Woodward(WWD) - 2025 Q3 - Quarterly Results

Executive Summary & Highlights Woodward reported strong Q3 FY2025 results, driven by robust demand and execution, leading to raised full-year guidance despite lowered free cash flow expectations Third Quarter Overview Woodward reported strong third-quarter fiscal year 2025 results, driven by robust demand in end markets and disciplined execution, with Aerospace seeing substantial growth and Industrial achieving double-digit growth in key areas despite a decline in China on-highway natural gas truck sales Third Quarter and Year-to-Date 2025 Key Financials | Metric | Third Quarter 2025 | Year-to-Date 2025 | | :--- | :--- | :--- | | Net Sales | $915M, 8% YoY | $2.6B, 4% YoY | | Net Earnings | $108M, 6% YoY | $304M, 5% YoY | | Earnings Per Share (EPS) | $1.76, 8% YoY | $4.96, 7% YoY | | Cash from Operations | $126M, -18% YoY | $238M, -20% YoY | | Free Cash Flow | $99M, -28% YoY | $159M, -29% YoY | - The Aerospace segment experienced substantial sales growth and margin expansion, primarily due to smart defense and commercial services, partially offset by lower commercial OEM and defense services[4] - The Industrial business delivered double-digit sales growth in oil and gas and marine transportation, which was offset by an expected decrease in China on-highway natural gas truck sales[4] Guidance Update Based on strong year-to-date performance and a solid fourth-quarter outlook, Woodward is raising its full-year sales and earnings guidance, though full-year free cash flow guidance has been lowered due to demands supporting higher sales in a dynamic supply chain and production environment - Full-year sales and earnings guidance for FY2025 have been raised[5] - Full-year free cash flow guidance has been lowered due to demands to support higher sales in a dynamic supply chain and production environment[5] - The company remains focused on growth, operational excellence, and innovation to deliver sustained long-term shareholder value[5] Company Financial Performance Woodward's Q3 FY2025 saw increased total sales and net earnings, but a decline in cash from operations and free cash flow, with varied segment performance Total Company Results Woodward reported an 8.0% increase in total sales for the three months ended June 30, 2025, reaching $915 million, and a 4.1% increase year-to-date to $2,572 million, with net earnings also growing, but cash from operating activities and free cash flow saw significant declines for both periods Total Company Financial Results (Three Months Ended June 30) | Metric | 2025 (Millions) | 2024 (Millions) | Year over Year Change | | :--- | :--- | :--- | :--- | | Total Sales | $915 | $848 | 8.0% | | Net Earnings | $108 | $102 | 6.2% | | EPS | $1.76 | $1.63 | 8.0% | | EBIT | $137 | $132 | 4.1% | | Effective Tax Rate | 14.5% | 16.4% | -190 bps | | Cash from Operating Activities | $126 | $153 | -18.0% | | Capital Expenditures | $27 | $16 | 67.0% | | Free Cash Flow | $99 | $137 | -27.8% | | Dividends Paid | $17 | $15 | 10.7% | | Share Repurchases | $45 | $305 | - | Total Company Financial Results (Nine Months Ended June 30) | Metric | 2025 (Millions) | 2024 (Millions) | Year over Year Change | | :--- | :--- | :--- | :--- | | Total Sales | $2,572 | $2,470 | 4.1% | | Net Earnings | $304 | $290 | 5.1% | | Adjusted Net Earnings | $294 | $293 | 0.6% | | EPS | $4.96 | $4.65 | 6.7% | | Adjusted EPS | $4.80 | $4.70 | 2.1% | | EBIT | $394 | $382 | 3.0% | | Adjusted EBIT | $381 | $386 | -1.4% | | Effective Tax Rate | 15.8% | 17.8% | -200 bps | | Adjusted Effective Tax Rate | 15.5% | 17.8% | -230 bps | | Cash from Operating Activities | $238 | $297 | -20.0% | | Capital Expenditures | $79 | $72 | 8.8% | | Free Cash Flow | $159 | $225 | -29.2% | | Dividends Paid | $48 | $43 | 10.9% | | Share Repurchases | $124 | $305 | - | | Total Debt | $933 | $923 | 1.1% | | EBITDA Leverage | 1.5x | 1.5x | - | Segment Results Segment performance varied, with Aerospace showing strong sales and margin growth, while Industrial experienced sales and earnings declines due to specific market factors Aerospace Segment The Aerospace segment demonstrated strong performance with a 15.2% increase in sales for the third quarter and 11.9% year-to-date, with segment earnings growing by 23.5% for the quarter, leading to a 140 basis point expansion in segment margin, primarily driven by price realization and volume, despite strategic investments and inflation Aerospace Segment Sales (Three Months Ended June 30) | Category | 2025 (Millions) | 2024 (Millions) | Year over Year Change | | :--- | :--- | :--- | :--- | | Commercial OEM | $175 | $190 | -7.6% | | Commercial Aftermarket | $215 | $166 | 30.0% | | Defense OEM | $150 | $97 | 55.7% | | Defense Aftermarket | $55 | $66 | -16.2% | | Total Sales | $596 | $518 | 15.2% | | Segment Earnings | $126 | $102 | 23.5% | | Segment Margin % | 21.1% | 19.7% | 140 bps | Aerospace Segment Sales (Nine Months Ended June 30) | Category | 2025 (Millions) | 2024 (Millions) | Year over Year Change | | :--- | :--- | :--- | :--- | | Commercial OEM | $497 | $545 | -8.8% | | Commercial Aftermarket | $581 | $467 | 24.4% | | Defense OEM | $401 | $281 | 42.7% | | Defense Aftermarket | $173 | $183 | -5.7% | | Total Sales | $1,652 | $1,476 | 11.9% | | Segment Earnings | $345 | $279 | 23.6% | | Segment Margin % | 20.9% | 18.9% | 200 bps | - The increase in Aerospace segment earnings was primarily due to price realization and volume, partially offset by strategic investments in manufacturing capabilities, inflation, and unfavorable mix[9][10] Industrial Segment The Industrial segment experienced a 3.2% decrease in sales for the third quarter and a 7.4% decrease year-to-date, with segment earnings declining by 20.3% for the quarter, resulting in a 320 basis point contraction in segment margin, mainly due to lower China on-highway volume and inflation, partially offset by price realization Industrial Segment Sales (Three Months Ended June 30) | Category | 2025 (Millions) | 2024 (Millions) | Year over Year Change | | :--- | :--- | :--- | :--- | | Transportation | $163 | $144 | -12.0% | | Power Generation | $110 | $109 | -0.2% | | Oil and Gas | $66 | $57 | 16.1% | | Total Sales | $319 | $330 | -3.2% | | Segment Earnings | $48 | $60 | -20.3% | | Segment Margin % | 14.9% | 18.1% | -320 bps | Industrial Segment Sales (Nine Months Ended June 30) | Category | 2025 (Millions) | 2024 (Millions) | Year over Year Change | | :--- | :--- | :--- | :--- | | Transportation | $402 | $512 | -21.4% | | Power Generation | $326 | $315 | 3.5% | | Oil and Gas | $193 | $168 | 14.7% | | Total Sales | $920 | $994 | -7.4% | | Segment Earnings | $134 | $192 | -30.3% | | Segment Margin % | 14.5% | 19.3% | -480 bps | - The decrease in Industrial segment earnings was primarily due to lower China on-highway volume and inflation (for Q3) and unfavorable mix (for YTD), partially offset by price realization[12][13] Nonsegment Expenses Nonsegment expenses increased by 21.8% for the three months ended June 30, 2025, reaching $36 million, while adjusted nonsegment expenses for the nine months ended June 30, 2025, increased by 15.6% to $98 million Nonsegment Expenses (Millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Year over Year Change | | :--- | :--- | :--- | :--- | | Nonsegment Expenses | $(36) | $(30) | 21.8% | | Metric | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | Year over Year Change | | :--- | :--- | :--- | :--- | | Nonsegment Expenses | $(85) | $(89) | -4.2% | | Adjusted Nonsegment Expenses | $(98) | $(85) | 15.6% | Fiscal Year 2025 Guidance Woodward revised its FY2025 guidance, raising sales and adjusted EPS targets while lowering free cash flow expectations, with specific updates for both segments Revised Full-Year Guidance Woodward has revised its full-year fiscal 2025 guidance, raising the sales outlook to $3,450 - $3,525 million and adjusted EPS to $6.50 - $6.75, with the adjusted effective tax rate now expected to be around 17%, while adjusted free cash flow guidance has been lowered to $315 - $350 million Revised FY25 Total Company Guidance | Metric | Prior FY25 Guidance (April 28, 2025) | Revised FY25 Guidance (July 28, 2025) | | :--- | :--- | :--- | | Sales | $3,375 - $3,500 | $3,450 - $3,525 | | Adjusted Effective Tax Rate | ~19% | ~17% | | Adjusted Free Cash Flow | $350 - $400 | $315 - $350 | | Capital Expenditures | ~$115 | No change | | Shares | ~61.5 | No change | | Adjusted EPS | $5.95 - $6.25 | $6.50 - $6.75 | Segment-Specific Guidance For fiscal year 2025, Aerospace segment sales growth guidance has been narrowed and raised to 11% to 13%, with segment earnings margin expected between 21% and 21.5%, while Industrial segment sales growth is now projected to be down 5% to 7%, an improvement from prior guidance, with segment earnings margin around 14.5% Revised FY25 Segment Guidance | Segment | Metric | Prior FY25 Guidance | Revised FY25 Guidance | | :--- | :--- | :--- | :--- | | Aerospace | Sales Growth | Up 8% to 13% | Up 11% to 13% | | | Segment Earnings (% of Sales) | 20% - 21% | 21% - 21.5% | | Industrial | Sales Growth | Down 7% to 9% | Down 5% to 7% | | | Segment Earnings (% of Sales) | 13% - 14% | ~14.5% | Company Information This section details Woodward's investor conference call, corporate profile as a global energy control solutions leader, and a cautionary statement on forward-looking information Conference Call Details Woodward will host an investor conference call on July 28, 2025, at 5:00 p.m. ET to discuss its fiscal year 2025 third-quarter financial performance, business highlights, and fiscal 2025 guidance, with the webcast, recording, and presentation slides available on the company's website - An investor conference call is scheduled for July 28, 2025, at 5:00 p.m. ET[18] - The call will cover financial performance for Q3 FY2025, business highlights, and fiscal 2025 guidance[18][19] - Webcast, recording, and presentation slides will be accessible on www.woodward.com under 'Investors/Events & Presentations'[19][20] About Woodward, Inc. Woodward, Inc. is a global leader in designing, manufacturing, and servicing energy conversion and control solutions for the aerospace and industrial equipment markets, headquartered in Fort Collins, Colorado, focusing on delivering energy control solutions that power a clean future - Woodward is a global leader in energy conversion and control solutions for aerospace and industrial equipment markets[21] - The company's purpose is to design and deliver energy control solutions that enable a clean future[21] - Woodward specializes in innovative fluid, combustion, electrical, propulsion, and motion control systems[21] Cautionary Statement This press release contains forward-looking statements subject to various risks and uncertainties, including global economic instability, supply chain disruptions, customer concentration, and regulatory matters, where actual results may differ materially from projections, and the company does not undertake to update these statements - The report contains forward-looking statements regarding growth, operational excellence, innovation, and fiscal year 2025 guidance[22] - Key risk factors include global economic uncertainty, supply chain and labor market constraints, long sales cycles, customer concentration, and changes in aerospace and government spending[22] - Woodward assumes no obligation to update forward-looking statements, except as required by applicable law[22] Detailed Financial Statements This section presents unaudited condensed consolidated statements of earnings, balance sheets, cash flows, and detailed segment net sales and earnings for the reported periods Condensed Consolidated Statement of Earnings The condensed consolidated statement of earnings provides a detailed breakdown of revenues, costs, and net earnings for the three and nine months ended June 30, 2025 and 2024, showing increases in net sales and net earnings across both periods Condensed Consolidated Statement of Earnings (Unaudited – In thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $915,446 | $847,688 | $2,571,800 | $2,469,761 | | Cost of goods sold | $666,287 | $617,702 | $1,892,908 | $1,801,037 | | Selling, general, and administrative expenses | $88,703 | $73,812 | $242,241 | $229,770 | | Research and development costs | $41,088 | $38,728 | $108,525 | $105,987 | | Interest expense | $11,234 | $11,516 | $35,464 | $34,482 | | Interest income | $(838) | $(1,728) | $(3,236) | $(4,494) | | Other (income) expense, net | $(17,864) | $(14,438) | $(65,755) | $(49,461) | | Total costs and expenses | $788,610 | $725,592 | $2,210,147 | $2,117,321 | | Earnings before income taxes | $126,836 | $122,096 | $361,653 | $352,440 | | Income taxes | $18,388 | $20,021 | $57,165 | $62,765 | | Net earnings | $108,448 | $102,075 | $304,488 | $289,675 | | Diluted earnings per share | $1.76 | $1.63 | $4.96 | $4.65 | | Cash dividends paid per share | $0.28 | $0.25 | $0.81 | $0.72 | Condensed Consolidated Balance Sheets As of June 30, 2025, Woodward reported total assets of $4,711,850 thousand, an increase from $4,368,915 thousand at September 30, 2024, primarily driven by higher cash and cash equivalents, accounts receivable, and inventories, with total liabilities also increasing while stockholders' equity grew significantly Condensed Consolidated Balance Sheets (Unaudited – In thousands) | Asset/Liability/Equity | June 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $473,159 | $282,270 | | Accounts receivable | $829,581 | $770,066 | | Inventories | $657,121 | $609,092 | | Total current assets | $2,061,157 | $1,743,611 | | Property, plant, and equipment, net | $942,103 | $940,715 | | Goodwill | $813,779 | $806,643 | | Total assets | $4,711,850 | $4,368,915 | | Short-term debt | $353,000 | $217,000 | | Current portion of long-term debt | $76,020 | $85,719 | | Accounts payable | $284,029 | $287,457 | | Total current liabilities | $1,010,198 | $923,510 | | Long-term debt, less current portion | $503,851 | $569,751 | | Total liabilities | $2,243,284 | $2,192,499 | | Stockholders' equity | $2,468,566 | $2,176,416 | Condensed Consolidated Statements of Cash Flows For the nine months ended June 30, 2025, net cash provided by operating activities decreased to $237,976 thousand from $297,329 thousand in the prior year, while investing activities saw a net cash outflow of $27,518 thousand, a significant improvement largely due to proceeds from business divestitures, and financing activities resulted in a net cash outflow of $26,126 thousand Condensed Consolidated Statements of Cash Flows (Unaudited – In thousands, Nine Months Ended June 30) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $237,976 | $297,329 | | Net cash used in investing activities | $(27,518) | $(68,239) | | Net cash used in financing activities | $(26,126) | $(58,970) | | Net change in cash and cash equivalents | $190,889 | $170,885 | | Cash and cash equivalents at end of period | $473,159 | $308,332 | - Payments for purchase of property, plant, and equipment increased to $78,537 thousand in 2025 from $72,193 thousand in 2024[27] - Proceeds from business divestitures significantly contributed to investing activities in 2025, totaling $48,043 thousand[27] Segment Net Sales and Net Earnings (Detailed) This section provides a detailed breakdown of net sales and earnings for the Aerospace and Industrial segments, showing Aerospace sales growth and margin expansion, while Industrial sales and earnings declined for both the three and nine months ended June 30, 2025 Segment Net Sales (Unaudited – In thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Aerospace | $595,990 | $517,560 | $1,651,601 | $1,475,828 | | Industrial | $319,456 | $330,128 | $920,199 | $993,933 | | Total consolidated net sales | $915,446 | $847,688 | $2,571,800 | $2,469,761 | Segment Earnings (Unaudited – In thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Aerospace Earnings | $125,740 | $101,842 | $345,081 | $279,295 | | Aerospace % of sales | 21.1% | 19.7% | 20.9% | 18.9% | | Industrial Earnings | $47,622 | $59,717 | $133,786 | $191,842 | | Industrial % of sales | 14.9% | 18.1% | 14.5% | 19.3% | | Total segment earnings | $173,362 | $161,559 | $478,867 | $471,137 | | Nonsegment expenses | $(36,130) | $(29,675) | $(84,986) | $(88,709) | | EBIT | $137,232 | $131,884 | $393,881 | $382,428 | Non-GAAP Reconciliations This section reconciles U.S. GAAP to non-U.S. GAAP adjusted measures, including net earnings, income tax, EBIT, EBITDA, non-segment expenses, and free cash flow, with explanations Net Earnings to Adjusted Earnings This reconciliation adjusts U.S. GAAP net earnings to non-U.S. GAAP adjusted net earnings by excluding specific items such as product rationalization, non-recurring gains, business development activities, and certain non-restructuring separation costs, resulting in adjusted net earnings of $294,404 thousand and adjusted EPS of $4.80 for the nine months ended June 30, 2025 Reconciliation of Net Earnings to Adjusted Earnings (Unaudited – In thousands, except per share amounts, Nine Months Ended June 30) | Metric | 2025 Net Earnings | 2025 Earnings Per Share | 2024 Net Earnings | 2024 Earnings Per Share | | :--- | :--- | :--- | :--- | :--- | | Net Earnings (U.S. GAAP) | $304,488 | $4.96 | $289,675 | $4.65 | | Product rationalization | $(20,524) | $(0.33) | - | - | | Non-recurring gain related to a previous acquisition | - | - | $(4,803) | $(0.08) | | Business development activities | $7,310 | $0.12 | $5,902 | $0.09 | | Certain non-restructuring separation costs | - | - | $2,666 | $0.05 | | Tax Effect of Non-U.S. GAAP Net Earnings Adjustments | $3,130 | $0.05 | $(729) | $(0.01) | | Total non-U.S. GAAP Adjustments | $(10,084) | $(0.16) | $3,036 | $0.05 | | Adjusted Net Earnings (Non-U.S. GAAP) | $294,404 | $4.80 | $292,711 | $4.70 | Income Tax Expense to Adjusted Income Tax Expense The reconciliation shows the adjustment of U.S. GAAP income tax expense to non-U.S. GAAP adjusted income tax expense by accounting for the tax effect of non-U.S. GAAP net earnings adjustments, resulting in an adjusted income tax expense of $54,035 thousand and an adjusted income tax rate of 15.5% for the nine months ended June 30, 2025 Reconciliation of Income Tax Expense to Adjusted Income Tax Expense (Unaudited – In thousands, Nine Months Ended June 30) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Income tax expense (U.S. GAAP) | $57,165 | $62,765 | | Tax Effect of Non-U.S. GAAP Net Earnings Adjustments | $(3,130) | $729 | | Adjusted Income Tax Expense (Non-U.S. GAAP) | $54,035 | $63,494 | | Adjusted Income Tax Rate (Non-U.S. GAAP) | 15.5% | 17.8% | Net Earnings to EBIT This reconciliation converts U.S. GAAP net earnings to non-U.S. GAAP EBIT by adding back income tax expense, interest expense, and subtracting interest income, resulting in EBIT of $137,232 thousand for the three months ended June 30, 2025, and $393,881 thousand for the nine months Reconciliation of Net Earnings to EBIT (Unaudited – In thousands, Three Months Ended June 30) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net Earnings (U.S. GAAP) | $108,448 | $102,075 | | Income Tax Expense | $18,388 | $20,021 | | Interest Expense | $11,234 | $11,516 | | Interest Income | $(838) | $(1,728) | | EBIT (Non-U.S. GAAP) | $137,232 | $131,884 | Reconciliation of Net Earnings to EBIT and Adjusted EBIT (Unaudited – In thousands, Nine Months Ended June 30) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net Earnings (U.S. GAAP) | $304,488 | $289,675 | | Income Tax Expense | $57,165 | $62,765 | | Interest Expense | $35,464 | $34,482 | | Interest Income | $(3,236) | $(4,494) | | EBIT (Non-U.S. GAAP) | $393,881 | $382,428 | | Total non-U.S. GAAP Adjustments | $(13,214) | $3,765 | | Adjusted EBIT (Non-U.S. GAAP) | $380,667 | $386,193 | Net Earnings to EBITDA This reconciliation adjusts U.S. GAAP net earnings to non-U.S. GAAP EBITDA by adding back income tax expense, interest expense, amortization of intangible assets, and depreciation expense, while subtracting interest income, resulting in EBITDA of $165,886 thousand for the three months ended June 30, 2025, and adjusted EBITDA of $464,763 thousand for the nine months Reconciliation of Net Earnings to EBITDA (Unaudited – In thousands, Three Months Ended June 30) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net Earnings (U.S. GAAP) | $108,448 | $102,075 | | Income Tax Expense | $18,388 | $20,021 | | Interest Expense | $11,234 | $11,516 | | Interest Income | $(838) | $(1,728) | | Amortization of intangible assets | $8,131 | $7,172 | | Depreciation Expense | $21,482 | $20,661 | | EBITDA (Non-U.S. GAAP) | $165,886 | $160,676 | Reconciliation of Net Earnings to EBITDA and Adjusted EBITDA (Unaudited – In thousands, Nine Months Ended June 30) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net Earnings (U.S. GAAP) | $304,488 | $289,675 | | Income Tax Expense | $57,165 | $62,765 | | Interest Expense | $35,464 | $34,482 | | Interest Income | $(3,236) | $(4,494) | | Amortization of Intangible Assets | $20,858 | $25,348 | | Depreciation Expense | $63,238 | $61,494 | | EBITDA (Non-U.S. GAAP) | $477,977 | $469,270 | | Total non-U.S. GAAP Adjustments | $(13,214) | $3,765 | | Adjusted EBITDA (Non-U.S. GAAP) | $464,763 | $473,035 | Non-Segment Expenses to Adjusted Non-Segment Expenses This reconciliation adjusts U.S. GAAP non-segment expenses to non-U.S. GAAP adjusted non-segment expenses by excluding items such as product rationalization, non-recurring gains, business development activities, and certain non-restructuring separation costs, resulting in adjusted non-segment expenses of $(98,200) thousand for the nine months ended June 30, 2025 Reconciliation of Non-Segment Expenses to Adjusted Non-Segment Expenses (Unaudited – In thousands, Nine Months Ended June 30) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Non-Segment Expenses (U.S. GAAP) | $(84,986) | $(88,709) | | Product rationalization | $(20,524) | - | | Non-recurring gain related to a previous acquisition | - | $(4,803) | | Business development activities | $7,310 | $5,902 | | Certain non-restructuring separation costs | - | $2,666 | | Adjusted Non-Segment Expenses (Non-U.S. GAAP) | $(98,200) | $(84,944) | Cash Flow from Operating Activities to Free Cash Flow This reconciliation derives non-U.S. GAAP free cash flow by subtracting payments for property, plant, and equipment from net cash provided by operating activities, resulting in free cash flow of $159,439 thousand for the nine months ended June 30, 2025, a decrease from $225,136 thousand in the prior year Reconciliation of Cash Flow from Operating Activities to Free Cash Flow (Unaudited – In thousands, Nine Months Ended June 30) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities (U.S. GAAP) | $237,976 | $297,329 | | Payments for property, plant, and equipment | $(78,537) | $(72,193) | | Free cash flow (Non-U.S. GAAP) | $159,439 | $225,136 | Explanation of Non-U.S. GAAP Financial Measures Woodward uses non-U.S. GAAP financial measures like adjusted net earnings, EBIT, EBITDA, and free cash flow to provide a clearer view of its underlying business performance by excluding short-term or non-recurring items, which are used by management for evaluating performance, making business decisions, and are also frequently used by investors and analysts - Adjusted non-U.S. GAAP measures exclude product rationalization, non-recurring gains from acquisitions, business development activities, and certain non-restructuring separation costs[39][40] - Management uses EBIT and adjusted EBIT to evaluate operating performance without the impacts of financing and tax considerations[41] - Free cash flow is used to review financial performance of business segments and evaluate cash generation levels, but it does not necessarily represent funds available for discretionary use[41]