NORTH CANTON, Ohio,
Oct. 29, 2018 /PRNewswire/
-- The Timken Company (NYSE: TKR; www.timken.com), a
world leader in engineered bearings and power transmission
products, today reported third-quarter 2018 sales
of $881.3 million, up 14.2 percent from the same period a
year ago. The increase was driven by continued growth across most
end markets, as well as the favorable impact of pricing and
acquisitions, partially offset by unfavorable currency.
In the third quarter, Timken posted net income
of $71.6 million or $0.91 per diluted share,
versus net income of $53.5 million or $0.68 per
diluted share for the same period a year ago. The year-over-year
improvement was driven by higher volume, favorable price/mix and
the impact of acquisitions, partially offset by higher material and
logistics costs including tariffs. The current period also included
higher pension- and acquisition-related charges.
Excluding special items (detailed in the attached tables),
adjusted net income in the third quarter of 2018
was $82.9 million or $1.06 per diluted share,
an earnings per share record for the third quarter, versus adjusted
net income of $55.9 million
or $0.71 per diluted share for the same period in 2017.
Cash from operations for the quarter was $137.1 million, and free cash flow was
$113.9 million.
"We posted another outstanding quarter," said Richard G. Kyle, Timken president and chief
executive officer. "We generated double-digit top-line growth,
expanded operating margins despite tariff and other cost headwinds
and delivered a nearly 50 percent increase in adjusted earnings per
share. Our recent acquisitions are off to a good start, and
organically, we are doing an excellent job of serving our
customers' needs while pursuing profitable growth
opportunities."
During the quarter, the company:
- Completed the previously-announced acquisitions of Cone Drive,
Rollon Group, and ABC Bearings, which add new and complementary
products, capabilities and customers to the Timken portfolio,
- Priced a public offering of $400
million of 10-Year Senior Unsecured Notes at an interest
rate of 4.50 percent, with the proceeds used to fund the
acquisitions of Cone Drive and Rollon Group, and
- Returned $35 million in capital
to shareholders with the payment of its 385th consecutive quarterly
dividend and the repurchase of 300,000 shares, bringing full-year
share repurchases up to 1.4 million shares.
Third-Quarter 2018 Segment Results
Mobile Industries reported sales of $464.2 million,
up 9.8 percent compared with the same period a year ago, driven
primarily by growth in the aerospace, automotive, off-highway and
heavy truck sectors, partially offset by unfavorable currency.
Earnings before interest and taxes (EBIT) in the quarter
were $50.6 million or 10.9 percent of sales,
compared with EBIT of $35 million or 8.3 percent of
sales for the same period a year ago. The increase in EBIT reflects
the impact of higher volume and favorable price/mix, partially
offset by higher material and logistics costs.
Excluding special items (detailed in the attached tables),
adjusted EBIT in the quarter was $52.5 million
or 11.3 percent of sales, compared
with $37.7 million or 8.9 percent of sales in the
third quarter last year.
Process Industries sales of $417.1 million
increased 19.7 percent from the same period a year ago, driven by
broad growth across all sectors, as well as the favorable impact of
pricing and acquisitions, partially offset by unfavorable
currency.
EBIT for the quarter was $81.8 million
or 19.6 percent of sales, compared with EBIT
of $61.7 million or 17.7 percent of sales for
the same period a year ago. The increase in EBIT was driven by
higher volume and favorable price/mix, partially offset by higher
material and logistics costs including tariffs, as well as
increased selling, general and administrative expenses.
Excluding special items (detailed in the attached tables),
adjusted EBIT in the quarter was $84 million
or 20.1 percent of sales, compared
with $61.7 million or 17.7 percent of sales in the
third quarter last year.
2018 Outlook
"Looking ahead to the fourth quarter, our markets remain strong,
and we continue to execute well and advance the company's
strategy," said Kyle. "As a result, we have modestly
increased our earnings outlook for the year, and we are planning
for our strong execution and positive market momentum to carry into
2019."
The company expects 2018 revenue to be up approximately 19.5
percent in total versus 2017. This includes expected organic growth
of approximately 14 percent plus the benefit of acquisitions,
including the recently completed ABC Bearings, Cone Drive and
Rollon Group acquisitions. Within its segments, the company
estimates for full-year 2018:
- Mobile Industries sales to be up approximately 16 percent,
driven primarily by broad growth across all sectors, led by
off-highway, rail and heavy truck, as well as the benefit of
acquisitions, and
- Process Industries sales to be up approximately 24 percent,
reflecting growth across the distribution, original equipment and
services sectors, as well as the benefit of acquisitions.
Timken now anticipates 2018 earnings per diluted share of
$3.98 to $4.03 for the full year on a GAAP basis.
Excluding special items (detailed in the attached tables), the
company expects record 2018 adjusted earnings per diluted share in
the range of $4.18 to $4.23, which at the midpoint represents an
increase of 60 percent from 2017.
Conference Call Information
Timken will host a conference call tomorrow at 9 a.m.
Eastern Time to review its financial results. Presentation
materials will be available online in advance of the call for
interested investors and securities analysts.
Conference
Call:
|
Tuesday, October 30,
2018
|
|
9 a.m. Eastern
Time
|
|
Live Dial-In:
800-239-9838
|
|
or
323-794-2551
|
|
(Call in 10 minutes
prior to be included.)
|
|
Conference ID:
Timken's 3Q Earnings Call
|
|
|
Conference Call
Replay:
|
Replay Dial-In
available through
|
|
November 13,
2018:
|
|
888-203-1112 or
719-457-0820
|
|
Replay Passcode:
7829565
|
|
|
Live
Webcast:
|
http://investors.timken.com
|
About The Timken Company
The Timken Company (NYSE: TKR; www.timken.com) engineers,
manufactures and markets bearings, gear drives, automated
lubrication systems, belts, chain, couplings and linear motion
products, and offers a spectrum of powertrain rebuild and repair
services. The leading authority on tapered roller bearings, Timken
today applies its deep knowledge of metallurgy, tribology and power
transmission across a variety of bearings and related systems to
improve the reliability and efficiency of machinery and equipment
all around the world. The company's growing product and services
portfolio features many strong industrial brands including
Timken®, Fafnir®, Philadelphia
Gear®, Groeneveld®, Rollon® and
Cone Drive®. Known for its quality products and
collaborative technical sales model, Timken posted $3 billion in sales in 2017. With more than
17,000 employees operating from 33 countries, Timken makes the
world more productive and keeps industry in motion.
Certain statements in this release (including statements
regarding the company's forecasts, estimates, plans and
expectations) that are not historical in nature are
"forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995. In particular, the
statements related to expectations regarding the company's future
financial performance, including information under the heading
"Outlook," are forward-looking.
The company cautions that actual results may differ
materially from those projected or implied in forward-looking
statements due to a variety of important factors, including: the
finalization of the company's financial statements for the third
quarter of 2018; the company's ability to respond to the changes in
its end markets that could affect demand for the company's
products; unanticipated changes in business relationships with
customers or their purchases from the company; changes in the
financial health of the company's customers, which may have an
impact on the company's revenues, earnings and impairment charges;
fluctuations in raw material and energy costs; recent world events
that have increased the risks posed by international trade
disputes, tariffs and sanctions; weakness in global
or regional economic conditions and capital markets; the company's
ability to satisfy its obligations under its debt agreements and
renew or refinance borrowings on favorable terms; fluctuations in
currency valuations; changes in the expected costs associated with
product warranty claims; the ability to achieve satisfactory
operating results in the integration of acquired companies; the
impact on operations of general economic conditions; fluctuations
in customer demand; the impact on the company's pension obligations
and assets due to changes in interest rates, investment performance
and other tactics designed to reduce risk; the company's ability to
complete and achieve the benefits of announced plans, programs,
initiatives, acquisitions and capital investments; and the actual
impact of the Tax Cuts and Jobs Act of 2017 on the full-year 2018
global effective tax rate. Additional factors are discussed in the
company's filings with the Securities and Exchange Commission,
including the company's Annual Report on Form 10-K for the year
ended Dec. 31, 2017, quarterly
reports on Form 10-Q and current reports on Form 8-K. Except as
required by the federal securities laws, the company undertakes no
obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise.
Media Relations:
234.262.3514
mediarelations@timken.com
Investor Relations:
Jason
Hershiser
234.262.7101
jason.hershiser@timken.com
The Timken
Company
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
(Dollars in millions,
except per share data)
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
2018
|
2017
|
|
2018
|
2017
|
|
|
|
|
|
|
Net sales
|
$
|
881.3
|
|
$
|
771.4
|
|
|
$
|
2,670.7
|
|
$
|
2,225.8
|
|
Cost of products
sold
|
628.0
|
|
555.3
|
|
|
1,885.1
|
|
1,626.4
|
|
Gross
Profit
|
253.3
|
|
216.1
|
|
|
785.6
|
|
599.4
|
|
Selling, general
& administrative expenses
|
142.0
|
|
134.0
|
|
|
432.4
|
|
375.5
|
|
Impairment and
restructuring charges
|
2.6
|
|
1.3
|
|
|
3.1
|
|
3.8
|
|
Operating
Income
|
108.7
|
|
80.8
|
|
|
350.1
|
|
220.1
|
|
Other income,
net
|
0.5
|
|
3.8
|
|
|
9.8
|
|
7.1
|
|
Earnings Before
Interest and Taxes (EBIT) (1)
|
109.2
|
|
84.6
|
|
|
359.9
|
|
227.2
|
|
Interest expense,
net
|
(11.9)
|
|
(9.4)
|
|
|
(31.7)
|
|
(24.5)
|
|
Income Before
Income Taxes
|
97.3
|
|
75.2
|
|
|
328.2
|
|
202.7
|
|
Provision for income
taxes
|
25.0
|
|
21.1
|
|
|
83.5
|
|
28.5
|
|
Net
Income
|
72.3
|
|
54.1
|
|
|
244.7
|
|
174.2
|
|
Less: Net income
attributable to noncontrolling interest
|
0.7
|
|
0.6
|
|
|
1.9
|
|
—
|
|
Net Income
Attributable to The Timken Company
|
$
|
71.6
|
|
$
|
53.5
|
|
|
$
|
242.8
|
|
$
|
174.2
|
|
Net Income per
Common Share Attributable to The Timken Company Common
Shareholders
|
|
|
|
|
|
Basic Earnings per
share
|
$
|
0.93
|
|
$
|
0.69
|
|
|
$
|
3.14
|
|
$
|
2.24
|
|
|
|
|
|
|
|
Diluted Earnings per
share
|
$
|
0.91
|
|
$
|
0.68
|
|
|
$
|
3.09
|
|
$
|
2.21
|
|
|
|
|
|
|
|
Average Shares
Outstanding
|
76,903,395
|
|
77,694,974
|
|
|
77,332,209
|
|
77,766,828
|
|
Average Shares
Outstanding - assuming dilution
|
78,428,105
|
|
78,804,296
|
|
|
78,645,503
|
|
78,889,930
|
|
|
|
|
|
|
|
(1) EBIT is a non-GAAP measure
defined as operating income plus other income (expense). EBIT is an
important financial measure used in the management of the business,
including decisions concerning the allocation of resources and
assessment of performance. Management believes that reporting EBIT
is useful to investors as this measure is representative of the
Company's core operations.
|
BUSINESS
SEGMENTS
(Unaudited)
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
(Dollars in
millions)
|
2018
|
2017
|
|
2018
|
2017
|
|
|
|
|
|
|
Mobile
Industries
|
|
|
|
|
|
Net sales
|
$
|
464.2
|
|
$
|
422.8
|
|
|
$
|
1,441.8
|
|
$
|
1,214.2
|
|
Earnings before
interest and taxes (EBIT) (1)
|
$
|
50.6
|
|
$
|
35.0
|
|
|
$
|
156.2
|
|
$
|
102.0
|
|
EBIT Margin
(1)
|
10.9
|
%
|
8.3
|
%
|
|
10.8
|
%
|
8.4
|
%
|
Process
Industries
|
|
|
|
|
|
Net sales
|
$
|
417.1
|
|
$
|
348.6
|
|
|
$
|
1,228.9
|
|
$
|
1,011.6
|
|
Earnings before
interest and taxes (EBIT) (1)
|
$
|
81.8
|
|
$
|
61.7
|
|
|
$
|
254.0
|
|
$
|
166.0
|
|
EBIT Margin
(1)
|
19.6
|
%
|
17.7
|
%
|
|
20.7
|
%
|
16.4
|
%
|
Corporate
expense
|
$
|
(17.9)
|
|
$
|
(12.1)
|
|
|
$
|
(47.2)
|
|
$
|
(36.4)
|
|
Pension-related
charges (2)
|
$
|
(5.3)
|
|
$
|
—
|
|
|
$
|
(3.1)
|
|
$
|
(4.4)
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Net sales
|
$
|
881.3
|
|
$
|
771.4
|
|
|
$
|
2,670.7
|
|
$
|
2,225.8
|
|
Earnings before
interest and taxes (EBIT) (1)
|
$
|
109.2
|
|
$
|
84.6
|
|
|
$
|
359.9
|
|
$
|
227.2
|
|
EBIT
Margin (1)
|
12.4
|
%
|
11.0
|
%
|
|
13.5
|
%
|
10.2
|
%
|
|
|
|
|
|
|
(1) EBIT
is a non-GAAP measure defined as operating income plus other income
(expense). EBIT Margin is a non-GAAP measure defined as EBIT as a
percentage of net sales. EBIT and EBIT Margin are important
financial measures used in the management of the business,
including decisions concerning the allocation of resources and
assessment of performance. Management believes that reporting
EBIT and EBIT Margin is useful to investors as these measures are
representative of the core operations of the segments and Company,
respectively.
|
|
|
|
|
|
|
(2)
Pension-related charges represent actuarial (losses) and gains that
resulted from the remeasurement of pension plan assets and
obligations as a result of changes in assumptions. The Company
recognizes actuarial (losses) and gains through earnings in
connection with the annual remeasurement in the fourth quarter, or
on an interim basis if specific events trigger a
remeasurement.
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(Dollars in
millions)
|
(Unaudited)
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
ASSETS
|
|
|
|
Cash, cash
equivalents and restricted cash
|
$
|
155.0
|
|
|
$
|
125.4
|
|
Accounts receivable,
net
|
548.6
|
|
|
524.9
|
|
Unbilled receivables
(1)
|
137.3
|
|
|
—
|
|
Inventories,
net
|
841.0
|
|
|
738.9
|
|
Other current
assets
|
104.4
|
|
|
110.9
|
|
Total Current
Assets
|
1,786.3
|
|
|
1,500.1
|
|
Property, plant and
equipment, net
|
886.8
|
|
|
864.2
|
|
Goodwill and other
intangible assets
|
1,708.5
|
|
|
932.4
|
|
Non-current pension
assets
|
21.7
|
|
|
19.7
|
|
Other
assets
|
96.2
|
|
|
86.0
|
|
Total
Assets
|
$
|
4,499.5
|
|
|
$
|
3,402.4
|
|
LIABILITIES
|
|
|
|
Accounts
payable
|
$
|
282.8
|
|
|
$
|
265.2
|
|
Short-term debt,
including current portion of long-term debt
|
48.4
|
|
|
108.1
|
|
Income
taxes
|
19.2
|
|
|
9.8
|
|
Accrued
expenses
|
306.2
|
|
|
288.6
|
|
Total Current
Liabilities
|
656.6
|
|
|
671.7
|
|
Long-term
debt
|
1,681.7
|
|
|
854.2
|
|
Accrued pension
cost
|
171.6
|
|
|
167.3
|
|
Accrued
postretirement benefits cost
|
134.0
|
|
|
122.6
|
|
Other non-current
liabilities
|
215.2
|
|
|
111.7
|
|
Total
Liabilities
|
2,859.1
|
|
|
1,927.5
|
|
EQUITY
|
|
|
|
The Timken Company
shareholders' equity
|
1,579.9
|
|
|
1,442.7
|
|
Noncontrolling
Interest
|
60.5
|
|
|
32.2
|
|
Total
Equity
|
1,640.4
|
|
|
1,474.9
|
|
Total Liabilities and
Equity
|
$
|
4,499.5
|
|
|
$
|
3,402.4
|
|
(1) Prior to the adoption of the new
revenue standard, the Company recognized a portion of its revenues
on the percentage-of-completion method measured on the cost-to-cost
basis. As of December 31, 2017, revenue recognized in excess of
billings of $67.3 million related to these revenues were included
in "Accounts receivable, less allowances" on the Consolidated
Balance Sheet. In accordance with the new revenue standard, $88.9
million of revenue recognized in excess of billings related to
these revenues are included in "Unbilled Receivables" on the
Consolidated Balance Sheet at September 30, 2018.
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Three Months
Ended
September 30,
|
Nine Months
Ended
September 30,
|
(Dollars in
millions)
|
2018
|
2017
|
2018
|
2017
|
Cash Provided by
(Used in)
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
Net income
attributable to The Timken Company
|
$
|
71.6
|
|
$
|
53.5
|
|
$
|
242.8
|
|
$
|
174.2
|
|
Net income
attributable to noncontrolling interest
|
0.7
|
|
0.6
|
|
1.9
|
|
—
|
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
Depreciation and
amortization
|
35.1
|
|
35.7
|
|
105.9
|
|
102.5
|
|
Loss on
divestiture
|
0.6
|
|
—
|
|
0.6
|
|
—
|
|
Stock-based
compensation expense
|
7.7
|
|
7.8
|
|
25.5
|
|
18.2
|
|
Pension and other
postretirement expense
|
6.9
|
|
2.7
|
|
8.5
|
|
12.6
|
|
Pension and other
postretirement benefit contributions
|
(3.5)
|
|
(4.1)
|
|
(12.4)
|
|
(16.3)
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
Accounts
receivable
|
20.7
|
|
(15.6)
|
|
(65.7)
|
|
(61.6)
|
|
Unbilled
receivables
|
(9.8)
|
|
—
|
|
(37.6)
|
|
—
|
|
Inventories
|
(14.4)
|
|
(47.3)
|
|
(94.3)
|
|
(85.4)
|
|
Accounts
payable
|
(1.5)
|
|
5.2
|
|
(9.9)
|
|
55.7
|
|
Accrued
expenses
|
12.5
|
|
13.9
|
|
10.2
|
|
15.9
|
|
Income
taxes
|
5.3
|
|
(3.1)
|
|
1.7
|
|
(52.1)
|
|
Other, net
|
5.2
|
|
(20.9)
|
|
17.8
|
|
(20.8)
|
|
Net Cash Provided by
Operating Activities
|
$
|
137.1
|
|
$
|
28.4
|
|
$
|
195.0
|
|
$
|
142.9
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
Capital
expenditures
|
$
|
(23.2)
|
|
$
|
(22.6)
|
|
$
|
(62.8)
|
|
$
|
(62.5)
|
|
Acquisitions, net of
cash received
|
(765.4)
|
|
(283.1)
|
|
(765.4)
|
|
(347.2)
|
|
Proceeds from
divestitures
|
14.0
|
|
—
|
|
14.0
|
|
—
|
|
Other, net
|
0.3
|
|
7.2
|
|
3.9
|
|
2.3
|
|
Net Cash Used in
Investing Activities
|
$
|
(774.3)
|
|
$
|
(298.5)
|
|
$
|
(810.3)
|
|
$
|
(407.4)
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
Cash dividends paid
to shareholders
|
$
|
(21.5)
|
|
$
|
(21.0)
|
|
$
|
(64.2)
|
|
$
|
(62.4)
|
|
Purchase of treasury
shares
|
(13.4)
|
|
(14.0)
|
|
(63.0)
|
|
(41.0)
|
|
Proceeds from
exercise of stock options
|
2.1
|
|
2.0
|
|
12.7
|
|
27.7
|
|
Shares surrendered
for taxes
|
(0.4)
|
|
(1.4)
|
|
(5.4)
|
|
(10.8)
|
|
Net payments on
credit facilities
|
(4.4)
|
|
(304.5)
|
|
41.4
|
|
27.6
|
|
Net proceeds from
long-term debt
|
688.2
|
|
299.4
|
|
738.0
|
|
299.4
|
|
Other, net
|
(1.2)
|
|
(3.7)
|
|
(2.2)
|
|
(3.7)
|
|
Net Cash Provided by
(Used in) Financing Activities
|
$
|
649.4
|
|
$
|
(43.2)
|
|
$
|
657.3
|
|
$
|
236.8
|
|
Effect of exchange
rate changes on cash
|
(3.8)
|
|
5.9
|
|
(12.4)
|
|
16.6
|
|
Increase (Decrease)
in Cash, Cash Equivalents and Restricted Cash
|
$
|
8.4
|
|
$
|
(307.4)
|
|
$
|
29.6
|
|
$
|
(11.1)
|
|
Cash, Cash
Equivalents and Restricted Cash at Beginning of Period
|
146.6
|
|
447.9
|
|
125.4
|
|
151.6
|
|
Cash, Cash
Equivalents and Restricted Cash at End of Period
|
$
|
155.0
|
|
$
|
140.5
|
|
$
|
155.0
|
|
$
|
140.5
|
|
Reconciliations of
Adjusted Net Income to GAAP Net Income and Adjusted Earnings Per
Share to GAAP Earnings Per Share:
(Unaudited)
|
The following
reconciliation is provided as additional relevant information about
the Company's performance deemed useful to investors.
Management believes that the non-GAAP measures of adjusted net
income and adjusted diluted earnings per share are important
financial measures used in the management of the business,
including decisions concerning the allocation of resources and
assessment of performance. Management believes that reporting
adjusted net income and adjusted diluted earnings per share is
useful to investors as these measures are representative of the
Company's core operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions, except share data)
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
2018
|
|
EPS
|
2017
|
|
EPS
|
|
2018
|
|
EPS
|
2017
|
|
EPS
|
Net Income
Attributable to The Timken Company
|
|
$
|
71.6
|
|
|
$
|
0.91
|
|
$
|
53.5
|
|
|
$
|
0.68
|
|
|
$
|
242.8
|
|
|
$
|
3.09
|
|
$
|
174.2
|
|
|
$
|
2.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment, restructuring and
reorganization charges (2)
|
|
$
|
3.1
|
|
|
|
$
|
2.6
|
|
|
|
|
$
|
4.5
|
|
|
|
$
|
10.5
|
|
|
|
Acquisition-related charges
(3)
|
|
8.8
|
|
|
|
4.4
|
|
|
|
|
9.0
|
|
|
|
6.9
|
|
|
|
Gain on
sale of real estate (4)
|
|
—
|
|
|
|
(1.6)
|
|
|
|
|
—
|
|
|
|
(3.6)
|
|
|
|
Pension-related charges
(5)
|
|
5.3
|
|
|
|
—
|
|
|
|
|
3.1
|
|
|
|
4.4
|
|
|
|
Health
care plan modification costs
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
(0.7)
|
|
|
|
Loss on
divestiture (6)
|
|
0.6
|
|
|
|
—
|
|
|
|
|
0.6
|
|
|
|
—
|
|
|
|
Tax
indemnification and related items
|
|
0.3
|
|
|
|
—
|
|
|
|
|
0.6
|
|
|
|
(1.0)
|
|
|
|
Noncontrolling interest
(7)
|
|
(0.6)
|
|
|
|
—
|
|
|
|
|
(0.6)
|
|
|
|
—
|
|
|
|
Provision
for income taxes (8)
|
|
(6.2)
|
|
|
|
(3.0)
|
|
|
|
|
(9.9)
|
|
|
|
(37.1)
|
|
|
|
Total
Adjustments:
|
|
11.3
|
|
|
0.15
|
|
2.4
|
|
|
0.03
|
|
|
7.3
|
|
|
0.09
|
|
(20.6)
|
|
|
(0.26)
|
|
Adjusted Net Income
to The Timken Company
|
|
$
|
82.9
|
|
|
$
|
1.06
|
|
$
|
55.9
|
|
|
$
|
0.71
|
|
|
$
|
250.1
|
|
|
$
|
3.18
|
|
$
|
153.6
|
|
|
$
|
1.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Adjustments are pre-tax, with the
net tax provision listed separately.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
Impairment, restructuring and reorganization charges (including
items recorded in cost of products sold) relate to: (i) plant
closures; (ii) the rationalization of certain plants; and (iii)
severance related to cost reduction initiatives. The Company
re-assesses its operating footprint and makes adjustments as needed
that result in restructuring charges. However, management
believes these actions are not representative of the Company's core
operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
Acquisition-related charges in 2018 relate to the ABC Bearings
Limited ("ABC Bearings"), Apiary Investments Holdings Limited
("Cone Drive") and Rollon S.p.A. ("Rollon") acquisitions. In 2017,
acquisition-related charge related to the Groeneveld Group
("Groeneveld"), Torsion Control Products, Inc. ("Torsion Control
Products"), PT Tech, Inc. ("PT Tech") and EDT Corp. ("EDT")
acquisitions, including transaction costs and inventory step-up
impact.
|
|
|
|
|
|
|
|
|
(4) The
gain on the sale of real estate related to the sale of a
manufacturing facility in South Africa and a manufacturing facility
in Altavista, Virginia during the second and third quarter of 2017,
respectively. This amount was recorded in other
income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
Pension-related charges represent actuarial (gains) and losses that
resulted from the remeasurement of pension plan assets and
obligations as a result of changes in assumptions. The Company
recognizes actuarial (gains) and losses through earnings in
connection with the annual remeasurement in the fourth quarter, or
on an interim basis if specific events trigger a
remeasurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) Loss
on divestiture relates to the sale of the Groeneveld Information
Technology Holding B.V. (the "ICT Business"), located in Gorinchem,
Netherlands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7)
Noncontrolling interest adjustments include acquisition related
charges attributable to noncontrolling interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8)
Provision for income taxes includes the net tax
impact on pre-tax adjustments, the impact of discrete tax items
recorded during the respective periods, as well as adjustments to
reflect the use of one overall effective tax rate on adjusted
pre-tax income in interim periods.
|
Reconciliation of
EBIT to GAAP Net Income, and EBIT Margin, After Adjustments, to Net
Income as a Percentage of Sales and EBIT, After Adjustments, to Net
Income:
(Unaudited)
|
The following
reconciliation is provided as additional relevant information about
the Company's performance deemed useful to investors.
Management believes consolidated earnings before interest and
taxes (EBIT) is a non-GAAP measure that is useful to investors as
it is representative of the Company's performance and that it is
appropriate to compare GAAP net income to consolidated EBIT.
Management also believes that non-GAAP measures of adjusted EBIT
and adjusted EBIT margin are useful to investors as they are
representative of the Company's core operations and are used in the
management of the business, including decisions concerning the
allocation of resources and assessment of performance.
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
2018
|
Percentage
to
Net Sales
|
2017
|
Percentage
to
Net Sales
|
|
2018
|
Percentage
to
Net Sales
|
2017
|
Percentage
to
Net Sales
|
Net Income
|
$
|
72.3
|
|
8.2
|
%
|
$
|
54.1
|
|
7.0
|
%
|
|
$
|
244.7
|
|
9.2
|
%
|
$
|
174.2
|
|
7.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Provision for income
taxes
|
25.0
|
|
2.8
|
%
|
21.1
|
|
2.7
|
%
|
|
83.5
|
|
3.1
|
%
|
28.5
|
|
1.3
|
%
|
Interest
expense
|
12.5
|
|
1.4
|
%
|
10.1
|
|
1.3
|
%
|
|
33.2
|
|
1.3
|
%
|
26.5
|
|
1.2
|
%
|
Interest
income
|
(0.6)
|
|
—
|
%
|
(0.7)
|
|
—
|
%
|
|
(1.5)
|
|
(0.1)
|
%
|
(2.0)
|
|
(0.1)
|
%
|
Consolidated
EBIT
|
$
|
109.2
|
|
12.4
|
%
|
$
|
84.6
|
|
11.0
|
%
|
|
$
|
359.9
|
|
13.5
|
%
|
$
|
227.2
|
|
10.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Impairment, restructuring and
reorganization charges (1)
|
$
|
3.1
|
|
0.3
|
%
|
$
|
2.6
|
|
0.3
|
%
|
|
$
|
4.5
|
|
0.2
|
%
|
$
|
10.5
|
|
0.4
|
%
|
Health
care plan modification costs
|
—
|
|
—
|
%
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
(0.7)
|
|
—
|
%
|
Acquisition-related charges
(2)
|
8.8
|
|
1.0
|
%
|
4.4
|
|
0.6
|
%
|
|
9.0
|
|
0.3
|
%
|
6.9
|
|
0.3
|
%
|
Gain on
sale of real estate (3)
|
—
|
|
—
|
%
|
(1.6)
|
|
(0.2)
|
%
|
|
—
|
|
—
|
%
|
(3.6)
|
|
(0.2)
|
%
|
Pension-related charges
(4)
|
5.3
|
|
0.6
|
%
|
—
|
|
—
|
%
|
|
3.1
|
|
0.1
|
%
|
4.4
|
|
0.2
|
%
|
Tax
indemnification and related items
|
0.3
|
|
—
|
%
|
—
|
|
—
|
%
|
|
0.6
|
|
—
|
%
|
(1.0)
|
|
—
|
%
|
Loss on
divestiture (5)
|
0.6
|
|
0.1
|
%
|
—
|
|
—
|
%
|
|
0.6
|
|
—
|
%
|
—
|
|
—
|
%
|
Total
Adjustments
|
18.1
|
|
2.0
|
%
|
5.4
|
|
0.7
|
%
|
|
17.8
|
|
0.6
|
%
|
16.5
|
|
0.7
|
%
|
Adjusted
EBIT
|
$
|
127.3
|
|
14.4
|
%
|
$
|
90.0
|
|
11.7
|
%
|
|
$
|
377.7
|
|
14.1
|
%
|
$
|
243.7
|
|
10.9
|
%
|
|
|
|
|
|
|
|
|
|
|
(1)
Impairment, restructuring and reorganization charges (including
items recorded in cost of products sold) relate to: (i) plant
closures; (ii) the rationalization of certain plants; and (iii)
severance related to cost reduction initiatives. The Company
re-assesses its operating footprint and makes adjustments as needed
that result in restructuring charges. However, management
believes these actions are not representative of the Company's core
operations.
|
|
|
|
|
|
|
|
|
|
|
(2)
Acquisition-related charges in 2018 relate to the ABC Bearings,
Cone Drive and Rollon acquisitions. In 2017, acquisition-related
charges relate to the Groeneveld, Torsion Control Products, PT Tech
and EDT acquisitions, including transaction costs and inventory
step-up impact.
|
|
|
|
|
|
|
|
|
|
|
(3) The gain on the sale of real
estate related to the sale of a manufacturing facility in South
Africa and a manufacturing facility in Altavista, Virginia during
the second and third quarter of 2017, respectively. This
amount was recorded in other income.
|
|
|
|
|
|
|
|
|
|
|
(4)
Pension-related charges represent actuarial (gains) and losses that
resulted from the remeasurement of pension plan assets and
obligations as a result of changes in assumptions. The Company
recognizes actuarial (gains) and losses through earnings in
connection with the annual remeasurement in the fourth quarter, or
on an interim basis if specific events trigger a
remeasurement.
|
|
|
|
|
|
|
|
|
|
|
(5) Loss
on divestiture relates to the sale of the ICT Business, located in
Gorinchem, Netherlands.
|
Reconciliation of
segment EBIT Margin, After Adjustments, to segment EBIT as a
Percentage of Sales and segment EBIT, After Adjustments, to segment
EBIT:
(Unaudited)
|
The following
reconciliation is provided as additional relevant information about
the Company's Mobile Industries and Process Industries segment
performance deemed useful to investors. Management believes that
non-GAAP measures of adjusted EBIT and adjusted EBIT margin for the
segments are useful to investors as they are representative of each
segment's core operations and are used in the management of the
business, including decisions concerning the allocation of
resources and assessment of performance.
|
|
|
|
|
|
|
|
|
|
|
Mobile
Industries
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
Three Months
Ended
September 30, 2018
|
Percentage to Net
Sales
|
Three Months
Ended
September 30, 2017
|
Percentage to Net
Sales
|
|
Nine Months
Ended September 30, 2018
|
Percentage to Net
Sales
|
Nine Months
Ended
September 30, 2017
|
Percentage to Net
Sales
|
Earnings before
interest and taxes (EBIT)
|
$
|
50.6
|
|
10.9
|
%
|
$
|
35.0
|
|
8.3
|
%
|
|
$
|
156.2
|
|
10.8
|
%
|
$
|
102.0
|
|
8.4
|
%
|
Impairment, restructuring and
reorganization charges (1)
|
0.9
|
|
0.2
|
%
|
2.6
|
|
0.6
|
%
|
|
2.0
|
|
0.1
|
%
|
9.8
|
|
0.8
|
%
|
Loss on
divestiture (2)
|
0.6
|
|
0.1
|
%
|
—
|
|
—
|
%
|
|
0.6
|
|
0.1
|
%
|
—
|
|
—
|
%
|
Gain on
sale of real estate (3)
|
—
|
|
—
|
%
|
(1.6)
|
|
(0.4)
|
%
|
|
—
|
|
—
|
%
|
(3.6)
|
|
(0.3)
|
%
|
Health
care plan modification costs (4)
|
—
|
|
—
|
%
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
(0.4)
|
|
—
|
%
|
Acquisition-related charges
(5)
|
0.4
|
|
0.1
|
%
|
1.7
|
|
0.4
|
%
|
|
0.4
|
|
—
|
%
|
2.4
|
|
0.2
|
%
|
Adjusted
EBIT
|
$
|
52.5
|
|
11.3
|
%
|
$
|
37.7
|
|
8.9
|
%
|
|
$
|
159.2
|
|
11.0
|
%
|
$
|
110.2
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Process
Industries
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
Three Months
Ended
September 30, 2018
|
Percentage to Net
Sales
|
Three Months
Ended
September 30, 2017
|
Percentage to Net
Sales
|
|
Nine Months
Ended September 30, 2018
|
Percentage to Net
Sales
|
Nine Months
Ended
September 30, 2017
|
Percentage to Net
Sales
|
Earnings before
interest and taxes (EBIT)
|
$
|
81.8
|
|
19.6
|
%
|
$
|
61.7
|
|
17.7
|
%
|
|
$
|
254.0
|
|
20.7
|
%
|
$
|
166.0
|
|
16.4
|
%
|
Impairment, restructuring and
reorganization charges (1)
|
0.8
|
|
0.2
|
%
|
—
|
|
—
|
%
|
|
1.0
|
|
0.1
|
%
|
0.1
|
|
—
|
%
|
Health
care plan modification costs (4)
|
—
|
|
—
|
%
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
(0.2)
|
|
—
|
%
|
Acquisition-related charges
(5)
|
1.4
|
|
0.3
|
%
|
—
|
|
—
|
%
|
|
1.4
|
|
0.1
|
%
|
0.2
|
|
—
|
%
|
Adjusted
EBIT
|
$
|
84.0
|
|
20.1
|
%
|
$
|
61.7
|
|
17.7
|
%
|
|
$
|
256.4
|
|
20.9
|
%
|
$
|
166.1
|
|
16.4
|
%
|
|
|
|
|
|
|
|
|
|
|
(1)
Impairment, restructuring and reorganization charges (including
items recorded in cost of products sold) relate to: (i) plant
closures; (ii) the rationalization of certain plants; and (iii)
severance related to cost reduction initiatives. The Company
re-assesses its operating footprint and makes adjustments as needed
that result in restructuring charges. However, management
believes these actions are not representative of the Company's core
operations.
|
|
|
|
|
|
|
|
|
|
|
(2) Loss
on divestiture relates to the sale of the ICT Business, located in
Gorinchem, Netherlands.
|
|
|
|
|
|
|
|
|
|
|
(3) The gain on the sale of real
estate related to the sale of a manufacturing facility in South
Africa and a manufacturing facility in Altavista, Virginia during
the second and third quarter of 2017, respectively. This
amount was recorded in other income.
|
|
|
|
|
|
|
|
|
|
|
(4) Health
care plan modification costs represent one-time charges associated
with a redesign in medical insurance options available for active
associates. In connection with the redesign, the Company
elected to pay certain unused reimbursement account balances to
associates impacted by the change in available options.
|
|
|
|
|
|
|
|
|
|
|
(5) Acquisition-related charges in
2018 relate to the ABC Bearings, Cone Drive and Rollon
acquisitions. In 2017, acquisition-related charges relate to the
Groeneveld, Torsion Control Products, PT Tech and EDT acquisitions,
including transaction costs and inventory step-up
impact.
|
Reconciliation of
Total Debt to Net Debt and the Ratio of Net Debt to Capital to the
Ratio of Total Debt to Capital:
(Unaudited)
|
These reconciliations
are provided as additional relevant information about the Company's
financial position deemed useful to investors. Capital, used for
the ratio of total debt to capital, is a non-GAAP measure defined
as total debt plus total shareholders' equity. Capital, used for
the ratio of net debt to capital, is a non-GAAP measure defined as
total debt less cash, cash equivalents and restricted cash plus
total shareholders' equity. Management believes Net Debt and the
Ratio of Net Debt to Capital are important measures of the
Company's financial position, due to the amount of cash and cash
equivalents on hand.
|
|
|
|
|
|
(Dollars in
millions)
|
|
|
|
|
|
|
|
September 30,
2018
|
December 31,
2017
|
Short-term debt,
including current portion of long-term debt
|
|
|
$
|
48.4
|
|
$
|
108.1
|
|
Long-term
debt
|
|
|
1,681.7
|
|
854.2
|
|
Total
Debt
|
|
|
$
|
1,730.1
|
|
$
|
962.3
|
|
Less: Cash, cash
equivalents and restricted cash
|
|
|
(155.0)
|
|
(125.4)
|
|
Net Debt
|
|
|
$
|
1,575.1
|
|
$
|
836.9
|
|
|
|
|
|
|
Total
Equity
|
|
|
$
|
1,640.4
|
|
$
|
1,474.9
|
|
|
|
|
|
|
Ratio of Total Debt
to Capital
|
|
|
51.3
|
%
|
39.5
|
%
|
Ratio of Net Debt to
Capital
|
|
|
49.0
|
%
|
36.2
|
%
|
|
|
|
|
|
Reconciliation of
Free Cash Flow to GAAP Net Cash Provided by Operating
Activities:
(Unaudited)
|
Management believes
that free cash flow is a non-GAAP measure that is useful to
investors because it is a meaningful indicator of cash generated
from operating activities available for the execution of its
business strategy.
|
|
|
|
|
|
(Dollars in
millions)
|
|
|
|
|
|
Three Months
Ended
September 30,
|
Nine Months
Ended
September 30,
|
|
2018
|
2017
|
2018
|
2017
|
Net cash provided by
operating activities
|
$
|
137.1
|
|
$
|
28.4
|
|
$
|
195.0
|
|
$
|
142.9
|
|
Less: capital
expenditures
|
(23.2)
|
|
(22.6)
|
|
(62.8)
|
|
(62.5)
|
|
Free cash
flow
|
$
|
113.9
|
|
$
|
5.8
|
|
$
|
132.2
|
|
$
|
80.4
|
|
Reconciliation of
EBIT, EBIT, After Adjustments, and EBITDA, After Adjustments, to
GAAP Net Income:
(Unaudited)
|
The following
reconciliation is provided as additional relevant information about
the Company's performance deemed useful to investors. Management
believes consolidated earnings before interest and taxes (EBIT) is a non-GAAP measure that
is useful to investors as it is representative of the Company's
performance and that it is appropriate to compare GAAP net income
to consolidated EBIT. Management
also believes that non-GAAP measures of adjusted EBIT and adjusted
earnings before interest, taxes, depreciation and amortization
(EBITDA) is useful to investors as
they are representative of the Company's core operations and are
used in the management of the business, including decisions
concerning the allocation of resources and assessment of performance.
|
|
|
(Dollars in
millions)
|
Twelve Months
Ended
September 30, 2018
|
Net Income
|
$
|
272.8
|
|
Provision for income
taxes
|
112.6
|
|
Interest
expense
|
43.8
|
|
Interest
income
|
(2.4)
|
|
Consolidated
EBIT
|
$
|
426.8
|
|
Adjustments:
|
|
Impairment, restructuring and
reorganization charges (1)
|
$
|
7.1
|
|
Acquisition-related charges
(2)
|
11.1
|
|
Loss on
divestiture (3)
|
0.6
|
|
Pension-related charges
(4)
|
16.8
|
|
Tax
indemnification and related items
|
0.6
|
|
Total
Adjustments
|
36.2
|
|
Adjusted
EBIT
|
$
|
463.0
|
|
Adjusted depreciation
and amortization (5)
|
141.0
|
|
Adjusted EBITDA
(6)
|
$
|
604.0
|
|
|
|
(1)
Impairment, restructuring and reorganization charges (including
items recorded in cost of products sold) relate to: (i) plant
closures; (ii) the rationalization of certain plants; and (iii)
severance related to cost reduction initiatives. The Company
re-assesses its operating footprint and makes adjustments as needed
that result in restructuring charges. However, management
believes these actions are not representative of the Company's core
operations.
|
|
|
(2)
Acquisition-related charges in 2018 relate to the ABC Bearings,
Cone Drive and Rollon acquisitions. In 2017, acquisition charges
relate to the Groeneveld, Torsion Control Products, PT Tech and EDT
acquisitions, including transaction costs and inventory step-up
impact.
|
|
|
(3) Loss
on divestiture relates to the sale of the ICT Business, located in
Gorinchem, Netherlands.
|
|
|
(4)
Pension-related charges represent actuarial (gains) and losses that
resulted from the remeasurement of pension plan assets and
obligations as a result of changes in assumptions. The Company
recognizes actuarial (gains) and losses through earnings in
connection with the annual remeasurement in the fourth quarter, or
on an interim basis if specific events trigger a
remeasurement.
|
|
|
(5)
Adjusted depreciation and amortization removes the impact of
deprecation recognized in reorganization charges.
|
|
|
(6) Twelve
months trailing adjusted EBITDA reflects results from acquired
companies from the acquisition date through September 30,
2018.
|
|
Reconciliation of
Adjusted Earnings per Share to GAAP Earnings per Share for Full
Year 2018 Outlook:
(Unaudited)
|
The following
reconciliation is provided as additional relevant information about
the Company's outlook deemed useful to investors. Forecasted
full year adjusted diluted earnings per share is an important
financial measure that management believes is useful to investors
as it is representative of the Company's expectation for the
performance of its core business operations.
|
|
|
|
|
|
Low End
Earnings
Per Share
|
|
High End
Earnings
Per Share
|
Forecasted full year
GAAP diluted earnings per share
|
$
|
3.98
|
|
|
$
|
4.03
|
|
|
|
|
|
Forecasted
Adjustments:
|
|
|
|
Restructuring and other special items,
net (1)
|
0.20
|
|
|
0.20
|
|
Total
Adjustments:
|
$
|
0.20
|
|
|
$
|
0.20
|
|
Forecasted full year
adjusted diluted earnings per share
|
$
|
4.18
|
|
|
$
|
4.23
|
|
|
|
|
|
(1) Restructuring and other special
items, net do not include the impact of any potential
mark-to-market pension and other postretirement remeasurement
adjustment, because the amount will not be known until
incurred.
|
|
|
|
|
|
|
|
|
Reconciliation of
Free Cash Flow to GAAP Net Cash Provided by Operating Activities
for Full Year 2018 Outlook:
|
(Unaudited)
|
|
|
|
Forecasted full year
free cash flow is a non-GAAP measure that is useful to investors
because it is representative of the Company's expectation of cash
that will be generated from operating activities and available for
the execution of its business strategy.
|
(Dollars in
Millions)
|
|
|
Free Cash
Flow Outlook
|
Net cash provided by
operating activities
|
|
|
$
|
375.0
|
|
Less: capital
expenditures
|
|
|
(115.0)
|
|
Free cash
flow
|
|
|
$
|
260.0
|
|
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SOURCE The Timken Company