Quarterly Report for Quarter Ending December 31, 2025 (Form 10-Q)

Management's Discussion and Analysis ofFinancial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this "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:

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, but are not limited to, risk factors described in Woodward's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended September 30, 2025, which was filed on November 25, 2025, and other risks described in Woodward's filings with the Securities and Exchange Commission.

We undertake no obligation to revise or update any forward-looking statements for any reason, except as required by applicable law. Unless we have indicated otherwise or the context otherwise requires, references in this Form 10-Q to "Woodward," "the Company," "we," "us," and "our" refer to Woodward, Inc. and its consolidated subsidiaries.

Except where we have otherwise indicated or the context otherwise requires, amounts presented in this Form 10-Q are in thousands, except per share amounts.

OVERVIEW

Global Business Conditions

As global trade dynamics continue to evolve, the impact of increased trade tensions and related tariffs with U.S. trading partners remains a key factor in shaping global economic activity, supply chains, and market stability. Future tariff adjustments may emerge as countries negotiate trade agreements, respond to geopolitical shifts, and address the challenges of inflation and global competition. We expect increased cost pressure resulting from the already announced tariffs, and there are uncertainties surrounding future tariff policy changes and enforcement. However, the Company's production and supply bases are largely in the same regions where our products are sold, which we believe will mitigate our exposure. Woodward is closely tracking costs from our supply base and customer forecasts regarding the potential impact of currently announced tariff levels, changes to such levels, and actual and potential retaliatory trade actions. We have experienced and are expecting minimal levels of cost pressure as a result of the implemented tariffs. We are proactively working to mitigate this cost pressure, potential sales risks, and potential supply chain disruptions.

On January 12, 2026, the Company approved a plan to wind-down our on-highway natural gas truck manufacturing operations in China (the "China OH Business"). This decision follows prior unsuccessful efforts to divest the China OH Business and is a strategic step to align the Industrial segment portfolio with priority end-markets and long-term growth opportunities. The China OH Business has not significantly contributed to our overall financial performance on a consistent basis. The wind-down is expected to be substantially completed by the end of fiscal year 2026.

In connection with this action, we expect to incur pre-tax charges of approximately $20,000 to $25,000. The majority of these charges are expected to be recognized in the second and third quarters of fiscal year 2026.

Operational Highlights

Quarter Highlights

Adjusted net earnings, adjusted earnings per share, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA are non-U.S. GAAP financial measures. A description of these measures as well as a reconciliation of these

non-U.S. GAAP financial measures to the most directly comparable U.S. GAAP financial measures can be found under the caption "Non-U.S. GAAP Financial Measures" in this Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.

Liquidity Highlights

Net cash provided by operating activities for the first three months of fiscal year 2026 was $114,437, compared to $34,516 for the first three months of fiscal year 2025. The increase in cash provided by operating activities for the first three months of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily attributable to increased earnings and the timing of certain tax payments.

For the first quarter of fiscal year 2026, free cash flow was $70,308, compared to $942 for the first quarter of fiscal year 2025. We define free cash flow as net cash provided by operating activities less payments for property, plant, and equipment. The increase in free cash flow for the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily attributable to increased earnings and the timing of certain tax payments, partially offset by higher capital expenditures. Free cash flow is a non-U.S. GAAP financial measure. A description of this measure as well as a reconciliation of this non-U.S. GAAP financial measure to the most directly comparable U.S. GAAP financial measure 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 December 31, 2025, we held $454,245 in cash and cash equivalents and had total outstanding debt of $888,038. We have additional borrowing availability of $609,131, net of outstanding letters of credit, under our revolving credit agreement. At December 31, 2025, we also had additional borrowing capacity of $25,315 under various foreign lines of credit and foreign overdraft facilities.

RESULTS OF OPERATIONS

The following table sets forth condensed consolidated statements of earnings data as a percentage of net sales for each period indicated:

Other select financial data:

Net Sales

Consolidated net sales for the first quarter of fiscal year 2026 increased by $223,729, or 29.0%, compared to the same period of fiscal year 2025.

Details of the changes in consolidated net sales were as follows:

The increase in both Aerospace and Industrial segment net sales in the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily attributable to higher sales volumes and price realization.

Costs and Expenses

Cost of goods soldincreased by $121,202 to $704,293 for the first quarter of fiscal year 2026, from $583,091 for the first quarter of fiscal year 2025. Cost of goods sold decreased to 70.7% of net sales for the first quarter of fiscal year 2026, compared to 75.5% of net sales for the first quarter of fiscal year 2025.

The increase in cost of goods sold on an absolute basis in the first quarter of fiscal year 2026 compared to the same period of fiscal year 2025 is primarily due to higher sales volumes and net inflationary impacts on material and labor costs.

Gross margin (as measured by net sales less cost of goods sold, divided by net sales) was 29.3% for the first quarter of fiscal year 2026, compared to 24.5% for the first quarter of fiscal year 2025. The increase in gross margin for the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 is primarily attributable to higher sales volumes and price realization.

Selling, general, and administrative expensesincreased by $25,289, or 36.3%, to $94,985 for the first quarter of fiscal year 2026, compared to $69,696 for the first quarter of fiscal year 2025. Selling, general, and administrative expenses as a percentage of net sales increased to 9.5% for the first quarter of fiscal year 2026, compared to 9.0% for the first quarter of fiscal year 2025. The increase in selling, general, and administrative expenses for the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 is primarily due to higher project-related costs and labor costs.

Research and development costswere $37,756, or 3.8% of net sales, for the first quarter of fiscal year 2026, as compared to $30,207, or 3.9% of net sales, for the first quarter of fiscal year 2025. Our research and development activities extend across almost all of our customer base, and we anticipate ongoing variability in research and development costs due to the timing of customer business needs on current and future programs.

Interest expensedecreased by $1,997, or 16.2%, to $10,344 for the first quarter of fiscal year 2026, compared to $12,341 for the first quarter of fiscal year 2025. Interest expense as a percentage of net sales was 1.0% for the first quarter of fiscal year 2026, compared to 1.6% for the first quarter of fiscal year 2025. The decrease is primarily attributable to a lower long-term debt balance, as on November 17, 2025, we paid the entire principal balance of $75,000 on the Series I and L Notes.

Other income, netdecreased by $3,713 to $19,374 for the first quarter of fiscal year 2026, compared to $23,087 for the first quarter of fiscal year 2025. The decrease in other income for the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 is primarily attributable to a one-time gain related to product rationalization activities that were recognized in the prior year first quarter that did not occur in the current year first quarter, partially offset by an increase in earnings of the JV.

Income taxeswere provided at an effective rate of 20.9% on earnings before income taxes for the first quarter of fiscal year 2026, compared to 14.5% for the first quarter of fiscal year 2025. The increase in the effective tax rate for the first quarter of fiscal year 2026, compared to the same period of fiscal year 2025 was primarily attributable to higher current quarter earnings relative to the tax benefit of stock-based compensation, unfavorable state tax law changes, the current year elimination of the U.S. intangible income tax benefit due to the one-time reversal of research costs previously capitalized, and a reduction to the U.S. Federal Research and Development Credit.

Segment Results

The following table presents sales by segment:

The following table presents earnings by segment and reconciles segment earnings to consolidated net earnings:

The following table presents segment earnings as a percent of segment net sales:

Aerospace

Aerospace segment net salesincreased by $141,015, or 28.6%, to $634,897 for the first quarter of fiscal year 2026, compared to $493,882 for the first quarter of fiscal year 2025.

The increase in Aerospace segment net sales in the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 were primarily attributable to increased sales volumes and price realization.

Commercial OEM sales increased in the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025, primarily due to a tapering of destocking efforts by airframers and increased airframer production rates. Commercial services sales increased in the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025, primarily due to higher volume supported by sustained high aircraft utilization of legacy aircraft, increased Leading Edge Aviation Propulsion ("LEAP") and Pratt & Whitney's Geared Turbo Fan ("GTF") activity, and price realization.

Defense OEM sales increased in the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025, primarily driven by new increased Joint Direct Attack Munition ("JDAM") pricing, which took effect during the fourth quarter of fiscal year 2025. Defense services sales were generally flat in the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 due to timing of sales. We expect variability in Defense services sales, which is generally attributable to the cycling of various maintenance and upgrade programs, as well as actual usage.

Aerospace segment earningsincreased by $53,670, or 56.7%, to $148,395 for the first quarter of fiscal year 2026, compared to $94,725 for the first quarter of fiscal year 2025. The increase in segment earnings was a result of price realization, favorable mix, and higher sales volume, partially offset by strategic investments in manufacturing capabilities and inflation.

The increase in Aerospace segment earnings was due to the following:

Aerospace segment earnings as a percentage of segment net sales were 23.4% for the first quarter of fiscal year 2026, compared to 19.2% for the first quarter of fiscal year 2025.

Industrial

Industrial segment net salesincreased by $82,714, or 29.7%, to $361,557 for the first quarter of fiscal year 2026, compared to $278,843 for the first quarter of fiscal year 2025.

The increase in Industrial segment net sales in the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily attributable to higher sales volumes and price realization.

Industrial segment earningsincreased by $26,797, or 66.7%, to $66,994 for the first quarter of fiscal year 2026, compared to $40,197 for the first quarter of fiscal year 2025. The increase in Industrial earnings was primarily attributable to higher sales volume, including increased output and other efficiency gains, price realization, and favorable mix, partially offset by inflation.

The increase in Industrial segment earnings was due to the following:

Industrial segment earnings as a percentage of segment net sales were 18.5% for the first quarter of fiscal year 2026, compared to 14.4% for the first quarter of fiscal year 2025.

Nonsegment

Nonsegment expensesincreased by $14,491 to $36,595 for the first quarter of fiscal year 2026, compared to $22,104 for the first quarter of fiscal year 2025.

The significant items that impacted nonsegment expenses in the prior fiscal year period but did not reoccur in the current fiscal year period were as follows:

Excluding these items, nonsegment expenses increased $8,648 in the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025. These increases were primarily attributable to higher project-related costs.

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 net cash 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, together with borrowings under our revolving credit facility and other borrowing capacity, will be sufficient to fund our continuing operating needs for the next 12 months and the foreseeable future.

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 debtin the Notes to the Condensed Consolidated Financial Statements included in Part I, Item I of this Form 10-Q.

At December 31, 2025, we had total outstanding debt of $888,038, consisting of outstanding balances on our revolving credit facility, various series of unsecured notes due between 2026 and 2033, and obligations under our finance leases.

At December 31, 2025, we had $383,000 outstanding on our revolving credit facility, all of which is classified as short-term borrowings based on our intent and ability to repay this amount in the next 12 months. Revolving credit facility and short-term borrowing activity during the three months ended December 31, 2025 were as follows:

At December 31, 2025, we had additional borrowing availability of $609,131 under our revolving credit facility, net of outstanding letters of credit, and additional borrowing availability of $25,315 under various foreign credit facilities.

We were compliant with all our debt covenants as of December 31, 2025. See Note 15, Credit facilities, short-term borrowings and long-term debtin the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our Annual Report on Form 10-K for fiscal year 2025, for more information about our covenants.

In addition to utilizing our cash resources to fund the working capital needs of our business, we evaluate, and from time to time, use cash for additional strategic uses, including the repurchase of our common stock under our authorized stock repurchase program, payment of dividends, significant capital expenditures, strategic acquisitions, and other potential uses of cash.

Our ability to service our long-term debt, to remain compliant 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 supporting our capital requirements.

Cash Flows

Net cash provided by operating activities for the first three months of fiscal year 2026 were $114,437, compared to $34,516 for the same period of fiscal year 2025. The increase in net cash provided by operating activities in the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily attributable to increased earnings and the timing of certain tax payments.

Net cash used in investing activitiesfor the first three months of fiscal year 2026 were $48,329, compared to $32,100 for the same period of fiscal year 2025. The increase in net cash used in investing activities in the first quarter of fiscal year

2026 as compared to the same period of fiscal year 2025 was primarily due to higher capital expenditures and a payment for a business acquisition.

Net cash provided by financing activitiesfor the first three months of fiscal year 2026 were $60,156, compared to $19,386 for the same period of fiscal year 2025. The increase in net cash provided by financing activities for the first quarter of fiscal year 2026 as compared to the same period of fiscal year 2025 was primarily attributable to an increase in net debt borrowings, partially offset by increased repurchases of common stock. During the first quarter of fiscal year 2026, we had net debt borrowings in the amount of $185,448, compared to net debt borrowings of $40,764 in the first quarter of fiscal year 2025. During the first quarter of fiscal year 2026, we repurchased $129,387 of our common stock, whereas in the first quarter of fiscal year 2025, we repurchased $35,473.

Non-U.S. GAAP Financial Measures

Adjusted net earnings, adjusted earnings per share, adjusted income tax expense, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, adjusted EBITDA, and free cash flow are financial measures not prepared and presented in accordance with U.S. GAAP. However, we believe these non-U.S. GAAP financial measures provide additional information that enables readers to evaluate our business from the perspective of management.

Earnings based non‐U.S. GAAP financial measures

Adjusted net earnings is defined by the Company as net earnings excluding, as applicable, (i) product rationalization and (ii) costs related to business development activities. The product rationalization adjustment pertains to the elimination and divestiture of certain product lines. The Company believes that these excluded items are short‐term in nature, not directly related to the ongoing operations of the business, and therefore, their exclusion 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. Adjusted income tax expense is defined by the Company as income tax expense excluding, as applicable, (i) product rationalization and (ii) costs related to business development activities. The product rationalization adjustment pertains to the elimination and divestiture of certain product lines.

Management uses adjusted net earnings, adjusted earnings per share, adjusted effective tax rate, and adjusted income tax expense when comparing operating performance to other periods.

The reconciliation of net earnings and earnings per share to adjusted net earnings and adjusted earnings per share, respectively, is shown in the tables below:

The reconciliation of income tax expense to adjusted income tax expense and the adjusted effective tax rate, is shown in the tables below:

Management uses EBIT to evaluate Woodward's performance without financing and tax related considerations, as these elements do not fluctuate with operating results. Management uses EBITDA in evaluating Woodward's operating performance, making business decisions, including developing budgets, managing expenditures, forecasting future periods, and evaluating capital structure impacts of various strategic scenarios. Securities analysts, investors, and others frequently use EBIT and EBITDA in their evaluation of companies, particularly those with significant property, plant, and equipment, and intangible assets subject to amortization. The Company believes that EBIT and EBITDA are useful measures to the investor when measuring operating performance as they eliminate the impact of financing and tax expenses, which are non-operating expenses and may be driven by factors outside of the Company's operations, such as changes in tax laws or regulations, and, in the case of EBITDA, the noncash charges associated with depreciation and amortization. Further, as interest from financing, income taxes, depreciation, and amortization can vary dramatically between companies and between periods, management believes that the removal of these items can improve comparability.

Adjusted EBIT and adjusted EBITDA represent further non-U.S. GAAP adjustments to EBIT and EBITDA, in each case adjusted to exclude, as applicable, (i) product rationalization and (ii) costs related to business development activities. The product rationalization adjustment pertains to the elimination and divestiture of certain product lines. As these charges are infrequent or unusual items that can be variable from period to period and do not fluctuate with operating results, management believes removing these gains and costs from EBIT and EBITDA 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:

EBITDA and adjusted EBITDA reconciled to net earnings were as follows:

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 income tax expense, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA exclude certain financial information compared with net earnings and income tax expense, the most directly comparable U.S. GAAP financial measures, users of this financial information should consider the information that is excluded. Our calculations of adjusted net earnings, adjusted net earnings per share, adjusted income tax expense, adjusted effective tax rate, EBIT, adjusted EBIT, EBITDA, and adjusted EBITDA may differ from similarly titled measures used by other companies, limiting their usefulness as comparative measures.

Cash flow‐based non‐U.S. GAAP financial measures

Management uses free cash flow, which is defined by the Company as net cash 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, repurchasing our common stock, paying dividends, and investing in additional research and development. In addition, securities analysts, investors, and others frequently use free cash flow in their evaluation of companies.

The use of this non‐U.S. GAAP financial measure 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 does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs. Our calculation of free cash flow may differ from similarly titled measures used by other companies, limiting their usefulness as comparative measures.

Free cash flow reconciled to net cash provided by operating activities was as follows:

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Note 1, Operations and summary of significant accounting policiesin the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our most recently filed Annual Report on Form 10-K, describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Our critical accounting estimates, identified in Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our most recently filed Form 10-K, include the discussion of estimates used for revenue recognition, inventory valuation, reviews for impairment of goodwill and other indefinitely lived intangible assets, and our provision for income taxes. Such accounting estimates require significant judgments and assumptions to be used in the preparation of the Condensed Consolidated Financial Statements included in this Form 10-Q, and actual results could differ materially from the amounts reported.

New Accounting Standards

From time to time, the FASB or other standards-setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update.

To understand the impact of recently issued standards, whether adopted or to be adopted, please review the information provided in Note 2, New accounting standardsin the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Unless otherwise discussed, we believe that the impact of recently issued standards, whether adopted or to be adopted in the future, is not expected to have a material impact on our Condensed Consolidated Financial Statements upon adoption.