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
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Date of Report (Date of earliest event reported): | October 28, 2015 |
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THE TIMKEN COMPANY |
(Exact Name of Registrant as Specified in its Charter) |
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Ohio |
(State or Other Jurisdiction of Incorporation) |
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1-1169 | | 34-0577130 |
(Commission File Number) | | (I.R.S. Employer Identification No.) |
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4500 Mt. Pleasant St. NW, North Canton, Ohio 44720-5450
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(Address of Principal Executive Offices) (Zip Code) |
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(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 October 28, 2015 announcing results for the third quarter of 2015. 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 October 28, 2015, the Timken Company will host a conference call and has posted 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
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Exhibit No. | | Description |
99.1 | | Press Release of The Timken Company dated October 28, 2015 |
99.2 | | Investor Presentation dated October 28, 2015 |
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.
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| | | THE TIMKEN COMPANY |
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| | By: | /s/ William R. Burkhart |
| | | William R. Burkhart |
| | | Executive Vice President, General Counsel and Secretary |
Date: | | October 28, 2015 | |
EXHIBIT INDEX
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Exhibit No. | | Description |
99.1 | | Press Release of The Timken Company dated October 28, 2015. |
99.2 | | Conference Call Materials dated October 28, 2015. |
Timken Reports Third-Quarter Results
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• | Generated adjusted earnings of $0.55 per diluted share |
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• | Delivered strong free cash flow of $119 million |
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• | Repurchased 1.55 million shares during the quarter |
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• | Closed on acquisition of industrial belts business |
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• | Revises full-year adjusted EPS guidance range to $2.05 to $2.10 |
NORTH CANTON, Ohio: Oct. 28, 2015 - The Timken Company (NYSE: TKR; www.timken.com), a global leader in bearings, today reported sales of $707.4 million for the third quarter of 2015, down 10 percent from a year ago. Currency accounted for half of the decrease. The remaining decline was primarily due to continued softening across industrial end markets, partially offset by the benefit of acquisitions.
Net income from continuing operations was $63.4 million or $0.75 per diluted share for the quarter, versus a loss of $10.9 million or $0.12 per share a year ago. The third quarter of 2014 included a $118 million pre-tax charge related to the restructuring of the company’s aerospace business.
Adjusted net income from continuing operations (see table) was $46.7 million or $0.55 per diluted share. This compares with $70.0 million or $0.77 per diluted share for the same period in 2014. The year-over-year change in adjusted net income reflects the impact of negative currency, lower volume and unfavorable price/mix, partially offset by favorable material, operating and SG&A costs, and a lower tax rate. Earnings per share benefited from the company’s share buyback program, with 1.55 million shares repurchased in the third quarter, bringing the year-to-date total to 5.9 million shares. Free cash flow (net cash from operations minus capital expenditures) for the quarter was $119 million.
“Given the market environment, we performed well in the quarter. We generated strong cash flow, closed on an acquisition, purchased over 1.5 million shares and made progress on both our outgrowth and cost-reduction initiatives,” Timken President and CEO Richard G. Kyle reported. “We continue to experience downward pressure in several of our end markets, including agriculture, metals, mining, oil and gas, and broadly across the industrial distribution channel.
“End markets have declined more than expected and the timing of a recovery remains uncertain,” Kyle added. “As a result, we are accelerating our cost-reduction actions to return operating margins to our targeted ranges. Although many of our end markets are in cyclical downturns, the diversity of our markets serves us well and we expect them to continue to present attractive long-term profitable growth opportunities for Timken.”
Adjusted Net Income and Diluted Earnings Per Share (EPS) from Continuing Operations
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| 2015 - 3Q | 2014 - 3Q |
| ($ in Mils.) | EPS | ($ in Mils.) | EPS |
Net Income (Loss) from Continuing Operations | $ 63.4 | $0.75 | $(10.9) | $(0.12) |
Adjustments: | | | | |
Pension settlement charges | $ 3.6 | $0.04 | $ -- | $ -- |
Impairment and restructuring charges | 4.8 | 0.06 | 119.5 | 1.33 |
Acquisition-related one-time charges | 1.9 | 0.02 | -- | -- |
Benefit from income taxes | (27.0) | (0.32) | (38.6) | (0.44) |
Total adjustments | (16.7) | (0.20) | 80.9 | 0.89 |
Net Income, after adjustments | $ 46.7 | $ 0.55 | $ 70.0 | $ 0.77 |
Among recent developments, the company:
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• | Completed an acquisition to expand its portfolio of power transmission products, adding belts used in industrial, commercial and consumer applications and sold under well-recognized brands that include Carlisle, Ultimax and Panther; |
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• | Sold Timken Alcor Aerospace Technologies, Inc., located in Mesa, Ariz., for approximately $45 million; |
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• | Broke ground on a $20 million expansion of the company’s Jamshedpur bearing manufacturing facility in India to serve the demands of local and international Mobile Industries markets; |
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• | Opened a motor and gearbox repair facility in Pasco, Wash., adding new capabilities to repair large electric motors, wind turbine generators and industrial gearboxes; |
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• | Received a $46 million multi-year contract from the U.S. Defense Department for the overhaul of Apache helicopter transmissions; and |
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• | Repurchased 1.55 million shares in the third quarter for an aggregate of $50.7 million. |
Third-Quarter Segment Results
Mobile Industries reported third-quarter sales of $396.4 million, down approximately 7 percent from the same period a year ago. Excluding negative currency of 6 percent, sales were down 1 percent, driven largely by lower off-highway and aerospace demand, partially offset by growth in automotive and rail and the benefit of acquisitions.
Earnings before interest and taxes (EBIT) for the third quarter were $43 million or 10.8 percent of sales, compared with a prior-year loss of $63.4 million or 14.8 percent of sales. The third quarter of 2014 included a $118 million charge related to the restructuring of our aerospace business. Adjusted EBIT was $46.1 million or 11.6 percent of sales, compared with $56.5 million or 13.2 percent of sales in the third quarter last year. The difference in year-over-year earnings was driven by the impact of lower volume, unfavorable price/mix and currency, partially offset by favorable material and operating costs and lower SG&A expenses.
Process Industries sales of $311.0 million for the third quarter were down 14 percent from the prior year. Excluding currency of 5 percent, sales were down 9 percent, driven by weaker demand in heavy industries and the industrial aftermarket, partially offset by the benefit of acquisitions.
EBIT for the quarter was $43.1 million or 13.9 percent of sales, compared with prior-year EBIT of $74.4 million or 20.6 percent of sales. Adjusted EBIT was $45.4 million or 14.6 percent of sales, compared with $74.0 million or 20.5 percent of sales in the third quarter last year. The decrease in earnings was driven by the impact of lower volume, unfavorable price/mix and currency, partially offset by favorable material and operating costs and lower SG&A expenses.
2015 Outlook
The company revised its full-year outlook to reflect year-to-date results and expected continued softening in many of its industrial end markets. The company now expects year-over-year revenue to be down approximately 8 percent, which includes 5 percent from currency. The segment outlook for full-year 2015 is now as follows:
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• | Mobile Industries' sales expected to be down approximately 8 percent. Without the impact of currency, sales are expected to be down approximately 3 percent reflecting lower shipments in off-highway and aerospace, partially offset by organic growth in automotive and rail, and the benefit of acquisitions. |
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• | Process Industries' sales expected to be down approximately 8 percent. Excluding currency, sales are expected to be down approximately 3 percent, as growth in wind energy and military marine and the benefit of acquisitions are more than offset by weaker demand in heavy industries and the industrial aftermarket. |
Timken now expects 2015 earnings per diluted share to range from $0.65 to $0.70 on a GAAP basis. Excluding unusual items, adjusted earnings per diluted share are expected to range from $2.05 to $2.10.
Conference Call Information
Timken will host a conference call today at 9:00 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, October 28, 2015
9:00 a.m. Eastern Time
Live Dial-In: 888-740-6143 or 913-312-1448
(Call in 10 minutes prior to be included.)
Conference ID: Timken Earnings Call
Live Webcast: www.timken.com/investors
Conference Call Replay: Replay Dial-In available through November 11, 2015:
888-203-1112 or 719-457-0820
Replay Passcode: 9912233
About The Timken Company
The Timken Company (NYSE: TKR; www.timken.com) engineers, manufactures and markets bearings, transmissions, gearboxes, 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 $3.1 billion in sales in 2014. With 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 and expectations) that are not historical in nature are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, the statements related to expectations regarding the company's future financial performance, including information under the heading "Outlook," are forward-looking. The company cautions that actual results may differ materially from those projected or implied in forward-looking statements due to a variety of important factors, including: the finalization of the company's financial statements for the third quarter of 2015; 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 financial 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; and the company’s ability to complete and achieve the benefits of announced plans, programs, initiatives 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, 2014, 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.
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Media Contact: Clark Harvey | | Investor Contact: Shelly Chadwick |
Manager - Communications | | Vice President - Treasury & Investor Relations |
Telephone: (234) 262-3514 | | Telephone: (234) 262-3223 |
mediarelations@timken.com | | shelly.chadwick@timken.com |
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The Timken Company | | | | | |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | | | | | |
(Unaudited) | | | | | |
(Dollars in millions, except per share data) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2015 | 2014 | | 2015 | 2014 |
Net sales | $ | 707.4 |
| $ | 788.0 |
| | $ | 2,157.9 |
| $ | 2,314.0 |
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Cost of products sold | 512.0 |
| 562.5 |
| | 1,554.9 |
| 1,636.8 |
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Gross Profit | 195.4 |
| 225.5 |
| | 603.0 |
| 677.2 |
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Selling, general & administrative expenses (SG&A) | 120.7 |
| 132.2 |
| | 375.3 |
| 410.8 |
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Impairment and restructuring charges | 4.4 |
| 99.4 |
| | 12.0 |
| 108.0 |
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Pension settlement charges | 3.6 |
| — |
| | 223.2 |
| 0.7 |
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Operating Income (Loss) | 66.7 |
| (6.1 | ) | | (7.5 | ) | 157.7 |
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Other (expense) income, net | (0.8 | ) | 1.8 |
| | (1.1 | ) | 20.7 |
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Earnings (Loss) Before Interest and Taxes (EBIT)(1) | 65.9 |
| (4.3 | ) | | (8.6 | ) | 178.4 |
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Interest expense, net | (8.0 | ) | (8.1 | ) | | (23.0 | ) | (17.3 | ) |
Income (Loss) From Continuing Operations Before Income Taxes | 57.9 |
| (12.4 | ) | | (31.6 | ) | 161.1 |
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Provision (benefit) for income taxes | (6.6 | ) | (2.2 | ) | | 1.0 |
| 53.4 |
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Income (Loss) From Continuing Operations | 64.5 |
| (10.2 | ) | | (32.6 | ) | 107.7 |
|
Income (loss) from discontinued operations, net of income taxes(2) | — |
| (11.0 | ) | | — |
| 18.7 |
|
Net Income (Loss) | 64.5 |
| (21.2 | ) | | (32.6 | ) | 126.4 |
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Less: Net Income Attributable to Noncontrolling Interest | 1.1 |
| 0.7 |
| | 2.5 |
| 2.1 |
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Net Income (Loss) Attributable to The Timken Company | $ | 63.4 |
| $ | (21.9 | ) | | $ | (35.1 | ) | $ | 124.3 |
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Net Income (Loss) per Common Share Attributable to The Timken Company Common Shareholders | | | | | |
Basic Earnings (Loss) per share - Continuing Operations | $ | 0.76 |
| $ | (0.12 | ) | | $ | (0.41 | ) | $ | 1.16 |
|
Basic Earnings (Loss) per share - Discontinued Operations | — |
| (0.12 | ) | | — |
| 0.21 |
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Basic Earnings (Loss) per share | $ | 0.76 |
| $ | (0.24 | ) | | $ | (0.41 | ) | $ | 1.37 |
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Diluted Earnings (Loss) per share - Continuing Operations | $ | 0.75 |
| $ | (0.12 | ) | | $ | (0.41 | ) | $ | 1.15 |
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Diluted Earnings (Loss) per share - Discontinued Operations | — |
| (0.12 | ) | | — |
| 0.20 |
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Diluted Earnings (Loss) per share | $ | 0.75 |
| $ | (0.24 | ) | | $ | (0.41 | ) | $ | 1.35 |
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Average Shares Outstanding | 83,671,931 |
| 89,683,436 |
| | 85,578,800 |
| 90,889,871 |
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Average Shares Outstanding - assuming dilution | 84,145,751 |
| 89,683,436 |
| | 85,578,800 |
| 91,710,028 |
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(1) 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. |
(2) Discontinued Operations related to the spinoff of the steel business on June 30, 2014 and includes both operating results and separation costs. |
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BUSINESS SEGMENTS | | | | | |
(Unaudited) | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
(Dollars in millions) | 2015 | 2014 | | 2015 | 2014 |
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Mobile Industries | | | | | |
Net sales to external customers | $ | 396.4 |
| $ | 427.0 |
| | $ | 1,178.0 |
| $ | 1,295.9 |
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Earnings (loss) before interest and taxes (EBIT) (1) | $ | 43.0 |
| $ | (63.4 | ) | | $ | 114.4 |
| $ | 43.2 |
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EBIT Margin (1) | 10.8 | % | (14.8 | )% | | 9.7 | % | 3.3 | % |
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Process Industries | | | | | |
Net sales to external customers | $ | 311.0 |
| $ | 361.0 |
| | $ | 979.9 |
| $ | 1,018.1 |
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Earnings before interest and taxes (EBIT) (1) | $ | 43.1 |
| $ | 74.4 |
| | $ | 145.0 |
| $ | 187.4 |
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EBIT Margin (1) | 13.9 | % | 20.6 | % | | 14.8 | % | 18.4 | % |
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Unallocated corporate expense | $ | (16.6 | ) | $ | (15.3 | ) | | $ | (44.8 | ) | $ | (52.2 | ) |
Unallocated pension settlement charges (2) | $ | (3.6 | ) | $ | — |
| | $ | (223.2 | ) | $ | — |
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Consolidated | | | | | |
Net sales to external customers | $ | 707.4 |
| $ | 788.0 |
| | $ | 2,157.9 |
| $ | 2,314.0 |
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Earnings (loss) before interest and taxes (EBIT) (1) | $ | 65.9 |
| $ | (4.3 | ) | | $ | (8.6 | ) | $ | 178.4 |
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EBIT Margin (1) | 9.3 | % | (0.5 | )% | | (0.4 | )% | 7.7 | % |
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(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. |
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(2) Unallocated pension settlement charges primarily related to the purchase of a group annuity contract from Prudential Insurance Company of America (Prudential) on January 23, 2015, that requires 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 during the first nine months of 2015.
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CONDENSED CONSOLIDATED BALANCE SHEETS | | |
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(Dollars in millions) | (Unaudited) September 30, 2015 | | December 31,
2014 |
ASSETS | | | |
Cash and cash equivalents | $ | 155.0 |
| | $ | 278.8 |
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Restricted cash | 14.8 |
| | 15.3 |
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Accounts receivable | 469.8 |
| | 475.7 |
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Inventories, net | 595.4 |
| | 585.5 |
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Other current assets | 143.9 |
| | 126.6 |
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Total Current Assets | 1,378.9 |
| | 1,481.9 |
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Property, Plant and Equipment, net | 783.1 |
| | 780.5 |
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Goodwill | 327.1 |
| | 259.5 |
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Non-current pension assets | 114.1 |
| | 176.2 |
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Other assets | 343.4 |
| | 303.3 |
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Total Assets | $ | 2,946.6 |
| | $ | 3,001.4 |
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LIABILITIES | | | |
Accounts payable | $ | 176.0 |
| | $ | 143.9 |
|
Short-term debt, including current portion of long-term debt | 98.7 |
| | 8.0 |
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Income taxes | 75.0 |
| | 80.2 |
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Accrued expenses | 255.9 |
| | 301.7 |
|
Total Current Liabilities | 605.6 |
| | 533.8 |
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Long-term debt | 625.9 |
| | 522.1 |
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Accrued pension cost | 158.8 |
| | 165.9 |
|
Accrued postretirement benefits cost | 130.1 |
| | 141.8 |
|
Other non-current liabilities | 74.6 |
| | 48.7 |
|
Total Liabilities | 1,595.0 |
| | 1,412.3 |
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EQUITY | | | |
The Timken Company shareholders' equity | 1,334.3 |
| | 1,576.2 |
|
Noncontrolling Interest | 17.3 |
| | 12.9 |
|
Total Equity | 1,351.6 |
| | 1,589.1 |
|
Total Liabilities and Equity | $ | 2,946.6 |
| | $ | 3,001.4 |
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | |
(Unaudited) | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
(Dollars in millions) | 2015 | 2014 | 2015 | 2014 |
Cash Provided (Used) | | | | |
OPERATING ACTIVITIES | | | | |
Net income (loss) attributable to The Timken Company | $ | 63.4 |
| $ | (21.9 | ) | $ | (35.1 | ) | $ | 124.3 |
|
Net income from discontinued operations | — |
| 11.0 |
| — |
| (18.7 | ) |
Net income attributable to noncontrolling interest | 1.1 |
| 0.7 |
| 2.5 |
| 2.1 |
|
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: | | | | |
Depreciation and amortization | 32.2 |
| 34.1 |
| 97.8 |
| 103.4 |
|
Impairment charges | — |
| 98.0 |
| 3.3 |
| 98.8 |
|
Loss (gain) on sale of assets | 0.4 |
| 1.3 |
| 2.1 |
| (20.9 | ) |
Pension and other postretirement expense | 13.5 |
| 7.6 |
| 251.5 |
| 22.5 |
|
Pension and other postretirement benefit contributions and payments | (6.6 | ) | (6.6 | ) | (23.5 | ) | (47.6 | ) |
Changes in operating assets and liabilities: | | | | |
Accounts receivable | 20.8 |
| (13.3 | ) | (1.9 | ) | (52.6 | ) |
Inventories | 9.9 |
| (12.3 | ) | 7.1 |
| (52.1 | ) |
Accounts payable | (1.9 | ) | 10.4 |
| 27.0 |
| 47.3 |
|
Accrued expenses | (1.3 | ) | (10.9 | ) | (56.0 | ) | (7.4 | ) |
Income taxes | (13.1 | ) | (11.4 | ) | (57.6 | ) | (47.6 | ) |
Other, net | 22.4 |
| 3.6 |
| 29.1 |
| 21.3 |
|
Net Cash Provided by Operating Activities - Continuing Operations | $ | 140.8 |
| $ | 90.3 |
| $ | 246.3 |
| $ | 172.8 |
|
Net Cash (Used) Provided by Operating Activities - Discontinued Operations | — |
| (11.0 | ) | — |
| 22.6 |
|
Net Cash Provided by Operating Activities | $ | 140.8 |
| $ | 79.3 |
| $ | 246.3 |
| $ | 195.4 |
|
INVESTING ACTIVITIES | | | | |
Capital expenditures | $ | (21.6 | ) | $ | (38.6 | ) | $ | (65.1 | ) | $ | (87.1 | ) |
Acquisitions | (213.6 | ) | — |
| (213.6 | ) | (12.0 | ) |
Other | (0.3 | ) | 1.2 |
| 9.9 |
| 19.0 |
|
Net Cash Used by Investing Activities - Continuing Operations | $ | (235.5 | ) | $ | (37.4 | ) | $ | (268.8 | ) | $ | (80.1 | ) |
Net Cash Used by Investing Activities - Discontinued Operations | — |
| — |
| — |
| (77.0 | ) |
Net Cash Used by Investing Activities | $ | (235.5 | ) | $ | (37.4 | ) | $ | (268.8 | ) | $ | (157.1 | ) |
FINANCING ACTIVITIES | | | | |
Cash dividends paid to shareholders | $ | (21.7 | ) | $ | (22.5 | ) | $ | (65.7 | ) | $ | (68.2 | ) |
Purchase of treasury shares | (50.7 | ) | (115.2 | ) | (227.9 | ) | (266.5 | ) |
Net proceeds (payments) from credit facilities | 1.6 |
| (54.9 | ) | 76.4 |
| (9.5 | ) |
Net proceeds from long-term debt | 85.0 |
| 95.8 |
| 119.6 |
| 95.6 |
|
Distribution of TimkenSteel | — |
| (3.0 | ) | — |
| (46.5 | ) |
Other | 3.9 |
| 11.3 |
| 7.4 |
| 20.0 |
|
Net Cash Provided (Used) by Financing Activities - Continuing Operations | $ | 18.1 |
| $ | (88.5 | ) | $ | (90.2 | ) | $ | (275.1 | ) |
Net Cash Provided by Financing Activities - Discontinued Operations | — |
| — |
| — |
| 100.0 |
|
Net Cash Provided (Used) by Financing Activities | $ | 18.1 |
| $ | (88.5 | ) | $ | (90.2 | ) | $ | (175.1 | ) |
Effect of exchange rate changes on cash | (5.2 | ) | (10.0 | ) | (11.1 | ) | (9.6 | ) |
Decrease in Cash and Cash Equivalents | $ | (81.8 | ) | $ | (56.6 | ) | $ | (123.8 | ) | $ | (146.4 | ) |
Cash and cash equivalents at beginning of period | 236.8 |
| 294.8 |
| 278.8 |
| 384.6 |
|
Cash and Cash Equivalents at End of Period | $ | 155.0 |
| $ | 238.2 |
| $ | 155.0 |
| $ | 238.2 |
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Reconciliations of Adjusted Net Income from Continuing Operations to GAAP Income (Loss) from Continuing Operations and Adjusted 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 from continuing operations and diluted earnings (loss) per share, adjusted to remove: (a) pension settlement charges; (b) impairment and restructuring charges; (c) gain on sale of real estate in Brazil; (d) acquisition related charges; and (e) benefit from income taxes are representative of the Company's performance and therefore useful to investors. |
| | | | | | | | | | | | | | |
(Dollars in millions, except share data) | | Three Months Ended
September 30, | | Nine Months Ended September 30, |
| | 2015 | | EPS | 2014 | | EPS | | 2015 | | EPS | 2014 | | EPS |
Income (Loss) from Continuing Operations | | $ | 64.5 |
| | | $ | (10.2 | ) | | | | $ | (32.6 | ) | | | $ | 107.7 |
| | |
Less: Net Income Attributable to Noncontrolling Interest | | 1.1 |
| | | 0.7 |
| | | | 2.5 |
| | | 2.1 |
| | |
Net Income (Loss) from Continuing Operations attributable to The Timken Company | | $ | 63.4 |
| | $ | 0.75 |
| $ | (10.9 | ) | | $ | (0.12 | ) | | $ | (35.1 | ) | | $ | (0.41 | ) | $ | 105.6 |
| | $ | 1.15 |
|
| | | | | | | | | | | | | | |
Adjustments: | | | | | | | | | | | | | | |
Pension settlement charges (1) | | $ | 3.6 |
| | $ | 0.04 |
| $ | — |
| | $ | — |
| | $ | 223.2 |
| | $ | 2.59 |
| $ | 0.7 |
| | $ | 0.01 |
|
Impairment and restructuring charges (2) | | 4.8 |
| | 0.06 |
| 119.5 |
| | 1.33 |
| | 13.1 |
| | 0.15 |
| 129.9 |
| | 1.42 |
|
Gain on sale of real estate in Brazil (3) | | — |
| | — |
| — |
| | — |
| | — |
| | — |
| (22.6 | ) | | (0.25 | ) |
Acquisition related charges (4) | | 1.9 |
| | 0.02 |
| — |
| | — |
| | 1.9 |
| | 0.02 |
| — |
| | — |
|
Benefit from income taxes (5) | | (27.0 | ) | | (0.32 | ) | (38.6 | ) | | (0.44 | ) | | (63.0 | ) | | (0.73 | ) | (38.1 | ) | | (0.42 | ) |
Total Adjustments: | | (16.7 | ) | | (0.20 | ) | 80.9 |
| | 0.89 |
| | 175.2 |
| | 2.03 |
| 69.9 |
| | 0.76 |
|
Adjusted Net Income from Continuing Operations | | $ | 46.7 |
| | $ | 0.55 |
| $ | 70.0 |
| | $ | 0.77 |
| | $ | 140.1 |
| | $ | 1.62 |
| $ | 175.5 |
| | $ | 1.91 |
|
| | | | | | | | | | | | | | |
(1) Pension settlement charges primarily related to the purchase of a group annuity contract from Prudential on January 23, 2015, that requires 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 during the first nine months of 2015.
|
| | | | | | | | | | | | | | |
(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) Gain on the sale of real estate related to the sale of the former manufacturing facility in Sao Paulo, Brazil. |
| | | | | | | | | | | | | | |
(4) Acquisition related charges related to the acquisition of the Carlstar Belts Business. |
| | | | | | | | | | | | | | |
(5) Benefit from income taxes includes the tax impact on 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. |
|
| | | | | | | | | | | | | | | | | | | | | |
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
September 30, | | Nine Months Ended September 30, |
| 2015 | Percentage to Net Sales | 2014 | Percentage to Net Sales | | 2015 | Percentage to Net Sales | 2014 | Percentage to Net Sales |
Net Income (Loss) | $ | 64.5 |
| 9.1 | % | $ | (21.2 | ) | (2.7 | )% | | $ | (32.6 | ) | (1.5 | )% | $ | 126.4 |
| 5.5 | % |
| | | | | | | | | |
Income From Discontinued Operations, net of income taxes | — |
| — | % | 11.0 |
| 1.4 | % | | — |
| — | % | (18.7 | ) | (0.8 | )% |
Provision (benefit) for income taxes | (6.6 | ) | (0.9 | )% | (2.2 | ) | (0.3 | )% | | 1.0 |
| — | % | 53.4 |
| 2.3 | % |
Interest expense | 8.6 |
| 1.2 | % | 9.1 |
| 1.2 | % | | 25.0 |
| 1.2 | % | 20.4 |
| 0.9 | % |
Interest income | (0.6 | ) | (0.1 | )% | (1.0 | ) | (0.1 | )% | | (2.0 | ) | (0.1 | )% | (3.1 | ) | (0.2 | )% |
Consolidated earnings (loss) before interest and taxes (EBIT) | $ | 65.9 |
| 9.3 | % | $ | (4.3 | ) | (0.5 | )% | | $ | (8.6 | ) | (0.4 | )% | $ | 178.4 |
| 7.7 | % |
| | | | | | | | | |
Adjustments: | | | | | | | | | |
Pension settlement charges (1) | $ | 3.6 |
| 0.5 | % | $ | — |
| — | % | | $ | 223.2 |
| 10.3 | % | $ | 0.7 |
| — | % |
Impairment and restructuring charges(2) | 4.8 |
| 0.7 | % | 119.5 |
| 15.1 | % | | 13.1 |
| 0.6 | % | 129.9 |
| 5.6 | % |
Gain on sale of real estate in Brazil (3) | — |
| — | % | — |
| — | % | | — |
| — | % | (22.6 | ) | (0.9 | )% |
Acquisition related charges(4) | 1.9 |
| 0.3 | % | — |
| — | % | | 1.9 |
| 0.1 | % | — |
| — | % |
Total Adjustments | 10.3 |
| 1.5 | % | 119.5 |
| 15.1 | % | | 238.2 |
| 11.0 | % | 108.0 |
| 4.7 | % |
Consolidated earnings before interest and taxes (EBIT), after adjustments | $ | 76.2 |
| 10.8 | % | $ | 115.2 |
| 14.6 | % | | $ | 229.6 |
| 10.6 | % | $ | 286.4 |
| 12.4 | % |
| | | | | | | | | |
| | | | | | | | | |
(1) Pension settlement charges primarily related to the purchase of a group annuity contract from Prudential on January 23, 2015, that requires 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 during the first nine months of 2015.
|
| | | | | | | | | |
(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) Gain on the sale of real estate related to the sale of the former manufacturing facility in Sao Paulo, Brazil. | | | | | |
| | | | | | | | | |
(4) Acquisition related charges related to the acquisition of the Carlstar Belts Business. | | | | | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
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 September 30, 2015 | Percentage to Net Sales | Three Months Ended September 30, 2014 | Percentage to Net Sales | | Nine Months Ended September 30, 2015 | Percentage to Net Sales | Nine Months Ended September 30, 2014 | Percentage to Net Sales |
Earnings (loss) before interest and taxes (EBIT) | $ | 43.0 |
| 10.8 | % | $ | (63.4 | ) | (14.8 | )% | | $ | 114.4 |
| 9.7 | % | $ | 43.2 |
| 3.3 | % |
| | | | | | | | | |
Pension settlement charges (1) | — |
| — | % | — |
| — | % | | — |
| — | % | 0.7 |
| 0.1 | % |
Impairment and restructuring charges (2) | 2.4 |
| 0.6 | % | 119.9 |
| 28.0 | % | | 4.4 |
| 0.4 | % | 127.2 |
| 9.8 | % |
Gain on sale of real estate in Brazil (3) | — |
| — | % | — |
| — | % | | — |
| — | % | (22.6 | ) | (1.7 | )% |
Acquisition related charges (4) | 0.7 |
| 0.2 | % | — |
| — | % | | 0.7 |
| — | % | — |
| — | % |
Earnings before interest and taxes (EBIT), after adjustments | $ | 46.1 |
| 11.6 | % | $ | 56.5 |
| 13.2 | % | | $ | 119.5 |
| 10.1 | % | $ | 148.5 |
| 11.5 | % |
| | | | | | | | | |
Process Industries | | | | | | | | | |
(Dollars in millions) | Three Months Ended September 30, 2015 | Percentage to Net Sales | Three Months Ended September 30, 2014 | Percentage to Net Sales | | Nine Months Ended September 30, 2015 | Percentage to Net Sales | Nine Months Ended September 30, 2014 | Percentage to Net Sales |
Earnings before interest and taxes (EBIT) | $ | 43.1 |
| 13.9 | % | $ | 74.4 |
| 20.6 | % | | $ | 145.0 |
| 14.8 | % | $ | 187.4 |
| 18.4 | % |
| | | | | | | | | |
Impairment and restructuring charges(2) | 1.8 |
| 0.6 | % | (0.4 | ) | (0.1 | )% | | 8.2 |
| 0.8 | % | 2.5 |
| 0.2 | % |
Acquisition related charges (4) | 0.5 |
| 0.1 | % | — |
| — | % | | 0.5 |
| 0.1 | % | — |
| — | % |
Earnings before interest and taxes (EBIT), after adjustments | $ | 45.4 |
| 14.6 | % | $ | 74.0 |
| 20.5 | % | | $ | 153.7 |
| 15.7 | % | $ | 189.9 |
| 18.6 | % |
| | | | | | | | | |
| | | | | | | | | |
(1) Pension settlement charges related to the settlement of certain pension obligations in Canada.
|
| | | | | | | | | |
(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) Gain on the sale of real estate related to the sale of the former manufacturing facility in Sao Paulo, Brazil. |
| | | | | | | | | |
(4) Acquisition related charges related to the acquisition of the Carlstar Belts Business. |
|
| | | | | | | | | | | | |
Reconciliation of Total Debt to Net Debt and the Ratio of Net Debt to Capital: |
(Unaudited) |
This reconciliation is 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 is an important measure of the Company's financial position, due to the amount of cash and cash equivalents. |
| | |
(Dollars in millions) | | |
| | | September 30,
2015 | December 31,
2014 |
Short-term debt, including current portion of long-term debt | | | $ | 98.7 |
| $ | 8.0 |
|
Long-term debt | | | 625.9 |
| 522.1 |
|
Total Debt | | | $ | 724.6 |
| $ | 530.1 |
|
Less: Cash, cash equivalents and restricted cash | | | (169.8 | ) | (294.1 | ) |
Net Debt | | | $ | 554.8 |
| $ | 236.0 |
|
| | | | |
Total equity | | | $ | 1,351.6 |
| $ | 1,589.1 |
|
| | | | |
Ratio of Total Debt to Capital | | | 34.9 | % | 25.0 | % |
Ratio of Net Debt to Capital | | | 29.1 | % | 12.9 | % |
| | | | |
| | | | |
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
September 30, | Nine Months Ended
September 30, |
| 2015 | 2014 | 2015 | 2014 |
Net cash provided by operating activities from continuing operations | $ | 140.8 |
| $ | 90.3 |
| $ | 246.3 |
| $ | 172.8 |
|
Less: capital expenditures | (21.6 | ) | (38.6 | ) | (65.1 | ) | (87.1 | ) |
Free cash flow | $ | 119.2 |
| $ | 51.7 |
| $ | 181.2 |
| $ | 85.7 |
|
| | | | |
|
| | | | | | | |
Reconciliation of Adjusted Earnings per Share to GAAP Earnings per Share for Full Year 2015 Outlook: |
(Unaudited) |
This reconciliation is provided as additional relevant information about the Company's performance. Management believes that adjusted diluted earnings per share, adjusted to remove: (a) pension settlement charges; (b) impairment and restructuring charges; (c) acquisition related charges; (d) gain on the sale of Alcor; and (e) discrete tax accrual 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 | $ | 0.65 |
| | $ | 0.70 |
|
|
| | |
Adjustments: | | | |
Pension settlement charges (1) | 1.65 |
| | 1.65 |
|
Impairment and restructuring charges (2) | 0.20 |
| | 0.20 |
|
Acquisition related charges (3) | 0.05 |
| | 0.05 |
|
Gain on sale of Alcor (4) | (0.25 | ) | | (0.25 | ) |
Discrete tax accrual adjustments | (0.25 | ) | | (0.25 | ) |
Total Adjustments: | $ | 1.40 |
| | $ | 1.40 |
|
Forecasted full year adjusted diluted earnings per share | $ | 2.05 |
| | $ | 2.10 |
|
| | | |
(1) Pension settlement charges primarily related to the purchase of a group annuity contract from Prudential on January 23, 2015, that requires 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 during 2015.
|
| | | |
(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) Acquisition related charges related to the acquisition of the Carlstar Belts Business. |
| | | |
(4) Gain on sale of Alcor related to the sale of former subsidiary, Timken Alcor Aerospace Technologies, Inc (Alcor). |
3Q 2015 Earnings Investor Presentation October 28, 2015
2 3Q 2015 EARNINGS CONFERENCE CALL DETAIL Conference Call: Wednesday, Oct. 28, 2015 9:00 a.m. Eastern Time Live Dial-In: 888-740-6143 or 913-312-1448 (Call in 10 minutes prior to be included) Conference ID: Timken Earnings Call Conference Call Replay: Replay Dial-In available through Nov. 11, 2015 888-203-1112 or 719-457-0820 Replay Passcode: 9912233 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, “Completed Acquisition of Carlstar Belts”, “Global Macro Environment Weakening”, “Focus on Margin Enhancement and Cash Flow”, “Aerospace Restructuring Update”, “2015 Outlook Update”, “Our Focus”, “3Q 2015 Net Income and Diluted EPS”, “Capital Allocation” and “2015 Full-Year Outlook” are forward-looking. The company cautions that actual results may differ materially from those projected or implied in forward-looking statements due to a variety of important factors, including: the finalization of the company's financial statements for the third quarter of 2015; 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 financial markets; fluctuations in currency valuations; changes in the expected costs associated with product warranty claims; the ability to integrate acquired companies to achieve satisfactory operating results; the impact on operations of general economic conditions; fluctuations in customer demand; the impact on the company’s pension obligations due to the 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 its announced plans, programs, initiatives 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, 2014, 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 3Q 2015 SUMMARY • Sales of $707 million decreased 10% from prior year, or down just under 5% excluding currency of around 5% Process Industries sales down 14%; down 9% excluding currency of 5% Mobile Industries sales down 7%; down 1% excluding currency of 6% • Net income per share from continuing operations of $0.75 versus net loss of $0.12 in same quarter last year 3Q-15 adjusted EPS of $0.55, compared with $0.77 last year Adjusted EBIT margin of 10.8% • Capital Allocation Purchased 1.55 million shares in the quarter Completed belts acquisition Ended the quarter at ~29% net debt-to-capital • Strong Free Cash Flow Generated $119 million of free cash flow See Appendix for reconciliation of adjusted EPS, adjusted EBIT margins, net debt–to-capital and free cash flow to their most directly comparable GAAP equivalents.
5 • A leading North American supplier of power transmission belts for industrial, commercial and consumer applications • Business founded over 100 years ago; headquartered in Springfield, MO • Portfolio features more than 20,000 parts engineered for demanding applications • Expected revenue split 65%/35% between Mobile and Process Industries • Closed on September 1st Key Metrics* ($M) Revenue $140 Adj. EBITDA $22 % Margin 16% # of Employees ~750 *Trailing 12-months as of June 30, 2015 Key Market Sectors Agriculture Outdoor Power Consumer Outdoor Power Commercial Power Sports Industrial Distribution COMPLETED ACQUISITION OF NEW BELTS BUSINESS
6 QUARTERLY SALES TREND YEAR-OVER-YEAR -2% 0% 8% 4% 3% -3% -5% -6% -4% -2% 0% 2% 4% 6% 8% 10% 1Q-2014 2Q-2014 3Q-2014 4Q-2014 1Q-2015 2Q-2015 3Q-2015 All periods are excluding currency See Appendix for reconciliation of net sales excluding the impact of currency to net sales.
7 GLOBAL MACRO ENVIRONMENT WEAKENING* • Decelerating end markets in China • Industrial distribution weak • De-stocking • Agriculture, mining, metals and oil & gas markets at very low levels • Wind and rail growth moderating • Automotive, heavy truck and Europe stable *Outlook as of October 28, 2015.
8 FOCUS ON MARGIN ENHANCEMENT AND CASH FLOW • Ongoing actions to reduce costs Material costs declining; YoY benefit expected to extend into 1H’16 Reducing headcount in manufacturing plants Driving enterprise-wide operational excellence Continued SG&A improvements • Continue to optimize our manufacturing footprint Leveraging global capabilities, shifting production to lower-cost operations Recently broke ground on expansion in Jamshedpur, India, to serve Mobile Industries globally • 2015 cash flow conversion greater than 110% Managing working capital while investing for out-growth and cost reduction 2015 Cost-Savings Ramping; Expect Initiatives to Generate Savings >$60M
9 IMPROVING COST STRUCTURE - SG&A $141.8 $136.8 $132.2 $131.7 $128.5 $126.1 $120.7 $110 $115 $120 $125 $130 $135 $140 $145 1Q-2014 2Q-2014 3Q-2014 4Q-2014 1Q-2015 2Q-2015 3Q-2015* ($M) Continuing to Reduce Expense While Investing in DeltaX Percent of Sales 19.2% 17.3% 16.8% 17.3% 17.8% 17.3% 17.1% *Includes one month of sales and SG&A expense from belts acquisition.
10 AEROSPACE RESTRUCTURING UPDATE Last year, we Launched an Aerospace Performance Improvement Plan: Initiative Status Eliminate the segment and leadership positions, consolidate into Mobile Industries Completed Phase I in Q1’15; Phase II to be complete in Q1’16 Drive margin improvement, operational excellence and outgrowth initiatives Ongoing; margins within Mobile targeted range of 10-13% Close Engine Overhaul Operations Completed in Q4’14 Seek strategic alternatives for PMA Aftermarket Parts Business Business sold for $45M (>2x revenue) in Oct. ’15 Close aerospace bearing plant in the United Kingdom In process; closure expected in 2016 Strong Market Position in 2 Product Categories with ~$230M(1) of Revenue Aero Bearings & Repair Aero Gears/Drives & Repair (1) Based on 2015 pro-forma sales minus divestitures made in the last twelve months.
11 2015 OUTLOOK UPDATE Sales $2.85B $2.83B Organic -2 to -3% -4.5% •Weaker end-market demand and de-stocking Inorganic NM +1.5% • Belts acquisition Currency -5% -5% Total -7 to -8% -8% Earnings (EPS) $2.10-$2.20 $2.05-$2.10 July Outlook October Outlook Change Reflects •Driven by lower volume and mix
12 OUR FOCUS • Respond to uncertain macro environment • Drive margin enhancement/competitiveness initiatives Operational excellence SG&A efficiency • Continue to build our pipeline of out-growth initiatives • Capital Allocation
Financial Review
14 3Q 2015 FINANCIAL HIGHLIGHTS - SALES • Sales of $707 million, down 10% from a year ago Excluding currency impact of ~5.5%, sales declined ~4.5% Decline driven by weakness across industrial end markets partially offset by growth in automotive and rail, and the benefit of acquisitions 3Q ’15 3Q ’14 $707.4 $788.0 $ B/(W) Sales % B/(W) $(80.6) (10.0)% ($M) 3Q 2014 Currency Organic Acquisitions 3Q 2015 $(49) $12 $788 $707 $(44) 3Q-2015 Excluding vs. impact Region 3Q-2014 of currency NA -6% -5% EMEA -14% 3% APAC -21% -16% LatAm -9% 9% Geographic Sales Comparison
15 3Q 2015 FINANCIAL HIGHLIGHTS - ADJUSTED EBIT 3Q ’15 3Q ’14 $707.4 $788.0 $ B/(W) Sales % B/(W) $(80.6) (10.0)% 195.4 225.5 Gross Profit 120.7 132.2 SG&A 99.4 Impairment & restructuring $(4.3) EBIT ($M) % of sales 17.1% 16.8% % of sales 27.6% 28.6% (100) bps (30) 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. 1.8 11.5 4.4 $65.9 (0.8) $70.2 (30.1) -- Pension settlement charges 3.6 Other (expense) income, net - Impairment & restructuring(1) - Pension settlement charges Adjustments: $76.2 $115.2 EBIT after adjustments $(39.0) 10.8% 14.6% EBIT Margins (380) bps -- 119.5 4.8 3.6 - Acquisition one-time charges 1.9 --
16 3Q 2015 EARNINGS COMPARISON • Adjusted EBIT of $76.2 million or 10.8% of sales compares with $115.2 million or 14.6% of sales in the same period a year ago Driven by the impact of lower volume, unfavorable price/mix and currency, partially offset by favorable material and operating costs and lower SG&A expenses Certain data contained in the graph above has been rounded for presentation purposes. See Appendix for reconciliations of adjusted EBIT and adjusted EBIT margin to their most directly comparable GAAP equivalents. 3Q 2014 Currency Volume Price / Mix Costs of Production SG&A Expenses Acquisitions 3Q 2015 Adjusted EBIT - ($M) $115 $76 $(15) $(34) $1 $8 $1 Lower sales volume and unfavorable price/mix Lower material and operating costs mostly offset by the impact of lower production volume
17 3Q 2015 NET INCOME AND DILUTED EPS 3Q ’15 $63.4 $0.75 Net Income from Continuing Operations - Benefit from income taxes Net Income, after adjustments $46.7 $0.55 $M EPS (27.0) 3Q ’14 $(10.9) $(0.12) $70.0 $0.77 EPS (38.6) Adjusted tax rate: Quarter 30% 34% - Impairment/restructuring & other 4.8 119.5 0.06 (0.32) (0.44) • EPS benefited from share buyback program, including 1.55 million shares repurchased in the third quarter • Adjusted tax rate of 30% in 3Q’15 driven by geographic mix of earnings Expect adjusted tax rate of ~31% in 4Q’15 and 31% for full year 2015 Large pension charge in 1Q’15 driving negative GAAP tax rate (estimated tax benefit on pre-tax income) for the full year 2015 1.33 - Pension settlement charges 3.6 -- 0.04 - Acquisition one-time charges 1.9 0.02 -- -- -- $M
18 MOBILE INDUSTRIES Heavy Truck Automotive Aerospace Rail ($M) 2015 2014 Change Sales $396.4 $427.0 $(30.6) EBIT $43.0 $(63.4)* $106.4 Margin 10.8% (14.8)%* NM Adjusted(1): EBIT $46.1 $56.5 $(10.4) Margin 11.6% 13.2% (160) bps 3Q YOY Commentary 3Q Performance • Sales down 7%; excluding currency of 6%, sales down 1% Driven by lower off-highway and aerospace demand, partially offset by growth in automotive and rail, and the benefit of acquisitions • Decrease in adjusted EBIT driven by the impact of lower volume, unfavorable price/mix and currency, partially offset by favorable material and operating costs and lower SG&A expenses Off-Highway Currency Down ~3% -5% (1) See Appendix for reconciliations of adjusted EBIT and adjusted EBIT margins to their most directly comparable GAAP equivalents. 3Q YOY Sales Walk Sales: Down ~8% 2015 Full-Year Outlook 3Q 2014 Currency Organic Acquisitions 3Q 2015 $(10) $5 $427 $396 $(26) *Includes impact from aerospace restructuring.
19 PROCESS INDUSTRIES Original Equipment Aftermarket ($M) 2015 2014 Change Sales $311.0 $361.0 $(50.0) EBIT $43.1 $74.4 $(31.3) Margin 13.9% 20.6% (670) bps Adjusted(1): EBIT $45.4 $74.0 $(28.6) Margin 14.6% 20.5% (590) bps 3Q YOY Commentary 3Q Performance • Sales down 14%; excluding currency of 5%, sales down 9% Driven by weaker demand in the industrial aftermarket and heavy industries, partially offset by the benefit of acquisitions • Decrease in adjusted EBIT driven by the impact of lower volume, unfavorable price/mix, currency and higher bad debt expense, partially offset by favorable material and operating costs and lower SG&A expenses (1) See Appendix for reconciliations of adjusted EBIT and adjusted EBIT margins to their most directly comparable GAAP equivalents. 3Q YOY Sales Walk Sales: Down ~8% 2015 Full-Year Outlook Currency Down ~3% -5% 3Q 2014 Currency Organic Acquisitions 3Q 2015 $(39) $7 $361 $311 $(18)
20 3Q 2015 CASH FLOW OVERVIEW 3Q ’15 3Q ’14 $64.5 $(10.2) Income from Continuing Operations $140.8 $90.3 Cash from operations (15.2) 28.8 Change in working capital (trade) (13.1) (11.4) Income taxes 32.2 1.0 Depreciation & amortization $119.2 $51.7 Free cash flow 6.9 Pension/OPEB expense, net of contributions / payments 34.1 (38.6) (21.6) Capital Expenditures 21.5 Other ($M) (6.0) -- Impairment charges 98.0 Strong Free Cash Flow in the Quarter
21 $46 $236 $555 0% 10% 20% 30% 40% $0 $200 $400 $600 $800 2013 2014 3Q 2015 2015 2016 Capital Expenditures Dividend Share Repurchases Acquisitions Framework: Capital Structure Cash $170 Debt 725 Net Debt 555 Equity 1,352 Net Capital $1,907 Leverage Total Debt/Capital 35% Net Debt/Capital 29% ($M) ($M) Balance Sheet (9/30/15) Net Debt/Capital See Appendix for reconciliations of Net Debt and Net Debt/Capital to their most directly comparable GAAP equivalents. CAPITAL ALLOCATION Net Debt Net Debt/ Capital 13% 2% 29% Target: 30 – 40% Highlights: • CapEx of ~$22 million in the quarter • Dividend of $0.26 per share, or $21.7 million, paid in 3Q-15; represents current yield of ~3.5% • Completed belts acquisition for $220M • Repurchased 1.55 million common shares in 3Q-15 for $50.7 million; remaining share repurchase authorization of 3.0 million shares
22 2015 FULL-YEAR OUTLOOK • Sales down approximately 8% Negative impact from currency of 5% Declines in agriculture, heavy industries, aerospace and the industrial aftermarket, partially offset by growth in wind energy, rail, military marine and automotive • GAAP EPS estimate of $0.65 to $0.70 per diluted share • Adjusted EPS estimate of $2.05 to $2.10 per diluted share excluding unusual items • Free Cash Flow of >$200 million Assumes CapEx of ~3.5% of sales (1) Adjusted net income divided by free cash flow. Adjusted net income excludes pension liability settlement charges, cost-reduction and plant rationalizations costs and discrete tax accrual adjustments identified above. Free cash flow is defined as net cash provided by operating activities (includes pension contributions) minus capital expenditures. Net Sales (vs. 2014) Organic / Inorganic Currency Mobile Industries Down ~3% (5)% Down ~8% Process Industries Down ~3% (5)% Down ~8% Timken Down ~3% (5)% Down ~8% Earnings Per Share (EPS) - GAAP $0.65 - $0.70 Includes (expense) / income: - Pension settlement charges (non-cash) $(1.65) - Impairment and other restructuring charges $(0.20) - Acquisition related one-time costs $(0.05) - Divestiture of aerospace PMA business $0.25 - Discrete tax accrual adjustments $0.25 Adjusted EPS - excluding unusual items $2.05 - $2.10 Free Cash Flow (FCF) >$200M FCF Conversion(1) >1.1x
Appendix
24 GAAP RECONCILIATION: NET INCOME & EPS (Unaudited) (Dollars in millions, except share data) 2015 EPS 2014 EPS Income (Loss) from Continuing Operations 64.5$ (10.2)$ Less: Net Income Attributable to Noncontrolling Interest 1.1 0.7 Net Income (Loss) from Continuing Operations attributable to The Timken Company 63.4$ 0.75$ (10.9)$ (0.12)$ Adjustments: Pension settlement charges (1) 3.6$ 0.04$ -$ -$ Impairment and restructuring charges (2) 4.8 0.06 119.5 1.33 Acquisition related charges (3) 1.9 0.02 - - Benefit from income taxes (4) (27.0) (0.32) (38.6) (0.44) Total Adjustments: (16.7) (0.20) 80.9 0.89 Adjusted Net Income from Continuing Operations 46.7$ 0.55$ 70.0$ 0.77$ Reconciliations of Adjusted Net Income from Continuing Operations to GAAP Income (Loss) from Continuing Operations and Adjusted 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 from continuing operations and diluted earnings (loss) per share, adjusted to remove: (a) pension settlement charges; (b) impairment and restructuring charges; (c) acquisition related charges; and (d) benefit from income taxes are representative of the Company's performance and therefore useful to investors. (1) Pension settlement charges primarily related to the purchase of a group annuity contract from Prudential on January 23, 2015, that requires 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 during the first nine months of 2015. (4) Benefit from income taxes includes the tax impact on 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. (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. Three Months Ended September 30, (3) Acquisition related charges related to the acquisition of the Carlstar Belts Business.
25 GAAP RECONCILIATION: CONSOLIDATED EBIT & EBIT MARGIN (Unaudited) (Dollars in millions, except share data) 2015 Percentage to Net Sales 2014 Percentage to Net Sales Net Income (Loss) 64.5$ 9.1 % (21.2)$ (2.7)% Income From Discontinued Operations, net of income taxes — —% 11.0 1.4 % Benefit from income taxes (6.6) (0.9)% (2.2) (0.3)% Interest expense 8.6 1.2 % 9.1 1.2 % Interest income (0.6) (0.1)% (1.0) (0.1)% Consolidated earnings (loss) before interest and taxes (EBIT) 65.9$ 9.3 % (4.3)$ (0.5)% Adjustments: Pension settlement charges (1) 3.6$ 0.5 % -$ —% Impairment and restructuring charges (2) 4.8 0.7 % 119.5 15.1 % Acquisition related charges (3) 1.9 0.3 % — —% Total Adjustments 10.3 1.5 % 119.5 15.1 % Consolidated earnings before interest and taxes (EBIT), after adjustments 76.2$ 10.8 % 115.2$ 14.6 % (3) Acquisition related charges related to the acquisition of the Carlstar Belts Business. (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. 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): September 30, 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 primarily related to the purchase of a group annuity contract from Prudential on January 23, 2015, that requires 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 during the first nine months of 2015.
26 GAAP RECONCILIATION: NET DEBT (Unaudited) (Dollars in millions) September 30, 2015 December 31, 2014 December 31, 2013 Short-term debt, including current portion of long-term debt 98.7$ 8.0$ 269.3$ Long-term debt 625.9 522.1 176.4 Total Debt 724.6$ 530.1$ 445.7$ Less: Cash, cash equivalents and restricted cash (169.8) (294.1) (399.7) Net Debt 554.8$ 236.0$ 46.0$ Total equity 1,351.6$ 1,589.1$ 2,648.6$ Ratio of Total Debt to Capital 34.9 % 25.0 % 14.4 % Ratio of Net Debt to Capital 29.1 % 12.9 % 1.7 % Reconciliation of Total Debt to Net Debt and the Ratio of Net Debt to Capital: This reconciliation is 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 is an important measure of the Company's financial position, due to the amount of cash and cash equivalents.
27 GAAP RECONCILIATION: FREE CASH FLOW (Unaudited) (Dollars in millions) 2015 2014 Net cash provided by operating activities from continuing operations 140.8$ 90.3$ Less: capital expenditures (21.6) (38.6) Free cash flow 119.2$ 51.7$ Three Months Ended September 30, 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.
28 GAAP RECONCILIATION: NET SALES (Unaudited) (Dollars in millions) March 31, 2013 June 30, 2013 September 30, 2013 December 31, 2013 March 31, 2014 June 30, 2014 September 30, 2014 December 31, 2014 March 31, 2015 June 30, 2015 September 30, 2015 Net Sales 763.2$ 791.2$ 731.5$ 749.5$ 736.8$ 789.2$ 788.0$ 762.2$ 722.5$ 728.0$ 707.4$ Add back: Currency Impact 7.2 (2.6) 2.2 3.5 8.2 2.3 2.5 18.4 33.6 39.3 43.8 Net Sales Excluding the Impact from Currency 770.4$ 788.6$ 733.7$ 753.0$ 745.0$ 791.5$ 790.5$ 780.6$ 756.1$ 767.3$ 751.2$ Year-over-Year change excluding impact from currency $ (18.2)$ 0.3$ 59.0$ 31.1$ 19.3$ (21.9)$ (36.8)$ Year-over-Year change excluding impact from currency % -2% 0% 8% 4% 3% -3% -5% This reconciliation is provided as additional relevant information about the Company's financial position. Management believes net sales excluding the impact from currency is an important measure of the Company's financial position, and therefore useful to investors. Reconciliation of Net Sales to Net Sales Excluding the Impact from Currency:
29 GAAP RECONCILIATION: SEGMENTED EBIT & EBIT MARGIN (Unaudited) Mobile Industries (Dollars in millions) Three Months Ended September 30, 2015 Percentage to Net Sales Three Months Ended September 30, 2014 Percentage to Net Sales Earnings (loss) before interest and taxes (EBIT) 43.0$ 10.8% (63.4)$ (14.8)% Impairment and restructuring charges (1) 2.4 0.6 % 119.9 28.0 % Acquisition related charges (2) 0.7 0.2 % - —% Earnings before interest and taxes (EBIT), after adjustments 46.1$ 11.6% 56.5$ 13.2% Process Industries (Dollars in millions) Three Months Ended September 30, 2015 Percentage to Net Sales Three Months Ended September 30, 2014 Percentage to Net Sales Earnings before interest and taxes (EBIT) 43.1$ 13.9% 74.4$ 20.6% Impairment and restructuring charges (1) 1.8 0.6 % (0.4) (0.1)% Acquisition related charges (2) 0.5 0.1 % - —% Earnings before interest and taxes (EBIT), after adjustments 45.4$ 14.6% 74.0$ 20.5% (2) Acquisition related charges related to the acquisition of the Carlstar Belts Business. Reconciliation of segment EBIT Margin, After Adjustments, to segment EBIT as a Percentage of Sales and segment EBIT, After Adjustments, to segment EBIT: 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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