Jefferies 2016 Global Industrials Conference Chris Stephens, SVP Finance & CFO New York City August 9, 2016
Safe Harbor Statement THIS PRESENTATION CONTAINS FORWARD-LOOKING STATEMENTS Forward-looking statements are made based upon management's good faith expectations and beliefs concerning future developments and their potential effect upon the Company. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed in the forward-looking statements, including the risks and uncertainties set forth under our full disclosure located at the end of this presentation and included in our SEC filings. The Company assumes no obligation to update our forward-looking statements. References to adjusted financial results are non-gaap measures. You will find GAAP reconciliation tables at the end of this presentation. -2-
Barnes Group Overview An International Industrial and Aerospace Manufacturer and Services Provider, Serving a Wide Range of End Markets and Customers Wallace Barnes founds company in Bristol, CT making springs for hoop skirts and clocks Associated Spring Formed Associated Spring stock is offered OTC Sales pass $50M Associated Spring is listed on NYSE Sales pass $100M Two Global Business Segments: Industrial & Aerospace Name changes to Barnes Group Inc. Barnes Aerospace formed Sales pass $500M Barnes Aerospace expands in Singapore Acquires NGP Acquires Seeger-Orbis HQ in Bristol, CT with Global Operations in 80+ Locations; ~4,600 Employees 82 Consecutive Years of Paying a Dividend Sales pass $1B Acquires Hänggi BGI celebrates its 150th Anniversary Acquires Synventive Distribution Divestiture Acquires Männer Acquires Thermoplay and Priamus A LONG HISTORY... SIGNIFICANT RECENT TRANSFORMATION -3-
2015 Revenue Breakdown TOTAL REVENUE $1,194M 65% INDUSTRIAL $782M 35% AEROSPACE $412M Aero % AEROSPACE MRO 17% TOOL & DIE 10% SPARES 11% OEM 72% END MARKETS MEDICAL & PERSONAL CARE 8% AEROSPACE OEM 25% ENGINEERED COMPONENTS 44% Americas 56% INDUSTRIAL NITROGEN GAS PRODUCTS 15% GEOGRAPHY EUROPE 27% ASIA 17% MOLDING SOLUTIONS 41% GENERAL INDUSTRIAL 14% AUTO MOLDING SOLUTIONS 14% AUTO PRODUCTION 19% AEROSPACE AFTERMARKET 10% GLOBAL, DIVERSIFIED END MARKETS AMERICAS 56% -4-
Strategic Themes Build On Intellectual Property (IP) as Core Differentiator Seek Portfolio Enhancements to Drive Shareholder Value Choose End-Markets with Long Term Sustainable, Profitable Growth Target Cyclical Moderation Multiple Platforms / Market Channels Expand Global Footprint / Access Enhance Barnes Enterprise System Invigorate Employee Development, Empowerment and Engagement DRIVE SUSTAINABLE PROFITABLE GROWTH -5-
Driving Operating Margin Expansion FOCUS AREAS Differentiated Products and Processes Organic Investment for Growth Strategic Acquisitions Leverage Commercial Aerospace Extend Global Reach BES Next Generation Talent Development 5% 15.8% HIGH TEENS AVG. 2001-2005 2015 EXPECTATION HOLDING COMPANY APPROACH ALIGNED PORTFOLIO EXECUTING OUR STRATEGY TO DELIVER IMPROVED MARGIN PERFORMANCE Note: 2001 to 2005 Average Operating Margin adjusted for the impact of accounting changes to be comparable to 2015. 2015 Adjusted Operating Margin from Continuing Operations. See GAAP reconciliation table at the end of this presentation. -6-
BES and Productivity BES enables us to continuously improve productivity to achieve superior customer value OUR PRODUCTIVITY EFFORTS INVOLVE FIVE MAIN AREAS OF FOCUS: Sales Effectiveness (Volume and Pricing) Leverage Technology (Innovation and New Product Dev.) Global Sourcing (Supply Chain and Logistics) Operational Excellence (Mfg. Performance and Costs) Functional Excellence (SG&A Optimization) PROGRESS IS MEASURED BY IMPROVEMENT IN OPERATING MARGIN BES IS ONE OF OUR GREATEST COMPETITVE ADVANTAGES -7-
Capital Allocation CapEx and Depreciation ($ in Millions) $38 2012 $34 $57 $57 $34 $42 $46 $40 ~$50 ~$43 2013 2014 2015 2016F CapEx Depreciation Uses of Cash 2010 to 2015 ($ in Millions) SHARE REPO WORKING CAPITAL 9% $130 14% $210 DIVIDENDS 9% $131 ACQUISITIONS 44% $659 Drive Organic Growth 2016 CapEx of ~$50M About Half Targeted to Growth Programs Strategic Portfolio Transformation Target Highly Engineered Products & Services Expand Global Reach / Channel Penetration Generate Shareholder Returns Continue to Pay a Competitive Dividend Opportunistic Share Repurchase DISCIPLINED CAPITAL ALLOCATION CAPEX 17% $264 CRP 7% $108-8-
Portfolio Transformation 2010 Sales Mix (1) M&A Transactions 2015 Sales Mix AEROSPACE INDUSTRIAL 32% 36% Divestitures Europe Year 2011 Sales $105 AEROSPACE 35% INDUSTRIAL 65% DISTRIBUTION 32% N. America 2013 $300 Acquisitions Year Sales Sales (1) $1,133M 2012 $160 Sales $1,194M +5% Op. Inc. $ (1) Op. Margin (1) Share Price (2) $86.5 7.6% $20.67 2013 2015 $110 $38 Adj. Op. Inc. $ Adj. Op. Margin Share Price (2) $188.9 15.8% $35.39 +118% +820 bps +71% Market Cap (2) $1.1B 2015 $9 Market Cap (2) $1.9B +73% ($ in millions, ~ annual sales at time of transaction) PORTFOLIO TRANSFORMATION WELL UNDERWAY (1) 2010 Sales, Operating Income and Operating Margin are as reported in the Company s 2010 10-K. 2010 Sales Mix re-calculated to reflect three segments Aerospace, Industrial & Distribution vs the original two reported segments of Precision Components & Logistics and Manufacturing Services. (2) Share Price and Market Cap as of December 31, 2010 and 2015, respectively. -9-
Industrial Market Environment Leading Global Manufacturer of Highly-Engineered Products and Systems Focused on Custom Components and Solutions Employing Differentiated Industrial Technologies Value Added Engineering: Research, Design, Manufacturing, Testing, and Evaluation GENERAL INDUSTRIAL Emerging Market Expansion Growing with our Customers Healthcare Requirements of an Aging Population Markit Manufacturing PMIs for June 2016 US 51.3, China 48.6, Eurozone 52.8, Emerging Markets 49.3, Global 50.4 BARNES GROUP PARTICIPATION Manufacturing Expansion Benefiting Tool & Die Market Healthcare for an Aging Population China Expansion TRANSPORTATION Advanced Technologies to Meet Fuel Efficiency Requirements Highly-Engineered, Precision Components; Penetration Rates Exceed Market Growth Global Light Vehicle Production Forecasted to Increase ~+3% in 2016, ~+2% in 2017, ~+2% in 2018 (IHS Automotive-Jul 16) BARNES GROUP PARTICIPATION Light Vehicles Plastics Light Vehicles Metals Gas Direct Injection (GDi) Global Expansion 8 to 10 Speed Transmissions INDUSTRIAL TECHNOLOGIES THAT SUPPORT KEY MACRO TRENDS -10-
Aerospace Market Environment AEROSPACE Provides Superior Technology-Based Manufacturing Solutions and Comprehensive Component Overhaul and Repair Services to the World s Major Jet Engine Manufacturers, Commercial Airlines and Military Customers Commercial Aircraft Deliveries (Units) 1,600 1,400 1,200 1,000 800 600 400 200 Wide-Body Narrow-Body 0 2015A 2016E 2017E 2018E 2019E 2020E Sources: Boeing & Airbus Actuals, Teal Group Estimates as of May 2016 Original Equipment Mfg. Airbus & Boeing Experienced Strong Order Intake in 13 & 14, Good order intake in 15 (Book to Bill 1.3x) Airbus & Boeing Backlog at Robust Levels; Equivalent to ~8 Years of Estimated Production Strong Commercial Aircraft Deliveries Forecasted Over Next Several Years; Narrow-Body & A350 Ramping, 777 in Transition OEM Sales Per Aircraft (1) Boeing 777 (GE90) Boeing 787 (Genx-1B / Trent 1000) Airbus A350 (XWB) Airbus A320neo (with LEAP) Aftermarket Aftermarket ~$900K ~$200K ~$500K ~$400K (moving to a range of $200K to $250K for subsequent years) (1) OEM Sales per Aircraft is a directional metric as it can be highly variable over time due to a range of factors including changes in types of material and material costs, redesign of parts, quantity of parts per engine, percentage of work directed to suppliers, engine spares, and cost schedules agreed to under contract with the engine OEMs Low Oil Prices May Accelerate Spend on Deferred Maintenance Older Aircraft May See Greater Utilization Global Airline Traffic Growth Remains Solid Global Airline Profitability Strong and Growing CFM56 Fleet Size and Shop Visits Expected to Grow; Fleet Size to Peak in 2018, Shop Visits to Peak in 2022 Benefiting RSPs and CRPs WELL-POSITIONED IN AEROSPACE END-MARKETS -11-
2016 Segment Market Outlook (Updated 7/29/2016) INDUSTRIAL SEGMENT Actual % of 2015 Sales Molding Solutions 27% Engineered Components Nitrogen Gas Products 29% 9% 2016 Sales Growth Outlook* LDD Flat LSD Industrial Segment 65% MSD End Market Highlights / Comments Hot Runner Demand Stable, China Market Improving, Auto Model Changes Favorable Favorable Global Auto Production, General Industrial Weakness Tool & Die Markets Starting to Recover After Slow 2H 15 and H1 16 Original Equipment Manufacturing (OEM) 25% Flat Transition Year in 2016, Very Strong BGI Backlog, Robust Boeing & Airbus Backlog, Airlines Profitable Maintenance Repair and Overhaul (MRO) 6% MSD Aircraft Utilization Strong, Low Fuel Prices, Moderating Traffic Growth AEROSPACE SEGMENT Spare Parts (RSP Programs) 4% Aerospace Segment 35% Flat Flat to LSD Favorable CFM56 Demographics, Tough 2015 Comparable M&A Thermoplay and Priamus Acquisition Sales +3%, FOBOHA impact not included in 2016 Outlook OTHER F/X F/X Sales Headwind of ~1% 2016 TOTAL SALES EXPECTATION UP ~3% TO 4%; FLAT TO 2% ORGANICALLY HSD - High single digits, MSD - Mid single digits, LSD - Low single digits, LDD - Low double digits Our 2016 full-year outlook is only as of our July 29, 2016 earnings call, and it is not being updated or affirmed at this time. -8-
Financial Performance Trends (1,2,3) Net Sales (Continuing Operations, $ in Millions) Adjusted EPS (2) (Continuing Operations) +3% to +8% $929 $1,092 $1,262 $1,194 +3% to +4% Total Flat to +2% Organic $1.52 $1.83 $2.34 $2.38 $2.46 to $2.56 2012 2013 2014 2015 2016F 2012 2013 2014 2015 2016F Adj. Operating Margins (2) (Continuing Operations) 12.2% 12.9% 15.4% 15.8% 16% to 16.5% Adj. Free Cash Flow (2) ($ in Millions) $164 $117 $99 $83 $133 to $140 2012 2013 2014 2015 2016F 2012 2013 2014 2015 2016F Cash Conversion: 104% 110% 99% 128% ~100% (1) Our 2016 full-year outlook is only as of our July 29, 2016 earnings call, and it is not being updated or affirmed at this time. (2) References to adjusted operating margin, adjusted EPS and adjusted free cash flow for 2012, 2013, 2014, 2015 and 2016 are non-gaap measures. For a reconciliation to the appropriate GAAP measure, see the Appendix of this presentation. (3) The financial impact of the announced FOBOHA acquisition has not been included in the Company s 2016 Outlook. -13-
Why Invest In Barnes Group? WELL POSITIONED BUSINESSES Global Industrial Products and Services; Expanding Auto Production Commercial Aerospace; OEM Production Increasing, Aftermarket Recovering STRONG FINANCIAL PERFORMANCE Demonstrated Margin Expansion; Further Expansion Planned Benefiting from Barnes Enterprise System Strong Cash Generator; Solid Balance Sheet STRATEGY EXECUTION DELIVERING RESULTS Expanding Differentiated Systems, Products and Processes Disciplined Acquisitions and Strategic Investments Focused on Sustainable, Long-Term Profitable Growth -14-
Appendix
Industrial Segment Brands MOLDING SOLUTIONS Specializes in the Development and Manufacture of High- Precision Molds and Hot Runner Systems Manufacturer of Hot Runner Systems and Components with a Focus on Providing High Quality Products and Value Added Services Specializes in the Design, Development, and Manufacturing of Customized Hot Runner Systems Technology Leader in the Development of Advanced Process Control Systems for the Plastic Injection Molding Industry END MARKETS: Medical / Pharmaceutical Personal Care / Health Care Packaging Electronic Components END MARKETS: Automotive Exterior and Interior Components Telecom and Electronic Components END MARKETS: Packaging Automotive Electronics Medical END MARKETS: Medical Automotive Consumer Goods Electronics Packaging GROWTH DRIVERS: Capacity Expansion Expand Globally GROWTH DRIVERS: Expand Automotive Offerings Increase Premium Consumer and Electronics Penetration GROWTH DRIVERS: Expand Globally GROWTH DRIVERS: Extend Engineering Capabilities Across Molding Solutions -16-
Industrial Segment Brands (continued) ENGINEERED COMPONENTS NITROGEN GAS PRODUCTS Pioneer, Leader & Innovator in Engineered Spring & Precision Metal Component Manufacturing Progressive Stamping, Micro-Stamping, Fine Blanking and Forming from Prototype Building to Complete Assemblies Develops and Produces a Comprehensive Range of Retaining Rings, Fasteners, Snap Rings and Shims Manufacturer of Nitrogen Gas Springs and Hydraulic Systems for Automotive Stamping Dies and Demanding Vehicle and Industrial Applications END MARKETS: Light Vehicle General Industrial Household / Whitegoods Other Transportation END MARKETS: Light Vehicle General Industrial END MARKETS: Light Vehicle General Industrial END MARKETS: Industrial Equipment for Transportation, HVAC, Electronics, Whitegoods and Sheet Metal Stamping GROWTH DRIVERS: Advanced Transmission Offerings Differentiated Product Growth GROWTH DRIVERS: Deliver Automotive GDi (Gas Direct Injection) Develop Adjacent Markets, such as Medical GROWTH DRIVERS: Expand Globally Enhance Product Offerings GROWTH DRIVERS: Expand Tool & Die Offerings Extend Machine & Vehicle Offerings / Other Adjacent Markets -17-
Molding Solutions (MS) Growth Strategy Manufacture Premium Hot Runners & Molds for Customers Requiring Superior Quality Drive Innovative Technologies for High Quality Plastic Parts Provide Unmatched Applications and Design Engineering Support Bring Reliability of System Supply, Robust Products, and Repeatable Processes for Customer Efficiency Be the Best in Industry Service and Repair Support Deliver the Lowest Total Cost of Ownership Expand Globally BARNES MOLDING SOLUTIONS HOT RUNNERS MOLDS CONTROL SYSTEMS -18-
Engineered Components (EC) Growth Strategy Growth through a Synergetic Marketing Value Proposition and Cross-Brand Collaboration o Global Sales Team & Global Engineering Support o Marketing Plan for Cross-BU Synergetic Value Proposition o Other Synergies (e.g. Supply Chain, Quality, R&D, etc.) Expand Innovation Portfolio -19-
Nitrogen Gas Products (NGP) Growth Strategy Drive Innovation to Create Superior Customer Value Strengthen Leadership in the Global Tool & Die Market Grow Machine & Vehicle / Other Market Adjacencies Invest in Technology and Capabilities to Enable Growth More controlled force in less space -20-
Aerospace Businesses (with 2015 Segment Sales Contribution) ORIGINAL EQUIPMENT MANUFACTURING 72% Provides Highly Engineered Machined and Fabricated Components Using Super-alloys Concurrent Engineering & NPI Capabilities Deliver Value BARNES AEROSPACE AFTERMARKET 28% Maintenance, Repair, and Overhaul OEM-Source Approved for Rolls Royce, SNECMA, GE and Pratt & Whitney Engines FAA/EASA/CAAC Certified Engine Component Repair Stations Component Repair Programs (CRPs) Spare Parts Revenue Sharing Programs (RSPs) Selected Aftermarket Spare Parts for CFM56 and CF6 Engines Note: FAA is the U.S. Federal Aviation Administration, EASA is the European Aviation Safety Agency, and CAAC is the Civil Aviation Administration of China -21-
Estimated Shop Visits (000s) Fleet Size (000s) Estimated Shop Visits (000s) Fleet Size (000s) Barnes Aftermarket RSPs and CRPs Revenue Sharing Programs (RSPs) Exclusive Rights to Supply Certain Aftermarket Spare Parts to General Electric (GE) Covers Life of CFM56 & CF6 Engine Programs 13 Agreements, Entered Between 2003-2007 Investment of $294M, Amortized as a Reduction of Sales Quarterly Net Sales Can Vary Due to Inventory Management, Mix of Engines, Scope of Engine Repair, and Surplus Material for these High Margin Programs 3.0 2.5 2.0 1.5 19.7 2.36 CFM56 Family of Engines Shop Visits Fleet Size 20.8 21.9 22.5 22.6 22.2 2.66 2.46 2.74 2.79 2.82 25 20 15 10 5 Component Repair Programs (CRPs) Provides Licensing Rights from GE for Repair Services of Certain Critical Components which Improve Overall Engine Efficiency Covers Life of CFM56, CF6 and CF34 Engine Programs Allows Access to Serve Global Market as OEM Certified Repair Service 3 Agreements, Entered Between 2013-2015 Investment of $112M, Amortized as a Reduction of Sales Expands Margin Profile of Aftermarket MRO Business 1.0 1.0 0.8 0.6 2014 2015 2016 2017 2018 2019 CF6 Family of Engines Shop Visits Fleet Size 3.8 3.7 3.6 3.4 3.3 3.1 0.89 0.83 0.84 0.77 0.74 0.65 0 4 3 2 1 0.4 2014 2015 2016 2017 2018 2019 Sources: Shop Visit Forecast and Fleet Size from ICF, Aug 15 PROGRAMS ALLOW BARNES AEROSPACE TO PARTICIPATE IN OEM CERTIFIED AFTERMARKET 0-22-
Barnes Aerospace Components Shaft Nuts & Gears Rotating Air Ducts Fan Blade Metal Lead Edges & Tip Caps Engine Cases Retainer Rings Combustor Components Turbine Exhaust Cases, Cones, Cylinders and Fairings Tube and Duct Assemblies Bearing Housings Manifolds Vane Actuation Rings, Lever Arms Struts Stub Shafts Rotating Air/Oil Seals, Vane Rings, Lever Arms HP and LP Shrouds, Hangers and Segments, Machined & Fabricated -23-
Commercial Aircraft Engine Product Life Cycle COST Development: Leap B,C (B737Max,C919) GE9X (B777X) PW1000 GTF (Cseries, E Jets, MRJ) Passport (Global 7000/8000) Trent 7000 (A330Neo) Silvercrest (Dassault, Cessna) DEV. EARLY PROD. PRODUCT MATURITY SPARES Mature: CFM56 (B737, A320) CF6-80C/E (A330, B767) CF34-3/8 (CRJ, E175) CF34-10E (E195) AE3000 (Embraer, Cessna) V2500 (A320) PW4000(B767) Trent700 (A330) Trent900 (A380) GP7200 (A380) GE90-115B (B777) Early Production: Leap A (A320NEO) GENX-1B (B787) PW1000 GTF (A320NEO) GENX-2B (B747-8) Trent 1000 (B787) Trent XWB (A350) PRODUCTION VOLUME NEW EMERGING & EARLY LIFE CYCLE PROGRAMS TIME OUT OF PRODUCTION SPARES Out of Production: JT-9D (DC10,B747,B767,A310) JT-8D (DC9,MD80,B727,B737) PW2000 (B757) CF6-6 (DC10) CF6-50 (A300, B747) Trent 500 (A340) Trent 800 (B777) PARTICIPATION THROUGHOUT THE PRODUCT LIFE CYCLE -24-
Appendix: Non-GAAP Financial Measure Reconciliation ($ in Thousands, Unaudited) CONSOLIDATED RESULTS Twelve months ended December 31, 2015 2014 2013 2012 (1) Operating Income (GAAP) $ 168,396 $ 179,974 $ 123,201 $ 107,131 Synventive short-term purchase accounting adjustments - - - 4,987 Männer short-term purchase accounting adjustments 1,481 8,504 5,456 - Thermoplay short-term purchase accounting adjustments 1,167 - - - Acquisition transaction costs 970-1,823 912 Restructuring/reduction in force charges 4,222 6,020 - - Contract termination dispute charge 2,788 - - - Pension lump-sum settlement charge 9,856 - - - CEO transition costs - - 10,492 - Operating Income as adjusted (Non-GAAP) (2) $ 188,880 $ 194,498 $ 140,972 $ 113,030 Operating Margin (GAAP) 14.1% 14.3% 11.3% 11.5% Operating Margin as adjusted (Non-GAAP) (2) 15.8% 15.4% 12.9% 12.2% Diluted Income from Continuing Operations per Share (GAAP) $ 2.19 $ 2.16 $ 1.31 $ 1.44 (1) Results for 2012 have been adjusted on a retrospective basis to reflect the impact of the BDNA discontinued operations. (2) The Company has excluded the following from its historical "as adjusted" financial measurements: 2015 1) Short-term purchase accounting adjustments related to its Männer and Thermoplay acquisitions, 2) transaction costs related to its Thermoplay and Priamus acquisitions, 3) restructuring and workforce reduction charges, 4) certain charges recorded in the Aerospace segment in the third quarter of 2015 related to a contract termination dispute following a customer sourcing decision, 5) pension lump-sum settlement charge recorded in 2015 and 6) a tax benefit recognized in the third quarter of 2015 related to a refund of withholding taxes that were previously paid and included in tax expense in prior years. 2014 1) Short-term purchase accounting adjustments related to its Männer acquisition and 2) restructuring charges related to the closure of production operations at its Associated Spring facility located in Saline, Michigan. 2013 1) Short-term purchase accounting adjustments related to its Männer acquisition, 2) transaction costs related to its Männer acquisition, 3) CEO transition costs associated with the modification of outstanding equity awards and 4) the tax charge associated with the April 2013 tax court decision. 2012 1) Short-term purchase accounting adjustments related to its Synventive acquisition and 2) transaction costs related to its Synventive acquisition. The tax effect of these items was calculated based on the respective tax jurisdiction of each item. Management believes that these adjustments provide the Company and its investors with an indication of our baseline performance excluding items that are not considered to be reflective of our ongoing results. Management does not intend results excluding the adjustments to represent results as defined by GAAP, and the reader should not consider it as an alternative measurement calculated in accordance with GAAP, or as an indicator of the Company's performance. Accordingly, the measurements have limitations depending on their use. Synventive short-term purchase accounting adjustments - - - 0.07 Männer short-term purchase accounting adjustments 0.02 0.11 0.07 - Thermoplay short-term purchase accounting adjustments 0.01 - - - Acquisition transaction costs 0.02-0.03 0.01 Restructuring/reduction in force charges 0.05 0.07 - - Contract termination dispute charge 0.03 - - - Pension lump-sum settlement charge 0.11 - - - Tax benefit recognized for refund of withholding taxes (0.05) - - - CEO transition costs - - 0.12 - April 2013 tax court decision - - 0.30 - Diluted Income from Continuing Operations per Share as adjusted (Non-GAAP) (2) $ 2.38 $ 2.34 $ 1.83 $ 1.52-25-
Appendix: Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow ($ in Thousands, Unaudited) Free cash flow: Twelve months ended December 31, 2015 2014 2013 2012 Net cash provided by operating activities $ 209,895 $ 186,898 $ 10,090 $ 136,377 Capital expenditures (45,982) (57,365) (57,304) (37,787) Free cash flow (1) $ 163,913 $ 129,533 $ (47,214) $ 98,590 Free cash flow to net income cash conversion ratio (as adjusted): Free cash flow (from above) $ 163,913 $ 129,533 $ (47,214) $ 98,590 Income tax payments related to the gain on the sale of BDNA - - 130,004 - Income tax reduction related to the gain on the sale of BDNA - (12,608) - - Free cash flow (as adjusted) (2) 163,913 116,925 82,790 98,590 Net income 121,380 118,370 270,527 95,249 Gain on the sale of BDNA, net of tax - - (195,317) - Pension lump-sum settlement charge, net of tax 6,182 - - - Net income (as adjusted) (2) $ 127,562 $ 118,370 $ 75,210 $ 95,249 Free cash flow to net income cash conversion ratio (as adjusted) (2) 128% 99% 110% 104% Notes: (1) The Company defines free cash flow as net cash provided by operating activities less capital expenditures. The Company believes that the free cash flow metric is useful to investors and management as a measure of cash generated by business operations that can be used to invest in future growth, pay dividends, repurchase stock and reduce debt. This metric can also be used to evaluate the Company's ability to generate cash flow from business operations and the impact that this cash flow has on the Company's liquidity. (2) For the purpose of calculating the cash conversion ratio, the Company has excluded the following: 2015 Pension lump-sum settlement charge, net of tax, from net income. 2014 The utilization of the year-end 2013 income tax receivable (related to the gain on the sale of BDNA) to offset the 2014 payments from free cash flow. 2013 The income tax payments related to the gain on the sale of BDNA made during 2013 from free cash flow and the gain on the sale of BDNA from net income. -26-
Appendix: Non-GAAP Forecast Financial Measure Reconciliation Full-Year 2016 Outlook (1) Diluted Net Income per Share (GAAP) $ 2.43 to $ 2.53 Contract Termination Dispute Charges 0.03 Diluted Net Income per Share as adjusted (Non-GAAP) (2) $ 2.46 to $ 2.56 Notes: (1) The financial impact of the announced FOBOHA acquisition has not been included in the Company s 2016 Outlook. (2) The Company has excluded the following from its "as adjusted" financial outlook : contract termination dispute charges for 2016. The tax effect of this item was calculated at 37%. Management believes that these adjustments provide the Company and its investors with an indication of our baseline performance excluding items that are not considered to be reflective of our ongoing results. Management does not intend results excluding the adjustments to represent results as defined by GAAP, and the reader should not consider it as an alternative measurement calculated in accordance with GAAP, or as an indicator of the Company's performance. Accordingly, the measurements have limitations depending on their use. -27-
Forward-Looking Statements This presentation contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements often address our expected future operating and financial performance and financial condition, and often contain words such as "anticipate," "believe," "expect," "plan," "estimate," "project," and similar terms. Among others, our sales outlook, backlog, aircraft utilization, demographics, exchange rate assumptions, sales per aircraft and guidance are all forward-looking statements. These forwardlooking statements do not constitute guarantees of future performance and are subject to a variety of risks and uncertainties that may cause actual results to differ materially from those expressed in the forward-looking statements. These include, among others: difficulty maintaining relationships with employees, including unionized employees, customers, distributors, suppliers, business partners or governmental entities; failure to successfully negotiate collective bargaining agreements or potential strikes, work stoppages or other similar events; changes in market demand for our products and services; rapid technological and market change; the ability to protect intellectual property rights; introduction or development of new products or transfer of work; higher risks in international operations and markets; the impact of intense competition; acts of terrorism, cybersecurity attacks or intrusions that could adversely impact our businesses; uncertainties relating to conditions in financial markets; currency fluctuations and foreign currency exposure; future financial performance of the industries or customers that we serve; our dependence upon revenues and earnings from a small number of significant customers; a major loss of customers; inability to realize expected sales or profits from existing backlog or consistent with projected sales per aircraft due to a range of factors, including changes in customer sourcing decisions, materials, material costs, part design, quantity of parts per engine, percentage of work directed to us, engine spares, cost schedules, production schedules and volumes of specific programs; the impact of government budget and funding decisions; changes in raw material or product prices and availability; integration of acquired businesses; restructuring costs or savings; the continuing impact of prior acquisitions and divestitures, and any other future strategic actions, including acquisitions, divestitures, restructurings, or strategic business realignments, including the planned acquisition of the FOBOHA business, and our ability to achieve the financial and operational targets set in connection with any such actions; the outcome of pending and future legal, governmental, or regulatory proceedings and contingencies and uninsured claims, including the arbitration proceedings involving Triumph Actuation Systems - Yakima, LLC; future repurchases of common stock; future levels of indebtedness; and numerous other matters of a global, regional or national scale, including those of a political, economic, business, competitive, environmental, regulatory and public health nature; and other risks and uncertainties described in documents filed with or furnished to the Securities and Exchange Commission ("SEC") by the Company, including, among others, those in the Management's Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors sections of the Company's filings. The Company assumes no obligation to update its forward-looking statements. -28-