9,702 shares and 10,277 shares, respectively
Treasury stock held for deferred compensation, at cost, 167 shares and 199 shares, respectively
Total stockholders' equity
Total liabilities and stockholders' equity
$
See accompanying Notes to Consolidated Financial Statements
448,462
523,051
419,971
12,071
61,168
1,464,723
950,569
805,333
559,289
14,066
297,024
4,091,004
728
170,909
11,481
183,139
366,257
734,122
157,936
617,908
1,876,223
—
106
261,735
(65,619)
7,949
2,600,513
2,804,684
(581,954)
(7,949)
2,214,781
4,091,004
$
$
$
$
153,270
537,987
437,943
28,879
52,786
1,210,865
997,415
808,252
606,711
14,658
265,435
3,903,336
101,634
134,242
4,662
151,794
392,332
736,849
163,573
617,905
1,910,659
—
106
231,936
(89,794)
9,222
2,427,905
2,579,375
(577,476)
(9,222)
1,992,677
3,903,336
46
WOODWARD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization
Impairment of assets sold
Net (gain) loss on sales of assets and businesses
Net (gain) on cross-currency interest rate swaps
Stock-based compensation
Deferred income taxes
Changes in operating assets and liabilities:
Trade accounts receivable
Unbilled receivables (contract assets)
Costs to fulfill a contract
Inventories
Accounts payable and accrued liabilities
Contract liabilities
Income taxes
Retirement benefit obligations
Other
Net cash provided by operating activities
Cash flows from investing activities:
Payments for purchase of property, plant, and equipment
Proceeds from sale of assets
Proceeds from business divestiture
Proceeds from sales of short-term investments
Payments for purchases of short-term investments
Net cash used in investing activities
Cash flows from financing activities:
Cash dividends paid
Proceeds from sales of treasury stock
Payments for repurchases of common stock
Borrowings on revolving lines of credit and short-term borrowings
Payments on revolving lines of credit and short-term borrowings
Payments of long-term debt and finance lease obligations
Payments for debt financing costs
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, including restricted cash, at beginning of year
Cash and cash equivalents, including restricted cash, at end of year
Year Ended September 30,
2020
2019
2021
$
208,649
$
240,395
$
259,602
129,524
—
(4,452)
—
21,475
(11,964)
41,241
(16,491)
(19,761)
18,871
61,793
24,848
21,509
(6,848)
(3,725)
464,669
(37,689)
154
—
16,575
(14,337)
(35,297)
131,158
37,902
(23,598)
(30,481)
22,902
1,311
52,095
(22,028)
(27,446)
61,019
(153,318)
25,882
(37,099)
(3,777)
74,574
349,491
(47,087)
30,173
10,443
12,700
(13,109)
(6,880)
142,004
—
1,925
—
18,146
(10,065)
841
(31,353)
(20,656)
(49,185)
48,004
29,082
2,083
(3,705)
3,885
390,608
(99,066)
1,010
—
22,252
(26,723)
(102,527)
(36,041)
34,706
(33,344)
74,400
(74,400)
(101,639)
—
(136,318)
2,138
295,192
153,270
448,462
(37,664)
24,969
(13,346)
1,248,135
(1,510,746)
(1,590)
—
(290,242)
1,828
54,197
99,073
153,270
$
(39,066)
36,044
(110,311)
1,683,542
(1,690,035)
(143,535)
(2,238)
(265,599)
(7,003)
15,479
83,594
99,073
$
$
See accompanying Notes to Consolidated Financial Statements
47
.
C
N
I
,
D
R
A
W
D
O
O
W
Y
T
I
U
Q
E
’
S
R
E
D
L
O
H
K
C
O
T
S
F
O
S
T
N
E
M
E
T
A
T
S
D
E
T
A
D
I
L
O
S
N
O
C
)
s
t
n
u
o
m
a
e
r
a
h
s
r
e
p
t
p
e
c
x
e
,
s
d
n
a
s
u
o
h
t
n
I
(
y
t
i
u
q
e
l
'
s
r
e
d
o
h
k
c
o
t
S
i
s
g
n
n
r
a
e
)
s
s
o
l
(
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
o
d
e
t
a
u
m
u
c
c
A
l
s
e
r
a
h
s
f
o
r
e
b
m
u
N
y
r
u
s
a
e
r
T
l
'
s
r
e
d
o
h
k
c
o
t
s
d
e
r
r
e
f
e
d
y
t
i
u
q
e
n
o
i
t
a
s
n
e
p
m
o
c
l
a
t
o
T
l
r
o
f
d
e
h
k
c
o
t
s
y
r
u
s
a
e
r
T
t
a
k
c
o
t
s
t
s
o
c
i
d
e
n
a
t
e
R
i
s
g
n
n
r
a
e
d
e
r
r
e
f
e
D
e
v
i
s
n
e
h
e
r
p
m
o
c
y
t
i
l
i
b
a
i
l
n
o
i
t
a
s
n
e
p
m
o
c
i
s
g
n
n
r
a
e
)
s
s
o
l
(
s
t
n
e
m
t
s
u
d
a
j
l
d
e
t
a
u
m
u
c
c
a
t
n
e
m
e
r
i
t
e
r
r
e
h
t
o
t
i
f
e
n
e
b
l
a
t
o
T
m
u
m
n
M
i
i
d
e
z
i
l
a
e
r
n
U
e
v
i
t
a
v
i
r
e
d
i
s
n
a
g
)
s
e
s
s
o
l
(
n
g
i
e
r
o
F
y
c
n
e
r
r
u
c
n
o
i
t
a
l
s
n
a
r
t
s
t
n
e
m
t
s
u
d
a
j
l
a
n
o
i
t
i
d
d
A
n
i
-
d
a
p
i
l
a
t
i
p
a
c
k
c
o
t
s
n
o
i
t
a
s
n
e
p
m
o
c
k
c
o
t
s
y
r
u
s
a
e
r
T
l
r
o
f
d
e
h
k
c
o
t
s
n
o
m
m
o
C
d
e
r
r
e
f
e
d
y
r
u
s
a
e
r
T
n
o
m
m
o
C
,
3
4
6
6
6
9
1
,
$
1
3
4
8
,
$
)
2
4
9
4
7
(
,
$
)
6
0
2
4
1
(
,
$
)
2
4
9
0
2
(
,
$
)
4
9
7
9
3
(
,
$
,
5
0
7
5
8
1
$
6
0
1
$
)
2
0
2
(
)
3
0
2
1
1
(
,
)
5
0
0
1
(
,
0
0
7
8
3
,
)
9
1
3
8
2
(
,
)
6
6
0
9
3
(
,
,
2
0
6
9
5
2
)
1
1
3
0
1
1
(
,
4
4
0
6
3
,
6
4
8
4
1
,
6
4
1
8
1
,
—
—
,
4
0
1
8
3
5
1
,
,
1
4
7
6
2
7
1
,
,
1
4
7
6
2
7
1
,
5
5
2
2
1
5
3
1
,
,
5
9
3
0
4
2
)
4
6
6
7
3
(
,
)
6
4
3
3
1
(
,
4
3
1
5
2
,
8
4
7
4
1
,
2
0
9
2
2
,
—
—
,
7
7
6
2
9
9
1
,
,
7
7
6
2
9
9
1
,
5
7
1
4
2
,
,
9
4
6
8
0
2
)
1
4
0
6
3
(
,
)
0
6
8
5
4
(
,
6
0
8
4
3
,
0
0
9
4
1
,
5
7
4
1
2
,
—
—
,
1
8
7
4
1
2
2
,
$
)
1
3
4
8
(
,
$
)
8
0
4
9
3
5
(
,
$
—
—
—
—
—
—
—
—
—
$
$
2
4
2
)
3
9
1
1
(
,
)
2
8
3
9
(
,
)
2
8
3
9
(
,
—
—
—
—
—
—
—
—
$
$
)
1
8
6
(
1
4
8
)
2
2
2
9
(
,
)
2
2
2
9
(
,
—
—
—
—
—
—
—
)
3
9
3
(
6
6
6
1
,
$
$
$
$
—
—
—
—
—
—
—
—
)
1
1
3
0
1
1
(
,
3
7
6
5
,
8
4
9
1
4
,
)
8
9
0
2
0
6
(
,
$
)
8
9
0
2
0
6
(
,
$
—
—
—
—
—
—
—
)
6
4
3
3
1
(
,
8
2
3
5
,
0
4
6
2
3
,
—
—
—
)
0
6
8
5
4
(
,
8
5
3
5
,
4
2
0
6
3
,
)
6
7
4
7
7
5
(
,
$
)
6
7
4
7
7
5
(
,
$
—
—
—
$
)
9
4
9
7
(
,
$
)
4
5
9
1
8
5
(
,
$
)
5
0
0
1
(
,
5
4
7
8
3
,
,
2
0
6
9
5
2
—
)
6
6
0
9
3
(
,
—
—
—
—
—
—
,
9
1
9
4
2
2
2
,
,
9
1
9
4
2
2
2
,
—
—
—
—
—
—
—
5
5
2
,
5
9
3
0
4
2
)
4
6
6
7
3
(
,
,
5
0
9
7
2
4
2
,
,
5
0
9
7
2
4
2
,
—
—
—
—
—
—
—
,
9
4
6
8
0
2
)
1
4
0
6
3
(
,
,
3
1
5
0
0
6
2
,
—
—
—
—
—
—
—
—
—
$
$
)
2
4
2
(
3
9
1
1
,
2
8
3
9
,
2
8
3
9
,
—
—
—
—
—
—
—
—
$
$
1
8
6
)
1
4
8
(
2
2
2
9
,
2
2
2
9
,
—
—
—
—
—
—
—
3
9
3
)
6
6
6
1
(
,
)
5
4
(
—
—
—
—
—
—
—
—
)
5
4
(
—
—
)
9
1
3
8
2
(
,
)
0
1
9
0
3
(
,
7
8
9
5
1
,
)
6
9
3
3
1
(
,
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
)
4
0
9
5
(
,
3
7
1
9
,
6
4
1
8
1
,
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
)
6
0
3
3
0
1
(
,
)
6
0
3
3
0
1
(
,
$
$
)
6
1
1
5
4
(
,
)
6
1
1
5
4
(
,
$
$
)
5
5
9
4
(
,
)
5
5
9
4
(
,
$
$
)
5
3
2
3
5
(
,
)
5
3
2
3
5
(
,
$
$
,
0
2
1
7
0
2
$
6
0
1
,
0
2
1
7
0
2
$
6
0
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2
1
5
3
1
,
0
7
4
6
1
,
)
2
0
5
5
1
(
,
4
4
5
2
1
,
$
$
)
4
9
7
9
8
(
,
)
4
9
7
9
8
(
,
—
5
7
1
4
2
,
$
$
)
6
4
6
8
2
(
,
)
6
4
6
8
2
(
,
—
8
2
5
1
2
,
$
$
)
7
5
4
0
2
(
,
—
)
0
4
1
5
(
,
)
7
5
4
0
2
(
,
$
$
)
1
9
6
0
4
(
,
)
1
9
6
0
4
(
,
—
7
8
7
7
,
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
)
6
0
5
7
(
,
0
2
4
9
,
2
0
9
2
2
,
—
—
—
—
—
—
—
—
—
—
—
—
,
6
3
9
1
3
2
$
6
0
1
,
6
3
9
1
3
2
$
6
0
1
—
—
—
—
)
8
1
2
1
(
,
2
4
5
9
,
5
7
4
1
2
,
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
)
4
1
(
5
)
1
1
2
(
)
1
1
2
(
—
—
—
—
—
—
—
—
$
$
)
6
(
8
1
)
9
9
1
(
)
9
9
1
(
—
—
—
—
—
—
—
)
3
(
5
3
—
—
—
—
—
)
2
0
1
1
(
,
7
0
1
1
,
—
8
5
1
—
—
—
—
—
—
—
—
—
—
—
—
—
0
6
9
2
7
,
k
c
o
t
s
l
s
n
a
p
t
i
f
e
n
e
b
r
o
f
k
c
o
t
s
y
r
u
s
a
e
r
t
m
o
r
f
d
e
u
s
s
i
s
e
r
a
h
s
n
o
m
m
o
C
l
n
a
p
n
o
i
t
a
s
n
e
p
m
o
c
d
e
r
r
e
f
e
d
m
o
r
f
k
c
o
t
s
f
o
n
o
i
t
u
b
i
r
t
s
i
D
d
e
r
r
e
f
e
d
o
t
/
y
b
k
c
o
t
s
f
o
s
r
e
f
s
n
a
r
t
d
n
a
s
e
s
a
h
c
r
u
P
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
k
c
o
t
S
l
n
a
p
n
o
i
t
a
s
n
e
p
m
o
c
k
c
o
t
s
y
r
u
s
a
e
r
t
f
o
s
e
s
a
h
c
r
u
P
k
c
o
t
s
y
r
u
s
a
e
r
t
f
o
s
e
a
S
l
6
1
-
6
1
0
2
U
S
A
f
o
n
o
i
t
p
o
d
a
m
o
r
f
t
c
e
f
f
e
e
v
i
t
a
u
m
u
C
l
6
0
6
C
S
A
f
o
n
o
i
t
p
o
d
a
m
o
r
f
t
c
e
f
f
e
e
v
i
t
a
u
m
u
C
l
8
1
0
2
,
0
3
r
e
b
m
e
t
p
e
S
f
o
s
a
s
e
c
n
a
a
B
l
x
a
t
f
o
t
e
n
,
)
s
s
o
l
(
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
O
i
s
g
n
n
r
a
e
t
e
N
)
e
r
a
h
s
i
.
r
e
p
0
0
3
6
0
$
(
d
a
p
s
d
n
e
d
i
v
i
d
h
s
a
C
)
0
4
0
1
1
(
,
0
6
9
2
7
,
9
1
0
2
,
0
3
r
e
b
m
e
t
p
e
S
f
o
s
a
s
e
c
n
a
a
B
l
—
—
—
—
)
4
2
1
(
3
6
7
4
2
1
—
—
—
—
—
—
—
—
—
—
—
—
—
)
0
4
0
1
1
(
,
0
6
9
2
7
,
l
s
n
a
p
t
i
f
e
n
e
b
r
o
f
k
c
o
t
s
y
r
u
s
a
e
r
t
m
o
r
f
d
e
u
s
s
i
s
e
r
a
h
s
n
o
m
m
o
C
l
n
a
p
n
o
i
t
a
s
n
e
p
m
o
c
d
e
r
r
e
f
e
d
m
o
r
f
k
c
o
t
s
f
o
n
o
i
t
u
b
i
r
t
s
i
D
d
e
r
r
e
f
e
d
o
t
/
y
b
k
c
o
t
s
f
o
s
r
e
f
s
n
a
r
t
d
n
a
s
e
s
a
h
c
r
u
P
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
k
c
o
t
S
l
n
a
p
n
o
i
t
a
s
n
e
p
m
o
c
k
c
o
t
s
y
r
u
s
a
e
r
t
f
o
s
e
s
a
h
c
r
u
P
k
c
o
t
s
y
r
u
s
a
e
r
t
f
o
s
e
a
S
l
x
a
t
f
o
t
e
n
,
)
s
s
o
l
(
i
s
g
n
n
r
a
e
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
O
2
4
8
C
S
A
f
o
n
o
i
t
p
o
d
a
m
o
r
f
t
c
e
f
f
e
e
v
i
t
a
u
m
u
C
l
9
1
0
2
,
0
3
r
e
b
m
e
t
p
e
S
f
o
s
a
s
e
c
n
a
a
B
l
i
s
g
n
n
r
a
e
t
e
N
)
e
r
a
h
s
i
.
r
e
p
0
5
0
6
0
$
(
d
a
p
s
d
n
e
d
i
v
i
d
h
s
a
C
)
7
7
2
0
1
(
,
0
6
9
2
7
,
0
2
0
2
,
0
3
r
e
b
m
e
t
p
e
S
f
o
s
a
s
e
c
n
a
a
B
l
)
7
7
2
0
1
(
,
0
6
9
2
7
,
0
2
0
2
,
0
3
r
e
b
m
e
t
p
e
S
f
o
s
a
s
e
c
n
a
a
B
l
—
—
—
)
4
0
4
(
1
5
8
8
2
1
—
—
—
—
—
—
—
—
—
—
—
—
l
s
n
a
p
t
i
f
e
n
e
b
r
o
f
k
c
o
t
s
y
r
u
s
a
e
r
t
m
o
r
f
d
e
u
s
s
i
s
e
r
a
h
s
n
o
m
m
o
C
l
n
a
p
n
o
i
t
a
s
n
e
p
m
o
c
d
e
r
r
e
f
e
d
m
o
r
f
k
c
o
t
s
f
o
n
o
i
t
u
b
i
r
t
s
i
D
d
e
r
r
e
f
e
d
o
t
/
y
b
k
c
o
t
s
f
o
s
r
e
f
s
n
a
r
t
d
n
a
s
e
s
a
h
c
r
u
P
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
k
c
o
t
S
l
n
a
p
n
o
i
t
a
s
n
e
p
m
o
c
k
c
o
t
s
y
r
u
s
a
e
r
t
f
o
s
e
s
a
h
c
r
u
P
k
c
o
t
s
y
r
u
s
a
e
r
t
f
o
s
e
a
S
l
x
a
t
f
o
t
e
n
,
)
s
s
o
l
(
i
s
g
n
n
r
a
e
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
O
i
s
g
n
n
r
a
e
t
e
N
)
e
r
a
h
s
i
.
r
e
p
8
8
6
5
0
$
(
d
a
p
s
d
n
e
d
i
v
i
d
h
s
a
C
8
4
s
t
n
e
m
e
t
a
t
S
l
i
a
i
c
n
a
n
F
d
e
t
a
d
i
l
o
s
n
o
C
o
t
s
e
t
o
N
g
n
i
y
n
a
p
m
o
c
c
a
e
e
S
$
9
4
9
7
,
$
)
9
1
6
5
6
(
,
$
)
8
1
1
7
(
,
$
)
7
9
5
5
2
(
,
$
)
4
0
9
2
3
(
,
$
,
5
3
7
1
6
2
$
6
0
1
$
)
7
6
1
(
)
2
0
7
9
(
,
0
6
9
2
7
,
1
2
0
2
,
0
3
r
e
b
m
e
t
p
e
S
f
o
s
a
s
e
c
n
a
a
B
l
WOODWARD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 1. Operations and summary of significant accounting policies
Basis of presentation
The Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in
the United States of America (“U.S. GAAP”) and include the accounts of Woodward, Inc. and its subsidiaries (collectively
“Woodward” or “the Company”). Dollar amounts contained in these Consolidated Financial Statements are in thousands,
except per share amounts.
Nature of operations
Woodward is an independent designer, manufacturer, and service provider of energy control and optimization
solutions. Woodward designs, produces and services reliable, efficient, low-emission, and high-performance energy control
products for diverse applications in challenging environments. Woodward has significant production and assembly facilities
primarily in the United States, Europe and Asia, and promotes its products and services through its worldwide locations.
Woodward’s strategic focus is providing energy control and optimization solutions for the aerospace and industrial
markets. The precise and efficient control of energy, including motion, fluid, combustion and electrical energy, is a growing
requirement in the markets Woodward serves. Woodward’s customers look to it to optimize the efficiency, emissions and
operation of power equipment in both commercial and defense operations. Woodward’s core technologies leverage well
across its markets and customer applications, enabling it to develop and integrate cost-effective and state-of-the-art fuel,
combustion, fluid, actuation and electronic systems. Woodward focuses its solutions and services primarily on serving
original equipment manufacturers (“OEMs”) and equipment packagers, partnering with them to bring superior component
and system solutions to their demanding applications. Woodward also provides aftermarket repair, maintenance,
replacement and other service support for its installed products.
Woodward’s components and integrated systems optimize performance of commercial aircraft, defense aircraft,
military ground vehicles and other equipment, gas and steam turbines, industrial diesel, gas, biodiesel and dual-fuel
reciprocating engines, and electrical power systems. Woodward’s innovative motion, fluid, combustion and electrical
energy control systems help its customers offer more cost-effective, cleaner, and more reliable equipment.
COVID-19 Pandemic
When combined with the various measures enacted by governments and private organizations to contain COVID-19 or
slow its spread, the pandemic has adversely impacted global activity and contributed to volatility in financial markets; and
the Company has likewise been significantly impacted by the global COVID-19 pandemic. The COVID-19 pandemic could
continue to have a material adverse impact on economic and market conditions and presents uncertainty and risk with
respect to the Company and its performance and financial results, including estimates and assumptions used by
management for the reported amount of assets and liabilities.
Summary of significant accounting policies
Principles of consolidation: These Consolidated Financial Statements are prepared in accordance with U.S. GAAP and
include the accounts of Woodward and its wholly and majority-owned subsidiaries. Transactions within and between these
companies are eliminated.
Use of estimates: The preparation of the Consolidated Financial Statements requires management to make use of
estimates and assumptions that affect the reported amount of assets and liabilities, at the date of the financial statements
and the reported revenues and expenses recognized during the reporting period, and certain financial statement
disclosures. Significant estimates include allowances for uncollectible amounts, net realizable value of inventories,
customer rebates earned, useful lives of property and identifiable intangible assets, the evaluation of impairments of
property, identifiable intangible assets and goodwill, the provision for income tax and related valuation reserves, the
valuation of assets and liabilities acquired in business combinations, assumptions used in the determination of the funded
status and annual expense of pension and postretirement employee benefit plans, the valuation of stock compensation
instruments granted to employees, and contingencies. Actual results could differ from those estimates.
49
Foreign currency exchange rates: The assets and liabilities of substantially all subsidiaries outside the United States
are translated at fiscal year-end rates of exchange, and earnings and cash flow statements are translated at weighted-
average rates of exchange. The exchange rate in effect at the time of the cash flow is used for significant or infrequent cash
flows, such as payments for a business acquisition, for which the use of weighted-average rates of exchange would result in
a substantially different cash flow. Translation adjustments are accumulated with other comprehensive (losses) earnings as
a separate component of stockholders’ equity and are presented net of tax effects in the Consolidated Statements of
Stockholders’ Equity. The effects of changes in foreign currency exchange rates on loans between consolidated subsidiaries
that are considered permanent in nature are also accumulated with other comprehensive earnings, net of tax.
The Company is exposed to market risks related to fluctuations in foreign currency exchange rates because some sales
transactions, and certain assets and liabilities of its domestic and foreign subsidiaries, are denominated in foreign
currencies. Selling, general, and administrative expenses include a net foreign currency loss of $1,986 in fiscal year 2021, a
net foreign currency gain of $194 in fiscal year 2020, and a net foreign currency loss of $1,018 in fiscal year 2019.
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. Woodward has determined that it is the principal in its sales
transactions, as Woodward is primarily responsible for fulfilling the promised performance obligations, has discretion to
establish the selling price, and generally assumes the inventory risk. Woodward recognizes revenue for performance
obligations within a customer contract when control of the associated product or service is transferred to the customer.
Some of Woodward’s contracts with customers contain a single performance obligation, while other contracts contain
multiple performance obligations. Each product within a contract generally represents a separate performance obligation
as Woodward does not provide significant installation and integration services, the products do not customize each other,
and the products can function independently of each other.
A contract's transaction price is allocated to each performance obligation and recognized as revenue when, or as, the
customer obtains control of the associated product or service. When there are multiple performance obligations within a
contract, Woodward generally uses the observable standalone sales price for each distinct product or service within the
contract to allocate the transaction price to the distinct products or services. In instances when a standalone sales price for
each product or service is not observable within the contract, Woodward allocates the transaction price to each
performance obligation using an estimate of the standalone selling price for each product or service, which is generally
based on incurred costs plus a reasonable margin, for each distinct product or service in the contract.
When determining the transaction price of each contract, Woodward considers contractual consideration payable by
the customer and variable consideration that may affect the total transaction price. Variable consideration, consisting of
early payment discounts, rebates and other sources of price variability, are included in the estimated transaction price
based on both customer-specific information as well as historical experience.
Customers sometimes trade in used products in exchange for new or refurbished products. In addition, Woodward’s
customers sometimes provide inventory to Woodward which will be integrated into final products sold to those customers.
Woodward obtains control of these exchanged products and customer provided inventory, and therefore, both are forms of
noncash consideration. Noncash consideration paid by customers on overall sales transactions is additive to the transaction
price. Woodward’s net sales and cost of goods sold include the value of such noncash consideration for the same amount,
with no resulting impact to earnings before income taxes. Upon receipt of such inventory, Woodward recognizes an
inventory asset and a contract liability.
Point in time and over time revenue recognition: Control of the products generally transfers to the customer at a
point in time, as the customer does not control the products as they are produced. Performance obligations are satisfied
and revenue is recognized over time if: (i) the customer receives the benefits as Woodward performs work, if the customer
controls the asset as it is being enhanced, or if the product being produced for the customer has no alternative use to
Woodward; and (ii) Woodward has an enforceable right to payment with a profit. For products being produced for the
customer that have no alternative use to Woodward and Woodward has an enforceable right to payment with a profit, and
where the products are substantially the same and have the same pattern of transfer to the customer, revenue is
recognized as a series of distinct products. As Woodward satisfies manufacturing, repair and overhaul (“MRO”)
performance obligations, revenue is recognized over time, as the customer, rather than Woodward, controls the asset
being enhanced. When services are provided, revenue from those services is recognized over time because control is
transferred continuously to customers as Woodward performs the work.
50
For services that are not short-term in nature, MRO, and sales of products that have no alternative use to Woodward
and an enforceable right to payment with a profit, Woodward uses an actual cost input measure to determine the extent of
progress towards completion of the performance obligation. For these revenue streams, revenue is recognized over time
as work is performed based on the relationship between actual costs incurred to-date for each contract and the total
estimated costs for such contract at completion of the performance obligation (the cost-to-cost method). Woodward has
concluded that this measure of progress best depicts the transfer of assets to the customer, because incurred costs are
integral to Woodward’s completion of the performance obligation under the specific customer contract and correlate
directly to the transfer of control to the customer. Contract costs include labor, material and overhead. Contract cost
estimates are based on various assumptions to project the outcome of future events. These assumptions include labor
productivity and availability; the complexity of the work to be performed; the cost and availability of materials; the
performance of subcontractors; and the availability and timing of funding from the customer. Revenues, including
estimated fees or profits, are recorded proportionally as costs are incurred.
If at any time the estimate of contract profitability indicates an anticipated loss on the contract, Woodward recognizes
provisions for estimated losses on uncompleted contracts in the period in which such losses are determined. In situations
where the creditworthiness of a customer becomes in doubt, Woodward ceases to recognize the over-time revenue on the
associated customer contract.
Occasionally, Woodward sells maintenance or service arrangements, extended warranties, or other stand ready
services. Woodward recognizes revenue from such arrangements as a series of performance obligations over the time
period in which the services are available to the customer.
Material Rights and Costs to Fulfill a Contract: Customers sometimes pay consideration to Woodward for product
engineering and development activities that do not result in the immediate transfer of distinct products or services to the
customer. There is an implicit assumption that without the customer making such advance payments to Woodward,
Woodward’s future sales of products or services to the customer would be at a higher selling price; therefore, such
payments create a “material right” to the customer that effectively gives the customer an option to acquire future products
or services, at a discount, that are dependent upon the product engineering and development. Material rights are recorded
as contract liabilities and will be recognized when control of the related products or services are transferred to the
customer.
Woodward capitalizes costs of product engineering and development identified as material rights up to the amount of
customer funding as costs to fulfill a contract because the costs incurred up to the amount of the customer funding
commitment are recoverable. Due to the uncertainty of the product success and/or demand, fulfillment costs in excess of
the customer funding are expensed as incurred. Woodward recognizes the deferred material rights as revenue based on a
percentage of actual sales to total estimated lifetime sales of the related developed products as the customers exercise
their option to acquire additional products or services at a discount. Woodward amortizes the capitalized costs to fulfill a
contract as cost of goods sold proportionally to the recognition of the associated deferred material rights. Estimated total
lifetime sales are reviewed at least annually and more frequently when circumstances warrant a modification to the
previous estimate.
Woodward does not capitalize incremental costs of obtaining a contract, as Woodward does not pay sales commissions
or incur other incremental costs related to contracts with Woodward’s customers for arrangements in which quantities and
pricing are fixed and/or determinable.
Contract liabilities: Advance payments and billings in excess of revenue recognized represent contract liabilities and
are recorded as deferred revenues when customers remit contractual cash payments in advance of Woodward satisfying
performance obligations under contractual arrangements, including those with performance obligations satisfied over time.
Woodward generally receives advance payments from customers related to maintenance or service arrangements,
extended warranties, or other stand ready services, which it recognizes over the performance period. Contract liabilities
are satisfied when revenue is recognized and the performance obligation is satisfied. Advance payments and billings in
excess of revenue recognized are included in deferred revenue, which is classified as current or noncurrent based on the
timing of when Woodward expects to recognize revenue.
51
Customer payments: Woodward occasionally agrees to make payments to certain customers in order to participate in
anticipated sales activity. Payments made to customers are accounted for as a reduction of revenue unless they are made
in exchange for identifiable goods or services with fair values that can be reasonably estimated. Reductions in revenue
associated with these customer payments are recognized immediately to the extent that the payments cannot be
attributed to anticipated future sales, and are recognized in future periods to the extent that the payments relate to
anticipated future sales. Such determinations are based on the facts and circumstances underlying each payment.
Stock-based compensation: Compensation cost relating to stock-based payment awards made to employees and
directors is recognized in the financial statements using a fair value method. Non-qualified stock option awards and
restricted stock awards are issued under Woodward’s stock-based compensation plans. The cost of such awards, measured
at the grant date, is based on the estimated fair value of the award.
Forfeitures are estimated at the time of each grant in order to estimate the portion of the award that will ultimately
vest. The estimate is based on Woodward’s historical rates of forfeitures and is updated periodically. The portion of the
award that is ultimately expected to vest is recognized as expense over the requisite service periods, which is generally the
vesting period of the awards.
Research and development costs: Company funded expenditures related to new product development, and
significant product enhancement and/or upgrade activities are expensed as incurred and are separately reported in the
Consolidated Statements of Earnings.
Income taxes: Deferred income taxes are provided for the temporary differences between the financial reporting
basis and the tax basis of Woodward’s assets, liabilities, and certain unrecognized gains and losses recorded in accumulated
other comprehensive (losses) earnings. Woodward provides for taxes that may be payable if undistributed earnings of
overseas subsidiaries were to be remitted to the United States, except for those earnings that it considers to be indefinitely
invested.
Cash equivalents: Highly liquid investments purchased with an original maturity of three months or less are
considered to be cash equivalents.
Accounts receivable: Almost all of Woodward’s sales are made on credit and result in accounts receivable, which are
recorded at the amount invoiced and are generally not collateralized. In the normal course of business, not all accounts
receivable are collected and, therefore, an allowance for uncollectible amounts is provided equal to the amount that
Woodward believes ultimately will not be collected, either from credit risk or other adjustments to the original selling price
or anticipated cash discounts. In establishing the amount of the allowance related to the credit risk of accounts receivable,
customer-specific information is considered related to delinquent accounts, past loss experience, bankruptcy filings,
deterioration in the customer’s operating results or financial position, current and forecasted economic conditions, and
other relevant factors. Bad debt losses are deducted from the allowance, and the related accounts receivable balances are
written off when the receivables are deemed uncollectible. Recoveries of accounts receivable previously written off are
recognized when received. The allowance associated with anticipated other adjustments to the selling price or cash
discounts is also established and is included in the allowance for uncollectible amounts. In establishing this amount, both
customer-specific information as well as historical experience is considered.
In coordination with its customers and when terms are considered favorable to Woodward, Woodward from time-to-
time transfers ownership to collect amounts due to Woodward for outstanding accounts receivable to third parties in
exchange for cash. When the transfer of accounts receivable meets the criteria of Financial Accounting Standards Board
(“FASB”) ASC Topic 860-10, “Transfers and Servicing,” and are without recourse, it is recognized as a sale and the accounts
receivable is derecognized.
Unbilled receivables (contract assets) arise when the timing of billing differs from the timing of revenue recognized,
such as when contract provisions require revenue to be recognized over time rather than at a point in time. Unbilled
receivables primarily relate to performance obligations satisfied over time when the cost-to-cost method is utilized and the
revenue recognized exceeds the amount billed to the customer as there is not yet a right to payment in accordance with
contractual terms. Unbilled receivables are recorded as a contract asset when the revenue associated with the contract is
recognized prior to billing and derecognized when billed in accordance with the terms of the contract.
52
Consistent with common business practice in China, Woodward’s Chinese subsidiaries accept bankers’ acceptance
notes from Chinese customers in settlement of certain customer billed accounts receivable. Bankers’ acceptance notes are
financial instruments issued by Chinese financial institutions as part of financing arrangements between the financial
institution and a customer of the financial institution. Bankers’ acceptance notes represent a commitment by the issuing
financial institution to pay a certain amount of money at a specified future maturity date to the legal owner of the bankers’
acceptance note as of the maturity date. The maturity date of bankers’ acceptance notes varies, but it is Woodward’s
policy to only accept bankers’ acceptance notes with maturity dates no more than 180 days from the date of Woodward’s
receipt of such draft. Woodward has elected to adopt the practical expedient to not adjust the promised amounts of
consideration for the effects of a significant financing component at contract inception as the financing component
associated with accepting bankers’ acceptance notes has a duration of less than one year. Woodward’s contracts with
customers generally have no other financing components.
For composition of accounts receivable, see Note 3, Revenue.
Inventories: Inventories are valued at the lower of cost or net realizable value, with cost being determined using
methods that approximate a first-in, first-out basis.
Short-term investments: From time to time, certain of Woodward’s foreign subsidiaries will invest excess cash in
short-term time deposits with a fixed maturity date of longer than three months but less than one year from the date of the
deposit. Woodward believes that the investments are with creditworthy financial institutions. Amounts with maturities of
less than 365 days are classified as “Other current assets.”
Property, plant, and equipment: Property, plant, and equipment are recorded at cost and are depreciated over the
estimated useful lives of the assets. Assets are generally depreciated using the straight-line method. Assets are tested for
recoverability whenever events or circumstances indicate the carrying value may not be recoverable.
Estimated lives over which fixed assets are generally depreciated at September 30, 2021 were as follows:
Land improvements
Buildings and improvements
Leasehold improvements
Machinery and production equipment
Computer equipment and software
Office furniture and equipment
Other
3
3
1
3
1
3
3
–
–
–
–
–
–
–
20
40
10
20
10
10
10
years
years
years
years
years
years
years
Included in computer equipment and software are Woodward’s enterprise resource planning (“ERP”) systems, which
have an estimated useful life of 10 years. All other computer equipment and software is generally depreciated over three
years to five years.
Leases: Right-of-use (“ROU”) assets and lease liabilities are recognized at the lease commencement date based on the
estimated present value of the remaining fixed lease payments over the lease term. In determining the estimated present
value of lease payments, Woodward discounts the fixed lease payments using the rate implicit in the agreement or, if the
implicit rate is not known, using the incremental borrowing rate. Woodward’s incremental borrowing rate is based on the
information available at the lease commencement date, with consideration given to Woodward’s recent debt issuances as
well as publicly available data for instruments with similar characteristics.
For operating leases, lease expense is recognized over the expected lease term and classified as a cost of goods sold or
selling, general and administrative expense based on the nature of the underlying leased asset. For finance leases, the ROU
asset is recognized over the shorter of the useful life of the asset, consistent with Woodward’s normal depreciation policy,
or the lease term, and is classified as a cost of goods sold, selling, general and administrative expense, or research and
development expense, based on the nature and use of the underlying leased asset.
Certain of Woodward’s operating lease agreements include variable payments that are passed through by the
landlord, such as insurance, taxes, and common area maintenance, payments based on the usage of the asset, and rental
payments adjusted periodically for inflation. Pass-through charges, payments due to changes in usage of the asset, and
payments due to changes in indexation are included within variable rent expense and are recognized in the period in which
the variable obligation for the payments was incurred.
53
Goodwill: Woodward tests goodwill for impairment at the reporting unit level on an annual basis and more often if an
event occurs or circumstances change that indicates the fair value of a reporting unit may be below its carrying amount.
Based on the relevant U.S. GAAP authoritative guidance, Woodward aggregates components of a single operating segment
into a reporting unit, if appropriate. The impairment test consists of comparing the implied fair value of each reporting unit
with its carrying amount that includes goodwill. If the carrying amount of the reporting unit exceeds its implied fair value,
Woodward compares the implied fair value of goodwill with the recorded carrying amount of goodwill. 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.
Based on the results of Woodward’s annual goodwill impairment testing, no impairment charges were recorded in the
year ended September 30, 2021 or since the goodwill was originally recorded due to the annual goodwill impairment test.
Other intangibles: Other intangibles are recognized apart from goodwill whenever an acquired intangible asset arises
from contractual or other legal rights, or whenever it is capable of being separated or divided from the acquired entity and
sold, transferred, licensed, rented, or exchanged, either individually or in combination with a related contract, asset, or
liability. Woodward amortizes the cost of other intangibles over their useful lives unless such lives are deemed indefinite.
The cost of finite-lived other intangibles are amortized over their respective useful life using patterns that reflect the
periods over which the economic benefits of the assets are expected to be realized. Amortization expense is allocated to
cost of goods sold and selling, general, and administrative expenses based on the nature of the intangible asset. Finite-lived
other intangible assets are reviewed for impairment whenever an event occurs or circumstances change indicating that the
related carrying amount of the other intangible asset may not be recoverable. Impairment losses are recognized if the
carrying amount of an intangible is both not recoverable and exceeds its fair value.
Woodward has recorded no impairment charges related to its other intangibles as of September 30, 2021 or since the
other intangibles were originally recorded due to the annual goodwill impairment test.
Estimated lives over which intangible assets are amortized at September 30, 2021 were as follows:
Customer relationships and contracts
Intellectual property
Process technology
15
15
10
–
–
–
30
17
30
years
years
years
Woodward has one indefinitely lived intangible asset consisting of the Woodward L’Orange trade name. The
Woodward L’Orange trade name intangible asset is tested for impairment on an annual basis and more often if an event
occurs or circumstances change that indicate the fair value of the Woodward L’Orange intangible asset may be below its
carrying amount. The impairment test consists of comparing the fair value of the Woodward L’Orange trade name
intangible asset, determined using discounted cash flows, with its carrying amount. If the carrying amount of the
Woodward L’Orange 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.
Impairment of long-lived assets: Woodward reviews the carrying amount of its long-lived assets or asset groups to be
used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets might not
be recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the
extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could
affect the value of the asset, or a significant decline in the observable market value of an asset, among others.
If such facts indicate a potential impairment, the Company would assess the recoverability of an asset group by
determining if the carrying amount of the asset group exceeds the sum of the projected undiscounted cash flows expected
to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the
asset group. If the recoverability test indicates that the carrying amount of the asset group is not recoverable, the
Company will estimate the fair value of the asset group using appropriate valuation methodologies, which would typically
include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset
group’s carrying amount and its estimated fair value.
Investment in marketable equity securities: Woodward holds marketable equity securities related to its deferred
compensation program. Based on Woodward’s intentions regarding these instruments, marketable equity securities are
classified as trading securities. The trading securities are reported at fair value, with realized gains and losses recognized in
“Other (income) expense, net.” The trading securities are included in “Other assets.” The associated obligation to provide
benefits under the deferred compensation program is included in “Other liabilities.”
54
Investments in unconsolidated subsidiaries: Investments in, and operating results of, entities in which Woodward
does not have a controlling financial interest or the ability to exercise significant influence over the operations are included
in the financial statements using the cost method of accounting. Investments and operating results of entities in which
Woodward does not have a controlling interest but does have the ability to exercise significant influence over operations
are included in the financial statements using the equity method of accounting.
Deferred compensation: The Company maintains a deferred compensation plan, or “rabbi trust,” as part of its overall
compensation package for certain employees.
Deferred compensation obligations will be settled either by delivery of a fixed number of shares of Woodward’s
common stock (in accordance with certain eligible members’ irrevocable elections) or in cash. Woodward has contributed
shares of its common stock into a trust established for the future settlement of deferred compensation obligations that are
payable in shares of Woodward’s common stock. Common stock held by the trust is reflected in the Consolidated Balance
Sheets as “Treasury stock held for deferred compensation” and the related deferred compensation obligation is reflected as
a separate component of equity in amounts equal to the fair value of the common stock at the dates of contribution. These
accounts are not adjusted for subsequent changes in the fair value of the common stock. Deferred compensation
obligations that will be settled in cash are accounted for on an accrual basis in accordance with the terms of the underlying
contract and are reflected in the Consolidated Balance Sheet as “Other liabilities.”
Financial instruments: The Company’s financial instruments include cash and cash equivalents, short-term
investments, investments in the deferred compensation program, notes receivable from municipalities, investments in term
deposits, cross-currency interest rate swaps and debt. Because of their short-term maturity, the carrying amount of cash
and cash equivalents, and short-term debt approximate fair value. Financial assets and liabilities recorded at fair value in
the Consolidated Balance Sheets are categorized based upon a fair value hierarchy established by U.S. GAAP, which
prioritizes the inputs used to measure fair value into the following levels:
Level 1: Inputs based on quoted market prices in active markets for identical assets or liabilities at the measurement
date.
Level 2: Quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets;
quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are
observable and can be corroborated by observable market data.
Level 3: Inputs reflect management’s best estimates and assumptions of what market participants would use in pricing
the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the
valuation of the instruments.
Further information on the fair value of financial instruments can be found at Note 7, Financial instruments and fair
value measurements.
Derivatives: The Company is exposed to various global market risks, including the effect of changes in interest rates,
foreign currency exchange rates, changes in certain commodity prices and fluctuations in various producer indices. From
time to time, Woodward enters into derivative instruments for risk management purposes only, including derivatives
designated as accounting hedges and/or those utilized as economic hedges. Woodward uses interest rate related
derivative instruments to manage its exposure to fluctuations of interest rates. Woodward does not enter into or issue
derivatives for trading or speculative purposes.
By using derivative and/or hedging instruments to manage its risk exposure, Woodward is subject, from time to time,
to credit risk and market risk on those derivative instruments. Credit risk arises from the potential failure of the
counterparty to perform under the terms of the derivative and/or hedging instrument. When the fair value of a derivative
contract is positive, the counterparty owes Woodward, which creates credit risk for Woodward. Woodward mitigates this
credit risk by entering into transactions only with counterparties that are believed to be creditworthy. Market risk arises
from the potential adverse effects on the value of derivative and/or hedging instruments that result from a change in
interest rates, commodity prices, or foreign currency exchange rates. Woodward minimizes this market risk by establishing
and monitoring parameters that limit the types and degree of market risk that may be undertaken.
From time to time, in order to hedge against foreign currency exposure, Woodward designates certain non-derivative
financial instrument loans as net investment hedges. Foreign exchange gains or losses on these loans are recognized in
foreign currency translation adjustments within total comprehensive (losses) earnings. Also, to hedge against the foreign
currency exposure attributable to non-functional currency denominated intercompany loans, Woodward has entered into
derivative instruments in fair value hedging relationships and cash flow hedging relationships.
55
Further information on net investment hedges and derivative instruments in fair value and cash flow hedging
relationships, including the Company’s policy in accounting for these derivatives, can be found at Note 8, Derivative
instruments and hedging activities.
Postretirement benefits: The Company provides various benefits to certain current and former employees through
defined benefit pension and postretirement plans. For financial reporting purposes, net periodic benefits expense and
related obligations are calculated using a number of significant actuarial assumptions. Changes in net periodic expense and
funding status may occur in the future due to changes in these assumptions. The funded status of defined pension and
postretirement plans recognized in the statement of financial position is measured as the difference between the fair
market value of the plan assets and the benefit obligation. For a defined benefit pension plan, the benefit obligation is the
projected benefit obligation; for any other defined benefit postretirement plan, such as a retiree health care plan, the
benefit obligation is the accumulated benefit obligation. Any over-funded status is recognized as an asset and any
underfunded status is recognized as a liability.
Projected benefit obligation is the actuarial present value as of the measurement date of all benefits attributed by the
plan benefit formula to employee service rendered before the measurement date using assumptions as to future
compensation levels if the plan benefit formula is based on those future compensation levels. The accumulated benefit
obligation is the actuarial present value of benefits (whether vested or unvested) attributed by the plan benefit formula to
employee service rendered before the measurement date and based on employee service and compensation, if applicable,
prior to that date. The accumulated benefit obligation differs from the projected benefit obligation in that it includes no
assumption about future compensation levels.
Note 2. New accounting standards
From time to time, the Financial Accounting Standards Board (“FASB”) or other standards setting bodies issue new
accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through
issuance of an Accounting Standards Update (“ASU”). Recently adopted or anticipated impacts of significant future ASU’s
are described below, as applicable.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting.” The purpose of ASU 2020-04 is to provide optional guidance for a limited
time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial
reporting. In response to concerns about structural risks of interbank offered rates, and, in particular, the risk of cessation
of the London Interbank Offered Rate (LIBOR), reference rate reform refers to a global initiative to identify alternative
reference rates that are more observable or transaction-based and less susceptible to manipulation. ASU 2020-04 is
effective for all entities as of March 12, 2020 through December 31, 2022. Once elected for a topic or an industry subtopic,
the amendments in ASU 2020-04 must be applied prospectively for all eligible contract modifications for that topic or
industry subtopic. Woodward has assessed the accounting and financial impact of ASU 2020-04, and concluded no financial
assets or liabilities, including those involved in hedging relationships, will be materially impacted as a result of the cessation
of LIBOR. Accordingly, Woodward will not elect to apply the amendments in ASU 2020-04 for contract modifications.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes.” ASU 2019-12 amends ASC 740 to simplify the accounting for income taxes by removing certain exceptions for
investments, intraperiod allocations and interim calculations, and adding guidance to reduce complexity in the accounting
standard under the FASB’s simplification initiative. ASU 2019-12 is effective for public entities for fiscal years beginning
after December 15, 2020 (fiscal year 2022 for Woodward). Upon adoption, the amendments in ASU 2019-12 should be
applied on a prospective basis to all periods presented. Woodward elected to early adopt the new guidance effective
January 1, 2021, which did not have a material effect on the Consolidated Financial Statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments.” ASU 2016-13 adds a current expected credit loss (“CECL”) impairment model to U.S.
GAAP that is based on expected losses rather than incurred losses. Modified retrospective adoption is required with any
cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. ASU 2016-13 is
effective for fiscal years beginning after December 15, 2019 (fiscal year 2021 for Woodward), including interim periods
within the year of adoption. Woodward adopted ASU 2016-13, and all applicable amendments, on October 1, 2020 using
the modified retrospective adoption method. Based on the nature of the Company’s financial instruments included within
the scope of this standard, the adoption did not have a material effect on the Consolidated Financial Statements. See
details of the Company’s allowance for uncollectible amounts and change in expected credit losses for billed receivables
and unbilled receivables (contract assets) at Note 3, Revenue.
56
Note 3. Revenue
Sales of Products
Woodward primarily generates revenue through the manufacture and sale of engineered aerospace and industrial
products, including revenue derived from MRO performance obligations performed on products originally manufactured by
Woodward and subsequently returned by OEM or other end-user customers. The majority of Woodward’s costs incurred
to satisfy MRO performance obligations are related to replacing and/or refurbishing component parts of the returned
products to restore the units back to a condition generally comparable to that of the unit upon its initial sale to an OEM
customer. Therefore, Woodward considers almost all of its revenue to be derived from product sales, including those
related to MRO.
Manufactured products
MRO
Services
2021
Year Ended September 30,
2020
2019
86%
13%
1%
86%
12%
2%
86%
12%
2%
Point in time and over time revenue recognition
The amount of revenue recognized as point in time or over time follows:
2021
For the Year Ended September 30,
2020
Aerospace Industrial Consolidated Aerospace Industrial Consolidated Aerospace
Consolidated
$ 481,422 $ 527,233 $ 1,008,655 $ 590,817 $ 592,157 $ 1,182,974 $ 762,042 $ 634,219 $ 1,396,261
Point in time
Over time
1,503,936
312,545
Total net sales $1,404,117 $ 841,715 $ 2,245,832 $1,590,963 $ 904,702 $ 2,495,665 $1,880,520 $1,019,677 $ 2,900,197
1,118,478
1,000,146
1,237,177
1,312,691
385,458
922,695
314,482
2019
Industrial
Material Rights and Costs to Fulfill a Contract
Amounts recognized related to changes in estimated total lifetime sales for material rights and costs to fulfill contracts
with customers follows:
Revenue
Cost of goods sold
For the Year Ended September 30,
2020
2019
2021
$
$
2,671
1,961
$
6,784
6,638
6,017
9,580
Amounts recognized related to amortization of costs to fulfill contracts and contract liabilities, which were not related
to changes in estimate, follows:
Revenue
Cost of goods sold
For the Year Ended September 30,
2020
2019
2021
$
$
4,455
3,466
$
1,664
1,241
719
376
As of September 30, 2021, “Other assets” on the Consolidated Balance Sheets included $152,885 of capitalized costs
to fulfill contracts with customers, compared to $133,349 as of September 30, 2020.
Accounts Receivable and Contract assets
Customer receivables include amounts billed and currently due from customers as well as unbilled amounts (contract
assets) and are included in “Accounts receivable” in Woodward’s Consolidated Balance Sheets. Amounts are billed in
accordance with contractual terms, which are generally tied to shipment of the products to the customer, or as work
progresses in accordance with contractual terms. Billed accounts receivable are typically due within 60 days. Woodward’s
contracts with customers generally have no financing components.
57
Accounts receivable consisted of the following:
Billed receivables
Trade accounts receivable
Other (Chinese financial institutions)
Total billed receivables
Current unbilled receivables (contract assets)
Total accounts receivable
Less: Allowance for uncollectible amounts
Total accounts receivable, net
September 30, 2021
September 30, 2020
$
$
298,951 $
23,168
322,119
204,596
526,715
(3,664)
523,051 $
307,914
56,640
364,554
181,792
546,346
(8,359)
537,987
As of September 30, 2021, “Other assets” on the Consolidated Balance Sheets includes $9,424 of unbilled receivables
not expected to be invoiced and collected within a period of twelve months, compared to $16,751 as of September 30,
2020. Unbilled receivables not expected to be invoiced and collected within a period of twelve months are primarily
attributable to customer delays for deliveries on firm orders in the Aerospace segment due to the impacts of the COVID-19
pandemic.
Billed and unbilled accounts receivable from the U.S. Government were less than 10% of total billed and unbilled
accounts receivable at September 30, 2021 and September 30, 2020.
The allowance for uncollectible amounts and change in expected credit losses for trade accounts receivable and
unbilled receivables (contract assets) consisted of the following:
Balance, beginning
Charged to costs and expenses, or sales allowance
Deductions
Other additions1
Balance, ending
2021
Year Ended September 30,
2020
2019
$
$
8,359
2,382
(7,255)
178
3,664
$
$
8,936
4,735
(5,342)
30
8,359
$
$
3,938
5,927
(1,180)
251
8,936
(1)
Includes effects of foreign exchange rate changes during the period.
Woodward adopted ASU 2016-13 on October 1, 2021. The change in the allowance for uncollectible amounts during
the fiscal year ended September 30, 2020 and 2019 is based on incurred losses rather than expected credit losses per the
CECL impairment model.
Contract liabilities
Contract liabilities consisted of the following:
Deferred revenue from material rights from GE joint venture
formation
Deferred revenue from advanced invoicing and/or prepayments
from customers
Liability related to customer supplied inventory
Deferred revenue from material rights related to engineering and
development funding
Net contract liabilities
September 30, 2021
September 30, 2020
Current
Noncurrent
Current
Noncurrent
$
4,771 $
234,237 $
4,066 $
234,240
4,192
14,169
290
—
3,239
14,955
85
—
6,395
29,527 $
151,797
386,324 $
2,360
24,620 $
132,317
366,642
$
The current portion of contract liabilities is included in “Accrued liabilities” and the noncurrent portion is included in
“Other liabilities” of Woodward’s Consolidated Balance Sheets. Woodward recognized revenue of $19,925 in the year
ended September 30, 2021 from contract liabilities balances recorded as of September 30, 2020, compared to $29,579 in
the year ended September 30, 2020 from contract liabilities balances recorded as of September 30, 2019.
58
Woodward recognized revenue of $71,517 for the fiscal year 2021, compared to $79,569 for the fiscal year 2020 and
$98,061 for fiscal year 2019, related to noncash consideration received from customers. The Aerospace segment
recognized $69,195 for the fiscal year ended September 30, 2021, compared to $78,179 for the fiscal year ended
September 30, 2020 and $96,762 for the fiscal year ended September 30, 2019, while the Industrial segment recognized
$2,322 for the fiscal year ended September 30, 2021 compared to $1,390 for the fiscal year ended September 30, 2020 and
$1,299 for the fiscal year ended September 30, 2019.
Remaining performance obligations
Remaining performance obligations related to the aggregate amount of the total contract transaction price of firm
orders for which the performance obligation has not yet been recognized in revenue as of September 30, 2021 was
$1,283,311, compared to $1,454,406 as of September 30, 2020, the majority of which in both periods relate to Woodward’s
Aerospace segment. Woodward expects to recognize almost all of these remaining performance obligations within two
years after September 30, 2021.
Remaining performance obligations related to material rights that have not yet been recognized in revenue as of
September 30, 2021 was $471,133, of which $11,265 is expected to be recognized in fiscal year 2022, and the balance is
expected to be recognized thereafter. Woodward expects to recognize revenue from performance obligations related to
material rights over the life of the underlying programs, which may be as long as forty years.
Disaggregation of Revenue
Woodward designs, produces and services reliable, efficient, low-emission, and high-performance energy control
products for diverse applications in markets throughout the world. Woodward reports financial results for each of its
Aerospace and Industrial reportable segments. Woodward further disaggregates its revenue from contracts with customers
by primary market and by geographical area as Woodward believes this best depicts how the nature, amount, timing and
uncertainty of its revenue and cash flows are affected by economic factors.
Revenue by primary market for the Aerospace reportable segment was as follows:
Commercial OEM
Commercial aftermarket
Defense OEM
Defense aftermarket
Total Aerospace segment net sales
Year Ended September 30,
2020
2021
$
$
386,543
306,547
509,815
201,212
1,404,117
$
$
434,306
399,843
526,264
230,550
1,590,963
$
$
2019
659,336
497,795
529,940
193,449
1,880,520
Revenue by primary market for the Industrial reportable segment was as follows:
Reciprocating engines
Industrial turbines
Renewables1
Total Industrial segment net sales
Year Ended September 30,
2020
2021
$
$
639,946
201,769
—
841,715
$
$
632,555
222,366
49,781
904,702
$
$
2019
751,136
210,064
58,477
1,019,677
(1) Sales in the renewables market were discontinued as of May 1, 2020 following the closing of the divestiture of the
disposal group (see Note 10, Sale of businesses).
The customers who account for approximately 10% or more of net sales of each of Woodward’s reportable segments
for the fiscal years ended September 30, 2021 and 2020 are as follows:
Aerospace
Industrial
Customer
The Boeing Company, General Electric Company, Raytheon Technologies
Rolls-Royce PLC, Weichai Westport, General Electric Company
59
Net sales by geographic area, as determined based on the location of the customer, were as follows:
2021
Year Ended September 30,
2020
Aerospace Industrial Consolidated Aerospace Industrial Consolidated Aerospace
Consolidated
$1,103,373 $ 174,750 $ 1,278,123 $1,231,004 $ 195,450 $ 1,426,454 $1,415,880 $ 212,184 $ 1,628,064
302,084
52,635 181,330
31,005 152,691
183,696
233,965
229,177
72,907
2019
Industrial
95,984 195,957
35,286 178,983
291,941
214,269
122,938 214,033
38,359 171,526
336,971
209,885
178,905
47,492
252,511
167,337
431,416
214,829
23,363 114,137
25,197
164,488
27,068 113,001
159,316
29,362
$1,404,117 $ 841,715 $ 2,245,832 $1,590,963 $ 904,702 $ 2,495,665 $1,880,520 $1,019,677 $ 2,900,197
126,497
31,971
137,500
140,303
37,991
127,345
140,069
148,321
118,959
115,106
United States
Germany
Europe, excluding
Germany
China
Asia, excluding
China
Other countries
Total net sales
Note 4. Earnings per share
Basic earnings per share is computed by dividing net earnings available to common stockholders by the weighted-
average number of shares of common stock outstanding for the period.
Diluted earnings per share reflects the weighted-average number of shares outstanding after consideration of the
dilutive effect of stock options and restricted stock.
The following is a reconciliation of net earnings to basic earnings per share and diluted earnings per share:
Numerator:
Net earnings
Denominator:
Year Ended September 30,
2020
2019
2021
$
208,649
$
240,395
$
259,602
Basic shares outstanding
Dilutive effect of stock options and restricted stock units
Diluted shares outstanding
63,287
2,268
65,555
62,267
1,942
64,209
Income per common share:
Basic earnings per share
Diluted earnings per share
$
$
3.30
3.18
$
$
3.86
3.74
$
$
61,950
2,548
64,498
4.19
4.02
The following stock option grants were outstanding during the fiscal years ended September 30, 2021, 2020 and 2019,
but were excluded from the computation of diluted earnings per share because their inclusion would have been anti-
dilutive.
Options
Weighted-average option price
Year Ended September 30,
2020
2019
2021
41
660
$
116.38
$
104.45
$
25
96.54
The weighted-average shares of common stock outstanding for basic and diluted earnings per share included the
weighted-average treasury stock shares held for deferred compensation obligations of the following:
Weighted-average treasury stock shares held for
deferred compensation obligations
Year Ended September 30,
2020
2019
2021
186
211
208
60
Note 5. Leases
Woodward is primarily a lessee in lease arrangements but has some embedded lessor arrangements.
Lessee arrangements
Woodward has entered into operating leases for certain facilities and equipment with terms in excess of one year
under agreements that expire at various dates. Some leases require the payment of property taxes, insurance,
maintenance costs, or other similar costs in addition to rental payments. Woodward has also entered into finance leases
for equipment with terms in excess of one year under agreements that expire at various dates.
None of Woodward’s lease agreements contain significant residual value guarantees, restrictions, or covenants. As of
September 30, 2021, Woodward has not entered into any lease arrangements that have not yet commenced but would
create significant rights and obligations. Woodward does not have any lease transactions between related parties.
Lease-related assets and liabilities follows:
Classification on Consolidated Balance Sheets
September 30, 2021
September 30, 2020
Assets:
Operating lease assets
Finance lease assets
Total lease assets
Current liabilities:
Operating lease liabilities
Finance lease liabilities
Noncurrent liabilities:
Operating lease liabilities
Finance lease liabilities
Total lease liabilities
Other assets
Property, plant and equipment, net
Accrued liabilities
Current portion of long-term debt
Other liabilities
Long-term debt, less current portion
$
$
$
19,370
781
20,151
5,260
728
14,770
475
21,233
$
18,918
1,201
20,119
4,925
1,634
14,569
1,173
22,301
In the first quarter of fiscal year 2020, Woodward determined that the approved plan to divest of the renewable
power systems business and other related businesses (as described more fully in Note 10, Sale of businesses, and defined
therein as the “disposal group”) represented a triggering event requiring the long-lived assets attributable to the disposal
group be assessed for impairment. Given the facts and circumstances at that time, Woodward determined that the
remaining value of the ROU assets of the disposal group were not recoverable, and a $639 non-cash impairment charge was
recorded during the fiscal year ended September 30, 2020.
Supplemental lease-related information follows:
Weighted average remaining lease term
Operating leases
Finance leases
Weighted average discount rate
Operating leases
Finance leases
Lease-related expenses were as follows:
Operating lease expense
Amortization of financing lease assets
Interest on financing lease liabilities
Variable lease expense
Short-term lease expense
Sublease income1
Total lease expense
September 30, 2021
September 30, 2020
4.3 years
1.7 years
3.2%
2.8%
5.5 years
2.1 years
3.2%
3.0%
Year Ended September 30,
2020
2021
$
$
6,559
425
58
1,495
283
(680)
8,140
$
$
6,164
476
87
1,101
466
(697)
7,597
(1) Relates to two separate subleases Woodward has entered into for a leased manufacturing building in Niles, Illinois.
61
Lease-related supplemental cash flow information was as follows:
Year Ended September 30,
2020
2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
Operating cash flows for finance leases
Financing cash flows for finance leases
Right-of-use assets obtained in exchange for recorded lease obligations:
Operating leases
Finance leases
Maturities of lease liabilities were as follows:
$
5,707
58
1,639
6,871
35
Year Ending September 30:
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: imputed interest
Total lease obligations
Lessor arrangements
Operating Leases
$
5,759
4,470
3,716
3,048
2,356
2,155
21,504
(1,474)
20,030
$
$
$
$
5,622
87
1,590
6,501
1,244
Finance Leases
747
334
143
5
3
—
1,232
(29)
1,203
Woodward has assessed its manufacturing contracts and concluded that certain of the contracts for the manufacture
of customer products met the criteria to be considered a leasing arrangement (“embedded leases”) with Woodward as the
lessor. The specific manufacturing contracts that met the criteria were those that utilized Woodward property, plant and
equipment and which is substantially (more than 90%) dedicated to the manufacturing of the product(s) for a single
customer. Woodward has dedicated manufacturing lines with four of its customers representing embedded leases, all of
which qualified as operating leases with undefined quantities of future customer purchase commitments.
Although Woodward expects to allocate some portion of future net sales to these customers to embedded lessor
arrangements, it cannot provide expected future undiscounted lease payments from property, plant and equipment leased
to customers as of September 30, 2021. If, in the future, customers reduce purchases of related products from Woodward,
the Company believes it will derive additional value from the underlying equipment by repurposing its use to support other
customer arrangements.
Woodward recognizes revenue from the embedded lessor arrangements based on the value of the underlying
dedicated property, plant, and equipment. There are no fixed payments that the customers under the embedded lessor
arrangements are obligated to pay. Therefore, all the customer payments under the embedded lessor arrangements are
considered variable with the associated leasing revenue recognized when the revenue from underlying product sale related
to variable lease payment is recognized. Revenue from contracts with customers that included embedded operating leases,
which is included in “Net sales” at the Consolidated Statements of Earnings, was $6,305 for the fiscal year ended
September 30, 2021, compared to $6,823 for the fiscal year ended September 30, 2020.
The carrying amount of property, plant and equipment leased to others through embedded leasing arrangements,
included in “Property, plant and equipment, net” at the Consolidated Balance Sheets, follows:
Property, plant and equipment leased to others through embedded leasing arrangements
Less accumulated depreciation
Property, plant and equipment leased to others through embedded leasing arrangements,
net
62
September 30, 2021
$
93,732 $
(35,733)
September 30, 2020
76,655
(29,819)
$
57,999 $
46,836
Note 6. Joint venture
In fiscal year 2016, Woodward and General Electric Company (“GE”), acting through its GE Aviation business unit,
consummated the formation of a strategic joint venture between Woodward and GE (the “JV”) to develop, manufacture
and support fuel systems for specified existing and all future GE commercial aircraft engines that produce thrust in excess
of fifty thousand pounds.
Unamortized deferred revenue from material rights in connection with the JV formation included:
Accrued liabilities
Other liabilities
September 30, 2021
$
4,771
234,237
September 30, 2020
$
4,066
234,240
Amortization of the deferred revenue (material right) recognized as an increase to sales was $4,191 for the fiscal year
ended September 30, 2021, $5,493 for the fiscal year ended September 30, 2020, and $7,652 for the fiscal year ended
September 30, 2019.
Woodward and GE jointly manage the JV and any significant decisions and/or actions of the JV require the mutual
consent of both parties. Neither Woodward nor GE has a controlling financial interest in the JV, but both Woodward and
GE do have the ability to significantly influence the operating and financial decisions of the JV. Therefore, Woodward is
accounting for its 50% ownership interest in the JV using the equity method of accounting. The JV is a related party to
Woodward. In addition, GE will continue to pay contingent consideration to Woodward consisting of fifteen annual
payments of $4,894 each, which began on January 4, 2017, subject to certain claw-back conditions. Woodward received its
third and fourth annual payments of $4,894 during the three-months ended March 31, 2020 and March 31, 2021,
respectively, which were recorded as deferred income and included in Net cash provided by operating activities on the
Consolidated Statements of Cash Flows. Neither Woodward nor GE contributed any tangible assets to the JV.
Other income related to Woodward’s equity interest in the earnings of the JV was as follows:
Other income
$
11,366
$
15,580
$
12,932
Cash distributions to Woodward from the JV, recognized in Net cash provided by operating activities on the
Consolidated Statements of Cash Flows, from the JV include:
For the Year Ended September 30,
2020
2019
2021
For the Year Ended September 30,
2020
2019
2021
Cash distributions
Net sales to the JV were as follows:
Net sales1
$
$
13,500
$
14,000
$
15,000
For the Year Ended September 30,
2020
2019
2021
35,957
$
48,222
$
60,955
(1) Net sales include a reduction of $21,101 for the fiscal year ended September 30, 2021, $23,904 for the fiscal year
ended September 30, 2020, and $34,236 for the fiscal year ended September 30, 2019 related to royalties owed to
the JV by Woodward on sales by Woodward directly to third party aftermarket customers.
The Consolidated Balance Sheets include “Accounts receivable” related to amounts the JV owed Woodward,
“Accounts payable” related to amounts Woodward owed the JV, and “Other assets” related to Woodward’s net investment
in the JV, as follows:
Accounts receivable
Accounts payable
Other assets
63
September 30, 2021
$
September 30, 2020
3,062
1,502
9,123
3,639 $
2,823
6,988
Woodward records in “Other liabilities” amounts invoiced to the JV for support of the JV’s engineering and
development projects as an increase to contract liabilities, and records in “Other assets” related incurred expenditures as
costs to fulfill a contract. Woodward’s contract liabilities classified as “Other liabilities” included amounts invoiced to the JV
as of September 30, 2021 of $73,657 compared to $70,618 as of fiscal year ended September 30, 2020. Woodward’s costs
to fulfill a contract included in “Other assets” related to JV activities were $73,657 as of September 30, 2021 and $70,618 as
of fiscal year ended September 30, 2020. In the fiscal year ended September 30, 2021, Woodward recognized a $2,072
reduction in the contract liability in “Other liabilities” and a $2,072 reduction in costs to fulfill a contract in “Other assets”
related to the recognition of revenue and cost of goods sold that was included in the contract liability and contract asset,
respectively, at the beginning of the fiscal year. In the fiscal year ended September 30, 2020, Woodward recognized a
$6,609 reduction in the contract liability in “Other liabilities” and a $6,261 reduction in costs to fulfill a contract in “Other
assets” related to the termination of a JV engineering and development project previously recognized as a material
right. No reductions in costs to fulfill a contract or contract liabilities were recorded during the fiscal year ended September
30, 2021 as a result of the termination of joint venture engineering and development projects.
Note 7. Financial instruments and fair value measurements
The table below presents information about Woodward’s financial assets and liabilities that are measured at fair value
on a recurring basis and indicates the fair value hierarchy of the valuation techniques Woodward utilized to determine such
fair value.
At September 30, 2021
At September 30, 2020
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Financial assets:
Investments in term deposits with foreign banks
Equity securities
Total financial assets
Financial liabilities:
Cross currency interest rate swaps
Total financial liabilities
$13,187
29,714
— $40,453
25,381
—
$42,901 $ — $ — $42,901 $65,834 $ — $ — $65,834
— $13,187 $40,453
25,381
—
29,714
—
—
—
—
$ — $50,185 $ — $50,185 $ — $51,387 $ — $51,387
$ — $50,185 $ — $50,185 $ — $51,387 $ — $51,387
Investments in term deposits with foreign banks: Woodward’s foreign subsidiaries sometimes invest excess cash in
various highly liquid financial instruments that Woodward believes are with creditworthy financial institutions. Such
investments are reported in “Cash and cash equivalents” at fair value, with realized gains from interest income recognized
in earnings. The carrying value of Woodward’s investments in term deposits with foreign banks are considered equal to the
fair value given the highly liquid nature of the investments.
Equity securities: Woodward holds marketable equity securities, through investments in various mutual funds, related
to its deferred compensation program. Based on Woodward’s intentions regarding these instruments, marketable equity
securities are classified as trading securities. The trading securities are reported at fair value, with realized gains and losses
recognized in “Other (income) expense, net” on the Consolidated Statements of Earnings. The trading securities are
included in “Other assets” in the Consolidated Balance Sheets. The fair values of Woodward’s trading securities are based
on the quoted market prices for the net asset value of the various mutual funds.
Cross-currency interest rate swaps: Woodward holds cross currency interest rate swaps, which are accounted for at
fair value. The swaps in an asset position are included in “Other assets,” and swaps in a liability position are included in
“Other liabilities” in the Consolidated Balance Sheets. The fair values of Woodward’s cross currency interest rate swaps are
determined using a market approach that is based on observable inputs other than quoted market prices, including
contract terms, interest rates, currency rates, and other market factors.
Cash, trade accounts receivable, accounts payable, and short-term borrowings are not remeasured to fair value, as the
carrying cost of each approximates its respective fair value.
64
The estimated fair values and carrying costs of other financial instruments that are not required to be remeasured at
fair value in the Consolidated Balance Sheets were as follows:
Assets:
Notes receivable from municipalities
Note receivable from sale of disposal group
Investments in short-term time deposits
Liabilities:
Long-term debt
Fair Value
Hierarchy
Level
2
2
2
2
At September 30, 2021
At September 30, 2020
Estimated
Fair Value
Carrying
Cost
Estimated
Fair Value
Carrying
Cost
$ 11,413
6,288
11,587
$ 10,193
6,061
11,580
$ 13,413
6,341
13,678
$ 11,846
6,061
13,671
$ 812,866
$ 736,706
$ 935,610
$ 840,654
In connection with certain economic incentives related to Woodward’s development of a second campus in the
greater-Rockford, Illinois area for its Aerospace segment and Woodward’s development of a new campus at its corporate
headquarters in Fort Collins, Colorado, Woodward received long-term notes from municipalities within the states of Illinois
and Colorado. The fair value of the long-term notes was estimated based on a model that discounted future principal and
interest payments received at an interest rate available to the Company at the end of the period for similarly rated
municipal notes of similar maturity, which is a level 2 input as defined by the U.S. GAAP fair value hierarchy. The interest
rates used to estimate the fair value of the long-term notes were 1.3% at September 30, 2021 and 1.2% at September 30,
2020.
In connection with the sale of the disposal group (See Note 10, Sale of businesses), Woodward received a promissory
note from the buyer for deferral of a portion of the purchase price, which is due by April 30, 2022. The fair value of the
note was estimated based on a model that discounted future principal and interest payments received at an interest rate
available to Woodward at the end of the period for similarly rated promissory notes of similar maturity, which is a level 2
input as defined by the U.S. GAAP fair value hierarchy. The interest rate used to estimate the fair value of the note was
1.0% at September 30, 2021 and 2.3% at September 30, 2020.
From time to time, certain of Woodward’s foreign subsidiaries will invest excess cash in short-term time deposits with
a fixed maturity date of longer than three months but less than one year from the date of the deposit. Woodward believes
that the investments are with creditworthy financial institutions. The fair value of the investments in short-term time
deposits was estimated based on a model that discounted future principal and interest payments to be received at an
interest rate available to the foreign subsidiary entering into the investment for similar short-term time deposits of similar
maturity. This was determined to be a level 2 input as defined by the U.S. GAAP fair value hierarchy. The interest rates
used to estimate the fair value of the short-term time deposits was 3.3% at September 30, 2021 and 4.4% at September 30,
2020.
The fair value of long-term debt was estimated based on a model that discounted future principal and interest
payments at interest rates available to the Company at the end of the period for similar debt of the same maturity, which is
a level 2 input as defined by the U.S. GAAP fair value hierarchy. The weighted-average interest rates used to estimate the
fair value of long-term debt were 1.6% at September 30, 2021 and 1.5% at September 30, 2020.
Note 8. Derivative instruments and hedging activities
Derivative instruments not designated or qualifying as hedging instruments
In May 2018, Woodward entered into cross currency interest rate swap agreements that synthetically converted
$167,420 of floating-rate debt under Woodward’s then existing revolving credit agreement to Euro denominated floating-
rate debt in conjunction with the L’Orange acquisition (the “Floating-Rate Cross Currency Swap”). Also, in May 2018,
Woodward entered into cross currency interest rate swap agreements that synthetically converted an aggregate principal
amount of $400,000 of fixed-rate debt associated with the 2018 Note Purchase Agreement (as defined in Note 15, Credit
facilities short-term borrowings and long-term debt) to Euro denominated fixed-rate debt (the “Fixed-Rate Cross Currency
Swaps”). The cross-currency interest rate swaps, which effectively reduce the interest rate on the underlying fixed and
floating-rate debt under the 2018 Notes (as defined in Note 15, Credit facilities short-term borrowings and long-term debt)
and Woodward’s then existing revolving credit agreement, respectively, is recorded as a reduction to “Interest expense” in
Woodward’s Consolidated Statements of Earnings.
65
In May 2020, as a result of the COVID-19 pandemic and uncertainties in future cash flows, Woodward terminated the
Floating-Rate Cross-Currency Swap and Fixed-Rate Cross-Currency Swaps. At the date of settlement, the total notional
value of the Floating-Rate Cross-Currency Swap and Fixed-Rate Cross-Currency Swaps was $108,823 and $400,000,
respectively. Woodward received net cash proceeds of $59,571, which includes $58,191 related to the fair value of the
derivative assets and $4,380 of net accrued interest, less payment of $3,000 for fees to terminate the swap agreements.
The proceeds received for the fair value of the instruments is recorded in “Other”, while net accrued interest is recorded in
“Other” and “Accrued liabilities”, respectively, in cash flows provided by operating activities of Woodward’s Consolidated
Statements of Cash Flows. The fees to terminate the swap agreements were expensed as incurred and presented in the
line item “Selling, general and administrative” expenses in Woodward’s Consolidated Statements of Earnings.
Upon termination and settlement of the instruments, Woodward entered into a new floating-rate cross-currency
interest rate swap (the “2020 Floating-Rate Cross-Currency Swap”), with a notional value of $45,000, and five fixed-rate
cross-currency interest rate swap agreements (the “2020 Fixed-Rate Cross-Currency Swaps”), with an aggregate notional
value of $400,000, which effectively reduce the interest rates on the underlying fixed and floating-rate debt under the 2018
Notes and Woodward’s existing revolving credit agreement, respectively. The net interest income of the cross-currency
interest rate swaps is recorded as a reduction to “Interest expense” in Woodward’s Consolidated Statements of Earnings.
As of September 30, 2021, the total notional value of the 2020 Floating-Rate Cross-Currency Swap and 2020 Fixed-Rate
Cross-Currency Swaps was $26,250 and $400,000, respectively. See Note 7, Financial Instruments and fair value
measurements, for the related fair value of the derivative instruments as of September 30, 2021.
Derivatives instruments in fair value hedging relationships
Concurrent with the entry into the Floating-Rate Cross Currency Swap in May 2018, a corresponding Euro
denominated intercompany loan receivable with identical terms and notional amount as the underlying Euro denominated
floating-rate debt, with a reciprocal cross currency interest rate swap, was entered into by Woodward Barbados Financing
SRL (“Barbados”), a wholly owned subsidiary of Woodward, and is designated as a fair value hedge under the criteria
prescribed in ASC Topic 815, Derivatives and Hedging (“ASC 815”). The objective of the derivative instrument is to hedge
against the foreign currency exchange risk attributable to the spot remeasurement of the Euro denominated intercompany
loan.
In May 2020, Woodward settled the Euro denominated intercompany loan receivable with identical terms and
notional value to the Floating-Rate Cross-Currency Swap and reciprocal intercompany cross-currency interest rate swap.
The fair value hedge designated on these instruments was discontinued at the date of settlement and resulted in a
reclassification of $1,719 of previously unrecognized losses from accumulated OCI into earnings. The loss on
discontinuation of the fair value hedging relationship is recognized in “Gain on cross-currency interest rate swaps, net” in
Woodward’s Consolidated Statements of Earnings. Concurrent with settlement of the Floating-Rate Cross-Currency Swap
and discontinuation of the previous fair value hedging relationship, a US dollar denominated intercompany loan payable
with identical terms and notional value as the 2020 Floating-Rate Cross-Currency Swap, together with a reciprocal
intercompany floating-rate cross-currency interest rate swap, was entered into by Woodward Barbados Euro Financing SRL
(“Euro Barbados”), a wholly owned subsidiary of Woodward. The US dollar denominated intercompany loan and reciprocal
intercompany floating-rate cross-currency interest rate swap is designated as a fair value hedge under the criteria
prescribed in ASC 815. The objective of the derivative instrument is to hedge against the foreign currency exchange risk
attributable to the spot remeasurement of the US dollar denominated intercompany loan, as Euro Barbados maintains a
Euro functional currency.
For each floating-rate intercompany cross-currency interest rate swap, only the change in the fair value related to the
cross-currency basis spread, or excluded component, of the derivative instrument is recognized in accumulated OCI. The
remaining change in the fair value of the derivative instrument is recognized in foreign currency transaction gain or loss
included in “Selling, general and administrative costs” in Woodward’s Consolidated Statements of Earnings. The change in
the fair value of the derivative instrument in foreign currency transaction gain or loss offsets the change in the spot
remeasurement of the intercompany Euro and US dollar denominated loans. Hedge effectiveness is assessed based on the
fair value changes of the derivative instrument, after excluding any fair value changes related to the cross-currency basis
spread. The initial cost of the cross-currency basis spread is recorded in earnings each period through the swap accrual
process. There are no credit-risk-related contingent features associated with the intercompany floating-rate cross-currency
interest rate swap.
66
Derivative instruments in cash flow hedging relationships
In conjunction with the entry into the Fixed-Rate Cross Currency Swaps in May 2018, five corresponding intercompany
loans receivable, with identical terms and amounts of each tranche of the underlying aggregate principal amount of
$400,000 of fixed-rate debt, and reciprocal cross currency interest rate swaps were entered into by Barbados, which are
designated as cash flow hedges under the criteria prescribed in ASC 815. The objective of these derivative instruments is to
hedge the risk of variability in cash flows attributable to the foreign currency exchange risk of cash flows for future principal
and interest payments associated with the Euro denominated intercompany loans over a fifteen-year period.
In May 2020, Woodward settled the Euro denominated intercompany loans receivable with identical terms and
notional value to the Fixed-Rate Cross-Currency Swaps and reciprocal cross-currency interest rate swaps. The cash flow
hedges designated on these instruments were discontinued at the date of settlement and resulted in a reclassification of
$32,200 of previously unrecognized gains from accumulated OCI into earnings. The gain on discontinuation of the cash flow
hedging relationships is recognized in “Gain on cross-currency interest rate swaps, net” in Woodward’s Consolidated
Statements of Earnings. Concurrent with settlement of the Fixed-Rate Cross-Currency Swaps and the discontinuation of the
previous cash flow hedging relationships, five corresponding US dollar intercompany loans payable, with identical terms
and notional values of each tranche of the 2020 Fixed-Rate Cross-Currency Swaps, together with reciprocal fixed-rate
intercompany cross-currency interest rate swaps were entered into by Euro Barbados, which are designated as cash flow
hedges under the criteria prescribed in ASC 815. The objective of these derivative instruments is to hedge the risk of
variability in cash flows attributable to the foreign currency exchange risk of cash flows for future principal and interest
payments associated with the US dollar denominated intercompany loans over a thirteen-year period, as Euro Barbados
maintains a Euro functional currency.
For each of the fixed-rate intercompany cross-currency interest rate swaps, changes in the fair values of the derivative
instruments are recognized in accumulated OCI and reclassified to foreign currency transaction gain or loss included in
“Selling, general and administrative costs” in Woodward’s Consolidated Statements of Earnings. Reclassifications out of
accumulated OCI of the change in fair value occur each reporting period based upon changes in the spot rate
remeasurement of the Euro and US dollar denominated intercompany loans, including associated interest. Hedge
effectiveness is assessed based on the fair value changes of the derivative instruments and such hedges are deemed to be
highly effective in offsetting exposure to variability in foreign exchange rates. There are no credit-risk-related contingent
features associated with these fixed-rate cross-currency interest rate swaps.
Derivatives instruments in net investment hedging relationships
On September 23, 2016, Woodward and Woodward International Holding B.V., a wholly owned subsidiary of
Woodward organized under the laws of The Netherlands (the “BV Subsidiary”), each entered into a note purchase
agreement (the “2016 Note Purchase Agreement”) relating to the sale by Woodward and the BV Subsidiary of an aggregate
principal amount of €160,000 of senior unsecured notes in a series of private placement transactions. Woodward issued
€40,000 aggregate principal amount of Woodward’s Series M Senior Notes due September 23, 2026 (the “Series M Notes”).
Woodward designated the Series M Notes as a hedge of a foreign currency exposure of Woodward’s net investment in its
Euro denominated functional currency subsidiaries. Related to the Series M Notes, included in foreign currency translation
adjustments within total comprehensive (losses) earnings are net foreign exchange gains of $592 for the fiscal year ended
September 30, 2021, compared to net foreign exchanges losses of $3,199 for the fiscal year ended September 30, 2020 and
net foreign exchange gains of $2,682 for the fiscal year ended September 30, 2019.
Impact of derivative instruments designated as qualifying hedging instruments
The following table discloses the amount of (income) expense recognized in earnings on derivative instruments
designated as qualifying hedging instruments:
Derivatives in:
Cross-currency interest rate swap agreement
designated as fair value hedges
Cross-currency interest rate swap agreements
designated as cash flow hedges
Treasury lock agreement designated as cash flow
hedge
Location
Selling, general and
administrative expenses
Selling, general and
administrative expenses
Interest expense
Year Ended September 30,
2020
2019
2021
$
$
23
$
4,592
$
(9,394)
(3,725)
(3,190)
(23,018)
—
(3,702)
$
(72)
1,330
$
(72)
(32,484)
67
The following table discloses the amount of (gain) loss recognized in accumulated OCI on derivative instruments
designated as qualifying hedging instruments:
Derivatives in:
Cross-currency interest rate swap agreement
designated as fair value hedges
Cross-currency interest rate swap agreements
designated as cash flow hedges
Location
Selling, general and
administrative expenses
Selling, general and
administrative expenses
Year Ended September 30,
2020
2019
2021
$
$
60
$
4,832
$
(8,317)
1,612
1,672
$
13,430
18,262
$
(39,442)
(47,759)
The following table discloses the amount of (gain) loss reclassified in accumulated OCI on derivative instruments
designated as qualifying hedging instruments:
Derivatives in:
Cross-currency interest rate swap agreement
designated as fair value hedges
Cross-currency interest rate swap agreements
designated as cash flow hedges
Treasury lock agreement designated as cash flow
hedge
Location
Selling, general and
administrative expenses
Selling, general and
administrative expenses
Interest expense
Year Ended September 30,
2020
2019
2021
$
$
23 $
5,396 $
(8,356)
(3,725)
(3,190)
(23,018)
—
(3,702) $
(72)
2,134 $
(72)
(31,446)
The remaining unrecognized gains and losses in Woodward’s Consolidated Balance Sheets associated with derivative
instruments that were previously entered into by Woodward, which are classified in accumulated OCI were net losses of
$26,506 as of September 30, 2021 and of $21,132 as of September 30, 2020.
Note 9. Supplemental statement of cash flows information
Interest paid, net of amounts capitalized
Income taxes paid
Income tax refunds received
Non-cash activities:
Purchases of property, plant and equipment on account
Impact of the adoption of ASC 606
Impact of the adoption of ASC 842
Impact of the adoption of ASU 2016-16
Common shares issued from treasury to settle benefit obligations
Purchases of treasury stock on account
Note 10. Sale of businesses
$
Year Ended September 30,
2020
2019
2021
$
27,574
38,949
14,044
7,771
—
—
—
14,900
12,516
$
27,148
94,088
17,653
3,076
—
255
—
14,748
—
39,909
68,112
1,454
8,737
38,700
—
1,005
14,846
4,204
In the first quarter of fiscal year 2020, Woodward’s board of directors (“the Board”) approved a plan to divest
Woodward’s renewable power systems business, protective relays business, and other businesses within the Company’s
Industrial segment (collectively, the “disposal group”).
Woodward determined that the approved plan to divest the disposal group represented a triggering event requiring (i)
the net assets of the disposal group to be classified as held for sale and (ii) the long-lived assets attributable to the disposal
group be assessed for impairment. Given the facts and circumstances at that time, Woodward determined that the value of
the long-lived assets of the disposal group, including goodwill, intangible assets, ROU assets and property, plant, and
equipment, were not recoverable and a $22,900 non-cash impairment charge was recorded during the fiscal year ended
September 30, 2020. The non-cash impairment charge removed all the goodwill, intangible assets, ROU assets and
property, plant, and equipment associated with the disposal group from the Consolidated Balance Sheets as of June 30,
2020.
68
Further, on the approval of the divestiture plan and subsequent marketing of the disposal group, Woodward
determined that based on the current market conditions, the carrying value of the disposal group’s remaining held for sale
net assets exceeded the fair value. As a result, Woodward recorded a valuation allowance to reduce the carrying value of
the net assets of the disposal group to their fair value. The non-cash impairment charge associated with the long-lived
assets, and related valuation allowance for the other remaining net assets attributable to the disposal group, resulted in a
total impairment charge of $37,902.
In determining the amount by which the carrying value of the disposal group’s remaining net assets exceeded their
fair value, Woodward considered primarily the market value of the assets held for sale based on negotiations it had entered
into with affiliates of the AURELIUS Group for the sale of the majority of the disposal group. On January 31, 2020,
Woodward entered into a definitive agreement to sell the majority of the disposal group to affiliates of the AURELIUS
Group for $23,400, subject to customary purchase price adjustments, consisting of cash and a $6,000 promissory note,
which is due by April 30, 2022. The assets were primarily located in Germany, Poland and Bulgaria and accounted for
approximately $88,000 of sales in fiscal year 2019. The valuation reserve recorded to reduce the carrying value of the net
assets held for sale was based on the estimated selling price pursuant to the definitive agreement reduced by the estimated
working capital adjustments, transaction costs, and anticipated losses on assets held for sale that were not included in the
disposal group to be sold to the AURELIUS Group.
The transactions consummating the sale of the disposal group were completed on April 30, 2020. The carrying value
of the assets and liabilities sold were as follows:
Assets:
Accounts receivable
Inventories
Other current assets
Other assets
Total assets
Liabilities:
Accounts payable
Accrued liabilities
Other liabilities
Total liabilities
Note 11. Inventories
June 30, 2020
17,637
441
796
51
18,925
7,633
2,998
450
11,081
$
$
Raw materials
Work in progress
Component parts (1)
Finished goods
Customer supplied inventory
On-hand inventory for which control has transferred to the customer
September 30, 2021
September 30, 2020
$
$
107,412 $
95,846
260,244
63,109
14,169
(120,809)
419,971 $
123,626
92,934
255,980
66,889
14,955
(116,441)
437,943
(1) Component parts include items that can be sold separately as finished goods or included in the manufacture of
other products.
69
Note 12. Property, plant, and equipment
Land and land improvements
Buildings and building improvements
Leasehold improvements
Machinery and production equipment
Computer equipment and software
Office furniture and equipment
Other
Construction in progress
Less accumulated depreciation
Property, plant, and equipment, net
September 30, 2021
September 30, 2020
$
$
86,051
553,693
19,159
795,128
124,444
39,987
20,012
38,317
1,676,791
(726,222)
950,569
$
$
83,095
551,540
18,610
776,884
123,903
41,177
19,814
36,367
1,651,390
(653,975)
997,415
In the second quarter of fiscal year 2018, the Company announced its decision to relocate its Duarte, California
operations to the Company’s newly renovated Drake Campus in Fort Collins, Colorado, and in fiscal year 2019, finalized the
relocation. On December 30, 2019, the Company closed on the sale of one of two parcels of real property at the Duarte
facility and recorded a pre-tax gain on sale of assets of $13,522. On August 11, 2020, the Company closed on the sale of the
final parcel of real property at the Duarte facility and recorded a pre-tax gain on sale of assets of $8,801.
During the three-months ended December 31, 2019, Woodward determined that the approved plan to divest of the
disposal group represented a triggering event requiring the long-lived assets attributable to the disposal group be assessed
for impairment. Given the facts and circumstances at that time, Woodward determined that the remaining value of the
plant, property and equipment of the disposal group was not recoverable, and a $13,421 non-cash impairment charge was
recorded during fiscal year 2020.
On September 25, 2020 the Company closed on the sale of its Loveland, Colorado campus with a concurrent purchase
of a new property in Windsor, Colorado for future operations, resulting in recognition of a pre-tax gain on sale of assets of
$2,330.
For the fiscal years ended September 30, 2021, 2020, and 2019, Woodward had depreciation expense as follows:
Depreciation expense
Note 13. Goodwill
Aerospace
Industrial
Consolidated
Aerospace
Industrial
Consolidated
Year Ended September 30,
2020
2019
2021
$
87,631
$
91,700
$
85,982
September 30,
2020
Impairment
Charges
Effects of
Foreign
Currency
Translation
September 30,
2021
$
$
455,423 $
352,829
808,252 $
— $
—
— $
—
(2,919)
(2,919)
$
$
455,423
349,910
805,333
September 30,
2019
Impairment
Charges
Effects of
Foreign
Currency
Translation
September 30,
2020
$
$
455,423 $
342,430
797,853 $
— $
(8,640)
(8,640) $
— $
19,039
19,039 $
455,423
352,829
808,252
70
During the three-months ended December 31, 2019, Woodward determined that the approved plan to divest of the
disposal group represented a triggering event requiring the long-lived assets attributable to the disposal group be assessed
for impairment. Given the facts and circumstances at the time, Woodward determined that the remaining value of the
goodwill of the disposal group was not recoverable and an $8,640 non-cash impairment charge was recorded during the
fiscal year ended September 30, 2020.
Woodward tests goodwill for impairment at the reporting unit level on an annual basis or at any time there is an
indication goodwill may be impaired, commonly referred to as triggering events. Woodward completed its annual goodwill
impairment test as of July 31, 2021 during the quarter ended September 30, 2021. The fair value of each of Woodward’s
reporting units was determined using a discounted cash flow method. This method represents a level 3 input and
incorporates various estimates and assumptions, the most significant being projected revenue growth rates, earnings
margins, future tax rates, and the present value, based on an estimated weighted-average cost of capital (or the discount
rate) and terminal growth rate, of forecasted cash flows. Management projects revenue growth rates, earnings margins
and cash flows based on each reporting unit’s current operational results, expected performance and operational strategies
over a five-year period. These projections are adjusted to reflect current economic conditions and demand for certain
products, and require considerable management judgment.
Forecasted cash flows used in the July 31, 2021 impairment test were discounted using weighted-average cost of
capital assumptions ranging from 9.23% to 12.08%. The terminal values of the forecasted cash flows were calculated using
the Gordon Growth Model and assumed an annual compound growth rate after five years of 3.37%. These inputs, which
are unobservable in the market, represent management’s best estimate of what market participants would use in
determining the present value of the Company’s forecasted cash flows. Changes in these estimates and assumptions can
have a significant impact on the fair value of forecasted cash flows. Woodward evaluated the reasonableness of the
reporting units’ resulting fair values utilizing a market multiple method. The results of Woodward’s goodwill impairment
test performed as of July 31, 2021 did not indicate impairment of any of Woodward’s reporting units.
Note 14. Intangible assets, net
Intangible assets with finite lives:
Customer relationships and contracts:
Aerospace
Industrial
Total
Intellectual property:
Aerospace
Industrial
Total
Process technology:
Aerospace
Industrial
Total
Other intangibles:
Aerospace
Industrial
Total
Intangible asset with indefinite life:
Trade name:
Aerospace
Industrial
Total
Total intangibles:
Aerospace
Industrial
Consolidated Total
September 30, 2021
September 30, 2020
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Amount
$ 281,683 $
404,179
$ 685,862 $
(210,380) $ 71,303 $ 281,683 $
(56,515)
347,664
429,249
(266,895) $ 418,967 $ 710,932 $
(196,520) $ 85,163
372,204
(253,565) $ 457,367
(57,045)
$
— $
15,806
$ 15,806 $
— $
(15,806)
(15,806) $
— $
—
— $
— $
15,778
15,778 $
— $
(15,640)
(15,640) $
—
138
138
$ 76,370 $
90,008
$ 166,378 $
$
$
— $
—
— $
$
— $
67,245
$ 67,245 $
9,193 $
(67,177) $
(26,124)
(93,301) $ 73,077 $ 167,316 $
76,371 $
90,945
63,884
(63,956) $ 12,415
(22,300)
68,645
(86,256) $ 81,060
— $
—
— $
— $
—
— $
— $
235
235 $
— $
(183)
(183) $
—
52
52
— $
— $
—
— $ 67,245 $
67,245
— $
68,094
68,094 $
—
— $
—
68,094
— $ 68,094
$ 358,053 $
577,238
$ 935,291 $
(277,557) $ 80,496 $ 358,054 $
(98,445)
478,793
647,738
(376,002) $ 559,289 $1,005,792 $
(260,476) $ 97,578
(138,605)
509,133
(399,081) $ 606,711
71
Indefinite lived intangible assets
The Woodward L’Orange trade name intangible asset is tested for impairment on an annual basis and more often if an
event occurs or circumstances change that indicate the fair value of the Woodward L’Orange intangible asset may be below
its carrying amount. The impairment test consists of comparing the fair value of the Woodward L’Orange trade name
intangible asset, determined using discounted cash flows based on the relief from royalty method under the income
approach, with its carrying amount. 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
recognized any impairment charges for this asset.
During the fourth quarter, Woodward completed its annual impairment test of the Woodward L’Orange trade name
intangible asset as of July 31, 2021 for the fiscal year ended September 30, 2021. The fair value of the Woodward L’Orange
trade name intangible assets was determined using discounted cash flows based on the relief from royalty method under
the income approach. This method represents a Level 3 input (based upon a fair value hierarchy established by U.S. GAAP)
and incorporates various estimates and assumptions, the most significant being projected revenue growth rates, royalty
rates, future tax rates and the present value, based on an estimated weighted-average cost of capital (or the discount rate)
and terminal growth rate, of the forecasted cash flow. Management projects revenue growth rates and cash flows based
on Woodward L’Orange’s current operational results, expected performance and operational strategies over a five year
period. These projections are adjusted to reflect current economic conditions and demand for certain products, and
require considerable management judgment.
The forecasted cash flow used in the July 31, 2021 impairment test was discounted using weighted-average cost of
capital assumption of 9.40%. The terminal value of the forecasted cash flow was calculated using the Gordon Growth
Model and assumed an annual compound growth rate after five years of 3.37%. These inputs, which are unobservable in
the market, represent management’s best estimate of what market participants would use in determining the present
value of the Company’s forecasted cash flows. Changes in these estimates and assumptions can have a significant impact
on the fair value of the forecasted cash flow. The results of impairment test performed as of July 31, 2021 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.
Finite-lived intangible assets
During the three-months ended December 31, 2019, Woodward determined that the approved plan to divest of the
disposal group represented a triggering event requiring the long-lived assets attributable to the disposal group be assessed
for impairment. Given the facts and circumstances at that time, Woodward determined that the remaining value of the
intangible assets of the disposal group was not recoverable and a $200 non-cash impairment charge was recorded for the
fiscal year ended September 30, 2020.
For the fiscal years ended September 30, 2021, 2020, and 2019, Woodward recorded amortization expense associated
with intangibles of the following:
Amortization expense
Year Ended September 30,
2020
2019
2021
$
41,893
$
39,458
$
56,022
Future amortization expense associated with intangibles is expected to be:
Year Ending September 30:
2022
2023
2024
2025
2026
Thereafter
$
$
39,408
38,354
34,603
29,388
29,378
320,913
492,044
72
Note 15. Credit facilities, short-term borrowings and long-term debt
As of September 30, 2021, Woodward’s short-term borrowings and availability under its various short-term credit
facilities follows:
Revolving credit facility
Foreign lines of credit and overdraft facilities
Foreign performance guarantee facilities
Revolving credit facility
Total availability
$
1,000,000 $
7,413
494
$
1,007,907 $
Outstanding
letters of credit
and guarantees
Outstanding
borrowings
Remaining
availability
(10,961) $
—
(217)
(11,178) $
— $
—
—
— $
989,039
7,413
277
996,729
Woodward maintains a $1,000,000 revolving credit facility established under a revolving credit agreement among
Woodward, a syndicate of lenders and Wells Fargo Bank, National Association, as administrative agent (the “Revolving
Credit Agreement”). The Revolving Credit Agreement provided for the option to increase available borrowings up to
$1,500,000, subject to lenders’ participation. Borrowings under the Revolving Credit Agreement can be made by
Woodward and certain of its foreign subsidiaries in U.S. dollars or in foreign currencies other than the U.S. dollar and
generally bear interest at LIBOR plus 0.875% to 1.75%. The Revolving Credit Agreement matures on June 19, 2024. Under
the Revolving Credit Agreement, there were no borrowings outstanding as of September 30, 2021 and September 30, 2020.
The Revolving Credit Agreement contains certain covenants customary with such agreements, which are generally
consistent with the covenants applicable to Woodward’s long-term debt agreements, and contains customary events of
default, including certain cross default provisions related to Woodward’s other outstanding debt arrangements in excess of
$60,000, the occurrence of which would permit the lenders to accelerate the amounts due thereunder. In addition, the
Revolving Credit Agreement includes the following financial covenants: (i) a maximum permitted leverage ratio of
consolidated net debt to consolidated earnings before interest, taxes, depreciation, stock-based compensation, and
amortization, plus any usual non-cash charges to the extent deducted in computing net income and transaction costs
associated with permitted acquisitions (incurred within six-months of the permitted acquisition), minus any usual non-cash
gains to the extent added in computing net income (“Leverage Ratio”) for Woodward and its consolidated subsidiaries of
3.5 to 1.0, which ratio, subject to certain restrictions, may increase to 4.0 to 1.0 for each period of four consecutive
quarters during which a permitted acquisition occurs, and (ii) a minimum consolidated net worth of $1,156,000 plus (a) 50%
of Woodward’s positive net income for the prior fiscal year and (b) 50% of Woodward’s net cash proceeds resulting from
certain issuances of stock, subject to certain adjustments.
Woodward’s obligations under the Revolving Credit Agreement are guaranteed by Woodward FST, Inc., Woodward
MPC, Inc., and Woodward HRT, Inc., each of which is a wholly owned subsidiary of Woodward.
Short-term borrowings
Woodward has other foreign lines of credit and foreign overdraft facilities at various financial institutions, which are
generally reviewed annually for renewal and are subject to the usual terms and conditions applied by the financial
institutions. Pursuant to the terms of the related facility agreements, Woodward’s foreign performance guarantee facilities
are limited in use to providing performance guarantees to third parties. There were no borrowings outstanding on
Woodward’s foreign lines of credit and foreign overdraft facilities as of both September 30, 2021 and September 30, 2020.
73
Long-term debt
Series G notes – 3.42%, due November 15, 2020; unsecured
Series H notes – 4.03%, due November 15, 2023; unsecured
Series I notes – 4.18%, due November 15, 2025; unsecured
Series J notes – Floating rate (LIBOR plus 1.25%), due November 15, 2020; unsecured
Series K notes – 4.03%, due November 15, 2023; unsecured
Series L notes – 4.18%, due November 15, 2025; unsecured
Series M notes – 1.12% due September 23, 2026; unsecured
Series N notes – 1.31% due September 23, 2028; unsecured
Series O notes – 1.57% due September 23, 2031; unsecured
Series P notes – 4.27% due May 30, 2025; unsecured
Series Q notes – 4.35% due May 30, 2027; unsecured
Series R notes – 4.41% due May 30, 2029; unsecured
Series S notes – 4.46% due May 30, 2030; unsecured
Series T notes – 4.61% due May 30, 2033; unsecured
Finance leases (Note 5)
Unamortized debt issuance costs
Total long-term debt
Less: Current portion of long-term debt
Long-term debt, less current portion
The Notes
September 30, 2021
$
September 30, 2020
$
—
25,000
25,000
—
50,000
50,000
46,376
89,273
49,854
85,000
85,000
75,000
75,000
80,000
1,203
(1,856)
734,850
728
734,122
50,000
25,000
25,000
50,000
50,000
50,000
46,962
90,401
50,484
85,000
85,000
75,000
75,000
80,000
2,807
(2,171)
838,483
101,634
736,849
$
$
On October 1, 2013, Woodward entered into a note purchase agreement relating to the sale by Woodward of an
aggregate principal amount of $250,000 of its senior unsecured notes in a series of private placement transactions.
Woodward issued the Series G, H and I Notes (the “First Closing Notes”) on October 1, 2013. Woodward issued the Series J,
K and L Notes (the “Second Closing Notes” and with the First Closing Notes, collectively the “USD Notes”) on November 15,
2013. On November 15, 2020, Woodward paid the entire principal balance of $100,000 on the Series G and J Notes.
On September 23, 2016, Woodward and the BV Subsidiary each entered into note purchase agreements (the “2016
Note Purchase Agreements”) relating to the sale by Woodward and the BV Subsidiary of an aggregate principal amount of
€160,000 of senior unsecured notes in a series of private placement transactions. Woodward issued €40,000 Series M
Notes. The BV Subsidiary issued (a) €77,000 aggregate principal amount of the BV Subsidiary’s Series N Senior Notes (the
“Series N Notes”) and (b) €43,000 aggregate principal amount of the BV Subsidiary’s Series O Senior Notes (the “Series O
Notes” and together with the Series M Notes and the Series N Notes, the “2016 Notes”).
On May 31, 2018, Woodward entered into a note purchase agreement (the “2018 Note Purchase Agreement”)
relating to the sale by Woodward of an aggregate principal amount of $400,000 of senior unsecured notes comprised of (a)
$85,000 aggregate principal amount of its Series P Senior Notes (the “Series P Notes”), (b) $85,000 aggregate principal
amount of its Series Q Senior Notes (the “Series Q Notes”), (c) $75,000 aggregate principal amount of its Series R Senior
Notes (the “Series R Notes”), (d) $75,000 aggregate principal amount of its Series S Senior Notes (the “Series S Notes”), and
(e) $80,000 aggregate principal amount of its Series T Senior Notes (the “Series T Notes”, and together with the Series P
Notes, the Series Q Notes, the Series R Notes, and the Series S Notes, the “2018 Notes,” and, together with the USD Notes
and 2016 Notes, the “Notes”), in a series of private placement transactions.
In connection with the issuance of the 2018 Notes, the Company entered into cross currency swap transactions in
respect of each tranche of the 2018 Notes, which effectively reduced the interest rates on the Series P Notes to 1.82% per
annum, the Series Q Notes to 2.15% per annum, the Series R Notes to 2.42% per annum, the Series S Notes to 2.55% per
annum and the Series T Notes to 2.90% per annum. Following the termination and settlement of the Floating-Rate Cross-
Currency Swap and Fixed-Rate Cross-Currency Swaps entered into in 2018, the Company entered into the 2020 Floating-
Rate Cross-Currency Swap and 2020 Fixed-Rate Cross-Currency Swaps, which effectively resulted in the interest rates on the
Series P Notes being 3.44% per annum, the Series Q Notes to 3.44% per annum, the Series R Notes to 3.45% per annum, the
Series S Notes to 3.50% per annum and the Series T Notes to 3.62% per annum (see Note 8, Derivative instruments and
hedging activities).
74
Interest on the remaining First Closing Notes, and the Series K and L Notes is payable semi-annually on April 1 and
October 1 of each year until all principal is paid. Interest on the 2016 Notes is payable semi-annually on March 23 and
September 23 of each year, until all principal is paid.
None of the Notes were registered under the Securities Act of 1933 and they may not be offered or sold in the United
States absent registration or an applicable exemption from registration requirements. Holders of the Notes do not have
any registration rights. All of the issued Notes are held by multiple institutions.
Woodward’s payment and performance obligations under the Notes, including without limitation the obligations for
payment of all principal, interest and any applicable prepayment compensation amount, are guaranteed by (i) Woodward
FST, Inc., Woodward MPC, Inc., and Woodward HRT, Inc., each of which is a wholly owned subsidiary of Woodward, and (ii)
in the case of the BV Subsidiary’s Series N and O Notes, by Woodward. Woodward’s obligations under the Notes rank equal
in right of payment with all of Woodward’s other unsecured unsubordinated debt, including its outstanding debt under its
revolving credit facility.
The Notes contain restrictive covenants customary for such financings, including, among other things, covenants that
place limits on Woodward’s ability to incur liens on assets, incur additional debt (including a leverage or coverage-based
maintenance test), transfer or sell Woodward’s assets, merge or consolidate with other persons and enter into material
transactions with affiliates. Under the financial covenants contained in the note purchase agreement governing each series
of the Notes, Woodward’s priority debt may not exceed, at any time, 25% of its consolidated net worth. Woodward’s
Leverage Ratio cannot exceed 4.0 to 1.0 during any material acquisition period, or 3.5 to 1.0 at any other time on a rolling
four quarter basis. In the event that Woodward’s Leverage Ratio exceeds 3.5 to 1.0 during any material acquisition period,
the interest rate on each series of Notes will increase. The minimum consolidated net worth, prior year positive net
income, and net cash proceeds resulting from certain issuances of stock for satisfaction of Woodward’s leverage ratio are
consistent between the Notes and Revolving Credit Agreement.
Required future principal payments of the Notes as of September 30, 2021 are as follows:
Year Ending September 30:
2022
2023
2024
2025
2026
Thereafter
$
$
—
—
75,000
85,000
121,376
454,127
735,503
Certain financial and other covenants under Woodward’s debt agreements contain customary restrictions on the
operation of its business. Management believes that Woodward was in compliance with the covenants under the long-
term debt agreements at September 30, 2021.
Debt Issuance Costs
Amounts recognized as interest expense from the amortization of debt issuance costs were $922 in fiscal year 2021,
$892 in fiscal year 2020, and $1,094 in fiscal year 2019. Unamortized debt issuance costs associated with the Notes of
$1,856 as of September 30, 2021 and $2,171 as of September 30, 2020 were recorded as a reduction in “Long-term debt,
less current portion” in the Consolidated Balance Sheets. Unamortized debt issuance costs associated with Woodward’s
Revolving Credit Agreements of $1,644 as of September 30, 2021 and $2,242 as of September 30, 2020 were recorded as
“Other assets” in the Consolidated Balance Sheets. Amortization of debt issuance costs is included in operating activities in
the Consolidated Statements of Cash Flows.
75
Note 16. Accrued liabilities
Salaries and other member benefits
Warranties
Interest payable
Accrued retirement benefits
Net current contract liabilities (Note 3)
Current portion of accrued restructuring charges
Taxes, other than income
Purchase of treasury stock in transit
Other
Warranties
September 30, 2021
September 30, 2020
$
$
54,497
17,481
14,822
2,825
29,527
4,495
19,453
12,516
27,523
183,139
$
$
50,850
18,972
15,281
3,051
24,620
3,395
13,925
—
21,700
151,794
Provisions of Woodward’s sales agreements include product warranties customary to these types of agreements.
Accruals are established for specifically identified warranty issues that are probable to result in future costs. Warranty
costs are accrued as revenue is recognized on a non-specific basis whenever past experience indicates a normal and
predictable pattern exists. Changes in accrued product warranties were as follows:
Warranties, beginning of period
Impact from adoption of ASC 606
Expense, net of recoveries
Reductions for settling warranties
Foreign currency exchange rate changes
Warranties, end of period
Restructuring charges
Year Ended September 30,
2020
2019
2021
$
$
18,972
—
1,164
(2,718)
63
17,481
$
$
27,309
—
8,687
(17,422)
398
18,972
$
$
20,130
705
14,559
(7,540)
(545)
27,309
In fiscal year 2021, the Company recognized restructuring charges consisting of workforce management costs to align
the Company’s hydraulics and engine systems businesses with current market conditions. Restructuring charges of $5,008
were recorded during the fiscal year ended September 30, 2021 as nonsegment expenses, the majority of which are
expected to be paid within twelve months.
In fiscal year 2020, the Company committed to a plan of termination (the “Termination Plan”), as well as other cost
savings actions, in response to the ongoing global economic challenges resulting from the COVID-19 pandemic and its
impact on the Company’s business. The Termination Plan involved the termination and/or furlough of employees and
contractors at certain of the Company’s operating facilities, primarily in the United States. As a result of the Termination
Plan and other related actions, the Company incurred $23,673 of restructuring charges for employee severance and
benefits costs as of September 30, 2020, with the majority of the cash expenditures being paid by September 30, 2020. All
of the restructuring charges recorded during the fiscal year ended September 30, 2020 were recorded as nonsegment
expenses and were paid as of September 30, 2021.
The summary of activity in accrued restructuring charges during the fiscal years ended September 30, 2021 and
September 30, 2020 is as follows:
Period Activity
Balances
as of
September
30,
2020
Charges
Payments
Foreign
currency
exchange
rate
changes
Balances
as of
September
30,
2021
Non-cash
activity
Workforce management costs associated with:
Hydraulics Systems Realignment
Engine Systems Realignment
COVID-19 pandemic
Total
$
$
— $
—
3,395
3,395 $
3,758 $
1,250
—
5,008 $
— $
—
(2,409)
(2,409) $
— $
—
180
180 $
— $
—
(1,166)
(1,166) $
3,758
1,250
—
5,008
76
Other liabilities included $513 of accrued restructuring charges that are not expected to be settled or paid within
twelve months as of September 30, 2021.
Period Activity
Balances
as of
September
30,
2019
Charges
Payments
Foreign
currency
exchange
rate
changes
Balances
as of
September 30,
2020
Non-cash
activity
Workforce management costs associated with:
Duarte plant relocation
Industrial turbomachinery business realignment
COVID-19 pandemic
Total
$
$
Note 17. Other liabilities
440 $
67
—
507 $
— $
—
23,673
23,673 $
(440) $
(67)
(18,065)
(18,572) $
— $
—
77
77 $
— $
—
(2,290)
(2,290) $
—
—
3,395
3,395
Net accrued retirement benefits, less amounts recognized within accrued liabilities
Total unrecognized tax benefits
Noncurrent income taxes payable
Deferred economic incentives (1)
Cross-currency swap derivative liability
Noncurrent operating lease liabilities
Net noncurrent contract liabilities
Other
September 30, 2021
$
September 30, 2020
$
107,074
13,412
16,257
8,173
50,185
14,770
386,324
21,713
617,908
$
$
114,013
10,230
18,322
9,105
51,387
14,569
366,642
33,637
617,905
(1) Woodward receives certain economic incentives from various state and local authorities related to capital
expansion projects. Such amounts are initially recorded as deferred credits and are being recognized as a
reduction to pre-tax expense over the economic lives of the related capital expansion projects.
Note 18. Other (income) expense, net
Equity interest in the earnings of the JV (Note 6)
Net (gain) loss on sales of assets and businesses(1)
Rent income
Net gain on investments in deferred compensation program
Other components of net periodic pension and other postretirement benefit,
excluding service cost and interest expense
Other
$
Year Ended September 30,
2020
2019
2021
(11,366)
(4,452)
(1,355)
(4,929)
(14,127)
(264)
(36,493)
$
$
(15,580) $
(23,598)
(1,403)
(3,376)
(11,809)
(400)
(56,166) $
(12,932)
1,925
(245)
(942)
(12,965)
(810)
(25,969)
$
(1)
Included in net (gain) loss on sale of assets and businesses for the fiscal year ended September 30, 2020 was the
pre-tax gain on sale of Duarte real property in the amount of $22,323 and the pre-tax gain on sale of the Loveland
campus of $2,330.
77
Note 19. Income taxes
Income taxes consisted of the following:
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Year Ended September 30,
2020
2019
2021
$
$
15,109 $
853
34,354
(8,369)
(2,658)
(2,139)
37,150 $
15,976 $
1,383
22,588
10,784
(547)
(8,698)
41,486 $
40,173
2,402
34,660
(2,015)
(2,948)
(11,262)
61,010
Earnings before income taxes by geographical area consisted of the following:
United States
Other countries
Year Ended September 30,
2020
2019
2021
$
$
136,280 $
109,519
245,799 $
180,753 $
101,128
281,881 $
211,267
109,345
320,612
Significant components of deferred income taxes presented in the Consolidated Balance Sheets are related to the
$
following:
Deferred tax assets:
Defined benefit plans, other postretirement
Foreign net operating loss carryforwards
Inventory
Stock-based and other compensation
Defined benefit plans, pension
Deferred revenue net of unbilled receivables
Other reserves
Tax credits and incentives
Lease obligations
Other
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Goodwill and intangibles - net
Property, plant and equipment
Right of use assets
Defined benefit plans, pension
Other
Total deferred tax liabilities
Net deferred tax liabilities
$
September 30, 2021
September 30, 2020
5,364 $
2,110
51,011
36,343
—
46,002
10,619
22,756
5,818
7,936
(4,138)
183,821
(210,911)
(105,724)
(5,497)
(2,837)
(2,722)
(327,691)
(143,870) $
6,238
6,106
53,867
35,919
5,624
39,990
10,119
14,340
5,764
9,223
(1,833)
185,357
(218,900)
(107,862)
(4,837)
—
(2,673)
(334,272)
(148,915)
Woodward has recorded a net operating loss (“NOL”) deferred tax asset of $2,110 as of September 30, 2021 and
$6,106 as of September 30, 2020. A portion of these NOL carryforwards were utilized in the current year. The majority of
the NOL carryforwards as of September 30, 2021 expire at various times beginning in fiscal years 2023 through 2027, and
Woodward has recognized valuation allowances against all NOL carryforwards that are less than 50 percent likely to be
realized. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more
likely than not that some portion or all of the deferred tax assets will not be realized. Both positive and negative evidence
are considered in forming Woodward’s judgment as to whether a valuation allowance is appropriate, and more weight is
given to evidence that can be objectively verified. Valuation allowances are reassessed whenever there are changes in
circumstances that may cause a change in judgment.
78
The change in the valuation allowance was primarily the result of recording a valuation allowance related to certain
state tax credit carryforwards that we determined are not more likely than not realizable and the release of valuation of
allowance at a wholly-owned subsidiary.
At September 30, 2021, Woodward has not provided for taxes on undistributed foreign earnings of $302,000 that it
considered indefinitely reinvested. These earnings could become subject to income taxes if they are remitted as dividends,
are loaned to Woodward or any of Woodward’s subsidiaries located in the United States, or if Woodward sells its stock in
the foreign subsidiaries. Any additional U.S. taxes could be offset, in part or in whole, by foreign tax credits. The amount of
such taxes and application of tax credits would be dependent on the income tax laws and other circumstances at the time
these amounts are repatriated. Based on these variables, it is impractical to determine the income tax liability that might
be incurred if these funds were to be repatriated.
The following is a reconciliation of the U.S. Federal statutory tax 21% in the fiscal years ended September 30, 2021,
September 30, 2020 and September 30, 2019 to Woodward’s effective income tax rate:
Percent of pretax earnings
Statutory tax rate
State income taxes, net of federal tax benefit
Taxes on international activities
Research credit
Net excess income tax benefit from stock-based compensation
Adjustments of prior period tax items
Compensation and benefits
Transition Tax
Other items, net
Effective tax rate
Year Ending September 30,
2020
2019
2021
21.0%
(0.5)
(0.1)
(3.1)
(4.2)
0.4
0.5
—
1.1
15.1%
21.0%
0.3
(2.1)
(3.6)
(2.8)
1.0
0.4
—
0.5
14.7%
21.0%
(0.1)
0.2
(3.3)
(3.5)
0.9
0.3
3.3
0.2
19.0%
In determining the tax amounts in Woodward’s financial statements, estimates are sometimes used that are
subsequently adjusted in the actual filing of tax returns or by updated calculations. In addition, Woodward occasionally has
resolutions of tax items with tax authorities related to prior years due to the conclusion of audits and the lapse of
applicable statutes of limitations. Such adjustments are included in the “Adjustments of prior period tax items” line in the
above table.
The increase in the effective tax rate for fiscal year 2021 compared to fiscal year 2020 is primarily attributable to (i)
decreased current fiscal year foreign earnings in lower tax jurisdictions when compared to the prior fiscal year, and (ii)
decreased Research and Development Credit in the current fiscal year when compared to the prior fiscal year. This increase
is partially offset by (i) a larger favorable net excess income tax benefit from stock-based compensation, (ii) a favorable U.S.
current fiscal year state tax provision when compared to the prior fiscal year, and (iii) a smaller detrimental adjustment to
prior period tax items when compared to the prior fiscal year.
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:
Beginning balance
Additions to current year tax positions
Reductions to prior year tax positions
Additions to prior year tax positions
Lapse of applicable statute of limitations
Ending balance
Year Ending September 30,
2020
2019
2021
$
$
9,851
2,289
—
3,166
(107)
15,199
$
$
10,305
1,890
(2,415)
71
—
9,851
$
$
8,364
1,930
—
11
—
10,305
Included in the balance of unrecognized tax benefits were $8,724 as of September 30, 2021 and $4,730 as of
September 30, 2020 of tax benefits that, if recognized, would affect the effective tax rate. At this time, Woodward
estimates that it is reasonably possible that the liability for unrecognized tax benefits will decrease by as much as $5,385 in
the next twelve months due to the completion of review by tax authorities, lapses of statutes, and the settlement of tax
positions. Woodward accrues for potential interest and penalties related to unrecognized tax benefits and all other interest
and penalties related to tax payments in tax expense.
79
Woodward’s tax returns are subject to audits by U.S. federal, state, and foreign tax authorities, and these audits are at
various stages of completion at any given time. Reviews of tax matters by authorities and lapses of the applicable statutes
of limitation may result in changes to tax expense. Woodward’s fiscal years remaining open to examination for U.S. Federal
income taxes include fiscal years 2018 and thereafter. In fiscal year 2020, Woodward concluded its U.S. Federal income tax
examination through fiscal year 2017, which included a foreign tax carryback to fiscal year 2016. Woodward’s fiscal years
remaining open to examination for significant U.S. state income tax jurisdictions include fiscal years 2017 and thereafter.
Woodward closed various audits in foreign jurisdictions in the second and third quarters of fiscal year 2020. Consequently,
fiscal years remaining open to examination in significant foreign jurisdictions include 2016 and thereafter.
Note 20. Retirement benefits
Woodward provides various retirement benefits to eligible members of the Company, including contributions to
various defined contribution plans, pension benefits associated with defined benefit plans, postretirement medical benefits
and postretirement life insurance benefits. Eligibility requirements and benefit levels vary depending on employee
location.
Defined contribution plans
Most of the Company’s U.S. employees are eligible to participate in the U.S. defined contribution plan. The U.S.
defined contribution plan allows employees to defer part of their annual income for income tax purposes into their
personal 401(k) accounts. The Company makes matching contributions to eligible employee accounts, which are also
deferred for employee personal income tax purposes. Certain non-U.S. employees are also eligible to participate in similar
non-U.S. plans.
Prior to January 1, 2021 most of Woodward’s U.S. employees with at least two years of qualifying service (such two
years of service, the “Initial Period of Service”) received an annual contribution of Woodward stock, generally equal to 5%
of their eligible prior year wages, to their personal Woodward Retirement Savings Plan accounts (the “Stock Contribution”).
In the second quarters of fiscal years 2021, 2020, and 2019, Woodward fulfilled its annual Woodward stock contribution
obligation using shares held in treasury stock by issuing a total of 128 shares of common stock for a value of $14,900 in
fiscal year 2021, 124 total shares of common stock for a value of $14,748 in fiscal year 2020, and 158 shares of common
stock for a value of $14,846 in fiscal year 2019. The Woodward Retirement Savings Plan (the “WRS Plan”) held 2,760 shares
of Woodward stock as of September 30, 2021 and 3,199 shares as of September 30, 2020. The shares held in the WRS Plan
participate in dividends and are considered issued and outstanding for purposes of calculating basic and diluted earnings
per share. Accrued liabilities included obligations to contribute shares of Woodward common stock to the WRS Plan of
$11,588 as of September 30, 2021 and $11,230 as of September 30, 2020.
Effective as of January 1, 2021, the Board amended the Woodward Retirement Savings Plan to eliminate the Initial
Period Service for purposes of the Stock Contribution. Eligible U.S. employees are now generally eligible to receive the
Stock Contribution if they are employed by the Company on the last day of the applicable calendar year without regard to
service time. The first Company Stock Contribution under the amended contribution rules will be made during the second
quarter of fiscal year 2022.
The amount of expense associated with defined contribution plans was as follows:
Company costs
Defined benefit plans
Year Ended September 30,
2020
2019
2021
$
33,717
$
33,769
$
35,510
Woodward has defined benefit plans that provide pension benefits for certain retired employees in the United States,
the United Kingdom, Japan, and Germany. Woodward also provides other postretirement benefits to its employees
including postretirement medical benefits and life insurance benefits. Postretirement medical benefits are provided to
certain current and retired employees and their covered dependents and beneficiaries in the United States and the United
Kingdom. Life insurance benefits are provided to certain retirees in the United States under frozen plans, which are no
longer available to current employees. A September 30 measurement date is utilized to value plan assets and obligations
for all of Woodward’s defined benefit pension and other postretirement benefit plans.
80
Excluding the Woodward HRT Plan, which is only partially frozen to salaried participants, the defined benefit plans in
the United States were frozen in fiscal year 2007 and no additional employees may participate in the U.S. plans and no
additional service costs will be incurred.
Pension Plans
The actuarial assumptions used in measuring the net periodic benefit cost and plan obligations of retirement pension
benefits were as follows:
United States:
Weighted-average assumptions to determine benefit obligation:
Discount rate
Weighted-average assumptions to determine periodic benefit costs:
Discount rate
Long-term rate of return on plan assets
2021
At September 30,
2020
2019
3.05%
2.75%
3.25%
2.75
7.15
3.25
7.39
4.35
7.39
The discount rate assumption is intended to reflect the rate at which the retirement benefits could be effectively
settled based upon the assumed timing of the benefit payments.
In the United States, Woodward uses a bond portfolio matching analysis based on recently traded, non-callable bonds
rated AA or better that have at least $50 million outstanding to determine the benefit obligations at year end.
United Kingdom:
Weighted-average assumptions to determine benefit obligation:
Discount rate
Rate of compensation increase
Weighted-average assumptions to determine periodic benefit costs:
Discount rate - service cost
Discount rate - interest cost
Rate of compensation increase
Long-term rate of return on plan assets
Japan:
Weighted-average assumptions to determine benefit obligation:
Discount rate
Rate of compensation increase
Weighted-average assumptions to determine periodic benefit costs:
Discount rate - service cost
Discount rate - interest cost
Rate of compensation increase
Long-term rate of return on plan assets
Germany:
Weighted-average assumptions to determine benefit obligation:
Discount rate
Rate of compensation increase
Weighted-average assumptions to determine periodic benefit costs:
Discount rate - service cost
Discount rate - interest cost
Rate of compensation increase
81
2021
At September 30,
2020
2019
2.05%
3.80
1.71
1.41
3.30
4.00
1.62%
3.30
1.79
1.59
3.50
4.75
1.74%
3.50
2.70
2.51
3.60
4.75
2021
At September 30,
2020
2019
0.92%
2.00
1.33
0.74
2.00
2.00
1.10%
2.00
0.72
0.31
2.00
2.50
2021
At September 30,
2020
2019
1.36%
2.50
0.97%
2.50
1.11
0.76
2.50
1.01
0.56
2.50
0.53%
2.00
0.80
0.42
2.00
2.50
0.81%
2.50
2.06
1.53
2.50
In the United Kingdom, Germany and Japan, Woodward uses a high-quality corporate bond yield curve matched with
separate cash flows to develop a single rate to determine the single rate equivalent to settle the entire benefit obligations
in each jurisdiction. For the fiscal years ended September 30, 2021 and 2020, the discount rate used to determine periodic
service cost and interest cost components of the overall benefit costs was based on spot rates derived from the same high-
quality corporate bond yield curve used to determine the September 30, 2020 and 2019 benefit obligation, respectively,
matched with separate cash flows for each future year.
Compensation increase assumptions, where applicable, are based upon historical experience and anticipated future
management actions.
In determining the long-term rate of return on plan assets, Woodward assumes that the historical long-term
compound growth rates of equity and fixed-income securities will predict the future returns of similar investments in the
plan portfolio. Investment management and other fees paid out of the plan assets are factored into the determination of
asset return assumptions.
Mortality assumptions are based on published mortality studies developed primarily based on past experience of the
broad population and modified for projected longevity trends. The projected benefit obligations in the United States as of
September 30, 2021 and September 30, 2020 were based on the Society of Actuaries (“SOA”) Pri-2012 Mortality Tables
Report using the SOA’s Mortality Improvement Scale MP-2019 (“MP-2019”) and projected forward using a custom
projection scale based on MP-2019 with a 5-year convergence period and a long-term rate of 0.75%.
As of September 30, 2021 and September 30, 2020, mortality assumptions in Japan were based on the Standard rates
2020 and mortality assumptions for the United Kingdom pension scheme were based on the Self-administered pension
scheme (“SAPS”) S3 “all” tables with a projected 1.5% annual improvement rate. As of September 30, 2021, and September
30, 2020, mortality assumptions in Germany were based on the Heubeck 2018 G mortality tables.
Net periodic benefit costs consist of the following components reflected as expense in Woodward’s Consolidated
Statement of Earnings:
Service cost
Interest cost
Expected return on plan assets
Amortization of:
Net losses
Net prior service cost
Net periodic (benefit) cost
2021
United States
2020
Year Ended September 30,
Other Countries
2020
$ 1,729 $ 1,659 $ 1,451 $ 2,922 $ 2,865 $ 2,036 $ 4,651 $ 4,524 $ 3,487
8,290
(14,624)
5,590
(12,346)
6,384
(11,986)
4,957
(14,144)
6,868
(15,173)
6,318
(16,626)
1,906
(2,638)
1,278
(2,827)
1,361
(2,482)
Total
2020
2019
2019
2021
2021
2019
541
969
1,430
936
617
709
931
25
1,046
23
283
—
1,472
994
$ (5,948) $ (2,731) $ (2,825) $ 2,757 $ 2,385 $ 1,587 $ (3,191) $
900
2,476
959
709
(346) $ (1,238)
82
The following tables provide a reconciliation of the changes in the projected benefit obligation and fair value of assets
for the defined benefit pension plans:
United States
2021
At or for the Year Ended September 30,
Other Countries
2020
2021
2021
2020
Total
2020
Changes in projected benefit obligation:
Projected benefit obligation at beginning of year
Plan amendment
Service cost
Interest cost
Net actuarial losses (gains)
Contribution by participants
Benefits paid
Settlements
Foreign currency exchange rate changes
Projected benefit obligation at end of year
Changes in fair value of plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Contributions by the Company
Contributions by plan participants
Benefits paid
Settlements
Foreign currency exchange rate changes
Fair value of plan assets at end of year
$ 184,077 $ 175,595 $ 123,546 $ 121,535 $ 307,623 $ 297,130
—
4,524
6,868
2,970
100
(10,103)
(476)
6,610
$ 177,346 $ 184,077 $ 122,018 $ 123,546 $ 299,364 $ 307,623
611
4,651
6,318
(9,955)
10
(11,314)
—
1,420
611
1,729
4,957
(6,496)
—
(7,532)
—
—
—
2,865
1,278
(4,841)
9
(3,434)
(476)
6,610
—
2,922
1,361
(3,459)
10
(3,782)
—
1,420
—
1,659
5,590
7,811
91
(6,669)
—
—
$ 201,555 $ 170,556 $
27,240
—
—
(7,532)
—
—
37,577
—
91
(6,669)
—
—
$ 221,263 $ 201,555 $
65,154 $
4,675
2,185
10
(3,782)
—
1,602
69,844 $
63,577 $ 266,709 $ 234,133
38,153
31,915
2,272
2,185
100
10
(10,103)
(11,314)
(476)
—
2,630
1,602
65,154 $ 291,107 $ 266,709
576
2,272
9
(3,434)
(476)
2,630
Net over/(under) funded status at end of year
$
43,917 $
17,478 $ (52,174) $ (58,392) $
(8,257) $ (40,914)
At September 30, 2021, the Company’s defined benefit pension plans in the United Kingdom, Japan and Germany
represented $61,819, $9,786 and $50,413 of the total projected benefit obligation, respectively. At September 30, 2021,
the United Kingdom and Japan pension plan assets represented $57,945 and $11,899 of the total fair value of all plan
assets, respectively. The German pension plans are unfunded and have no plan assets.
The largest contributor to the net actuarial gains affecting the funded status for the defined benefit pension plans in
the United States is due to an increase in the discount rate. The largest contributor to the net actuarial gains affecting the
benefit obligation for the defined benefit pension plans in the United Kingdom, Japan, and Germany is due to an increase in
the discount rate.
The accumulated benefit obligations of the Company’s defined benefit pension plans at September 30, 2021 was
$177,346 in the United States, $60,690 in the United Kingdom, $8,958 in Japan, and $50,402 in Germany, and at
September 30, 2020 was $184,077 in the United States, $58,198 in the United Kingdom, $9,266 in Japan and $54,403 in
Germany.
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Plans with accumulated
benefit obligation in
excess of plan assets
At September 30,
Plans with accumulated
benefit obligation less
than plan assets
At September 30,
$
2021
(112,302) $
(111,151)
57,945
2020
(141,561) $
(140,623)
79,963
2021
(187,062) $
(186,245)
233,161
2020
(166,062)
(165,321)
186,746
83
The following tables provide the amounts recognized in the statement of financial position and accumulated other
comprehensive losses for the defined benefit pension plans:
Amounts recognized in statement of financial position
consist of:
Other non-current assets
Accrued liabilities
Other non-current liabilities
Net over/(under) funded status at end of year
$
$
United States
2021
2020
Year Ended September 30,
Other Countries
2020
2021
Total
2021
2020
43,917 $
—
—
43,917 $
1,476 $
2,182 $
19,064 $
(1,059)
(1,017)
—
(1,586)
(58,809)
(53,339)
17,478 $ (52,174) $ (58,392) $
46,099 $
(1,017)
(53,339)
20,540
(1,059)
(60,395)
(8,257) $ (40,914)
Amounts recognized in accumulated other
comprehensive income consist of:
Unrecognized net prior service cost
Unrecognized net (gains) losses
Total amounts recognized
Deferred taxes
Amounts recognized in accumulated other
comprehensive income
$
4,455 $
(10,816)
(6,361)
(1,691)
4,814 $
9,317
14,131
(6,721)
584 $
24,860
25,444
(7,785)
583 $
30,794
31,377
(9,457)
5,039 $
14,044
19,083
(9,476)
5,397
40,111
45,508
(16,178)
$
(8,052) $
7,410 $
17,659 $
21,920 $
9,607 $
29,330
The following table reconciles the changes in accumulated other comprehensive losses for the defined benefit pension
plans:
Accumulated other comprehensive losses at beginning
of year
$
Net (gain) loss
Prior service cost due to plan amendment
Amortization of:
Net losses
Prior service cost
Foreign currency exchange rate changes
Accumulated other comprehensive losses at end of
year
United States
2021
2020
Year Ended September 30,
Other Countries
2020
2021
Total
2021
2020
14,131 $
(19,593)
611
33,917 $
(17,420)
—
31,377 $
(5,832)
—
33,220 $
(2,446)
—
45,508 $
(25,425)
611
67,137
(19,866)
—
(541)
(969)
—
(1,430)
(936)
—
(931)
(25)
855
(1,046)
(23)
1,672
(1,472)
(994)
855
(2,476)
(959)
1,672
$
(6,361) $
14,131 $
25,444 $
31,377 $
19,083 $
45,508
Pension benefit payments are made from the assets of the pension plans. The German pension plans are unfunded;
therefore, benefit payments are made from Company contributions into these plans as required to meet the payment
obligations. Using foreign exchange rates as of September 30, 2021 and expected future service assumptions, it is
anticipated that the future benefit payments will be as follows:
Year Ending September 30,
2022
2023
2024
2025
2026
2027 – 2031
United States
$
8,393 $
8,922
9,349
9,700
9,988
52,659
Other
Countries
Total
3,350 $
3,907
3,810
3,777
3,759
22,325
11,743
12,829
13,159
13,477
13,747
74,984
Woodward expects its pension plan contributions in fiscal year 2022 will be $1,259 in the United Kingdom, $198 in
Japan and $1,014 in Germany. Woodward expects to have no pension plan contributions in fiscal year 2022 in the United
States.
84
Pension plan assets
The overall investment objective of the pension plan assets is to earn a rate of return over time which, when
combined with Company contributions, satisfies the benefit obligations of the pension plans and maintains sufficient
liquidity to pay benefits.
As the timing and nature of the plan obligations varies for each Company sponsored pension plan, investment
strategies have been individually designed for each pension plan with a common focus on maintaining diversified
investment portfolios that provide for long-term growth while minimizing the risk to principal associated with short-term
market behavior. The strategy for each of the plans balances the requirements to generate returns, using investments
expected to produce higher returns, such as equity securities, with the need to control risk within the pension plans using
less volatile investment assets, such as debt securities. A strategy of more equity-oriented allocation is adopted for those
plans which have a longer-term investment plan based on the timing of the associated benefit obligations.
Risks associated with the plan assets include interest rate fluctuation risk, market fluctuation risk, risk of default by
debt issuers and liquidity risk. To manage these risks, the assets are managed by established, professional investment firms
and performance is evaluated regularly by the Company’s pension oversight committee against specific benchmarks and
each plan’s investment objectives. Liability management and asset class diversification are central to the Company’s risk
management approach and overall investment strategy.
The assets of the U.S. plans are invested in actively managed mutual funds. The assets of the plans in the United
Kingdom and Japan are invested in actively managed pooled investment funds. Each individual mutual fund or pooled
investment fund has been selected based on the investment strategy of the related plan, which mirrors a specific asset class
within the associated target allocation. The plans in Germany are unfunded and have no plan assets. Pension plan assets at
September 30, 2021 and 2020 do not include any direct investment in Woodward’s common stock.
The asset allocations are monitored and rebalanced regularly by investment managers assigned to the individual
pension plans. The actual allocations of pension plan assets and target allocation ranges by asset class, are as follows:
United States:
Asset Class
Equity Securities
Debt Securities
Other
United Kingdom:
Asset Class
Equity Securities
Debt Securities
Other
Japan:
Asset Class
Equity Securities
Debt Securities
Other
At September 30,
2021
2020
Percentage
of Plan
Assets
Target Allocation
Ranges
Percentage
of Plan
Assets
Target Allocation
Ranges
30.7%
67.7%
1.6%
100.0%
42.3%
57.3%
0.4%
100.0%
40.3%
58.8%
0.9%
100.0%
2.5%
58.8%
51.2%
87.5%
—
—
0.0%
50.0% —
45.0% —
0.0%
90.0%
70.0%
36.0% —
55.0% —
0.0% —
44.0%
63.0%
2.0%
64.4%
35.0%
0.6%
100.0%
39.6%
60.1%
0.3%
100.0%
39.7%
59.4%
0.9%
100.0%
41.7% —
28.3% —
0.0%
50.0% —
45.0% —
0.0%
81.7%
48.3%
90.0%
70.0%
36.0% —
55.0% —
0.0% —
44.0%
63.0%
2.0%
Actual allocations to each asset class can vary from target allocations due to periodic market value fluctuations,
investment strategy changes, and the timing of benefit payments and contributions.
85
The following tables present Woodward’s pension plan assets using the fair value hierarchy established by U.S. GAAP:
Asset Category:
Cash and cash equivalents
Mutual funds:
At September 30, 2021
Level 1
Level 2
Level 3
United
States
Other
Countries
United
States
Other
Countries
United
States
Other
Countries
Total
$
3,508 $
324 $
— $
— $
— $
— $
3,832
U.S. corporate bond fund
U.S. equity large cap fund
International equity large cap growth fund
149,727
41,988
26,040
Pooled funds:
Japanese equity securities
International equity securities
Japanese fixed income securities
International fixed income securities
Global target return equity/bond fund
Index linked U.K. equity fund
Index linked international equity fund
Index linked U.K. corporate bonds fund
Index linked U.K. government securities fund
Index linked U.K. long-term government
securities fund
Total assets
—
—
—
—
—
—
—
—
—
—
$ 221,263 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,610
2,180
5,224
1,775
15,201
3,236
6,093
18,438
6,047
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
149,727
41,988
26,040
2,610
2,180
5,224
1,775
15,201
3,236
6,093
18,438
6,047
—
324 $
8,716
—
— $ 69,520 $
—
— $
8,716
—
— $ 291,107
Asset Category:
Cash and cash equivalents
Mutual funds:
At September 30, 2020
Level 1
Level 2
Level 3
United
States
Other
Countries
United
States
Other
Countries
United
States
Other
Countries
Total
$
1,115 $
270 $
— $
— $
— $
— $
1,385
U.S. corporate bond fund
U.S. equity large cap fund
International equity large cap growth fund
70,492
65,025
64,923
Pooled funds:
Japanese equity securities
International equity securities
Japanese fixed income securities
International fixed income securities
Global target return equity/bond fund
Index linked U.K. equity fund
Index linked international equity fund
Index linked U.K. corporate bonds fund
Index linked U.K. government securities fund
Index linked U.K. long-term government
securities fund
Total assets
—
—
—
—
—
—
—
—
—
—
$ 201,555 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,470
2,135
5,151
1,734
13,002
2,878
5,351
18,055
5,767
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
70,492
65,025
64,923
2,470
2,135
5,151
1,734
13,002
2,878
5,351
18,055
5,767
—
270 $
8,341
—
— $ 64,884 $
—
— $
—
8,341
— $ 266,709
Cash and cash equivalents: Cash and cash equivalents held by the Company’s pension plans are held on deposit with
creditworthy financial institutions. The fair value of the cash and cash equivalents are based on the quoted market price of
the respective currency in which the cash is maintained.
Pension assets invested in mutual funds: The assets of the Company’s U.S. pension plans are invested in various
mutual funds which invest in both equity and debt securities. The fair value of the mutual funds is determined based on the
quoted market price of each fund.
86
Pension assets invested in pooled funds: The assets of the Company’s Japan and United Kingdom pension plans are
invested in pooled investment funds, which include both equity and debt securities. The assets of the United Kingdom
pension plan are invested in index-linked pooled funds which aim to replicate the movements of an underlying market
index to which the fund is linked. Fair value of the pooled funds is based on the net asset value of shares held by the plan
as reported by the fund sponsors. All pooled funds held by plans outside of the United States are considered to be invested
in international equity and debt securities. Although the underlying securities may be largely domestic to the plan holding
the investment assets, the underlying assets are considered international from the perspective of the Company.
There were no transfers into or out of Level 3 assets in fiscal years 2021 or 2020.
Other postretirement benefit plans
Woodward provides other postretirement benefits to its employees including postretirement medical benefits and life
insurance benefits. Postretirement medical benefits are provided to certain current and retired employees and their
covered dependents and beneficiaries in the United States. Benefits include the option to elect company provided medical
insurance coverage to age 65 and a Medicare supplemental plan after age 65. Life insurance benefits are also provided to
certain retirees in the United States under frozen plans which are no longer available to current employees. A September
30 measurement date is utilized to value plan assets and obligations for Woodward’s other postretirement benefit plans.
The postretirement medical benefit plans, other than the plan assumed in an acquisition in fiscal year 2009, were
frozen in fiscal year 2006 and no additional employees may participate in the plans. Generally, employees who had
attained age 55 and had rendered 10 or more years of service before the plans were frozen were eligible for these
postretirement medical benefits.
Certain participating retirees are required to contribute to the plans in order to maintain coverage. The plans provide
postretirement medical benefits for approximately 7 retired employees and their covered dependents and beneficiaries
and may provide future benefits to 425 active employees and their covered dependents and beneficiaries, upon retirement,
if the employees elect to participate. All the postretirement medical plans are fully insured for retirees who have attained
age 65.
The actuarial assumptions used in measuring the net periodic benefit cost and plan obligations of postretirement
benefits were as follows:
Weighted-average discount rate used to determine benefit obligation
Weighted-average discount rate used to determine net periodic benefit cost
2021
At September 30,
2020
2019
2.80%
2.45
2.45%
3.05
3.05%
4.30
The discount rate assumption is intended to reflect the rate at which the postretirement benefits could be effectively
settled based upon the assumed timing of the benefit payments.
Woodward used a bond portfolio matching analysis based on recently traded, non-callable bonds rated AA or better
that have at least $50 million outstanding to determine the benefit obligations at year end.
Mortality assumptions are based on published mortality studies developed primarily based on past experience of the
broad population and modified for projected longevity trends. The projected benefit obligations in the United States as of
September 30, 2021 and September 30, 2020 were based on the SOA Pri-2012 Mortality Tables Report using the SOA’s MP-
2019 and projected forward using a custom projection scale based on MP-2019 with a 5-year convergence period and a
long-term rate of 0.75%.
Assumed healthcare cost trend rates at September 30, were as follows:
Health care cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline
(the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
2021
2020
6.00%
5.00%
2027
6.00%
5.00%
2025
87
Net periodic benefit costs consist of the following components reflected as expense in Woodward’s Consolidated
Statements of Earnings:
Service cost
Interest cost
Amortization of:
Net losses
Net prior service cost (benefit)
Net periodic cost
Year Ended September 30,
2020
2019
2021
$
$
1 $
599
30
1
631 $
2 $
782
47
3
834 $
5
1,154
55
(5)
1,209
The following table provides a reconciliation of the changes in the accumulated postretirement benefit obligation and
fair value of assets for the postretirement benefits:
Changes in accumulated postretirement benefit obligation:
Accumulated postretirement benefit obligation at beginning of year
Service cost
Interest cost
Premiums paid by plan participants
Net actuarial gains
Benefits paid
Accumulated postretirement benefit obligation at end of year
Changes in fair value of plan assets:
Fair value of plan assets at beginning of year
Contributions by the company
Premiums paid by plan participants
Benefits paid
Fair value of plan assets at end of year
Funded status at end of year
Year Ended September 30,
2020
2021
25,445 $
1
599
993
(2,422)
(3,072)
21,544 $
— $
2,079
993
(3,072)
— $
26,671
2
782
1,088
(313)
(2,785)
25,445
—
1,697
1,088
(2,785)
—
(21,544) $
(25,445)
$
$
$
$
$
The following tables provide the amounts recognized in the statement of financial position and accumulated other
comprehensive losses for the postretirement plans:
Amounts recognized in statement of financial position consist of:
Accrued liabilities
Other non-current liabilities
Funded status at end of year
Amounts recognized in accumulated other comprehensive income consist of:
Unrecognized net prior service cost (benefit)
Unrecognized net gains
Total amounts recognized
Deferred taxes
Amounts recognized in accumulated other comprehensive income
Year Ended September 30,
2020
2021
$
$
$
$
(1,808) $
(19,736)
(21,544) $
- $
(2,815)
(2,815)
289
(2,526) $
(1,992)
(23,453)
(25,445)
1
(363)
(362)
(324)
(686)
Woodward pays plan benefits from its general funds; therefore, there are no segregated plan assets as of
September 30, 2021 or September 30, 2020.
The accumulated benefit obligations of the Company’s postretirement plans were $21,544 at September 30, 2021 and
$25,445 at September 30, 2020. The largest contributor to the actuarial gains affecting the Company’s postretirement
plans accumulated benefit obligations were the claims experience being lower than expected and increase in discount rate.
88
The following table reconciles the changes in accumulated other comprehensive losses for the other postretirement
benefit plans:
Accumulated other comprehensive losses at beginning of year
Net gain
Amortization of:
Net losses
Prior service (cost) benefit
Accumulated other comprehensive losses at end of year
Year Ended September 30,
2020
2021
$
$
(362)
(2,422)
(30)
(1)
(2,815)
$
$
Using expected future service, it is anticipated that the future Company contributions to pay benefits for other
postretirement benefit plans, excluding participate contributions, will be as follows:
Year Ending September 30,
2022
2023
2024
2025
2026
2027 – 2031
Note 21. Stockholders’ equity
Common Stock
$
1
(313)
(47)
(3)
(362)
2,799
2,754
2,699
2,634
2,554
11,089
Holders of Woodward’s common stock are entitled to receive dividends when and as declared by the Board and have
the right to one vote per share on all matters requiring stockholder approval.
Dividends declared and paid were as follows:
Dividends declared and paid
Dividend per share amount
Stock repurchase program
Year Ended September 30,
2020
2019
2021
$
36,041
0.5688
$
37,664
0.6050
$
39,066
0.6300
In November 2019, the Board approved a program for the repurchase of up to $500,000 of Woodward’s outstanding
shares of common stock on the open market or in privately negotiated transactions over a three year period that will end in
2022 (the “2019 Authorization”). In fiscal year 2021, Woodward repurchased 404 shares of its common stock for $45,860
under the 2019 Authorization, of which 110 shares repurchases were in-transit for $12,516 as of September 30, 2021. In
fiscal year 2020, Woodward repurchased 124 shares of common stock for $13,346 under the 2019 Authorization and in
fiscal year 2019, Woodward repurchased 1,102 shares of common stock for $110,311 under a prior repurchase
authorization that was superseded and replaced by the 2019 Authorization.
Stock-based compensation
Non-qualified stock option awards and restricted stock awards are granted to key management members and
directors of the Company. The grant date for these awards is used for the measurement date. Vesting would be
accelerated in the event of retirement, disability, or death of a participant, or change in control of the Company, as defined
in the individual stock option agreements. These awards are valued as of the measurement date and are amortized on a
straight-line basis over the requisite vesting period for all awards, including awards with graded vesting. Stock for exercised
stock options and for restricted stock awards is issued from treasury stock shares.
Provisions governing outstanding stock option awards are included in the 2017 Omnibus Incentive Plan, as amended
from time to time (the “2017 Plan”) and the 2006 Omnibus Incentive Plan (the “2006 Plan”), as applicable.
The 2017 Plan was approved by Woodward’s stockholders in January 2017 and is a successor plan to the 2006 Plan.
As of September 14, 2016, the effective date of the 2017 Plan, the Board delegated authority to administer the 2017 Plan to
the compensation committee of the board of directors (the “Committee”), including, but not limited to, the power to
89
determine the recipients of awards and the terms of those awards. On January 29, 2020, Woodward’s stockholders
approved an additional 1,000 shares of Woodward’s common stock to be made available for future grants. Under the 2017
Plan, there were approximately 2,714 shares of Woodward’s common stock available for future grants as of September 30,
2021.
Stock options
Woodward believes that stock options align the interests of its employees and directors with the interests of its
stockholders. Stock option awards are granted with an exercise price equal to the market price of Woodward’s stock at the
date the grants are awarded, a ten-year term, and generally have a four year vesting schedule at a rate of 25% per year.
The fair value of options granted is estimated as of the grant date using the Black-Scholes-Merton option-valuation
model using the assumptions in the following table. Woodward calculates the expected term, which represents the
average period of time that stock options granted are expected to be outstanding, based upon historical experience of plan
participants. Expected volatility is based on historical volatility using daily stock price observations. The estimated dividend
yield is based upon Woodward’s historical dividend practice and the market value of its common stock. The risk-free rate is
based on the U.S. treasury yield curve, for periods within the contractual life of the stock option, at the time of grant.
Weighted-average exercise price per share
Expected term (years)
Estimated volatility
Estimated dividend yield
Risk-free interest rate
$
2021
82.46
6.5
-
33.3% -
0.3% -
0.4% -
8.7
36.2%
0.6%
1.0%
$
Year Ended September 30,
2020
90.52
6.4
-
25.7% -
0.4% -
0.4% -
8.7
35.1%
0.9%
1.7%
$
2019
79.84
6.5
-
25.7% -
0.6% -
1.5% -
8.7
31.0%
0.8%
3.1%
The weighted average grant date fair value of options granted follows:
Weighted-average grant date fair value of options
$
28.22
$
25.41
$
24.12
The following is a summary of the activity for stock option awards during the fiscal year ended September 30, 2021:
Year Ended September 30,
2020
2019
2021
Balance at September 30, 2020
Options granted
Options exercised
Options forfeited
Options expired
Balance at September 30, 2021
Number
Weighted-
Average Exercise
Price Per Share
$
5,443
773
(850)
(25)
(2)
5,339
62.00
82.46
41.01
81.75
46.55
68.21
Exercise prices of stock options outstanding as of September 30, 2021 range from $33.64 to $127.84.
Changes in non-vested stock options during the fiscal year ended September 30, 2021 were as follows:
Balance at September 30, 2020
Options granted
Options vested
Options forfeited
Balance at September 30, 2021
90
Weighted-
Average Grant
Date Fair Value
Per Share
24.69
28.22
25.31
25.40
25.77
Number
$
2,078
773
(763)
(25)
2,063
Information about stock options that have vested, or are expected to vest, and are exercisable at September 30, 2021
was as follows:
Options outstanding
Options vested and exercisable
Options vested and expected to vest
Other information follows:
Total fair value of stock options vested
Total intrinsic value of options exercised
Cash received from exercises of stock options
Excess tax benefit realized from exercise of stock options
Stock-based compensation expense
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Life in Years
Aggregate
Intrinsic
Value
Number
5,339 $
3,276
5,279
68.21
58.95
68.06
6.0 $
4.7
6.0
240,483
177,729
238,544
$
Year Ended September 30,
2020
2019
2021
19,324 $
63,667
34,748
12,364
17,423 $
50,059
24,969
9,399
15,863
70,866
36,044
13,416
Woodward recognizes stock-based compensation expense on a straight-line basis over the requisite service period.
Pursuant to the form stock option agreements used by the Company, with terms approved by the administrator of the
applicable plan, the requisite service period can be less than the four-year vesting period based on grantee’s retirement
eligibility. As such, the recognition of stock-based compensation expense associated with some stock option grants can be
accelerated to a period of less than four years, including immediate recognition of stock-based compensation expense on
the date of grant.
Stock-based compensation expense recognized was as follows:
Year Ended September 30,
2020
2019
2021
Employee stock-based compensation expense
$
21,475 $
22,903 $
18,146
At September 30, 2021, there was approximately $10,913 of total unrecognized compensation expense related to
non-vested stock-based compensation arrangements, including both stock options and restricted stock awards. The pre-
vesting forfeiture rates for purposes of determining stock-based compensation expense recognized were estimated to be
0.0% for members of Woodward’s board of directors and 7% for all others. The remaining unrecognized compensation cost
is expected to be recognized over a weighted-average period of approximately 2 years.
Note 22. Commitments and contingencies
Woodward enters into unconditional purchase obligation arrangements (i.e., issuance of purchase orders, obligations
to transfer funds in the future for fixed or minimum quantities of goods or services at fixed or minimum prices, such as
"take-or-pay" contracts) in the normal course of business to ensure that adequate levels of sourced product are available to
Woodward. Future minimum unconditional purchase obligations are as follows:
Year Ending September 30,
2022
2023
2024
2025
2026
Thereafter
Total
$
$
404,051
36,292
7,048
1,333
2,173
899
451,796
91
The U.S. Government, and other governments, may terminate any of Woodward’s government contracts (and, in
general, subcontracts) at their convenience, as well as for default based on specified performance measurements. If any of
Woodward’s government contracts were to be terminated for convenience, the Company generally would be entitled to
receive payment for work completed and allowable termination or cancellation costs. If any of Woodward’s government
contracts were to be terminated for Woodward’s default, the U.S. Government generally would pay only for the work
accepted, and could require Woodward to pay the difference between the original contract price and the cost to re-procure
the contract items, net of the work accepted from the original contract. The U.S. Government could also hold Woodward
liable for damages resulting from the default.
Woodward is currently involved in claims, pending or threatened litigation or other legal proceedings, investigations
and/or regulatory proceedings arising in the normal course of business, including, among others, those relating to product
liability claims, employment matters, worker’s compensation claims, contractual disputes, product warranty claims and
alleged violations of various laws and regulations. Woodward accrues for known individual matters using estimates of the
most likely amount of loss where it believes that it is probable the matter will result in a loss when ultimately resolved and
such loss is reasonably estimable. Legal costs are expensed as incurred and are classified in “Selling, general and
administrative expenses” on the Consolidated Statements of Earnings.
Woodward is partially self-insured in the United States for healthcare and worker’s compensation up to
predetermined amounts, above which third party insurance applies. Management regularly reviews the probable outcome
of related claims and proceedings, the expenses expected to be incurred, the availability and limits of the insurance
coverage, and the established accruals for liabilities.
While the outcome of pending claims, legal and regulatory proceedings, and investigations cannot be predicted with
certainty, management believes that any liabilities that may result from these claims, proceedings and investigations will
not have a material effect on Woodward’s liquidity, financial condition, or results of operations.
In the event of a change in control of Woodward, as defined in change-in-control agreements with its current
corporate officers, Woodward may be required to pay termination benefits to any such officer if such officer’s employment
is terminated within two years following the change of control.
Note 23. Segment information
Woodward serves the aerospace and industrial markets through its two reportable segments - Aerospace and
Industrial. When appropriate, Woodward’s reportable segments are aggregations of Woodward’s operating segments.
Woodward uses operating segment information internally to manage its business, including the assessment of operating
segment performance and decisions for the allocation of resources between operating segments.
The accounting policies of the reportable segments are the same as those of the Company. Woodward evaluates
segment profit or loss based on internal performance measures for each segment in a given period. In connection with that
assessment, Woodward generally excludes matters such as certain charges for restructuring, interest income and expense,
certain gains and losses from asset dispositions, or other non-recurring and/or non-operationally related expenses.
A summary of consolidated net sales and earnings by segment follows:
Segment external net sales:
Aerospace
Industrial
Total consolidated net sales
Segment earnings:
Aerospace
Industrial
Nonsegment expenses
Interest Expense, net
Consolidated earnings before income taxes
Year Ended September 30,
2020
2019
2021
$
$
$
$
1,404,117
841,715
2,245,832
234,356
108,672
(64,442)
(32,787)
245,799
$
$
$
$
1,590,963
904,702
2,495,665
310,137
100,321
(94,530)
(34,047)
281,881
$
$
$
$
1,880,520
1,019,677
2,900,197
389,126
93,521
(119,447)
(42,588)
320,612
92
Segment assets consist of accounts receivable, inventories, property, plant, and equipment, net, goodwill, and other
intangibles, net. A summary of consolidated total assets, consolidated depreciation and amortization, and consolidated
capital expenditures follows:
Segment assets:
Aerospace
Industrial
Unallocated corporate property, plant and equipment, net
Other unallocated assets
Consolidated total assets
Segment depreciation and amortization:
Aerospace
Industrial
Unallocated corporate amounts
Consolidated depreciation and amortization
Segment capital expenditures:
Aerospace
Industrial
Unallocated corporate amounts
Consolidated capital expenditures
Year Ended September 30,
2020
2019
2021
$
$
$
$
$
$
1,698,833
1,453,423
106,014
832,734
4,091,004
62,075
56,885
10,564
129,524
17,303
15,164
5,222
37,689
$
$
$
$
$
$
1,752,516
1,529,411
106,380
515,029
3,903,336
63,530
57,444
10,184
131,158
26,148
10,631
10,308
47,087
$
$
$
$
$
$
1,900,657
1,561,441
114,887
379,541
3,956,526
60,710
71,173
10,121
142,004
56,525
30,195
12,346
99,066
Sales to Boeing were made by Woodward’s Aerospace segment and totaled approximately 13% of net sales in fiscal
year 2021, 14% of net sales in fiscal year 2020, and 15% of net sales in fiscal year 2019. Sales to GE were made by both of
Woodward’s reportable segments and totaled approximately 11% of net sales in fiscal year 2021 and 2020, and 14% of net
sales in fiscal year 2019.
Accounts receivable from Boeing totaled approximately 14% of accounts receivable at September 30, 2021 and 13% of
accounts receivable at September 30, 2020. Accounts receivable from GE totaled approximately 10% of accounts
receivable at September 30, 2021 and 9% of accounts receivable at and September 30, 2020.
U.S. Government related sales from Woodward’s reportable segments were as follows:
Fiscal year ended September 30, 2021
Aerospace
Industrial
Total net external sales
Percentage of total net sales
Fiscal year ended September 30, 2020
Aerospace
Industrial
Total net external sales
Percentage of total net sales
Fiscal year ended September 30, 2019
Aerospace
Industrial
Total net external sales
Percentage of total net sales
Direct U.S.
Government
Sales
Indirect U.S.
Government
Sales
Total U.S.
Government
Related Sales
$
$
$
$
$
$
116,832
7,732
124,564
6%
149,416
5,867
155,283
6%
118,334
4,491
122,825
$
$
$
$
$
$
526,118
2,442
528,560
23%
536,424
17,473
553,897
22%
545,306
13,810
559,116
$
$
$
$
$
$
642,950
10,174
653,124
29%
685,840
23,340
709,180
28%
663,640
18,301
681,941
4%
19%
23%
93
Item 9.
Changes in and Disagreements with Accountants
There have been no disagreements or any reportable events requiring disclosure under Item 304(b) of Regulation S-K.
Item 9A.
Controls and Procedures
We have established disclosure controls and procedures, which are designed to ensure that information required to
be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Act”) is recorded,
processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These disclosure
controls and procedures include, without limitation, controls and procedures designed to ensure that information required
to be disclosed in the reports that we file or submit under the Act is accumulated and communicated to management,
including our Principal Executive Officer (Thomas A. Gendron, Chairman of the Board, Chief Executive Officer and President)
and Principal Financial and Accounting Officer (Mark D. Hartman, Chief Financial Officer), as appropriate, to allow timely
decisions regarding required disclosures.
Thomas A. Gendron and Mark D. Hartman evaluated the effectiveness of our disclosure controls and procedures as of
the end of the period covered by this Form 10-K. Based on their evaluations, they concluded that our disclosure controls
and procedures were effective as of September 30, 2021.
There have been no significant changes in our internal control over financial reporting identified in management’s
evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Annual Report
on Form 10-K that materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting for the
Company. We have evaluated the effectiveness of internal control over financial reporting using the criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and, based on that evaluation, have concluded that the Company’s internal control over financial reporting
was effective as of September 30, 2021, the end of the Company’s most recent fiscal year.
Deloitte & Touche LLP, an independent registered public accounting firm, conducted an audit of Woodward’s internal
control over financial reporting as of September 30, 2021 as stated in their report included in “Item 8 – Financial
Statements and Supplementary Data”
Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive
and principal financial officers, or persons performing similar functions, and effected by our Board of Directors,
management, and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and
the preparation of our financial statements for external purposes in accordance with generally accepted accounting
principles. Internal control over financial reporting includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorization of management and directors of the
Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a material effect on the financial statements.
There have been no changes in our internal control over financial reporting during the fourth fiscal quarter ended
September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
94
Item 9B.
Other Information
On November 16, 2021 the Compensation Committee (the “Committee”) of the Board approved changes to the
Company’s previously adopted form of Amended and Restated Executive Change-in-Control Severance Agreement. The
principal changes were to provide for certain severance benefits for a qualifying termination of employment not in
connection with a change in control of the Company. Previously, the agreement provided for severance benefits for a
qualifying termination of employment only in connection with a change in control. The non-change in control severance
benefits are lesser than the change in control severance benefits.
Under the amended agreement, now entitled the Amended and Restated Executive Severance and Change in Control
Agreement (the “Agreement”), an eligible employee who experiences a qualifying termination of employment not in
connection with a change in control will, subject to signing a release of claims in favor of the Company, receive (1) any
unpaid base salary, accrued vacation pay, unreimbursed business expenses, and any other amounts earned by and owed to
the eligible employee; (2) a payment equal to the Company's cost (less the eligible employee’s premium co-pay obligations)
to provide the employee with one year of continued health and welfare benefit coverage under Company-provided plans;
(3) the then-current year's annual incentive award that the eligible employee would have actually earned, if any, prorated
based on the portion of the year before the qualifying termination of employment; (4) the actual amount that the eligible
employee would have earned, if any, for the applicable performance period for all outstanding Cash LTI cycles, or the target
award for each such cycle (whichever is larger), and in either case prorated based on the portion of the performance cycle
before the qualifying termination of employment); (5) in exchange for the eligible employee agreeing to restrictive
covenants including, without limitation, non-competition and non-solicitation requirements, one year of base salary and
one year of target bonus; and (6) the eligible employee’s equity compensation awards that are scheduled to vest within 12
months based on continued employment (specifically excluding any awards that remain subject to performance goals that
have not been achieved) will continue to vest, and any vested stock options or stock appreciation rights will be exercisable
for the remaining life of the option (subject to earlier termination as provided in the applicable plan or award agreement).
The severance benefits payable to an eligible employee for a qualifying termination of employment in connection
with a change in control mostly were unchanged. The only material change was that, upon a qualifying termination of
employment in connection with a change of control, the agreement now provides for equity vesting benefits. The eligible
employee’s equity compensation awards that remain scheduled to vest based on continued employment (specifically
excluding any awards that remain subject to performance goals that have not been achieved) will continue to vest after the
qualifying termination of employment (limited to 12 months of vesting for any awards granted after the change in control),
and any vested stock options or stock appreciation rights will be exercisable for the remaining life of the option (subject to
earlier termination as provided in the applicable plan or award agreement).
A qualifying termination of employment under the Agreement generally means a termination of the eligible
employee’s employment by the Company without “cause” or by the employee for “good “reason” (as both terms are
defined in the Agreement). A qualifying termination of employment is considered in connection with a change in control if
the termination is within the period beginning three months before the change in control and ending two years after the
change in control. Payments of cash amounts owed under the Agreement will be made only after the release of claims in
favor of the Company becoming effective and irrevocable.
The above description of the Agreement is qualified in its entirety by the actual terms of the Agreement, which is filed
as Exhibit 10.29 to this Report on Form 10-K.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
95
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
The information required by this item relating to our directors and nominees, regarding compliance with Section 16(a)
of the Securities Act of 1934, and regarding our Audit Committee is included under the captions “Proposal 1: Election of
Directors,” “Board Meetings and Committees – Audit Committee” (including information with respect to audit committee
financial experts), “Stock Ownership of Management,” and, “Section 16(a) Beneficial Ownership Reporting Compliance” in
our Proxy Statement related to the Annual Meeting of Stockholders to be held virtually on January 26, 2022 and is
incorporated herein by reference. There have been no material changes to the procedures by which security holders may
recommend nominees to our board of directors.
We have adopted a code of ethics that applies to all of our employees, including our principal executive officer and
our principal financial and accounting officer. This code of ethics is posted on our Website. The Internet address for our
Website is www.woodward.com, and the code of ethics may be found from our main Web page by clicking first on
“Investors” and then on “Corporate Governance,” and then on “Woodward Codes of Business Conduct and Ethics.”
We intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver
from, a provision of this code of ethics by posting such information to our Website, at the address and location specified
above.
Item 11.
Executive Compensation
Information regarding executive compensation is under the captions “Board Meetings and Committees – Director
Compensation,” “Board Meetings and Committees – Compensation Committee – Compensation Committee Interlocks and
Insider Participation,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Executive
Compensation” and “Board Meetings and Committees – Compensation Committee – Risk Assessment” in our Proxy
Statement, and is incorporated herein by reference, except the section captioned “Compensation Committee Report on
Compensation Discussion and Analysis” is hereby “furnished” and not “filed” with this Form 10-K.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information regarding security ownership of certain beneficial owners and management and related stockholder
matters is under the tables captioned “Stock Ownership of Management,” “Persons Owning More Than Five Percent of
Woodward Stock,” and “Executive Compensation – Equity Compensation Plan Information” in our Proxy Statement, and is
incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information set forth under “Related Person Transaction Policies and Procedures,” “Proposal 1: Election of
Directors” and “Audit Committee Report to Stockholders” in our Proxy Statement and is incorporated herein by reference
except the section captioned “Audit Committee Report” is hereby “furnished” and not “filed” with this Form 10-K.
Item 14.
Principal Accountant Fees and Services
Information regarding principal accountant fees and services is under the captions “Audit Committee Report to
Stockholders – Audit Committee’s Policy on Pre-Approval of Services Provided by Independent Registered Public Accounting
Firm” and “Audit Committee Report to Stockholders – Fees Paid to Independent Registered Public Accounting Firm” in our
Proxy Statement, and is incorporated herein by reference.
96
Item 15.
Exhibits and Financial Statement Schedules
PART IV
(a) (1) Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Earnings for the fiscal years ended September 30, 2021, 2020, and 2019
Consolidated Statements of Comprehensive Earnings for the fiscal years ended September 30, 2021,
2020, and 2019
Consolidated Balance Sheets at September 30, 2021 and 2020
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2021, 2020, and 2019
Consolidated Statements of Stockholders’ Equity for the fiscal years ended September 30, 2021, 2020,
and 2019
Notes to Consolidated Financial Statements
Page
Number in
Form 10-K
41
44
45
46
47
48
49
Financial statements and schedules other than those listed above are omitted for the reason that they are not
applicable, are not required, or the information is included in the financial statements or the footnotes.
(a) (2)
Exhibits Filed as Part of This Report:
‡ 2.1
‡ 3.1
‡ 3.2
‡ 3.3
‡ 3.4
Share Purchase Agreement relating to the sale and purchase of all shares in L’Orange GmbH and Fluid Mechanics
LLC dated April 8, 2018, filed as Exhibit 2.1 to Quarterly Report on Form 10-Q, filed on August 8, 2018
Restated Certificate of Incorporation, as amended October 3, 2007, filed as Exhibit 3(i)(a) to Annual Report on
Form 10-K filed November 20, 2008
Bylaws of Woodward, Inc., as amended and restated on January 11, 2020, filed as Exhibit 3.2 to Annual Report
on Form 10-K filed November 12, 2015
Certificate of Amendment of Certificate of Incorporation, dated January 23, 2008, filed as Exhibit 3(i)(b) to
Annual Report on Form 10-K filed November 20, 2008
Certificate of Amendment of the Restated Certificate of Incorporation, dated January 26, 2011, filed as Exhibit
3.1 to Current Report on Form 8-K filed January 28, 2011
‡ 3.5
Certificate of Designation of Rights, Preferences and Privileges of Series B Preferred Stock
†‡10.1
†‡10.2
†‡10.3
†‡10.4
†‡10.5
Long-Term Management Incentive Compensation Plan, filed as Exhibit 10(c) to Annual Report on Form 10-K filed
December 22, 2000
Summary Description of the Woodward Variable Incentive Plan, filed as Exhibit 10.2 to Annual Report on Form
10-K filed November 16, 2016
2006 Omnibus Incentive Plan, effective January 25, 2006, filed as Exhibit 4.1 to Registration Statement on Form
S-8 filed April 28, 2006
Amendment No. 1 to the Woodward, Inc. 2006 Omnibus Incentive Plan, effective as of January 26, 2011, filed as
Exhibit 10.10 to Annual Report on Form 10-K filed November 16, 2011
Form of Non-Qualified Stock Option Agreement, filed as Exhibit 10.12 to Annual Report on Form 10-K filed
November 15, 2012
97
†‡10.6
†‡10.7
†‡10.8
‡ 10.9
Form of Non-Qualified Stock Option Agreement, filed as Exhibit 10.13 to Annual Report on Form 10-K filed
November 14, 2013
2017 Omnibus Incentive Plan, effective September 14, 2016, filed as Exhibit 10.1 to Quarterly Report on Form
10-Q filed January 25, 2017
Form of Non-Qualified Stock Option Agreement, filed as Exhibit 10.2 to Quarterly Report on Form 10-Q filed
January 25, 2017
Amendment No. 1 to 2008 Note Purchase Agreement, dated as of October 1, 2013, by and among the Company
and the noteholders named therein, filed as Exhibit 10.2 to Current Report on Form 8-K filed October 4, 2013
‡ 10.10 Note Purchase Agreement, dated October 1, 2013, by and among the Company and the purchasers named
therein, filed as Exhibit 10.1 to Current Report on Form 8-K filed October 4, 2013
‡ 10.11 Note Purchase Agreement, dated September 23, 2016, by and among the Company and the purchasers named
therein, filed as Exhibit 10.20 to Annual Report on Form 10-K filed November 16, 2016
‡ 10.12 Note Purchase Agreement, dated September 23, 2016, by and among Woodward International Holding B.V. and
the purchasers named therein, filed as Exhibit 10.21 to Annual Report on Form 10-K filed November 16, 2016
†‡10.13
Form of Change in Control Agreement for the Company’s principal executive officer and other executive officers,
filed as Exhibit 10.25 to Annual Report on Form 10-K filed November 12, 2014
†‡10.14
Form of Change in Control Agreement for Robert F. Weber, Jr., filed as Exhibit 10.26 to Annual Report on Form
10-K filed November 12, 2014
†‡10.15
Executive Benefit Plan, as amended and restated as of September 18, 2013, filed as Exhibit 10.31 to Annual
Report on Form 10-K filed November 14, 2013
†‡10.16 Woodward Retirement Savings Plan, as amended and restated effective as of January 1, 2016, filed as Exhibit
10.1 to Quarterly Report on Form 10-Q filed February 9, 2016
†‡10.17
Thomas G. Cromwell employment offer letter, dated January 30, 2019, filed as exhibit 10.1 to Quarterly Report
on Form 10-Q filed May 8, 2019
‡ 10.18
Purchase and Sale Agreement between Woodward, Inc. and General Electric Company dated January 4, 2016
filed as Exhibit 2.1 to Current Report on Form 8-K filed January 8, 2016
‡ 10.19 Amended and Restated Limited Liability Company Agreement of Convergence Fuel Systems, LLC, dated January
4, 2016 filed as Exhibit 10.1 to Current Report on Form 8-K filed January 8, 2016
‡ 10.20
Frame Development and Purchase Agreement between MTU Friedrichshafen GmbH and L’Orange GmbH, filed
as Exhibit 10.1 to Quarterly Report on Form 10-Q, filed August 8, 2018
‡ 10.21 Note Purchase Agreement, dated May 31, 2018, by and among Woodward, Inc. and the purchasers named
therein, filed as Exhibit 10.1 to Current Report on Form 8-K, filed June 4, 2018
‡ 10.22 Amendment No. 1 to 2013 Note Purchase Agreement, dated as of May 31, 2018, by and among Woodward, Inc.
and the noteholders names therein, filed as Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed
June 4, 2018
‡ 10.23 Amendment No. 1 to 2016 Series M Note Purchase Agreement, dated as of May 31, 2018, by and among
Woodward, Inc. and the noteholders names therein filed as Exhibit 10.3 of the Company’s Current Report on
Form 8-K, filed June 4, 2018
‡ 10.24 Amendment No. 1 to 2016 Series N and O Note Purchase Agreement, dated as of May 31, 2018, by and among
Woodward International Holding B.V., Woodward, Inc. and the noteholders names therein, filed as Exhibit 10.4
of the Company’s Current Report on Form 8-K, filed June 4, 2018
98
‡ 10.25 Amended and Restated Credit Agreement dated June 19, 2019, by and among the Company, certain foreign
subsidiaries borrowers of the Company from time to time parties thereto, the institutions from time to time
party thereto, as lenders, Wells Fargo Bank, National Association, as administrative agent, filed as Exhibit 10.1 on
Form 10-Q, filed August 12, 2019
† 10.26
Form of Non-Qualified Stock Option Agreement filed as Exhibit 10.40 on Form 10-K, filed November 13, 2018
*†10.27 Outside Director Compensation Policy
*†10.28 Mark D. Hartman promotion offer letter, dated July 29, 2021
*†10.29 Amended and Restated Executive Severance and Change in Control Agreement
* 21.1
Subsidiaries
* 23.1
Consent of Independent Registered Public Accounting Firm
* 31.1
Rule 13a-14(a)/15d-14(a) certification of Thomas A. Gendron
* 31.2
Rule 13a-14(a)/15d-14(a) certification of Mark D. Hartman
* 32.1
Section 1350 certifications
* 101.INS Inline XBRL Instance Document.
* 101.SCHInline XBRL Taxonomy Extension Schema Document
* 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
* 101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
* 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
* 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
* 104
Cover Page Interactive Data File (formatted as Inline XBRL and Contained in Exhibit 101)
Attached as Exhibit 101 to this report are the following materials from Woodward, Inc.’s Annual Report on Form 10-K for
the year ended September 30, 2021 formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the
Consolidated Statements of Earnings, (ii) the Consolidated Statements of Comprehensive Earnings, (iii) the Consolidated
Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Stockholders’ Equity,
and (vi) the Notes to the Consolidated Financial Statements.
Management contract or compensatory plan or arrangement.
Incorporated by reference as an exhibit to this Report (file number 000-08408, unless otherwise indicated).
Filed as an exhibit to this Report.
†
‡
*
Item 16.
Form 10-K Summary
Not applicable.
99
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: November 19, 2021
Date: November 19, 2021
WOODWARD, INC.
/s/ Thomas A. Gendron
Thomas A. Gendron
Chairman of the Board, Chief Executive Officer, and President
(Principal Executive Officer)
/s/ Mark D. Hartman
Mark D. Hartman
Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date
November 19, 2021
November 19, 2021
November 19, 2021
November 19, 2021
November 19, 2021
November 19, 2021
November 19, 2021
November 19, 2021
November 19, 2021
November 19, 2021
Signature
/s/ Rajeev Bhalla
Rajeev Bhalla
/s/ John D. Cohn
John D. Cohn
/s/ Paul Donovan
Paul Donovan
/s/ Eileen P. Drake
Eileen P. Drake
/s/ David Hess
David Hess
/s/ Thomas A. Gendron
Thomas A. Gendron
/s/ Daniel G. Korte
Daniel G. Korte
/s/ Mary L. Petrovich
Mary L. Petrovich
/s/ Ronald M. Sega
Ronald M. Sega
/s/ Gregg C. Sengstack
Gregg C. Sengstack
Title
Director
Director
Director
Director
Director
Chairman of the Board
and Director
Director
Director
Director
Director
100
This page is intentionally blank
This page is intentionally blank
DEAR SHAREHOLDERS
2021 was another challenging year
for Woodward and our markets...
We are seeing improvements in our markets and the global
economy; however, pandemic challenges and supply chain
constraints persisted into 2021. While strict health and
safety protocols remained our top priority, we improved
operational performance, which resulted in robust free
cash flow1, improved liquidity, and maintained our strong
fi nancial position to allow us to invest for future growth and
shareholder returns. Highlights for the year include:
Strengthened our balance sheet: net debt to EBITDA1
leverage of 1.7
Adjusted free cash fl ow1 improved to $427 million,
a 36% increase
Sales declined 10% to $2.2 billion
Adjusted earnings per share1 decreased 18% to $3.24
Woodward Forward 2030
Woodward’s success comes from our ability to provide
innovative solutions to address the needs of our customers
in an evolving world. Looking forward to 2030 and beyond,
we have developed and are executing on strategies to
leverage the macro trends of eliminating greenhouse gases,
commercializing space, and accelerating the digital age. To
facilitate a cleaner, decarbonized world, we are partnering
with our customers to enable their equipment to be more
effi cient, capable of utilizing clean fuels, advancing fuel
cells, and the integration of renewable power. The growing
space market represents an opportunity for us to leverage
our core technology by designing innovative, reliable
products that operate in the harsh environment of space. We
will transform our culture through the digital transformation
of our manufacturing processes, product development and
customer experience. To enable these strategies, we will
build on our powerful global workforce through continued
investment in member development, digital tools, and a
world class work environment.
Attractive Markets
Aerospace markets are improving as passenger traffi c
and OEM build rates increase. We continue to be very well
positioned in aerospace due to our increased content on
key aerospace platforms, which will drive OEM and
aftermarket growth.
Industrial markets are poised for recovery, as economic
activity and oil and gas prices recover from pandemic lows.
The demand for gas turbines is increasing, cargo rates
are healthy, and more stringent emissions regulations are
being implemented, all of which we expect will drive the
growth of our industrial markets.
Continuing our True North Journey
Our True North vision is to achieve world class operational
performance, while ensuring the safety of our members.
Our dedication to operational excellence has resulted
in improved quality and delivery, as well as inventory
reductions. We will continue our focus on True North to
drive improved profitability, free cash flow and value to
shareholders.
Turning Towards FY2022
Pandemic and supply chain impacts will continue into fi scal
2022, but we expect our fi nancial results to signifi cantly
improve from 2021, along with our markets. While the
recovery will remain challenging, we have demonstrated
over our 150 years that we successfully navigate through
diffi cult times and emerge stronger. We are positioned to
capitalize on growth opportunities as our markets continue
recovering and shift to eliminating greenhouse gases. Our
investments in new technology and operational excellence
enable us to maximize opportunities and deliver world-
class shareholder value.
I want to thank our members around the world for their
contributions and commitment over the last year, and as
always, I want to acknowledge our board of directors for
their leadership and dedication to delivering value to our
shareholders
THOMAS A. GENDRON
Chairman, CEO & President
NET SALES
DOLLARS IN BILLIONS
ADJUSTED EARNINGS PER SHARE1
DILUTED
ADJUSTED FREE CASH FLOW1
DOLLARS IN MILLIONS
$2.5
$2.2
$2.9
$2.3
$4.88
$3.96
$3.85
$3.24
$427
$315
$292
$172
’21
’20
’19
’18
’21
’20
’19
’18
’21
’20
’19
’18
1EBITDA, free cash fl ow, adjusted free cash fl ow and adjusted earnings
per share are defi ned in our 2021 annual report on Form 10-K
i CORPORATE INFORMATION
Board Of Directors
RAJEEV BHALLA
Operating Partner, Cerberus Operating
and Advisory Company
THOMAS A. GENDRON
Chairman, Chief Executive Offi cer
and President, Woodward, Inc.
MARY L. PETROVICH
Senior Advisor–Private Equity, Carlyle Group
and American Security Partners
JOHN D. COHN
President, CrossBorder Strategic
Solutions, LLC
PAUL DONOVAN
Retired Executive Vice President
and Chief Financial Offi cer,
Wisconsin Energy Corporation
EILEEN P. DRAKE
Chief Executive Offi cer and President,
Aerojet Rocketdyne Holdings, Inc.
Offi cers*
THOMAS A. GENDRON
Chairman, Chief Executive Offi cer
and President
MARK D. HARTMAN
Chief Financial Offi cer
THOMAS G. CROMWELL
Vice Chairman,
Chief Operating Offi cer
PAUL BENSON
Corporate Vice President,
Human Resources
Investor Information
WOODWARD, INC.
Corporate Headquarters
1081 Woodward Way
Fort Collins, CO 80524
1-970-482-5811
www.woodward.com
INVESTOR INFORMATION
Investor.Relations@woodward.com
1-970-498-3849
TRANSFER AGENT AND REGISTRAR
)
m
o
c
.
y
c
n
e
g
a
k
m
w
(
k
r
a
m
r
e
t
a
W
:
N
G
I
S
E
D
American Stock Transfer
& Trust Company
Shareholder Services
6201 15th Avenue
Brooklyn, NY 11219
1-800-937-5449
www.astfi nancial.com
STOCK EXCHANGE
NASDAQ Global Select Market
Ticker Symbol: WWD
SEC fi lings are available on our
website at www.woodward.com
DAVID P. HESS
Former Chief Executive Offi cer,
Arconic Corporation
DANIEL G. KORTE
Global Vice President, Aerospace
PPG Industries, Inc.
RONALD M. SEGA
Chief Technology Offi cer,
U.S. Army Futures Command
GREGG C. SENGSTACK
Chairman, Chief Executive Offi cer and
President, Franklin Electric Co., Inc.
DANIEL M. BOWMAN
Corporate Vice President, Strategy
and Business Development
A. CHRISTOPHER FAWZY
Corporate Vice President, General
Counsel, Corporate Secretary and
Chief Compliance Offi cer
SAGAR A. PATEL
President, Engine Systems
MATTEO R. PISCIOTTA
Corporate Vice President,
Global Sourcing
ROGER A. ROSS
President, Aero Systems
DOUGLAS W. SALTER
Corporate Vice President, Technology
TERENCE J. VOSKUIL
President, Aircraft Turbine Systems
*Offi cer titles as of October 1, 2021
STOCKHOLDER ACCOUNT ASSISTANCE
ANNUAL MEETING
The Annual Meeting of Stockholders
will be held virtually on January 26, 2022,
at 8:00 a.m. MST.
EQUAL OPPORTUNITY
EMPLOYER STATEMENT
It is Woodward’s policy to provide equal
employment opportunity for all qualifi ed
members and applicants without regard
to race, color, religion, age, sex, gender
identity, national origin, disability,
veteran’s or marital status, genetic
information, or other protected class,
and to base all employment decisions
so as to further this principle of equal
employment opportunity.
Stockholders who wish to change the
address or ownership of stock, report
lost certifi cates, eliminate duplicate
mailings, or for other account registration
procedures and assistance, should
contact the Transfer Agent at the address
or phone number on this page.
DIVIDEND REINVESTMENT PLAN
AND DIRECT DEPOSIT OF DIVIDENDS
Woodward offers stockholders of record
a convenient Dividend Reinvestment and
Direct Stock Purchase and Sale Plan.
Through this Plan, shareholders have
options to purchase or sell shares of
Woodward stock, have their dividends
automatically reinvested in Woodward,
and to make periodic supplemental
cash payments to purchase additional
shares. For further information and an
authorization form, contact the Transfer
Agent at the address or phone number on
this page.
A L W A Y S I N N O V A T I N G F O R A
BETTER FUTURE
2 0 2 1 A N N U A L R E P O R T
BUSINESS DESCRIPTION
WOODWARD IS THE GLOBAL LEADER IN ENERGY
CONVERSION AND CONTROL SOLUTIONS FOR THE
AEROSPACE AND INDUSTRIAL EQUIPMENT MARKETS.
TOGETHER WITH OUR CUSTOMERS, WE ARE ENABLING
THE PATH TO A CLEANER, DECARBONIZED WORLD. OUR
INNOVATIVE MEMBERS DRIVE OUR SUCCESS, DELIVERING
EXCELLENCE IN CUSTOMER SATISFACTION WHILE
PROVIDING SUPERIOR SHAREHOLDER RETURNS.
Aerospace
Our Aerospace systems and components optimize the performance
of commercial, business and military aircraft, missiles and weapons,
ground vehicles and other equipment.
Industrial
Our Industrial systems and components enhance the performance
of gas and steam turbines, reciprocating engines, compressors,
generator sets and other energy-related industrial equipment.
Customers
Our Customers include leading original equipment
manufacturers and end users of their products.
W W W. W O O D W A R D . C O M
1081 Woodward Way, PO Box 1519
Fort Collins, Colorado 80524-1519
970-482-5811
2
0
2
1
A
N
N
U
A
L
R
E
P
O
R
T