刘玥首次大战黑人

(INTRODUCTION FOR CONFERENCE CALL)

听

Before we begin, we call your attention to the fact that we may make forward-looking statements during the course of this conference call. These forward-looking statements are not guarantees of our future performance and are subject to risks, uncertainties and other factors that could cause actual performance to differ materially from such statements. A description of these risks, uncertainties and other factors is contained in our news release of April 30, 2021 our most recent Form 8K filed on April 30, 2021 and in certain of our other public filings with the SEC.

We've provided some financial schedules to help our listeners better follow along with the prepared comments. For those of you who do not already have the document, a copy of today's financial presentation is available on our investor relations webcast page at .

听

听

Good morning.听 Thanks for joining us.听 This morning we鈥檒l report on the second quarter of fiscal 鈥�21.听 Over the last 90 days, we鈥檝e become more confident that global operating conditions have stabilized to the point where we feel comfortable providing guidance for the second half of the year.听 Overall it was a very good quarter and we鈥檙e optimistic that the remainder of our fiscal year will continue this strong performance.听

I鈥檒l follow my usual format today, starting with the headlines under the 3 headings of macro-economic, micro-economic and 刘玥首次大战黑人specific items.听听

Headlines

First, on the macro front, we鈥檝e seen a lot of change in the last 90 days.听 In the U.S., the new administration is firmly in place in Washington and federal spending is set to increase dramatically over the next few years as COVID relief, infrastructure investment and green initiatives are aggressively pursued.听 Eventually, U.S. tax payers will have to pay for this spending and it now seems inevitable that corporate tax rates are set to increase 鈥� the only question is by how much and when.听 For the coming year the defense budget seems to have averted any major impact but, given that defense is a major portion of the federal budget, we assume that longer term defense spending will be impacted.听 On the other hand, global tensions continue to simmer with China starting to assert itself as the equal of the U.S., Russia threatening the Ukraine and both Iran and North Korea pursuing their nuclear agendas.听 Trade and national security have become intertwined as the U.S. seeks to re-establish a base in critical capabilities including chip manufacture and supply chains for the key components of tomorrows clean tech economy.

On the COVID front, we鈥檙e seeing optimism in the U.S. as vaccinations reach over half of the adult population and the talk turns to reopening the economy in full.听 This contrasts to the on-going challenges in Europe and South America, where vaccination rates are much lower, and the emerging crisis in Asia, particularly India, as new variants fuel the next wave of infections.听 Overall, the global economy is showing signs of renewed strength driving supply chain shortages in critical components, particularly electronics.听

Second, on the micro-economic front, our major markets are continuing to perform well.听 Spending on defense and space applications continues to be robust and we鈥檙e starting to see a slow recovery in some of our industrial markets.听 Commercial air traffic is on an upswing, driven by domestic demand.听 Boeing is ramping up deliveries of the 737 Max and resumed deliveries of the 787 in the quarter.听 Production rates at Airbus have stabilized and the aftermarket is much improved from 6 months ago.听 Overall, a much more encouraging picture than 12 months ago as we headed into the pandemic.听

Third, it was another good quarter for our business.听 Total sales were down only 4% relative to a year ago, despite a near 40% decline in our commercial book of business.听 As we discuss our performance relative to the same quarter a year ago, it鈥檚 important to keep in mind that our second quarter last year was the last 鈥減re-COVID鈥� quarter we enjoyed.听

GAAP earnings per share this quarter of $1.51 were up marginally from the same quarter a year ago but included $0.18 of benefit from a curtailment gain on a foreign pension plan.听 Absent this gain, adjusted earnings per share of $1.33 were the strongest quarter we鈥檝e had since COVID hit and clearly show the underlying strength of our diverse portfolio of businesses.听 COVID continues to impact our business globally, but our infections have come down over the last quarter and our operations have continued to perform.听 We鈥檝e not yet started to bring our office folks back into the work place but are optimistic that this will start to happen in select geographies as we enter our fourth quarter.听 Cash flow in the quarter was soft after a blowout first quarter.听 Despite the soft second quarter, year to date we鈥檙e still running a healthy conversion ratio of over 90%.听 Looking at our key markets, defense and space continue strong, industrial is showing early signs of recovery, commercial is stable and medical is solid but coming off a surge in COVID-related demand over the last year.听 Our supply chains continue to function well although the emerging component shortages in the industrial markets are a watch item for the coming quarters.

Finally, on February 18th, our Space team celebrated the successful landing of the Perseverance Rover on the surface of Mars.听 The 刘玥首次大战黑人team provided valves which metered the flow of fuel to the descent rocket motors.听 We use the phrase 鈥渨hen performance really matters鈥� to illustrate the critical nature of the applications which use our products.听 Ensuring a safe landing on the surface of Mars, after a 7 month, 200 million mile journey, is the perfect example of when 鈥減erformance really matters鈥�.听 My congratulations to all our team members who contributed to this technological wonder.听

Now let me move to the details starting with the first quarter results.听

Q2 Fiscal 鈥�21

Sales in the quarter of $736 million were 4% lower than last year.听 Similar to the story for the last 4 quarters, sales were up in defense, space and medical, down slightly in Industrial and significantly lower in commercial.听 Taking a look at the P&L, gross margin was in line, while R&D was up slightly, partially driven by the Genesys acquisition.听 SG&A was down on a dollar basis but up marginally as a percentage of sales.听 Interest expense was in line.听 We had a one time, $6 million gain in the 鈥渙ther鈥� line associated with a pension curtailment in a foreign plan which Jennifer will explain in more detail.听 The effective tax rate this quarter was 21.6% resulting in net income of $49 million, down 2% from last year, and earnings per share of $1.51 up 2% from last year on a lower share count.听听

Fiscal 鈥�21 Outlook

We continue to assume that COVID will be a major factor through the end of this fiscal year and are planning accordingly.听 We believe the second half will be very similar to the first both in terms of sales by market and underlying earnings.听 I鈥檒l provide more detail in the round up for each segment.听 Taken all together, we鈥檙e expecting full year sales of $2.84 billion and full year earnings per share of $5.00, plus or minus $0.20.

Now to the segments.听 I鈥檇 remind our listeners that we鈥檝e provided a 3-page supplemental data package, posted on our webcast site, which provides all the detailed numbers for your models.听 We suggest you follow this in parallel with the text.

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Aircraft

Aircraft Q2

Sales in the quarter of $304 million were 11% lower than last year.听 The pattern of the past year continued with strong military sales compensating for lower commercial sales.听 Comparing with the same quarter last year, military OEM sales were up a third on increased funded development work and higher F-35 sales.听 We also booked $8 million in sales from our Genesys acquisition, which completed at the end of December.听 In contrast to the OEM, the military aftermarket was down 20% from a very strong Q2 last year.听 The softness was a combination of some delayed shipments at the end of the quarter, combined with a more general slowdown across a broad range of programs.听 It鈥檚 too early to tell if this is a trend or just the natural fluctuation in the business on a quarterly basis.听

On the commercial side, OEM sales were down almost 40% from a year ago with continued weakness across the complete portfolio.听 Sales on our two largest programs, the 787 and the A350, were both down over 40% while sales on business jets were down almost 50%.听 The commercial aftermarket was down 34%.听

On a sequential basis, Q2 shows some encouraging signs over the first quarter.听 Military sales remained strong, albeit down slightly from the first quarter on lower aftermarket sales.听 Commercial OEM sales showed nice improvement across almost the entire portfolio as production rates stabilized and Boeing deliveries of 787 resumed.听 The commercial aftermarket was also up as domestic flight operations continue to improve.听

Aircraft Margins

Margins in the quarter were 7.2%.听 In reviewing the margin performance this quarter three comparisons help tell the story.听 First, as expected, margins were down from Q2 fiscal 鈥�20 on the lower commercial sales.听 Second, also as expected, margins were down sequentially from our first quarter.听 90 days ago, we explained that we had an unusually favorable mix in the first quarter and were anticipating lower margins in subsequent quarters.听 Third, and most important, margins are up significantly from the adjusted run rate of 3.5% in the second half of fiscal 鈥�20.听 This improvement in the underlying business is a result of the continued strength in the military book, the firming demand in the commercial book and the actions we took last year to resize the business.

Aircraft fiscal 21

We鈥檙e projecting the second half of our fiscal year will be very similar to the first.听 Sales into the military market will remain strong with OEM sales in the second half marginally lower than the first half but aftermarket sales marginally higher.听 On the commercial side, the production rates on the major programs have now settled and will probably remain stable well into next year.听 In the aftermarket, global flight operations continue to pick up, but we believe we鈥檝e already seen this benefit flow through in our first half as sales increased almost 20% from the run rate of the previous 6 months.听 Taken all together, we鈥檙e forecasting a second half in commercial in line with the first half.听 The net result is full year sales of $1.18 billion, including $40 million from the Genesys acquisition we closed in December.听 This total is down just 2% from fiscal 鈥�20 sales.听

Second half margins will be approximately 8% bringing full year margins to 8.2%.听

听

Space & Defense

Space & Defense Q2

Sales in the quarter of $206 million were 7% higher than last year.听 The space business continued to drive the growth with sales up 19% from a year ago.听 We had continued strength in our NASA work as well as growth in our integrated space vehicles product line.听 Over the last decade, we鈥檝e strengthened our component offerings and worked to combine these components into integrated space vehicles.听 Our Orbital Maneuvering Vehicle (or OMV) was the first product of this effort and over the last couple of years we鈥檝e continued to broaden that offering to include small satellite busses.听 The boom in low-cost satellites and the availability of cost effective launch capability is now fueling our growth in this business.

Sales into the defense market were in line with last year with some shifts in the mix.听 Sales of components on military vehicles were up as were sales into naval applications.听 These increases were offset by lower sales of fin steering systems for tactical missiles and into security applications.听

Space & Defense Margins

Margins in the quarter were 12.9%.听 This margin performance is particularly strong given the high proportion of funded development work in this business, combined with the challenges of COVID.听

Space & Defense fiscal 鈥�21

We鈥檙e projecting full year sales of $795 million.听 We believe both the space and the defense businesses will remain strong and will each have sales in the second half pretty much in line with the first half.听 Full year margins will be 12.3%.听

听

Industrial Systems

Industrial Systems Q2

Sales in the quarter of $226 million were marginally lower than last year.听 Adjusting for foreign exchange movements, real sales were down over 5%.听 Sales were lower in our energy and simulation & test markets.听 Compared to last year, energy sales were adversely impacted by delays in various exploration projects.听 On a positive note, the run rate for energy sales has been fairly stable over the last few quarters and we are seeing signs of modest growth going forward.听 Sales of motion bases for full flight simulators were down over 50% from the same quarter a year ago as the demand for additional simulator capacity has plummeted.听 Sales of products into industrial automation were in line with last year after adjusting for forex.听 On a more positive note, sales into industrial automation are up sequentially from the last 3 quarters, indicating that this market is starting to strengthen.听 Sales into the medical market were up 7% from a year ago and in line with the first quarter.听听

Industrial Systems Margins

Margins in the quarter were 10.5%.听 The margins in this business are starting to improve as we see the first signs of recovery, particularly in the industrial automation market.听

Industrial Systems fiscal 鈥�21

For the full year, we鈥檙e projecting sales of $865 million.听 Similar to our other two groups, this assumes a second half total in line with the first half.听 We will, however, have some slight changes in the mix.听 Comparing the next 6 months to the last 6 months, we think sales into the energy and industrial automation markets will strengthen marginally, sales into simulation & test will be flat and sales into medical markets will be down slightly.听 This slowdown in our medical markets is caused by the reduced need for COVID-driven equipment which drove a spike in our pump demand over the last 12 months.

We鈥檙e projecting full year margins of 10%, in line with the first half.听 These margins are down slightly from the second quarter as a result of additional organic investments we鈥檙e planning to make in emerging opportunities in the industrial off-road electric vehicle space.听

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Summary Guidance

We鈥檙e pleased with our performance in the first half of the year and are looking forward to repeating that performance in the second half.听 Our businesses continue to operate effectively, despite the on-going imposition of COVID restrictions.听 Over 60% of our business is in the U.S. and, with vaccines now widely available, we鈥檙e hopeful that our fourth quarter could be the start of a transition back to a more normal work environment.听 Our operations in Europe and in some Asian countries are probably a quarter or more behind this schedule but we鈥檙e optimistic that our fiscal 鈥�22 will be the start of the post-pandemic era.听

Market diversity and financial prudence have guided us through the pandemic and will continue to be the core of our business going forward.听 Our capital allocation strategy is unchanged 鈥� we look to invest in growth and return excess capital to shareholders through our dividend and buyback programs.听 As we emerge from the pandemic, we鈥檙e seeing increasing opportunities to invest in organic growth, a combination of capital expenditures and R&D.听 We also continue to be active in the M&A market, but with debt almost free and excess capital looking for a home, prices remain at levels we find unattractive.听 We will continue to search, but will remain both patient and prudent.听

As we look to the second half of the year, we鈥檙e re-instating guidance after a 12 month hiatus.听 We believe the second half will pretty much mirror the first, resulting in full year sales of $2.84 billion and full year earnings per share of $5.00 plus or minus 20 cents.听 For the third quarter, we anticipate earnings per share of $1.16 plus or minus 15 cents.

Now let me pass you to Jennifer who will provide more color on our cash flow and balance sheet.

听

听

Thank you, John. Good morning, everyone.

Free cash flow in the second quarter was $6 million, compared to $12 million in the same period a year ago. This follows a very strong first quarter, and brings our year-to-date free cash flow conversion to just over 90%. The moderation in our cash flows this quarter resulted from slower collections on receivables, shipments late in the quarter and increased investments in capital expenditures.

The second quarter marks a turning point in our inventories, which were a source of cash听 for the first time since 2018. The substantial amount of effort and focus of our teams across the company and most notably in our aircraft operations resulted in this achievement. Efficiencies associated with Operations 2.0 are beginning to be realized as we also continue to focus on optimizing incoming receipts.

The $6 million of free cash flow in Q2 compares with an increase in our net debt of $9 million.听 During the second quarter, we paid our quarterly dividend and repurchased just under 100,000 shares of our stock for $7 million.听 Year-to-date, we acquired about 250,000 shares for $17 million.

Net working capital (excluding cash and debt) as a percentage of sales at the end of Q2 was 30.5% compared to 29.2% a quarter ago. Receivables grew during the quarter as key customers in our commercial aircraft business slowed payments at quarter end. Receivables also increased due to the timing of industrial shipments, which were unusually strong late in the quarter.听 An increase in customer advances partially offset the growth in receivables.

Capital expenditures in the second quarter were $38 million, up sharply from $20 million in the first quarter. We started to catch up on capital investments that we had delayed during the more uncertain times of the pandemic. We are also investing in our operations to achieve greater efficiencies and in our facilities to support our business.

At quarter end, our net debt was $878 million, including $91 million of cash. The major components of our debt were $500 million of senior notes, $396 million of borrowings on our U.S. revolving credit facilities and $69 million outstanding on our securitization facility.听

We have $670 million of unused borrowing capacity on our U.S. revolving credit facility. Our ability to draw on the unused balance is limited by our leverage covenant, which is a maximum of 4.0x on a net debt basis. Based on our leverage, we could have incurred an additional $427 million of net debt as of the end of our second quarter.听 We are confident that our existing facilities provide us with the flexibility to invest in our future.

Cash contributions to our global retirement plans totaled $14 million in the quarter, compared to $12 million in the second quarter of 2020. Global retirement plan expense in the second quarter was $13 million, down from $20 million the second quarter of 2020. The decrease in expense is attributable to a $6 million curtailment gain associated with terminating our defined benefit pension plan in the Netherlands. We replaced this plan with a defined contribution plan, and this change benefitted both the company and the plan participants. The gain is recorded in the non-service pension line. This financial impact resulted from participants transitioning from active status in the plan to deferred participant status, and the related projected benefit obligation decrease due to these participants becoming inactive. The curtailment gain increased our earnings per share by $0.18.

Our effective tax rate was 21.6% in the second quarter, compared to 19.2% in the same period a year ago.听 We had benefits in each of these periods. In the second quarter of 2021, there was no tax expense associated with the curtailment gain on the termination of the Netherlands defined benefit pension plan, thereby lowering the effective tax rate. Last year鈥檚 second quarter rate reflects the reduction in tax rate related to taxes accrued on accumulated earnings in one of our foreign jurisdictions, as well as reduced withholding taxes previously accrued in another foreign jurisdiction.听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听 听听

We expect free cash flow generation in 2021 to be in line with our long-term target of 100% conversion. Excluding the non-cash gain from the pension curtailment, 听we were at that level in the first half of this year. In the back half of the year, we expect cash flow generation from working capital. Inventories will contribute to cash inflows, while we work down customer advances. Capital expenditures will continue to be elevated as we invest in some facilities to support future growth and consolidate other facilities as we refine our footprint. We expect 2021 capital expenditures to be $140 million, and depreciation and amortization to be $91 million.

We are well positioned to invest in our organic growth, and are finding this to be an attractive opportunity in deploying our capital. We continue to explore opportunities to make strategic acquisitions and return capital to shareholders.

Twelve months ago, we were facing great uncertainties in our business.听 We came into the early days of the pandemic having recently refinanced our debt, positioning us nicely coming into the challenging business environment. We responded by conserving our cash and preserving our liquidity, as well as managing expenses and certain investments. Our approach has paid off, and shows in our leverage ratio.

Our leverage ratio was 2.7x on a net debt basis as of the end of the second quarter, compared to 2.6x a year ago. This slightly higher ratio reflects the pressures on EBITDA from the impacts of the pandemic over the last twelve months and our acquisition of Genesys, offset by very strong cash generation during this period. Our current leverage ratio continues to be within our target zone of 2.25x to 2.75x.

With that, we鈥檒l turn it back to John for any questions you may have.

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听