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Section 1: 8-K (8-K)

8-K


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):
April 27, 2016
THE TIMKEN COMPANY
(Exact Name of Registrant as Specified in its Charter)

Ohio
(State or Other Jurisdiction of Incorporation)

1-1169
 
34-0577130
(Commission File Number)
 
(I.R.S. Employer Identification No.)
4500 Mt. Pleasant St. NW, North Canton, Ohio 44720-5450

(Address of Principal Executive Offices) (Zip Code)
(234) 262-3000
(Registrant's Telephone Number, Including Area Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions.
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






Item 2.02     Results of Operations and Financial Condition
The Timken Company (the "Company") issued a press release on April 27, 2016 announcing results for the first quarter of 2016. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by this reference.

Also on April 27, 2016, the Timken Company will host a conference call and post conference call materials on its website, www.timken.com. A copy of the conference call materials is attached as Exhibit 99.2 to this Current Report on Form 8-K and incorporated herein by this reference.

This information shall not be deemed to be "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into a filing under the Securities Act of 1933, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.


Item 9.01    Financial Statements and Exhibits

(d) Exhibits


Exhibit No.
 
Description
99.1
 
Press Release of The Timken Company dated April 27, 2016
99.2
 
Investor Presentation dated April 27, 2016


      

    






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
 
THE TIMKEN COMPANY
 
 
 
 
 
 
By:
 /s/ William R. Burkhart
 
 
 
William R. Burkhart
 
 
 
Executive Vice President, General Counsel and Secretary
Date:
 
April 27, 2016
 







EXHIBIT INDEX
Exhibit No.
 
Description
99.1
 
Press Release of The Timken Company dated April 27, 2016
99.2
 
Investor Presentation dated April 27, 2016



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
TIMKEN
 


Timken Reports First-Quarter 2016 Results

Reports adjusted earnings of $0.46 per diluted share (EPS) in the quarter on sales of $684 million
Generated free cash flow in the quarter of $23 million
Repurchased 1.2 million shares
Reaffirms full-year 2016 adjusted EPS outlook

NORTH CANTON, Ohio: April 27, 2016 - The Timken Company (NYSE: TKR; www.timken.com), a global leader in bearings, today reported sales of $684 million for the first quarter of 2016, approximately 5 percent lower than the same period a year ago. Excluding the impact of currency, sales were down 2.5 percent, primarily due to market weakness across most sectors partially offset by growth in automotive and the net benefit of acquisitions and divestitures.

In the first quarter, Timken posted net income of $63.0 million or $0.78 per diluted share, versus net loss of $135.2 million or $1.54 per basic share a year ago. Net income in the quarter included certain unusual items including pre-tax income of $47.7 million related to the U.S. Continued Dumping and Subsidy Offset Act (reference Table I).

Adjusted net income was $36.9 million or $0.46 per diluted share. This compares with adjusted net income of $44.2 million or $0.50 per diluted share for the same period in 2015. The year-over-year change in adjusted net income reflects lower volume, unfavorable price/mix and currency, partially offset by the impact of lower raw material and operating costs as well as lower SG&A expenses. Earnings per share also benefited from share buybacks.

Free cash flow for the quarter was $22.9 million, compared with net cash used of $2.7 million in the prior-year period. The increase in free cash flow was primarily driven by improvements in working capital. In addition, the company returned $55.7 million in capital to shareholders in the first quarter, through the repurchase of 1.2 million shares and the payment of its 375th consecutive quarterly dividend.

“During the quarter, we executed well and delivered first-quarter results in line with our expectations even though market conditions globally remain weak, particularly in commodity-related sectors,” said Richard G. Kyle, Timken president and chief executive officer. “Looking ahead, we expect continued challenging market conditions in 2016. However, we are reaffirming our full-year earnings outlook, confident in our ability to win new business and deliver on our cost-reduction initiatives.”


Table I: Adjusted Net Income & Earnings Per Share (EPS)             
 
2016 - 1Q
2015 - 1Q
 
($M)
EPS
($M)
EPS
Net Income (Loss) Attributable to The Timken Company
$
63.0

$
0.78

$
(135.2
)
$
(1.54
)
Adjustments*:
 
 
 
 
Pension settlement charges
$
1.2

$
0.02

$
215.2

$
2.45

Impairment and restructuring charges
10.7

0.13

6.6

0.07

CDSOA income, net of related expenses
(47.7
)
(0.59
)


Gain on dissolution of a subsidiary
(1.4
)
(0.02
)


Provision (benefit) for income taxes
11.1

0.14

(42.4
)
(0.48
)
      Total adjustments
(26.1
)
(0.32
)
179.4

2.04

Net Income, after adjustments
$
36.9

$
0.46

$
44.2

$
0.50

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






1

TIMKEN
 


First-Quarter Segment Results

Mobile Industries reported first-quarter sales of $383.2 million, approximately 2 percent lower than the same period a year ago. Excluding the impact of currency, sales were roughly flat compared with the prior year, as growth in automotive and the net benefit of acquisitions and divestitures offset market-related declines in off‑highway, rail and aerospace.

Earnings before interest and taxes (EBIT) for the first quarter were $30.2 million or 7.9 percent of sales, compared with EBIT of $35.4 million or 9 percent of sales for the same period a year ago. Adjusted EBIT was $35.9 million or 9.4 percent of sales, compared with $36.4 million or 9.3 percent of sales in the first quarter last year. The slight decline in adjusted EBIT reflects the impact of unfavorable price/mix and lower volume, partially offset by lower raw material and operating costs, and lower SG&A expenses.

Process Industries sales of $300.8 million for the first quarter declined approximately 9 percent from the same period a year ago. Excluding the impact of currency, sales were down roughly 6 percent, driven by weaker demand in the heavy industries sector and the industrial aftermarket, partially offset by the benefit of acquisitions.

EBIT for the quarter was $32.6 million or 10.8 percent of sales, compared with EBIT of $45.2 million or 13.7 percent of sales for the same period a year ago. Adjusted EBIT was $36.2 million or 12 percent of sales, compared with $50.8 million or 15.4 percent of sales in the first quarter last year. The decrease in adjusted EBIT was driven by the impact of lower volume and currency, partially offset by lower SG&A expenses and raw material costs.


2016 Outlook

The company expects 2016 revenue to be down approximately 5 percent from 2015, including 2 percent from currency declines.

Within its segments, the company estimates full-year 2016:
  
Mobile Industries' sales to be down approximately 6 percent. Excluding the impact of currency, sales are expected to be down around 4 percent, reflecting lower demand in rail, off-highway and aerospace, offset partially by growth in automotive and the net benefit of acquisitions and divestitures.

Process Industries' sales to be down approximately 4 percent. Excluding the impact of currency, sales are expected to be down around 2 percent, driven by declines in the heavy industries sector and the industrial aftermarket, partially offset by organic growth in wind energy and the benefit of acquisitions.

Timken anticipates 2016 earnings per diluted share to range from $1.65 to $1.75 for the full year on a GAAP basis. Excluding unusual items, the company expects 2016 adjusted earnings per diluted share to be $1.90 to $2.00.


Conference Call Information
Timken will host a conference call today at 10:00 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, April 27, 2016
10:00 a.m. Eastern Time
Live Dial-In: 800-500-0920 or 719-457-2731
(Call in 10 minutes prior to be included.)
Conference ID: Timken’s 1Q Earnings Call
Live Webcast:    www.timken.com/investors

Conference Call Replay:    Replay Dial-In available through May 11, 2016:
888-203-1112 or 719-457-0820
Replay Passcode: 6334899


2

TIMKEN
 


About The Timken Company
The Timken Company (NYSE: TKR; www.timken.com) engineers, manufactures and markets bearings, gear drives, belts, chain 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®, Carlisle®, Drives® and InterlubeTM. Known for its quality products and collaborative technical sales model, Timken posted $2.9 billion in sales in 2015. With more than 14,000 employees operating from 28 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 first quarter of 2016; 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 the company's last-in, first-out accounting; 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, 2015, 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:
 
Investor Relations: Shelly Chadwick
 
 
Vice President - Treasury & Investor Relations
Telephone: (234) 262-3514
 
Telephone: (234) 262-3223
mediarelations@timken.com
 
shelly.chadwick@timken.com



3

TIMKEN
 


The Timken Company
 
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
 
(Unaudited)
 
 
(Dollars in millions, except per share data)
Three Months Ended
March 31,
 
2016
2015
Net sales
$
684.0

$
722.5

Cost of products sold
503.1

520.0

Gross Profit
180.9

202.5

Selling, general & administrative expenses (SG&A)
118.3

128.5

Impairment and restructuring charges
10.5

6.2

Pension settlement charges
1.2

215.2

Operating Income (Loss)
50.9

(147.4
)
Continued Dumping and Subsidy Offset Act income, net of related expenses(1)
47.7


Other (expense) income, net

(1.4
)
Earnings (Loss) Before Interest and Taxes (EBIT)(2)
98.6

(148.8
)
Interest expense, net
(8.1
)
(7.3
)
Income (Loss) Before Income Taxes
90.5

(156.1
)
Provision (benefit) for income taxes
27.6

(21.3
)
Net Income (Loss)
62.9

(134.8
)
Less: Net (loss) income attributable to noncontrolling interest
(0.1
)
0.4

Net Income (Loss) Attributable to The Timken Company
$
63.0

$
(135.2
)
 
 
 
Net Income (Loss) per Common Share Attributable to The Timken Company Common Shareholders
 
 
    Basic Earnings (Loss) per share
$
0.79

$
(1.54
)
 
 
 
    Diluted Earnings (Loss) per share
$
0.78

$
(1.54
)
 
 
 
Average Shares Outstanding
79,769,761

87,670,640

Average Shares Outstanding - assuming dilution
80,437,533

87,670,640

 
 
 
(1) U.S. Continued Dumping and Subsidy Offset Act (CDSOA) income, net of related expenses, represents the amount of funds awarded to the Company from monies collected by U.S. Customs and Border Protection (U.S. Customs) on entries of merchandise subject to antidumping orders that entered the U.S. prior to October 1, 2007.
 
 
 
(2) EBIT is 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 performance.

4

TIMKEN
 


BUSINESS SEGMENTS
 
 
(Unaudited)
 
 
 
Three Months Ended
March 31,
(Dollars in millions)
2016
2015
 
 
 
Mobile Industries
 
 
Net sales
$
383.2

$
393.0

Earnings before interest and taxes (EBIT) (1)
$
30.2

$
35.4

EBIT Margin (1)
7.9
%
9.0
 %
 
 
 
Process Industries
 
 
Net sales
$
300.8

$
329.5

Earnings before interest and taxes (EBIT) (1)
$
32.6

$
45.2

EBIT Margin (1)
10.8
%
13.7
 %
 
 
 
Unallocated corporate expense
$
(10.7
)
$
(14.2
)
Unallocated pension settlement charges (2)
(1.2
)
(215.2
)
CDSOA income, net of related expenses(3)
47.7


 
 
 
Consolidated
 
 
Net sales
$
684.0

$
722.5

Earnings (loss) before interest and taxes (EBIT) (1)
$
98.6

$
(148.8
)
EBIT Margin  (1)
14.4
%
(20.6
)%
 
 
 
(1) EBIT is defined as operating income plus other income (expense). EBIT Margin is 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 performance.
 
 
 
(2) Unallocated pension settlement charges in 2015 primarily related to the purchase of a group annuity contract from Prudential Insurance Company of America (Prudential) to pay and administer future pension benefits for approximately 5,000 U.S. Timken retirees, as well as lump sum distributions to new retirees.
 
 
 
(3) CDSOA income, net of related expenses, represents the amount of funds awarded to the Company from monies collected by U.S. Customs on entries of merchandise subject to antidumping orders that entered the U.S. prior to October 1, 2007.

5

TIMKEN
 


CONDENSED CONSOLIDATED BALANCE SHEETS
 
 

 
 
 
(Dollars in millions)
(Unaudited)
March 31, 2016
 
December 31,
2015
ASSETS
 
 
 
Cash and cash equivalents
$
137.3

 
$
129.6

Restricted cash
0.2

 
0.2

Accounts receivable
465.0

 
454.6

Inventories, net
551.3

 
543.2

Other current assets
121.1

 
78.8

Total Current Assets
1,274.9

 
1,206.4

Property, plant and equipment, net
780.1

 
777.8

Goodwill and other intangible assets
593.8

 
598.6

Non-current pension assets
88.1

 
86.3

Other assets
113.2

 
115.0

Total Assets
$
2,850.1

 
$
2,784.1

 
 
 
 
LIABILITIES
 
 
 
Accounts payable
$
177.9

 
$
159.7

Short-term debt, including current portion of long-term debt
15.3

 
77.1

Income taxes
30.2

 
13.1

Accrued expenses
219.2

 
255.4

Total Current Liabilities
442.6

 
505.3

 
 
 
 
Long-term debt
673.4

 
579.4

Accrued pension cost
149.2

 
146.9

Accrued postretirement benefits cost
133.1

 
136.1

Other non-current liabilities
76.2

 
71.8

Total Liabilities
1,474.5

 
1,439.5

 
 
 
 
EQUITY
 
 
 
The Timken Company shareholders' equity
1,349.7

 
1,324.5

Noncontrolling Interest
25.9

 
20.1

Total Equity
1,375.6

 
1,344.6

Total Liabilities and Equity
$
2,850.1

 
$
2,784.1



6

TIMKEN
 


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
(Unaudited)
 
 
 
Three Months Ended March 31,
(Dollars in millions)
2016
2015
Cash Provided (Used)
 
 
OPERATING ACTIVITIES
 
 
Net income (loss) attributable to The Timken Company
$
63.0

$
(135.2
)
Net (loss) income attributable to noncontrolling interest
(0.1
)
0.4

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
Depreciation and amortization
32.6

33.5

Impairment charges
2.6

2.7

Loss on sale of assets
0.6

0.3

CDSOA receivable
(48.1
)

Pension and other postretirement expense
9.3

225.1

Pension and other postretirement benefit contributions and payments
(10.2
)
(6.9
)
Changes in operating assets and liabilities:
 
 
Accounts receivable
(4.9
)
(29.6
)
Inventories
(0.1
)
(12.8
)
Accounts payable
16.5

27.9

Accrued expenses
(28.4
)
(63.5
)
Income taxes
22.4

(29.7
)
Other, net
(8.1
)
4.8

Net Cash Provided by Operating Activities
$
47.1

$
17.0

 
 
 
INVESTING ACTIVITIES
 
 
Capital expenditures
(24.2
)
(19.7
)
Other
(0.4
)
5.7

Net Cash Used by Investing Activities
$
(24.6
)
$
(14.0
)
 
 
 
FINANCING ACTIVITIES
 
 
Cash dividends paid to shareholders
(20.7
)
(21.9
)
Purchase of treasury shares
(35.0
)
(96.8
)
Net payments on credit facilities
(13.8
)
(3.6
)
Net proceeds (payments) from long-term debt
45.0

(1.1
)
Other
5.1

2.6

Net Cash Used by Financing Activities
$
(19.4
)
$
(120.8
)
Effect of exchange rate changes on cash
4.6

(6.6
)
Increase (Decrease) in Cash and Cash Equivalents
$
7.7

$
(124.4
)
Cash and cash equivalents at Beginning of Period
129.6

278.8

Cash and Cash Equivalents at End of Period
$
137.3

$
154.4


7

TIMKEN
 


Reconciliations of Adjusted Net Income to GAAP Income (Loss) and Adjusted Diluted Earnings Per Share to GAAP Earnings (Loss) Per Share:
(Unaudited)
 
 
 
 
 
 
 
These reconciliations are provided as additional relevant information about the Company's performance. Management believes that adjusted net income and adjusted diluted earnings per share, after adjustments, are representative of the Company's performance and therefore useful to investors.
 
 
 
 
 
 
 
 
(Dollars in millions, except share data)
 
Three Months Ended
March 31,
 
 
2016
 
EPS
2015
 
EPS
Income (Loss) from The Timken Company
 
$
62.9

 
 
$
(134.8
)
 
 
   Less: Net (loss) income attributable to noncontrolling interest
 
(0.1
)
 
 
0.4

 
 
      Net Income (Loss) Attributable to The Timken Company
 
$
63.0

 
$
0.78

$
(135.2
)
 
$
(1.54
)
 
 
 
 
 
 
 
 
Adjustments:(1)
 
 
 
 
 
 
 
  Pension settlement charges(2)
 
$
1.2

 
0.02

$
215.2

 
2.45

  Impairment and restructuring charges(3)
 
10.7

 
0.13

6.6

 
0.07

  CDSOA income, net of related expenses(4)
 
(47.7
)
 
(0.59
)

 

  Gain on dissolution of a subsidiary
 
(1.4
)
 
(0.02
)

 

  Provision (benefit) for income taxes(5)
 
11.1

 
0.14

(42.4
)
 
(0.48
)
      Total Adjustments:
 
(26.1
)
 
(0.32
)
179.4

 
2.04

Adjusted Net Income from The Timken Company
 
$
36.9

 
$
0.46

$
44.2

 
$
0.50

 
 
 
 
 
 
 
 
(1) Adjustments are pre-tax, with net tax provision (benefit) listed separately.
 
 
 
 
 
 
 
 
(2) Pension settlement charges in 2015 primarily related to the purchase of a group annuity contract from Prudential to pay and administer future pension benefits for approximately 5,000 U.S. Timken retirees, as well as lump sum distributions to new retirees.
 
 
 
 
 
 
 
 
(3) Impairment and restructuring charges, including rationalization costs recorded in cost of products sold, related to plant closures, the rationalization of certain plants and severance related to cost reduction initiatives.
 
 
 
 
 
 
 
 
(4) CDSOA income, net of related expenses, represents the amount of funds awarded to the Company from monies collected by U.S. Customs on entries of merchandise subject to antidumping orders that entered the U.S. prior to October 1, 2007.
 
 
 
 
 
 
 
 
(5) Provision (benefit) for income taxes includes the tax impact of pre-tax special items, 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.


8

TIMKEN
 


Reconciliation of EBIT to GAAP Net Income (Loss), and EBIT Margin, After Adjustments, to Net Income (Loss) as a Percentage of Sales and EBIT, After Adjustments, to Net Income (Loss):
(Unaudited)
 
 
 
 
The following reconciliation is provided as additional relevant information about the Company's performance. Management believes consolidated earnings (loss) before interest and taxes (EBIT) 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 EBIT and EBIT margin, after adjustments, are representative of the Company's core operations and therefore useful to investors.
 
 
 
 
 
(Dollars in millions, except share data)
Three Months Ended
March 31,
 
2016
Percentage to
Net Sales
2015
Percentage to
Net Sales
Net Income (Loss)
$
62.9

9.2
 %
$
(134.8
)
(18.7
)%
 
 
 
 
 
Provision (benefits) for income taxes
27.6

4.0
 %
(21.3
)
(2.9
)%
Interest expense
8.4

1.2
 %
8.0

1.1
 %
Interest income
(0.3
)
 %
(0.7
)
(0.1
)%
Consolidated earnings (loss) before interest and taxes (EBIT)
$
98.6

14.4
 %
$
(148.8
)
(20.6
)%
 
 
 
 
 
Adjustments:
 
 
 
 
  Pension settlement charges (1)
$
1.2

 %
$
215.2

29.8
 %
  Impairment and restructuring charges(2)
10.7

1.6
 %
6.6

0.9
 %
  CDSOA income, net of related expenses(3)
(47.7
)
(7.0
)%

 %
  Gain on dissolution of a subsidiary
(1.4
)
 %

 %
Total Adjustments
(37.2
)
(5.4
)%
221.8

30.7
 %
Consolidated earnings before interest and taxes (EBIT), after adjustments
$
61.4

9.0
 %
$
73.0

10.1
 %
 
 
 
 
 
(1) Pension settlement charges in 2015 primarily related to the purchase of a group annuity contract from Prudential to pay and administer future pension benefits for approximately 5,000 U.S. Timken retirees, as well as lump sum distributions to new retirees.
 
 
 
 
 
(2) Impairment and restructuring charges, including rationalization costs recorded in cost of products sold, related to plant closures, the rationalization of certain plants and severance related to cost reduction initiatives.
 
 
 
 
 
(3) CDSOA income, net of related expenses, represents the amount of funds awarded to the Company from monies collected by U.S. Customs on entries of merchandise subject to antidumping orders that entered the U.S. prior to October 1, 2007.

9

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. Management believes that segment EBIT and EBIT margin, after adjustments, are representative of the segment's core operations and therefore useful to investors.
 
 
 
 
 
Mobile Industries
 
 
 
 
(Dollars in millions)
Three Months Ended
March 31, 2016
Percentage to Net Sales
Three Months Ended
March 31, 2015
Percentage to Net Sales
Earnings before interest and taxes (EBIT)
$
30.2

7.9
 %
$
35.4

9.0
%
 
 
 
 
 
Impairment and restructuring charges (1)
7.1

1.9
 %
1.0

0.3
%
Gain on dissolution of a subsidiary
(1.4
)
(0.4
)%

%
Earnings before interest and taxes (EBIT), after adjustments
$
35.9

9.4
 %
$
36.4

9.3
%
 
 
 
 
 
Process Industries
 
 
 
 
(Dollars in millions)
Three Months Ended
March 31, 2016
Percentage to Net Sales
Three Months Ended
March 31, 2015
Percentage to Net Sales
Earnings before interest and taxes (EBIT)
$
32.6

10.8
 %
$
45.2

13.7
%
 
 
 
 
 
Impairment and restructuring charges(1)
3.6

1.2
 %
5.6

1.7
%
Earnings before interest and taxes (EBIT), after adjustments
$
36.2

12.0
 %
$
50.8

15.4
%
 
 
 
 
 
(1) Impairment and restructuring charges, including rationalization costs recorded in cost of products sold, related to plant closures, the rationalization of certain plants, and severance related to cost reduction initiatives.

10

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. Capital, used for the ratio of total debt to capital, is defined as total debt plus total shareholders' equity. Capital, used for the ratio of net debt to capital, is 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.
 
 
(Dollars in millions)
 
 
March 31,
2016
December 31,
2015
Short-term debt, including current portion of long-term debt
$
15.3

$
77.1

Long-term debt
673.4

579.4

  Total Debt
$
688.7

$
656.5

Less: Cash, cash equivalents and restricted cash
(137.5
)
(129.8
)
Net Debt
$
551.2

$
526.7

 
 
 
Total equity
$
1,375.6

$
1,344.6

 
 
 
Ratio of Total Debt to Capital
33.4
%
32.8
%
Ratio of Net Debt to Capital
28.6
%
28.1
%
 
 
 
Reconciliation of Free Cash Flow to GAAP Net Cash Provided by Operating Activities:
(Unaudited)
 
 
Management believes that free cash flow 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,
 
2016
2015
Net cash provided by operating activities
$
47.1

$
17.0

Less: capital expenditures
(24.2
)
(19.7
)
Free cash flow
$
22.9

$
(2.7
)


11

TIMKEN
 


Reconciliation of Adjusted Earnings per Share to GAAP Earnings per Share for Full Year 2016 Outlook:
(Unaudited)
This reconciliation is provided as additional relevant information about the Company's performance. Management believes that adjusted diluted earnings per share, after adjustments, are representative of the Company's performance and therefore useful to investors.
 
 
 
 
 
Low End
Earnings
Per Share
 
High End
Earnings
Per Share
Forecasted full year GAAP diluted earnings per share
$
1.65

 
$
1.75

 

 
 
Adjustments (after-tax):
 
 
 
  CDSOA income, net of related expenses (1)
(0.35
)
 
(0.35
)
  Pension settlement charges (2)
0.30

 
0.30

  Restructuring charges (3)
0.30

 
0.30

Total Adjustments:
$
0.25

 
$
0.25

Forecasted full year adjusted diluted earnings per share
$
1.90

 
$
2.00

 
 
 
 
(1) CDSOA income, net of related expenses, represents the amount of funds awarded to the Company from monies collected by U.S. Customs on entries of merchandise subject to antidumping orders that entered the U.S. prior to October 1, 2007.
 
 
 
 
(2) Pension settlement charges primarily relate to anticipated lump sum settlement activity.
 
 
 
 
(3) Restructuring charges relate to severance and other cost reduction initiatives.


12
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Section 3: EX-99.2 (EXHIBIT 99.2)

timken1q2016earningscall
1Q 2016 Earnings Investor Presentation April 27, 2016


 
2 1Q 2016 EARNINGS CONFERENCE CALL DETAIL Conference Call: Wednesday, Apr. 27, 2016 10:00 a.m. Eastern Time Live Dial-In: 800-500-0920 or 719-457-2731 (Call in 10 minutes prior to be included) Conference ID: Timken’s 1Q Earnings Call Conference Call Replay: Replay Dial-In available through May 11, 2016 888-203-1112 or 719-457-0820 Replay Passcode: 6334899 Live Webcast: www.timken.com/investors


 
3 FORWARD-LOOKING STATEMENTS SAFE HARBOR AND NON-GAAP FINANCIAL INFORMATION Certain statements in this presentation (including statements regarding the company's forecasts, beliefs, estimates 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 Timken’s plans, outlook, future financial performance, targets, projected sales, cash flows, liquidity and expectations regarding the future financial performance of the company, including the information under the headings, “2016 Market Outlook and Drivers”, “Executing our Strategy”, “2016 Outlook Update”, “1Q 2016 Net Income and Diluted EPS”, “2016 Full-Year Outlook” and “Cash Flow, Balance Sheet & Capital Allocation” 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 first quarter of 2016; 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 the company's last-in, first-out accounting; 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, 2015, 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. This presentation includes certain non-GAAP financial measures as defined by the rules and regulations of the Securities and Exchange Commission. Reconciliation of those measures to the most directly comparable GAAP equivalents are provided in the Appendix to this presentation.


 
4 1Q 2016 SUMMARY • Sales of $684 million decreased approximately 5% from prior year, or down 2.5% excluding currency  Mobile Industries sales down 2%; roughly flat excluding currency  Process Industries sales down 9%; down 6% excluding currency • GAAP net income per share of $0.78 versus net loss of $1.54 in same quarter last year  Adjusted EPS of $0.46, compared with $0.50 last year  Adjusted EBIT margin of 9% • Strong Free Cash Flow  Generated $23 million of free cash flow in the quarter, compared with net cash used of $3 million in the same period last year • Balance Sheet and Capital Allocation  Purchased 1.2 million shares in the quarter  ~29% net debt-to-capital at quarter-end See Appendix for reconciliation of adjusted EPS, adjusted EBIT margin, free cash flow and net debt–to-capital to their most directly comparable GAAP equivalents.


 
5 Markets Market Drivers/Timken Dynamics Timken Automotive l Gaining share in NA Light Truck l Wind l Market flat; share gains l General Industrial l l Heavy Truck l US OE down; ROW more stable l Defense l Military Marine strong; Aero down l Agriculture l Belts acquisition adds revenue l Construction l l Rail l US market down; share gains mitigate l Metals l l Mining l l Civil Aerospace l Timken PMA divestiture impact l Oil & Gas l l 2016 MARKET OUTLOOK AND DRIVERS decline flat to down slightly growth NOTE: Based on forecast as of April 27, 2016.


 
6 Outgrowing our Markets • Be the technical leader in solving customers’ friction and power transmission challenges • Expand both our product portfolio and geographic presence • Deliver an exceptional customer service experience including a differentiated technical sales model Operating with Excellence • Drive enterprise-wide lean and continuous improvement efforts • Build a more cost-effective global manufacturing footprint • Deliver efficiencies across our supply chains • Optimize processes and SG&A efficiency Deploying Capital to Drive Shareholder Value • Invest in organic growth and productivity initiatives • Grow dividend with earnings • Broaden portfolio and reach through value-accretive M&A • Return capital through share repurchases EXECUTING OUR STRATEGY G R O WT H E XE C UTIO N C A P IT A L


 
7 UPDATE ON TIMKEN BELTS ACQUISITION • Integration of business largely complete • Broadens our mechanical power transmission products portfolio • Pursuing channel synergies • Driving Operational Excellence − Inventory −SG&A A 100-year-old supplier of power transmission belts for industrial, commercial and consumer applications, headquartered in Springfield, MO; acquired Sept. 1, 2015


 
8 2016 OUTLOOK UPDATE Net Sales -4 to -5% -5% Organic -5 to -6% -6% • Weaker end-market demand Acquisitions (net) +3% +3% Currency -2% -2% • Impact of slightly weaker US dollar FY GAAP EPS $1.35 to $1.45 $1.65 to $1.75 • CDSOA income, net of related expenses FY Adjusted EPS $1.90 to $2.00 $1.90 to $2.00 January Outlook Change Reflects April Outlook


 
Financial Review


 
10 1Q-15 Organic Currency Acquisitions/ Divestitures 1Q-16 1Q 2016 FINANCIAL HIGHLIGHTS - SALES • Sales of $684 million, down 5.3% from a year ago  Excluding currency impact of 2.8%, sales declined 2.5%  Decline driven by market weakness across most sectors partially offset by growth in automotive and the net benefit of acquisitions and divestitures  Organically, sales were down roughly 6% 1Q-16 1Q-15 $684.0 $722.5 $ B/(W) Net Sales % B/(W) $(38.5) (5.3)% ($M) $(20) $25 $723 $684 $(44) Belts acquisition, net of aerospace PMA divestiture * N America -7% excl. acquisitions/divestitures 1Q-16 Excluding vs. impact Region 1Q-15 of currency N America -1% -1% EMEA -4% 0% APac -17% -12% LatAm -15% -1% Geographic Sales Comparison


 
11 1Q 2016 FINANCIAL HIGHLIGHTS - ADJUSTED EBIT 180.9 202.5 Gross Profit 118.3 128.5 SG&A 6.2 Impairment & restructuring $(148.8) EBIT % of sales 17.3% 17.8% % of sales 26.4% 28.0% (160) bps 50 bps See Appendix for reconciliation of EBIT, adjusted EBIT, and EBIT and adjusted EBIT margins to their most directly comparable GAAP equivalents. (1) Includes rationalization costs recorded in cost of products sold. (1.4) 10.2 10.5 $98.6 -- $247.4 (21.6) 215.2 Pension settlement charges 1.2 - Impairment & restructuring(1) Adjustments: $61.4 $73.0 EBIT after adjustments $(11.6) 9.0% 10.1% EBIT Margins (110) bps 6.6 10.7 - Pension settlement charges 1.2 215.2 -- CDSOA income, net of related expenses 47.7 - CDSOA income, net of related exps. (47.7) -- Other (expense) income, net 1Q-16 1Q-15 $684.0 $722.5 $ B/(W) Net Sales % B/(W) $(38.5) (5.3)% ($M) - Gain on dissolution of a subsidiary (1.4) --


 
12 1Q 2016 EARNINGS COMPARISON • Adjusted EBIT of $61.4 million or 9.0% of sales compares with $73.0 million or 10.1% of sales in the same period a year ago  Driven by the impact of lower volume, unfavorable price/mix and currency, partially offset by the impact of lower raw material and operating costs and lower SG&A expenses Certain data contained in the graph above has been rounded for presentation purposes. See Appendix for reconciliations of adjusted EBIT and adjusted EBIT margin to their most directly comparable GAAP equivalents. 1Q-15 Volume Price / Mix Costs of Production SG&A Expenses Currency 1Q-16 Adjusted EBIT - ($M) $73 $61 $(5) $(34) $17 $10 Lower raw material and operating costs partially offset by the impact of lower volume


 
13 1Q 2016 NET INCOME AND DILUTED EPS 1Q-16 $63.0 $0.78 Net Income (Loss) Net Income, after adjustments $36.9 $0.46 $M EPS 1Q-15 $(135.2) $(1.54) $44.2 $0.50 EPS Adjusted tax rate: Quarter 31% 32% - Pension settlement charges 1.2 215.2 0.02 • Adjusted EPS of $0.46, versus $0.50 in the same period last year  EPS benefited from share buybacks • Adjusted tax rate of 31% in 1Q-16 driven primarily by geographic mix of earnings  Adjusted tax rate of ~31% expected for balance of 2016 2.45 - Impairment & restructuring charges 10.7 6.6 0.13 - CDSOA income, net of related expenses (47.7) (0.59) -- 0.07 -- $M - Provision (benefit) for income taxes 11.1 0.14 (42.4) (0.48) Average diluted shares outstanding: Quarter 80.4 million 88.6 million - Gain on dissolution of a subsidiary (1.4) (0.02) -- -- Adjustments*: *Adjustments are pre-tax, with net tax provision (benefit) listed separately. Total adjustments (26.1) (0.32) 179.4 2.04


 
14 MOBILE INDUSTRIES Heavy Truck Automotive Aerospace Rail ($M) 2016 2015 Change Sales $383.2 $393.0 $(9.8) EBIT $30.2 $35.4 $(5.2) Margin 7.9% 9.0% (110) bps Adjusted(1): EBIT $35.9 $36.4 $(0.5) Margin 9.4% 9.3% 10 bps 1Q YOY Commentary 1Q Performance • Sales down 2.5%; excluding currency, sales were roughly flat  Driven by automotive growth and the net benefit of acquisitions/divestitures, offset by market-related declines in off-highway, rail and aerospace  Organically, sales were down 3.3% • Slight decline in adjusted EBIT reflects lower organic volume and unfavorable price/mix, mostly offset by lower raw material and operating costs and lower SG&A expenses Off-Highway Acquisitions (net) +2% (1) See Appendix for reconciliations of adjusted EBIT and adjusted EBIT margins to their most directly comparable GAAP equivalents. 1Q YOY Sales Walk 2016 Full-Year Outlook 1Q-15 Organic Currency Acquisitions (net) 1Q-16 $(11) $14 $393 $383 $(13) Currency Organic down ~6% Sales: Down ~6% -2%


 
15 PROCESS INDUSTRIES Original Equipment Aftermarket ($M) 2016 2015 Change Sales $300.8 $329.5 $(28.7) EBIT $32.6 $45.2 $(12.6) Margin 10.8% 13.7% (290) bps Adjusted(1): EBIT $36.2 $50.8 $(14.6) Margin 12.0% 15.4% (340) bps 1Q YOY Commentary 1Q Performance • Sales down 8.7%; excluding currency, sales down 5.9%  Driven by weaker demand in the heavy industries sector and industrial aftermarket, partially offset by the benefit of acquisitions  Organically, sales were down 9.4% • Decrease in adjusted EBIT driven by the impact of lower volume and currency, partially offset by lower raw material costs and SG&A expenses (1) See Appendix for reconciliations of adjusted EBIT and adjusted EBIT margins to their most directly comparable GAAP equivalents. 1Q YOY Sales Walk 2016 Full-Year Outlook Acquisitions +3% 1Q-15 Organic Currency Acquisitions 1Q-16 $(9) $12 $329 $301 $(31) Currency -2% Organic down ~5% Sales: Down ~4%


 
16 Capital Expenditures Dividend Share Repurchases Acquisitions Capital Structure Cash $138 Debt 689 Net Debt 551 Equity 1,376 Net Capital $1,927 Leverage Total Debt/Capital 33% Net Debt/Capital 29% ($M) Balance Sheet (3/31/16) See Appendix for reconciliations of Adjusted Net Income, Net Debt and Net Debt/Capital to their most directly comparable GAAP equivalents. (1) Free cash flow divided by adjusted net income. (2) Based on common share closing price on April 25, 2016. CASH FLOW, BALANCE SHEET & CAPITAL ALLOCATION • CapEx of $24.2 million in the quarter (3.5% of sales) • Dividend of $0.26/share ($20.7 million) in 1Q-16; 375th consecutive quarterly dividend; dividend yield of ~2.9% on current share price(2) • Continue to pursue strategic bolt-ons • Repurchased 1.2 million shares in 1Q-16 for $35 million Capital Allocation Highlights $47.1 $17.0 Net Cash from Operations (19.7) (24.2) Capital expenditures 1Q-16 1Q-15 $22.9 $(2.7) Free Cash Flow 44.2 36.9 Net Income, after adjustments 62.1% (6.1)% Free Cash Flow conversion(1) Cash from CDSOA will benefit 2Q-16 Cash Flow


 
17 2016 FULL-YEAR OUTLOOK (1) Free cash flow divided by adjusted net income. Free cash flow is defined as net cash provided by operating activities (includes pension contributions) minus capital expenditures. Adjusted net income excludes pension settlement charges, restructuring charges and CDSOA income. Net Sales (vs. 2015) Organic Acquisitions (net) Currency Mobile Industries -6% +2% -2% Down ~6% Process Industries -5% +3% -2% Down ~4% Timken -6% +3% -2% Down ~5% Earnings Per Share (EPS) - GAAP $1.65 - $1.75 Includes (expense) / income, after-tax: - Restructuring charges $(0.30) - Pension settlement charges (non-cash) $(0.30) - CDSOA income, net of related expenses $0.35 Adjusted EPS - excluding unusual items $1.90 - $2.00 Free Cash Flow (FCF) >$210M FCF Conversion(1) >135% • Sales down ~5%  Decline driven primarily by weakness across most market sectors offset partially by growth in automotive and wind, and the net benefit of acquisitions  Negative impact from currency of ~2% • GAAP EPS estimate of $1.65- $1.75 per diluted share • Adjusted EPS estimate of $1.90- $2.00 per diluted share excluding unusual items • Free Cash Flow >$210 million  CapEx of 4.5% of sales


 
Appendix


 
19 GAAP RECONCILIATION: NET INCOME & EPS (Unaudited) (Dollars in millions, except share data) 2016 EPS 2015 EPS Income (Loss) from The Timken Company 62.9$ (134.8)$ Less: Net (loss) income attributable to noncontrolling interest (0.1) 0.4 Net Income (Loss) Attributable to The Timken Company 63.0$ 0.78$ (135.2)$ (1.54)$ Adjustments: (1) Pension settlement charges (2) 1.2$ 0.02$ 215.2$ 2.45$ Impairment and restructuring charges (3) 10.7 0.13 6.6 0.07 CDSOA income, net of related expenses (4) (47.7) (0.59) — — Gain on dissolution of a subsidiary (1.4) (0.02) — — Provision (benefit) for income taxes (5) 11.1 0.14 (42.4) (0.48) Total Adjustments: (26.1) (0.32) 179.4 2.04 Adjusted Net Income from The Timken Company 36.9$ 0.46$ 44.2$ 0.50$ (5) Provision (benefit) for income taxes includes the tax impact of pre-tax special items, 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. Reconciliations of Adjusted Net Income to GAAP Income (Loss) and Adjusted Diluted Earnings Per Share to GAAP Earnings (Loss) Per Share: These reconciliations are provided as additional relevant information about the Company's performance. Management believes that adjusted net income and adjusted diluted earnings per share, after adjustments, are representative of the Company's performance and therefore useful to investors. Three Months Ended March 31, (2) Pension settlement charges in 2015 primarily related to the purchase of a group annuity contract from Prudential to pay and administer future pension benefits for approximately 5,000 U.S. Timken retirees, as well as lump sum distributions to new retirees. (3) Impairment and restructuring charges, including rationalization costs recorded in cost of products sold, related to plant closures, the rationalization of certain plants and severance related to cost reduction initiatives. (4) CDSOA income, net of related expenses, represents the amount of funds awarded to the Company from monies collected by U.S. Customs on entries of merchandise subject to antidumping orders that entered the U.S. prior to October 1, 2007. (1) Adjustments are pre-tax, with net tax provisions (benefit) listed separately.


 
20 GAAP RECONCILIATION: CONSOLIDATED EBIT & EBIT MARGIN Adjustments, to Net Income (Loss): (Unaudited) (Dollars in millions, except share data) 2016 Percentage to Net Sales 2015 Percentage to Net Sales Net Income (Loss) 62.9$ 9.2 % (134.8)$ (18.7)% Provision (benefits) for income taxes 27.6 4.0 % (21.3) (2.9)% Interest expense 8.4 1.2 % 8.0 1.1 % Interest income (0.3) —% (0.7) (0.1)% Consolidated earnings (loss) before interest and taxes (EBIT) 98.6$ 14.4 % (148.8)$ (20.6)% Adjustments: Pension settlement charges (1) 1.2$ —% 215.2$ 29.8 % Impairment and restructuring charges (2) 10.7 1.6 % 6.6 0.9 % CDSOA income, net of related expenses (3) (47.7) (7.0)% — —% Gain on dissolution of a subsidiary (1.4) —% — —% Total Adjustments (37.2) (5.4)% 221.8 30.7 % Consolidated earnings before interest and taxes (EBIT), after adjustments 61.4$ 9.0 % 73.0$ 10.1 % (3) CDSOA income, net of related expenses, represents the amount of funds awarded to the Company from monies collected by U.S. Customs on entries of merchandise subject to antidumping orders that entered the U.S. prior to October 1, 2007. 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 March 31, Three Months Ended The following reconciliation is provided as additional relevant information about the Company's performance. Management believes consolidated earnings (loss) before interest and taxes (EBIT) 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 EBIT and EBIT margin, after adjustments, are representative of the Company's core operations and therefore useful to investors. (1) Pension settlement charges in 2015 primarily related to the purchase of a group annuity contract from Prudential to pay and administer future pension benefits for approximately 5,000 U.S. Timken retirees, as well as lump sum distributions to new retirees. (2) Impairment and restructuring charges, including rationalization costs recorded in cost of products sold, related to plant closures, the rationalization of certain plants and severance related to cost reduction initiatives.


 
21 GAAP RECONCILIATION: NET DEBT AND FREE CASH FLOW (Dollars in millions) March 31, 2016 December 31, 2015 Short-term debt, including current portion of long-term debt 15.3$ 77.1$ Long-term debt 673.4 579.4 Total Debt 688.7$ 656.5$ Less: Cash, cash equivalents and restricted cash (137.5) (129.8) Net Debt 551.2$ 526.7$ Total equity 1,375.6$ 1,344.6$ Ratio of Total Debt to Capital 33.4% 32.8% Ratio of Net Debt to Capital 28.6% 28.1% (Unaudited) (Dollars in millions) 2016 2015 Net cash provided by operating activities 47.1$ 17.0$ Less: capital expenditures (24.2) (19.7) Free cash flow 22.9$ (2.7)$ Three Months Ended March 31, 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. Capital, used for the ratio of total debt to capital, is defined as total debt plus total shareholders' equity. Capital, used for the ratio of net debt to capital, is 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. Reconciliation of Free Cash Flow to GAAP Net Cash Provided by Operating Activities: Management believes that free cash flow is useful to investors because it is a meaningful indicator of cash generated from operating activities available for the execution of its business strategy.


 
22 GAAP RECONCILIATION: SEGMENT EBIT & EBIT MARGIN (Unaudited) Mobile Industries (Dollars in millions) Three Months Ended March 31, 2016 Percentage to Net Sales Three Months Ended March 31, 2015 Percentage to Net Sales Earnings before interest and taxes (EBIT) 30.2$ 7.9 % 35.4$ 9.0% Impairment and restructuring charges (1) 7.1 1.9 % 1.0 0.3% Gain on dissolution of a subsidiary (1.4) (0.4)% - —% Earnings before interest and taxes (EBIT), after adjustments 35.9$ 9.4 % 36.4$ 9.3% Process Industries (Dollars in millions) Three Months Ended March 31, 2016 Percentage to Net Sales Three Months Ended March 31, 2015 Percentage to Net Sales Earnings before interest and taxes (EBIT) $ 32.6 10.8 % 45.2$ 13.7% Impairment and restructuring charges (1) 3.6 1.2 % 5.6 1.7% Earnings before interest and taxes (EBIT), after adjustments 36.2$ 12.0 % 50.8$ 15.4% Reconciliation of segment EBIT Margin, After Adjustments, to segment EBIT as a Percentage of Sales and segment EBIT, After Adjustments, The following reconciliation is provided as additional relevant information about the Company's Mobile Industries and Process Industries segment performance. Management believes that segment EBIT and EBIT margin, after adjustments, are representative of the segment's core operations and therefore useful to investors. (1) Impairment and restructuring charges, including rationalization costs recorded in cost of products sold, related to plant closures, the rationalization of certain plants and severance related to cost reduction initiatives.


 
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