Woodward Reports Second Quarter and Six-Month Fiscal Year 2014 Results

FORT COLLINS, CO--(Marketwired - Apr 22, 2014) - Woodward, Inc. (NASDAQ: WWD) today reported financial results for its second quarter of fiscal year 2014. (All per share amounts are presented on a fully diluted basis.)

Second Quarter Fiscal Year 2014 Highlights

• Net sales for the second quarter of 2014 were $482.5 million, compared to $485.5 million in the second quarter of last year.
  
  
• Earnings per share were $0.66 in the second quarter of 2014, compared to $0.61 in the second quarter of last year, an increase of 8 percent.
  
  
• Total EBIT¹ for the quarter was $62.9 million, compared to $57.3 million in the second quarter of the prior year, an increase of 10 percent.
  
  
• Free cash flow¹ for the first half of 2014 was $56.1 million, an increase of $10.3 million from $45.8 million in the first half of the prior year.
  
  

"We delivered increased earnings on flat sales this quarter," said Thomas A. Gendron, Chairman and Chief Executive Officer. "Our focus on operational improvements and cost control initiatives contributed to operating earnings growth this quarter."

Company Results

Net sales for the 2014 second quarter were $482.5 million compared to $485.5 million for the 2013 second quarter.

EBIT was $62.9 million for the second quarter of 2014 compared to $57.3 million for the second quarter of 2013. The current quarter EBIT was impacted by improved operating results primarily in our energy business.

Net earnings for the 2014 second quarter were $44.8 million or $0.66 per share compared to $42.4 million, or $0.61 per share in the 2013 second quarter. Both years include favorable tax impacts.

Segment Results

Aerospace

Aerospace net sales for the second quarter of fiscal 2014 were $261.0 million, a decrease of 4 percent from $270.5 million for the second quarter a year ago. Segment earnings for the second quarter of 2014 were $40.3 million, compared to $41.2 million for the same quarter a year ago. Segment earnings as a percent of segment net sales were 15.4 percent this quarter, compared to 15.2 percent in the same quarter of the prior year.

The sales decrease was primarily due to lower than expected defense sales, partially offset by higher commercial sales. Continuing quarterly variability in defense sales was a result of the timing of contracts and upgrade programs. The slight decrease in segment earnings primarily reflected the impact of reduced sales volume, partially offset by cost control initiatives.

Energy

Energy net sales for the second quarter of 2014 were $221.4 million, an increase of 3 percent from $215.0 million for last year's second quarter. Segment earnings for the second quarter of 2014 were $31.9 million, compared to $24.2 million for last year's second quarter. Segment earnings as a percent of segment net sales were 14.4 percent this quarter, compared to 11.3 percent in the same quarter of the prior year.

Segment sales reflected improvement in most of our markets, partially offset by lower sales of compressed natural gas systems. The improvement in segment earnings was primarily impacted by the increased sales volumes and continuing operational improvements.

Nonsegment

Nonsegment expenses totaled $9.3 million for the second quarter of 2014, compared to $8.2 million for the same quarter last year. Nonsegment expenses were 1.9 percent of consolidated net sales for the second quarter of 2014, up from 1.7 percent of consolidated net sales for the same quarter of the prior year.

Year-to-Date Results

Net sales for the first six months of fiscal 2014 were $911.5 million, an increase of 2 percent from $893.9 million from the six-month period last year. Organic sales² were $880.1 million for the first six months of fiscal 2014. Net earnings for the first six months of fiscal 2014 were $68.2 million, compared to $69.8 million in the same period last year. Earnings per share for the first six months of fiscal 2014 and 2013 were both $1.00 per share.

Year-to-date EBIT was $101.8 million, largely consistent with the same period of the prior year.

Cash Flow and Financial Position

Net cash generated from operating activities was $124.6 million for the first six months of fiscal 2014, compared to $93.0 million for the first six months of fiscal 2013, primarily the result of improved working capital. Free cash flow was $56.1 million for the first six months of fiscal 2014, compared to $45.8 million for the first six months of fiscal 2013. Payments for property, plant, and equipment for the first six months of fiscal 2014 were $68.6 million, compared with $47.2 million for the first six months of fiscal 2013.

Total debt was $605.0 million at March 31, 2014, compared to $550.0 million at September 30, 2013. The ratio of debt to debt-plus-equity was 34.9 percent at March 31, 2014, compared to 32.5 percent at September 30, 2013.

The effective tax rate for the second quarter of fiscal 2014 was 21.1 percent, compared to 15.7 percent for the second quarter of fiscal 2013. The tax rate for both quarters included favorable adjustments related to prior years' tax issues, which had a similar impact on both periods. The effective tax rate for the full year fiscal 2014 is still expected to be approximately 28 percent.

Outlook

"Consistent with prior years, we expect to see stronger sales in the second half of the year," said Mr. Gendron. "Accordingly, our full year outlook for fiscal 2014 is unchanged, with sales anticipated to be between $1.95 and $2.05 billion, and earnings per share expected to be between $2.10 and $2.30 per share."

¹Non-U.S. GAAP Financial Measures: EBIT (earnings before interest and taxes), EBITDA (earnings before interest, taxes, depreciation and amortization) and free cash flow are financial measures not prepared and presented in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Management uses EBIT to evaluate Woodward's operating performance without the impacts of financing and tax related considerations. 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. Management uses free cash flow, which is derived from net cash provided by operating activities less payments for property, plant, and equipment, in reviewing the financial performance of Woodward's various business segments and evaluating cash generation levels. Securities analysts, investors, and others frequently use EBIT, EBITDA and free cash flow in their evaluation of companies, particularly those with significant property, plant, and equipment, and intangible assets that are subject to amortization. The use of any 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. Because EBIT and EBITDA exclude certain financial information compared with net earnings, the most comparable U.S. GAAP financial measure, users of this financial information should consider the information that is excluded. 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. Management's calculations of EBIT, EBITDA, and free cash flow may differ from similarly titled measures used by other companies, limiting their usefulness as comparative measures.

²Organic sales: defined as net sales excluding first quarter fiscal year 2014 sales of the Duarte business, which was acquired on December 28, 2012.

Conference Call

Woodward will hold an investor conference call at 4:30 p.m. EDT, April 22, 2014 to provide an overview of the financial performance for the second quarter, business highlights, and outlook for fiscal 2014. You are invited to listen to the live webcast of our conference call, or a recording, and view or download accompanying presentation slides at our website, www.woodward.com.

You may also listen to the call by dialing 1-866-793-1344 (domestic) or 1-703-639-1315 (international). Participants should call prior to the start time to allow for registration; the Conference ID is 1635544. An audio replay will be available by telephone from 7:30 p.m. EDT on April 22, 2014 until 11:59 p.m. EDT on May 6, 2014. The telephone number to access the replay is 1-888-266-2081 (domestic) or 1-703-925-2533 (international), reference access code 1635544.

A webcast presentation will be available on the website by clicking the Investors tab, then the Calendar of Events menu selection and associated webcast link. The call and presentation will remain accessible at the website for 14 days.

About Woodward, Inc.

Woodward is an independent designer, manufacturer, and service provider of control solutions for the aerospace and energy markets. The company's innovative fluid, combustion, electrical, and motion control systems help customers offer cleaner, more reliable, and more efficient equipment. Our customers include leading original equipment manufacturers and end users of their products. Woodward is a global company headquartered in Fort Collins, Colorado, USA. Visit our website at www.woodward.com, and connect with us at www.facebook.com/woodwardinc.

Cautionary Statement

Information in this press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, including, but not limited to, statements regarding future sales, earnings, liquidity, relative profitability, and the impact of economic conditions and downturns on Woodward. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. 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, a decline in business with, or financial distress of, our significant customers; the continued global economic uncertainty and instability in the financial markets; Woodward's ability to obtain financing, on acceptable terms or at all, to implement its business plans, complete acquisitions, or otherwise take advantage of business opportunities or respond to business pressures; Woodward's long sales cycle, customer evaluation process, and implementation period of some of its products and services; Woodward's ability to implement and realize the intended effects of restructuring and alignment efforts; Woodward's ability to successfully manage competitive factors, including prices, promotional incentives, industry consolidation, and commodity and other input cost increases; Woodward's ability to manage expenses and product mix while responding to sales increases or decreases; the ability of Woodward's subcontractors and suppliers to meet their obligations; Woodward's ability to monitor its technological expertise and the success of, and/or costs associated with, its product development activities; Woodward's ability to integrate acquisitions and manage costs related thereto; Woodward's debt obligations, debt service requirements and ability to operate its business, pursue its business strategies and incur additional debt in light of restrictive covenants in its outstanding debt agreements; risks related to U.S. Government contracting activities, including liabilities resulting from legal and regulatory proceedings, inquiries, or investigations related to such activities; reductions in defense sales due to a decrease in the amount of U.S. Federal defense spending; changes in government spending patterns and/or priorities; future impairment charges resulting from changes in the estimates of fair value of reporting units or of long-lived assets; future subsidiary results; environmental liabilities; Woodward's continued access to a stable workforce and favorable labor relations; physical and other risks related to Woodward's operations and suppliers, including natural disasters, which could disrupt production; Woodward's ability to successfully manage regulatory, tax and legal matters; risks from operating internationally including the impact on reported earnings from fluctuations in foreign currency exchange rates, and compliance with and changes in the legal and regulatory environments of the United States and the countries in which Woodward operates; fair value of defined benefit plan assets and assumptions used in determining Woodward's retirement pension and other postretirement benefit obligations and related expenses; information systems interruptions or intrusions; and other risk factors described in Woodward's Annual Report on Form 10-K for the year ended September 30, 2013 and any subsequently filed Quarterly Report on Form 10-Q.

Woodward, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
			Three-Months Ended								Six-Months Ended
			March 31,								March 31,
(Unaudited - in thousands except per share amounts)			2014				2013				2014				2013
Net sales			$	482,467			$	485,513			$	911,509			$	893,852
Costs and expenses:
	Cost of goods sold			340,028				348,100				655,494				637,673
	Selling, general, and administrative expenses			35,283				37,206				72,611				73,624
	Research and development costs			35,805				34,000				65,229				64,018
	Amortization of intangible assets			8,657				9,813				17,141				17,480
	Interest expense			6,185				7,017				12,247				13,473
	Interest income			(57	)			(69	)			(116	)			(137	)
	Other (income) expense, net			(190	)			(890	)			(797	)			(1,152	)
Total costs and expenses				425,711				435,177				821,809				804,979
Earnings before income taxes				56,756				50,336				89,700				88,873
Income taxes				11,958				7,890				21,519				19,059
Net earnings			$	44,798			$	42,446			$	68,181			$	69,814
Earnings per share amounts:
Basic earnings per share			$	0.67			$	0.62			$	1.01			$	1.02
Diluted earnings per share			$	0.66			$	0.61			$	1.00			$	1.00
Weighted average common shares outstanding:
Basic				66,633				68,737				67,182				68,597
Diluted				67,905				69,935				68,463				69,831
Cash dividends per share paid to Woodward common stockholders			$	0.08			$	0.08			$	0.16			$	0.16

Woodward, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
					March 31,			September 30,
(Unaudited - in thousands)					2014			2013*
Assets
	Current assets:
		Cash and cash equivalents			$	56,665		$	48,556
		Accounts receivable				320,492			381,065
		Inventories				458,733			431,744
		Income taxes receivable				6,820			14,071
		Deferred income tax assets				43,027			43,027
		Other current assets				43,514			38,650
			Total current assets			929,251			957,113
	Property, plant, and equipment - net					401,050			350,048
	Goodwill					562,617			561,458
	Intangible assets - net					271,887			288,775
	Deferred income tax assets					17,424			13,926
	Other assets					56,211			47,198
Total assets					$	2,238,440		$	2,218,518
Liabilities and stockholders' equity
	Current liabilities:
		Short-term borrowings			$	21,000		$	-
		Current portion of long-term debt				-			100,000
		Accounts payable				154,372			145,541
		Income taxes payable				13,726			7,848
		Deferred income tax liabilities				800			800
		Accrued liabilities				128,013			161,741
			Total current liabilities			317,911			415,930
	Long-term debt, less current portion					584,000			450,000
	Deferred income tax liabilities					105,427			104,533
	Other liabilities					101,304			105,510
	Total liabilities					1,108,642			1,075,973
	Stockholders' equity					1,129,798			1,142,545
Total liabilities and stockholders' equity					$	2,238,440		$	2,218,518
*In connection with the Duarte business acquisiton, retrospectively adjusted for purchase accounting adjustments

Woodward, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		Six-Months Ended
		March 31,
(Unaudited - in thousands)		2014				2013
Net cash provided by operating activities		$	124,644			$	92,987
Cash flows from investing activities:
Payments for property, plant, and equipment			(68,560	)			(47,184	)
Business acquisitions, net of cash acquired			-				(198,860	)
Proceeds from sale of other assets			154				320
Net cash used in investing activities			(68,406	)			(245,724	)
Cash flows from financing activities:
Cash dividends paid			(10,754	)			(10,966	)
Proceeds from sales of treasury stock			6,147				6,533
Payments for repurchases of common stock			(99,655	)			(17,144	)
Excess tax benefits from stock compensation			2,163				4,397
Proceeds from the issuance of long-term debt			250,000				200,000
Payments of long-term debt			(300,000	)			(41,875	)
Borrowings on revolving lines of credit and short-term borrowings			256,071				40,072
Payments on revolving lines of credit and short-term borrowings			(151,069	)			(35,329	)
Payment of debt financing costs			(1,297	)			-
Net cash provided by (used in) financing activities			(48,394	)			145,688
Effect of exchange rate changes on cash and cash equivalents			265				(122	)
Net change in cash and cash equivalents			8,109				(7,171	)
Cash and cash equivalents at beginning of period			48,556				61,829
Cash and cash equivalents at end of period		$	56,665			$	54,658

Woodward, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
			Three-Months Ended								Six-Months Ended
			March 31,								March 31,
(Unaudited - in thousands)			2014				2013				2014				2013
Net sales:
Aerospace			$	261,021			$	270,493			$	490,893			$	481,882
Energy				221,446				215,020				420,616				411,970
Total consolidated net sales			$	482,467			$	485,513			$	911,509			$	893,852
Segment earnings**:
Aerospace			$	40,289			$	41,223			$	62,838			$	72,791
As a percent of segment sales				15.4	%			15.2	%			12.8	%			15.1	%
Energy				31,888				24,235				58,959				48,143
As a percent of segment sales				14.4	%			11.3	%			14.0	%			11.7	%
Total segment earnings				72,177				65,458				121,797				120,934
Nonsegment expenses				(9,293	)			(8,174	)			(19,966	)			(18,725	)
EBIT				62,884				57,284				101,831				102,209
Interest expense, net				(6,128	)			(6,948	)			(12,131	)			(13,336	)
	Consolidated earnings before income taxes		$	56,756			$	50,336			$	89,700			$	88,873
Payments for property, plant and equipment			$	31,411			$	17,290			$	68,560			$	47,184
Depreciation expense				11,062				10,139				21,694				20,412
**This schedule reconciles segment earnings, which exclude certain costs, to consolidated earnings before taxes.

Woodward, Inc. and Subsidiaries
RECONCILIATION OF NET EARNINGS TO EBIT AND EBITDA
		Three-Months Ended								Six-Months Ended
		March 31,								March 31,
(Unaudited - in thousands)		2014				2013				2014				2013
Net earnings		$	44,798			$	42,446			$	68,181			$	69,814
Income taxes			11,958				7,890				21,519				19,059
Interest expense			6,185				7,017				12,247				13,473
Interest income			(57	)			(69	)			(116	)			(137	)
EBIT			62,884				57,284				101,831				102,209
Amortization of intangible assets			8,657				9,813				17,141				17,480
Depreciation expense			11,062				10,139				21,694				20,412
EBITDA		$	82,603			$	77,236			$	140,666			$	140,101

Woodward, Inc. and Subsidiaries
RECONCILIATION OF CASH FLOW FROM OPERATIONS TO FREE CASH FLOW
		Three-Months Ended								Six-Months Ended
		March 31,								March 31,
(Unaudited - in thousands)		2014				2013				2014				2013
Net cash provided by operating activities		$	80,211			$	53,013			$	124,644			$	92,987
Payments for property, plant, and equipment			(31,411	)			(17,290	)			(68,560	)			(47,184	)
Free cash flow		$	48,800			$	35,723			$	56,084			$	45,803

CONTACT:
Don Guzzardo
Director, Investor Relations & Treasury
970-498-3580
[e-mail]

Woodward, Inc.
1000 East Drake Road
Fort Collins, Colorado 80525, USA