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Timken Reports Strong Third-Quarter 2017 Results; Raises Full-Year Outlook
- Reports sales of $771 million, up 17 percent from the third quarter of 2016
- Generated earnings per diluted share of $0.68 on a GAAP basis, with adjusted earnings per diluted share of $0.71
- Now expects 2017 GAAP earnings of $2.78 to $2.83 per diluted share and adjusted earnings of $2.58 to $2.63 per diluted share

NORTH CANTON, Ohio, Oct. 25, 2017 /PRNewswire/ -- The Timken Company (NYSE: TKR; www.timken.com), a world leader in engineered bearings and mechanical power transmission products, today reported third-quarter 2017 sales of $771.4 million, up 17.3 percent from the same period a year ago. The results reflect higher demand across most end-market sectors led by industrial distribution and off-highway, as well as the benefit of acquisitions and currency.

The Timken Company Logo. (PRNewsFoto/The Timken Company) (PRNewsFoto/) (PRNewsFoto/)

In the third quarter, Timken posted net income of $53.5 million or $0.68 per diluted share, versus net income of $33.6 million or $0.43 per diluted share for the same period a year ago. The year-over-year increase in net income reflects the impact of higher volume, favorable manufacturing performance, lower impairment and restructuring charges, and the benefit of acquisitions and currency. This was partially offset by higher material, logistics and selling, general and administrative (SG&A) costs.

Excluding special items (detailed in the attached tables), adjusted net income in the third quarter of 2017 was $55.9 million or $0.71 per diluted share, up from $42.1 million or $0.53 per diluted share for the same period in 2016.

"We reported strong revenue and earnings growth in the quarter as we continued to see increased demand for our products and services globally," said Richard G. Kyle, Timken president and chief executive officer. "We executed well, delivering strong organic growth and expanding operating margins both sequentially and year-on-year. We also strengthened Timken's strategic position with the completion of the Groeneveld acquisition, our fifth acquisition in the last four quarters. Our organic growth initiatives and recent acquisitions are progressing well and will continue to deliver value for our shareholders."

Third-Quarter 2017 Segment Results

Mobile Industries reported sales of $422.8 million, up 19.7 percent compared with the same period a year ago, driven primarily by the benefit of acquisitions, increased demand in the off-highway and heavy truck sectors and favorable currency, partially offset by lower automotive demand.

Earnings before interest and taxes (EBIT) in the quarter were $34.9 million or 8.3 percent of sales, compared with EBIT of $25.9 million or 7.3 percent of sales for the same period a year ago. The increase in EBIT primarily reflects the impact of higher volume, favorable manufacturing performance, the benefit of acquisitions and currency, and lower impairment and restructuring charges, partially offset by unfavorable price/mix and higher material, logistics and SG&A costs.

Excluding special items (detailed in the attached tables), adjusted EBIT in the quarter was $37.6 million or 8.9 percent of sales, compared with $32.4 million or 9.2 percent of sales in the third quarter last year.

Process Industries reported sales of $348.6 million, up 14.6 percent from the same period a year ago, driven primarily by increased demand in the industrial distribution and heavy industries sectors, increased shipments in wind energy and favorable currency.

EBIT for the quarter was $61.7 million or 17.7 percent of sales, compared with EBIT of $42 million or 13.8 percent of sales for the same period a year ago. The increase in EBIT was driven by higher volume and favorable manufacturing performance, partially offset by higher material, logistics and SG&A costs. (Note: Adjusted EBIT is not detailed here, as there were no special items affecting Process Industries results in the current quarter.)

2017 Outlook

The company now expects 2017 revenue to be up approximately 12 percent in total versus 2016. Within its segments, the company estimates for full-year 2017:

  • Mobile Industries sales to be up approximately 13 percent, driven by the benefit of acquisitions and currency, and improved demand in the off-highway and heavy truck sectors, partially offset by softer demand in the rail sector.
  • Process Industries sales to be up approximately 11 percent, reflecting growth across most end-market sectors led by industrial distribution and the benefit of acquisitions and currency.

Timken now anticipates 2017 earnings per diluted share to range from $2.78 to $2.83 for the full year on a GAAP basis, which does not account for the mark-to-market pension remeasurement in the fourth quarter.

Excluding special items (detailed in the attached tables), the company expects 2017 adjusted earnings per diluted share to range from $2.58 to $2.63.

"We continue to advance our strategy, and combined with the strength in our end markets, we are forecasting to finish 2017 with strong year-on-year performance improvement," said Kyle. "The mid-point of our guidance implies almost a 30 percent increase in fourth-quarter adjusted earnings per share and solid operating margin expansion versus the prior year. Additionally, we expect to start 2018 with a higher backlog, growing markets and a healthy growth pipeline."

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, October 25, 2017


11 a.m. Eastern Time


Live Dial-In: 888-389-5988 or 719-457-2654


(Call in 10 minutes prior to be included.)


Conference ID: Timken's 3Q Earnings Call



Conference Call Replay:

Replay Dial-In available through November 8, 2017:


888-203-1112 or 719-457-0820


Replay Passcode: 2507783



Live Webcast:

http://investors.timken.com


About The Timken Company
The Timken Company (NYSE: TKR; www.timken.com) engineers, manufactures and markets bearings, gear drives, belts, chain, couplings, lubrication systems and related products, and offers a spectrum of powertrain rebuild and repair services. The leading authority on tapered roller bearings, Timken today applies its deep knowledge of metallurgy, tribology and mechanical power transmission across a variety of bearings and related systems to improve reliability and efficiency of machinery and equipment all around the world. The company's growing product and services portfolio features many strong industrial brands including Timken®, Fafnir®, Philadelphia Gear®, Drives®, Lovejoy® and Groeneveld®. Known for its quality products and collaborative technical sales model, Timken posted $2.7 billion in sales in 2016. With more than 14,000 employees operating from 31 countries, Timken makes the world more productive and keeps industry in motion.

Certain statements in this release (including statements regarding the company's forecasts, estimates, plans and expectations) that are not historical in nature are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, the statements related to expectations regarding the company's future financial performance, including information under the heading "Outlook," are forward-looking.

The company cautions that actual results may differ materially from those projected or implied in forward-looking statements due to a variety of important factors, including: the finalization of the company's financial statements for the third quarter of 2017; the company's ability to respond to the changes in its end markets that could affect demand for the company's products; unanticipated changes in business relationships with customers or their purchases from the company; changes in the financial health of the company's customers, which may have an impact on the company's revenues, earnings and impairment charges; fluctuations in raw material and energy costs; the impact of changes to the company's accounting methods; weakness in global or regional economic conditions and capital markets; fluctuations in currency valuations; changes in the expected costs associated with product warranty claims; the ability to achieve satisfactory operating results in the integration of acquired companies; the impact on operations of general economic conditions; fluctuations in customer demand; the impact on the company's pension obligations due to changes in interest rates, investment performance and other tactics designed to reduce risk; the company's ability to complete and achieve the benefits of announced plans, programs, initiatives, and capital investments; and retention of U.S. Continued Dumping and Subsidy Offset Act distributions. 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, 2016, quarterly reports on Form 10-Q and current reports on Form 8-K. Except as required by the federal securities laws, the company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Media Relations:
234.262.3514
mediarelations@timken.com 

Investor Relations:
Jason Hershiser
234.262.7101
jason.hershiser@timken.com

 

The Timken Company






CONDENSED CONSOLIDATED STATEMENTS OF INCOME






(Unaudited)






(Dollars in millions, except per share data)

Three Months Ended
September 30,


Nine Months Ended
September 30,


2017

2016


2017

2016







Net sales

$

771.4


$

657.4



$

2,225.8


$

2,015.0


Cost of products sold

554.4


487.7



1,626.5


1,477.7


Gross Profit

217.0


169.7



599.3


537.3


Selling, general & administrative expenses

134.0


107.3



377.4


332.6


Impairment and restructuring charges

1.3


5.3



3.8


18.7


Operating Income

81.7


57.1



218.1


186.0


Continued Dumping and Subsidy Offset Act income (expense), net (1)


(0.2)




53.6


Other income (expense), net

2.9


(0.1)



9.1


(1.8)


Earnings Before Interest and Taxes (EBIT) (2)

84.6


56.8



227.2


237.8


Interest expense, net

(9.4)


(7.6)



(24.5)


(24.0)


Income Before Income Taxes

75.2


49.2



202.7


213.8


Provision for income taxes

21.1


15.2



28.5


65.8


Net Income

54.1


34.0



174.2


148.0


Less: Net income attributable to noncontrolling interest

0.6


0.4




0.3


Net Income Attributable to The Timken Company

$

53.5


$

33.6



$

174.2


$

147.7








Net Income per Common Share Attributable to The Timken Company Common Shareholders






    Basic Earnings per share

$

0.69


$

0.43



$

2.24


$

1.87








    Diluted Earnings per share

$

0.68


$

0.43



$

2.21


$

1.86








Average Shares Outstanding

77,694,974


77,935,783



77,766,828


78,808,179


Average Shares Outstanding - assuming dilution

78,804,296


78,617,476



78,889,930


79,471,756








(1) U.S. Continued Dumping and Subsidy Offset Act ("CDSOA") income (expense), net, represents the amount of funds received by 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.

 

 

BUSINESS SEGMENTS






(Unaudited)







Three Months Ended
September 30,


Nine Months Ended
September 30,

(Dollars in millions)

2017

2016


2017

2016







Mobile Industries






Net sales

$

422.8


$

353.1



$

1,214.2


$

1,104.1


Earnings before interest and taxes (EBIT) (1)

$

34.9


$

25.9



$

100.1


$

95.3


EBIT Margin (1)

8.3

%

7.3

%


8.2

%

8.6

%







Process Industries






Net sales

$

348.6


$

304.3



$

1,011.6


$

910.9


Earnings before interest and taxes (EBIT) (1)

$

61.7


$

42.0



$

164.9


$

123.7


EBIT Margin (1)

17.7

%

13.8

%


16.3

%

13.6

%







Corporate expense

$

(12.0)


$

(10.9)



$

(37.8)


$

(34.8)


CDSOA income (expense), net (2)


(0.2)




53.6








Consolidated






Net sales

$

771.4


$

657.4



$

2,225.8


$

2,015.0


Earnings before interest and taxes (EBIT) (1)

$

84.6


$

56.8



$

227.2


$

237.8


EBIT Margin (1)

11.0

%

8.6

%


10.2

%

11.8

%







(1) EBIT is a non-GAAP measure defined as operating income plus other income (expense). EBIT Margin is a non-GAAP measure defined as EBIT as a percentage of net sales. EBIT and EBIT
Margin are important financial measures used in the management of the business, including decisions concerning the allocation of resources and assessment of performance.  Management
believes that reporting EBIT and EBIT Margin is useful to investors as these measures are representative of the Company's core operations of the segments and Company, respectively.







(2) CDSOA income (expense), net, represents the amount of funds received by 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.

 

 










CONDENSED CONSOLIDATED BALANCE SHEETS



(Dollars in millions)

(Unaudited)




September 30,
2017


December 31,
2016

ASSETS




Cash and cash equivalents

$

137.2



$

148.8


Restricted cash

3.3



2.7


Accounts receivable

542.2



438.0


Inventories, net

687.5



553.7


Other current assets

104.1



68.7


Total Current Assets

1,474.3



1,211.9


Property, plant and equipment, net

842.2



804.4


Goodwill and other intangible assets

939.2



628.5


Non-current pension assets

31.6



32.1


Other assets

76.3



86.3


Total Assets

$

3,363.6



$

2,763.2






LIABILITIES




Accounts payable

$

248.1



$

176.2


Short-term debt, including current portion of long-term debt

46.1



24.2


Income taxes

7.4



16.9


Accrued expenses

267.1



235.4


Total Current Liabilities

568.7



452.7






Long-term debt

959.8



635.0


Accrued pension cost

160.3



154.7


Accrued postretirement benefits cost

126.7



131.5


Other non-current liabilities

92.2



78.4


Total Liabilities

1,907.7



1,452.3






EQUITY




The Timken Company shareholders' equity

1,423.0



1,279.7


Noncontrolling Interest

32.9



31.2


Total Equity

1,455.9



1,310.9


Total Liabilities and Equity

$

3,363.6



$

2,763.2


 

 















CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS





(Unaudited)






Three Months Ended
September 30,

Nine Months Ended
September 30,

(Dollars in millions)

2017

2016

2017

2016

Cash Provided by (Used in)





OPERATING ACTIVITIES





Net income attributable to The Timken Company

$

53.5


$

33.6


$

174.2


$

147.7


Net income attributable to noncontrolling interest

0.6


0.4



0.3


Adjustments to reconcile net income to net cash provided by operating activities:





Depreciation and amortization

35.7


33.3


102.5


98.3


Impairment charges


1.2



3.8


CDSOA receivable


6.2




Pension and other postretirement expense

2.7


4.8


12.6


14.5


Pension and other postretirement benefit contributions and payments

(4.1)


(8.0)


(16.3)


(22.3)


Changes in operating assets and liabilities:





Accounts receivable

(15.6)


7.5


(61.6)


12.2


Inventories

(47.3)


(5.4)


(85.4)


(13.6)


Accounts payable

5.2


2.5


55.7


15.0


Accrued expenses

13.9


(8.6)


15.9


(17.5)


Income taxes

(3.1)


(1.7)


(52.1)


27.5


Other, net

(13.1)


8.8


(2.6)


12.8


Net Cash Provided by Operating Activities

$

28.4


$

74.6


$

142.9


$

278.7







INVESTING ACTIVITIES





Capital expenditures

$

(22.6)


$

(34.0)


$

(62.5)


$

(84.4)


Acquisitions

(283.1)


(62.1)


(347.2)


(62.8)


Other, net

7.2


3.8


2.3


3.9


Net Cash Used in Investing Activities

$

(298.5)


$

(92.3)


$

(407.4)


$

(143.3)







FINANCING ACTIVITIES





Cash dividends paid to shareholders

$

(21.0)


$

(20.3)


$

(62.4)


$

(61.4)


Purchase of treasury shares

(14.0)


(15.1)


(41.0)


(83.3)


Proceeds from exercise of stock options

2.0


0.3


27.7


0.7


Shares surrendered for taxes

(1.4)


(0.1)


(10.8)


(1.6)


Net proceeds (payments) from credit facilities

(304.5)


43.4


27.6


19.0


Net proceeds (payments) from long-term debt

299.4


(15.1)


299.4


(15.1)


Other, net

(4.1)


(2.8)


(4.2)


2.0


Net Cash Provided by (Used in) Financing Activities

$

(43.6)


$

(9.7)


$

236.3


$

(139.7)


Effect of exchange rate changes on cash

5.8


0.4


16.6


3.7


Decrease in Cash and Cash Equivalents

$

(307.9)


$

(27.0)


$

(11.6)


$

(0.6)


Cash and Cash Equivalents at Beginning of Period

445.1


156.0


148.8


129.6


Cash and Cash Equivalents at End of Period

$

137.2


$

129.0


$

137.2


$

129.0


 

 

Reconciliations of Adjusted Net Income to GAAP Net Income (Loss) and Adjusted 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 the non-GAAP measures of adjusted net income and adjusted diluted earnings per share are important financial measures used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. Management believes that reporting adjusted net income and adjusted diluted earnings per share is useful to investors as these measures are representative of the Company's core operations. 
















(Dollars in millions, except share data)


Three Months Ended
September 30,


Nine Months Ended
September 30,



2017


EPS

2016


EPS


2017


EPS

2016


EPS

Net Income Attributable to The Timken Company


$

53.5



$

0.68


$

33.6



$

0.43



$

174.2



$

2.21


$

147.7



$

1.86

















Adjustments: (1)















  Impairment, restructuring and reorganization charges (2)


$

2.6




$

7.3





$

10.5




$

21.4




  Acquisition related charges (3)


4.4




2.5





6.9




3.3




  Gain on sale of real estate (4)


(1.6)








(3.6)







  Pension related charges (5)





0.1





4.4




1.3




  CDSOA (income) expense, net (6)





0.2








(53.6)




  Health care plan modification costs (7)









(0.7)







  (Gain) loss on dissolution of subsidiary





0.9








(0.5)




  Tax indemnification (8) 









(1.0)







  (Benefit) provision for income taxes (9)


(3.0)




(2.5)





(37.1)




9.2




      Total Adjustments:


2.4



0.03


8.5



0.10



(20.6)



(0.26)


(18.9)



(0.24)


Adjusted Net Income from The Timken Company


$

55.9



$

0.71


$

42.1



$

0.53



$

153.6



$

1.95


$

128.8



$

1.62

















(1) Adjustments are pre-tax, with net tax provision (benefit) listed separately.
















(2) Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) relate to: (i) plant closures; (ii) the rationalization of certain plants; and (iii) severance related to cost reduction initiatives. The Company re-assesses its operating footprint and makes adjustments as needed that result in restructuring charges.  However, management believes these actions are not representative of the Company's core operations. 
















(3) Acquisition related charges in 2017 relate to the acquisition of Groeneveld Group ("Groeneveld"), Torsion Control Products, Inc. ("Torsion Control Products"), PT Tech, Inc. ("PT Tech") and EDT Corp. ("EDT"), including one-time transaction costs.
















(4) The gain on the sale of real estate related to the sale of a manufacturing facility in South Africa and a manufacturing facility in Altavista, Virgina during the second and third quarter of 2017, respectively.
















(5) In 2017, pension related charges represent actuarial losses that resulted from the remeasurement of pension plan assets and obligations as a result of changes in assumptions. The Company recognizes actuarial (gains) and losses through earnings in connection with the annual remeasurement in the fourth quarter, or on an interim basis if specific events trigger a remeasurement. In 2016, pension related charges represented professional fees associated with the implementation of a group annuity contract.
















(6) CDSOA (income) expense, net, represents the amount of funds received by 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.
















(7) Health care plan modification costs represent one-time charges associated with a redesign in medical insurance options available for active associates. In connection with the redesign, the Company elected to pay certain unused reimbursement account balances to associates impacted by the change in available options.
















(8) The tax indemnification in 2017 represents a receivable from TimkenSteel related to the settlement of certain tax liabilities and pursuant to the Tax Sharing Agreement between the Company and TimkenSteel dated June 30, 2014.  This amount was recorded in other income.                                      
















(9) (Benefit) provision for income taxes includes the impact of discrete tax items recorded during the respective periods, including the net benefit of prior year tax matters during the second quarter of 2017, as well as the net tax impact on pre-tax adjustments, to reflect the use of one overall effective tax rate on adjusted pre-tax income in interim periods

 

 

Reconciliation of EBIT to GAAP Net Income (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)

Three Months Ended
September 30,


Nine Months Ended
September 30,


2017

Percentage
to
Net Sales

2016

Percentage
to

Net Sales


2017

Percentage
to
Net Sales

2016

Percentage
to
Net Sales

Net Income

$

54.1


7.0

%

$

34.0


5.2

%


$

174.2


7.8

%

$

148.0


7.3

%











Provision for income taxes

21.1


2.7

%

15.2


2.3

%


28.5


1.3

%

65.8


3.3

%

Interest expense

10.1


1.3

%

8.0


1.2

%


26.5


1.2

%

25.1


1.3

%

Interest income

(0.7)


%

(0.4)


(0.1)

%


(2.0)


(0.1)

%

(1.1)


(0.1)

%

Consolidated EBIT

$

84.6


11.0

%

$

56.8


8.6

%


$

227.2


10.2

%

$

237.8


11.8

%











Adjustments:










  Impairment, restructuring and reorganization charges (1)

$

2.6


0.3

%

$

7.3


1.2

%


$

10.5


0.4

%

$

21.4


1.1

%

  CDSOA (income) expense, net (2)


%

0.2


%



%

(53.6)


(2.7)

%

  Health care plan modification costs (3)


%


%


(0.7)


%


%

  Acquisition related charges (4)

4.4


0.6

%

2.5


0.4

%


6.9


0.3

%

3.3


0.1

%

  Gain on sale of real estate (5)

(1.6)


(0.2)

%


%


(3.6)


(0.2)

%


%

  Pension related charges (6)


%

0.1


%


4.4


0.2

%

1.3


0.1

%

  Tax indemnification (7) 


%


%


(1.0)


%


%

  (Gain) loss on dissolution of subsidiary


%

0.9


0.1

%



%

(0.5)


%

     Total Adjustments

5.4


0.7

%

11.0


1.7

%


16.5


0.7

%

(28.1)


(1.4)

%

Adjusted EBIT

$

90.0


11.7

%

$

67.8


10.3

%


$

243.7


10.9

%

$

209.7


10.4

%











(1) Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) relate to: (i) plant closures; (ii) the rationalization of certain plants; and (iii) severance related to cost reduction initiatives. The Company re-assesses its operating footprint and makes adjustments as needed that result in restructuring charges.  However, management believes these actions are not representative of the Company's core operations. 











(2) CDSOA (income) expense, net, represents the amount of funds received by 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) Health care plan modification costs represent one-time charges associated with a redesign in medical insurance options available for active associates. In connection with the redesign, the Company elected to pay certain unused reimbursement account balances to associates impacted by the change in available options.
 











(4) Acquisition related charges in 2017 relate to the acquisition of Groeneveld, Torsion Control Products, PT Tech and EDT, including one-time transaction costs.











(5) The gain on the sale of real estate related to the sale of a manufacturing facility in South Africa and a manufacturing facility in Altavista, Virgina during the second and third quarter of 2017, respectively.











(6) In 2017, pension related charges represent actuarial losses that resulted from the remeasurement of pension plan assets and obligations as a result of changes in assumptions. The Company recognizes actuarial (gains) and losses through earnings in connection with the annual remeasurement in the fourth quarter, or on an interim basis if specific events trigger a remeasurement. In 2016, pension related charges represented professional fees associated with the implementation of a group annuity contract.











(7) The tax indemnification in 2017 represents a receivable from TimkenSteel related to the settlement of certain tax liabilities and pursuant to the Tax Sharing Agreement between the Company and TimkenSteel dated June 30, 2014.  This amount was recorded in other income.       

 

 

Reconciliation of segment EBIT Margin, After Adjustments, to segment EBIT as a Percentage of Sales and segment EBIT, After Adjustments, to segment EBIT:

(Unaudited)










The following reconciliation is provided as additional relevant information about the Company's Mobile Industries and Process Industries segment performance deemed useful to investors. Management believes that non-GAAP measures of adjusted EBIT and adjusted EBIT margin for the segments are useful to investors as they are representative of each segment's core operations and are used in the management of the business, including decisions concerning the allocation of resources and assessment of performance.











Mobile Industries










(Dollars in millions)

Three Months
Ended
September
30, 2017

Percentage
to Net
Sales

Three Months
Ended
September
30, 2016

Percentage
to Net
Sales


Nine Months
Ended
September
30, 2017

Percentage
to Net
Sales

Nine Months
Ended
September
30, 2016

Percentage
to Net
Sales

Earnings before interest and taxes (EBIT)

$

34.9


8.3

%

$

25.9


7.3

%


$

100.1


8.2

%

$

95.3


8.6

%











  Impairment, restructuring and reorganization
  charges (1)

2.6


0.6

%

6.5


1.9

%


9.8


0.8

%

15.9


1.4

%

  Gain on dissolution of subsidiary


%


%



%

(1.4)


(0.1)

%

  Gain on sale of real estate (2)

(1.6)


(0.4)

%


%


(3.6)


(0.2)

%


%

  Health care plan modification costs (3)


%


%


(0.4)


%


%

  Acquisition related charges (4)

1.7


0.4

%


%


2.4


0.2

%


%

  Pension related charges (5)


%


%


1.8


0.1

%


%

Adjusted EBIT

$

37.6


8.9

%

$

32.4


9.2

%


$

110.1


9.1

%

$

109.8


9.9

%











Process Industries










(Dollars in millions)

Three Months
Ended
September
30, 2017

Percentage
to Net
Sales

Three Months
Ended
September
30, 2016

Percentage
to Net
Sales


Nine Months
Ended
September
30, 2017

Percentage
to Net
Sales

Nine Months
Ended
September
30, 2016

Percentage
to Net
Sales

Earnings before interest and taxes (EBIT)

$

61.7


17.7

%

$

42.0


13.8

%


$

164.9


16.3

%

$

123.7


13.6

%











  Impairment, restructuring and reorganization
  charges (1)


%

0.9


0.3

%


0.1


%

5.5


0.6

%

  Loss on dissolution/divestment of subsidiary (2)


%

0.9


0.3

%



%

0.9


0.1

%

  Health care plan modification costs (3)


%


%


(0.2)


%


%

  Acquisition related charges (4)


%

1.7


0.6

%


0.2


%

1.7


0.2

%

  Pension related charges (5)


%


%


1.1


0.1

%


%

Adjusted EBIT

$

61.7


17.7

%

$

45.5


15.0

%


$

166.1


16.4

%

$

131.8


14.5

%











(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 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 the sale of real estate related to the sale of a manufacturing facility in South Africa and a manufacturing facility in Altavista, Virgina during the second and third quarter of 2017, respectively.











(3) Health care plan modification costs represent one-time charges associated with a redesign in medical insurance options available for active associates. In connection with the redesign, the Company elected to pay certain unused reimbursement account balances to associates impacted by the change in available options.











(4) Acquisition related charges in 2017 relate to the acquisition of Groeneveld, Torsion Control Products, PT Tech and EDT, including one-time transaction costs.











(5) Pension related charges represent actuarial losses that resulted from the remeasurement of pension plan assets and obligations as a result of changes in assumptions. The Company recognizes actuarial (gains) and losses through earnings in connection with the annual remeasurement in the fourth quarter, or on an interim basis if specific events trigger a remeasurement.

 

 

Reconciliation of Total Debt to Net Debt and the Ratio of Net Debt to Capital to the Ratio of Total Debt to Capital:

(Unaudited)





These reconciliations are provided as additional relevant information about the Company's financial position deemed useful to investors. Capital, used for the ratio of total debt to capital, is a non-GAAP measure defined as total debt plus total shareholders' equity. Capital, used for the ratio of net debt to capital, is a non-GAAP measure defined as total debt less cash, cash equivalents and restricted cash plus total shareholders' equity. Management believes Net Debt and the Ratio of Net Debt to Capital are important measures of the Company's financial position, due to the amount of cash and cash equivalents on hand.






(Dollars in millions)








September 30,
2017

December 31,
2016

Short-term debt, including current portion of long-term debt



$

46.1


$

24.2


Long-term debt



959.8


635.0


  Total Debt



$

1,005.9


$

659.2


Less: Cash, cash equivalents and restricted cash



(140.5)


(151.5)


Net Debt



$

865.4


$

507.7







Total equity



$

1,455.9


$

1,310.9







Ratio of Total Debt to Capital



40.9

%

33.5

%

Ratio of Net Debt to Capital



37.3

%

27.9

%






Reconciliation of Free Cash Flow to GAAP Net Cash Provided by Operating Activities:

(Unaudited)





Management believes that free cash flow is a non-GAAP measure that is useful to investors because it is a meaningful indicator of cash generated from operating activities available for the execution of its business strategy.






(Dollars in millions)






Three Months Ended
September 30,

Nine Months Ended
September 30,


2017

2016

2017

2016

Net cash provided by operating activities

$

28.4


$

74.6


$

142.9


$

278.7


Less: capital expenditures

(22.6)


(34.0)


(62.5)


(84.4)


Free cash flow

$

5.8


$

40.6


$

80.4


$

194.3


 

 

Reconciliation of Adjusted Earnings per Share to GAAP Earnings per Share for Full Year 2017 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

$

2.78



$

2.83






Forecasted Adjustments:




  Impairment, restructuring and reorganization charges (1)

0.10



0.10


  Pension related charges (2)

0.05



0.05


  Acquisition related charges (3)

0.05



0.05


  (Benefit) provision for income taxes (4)

(0.40)



(0.40)


Total Adjustments:

$

(0.20)



$

(0.20)


Forecasted full year adjusted diluted earnings per share

$

2.58



$

2.63






(1) Impairment, restructuring and reorganization charges relate to severance and other cost reduction initiatives, net of tax.





(2)Pension related charges represent actuarial losses that resulted from the remeasurement of pension plan assets and obligations as a result of changes in assumptions. The Company recognizes actuarial (gains) and losses through earnings in connection with the annual remeasurement in the fourth quarter, or on an interim basis if specific events trigger a remeasurement. The full year 2017 outlook does not account for the annual remeasurement because the amount will not be known until the fourth quarter.





(3) Acquisition related charges in 2017, including one-time transaction costs.





(4) (Benefit) provision for income taxes includes the impact of discrete tax items, including the net benefit of prior year tax matters during the second quarter of 2017.





Reconciliation of Free Cash Flow to GAAP Net Cash Provided by Operating Activities for Full Year 2017 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



$

280.0


Less: capital expenditures



(100.0)


Free cash flow



$

180.0


 

 

SOURCE The Timken Company