NORTH CANTON, Ohio,
Aug. 3, 2020 /PRNewswire/
-- The Timken Company (NYSE: TKR; www.timken.com), a
world leader in engineered bearings and power transmission
products, today reported second-quarter 2020 sales
of $803.5 million, down 19.7 percent from the same period
a year ago. The decline was driven by lower demand attributable to
the broad economic slowdown caused by COVID-19, and unfavorable
currency, partially offset by the favorable impact of
acquisitions.
In the second quarter, Timken posted net income
of $61.9 million or $0.82 per diluted share,
versus net income of $92.5 million or $1.20 per
diluted share for the same period a year ago. The year-over-year
decrease was driven primarily by the impact of lower volume and
related manufacturing utilization, and unfavorable currency,
partially offset by lower selling, general and administrative
(SG&A) expenses, favorable price/mix, and lower material and
logistics costs. In the quarter, the company implemented cost
reduction actions across the enterprise, including temporary
compensation reductions and work furloughs, which meaningfully
reduced operating expenses. Net special charges were higher versus
the year-ago period, driven mainly by a pension remeasurement loss,
higher restructuring charges and discrete tax expenses, partially
offset by lower expenses related to acquisitions and a legal
accrual.
Excluding special items, adjusted net income in the second
quarter was $77.0 million or $1.02 per diluted
share versus adjusted net income of $97.9 million or $1.27 per diluted
share for the same period in 2019.
Net cash from operations for the second quarter was $247.4 million, up from $157.6 million in the same period a year ago, as
favorable working capital and lower cash taxes more than offset the
decline in net income. Free cash flow for the quarter was
$222.7 million. During the second
quarter, Timken paid its 392nd consecutive quarterly
dividend and reduced net debt by almost $200
million compared to March 31,
2020.
"We performed very well in the quarter despite the unprecedented
impact from the COVID-19 pandemic, generating strong operating
margins and cash flow, and delivering solid earnings per share,"
said Richard G. Kyle, Timken
president and chief executive officer. "The company responded
quickly to the pandemic by taking decisive actions to protect
employees and other stakeholders, adapt to rapid changes in
customer demand, reduce costs and bolster liquidity. The advances
we have made over the past several years have transformed Timken
into a more resilient and higher performing company, as evidenced
by our second-quarter and year-to-date results."
Second-Quarter 2020 Segment Results
Process Industries sales of $460.9 million
decreased 9 percent from the same period a year ago. The
year-over-year decrease was driven primarily by lower revenue
across most sectors, along with unfavorable currency, partially
offset by strong growth in renewable energy and the benefit of
acquisitions.
Earnings before interest, taxes, depreciation and amortization
(EBITDA) in the quarter were $126.3 million
or 27.4 percent of sales, compared with EBITDA
of $125.7 million or 24.8 percent of sales for
the same period a year ago. The slight increase in EBITDA was
driven primarily by the favorable impact of cost reductions
including lower compensation expense, and lower material and
logistics costs, mostly offset by the impact of lower volume and
unfavorable currency.
Excluding special items detailed in the attached tables,
adjusted EBITDA in the quarter was $128.8 million
or 27.9 percent of sales, compared
with $129.7 million or 25.6 percent of sales in the
second quarter last year.
Mobile Industries sales of $342.6 million
decreased 30.6 percent compared with the same period a year ago.
The decline was driven primarily by lower shipments across most
sectors, along with unfavorable currency, partially offset by the
benefit of acquisitions.
EBITDA for the quarter was $38.8 million
or 11.3 percent of sales, compared with EBITDA
of $78.0 million or 15.8 percent of sales for the
same period a year ago. The decrease in EBITDA reflects the impact
of lower volume and related manufacturing utilization, and
unfavorable currency, partially offset by the favorable impact of
cost reductions including lower compensation expense, positive
price/mix, lower material and logistics costs, and the positive
impact of acquisitions.
Excluding special items detailed in the attached tables,
adjusted EBITDA in the quarter was $42.0 million
or 12.3 percent of sales, compared
with $78.6 million or 15.9 percent of sales in the
second quarter last year.
Balance Sheet, Cash Flow and Cost Savings
Update
Timken ended the second quarter with a net debt to EBITDA ratio
of 2.1 times, an improvement from 2.2 times as of March 31, 2020. The company has strong liquidity,
with $416 million of cash on hand and
over $400 million of availability
under committed credit facilities as of June
30, 2020. Timken expects to generate strong free cash flow
over the rest of the year, and will continue to reduce net
debt.
Timken is accelerating and expanding structural cost reduction
initiatives to both align its costs with near-term demand
expectations and improve the cost structure and margins of the
company longer-term. In total, cost reduction actions are expected
to generate year-on-year savings of approximately $50 to $60 million
in the second half of 2020.
"Timken remains well positioned to advance as a global
industrial leader despite this period of heightened uncertainty,"
said Kyle. "We took immediate cost reduction measures across the
enterprise in the second quarter in response to the pandemic, and
are implementing additional structural cost actions in the second
half of the year. While the slope of the recovery and the impact
from the pandemic remain uncertain, we will continue to focus on
our customers and our strategy to drive strong performance and
shareholder value through the business cycle."
Given the continued uncertainty surrounding COVID-19, the
company is not providing full year 2020 sales and earnings guidance
at this time.
Conference Call Information
Timken will host a conference call today at 10 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:
|
Monday, August 3,
2020
|
|
10:00 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 2Q Earnings Call
|
|
|
Conference Call
Replay:
|
Replay Dial-In
available through
|
|
August 17,
2020:
|
|
888-203-1112 or
719-457-0820
|
|
Replay Passcode:
9220599
|
|
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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 and cost reduction measures, including
information under the heading "Balance Sheet, Cash Flow and Cost
Savings Update," 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 second
quarter of 2020; 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; the impact of changes to
the company's accounting methods; political risks associated with
government instability; 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; negative impacts
to the company's business, results of operations, financial
position or liquidity as a result of COVID-19 or other epidemics
and associated governmental measures such as restrictions on travel
and manufacturing operations; 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, 2019,
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Timken
Company
|
|
|
|
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
(Dollars in
millions, except share data) (Unaudited)
|
|
|
|
|
|
|
Three Months
Ended
June 30,
|
|
Six Months
Ended
June 30,
|
|
2020
|
2019
|
|
2020
|
2019
|
Net sales
|
$
|
803.5
|
|
$
|
1,000.0
|
|
|
$
|
1,726.9
|
|
$
|
1,979.7
|
|
Cost of products
sold
|
573.2
|
|
694.3
|
|
|
1,217.7
|
|
1,371.4
|
|
Gross
Profit
|
230.3
|
|
305.7
|
|
|
509.2
|
|
608.3
|
|
Selling, general
& administrative expenses
|
111.8
|
|
158.7
|
|
|
265.4
|
|
311.4
|
|
Impairment and
restructuring charges
|
3.1
|
|
1.9
|
|
|
6.7
|
|
1.9
|
|
Operating
Income
|
115.4
|
|
145.1
|
|
|
237.1
|
|
295.0
|
|
Non-service pension
and other postretirement (expense) income
|
(5.3)
|
|
0.2
|
|
|
(1.9)
|
|
0.3
|
|
Other income
(expense), net
|
(2.0)
|
|
1.4
|
|
|
2.1
|
|
4.7
|
|
Interest expense,
net
|
(18.3)
|
|
(18.2)
|
|
|
(33.9)
|
|
(34.9)
|
|
Income Before
Income Taxes
|
89.8
|
|
128.5
|
|
|
203.4
|
|
265.1
|
|
Provision for income
taxes
|
28.0
|
|
33.6
|
|
|
57.6
|
|
74.9
|
|
Net
Income
|
61.8
|
|
94.9
|
|
|
145.8
|
|
190.2
|
|
Less: Net income
(loss) attributable to noncontrolling interest
|
(0.1)
|
|
2.4
|
|
|
3.2
|
|
5.8
|
|
Net Income
Attributable to The Timken Company
|
$
|
61.9
|
|
$
|
92.5
|
|
|
$
|
142.6
|
|
$
|
184.4
|
|
Net Income per
Common Share Attributable to The Timken Company Common
Shareholders
|
|
|
|
|
|
Basic Earnings per
share
|
$
|
0.82
|
|
$
|
1.22
|
|
|
$
|
1.89
|
|
$
|
2.43
|
|
|
|
|
|
|
|
Diluted Earnings per
share
|
$
|
0.82
|
|
$
|
1.20
|
|
|
$
|
1.88
|
|
$
|
2.39
|
|
|
|
|
|
|
|
Average Shares
Outstanding
|
75,078,207
|
|
76,085,358
|
|
|
75,298,356
|
|
76,024,301
|
|
Average Shares
Outstanding - assuming dilution
|
75,698,289
|
|
77,208,432
|
|
|
76,032,049
|
|
77,098,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BUSINESS
SEGMENTS
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Three Months
Ended
June 30,
|
Six Months
Ended
June 30,
|
(Dollars in
millions)
|
2020
|
2019
|
2020
|
2019
|
|
|
|
|
|
Mobile
Industries
|
|
|
|
|
Net sales
|
$
|
342.6
|
|
$
|
493.7
|
|
$
|
809.3
|
|
$
|
993.7
|
|
Earnings before
interest, taxes, depreciation and amortization (EBITDA)
(1)
|
$
|
38.8
|
|
$
|
78.0
|
|
$
|
113.9
|
|
$
|
157.3
|
|
EBITDA Margin
(1)
|
11.3
|
%
|
15.8
|
%
|
14.1
|
%
|
15.8
|
%
|
Process
Industries
|
|
|
|
|
Net sales
|
$
|
460.9
|
|
$
|
506.3
|
|
$
|
917.6
|
|
$
|
986.0
|
|
Earnings before
interest, taxes, depreciation and amortization (EBITDA)
(1)
|
$
|
126.3
|
|
$
|
125.7
|
|
$
|
233.8
|
|
$
|
253.3
|
|
EBITDA Margin
(1)
|
27.4
|
%
|
24.8
|
%
|
25.5
|
%
|
25.7
|
%
|
Corporate earnings
before interest, taxes, depreciation and amortization (EBITDA)
(1)
|
$
|
(6.5)
|
|
$
|
(15.3)
|
|
$
|
(17.6)
|
|
$
|
(29.4)
|
|
Corporate pension and
other postretirement benefit related charges
(2)
|
(8.8)
|
|
—
|
|
(8.8)
|
|
—
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
Net sales
|
$
|
803.5
|
|
$
|
1,000.0
|
|
$
|
1,726.9
|
|
$
|
1,979.7
|
|
Earnings before
interest, taxes, depreciation and amortization (EBITDA)
(1)
|
$
|
149.8
|
|
$
|
188.4
|
|
$
|
321.3
|
|
$
|
381.2
|
|
EBITDA
Margin (1)
|
18.6
|
%
|
18.8
|
%
|
18.6
|
%
|
19.3
|
%
|
|
|
|
|
|
(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)
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
ASSETS
|
|
|
|
Cash and cash
equivalents
|
$
|
415.6
|
|
|
$
|
209.5
|
|
Restricted
cash
|
0.5
|
|
|
6.7
|
|
Accounts receivable,
net
|
541.6
|
|
|
545.1
|
|
Unbilled
receivables
|
126.2
|
|
|
129.2
|
|
Inventories,
net
|
784.0
|
|
|
842.0
|
|
Other current
assets
|
139.0
|
|
|
142.1
|
|
Total Current
Assets
|
2,006.9
|
|
|
1,874.6
|
|
Property, plant and
equipment, net
|
962.1
|
|
|
989.2
|
|
Operating lease
assets
|
110.3
|
|
|
114.1
|
|
Goodwill and other
intangible assets
|
1,727.9
|
|
|
1,752.2
|
|
Non-current pension
assets
|
7.9
|
|
|
3.4
|
|
Non-current other
postretirement benefit assets
|
—
|
|
|
36.6
|
|
Other
assets
|
85.9
|
|
|
89.8
|
|
Total
Assets
|
$
|
4,901.0
|
|
|
$
|
4,859.9
|
|
LIABILITIES
|
|
|
|
Accounts
payable
|
$
|
267.3
|
|
|
$
|
301.7
|
|
Short-term debt,
including current portion of long-term debt
|
61.3
|
|
|
82.0
|
|
Short-term operating
lease liabilities
|
27.5
|
|
|
28.3
|
|
Income
taxes
|
31.2
|
|
|
17.8
|
|
Accrued
expenses
|
277.5
|
|
|
306.8
|
|
Total Current
Liabilities
|
664.8
|
|
|
736.6
|
|
Long-term
debt
|
1,730.1
|
|
|
1,648.1
|
|
Accrued pension
benefits
|
173.3
|
|
|
165.1
|
|
Accrued
postretirement benefits
|
44.9
|
|
|
31.8
|
|
Long-term operating
lease liabilities
|
70.2
|
|
|
71.3
|
|
Other non-current
liabilities
|
250.1
|
|
|
252.2
|
|
Total
Liabilities
|
2,933.4
|
|
|
2,905.1
|
|
EQUITY
|
|
|
|
The Timken Company
shareholders' equity
|
1,883.6
|
|
|
1,868.2
|
|
Noncontrolling
Interest
|
84.0
|
|
|
86.6
|
|
Total
Equity
|
1,967.6
|
|
|
1,954.8
|
|
Total Liabilities and
Equity
|
$
|
4,901.0
|
|
|
$
|
4,859.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Three Months
Ended
June 30,
|
|
Six Months
Ended
June 30,
|
(Dollars in
millions)
|
2020
|
2019
|
|
2020
|
2019
|
Cash Provided by
(Used in)
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
Net Income
|
$
|
61.8
|
|
$
|
94.9
|
|
|
$
|
145.8
|
|
$
|
190.2
|
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
Depreciation and
amortization
|
41.7
|
|
41.7
|
|
|
84.0
|
|
81.2
|
|
Stock-based
compensation expense
|
5.8
|
|
7.1
|
|
|
11.4
|
|
14.9
|
|
Pension and other
postretirement expense
|
8.5
|
|
2.9
|
|
|
8.2
|
|
5.8
|
|
Pension and other
postretirement benefit contributions and payments
|
(3.1)
|
|
(4.0)
|
|
|
(8.6)
|
|
(8.9)
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
Accounts
receivable
|
39.2
|
|
29.1
|
|
|
(8.4)
|
|
(35.9)
|
|
Unbilled
receivables
|
11.3
|
|
(30.0)
|
|
|
3.0
|
|
(36.6)
|
|
Inventories
|
41.0
|
|
20.7
|
|
|
41.3
|
|
16.6
|
|
Accounts
payable
|
(28.9)
|
|
(6.8)
|
|
|
(28.9)
|
|
13.4
|
|
Accrued
expenses
|
39.6
|
|
12.9
|
|
|
5.3
|
|
(45.1)
|
|
Income
taxes
|
16.4
|
|
(22.7)
|
|
|
23.8
|
|
2.4
|
|
Other, net
|
14.1
|
|
11.8
|
|
|
26.7
|
|
11.9
|
|
Net Cash Provided by
Operating Activities
|
$
|
247.4
|
|
$
|
157.6
|
|
|
$
|
303.6
|
|
$
|
209.9
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
Capital
expenditures
|
$
|
(24.7)
|
|
$
|
(23.0)
|
|
|
$
|
(56.5)
|
|
$
|
(39.2)
|
|
Acquisitions, net of
cash received
|
(6.7)
|
|
(80.1)
|
|
|
(6.7)
|
|
(83.0)
|
|
Investments in
short-term marketable securities, net
|
(1.8)
|
|
2.9
|
|
|
(1.6)
|
|
0.2
|
|
Other, net
|
0.1
|
|
—
|
|
|
0.1
|
|
2.2
|
|
Net Cash Used in
Investing Activities
|
$
|
(33.1)
|
|
$
|
(100.2)
|
|
|
$
|
(64.7)
|
|
$
|
(119.8)
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
Cash dividends paid
to shareholders
|
$
|
(21.0)
|
|
$
|
(21.3)
|
|
|
$
|
(43.9)
|
|
$
|
(42.6)
|
|
Purchase of treasury
shares
|
—
|
|
(15.3)
|
|
|
(42.3)
|
|
(23.6)
|
|
Proceeds from
exercise of stock options
|
—
|
|
7.9
|
|
|
7.5
|
|
8.9
|
|
Payments related to
tax withholding for stock-based compensation
|
(0.2)
|
|
(1.7)
|
|
|
(10.4)
|
|
(8.1)
|
|
Net proceeds
(payments) from credit facilities
|
(125.8)
|
|
(76.4)
|
|
|
111.5
|
|
39.8
|
|
Net payments on
long-term debt
|
(49.2)
|
|
(21.6)
|
|
|
(52.1)
|
|
(29.4)
|
|
Other, net
|
(1.6)
|
|
(1.9)
|
|
|
(1.6)
|
|
(1.9)
|
|
Net Cash Used in
Financing Activities
|
$
|
(197.8)
|
|
$
|
(130.3)
|
|
|
$
|
(31.3)
|
|
$
|
(56.9)
|
|
Effect of exchange
rate changes on cash
|
5.6
|
|
0.2
|
|
|
(7.7)
|
|
1.1
|
|
Increase (Decrease)
in Cash, Cash Equivalents and Restricted Cash
|
$
|
22.1
|
|
$
|
(72.7)
|
|
|
$
|
199.9
|
|
$
|
34.3
|
|
Cash, Cash
Equivalents and Restricted Cash at Beginning of Period
|
394.0
|
|
240.1
|
|
|
216.2
|
|
133.1
|
|
Cash, Cash
Equivalents and Restricted Cash at End of Period
|
$
|
416.1
|
|
$
|
167.4
|
|
|
$
|
416.1
|
|
$
|
167.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
June 30,
|
|
Six Months
Ended
June 30,
|
|
2020
|
|
EPS
|
2019
|
|
EPS
|
|
2020
|
|
EPS
|
2019
|
|
EPS
|
Net Income
Attributable to The Timken Company
|
$
|
61.9
|
|
|
$
|
0.82
|
|
$
|
92.5
|
|
|
$
|
1.20
|
|
|
$
|
142.6
|
|
|
$
|
1.88
|
|
$
|
184.4
|
|
|
$
|
2.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment, restructuring and
reorganization charges (2)
|
$
|
5.8
|
|
|
|
$
|
2.2
|
|
|
|
|
|
$
|
11.6
|
|
|
|
$
|
2.2
|
|
|
|
Property
loss and related expenses, net of insurance proceeds
(3)
|
0.1
|
|
|
|
(0.2)
|
|
|
|
|
(2.1)
|
|
|
|
5.8
|
|
|
|
Acquisition-related charges
(4)
|
0.9
|
|
|
|
3.1
|
|
|
|
|
4.2
|
|
|
|
7.9
|
|
|
|
Brazil
legal matter (5)
|
—
|
|
|
|
3.3
|
|
|
|
|
—
|
|
|
|
3.3
|
|
|
|
|
Gain on
sale of real estate (6)
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
(1.7)
|
|
|
|
|
Corporate
pension and other postretirement benefit related charges
(7)
|
8.8
|
|
|
|
—
|
|
|
|
|
8.8
|
|
|
|
—
|
|
|
|
Tax
indemnification and related items
|
—
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
0.5
|
|
|
|
Noncontrolling interest of above
adjustments
|
—
|
|
|
|
(0.3)
|
|
|
|
|
|
—
|
|
|
|
(0.2)
|
|
|
|
Provision
for income taxes (8)
|
(0.5)
|
|
|
|
(2.7)
|
|
|
|
|
|
(3.4)
|
|
|
|
(0.1)
|
|
|
|
Total
Adjustments:
|
15.1
|
|
|
0.20
|
|
5.4
|
|
|
0.07
|
|
|
19.1
|
|
|
0.25
|
|
17.7
|
|
|
0.23
|
|
Adjusted Net Income
Attributable to The Timken Company
|
$
|
77.0
|
|
|
$
|
1.02
|
|
$
|
97.9
|
|
|
$
|
1.27
|
|
|
$
|
161.7
|
|
|
$
|
2.13
|
|
$
|
202.1
|
|
|
$
|
2.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 periods
presented (net of insurance proceeds received in first quarter of
2020) 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 the second quarter of 2020 primarily
related to the BEKA Lubrication ("BEKA") acquisition, including
transaction costs and inventory step-up impact. Acquisition-related
charges in the second quarter of 2019 primarily related to the
Rollon S.p.A. ("Rollon") and The Diamond Chain Company ("Diamond
Chain") acquisitions, including transaction costs and inventory
step-up impact.
|
|
|
|
|
|
|
|
|
(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.
|
|
|
|
|
|
|
|
|
(6) The gain on sale of real estate
is related to the sale of a manufacturing facility in Pulaski,
Tennessee. This amount was 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)
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
EBITDA to GAAP Net Income, EBITDA Margin to Net Income as a
Percentage of Sales, 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, adjusted EBITDA margin 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
June 30,
|
|
Six Months
Ended
June 30,
|
|
2020
|
Percentage
to
Net Sales
|
2019
|
Percentage
to Net Sales
|
|
2020
|
Percentage
to
Net Sales
|
2019
|
Percentage
to
Net Sales
|
Net Income
|
$
|
61.8
|
|
7.7
|
%
|
$
|
94.9
|
|
9.5
|
%
|
|
$
|
145.8
|
|
8.4
|
%
|
$
|
190.2
|
|
9.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income
taxes
|
28.0
|
|
|
33.6
|
|
|
|
57.6
|
|
|
74.9
|
|
|
Interest
expense
|
18.9
|
|
|
19.3
|
|
|
|
36.0
|
|
|
37.3
|
|
|
Interest
income
|
(0.6)
|
|
|
(1.1)
|
|
|
|
(2.1)
|
|
|
(2.4)
|
|
|
Depreciation and
amortization
|
41.7
|
|
|
41.7
|
|
|
|
84.0
|
|
|
81.2
|
|
|
Consolidated
EBITDA
|
$
|
149.8
|
|
18.6
|
%
|
$
|
188.4
|
|
18.8
|
%
|
|
$
|
321.3
|
|
18.6
|
%
|
$
|
381.2
|
|
19.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Impairment, restructuring and
reorganization charges (1)
|
$
|
4.6
|
|
|
$
|
2.2
|
|
|
|
$
|
9.0
|
|
|
$
|
2.2
|
|
|
Property
loss and related expenses, net of insurance proceeds
(2)
|
0.1
|
|
|
(0.2)
|
|
|
|
(2.1)
|
|
|
5.8
|
|
|
Acquisition-related charges
(3)
|
0.9
|
|
|
3.1
|
|
|
|
4.2
|
|
|
7.9
|
|
|
Brazil
legal matter (4)
|
—
|
|
|
3.3
|
|
|
|
—
|
|
|
3.3
|
|
|
Gain on
sale of real estate (5)
|
—
|
|
|
—
|
|
|
|
—
|
|
|
(1.7)
|
|
|
Corporate
pension and other postretirement benefit related charges
(6)
|
8.8
|
|
|
—
|
|
|
|
8.8
|
|
|
—
|
|
|
Tax
indemnification and related items
|
—
|
|
|
—
|
|
|
|
—
|
|
|
0.5
|
|
|
Total
Adjustments
|
14.4
|
|
1.8
|
%
|
8.4
|
|
0.9
|
%
|
|
19.9
|
|
1.2
|
%
|
18.0
|
|
0.9
|
%
|
Adjusted
EBITDA
|
$
|
164.2
|
|
20.4
|
%
|
$
|
196.8
|
|
19.7
|
%
|
|
$
|
341.2
|
|
19.8
|
%
|
$
|
399.2
|
|
20.2
|
%
|
|
|
|
|
|
|
|
|
|
|
(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 periods presented (net of insurance
proceeds received in first quarter of 2020) 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 the second quarter of 2020
primarily related to the BEKA acquisition, including transaction
costs and inventory step-up impact. Acquisition-related charges in
the second quarter of 2019 primarily related to the Rollon and
Diamond Chain acquisitions, including transaction costs and
inventory step-up impact.
|
|
|
|
|
|
|
|
|
|
|
(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.
|
|
|
|
|
|
|
|
|
|
|
(5) The gain on sale of real estate
is related to the sale of a manufacturing facility in Pulaski,
Tennessee. This amount was 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. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30,
|
|
Six Months
Ended
June 30,
|
(Dollars in
millions)
|
2020
|
Percentage
to Net
Sales
|
2019
|
Percentage
to Net
Sales
|
|
2020
|
Percentage
to Net
Sales
|
2019
|
Percentage
to Net
Sales
|
Earnings before
interest, taxes, depreciation and amortization
(EBITDA)
|
$
|
38.8
|
|
11.3
|
%
|
$
|
78.0
|
|
15.8
|
%
|
|
$
|
113.9
|
|
14.1
|
%
|
$
|
157.3
|
|
15.8
|
%
|
Impairment, restructuring and
reorganization charges (1)
|
2.4
|
|
|
0.7
|
|
|
|
3.6
|
|
|
1.0
|
|
|
Gain on
sale of real estate (2)
|
—
|
|
|
—
|
|
|
|
—
|
|
|
(1.7)
|
|
|
Property
loss and related expenses, net of insurance
proceeds (3)
|
0.1
|
|
|
(0.2)
|
|
|
|
(2.1)
|
|
|
5.8
|
|
|
Acquisition-related charges
(4)
|
0.7
|
|
|
0.1
|
|
|
|
2.6
|
|
|
0.1
|
|
|
Adjusted
EBITDA
|
$
|
42.0
|
|
12.3
|
%
|
$
|
78.6
|
|
15.9
|
%
|
|
$
|
118.0
|
|
14.6
|
%
|
$
|
162.5
|
|
16.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Process
Industries
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30,
|
|
Six Months
Ended
June 30,
|
(Dollars in
millions)
|
2020
|
Percentage
to Net
Sales
|
2019
|
Percentage
to Net
Sales
|
|
2020
|
Percentage
to Net
Sales
|
2019
|
Percentage
to Net
Sales
|
Earnings before
interest, taxes, depreciation and amortization
(EBITDA)
|
$
|
126.3
|
|
27.4
|
%
|
$
|
125.7
|
|
24.8
|
%
|
|
$
|
233.8
|
|
25.5
|
%
|
$
|
253.3
|
|
25.7
|
%
|
Impairment, restructuring and
reorganization charges (1)
|
2.2
|
|
|
|
1.5
|
|
|
|
|
5.3
|
|
|
|
1.2
|
|
|
|
Acquisition-related charges
(4)
|
0.3
|
|
|
|
2.5
|
|
|
|
|
1.2
|
|
|
|
6.4
|
|
|
|
Adjusted
EBITDA
|
$
|
128.8
|
|
27.9
|
%
|
$
|
129.7
|
|
25.6
|
%
|
|
$
|
240.3
|
|
26.2
|
%
|
$
|
260.9
|
|
26.5
|
%
|
|
|
|
|
|
|
|
|
|
|
(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) The gain on sale of real estate
is related to the sale of a manufacturing facility in Pulaski,
Tennessee. This amount was recorded in other income.
|
|
|
|
|
|
|
|
|
|
|
(3) Represents
property loss and related expenses during the periods presented
(net of insurance proceeds received in first quarter of 2020)
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
the second quarter of 2020 primarily related to the inventory
step-up impact of the BEKA acquisition. Acquisition-related charges
in the second quarter of 2019 primarily related to the inventory
step-up impact of the Rollon and Diamond Chain
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 and cash equivalents 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)
|
|
|
|
|
|
|
|
June 30,
2020
|
December 31,
2019
|
Short-term debt,
including current portion of long-term debt
|
|
|
$
|
61.3
|
|
$
|
82.0
|
|
Long-term
debt
|
|
|
1,730.1
|
|
1,648.1
|
|
Total
Debt
|
|
|
$
|
1,791.4
|
|
$
|
1,730.1
|
|
Less: Cash and cash
equivalents
|
|
|
(415.6)
|
|
(209.5)
|
|
Net Debt
|
|
|
$
|
1,375.8
|
|
$
|
1,520.6
|
|
|
|
|
|
|
Total
Equity
|
|
|
$
|
1,967.6
|
|
$
|
1,954.8
|
|
|
|
|
|
|
Ratio of Net Debt to
Capital
|
|
|
41.1
|
%
|
43.8
|
%
|
|
|
|
|
|
Adjusted EBITDA for
the Twelve Months Ended
|
|
|
$
|
668.3
|
|
$
|
726.3
|
|
|
|
|
|
|
|
|
Ratio of Net Debt to
Adjusted EBITDA
|
|
|
2.1
|
|
2.1
|
|
|
|
|
|
|
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,
|
|
2020
|
2019
|
2020
|
2019
|
Net cash provided by
operating activities
|
$
|
247.4
|
|
$
|
157.6
|
|
$
|
303.6
|
|
$
|
209.9
|
|
Less: capital
expenditures
|
(24.7)
|
|
(23.0)
|
|
(56.5)
|
|
(39.2)
|
|
Free cash
flow
|
$
|
222.7
|
|
$
|
134.6
|
|
$
|
247.1
|
|
$
|
170.7
|
|
|
|
|
|
|
|
|
|
Reconciliation of
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, 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 the non-GAAP measure of
adjusted EBITDA is useful to investors as it is representative of
the Company's core operations and is used in the management of the
business, including decisions concerning the allocation of
resources and assessment of performance.
|
|
|
|
(Dollars in
millions)
|
Twelve Months
Ended
June 30, 2020
|
Twelve Months
Ended
December 31, 2019
|
Net Income
|
$
|
330.3
|
|
$
|
374.7
|
|
Provision for income
taxes
|
80.4
|
|
97.7
|
|
Interest
expense
|
70.8
|
|
72.1
|
|
Interest
income
|
(4.6)
|
|
(4.9)
|
|
Depreciation and
amortization
|
163.4
|
|
160.6
|
|
Consolidated
EBITDA
|
$
|
640.3
|
|
$
|
700.2
|
|
Adjustments:
|
|
|
Impairment, restructuring and
reorganization charges (1)
|
$
|
15.9
|
|
$
|
9.1
|
|
Acquisition-related charges
(2)
|
11.8
|
|
15.5
|
|
Brazil
legal matter (3)
|
(1.5)
|
|
1.8
|
|
Gain on
sale of real estate (4)
|
(2.8)
|
|
(4.5)
|
|
Corporate
pension and other postretirement benefit related charges
(5)
|
4.7
|
|
(4.1)
|
|
Property
loss and related expenses, net of insurance proceeds
(6)
|
(0.3)
|
|
7.6
|
|
Tax
indemnification and related items
|
0.2
|
|
0.7
|
|
Total
Adjustments
|
28.0
|
|
26.1
|
|
Adjusted
EBITDA
|
$
|
668.3
|
|
$
|
726.3
|
|
|
|
|
(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)
Acquisition-related charges in 2020 primarily related to the BEKA
acquisition, including transaction costs and inventory step-up
impact. Acquisition-related charges in 2019 primarily related to
the Rollon, Diamond Chain and BEKA acquisitions, including
transaction costs and inventory step-up impact.
|
|
|
|
(3) 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.
|
|
|
|
(4) 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.
|
|
|
|
(5) 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.
|
|
|
|
(6) Represents property loss and
related expenses during the periods presented (net of insurance
proceeds received) 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.
|
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SOURCE The Timken Company