NORTH CANTON, Ohio,
Feb. 5, 2020 /PRNewswire/ -- The
Timken Company (NYSE: TKR; www.timken.com), a world leader in
engineered bearings and power transmission
products, today reported fourth-quarter 2019 sales
of $896.2 million, down 1.5 percent from the same period
a year ago. The decline was driven by lower demand mainly in the
Mobile Industries segment and unfavorable currency, partially
offset by the favorable impact of acquisitions and positive
pricing.
In the fourth quarter, Timken posted net income
of $113.5 million or $1.48 per diluted share,
versus net income of $60.0 million or $0.77 per
diluted share for the same period a year ago. The current period
included pension and other postretirement plan remeasurement
income, a net income tax credit driven by discrete items in the
current period, and other special items detailed in the attached
tables, which more than accounted for the year-over-year
improvement in GAAP net income.
Excluding special items, adjusted net income in the fourth
quarter of 2019 was $64.3 million or $0.84 per
diluted share versus adjusted net income of $77.4 million or $1.00 per diluted
share for the same period in 2018. The decline in adjusted net
income reflects the impact of lower volume and higher manufacturing
and SG&A costs, partially offset by positive pricing and lower
material and logistics costs.
Net cash from operations for the quarter was $195.3 million, and free cash flow was
$137.6 million. During the quarter,
the company returned $27.7 million in
capital to shareholders with the payment of its 390th
consecutive quarterly dividend and the repurchase of more than 150
thousand shares.
"Fourth quarter revenue was in line with our expectations and
cash flow finished the year strong. While profitability fell short,
a significant portion of this related to some higher than normal
operating expenses in the quarter that are not expected to
persist," said Richard G. Kyle,
Timken president and chief executive officer. "In 2019, Timken
delivered record earnings per share, operating margin expansion and
solid revenue gains in sectors like renewable energy, aerospace and
rail. Our strong financial performance in a relatively soft
industrial market environment demonstrates the successful execution
of our strategy. Our performance in 2019 underscores the enduring
strength of our portfolio and reflects a stronger, more diverse
Timken Company."
2019 Full-Year Results
For 2019, sales were $3.8 billion,
up 5.8 percent compared with 2018. The increase was driven by the
favorable impact of acquisitions, positive pricing and organic
growth in Process Industries, partially offset by unfavorable
currency and the impact of lower demand in Mobile Industries.
Net income was $362.1 million or a
record $4.71 per diluted share for
the year, compared with net income of $302.8
million or $3.86 per diluted
share a year ago. The year-over-year improvement reflects favorable
pricing, the benefit of acquisitions, and the impact of a lower tax
rate driven by net discrete benefits, partially offset by the
impact of lower volume, unfavorable currency and higher interest
expense. The current period also benefited from pension and other
retirement plan remeasurement income versus expense in the year-ago
period.
Excluding special items detailed in the attached tables,
adjusted net income was $353.8 million or record adjusted earnings
of $4.60 per diluted share in 2019.
This compares with adjusted net income of $327.5 million or adjusted earnings of
$4.18 per diluted share in 2018. The
improvement in adjusted net income reflects favorable pricing and
the benefit of acquisitions, partially offset by the impact of
lower volume, unfavorable currency and higher interest expense.
Timken generated strong cash flow in 2019, with net cash from
operations for the full year of $550.1
million, and free cash flow of $409.5
million. The company ended the year with net debt to
adjusted EBITDA at 2.1 times.
During the year, the company continued to broaden its reach
through acquisitions. The addition of BEKA Lubrication (BEKA) makes
Timken the world's second largest producer of industrial automatic
lubrication systems1, and enhances the company's
position in attractive markets such as wind and food and beverage.
Diamond Chain expands Timken's
leadership in high-performance roller chains for industrial markets
and builds on the company's strong position in distribution.
Together these acquisitions also expand the company's global
presence in growing markets, especially in China and Europe, and both are expected to deliver
significant cost and revenue synergies over time. Additionally,
Timken paid dividends totaling $1.12
per share in 2019, which represents its sixth consecutive year of
annual dividend increases, and repurchased over 1.4 million shares
of stock. Between dividends and share repurchases, the company
returned a total of $148 million to
shareholders in 2019.
Fourth-Quarter 2019 Segment Results
Mobile Industries sales of $445.1 million
decreased 3.6 percent compared with the same period a year ago. The
decline was driven primarily by lower shipments in the off-highway
and heavy truck sectors, partially offset by the benefit of
acquisitions and growth in the rail and aerospace sectors.
Earnings before interest, taxes, depreciation and amortization
(EBITDA) in the quarter were $57.5 million
or 12.9 percent of sales, compared with EBITDA
of $61.1 million or 13.2 percent of sales for the
same period a year ago. The decrease in EBITDA reflects the impact
of lower volume and higher manufacturing costs, partially offset by
favorable price/mix and lower material and logistics costs.
Excluding special items detailed in the attached tables,
adjusted EBITDA in the quarter was $60.3 million
or 13.5 percent of sales, compared
with $65.0 million or 14.1 percent of sales in the
fourth quarter last year.
Process Industries sales of $451.1 million
increased 0.6 percent from the same period a year ago, driven
primarily by the favorable impact of acquisitions and strong growth
in renewable energy, mostly offset by lower revenue in the
industrial and marine sectors and unfavorable currency.
EBITDA for the quarter was $96.8 million
or 21.5 percent of sales, compared with EBITDA
of $101.2 million or 22.6 percent of sales for
the same period a year ago. The decrease in EBITDA was driven by
the impact of lower volume, unfavorable mix and higher operating
expenses, partially offset by favorable pricing.
Excluding special items detailed in the attached tables,
adjusted EBITDA in the quarter was $98.3 million
or 21.8 percent of sales, compared
with $109.4 million or 24.4 percent of sales in the
fourth quarter last year.
2020 Outlook
The company expects 2020 revenue to be in the range of down 2
percent to up 2 percent, or roughly flat at the midpoint, versus
2019. This includes the benefit of acquisitions made during 2019,
offset by expected organic declines in Mobile Industries and the
impact of currency.
Timken anticipates 2020 earnings per diluted share to range from
$4.00 to $4.40 for the full year on a GAAP basis.
Excluding special items detailed in the attached tables, the
company expects 2020 adjusted earnings per diluted share ranging
from $4.25 to $4.65. Timken plans to generate net cash from
operations of approximately $585
million and free cash flow of $425
million at the midpoint in 2020.
"We plan to deliver another strong year of cash generation and
solid earnings performance in 2020 against a soft industrial
economic backdrop," said Kyle. "We expect profitability to improve
meaningfully from fourth-quarter levels, and we remain focused on
driving outgrowth, integrating recent acquisitions and advancing
our operational excellence initiatives. With our proven strategy
and track record, we are confident in our ability to achieve our
new five-year targets and deliver attractive shareholder returns
for years to come."
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:
|
Wednesday, February
5, 2020
|
|
11:00 a.m. Eastern
Time
|
|
Live Dial-In:
800-458-4121
|
|
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 19,
2020:
|
|
888-203-1112 or
719-457-0820
|
|
Replay Passcode:
9406498
|
|
|
Live
Webcast:
|
http://investors.timken.com
|
About The Timken Company
The Timken Company (NYSE: TKR; www.timken.com) designs
a growing portfolio of engineered bearings and power transmission
products. With more than a century of knowledge and innovation, we
continuously improve the reliability and efficiency of global
machinery and equipment to move the world forward. Timken
posted $3.8 billion in sales in 2019
and employs more than 18,000 people globally, operating from 42
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
"2020 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 2019; the company's ability to respond to
the changes in its end markets that could affect demand for the
company's products or services; 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 material and energy costs;
political risks associated with governmental instability and 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, including realizing any accretion within expected
timeframes or at all; 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 introduction of new disruptive technologies; unplanned
plant shutdowns; the company's ability to maintain positive
relations with unions and works councils; 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,
2018, 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:
Neil
Frohnapple
234.262.2310
neil.frohnapple@timken.com
1Based on company and industry estimates.
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,
|
|
2019
|
2018
|
|
2019
|
2018
|
|
|
|
|
|
|
Net sales
|
$
|
896.2
|
|
$
|
910.1
|
|
|
$
|
3,789.9
|
|
$
|
3,580.8
|
|
Cost of products
sold
|
640.2
|
|
655.6
|
|
|
2,648.1
|
|
2,540.7
|
|
Gross
Profit
|
256.0
|
|
254.5
|
|
|
1,141.8
|
|
1,040.1
|
|
Selling, general
& administrative expenses
|
159.2
|
|
148.3
|
|
|
618.6
|
|
580.7
|
|
Impairment and
restructuring charges
|
3.3
|
|
1.8
|
|
|
6.8
|
|
4.9
|
|
Operating
Income
|
93.5
|
|
104.4
|
|
|
516.4
|
|
454.5
|
|
Non-service pension
and other postretirement income (expense)
|
24.3
|
|
(8.7)
|
|
|
10.2
|
|
(6.2)
|
|
Other income,
net
|
2.5
|
|
2.1
|
|
|
13.0
|
|
9.4
|
|
Interest expense,
net
|
(15.2)
|
|
(17.9)
|
|
|
(67.2)
|
|
(49.6)
|
|
Income Before
Income Taxes
|
105.1
|
|
79.9
|
|
|
472.4
|
|
408.1
|
|
Provision for
(benefit from) income taxes
|
(12.7)
|
|
19.1
|
|
|
97.7
|
|
102.6
|
|
Net
Income
|
117.8
|
|
60.8
|
|
|
374.7
|
|
305.5
|
|
Less: Net income
attributable to noncontrolling interest
|
4.3
|
|
0.8
|
|
|
12.6
|
|
2.7
|
|
Net Income
Attributable to The Timken Company
|
$
|
113.5
|
|
$
|
60.0
|
|
|
$
|
362.1
|
|
$
|
302.8
|
|
Net Income per
Common Share Attributable to The Timken Company Common
Shareholders
|
|
|
|
|
|
Basic Earnings per
share
|
$
|
1.51
|
|
$
|
0.78
|
|
|
$
|
4.78
|
|
$
|
3.93
|
|
|
|
|
|
|
|
Diluted Earnings per
share
|
$
|
1.48
|
|
$
|
0.77
|
|
|
$
|
4.71
|
|
$
|
3.86
|
|
|
|
|
|
|
|
Average Shares
Outstanding
|
75,383,088
|
|
76,522,399
|
|
|
75,758,123
|
|
77,119,602
|
|
Average Shares
Outstanding - assuming dilution
|
76,823,213
|
|
77,454,033
|
|
|
76,896,565
|
|
78,337,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BUSINESS
SEGMENTS
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Three Months
Ended
December 31,
|
|
Twelve Months
Ended
December 31,
|
(Dollars in
millions)
|
2019
|
2018
|
|
2019
|
2018
|
|
|
|
|
|
|
Mobile
Industries
|
|
|
|
|
|
Net sales
|
$
|
445.1
|
|
$
|
461.9
|
|
|
$
|
1,893.9
|
|
$
|
1,903.7
|
|
Earnings before
interest, taxes, depreciation, and amortization (EBITDA)
(1)
|
$
|
57.5
|
|
$
|
61.1
|
|
|
$
|
284.9
|
|
$
|
272.2
|
|
EBITDA Margin
(1)
|
12.9%
|
|
13.2%
|
|
|
15.0%
|
|
14.3%
|
|
Process
Industries
|
|
|
|
|
|
Net sales
|
$
|
451.1
|
|
$
|
448.2
|
|
|
$
|
1,896.0
|
|
$
|
1,677.1
|
|
Earnings before
interest, taxes, depreciation, and amortization (EBITDA)
(1)
|
$
|
96.8
|
|
$
|
101.2
|
|
|
$
|
466.6
|
|
$
|
405.7
|
|
EBITDA Margin
(1)
|
21.5%
|
|
22.6%
|
|
|
24.6%
|
|
24.2%
|
|
Corporate earnings
before interest, taxes, depreciation and amortization (EBITDA)
(1)
|
$
|
(14.8)
|
|
$
|
(14.7)
|
|
|
$
|
(55.4)
|
|
$
|
(61.4)
|
|
Corporate pension and
other postretirement benefit related charges
(2)
|
21.0
|
|
(9.7)
|
|
|
4.1
|
|
(12.8)
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Net sales
|
$
|
896.2
|
|
$
|
910.1
|
|
|
$
|
3,789.9
|
|
$
|
3,580.8
|
|
Earnings before
interest, taxes, depreciation, and amortization (EBITDA)
(1)
|
$
|
160.5
|
|
$
|
137.9
|
|
|
$
|
700.2
|
|
$
|
603.7
|
|
EBITDA
Margin (1)
|
17.9%
|
|
15.2%
|
|
|
18.5%
|
|
16.9%
|
|
|
|
|
|
|
|
(1) EBITDA
is a non-GAAP measure defined as operating income plus other income
(expense) and excluding depreciation and amortization. EBITDA
Margin is a non-GAAP measure defined as EBITDA as a percentage of
net sales. EBITDA and EBITDA 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 EBITDA and
EBITDA Margin is useful to investors as these measures are
representative of the core operations of the segments and Company,
respectively.
|
|
|
|
|
|
|
(2) Corporate pension and other
postretirement benefit related charges represent actuarial gains
and (losses) that resulted from the remeasurement of plan assets
and obligations as a result of changes in assumptions. The Company
recognizes actuarial gains and (losses) in connection with the
annual remeasurement in the fourth quarter, or if specific events
trigger a remeasurement. Refer to the Retirement Benefit Plans and
Other Postretirement Benefit Plans footnotes within the Company's
annual reports on Form 10-K and quarterly reports on Form 10-Q for
additional discussion.
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
(Dollars in
millions)
|
(Unaudited)
|
|
|
|
December 31,
2019
|
|
December 31,
2018
|
ASSETS
|
|
|
|
Cash and cash
equivalents
|
$
|
209.5
|
|
|
$
|
132.5
|
|
Restricted
cash
|
6.7
|
|
|
0.6
|
|
Accounts receivable,
net
|
545.1
|
|
|
546.6
|
|
Unbilled
receivables
|
129.2
|
|
|
116.6
|
|
Inventories,
net
|
842.0
|
|
|
835.7
|
|
Other current
assets
|
142.1
|
|
|
105.2
|
|
Total Current
Assets
|
1,874.6
|
|
|
1,737.2
|
|
Property, plant and
equipment, net
|
989.2
|
|
|
912.1
|
|
Operating lease
assets (1)
|
114.1
|
|
|
—
|
|
Goodwill and other
intangible assets
|
1,752.2
|
|
|
1,693.7
|
|
Non-current pension
assets
|
3.4
|
|
|
6.2
|
|
Non-current other
postretirement benefit assets
|
36.6
|
|
|
—
|
|
Other
assets
|
89.8
|
|
|
96.0
|
|
Total
Assets
|
$
|
4,859.9
|
|
|
$
|
4,445.2
|
|
LIABILITIES
|
|
|
|
Accounts
payable
|
$
|
301.7
|
|
|
$
|
273.2
|
|
Short-term debt,
including current portion of long-term debt
|
82.0
|
|
|
43.0
|
|
Short-term operating
lease liabilities (1)
|
28.3
|
|
|
—
|
|
Income
taxes
|
17.8
|
|
|
23.5
|
|
Accrued
expenses
|
306.8
|
|
|
345.9
|
|
Total Current
Liabilities
|
736.6
|
|
|
685.6
|
|
Long-term
debt
|
1,648.1
|
|
|
1,638.6
|
|
Accrued pension
benefits
|
165.1
|
|
|
161.3
|
|
Accrued
postretirement benefits
|
31.8
|
|
|
108.7
|
|
Long-term operating
lease liabilities (1)
|
71.3
|
|
|
—
|
|
Other non-current
liabilities
|
252.2
|
|
|
208.3
|
|
Total
Liabilities
|
2,905.1
|
|
|
2,802.5
|
|
EQUITY
|
|
|
|
The Timken Company
shareholders' equity
|
1,868.2
|
|
|
1,579.6
|
|
Noncontrolling
Interest
|
86.6
|
|
|
63.1
|
|
Total
Equity
|
1,954.8
|
|
|
1,642.7
|
|
Total Liabilities and
Equity
|
$
|
4,859.9
|
|
|
$
|
4,445.2
|
|
|
|
|
|
(1) Due to the adoption of the new
leasing standard, the Company recognized operating lease assets and
corresponding operating lease liabilities on the Consolidated
Balance Sheet. In conjunction with the adoption of the new leasing
standard, the Company reclassified $15.3 million of lease assets
related to purchase accounting adjustments from the ABC Bearings
Limited ("ABC Bearings") acquisition from Other assets to Operating
lease assets. These assets do not have material corresponding lease
liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Three Months
Ended
December 31,
|
Twelve Months
Ended
December 31,
|
(Dollars in
millions)
|
2019
|
2018
|
2019
|
2018
|
Cash Provided by
(Used in)
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
Net Income
|
$
|
117.8
|
|
$
|
60.8
|
|
$
|
374.7
|
|
$
|
305.5
|
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
Depreciation and
amortization
|
40.2
|
|
40.1
|
|
160.6
|
|
146.0
|
|
Stock-based
compensation expense
|
6.4
|
|
6.8
|
|
27.1
|
|
32.3
|
|
Pension and other
postretirement expense (income)
|
(21.0)
|
|
12.2
|
|
2.2
|
|
20.7
|
|
Pension and other
postretirement benefit contributions and payments
|
(6.3)
|
|
(6.3)
|
|
(43.4)
|
|
(18.7)
|
|
Operating lease
expense
|
8.9
|
|
—
|
|
36.6
|
|
—
|
|
Operating lease
payments
|
(8.8)
|
|
—
|
|
(35.6)
|
|
—
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
Accounts
receivable
|
30.5
|
|
(0.7)
|
|
24.1
|
|
(66.4)
|
|
Unbilled
receivables
|
22.4
|
|
15.8
|
|
(12.6)
|
|
(21.8)
|
|
Inventories
|
12.9
|
|
7.2
|
|
50.7
|
|
(87.1)
|
|
Accounts
payable
|
27.3
|
|
(10.3)
|
|
19.9
|
|
(20.2)
|
|
Accrued
expenses
|
1.9
|
|
22.0
|
|
(26.8)
|
|
32.2
|
|
Income
taxes
|
(33.8)
|
|
(21.2)
|
|
(23.1)
|
|
(19.5)
|
|
Other, net
|
(3.1)
|
|
11.1
|
|
(4.3)
|
|
29.5
|
|
Net Cash Provided by
Operating Activities
|
$
|
195.3
|
|
$
|
137.5
|
|
$
|
550.1
|
|
$
|
332.5
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
Capital
expenditures
|
$
|
(57.7)
|
|
$
|
(49.8)
|
|
$
|
(140.6)
|
|
$
|
(112.6)
|
|
Acquisitions, net of
cash received
|
(143.8)
|
|
—
|
|
(226.5)
|
|
(765.4)
|
|
Proceeds from
divestitures
|
—
|
|
—
|
|
—
|
|
14.0
|
|
Other, net
|
(1.2)
|
|
(5.1)
|
|
2.2
|
|
(1.2)
|
|
Net Cash Used in
Investing Activities
|
$
|
(202.7)
|
|
$
|
(54.9)
|
|
$
|
(364.9)
|
|
$
|
(865.2)
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
Cash dividends paid
to shareholders
|
$
|
(21.1)
|
|
$
|
(21.5)
|
|
$
|
(84.9)
|
|
$
|
(85.7)
|
|
Purchase of treasury
shares
|
(6.6)
|
|
(35.5)
|
|
(62.7)
|
|
(98.5)
|
|
Proceeds from
exercise of stock options
|
17.6
|
|
0.1
|
|
27.5
|
|
12.8
|
|
Payments related to
tax withholding for stock-based compensation
|
(6.1)
|
|
—
|
|
(15.4)
|
|
(5.4)
|
|
Net proceeds from
(payments on) credit facilities
|
55.2
|
|
(45.3)
|
|
97.0
|
|
(3.9)
|
|
Net (payments on)
proceeds from long-term debt
|
(2.3)
|
|
(1.4)
|
|
(60.0)
|
|
736.6
|
|
Other, net
|
—
|
|
(0.6)
|
|
(2.2)
|
|
(2.8)
|
|
Net Cash (Used in)
Provided by Financing Activities
|
$
|
36.7
|
|
$
|
(104.2)
|
|
$
|
(100.7)
|
|
$
|
553.1
|
|
Effect of exchange
rate changes on cash
|
5.0
|
|
(0.3)
|
|
(1.4)
|
|
(12.7)
|
|
Increase (Decrease)
in Cash, Cash Equivalents and Restricted Cash
|
$
|
34.3
|
|
$
|
(21.9)
|
|
$
|
83.1
|
|
$
|
7.7
|
|
Cash, Cash
Equivalents and Restricted Cash at Beginning of Period
|
181.9
|
|
155.0
|
|
133.1
|
|
125.4
|
|
Cash, Cash
Equivalents and Restricted Cash at End of Period
|
$
|
216.2
|
|
$
|
133.1
|
|
$
|
216.2
|
|
$
|
133.1
|
|
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,
|
|
2019
|
EPS
|
2018
|
EPS
|
2019
|
EPS
|
2018
|
EPS
|
Net Income
Attributable to The Timken Company
|
$
|
113.5
|
$
|
1.48
|
$
|
60.0
|
$
|
0.77
|
$
|
362.1
|
$
|
4.71
|
$
|
302.8
|
$
|
3.86
|
|
|
|
|
|
|
|
|
|
Adjustments:
(1)
|
|
|
|
|
|
|
|
|
Impairment, restructuring and
reorganization charges (2)
|
$
|
5.3
|
|
$
|
2.6
|
|
$
|
9.8
|
|
$
|
7.1
|
|
Property
loss and related expenses (3)
|
1.1
|
|
—
|
|
7.6
|
|
—
|
|
Acquisition-related charges
(4)
|
4.7
|
|
11.6
|
|
15.5
|
|
20.6
|
|
Brazil
legal matter (5)
|
(1.5)
|
|
—
|
|
1.8
|
|
—
|
|
Gain on
sale of real estate (6)
|
(2.8)
|
|
—
|
|
(4.5)
|
|
—
|
|
Corporate
pension and other postretirement benefit related charges
(7)
|
(21.0)
|
|
9.7
|
|
(4.1)
|
|
12.8
|
|
Loss on
divestiture (8)
|
—
|
|
0.2
|
|
—
|
|
0.8
|
|
Tax
indemnification and related items
|
0.2
|
|
0.9
|
|
0.7
|
|
1.5
|
|
Noncontrolling interest of above
adjustments
|
(0.4)
|
|
(0.7)
|
|
(0.5)
|
|
(1.3)
|
|
Provision
for income taxes (9)
|
(34.8)
|
|
(6.9)
|
|
(34.6)
|
|
(16.8)
|
|
Total
Adjustments:
|
(49.2)
|
(0.64)
|
17.4
|
0.23
|
(8.3)
|
(0.11)
|
24.7
|
0.32
|
Adjusted Net Income
Attributable to The Timken Company
|
$
|
64.3
|
$
|
0.84
|
$
|
77.4
|
$
|
1.00
|
$
|
353.8
|
$
|
4.60
|
$
|
327.5
|
$
|
4.18
|
|
(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,
(iii) severance related to cost reduction initiatives and (iv)
related depreciation and amortization. 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)
Represents property loss and related expenses during the year (net
of insurance proceeds) resulting from property loss that occurred
during the first quarter of 2019 at one
of the Company's warehouses in Knoxville, Tennessee and during the
third quarter of 2019 at one of the Company's warehouses in Yantai,
China.
|
|
(4)
Acquisition-related charges in 2019 primarily related to the Rollon
S.p.A. ("Rollon"), The Diamond Chain Company ("Diamond Chain"), and
BEKA Lubrication ("BEKA") acquisitions,
including transaction costs and inventory step-up impact. This also
includes transaction costs related to the acquisition of the joint
venture partner's interest in Timken-XEMC (Hunan)
Bearing Co.,
Ltd.
|
|
(5) The Brazil legal matter
represents expense recorded to establish a liability associated
with an investigation into alleged antitrust violations in the
bearing industry that was settled
in the fourth
quarter of 2019. Refer to the Contingencies footnote within the
Company's annual reports on Form 10-K and quarterly reports on Form
10-Q for additional discussion.
|
|
(6) The gain on sale of real estate
related to the sale of a manufacturing facility in Pulaski,
Tennessee during the first quarter of 2019 and disposal of land in
Colmar, France during
the fourth quarter of
2019. These amounts were recorded in other income.
|
|
(7)
Corporate pension and other postretirement benefit related charges
represent actuarial (gains) and losses that resulted from the
remeasurement of plan assets and obligations as
a result of changes
in assumptions. The Company recognizes actuarial (gains) and losses
in connection with the annual remeasurement in the fourth quarter,
or if specific events trigger
a
remeasurement. Refer to the Retirement Benefit Plans and Other
Postretirement Benefit Plans footnotes within the Company's annual
reports on Form 10-K and quarterly reports on
Form 10-Q for
additional discussion.
|
|
(8) Loss
on divestiture relates to the sale of the Groeneveld Information
Technology Holding B.V. (the "ICT Business").
|
|
(9)
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,
including the
reduction of a
valuation allowance in the fourth quarter of 2019 of $39.2 million,
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
EBITDA to GAAP Net Income, and EBITDA Margin, After Adjustments, to
Net Income as a Percentage of Sales, and EBITDA, 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,
taxes, depreciation and amortization (EBITDA) 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 EBITDA. Management also believes that
adjusted EBITDA and EBITDA 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,
|
|
2019
|
Percentage
to
Net Sales
|
2018
|
Percentage
to Net Sales
|
|
2019
|
Percentage
to
Net Sales
|
2018
|
Percentage
to
Net Sales
|
Net Income
|
$
|
117.8
|
13.1%
|
$
|
60.8
|
6.7%
|
|
$
|
374.7
|
9.9%
|
$
|
305.5
|
8.5%
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
(benefit from) income taxes
|
(12.7)
|
(1.4)%
|
19.1
|
2.1%
|
|
97.7
|
2.6%
|
102.6
|
2.9%
|
Interest
expense
|
16.6
|
1.9%
|
18.5
|
2.1%
|
|
72.1
|
1.9%
|
51.7
|
1.5%
|
Interest
income
|
(1.4)
|
(0.2)%
|
(0.6)
|
(0.1)%
|
|
(4.9)
|
(0.1)%
|
(2.1)
|
(0.1)%
|
Depreciation and
amortization
|
40.2
|
4.5%
|
40.1
|
4.4%
|
|
160.6
|
4.2%
|
146.0
|
4.1%
|
Consolidated
EBITDA
|
$
|
160.5
|
17.9%
|
$
|
137.9
|
15.2%
|
|
$
|
700.2
|
18.5%
|
$
|
603.7
|
16.9%
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Impairment, restructuring and
reorganization charges (1)
|
$
|
4.6
|
0.5%
|
$
|
2.6
|
0.3%
|
|
$
|
9.1
|
0.3%
|
$
|
7.1
|
0.2%
|
Property
loss and related expenses (2)
|
1.1
|
0.2%
|
—
|
—%
|
|
7.6
|
0.2%
|
—
|
—%
|
Acquisition-related charges
(3)
|
4.7
|
0.5%
|
11.6
|
1.3%
|
|
15.5
|
0.4%
|
20.6
|
0.6%
|
Brazil
legal matter (4)
|
(1.5)
|
(0.2)%
|
—
|
—%
|
|
1.8
|
—%
|
—
|
—%
|
Gain on
sale of real estate (5)
|
(2.8)
|
(0.3)%
|
—
|
—%
|
|
(4.5)
|
(0.1)%
|
—
|
—%
|
Corporate
pension and other postretirement benefit related charges
(6)
|
(21.0)
|
(2.3)%
|
9.7
|
1.1%
|
|
(4.1)
|
(0.1)%
|
12.8
|
0.4%
|
Tax
indemnification and related items
|
0.2
|
—%
|
0.9
|
—%
|
|
0.7
|
—%
|
1.5
|
—%
|
Loss on
divestiture (7)
|
—
|
—%
|
0.2
|
—%
|
|
—
|
—%
|
0.8
|
—%
|
Total
Adjustments
|
(14.7)
|
(1.6)%
|
25.0
|
2.7%
|
|
26.1
|
0.7%
|
42.8
|
1.2%
|
Adjusted
EBITDA
|
$
|
145.8
|
16.3%
|
$
|
162.9
|
17.9%
|
|
$
|
726.3
|
19.2%
|
$
|
646.5
|
18.1%
|
|
|
|
|
|
|
|
|
|
|
(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) Represents
property loss and related expenses during the year (net of
insurance proceeds) resulting from property loss that occurred
during the first quarter of 2019 at one of the Company's warehouses
in Knoxville, Tennessee and during the third quarter of 2019 at one
of the Company's warehouses in Yantai, China.
|
|
(3)
Acquisition-related charges in 2019 primarily related to the
Rollon, Diamond Chain, and BEKA acquisitions, including transaction
costs and inventory step-up impact. This also includes transaction
costs related to the acquisition of the joint venture partner's
interest in Timken-XEMC (Hunan) Bearing Co., Ltd.
|
|
(4) The
Brazil legal matter represents expense recorded to establish a
liability associated with an investigation into alleged antitrust
violations in the bearing industry that was settled in the fourth
quarter of 2019. Refer to the Contingencies footnote within the
Company's annual reports on Form 10-K and quarterly reports on Form
10-Q for additional discussion.
|
|
(5) The gain on sale of real estate
related to the sale of a manufacturing facility in Pulaski,
Tennessee during the first quarter of 2019 and disposal of land in
Colmar, France during the fourth quarter of 2019. These amounts
were recorded in other income.
|
|
(6) Corporate pension and other
postretirement benefit related charges represent actuarial (gains)
and losses that resulted from the remeasurement of plan assets and
obligations as a result of changes in assumptions. The Company
recognizes actuarial (gains) and losses in connection with the
annual remeasurement in the fourth quarter, or if specific events
trigger a remeasurement.
|
|
(7) Loss
on divestiture relates to the sale of the ICT Business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
segment EBITDA Margin, After Adjustments, to segment EBITDA as a
Percentage of Sales and segment EBITDA, After Adjustments, to
segment EBITDA:
|
(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 EBITDA and adjusted EBITDA 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,
2019
|
Percentage
to Net
Sales
|
Three Months
Ended
December 31, 2018
|
Percentage
to Net
Sales
|
|
Twelve Months
Ended
December 31,
2019
|
Percentage
to Net
Sales
|
Twelve Months
Ended
December 31,
2018
|
Percentage
to Net
Sales
|
Earnings before
interest, taxes,
depreciation, and amortization (EBITDA)
|
$
|
57.5
|
|
12.9%
|
$
|
61.1
|
|
13.2%
|
|
$
|
284.9
|
|
15.0%
|
$
|
272.2
|
|
14.3%
|
Impairment, restructuring and
reorganization charges (1)
|
3.1
|
|
0.7%
|
1.0
|
|
0.2%
|
|
5.2
|
|
0.3%
|
3.0
|
|
0.2%
|
Loss on
divestiture (2)
|
—
|
|
—%
|
0.2
|
|
—%
|
|
—
|
|
—%
|
0.8
|
|
—%
|
Gain on
sale of real estate (3)
|
(2.8)
|
|
(0.6)%
|
—
|
|
—%
|
|
(4.5)
|
|
(0.2)%
|
—
|
|
—%
|
Property
loss and related expenses (4)
|
1.1
|
|
0.2%
|
—
|
|
—%
|
|
7.6
|
|
0.4%
|
—
|
|
—%
|
Acquisition-related charges
(5)
|
1.4
|
|
0.3%
|
2.7
|
|
0.7%
|
|
1.5
|
|
0.1%
|
3.1
|
|
0.2%
|
Adjusted
EBITDA
|
$
|
60.3
|
|
13.5%
|
$
|
65.0
|
|
14.1%
|
|
$
|
294.7
|
|
15.6%
|
$
|
279.1
|
|
14.7%
|
|
|
|
|
|
|
|
|
|
|
Process
Industries
|
|
|
|
|
|
|
|
|
|
(Dollars in
millions)
|
Three Months
Ended
December 31, 2019
|
Percentage to Net
Sales
|
Three Months
Ended
December 31, 2018
|
Percentage to Net
Sales
|
|
Twelve Months
Ended December 31, 2019
|
Percentage to Net
Sales
|
Twelve Months Ended
December 31, 2018
|
Percentage to Net
Sales
|
Earnings before
interest, taxes, depreciation and amortization (EBITDA)
|
$
|
96.8
|
|
21.5%
|
$
|
101.2
|
|
22.6%
|
|
$
|
466.6
|
|
24.6%
|
$
|
405.7
|
|
24.2%
|
Impairment, restructuring and
reorganization charges
(1)
|
1.1
|
|
0.2%
|
1.6
|
|
0.4%
|
|
3.5
|
|
0.2%
|
2.6
|
|
0.2%
|
Acquisition-related charges
(5)
|
0.4
|
|
0.1%
|
6.6
|
|
1.4%
|
|
8.3
|
|
0.4%
|
8.0
|
|
0.4%
|
Adjusted
EBITDA
|
$
|
98.3
|
|
21.8%
|
$
|
109.4
|
|
24.4%
|
|
$
|
478.4
|
|
25.2%
|
$
|
416.3
|
|
24.8%
|
|
|
|
|
|
|
|
|
|
|
(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.
|
|
|
|
|
|
|
|
|
|
|
(3) The gain on sale of real estate
related to the sale of a manufacturing facility in Pulaski,
Tennessee during the first quarter of 2019 and disposal of land in
Colmar, France during the fourth quarter of 2019. These amounts
were recorded in other income.
|
|
|
|
|
|
|
|
|
|
|
(4) Represents
property loss and related expenses during the year (net of
insurance proceeds) resulting from property loss that occurred
during the first quarter of 2019 at one of the Company's warehouses
in Knoxville, Tennessee and during the third quarter of 2019 at one
of the Company's warehouses in Yantai, China.
|
|
|
|
|
|
|
|
|
|
|
(5) Acquisition-related charges in
2019 primarily related to the inventory step-up impact for the
Rollon, Diamond Chain, and BEKA acquisitions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Total Debt to Net Debt, the Ratio of Net Debt to Capital, and the
Ratio of Net Debt to Adjusted EBITDA:
|
(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 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, the Ratio
of Net Debt to Capital, Adjusted EBITDA (see below), and the Ratio
of Net Debt to Adjusted EBITDA 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,
2019
|
December 31,
2018
|
Short-term debt,
including current portion of long-term debt
|
|
|
$
|
82.0
|
|
$
|
43.0
|
|
Long-term
debt
|
|
|
1,648.1
|
|
1,638.6
|
|
Total
Debt
|
|
|
$
|
1,730.1
|
|
$
|
1,681.6
|
|
Less: Cash and cash
equivalents
|
|
|
(209.5)
|
|
(132.5)
|
|
Net Debt
|
|
|
$
|
1,520.6
|
|
$
|
1,549.1
|
|
|
|
|
|
|
Total
Equity
|
|
|
$
|
1,954.8
|
|
$
|
1,642.7
|
|
|
|
|
|
|
Ratio of Net Debt to
Capital
|
|
|
43.8%
|
|
48.5%
|
|
|
|
|
|
|
Adjusted EBITDA for
the Twelve Months Ended
|
|
|
$
|
726.3
|
|
$
|
646.5
|
|
|
|
|
|
|
Ratio of Net Debt to
Adjusted EBITDA
|
|
|
2.1
|
|
2.4
|
|
|
|
|
|
|
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,
|
|
2019
|
2018
|
2019
|
2018
|
Net cash provided by
operating activities
|
$
|
195.3
|
|
$
|
137.5
|
|
$
|
550.1
|
|
$
|
332.5
|
|
Less: capital
expenditures
|
(57.7)
|
|
(49.8)
|
|
(140.6)
|
|
(112.6)
|
|
Free cash
flow
|
$
|
137.6
|
|
$
|
87.7
|
|
$
|
409.5
|
|
$
|
219.9
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Adjusted Earnings per Share to GAAP Earnings per Share for Full
Year 2020 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
|
$
|
4.00
|
|
|
$
|
4.40
|
|
|
|
|
|
Forecasted
Adjustments:
|
|
|
|
Restructuring and other special items,
net (1)
|
0.25
|
|
|
0.25
|
|
Total
Adjustments:
|
$
|
0.25
|
|
|
$
|
0.25
|
|
Forecasted full year
adjusted diluted earnings per share
|
$
|
4.25
|
|
|
$
|
4.65
|
|
|
|
|
|
(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 2020 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
|
|
|
$
|
585.0
|
|
Less: capital
expenditures
|
|
|
(160.0)
|
|
Free cash
flow
|
|
|
$
|
425.0
|
|
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SOURCE The Timken Company