Date of Report (Date of earliest event reported): | May 1, 2018 |
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 May 1, 2018 |
THE TIMKEN COMPANY | |||
By: | /s/ Carolyn E. Cheverine | ||
Carolyn E. Cheverine | |||
Executive Vice President, General Counsel and Secretary | |||
Date: | May 1, 2018 |
Exhibit No. | Description | |
Press Release of The Timken Company dated May 1, 2018 |
TIMKEN |
• | Reports first-quarter sales of $883 million, up 25 percent from last year |
• | Generated first-quarter earnings per diluted share of $1.02 on a GAAP basis, with adjusted earnings per diluted share of $1.01 |
• | Raises 2018 outlook; now expects 2018 GAAP earnings per diluted share of $3.80 to $3.90 and adjusted earnings per diluted share of $3.90 to $4.00 |
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TIMKEN |
• | Mobile Industries sales to be up approximately 17 percent, driven primarily by organic growth in the off-highway, heavy truck and rail sectors, as well as the benefit of acquisitions and favorable currency. |
• | Process Industries sales to be up approximately 17 percent, reflecting broad growth across the industrial sectors, including distribution, original equipment and services, as well as favorable currency. |
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TIMKEN |
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TIMKEN |
The Timken Company | ||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||
(Unaudited) | ||||||
(Dollars in millions, except per share data) | Three Months Ended March 31, | |||||
2018 | 2017 | |||||
Net sales | $ | 883.1 | $ | 703.8 | ||
Cost of products sold | 618.2 | 521.6 | ||||
Gross Profit | 264.9 | 182.2 | ||||
Selling, general & administrative expenses | 148.6 | 117.6 | ||||
Impairment and restructuring charges | 0.2 | 1.7 | ||||
Operating Income | 116.1 | 62.9 | ||||
Other income (expense), net | 2.3 | (2.0 | ) | |||
Earnings Before Interest and Taxes (EBIT) (1) | 118.4 | 60.9 | ||||
Interest expense, net | (9.6 | ) | (7.3 | ) | ||
Income Before Income Taxes | 108.8 | 53.6 | ||||
Provision for income taxes | 28.3 | 15.5 | ||||
Net Income | 80.5 | 38.1 | ||||
Less: Net income (loss) attributable to noncontrolling interest | 0.3 | (0.1 | ) | |||
Net Income Attributable to The Timken Company | $ | 80.2 | $ | 38.2 | ||
Net Income per Common Share Attributable to The Timken Company Common Shareholders | ||||||
Basic Earnings per share | $ | 1.03 | $ | 0.49 | ||
Diluted Earnings per share | $ | 1.02 | $ | 0.48 | ||
Average Shares Outstanding | 77,734,153 | 77,731,793 | ||||
Average Shares Outstanding - assuming dilution | 79,013,185 | 78,893,954 | ||||
(1) EBIT is a non-GAAP measure defined as operating income plus other income (expense). EBIT is an important financial measure used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. Management believes that reporting EBIT is useful to investors as this measure is representative of the Company's core operations. |
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TIMKEN |
BUSINESS SEGMENTS | ||||||
(Unaudited) | ||||||
Three Months Ended March 31, | ||||||
(Dollars in millions) | 2018 | 2017 | ||||
Mobile Industries | ||||||
Net sales | $ | 488.5 | $ | 383.0 | ||
Earnings before interest and taxes (EBIT) (1) | $ | 51.1 | $ | 32.6 | ||
EBIT Margin (1) | 10.5 | % | 8.5 | % | ||
Process Industries | ||||||
Net sales | $ | 394.6 | $ | 320.8 | ||
Earnings before interest and taxes (EBIT) (1) | $ | 81.6 | $ | 44.1 | ||
EBIT Margin (1) | 20.7 | % | 13.7 | % | ||
Corporate expense | $ | (14.3 | ) | $ | (15.8 | ) |
Consolidated | ||||||
Net sales | $ | 883.1 | $ | 703.8 | ||
Earnings before interest and taxes (EBIT) (1) | $ | 118.4 | $ | 60.9 | ||
EBIT Margin (1) | 13.4 | % | 8.7 | % | ||
(1) EBIT is a non-GAAP measure defined as operating income plus other income (expense). EBIT Margin is a non-GAAP measure defined as EBIT as a percentage of net sales. EBIT and EBIT Margin are important financial measures used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. Management believes that reporting EBIT and EBIT Margin is useful to investors as these measures are representative of the core operations of the segments and Company, respectively. |
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TIMKEN |
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
(Dollars in millions) | (Unaudited) | ||||||
March 31, 2018 | December 31, 2017 | ||||||
ASSETS | |||||||
Cash, cash equivalents and restricted cash | $ | 120.3 | $ | 125.4 | |||
Accounts receivable, net | 535.1 | 524.9 | |||||
Contract assets | 111.4 | — | |||||
Inventories, net | 776.8 | 738.9 | |||||
Other current assets | 102.2 | 110.9 | |||||
Total Current Assets | 1,645.8 | 1,500.1 | |||||
Property, plant and equipment, net | 865.4 | 864.2 | |||||
Goodwill and other intangible assets | 930.5 | 932.4 | |||||
Non-current pension assets | 23.9 | 19.7 | |||||
Other assets | 83.9 | 86.0 | |||||
Total Assets | $ | 3,549.5 | $ | 3,402.4 | |||
LIABILITIES | |||||||
Accounts payable | $ | 266.6 | $ | 265.2 | |||
Short-term debt, including current portion of long-term debt | 169.8 | 108.1 | |||||
Income taxes | 12.2 | 9.8 | |||||
Accrued expenses | 253.7 | 288.6 | |||||
Total Current Liabilities | 702.3 | 671.7 | |||||
Long-term debt | 896.5 | 854.2 | |||||
Accrued pension cost | 168.5 | 167.3 | |||||
Accrued postretirement benefits cost | 122.5 | 122.6 | |||||
Other non-current liabilities | 116.9 | 111.7 | |||||
Total Liabilities | 2,006.7 | 1,927.5 | |||||
EQUITY | |||||||
The Timken Company shareholders' equity | 1,510.9 | 1,442.7 | |||||
Noncontrolling Interest | 31.9 | 32.2 | |||||
Total Equity | 1,542.8 | 1,474.9 | |||||
Total Liabilities and Equity | $ | 3,549.5 | $ | 3,402.4 |
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TIMKEN |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
(Unaudited) | ||||||
Three Months Ended March 31, | ||||||
(Dollars in millions) | 2018 | 2017 | ||||
Cash Provided by (Used in) | ||||||
OPERATING ACTIVITIES | ||||||
Net income attributable to The Timken Company | $ | 80.2 | $ | 38.2 | ||
Net income (loss) attributable to noncontrolling interest | 0.3 | (0.1 | ) | |||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||
Depreciation and amortization | 35.8 | 32.9 | ||||
Pension and other postretirement expense | 2.0 | 7.2 | ||||
Pension and other postretirement benefit contributions | (6.1 | ) | (6.1 | ) | ||
Changes in operating assets and liabilities: | ||||||
Accounts receivable | (72.1 | ) | (50.3 | ) | ||
Contract assets | (11.5 | ) | — | |||
Inventories | (53.8 | ) | (6.5 | ) | ||
Accounts payable | (2.3 | ) | 48.6 | |||
Accrued expenses | (38.7 | ) | (28.4 | ) | ||
Income taxes | 13.4 | 8.2 | ||||
Other, net | 8.5 | 3.0 | ||||
Net Cash (Used in) Provided by Operating Activities | $ | (44.3 | ) | $ | 46.7 | |
INVESTING ACTIVITIES | ||||||
Capital expenditures | $ | (17.8 | ) | $ | (19.3 | ) |
Investments in short-term marketable securities, net | 3.7 | (6.8 | ) | |||
Other, net | 0.1 | (0.8 | ) | |||
Net Cash Used in Investing Activities | $ | (14.0 | ) | $ | (26.9 | ) |
FINANCING ACTIVITIES | ||||||
Cash dividends paid to shareholders | $ | (21.1 | ) | $ | (20.3 | ) |
Purchase of treasury shares | (22.7 | ) | (8.1 | ) | ||
Proceeds from exercise of stock options | 8.4 | 16.6 | ||||
Shares surrendered for taxes | (4.4 | ) | (8.2 | ) | ||
Net proceeds (payments) from credit facilities | 93.6 | (22.6 | ) | |||
Net payments from long-term debt | (0.4 | ) | (0.3 | ) | ||
Other, net | (1.1 | ) | — | |||
Net Cash Provided by (Used in) Financing Activities | $ | 52.3 | $ | (42.9 | ) | |
Effect of exchange rate changes on cash | 0.9 | 3.9 | ||||
Decrease in Cash, Cash Equivalents and Restricted Cash | $ | (5.1 | ) | $ | (19.2 | ) |
Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 125.4 | 151.6 | ||||
Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 120.3 | $ | 132.4 |
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TIMKEN |
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 March 31, | ||||||||||||||
2018 | EPS | 2017 | EPS | ||||||||||||
Net Income Attributable to The Timken Company | $ | 80.2 | $ | 1.02 | $ | 38.2 | $ | 0.48 | |||||||
Adjustments: (1) | |||||||||||||||
Impairment, restructuring and reorganization charges (2) | $ | 0.7 | $ | 4.6 | |||||||||||
Acquisition related charges | — | 0.1 | |||||||||||||
Pension related charges (3) | 0.2 | 4.4 | |||||||||||||
Tax indemnification | 0.3 | — | |||||||||||||
Provision for income taxes (4) | (1.4 | ) | (3.6 | ) | |||||||||||
Total Adjustments: | (0.2 | ) | (0.01 | ) | 5.5 | 0.07 | |||||||||
Adjusted Net Income from The Timken Company | $ | 80.0 | $ | 1.01 | $ | 43.7 | $ | 0.55 | |||||||
(1) Adjustments are pre-tax, with the net tax provision listed separately. | |||||||||||||||
(2) Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) relate to: (i) plant closures; (ii) the rationalization of certain plants; and (iii) severance related to cost reduction initiatives. The Company re-assesses its operating footprint and makes adjustments as needed that result in restructuring charges. However, management believes these actions are not representative of the Company’s core operations. | |||||||||||||||
(3) Pension related charges during the first quarter of 2017 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. | |||||||||||||||
(4) Provision 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. |
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TIMKEN |
Reconciliation of EBIT to GAAP Net Income, and EBIT Margin, After Adjustments, to Net Income as a Percentage of Sales and EBIT, After Adjustments, to Net Income: | ||||||||||
(Unaudited) | ||||||||||
The following reconciliation is provided as additional relevant information about the Company's performance deemed useful to investors. Management believes consolidated earnings before interest and taxes (EBIT) is a non-GAAP measure that is useful to investors as it is representative of the Company's performance and that it is appropriate to compare GAAP net income to consolidated EBIT. Management also believes that non-GAAP measures of adjusted EBIT and adjusted EBIT margin are useful to investors as they are representative of the Company's core operations and are used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. | ||||||||||
(Dollars in millions) | Three Months Ended March 31, | |||||||||
2018 | Percentage to Net Sales | 2017 | Percentage to Net Sales | |||||||
Net Income | $ | 80.5 | 9.1 | % | $ | 38.1 | 5.4 | % | ||
Provision for income taxes | 28.3 | 3.2 | % | 15.5 | 2.2 | % | ||||
Interest expense | 10.0 | 1.1 | % | 7.9 | 1.1 | % | ||||
Interest income | (0.4 | ) | — | % | (0.6 | ) | — | % | ||
Consolidated EBIT | $ | 118.4 | 13.4 | % | $ | 60.9 | 8.7 | % | ||
Adjustments: | ||||||||||
Impairment, restructuring and reorganization charges (1) | $ | 0.7 | 0.1 | % | $ | 4.6 | 0.6 | % | ||
Acquisition related charges | — | — | % | 0.1 | — | % | ||||
Pension related charges (2) | 0.2 | — | % | 4.4 | 0.6 | % | ||||
Tax indemnification | 0.3 | — | % | — | — | % | ||||
Total Adjustments | 1.2 | 0.1 | % | 9.1 | 1.2 | % | ||||
Adjusted EBIT | $ | 119.6 | 13.5 | % | $ | 70.0 | 9.9 | % | ||
(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) Pension related charges during the first quarter of 2017 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. |
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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 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 March 31, 2018 | Percentage to Net Sales | Three Months Ended March 31, 2017 | Percentage to Net Sales | ||||||
Earnings before interest and taxes (EBIT) | $ | 51.1 | 10.5 | % | $ | 32.6 | 8.5 | % | ||
Impairment, restructuring and reorganization charges (1) | 0.7 | 0.1 | % | 4.0 | 1.1 | % | ||||
Adjusted EBIT | $ | 51.8 | 10.6 | % | $ | 36.6 | 9.6 | % | ||
Process Industries | ||||||||||
(Dollars in millions) | Three Months Ended March 31, 2018 | Percentage to Net Sales | Three Months Ended March 31, 2017 | Percentage to Net Sales | ||||||
Earnings before interest and taxes (EBIT) | $ | 81.6 | 20.7 | % | $ | 44.1 | 13.7 | % | ||
Acquisition related charges | — | — | % | 0.1 | 0.1 | % | ||||
Adjusted EBIT | $ | 81.6 | 20.7 | % | $ | 44.2 | 13.8 | % | ||
(1) Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) relate to: (i) plant closures; (ii) the rationalization of certain plants; and (iii) severance related to cost reduction initiatives. The Company re-assesses its operating footprint and makes adjustments as needed that result in restructuring charges. However, management believes these actions are not representative of the Company’s core operations. |
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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 measures of the Company's financial position, due to the amount of cash and cash equivalents on hand. | ||||||
(Dollars in millions) | ||||||
March 31, 2018 | December 31, 2017 | |||||
Short-term debt, including current portion of long-term debt | $ | 169.8 | $ | 108.1 | ||
Long-term debt | 896.5 | 854.2 | ||||
Total Debt | $ | 1,066.3 | $ | 962.3 | ||
Less: Cash, cash equivalents and restricted cash | (120.3 | ) | (125.4 | ) | ||
Net Debt | $ | 946.0 | $ | 836.9 | ||
Total Equity | $ | 1,542.8 | $ | 1,474.9 | ||
Ratio of Total Debt to Capital | 40.9 | % | 39.5 | % | ||
Ratio of Net Debt to Capital | 38.0 | % | 36.2 | % | ||
Reconciliation of Free Cash Flow to GAAP Net Cash (Used in) 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 March 31, | ||||||
2018 | 2017 | |||||
Net cash (used in) provided by operating activities | $ | (44.3 | ) | $ | 46.7 | |
Less: capital expenditures | (17.8 | ) | (19.3 | ) | ||
Free cash flow | $ | (62.1 | ) | $ | 27.4 |
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TIMKEN |
Reconciliation of Adjusted Earnings per Share to GAAP Earnings per Share for Full Year 2018 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 | $ | 3.80 | $ | 3.90 | |||
Forecasted Adjustments: | |||||||
Restructuring and other special items, net (1) | 0.10 | 0.10 | |||||
Total Adjustments: | $ | 0.10 | $ | 0.10 | |||
Forecasted full year adjusted diluted earnings per share | $ | 3.90 | $ | 4.00 | |||
(1) Restructuring and other special items, net do not include the impact of any potential mark-to-market pension and other postretirement remeasurement adjustment, because the amount will not be known until incurred. | |||||||
Reconciliation of Free Cash Flow to GAAP Net Cash Provided by Operating Activities for Full Year 2018 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 | $ | 370.0 | |||||
Less: capital expenditures | (120.0 | ) | |||||
Free cash flow | $ | 250.0 |
12 |