Form 8-K ESTERLINE TECHNOLOGIES For: May 05

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

May 5, 2016

Date of Report (Date of earliest event reported)

 

 

ESTERLINE TECHNOLOGIES CORPORATION

(Exact Name of Registrant as Specified in Charter)

 

 

 

Delaware		001-06357		13-2595091
(State or Other Jurisdiction of Incorporation)		(Commission File No.)		(IRS Employer Identification No.)
500-108th Avenue NE, Bellevue, Washington				98004
(Address of principal executive offices)				(Zip Code)

(425) 453-9400

(Registrant’s telephone number, including area code)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨	Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Item 2.02 Results of Operations and Financial Condition.

On May 5, 2016, Esterline Technologies Corporation issued a press release announcing financial results for the three and six months ended April 1, 2016. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference. In addition, supplemental information regarding the financial results for periods presented in the press release is attached hereto as Exhibit 99.2. The press release and the supplemental financial information should be read in conjunction with the note regarding forward-looking statements, which is included in the text of the press release and as part of the supplemental financial information.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit No.		Description
99.1		Press release announcing financial results issued by Esterline Technologies Corporation dated May 5, 2016.
99.2		Supplemental Financial Information dated May 5, 2016.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

		ESTERLINE TECHNOLOGIES CORPORATION
Dated: May 5, 2016		By:		/s/ ROBERT D. GEORGE
		Name:		Robert D. George
		Title:		Chief Financial Officer, Vice President & Corporate Development

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EXHIBIT INDEX

 

Exhibit No.		Description
99.1		Press release announcing financial results issued by Esterline Technologies Corporation dated May 5, 2016.
99.2		Supplemental Financial Information dated May 5, 2016.

Exhibit 99.1

 

FOR IMMEDIATE RELEASE

Contact: Julie Albrecht

+1 425-453-9400

ESTERLINE REPORTS FISCAL 2016 SECOND QUARTER FINANCIAL RESULTS

 

•

Sales of $490.3 million in the fiscal second quarter; strong book-to-bill of 1.2

 

•

Earnings from continuing operations of $17.0 million; adjusted earnings from continuing operations of $27.3 million

 

•

GAAP earnings per diluted share from continuing operations of $0.57; adjusted earnings per diluted share of $0.92

BELLEVUE, Wash., May 5, 2016 – Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving the global aerospace and defense markets, today reported results for the second fiscal quarter ended April 1, 2016. During the quarter, the company reported consolidated revenue of $490.3 million, an increase of 4.7% compared with the year-ago period of $468.2 million. Higher revenue in the fiscal 2016 period was primarily attributable to higher sales volumes and demand across all business segments. All comparisons to prior-year periods are against a recast fiscal 2015 for the 12 months ended October 2, 2015, to align with the company’s new fiscal calendar.

Earnings from continuing operations in the second quarter of fiscal 2016 were $17.0 million, or $0.57 per diluted share, compared with prior-year earnings from continuing operations of $24.9 million, or $0.79 per diluted share. Adjusted earnings from continuing operations for the second fiscal quarter of 2016 were $27.3 million, or $0.92 per diluted share. In the comparable period of the prior year, adjusted earnings from continuing operations were $29.4 million, or $0.92 per diluted share. For the second fiscal quarter of 2016, adjusted results exclude $0.21 per diluted share related to previously announced integration and incremental compliance activities and $0.14 per diluted share related to long-term contract adjustments (see Table 1). GAAP and adjusted earnings from continuing operations in the second fiscal quarter of 2016 include a $0.17 per diluted share negative impact from foreign exchange mark-to-market accounting.

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Page 2 of 9 Esterline Reports Fiscal 2016 Second Quarter Financial Results

 

Table 1: Effect of Certain Items on 2nd Fiscal Quarter 2016

Earnings from Continuing Operations

 

		$ Millions				EPS
Earnings (GAAP)		$	17.0			$	0.57
Accelerated Integration Costs			1.6				0.05
Compliance Costs			1.4				0.05
DAT Integration Costs			3.1				0.11
Long-term Contract Adjustments			4.2				0.14
Adjusted Earnings (non-GAAP)		$	27.3			$	0.92

Curtis Reusser, Esterline’s Chief Executive Officer, said, “This was a solid quarter for us focused on execution. We continued to make progress in our strategic areas, we saw good improvement in our top-line, and we’re on track with our current full-year guidance expectations.”

Including discontinued operations, net earnings for the second fiscal quarter of 2016 were $15.0 million, or $0.50 per diluted share, compared with $10.3 million, or $0.33 per diluted share, in the comparable period in fiscal 2015. Net earnings in the second fiscal quarter of 2016 included a $2.0 million loss from discontinued operations, while the prior year included a $14.6 million loss from discontinued operations.

New orders in the second quarter of fiscal 2016 were $567.9 million, compared with $418.5 million in the comparable prior-year period. The higher orders reflect strong commercial aerospace and defense demand across the company’s three business segments. Backlog at the end of the quarter was $1.4 billion, compared with $1.1 billion at the end of the second quarter of fiscal 2015.

Gross profit in the second fiscal quarter of 2016 was $156.2 million, compared with $150.0 million in the prior-year period. Reported gross margin as a percentage of sales in the second fiscal quarter of 2016 was 31.9% compared with 32.0% in the prior-year period. On an adjusted basis, excluding the discrete items consistent with adjusted earnings, the company reported gross margin of $162.9 million, or 33.2% of sales, in the second fiscal quarter of 2016, compared with adjusted gross margin of $159.3 million, or 34.0% of sales, in the prior year.

Selling, general and administrative (SG&A) expenses during the second fiscal quarter of 2016 were $102.4 million, compared with $99.4 million in the prior-year period. Higher SG&A was driven by the inclusion of the defense, aerospace and training businesses (DAT) for a full quarter in 2016. Second fiscal quarter SG&A expenses as a percent of sales were 20.9% in fiscal 2016, compared with the prior-year level of 21.2%.

 

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Page 3 of 9 Esterline Reports Fiscal 2016 Second Quarter Financial Results

 

Research, development and engineering (R&D) spending in the second quarter of fiscal 2016 was $25.0 million, or 5.1% of sales, compared with $25.1 million, or 5.4% of sales, in the prior-year period. The company expects full-year R&D spending to be approximately 5.0% of sales.

The company’s income tax rate in the second quarter of fiscal 2016 was 16.6% compared with 18.6% in the prior-year period. For the full year, the company expects a tax rate of 17% to 19%.

For the first half of fiscal 2016, sales were $931.8 million, a decline of 4.2% compared with $972.8 million in the first half of fiscal 2015. Lower revenue compared to the prior-year period was primarily due to lower end-market demand and shipment and production delays in the first fiscal quarter of 2016. Additionally, the incremental contribution from DAT, acquired from Barco N.V. in January of 2015, was partially offset by an unfavorable impact from foreign exchange rates. First-half fiscal 2016 GAAP earnings from continuing operations were $26.9 million, or $0.90 per diluted share, compared with the prior-year period results of $59.4 million, or $1.86 per diluted share. Excluding the discrete costs described in Table 2 below, adjusted earnings from continuing operations in the first six months of fiscal 2016 were $45.7 million, or $1.53 per diluted share, compared with the prior-year period results of $77.1 million, or $2.41 per diluted share.

Table 2: Effect of Certain Items on YTD Fiscal 2016

Earnings from Continuing Operations

 

		$ Millions				EPS
Earnings (GAAP)		$	26.9			$	0.90
Accelerated Integration Costs			3.0				0.10
Compliance Costs			4.9				0.16
DAT Integration Costs			6.8				0.23
Long-term Contract Adjustments			4.1				0.14
Adjusted Earnings (non-GAAP)		$	45.7			$	1.53

Cash flow from operations through the six months ended April 1, 2016, was $79.9 million, compared with $50.9 million through the six months ended March 27, 2015. Excluding capital expenditures of $42.5 million, free cash flow was $37.4 million in the first six months of fiscal 2016. In the six months ended March 27, 2015 and excluding capital expenditures of $25.3 million, free cash flow was $25.6 million. Additionally, during the second fiscal quarter of 2016, the company repurchased 202,310 of its shares for $12.1 million.

Conference Call Information

Esterline will host a conference call to discuss this announcement today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). The U.S. dial-in number is 877-307-0078; outside the U.S., use 531-289-2890.

 

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Page 4 of 9 Esterline Reports Fiscal 2016 Second Quarter Financial Results

 

The pass code for the call is: 92658389. The company has posted a presentation on its website (www.esterline.com) under “Presentations” in the Investor Relations section to provide additional information about its second fiscal quarter operational and financial results. The presentation is also included as Exhibit 99.2 to the company’s report on Form 8-K, which is being submitted today to the SEC.

Non-GAAP Financial Information

This press release and the related presentation providing supplemental financial information include non-GAAP financial measures—adjusted earnings from continuing operations, adjusted earnings from continuing operations per diluted share, adjusted earnings before interest and tax (EBIT), operating earnings from continuing operations adjusted to exclude depreciation and amortization expense (EBITDA), adjusted gross margin, and free cash flow—that have not been calculated in accordance with generally accepted accounting principles in the U.S. (GAAP). Adjusted earnings from continuing operations consist of earnings from continuing operations attributable to Esterline less the costs associated with certain integration activities—including restructuring charges—and incremental compliance costs as well as discrete items associated with our acquisition of the DAT business in January 2015, adjustments to reserves on long-term contracts incurred in the periods presented and unique amounts related to pension expense, in each case, as further detailed in the tables below. Adjusted earnings from continuing operations per diluted share divides each element of adjusted earnings from continuing operations by the weighted average number of shares outstanding, diluted for the periods presented. EBIT is defined as operating earnings from continuing operations. Adjusted EBIT excludes the same costs excluded from adjusted earnings from continuing operations set forth in the table below. Second fiscal quarter 2016 adjusted gross margin excludes the cost of certain integration activities and adjustments to long-term contract reserves totaling $6.7 million from GAAP gross margin. Fiscal second quarter 2015 adjusted gross margin excludes certain integration costs, purchase accounting charges and adjustments to long-term contract reserves totaling $9.3 million. In accordance with the SEC’s requirements, below is the reconciliation of the non-GAAP adjusted earnings from continuing operations to the comparable GAAP earnings from continuing operations and additional relevant reconciliations are included in the presentation providing supplemental financial information.

 

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Page 5 of 9 Esterline Reports Fiscal 2016 Second Quarter Financial Results

 

In millions, except per share amounts
		Three								Recast Three
		Months Ended								Months Ended
		April 1, 2016								March 27, 2015
						Diluted								Diluted
						EPS								EPS
Earnings from Continuing Operations Attributable to Esterline (GAAP), Net of Tax		$	17.0			$	0.57			$	24.9			$	0.79
Accelerated Integration Costs, Net of Tax of $0.3 and $0.7			1.6				0.05				3.1				0.09
Compliance Costs, Net of Tax of $0.6 and $0.7			1.4				0.05				3.0				0.09
DAT Integration and Purchase Acctg Adjustments, Net of Tax of $0.9 and $0.8			3.1				0.11				3.7				0.11
DAT Closing Expenses, Net of Tax of $1.1			—				—				4.2				0.14
Long-term Contract Adjustments, Net of Tax of $0.5 and $1.1			4.2				0.14				4.2				0.13
Non-Income Tax Gain, Net of Tax of $4.4			—				—				(13.7	)			(0.43	)
Adjusted Earnings from Continuing Operations (non-GAAP), Net of Tax		$	27.3			$	0.92			$	29.4			$	0.92
In millions, except per share amounts
			Six								Recast Six
			Months Ended								Months Ended
			April 1, 2016								March 27, 2015
						Diluted								Diluted
						EPS								EPS
Earnings from Continuing Operations Attributable to Esterline (GAAP), Net of Tax		$	26.9			$	0.90			$	59.4			$	1.86
Accelerated Integration Costs, Net of Tax of $0.3 and $2.0			3.0				0.10				7.3				0.23
Compliance Costs, Net of Tax of $0.6 and $1.6			4.9				0.16				5.7				0.17
DAT Integration and Purchase Acctg Adjustments, Net of Tax of $0.8 and $0.8			6.8				0.23				3.7				0.12
DAT Closing Expenses, Net of Tax of $1.3			—				—				4.7				0.15
Long-term Contract Adjustments, Net of Tax of $0.5 and $2.2			4.1				0.14				7.7				0.24
Pension Expense, Net of Tax of $0.7			—				—				2.3				0.07
Non-Income Tax Gain, Net of Tax of $4.4			—				—				(13.7	)			(0.43	)
Adjusted Earnings from Continuing Operations (non-GAAP), Net of Tax		$	45.7			$	1.53			$	77.1			$	2.41

The company provides these non-GAAP financial measures as supplemental information to the GAAP financial measures. Management uses these non-GAAP financial measures to (a) evaluate the company’s historical and prospective financial performance and its performance relative to its competitors, (b) allocate resources, and (c) measure the operational performance of the company’s business units.

 

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Page 6 of 9 Esterline Reports Fiscal 2016 Second Quarter Financial Results

 

In addition, management believes investors’ and financial analysts’ understanding of the company’s performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing the company’s historical results of operations.

These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the comparable GAAP measures, and free cash flow is not necessarily indicative of amounts available for discretionary use. There are limitations to these non-GAAP financial measures because they are not prepared in accordance with GAAP and may not be comparable to similarly titled measures of other companies due to potential differences in methods of calculation and items that comprise the calculation. The company compensates for these limitations by using these non-GAAP financial measures as a supplement to the GAAP measures and by providing reconciliations of the non-GAAP and comparable GAAP financial measures. The non-GAAP financial measures should be read only in conjunction with the company’s consolidated financial statements prepared in accordance with GAAP.

 

 

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Page 7 of 9 Esterline Reports Fiscal 2016 Second Quarter Financial Results

 

ESTERLINE TECHNOLOGIES CORPORATION

Consolidated Statement of Operations (unaudited)

In thousands, except per share amounts

 

		Three Months Ended								Six Months Ended
		April 1,				March 27,				April 1,				March 27,
		2016				2015				2016				2015
						(Recast)								(Recast)
Segment Sales
Avionics & Controls		$	198,665			$	187,330			$	384,910			$	393,947
Sensors & Systems			176,069				171,538				328,499				354,432
Advanced Materials			115,576				109,342				218,378				224,442
Net Sales			490,310				468,210				931,787				972,821
Cost of Sales			334,137				318,193				637,895				644,563
			156,173				150,017				293,892				328,258
Expenses
Selling, general and administrative			102,423				99,432				196,514				197,521
Research, development and engineering			24,974				25,143				50,549				48,674
Restructuring charges			940				1,634				1,871				4,927
Other income			—				(12,744	)			—				(12,744	)
Total Expenses			128,337				113,465				248,934				238,378
Operating Earnings from Continuing Operations			27,836				36,552				44,958				89,880
Interest Income			(94	)			(135	)			(181	)			(319	)
Interest Expense			7,294				5,934				14,510				14,016
Earnings from Continuing Operations Before Income Taxes			20,636				30,753				30,629				76,183
Income Tax Expense			3,416				5,714				3,383				16,686
Earnings from Continuing Operations Including Noncontrolling Interests			17,220				25,039				27,246				59,497
Earnings Attributable to Noncontrolling Interests			(224	)			(108	)			(386	)			(91	)
Earnings from Continuing Operations Attributable to Esterline, Net of Tax			16,996				24,931				26,860				59,406
Loss from Discontinued Operations, Attributable to Esterline, Net of Tax			(2,023	)			(14,600	)			(6,803	)			(20,476	)
Net Earnings Attributable to Esterline		$	14,973			$	10,331			$	20,057			$	38,930
Earnings (Loss) Per Share—Basic:
Continuing Operations		$	.58			$	.80			$	.91			$	1.89
Discontinued Operations			(.07	)			(.47	)			(.23	)			(.65	)
Earnings (Loss) Per Share—Basic		$	.51			$	.33			$	.68			$	1.24
Earnings (Loss) Per Share—Diluted:
Continuing Operations		$	.57			$	.79			$	.90			$	1.86
Discontinued Operations			(.07	)			(.46	)			(.23	)			(.64	)
Earnings (Loss) Per Share—Diluted		$	.50			$	.33			$	.67			$	1.22
Weighted Average Number of Shares Outstanding—Basic			29,588				31,162				29,585				31,401
Weighted Average Number of Shares Outstanding—Diluted			29,825				31,687				29,882				31,937

 

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Page 8 of 9 Esterline Reports Fiscal 2016 Second Quarter Financial Results

 

ESTERLINE TECHNOLOGIES CORPORATION

Consolidated Sales and Earnings From Continuing Operations by Segment (unaudited)

In thousands

 

		Three Months Ended								Six Months Ended
		April 1,				March 27,				April 1,				March 27,
		2016				2015				2016				2015
						(Recast)								(Recast)
Segment Sales
Avionics & Controls		$	198,665			$	187,330			$	384,910			$	393,947
Sensors & Systems			176,069				171,538				328,499				354,432
Advanced Materials			115,576				109,342				218,378				224,442
Net Sales		$	490,310			$	468,210			$	931,787			$	972,821
Earnings from Continuing Operations Before Income Taxes
Avionics & Controls		$	2,649			$	7,934			$	12,062			$	45,260
Sensors & Systems			20,944				16,256				33,728				33,714
Advanced Materials			23,208				19,469				36,198				41,024
Segment Earnings			46,801				43,659				81,988				119,998
Corporate expense			(18,965	)			(19,851	)			(37,030	)			(42,862	)
Other income			—				12,744				—				12,744
Interest income			94				135				181				319
Interest expense			(7,294	)			(5,934	)			(14,510	)			(14,016	)
Earnings from Continuing Operations Before Income Taxes		$	20,636			$	30,753			$	30,629			$	76,183

 

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Page 9 of 9 Esterline Reports Fiscal 2016 Second Quarter Financial Results

 

ESTERLINE TECHNOLOGIES CORPORATION

Consolidated Balance Sheet (unaudited)

In thousands

 

		April 1,				October 2,
		2016				2015
Assets
Current Assets
Cash and cash equivalents		$	219,271			$	191,355
Escrow cash			1,125				—
Accounts receivable, net			374,090				380,748
Inventories			460,717				446,768
Income tax refundable			11,411				12,575
Deferred income tax benefits			—				41,082
Prepaid expenses			21,816				23,008
Other current assets			6,213				5,427
Current assets of businesses held for sale			19,217				27,851
Total Current Assets			1,113,860				1,128,814
Property, Plant and Equipment, Net			327,364				309,399
Other Non-Current Assets
Goodwill			1,042,283				1,041,991
Intangibles, net			425,457				452,040
Deferred income tax benefits			65,783				28,979
Other assets			15,988				14,348
Non-current assets of businesses held for sale			21,305				24,917
		$	3,012,040			$	3,000,488
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable		$	123,309			$	117,976
Accrued liabilities			257,681				259,734
Current maturities of long-term debt			17,182				13,376
Federal and foreign income taxes			1,527				2,404
Current liabilities of businesses held for sale			14,180				17,106
Total Current Liabilities			413,879				410,596
Long-Term Liabilities
Credit facilities			165,000				160,000
Long-term debt, net of current maturities			698,583				701,457
Deferred income tax liabilities			63,073				73,849
Pension and post-retirement obligations			74,188				75,019
Other liabilities			24,182				29,367
Non-current liabilities of businesses held for sale			822				2,409
Total Shareholders’ Equity			1,572,313				1,547,791
		$	3,012,040			$	3,000,488

 

Q2 2016 Supplemental Financial Information May 5, 2016 Exhibit 99.2

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This presentation may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “should” or “will,” or the negative of such terms, or other comparable terminology. These forward-looking statements are only predictions based on the current intent and expectations of the management of Esterline, are not guarantees of future performance or actions, and involve risks and uncertainties that are difficult to predict and may cause Esterline’s or its industry’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Esterline's actual results and the timing and outcome of events may differ materially from those expressed in or implied by the forward-looking statements due to risks detailed in Esterline's public filings with the Securities and Exchange Commission including its most recent Transition Report on Form 10-K. This presentation also contains references to non-GAAP financial information subject to Regulation G. The reconciliations of each non-GAAP financial measure to its comparable GAAP measure as well as further information on management’s use of non-GAAP financial measures are included in Esterline’s press release dated May 5, 2016, included as Exhibit 99.1 to Form 8-K filed with the SEC on the same date, as well as in this presentation.

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Category Status Sales Strong Q2-2016 orders in both defense and commercial aerospace (Book to bill = 1.2) Improved operational execution contributed to Q2-2016 sales growth Global Footprint Two remaining “accelerated integration” projects scheduled to complete in fiscal 2016 Moving production from two US sites into Everett (leveraging available space post major facility layout event) Purchased DAT Belgium building; Reducing related footprint by 30% using lean tools Strategic Sourcing - Wave 1 and 2 cost savings on track; Wave 3 process active Savings projections and timelines on track Cost savings opportunity exploration continues Operating System In-process lean transformation impacting ~ 80% global footprint Ongoing Continuous Improvement Academies; Training ~ 700 employees in 2016 Everett major facility re-layout event yielding positive results Discontinued Operations Closed on sale of Wallop assets (May 2016) 2016 Update

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Q2 2016 Financial Results Sales of $490 million, up 4.7%* Organic sales up $20 million $12 million from DAT acquisition offset by $10 million FX impact GAAP EPS of $0.57 Adjusted EPS of $0.92** (excludes certain discrete items) YTD free cash flow of $37.4 million** * Comparison is to the recast three-month period ended March 27, 2015. ** See Page 1 regarding non-GAAP financial measures.

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Q2 2016 Year-over-Year (YOY) Summary* Dollars in millions, except EPS Q2 2016 Q2 2015* Change Sales $ 490 $ 468 $ 22 Gross Margin $ 156 $ 150 $ 6 - % of sales 32% 32% -- Net Earnings from Continuing Operations $ 17 $ 25 $ (8) Net Earnings Per Diluted Share $ 0.57 $ 0.79 $ (0.22) * Comparison is to the recast three-month period ended March 27, 2015.

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Q2 2016 Earnings Adjustment Dollars in millions, except EPS Earnings from Continuing Ops EPS GAAP $ 17.0 $ 0.57 Accelerated integration 1.6 0.05 Incremental compliance 1.4 0.05 DAT integration 3.1 0.11 Long-term contract adjustments 4.2 0.14 Adjusted * $ 27.3 $ 0.92 * See Page 1 regarding non-GAAP financial measures.

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Q2 2016 Sales Change (YOY)* Items Sales Q2 2015* $ 468 Foreign currency translation (11) FX forward contract gain 1 DAT incremental 12 Sales volume 20 Q2 2016 $ 490 Dollars in millions * Comparison is to the recast three-month period ended March 27, 2015.

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Q2 2016 Segment Sales Change (YOY)* Total Change Organic¹ FX Acquisition Avionics & Controls 6% 3% (4%) 7% Sensors & Systems 3% 3% (1%) - Advanced Materials 6% 8% (2%) - Total 5% 4% (2%) 3% ¹ Q2 2016 organic sales growth represents the total reported increase within the company’s continuing operations less the impact of all foreign currency translation and hedging activities and acquisitions. * Comparison is to the recast three-month period ended March 27, 2015.

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Q2 2016 Gross Margin Change (YOY)* Items Gross Margin Q2 2015* $ 150 Foreign currency translation (7) FX forward contract gain 1 DAT incremental 5 Sales volume / mix 7 Q2 2016 $ 156 Dollars in millions * Comparison is to the recast three-month period ended March 27, 2015.

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YTD Q2 2016 Free Cash Flow Reconciliation * Comparison is to the recast six-month period ended March 27, 2015. ** See Page 1 regarding non-GAAP financial measures. YTD Q2 2016 YTD Q2 2015* Net Earnings $ 20 $ 39 Depreciation and amortization 49 50 Change in working capital (A/R, Inventory, A/P) 2 (21) Other 9 (17) Cash flow from operations $ 80 $ 51 Capital expenditures (43) (25) Free cash flow** $ 37 $ 26 Dollars in millions; GAAP results Amounts included in Free Cash Flow - GAAP YTD Q2 2016 YTD Q2 2015* Adjustments to Net Income (after-tax) ** $ 19 $ 18 Loss from Discontinued Operations $ (7) $ (20)

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YTD Q2 2016 EBITDA * Comparison is to the recast six-month period ended March 27, 2015. ** See Page 1 regarding non-GAAP financial measures. YTD Q2 2016 YTD Q2 2015* Operating Earnings from Continuing Operations $ 45 $ 90 Depreciation and amortization 49 50 EBITDA from Continuing Operations ** $ 94 $ 140 Dollars in millions

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Share Repurchase Update # Shares In thousands $ Value In millions $ Authorization Remaining In millions FY 2014 269 $ 30.3 FY 2015 2,562 259.5 Q1 2016 0 0 Q2 2016 202 12.1 Total since inception* 3,033 $ 301.9 $98.1 * $400 million total authorization for share repurchase.

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2016 Guidance Guidance Sales $1.925B - $1.975B GAAP EPS (diluted, continuing ops) $3.42 - $3.82 Adjusted EPS* (diluted, continuing ops) $4.40 - $4.80 EBITDA* $230M - $250M Free Cash Flow* $110M - $130M Guidance 2016 Adjusted EPS GAAP EPS (diluted, continuing ops) $3.42 - $3.82 Accelerated Integration $0.17 Incremental Compliance $0.31 DAT Integration $0.37 Long-Term Contract Adjustment $0.13 Adjusted EPS* (diluted, continuing ops) $4.40 - $4.80 Reaffirm 2016 Guidance * See Page 1 regarding non-GAAP financial measures.

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Appendix

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2015 Recast Income Statement* * See Page 1 regarding non-GAAP financial measures.

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2015 Recast Income Statement

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2015 Recast EPS - Adjustments* * See Page 1 regarding non-GAAP financial measures.

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Q2 2016 Adjusted Gross Margin and EBIT* * See Page 1 regarding non-GAAP financial measures ** Accelerated Integration and DAT Integration costs are split between COGS and SG&A.

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Q2 2015* Adjusted Gross Margin and EBIT** 18 * Q2 2015 is the recast three-month period ended March 27, 2015. ** See Page 1 regarding non-GAAP financial measures.

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Q3 2015* Adjusted Gross Margin and EBIT** 19 * Q3 2015 is the recast three-month period ended June 26, 2015. ** See Page 1 regarding non-GAAP financial measures.

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Q4 2015* Adjusted Gross Margin and EBIT** * Q4 2015 is the recast three-month period ended October 2, 2015. ** See Page 1 regarding non-GAAP financial measures.

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