NORTH CANTON, Ohio,
Feb. 7, 2019 /PRNewswire/ -- The
Timken Company (NYSE: TKR; www.timken.com), a world leader in
engineered bearings and power transmission products, today
reported fourth-quarter 2018 sales of $910.1 million, up
17 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 acquisitions and pricing, partially offset by
unfavorable currency.
In the fourth quarter, Timken posted net income
of $60 million or $0.77 per diluted share,
versus net income of $29.2 million or $0.37 per
diluted share for the same period a year ago. The year-over-year
improvement was driven by higher volume and favorable price/mix,
partially offset by higher material and manufacturing costs
including tariffs. The year-ago period included higher income tax
expense driven primarily by one-time charges related to U.S. tax
reform, while the current period included higher interest
expense.
Excluding special items (detailed in the attached tables),
adjusted net income in the fourth quarter of 2018
was $77.4 million or $1.00 per diluted share,
an adjusted earnings per share record for the fourth quarter,
versus adjusted net income of $53.9 million or $0.68 per diluted
share for the same period in 2017. The improvement reflects higher
volume, favorable price/mix, the benefit of acquisitions and the
impact of a lower tax rate as a result of U.S. tax reform,
partially offset by higher material and manufacturing costs
including tariffs and higher interest expense.
Cash from operations for the quarter was $137.5 million, and free cash flow was
$87.7 million. During the quarter,
the company returned $57 million in
capital to shareholders with the payment of its quarterly dividend
and the repurchase of more than 900 thousand shares.
"We generated strong growth and financial performance again in
the fourth quarter," said Richard G.
Kyle, Timken president and chief executive officer. "In
2018, Timken delivered record adjusted earnings per share,
significant year-over-year revenue gains and higher operating
margins. Our relentless focus on winning with customers with
innovative problem solving and industry-leading customer service
helped us deliver market outgrowth across multiple sectors during
the year. The execution of our strategy, along with our consistent
and deliberate approach to capital allocation has positioned us to
deliver even higher levels of performance going forward."
2018 Full-Year Results
For 2018, sales were $3.6 billion,
up 19.2 percent compared with 2017. The increase was driven by
broad organic growth across most end-market sectors, as well as the
favorable impact of acquisitions and pricing.
Net income was $302.8 million or a
record $3.86 per diluted share for
the year, compared with net income of $203.4
million or $2.58 per diluted
share a year ago. The year-over-year improvement was driven
by higher volume, favorable price/mix and the benefit of
acquisitions, partially offset by higher operating costs including
tariffs as well as higher interest expense and the impact of a
higher tax rate driven by net discrete benefits in the prior
year.
Excluding special items (detailed in the attached tables),
adjusted net income was $327.5 million or an adjusted earnings per
share record of $4.18 per diluted
share in 2018. This compares with adjusted net income of
$207.5 million or $2.63 per diluted share in 2017. The improvement
in adjusted net income reflects higher volume, favorable price/mix,
the benefit of acquisitions and the impact of a lower adjusted tax
rate as a result of U.S. tax reform, partially offset by higher
operating costs including tariffs and higher interest expense.
During the year, the company significantly expanded its power
transmission portfolio with the acquisitions of Cone Drive and
Rollon. Cone Drive advanced the company's position in precision
gear drives, and Rollon introduced engineered linear motion
products to the Timken portfolio. Both businesses further the
company's evolution into attractive markets such as solar energy,
logistics and packaging, and automation. Timken also added to
its leadership position in engineered bearings with the acquisition
of ABC Bearings in India. Together
these acquisitions expand the company's global presence in
China, Europe and India. Additionally, Timken increased
its quarterly dividend to $0.28 in
May, paid its 386th consecutive quarterly dividend in
December and repurchased nearly 2.3 million shares of stock during
the year. Between dividends and share repurchases, the company
returned a total of $184 million to
shareholders in 2018.
Fourth-Quarter 2018 Segment Results
Mobile Industries reported sales of $461.9 million,
up 8.5 percent compared with the same period a year ago, driven
primarily by growth in the rail, off-highway and aerospace sectors,
as well as the favorable impact of acquisitions, partially offset
by unfavorable currency.
Earnings before interest and taxes (EBIT) in the quarter
were $42.5 million or 9.2 percent of sales,
compared with EBIT of $37 million or 8.7 percent of
sales for the same period a year ago. The increase in EBIT reflects
the impact of higher volume, lower selling, general and
administrative (SG&A) expenses and the benefit of acquisitions,
partially offset by higher material and manufacturing costs.
Excluding special items (detailed in the attached tables),
adjusted EBIT in the quarter was $46.4 million
or 10.0 percent of sales, compared
with $41.4 million or 9.7 percent of sales in the
fourth quarter last year.
Process Industries sales of $448.2 million
increased 27.3 percent from the same period a year ago, driven
primarily by growth in the industrial distribution and general and
heavy industrial OE sectors, as well as the favorable impact of
acquisitions and pricing, partially offset by unfavorable
currency.
EBIT for the quarter was $79.8 million
or 17.8 percent of sales, compared with EBIT
of $56.3 million or 16 percent of sales for the
same period a year ago. The increase in EBIT was driven by higher
volume, favorable price/mix and the benefit of acquisitions,
partially offset by higher material costs including tariffs, as
well as increased SG&A expenses. The current period also
included higher acquisition-related charges.
Excluding special items (detailed in the attached tables),
adjusted EBIT in the quarter was $88 million
or 19.6 percent of sales, compared
with $56.5 million or 16 percent of sales in the
fourth quarter last year.
2019 Outlook
The company expects 2019 revenue to be up approximately 8 to 10
percent in total versus 2018. This includes expected organic growth
of 4 to 6 percent plus the benefit of acquisitions made during
2018, partially offset by unfavorable currency. Within its
segments, the company estimates for full-year 2019:
- Mobile Industries sales to be up approximately 4 to 6 percent,
driven primarily by organic growth in the rail, off-highway and
aerospace sectors, as well as the benefit of acquisitions,
partially offset by unfavorable currency; and
- Process Industries sales to be up approximately 13 to 15
percent, reflecting growth across all sectors, as well as the
benefit of acquisitions, partially offset by unfavorable
currency.
"In 2019, we plan to deliver another record year of EPS with
strong revenue growth and further margin expansion," said Kyle. "We
will continue to balance our pursuit of growth with our drive for
margins, returns and cash flow. The fundamentals underlying our
markets remain positive and, combined with our market penetration
and inorganic actions, we are planning for a third consecutive year
of double-digit revenue growth in 2019. We are confident that our
strategy and track record of strong execution will enable us to
continue to drive profitable growth and create shareholder value in
2019 and beyond."
Timken anticipates 2019 earnings per diluted share to range from
$4.55 to $4.75 for the full year on a GAAP basis.
Excluding special items (detailed in the attached tables), the
company expects record 2019 adjusted earnings per diluted share
ranging from $4.70 to $4.90.
Conference Call Information
Timken will host a conference call today at 11 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:
|
Thursday, February 7,
2019
|
|
11:00 a.m. Eastern
Time
|
|
Live Dial-In:
800-281-7973
|
|
or
323-794-2093
|
|
(Call in 10 minutes
prior to be included.)
|
|
Conference ID:
Timken's 4Q Earnings Call
|
|
|
Conference Call
Replay:
|
Replay Dial-In
available through
|
|
February 21,
2019:
|
|
888-203-1112 or
719-457-0820
|
|
Replay Passcode:
9332278
|
|
|
Live
Webcast:
|
http://investors.timken.com
|
About The Timken Company
The Timken Company (NYSE: TKR; www.timken.com) designs
and manages a growing portfolio of engineered bearings and power
transmission products. With more than a century of innovation and
increasing knowledge, we continuously improve the reliability and
efficiency of global machinery and equipment to move the world
forward. Timken posted $3.6
billion in sales in 2018 and employs more than 17,000 people
globally, operating from 35 countries.
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 fourth
quarter and full-year 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; and the company's
ability to complete and achieve the benefits of announced plans,
programs, initiatives, acquisitions and capital investments.
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:
Scott
Schroeder
234.262.6420
scott.schroeder@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
December 31,
|
|
Twelve Months
Ended
December 31,
|
|
2018
|
2017
|
|
2018
|
2017
|
|
|
|
|
|
|
Net sales
|
$
|
910.1
|
$
|
778.0
|
|
$
|
3,580.8
|
$
|
3,003.8
|
Cost of products
sold
|
655.6
|
565.3
|
|
2,540.7
|
2,191.7
|
Gross
Profit
|
254.5
|
212.7
|
|
1,040.1
|
812.1
|
Selling, general
& administrative expenses
|
148.3
|
132.8
|
|
580.7
|
508.3
|
Impairment and
restructuring charges
|
1.8
|
0.5
|
|
4.9
|
4.3
|
Operating
Income
|
104.4
|
79.4
|
|
454.5
|
299.5
|
Non-service pension
and other postretirement costs
|
(8.7)
|
(12.9)
|
|
(6.2)
|
(15.0)
|
Other income,
net
|
2.1
|
0.4
|
|
9.4
|
9.6
|
Earnings Before
Interest and Taxes (EBIT) (1)
|
97.8
|
66.9
|
|
457.7
|
294.1
|
Interest expense,
net
|
(17.9)
|
(9.7)
|
|
(49.6)
|
(34.2)
|
Income Before
Income Taxes
|
79.9
|
57.2
|
|
408.1
|
259.9
|
Provision for income
taxes
|
19.1
|
29.1
|
|
102.6
|
57.6
|
Net
Income
|
60.8
|
28.1
|
|
305.5
|
202.3
|
Less: Net income
(loss) attributable to noncontrolling
interest
|
0.8
|
(1.1)
|
|
2.7
|
(1.1)
|
Net Income
Attributable to The Timken Company
|
$
|
60.0
|
$
|
29.2
|
|
$
|
302.8
|
$
|
203.4
|
Net Income per
Common Share Attributable to The
Timken Company Common Shareholders
|
|
|
|
|
|
|
Basic Earnings per
share
|
$
|
0.78
|
$
|
0.38
|
|
$
|
3.93
|
$
|
2.62
|
|
|
|
|
|
|
Diluted Earnings per
share
|
$
|
0.77
|
$
|
0.37
|
|
$
|
3.86
|
$
|
2.58
|
|
|
|
|
|
|
Average Shares
Outstanding
|
76,522,399
|
77,622,730
|
|
77,119,602
|
77,736,398
|
Average Shares
Outstanding - assuming dilution
|
77,454,033
|
78,952,427
|
|
78,337,481
|
78,911,149
|
|
(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
December 31,
|
|
Twelve Months
Ended
December 31,
|
(Dollars in
millions)
|
2018
|
2017
|
|
2018
|
2017
|
|
|
|
|
|
|
Mobile
Industries
|
|
|
|
|
|
Net sales
|
$
|
461.9
|
$
|
425.8
|
|
$
|
1,903.7
|
$
|
1,640.0
|
Earnings before
interest and taxes (EBIT) (1)
|
$
|
42.5
|
$
|
37.0
|
|
$
|
198.7
|
$
|
139.0
|
EBIT Margin
(1)
|
9.2%
|
8.7%
|
|
10.4%
|
8.5%
|
Process
Industries
|
|
|
|
|
|
Net sales
|
$
|
448.2
|
$
|
352.2
|
|
$
|
1,677.1
|
$
|
1,363.8
|
Earnings before
interest and taxes (EBIT) (1)
|
$
|
79.8
|
$
|
56.3
|
|
$
|
333.8
|
$
|
222.3
|
EBIT Margin
(1)
|
17.8%
|
16.0%
|
|
19.9%
|
16.3%
|
Corporate
expense
|
$
|
(14.8)
|
$
|
(12.7)
|
|
$
|
(62.0)
|
$
|
(49.1)
|
Corporate
pension-related charges (2)
|
$
|
(9.7)
|
$
|
(13.7)
|
|
$
|
(12.8)
|
$
|
(18.1)
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Net sales
|
$
|
910.1
|
$
|
778.0
|
|
$
|
3,580.8
|
$
|
3,003.8
|
Earnings before
interest and taxes (EBIT) (1)
|
$
|
97.8
|
$
|
66.9
|
|
$
|
457.7
|
$
|
294.1
|
EBIT
Margin (1)
|
10.7%
|
8.6%
|
|
12.8%
|
9.8%
|
|
(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)
Corporate pension-related charges represent curtailments,
professional fees associated with international pension de-risking
and 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)
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
ASSETS
|
|
|
|
Cash, cash
equivalents and restricted cash
|
$
|
133.1
|
|
$
|
125.4
|
Accounts receivable,
net
|
546.6
|
|
524.9
|
Unbilled receivables
(1)
|
116.6
|
|
—
|
Inventories,
net
|
835.7
|
|
738.9
|
Other current
assets
|
105.2
|
|
110.9
|
Total Current
Assets
|
1,737.2
|
|
1,500.1
|
Property, plant and
equipment, net
|
912.1
|
|
864.2
|
Goodwill and other
intangible assets
|
1,693.7
|
|
932.4
|
Non-current pension
assets
|
6.2
|
|
19.7
|
Other
assets
|
96.0
|
|
86.0
|
Total
Assets
|
$
|
4,445.2
|
|
$
|
3,402.4
|
LIABILITIES
|
|
|
|
Accounts
payable
|
$
|
273.2
|
|
$
|
265.2
|
Short-term debt,
including current portion of long-term debt
|
43.0
|
|
108.1
|
Income
taxes
|
23.5
|
|
9.8
|
Accrued
expenses
|
345.9
|
|
288.6
|
Total Current
Liabilities
|
685.6
|
|
671.7
|
Long-term
debt
|
1,638.6
|
|
854.2
|
Accrued pension
cost
|
161.3
|
|
167.3
|
Accrued
postretirement benefits cost
|
108.7
|
|
122.6
|
Other non-current
liabilities
|
208.3
|
|
111.7
|
Total
Liabilities
|
2,802.5
|
|
1,927.5
|
EQUITY
|
|
|
|
The Timken Company
shareholders' equity
|
1,579.6
|
|
1,442.7
|
Noncontrolling
Interest
|
63.1
|
|
32.2
|
Total
Equity
|
1,642.7
|
|
1,474.9
|
Total Liabilities and
Equity
|
$
|
4,445.2
|
|
$
|
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, $72.7 million of revenue recognized in
excess of billings related to these revenues are included in
"Unbilled Receivables" on the Consolidated Balance Sheet at
December 31, 2018.
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Unaudited)
|
|
Three Months
Ended
December 31,
|
Twelve Months
Ended
December 31,
|
(Dollars in
millions)
|
2018
|
2017
|
2018
|
2017
|
Cash Provided by
(Used in)
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
Net income
attributable to The Timken Company
|
$
|
60.0
|
$
|
29.2
|
$
|
302.8
|
$
|
203.4
|
Net income (loss)
attributable to noncontrolling interest
|
0.8
|
(1.1)
|
2.7
|
(1.1)
|
Adjustments to
reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
Depreciation and
amortization
|
40.1
|
35.2
|
146.0
|
137.7
|
Loss on
divestiture
|
0.2
|
—
|
0.8
|
—
|
Stock-based
compensation expense
|
6.8
|
6.5
|
32.3
|
24.7
|
Pension and other
postretirement expense
|
12.2
|
16.3
|
20.7
|
28.9
|
Pension and other
postretirement benefit contributions
|
(6.3)
|
(7.6)
|
(18.7)
|
(23.9)
|
Changes in operating
assets and liabilities:
|
|
|
|
|
Accounts
receivable
|
(0.7)
|
19.3
|
(66.4)
|
(42.3)
|
Unbilled
receivables
|
15.8
|
—
|
(21.8)
|
—
|
Inventories
|
7.2
|
(46.7)
|
(87.1)
|
(132.1)
|
Accounts
payable
|
(10.3)
|
15.0
|
(20.2)
|
70.7
|
Accrued
expenses
|
22.0
|
20.4
|
32.2
|
36.3
|
Income
taxes
|
(21.2)
|
15.5
|
(19.5)
|
(36.6)
|
Other, net
|
10.9
|
(8.1)
|
28.7
|
(28.9)
|
Net Cash Provided by
Operating Activities
|
$
|
137.5
|
$
|
93.9
|
$
|
332.5
|
$
|
236.8
|
INVESTING
ACTIVITIES
|
|
|
|
|
Capital
expenditures
|
$
|
(49.8)
|
$
|
(42.2)
|
$
|
(112.6)
|
$
|
(104.7)
|
Acquisitions, net of
cash received
|
—
|
0.4
|
(765.4)
|
(346.8)
|
Proceeds from
divestitures
|
—
|
—
|
14.0
|
—
|
Other, net
|
(5.1)
|
0.4
|
(1.2)
|
2.8
|
Net Cash Used in
Investing Activities
|
$
|
(54.9)
|
$
|
(41.4)
|
$
|
(865.2)
|
$
|
(448.7)
|
FINANCING
ACTIVITIES
|
|
|
|
|
Cash dividends paid
to shareholders
|
$
|
(21.5)
|
$
|
(20.9)
|
$
|
(85.7)
|
$
|
(83.3)
|
Purchase of treasury
shares
|
(35.5)
|
(2.4)
|
(98.5)
|
(43.4)
|
Proceeds from
exercise of stock options
|
0.1
|
5.2
|
12.8
|
32.9
|
Shares surrendered
for taxes
|
—
|
(0.6)
|
(5.4)
|
(11.4)
|
Net payments on
credit facilities
|
(45.3)
|
(44.7)
|
(3.9)
|
(16.6)
|
Net proceeds from
(payments on) long-term debt
|
(1.4)
|
(5.1)
|
736.6
|
293.8
|
Other, net
|
(0.6)
|
(0.1)
|
(2.8)
|
(3.8)
|
Net Cash Provided by
(Used in) Financing Activities
|
$
|
(104.2)
|
$
|
(68.6)
|
$
|
553.1
|
$
|
168.2
|
Effect of exchange
rate changes on cash
|
(0.3)
|
1.0
|
(12.7)
|
17.6
|
Increase (Decrease)
in Cash, Cash Equivalents and Restricted Cash
|
$
|
(21.9)
|
$
|
(15.1)
|
$
|
7.7
|
$
|
(26.1)
|
Cash, Cash
Equivalents and Restricted Cash at Beginning of Period
|
155.0
|
140.5
|
125.4
|
151.5
|
Cash, Cash
Equivalents and Restricted Cash at End of Period
|
$
|
133.1
|
$
|
125.4
|
$
|
133.1
|
$
|
125.4
|
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
December 31,
|
|
Twelve Months
Ended
December 31,
|
|
|
2018
|
|
EPS
|
2017
|
|
EPS
|
|
2018
|
|
EPS
|
2017
|
|
EPS
|
Net Income
Attributable to The Timken Company
|
|
$
|
60.0
|
|
$
|
0.77
|
$
|
29.2
|
|
$
|
0.37
|
|
$
|
302.8
|
|
$
|
3.86
|
$
|
203.4
|
|
$
|
2.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment, restructuring and
reorganization charges (2)
|
|
$
|
2.6
|
|
|
$
|
2.6
|
|
|
|
$
|
7.1
|
|
|
$
|
13.1
|
|
|
Acquisition-related charges
(3)
|
|
11.6
|
|
|
2.1
|
|
|
|
20.6
|
|
|
9.0
|
|
|
Gain on
sale of real estate (4)
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
(3.6)
|
|
|
Corporate
pension-related charges (5)
|
|
9.7
|
|
|
13.7
|
|
|
|
12.8
|
|
|
18.1
|
|
|
Health
care plan modification costs
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
(0.7)
|
|
|
Loss on
divestiture (6)
|
|
0.2
|
|
|
—
|
|
|
|
0.8
|
|
|
—
|
|
|
Tax
indemnification and related items
|
|
0.9
|
|
|
—
|
|
|
|
1.5
|
|
|
(1.0)
|
|
|
Noncontrolling interest
(7)
|
|
(0.7)
|
|
|
—
|
|
|
|
(1.3)
|
|
|
—
|
|
|
Provision
for income taxes (8)
|
|
(6.9)
|
|
|
6.3
|
|
|
|
(16.8)
|
|
|
(30.8)
|
|
|
Total
Adjustments:
|
|
17.4
|
|
0.23
|
24.7
|
|
0.31
|
|
24.7
|
|
0.32
|
4.1
|
|
0.05
|
Adjusted Net Income
to The Timken Company
|
|
$
|
77.4
|
|
$
|
1.00
|
$
|
53.9
|
|
$
|
0.68
|
|
$
|
327.5
|
|
$
|
4.18
|
$
|
207.5
|
|
$
|
2.63
|
|
(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 cost structure
periodically, 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 related to the ABC Bearings
Limited ("ABC Bearings"), Apiary Investments Holdings Limited
("Cone Drive") and Rollon S.p.A. ("Rollon") acquisitions, including
transaction costs and inventory step-up impact. Acquisition-related
charges in 2017, 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 quarters of
2017, respectively. This amount was recorded in other
income.
|
|
(5)
Corporate pension-related charges represent curtailments,
professional fees associated with international pension de-risking
and 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)
Represents the noncontrolling interest impact of the adjustments
listed above.
|
|
(8)
Provision for income taxes includes the net tax impact on pre-tax
adjustments (listed above), the impact of discrete tax items
recorded during the respective periods, as well as other
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
December 31,
|
|
Twelve Months
Ended
December 31,
|
|
2018
|
Percentage
to
Net Sales
|
2017
|
Percentage
to
Net Sales
|
|
2018
|
Percentage
to
Net Sales
|
2017
|
Percentage
to
Net Sales
|
Net Income
|
$
|
60.8
|
6.7%
|
$
|
28.1
|
3.6%
|
|
$
|
305.5
|
8.5%
|
$
|
202.3
|
6.7%
|
|
|
|
|
|
|
|
|
|
|
Provision for income
taxes
|
19.1
|
2.1%
|
29.1
|
3.7%
|
|
102.6
|
2.9%
|
57.6
|
1.9%
|
Interest
expense
|
18.5
|
2.0%
|
10.6
|
1.4%
|
|
51.7
|
1.5%
|
37.1
|
1.3%
|
Interest
income
|
(0.6)
|
(0.1)%
|
(0.9)
|
(0.1)%
|
|
(2.1)
|
(0.1)%
|
(2.9)
|
(0.1)%
|
Consolidated
EBIT
|
$
|
97.8
|
10.7%
|
$
|
66.9
|
8.6%
|
|
$
|
457.7
|
12.8%
|
$
|
294.1
|
9.8%
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Impairment,
restructuring and reorganization charges (1)
|
$
|
2.6
|
0.3%
|
$
|
2.6
|
0.3%
|
|
$
|
7.1
|
0.2%
|
$
|
13.1
|
0.4%
|
Health
care plan modification costs
|
—
|
—%
|
—
|
—%
|
|
—
|
—%
|
(0.7)
|
—%
|
Acquisition-related
charges (2)
|
11.6
|
1.3%
|
2.1
|
0.3%
|
|
20.6
|
0.6%
|
9.0
|
0.3%
|
Gain on
sale of real estate (3)
|
—
|
—%
|
—
|
—%
|
|
—
|
—%
|
(3.6)
|
(0.1)%
|
Corporate
pension-related charges (4)
|
9.7
|
1.1%
|
13.7
|
1.8%
|
|
12.8
|
0.4%
|
18.1
|
0.6%
|
Tax
indemnification and related items
|
0.9
|
0.1%
|
—
|
—%
|
|
1.5
|
—%
|
(1.0)
|
—%
|
Loss on
divestiture (5)
|
0.2
|
—%
|
—
|
—%
|
|
0.8
|
—%
|
—
|
—%
|
Total
Adjustments
|
25.0
|
2.8%
|
18.4
|
2.4%
|
|
42.8
|
1.2%
|
34.9
|
1.2%
|
Adjusted
EBIT
|
$
|
122.8
|
13.5%
|
$
|
85.3
|
11.0%
|
|
$
|
500.5
|
14.0%
|
$
|
329.0
|
11.0%
|
|
(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 cost structure
periodically, 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 related to the ABC Bearings,
Cone Drive and Rollon acquisitions. In 2017, acquisition-related
charges related 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 quarters of
2017, respectively. This amount was recorded in other
income.
|
|
(4)
Corporate pension-related charges represent curtailments,
professional fees associated with international pension de-risking
and 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
December 31, 2018
|
Percentage
to Net
Sales
|
Three Months
Ended
December 31,
2017
|
Percentage
to Net
Sales
|
Twelve
Months Ended
December 31,
2018
|
Percentage
to Net
Sales
|
Twelve Months
Ended
December 31, 2017
|
Percentage
to Net
Sales
|
Earnings before
interest and taxes (EBIT)
|
$
|
42.5
|
9.2%
|
$
|
37.0
|
8.7%
|
$
|
198.7
|
10.4%
|
$
|
139.0
|
8.5%
|
Impairment, restructuring and
reorganization charges (1)
|
1.0
|
0.2%
|
2.4
|
0.6%
|
3.0
|
0.2%
|
12.2
|
0.7%
|
Loss on
divestiture (2)
|
0.2
|
—%
|
—
|
—%
|
0.8
|
—%
|
—
|
—%
|
Gain on
sale of real estate (3)
|
—
|
—%
|
—
|
—%
|
—
|
—%
|
(3.6)
|
(0.2)%
|
Health
care plan modification costs (4)
|
—
|
—%
|
—
|
—%
|
—
|
—%
|
(0.4)
|
—%
|
Acquisition-related charges
(5)
|
2.7
|
0.6%
|
2.0
|
0.4%
|
3.1
|
0.2%
|
4.4
|
0.2%
|
Adjusted
EBIT
|
$
|
46.4
|
10.0%
|
$
|
41.4
|
9.7%
|
$
|
205.6
|
10.8%
|
$
|
151.6
|
9.2%
|
|
|
|
|
|
|
|
|
|
Process
Industries
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
Three Months
Ended
December 31,
2018
|
Percentage
to Net
Sales
|
Three Months
Ended
December 31,
2017
|
Percentage
to Net
Sales
|
Twelve Months
Ended
December 31,
2018
|
Percentage
to Net
Sales
|
Twelve Months
Ended
December
31, 2017
|
Percentage
to Net Sales
|
Earnings before
interest and taxes (EBIT)
|
$
|
79.8
|
17.8%
|
$
|
56.3
|
16.0%
|
$
|
333.8
|
19.9%
|
$
|
222.3
|
16.3%
|
Impairment, restructuring and
reorganization charges (1)
|
1.6
|
0.3%
|
0.2
|
—%
|
2.6
|
0.1%
|
0.3
|
—%
|
Health
care plan modification costs (4)
|
—
|
—%
|
—
|
—%
|
—
|
—%
|
(0.2)
|
—%
|
Acquisition-related charges
(5)
|
6.6
|
1.5%
|
—
|
—%
|
8.0
|
0.5%
|
0.2
|
—%
|
Adjusted
EBIT
|
$
|
88.0
|
19.6%
|
$
|
56.5
|
16.0%
|
$
|
344.4
|
20.5%
|
$
|
222.6
|
16.3%
|
|
(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 cost structure
periodically, 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 quarters 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 related to the ABC Bearings,
Cone Drive and Rollon acquisitions. In 2017, acquisition-related
charges related 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)
|
|
|
|
December 31,
2018
|
December 31,
2017
|
Short-term debt,
including current portion of long-term debt
|
|
|
$
|
43.0
|
$
|
108.1
|
Long-term
debt
|
|
|
1,638.6
|
854.2
|
Total
Debt
|
|
|
$
|
1,681.6
|
$
|
962.3
|
Less: Cash, cash
equivalents and restricted cash
|
|
|
|
(133.1)
|
(125.4)
|
Net Debt
|
|
|
$
|
1,548.5
|
$
|
836.9
|
|
|
|
|
|
Total
Equity
|
|
|
$
|
1,642.7
|
$
|
1,474.9
|
|
|
|
|
|
Ratio of Net Debt to
Capital
|
|
|
48.5%
|
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
December 31,
|
Twelve Months
Ended
December 31,
|
|
2018
|
2017
|
2018
|
2017
|
Net cash provided by
operating activities
|
$
|
137.5
|
$
|
93.9
|
$
|
332.5
|
$
|
236.8
|
Less: capital
expenditures
|
(49.8)
|
(42.2)
|
(112.6)
|
(104.7)
|
Free cash
flow
|
$
|
87.7
|
$
|
51.7
|
$
|
219.9
|
$
|
132.1
|
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
December 31,
2018
|
Net Income
|
$
|
305.5
|
Provision for income
taxes
|
102.6
|
Interest
expense
|
51.7
|
Interest
income
|
(2.1)
|
Consolidated
EBIT
|
$
|
457.7
|
Adjustments:
|
|
Impairment, restructuring and
reorganization charges (1)
|
$
|
7.1
|
Acquisition-related charges
(2)
|
20.6
|
Loss on
divestiture (3)
|
0.8
|
Corporate
pension-related charges (4)
|
12.8
|
Tax
indemnification and related items
|
1.5
|
Total
Adjustments
|
42.8
|
Adjusted
EBIT
|
$
|
500.5
|
Depreciation and
amortization
|
146.0
|
Adjusted EBITDA
(5)
|
$
|
646.5
|
|
|
|
(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 cost structure
periodically, 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 related to the ABC Bearings,
Cone Drive and Rollon acquisitions. In 2017, acquisition charges
related 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)
Corporate pension-related charges represent curtailments and
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) Twelve
months trailing adjusted EBITDA reflects results from acquired
companies from the acquisition date through December 31,
2018.
|
Reconciliation of
Adjusted Earnings per Share to GAAP Earnings per Share for Full
Year 2019 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
|
$
|
4.55
|
|
$
|
4.75
|
|
|
|
|
Forecasted
Adjustments:
|
|
|
|
Restructuring and other special items,
net (1)
|
0.15
|
|
0.15
|
Total
Adjustments:
|
$
|
0.15
|
|
$
|
0.15
|
Forecasted full year
adjusted diluted earnings per share
|
$
|
4.70
|
|
$
|
4.90
|
|
(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 amounts will
not be known until incurred.
|
|
|
Reconciliation of
Free Cash Flow to GAAP Net Cash Provided by Operating Activities
for Full Year 2019
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
|
|
|
$
|
450.0
|
Less: capital
expenditures
|
|
|
(150.0)
|
Free cash
flow
|
|
|
$
|
300.0
|
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SOURCE The Timken Company