Thank you for standing by. Welcome to the Woodward Incorporated First Quarter Fiscal 2014 Earnings Call. At this time I would like to inform you that this call is being recorded for rebroadcast, and that all participants are in a listen-only mode. Following the presentation, you will be invited to participate in a question-and-answer session. 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 2014 earnings call. In today's call, Tom will comment on our markets and related strategies and I will discuss our financial results as outlined in our earnings release. 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. We have again 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 February 4th 2014. 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 refer to and highlight our cautionary statement as shown on Slide 3. As always, elements of this presentation are forward-looking or based on our outlook and assumptions for the global economy and our businesses more specifically. Those elements can and do frequently change. Please consider our comments in light of this uncertainty. We also direct your attention to the reconciliations of certain non-U.S. GAAP measures included in today's slide presentation and our earnings release and related schedules. Management uses these non-U.S. GAAP measures in monitoring and evaluating the ongoing performance of Woodward and each business segment. Turning to the quarter, net sales for the first quarter of fiscal 2014 was $429 million including the acquired Duarte business compared to $408 million in the first quarter of last year, an increase of 5%. Earnings per share were down 13% to $0.34 for the first quarter of 2014 compared to $0.39 for the first quarter of last year. EBIT for the first quarter of 2014 was $39 million compared to $45 million for the first quarter of the prior year, a decrease of 13%. Free cash flow for the first quarter of 2014 was $7 million compared to $10 million for the first quarter of 2013. Now, I will turn the call over to Tom to comment further on our results, strategies and markets.

Thank you, Bob, and welcome to those joining us today. This quarter we saw some strengthening in several of our markets and volatility in others. Energy markets appear to be firming and commercial aerospace remain strong, while defense aerospace sales were weak. More specifically in Aerospace, Boeing 737 and 787 production rate increases are driving strong commercial OEM volumes. Commercial aftermarket is improving or closely aligned with consistent increases in revenue passenger miles. Commercial rotorcraft market is improving for both new and existing platforms mainly driven by the oil and gas industry. For Woodward, defense aftermarket was very strong in 2013. And in this quarter, we saw a decline as anticipated. This is due mainly to completion of specific upgrade programs and contract timing. Defense OEM was also soft this quarter. We continued our investment on next-generation engine and airframe platforms as part of near term milestones, including engine test and aircraft flight testing. We recently announced to signing an agreement with Pratt & Whitney for its PurePower family gear turbo fan engines, significantly extending the term and expanding the scope of our current contracts. Turning to Energy, natural gas applications continued to increase particularly in Asia in compressed natural gas vehicles. Sales were strong in aeroderivative gas turbines, which are used in power generation and compression applications, although large gas turbine power generation markets remained soft. We are beginning to see some firming in a number of energy-related markets. Ship building contracts are up. Demand for large gas engines used in power generation is increasing. And wind turbine projects are starting to move forward. Energy segment margins were significantly higher as a result of our continued strategic focus on lean initiatives and productivity. If energy markets rebound we believe this will provide greater earnings leverage. At the strategic level, we continue to bring new technology to industry leaders in our markets. We have an expanded market share with our existing customer base and added important new customers. Our growth strategies have delivered substantial new program wins as well as positioned us to capitalize on future opportunities. Our focus is on delivering improved profitability even in challenging environments through lean manufacturing, productivity improvements and overhead reductions. The current economic climate, while still fragile appears to be improving and we believe these efforts will enhance our financial performance both now and in the future. Now let me turn it back to Bob to cover our financials.

Thank you, Tom. This quarter was fairly clear. Commercial Aerospace sales were strong. Defense Aerospace was weak. And Energy was mixed. From an earnings perspective, the decline in defense sales particularly aftermarket provided a headwind and the earnings improvement in our Energy segment was significant. Aerospace earnings as a percent of segment sales were 9.8% this quarter compared to 14.9% in the same quarter a year ago. Earnings were impacted by reduced organic sales volumes and unfavorable product mix. Organic sales were down 6% when compared to the first quarter of the prior year. Defense aftermarket sales in 2013 were very strong, and we anticipated a decline in 2014, which we did experience this quarter. But as Tom mentioned, we believe our defense aftermarket sales will improve throughout the year as new upgrade programs are implemented. Defense OEM sales also declined, but not as significantly. In our Energy segment, sales increased slightly in the quarter. Strong marine and solid aeroderivative sales were partially offset by continuing softness in heavy-frame turbine power generating systems. Energy earnings as a percent of segment sales were approximately 13.6% this quarter compared to 12.1% for the same quarter a year ago, reflecting our focus on improved manufacturing productivity initiatives. Examples include product design improvements, more efficient manufacturing flow and the use of new technologies. Now I'd like to focus on certain specific elements of our consolidated financial statements. Gross margin percent for the first quarter of 2014 was 26.5% compared to 29.1% for the first quarter of 2013. Gross margin percent decreased primarily due to loss of leverage on lower defense sales and unfavorable product mix, partially offset by improved operational performance. Research and development costs were $29 million for the first quarter of 2014 compared to $30 million for the first quarter of 2013.…

Thank you. The question-and-answer will begin at this time. (Operator Instructions) Please stand by for your first question. Okay. And our first question comes from Pete Skibitski. Pete, please go ahead with your question.

- Drexel Hamilton, LLC, Research Division: Good evening, guys.

Good evening.

Hi, Pete.

- Drexel Hamilton, LLC, Research Division: I just want to -- delving in further on, I guess Aerospace margin rate in the quarter. Can you give us a sense of how much defense aftermarket was down? And then I guess -- are you still expecting defense to be kind of flattish maybe modestly down to the full year?

So, defense in total was down $25 million which is about 28%. So you can see that's a fairly significant overall decline, that's both OEM and aftermarket. The -- what happened this quarter is we saw the completion of a number of programs in the fourth quarter of the prior year. And then with the budget dialog that was going on, some uncertainty early in the quarter related to signing and executing on new contracts, which would be recent budget resolution should clear up as we go forward. So, for the full year as we go on, we anticipate some recovery from this first quarter. But we don't think we can recover the entire quarter. So overall we are now looking at probably about a 10% overall decline in defense in total for the year.

- Drexel Hamilton, LLC, Research Division: Okay, got it. And then just one follow-up, I guess. Are you -- do you still think Aerospace margin rate as a whole will be up year-over-year?

Up year-over-year, we said it would be fairly consistent with the prior year. And so, let's say at this point it's still too early to say whether it will be up or down. But we do believe that will be consistent with the prior year.

- Drexel Hamilton, LLC, Research Division: Got it. Okay, thank you very much.

Okay, thank you. And our next question comes from Julie Yates. Julie, please go ahead.

- Crédit Suisse AG, Research Division: Good evening.

Hi, Julie.

Hi, Julie.

- Crédit Suisse AG, Research Division: Can you guys give some more specifics on where exactly you are seeing the improvement in Energy?

Julie, you are referring to sales or earnings?

- Crédit Suisse AG, Research Division: On the sales -- on both, I guess. But specifically just in the volume side.

Yes, on the volume side we are definitely seeing gas engines, with Silvercrest engines increase. That's been a strong part of the market. We are seeing some very, very slight improvement in large diesels, which we think is a good sign going forward, which really attach the marine market. We are also seeing aeroderivative gas turbines. And that we believe is primarily being driven by the natural gas expansion and a lot of that is used in pipelines and compression application. So those are some of the ones in Energy that are increasing in the quarter and for the year. We are starting to see improving order book outlook. So we are -- we see that starting to materialize. Also on the wind side of our business, it was fairly flat and so we're going back to much as we had earlier or last year. We definitely have seen the bottom of the trough and we are in a better position on the renewable market.

- Crédit Suisse AG, Research Division: Okay. And then, any comments or re-briefs from (Alstom) is more cautious comment?

I am sorry, say that again. Julie Yates - Crédit Suisse AG, Research Division: Any comments or re-briefs from (Alstom) is more cautious comment?

No, not so much. I think if you look at a number of our customers, what we have seen is kind of same as that's reflected in our sales that this quarter was a little soft on revenue, but the order books are filling in. I think you've probably seen that some of our other big customers, they are now talking about the order books increase. And so that's kind of what we are seeing. And so we think we are moving into a better period. The orders are starting to come in and we discussed at our Investor Day in December that we are going to have a strong second half and that's still what it's looking right now as the orders fill in. Julie Yates - Crédit Suisse AG, Research Division: Okay. Thank you very much.

Okay, thank you. And our next question is coming from Sheila Kahyaoglu. Please go ahead, Sheila.

Thank you very much. Can you elaborate a little bit more on Pete's question in terms of the moving with parts within Aerospace margins, I mean the contracted 500 bids year-over-year? I think this was one of the worst performances in the segment's history. So, how much of it was defense and how could you prepare for the rest of the year if you could walk us through that bridge a little bit?

Sure. So, clearly we did see predominantly the defense decline and we are getting to that point with that. We are not experiencing the nice leverage, which we usually get on increased sale. So there is some negative leverage aspect going on. We did mention predominantly Aerospace aftermarket -- excuse me, defense aftermarket and obviously similar construction in terms of the OEM versus the aftermarket. So that's the unfavorable product mix that we refer to. In addition, the acquisition of the Duarte in this year, not in last year, that at this point in time as we've described is a bit of a headwind overall from an earnings perspective. It is remaining slightly accretive as we've said. It is improving, but it is still not at the same level of earnings as our legacy Aerospace business. So that's predominantly the three main areas. Now, we referred to a number of the programs that will pick up again in second half and some of those upgrade programs and other aftermarket activity, you know, are nice contributors for us.

Thanks, Bob. What are those upgrade programs we should be looking at for?

We called out things like the T700 and a number of other areas that aren't necessarily specific programs, but V22 and some of the F100 related to the F15 and F16. Some of those programs we call them kind of hiatus here a little bit in the first quarter that will pick up again as we go forward.

Okay, got it. And then I guess similarly within Energy, the margins actually have been very good for the last three quarters in terms of manufacturing productivity initiatives that are -- you are putting into place. Is there a specific business or facilities that you could call out or lean initiatives that are working?

Yes. I think it is a series of -- there are lots of lean initiatives. And in particular maybe this is the main, on a couple of programs we've talked about our small gas engine sales in China. The team has done some great work on improving those and getting some cost out from our standpoint. But there is a lot of work on a lot of programs that are causing those margins to improve as we go forward, so nothing individual that we'd call out a lot of good work across the board.

Okay, sounds good. And then my final question in terms of the new facilities, can you just provide us an update on the progress there?

Sure. Right now we are progressing well on them. Three main large expansion facilities are all on schedule. A lot of the basic building construction is going on right now. And then the message we have is, they are on schedule, they are on budget and no there are no red flags at the moment.

Okay. Thank you very much.

Thank you, Sheila. And our next question is coming from William Bremer. Mr. William, please go ahead.

Good afternoon.

Good afternoon.

Hi, Bill.

Hey, Tom you called out an improving order book on the Energy side. Is that volume or is that price or little bit of both?

Primarily volume.

Volume. How is pricing there?

Stable. Yes. We are -- I'd say pricing is stable. Margin expansion is really coming from productivity and lean initiatives. And as we go forward, as we get the volume increases we expect to leverage that. And I think as you see, we're definitely going to be in our target range for Energy segment earnings.

Okay. That's all I got guys, thank you.

Thank you. And our next question comes from Steve Levenson. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc., Research Division: Thanks. Good afternoon, everybody.

Hi, Steve.

Hi, Steve. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc., Research Division: Could you please give us a breakout on the changes in -- on the commercial side in both OEM and aftermarket and what your outlook is for aftermarket going forward in the current fiscal year?

So Steve, the only we've actually called out has been the commercial aftermarket and that was about 7% this quarter. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc., Research Division: Okay.

We haven't broken out a lot of the other. But in our outlook for that aftermarket is continued to stay firm with that. So the aftermarket on the commercial side has been looking pretty strong for us. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc., Research Division: Great, thanks. And just a question on the fuel nozzle contract with Pratt & Whitney, are you going to making those using traditional technologies or are you getting involved in all in 3D printing as some of the lead nozzles are going to be 3D printed?

Yes. Actually it's kind of an evolution. We are doing a lot of work on additive manufacturing. It will be part of our longer term activity. Initially they are going to be produced more traditionally. But -- there is quite a bit of work going in that manufacturing today. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc., Research Division: Good to hear, thank you very much.

Yes.

Thank you.

Thank you. And our next question comes from J. B. Groh. J. B., please go ahead. J. B. Groh - D.A. Davidson & Co., Research Division: Good afternoon, guys. Hey, just kind of beating the dead horse from the aerospace margins. It looks good to have the average of about 17% margin, something like that in the remaining three quarters to hit kind of a flat year-over-year. Wouldn't it -- that's on the horizon that gives you the confidence to be able to, because I know you had pretty good margins last year, but what is in there this year that makes that achievable?

So, from a -- there is a couple of things, tying a couple of the comments together. One was the commercial aftermarket will remain strong and as you know that that's a nice contributor for us. The OEM side remains very strong and Woodward's OEM businesses is not the last leader, but some are. So we do make money in that business. On the defense side, really it's recovering from obviously this very significant decline. So if you go from a 28% overall in this quarter to a 10% for the year, that still implies a fair amount recovery in the second half. So I think you put those three together, the increased sales volumes is also giving us a little more leverage on the fixed cost base, and continued improvement in Duarte along with continued cost control that we've begun. Put all that together and all of those should contribute to exactly what you described in terms of incremental earnings. J. B. Groh - D.A. Davidson & Co., Research Division: Okay, good. And what do you have budgeted in for the interest expense for the year?

Not a significant overall change. J. B. Groh - D.A. Davidson & Co., Research Division: It's kind of down a little bit sequentially for this?

Roughly flat for the full year. J. B. Groh - D.A. Davidson & Co., Research Division: Okay, thank you.

Yes, thanks.

Thank you. And our next question is coming from Peter Lisnic. Peter, please go ahead. Peter Lisnic - Robert W. Baird & Co. Inc., Research Division: Thank you. Good afternoon gentlemen.

Good afternoon, Peter. Peter Lisnic - Robert W. Baird & Co. Inc., Research Division: I guess first question, in the last quarter we talked about higher incentive comps, this year, can you give us a feel for what was booked in the first quarter and if you could break it down by segment to give us a little bit more on color on margins that would be great.

Yes. We are flat with the first quarter of last year largely. And then performance throughout the remainder of the year will determine where we are at. So for this quarter, it was not a factor in between the two. Peter Lisnic - Robert W. Baird & Co. Inc., Research Division: Okay. So if I look at that Aerospace segment, there must have been more than just aero mix there, correct? I mean you talked a little bit about Duarte acquisition. But I'm guessing if there was adverse mix as well from commercial OE versus aftermarket, because it just looks like that decline in EBIT relative to the non-aerospace sales increase if they make sense. It seems like there was adverse mix there. Is that right, can you quantify that?

Yes. When we saw the product mix it is kind of across the board, but not as significant on the commercial side as it was on the defense side. Peter Lisnic - Robert W. Baird & Co. Inc., Research Division: Okay. And then as we -- I guess as we look forward on the commercial mix, I mean we are seeing increased production on the new platforms or programs, should we continue to expect that to be kind of a headwind as we progress through '14 making that achievement in the flattish margins little bit more difficult, and say, actually meeting the margin target.

Yes, I think we called out last year as some of the new programs last year, we were seeing slightly less than we had anticipated with respect to initial provisioning on those. So I think in the past we've described how even our new launches is not as dramatic a margin impact as you might expect if you are going all OEM because of the initial provisioning. We are seeing some improvements on the initial provisioning side this year. So that will also contribute us to go forward to the last three quarters. Peter Lisnic - Robert W. Baird & Co. Inc., Research Division: Okay, all right. And then just switching quickly to Energy, giant customer I guess out there talking about better orders, can you remind us how significant the lead time might be between them seeing those orders and then you actually booking it?

Yes. It could be anywhere from a couple months to six months. So as orders are flowing through, we do see -- well, they all go back to previous question on the Aerospace that multiplies the Energy. This is a low sales quarter. We try to call that out earlier in the previous calls. Traditionally with the number of working days and the end of the year type things, it's a low sales volume. So, we do see the sales volumes picking up in the remaining quarters, in particular in the second half of the year. The orders on turbines also pick up in the second half of the year. Peter Lisnic - Robert W. Baird & Co. Inc., Research Division: Okay.

And we expect positive leverage on that sales growth. Peter Lisnic - Robert W. Baird & Co. Inc., Research Division: :

Yes, just to remind everybody that on these businesses -- on the turbomachinery side, we have long-term agreement. So, our pricing has been established. And they are like -- some of our contracts are from five to ten years. So pricing is locked in. So we don't see quarters, quarter or even year-on-year in pricing volatility. As we know it, prices we are working with and then we work really hard on productivity. Peter Lisnic - Robert W. Baird & Co. Inc., Research Division: Okay, that is very helpful. Thank you for your time.

Sure.

Thank you. And our next question is coming from Gary Barber. So Gary, please go ahead.

Yes, just some -- couple of small ones. To see amortization expense and the interest expense in the quarter, would you expect that to sort of carry-forward to the similar rate? And then just how many shares did you repurchase in the first quarter?

It's fairly linear with respect to the amortization. So you can multiply it by four and you will be really close. And the share buyback it was approximately $46 million --

I'm sorry, two million shares?

One million shares approximately.

Okay. And the interest expense, do you expect it to be similar also?

Yes.

Okay, thanks.

Thank you, sir. And our next question is coming from Pete Skibitski.

Yes. Just a couple of follow-ups guys, I just want to understand on Energy, the great margin this quarter, and is there any reason to think that this 13.6 wouldn't actually be the low for the year in Energy margins given we should have ramping volumes for the rest of the year?

Yes. You should expect the margins to improve through the year.

Got it, got it. And then, maybe just a couple of follow-ups to you Tom on particular end markets, I am just wondering one in Energy mining, are you guys getting any improvement in the mining outlook there? And then also anything you are seeing in business aviation?

No, mining we are not seeing any rebounds at this time. So that's still one of the down markets. The one that we are pleased about is we have seen a little bit of an increase in the marine market. So that's a positive for that market. Biz aviation is still very flat on the midsized small, I mean flat in a -- what I'd call, very depressed market. The large biz jets, the Big Bombardier's Gulfstream, Dassault's -- are still doing okay. But that midsize and down is still in the trough.

Got it, got it. Thank you very much.

Okay.

Okay. And I'm turning it to final question at this time coming from Michael Ciarmoli. Michael, please go ahead.

Hey, good afternoon guys. Thanks for taking my questions. Jumped on a bit late, so I apologize. But to follow-up the buyback, that was quite a substantial buy I guess this quarter versus what you guys had been doing. How much of you guys sort of peeked into your outlook or what was the share count you guys were thinking off for the full year?

Full year, we haven't really gone -- we don't have any change in overall policies. We kind of talked about from time-to-time. We are still at $200 million on authorization. And we will be active in the marketplace based on where we see the stock price and so on. So we haven't forecasted overall end share count. If you look at, say, last quarter to this quarter relatively insignificant overall impact really -- by the time to get to the weighted average, it's not a significant impact of the overall earnings per share.

Got you. And then just on the business aviation market, how do you think -- you discussed this is obviously a big customer, the Beechcraft acquisition. I mean how do you view that transaction in the marketplace just in the context of your revenues and your opportunities there?

Well, we view it as positive in that Snecma under Textron will have more of the financial resources and capacity and capability to take those Beechcraft programs forward. We have good content on Beech and really what they acquired where the Turboprop businesses both the commercial and the military. So from my standpoint, I am very happy that they acquired it. I think they've strengthened that business and we have good content on those, Turboprop. So I think with a better owner should be better for the business. So we view that it's good for Woodward.

Okay, fair enough. But the last one I had, it might be too earlier. On the 777X with the GE9X engine, when would you guys expect to see your R&D kind of take up to support that engine if it hasn't already?

Yes. One thing in the way we run our business, we start our R&D well in advance of new program launches. So we've been doing some amount of R&D in preparation for this program. So we already have substantial staff working on it. That doesn't mean we have won anything. It's going to be put out for bid here shortly. So we have been working on the technologies and the activity on that for the last two years. So that's already in our R&D numbers. We anticipate 777X activity both on the engine, the airframe that heavy RFP work will come our way over the -- really over the next 18 months. And I think that's the time period for the RFPs and the (wars) to occur. So that's investment we have been carrying for really the last two years and then we will carry it forward ideally with the unsizable modern new wins.

Okay, perfect. Thanks a lot guys.

Thank you.

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

Okay. I'd like to thank everybody for joining us today. Thank you for your questions. And hopefully we helped to provide some clarity on those questions. Look forward to talking to all of you next quarter. Thank you.

Ladies and gentlemen, that concludes our conference call today. If you would like to listen to a rebroadcast of this conference call, it would be available today at 7:30 p.m. Eastern Standard time, by dialing 1 (888) 266-2081 for U.S. call or 1 (703) 925-2533 for non- U.S. call and by entering the access code 1630063. A rebroadcast will also be available at the company's website, www.woodward.com for 14 days. We thank you for your participation on today's conference call and ask that you please disconnect your lines.