Thank you for standing by. Welcome to the Woodward Inc. First Quarter Fiscal 2013 Earnings Call. At this time, I would like to inform you that this call is being recorded for rebroadcast. [Operator Instructions] Joining us today from the company are Mr. Tom Gendron, Chairman and Chief Executive Officer; and Mr. Bob Weber, Vice Chairman, Chief Financial Officer and Treasurer. I would now like to turn the call over to Mr. Weber.

Thank you, operator. We would like to welcome all of you to Woodward's First Quarter Fiscal Year 2013 Earnings Call. In a minute, I'll cover the financial highlights of our first quarter, and Tom will comment on our strategies and markets. I will then comment on today's earnings release, and at the end of our presentation, we will take questions. For those who have not seen today's earnings release, you can find it on our website at woodward.com. As noted in today's earnings release, we have included some presentation materials to go along with today's call that are also accessible on our website. An audio replay of this call will be available through January 27, 2013, and the phone number for the audio replay is on the press release announcing this call and will be repeated by the operator at the end of the call. In addition, a replay of this call will be accessible on our website for 14 days. Before we begin, I would like to summarize our cautionary statement, as shown on Slide 3. In the course of this call, when we present information and answer questions, any statements we make, other than factual results or business facts, may contain forward-looking statements. Such statements involve risks and uncertainties, and actual results may differ materially from those we currently anticipate. Factors that might cause a material difference include, but are not limited to, future sales, earnings, business performance and economic conditions that would impact demand in the Aerospace and Energy markets. We caution investors not to place undue reliance on these forward-looking statements as predictive of future results. In addition, the company disclaims any obligation to update the forward-looking statements made herein. For more information on risks and uncertainties facing Woodward, we encourage you to consult the earnings release and our public filings with the Securities and Exchange Commission, including our 10-K for fiscal 2012, and 10-Q for the quarter ended December 31, 2012, which we expect to file shortly. Segment earnings, EBIT, EBITDA and free cash flow are non-U.S. GAAP operating measures that we use in the earnings release and during this call. The description of these measures and a reconciliation of each to the most comparable U.S. GAAP measure is included in the appendix to our slide presentation and in our earnings release and related schedules, all of which are posted on our website. Management uses this information in monitoring and evaluating the ongoing performance of Woodward and each business segment. Turning to the quarter. Sales for the quarter were $408 million, which is comparable with sales for the same quarter last year. And earnings per diluted share were $0.39 in the first quarter of 2013 compared to $0.40 for the first quarter of last year. Now I will turn the call over to Tom to comment on our results, strategies and markets.

Thank you, Bob. Welcome to those joining us today. We continue to see market growth in fiscal year '13 for both our Aerospace and Energy segments. In Aerospace, we believe our strategy to expand our platform presence and systems content is succeeding. Natural gas related controls and products also expanded in the quarter, with particular strength in CNG systems. These strengths were masked somewhat by the impact to both normal seasonal ordering patterns and the economic uncertainty resulting from recent fiscal and regulatory policies. As a specific example, the significant decline in wind converter sales relates directly to the on-again/off-again approach to production tax credits. Turning to Aerospace. On December 28, 2012, we acquired from GE the thrust reverser actuation systems business located in Duarte, California, for approximately $200 million in cash. Thrust reverser actuation systems, known as TRAS, are a strategic focus area for us, and we believe this acquisition solidifies a significant position in this market. TRAS is a critical element of an integrated propulsion system, which is a trend to provide greater integration of the engine, the cell and the airframe to reduce fuel consumption, noise and maintenance. In addition to presence on solid existing platforms, the Duarte business has secured contracts for the TRAS to be included on the next-generation narrow-body aircraft, including the 737 MAX and the A320neo with LEAP engine option, as well as application to the Passport 20 engine. We expect future synergies from the combination of the Duarte acquisition in our current Aerospace businesses. Focusing on the Aerospace market more generally. In this quarter, we saw increasing deliveries of wide-body systems, including for the GEnx engine, continued strength in most military market segments, particularly the aftermarket, although we experienced anticipated softness in military ground vehicles. New and existing platforms provided solid growth…

Thank you, Tom. Woodward's net sales this quarter were $408 million, comparable with the first quarter of last year. EBIT, or earnings before interest and taxes, was $45 million for this quarter compared to $46 million in the prior year's first quarter. Net earnings for the first quarter were $27 million, or $0.39 per diluted share, compared to $28 million, or $0.40 per diluted share, in last year's first quarter. Free cash flow for the first quarter of 2013 was $10 million compared to a net cash outflow of $15 million in the first quarter of the prior year, an improvement of $25 million, due to collection of receivables from the prior year's strong fourth quarter sales, offset somewhat by increased capital expenditures. Moving to our Aerospace segment results. Our Aerospace segment sales for the first quarter of fiscal 2013 were $211 million, an increase of 9% from $193 million in the first quarter a year ago. The sales increase was due to commercial OEM sales and strong military aftermarket sales. Aerospace earnings were $32 million in the first quarter of 2013 compared to $27 million in the first quarter of 2012, an increase of 17%. As a percent of segment sales, segment earnings were 14.9% this quarter compared to 14% in the same quarter a year ago. Segment earnings were positively impacted by the higher sales volumes and lower variable compensation, partially offset by expenses associated with improved manufacturing capacity and capability. As we have mentioned in previous quarters, due to the anticipated increase in future narrow-body fuel system sales, we are making significant investments to improve both our manufacturing capability and capacity. The run rate of these investments was fairly consistent with the prior sequential quarter, as expected. Moving to our Energy segment results. Our Energy segment sales…

[Operator Instructions] The first question comes from Robert Spingarn of Crédit Suisse. Robert Spingarn - Crédit Suisse AG, Research Division: I am standing in for Julie Yates today, and I wanted to ask about your guidance. You've increased it to $0.07, I think, at both ends of the range. You've got the acquisition. I think the R&D tax credit was worth about the same, $0.07 in the increase. So perhaps you could quantify some of the changes to the guidance or the underlying changes in the core business.

I think you've kind of characterized it pretty succinctly to a point. Right now, we have seen some increases and decreases, and overall, we're not really changing the guidance except for pointing out the retroactive impact of the R&E credit. So the tax rate has had some pluses and minuses overall. You can kind of work some different math on the calculation of the current year impact, but your math is generally accurate, within a range. And so, I think right now, what we're saying is we do not have a significant change in our overall guidance. There are pluses and minuses. Wind is currently where we expected it to be. Some other areas are above and below. So at this point, no significant change. Robert Spingarn - Crédit Suisse AG, Research Division: But is it fair to say it's a little bit net weaker given that you should have a little bit of perhaps accretion from TRAS?

I think that's a fair statement, but not changing our range any. But yes, the legacy is a little weaker. Robert Spingarn - Crédit Suisse AG, Research Division: Okay. And then just as a follow-up. What are the embedded expected growth rates in Energy and Aerospace from an OEM aftermarket perspective at this point in the guidance?

So there are no significant changes in the overall growth rates. I don't know, Don, if you happen to have the -- sorry, I don't recall what we said they were last quarter. Robert Spingarn - Crédit Suisse AG, Research Division: I'm asking because you said you had strength in the military aftermarket, which...

Overall, Aerospace, I think we called out 9. And as you saw this quarter, we experienced approximately 9. We called, I believe, low single-digits on Energy. We were below that this quarter. We called out kind of a couple of specific areas, most notably, the wind. But we do expect increases in certain areas. Order pushouts impacted us this quarter. Our first quarter is historically our lowest, so we do anticipate that, that range is still accurate for the full year.

The next question is from Sheila Kahyaoglu of Jefferies. Sheila Kahyaoglu - Jefferies & Company, Inc., Research Division: [indiscernible] just 2 quick question for you. In terms of the moving parts for 2013, on the operating profit level, can you walk through the profitability for a little bit in terms of what you expect on volume, variable compensation [ph]? Pricing, you mentioned that's a positive for Aerospace. And just the productivity initiative?

Yes, and I'll try to walk through them all, but if I miss one, pull me back again. So overall, on the volume side, you see we have kind of a mixed bag there. So we're seeing volume increases in the Aerospace side. This quarter, volume decreases on the Energy side, which we do expect to pick up as we go through the year. So volumes subject to the full year comments I made a minute ago are still, we believe, in the range that we anticipated for the full year, with some softening in some areas, as we kind of called out. On the variable comp, we record variable comp, we accrue it on the basis of earnings in the quarter in relation to the year as a whole. As you can see, given that we're slightly below last year's earnings at this time of the year, there is a tailwind in this quarter related to variable comp that we do not anticipate for the full year. So we do anticipate that variable comp expense will increase as we go through the year. But this quarter, it was a little bit of a tailwind. I think on the manufacturing productivity and -- I think that was your comments related to that -- What we're really seeing at the moment -- you saw our margin down a hair. That's somewhat related to some softness in the Aerospace aftermarket, which was not anticipated. It does buck the trend of almost all of last year, and we do not anticipate that represents any trend for the remainder of the year. So again, we believe our gross margin should return to its more normal levels as we progress through the year. Does that cover? Sheila Kahyaoglu - Jefferies & Company, Inc., Research Division: No, that detail is perfect. Just a quick question on Energy OE [indiscernible]. You guys have been cautious during your November Analyst Day, but since then, the major OEMS, Siemens and GE, have guided down low single digits -- almost the mid-single digit range in terms of OE orders for 2013 and 2014. Can you maybe quantify a little bit more what you're expecting on the industrial gas turbine side?

Yes. I think as you look at the industrial gas turbine, there are several parts of the market. There's strength going right now in the oil and gas segment of the market, and a little less so in the power generation side. So we see a mix. We're anticipating increasing volume in the remaining 3 quarters of the year on gas turbines.

Does that cover your question, Sheila? Sheila Kahyaoglu - Jefferies & Company, Inc., Research Division: Almost. [indiscernible]

The next question is from Tyler Hojo of Sidoti & Company. Tyler Hojo - Sidoti & Company, LLC: Just a follow-up on the last question. Just curious -- I mean, GE on Friday was talking about seeing some service pick up on the industrial gas turbine side. Is that something that would be a tailwind for you as well? I know they're calling out a pretty big decline in regards to the overall kind of gas turbine deliveries in 2013.

Well, we have -- Tyler, we see the same effect but on a smaller scale. We are seeing some aftermarket demand come through for replacements and upgrades. That's built into our numbers. So we have some things on order and some just forecasted in our plan. So we anticipate with the high utilization that's going on still due to low price of natural gas that you are going to see more maintenance in the near and mid-term as the machines are running more than they have in the past. So that's a good trend for us. Production in the oil and gas side, like I said, is a good trend. New power generation applications are going to be, we think, probably softer until 2014. Tyler Hojo - Sidoti & Company, LLC: Got it. Okay. And then I had another question, just on wind. How does kind of the extension of the tax credits that were enacted kind of change your outlook for wind, if at all? I mean, I would guess that you'd be a little bit more positive on that market as we get towards the latter part of your fiscal year.

Yes. I think you just hit it that the fiscal year is kind of the problem a little bit. I think as you get into the last maybe couple of months, we might see some things starting to trickle in and then into the first quarter of '14. But due to lead times and project times to get things up and going, I think our earlier discussion of wind being down significantly is going to hold through the year. Tyler Hojo - Sidoti & Company, LLC: Okay. So we're still thinking down about $50 million?

Yes, that's still our plan. Tyler Hojo - Sidoti & Company, LLC: Okay, got it. And just last one for me. I was hoping that maybe you could comment a little bit on kind of the current delivery situation on 787. Are you guys still being told to kind of deliver to kind of current production rate plan? Or how do we think about that?

Yes. Right now, there's been no -- no change in production rates or deliveries. So as of today, we're still being requested to ship as planned.

The next question is from Peter Skibitski of Drexel Hamilton.

I just want to ask, I guess, getting back to Rob's question earlier about the top line guidance. In the prior guidance, it was about $1.85 billion to $2.0 billion. You're adding about $110 million in sales from Duarte, which gets you $1.96 billion to $2.11 billion. But you're talking now $1.9 billion to $2.0 billion. So it looks like -- basically, it looks like Energy sales have kind of come down on the order of $50 million to $100 million roughly. But you're saying that wind is sort of the same. So is that all marine and other stuff? Can you just talk about kind of the driver of that change?

I think, mainly, what we reflected in the top line is the softness in the first quarter. And then we expect to get back on our plan for the remainder of the year. So we do think less the acquisition, that what you're seeing in there is something in the $50 million to $85 million less sales in the core business, less the acquisition.

Okay. So it's marine and some of the other stuff?

Yes, correct.

Okay, okay. And then I guess, if you could maybe just make some comments about the acquired intangibles, amortization from the Duarte deal and kind of how that runs off over time.

Sure. So one of the significant assets that were really acquired were some very strong customer relationships with the likes of GE and Boeing, Aircelle, et cetera, and the companies we highlighted. So those customer relationships are fairly long valued, and so they will extend out over a longer period of time than some things like intellectual property and so on. So most of the assets are longer lived than perhaps your more traditional acquisition would be.

Okay. So the accretion that you think you're going to get next year in fiscal '14, that's going to be due to pretty strong sales growth? Is that the way to think about it?

There's a lot of first-year impacts to purchase accounting. If you recall, I think we called out a significant first quarter -- the first quarter of ownership impact on inventory. So it really represents the falling off of the first-year impacts, and then adjusting to a more normal level...

Plus a full 4 quarters.

Full 4 quarters, yes.

Okay, okay [ph]. And what's the rate you're paying on your revolver now?

It's less than 1.5.

Okay, very good. Very good. Oh, I'm sorry. I meant Bob. Sorry about that. And one last one, just for Tom. Tom, the recent sale of, I guess, it was Triumph bought Goodrich's fuel control business, any thoughts there?

Yes. I think from the standpoint we look at, it doesn't change the competitive landscape at all. It's an interesting business, primarily focused on small engine, small turbine controls, a lot of rotorcraft, where we feel we have great strength in our current portfolio. So we think it kind of leaves the landscape the way it is or was, and we feel good about our competitive position against Triumph and any other competitor in that field.

Okay. So they're not a real competitor on the large commercial for you?

No, they have not traditionally played at all in turbine engine controls, so this will be their, best of our knowledge, their first foray.

The next question is from J. B. Groh of D.A. Davidson. J. B. Groh - D.A. Davidson & Co., Research Division: Can you talk about sort of margin goals for the Duarte business once we get past the one-time accounting stuff?

Yes, we look at it pretty much as the same goals we had for our Airframe Systems business in that during the time period here, it will be supportive of our goal of getting Aerospace to 20% segment margin. So it will be in there with the rest of our Aerospace businesses. J. B. Groh - D.A. Davidson & Co., Research Division: Okay. And then it seems like there's a little bit of volatility in the R&D spend versus Q4. How should we think about that number for all of '13? And you can phrase it in whatever terms you want, whether it's dollars or as percent of sales.

Yes. One thing I'd just -- we'll give you some more info. But I mean, you have to remember we've highlighted that this R&D will have a variability from quarter-to-quarter based on how projects are coming, deliverables and the like. So from that standpoint, and also recognize that there are a lot less working days in the first quarter. However, with that, we're still looking at.

Yes, we still anticipate that overall the dollars will be largely flat year-over-year.

The next question is from Peter Lisnic of Robert W. Baird. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: So I guess, first, I just wanted to understand the Energy business. Can you maybe give us little color, commentary on the back log x wind, what's happening there? I mean, when you talk about a number that's $50 million or $80 million coming out of the top line benefits, within one quarter, like, maybe I thought I heard, that's a pretty significant number. So I'm just trying to understand what the moving pieces there are exactly.

Yes. Just for clarity, on the first quarter, we also were down a little bit on our Aerospace sales from forecast. So just a little caution that the overall numbers aren't the same for the full year, taking in the fact the first quarter. We did see, particularly in our reciprocating engine business, what I would call a sizable pullback. And I think it was a lot to do with the risk in the markets, the fiscal policy uncertainty. We just saw people pulling back. So we saw orders pull back. And we're now starting to see some orders flowing. However, looking as we're going forward, you kind of feel like, well, that first quarter is somewhat going to be hard to recover in the remaining 3 quarters. So we do and did see pullback in terms of order demand, and we did see pushouts from the first quarter into subsequent quarters. And I think there's a lot of hesitation in the industrial market, energy market, just waiting to see what policies are coming through, what things were happening. There are still concerns in the Eurozone. I think there's still some waiting to see what happens with, if you want to say, the new government in China. There's a lot of hesitation, and we felt it in orders and so we're just trying to reflect that as we go through the remainder of the year. But I would say, we -- since last week here in January, we're starting to see some more orders filling in. So we think there was a lot of nervousness and just uncertainty and just a little across a lot of companies adds up to a fair amount of money. But at the same time, we've been managing our costs very carefully. We're managing our cost structure. And we're seeing as we're holding our margin rates, and that's what we're highlighting, we're going to hold to our earnings targets. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: Okay. This may be too fine of a way of asking it, but can you differentiate between what was maybe pushed out versus anything that was canceled? Did you see any sort of significant cancellations where people just decided not to do a project?

Well, what we saw -- I think a little bit, the pushouts we see -- kind of it's an annual event as you get to a certain point in December, and because most of our production contracts are on pull systems, that if they're not going to get -- if our customers aren't going to get their product out at the end of the year, they don't pull the hardware. So that's -- we kind of see it -- we call that a pushout, or they're just not taking it at the timeframe that we would anticipate. We have seen some line rates slow down with customers talking to us that they're going to pick them up later in our fiscal year. We also saw some real management. So this is where I say the hesitation or the concern with the market. We've seen conscious decisions to hold down inventory, both at our customers and in their dealer networks. So again, all that adds up to the approximate number we were highlighting as what we saw as risk from our original forecasts. Through cost control, though again, I highlight, we feel like we can pull the earnings in. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: Okay. All right. Fair enough. And then switching gears to Duarte. When you look at that business and developing that integrated propulsion system that you have talked about a little bit at the beginning of the call, does there a need to be any sort of significant step up in R&D or product development as you migrate toward that integrated system?

Hopefully, what you picked up on. We're making sure we finalize everything here as we rolled from the press release in December to today. There's going to be a very large R&D activity going on tied to all the narrow-body wins that are there, so we're real pleased about that. That's already factored into the numbers. We think we can leverage those technologies and the product base into more sales. So we're going to go aggressively for more growth in that nacelle market, and we think there's an opportunity to get it. So we'll probably make some more investments. We'll also look at how we leverage technology and capabilities across our company, and we think we have that opportunity to bring to that business. I'll give you some examples. The hardware and the components that we have in our Skokie business, which was the old MPC products, in terms of motors, sensors and like, all have a role in these TRAS systems, and it's going to give us a real advantage on developing new systems. So we're going to be able to leverage that. We can leverage servo valves, which is another one of our components. So there's a lot of opportunity there to use the strengths of Woodward to improve the competitive position. And Duarte is the market leader in TRAS today, and we think we could add to that market position. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: Okay, got it. And then Bob, I'm sorry I may have missed this, but did you outline what the purchase accounting charge might be on Duarte in the upcoming quarter? Do you have any feel for that?

I would say, at this point we have a feel for it. No, we have not outlined the impact, but if you recall, it's fairly significant in the first quarter. Overall, I think the amortizations in that, a kind of a $6 million range for the impact for the full year. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: Okay. So presuming -- obviously, you've built that into your guidance?

Yes. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: And then the last question, just on the -- can you give us a feel for what the pretty significant step up in inventory year over -- or from quarter-to-quarter, just how much of that may have been as a result of adding the Duarte business to the books?

Yes, it was about $30 million.

[Operator Instructions] The next question is from William Bremer of Maxim Group.

Safe to assume that especially on the Energy side, that operating margins here continue throughout the year, similar to '12 just as we start to pick up in some of these orders that may have been deferred now come to fruition?

We still anticipate back to our guidance at the beginning of the fiscal year that we will get to the 14%.

Okay. And could you also give us a little color on your exposure to pipelines? And do you have any orders for some of the compression activities that you do, that are in the quarter for pipelines?

Well, we definitely participate in the gas, pipeline gas distribution market. And Bill, there's many ways we're participating, we always highlight that you could start with gas gathering, which is generally reciprocating-engine-driven compressors. And then you get to some more of the main line, which generally goes over to the large integral compressors or to gas-turbine-driven compressors. So we play in each of those areas, with control systems both for -- if you want to say for the engines as well for the compressor. The biggest area where we have compressor sales in the quarter were sales into the Middle East, where we did sell some of the compressors to RAMCO. And so those were the largest shipments in the quarter.

And how does this field look as we go into the back half of this year and into '14?

We feel oil and gas from the exploration, extraction and distribution, that's kind of how our definition is, we think that's going to be strong through the whole year, so that we think will both be on the turbine side, primarily on the turbine side, but it also will impact our reciprocating engine side.

The next question is from Michael Ciarmoli of KeyBanc Capital Markets.

Tom, if we could just go back to maybe the Duarte business a little bit. Can you give us a sense of how the acquisition took place, whether it was a competitive process, auction? And then maybe just some more details around the business in terms of its military and commercial aerospace mix and aftermarket and NOE [ph] mix?

Yes. The transaction was part of a -- initially, it was part of a larger offering that was on the market. And in the end, we were down-selected to be the sole, if you want to say, potential acquirer. So at the end, it was just Woodward. In terms of the business, it's primarily commercial, and there's a little bit of military sales, and those little bit of military sales are really wrapped around helicopters. But I'd turn around and say, 90-plus percent is commercial. And so today, it's more OEM-oriented. We see opportunity to -- on the new programs and to gain aftermarket and also to -- on the current programs, to get some are of the R&O in the aftermarket as well.

Okay. And then how does this change your content for platform if you would be willing to disclose on either the MAX and the neo or current in-production programs like the 777 and the 47?

Yes. It's going to be -- we'll provide that information and updates to those platforms, but it's going to be a nice significant increase that's very good content per airframe. And we're still -- as we've highlighted, we haven't come out with the MAX and neo numbers yet because there still are some architecture decisions being made even on the TRAS systems, so it's going to take a little time to finalize those. But there's good content for aircraft on the TRAS.

Okay, okay. Fair enough. And then just on the military market in general, I think you guys have seen aftermarket strength for 2 quarters in a row now. How are you guys sort of modeling that market into your full year plan? And has anything changed given what's happening in Washington with their whole kick-the-can approach?

No, our forecast that we put out here today is really flat military sales for the year, approximately flat. And so that hasn't changed, but we feel -- I think we're feeling increasingly comfortable with it based on orders in the order book and combination. Again, it's doing repair work, maintenance work and newbuild. So I think we will be able to hold to that flat through '13.

Okay. And just the last one for me. I may have missed it. Did you guys give a Energy growth number for the year excluding wind? And if you did, I missed it. If not, would you be able to provide that?

Well, you could probably back into it. I think we gave a low single-digit growth including the decline in wind. And we said wind was $40 million to $50 million, and so you can back into that there.

The next question is from Peter Skibitski of Drexel Hamilton.

Yes, just one follow-up, guys. I think I know the answer to this, but on the lower organic sales that you're expecting, you're keeping your kind of pro forma EPS guidance. So I guess basically on the lower volumes, you're just expecting better performance out of the segments, so that's making -- allowing you to maybe get a little bit better margin rate than you might otherwise expect on the lower volumes?

Yes. I think that's correct [ph]. We're definitely controlling costs and working the margins, both our supply chain, total supply chain, both inside and outside the company, watching costs, and we think we're going to be able to squeeze margin.

Mr. Gendron, there are no further questions at this time, I'll now turn the conference back to you.

Okay. Well, I appreciate everybody joining us today, and thank you for your questions. And we'll look forward to talking to you over the next quarter. Thank you. Good night.