Date of Report (Date of earliest event reported): | July 28, 2016 |
THE TIMKEN COMPANY |
(Exact Name of Registrant as Specified in its Charter) |
Ohio |
(State or Other Jurisdiction of Incorporation) |
1-1169 | 34-0577130 | |
(Commission File Number) | (I.R.S. Employer Identification No.) |
4500 Mt. Pleasant St. NW, North Canton, Ohio 44720-5450 |
(Address of Principal Executive Offices) (Zip Code) |
(234) 262-3000 |
(Registrant's Telephone Number, Including Area Code) |
Exhibit No. | Description | |
99.1 | Press Release of The Timken Company dated July 28, 2016 |
THE TIMKEN COMPANY | |||
By: | /s/ William R. Burkhart | ||
William R. Burkhart | |||
Executive Vice President, General Counsel and Secretary | |||
Date: | July 28, 2016 |
Exhibit No. | Description | |
99.1 | Press Release of The Timken Company dated July 28, 2016 |
TIMKEN |
• | Reports GAAP earnings of $0.57 per diluted share (EPS) and adjusted earnings of $0.55 per diluted share in the quarter on sales of $674 million |
• | Generated cash from operations in the quarter of $156 million and free cash flow of $129 million |
Reconciliations to Net Income & Earnings Per Share | 2016 - 2Q | 2015 - 2Q | ||
($M) | EPS | ($M) | EPS | |
Net Income Attributable to The Timken Company | $44.9 | $0.57 | $36.7 | $0.43 |
Adjustments*: | ||||
Pension settlement charges | $0.4 | $4.4 | ||
Impairment and restructuring charges | 3.4 | 1.4 | ||
Loss on divestitures | --- | 0.3 | ||
Acquisition related charges | 0.8 | --- | ||
CDSOA income, net of related expenses | (6.1) | --- | ||
Provision (benefit) for income taxes | 0.3 | 6.3 | ||
Total adjustments | (1.2) | (0.02) | 12.4 | 0.14 |
Adjusted Net Income/Adjusted EPS | $43.7 | $0.55 | $49.1 | $0.57 |
*Adjustments are pre-tax, with net tax provision (benefit) listed separately. |
1 |
TIMKEN |
• | Added to its mechanical power transmission product portfolio with the acquisition of Lovejoy, Inc., a manufacturer of premium industrial couplings and universal joints; |
• | Opened a new service center in Denver for the repair of electric motors, generators and gearboxes, providing new and existing customers a broader offering of powertrain repair solutions; |
• | Continued to advance its manufacturing footprint initiatives with the closure of a bearing plant in the U.K.; |
• | Returned $53.6 million in capital to shareholders in the second quarter through the repurchase of nearly 1 million shares and the payment of its 376th consecutive quarterly dividend; and |
• | Received a credit rating upgrade from BBB- to BBB from S&P Global Ratings. |
2 |
TIMKEN |
• | Mobile Industries' sales to be down 6 to 7 percent. Excluding an estimated unfavorable currency impact of 1.5 percent, sales are expected to decline around 5 percent, reflecting lower demand in rail, off-highway, aerospace and heavy truck, partially offset by growth in automotive and the net benefit of acquisitions/divestitures. |
• | Process Industries' sales to be down 5 to 6 percent. Excluding an estimated unfavorable currency impact of 2 percent, sales are expected to decline around 3 to 4 percent, driven by declines in the industrial aftermarket and heavy industries, partially offset by the benefit of acquisitions (including the recently announced Lovejoy acquisition). |
3 |
TIMKEN |
Media Relations: |
234.262.3514 |
mediarelations@timken.com |
Investor Relations: |
Shelly Chadwick |
Vice President - Treasury & Investor Relations |
234.262.3223 |
shelly.chadwick@timken.com |
4 |
TIMKEN |
The Timken Company | |||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||
(Unaudited) | |||||||||||||
(Dollars in millions, except per share data) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||
Net sales | $ | 673.6 | $ | 728.0 | $ | 1,357.6 | $ | 1,450.5 | |||||
Cost of products sold | 491.3 | 522.9 | 994.4 | 1,042.9 | |||||||||
Gross Profit | 182.3 | 205.1 | 363.2 | 407.6 | |||||||||
Selling, general & administrative expenses (SG&A) | 110.2 | 126.1 | 228.5 | 254.6 | |||||||||
Impairment and restructuring charges | 2.9 | 1.4 | 13.4 | 7.6 | |||||||||
Pension settlement charges | 0.4 | 4.4 | 1.6 | 219.6 | |||||||||
Loss on divestitures | — | 0.3 | — | 0.3 | |||||||||
Operating Income (Loss) | 68.8 | 72.9 | 119.7 | (74.5 | ) | ||||||||
Continued Dumping and Subsidy Offset Act income, net of related expenses(1) | 6.1 | — | 53.8 | — | |||||||||
Other (expense) income, net | (1.7 | ) | 1.4 | (1.7 | ) | — | |||||||
Earnings (Loss) Before Interest and Taxes (EBIT)(2) | 73.2 | 74.3 | 171.8 | (74.5 | ) | ||||||||
Interest expense, net | (8.3 | ) | (7.7 | ) | (16.4 | ) | (15.0 | ) | |||||
Income (Loss) Before Income Taxes | 64.9 | 66.6 | 155.4 | (89.5 | ) | ||||||||
Provision for income taxes | 20.0 | 28.9 | 47.6 | 7.6 | |||||||||
Net Income (Loss) | 44.9 | 37.7 | 107.8 | (97.1 | ) | ||||||||
Less: Net (loss) income attributable to non-controlling interest | — | 1.0 | (0.1 | ) | 1.4 | ||||||||
Net Income (Loss) Attributable to The Timken Company | $ | 44.9 | $ | 36.7 | $ | 107.9 | $ | (98.5 | ) | ||||
Net Income (Loss) per Common Share Attributable to The Timken Company Common Shareholders | |||||||||||||
Basic Earnings (Loss) per share | $ | 0.57 | $ | 0.43 | $ | 1.36 | $ | (1.14 | ) | ||||
Diluted Earnings (Loss) per share | $ | 0.57 | $ | 0.43 | $ | 1.35 | $ | (1.14 | ) | ||||
Average Shares Outstanding | 78,671,509 | 85,326,526 | 79,225,703 | 86,514,517 | |||||||||
Average Shares Outstanding - assuming dilution | 79,312,774 | 86,156,775 | 79,880,222 | 86,514,517 | |||||||||
(1) U.S. Continued Dumping and Subsidy Offset Act (CDSOA) income, net of related expenses, represents the amount of funds awarded to the Company from monies collected by U.S. Customs and Border Protection (U.S. Customs) on entries of merchandise subject to anti-dumping orders that entered the U.S. prior to October 1, 2007. | |||||||||||||
(2) 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. |
5 |
TIMKEN |
BUSINESS SEGMENTS | |||||||||||||
(Unaudited) | |||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
(Dollars in millions) | 2016 | 2015 | 2016 | 2015 | |||||||||
Mobile Industries | |||||||||||||
Net sales | $ | 367.8 | $ | 388.6 | $ | 751.0 | $ | 781.6 | |||||
Earnings before interest and taxes (EBIT) (1) | $ | 35.3 | $ | 36.0 | $ | 65.5 | $ | 71.4 | |||||
EBIT Margin (1) | 9.6 | % | 9.3 | % | 8.7 | % | 9.1 | % | |||||
Process Industries | |||||||||||||
Net sales | $ | 305.8 | $ | 339.4 | $ | 606.6 | $ | 668.9 | |||||
Earnings before interest and taxes (EBIT) (1) | $ | 46.7 | $ | 56.7 | $ | 79.3 | $ | 101.9 | |||||
EBIT Margin (1) | 15.3 | % | 16.7 | % | 13.1 | % | 15.2 | % | |||||
Unallocated corporate expense | $ | (14.5 | ) | $ | (14.0 | ) | $ | (25.2 | ) | $ | (28.2 | ) | |
Unallocated pension settlement charges (2) | (0.4 | ) | (4.4 | ) | (1.6 | ) | (219.6 | ) | |||||
CDSOA income, net of related expenses(3) | 6.1 | — | 53.8 | — | |||||||||
Consolidated | |||||||||||||
Net sales | $ | 673.6 | $ | 728.0 | $ | 1,357.6 | $ | 1,450.5 | |||||
Earnings (loss) before interest and taxes (EBIT) (1) | $ | 73.2 | $ | 74.3 | $ | 171.8 | $ | (74.5 | ) | ||||
EBIT Margin (1) | 10.9 | % | 10.2 | % | 12.7 | % | (5.1 | )% | |||||
(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 Company’s core operations of the segments and Company, respectively. | |||||||||||||
(2) Unallocated pension settlement charges in 2015 primarily related to the purchase of a group annuity contract from Prudential Insurance Company of America (Prudential) to pay and administer future pension benefits for approximately 5,000 U.S. Timken retirees, as well as lump-sum distributions to new retirees. | |||||||||||||
(3) CDSOA income, net of related expenses, represents the amount of funds awarded to the Company from monies collected by U.S. Customs on entries of merchandise subject to anti-dumping orders that entered the U.S. prior to October 1, 2007. |
6 |
TIMKEN |
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
(Dollars in millions) | (Unaudited) June 30, 2016 | December 31, 2015 | |||||
ASSETS | |||||||
Cash and cash equivalents | $ | 156.0 | $ | 129.6 | |||
Restricted cash | 0.2 | 0.2 | |||||
Accounts receivable | 452.3 | 454.6 | |||||
Inventories, net | 555.4 | 543.2 | |||||
Other current assets | 73.2 | 78.8 | |||||
Total Current Assets | 1,237.1 | 1,206.4 | |||||
Property, plant and equipment, net | 772.5 | 777.8 | |||||
Goodwill and other intangible assets | 586.7 | 598.6 | |||||
Non-current pension assets | 85.6 | 86.3 | |||||
Other assets | 112.5 | 115.0 | |||||
Total Assets | $ | 2,794.4 | $ | 2,784.1 | |||
LIABILITIES | |||||||
Accounts payable | $ | 172.9 | $ | 159.7 | |||
Short-term debt, including current portion of long-term debt | 28.4 | 77.1 | |||||
Income taxes | 34.4 | 13.1 | |||||
Accrued expenses | 239.3 | 255.4 | |||||
Total Current Liabilities | 475.0 | 505.3 | |||||
Long-term debt | 604.2 | 579.4 | |||||
Accrued pension cost | 147.6 | 146.9 | |||||
Accrued postretirement benefits cost | 132.6 | 136.1 | |||||
Other non-current liabilities | 75.8 | 71.8 | |||||
Total Liabilities | 1,435.2 | 1,439.5 | |||||
EQUITY | |||||||
The Timken Company shareholders' equity | 1,333.4 | 1,324.5 | |||||
Noncontrolling Interest | 25.8 | 20.1 | |||||
Total Equity | 1,359.2 | 1,344.6 | |||||
Total Liabilities and Equity | $ | 2,794.4 | $ | 2,784.1 |
7 |
TIMKEN |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
(Unaudited) | ||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
(Dollars in millions) | 2016 | 2015 | 2016 | 2015 | ||||||||
Cash Provided (Used) | ||||||||||||
OPERATING ACTIVITIES | ||||||||||||
Net income (loss) attributable to The Timken Company | $ | 44.9 | $ | 36.7 | $ | 107.9 | $ | (98.5 | ) | |||
Net (loss) income attributable to noncontrolling interest | — | 1.0 | (0.1 | ) | 1.4 | |||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 32.4 | 32.1 | 65.0 | 65.6 | ||||||||
Impairment charges | — | 0.6 | 2.6 | 3.3 | ||||||||
Loss on sale of assets | 0.2 | 1.4 | 0.8 | 1.7 | ||||||||
CDSOA receivable | 41.9 | — | (6.2 | ) | — | |||||||
Pension and other postretirement expense | 9.6 | 12.9 | 18.9 | 238.0 | ||||||||
Pension and other postretirement benefit contributions and payments | (4.1 | ) | (10.0 | ) | (14.3 | ) | (16.9 | ) | ||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | 9.6 | 6.9 | 4.7 | (22.7 | ) | |||||||
Inventories | (8.1 | ) | 10.0 | (8.2 | ) | (2.8 | ) | |||||
Accounts payable | (4.0 | ) | 1.0 | 12.5 | 28.9 | |||||||
Accrued expenses | 20.9 | 8.8 | (7.5 | ) | (54.7 | ) | ||||||
Income taxes | 3.8 | (14.8 | ) | 26.2 | (44.5 | ) | ||||||
Other, net | 8.4 | 1.9 | 0.3 | 6.7 | ||||||||
Net Cash Provided by Operating Activities | $ | 155.5 | $ | 88.5 | $ | 202.6 | $ | 105.5 | ||||
INVESTING ACTIVITIES | ||||||||||||
Capital expenditures | $ | (26.2 | ) | $ | (23.8 | ) | $ | (50.4 | ) | $ | (43.5 | ) |
Other | (0.2 | ) | 4.5 | (0.6 | ) | 10.2 | ||||||
Net Cash Used in Investing Activities | $ | (26.4 | ) | $ | (19.3 | ) | $ | (51.0 | ) | $ | (33.3 | ) |
FINANCING ACTIVITIES | ||||||||||||
Cash dividends paid to shareholders | $ | (20.4 | ) | $ | (22.1 | ) | $ | (41.1 | ) | $ | (44.0 | ) |
Purchase of treasury shares | (33.2 | ) | (80.4 | ) | (68.2 | ) | (177.2 | ) | ||||
Net (payments) proceeds from credit facilities | (55.6 | ) | 114.1 | (24.4 | ) | 110.5 | ||||||
Net (payments) proceeds from long-term debt | — | — | — | (1.1 | ) | |||||||
Other | 0.1 | 0.9 | 5.2 | 3.5 | ||||||||
Net Cash (Used in) Provided by Financing Activities | $ | (109.1 | ) | $ | 12.5 | $ | (128.5 | ) | $ | (108.3 | ) | |
Effect of exchange rate changes on cash | (1.3 | ) | 0.7 | 3.3 | (5.9 | ) | ||||||
Increase (Decrease) in Cash and Cash Equivalents | $ | 18.7 | $ | 82.4 | $ | 26.4 | $ | (42.0 | ) | |||
Cash and cash equivalents at Beginning of Period | 137.3 | 154.4 | 129.6 | 278.8 | ||||||||
Cash and Cash Equivalents at End of Period | $ | 156.0 | $ | 236.8 | $ | 156.0 | $ | 236.8 |
8 |
TIMKEN |
Reconciliations of Adjusted Net Income to GAAP Income (Loss) and Adjusted Diluted Earnings Per Share to GAAP Earnings (Loss) Per Share: | ||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
The following reconciliation is provided as additional relevant information about the Company's performance deemed useful to investors. Management believes that 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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
2016 | EPS | 2015 | EPS | 2016 | EPS | 2015 | EPS | |||||||||||||||||||||||
Income (Loss) from The Timken Company | $ | 44.9 | $ | 37.7 | $ | 107.8 | $ | (97.1 | ) | |||||||||||||||||||||
Less: Net (loss) income attributable to noncontrolling interest | — | 1.0 | (0.1 | ) | 1.4 | |||||||||||||||||||||||||
Net Income (Loss) Attributable to The Timken Company | $ | 44.9 | $ | 0.57 | $ | 36.7 | $ | 0.43 | $ | 107.9 | $ | 1.35 | $ | (98.5 | ) | $ | (1.14 | ) | ||||||||||||
Adjustments:(1) | ||||||||||||||||||||||||||||||
Pension settlement charges(2) | $ | 0.4 | $ | 4.4 | $ | 1.6 | $ | 219.6 | ||||||||||||||||||||||
Impairment and restructuring charges(3) | 3.4 | 1.4 | 14.1 | 8.0 | ||||||||||||||||||||||||||
Loss on divestitures | — | 0.3 | — | 0.3 | ||||||||||||||||||||||||||
Acquisition related charges (4) | 0.8 | — | 0.8 | — | ||||||||||||||||||||||||||
CDSOA income, net of related expenses(5) | (6.1 | ) | — | (53.8 | ) | — | ||||||||||||||||||||||||
Gain on dissolution of a subsidiary | — | — | (1.4 | ) | — | |||||||||||||||||||||||||
Provision (benefit) for income taxes(6) | 0.3 | 6.3 | 11.4 | (36.0 | ) | |||||||||||||||||||||||||
Total Adjustments: | (1.2 | ) | (0.02 | ) | 12.4 | 0.14 | (27.3 | ) | (0.34 | ) | 191.9 | 2.21 | ||||||||||||||||||
Adjusted Net Income from The Timken Company | $ | 43.7 | $ | 0.55 | $ | 49.1 | $ | 0.57 | $ | 80.6 | $ | 1.01 | $ | 93.4 | $ | 1.07 | ||||||||||||||
(1) Adjustments are pre-tax, with net tax provision (benefit) listed separately. | ||||||||||||||||||||||||||||||
(2) Pension settlement charges in 2015 primarily related to the purchase of a group annuity contract from Prudential to pay and administer future pension benefits for approximately 5,000 U.S. Timken retirees, as well as lump-sum distributions to new retirees. | ||||||||||||||||||||||||||||||
(3) Impairment and restructuring charges, including rationalization costs recorded in cost of products sold, related to plant closures, the rationalization of certain plants and severance related to cost reduction initiatives. The Company re-assesses its operating footprint and makes adjustments as needed that result in restructuring charges. However, those efforts are not representative of the Company’s core operations. Therefore, management believes that reporting adjusted net income and adjusted diluted earnings per share that exclude these charges is useful to investors as those measures are representative of the Company's core operations. | ||||||||||||||||||||||||||||||
(4) Acquisition charges related to the acquisition of Lovejoy, Inc. (Lovejoy), including one-time transaction costs. | ||||||||||||||||||||||||||||||
(5) CDSOA income, net of related expenses, represents the amount of funds awarded to the Company from monies collected by U.S. Customs on entries of merchandise subject to anti-dumping orders that entered the U.S. prior to October 1, 2007. | ||||||||||||||||||||||||||||||
(6) Provision (benefit) 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. |
9 |
TIMKEN |
Reconciliation of EBIT to GAAP Net Income (Loss), and EBIT Margin, After Adjustments, to Net Income (Loss) as a Percentage of Sales and EBIT, After Adjustments, to Net Income (Loss): | |||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||
The following reconciliation is provided as additional relevant information about the Company's performance deemed useful to investors. Management believes consolidated earnings (loss) 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 (loss) 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, except share data) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||
2016 | Percentage to Net Sales | 2015 | Percentage to Net Sales | 2016 | Percentage to Net Sales | 2015 | Percentage to Net Sales | ||||||||||||||
Net Income (Loss) | $ | 44.9 | 6.7 | % | $ | 37.7 | 5.2 | % | $ | 107.8 | 7.9 | % | $ | (97.1 | ) | (6.7 | )% | ||||
Provision for income taxes | 20.0 | 3.0 | % | 28.9 | 4.0 | % | 47.6 | 3.5 | % | 7.6 | 0.5 | % | |||||||||
Interest expense | 8.7 | 1.3 | % | 8.4 | 1.2 | % | 17.1 | 1.3 | % | 16.4 | 1.1 | % | |||||||||
Interest income | (0.4 | ) | — | % | (0.7 | ) | (0.1 | )% | (0.7 | ) | (0.1 | )% | (1.4 | ) | (0.1 | )% | |||||
Consolidated earnings (loss) before interest and taxes (EBIT) | $ | 73.2 | 10.9 | % | $ | 74.3 | 10.2 | % | $ | 171.8 | 12.7 | % | $ | (74.5 | ) | (5.1 | )% | ||||
Adjustments: | |||||||||||||||||||||
Pension settlement charges (1) | $ | 0.4 | — | % | $ | 4.4 | 0.6 | % | $ | 1.6 | — | % | $ | 219.6 | 15.1 | % | |||||
Impairment and restructuring charges(2) | 3.4 | 0.5 | % | 1.4 | 0.2 | % | 14.1 | 1.0 | % | 8.0 | 0.6 | % | |||||||||
CDSOA income, net of related expenses(3) | (6.1 | ) | (0.9 | )% | — | — | % | (53.8 | ) | (4.0 | )% | — | — | % | |||||||
Loss on divestitures | — | — | % | 0.3 | — | % | — | — | % | 0.3 | — | % | |||||||||
Acquisition related charges(4) | 0.8 | — | % | — | — | % | 0.8 | — | % | — | — | % | |||||||||
Gain on dissolution of a subsidiary | — | — | % | — | — | % | (1.4 | ) | — | % | — | — | % | ||||||||
Total Adjustments | (1.5 | ) | (0.4 | )% | 6.1 | 0.8 | % | (38.7 | ) | (3.0 | )% | 227.9 | 15.7 | % | |||||||
Adjusted consolidated earnings before interest and taxes (EBIT) | $ | 71.7 | 10.6 | % | $ | 80.4 | 11.0 | % | $ | 133.1 | 9.8 | % | $ | 153.4 | 10.6 | % | |||||
(1) Pension settlement charges in 2015 primarily related to the purchase of a group annuity contract from Prudential to pay and administer future pension benefits for approximately 5,000 U.S. Timken retirees, as well as lump-sum distributions to new retirees. | |||||||||||||||||||||
(2) Impairment and restructuring charges, including rationalization costs recorded in cost of products sold, related to plant closures, the rationalization of certain plants and severance related to cost reduction initiatives. The Company re-assesses its operating footprint and makes adjustments as needed that result in restructuring charges. However, those efforts are not representative of the Company’s core operations. Therefore, management believes that reporting adjusted EBIT and adjusted EBIT margin that exclude these charges is useful to investors as those measures are representative of the Company's core operations. | |||||||||||||||||||||
(3) CDSOA income, net of related expenses, represents the amount of funds awarded to the Company from monies collected by U.S. Customs on entries of merchandise subject to anti-dumping orders that entered the U.S. prior to October 1, 2007. | |||||||||||||||||||||
(4) Acquisition charges related to the acquisition of Lovejoy, including one time transaction costs. |
10 |
TIMKEN |
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 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 June 30, 2016 | Percentage to Net Sales | Three Months Ended June 30, 2015 | Percentage to Net Sales | Six Months Ended June 30, 2016 | Percentage to Net Sales | Six Months Ended June, 2015 | Percentage to Net Sales | |||||||||||||
Earnings before interest and taxes (EBIT) | $ | 35.3 | 9.6 | % | $ | 36.0 | 9.3 | % | $ | 65.5 | 8.7 | % | $ | 71.4 | 9.1 | % | |||||
Impairment and restructuring charges (1) | 2.3 | 0.6 | % | 1.0 | 0.3 | % | 9.4 | 1.3 | % | 2.0 | 0.3 | % | |||||||||
Gain on dissolution of a subsidiary | — | — | % | — | — | % | (1.4 | ) | (0.2 | )% | — | — | % | ||||||||
Adjusted earnings before interest and taxes (EBIT) | $ | 37.6 | 10.2 | % | $ | 37.0 | 9.5 | % | $ | 73.5 | 9.8 | % | $ | 73.4 | 9.4 | % | |||||
Process Industries | |||||||||||||||||||||
(Dollars in millions) | Three Months Ended June 30, 2016 | Percentage to Net Sales | Three Months Ended June 30, 2015 | Percentage to Net Sales | Six Months Ended June 30, 2016 | Percentage to Net Sales | Six Months Ended June, 2015 | Percentage to Net Sales | |||||||||||||
Earnings before interest and taxes (EBIT) | $ | 46.7 | 15.3 | % | $ | 56.7 | 16.7 | % | $ | 79.3 | 13.1 | % | $ | 101.9 | 15.2 | % | |||||
Impairment and restructuring charges(1) | 1.0 | 0.3 | % | 0.5 | 0.1 | % | 4.6 | 0.8 | % | 6.1 | 0.9 | % | |||||||||
Loss on divestitures | — | — | % | 0.3 | 0.1 | % | — | — | % | 0.3 | 0.1 | % | |||||||||
Adjusted earnings before interest and taxes (EBIT) | $ | 47.7 | 15.6 | % | $ | 57.5 | 16.9 | % | $ | 83.9 | 13.9 | % | $ | 108.3 | 16.2 | % | |||||
(1) Impairment and restructuring charges, including rationalization costs recorded in cost of products sold, related to plant closures, the rationalization of certain plants and severance related to cost reduction initiatives. The Company re-assesses its operating footprint and makes adjustments as needed that result in restructuring charges. However, those efforts are not representative of the Company’s core operations. Therefore, management believes that reporting adjusted EBIT and adjusted EBIT margin that exclude these charges is useful to investors as those measures are representative of the Company's core operations. |
11 |
TIMKEN |
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 non-GAAP measures of the Company's financial position, due to the amount of cash and cash equivalents on hand. | ||||||||||||
(Dollars in millions) | ||||||||||||
June 30, 2016 | December 31, 2015 | |||||||||||
Short-term debt, including current portion of long-term debt | $ | 28.4 | $ | 77.1 | ||||||||
Long-term debt | 604.2 | 579.4 | ||||||||||
Total Debt | $ | 632.6 | $ | 656.5 | ||||||||
Less: Cash, cash equivalents and restricted cash | (156.2 | ) | (129.8 | ) | ||||||||
Net Debt | $ | 476.4 | $ | 526.7 | ||||||||
Total equity | $ | 1,359.2 | $ | 1,344.6 | ||||||||
Ratio of Total Debt to Capital | 31.8 | % | 32.8 | % | ||||||||
Ratio of Net Debt to Capital | 26.0 | % | 28.1 | % | ||||||||
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 June 30, | Six Months Ended June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Net cash provided by operating activities | $ | 155.5 | $ | 88.5 | $ | 202.6 | $ | 105.5 | ||||
Less: capital expenditures | (26.2 | ) | (23.8 | ) | (50.4 | ) | (43.5 | ) | ||||
Free cash flow | $ | 129.3 | $ | 64.7 | $ | 152.2 | $ | 62.0 |
12 |
TIMKEN |
Reconciliation of Adjusted Earnings per Share to GAAP Earnings per Share for Full Year 2016 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 | $ | 1.70 | $ | 1.80 | |||
Forecasted Adjustments: (1) | |||||||
CDSOA income, net of related expenses (2) | (0.67 | ) | (0.67 | ) | |||
Pension settlement charges (3) | 0.40 | 0.40 | |||||
Restructuring charges (4) | 0.45 | 0.45 | |||||
Provision for income taxes (5) | 0.02 | 0.02 | |||||
Total Adjustments: | $ | 0.20 | $ | 0.20 | |||
Forecasted full year adjusted diluted earnings per share | $ | 1.90 | $ | 2.00 | |||
(1) Forecasted adjustments are pre-tax, with net tax provision (benefit) listed separately. | |||||||
(2) CDSOA income, net of related expenses, represents the amount of funds awarded to the Company from monies collected by U.S. Customs on entries of merchandise subject to anti-dumping orders that entered the U.S. prior to October 1, 2007. | |||||||
(3) Pension settlement charges primarily relate to anticipated lump-sum settlement activity. | |||||||
(4) Restructuring charges relate to severance and other cost reduction initiatives. | |||||||
(5) Provision for income taxes includes the net tax impact on CDSOA income, net of related expenses, and pension settlement and restructuring charges, which are separately subject to income tax at different rates ranging from 0% - to approximately 33% and the impact of discrete tax items recorded during the year. |
13 |