WOODWARD, INC. Forward Looking Statements
This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements regarding future events and our future results within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are statements that are deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of management. Words such as "anticipate," "believe," "estimate," "seek," "goal," "expect," "forecast," "intend," "continue," "outlook," "plan," "project," "target," "strive," "can," "could," "may," "should," "will," "would," variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characteristics of future events or circumstances are forward-looking statements. Forward-looking statements may include, among others, statements relating to:
• the impacts on our business relating to the global COVID-19 pandemic,
including the impacts thereof on our industries, to supply and demand, and
measures taken by governments and private industry in response;
• the effect of economic trends, including rising inflation, and global supply
chain and labor pressures;
• the effect of geopolitical events, including the
our business and the markets in which we operate;
• future sales, earnings, cash flow, uses of cash, and other measures of
financial performance, including our ability to accurately predict such
performance;
• trends in our business and the markets in which we operate, including
expectations in those markets in future periods;
• our expected expenses in future periods and trends in such expenses over
time;
• descriptions of our plans and expectations for future operations;
• plans and expectations relating to the performance of our joint venture with
General Electric Company;
• the expected levels of activity in particular industries or markets and the
effects of changes in those levels;
• the scope, nature, or impact of acquisition activity and integration of such
acquisition into our business;
• the research, development, production, and support of new products and
services;
• restructuring and alignment costs and savings;
• our plans, objectives, expectations and intentions with respect to business
opportunities that may be available to us;
• our liquidity, including our ability to meet capital spending requirements
and operations;
• future repurchases of common stock;
• future levels of indebtedness and capital spending;
• the stability of financial institutions, including those lending to us;
• pension and other postretirement plan assumptions and future contributions;
and
• our tax rate and other effects of changes in applicable tax laws.
We undertake no obligation to revise or update any forward-looking statements for any reason, except as required by applicable law.
Unless we have indicated otherwise or the context otherwise requires, references in this Form 10-Q to "Woodward," "the Company," "we," "us," and "our" refer toWoodward, Inc. and its consolidated subsidiaries.
Except where we have otherwise indicated or the context otherwise requires, amounts presented in this Form 10-Q are in thousands, except per share amounts.
27
--------------------------------------------------------------------------------OVERVIEW Global Business Conditions
We continue to monitor a variety of external issues impacting our business, including the ongoing global impact of the COVID-19 pandemic, rising inflation, and global supply chain and labor disruptions.
Although we continue to see recovery across most of our end markets, our financial performance during the first nine-months of fiscal year 2022 was adversely affected by these issues. We continue to assess the environment and are taking appropriate price actions in response to rising costs; however, timing can be delayed due to certain pre-existing contractual arrangements. We are unable to predict the full extent to which these impacts will continue to adversely affect our business, including our operational performance, results of operations, cash flows, financial position, and the achievement of our strategic objectives. Such uncertainty may affect our ability to accurately predict our future performance and financial results. We continue to actively monitor the situation and may take further actions to alter our business operations if we determine such actions are in the best interests of our shareholders, employees, customers, communities, business partners, and suppliers, or as required by federal, state, or local authorities. It is not currently clear what the potential effects of any such alterations or modifications may have on our business in future periods, including the effects on our customers, employees and prospects, or on our financial results.
The Russia-Ukraine Conflict
InFebruary 2022 , in response to the military conflict betweenRussia andUkraine ,the United States , otherNorth Atlantic Treaty Organization ("NATO") members, and certain non-member countries announced targeted economic sanctions onRussia and Russian enterprises. The continuation of the conflict may trigger additional economic and other sanctions enacted bythe United States , otherNATO member states, and other countries. Our sales toRussia during each of the first nine-months of fiscal years 2022 and 2021 were less than 1% of our total sales. While the impact of any additional bans, sanction programs, and boycotts is uncertain at the current time due to the fluid nature of the military conflict as it continues to unfold, the potential impacts of the conflict have included and could continue to include supply chain and logistics disruptions, volatility in foreign exchange rates and interest rates, inflationary pressures on raw materials and energy, heightened cybersecurity threats, and other impacts. 28 --------------------------------------------------------------------------------
Operational Highlights
Quarter and Year to Date Highlights
Three-Months Ended Nine-Months Ended
June 30, June 30,
2022 2021 2022 2021
Net sales:
Aerospace segment $ 401,712 $ 340,912 $ 1,110,904 $ 1,027,285
Industrial segment 212,620 215,763 631,853 648,330
Consolidated net sales $ 614,332 $ 556,675 Earnings:
Aerospace segment$ 56,566 $ 53,167 $ 167,458 $ 168,641 Segment earnings as a percent of segment net sales 14.1 % 15.6 % 15.1 % 16.4 % Industrial segment$ 21,102 $ 27,166 $ 62,029 $ 87,925 Segment earnings as a percent of segment net sales 9.9 % 12.6 % 9.8 % 13.6 % Consolidated net earnings$ 39,446 $ 48,861 $ 117,657 $ 158,744 Adjusted net earnings$ 39,446 $ 48,861
Effective tax rate 21.6 % 16.8 % 17.2 % 14.1 % Adjusted effective tax rate 21.6 % 16.8 % 17.6 % 14.1 % Consolidated diluted earnings per share$ 0.64 $ 0.74 $ 1.84 $ 2.42 Consolidated adjusted diluted earnings per share$ 0.64 $ 0.74
Earnings before interest and taxes ("EBIT")
$ 165,671 $ 209,235 Adjusted EBIT$ 58,467 $ 66,787 $ 171,925 $ 209,235 Earnings before interest, taxes, depreciation, and amortization ("EBITDA")$ 88,394 $ 99,030 $ 256,929 $ 307,034 Adjusted EBITDA$ 88,394 $ 99,030 $ 263,183 $ 307,034 Adjusted net earnings, adjusted earnings per share, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA are non-U.S. GAAP financial measures. A description of these measures as well as a reconciliation of these non-U.S. GAAP financial measures to the most directly comparableU.S. GAAP financial measures can be found under the caption "Non-U.S. GAAP Financial Measures" in this Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity Highlights
Net cash provided by operating activities for the first nine-months of fiscal year 2022 was$86,016 , compared to$317,915 for the first nine-months of fiscal year 2021. The decrease in net cash provided by operating activities in the first nine-months of fiscal year 2022 compared to the first nine-months of the prior fiscal year is primarily attributable to production delays from supply chain disruptions as well as increases in working capital (excluding cash) to support the growth we anticipate in the fourth quarter of this fiscal year and the next full fiscal year. For the first nine-months of fiscal year 2022, free cash flow, which we define as net cash flow from operating activities less payments for property, plant and equipment, was$48,911 , compared to$296,568 for the first nine-months of fiscal year 2021. Adjusted free cash flow, which we define as free cash flow, plus the payments for costs related to business development activities and restructuring charges, was$52,398 . No adjustments were made to free cash flow for the first nine-months of fiscal year 2021. The decrease in free cash flow for the first nine-months of fiscal year 2022 as compared to the same period of the prior fiscal year was primarily due to increases in working capital (excluding cash) to support the growth we anticipate in the fourth quarter of this fiscal year and the next full fiscal year, as well as production delays from supply chain disruptions, and higher payments for property, plant and equipment. Free cash flow and adjusted free cash flow are non-U.S. GAAP financial measures. A description of these measures as well as a reconciliation of these non-U.S. GAAP financial measures to the most directly comparableU.S. GAAP financial measures can be found under the caption "Non-U.S. GAAP Financial Measures" in this Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.
At
29
--------------------------------------------------------------------------------RESULTS OF OPERATIONS
The following table sets forth condensed consolidated statements of earnings data as a percentage of net sales for each period indicated:
Three-Months Ended Nine-Months Ended
June 30, % of Net June 30, % of Net June 30, % of Net June 30, % of Net
2022 Sales 2021 Sales 2022 Sales 2021 Sales
Net sales $ 614,332 100 % $ 556,675 100 % $ 1,742,757 100 % $ 1,675,615 100 %
Costs and expenses:
Cost of goods sold 480,403 78.2 % 422,457 75.9 % 1,352,979 77.6 % 1,258,340 75.1 %
Selling, general, and
administrative expenses 46,490 7.6 % 48,021 8.6 % 152,920 8.8 % 148,461 8.9 %
Research and development
costs 32,224 5.2 % 29,765 5.3 % 90,000 5.2 % 89,388 5.3 %
Interest expense 8,533 1.4 % 8,397 1.5 % 25,036 1.4 % 25,552 1.5 %
Interest income (353 ) (0.1 )% (308 ) (0.1 )% (1,494 ) (0.1 )% (1,086 ) (0.1 )%
Other (income) expense,
net (3,252 ) (0.5 )% (10,355 ) (1.9 )% (18,813 ) (1.1 )% (29,809 ) (1.8 )%
Total costs and expenses 564,045 91.8 % 497,977 89.5 % 1,600,628 91.8 % 1,490,846 89.0 %
Earnings before income
taxes 50,287 8.2 % 58,698 10.5 % 142,129 8.2 % 184,769 11.0 %
Income tax expense 10,841 1.8 % 9,837 1.8 % 24,472 1.4 % 26,025 1.6 %
Net earnings $ 39,446 6.4 % $ 48,861 8.8 % $ 117,657 6.8 % $ 158,744 9.5 %
Other select financial data:
June 30, September 30,
2022 2021
Working capital $ 829,241 $ 1,098,466
Total debt 766,402 734,850
Total stockholders' equity 1,909,613 2,214,781
Net Sales
Consolidated net sales for the third quarter of fiscal year 2022 increased by
$57,657 , or 10.4%, compared to the same period of fiscal year 2021. Consolidated
net sales for the first nine-months of fiscal year 2022 increased by $67,142 , or
4.0%, compared to the same period of fiscal year 2021.
Details of the changes in consolidated net sales are as follows:
Three-Month Nine-Month
Period Period
Consolidated net sales for the period ended
$ 1,675,615 Aerospace volume 43,478 50,670 Industrial volume 11,943 8,268 Noncash consideration 517 (381 ) Effects of changes in price and sales mix 19,418
38,970
Effects of changes in foreign currency rates (17,699 ) (30,385 ) Consolidated net sales for the period ended June 30, 2022$ 614,332
The increase in consolidated net sales for both the third quarter of fiscal year 2022 and the first nine-months of fiscal year 2022, in each case as compared to the same period of the prior fiscal year, is primarily due to an increase in Aerospace sales volume, as well as the impact of price increases and a favorable product mix. In the Aerospace segment, the increases in net sales for the third quarter of fiscal year 2022 and first nine-months of fiscal year 2022 as compared to the same periods of the prior fiscal year is primarily attributable to a significant increase in commercial OEM and aftermarket sales driven by higher OEM production rates and increasing aircraft utilization, partially offset by lower defense aftermarket sales primarily driven by global supply chain and labor disruptions. As of the third quarter of fiscal year 2022, Aerospace segment net sales were negatively impacted by approximately$55,000 due to ongoing global supply chain and labor disruptions. In the Industrial segment, the decreases in net sales for the third quarter of fiscal year 2022 and first nine-months of fiscal year 2022 as compared to the same periods of the prior fiscal year were primarily attributable to a weakness in 30 -------------------------------------------------------------------------------- natural gas engines inChina and by unfavorable foreign currency impacts, partially offset by higher marine sales driven by increased utilization of the in-service fleet as well as increased industrial turbomachinery sales supporting increasing demand for power generation and process industries. As of the third quarter of fiscal year 2022, Industrial segment net sales were negatively impacted by approximately$45,000 due to ongoing global supply chain and labor disruptions. Costs and Expenses Cost of goods sold increased by$57,946 to$480,403 , or 78.2% of net sales, for the third quarter of fiscal year 2022, from$422,457 , or 75.9% of net sales, for the third quarter of fiscal year 2021. Cost of goods sold increased by$94,639 to$1,352,979 , or 77.6% of net sales, for the first nine-months of fiscal year 2022, from$1,258,340 , or 75.1% of net sales, for the first nine-months of fiscal year 2021. The increase in cost of goods sold as a percentage of net sales in the third quarter and first nine-months of fiscal year 2022 compared to the same periods of the prior fiscal year was primarily due to net inflationary impacts on material and labor costs, increased Aerospace commercial OEM sales volume, which traditionally have lower margins than other Aerospace segment sales, as well as increases in manufacturing costs related to supply chain disruptions and inefficiencies related to training new members. Gross margin (as measured by net sales less cost of goods sold, divided by net sales) was 21.8% for the third quarter of fiscal year 2022 and 22.4% for the first nine-months of fiscal year 2022, compared to 24.1% for the third quarter of fiscal year 2021 and 24.9% for the first nine-months of fiscal year 2021. The decrease in gross margin for the third quarter and first nine-months of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily attributable to net inflationary impacts on material and labor costs, increased Aerospace commercial OEM sales volume, which traditionally have lower margins than other Aerospace segment sales, as well as increases in manufacturing costs related to supply chain disruptions and inefficiencies related to training new members. Selling, general and administrative expenses decreased by$1,531 , or 3.2%, to$46,490 for the third quarter of fiscal year 2022, compared to$48,021 for the third quarter of fiscal year 2021. Selling, general, and administrative expenses as a percentage of net sales decreased to 7.6% for the third quarter of fiscal year 2022, compared to 8.6% for the third quarter of fiscal year 2021. Selling, general, and administrative expenses increased by$4,459 , or 3.0%, to$152,920 for the first nine-months of fiscal year 2022, compared to$148,461 for the first nine-months of fiscal year 2021. Selling, general, and administrative expenses as a percentage of net sales decreased to 8.8% for the first nine-months of fiscal year 2022, compared to 8.9% for the first nine-months of fiscal year 2021. The increase in selling, general and administrative expenses, for the first nine-months of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily due to the incurrence of a certain expense in the first nine-months of fiscal year 2022 in connection with a non-recurring matter unrelated to the ongoing operations of the business, as well as certain business development activities, which in each case did not occur in the prior fiscal year period. Research and development costs increased by$2,459 , or 8.3%, to$32,224 for the third quarter of fiscal year 2022, as compared to$29,765 for the third quarter of fiscal year 2021. As a percentage of net sales, research and development costs decreased to 5.2% for the third quarter of fiscal year 2022, as compared to 5.3% for the same period of the prior fiscal year. The increase in research and development costs, for the third quarter of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily due to variability in the timing of projects and expenses. Research and development costs increased by$612 , or 0.7%, to$90,000 for the first nine-months of fiscal year 2022, as compared to$89,388 for the first nine-months of fiscal year 2021. Research and development costs decreased as a percentage of net sales to 5.2% for the first nine-months of fiscal year 2022, as compared to 5.3% for the first nine-months of fiscal year 2021. The increase in research and development costs for the first nine-months of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily due to variability in the timing of projects and expenses. Our research and development activities extend across almost all of our customer base, and we anticipate ongoing variability in research and development due to the timing of customer business needs on current and future programs. 31 -------------------------------------------------------------------------------- Interest expense increased by$136 , or 1.6%, to$8,533 for the third quarter of fiscal year 2022, compared to$8,397 for the third quarter of fiscal year 2021. Interest expense as a percentage of net sales was 1.4% for the third quarter of fiscal year 2022, compared to 1.5% for the third quarter of fiscal year 2021. Interest expense decreased by$516 , or 2.0%, to$25,036 for the first nine-months of fiscal year 2022, compared to$25,552 for first nine-months of fiscal year 2021. Interest expense as a percentage of net sales was 1.4% for the first nine-months of fiscal year 2022, compared to 1.5% for the first-nine months of fiscal year 2021. The increase in interest expense for the third quarter of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily attributable to increased borrowings on the revolving credit facility that occurred during the quarter. The decrease in interest expense for the first nine-months of fiscal year 2022 as compared to the same period of the prior fiscal year is primarily attributable to reduced long-term debt balances. In the first nine-months of fiscal year 2021, we paid the entire balance of two series of private placement notes totaling$100,000 , primarily using cash from operations and proceeds from our revolving credit facility. Other income decreased by$7,103 to$3,252 for the third quarter of fiscal year 2022, compared to$10,355 for the third quarter of fiscal year 2021. Other income decreased by$10,996 to$18,813 for the first nine-months of fiscal year 2022, compared to$29,809 for the first nine-months of fiscal year 2021. The decrease in other income for the third quarter and first nine-months of fiscal year 2022 as compared to the same periods of the prior fiscal year is primarily attributable to a loss on investments in our deferred compensation program, whereas a gain on investments was recognized in the prior fiscal year. Income taxes were provided at an effective rate on earnings before income taxes of 21.6% for the third quarter of fiscal year 2022 and 17.2% for the first nine-months of fiscal year 2022, as compared to 16.8% for the third quarter of fiscal year 2021 and 14.1% for the first nine-months of fiscal year 2021. The increase in the effective tax rate for the three-months endedJune 30, 2022 as compared to the three-months endedJune 30, 2021 is primarily attributable to decreased stock-based compensation tax benefit and an adjustment to prior period tax items related to Global Intangible Low-Taxed Income ("GILTI") that did not repeat in the current quarter. These unfavorable impacts to the effective tax rate were partially offset by the prior quarter discrete impact of the enactment of a retroactive law disallowing foreign interest expense. The increase in the effective tax rate for the nine-months endedJune 30, 2022 as compared to the nine-months endedJune 30, 2021 is primarily attributable to decreased stock-based compensation tax benefit as a percent of year-to-date pre-tax earnings, an adjustment to prior period tax items related to GILTI that did not repeat in the current fiscal year, and increased state income taxes relative to full-year projected earnings. These unfavorable impacts to the effective tax rate were partially offset by a reduction in theU.S. tax on international activities.
Segment Results
The following table presents sales by segment:
Three-Months Ended June 30, Nine-Months Ended June 30,
2022 2021 2022 2021
Net sales:
Aerospace $ 401,712 65.4 % $ 340,912 61.2 % $ 1,110,904 63.7 % $ 1,027,285 61.3 %
Industrial 212,620 34.6 % 215,763 38.8 % 631,853 36.3 % 648,330 38.7 %
Consolidated net sales $ 614,332 100 % $ 556,675 100 % $ 1,742,757 100 % $ 1,675,615 100 %
The following table presents earnings by segment and reconciles segment earnings to consolidated net earnings:
Three-Months Ended June 30 ,
Nine-Months Ended
2022 2021 2022 2021
Aerospace $ 56,566 $ 53,167 $ 167,458 $ 168,641
Industrial 21,102 27,166 62,029 87,925
Nonsegment expenses (19,201 ) (13,546 ) (63,816 ) (47,331 )
Interest expense, net (8,180 ) (8,089 ) (23,542 ) (24,466 )
Consolidated earnings before
income taxes 50,287 58,698 142,129 184,769
Income tax expense (10,841 ) (9,837 ) (24,472 ) (26,025 )
Consolidated net earnings $ 39,446 $ 48,861 $ 117,657 $ 158,744
32
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The following table presents segment earnings as a percent of segment net sales:
Three-Months Ended June 30, Nine-Months Ended June 30,
2022 2021 2022 2021
Aerospace 14.1 % 15.6 % 15.1 % 16.4 %
Industrial 9.9 % 12.6 % 9.8 % 13.6 %
Aerospace
Aerospace segment net sales increased by $60,800 , or 17.8%, to $401,712 for the
third quarter of fiscal year 2022, compared to $340,912 for the third quarter of
fiscal year 2021. Aerospace segment net sales increased by $83,619 , or 8.1%, to
$1,110,904 for the first nine-months of fiscal year 2022, compared to $1,027,285
for the first nine-months of fiscal year 2021. The increase in segment net sales
in the third quarter and first nine-months of fiscal year 2022 as compared to
the same periods of the prior fiscal year is primarily due to significantly
higher commercial OEM and aftermarket sales, partially offset by supply chain
disruptions and inefficiencies related to training new members.
Defense OEM sales decreased in the third quarter and first nine-months of fiscal
year 2022 as compared to the same periods of the prior fiscal year, primarily
driven by global supply chain and labor disruptions. Our defense aftermarket
sales decreased in the third quarter and first nine-months of fiscal year 2022
as compared to the same periods of the prior fiscal year, primarily driven by
global supply chain and labor disruptions. However, with the exception of guided
weapons, defense demand remained stable at elevated levels.
As of the third quarter of fiscal year 2022, Aerospace segment net sales were
negatively impacted by approximately
Aerospace segment earnings increased by$3,399 , or 6.4%, to$56,566 for the third quarter of fiscal year 2022, compared to$53,167 for the third quarter of fiscal year 2021. Aerospace segment earnings decreased by$1,183 , or 0.7%, to$167,458 for the first nine-months of fiscal year 2022, compared to$168,641 for the first nine-months of fiscal year 2021. The increase in Aerospace segment earnings for the third quarter of fiscal year 2022 and the decrease in Aerospace segment earnings for the first nine-months of fiscal year 2022, in each case as compared to the same period of the prior fiscal year, was due to the following: Three-Month Period Nine-Month Period Earnings for the period ended June 30, 2021$ 53,167 $ 168,641 Sales volume 21,545 29,262 Price, sales mix and productivity (4,981 ) (13,451 ) Manufacturing costs related to hiring and training (5,581 ) (13,098 ) Annual variable incentive compensation costs (2,053 ) (4,608 ) Other, net (5,531 ) 712 Earnings for the period ended June 30, 2022$ 56,566 $ 167,458 The increase in Aerospace segment earnings in the third quarter of fiscal year 2022 as compared to the same period of the prior fiscal year was primarily due to significantly higher commercial OEM and aftermarket sales, partially offset by increases in manufacturing costs related to supply chain disruptions and inefficiencies related to training new members, as well as net inflationary impacts on material and labor costs. The decrease in Aerospace segment earnings for the first nine-months of fiscal year 2022 as compared to the same period of the prior year was primarily due to net inflationary impacts, as well as increases in manufacturing costs related to supply chain disruptions and inefficiencies related to hiring and training, partially offset by higher commercial OEM and aftermarket sales volume. Aerospace segment earnings as a percentage of segment net sales were 14.1% for the third quarter of fiscal year 2022 and 15.1% for the first nine-months of fiscal year 2022, compared to 15.6% for the third quarter of fiscal year 2021 and 16.4% for the first nine-months of fiscal year 2021. 33 --------------------------------------------------------------------------------
Industrial
Industrial segment net sales decreased by$3,143 , or 1.5%, to$212,620 for the third quarter of fiscal year 2022, compared to$215,763 for the third quarter of fiscal year 2021. Industrial segment net sales decreased by$16,477 , or 2.5%, to$631,853 for the first nine-months of fiscal year 2022, compared to$648,330 for the first nine-months of fiscal year 2021. Foreign currency exchange rates had an unfavorable impact on segment net sales of$16,422 and$28,824 for the third quarter and first nine-months of fiscal year 2022, respectively, as compared to the same periods of the prior fiscal year. The decrease in Industrial segment net sales in the third quarter and first nine-months of fiscal year 2022 was primarily due to lower sales of natural gas-powered engines inChina and unfavorable foreign currency exchange rates, partially offset by increased marine sales driven by higher utilization of the in-service fleet as well as greater industrial turbomachinery sales supporting increasing demand for power generation and process industries.
As of the third quarter of fiscal year 2022, Industrial segment net sales were
negatively impacted by approximately
Industrial segment earnings decreased by$6,064 , or 22.3%, to$21,102 for the third quarter of fiscal year 2022, compared to$27,166 for the third quarter of fiscal year 2021. Segment earnings decreased by$25,896 , or 29.5%, to$62,029 for the first nine-months of fiscal year 2022, compared to$87,925 for the first nine-months of fiscal year 2021.
The decrease in Industrial segment earnings for the third quarter and first nine-months of fiscal year 2022 compared to the same periods of the prior fiscal year was due to the following:
Three-Month
Period Nine-Month Period
Earnings for the period ended June 30, 2021 $ 27,166 $ 87,925
Sales volume 6,380 4,801
Price, sales mix and productivity (2,944 ) (12,196 )
Manufacturing costs related to hiring and training (1,641 ) (5,369 )
Effects of changes in foreign currency rates (3,310 ) (5,186 )
Annual variable incentive compensation costs (581 ) (1,676 )
Other, net (3,968 ) (6,270 )
Earnings for the period ended June 30, 2022 $ 21,102 $ 62,029
The decrease in Industrial segment earnings in the third quarter was primarily
due to net inflationary impacts on material and labor costs, as well as
increases in manufacturing costs related to supply chain disruptions and
inefficiencies related to training new members, partially offset by higher sales
volume. The decrease in Industrial segment earnings for the first nine-months of
fiscal year 2022 as compared to the same period of the prior year was primarily
due to unfavorable product mix, unfavorable foreign currency impacts, net
inflationary impacts, as well as increases in manufacturing costs related to
supply chain disruptions and inefficiencies related to hiring and training.
Industrial segment earnings as a percentage of segment net sales were 9.9% for
the third quarter and 9.8% for the first nine-months of fiscal year 2022,
compared to 12.6% for the third quarter and 13.6% for the first nine-months of
fiscal year 2021.
Nonsegment
Nonsegment expenses increased by $5,655 to $19,201 for the third quarter of
fiscal year 2022, compared to $13,546 for the third quarter of fiscal year
2021. The increase in nonsegment expenses for the third quarter was primarily a
result of the timing of certain expenses and the return of annual variable
incentive compensation costs. Nonsegment expenses increased by $16,485 to
$63,816 for the first nine-months of fiscal year 2022, compared to $47,331 for
the first nine-months of fiscal year 2021. The increase in nonsegment expenses
in the first nine-months of fiscal year 2022 compared to the same period in the
prior year was primarily a result of the timing of certain expenses, the return
of annual variable incentive compensation costs, as well as a non-recurring
matter unrelated to the ongoing operations of the business and certain business
development activities, neither of which occurred in the first nine-months of
fiscal year 2021.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have satisfied our working capital needs, as well as capital
expenditures, product development and other liquidity requirements associated
with our operations, with cash flow provided by operating activities and
borrowings under our credit facilities. From time to time, we have also issued
debt to supplement our cash needs, repay our other indebtedness, or finance our
acquisitions. We continue to expect that cash generated from our operating
activities,
34
--------------------------------------------------------------------------------together with borrowings under our revolving credit facility and other borrowing capacity, will be sufficient to fund our continuing operating needs for the foreseeable future.
In addition to our revolving credit facility, we have various foreign credit facilities, some of which are tied to net amounts on deposit at certain foreign financial institutions. These foreign credit facilities are reviewed annually for renewal. We use borrowings under these foreign credit facilities to finance certain local operations on a periodic basis. For further discussion of our revolving credit facility and our other credit facilities, see Note 14, Credit facilities, short-term borrowings and long-term debt in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item I of this Form 10-Q.
At
AtJune 30, 2022 , we had$49,200 outstanding on our revolving credit facility, all of which is classified as short-term borrowings based on our intent and ability to pay this amount in the next twelve months. Revolving credit facility and short-term borrowing activity during the nine-months endedJune 30, 2022 were as follows: Maximum daily balance during the period$ 208,100 Average daily balance during the period$ 43,384
Weighted average interest rate on average daily balance 1.99 %
AtJune 30, 2022 , we had additional borrowing availability of$940,684 under our revolving credit facility, net of outstanding letters of credit, and additional borrowing availability of$27,387 under various foreign credit facilities. To our knowledge, we were in compliance with all our debt covenants as ofJune 30, 2022 . Additionally, we do not believe the current known impacts of the COVID-19 pandemic will affect our ability to remain in compliance with our debt covenants. See Note 15, Credit facilities, short-term borrowings and long-term debt in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our most recently filed Form 10-K, for more information about our covenants. In addition to utilizing our cash resources to fund the working capital needs of our business, we evaluate additional strategic uses of our funds, including the repurchase of our common stock, payment of dividends, significant capital expenditures, consideration of strategic acquisitions and other potential uses of cash. Our ability to service our long-term debt, to remain in compliance with the various restrictions and covenants contained in our debt agreements, and to fund working capital, capital expenditures and product development efforts will depend on our ability to generate cash from operating activities, which in turn is subject to, among other things, future operating performance as well as general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control. We do not believe the current known impacts of the COVID-19 pandemic will impact our ability to satisfy our long-term debt obligations. InNovember 2019 , the Board had authorized a program for the repurchase of up to$500,000 of Woodward's outstanding shares of common stock on the open market or in privately negotiated transactions over a three-year period that was scheduled to expire inNovember 2022 (the "2019 Authorization"). During the the first nine-months of fiscal year 2022, we repurchased 233 shares of our common stock for$26,742 under the 2019 Authorization. During the first nine-months of fiscal year 2021, we repurchased no shares of our common stock under the 2019 Authorization. InJanuary 2022 , the Board terminated the 2019 Authorization and concurrently authorized a program for the repurchase of up to$800,000 of Woodward's outstanding shares of common stock on the open market or in privately negotiated transactions over a two-year period ending inJanuary 2024 (the "2022 Authorization"). During the first nine-months of fiscal year 2022, we repurchased 3,441 shares of our common stock for$400,975 under the 2022 Authorization. We believe that cash flows from operations, along with our contractually committed borrowings and other borrowing capability, will continue to be sufficient to fund anticipated capital spending requirements and our operations for the foreseeable future. However, we could be adversely affected if the financial institutions providing our capital requirements refuse to honor their contractual commitments, cease lending, or declare bankruptcy. We believe the lending institutions participating in our credit arrangements are financially stable and do not currently foresee adverse impacts to financial institutions supporting our capital requirements. 35
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