received at an interest rate available to Woodward 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 2.9% at December 31, 2025 and 3.0% at September 30, 2025.
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 were 4.8% at December 31, 2025 and 5.3% at September 30, 2025.
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 4.1% at December 31, 2025 and 4.2% at September 30, 2025.
Woodward does not have expected credit losses related to any financial assets that are not required to be remeasured at fair value.
Note 8. Derivative instruments and hedging activities
Derivative instruments not designated or qualifying as hedging instruments
In May 2020, Woodward entered into 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 reduced the interest rates on the underlying fixed-rate debt under the 2018 Notes (as defined in 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 Woodward’s most recently filed Form 10-K) and Woodward’s then existing revolving credit agreement. The net interest income of the 2020 Fixed-Rate Cross-Currency Swaps is recorded as a reduction to “Interest expense” in Woodward’s Condensed Consolidated Statements of Earnings. The total notional value of the 2020 Fixed-Rate Cross-Currency Swaps was $315,000 at December 31, 2025. See Note 7, Financial Instruments and fair value measurements for the related fair value of the derivative instruments as of December 31, 2025.
Derivative instruments in cash flow hedging relationships
In May 2020, Woodward entered into five U.S. 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. The agreements were entered into by Woodward Barbados Euro Financing SRL ("Euro Barbados"), a wholly owned subsidiary of Woodward, and 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 for future principal and interest payments associated with the U.S. dollar denominated intercompany loans over a 13 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 expenses” in Woodward’s Condensed 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 U.S. 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”).
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.
Gross unrecognized tax benefits were $18,759 as of December 31, 2025 and $17,271 as of September 30, 2025. At December 31, 2025, the amount of the liability for unrecognized tax benefits that, if recognized, would impact Woodward’s effective tax rate was $9,507. At this time, Woodward believes it is reasonably possible that the liability for unrecognized tax benefits will decrease by as much as $1,326 in the next 12 months due to the completion of review by tax authorities, lapses of statutes, and the settlement of tax positions. Woodward’s tax expense includes accruals for potential interest and penalties related to unrecognized tax benefits and all other interest and penalties related to tax payments.
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 2022 and thereafter. Woodward’s fiscal years remaining open to examination for significant U.S. state income tax jurisdictions include fiscal years 2020 and thereafter. Woodward’s fiscal years remaining open to examination in significant foreign jurisdictions include 2018 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 member location.
Defined contribution plans
Most of the Company’s U.S. members are eligible to participate in the U.S. defined contribution plan. The U.S. defined contribution plan allows members to defer part of their annual income for income tax purposes into their personal 401(k) accounts. The Company makes matching contributions to eligible member accounts, which are also deferred for member personal income tax purposes. Certain non-U.S. members are also eligible to participate in similar non-U.S. plans.
The amount of expense associated with defined contribution plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
|
2025 |
|
|
2024 |
|
Company costs |
|
$ |
14,741 |
|
|
$ |
12,343 |
|
Defined benefit plans
Woodward has defined benefit plans that provide pension benefits for certain retired members in the United States, the United Kingdom, Japan, and Germany. Woodward also provides other postretirement benefits to its members including postretirement medical benefits and life insurance benefits. Postretirement medical benefits are provided to certain current and retired members and their covered dependents, and beneficiaries in the United States. Life insurance benefits are provided to certain retirees in the United States under frozen plans, which are no longer available to current members. 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.
U.S. GAAP requires that, for obligations outstanding as of September 30, 2025, the funded status reported in interim periods shall be the same asset or liability recognized in the previous year end statement of financial position adjusted for (a) subsequent accruals of net periodic benefit cost that exclude the amortization of amounts previously recognized in other comprehensive income (for example, subsequent accruals of service cost, interest cost, and return on plan assets) and (b) contributions to a funded plan or benefit payments.
Stock-based compensation expense
Woodward recognizes stock-based compensation expense on a straight-line basis over the requisite service period. Pursuant to the form agreements used by the Company, with terms approved by the administrator of the applicable plan, the requisite service period can be less than the stated vesting period based on grantee’s retirement eligibility. As such, the recognition of stock-based compensation expense associated with some grants can be accelerated to a period of less than the stated vesting period, including immediate recognition of stock-based compensation expense on the date of grant.
At December 31, 2025, there was approximately $34,488 of total unrecognized compensation expense related to non-vested stock-based compensation arrangements, including stock options, RSUs, and PSUs. The pre-vesting forfeiture rates for purposes of determining stock-based compensation expense recognized were estimated to be 0% for members of the Board and 7.4% 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 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 Condensed 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.
Under the Company’s severance and change in control agreements with its current corporate officers, Woodward would be required to pay termination benefits to any such officer if such officer’s employment is terminated without Cause or for Good Reason (as each term is defined therein). The amount of such benefits would vary depending on whether such termination occurs during a specified period within a change of control.
Note 23. Segment information
Woodward’s segments are composed of similar product groupings that serve the same or similar end markets. Based on this approach, Woodward has two reportable segments that are also its operating segments: Aerospace and Industrial, as described below in further detail. Woodward uses segment information internally to manage its business, including the assessment of segment performance and decisions for the allocation of resources between segments.
Our Aerospace segment designs, manufactures, and services systems and products for the management of fuel, air, 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.
Our Industrial segment designs, produces, and services systems and products for the management of energy in the form of fuel, air, fluids, gases, motion, combustion, and electricity. These products include actuators, valves, pumps, fuel injection systems, solenoids, ignition systems, control systems, 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 new lower carbon alternative fuels in both single and dual-fuel applications). The equipment on which our products are found is used to: generate power; to extract, distribute, and refine energy sources; to mine other commodities; and to convert fuel to work in transportation and freight (both marine and locomotives), mobile, and industrial equipment applications.
Item 2. Management’s Discussion and Analysis of Financial 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:
•future sales, earnings, cash flow, uses of cash, and other measures of financial performance, including our assumptions underlying our expectations;
•trends in our business and the markets in which we operate, including expectations for those markets, our customers and their business and products;
•our ability to manage risks from operating internationally, including the impacts of tariffs on our markets in which we operate as well as our supply chain;
•expectations regarding demand for our products, in particular our expectations with respect to natural gas trucks in China;
•our expected expenses in future periods and trends in such expenses over time;
•our expectations regarding margins and the impact of specific products, product mix, and our strategic actions on margins;
•descriptions of our plans and expectations for future operations, including our strategic initiatives and impact of such initiatives;
•plans and expectations relating to the performance of our joint venture with GE Aerospace;
•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 impact of restructuring activities;
•the research, development, production, and support of new products and services;
•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 dividends and 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;
•our tax rate and other effects of the changes in U.S. federal tax law and other tax law;
•availability of raw materials and components used in our products;
•expectations relating to environmental and emissions regulations;
•effects of data privacy, data protection, and cybersecurity regulations;
•our ability to develop competitive technologies or products and to compete effectively in our markets;
•our consolidated customer base and ability to enhance customer experience;
•our ability to manage risks related to U.S. Government contracting, including defense activity and spending patterns;
•our ability to attract, retain, and develop qualified personnel;
•our continued access to a stable workforce and our ability to maintain favorable labor relations;
•our ability to structure our operations in light of evolving market conditions;
•our ability to mitigate the ongoing impacts of inflation and tariffs;
•the impact of legal proceedings, investigations, claims and other regulatory proceedings;
•the impact of future prices for fossil fuels and commodity prices for oil, natural gas, and other minerals;
•the impact of our ability to protect our intellectual property and technological know-how on our business, financial condition, results of operations, and cash flows; and
•the impact of any potential physical or cybersecurity attacks and other information technology system or network interruptions or intrusions on our operations, business, including our financial condition, operating results, and reputation.
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
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31, |
|
|
|
2025 |
|
|
2024 |
|
Net sales: |
|
|
|
|
|
|
Aerospace segment |
|
$ |
634,897 |
|
|
$ |
493,882 |
|
Industrial segment |
|
|
361,557 |
|
|
|
278,843 |
|
Consolidated net sales |
|
$ |
996,454 |
|
|
$ |
772,725 |
|
|
|
|
|
|
|
|
Earnings: |
|
|
|
|
|
|
Aerospace segment |
|
$ |
148,395 |
|
|
$ |
94,725 |
|
Segment earnings as a percent of segment net sales |
|
|
23.4 |
% |
|
|
19.2 |
% |
Industrial segment |
|
$ |
66,994 |
|
|
$ |
40,197 |
|
Segment earnings as a percent of segment net sales |
|
|
18.5 |
% |
|
|
14.4 |
% |
Consolidated net earnings |
|
$ |
133,719 |
|
|
$ |
87,091 |
|
Adjusted net earnings |
|
$ |
133,719 |
|
|
$ |
82,567 |
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
20.9 |
% |
|
|
14.5 |
% |
Adjusted effective tax rate |
|
|
20.9 |
% |
|
|
14.0 |
% |
Consolidated diluted earnings per share |
|
$ |
2.17 |
|
|
$ |
1.42 |
|
Consolidated adjusted diluted earnings per share |
|
$ |
2.17 |
|
|
$ |
1.35 |
|
|
|
|
|
|
|
|
Earnings before interest and taxes ("EBIT") |
|
$ |
178,794 |
|
|
$ |
112,818 |
|
Adjusted EBIT |
|
$ |
178,794 |
|
|
$ |
106,975 |
|
Earnings before interest, taxes, depreciation, and amortization ("EBITDA") |
|
$ |
207,832 |
|
|
$ |
140,694 |
|
Adjusted EBITDA |
|
$ |
207,832 |
|
|
$ |
134,851 |
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
December 31, 2025 |
|
|
% of Net Sales |
|
|
December 31, 2024 |
|
|
% of Net Sales |
|
Net sales |
|
$ |
996,454 |
|
|
|
100 |
% |
|
$ |
772,725 |
|
|
|
100 |
% |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
704,293 |
|
|
|
70.7 |
% |
|
|
583,091 |
|
|
|
75.5 |
% |
Selling, general, and administrative expenses |
|
|
94,985 |
|
|
|
9.5 |
% |
|
|
69,696 |
|
|
|
9.0 |
% |
Research and development costs |
|
|
37,756 |
|
|
|
3.8 |
% |
|
|
30,207 |
|
|
|
3.9 |
% |
Interest expense |
|
|
10,344 |
|
|
|
1.0 |
% |
|
|
12,341 |
|
|
|
1.6 |
% |
Interest income |
|
|
(701 |
) |
|
|
(0.1 |
)% |
|
|
(1,377 |
) |
|
|
(0.2 |
)% |
Other income, net |
|
|
(19,374 |
) |
|
|
(1.9 |
)% |
|
|
(23,087 |
) |
|
|
(3.0 |
)% |
Total costs and expenses |
|
|
827,303 |
|
|
|
83.0 |
% |
|
|
670,871 |
|
|
|
86.8 |
% |
Earnings before income taxes |
|
|
169,151 |
|
|
|
17.0 |
% |
|
|
101,854 |
|
|
|
13.2 |
% |
Income tax expense |
|
|
35,432 |
|
|
|
3.6 |
% |
|
|
14,763 |
|
|
|
1.9 |
% |
Net earnings |
|
$ |
133,719 |
|
|
|
13.4 |
% |
|
$ |
87,091 |
|
|
|
11.3 |
% |
Other select financial data:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2025 |
|
|
September 30, 2025 |
|
Net working capital |
|
$ |
1,049,992 |
|
|
$ |
820,101 |
|
Total debt |
|
|
888,038 |
|
|
|
872,470 |
|
Total stockholders' equity |
|
|
2,587,488 |
|
|
|
2,176,416 |
|
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:
|
|
|
|
|
|
|
Three-Month Period |
|
Consolidated net sales for the three months ended December 31, 2024 |
|
$ |
772,725 |
|
Aerospace volume |
|
|
87,250 |
|
Industrial volume |
|
|
52,589 |
|
Effects of changes in price |
|
|
69,664 |
|
Effects of changes in foreign currency rates |
|
|
14,226 |
|
Consolidated net sales for the three months ended December 31, 2025 |
|
$ |
996,454 |
|
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 sold increased 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 expenses increased 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 costs were $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 expense decreased 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, net decreased 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 taxes were 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
|
2025 |
|
|
2024 |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
$ |
634,897 |
|
|
|
63.7 |
% |
|
$ |
493,882 |
|
|
|
63.9 |
% |
Industrial |
|
|
361,557 |
|
|
|
36.3 |
% |
|
|
278,843 |
|
|
|
36.1 |
% |
Consolidated net sales |
|
$ |
996,454 |
|
|
|
100 |
% |
|
$ |
772,725 |
|
|
|
100 |
% |
The following table presents earnings by segment and reconciles segment earnings to consolidated net earnings:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
|
2025 |
|
|
2024 |
|
Aerospace |
|
$ |
148,395 |
|
|
$ |
94,725 |
|
Industrial |
|
|
66,994 |
|
|
|
40,197 |
|
Nonsegment expenses |
|
|
(36,595 |
) |
|
|
(22,104 |
) |
Interest expense, net |
|
|
(9,643 |
) |
|
|
(10,964 |
) |
Consolidated earnings before income taxes |
|
|
169,151 |
|
|
|
101,854 |
|
Income tax expense |
|
|
(35,432 |
) |
|
|
(14,763 |
) |
Consolidated net earnings |
|
$ |
133,719 |
|
|
$ |
87,091 |
|
The following table presents segment earnings as a percent of segment net sales:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
|
2025 |
|
|
2024 |
|
Aerospace |
|
|
23.4 |
% |
|
|
19.2 |
% |
Industrial |
|
|
18.5 |
% |
|
|
14.4 |
% |
Aerospace
Aerospace segment net sales increased 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 earnings increased 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:
|
|
|
|
|
|
|
Three-Month Period |
|
Earnings for the three months ended December 31, 2024 |
|
$ |
94,725 |
|
Sales volume and mix |
|
|
47,575 |
|
Price, inflation, and productivity |
|
|
43,424 |
|
Manufacturing expenses |
|
|
(12,393 |
) |
Other, net |
|
|
(24,936 |
) |
Earnings for the three months ended December 31, 2025 |
|
$ |
148,395 |
|
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 sales increased 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 earnings increased 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:
|
|
|
|
|
|
|
Three-Month Period |
|
Earnings for the three months ended December 31, 2024 |
|
$ |
40,197 |
|
Sales volume and mix |
|
|
27,043 |
|
Price, inflation, and productivity |
|
|
14,020 |
|
Other, net |
|
|
(14,266 |
) |
Earnings for the three months ended December 31, 2025 |
|
$ |
66,994 |
|
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 expenses increased 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:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
|
2025 |
|
|
2024 |
|
Nonsegment expenses |
|
$ |
(36,595 |
) |
|
$ |
(22,104 |
) |
Product rationalization |
|
|
— |
|
|
|
(9,361 |
) |
Business development activities |
|
|
— |
|
|
|
3,518 |
|
Nonsegment expenses excluding infrequent significant items |
|
$ |
(36,595 |
) |
|
$ |
(27,947 |
) |
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 debt in 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:
|
|
|
|
|
Maximum daily balance during the period |
|
$ |
685,153 |
|
Average daily balance during the period |
|
$ |
238,062 |
|
Weighted average interest rate on average daily balance |
|
|
5.0 |
% |
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 debt in 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
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
|
2025 |
|
|
2024 |
|
Net cash provided by operating activities |
|
$ |
114,437 |
|
|
$ |
34,516 |
|
Net cash used in investing activities |
|
|
(48,329 |
) |
|
|
(32,100 |
) |
Net cash provided by financing activities |
|
|
60,156 |
|
|
|
19,386 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
550 |
|
|
|
(20,346 |
) |
Net change in cash and cash equivalents |
|
|
126,814 |
|
|
|
1,456 |
|
Cash and cash equivalents at beginning of year |
|
|
327,431 |
|
|
|
282,270 |
|
Cash and cash equivalents at end of period |
|
$ |
454,245 |
|
|
$ |
283,726 |
|
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 activities for 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 activities for 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
|
2025 |
|
|
2024 |
|
|
|
Net Earnings |
|
|
Earnings Per Share |
|
|
Net Earnings |
|
|
Earnings Per Share |
|
Net earnings (U.S. GAAP) |
|
$ |
133,719 |
|
|
$ |
2.17 |
|
|
$ |
87,091 |
|
|
$ |
1.42 |
|
Non-U.S. GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Product rationalization1 |
|
|
— |
|
|
|
— |
|
|
|
(9,361 |
) |
|
|
(0.15 |
) |
Business development activities2 |
|
|
— |
|
|
|
— |
|
|
|
3,518 |
|
|
|
0.06 |
|
Tax effect of Non-U.S. GAAP net earnings adjustments |
|
|
— |
|
|
|
— |
|
|
|
1,319 |
|
|
|
0.02 |
|
Non-U.S. GAAP adjustments |
|
|
— |
|
|
|
— |
|
|
|
(4,524 |
) |
|
|
(0.07 |
) |
Adjusted net earnings (Non-U.S. GAAP) |
|
$ |
133,719 |
|
|
$ |
2.17 |
|
|
$ |
82,567 |
|
|
$ |
1.35 |
|
(1)Presented in the line item "Other income, net" in Woodward's Condensed Consolidated Statement of Earnings.
(2)Presented in the line item "Selling, general and administrative expenses" in Woodward's Condensed Consolidated Statement of Earnings.
The reconciliation of income tax expense to adjusted income tax expense and the adjusted effective tax rate, is shown in the tables below:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
|
2025 |
|
|
2024 |
|
Income tax expense (U.S. GAAP) |
|
$ |
35,432 |
|
|
$ |
14,763 |
|
Tax effect of Non-U.S. GAAP net income adjustments |
|
|
— |
|
|
|
(1,319 |
) |
Adjusted income tax expense (Non-U.S. GAAP) |
|
$ |
35,432 |
|
|
$ |
13,444 |
|
Adjusted effective tax rate (Non-U.S. GAAP) |
|
|
20.9 |
% |
|
|
14.0 |
% |
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:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
|
2025 |
|
|
2024 |
|
Net earnings (U.S. GAAP) |
|
$ |
133,719 |
|
|
$ |
87,091 |
|
Income tax expense |
|
|
35,432 |
|
|
|
14,763 |
|
Interest expense |
|
|
10,344 |
|
|
|
12,341 |
|
Interest income |
|
|
(701 |
) |
|
|
(1,377 |
) |
EBIT (Non-U.S. GAAP) |
|
|
178,794 |
|
|
|
112,818 |
|
Non-U.S. GAAP adjustments: |
|
|
|
|
|
|
Product rationalization1 |
|
|
— |
|
|
|
(9,361 |
) |
Business development activities2 |
|
|
— |
|
|
|
3,518 |
|
Total non-U.S. GAAP adjustments |
|
|
— |
|
|
|
(5,843 |
) |
Adjusted EBIT (Non-U.S. GAAP) |
|
$ |
178,794 |
|
|
$ |
106,975 |
|
(1)Presented in the line item "Other income, net" in Woodward's Condensed Consolidated Statement of Earnings.
(2)Presented in the line item "Selling, general and administrative expenses" in Woodward's Condensed Consolidated Statement of Earnings.
EBITDA and adjusted EBITDA reconciled to net earnings were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
|
2025 |
|
|
2024 |
|
Net earnings (U.S. GAAP) |
|
$ |
133,719 |
|
|
$ |
87,091 |
|
Income tax expense |
|
|
35,432 |
|
|
|
14,763 |
|
Interest expense |
|
|
10,344 |
|
|
|
12,341 |
|
Interest income |
|
|
(701 |
) |
|
|
(1,377 |
) |
Amortization of intangible assets |
|
|
7,342 |
|
|
|
6,914 |
|
Depreciation expense |
|
|
21,696 |
|
|
|
20,962 |
|
EBITDA (Non-U.S. GAAP) |
|
|
207,832 |
|
|
|
140,694 |
|
Non-U.S. GAAP adjustments: |
|
|
|
|
|
|
Product rationalization1 |
|
|
— |
|
|
|
(9,361 |
) |
Business development activities2 |
|
|
— |
|
|
|
3,518 |
|
Total non-U.S. GAAP adjustments |
|
|
— |
|
|
|
(5,843 |
) |
Adjusted EBITDA (Non-U.S. GAAP) |
|
$ |
207,832 |
|
|
$ |
134,851 |
|
(1)Presented in the line item "Other income, net" in Woodward's Condensed Consolidated Statement of Earnings.
(2)Presented in the line item "Selling, general and administrative expenses" in Woodward's Condensed Consolidated Statement of Earnings.
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:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
|
2025 |
|
|
2024 |
|
Net cash provided by operating activities (U.S. GAAP) |
|
$ |
114,437 |
|
|
$ |
34,516 |
|
Payments for property, plant and equipment |
|
|
(44,129 |
) |
|
|
(33,574 |
) |
Free cash flow (Non-U.S. GAAP) |
|
$ |
70,308 |
|
|
$ |
942 |
|
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 policies in 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 standards in 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.
Item 3. 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. We are also exposed to various market risks that arise from transactions entered into in the normal course of business related to items such as the cost of raw materials and changes in inflation. Certain contractual relationships with customers and vendors mitigate risks from changes in raw material costs and foreign currency exchange rate changes that arise from normal purchasing and normal sales activities.
These market risks are discussed more fully in “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our most recent Form 10-K. These market risks have not materially changed since the date our most recent Form 10-K was filed with the SEC.
Item 4. 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 "Exchange 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 Exchange Act is accumulated and communicated to management, including our Principal Executive Officer (Charles Blankenship, Jr., Chairman of the Board and Chief Executive Officer) and Principal Financial and Accounting Officer (William Lacey, Chief Financial Officer), as appropriate, to allow timely decisions regarding required disclosures.
Charles Blankenship, Jr. and William Lacey evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on their evaluations, they concluded that our disclosure controls and procedures were effective as of December 31, 2025.
There have not been any changes in our internal control over financial reporting during the quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.