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Timken Reports Strong Second-Quarter 2019 Results; Updates Full-Year Outlook

- Posted sales of $1 billion, up over 10 percent from last year

- Delivered strong earnings per diluted share of $1.20 on a GAAP basis, with record second-quarter adjusted earnings per diluted share of $1.27

- Generated strong cash from operations of $158 million and free cash flow of $135 million

- Updates earnings outlook; now expects 2019 GAAP earnings per diluted share of $4.55 to $4.75 and adjusted earnings per diluted share of $4.80 to $5.00

Company Release - 7/31/2019 6:51 AM ET

NORTH CANTON, Ohio, July 31, 2019 /PRNewswire/ -- The Timken Company (NYSE: TKR; www.timken.com), a world leader in engineered bearings and power transmission products, today reported second-quarter 2019 sales of $1 billion, up 10.3 percent from the same period a year ago. The increase was primarily driven by the benefit of acquisitions and organic growth in the Process Industries segment, partially offset by unfavorable foreign currency translation.

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

In the second quarter, Timken posted net income of $92.5 million or $1.20 per diluted share, versus net income of $91 million or $1.16 per diluted share for the same period a year ago. The year-over-year increase was primarily driven by favorable price/mix and the benefit of acquisitions, offset partially by higher interest expense. The current period also included higher expenses related to restructuring, acquisitions and a legal accrual, while the prior period included a pension remeasurement gain.

Excluding special items (detailed in the attached tables), adjusted net income in the second quarter of 2019 was $97.9 million or $1.27 per diluted share, a record for the second quarter, versus adjusted net income of $87.2 million or $1.11 per diluted share for the same period in 2018.

Cash from operations for the quarter was $157.6 million, and free cash flow was $134.6 million. During the quarter, the company returned $36.6 million of capital to shareholders with the payment of its 388th consecutive quarterly dividend and the repurchase of approximately 320 thousand shares. 

"We posted strong performance in the second quarter with double-digit revenue growth, higher earnings and operating margins and excellent cash generation compared to a year ago," said Richard G. Kyle, Timken president and chief executive officer. "Our recent acquisitions are performing well and contributing to our strong results. We continue to win in the market place with our differentiated products, engineering innovation and industry-leading customer service. And we remain focused on executing our strategy and profitably growing our enterprise."

Second-Quarter 2019 Segment Results

Mobile Industries sales of $493.7 million increased 0.9 percent compared with the same period a year ago. The increase was driven primarily by the benefit of acquisitions net of divestitures, organic growth in the aerospace sector and higher shipments in automotive, mostly offset by lower shipments in off-highway and heavy truck, and unfavorable currency.

Earnings before interest and taxes (EBIT) in the quarter were $59.1 million or 12 percent of sales, compared with EBIT of $54.5 million or 11.1 percent of sales for the same period a year ago. The increase in EBIT reflects the benefit of acquisitions net of divestitures and lower logistics costs, partially offset by lower volume.

Excluding special items (detailed in the attached tables), adjusted EBIT in the quarter was $59.7 million or 12.1 percent of sales, compared with $54.9 million or 11.2 percent of sales in the second quarter last year.

Process Industries reported sales of $506.3 million, up 21.4 percent from the same period a year ago. The increase was driven primarily by the benefit of acquisitions and organic growth in the wind energy, heavy industries and marine sectors, partially offset by unfavorable currency.

EBIT for the quarter was $103 million or 20.3 percent of sales, compared with EBIT of $90.6 million or 21.7 percent of sales for the same period a year ago. The increase in EBIT was driven by higher volume, favorable price/mix and the benefit of acquisitions, partially offset by higher tariff costs and selling, general and administrative expenses. The current period also included acquisition-related charges.

Excluding special items (detailed in the attached tables), adjusted EBIT in the quarter was $107 million or 21.1 percent of sales, compared with $90.8 million or 21.8 percent of sales in the second quarter last year.

2019 Outlook

The company now expects 2019 revenue to be up approximately 7 to 9 percent in total versus 2018. This includes expected organic growth of 1½ to 3½ percent plus the benefit of acquisitions, partially offset by unfavorable foreign currency translation.

"While our organic growth rates have eased, the demand environment overall for Timken products and services supports our outlook for continued growth in the second half," said Kyle. "Softness in some markets like off-highway is being offset by our outgrowth efforts and strength in other markets like wind, solar and aerospace. We are lowering our full-year outlook for both revenue and earnings to reflect a more cautious view. However, for the year, we expect to deliver solid revenue growth, record earnings per share and strong cash flow. We are confident in our ability to profitably grow the company, as we continue to demonstrate with our 2019 results."

Timken now anticipates strong 2019 earnings per diluted share in the range of $4.55 to $4.75 for the full year on a GAAP basis. Excluding special items (detailed in the attached tables), the company expects record 2019 adjusted earnings per diluted share ranging from $4.80 to $5.00.

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, July 31, 2019


11:00 a.m. Eastern Time


Live Dial-In: 800-239-9838


or 323-794-2551


(Call in 10 minutes prior to be included.)


Conference ID: Timken's 2Q Earnings Call



Conference Call Replay:  

Replay Dial-In available through


August 14, 2019:


888-203-1112 or 719-457-0820


Replay Passcode: 7993365



Live Webcast: 

http://investors.timken.com

About The Timken Company

The Timken Company (NYSE: TKR; www.timken.com) designs a growing portfolio of engineered bearings and power transmission products. With more than a century of knowledge and innovation, we continuously improve the reliability and efficiency of global machinery and equipment to move the world forward. Timken posted $3.6 billion in sales in 2018 and employs more than 18,000 people globally, operating from 35 countries.

Certain statements in this release (including statements regarding the company's forecasts, estimates, plans and expectations) that are not historical in nature are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, the statements related to expectations regarding the company's future financial performance, including information under the heading 2019 "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 second quarter of 2019; 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 material and energy costs; the impact of changes to the company's accounting methods; recent world events that have increased the risks posed by international trade disputes, tariffs and sanctions; weakness in global or regional economic conditions and capital markets; the company's ability to satisfy its obligations under its debt agreements and renew or refinance borrowings on favorable terms; fluctuations in currency valuations; changes in the expected costs associated with product warranty claims; the ability to achieve satisfactory operating results in the integration of acquired companies, including realizing any accretion within expected timeframes or at all; the impact on operations of general economic conditions; fluctuations in customer demand; the impact on the company's pension obligations and assets due to changes in interest rates, investment performance and other tactics designed to reduce risk; and the company's ability to complete and achieve the benefits of announced plans, programs, initiatives, acquisitions and capital investments. Additional factors are discussed in the company's filings with the Securities and Exchange Commission, including the company's Annual Report on Form 10-K for the year ended Dec. 31, 2018, quarterly reports on Form 10-Q and current reports on Form 8-K. Except as required by the federal securities laws, the company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Media Relations:
Scott Schroeder
234.262.6420
[email protected]

Investor Relations:
Jason Hershiser
234.262.7101
[email protected]

 

 
















The Timken Company






CONDENSED CONSOLIDATED STATEMENTS OF INCOME






(Unaudited)






(Dollars in millions, except per share data)

Three Months Ended
June 30,


Six Months Ended
June 30,


2019

2018


2019

2018







Net sales

$

1,000.0


$

906.3



$

1,979.7


$

1,789.4


Cost of products sold

694.3


638.9



1,371.4


1,257.1


Gross Profit

305.7


267.4



608.3


532.3


Selling, general & administrative expenses

158.7


141.8



311.4


290.4


Impairment and restructuring charges

1.9


0.3



1.9


0.5


Operating Income

145.1


125.3



295.0


241.4


Non-service pension and other postretirement income

0.2


4.1



0.3


5.7


Other income, net

1.4


2.9



4.7


3.6


Earnings Before Interest and Taxes (EBIT) (1)

146.7


132.3



300.0


250.7


Interest expense, net

(18.2)


(10.2)



(34.9)


(19.8)


Income Before Income Taxes

128.5


122.1



265.1


230.9


Provision for income taxes

33.6


30.2



74.9


58.5


Net Income

94.9


91.9



190.2


172.4


Less: Net income attributable to noncontrolling interest

2.4


0.9



5.8


1.2


Net Income Attributable to The Timken Company

$

92.5


$

91.0



$

184.4


$

171.2


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






    Basic Earnings per share

$

1.22


$

1.18



$

2.43


$

2.21








    Diluted Earnings per share

$

1.20


$

1.16



$

2.39


$

2.17








Average Shares Outstanding

76,085,358


77,360,159



76,024,301


77,544,365


Average Shares Outstanding - assuming dilution

77,208,432


78,496,298



77,098,982


78,751,951








(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.

 

 
















BUSINESS SEGMENTS






(Unaudited)







Three Months Ended
June 30,


Six Months Ended
June 30,

(Dollars in millions)

2019

2018


2019

2018







Mobile Industries






Net sales

$

493.7


$

489.1



$

993.7


$

977.6


Earnings before interest and taxes (EBIT) (1)

$

59.1


$

54.5



$

120.5


$

105.6


EBIT Margin (1)

12.0

%

11.1

%


12.1

%

10.8

%

Process Industries






Net sales

$

506.3


$

417.2



$

986.0


$

811.8


Earnings before interest and taxes (EBIT) (1)

$

103.0


$

90.6



$

209.2


$

172.2


EBIT Margin (1)

20.3

%

21.7

%


21.2

%

21.2

%

Corporate expense

$

(15.4)


$

(15.2)



$

(29.7)


$

(29.3)


Corporate pension-related charges (2)


2.4




2.2








Consolidated






Net sales

$

1,000.0


$

906.3



$

1,979.7


$

1,789.4


Earnings before interest and taxes (EBIT) (1)

$

146.7


$

132.3



$

300.0


$

250.7


EBIT Margin (1)

14.7

%

14.6

%


15.2

%

14.0

%







(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.


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

 

 










CONDENSED CONSOLIDATED BALANCE SHEETS



(Dollars in millions)

(Unaudited)




June 30,
2019


December 31,
2018

ASSETS




Cash, cash equivalents and restricted cash

$

167.4



$

133.1


Accounts receivable, net

589.9



546.6


Unbilled receivables

153.3



116.6


Inventories, net

843.8



835.7


Other current assets

112.3



105.2


Total Current Assets

1,866.7



1,737.2


Property, plant and equipment, net

912.0



912.1


Operating lease assets (1)

117.3




Goodwill and other intangible assets

1,700.9



1,693.7


Non-current pension assets

10.9



6.2


Other assets

66.4



96.0


Total Assets

$

4,674.2



$

4,445.2


LIABILITIES




Accounts payable

$

291.6



$

273.2


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

46.3



43.0


Short-term operating lease liabilities (1)

29.5




Income taxes

26.4



23.5


Accrued expenses

302.5



345.9


Total Current Liabilities

696.3



685.6


Long-term debt

1,642.6



1,638.6


Accrued pension cost

162.6



161.3


Accrued postretirement benefits cost

109.3



108.7


Long-term operating lease liabilities (1)

73.0




Other non-current liabilities

206.8



208.3


Total Liabilities

2,890.6



2,802.5


EQUITY




The Timken Company shareholders' equity

1,711.3



1,579.6


Noncontrolling Interest

72.3



63.1


Total Equity

1,783.6



1,642.7


Total Liabilities and Equity

$

4,674.2



$

4,445.2






(1) Due to the adoption of the new leasing standard, the Company recognized operating lease assets and corresponding operating lease
liabilities on the Consolidated Balance Sheet. In conjunction with the adoption of the new leasing standard, the Company reclassified $15.3
million of lease assets related to purchase accounting adjustments from the ABC Bearings Limited ("ABC Bearings") acquisition from Other
assets to Operating lease assets. These assets do not have material corresponding lease liabilities.

 

 















CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS





(Unaudited)






Three Months Ended
June 30,

Six Months Ended
June 30,

(Dollars in millions)

2019

2018

2019

2018

Cash Provided by (Used in)





OPERATING ACTIVITIES





Net Income

$

94.9


$

91.9


$

190.2


$

172.4


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





Depreciation and amortization

41.7


35.0


81.2


70.8


Stock-based compensation expense

7.1


7.5


14.9


17.8


Pension and other postretirement expense

2.9


(0.4)


5.8


1.6


Pension and other postretirement benefit contributions

(4.0)


(2.7)


(8.9)


(8.8)


Changes in operating assets and liabilities:





Accounts receivable

29.1


(14.3)


(35.9)


(86.4)


Unbilled receivables

(30.0)


(16.3)


(36.6)


(27.8)


Inventories

20.7


(26.1)


16.6


(79.9)


Accounts payable

(6.8)


(6.1)


13.4


(8.4)


Accrued expenses

12.9


36.3


(45.1)


(2.4)


Income taxes

(22.7)


(17.1)


2.4


(3.7)


Other, net

11.8


14.4


11.9


12.6


Net Cash Provided by Operating Activities

$

157.6


$

102.1


$

209.9


$

57.8


INVESTING ACTIVITIES





Capital expenditures

$

(23.0)


$

(21.8)


$

(39.2)


$

(39.6)


Acquisitions, net of cash received

(80.1)



(83.0)



Other, net

2.9


(0.2)


2.4


3.6


Net Cash Used in Investing Activities

$

(100.2)


$

(22.0)


$

(119.8)


$

(36.0)


FINANCING ACTIVITIES





Cash dividends paid to shareholders

$

(21.3)


$

(21.6)


$

(42.6)


$

(42.7)


Purchase of treasury shares

(15.3)


(26.9)


(23.6)


(49.6)


Proceeds from exercise of stock options

7.9


2.2


8.9


10.6


Payments related to tax withholding for stock-based compensation

(1.7)


(0.6)


(8.1)


(5.0)


Net (payments on) proceeds from credit facilities

(76.4)


(7.8)


39.8


(8.2)


Net (payments on) proceeds from long-term debt

(21.6)


10.2


(29.4)


103.8


Other, net

(1.9)


0.1


(1.9)


(1.0)


Net Cash (Used in) Provided by Financing Activities

$

(130.3)


$

(44.4)


$

(56.9)


$

7.9


Effect of exchange rate changes on cash

0.2


(9.4)


1.1


(8.5)


(Decrease) Increase in Cash, Cash Equivalents and Restricted Cash

$

(72.7)


$

26.3


$

34.3


$

21.2


Cash, Cash Equivalents and Restricted Cash at Beginning of Period

240.1


120.3


133.1


125.4


Cash, Cash Equivalents and Restricted Cash at End of Period

$

167.4


$

146.6


$

167.4


$

146.6


 

 

Reconciliations of Adjusted Net Income to GAAP Net Income and Adjusted Earnings Per Share to GAAP Earnings
Per Share:

 

(Unaudited)














The following reconciliation is provided as additional relevant information about the Company's performance deemed useful to investors. 
Management believes that the non-GAAP measures of adjusted net income and adjusted diluted earnings per share are important financial
measures used in the management of the business, including decisions concerning the allocation of resources and assessment of
performance. Management believes that reporting adjusted net income and adjusted diluted earnings per share is useful to investors as these
measures are representative of the Company's core operations.















(Dollars in millions, except share data)

Three Months Ended
June 30,


Six Months Ended
June 30,


2019


EPS

2018


EPS


2019


EPS

2018


EPS

Net Income Attributable to The Timken Company

$

92.5



$

1.20


$

91.0



$

1.16



$

184.4




$

2.39


$

171.2



$

2.17
















Adjustments: (1)














  Impairment, restructuring and reorganization charges (2)

$

2.2




$

0.7





$

2.2




$

1.4




  Property loss and related expenses from flood damage (3)

(0.2)








5.8







  Acquisition-related charges (4)

3.1




0.2





7.9




0.2




  Brazil legal matter (5)

3.3








3.3







  Gain on sale of real estate (6)








(1.7)







  Corporate pension-related charges




(2.4)








(2.2)




  Tax indemnification and related items








0.5




0.3




  Noncontrolling interest (7)

(0.3)








(0.2)







  Provision for income taxes (8)

(2.7)




(2.3)





(0.1)




(3.7)




      Total Adjustments:

5.4



0.07


(3.8)



(0.05)



17.7



0.23


(4.0)



(0.05)


Adjusted Net Income Attributable to The Timken
Company

$

97.9



$

1.27


$

87.2



$

1.11



$

202.1



$

2.62


$

167.2



$

2.12
















(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 cost structure periodically, and makes adjustments as needed that result in restructuring charges.  However, management believes these actions are not representative of the Company's core operations.















(3) Represents property loss and related expenses during the first half of the year (net of insurance proceeds) resulting from flood damage caused by heavy rainstorms that occurred during the first quarter of 2019 in Knoxville, Tennessee, that impacted one of the Company's warehouses.















(4) Acquisition-related charges in 2019 primarily related to the Rollon S.p.A. ("Rollon") and The Diamond Chain Company ("Diamond Chain") acquisitions, including transaction costs and inventory step-up impact.









(5) The Brazil legal matter represents expense recorded to establish a liability associated with an investigation into alleged antitrust violations in the bearing industry that was initiated in October 2014. Refer to the Contingencies footnote within the second quarter 2019 Form 10-Q for additional discussion.









(6) The gain on sale of real estate related to the sale of a manufacturing facility in Pulaski, Tennessee during the first quarter of 2019. This amount was recorded in other income.















(7) Represents the noncontrolling interest impact of the adjustments listed above.















(8) Provision for income taxes includes the net tax impact on pre-tax adjustments (listed above), the impact of discrete tax items recorded during the respective periods, as well as other adjustments to reflect the use of one overall effective tax rate on adjusted pre-tax income in interim periods.

 

 
























Reconciliation of EBIT to GAAP Net Income, and EBIT and EBITDA Margin, After Adjustments, to Net Income as a
Percentage of Sales, and EBIT and EBITDA, After Adjustments, to Net Income:

 

(Unaudited)










The following reconciliation is provided as additional relevant information about the Company's performance deemed useful to investors.  Management believes consolidated earnings before interest 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, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBIT margin and adjusted EBITDA margin are useful to investors as they are representative of the Company's core operations and are used in the management of the business, including decisions concerning the allocation of resources and assessment of performance.











(Dollars in millions)

Three Months Ended
June 30,


Six Months Ended
June 30,


2019

Percentage to
Net Sales

2018

Percentage to

Net Sales


2019

Percentage to
Net Sales

2018

Percentage to
Net Sales

Net Income

$

94.9


9.5

%

$

91.9


10.1

%


$

190.2


9.6

%

$

172.4


9.6

%











Provision for income taxes

33.6


3.4

%

30.2


3.3

%


74.9


3.8

%

58.5


3.3

%

Interest expense

19.3


1.9

%

10.7


1.2

%


37.3


1.9

%

20.7


1.2

%

Interest income

(1.1)


(0.1)

%

(0.5)


%


(2.4)


(0.1)

%

(0.9)


(0.1)

%

Consolidated EBIT

$

146.7


14.7

%

$

132.3


14.6

%


$

300.0


15.2

%

$

250.7


14.0

%











Adjustments:










  Impairment, restructuring and reorganization charges (1)

$

2.2


0.2

%

$

0.7


0.1

%


$

2.2


0.1

%

$

1.4


0.1

%

  Property loss and related expenses from flood damage (2)

(0.2)


%


%


5.8


0.3

%


%

  Acquisition-related charges (3)

3.1


0.3

%

0.2


%


7.9


0.4

%

0.2


%

 Brazil legal matter (4)

3.3


0.3

%


%


3.3


0.2

%


%

 Gain on sale of real estate (5)


%


%


(1.7)


(0.1)

%


%

Corporate pension-related charges


%

(2.4)


(0.3)

%



%

(2.2)


(0.1)

%

Tax indemnification and related
items


%


%


0.5


%

0.3


%

     Total Adjustments

8.4


0.8

%

(1.5)


(0.2)

%


18.0


0.9

%

(0.3)


%

Adjusted EBIT

$

155.1


15.5

%

$

130.8


14.4

%


$

318.0


16.1

%

$

250.4


14.0

%

Depreciation and amortization

41.7


4.2

%

35.0


3.9

%


81.2


4.1

%

70.8


4.0

%

Adjusted EBITDA

$

196.8


19.7

%

$

165.8


18.3

%


$

399.2


20.2

%

$

321.2


18.0

%











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











(2) Represents property loss and related expenses during the first half of the year (net of insurance proceeds) resulting from flood damage caused by heavy rainstorms that occurred during the first quarter of 2019 in Knoxville, Tennessee, that impacted one of the Company's warehouses.











(3) Acquisition-related charges in 2019 primarily related to the Rollon and Diamond Chain acquisitions, including transaction costs and inventory step-up impact.











(4) The Brazil legal matter represents expense recorded to establish a liability associated with an investigation into alleged antitrust violations in the bearing industry that was initiated in October 2014. Refer to the Contingencies footnote within the second quarter 2019 Form 10-Q for additional discussion.











(5) The gain on sale of real estate related to the sale of a manufacturing facility in Pulaski, Tennessee during the first quarter of 2019. 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
June 30, 2019

Percentage
to Net Sales

Three Months
Ended
June 30, 2018

Percentage
to Net Sales


Six Months
Ended
June 30, 2019

Percentage
to Net Sales

Six Months
Ended
June 30, 2018

Percentage
to Net Sales

Earnings before interest and
taxes (EBIT)

$

59.1


12.0

%

$

54.5


11.1

%


$

120.5


12.1

%

$

105.6


10.8

%

  Impairment, restructuring and
reorganization charges (1)

0.7


0.1

%

0.4


0.1

%


1.0


0.1

%

1.1


0.1

%

  Gain on sale of real estate (2)


%


%


(1.7)


(0.2)

%


%

  Property loss and related expenses from

     flood damage (3)

(0.2)


%


%


5.8


0.6

%


%

  Acquisition-related charges (4)

0.1


%


%


0.1


%


%

Adjusted EBIT

$

59.7


12.1

%

$

54.9


11.2

%


$

125.7


12.6

%

$

106.7


10.9

%











Process Industries










(Dollars in millions)

Three Months
Ended
June 30, 2019

Percentage
to Net Sales

Three Months
Ended
June 30, 2018

Percentage
to Net Sales


Six Months
Ended
June 30, 2019

Percentage
to Net Sales

Six Months
Ended
June 30, 2018

Percentage
to Net Sales

Earnings before interest and taxes (EBIT)

$

103.0


20.3

%

$

90.6


21.7

%


$

209.2


21.2

%

$

172.2


21.2

%

  Impairment, restructuring and
reorganization charges (1)

1.5


0.3

%

0.2


0.1

%


1.2


0.1

%

0.2


%

  Acquisition-related charges (4)

2.5


0.5

%


%


6.4


0.7

%


%

Adjusted EBIT

$

107.0


21.1

%

$

90.8


21.8

%


$

216.8


22.0

%

$

172.4


21.2

%











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











(2) The gain on sale of real estate related to the sale of a manufacturing facility in Pulaski, Tennessee during the first quarter of 2019. This amount was recorded in other income.











(3) Represents property loss and related expenses during the first half of the year (net of insurance proceeds) resulting from flood damage caused by heavy rainstorms that occurred during the first quarter of 2019 in Knoxville, Tennessee, that impacted one of the Company's warehouses.











(4) Acquisition-related charges in 2019 primarily related to the Rollon and Diamond Chain acquisitions, including transaction costs and inventory step-up impact.

 

 















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)








June 30,
2019

December 31,
2018

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



$

46.3


$

43.0


Long-term debt



1,642.6


1,638.6


  Total Debt



$

1,688.9


$

1,681.6


Less: Cash, cash equivalents and restricted cash



(167.4)


(133.1)


Net Debt



$

1,521.5


$

1,548.5







Total Equity



$

1,783.6


$

1,642.7







Ratio of Net Debt to Capital



46.0

%

48.5

%






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

(Unaudited)





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






(Dollars in millions)






Three Months
Ended
June 30,

Six Months
Ended
June 30,


2019

2018

2019

2018

Net cash provided by operating activities

$

157.6


$

102.1


$

209.9


$

57.8


Less: capital expenditures

(23.0)


(21.8)


(39.2)


(39.6)


Free cash flow

$

134.6


$

80.3


$

170.7


$

18.2


 

 









Reconciliation of EBIT, EBIT, After Adjustments, and EBITDA, After Adjustments, to GAAP Net Income:

 

(Unaudited)



The following reconciliation is provided as additional relevant information about the Company's performance deemed useful to investors.
Management believes consolidated earnings before interest 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 EBITDA 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)

Twelve Months Ended
June 30, 2019

Twelve Months Ended
December 31, 2018

Net Income

$

323.3


$

305.5


Provision for income taxes

119.0


102.6


Interest expense

68.3


51.7


Interest income

(3.6)


(2.1)


Consolidated EBIT

$

507.0


$

457.7


Adjustments:



  Impairment, restructuring and reorganization charges (1)

$

7.9


$

7.1


  Acquisition-related charges (2)

28.3


20.6


  Brazil legal matter (3)

3.3



  Gain on sale of real estate (4)

(1.7)



  Loss on divestiture (5)

0.8


0.8


  Corporate pension-related charges (6)

15.0


12.8


  Flood property damage and expenses (7)

5.8



  Tax indemnification and related items

1.7


1.5


     Total Adjustments

61.1


42.8


Adjusted EBIT

$

568.1


$

500.5


Depreciation and amortization

156.4


146.0


Adjusted EBITDA (8)

$

724.5


$

646.5





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




(2) Acquisition-related charges in 2019 related to the ABC Bearings, Apiary Investment Holdings Limited ("Cone Drive"), Rollon and Diamond
Chain acquisitions, including transaction costs and inventory step-up impact. In 2018, acquisition charges related to ABC Bearings, Cone
Drive and Rollon acquisitions.




(3) The Brazil legal matter represents expense recorded to establish a liability associated with an investigation into alleged antitrust violations in
the bearing industry that was initiated in October 2014. Refer to the Contingencies footnote within the second quarter 2019 Form 10-Q for
additional discussion.




(4) The gain on sale of real estate related to the sale of a manufacturing facility in Pulaski, Tennessee during the first quarter of 2019. This
amount was recorded in other income.




(5) Loss on divestiture relates to the sale of Groeneveld Information Technology Holding B.V. located in Gorinchem, Netherlands.




(6) Corporate pension-related charges represent curtailments and actuarial (gains) and 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.




(7) Represents property loss and related expenses during the first half of the year (net of insurance proceeds) resulting from flood damage
caused by heavy rainstorms that occurred during the first quarter of 2019 in Knoxville, Tennessee, that impacted one of the Company's
warehouses.




(8) Twelve months trailing adjusted EBITDA reflects results from acquired companies from the acquisition date through June 30, 2019 and
December 31, 2018, respectively.

 

 










Reconciliation of Adjusted Earnings per Share to GAAP Earnings per Share for Full Year 2019 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

$

4.55



$

4.75






Forecasted Adjustments:




  Restructuring and other special items, net (1)

0.25



0.25


Total Adjustments:

$

0.25



$

0.25


Forecasted full year adjusted diluted earnings per share

$

4.80



$

5.00






(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 amounts will not be known until incurred.









Reconciliation of Free Cash Flow to GAAP Net Cash Provided by Operating Activities for Full Year 2019 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



$

510.0


Less: capital expenditures



(150.0)


Free cash flow



$

360.0


 

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SOURCE The Timken Company