Timken Reports Third-Quarter 2023 Results
- Sales of $1.14 billion, up approximately 1 percent from last year
- Third-quarter earnings per share of $1.23; adjusted EPS of $1.55
- Strong cash from operations of $194 million; free cash flow of $151 million
- Updates 2023 outlook; now expects 2023 EPS of $5.60-$5.70, with adjusted EPS of $6.85-$6.95
NORTH CANTON, Ohio, Nov. 1, 2023 /PRNewswire/ -- The Timken Company (NYSE: TKR; www.timken.com), a global leader in engineered bearings and industrial motion products, today reported third-quarter 2023 sales of $1.14 billion, up 0.6 percent from the same period a year ago. The increase was driven by the benefit of acquisitions (net of divestitures), higher pricing and favorable foreign currency translation, partially offset by lower volume.
Timken posted net income in the third quarter of $87.9 million or $1.23 per diluted share. This compares to net income of $87.0 million or $1.18 per diluted share for the same period a year ago. Net income was 8.0 percent of sales in both periods.
Excluding special items (detailed in the attached tables), adjusted net income in the third quarter was $111.2 million or $1.55 per diluted share. This compares to adjusted net income of $120.5 million or $1.63 per diluted share for the same period in 2022. Adjusted EBITDA in the quarter was $215.8 million or 18.9 percent of sales, compared with $213.6 million or 18.8 percent of sales in the third quarter of last year.
Net cash from operations for the quarter was $194.3 million, and free cash flow was $150.7 million. During the quarter, Timken repurchased 775 thousand shares of company stock, or approximately 1 percent of outstanding shares. In total, the company returned $87.3 million of cash to shareholders through dividends and share repurchases in the third quarter.
The company completed two acquisitions during the quarter, Des-Case and Rosa Sistemi, both of which expand the company's Industrial Motion product portfolio. And in October, Timken announced an agreement to acquire iMECH and the divestiture of TWB. Overall, the net impact of these four transactions will add nearly $50 million of pro forma annual revenue and will be accretive to company margins.
"Timken posted solid results in the quarter despite challenging business conditions across several sectors and geographies," said Richard G. Kyle, Timken president and chief executive officer. "We executed well across the enterprise, as we expanded adjusted EBITDA margins in both segments and generated strong free cash flow. We also continued to deploy capital to strengthen our business and create sustained shareholder value, while maintaining a strong balance sheet."
Third-Quarter 2023 Segment Results
Engineered Bearings sales of $775.6 million decreased 0.5 percent from the same period a year ago. The decrease was driven by lower volume, partially offset by the benefit of acquisitions and higher pricing.
EBITDA for the quarter was $148.2 million or 19.1 percent of sales, compared with EBITDA of $150.4 million or 19.3 percent of sales for the same period a year ago. The modest decrease in EBITDA was driven primarily by the impact of lower volume, higher manufacturing costs, unfavorable foreign currency and higher impairment & restructuring charges, mostly offset by lower material & logistics costs, favorable price/mix and the benefit of acquisitions.
Excluding special items, adjusted EBITDA in the quarter was $156.7 million or 20.2 percent of sales, compared with $153.8 million or 19.7 percent of sales in the third quarter of last year.
Industrial Motion sales of $367.1 million increased 2.9 percent compared with the same period a year ago. The increase was driven by the benefit of acquisitions (net), higher pricing and favorable foreign currency translation, partially offset by lower volume.
EBITDA for the quarter was $70.3 million or 19.2 percent of sales, compared with EBITDA of $34.9 million or 9.8 percent of sales for the same period a year ago. The increase in EBITDA was driven primarily by significantly lower impairment charges, favorable price/mix and lower material & logistics costs, partially offset by lower volume.
Excluding special items, adjusted EBITDA in the quarter was $75.2 million or 20.5 percent of sales, compared with $68.0 million or 19.1 percent of sales in the third quarter of last year.
2023 Outlook
Timken is updating its 2023 outlook, with full-year earnings per diluted share now forecasted to be in the range of $5.60 to $5.70 and adjusted earnings per diluted share in the range of $6.85 to $6.95. The company is now planning for 2023 revenue to be up 5 to 5.5 percent in total from 2022.
"We have updated our outlook to reflect softer end-market demand conditions and our expectation for continued channel inventory reductions in the fourth quarter," said Kyle. "We are taking steps to bring costs in line with the expected volume levels and deliver a solid finish to the year. We remain on track for 2023 to mark all-time record sales and earnings with another year of improved margins. And we remain committed to advancing our long-term strategy to scale Timken as a diversified industrial leader and consistently grow the revenue and earnings of the company."
Conference Call Information
Timken will host a conference call today at 11 a.m. Eastern Time to review its financial results. Presentation materials will be available online in advance of the call for interested investors and securities analysts.
Conference Call: | Wednesday, November 1, 2023 |
11:00 a.m. Eastern Time | |
Live Dial-In: 833-470-1428 | |
Or 404-975-4839 | |
Access Code: 533023 | |
(Call in 10 minutes prior to be included.) | |
Conference Call Replay: | Replay Dial-In available through |
November 15, 2023: | |
866-813-9403 or 929-458-6194 | |
Replay Passcode: 470841 | |
Live Webcast: |
About The Timken Company
The Timken Company (NYSE: TKR; www.timken.com) designs a growing portfolio of engineered bearings and industrial motion 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 $4.5 billion in sales in 2022 and employs more than 19,000 people globally, operating from 46 countries. Timken has been recognized among America's Most Responsible Companies by Newsweek, the World's Most Ethical Companies® by Ethisphere, America's Most Innovative Companies by Fortune and America's Best Large Employers, Best Employers for New Graduates and Best Employers for Women by Forbes.
Certain statements in this release (including statements regarding the company's forecasts, estimates, plans and expectations) that are not historical in nature are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, the statements related to expectations regarding the company's future financial performance, including information under the heading "2023 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 2023; 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; logistical issues associated with port closures or congestion, delays or increased 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, sanctions and hostilities; weakness in global or regional general economic conditions and capital markets (as a result of financial stress affecting the banking system or otherwise); the impact of inflation on employee expenses, shipping costs, raw material costs, energy and fuel prices, and other production costs; the company's ability to satisfy its obligations under its debt agreements and renew or refinance borrowings on favorable terms in a rising interest rate environment; 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, synergies, and expected cashflow generation within expected timeframes or at all; 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 effects of government-imposed restrictions, commercial requirements, and company goals associated with climate change and emissions or other waste reduction initiatives; unanticipated litigation, claims, investigations or assessments; the company's ability to maintain positive relations with unions and works councils; the company's ability to compete for skilled labor and to attract, retain and develop management and other key employees; negative impacts to the company's operations or financial position as a result of COVID-19 or other epidemics and associated governmental measures; 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, 2022, 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 | Nine Months Ended | ||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||
Net sales | $ | 1,142.7 | $ | 1,136.4 | $ | 3,677.8 | $ | 3,414.7 | |||||
Cost of products sold | 787.1 | 802.9 | 2,500.0 | 2,390.5 | |||||||||
Selling, general & administrative expenses | 179.6 | 159.8 | 551.3 | 469.8 | |||||||||
Amortization of intangible assets | 17.5 | 10.7 | 48.3 | 32.2 | |||||||||
Impairment and restructuring charges | 8.9 | 31.3 | 40.3 | 42.3 | |||||||||
Operating Income | 149.6 | 131.7 | 537.9 | 479.9 | |||||||||
Non-service pension and other postretirement (expense) income | (0.9) | 1.3 | (0.8) | (5.3) | |||||||||
Other income, net | 0.4 | 2.3 | 5.8 | 1.4 | |||||||||
Interest expense, net | (24.9) | (18.2) | (73.9) | (49.2) | |||||||||
Income Before Income Taxes | 124.2 | 117.1 | 469.0 | 426.8 | |||||||||
Provision for income taxes | 33.3 | 26.7 | 122.9 | 108.9 | |||||||||
Net Income | 90.9 | 90.4 | 346.1 | 317.9 | |||||||||
Less: Net income attributable to noncontrolling interest | 3.0 | 3.4 | 10.7 | 7.7 | |||||||||
Net Income Attributable to The Timken Company | $ | 87.9 | $ | 87.0 | $ | 335.4 | $ | 310.2 | |||||
Net Income per Common Share Attributable to The Timken Company Common Shareholders | |||||||||||||
Basic Earnings per share | $ | 1.24 | $ | 1.19 | $ | 4.68 | $ | 4.20 | |||||
Diluted Earnings per share | $ | 1.23 | $ | 1.18 | $ | 4.63 | $ | 4.16 | |||||
Average Shares Outstanding | 70,878,673 | 73,177,956 | 71,740,846 | 73,890,483 | |||||||||
Average Shares Outstanding - assuming dilution | 71,535,609 | 73,866,743 | 72,456,849 | 74,548,711 | |||||||||
BUSINESS SEGMENTS | ||||||||||||
(Unaudited) | ||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||
(Dollars in millions) | 2023 | 2022 | 2023 | 2022 | ||||||||
Engineered Bearings | ||||||||||||
Net sales | $ | 775.6 | $ | 779.7 | $ | 2,533.5 | $ | 2,350.4 | ||||
Earnings before interest, taxes, depreciation and amortization (EBITDA) (1) | $ | 148.2 | $ | 150.4 | $ | 538.7 | $ | 486.2 | ||||
EBITDA Margin (1) | 19.1 | % | 19.3 | % | 21.3 | % | 20.7 | % | ||||
Industrial Motion | ||||||||||||
Net sales | $ | 367.1 | $ | 356.7 | $ | 1,144.3 | $ | 1,064.3 | ||||
Earnings before interest, taxes, depreciation and amortization (EBITDA) (1) | $ | 70.3 | $ | 34.9 | $ | 199.4 | $ | 162.4 | ||||
EBITDA Margin (1) | 19.2 | % | 9.8 | % | 17.4 | % | 15.3 | % | ||||
Unallocated corporate expense | $ | (17.0) | $ | (9.1) | $ | (47.9) | $ | (35.4) | ||||
Corporate pension and other postretirement benefit related (expense) income (2) | (0.2) | (1.0) | 1.7 | (15.2) | ||||||||
Consolidated | ||||||||||||
Net sales | $ | 1,142.7 | $ | 1,136.4 | $ | 3,677.8 | $ | 3,414.7 | ||||
Earnings before interest, taxes, depreciation and amortization (EBITDA) (1) | $ | 201.3 | $ | 175.2 | $ | 691.9 | $ | 598.0 | ||||
EBITDA Margin (1) | 17.6 | % | 15.4 | % | 18.8 | % | 17.5 | % | ||||
(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 (expense) income primarily represents actuarial (losses) and gains that resulted from the remeasurement of plan assets and obligations as a result of changes in assumptions or experience. The Company recognizes actuarial (losses) and gains 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) | ||||||
September 30, | December 31, | ||||||
ASSETS | |||||||
Cash and cash equivalents | $ | 367.9 | $ | 331.6 | |||
Restricted cash | 7.2 | 9.1 | |||||
Accounts receivable, net | 706.5 | 699.6 | |||||
Unbilled receivables | 136.1 | 103.9 | |||||
Inventories, net | 1,202.4 | 1,191.3 | |||||
Other current assets | 186.8 | 168.5 | |||||
Total Current Assets | 2,606.9 | 2,504.0 | |||||
Property, plant and equipment, net | 1,245.9 | 1,207.4 | |||||
Operating lease assets | 112.8 | 101.4 | |||||
Goodwill and other intangible assets | 2,192.9 | 1,863.6 | |||||
Other assets | 86.2 | 96.0 | |||||
Total Assets | $ | 6,244.7 | $ | 5,772.4 | |||
LIABILITIES | |||||||
Accounts payable | $ | 344.2 | $ | 403.9 | |||
Short-term debt, including current portion of long-term debt | 598.4 | 49.0 | |||||
Income taxes | 46.0 | 51.3 | |||||
Accrued expenses | 515.3 | 508.2 | |||||
Total Current Liabilities | 1,503.9 | 1,012.4 | |||||
Long-term debt | 1,601.6 | 1,914.2 | |||||
Accrued pension benefits | 147.1 | 160.3 | |||||
Accrued postretirement benefits | 31.6 | 31.4 | |||||
Long-term operating lease liabilities | 72.7 | 65.2 | |||||
Other non-current liabilities | 290.7 | 236.0 | |||||
Total Liabilities | 3,647.6 | 3,419.5 | |||||
EQUITY | |||||||
The Timken Company shareholders' equity | 2,477.8 | 2,268.3 | |||||
Noncontrolling interest | 119.3 | 84.6 | |||||
Total Equity | 2,597.1 | 2,352.9 | |||||
Total Liabilities and Equity | $ | 6,244.7 | $ | 5,772.4 | |||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||
(Unaudited) | |||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||
(Dollars in millions) | 2023 | 2022 | 2023 | 2022 | |||||||||
Cash Provided by (Used in) | |||||||||||||
OPERATING ACTIVITIES | |||||||||||||
Net Income | $ | 90.9 | $ | 90.4 | $ | 346.1 | $ | 317.9 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||
Depreciation and amortization | 52.2 | 39.9 | 149.0 | 122.0 | |||||||||
Impairment charges | 4.9 | 29.5 | 33.2 | 38.3 | |||||||||
Gain on divestitures | (0.1) | — | (3.7) | — | |||||||||
Stock-based compensation expense | 5.8 | 6.7 | 22.9 | 22.3 | |||||||||
Pension and other postretirement expense | 1.5 | 0.7 | 2.6 | 11.9 | |||||||||
Pension and other postretirement benefit contributions and payments | (16.9) | (3.4) | (24.1) | (11.5) | |||||||||
Changes in operating assets and liabilities: | |||||||||||||
Accounts receivable | 100.4 | (7.7) | 13.0 | (157.0) | |||||||||
Unbilled receivables | (14.6) | (2.3) | (32.3) | (5.2) | |||||||||
Inventories | 32.3 | (21.0) | 47.6 | (147.1) | |||||||||
Accounts payable | (43.9) | (6.5) | (58.8) | (12.6) | |||||||||
Accrued expenses | 14.7 | 29.2 | (14.4) | 45.8 | |||||||||
Income taxes | (33.7) | (6.5) | (63.2) | 7.3 | |||||||||
Other, net | 0.8 | (3.8) | (1.0) | (9.8) | |||||||||
Net Cash Provided by Operating Activities | $ | 194.3 | $ | 145.2 | $ | 416.9 | $ | 222.3 | |||||
INVESTING ACTIVITIES | |||||||||||||
Capital expenditures | $ | (43.6) | $ | (47.3) | $ | (134.9) | $ | (122.5) | |||||
Acquisitions, net of cash received | (140.1) | (0.1) | (464.7) | (152.4) | |||||||||
Investments in short-term marketable securities, net | (4.8) | 4.4 | (5.6) | 27.8 | |||||||||
Other, net | 1.4 | (0.3) | 6.1 | 5.1 | |||||||||
Net Cash Used in Investing Activities | $ | (187.1) | $ | (43.3) | $ | (599.1) | $ | (242.0) | |||||
FINANCING ACTIVITIES | |||||||||||||
Cash dividends paid to shareholders | $ | (23.4) | $ | (22.8) | $ | (70.8) | $ | (69.2) | |||||
Purchase of treasury shares | (63.9) | (49.0) | (218.4) | (193.3) | |||||||||
Proceeds from exercise of stock options | 4.1 | 2.6 | 21.3 | 4.2 | |||||||||
Payments related to tax withholding for stock-based compensation | (1.3) | (1.4) | (16.4) | (9.5) | |||||||||
Net (payments) proceeds from credit facilities | (88.9) | (12.1) | 37.7 | 18.4 | |||||||||
Net proceeds (payments) on long-term debt | 201.1 | (5.7) | 198.5 | 335.4 | |||||||||
Proceeds on sale of shares in Timken India Limited | — | — | 284.8 | — | |||||||||
Other, net | (1.1) | (0.5) | (1.1) | 2.5 | |||||||||
Net Cash Provided by (Used in) Financing Activities | $ | 26.6 | $ | (88.9) | $ | 235.6 | $ | 88.5 | |||||
Effect of exchange rate changes on cash | (11.0) | (17.4) | (19.0) | (25.1) | |||||||||
Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | $ | 22.8 | $ | (4.4) | $ | 34.4 | $ | 43.7 | |||||
Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 352.3 | 306.0 | 340.7 | 257.9 | |||||||||
Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 375.1 | $ | 301.6 | $ | 375.1 | $ | 301.6 | |||||
Reconciliations of Adjusted Net Income to GAAP Net Income and Adjusted Earnings Per Share to GAAP Earnings Per Share: | ||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
The following reconciliation is provided as additional relevant information about the Company's performance deemed useful to investors. Management believes that the non-GAAP measures of adjusted net income and adjusted diluted earnings per share are important financial measures used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. Management believes that reporting adjusted net income and adjusted diluted earnings per share is useful to investors as these measures are representative of the Company's core operations. | ||||||||||||||||||||||||||||||
(Dollars in millions, except share data) | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
2023 | EPS | 2022 | EPS | 2023 | EPS | 2022 | EPS | |||||||||||||||||||||||
Net Income Attributable to The Timken Company | $ | 87.9 | $ | 1.23 | $ | 87.0 | $ | 1.18 | $ | 335.4 | $ | 4.63 | $ | 310.2 | $ | 4.16 | ||||||||||||||
Adjustments: (1) | ||||||||||||||||||||||||||||||
Acquisition intangible amortization | $ | 17.5 | $ | 10.7 | $ | 48.3 | $ | 32.2 | ||||||||||||||||||||||
Impairment, restructuring and reorganization charges (2) | 8.0 | 32.0 | 44.1 | 35.7 | ||||||||||||||||||||||||||
Corporate pension and other postretirement benefit related expense (income) (3) | 0.2 | 1.0 | (1.7) | 15.2 | ||||||||||||||||||||||||||
Russia-related charges (4) | 3.6 | 2.3 | 3.8 | 15.3 | ||||||||||||||||||||||||||
Acquisition-related charges (5) | 4.3 | 3.0 | 12.8 | 5.7 | ||||||||||||||||||||||||||
(Gain) loss on divestitures and sale of certain assets (6) | (1.5) | 0.1 | (5.9) | — | ||||||||||||||||||||||||||
Noncontrolling interest of above adjustments | (1.8) | 0.1 | (2.0) | (5.7) | ||||||||||||||||||||||||||
Provision for income taxes (7) | (7.0) | (15.7) | (24.0) | (26.5) | ||||||||||||||||||||||||||
Total Adjustments: | 23.3 | 0.32 | 33.5 | 0.45 | 75.4 | 1.04 | 71.9 | 0.96 | ||||||||||||||||||||||
Adjusted Net Income Attributable to The Timken Company | $ | 111.2 | $ | 1.55 | $ | 120.5 | $ | 1.63 | $ | 410.8 | $ | 5.67 | $ | 382.1 | $ | 5.12 | ||||||||||||||
(1) Adjustments are pre-tax, with the net tax provision listed separately. | ||||||||||||||||||||||||||||||
(2) Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) relate to: (i) plant closures; (ii) the rationalization of certain plants; (iii) severance related to cost reduction initiatives; (iv) impairment of assets; and (v) related depreciation and amortization. Impairment, restructuring and reorganization charges for 2023 included $28.3 million related to the impairment of goodwill. Impairment, restructuring and reorganization charges for 2022 included $29.3 million related to the sale of Timken Aerospace Drives Systems, LLC ("ADS"). 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) Corporate pension and other postretirement benefit related expense (income) represents actuarial losses and (gains) that resulted from the remeasurement of plan assets and obligations as a result of changes in assumptions or experience. The Company recognizes actuarial losses and (gains) 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. | ||||||||||||||||||||||||||||||
(4) Russia-related charges include impairments or allowances recorded against certain property, plant and equipment, inventory and trade receivables to reflect the current impact of Russia's invasion of Ukraine (and associated sanctions) on the Company's operations. In addition to impairments and allowances recorded, the Company recorded a loss on the divestiture of its Timken-Rus Service Company ooo ("Timken Russia") business during the third quarter of 2022. Refer to Russia Operations in Management Discussion and Analysis within the Company's quarterly report on Form 10-Q for additional information. | ||||||||||||||||||||||||||||||
(5) Acquisition-related charges represent deal-related expenses associated with completed transactions and any resulting inventory step-up impact. | ||||||||||||||||||||||||||||||
(6) Represents the net gain resulting from divestitures and sale of certain assets. | ||||||||||||||||||||||||||||||
(7) 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 | Nine Months Ended | |||||||||||||||||||
2023 | Percentage to | 2022 | Percentage to | 2023 | Percentage to | 2022 | Percentage to | ||||||||||||||
Net Income | $ | 90.9 | 8.0 | % | $ | 90.4 | 8.0 | % | $ | 346.1 | 9.4 | % | $ | 317.9 | 9.3 | % | |||||
Provision for income taxes | 33.3 | 26.7 | 122.9 | 108.9 | |||||||||||||||||
Interest expense | 27.5 | 19.3 | 79.9 | 51.9 | |||||||||||||||||
Interest income | (2.6) | (1.1) | (6.0) | (2.7) | |||||||||||||||||
Depreciation and amortization | 52.2 | 39.9 | 149.0 | 122.0 | |||||||||||||||||
Consolidated EBITDA | $ | 201.3 | 17.6 | % | $ | 175.2 | 15.4 | % | $ | 691.9 | 18.8 | % | $ | 598.0 | 17.5 | % | |||||
Adjustments: | |||||||||||||||||||||
Impairment, restructuring and reorganization charges (1) | $ | 7.9 | $ | 32.0 | $ | 43.4 | $ | 35.7 | |||||||||||||
Corporate pension and other postretirement benefit related expense (income) (2) | 0.2 | 1.0 | (1.7) | 15.2 | |||||||||||||||||
Russia-related charges (3) | 3.6 | 2.3 | 3.8 | 15.3 | |||||||||||||||||
Acquisition-related charges (4) | 4.3 | 3.0 | 12.8 | 5.7 | |||||||||||||||||
(Gain) loss on divestitures and sale of certain assets (5) | (1.5) | 0.1 | (5.9) | — | |||||||||||||||||
Total Adjustments | 14.5 | 1.3 | % | 38.4 | 3.4 | % | 52.4 | 1.4 | % | 71.9 | 2.1 | % | |||||||||
Adjusted EBITDA | $ | 215.8 | 18.9 | % | $ | 213.6 | 18.8 | % | $ | 744.3 | 20.2 | % | $ | 669.9 | 19.6 | % | |||||
(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; (iii) severance related to cost reduction initiatives; and (iv) impairment of assets. Impairment, restructuring and reorganization charges for 2023 included $28.3 million related to the impairment of goodwill. Impairment, restructuring and reorganization charges for 2022 included $29.3 million related to the sale of ADS. 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) Corporate pension and other postretirement benefit related expense (income) represents actuarial losses and (gains) that resulted from the remeasurement of plan assets and obligations as a result of changes in assumptions or experience. The Company recognizes actuarial losses and (gains) 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. | |||||||||||||||||||||
(3) Russia-related charges include impairments or allowances recorded against certain property, plant and equipment, inventory and trade receivables to reflect the current impact of Russia's invasion of Ukraine (and associated sanctions) on the Company's operations. In addition to impairments and allowances recorded, the Company recorded a loss on the divestiture of its Timken Russia business during the third quarter of 2022. Refer to Russia Operations in Management Discussion and Analysis within the Company's quarterly report on Form 10-Q for additional information. | |||||||||||||||||||||
(4) Acquisition-related charges represent deal-related expenses associated with completed transactions and any resulting inventory step-up impact. | |||||||||||||||||||||
(5) Represents the net gain resulting from divestitures and sale of certain assets. | |||||||||||||||||||||
Reconciliation of segment EBITDA, after adjustments, to segment EBITDA, and segment EBITDA, after adjustments, as a percentage of sales to segment EBITDA, as a percentage of sales: | |||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||
The following reconciliation is provided as additional relevant information about the Company's Engineered Bearings and Industrial Motion 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. | |||||||||||||||||||||||
Engineered Bearings | |||||||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
(Dollars in millions) | 2023 | Percentage to | 2022 | Percentage to | 2023 | Percentage to | 2022 | Percentage to | |||||||||||||||
Earnings before interest, taxes, depreciation and amortization (EBITDA) | $ | 148.2 | 19.1 | % | $ | 150.4 | 19.3 | % | $ | 538.7 | 21.3 | % | $ | 486.2 | 20.7 | % | |||||||
Impairment, restructuring and reorganization charges (1) | 5.4 | 1.1 | 10.6 | 2.7 | |||||||||||||||||||
Russia-related charges (2) | 3.6 | 2.3 | 3.8 | 15.3 | |||||||||||||||||||
Acquisition-related charges (3) | 0.9 | — | 3.2 | — | |||||||||||||||||||
(Gain) loss on divestitures and sale of certain assets (4) | (1.4) | — | (6.2) | 0.1 | |||||||||||||||||||
Adjusted EBITDA | $ | 156.7 | 20.2 | % | $ | 153.8 | 19.7 | % | $ | 550.1 | 21.7 | % | $ | 504.3 | 21.5 | % | |||||||
Industrial Motion | |||||||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
(Dollars in millions) | 2023 | Percentage to | 2022 | Percentage to | 2023 | Percentage to | 2022 | Percentage to | |||||||||||||||
Earnings before interest, taxes, depreciation and amortization (EBITDA) | $ | 70.3 | 19.2 | % | $ | 34.9 | 9.8 | % | $ | 199.4 | 17.4 | % | $ | 162.4 | 15.3 | % | |||||||
Impairment, restructuring and reorganization charges (1) | 2.5 | 31.0 | 32.7 | 33.1 | |||||||||||||||||||
Acquisition-related charges (3) | 2.5 | 2.1 | 5.8 | 3.5 | |||||||||||||||||||
(Gain) loss on divestitures and sale of certain assets (4) | (0.1) | — | 0.3 | (0.2) | |||||||||||||||||||
Adjusted EBITDA | $ | 75.2 | 20.5 | % | $ | 68.0 | 19.1 | % | $ | 238.2 | 20.8 | % | $ | 198.8 | 18.7 | % | |||||||
(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; (iii) severance related to cost reduction initiatives; and (iv) impairment of assets. Impairment, restructuring and reorganization charges for 2023 included $28.3 million related to the impairment of goodwill. Impairment, restructuring and reorganization charges for 2022 included $29.3 million related to the sale of ADS. 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) Russia-related charges include impairments or allowances recorded against certain property, plant and equipment, inventory and trade receivables to reflect the current impact of Russia's invasion of Ukraine (and associated sanctions) on the Company's operations. In addition to impairments and allowances recorded, the Company recorded a loss on the divestiture of its Timken Russia business during the third quarter of 2022. Refer to Russia Operations in Management Discussion and Analysis within the Company's quarterly report on Form 10-Q for additional information. | |||||||||||||||||||||||
(3) The acquisition-related charges represent the inventory step-up impact of the completed acquisitions. | |||||||||||||||||||||||
(4) Represents the net (gain) loss resulting from divestitures and sale of certain assets. | |||||||||||||||||||||||
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 prior page), 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. The Company presents net debt to adjusted EBITDA because it believes it is more representative of the Company's financial position as it is reflective of the ability to cover its net debt obligations with results from its core operations. | ||||||||||||
(Dollars in millions) | ||||||||||||
September 30, | December 31, | |||||||||||
Short-term debt, including current portion of long-term debt | $ | 598.4 | $ | 49.0 | ||||||||
Long-term debt | 1,601.6 | 1,914.2 | ||||||||||
Total Debt | $ | 2,200.0 | $ | 1,963.2 | ||||||||
Less: Cash and cash equivalents | (367.9) | (331.6) | ||||||||||
Net Debt | $ | 1,832.1 | $ | 1,631.6 | ||||||||
Total Equity | $ | 2,597.1 | $ | 2,352.9 | ||||||||
Ratio of Net Debt to Capital | 41.4 | % | 40.9 | % | ||||||||
Adjusted EBITDA for the Twelve Months Ended | $ | 930.3 | $ | 855.9 | ||||||||
Ratio of Net Debt to Adjusted EBITDA | 2.0 | 1.9 | ||||||||||
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 | Nine Months Ended | |||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||
Net cash provided by operating activities | $ | 194.3 | $ | 145.2 | $ | 416.9 | $ | 222.3 | ||||
Less: capital expenditures | (43.6) | (47.3) | (134.9) | (122.5) | ||||||||
Free cash flow | $ | 150.7 | $ | 97.9 | $ | 282.0 | $ | 99.8 | ||||
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 | $ | 445.2 | $ | 417.0 | ||
Provision for income taxes | 147.9 | 133.9 | ||||
Interest expense | 102.6 | 74.6 | ||||
Interest income | (7.1) | (3.8) | ||||
Depreciation and amortization | 191.0 | 164.0 | ||||
Consolidated EBITDA | $ | 879.6 | $ | 785.7 | ||
Adjustments: | ||||||
Impairment, restructuring and reorganization charges (1) | $ | 47.2 | $ | 39.5 | ||
Corporate pension and other postretirement benefit related (income) expense (2) | (14.0) | 2.9 | ||||
Acquisition-related charges (3) | 21.9 | 14.8 | ||||
Gain on divestitures and sale of certain assets (4) | (8.8) | (2.9) | ||||
Russia-related charges (5) | 4.1 | 15.6 | ||||
Tax indemnification and related items | 0.3 | 0.3 | ||||
Total Adjustments | 50.7 | 70.2 | ||||
Adjusted EBITDA | $ | 930.3 | $ | 855.9 | ||
(1) Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) relate to: (i) plant closures; (ii) the rationalization of certain plants; (iii) severance related to cost reduction initiatives; and (iv) impairment of assets. Impairment, restructuring and reorganization charges for the twelve months ended December 31, 2022 and September 30, 2023 included $29.3 million related to the sale of ADS. In addition, impairment, restructuring and reorganization charges for the twelve months ended September 30, 2023 included $28.3 million related to the impairment of goodwill. 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) Corporate pension and other postretirement benefit related (income) expense represents actuarial (gains) and losses that resulted from the remeasurement of plan assets and obligations as a result of changes in assumptions or experience. The Company recognizes actuarial (gains) and losses in connection with the annual remeasurement in the fourth quarter, or if specific events trigger a remeasurement. | ||||||
(3) Acquisition-related charges represent deal-related expenses associated with completed transactions and any resulting inventory step-up impact. | ||||||
(4) Represents the net gain resulting from divestitures and sale of certain assets. | ||||||
(5) Russia-related charges include impairments or allowances recorded against certain property, plant and equipment, inventory and trade receivables to reflect the current impact of Russia's invasion of Ukraine (and associated sanctions) on the Company's operations. In addition to impairments and allowances recorded, the Company recorded a loss on the divestiture of its Timken Russia business during the third quarter of 2022. Refer to Russia Operations in Management Discussion and Analysis within the Company's quarterly report on Form 10-Q for additional information. | ||||||
Reconciliation of Adjusted Earnings per Share to GAAP Earnings per Share for Full Year 2023 Outlook: | |||||||||||
(Unaudited) | |||||||||||
The following reconciliation is provided as additional relevant information about the Company's outlook deemed useful to investors. Forecasted full year adjusted diluted earnings per share is an important financial measure that management believes is useful to investors as it is representative of the Company's expectation for the performance of its core business operations. | |||||||||||
Low End Earnings | High End Earnings | ||||||||||
Forecasted full year GAAP diluted earnings per share | $ | 5.60 | $ | 5.70 | |||||||
Forecasted Adjustments: | |||||||||||
Impairment, restructuring and other special items, net (1) | 0.60 | 0.60 | |||||||||
Acquisition-related intangible amortization expense, net | 0.65 | 0.65 | |||||||||
Forecasted full year adjusted diluted earnings per share | $ | 6.85 | $ | 6.95 | |||||||
(1) Impairment, restructuring and other special items, net do not include the impact of any potential future mark-to-market pension and other postretirement remeasurement adjustments, because the amounts will not be known until incurred. | |||||||||||
SOURCE The Timken Company
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