Timken Reports Second-Quarter 2020 Results
The Timken Company (NYSE: TKR) reported second-quarter 2020 sales of $803.5 million, a decrease of 19.7% year-over-year, mainly due to COVID-19's economic impact and adverse currency effects. Net income fell to $61.9 million or $0.82 per diluted share, down from $92.5 million or $1.20 per diluted share in 2019. Notably, net cash from operations improved to $247.4 million. Despite challenges, Timken implemented cost reduction strategies expected to save $50 to $60 million in the second half of 2020. The company has strong liquidity with $416 million in cash, but full-year guidance remains unavailable due to ongoing uncertainties.
- Net cash from operations increased to $247.4 million from $157.6 million year-over-year.
- Cost reduction measures expected to yield $50 to $60 million in savings in the second half of 2020.
- Improvement in net debt to EBITDA ratio from 2.2 times to 2.1 times since March 31, 2020.
- Maintained strong liquidity with $416 million in cash and over $400 million in available credit.
- Sales declined by 19.7% year-over-year, driven by lower demand due to COVID-19.
- Net income dropped to $61.9 million from $92.5 million year-over-year.
- Mobile Industries sales fell by 30.6%, reflecting significant shipment declines across most sectors.
- Net special charges increased compared to the prior year, including a pension remeasurement loss and higher restructuring costs.
NORTH CANTON, Ohio, Aug. 3, 2020 /PRNewswire/ -- The Timken Company (NYSE: TKR; www.timken.com), a world leader in engineered bearings and power transmission products, today reported second-quarter 2020 sales of
In the second quarter, Timken posted net income of
Excluding special items, adjusted net income in the second quarter was
Net cash from operations for the second quarter was
"We performed very well in the quarter despite the unprecedented impact from the COVID-19 pandemic, generating strong operating margins and cash flow, and delivering solid earnings per share," said Richard G. Kyle, Timken president and chief executive officer. "The company responded quickly to the pandemic by taking decisive actions to protect employees and other stakeholders, adapt to rapid changes in customer demand, reduce costs and bolster liquidity. The advances we have made over the past several years have transformed Timken into a more resilient and higher performing company, as evidenced by our second-quarter and year-to-date results."
Second-Quarter 2020 Segment Results
Process Industries sales of
Earnings before interest, taxes, depreciation and amortization (EBITDA) in the quarter were
Excluding special items detailed in the attached tables, adjusted EBITDA in the quarter was
Mobile Industries sales of
EBITDA for the quarter was
Excluding special items detailed in the attached tables, adjusted EBITDA in the quarter was
Balance Sheet, Cash Flow and Cost Savings Update
Timken ended the second quarter with a net debt to EBITDA ratio of 2.1 times, an improvement from 2.2 times as of March 31, 2020. The company has strong liquidity, with
Timken is accelerating and expanding structural cost reduction initiatives to both align its costs with near-term demand expectations and improve the cost structure and margins of the company longer-term. In total, cost reduction actions are expected to generate year-on-year savings of approximately
"Timken remains well positioned to advance as a global industrial leader despite this period of heightened uncertainty," said Kyle. "We took immediate cost reduction measures across the enterprise in the second quarter in response to the pandemic, and are implementing additional structural cost actions in the second half of the year. While the slope of the recovery and the impact from the pandemic remain uncertain, we will continue to focus on our customers and our strategy to drive strong performance and shareholder value through the business cycle."
Given the continued uncertainty surrounding COVID-19, the company is not providing full year 2020 sales and earnings guidance at this time.
Conference Call Information
Timken will host a conference call today at 10 a.m. Eastern Time to review its financial results. Presentation materials will be available online in advance of the call for interested investors and securities analysts.
Conference Call: | Monday, August 3, 2020 |
10:00 a.m. Eastern Time | |
Live Dial-In: 800-458-4121 | |
or 323-794-2093 | |
(Call in 10 minutes prior to be included.) | |
Conference ID: Timken's 2Q Earnings Call | |
Conference Call Replay: | Replay Dial-In available through |
August 17, 2020: | |
888-203-1112 or 719-457-0820 | |
Replay Passcode: 9220599 | |
Live Webcast: | |
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
Certain statements in this release (including statements regarding the company's forecasts, estimates, plans and expectations) that are not historical in nature are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, the statements related to expectations regarding the company's future financial performance and cost reduction measures, including information under the heading "Balance Sheet, Cash Flow and Cost Savings Update," are forward-looking.
The company cautions that actual results may differ materially from those projected or implied in forward-looking statements due to a variety of important factors, including: the finalization of the company's financial statements for the second quarter of 2020; the company's ability to respond to the changes in its end markets that could affect demand for the company's products or services; unanticipated changes in business relationships with customers or their purchases from the company; changes in the financial health of the company's customers, which may have an impact on the company's revenues, earnings and impairment charges; fluctuations in material and energy costs; the impact of changes to the company's accounting methods; political risks associated with government instability; recent world events that have increased the risks posed by international trade disputes, tariffs and sanctions; weakness in global or regional economic conditions and capital markets; the company's ability to satisfy its obligations under its debt agreements and renew or refinance borrowings on favorable terms; fluctuations in currency valuations; changes in the expected costs associated with product warranty claims; the ability to achieve satisfactory operating results in the integration of acquired companies, including realizing any accretion within expected timeframes or at all; the impact on operations of general economic conditions; fluctuations in customer demand; the impact on the company's pension obligations and assets due to changes in interest rates, investment performance and other tactics designed to reduce risk; the introduction of new disruptive technologies; unplanned plant shutdowns; the company's ability to maintain positive relations with unions and works councils; negative impacts to the company's business, results of operations, financial position or liquidity as a result of COVID-19 or other epidemics and associated governmental measures such as restrictions on travel and manufacturing operations; and the company's ability to complete and achieve the benefits of announced plans, programs, initiatives, acquisitions and capital investments. Additional factors are discussed in the company's filings with the Securities and Exchange Commission, including the company's Annual Report on Form 10-K for the year ended Dec. 31, 2019, quarterly reports on Form 10-Q and current reports on Form 8-K. Except as required by the federal securities laws, the company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Media Relations:
Scott Schroeder
234.262.6420
scott.schroeder@timken.com
Investor Relations:
Neil Frohnapple
234.262.2310
neil.frohnapple@timken.com
The Timken Company | |||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||
(Dollars in millions, except share data) (Unaudited) | |||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||
Net sales | $ | 803.5 | $ | 1,000.0 | $ | 1,726.9 | $ | 1,979.7 | |||||
Cost of products sold | 573.2 | 694.3 | 1,217.7 | 1,371.4 | |||||||||
Gross Profit | 230.3 | 305.7 | 509.2 | 608.3 | |||||||||
Selling, general & administrative expenses | 111.8 | 158.7 | 265.4 | 311.4 | |||||||||
Impairment and restructuring charges | 3.1 | 1.9 | 6.7 | 1.9 | |||||||||
Operating Income | 115.4 | 145.1 | 237.1 | 295.0 | |||||||||
Non-service pension and other postretirement (expense) income | (5.3) | 0.2 | (1.9) | 0.3 | |||||||||
Other income (expense), net | (2.0) | 1.4 | 2.1 | 4.7 | |||||||||
Interest expense, net | (18.3) | (18.2) | (33.9) | (34.9) | |||||||||
Income Before Income Taxes | 89.8 | 128.5 | 203.4 | 265.1 | |||||||||
Provision for income taxes | 28.0 | 33.6 | 57.6 | 74.9 | |||||||||
Net Income | 61.8 | 94.9 | 145.8 | 190.2 | |||||||||
Less: Net income (loss) attributable to noncontrolling interest | (0.1) | 2.4 | 3.2 | 5.8 | |||||||||
Net Income Attributable to The Timken Company | $ | 61.9 | $ | 92.5 | $ | 142.6 | $ | 184.4 | |||||
Net Income per Common Share Attributable to The Timken Company Common Shareholders | |||||||||||||
Basic Earnings per share | $ | 0.82 | $ | 1.22 | $ | 1.89 | $ | 2.43 | |||||
Diluted Earnings per share | $ | 0.82 | $ | 1.20 | $ | 1.88 | $ | 2.39 | |||||
Average Shares Outstanding | 75,078,207 | 76,085,358 | 75,298,356 | 76,024,301 | |||||||||
Average Shares Outstanding - assuming dilution | 75,698,289 | 77,208,432 | 76,032,049 | 77,098,982 | |||||||||
BUSINESS SEGMENTS | ||||||||||||
(Unaudited) | ||||||||||||
Three Months Ended | Six Months Ended | |||||||||||
(Dollars in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||
Mobile Industries | ||||||||||||
Net sales | $ | 342.6 | $ | 493.7 | $ | 809.3 | $ | 993.7 | ||||
Earnings before interest, taxes, depreciation and amortization (EBITDA) (1) | $ | 38.8 | $ | 78.0 | $ | 113.9 | $ | 157.3 | ||||
EBITDA Margin (1) | 11.3 | % | 15.8 | % | 14.1 | % | 15.8 | % | ||||
Process Industries | ||||||||||||
Net sales | $ | 460.9 | $ | 506.3 | $ | 917.6 | $ | 986.0 | ||||
Earnings before interest, taxes, depreciation and amortization (EBITDA) (1) | $ | 126.3 | $ | 125.7 | $ | 233.8 | $ | 253.3 | ||||
EBITDA Margin (1) | 27.4 | % | 24.8 | % | 25.5 | % | 25.7 | % | ||||
Corporate earnings before interest, taxes, depreciation and amortization (EBITDA) (1) | $ | (6.5) | $ | (15.3) | $ | (17.6) | $ | (29.4) | ||||
Corporate pension and other postretirement benefit related charges (2) | (8.8) | — | (8.8) | — | ||||||||
Consolidated | ||||||||||||
Net sales | $ | 803.5 | $ | 1,000.0 | $ | 1,726.9 | $ | 1,979.7 | ||||
Earnings before interest, taxes, depreciation and amortization (EBITDA) (1) | $ | 149.8 | $ | 188.4 | $ | 321.3 | $ | 381.2 | ||||
EBITDA Margin (1) | 18.6 | % | 18.8 | % | 18.6 | % | 19.3 | % | ||||
(1) EBITDA is a non-GAAP measure defined as operating income plus other income (expense) and excluding depreciation and amortization. EBITDA Margin is a non-GAAP measure defined as EBITDA as a percentage of net sales. EBITDA and EBITDA Margin are important financial measures used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. Management believes that reporting EBITDA and EBITDA Margin is useful to investors as these measures are representative of the core operations of the segments and Company, respectively. | ||||||||||||
(2) Corporate pension and other postretirement benefit related charges represent actuarial gains and (losses) that resulted from the remeasurement of plan assets and obligations as a result of changes in assumptions. The Company recognizes actuarial gains and (losses) in connection with the annual remeasurement in the fourth quarter, or if specific events trigger a remeasurement. Refer to the Retirement Benefit Plans and Other Postretirement Benefit Plans footnotes within the Company's annual reports on Form 10-K and quarterly reports on Form 10-Q for additional discussion. | ||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
(Dollars in millions) | (Unaudited) | ||||||
June 30, | December 31, | ||||||
ASSETS | |||||||
Cash and cash equivalents | $ | 415.6 | $ | 209.5 | |||
Restricted cash | 0.5 | 6.7 | |||||
Accounts receivable, net | 541.6 | 545.1 | |||||
Unbilled receivables | 126.2 | 129.2 | |||||
Inventories, net | 784.0 | 842.0 | |||||
Other current assets | 139.0 | 142.1 | |||||
Total Current Assets | 2,006.9 | 1,874.6 | |||||
Property, plant and equipment, net | 962.1 | 989.2 | |||||
Operating lease assets | 110.3 | 114.1 | |||||
Goodwill and other intangible assets | 1,727.9 | 1,752.2 | |||||
Non-current pension assets | 7.9 | 3.4 | |||||
Non-current other postretirement benefit assets | — | 36.6 | |||||
Other assets | 85.9 | 89.8 | |||||
Total Assets | $ | 4,901.0 | $ | 4,859.9 | |||
LIABILITIES | |||||||
Accounts payable | $ | 267.3 | $ | 301.7 | |||
Short-term debt, including current portion of long-term debt | 61.3 | 82.0 | |||||
Short-term operating lease liabilities | 27.5 | 28.3 | |||||
Income taxes | 31.2 | 17.8 | |||||
Accrued expenses | 277.5 | 306.8 | |||||
Total Current Liabilities | 664.8 | 736.6 | |||||
Long-term debt | 1,730.1 | 1,648.1 | |||||
Accrued pension benefits | 173.3 | 165.1 | |||||
Accrued postretirement benefits | 44.9 | 31.8 | |||||
Long-term operating lease liabilities | 70.2 | 71.3 | |||||
Other non-current liabilities | 250.1 | 252.2 | |||||
Total Liabilities | 2,933.4 | 2,905.1 | |||||
EQUITY | |||||||
The Timken Company shareholders' equity | 1,883.6 | 1,868.2 | |||||
Noncontrolling Interest | 84.0 | 86.6 | |||||
Total Equity | 1,967.6 | 1,954.8 | |||||
Total Liabilities and Equity | $ | 4,901.0 | $ | 4,859.9 | |||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||
(Unaudited) | |||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||
(Dollars in millions) | 2020 | 2019 | 2020 | 2019 | |||||||||
Cash Provided by (Used in) | |||||||||||||
OPERATING ACTIVITIES | |||||||||||||
Net Income | $ | 61.8 | $ | 94.9 | $ | 145.8 | $ | 190.2 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||
Depreciation and amortization | 41.7 | 41.7 | 84.0 | 81.2 | |||||||||
Stock-based compensation expense | 5.8 | 7.1 | 11.4 | 14.9 | |||||||||
Pension and other postretirement expense | 8.5 | 2.9 | 8.2 | 5.8 | |||||||||
Pension and other postretirement benefit contributions and payments | (3.1) | (4.0) | (8.6) | (8.9) | |||||||||
Changes in operating assets and liabilities: | |||||||||||||
Accounts receivable | 39.2 | 29.1 | (8.4) | (35.9) | |||||||||
Unbilled receivables | 11.3 | (30.0) | 3.0 | (36.6) | |||||||||
Inventories | 41.0 | 20.7 | 41.3 | 16.6 | |||||||||
Accounts payable | (28.9) | (6.8) | (28.9) | 13.4 | |||||||||
Accrued expenses | 39.6 | 12.9 | 5.3 | (45.1) | |||||||||
Income taxes | 16.4 | (22.7) | 23.8 | 2.4 | |||||||||
Other, net | 14.1 | 11.8 | 26.7 | 11.9 | |||||||||
Net Cash Provided by Operating Activities | $ | 247.4 | $ | 157.6 | $ | 303.6 | $ | 209.9 | |||||
INVESTING ACTIVITIES | |||||||||||||
Capital expenditures | $ | (24.7) | $ | (23.0) | $ | (56.5) | $ | (39.2) | |||||
Acquisitions, net of cash received | (6.7) | (80.1) | (6.7) | (83.0) | |||||||||
Investments in short-term marketable securities, net | (1.8) | 2.9 | (1.6) | 0.2 | |||||||||
Other, net | 0.1 | — | 0.1 | 2.2 | |||||||||
Net Cash Used in Investing Activities | $ | (33.1) | $ | (100.2) | $ | (64.7) | $ | (119.8) | |||||
FINANCING ACTIVITIES | |||||||||||||
Cash dividends paid to shareholders | $ | (21.0) | $ | (21.3) | $ | (43.9) | $ | (42.6) | |||||
Purchase of treasury shares | — | (15.3) | (42.3) | (23.6) | |||||||||
Proceeds from exercise of stock options | — | 7.9 | 7.5 | 8.9 | |||||||||
Payments related to tax withholding for stock-based compensation | (0.2) | (1.7) | (10.4) | (8.1) | |||||||||
Net proceeds (payments) from credit facilities | (125.8) | (76.4) | 111.5 | 39.8 | |||||||||
Net payments on long-term debt | (49.2) | (21.6) | (52.1) | (29.4) | |||||||||
Other, net | (1.6) | (1.9) | (1.6) | (1.9) | |||||||||
Net Cash Used in Financing Activities | $ | (197.8) | $ | (130.3) | $ | (31.3) | $ | (56.9) | |||||
Effect of exchange rate changes on cash | 5.6 | 0.2 | (7.7) | 1.1 | |||||||||
Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | $ | 22.1 | $ | (72.7) | $ | 199.9 | $ | 34.3 | |||||
Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 394.0 | 240.1 | 216.2 | 133.1 | |||||||||
Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 416.1 | $ | 167.4 | $ | 416.1 | $ | 167.4 | |||||
Reconciliations of Adjusted Net Income to GAAP Net Income and Adjusted Earnings Per Share to GAAP Earnings Per Share: | ||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
The following reconciliation is provided as additional relevant information about the Company's performance deemed useful to investors. Management believes that the non-GAAP measures of adjusted net income and adjusted diluted earnings per share are important financial measures used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. Management believes that reporting adjusted net income and adjusted diluted earnings per share is useful to investors as these measures are representative of the Company's core operations. | ||||||||||||||||||||||||||||||
(Dollars in millions, except share data) | Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
2020 | EPS | 2019 | EPS | 2020 | EPS | 2019 | EPS | |||||||||||||||||||||||
Net Income Attributable to The Timken Company | $ | 61.9 | $ | 0.82 | $ | 92.5 | $ | 1.20 | $ | 142.6 | $ | 1.88 | $ | 184.4 | $ | 2.39 | ||||||||||||||
Adjustments: (1) | ||||||||||||||||||||||||||||||
Impairment, restructuring and reorganization charges (2) | $ | 5.8 | $ | 2.2 | $ | 11.6 | $ | 2.2 | ||||||||||||||||||||||
Property loss and related expenses, net of insurance proceeds (3) | 0.1 | (0.2) | (2.1) | 5.8 | ||||||||||||||||||||||||||
Acquisition-related charges (4) | 0.9 | 3.1 | 4.2 | 7.9 | ||||||||||||||||||||||||||
Brazil legal matter (5) | — | 3.3 | — | 3.3 | ||||||||||||||||||||||||||
Gain on sale of real estate (6) | — | — | — | (1.7) | ||||||||||||||||||||||||||
Corporate pension and other postretirement benefit related charges (7) | 8.8 | — | 8.8 | — | ||||||||||||||||||||||||||
Tax indemnification and related items | — | — | — | 0.5 | ||||||||||||||||||||||||||
Noncontrolling interest of above adjustments | — | (0.3) | — | (0.2) | ||||||||||||||||||||||||||
Provision for income taxes (8) | (0.5) | (2.7) | (3.4) | (0.1) | ||||||||||||||||||||||||||
Total Adjustments: | 15.1 | 0.20 | 5.4 | 0.07 | 19.1 | 0.25 | 17.7 | 0.23 | ||||||||||||||||||||||
Adjusted Net Income Attributable to The Timken Company | $ | 77.0 | $ | 1.02 | $ | 97.9 | $ | 1.27 | $ | 161.7 | $ | 2.13 | $ | 202.1 | $ | 2.62 | ||||||||||||||
(1) Adjustments are pre-tax, with the net tax provision listed separately. | ||||||||||||||||||||||||||||||
(2) Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) relate to: (i) plant closures; (ii) the rationalization of certain plants, (iii) severance related to cost reduction initiatives and (iv) related depreciation and amortization. The Company re-assesses its operating footprint and cost structure periodically, and makes adjustments as needed that result in restructuring charges. However, management believes these actions are not representative of the Company's core operations. | ||||||||||||||||||||||||||||||
(3) Represents property loss and related expenses during the periods presented (net of insurance proceeds received in first quarter of 2020) resulting from property loss that occurred during the first quarter of 2019 at one of the Company's warehouses in Knoxville, Tennessee and during the third quarter of 2019 at one of the Company's warehouses in Yantai, China. | ||||||||||||||||||||||||||||||
(4) Acquisition-related charges in the second quarter of 2020 primarily related to the BEKA Lubrication ("BEKA") acquisition, including transaction costs and inventory step-up impact. Acquisition-related charges in the second quarter of 2019 primarily related to the Rollon S.p.A. ("Rollon") and The Diamond Chain Company ("Diamond Chain") acquisitions, including transaction costs and inventory step-up impact. | ||||||||||||||||||||||||||||||
(5) The Brazil legal matter represents expense recorded to establish a liability associated with an investigation into alleged antitrust violations in the bearing industry that was settled in the fourth quarter of 2019. | ||||||||||||||||||||||||||||||
(6) The gain on sale of real estate is related to the sale of a manufacturing facility in Pulaski, Tennessee. This amount was recorded in other income. | ||||||||||||||||||||||||||||||
(7) Corporate pension and other postretirement benefit related charges represent actuarial (gains) and losses that resulted from the remeasurement of plan assets and obligations as a result of changes in assumptions. The Company recognizes actuarial (gains) and losses in connection with the annual remeasurement in the fourth quarter, or if specific events trigger a remeasurement. Refer to the Retirement Benefit Plans and Other Postretirement Benefit Plans footnotes within the Company's annual reports on Form 10-K and quarterly reports on Form 10-Q for additional discussion. | ||||||||||||||||||||||||||||||
(8) Provision for income taxes includes the net tax impact on pre-tax adjustments (listed above), the impact of discrete tax items recorded during the respective periods, as well as other adjustments to reflect the use of one overall effective tax rate on adjusted pre-tax income in interim periods. | ||||||||||||||||||||||||||||||
Reconciliation of EBITDA to GAAP Net Income, EBITDA Margin to Net Income as a Percentage of Sales, and EBITDA Margin, After Adjustments, to Net Income as a Percentage of Sales, and EBITDA, After Adjustments, to Net Income: | |||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||
The following reconciliation is provided as additional relevant information about the Company's performance deemed useful to investors. Management believes consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP measure that is useful to investors as it is representative of the Company's performance and that it is appropriate to compare GAAP net income to consolidated EBITDA. Management also believes that adjusted EBITDA, adjusted EBITDA margin and EBITDA margin are useful to investors as they are representative of the Company's core operations and are used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. | |||||||||||||||||||||
(Dollars in millions) | Three Months Ended | Six Months Ended | |||||||||||||||||||
2020 | Percentage | 2019 | Percentage | 2020 | Percentage | 2019 | Percentage | ||||||||||||||
Net Income | $ | 61.8 | 7.7 | % | $ | 94.9 | 9.5 | % | $ | 145.8 | 8.4 | % | $ | 190.2 | 9.6 | % | |||||
Provision for income taxes | 28.0 | 33.6 | 57.6 | 74.9 | |||||||||||||||||
Interest expense | 18.9 | 19.3 | 36.0 | 37.3 | |||||||||||||||||
Interest income | (0.6) | (1.1) | (2.1) | (2.4) | |||||||||||||||||
Depreciation and amortization | 41.7 | 41.7 | 84.0 | 81.2 | |||||||||||||||||
Consolidated EBITDA | $ | 149.8 | 18.6 | % | $ | 188.4 | 18.8 | % | $ | 321.3 | 18.6 | % | $ | 381.2 | 19.3 | % | |||||
Adjustments: | |||||||||||||||||||||
Impairment, restructuring and reorganization charges (1) | $ | 4.6 | $ | 2.2 | $ | 9.0 | $ | 2.2 | |||||||||||||
Property loss and related expenses, net of insurance proceeds (2) | 0.1 | (0.2) | (2.1) | 5.8 | |||||||||||||||||
Acquisition-related charges (3) | 0.9 | 3.1 | 4.2 | 7.9 | |||||||||||||||||
Brazil legal matter (4) | — | 3.3 | — | 3.3 | |||||||||||||||||
Gain on sale of real estate (5) | — | — | — | (1.7) | |||||||||||||||||
Corporate pension and other postretirement benefit related charges (6) | 8.8 | — | 8.8 | — | |||||||||||||||||
Tax indemnification and related items | — | — | — | 0.5 | |||||||||||||||||
Total Adjustments | 14.4 | 1.8 | % | 8.4 | 0.9 | % | 19.9 | 1.2 | % | 18.0 | 0.9 | % | |||||||||
Adjusted EBITDA | $ | 164.2 | 20.4 | % | $ | 196.8 | 19.7 | % | $ | 341.2 | 19.8 | % | $ | 399.2 | 20.2 | % | |||||
(1) Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) relate to: (i) plant closures; (ii) the rationalization of certain plants and (iii) severance related to cost reduction initiatives. The Company re-assesses its operating footprint and cost structure periodically, and makes adjustments as needed that result in restructuring charges. However, management believes these actions are not representative of the Company's core operations. | |||||||||||||||||||||
(2) Represents property loss and related expenses during the periods presented (net of insurance proceeds received in first quarter of 2020) resulting from property loss that occurred during the first quarter of 2019 at one of the Company's warehouses in Knoxville, Tennessee and during the third quarter of 2019 at one of the Company's warehouses in Yantai, China. | |||||||||||||||||||||
(3) Acquisition-related charges in the second quarter of 2020 primarily related to the BEKA acquisition, including transaction costs and inventory step-up impact. Acquisition-related charges in the second quarter of 2019 primarily related to the Rollon and Diamond Chain acquisitions, including transaction costs and inventory step-up impact. | |||||||||||||||||||||
(4) The Brazil legal matter represents expense recorded to establish a liability associated with an investigation into alleged antitrust violations in the bearing industry that was settled in the fourth quarter of 2019. | |||||||||||||||||||||
(5) The gain on sale of real estate is related to the sale of a manufacturing facility in Pulaski, Tennessee. This amount was recorded in other income. | |||||||||||||||||||||
(6) Corporate pension and other postretirement benefit related charges represent actuarial (gains) and losses that resulted from the remeasurement of plan assets and obligations as a result of changes in assumptions. The Company recognizes actuarial (gains) and losses in connection with the annual remeasurement in the fourth quarter, or if specific events trigger a remeasurement. Refer to the Retirement Benefit Plans and Other Postretirement Benefit Plans footnotes within the Company's annual reports on Form 10-K and quarterly reports on Form 10-Q for additional discussion. | |||||||||||||||||||||
Reconciliation of segment EBITDA Margin, After Adjustments, to segment EBITDA as a Percentage of Sales and segment EBITDA, After Adjustments, to segment EBITDA: | |||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||
The following reconciliation is provided as additional relevant information about the Company's Mobile Industries and Process Industries segment performance deemed useful to investors. Management believes that non-GAAP measures of adjusted EBITDA and adjusted EBITDA margin for the segments are useful to investors as they are representative of each segment's core operations and are used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. | |||||||||||||||||||||
Mobile Industries | |||||||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||||||
(Dollars in millions) | 2020 | Percentage | 2019 | Percentage | 2020 | Percentage | 2019 | Percentage | |||||||||||||
Earnings before interest, taxes, depreciation and amortization | $ | 38.8 | 11.3 | % | $ | 78.0 | 15.8 | % | $ | 113.9 | 14.1 | % | $ | 157.3 | 15.8 | % | |||||
Impairment, restructuring and reorganization charges (1) | 2.4 | 0.7 | 3.6 | 1.0 | |||||||||||||||||
Gain on sale of real estate (2) | — | — | — | (1.7) | |||||||||||||||||
Property loss and related expenses, net of insurance | 0.1 | (0.2) | (2.1) | 5.8 | |||||||||||||||||
Acquisition-related charges (4) | 0.7 | 0.1 | 2.6 | 0.1 | |||||||||||||||||
Adjusted EBITDA | $ | 42.0 | 12.3 | % | $ | 78.6 | 15.9 | % | $ | 118.0 | 14.6 | % | $ | 162.5 | 16.4 | % | |||||
Process Industries | |||||||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||||||
(Dollars in millions) | 2020 | Percentage | 2019 | Percentage | 2020 | Percentage | 2019 | Percentage | |||||||||||||
Earnings before interest, taxes, depreciation and amortization | $ | 126.3 | 27.4 | % | $ | 125.7 | 24.8 | % | $ | 233.8 | 25.5 | % | $ | 253.3 | 25.7 | % | |||||
Impairment, restructuring and reorganization charges (1) | 2.2 | 1.5 | 5.3 | 1.2 | |||||||||||||||||
Acquisition-related charges (4) | 0.3 | 2.5 | 1.2 | 6.4 | |||||||||||||||||
Adjusted EBITDA | $ | 128.8 | 27.9 | % | $ | 129.7 | 25.6 | % | $ | 240.3 | 26.2 | % | $ | 260.9 | 26.5 | % | |||||
(1) Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) relate to: (i) plant closures; (ii) the rationalization of certain plants and (iii) severance related to cost reduction initiatives. The Company re-assesses its operating footprint and cost structure periodically, and makes adjustments as needed that result in restructuring charges. However, management believes these actions are not representative of the Company's core operations. | |||||||||||||||||||||
(2) The gain on sale of real estate is related to the sale of a manufacturing facility in Pulaski, Tennessee. This amount was recorded in other income. | |||||||||||||||||||||
(3) Represents property loss and related expenses during the periods presented (net of insurance proceeds received in first quarter of 2020) resulting from property loss that occurred during the first quarter of 2019 at one of the Company's warehouses in Knoxville, Tennessee and during the third quarter of 2019 at one of the Company's warehouses in Yantai, China. | |||||||||||||||||||||
(4) Acquisition-related charges in the second quarter of 2020 primarily related to the inventory step-up impact of the BEKA acquisition. Acquisition-related charges in the second quarter of 2019 primarily related to the inventory step-up impact of the Rollon and Diamond Chain acquisitions. | |||||||||||||||||||||
Reconciliation of Total Debt to Net Debt, the Ratio of Net Debt to Capital, and the Ratio of Net Debt to Adjusted EBITDA: | ||||||||||||
(Unaudited) | ||||||||||||
These reconciliations are provided as additional relevant information about the Company's financial position deemed useful to investors. Capital, used for the ratio of net debt to capital, is a non-GAAP measure defined as total debt less cash and cash equivalents plus total shareholders' equity. Management believes Net Debt, the Ratio of Net Debt to Capital, Adjusted EBITDA (see below), and the Ratio of Net Debt to Adjusted EBITDA are important measures of the Company's financial position, due to the amount of cash and cash equivalents on hand. | ||||||||||||
(Dollars in millions) | ||||||||||||
June 30, | December 31, | |||||||||||
Short-term debt, including current portion of long-term debt | $ | 61.3 | $ | 82.0 | ||||||||
Long-term debt | 1,730.1 | 1,648.1 | ||||||||||
Total Debt | $ | 1,791.4 | $ | 1,730.1 | ||||||||
Less: Cash and cash equivalents | (415.6) | (209.5) | ||||||||||
Net Debt | $ | 1,375.8 | $ | 1,520.6 | ||||||||
Total Equity | $ | 1,967.6 | $ | 1,954.8 | ||||||||
Ratio of Net Debt to Capital | 41.1 | % | 43.8 | % | ||||||||
Adjusted EBITDA for the Twelve Months Ended | $ | 668.3 | $ | 726.3 | ||||||||
Ratio of Net Debt to Adjusted EBITDA | 2.1 | 2.1 | ||||||||||
Reconciliation of Free Cash Flow to GAAP Net Cash Provided by Operating Activities: | ||||||||||||
(Unaudited) | ||||||||||||
Management believes that free cash flow is a non-GAAP measure that is useful to investors because it is a meaningful indicator of cash generated from operating activities available for the execution of its business strategy. | ||||||||||||
(Dollars in millions) | ||||||||||||
Three Months Ended | Six Months Ended | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Net cash provided by operating activities | $ | 247.4 | $ | 157.6 | $ | 303.6 | $ | 209.9 | ||||
Less: capital expenditures | (24.7) | (23.0) | (56.5) | (39.2) | ||||||||
Free cash flow | $ | 222.7 | $ | 134.6 | $ | 247.1 | $ | 170.7 | ||||
Reconciliation of EBITDA, After Adjustments, to GAAP Net Income: | ||||||
(Unaudited) | ||||||
The following reconciliation is provided as additional relevant information about the Company's performance deemed useful to investors. Management believes consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP measure that is useful to investors as it is representative of the Company's performance and that it is appropriate to compare GAAP net income to consolidated EBITDA. Management also believes that the non-GAAP measure of adjusted EBITDA is useful to investors as it is representative of the Company's core operations and is used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. | ||||||
(Dollars in millions) | Twelve Months Ended | Twelve Months Ended | ||||
Net Income | $ | 330.3 | $ | 374.7 | ||
Provision for income taxes | 80.4 | 97.7 | ||||
Interest expense | 70.8 | 72.1 | ||||
Interest income | (4.6) | (4.9) | ||||
Depreciation and amortization | 163.4 | 160.6 | ||||
Consolidated EBITDA | $ | 640.3 | $ | 700.2 | ||
Adjustments: | ||||||
Impairment, restructuring and reorganization charges (1) | $ | 15.9 | $ | 9.1 | ||
Acquisition-related charges (2) | 11.8 | 15.5 | ||||
Brazil legal matter (3) | (1.5) | 1.8 | ||||
Gain on sale of real estate (4) | (2.8) | (4.5) | ||||
Corporate pension and other postretirement benefit related charges (5) | 4.7 | (4.1) | ||||
Property loss and related expenses, net of insurance proceeds (6) | (0.3) | 7.6 | ||||
Tax indemnification and related items | 0.2 | 0.7 | ||||
Total Adjustments | 28.0 | 26.1 | ||||
Adjusted EBITDA | $ | 668.3 | $ | 726.3 | ||
(1) Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) relate to: (i) plant closures; (ii) the rationalization of certain plants and (iii) severance related to cost reduction initiatives. The Company re-assesses its operating footprint and cost structure periodically, and makes adjustments as needed that result in restructuring charges. However, management believes these actions are not representative of the Company's core operations. | ||||||
(2) Acquisition-related charges in 2020 primarily related to the BEKA acquisition, including transaction costs and inventory step-up impact. Acquisition-related charges in 2019 primarily related to the Rollon, Diamond Chain and BEKA acquisitions, including transaction costs and inventory step-up impact. | ||||||
(3) The Brazil legal matter represents expense recorded to establish a liability associated with an investigation into alleged antitrust violations in the bearing industry that was settled in the fourth quarter of 2019. | ||||||
(4) The gain on sale of real estate related to the sale of a manufacturing facility in Pulaski, Tennessee during the first quarter of 2019 and disposal of land in Colmar, France during the fourth quarter of 2019. These amounts were recorded in other income. | ||||||
(5) Corporate pension and other postretirement benefit related charges represent actuarial (gains) and losses that resulted from the remeasurement of plan assets and obligations as a result of changes in assumptions. The Company recognizes actuarial (gains) and losses in connection with the annual remeasurement in the fourth quarter, or if specific events trigger a remeasurement. | ||||||
(6) Represents property loss and related expenses during the periods presented (net of insurance proceeds received) resulting from property loss that occurred during the first quarter of 2019 at one of the Company's warehouses in Knoxville, Tennessee and during the third quarter of 2019 at one of the Company's warehouses in Yantai, China. | ||||||
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SOURCE The Timken Company
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