Woodward, Inc. Leases Disclosure
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, 2023, 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:
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|
Classification on the Consolidated Balance Sheets |
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September 30, 2023 |
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September 30, 2022 |
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Assets: |
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Operating lease assets |
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|
$ |
24,680 |
|
|
$ |
25,144 |
|
|
Finance lease assets |
|
|
|
3,337 |
|
|
|
5,474 |
|
|
Total lease assets |
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|
|
|
28,017 |
|
|
|
30,618 |
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|
|
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|
|
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Current liabilities: |
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|
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Operating lease liabilities |
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|
|
4,594 |
|
|
|
4,587 |
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Finance lease liabilities |
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|
|
817 |
|
|
|
856 |
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Noncurrent liabilities: |
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Operating lease liabilities |
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|
|
20,685 |
|
|
|
21,443 |
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Finance lease liabilities |
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L |
|
|
2,733 |
|
|
|
4,405 |
|
Total lease liabilities |
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|
|
$ |
28,829 |
|
|
$ |
31,291 |
|
Supplemental lease-related information follows:
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September 30, 2023 |
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September 30, 2022 |
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Weighted average remaining lease term |
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Operating leases |
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8.6 years |
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8.3 years |
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Finance leases |
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4.6 years |
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9.7 years |
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Weighted average discount rate |
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Operating leases |
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4.0 |
% |
|
|
3.6 |
% |
Finance leases |
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|
4.6 |
% |
|
|
3.4 |
% |
Lease-related expenses were as follows:
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Year Ended September 30, |
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2023 |
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2022 |
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|
2021 |
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Operating lease expense |
|
$ |
6,213 |
|
|
$ |
6,335 |
|
|
$ |
6,559 |
|
Amortization of financing lease assets |
|
|
914 |
|
|
|
454 |
|
|
|
425 |
|
Interest on financing lease liabilities |
|
|
157 |
|
|
|
51 |
|
|
|
58 |
|
Variable lease expense |
|
|
917 |
|
|
|
929 |
|
|
|
1,495 |
|
Short-term lease expense |
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|
196 |
|
|
|
190 |
|
|
|
283 |
|
Sublease income1 |
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— |
|
|
|
(192 |
) |
|
|
(680 |
) |
Total lease expense |
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$ |
8,397 |
|
|
$ |
7,767 |
|
|
$ |
8,140 |
|
Lease-related supplemental cash flow information was as follows:
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Year Ended September 30, |
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2023 |
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2022 |
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2021 |
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Cash paid for amounts included in the measurement of lease liabilities: |
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Operating cash flows for operating leases |
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$ |
5,151 |
|
|
$ |
5,303 |
|
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$ |
5,707 |
|
Operating cash flows for finance leases |
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|
157 |
|
|
|
51 |
|
|
|
58 |
|
Financing cash flows for finance leases |
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|
779 |
|
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|
796 |
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|
1,639 |
|
Right-of-use assets obtained in exchange for recorded lease obligations: |
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Operating leases |
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2,230 |
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|
|
14,678 |
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|
|
6,871 |
|
Finance leases |
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|
48 |
|
|
|
4,046 |
|
|
|
35 |
|
Maturities of lease liabilities were as follows:
Year Ending September 30: |
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Operating Leases |
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Finance Leases |
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2024 |
|
$ |
5,329 |
|
|
$ |
954 |
|
2025 |
|
|
4,491 |
|
|
|
821 |
|
2026 |
|
|
3,823 |
|
|
|
822 |
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2027 |
|
|
3,109 |
|
|
|
820 |
|
2028 |
|
|
2,662 |
|
|
|
234 |
|
Thereafter |
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|
10,491 |
|
|
|
258 |
|
Total lease payments |
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|
29,905 |
|
|
|
3,909 |
|
Less: imputed interest |
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|
(4,626 |
) |
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|
(359 |
) |
Total lease obligations |
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$ |
25,279 |
|
|
$ |
3,550 |
|
Lessor arrangements
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, 2023. 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 “” at the Consolidated Statements of Earnings, was $5,030 for the fiscal year ended September 30, 2023, compared to $5,528 for the fiscal year ended September 30, 2022.
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, was as follows:
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September 30, 2023 |
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|
September 30, 2022 |
|
||
Property, plant, and equipment |
|
$ |
45,766 |
|
|
$ |
44,912 |
|
Less accumulated depreciation |
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|
(28,128 |
) |
|
|
(25,508 |
) |
Property, plant, and equipment, net |
|
$ |
17,638 |
|
|
$ |
19,404 |
|
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2023 | Nov 17, 2023 | Showing above |
| 2022 | Nov 18, 2022 | |
| 2021 | Nov 19, 2021 | |
| 2020 | Nov 20, 2020 | |
About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.