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8-K - FORM 8-K - TIMKEN CO | d385504d8k.htm |
The Timken Company
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months
Ended June 30, |
Six Months
Ended June 30, |
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(Dollars in millions, except share data) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net sales |
$ | 1,343.2 | $ | 1,329.6 | $ | 2,764.2 | $ | 2,583.7 | ||||||||
Cost of products sold |
965.9 | 979.1 | 1,975.3 | 1,899.9 | ||||||||||||
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Gross Profit |
377.3 | 350.5 | 788.9 | 683.8 | ||||||||||||
Selling, general & administrative expenses (SG&A) |
163.0 | 153.7 | 327.7 | 304.0 | ||||||||||||
Impairment and restructuring |
16.7 | 6.2 | 16.9 | 7.3 | ||||||||||||
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Operating Income |
197.6 | 190.6 | 444.3 | 372.5 | ||||||||||||
Other income (expense), net |
105.7 | 1.1 | 104.4 | (1.3 | ) | |||||||||||
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Earnings Before Interest and Taxes (EBIT) (1) |
303.3 | 191.7 | 548.7 | 371.2 | ||||||||||||
Interest expense, net |
(7.4 | ) | (7.9 | ) | (15.3 | ) | (16.2 | ) | ||||||||
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Income Before Income Taxes |
295.9 | 183.8 | 533.4 | 355.0 | ||||||||||||
Provision for income taxes |
112.5 | 61.5 | 194.0 | 118.9 | ||||||||||||
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Net Income |
183.4 | 122.3 | 339.4 | 236.1 | ||||||||||||
Less: Net (Loss) Income Attributable to Noncontrolling Interest |
(0.2 | ) | 0.8 | 0.1 | 1.9 | |||||||||||
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Net Income Attributable to The Timken Company |
$ | 183.6 | $ | 121.5 | $ | 339.3 | $ | 234.2 | ||||||||
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Net Income per Common Share Attributable to The Timken Company Common Shareholders |
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Basic Earnings Per Share |
$ | 1.88 | $ | 1.24 | $ | 3.47 | $ | 2.39 | ||||||||
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Diluted Earnings Per Share |
$ | 1.86 | $ | 1.22 | $ | 3.44 | $ | 2.36 | ||||||||
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Average Shares Outstanding |
97,265,627 | 97,644,773 | 97,355,740 | 97,552,528 | ||||||||||||
Average Shares Outstanding - assuming dilution |
98,204,205 | 98,899,992 | 98,373,357 | 98,905,856 | ||||||||||||
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BUSINESS SEGMENTS (unaudited)
Three Months
Ended June 30, |
Six Months
Ended June 30, |
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(Dollars in millions, except share data) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Mobile Industries Segment |
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Net sales to external customers |
$ | 448.2 | $ | 465.1 | $ | 917.3 | $ | 908.0 | ||||||||
Intersegment sales |
0.2 | 0.1 | 0.2 | 0.2 | ||||||||||||
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Total net sales |
$ | 448.4 | $ | 465.2 | $ | 917.5 | $ | 908.2 | ||||||||
Earnings before interest and taxes (EBIT) (1) (2) |
$ | 48.8 | $ | 71.4 | $ | 135.5 | $ | 143.5 | ||||||||
EBIT Margin (1) |
10.9 | % | 15.3 | % | 14.8 | % | 15.8 | % | ||||||||
Process Industries Segment |
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Net sales to external customers |
$ | 336.6 | $ | 307.5 | $ | 690.7 | $ | 591.6 | ||||||||
Intersegment sales |
1.1 | 0.8 | 2.6 | 1.7 | ||||||||||||
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Total net sales |
$ | 337.7 | $ | 308.3 | $ | 693.3 | $ | 593.3 | ||||||||
Earnings before interest and taxes (EBIT) (1) (2) |
$ | 71.3 | $ | 68.7 | $ | 153.6 | $ | 134.0 | ||||||||
EBIT Margin (1) |
21.1 | % | 22.3 | % | 22.2 | % | 22.6 | % | ||||||||
Aerospace and Defense Segment |
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Net sales to external customers |
$ | 87.2 | $ | 83.5 | $ | 178.5 | $ | 162.6 | ||||||||
Earnings before interest and taxes (EBIT) (1) (2) |
$ | 7.9 | $ | 2.5 | $ | 18.6 | $ | 4.1 | ||||||||
EBIT Margin (1) |
9.1 | % | 3.0 | % | 10.4 | % | 2.5 | % | ||||||||
Steel Segment |
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Net sales to external customers |
$ | 471.2 | $ | 473.5 | $ | 977.7 | $ | 921.5 | ||||||||
Intersegment sales |
28.6 | 31.6 | 57.6 | 65.1 | ||||||||||||
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Total net sales |
$ | 499.8 | $ | 505.1 | $ | 1,035.3 | $ | 986.6 | ||||||||
Earnings before interest and taxes (EBIT) (1) (2) |
$ | 88.9 | $ | 71.3 | $ | 176.9 | $ | 130.6 | ||||||||
EBIT Margin (1) |
17.8 | % | 14.1 | % | 17.1 | % | 13.2 | % | ||||||||
Unallocated corporate expense (2) |
$ | (23.0 | ) | $ | (21.8 | ) | $ | (43.7 | ) | $ | (41.1 | ) | ||||
Receipt of CDSOA distributions (3) |
$ | 109.5 | $ | | $ | 109.5 | $ | | ||||||||
Intersegment eliminations (expense) income (2) (4) |
$ | (0.1 | ) | $ | (0.4 | ) | $ | (1.7 | ) | $ | 0.1 | |||||
Consolidated |
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Net sales to external customers |
$ | 1,343.2 | $ | 1,329.6 | $ | 2,764.2 | $ | 2,583.7 | ||||||||
Earnings before interest and taxes (EBIT) (1) |
$ | 303.3 | $ | 191.7 | $ | 548.7 | $ | 371.2 | ||||||||
EBIT Margin (1) |
22.6 | % | 14.4 | % | 19.9 | % | 14.4 | % |
(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 are useful to investors as these measures are representative of the Companys performance and cash generation. |
(2) | As of January 1, 2012, the Company modified the way in which certain selling, general and administrative expenses are allocated among business segments. Prior year amounts have been revised to be consistent with the new allocations. |
(3) | Receipt of the U.S. Continued Dumping and Subsidy Offset Act distributions, net of expenses (CDSOA), represents the amount of funds received by the Company for distribution of monies collected by U.S. Customs from antidumping cases to qualifying domestic producers. |
(4) | Intersegment eliminations represent profit or loss between the Steel segment and the Mobile Industries, Process Industries and Aerospace and Defense segments. |
Reconciliation of EBIT and EBITDA to GAAP net income
This reconciliation is provided as additional relevant information about the companys performance. Management believes consolidated earnings before interest and taxes (EBIT) are representative of the companys performance and therefore useful to investors. Consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) are another important measure of financial performance and cash generation of the business and therefore useful to investors. Management also believes that it is appropriate to compare GAAP net income to consolidated EBIT and EBITDA.
Three Months Ended June 30, |
Six Months Ended June 30, |
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(Dollars in millions) (Unaudited) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net Income |
$ | 183.4 | $ | 122.3 | $ | 339.4 | $ | 236.1 | ||||||||
Provision for income taxes |
112.5 | 61.5 | 194.0 | 118.9 | ||||||||||||
Interest expense |
8.1 | 9.3 | 16.7 | 19.1 | ||||||||||||
Interest income |
(0.7 | ) | (1.4 | ) | (1.4 | ) | (2.9 | ) | ||||||||
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Consolidated earnings before interest and taxes (EBIT) |
$ | 303.3 | $ | 191.7 | $ | 548.7 | $ | 371.2 | ||||||||
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Depreciation and Amortization |
50.0 | 46.4 | 99.8 | 93.8 | ||||||||||||
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Consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) |
$ | 353.3 | $ | 238.1 | $ | 648.5 | $ | 465.0 | ||||||||
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Reconciliation of Net Income Attributable to The Timken Company after Adjustments to GAAP Net Income Attributable to The Timken Company This reconciliation is provided as additional relevant information about the companys performance. Management believes that net income attributable to the company, after adjustments, and diluted earnings per share, after adjustments, are representative of the Companys core operations and therefore useful to investors.
(Dollars in millions, except share data) (Unaudited) |
Three Months Ended June 30, 2012 |
EPS | ||||||
Net Income Attributable to The Timken Company |
$ | 183.6 | $ | 1.86 | ||||
CDSOA receipts, net of tax expense (1) |
(69.0 | ) | 0.70 | |||||
Charges due to plant closure (2) |
17.7 | 0.18 | ||||||
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Net Income Attributable to The Timken Company, after adjustments |
$ | 132.3 | $ | 1.34 | ||||
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(1) | CDSOA for the second quarter of 2012 was $109.5 million, net of tax expense of $40.5 million. |
(2) | On May 24, 2012, the Company announced the closure of the manufacturing plant in St. Thomas, Ontario, Canada. In the second quarter of 2012, the Company recorded $16.5 million of restructuring charges and $1.2 million of reorganization charges included in cost of products sold. No tax benefits related to these restructuring charges was recorded. |
Reconciliation of EBIT Margin, after Adjustments to Net Income as a Percentage of Sales and EBIT after Adjustments to Net Income The following reconciliation is provided as additional relevant information about the companys performance. Management believes that EBIT, after adjustments, and EBIT margin, after adjustments, are representative of the Companys core operations and therefore useful to investors.
(Dollars in millions) (Unaudited) |
Three Months Ended June 30, 2012 |
Percentage to Net Sales |
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Net Income |
$ | 183.4 | 13.7 | % | ||||
Provision for income taxes |
112.5 | 8.4 | % | |||||
Interest expense |
8.1 | 0.6 | % | |||||
Interest income |
(0.7 | ) | (0.1 | %) | ||||
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Consolidated earnings before interest and taxes (EBIT) |
$ | 303.3 | 22.6 | % | ||||
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CDSOA receipts (1) |
(109.5 | ) | (8.2 | %) | ||||
Charges due to plant closure (2) |
17.7 | 1.3 | % | |||||
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Consolidated earnings before interest and taxes (EBIT), after adjustments |
$ | 211.5 | 15.7 | % | ||||
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The following reconciliation is provided as additional relevant information about the Mobile Industries segment performance. Management believes that EBIT, after adjustments, and EBIT margin, after adjustments, are representative of the Mobile Industries core operations and therefore useful to investors.
(Dollars in millions) (Unaudited) |
Three Months Ended June 30, 2012 |
Percentage to Net Sales |
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Earnings before interest and taxes (EBIT) |
$ | 48.8 | 10.9 | % | ||||
Charges due to plant closure (3) |
17.4 | 3.9 | % | |||||
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Earnings before interest and taxes (EBIT), after adjustments |
$ | 66.2 | 14.8 | % | ||||
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(1) | CDSOA for the second quarter of 2012 was $109.5 million, net of tax expense of $40.5 million. |
(2) | On May 24, 2012, the Company announced the closure of the manufacturing plant in St. Thomas, Ontario, Canada. In the second quarter of 2012, the Company recorded $16.5 million of restructuring charges and $1.2 million of reorganization charges included in cost of products sold. No tax benefits related to these restructuring charges was recorded. |
(3) | The Company recorded $16.2 million of restructuring charges and $1.2 million of reorganization charges for the Mobile Industries segment related to the closure of the St. Thomas manufacturing plant in the second quarter of 2012. |
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 Timken Companys financial position. Capital is defined as total debt plus total shareholders equity. Management believes Net (Cash) Debt is an important measure of Timkens financial position, due to the amount of cash and cash equivalents.
(Dollars in millions) (Unaudited) |
June 30, 2012 |
December 31, 2011 |
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Short-term debt |
$ | 20.3 | $ | 36.3 | ||||
Long-term debt |
473.9 | 478.8 | ||||||
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Total Debt |
494.2 | 515.1 | ||||||
Less: Cash, cash equivalents and restricted cash |
(509.9 | ) | (468.4 | ) | ||||
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Net (Cash) Debt |
$ | (15.7 | ) | $ | 46.7 | |||
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Shareholders equity |
$ | 2,315.2 | $ | 2,042.5 | ||||
Ratio of Total Debt to Capital |
17.6 | % | 20.1 | % | ||||
Ratio of Net Debt to Capital |
(0.7 | %) | 2.2 | % | ||||
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Reconciliation of Free Cash Flow to Net Cash Provided (Used) By Operating Activities
Management believes that free cash flow and free cash flow adjusted for discretionary pension and postretirement
contributions and CDSOA receipts are useful to investors because they are meaningful indicators of cash generated from operating
activities available for the execution of its business strategy.
Free cash flow: |
Three Months Ended June 30, |
Six Months
Ended June 30, |
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(Dollars in millions) (Unaudited) |
2012 | 2011 | 2012 | 2011 | ||||||||||||||
Net cash provided (used) by operating activities |
$ | 275.1 | $ | 34.7 | $ | 236.4 | $ | (162.9 | ) | |||||||||
Less: capital expenditures |
(69.3 | ) | (39.5 | ) | (115.3 | ) | (59.6 | ) | ||||||||||
Less: cash dividends paid to shareholders |
(22.4 | ) | (19.5 | ) | (44.9 | ) | (37.1 | ) | ||||||||||
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Free cash flow |
$ | 183.4 | $ | (24.3 | ) | $ | 76.2 | $ | (259.6 | ) | ||||||||
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Plus: |
discretionary pension and postretirement benefit contributions, net of the tax benefit (1) |
69.5 | 94.8 | 132.0 | 192.8 | |||||||||||||
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CDSOA receipts, net of tax expense (2) |
(69.0 | ) | | (69.0 | ) | | |||||||||||
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Free cash flow adjusted for discretionary pension and postretirement contributions and CDSOA |
$ | 183.9 | $ | 70.5 | $ | 139.2 | $ | (66.8 | ) | |||||||||
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(1) | The discretionary pension contributions for the second quarter of 2012 was $110.0 million, net of the tax benefit of $40.5 million. The discretionary pension contributions for the first six months of 2012 was $203.8 million, net of the tax benefit of $71.8 million. The discretionary pension contributions for the second quarter of 2011 was $150.0 million, net of the tax benefit of $55.2 million. The discretionary pension contributions for the first six months of 2011 was $301.4 million, net of the tax benefit of $108.6 million. |
(2) | CDSOA for the second quarter of 2012 was $109.5 million, net of tax expense of $40.5 million. |
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in millions) (Unaudited)
June 30, 2012 |
December 31, 2011 |
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ASSETS |
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Cash and cash equivalents |
$ | 509.9 | $ | 464.8 | ||||
Accounts receivable |
715.7 | 645.5 | ||||||
Inventories, net |
943.3 | 964.4 | ||||||
Other current assets |
196.6 | 217.6 | ||||||
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Total Current Assets |
2,365.5 | 2,292.3 | ||||||
Property, Plant and Equipment - Net |
1,320.0 | 1,308.9 | ||||||
Goodwill |
332.1 | 307.2 | ||||||
Other assets |
387.2 | 443.7 | ||||||
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Total Assets |
$ | 4,404.8 | $ | 4,352.1 | ||||
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LIABILITIES |
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Accounts payable |
$ | 283.7 | $ | 287.3 | ||||
Short-term debt |
20.3 | 36.3 | ||||||
Income taxes |
144.4 | 73.3 | ||||||
Accrued expenses |
379.3 | 447.7 | ||||||
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Total Current Liabilities |
827.7 | 844.6 | ||||||
Long-term debt |
473.9 | 478.8 | ||||||
Accrued pension cost |
278.0 | 491.0 | ||||||
Accrued postretirement benefits cost |
389.2 | 395.9 | ||||||
Other non-current liabilities |
120.8 | 99.3 | ||||||
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Total Liabilities |
2,089.6 | 2,309.6 | ||||||
EQUITY |
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The Timken Company shareholders equity |
2,301.0 | 2,028.3 | ||||||
Noncontrolling Interest |
14.2 | 14.2 | ||||||
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Total Equity |
2,315.2 | 2,042.5 | ||||||
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Total Liabilities and Equity |
$ | 4,404.8 | $ | 4,352.1 | ||||
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions) (Unaudited)
Three months
ended June 30, |
Six months
ended June 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Cash Provided (Used) |
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OPERATING ACTIVITIES |
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Net income attributable to The Timken Company |
$ | 183.6 | $ | 121.5 | $ | 339.3 | $ | 234.2 | ||||||||
Net income attributable to noncontrolling interest |
(0.2 | ) | 0.8 | 0.1 | 1.9 | |||||||||||
Adjustments to reconcile net income to net cash provided (used) by operating activities: |
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Depreciation and amortization |
50.0 | 46.4 | 99.8 | 93.8 | ||||||||||||
Impairment charges |
| 1.4 | | 3.2 | ||||||||||||
Pension and other postretirement expense |
29.4 | 14.9 | 50.4 | 37.2 | ||||||||||||
Pension and other postretirement benefit contributions and payments |
(121.2 | ) | (165.8 | ) | (225.9 | ) | (331.8 | ) | ||||||||
Changes in operating assets and liabilities: |
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Accounts receivable |
37.5 | (42.1 | ) | (74.5 | ) | (191.7 | ) | |||||||||
Inventories |
36.5 | (6.2 | ) | 15.1 | (86.6 | ) | ||||||||||
Accounts payable |
(24.2 | ) | (7.9 | ) | (2.1 | ) | 46.9 | |||||||||
Accrued expenses |
26.2 | 42.5 | (77.2 | ) | (38.8 | ) | ||||||||||
Income taxes |
49.3 | 20.7 | 107.1 | 62.0 | ||||||||||||
Other - net |
8.2 | 8.5 | 4.3 | 6.8 | ||||||||||||
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Net Cash Provided (Used) By Operating Activities |
275.1 | 34.7 | 236.4 | (162.9 | ) | |||||||||||
INVESTING ACTIVITIES |
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Capital expenditures |
(69.3 | ) | (39.5 | ) | (115.3 | ) | (59.6 | ) | ||||||||
Acquisitions |
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Investments - net |
0.7 | | 18.2 | (13.3 | ) | |||||||||||
Divestitures |
| 4.8 | | 4.8 | ||||||||||||
Other |
4.5 | 5.9 | 4.0 | 7.1 | ||||||||||||
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Net Cash Used by Investing Activities |
(64.1 | ) | (28.8 | ) | (93.3 | ) | (61.0 | ) | ||||||||
FINANCING ACTIVITIES |
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Cash dividends paid to shareholders |
(22.4 | ) | (19.5 | ) | (44.9 | ) | (37.1 | ) | ||||||||
Purchase of treasury shares, net |
(25.5 | ) | | (51.7 | ) | (25.3 | ) | |||||||||
Net proceeds from common share activity |
7.2 | 8.0 | 19.8 | 23.2 | ||||||||||||
Net proceeds from credit facilities |
(9.2 | ) | (2.1 | ) | (20.6 | ) | 6.2 | |||||||||
Other |
3.6 | (4.4 | ) | 3.6 | (8.9 | ) | ||||||||||
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Net Cash Used by Financing Activities |
(46.3 | ) | (18.0 | ) | (93.8 | ) | (41.9 | ) | ||||||||
Effect of exchange rate changes on cash |
(10.1 | ) | 7.3 | (4.2 | ) | 21.5 | ||||||||||
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Increase (Decrease) In Cash and Cash Equivalents |
154.6 | (4.8 | ) | 45.1 | (244.3 | ) | ||||||||||
Cash and cash equivalents at beginning of period |
355.3 | 637.6 | 464.8 | 877.1 | ||||||||||||
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Cash and Cash Equivalents at End of Period |
$ | 509.9 | $ | 632.8 | $ | 509.9 | $ | 632.8 | ||||||||
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