Leases

3 Months Ended

Dec. 31, 2022

Note 5. Leases

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.

Lease-related assets and liabilities were as follows:


	Classification on the Condensed Consolidated Balance Sheets	December 31, 2022		September 30, 2022
Assets:
Operating lease assets	Other assets	$	25,132	$	25,144
Finance lease assets	Property, plant and equipment, net		5,226		5,474
Total lease assets			30,358		30,618

Current liabilities:
Operating lease liabilities	Accrued liabilities		4,730		4,587
Finance lease liabilities	Current portion of long-term debt		1,026		856
Noncurrent liabilities:
Operating lease liabilities	Other liabilities		21,183		21,443
Finance lease liabilities	Long-term debt, less current portion		4,222		4,405
Total lease liabilities		$	31,161	$	31,291

Lease-related expenses were as follows:


	Three-Months Ended December 31,
	2022		2021
Operating lease expense	$	1,487	$	1,607
Amortization of finance lease assets		256		79
Interest on finance lease liabilities		34		8
Variable lease expense		210		403
Short-term lease expense		57		40
Sublease (income)1		—		(192	)
Total lease expense	$	2,044	$	1,945

(1)

Relates to two separate subleases Woodward entered into for a leased manufacturing building in Niles, Illinois, each of which expired during fiscal year 2022.

Lease-related supplemental cash flow information was as follows:


	Three-Months Ended December 31,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	1,360	$	1,343
Operating cash flows for finance leases		34		8
Financing cash flows for finance leases		99		382
Right-of-use assets obtained in exchange for recorded lease obligations:
Operating leases		411		3,082
Finance leases		27		—

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 are 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 December 31, 2022. 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.

Revenue from contracts with customers that included embedded operating leases, which is included in “Net sales” in the Condensed Consolidated Statements of Earnings, was $1,388 for the three-months ended December 31, 2022, compared to $1,343 for the three-months ended December 31, 2021.

The carrying amount of property, plant, and equipment leased to others through embedded leasing arrangements, included in “Property, plant, and equipment, net” on the Condensed Consolidated Balance Sheets, follows:


	December 31, 2022			September 30, 2022
Property, plant and equipment leased to others through embedded leasing arrangements	$	47,283		$	44,912
Less accumulated depreciation		(27,238	)		(25,508	)
Property, plant and equipment leased to others through embedded leasing arrangements, net	$	20,045		$	19,404