Timken Reports Third-Quarter Results
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-- Cost controls and working-capital management drive third-quarter
earnings and cash flow
-- Company increases full-year earnings estimate
-- Needle Roller Bearings business sale on track for year-end completion
CANTON, Ohio--(BUSINESS WIRE)-- The Timken Company (NYSE: TKR) today reported sales of $763.6 million for the third quarter of 2009, a decrease of 43 percent over the same period a year ago. The sales decline reflects weaker demand in many of the company's end markets and lower surcharges, partially offset by improved pricing. Sales for all periods exclude the results of the Needle Roller Bearings business, accounted for as "discontinued operations."
The company incurred a third-quarter loss of $50.1 million, or $0.52 per share, including a loss of $30.8 million, or $0.32 per share, from the Needle Roller Bearings business. The company's continuing operations incurred a loss of $19.3 million, or $0.20 per share, in the third quarter, compared with income of $123.9 million, or $1.28 per diluted share, a year ago.
Excluding special items, net income was $5.2 million, or $0.05 per share, for the third quarter, including a loss of $2.3 million, or $0.03 per share, from discontinued operations. Income from the company's continuing operations for the third quarter was $7.5 million, or $0.08 per share, excluding special items, compared with $129.2 million, or $1.34 per diluted share, in the prior year. Earnings reflect lower sales volume and manufacturing utilization, reduced surcharges and lower LIFO (last-in, first-out accounting) income. These items were partially offset by cost reductions, improved pricing and lower material costs compared with a year ago.
Special items, net of tax, in the third quarter of 2009 amounted to $55.4 million of expense, compared with $5.5 million in the same period last year. Special items in the third quarter of 2009 included manufacturing rationalization, impairment and restructuring charges, the largest being a $25.1-million impairment, net of tax, associated with the pending sale of the Needle Roller Bearings business.
Table 1: Third-Quarter 2009 Earnings Per Share
As Reported Adjusted (a)
Continuing Operations $ (0.20 ) $ 0.08
Discontinued Operations (0.32 ) (0.03 )
Total Earnings Per Share $ (0.52 ) $ 0.05
(a): "Adjusted" earnings per share exclude the impact of impairment
and
restructuring, manufacturing rationalization/reorganization and
special charges
and credits.
"This quarter's performance is more about how we're managing the business than a shift in marketplace trends," said James W. Griffith, Timken president and chief executive officer. "Without the benefit of improved volume, we're yielding better results from structural changes we've made, in part from our Project O.N.E. and portfolio management initiatives."
In recent months, the company also:
-- Signed an agreement to sell the assets of its Needle Roller Bearings
business to JTEKT Corporation, for which Timken will receive
approximately $330 million, subject to certain closing conditions;
-- Announced plans to streamline its distribution footprint by
consolidating its Ohio and South Carolina distribution centers into a
new facility;
-- Entered into a three-year, $500-million unsecured Senior Credit
Facility, replacing a previous facility set to expire in June 2010;
-- Completed a $250-million public offering of 6.00% unsecured Senior Notes
due 2014, proceeds of which will be used to repay the company's 5.75%
notes due February 15, 2010;
-- Expanded its ability to offer engineered steel solutions in Asia through
collaboration with Daido Steel Co. Ltd.; and
-- Reached a tentative four-year labor agreement with the United
Steelworkers union, covering approximately 2,300 associates in Canton,
Ohio.
The company continues to maintain a strong balance sheet with ample liquidity. Total debt was $800.9 million as of Sept. 30, 2009, or 33.5 percent of capital. Net debt at Sept. 30, 2009, was $169.9 million, or 9.6 percent of capital, compared with $490.5 million, or 22.8 percent, as of Dec. 31, 2008. During the quarter the company generated cash from operating activities of $170.9 million, driven primarily by inventory reductions.
Nine Months' Results
For the first nine months of 2009, sales were $2.37 billion, a decrease of 40 percent from the same period in 2008. The company incurred a loss of $0.56 per share from continuing operations for the first nine months of 2009, compared with earnings of $2.87 per diluted share last year. Special items, net of tax, in the first nine months of 2009 totaled $81.4 million of expense, compared with $3.0 million in the prior-year period. Special items in 2009 primarily reflect impairment and severance charges, while prior-year special items included a gain on a real estate divestment associated with a prior plant closure, offset by charges related to restructuring, rationalization and impairment. Excluding special items, year-to-date income from continuing operations was $0.22 per diluted share, versus earnings of $2.91 per diluted share in the same period last year. During the first nine months of 2009, the company was affected by weaker demand across most of its end markets, partially offset by pricing and cost-reduction initiatives.
Table 2: Nine Months' 2009 Earnings Per Share
As Reported Adjusted (a)
Continuing Operations $ (0.56 ) $ 0.22
Discontinued Operations (0.62 ) (0.31 )
Total Earnings Per Share $ (1.18 ) $ (0.09 )
(a): "Adjusted" earnings per share exclude the impact of impairment
and
restructuring, manufacturing rationalization/reorganization and
special charges
and credits.
The following business results reflect continuing operations, excluding special items:
Bearings and Power Transmission Group Results
The Bearings and Power Transmission Group had third-quarter sales of $614.8 million, down 28 percent from $849.1 million for the same period last year. Earnings before interest and taxes (EBIT) for the third quarter were $48.9 million, down 47 percent from $91.8 million in the third quarter of 2008.
For the first nine months of 2009, Bearings and Power Transmission Group sales were $1.86 billion, down 28 percent from the same period a year ago. EBIT for the first nine months of 2009 was $150.0 million, or 8.1 percent of sales, compared with EBIT of $248.4 million, or 9.6 percent of sales, in the first nine months of 2008.
Mobile Industries Segment Results
In the third quarter, Mobile Industries sales were $327.6 million, a decrease of 23 percent from $426.5 million for the same period a year ago. The sales decline was driven by weaker demand in the off-highway, heavy-truck and rail market sectors, partially offset by favorable pricing. Light-vehicle demand was up slightly compared with a year ago, driven by the emergence of automotive customers from bankruptcy and consumer stimulus programs, which accelerated demand during the quarter.
Third-quarter EBIT was $13.7 million, an increase of 58 percent from $8.7 million for the same period a year ago. The benefits from cost reduction initiatives and pricing were partially offset by the impact of lower global demand and underutilized capacity.
For the first nine months of 2009, Mobile Industries sales of $920.4 million were down 34 percent from the same period a year ago. EBIT for the first nine months was a loss of $0.6 million, or 0.1 percent of sales, compared with EBIT of $43.4 million, or 3.1 percent of sales, in the first nine months of 2008.
Process Industries Segment Results
Process Industries had third-quarter sales of $187.0 million, down 41 percent from $317.9 million for the same period a year ago. Lower demand across most industrial market sectors more than offset favorable pricing. Sales declines were significant in both original equipment and distribution channels.
Third-quarter EBIT was $16.1 million, down 78 percent from $73.3 million in the same period a year ago. Lower EBIT primarily resulted from volume, partially offset by pricing and cost reduction initiatives.
For the first nine months of 2009, Process Industries sales were $619.1 million, down 31 percent from the same period a year ago. EBIT for the first nine months was $94.6 million, or 15.3 percent of sales, compared with EBIT of $180.9 million, or 20.2 percent of sales, in the same period a year ago.
Aerospace and Defense Segment Results
Aerospace and Defense had third-quarter sales of $100.3 million, down 4 percent from $104.7 million for the same period last year. The decrease was driven by reduced demand across commercial and civil aerospace markets, partially offset by pricing and acquisitions.
Third-quarter EBIT was $19.1 million, up 95 percent from $9.8 million in the same period a year ago. Performance benefited primarily from cost-reduction initiatives and pricing.
For the first nine months of 2009, Aerospace and Defense sales were $318.8 million, up 5 percent from the same period a year ago. The EXTEX acquisition accounted for approximately one-half of the sales increase. EBIT for the first nine months of 2009 was $56.0 million, or 17.6 percent of sales, compared with EBIT of $24.0 million, or 8.0 percent of sales, in the first nine months of 2008.
Steel Group Results
Sales for the Steel Group, including inter-group sales, were $157.9 million during the third quarter, a decrease of 71 percent from $536.5 million for the same period last year, with 53 percent fewer shipped tons. The greatest market declines were from the industrial and energy sectors, while light vehicle demand was up slightly compared with a year ago due to consumer stimulus programs in the U.S. Surcharges declined approximately $215 million from the third quarter last year.
The Steel Group incurred an EBIT loss of $20.3 million compared with EBIT of $133.8 million for the same period a year ago. The decline primarily resulted from lower demand and underutilization of manufacturing capacity, which affected EBIT by roughly $100 million. The remaining decline in EBIT resulted from lower surcharges and reduced LIFO income, partially offset by favorable material and energy costs and cost-reduction actions.
For the first nine months of 2009, Steel Group sales were $541.4 million, down 63 percent from the same period a year ago. Year-to-date, the Steel Group incurred an EBIT loss of $60.4 million, or 11.2 percent of sales, compared with EBIT of $267.5 million, or 18.1 percent of sales in the same period last year.
Outlook
Timken's sales for the full year 2009, excluding discontinued operations, are expected to be down approximately 35 to 40 percent from the prior year, principally due to weak end-market demand. Mobile Industries sales are expected to be down approximately 30 to 35 percent for the year, driven by lower North American light-vehicle production, and significant declines in heavy-truck builds in North America and Europe. Process Industries sales are expected to be down by about 30 to 35 percent in 2009, with broad-based volume declines in most end markets, especially heavy industrial equipment. Sales in the Aerospace and Defense segment are expected to be up modestly for 2009, driven by a strong defense sector, offsetting softer commercial and civil sectors. Steel Group sales are expected to decline approximately 60 to 65 percent for the year due to lower demand across all market sectors and reduced surcharges.
The company is raising its full-year earnings estimate (including discontinued operations and excluding special items), to a loss of $(0.10) to $(0.30) per share, compared with its prior estimate of a loss of $(0.40) to $(0.90) per share. The company expects to deliver strong free cash flow in 2009, driven by effective working capital management and reduced spending.
Conference Call Information
The company will host a conference call for investors and analysts today to discuss financial results.
Conference Call: Thursday, Oct. 29, 2009
11:00 a.m. Eastern Time
All Callers: Live Dial-In: 800-344-0593 or 706-634-0975
(Call in 10 minutes prior to be included.)
Conference ID: 68492845
Replay Dial-In through Nov. 6, 2009:
800-642-1687 or 706-645-9291
Live Webcast: www.timken.com/investors
About The Timken Company
The Timken Company keeps the world turning, with innovative friction management and power transmission products and services, enabling our customers' machinery to perform more efficiently and reliably. With sales of $5.7 billion in 2008 and operations in 26 countries, Timken is Where You Turn(TM) for better performance.
Certain statements in this news 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 and timing of the closing of the Needle Roller Bearings transaction, 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 2009; the inability to complete the sale of the Needle Roller Bearings business due to either the failure to satisfy any condition to the closing of the transaction, including receipt of regulatory approval, or the occurrence of any event, change or other circumstance that could give rise to the termination of the purchase agreement; 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, including any disruptions or bankruptcies in the automotive industry which may have an impact on the company's revenues, earnings and impairment charges; fluctuations in raw-material and energy costs and their impact on the operation of the company's surcharge mechanisms; the impact of the company's last-in first-out accounting; continued weakness in global economic conditions and financial markets; changes in the expected costs associated with product warranty claims; the inability to obtain the union members' ratification of the tentative agreement covering the company's associates at the Canton area manufacturing facilities; the impact on operations of general economic conditions, higher or lower raw-material and energy costs, fluctuations in customer demand, and the company's ability to achieve the benefits of its future and ongoing programs and initiatives, including, without limitation, the initiative to reduce its employment levels and other costs, the implementation of its Mobile Industries Segment restructuring program and initiatives and the rationalization of the company's Canton bearing operations. These and additional factors are described in greater detail in the company's Annual Report on Form 10-K for the year ended Dec. 31, 2008, page 44 and in the company's Form 10-Q for the quarter ended June 30, 2009. The company undertakes no obligation to update or revise any forward-looking statement.
(Unaudited) CONDENSED CONSOLIDATED AS REPORTED ADJUSTED (1) STATEMENT OF INCOME (Dollars in thousands, Q3 2009 Q3 2008 Nine Months Nine Months Q3 2009 Q3 2008 Nine Months Nine Months except share 2009 2008 2009 2008 data) Net sales $ 763,644 $ 1,336,352 $ 2,367,021 $ 3,942,848 $ 763,644 $ 1,336,352 $ 2,367,021 $ 3,942,848 Cost of 633,122 954,490 1,953,883 2,967,057 633,122 954,490 1,953,883 2,967,057 products sold Manufacturing rationalization / reorganization 960 322 3,590 1,760 - - - - expenses - cost of products sold Gross Profit $ 129,562 $ 381,540 $ 409,548 $ 974,031 $ 130,522 $ 381,862 $ 413,138 $ 975,791 Selling, administrative 106,716 176,861 357,061 515,881 106,716 176,861 357,061 515,881 & general expenses (SG&A) Manufacturing rationalization / 528 (370 ) 1,638 1,687 - - - - reorganization expenses - SG&A Impairment and 19,613 2,379 84,074 7,442 - - - - restructuring Operating $ 2,705 $ 202,670 $ (33,225 ) $ 449,021 $ 23,806 $ 205,001 $ 56,077 $ 459,910 (Loss) Income Other income (1,932 ) 555 3,927 (4,167 ) (1,932 ) 555 3,927 (4,167 ) (expense) Special items - (2,587 ) (558 ) (608 ) 19,987 - - - - other income (Loss) Earnings Before Interest $ (1,814 ) $ 202,667 $ (29,906 ) $ 464,841 $ 21,874 $ 205,556 $ 60,004 $ 455,743 and Taxes (EBIT) (2) Interest (9,971 ) (9,575 ) (25,934 ) (29,081 ) (9,971 ) (9,575 ) (25,934 ) (29,081 ) expense, net (Loss) Income From Continuing Operations Before Income (11,785 ) 193,092 (55,840 ) 435,760 11,903 195,981 34,070 426,662 Taxes Provision (benefit) for 7,116 68,121 2,900 155,078 3,987 65,654 11,413 142,932 income taxes (Loss) Income From Continuing $ (18,901 ) $ 124,971 $ (58,740 ) $ 280,682 $ 7,916 $ 130,327 $ 22,657 $ 283,730 Operations (Loss) Income from discontinued operations net of income (30,803 ) 6,539 (59,912 ) 26,099 (2,250 ) 6,595 (29,630 ) 26,325 taxes (3) Net (Loss) $ (49,704 ) $ 131,510 $ (118,652 ) $ 306,781 $ 5,666 $ 136,922 $ (6,973 ) $ 310,055 Income Less: Net Income (Loss) Attributable to 424 1,097 (4,877 ) 2,960 425 1,097 1,272 2,960 Noncontrolling Interest Net (Loss) Income Attributable to $ (50,128 ) $ 130,413 $ (113,775 ) $ 303,821 $ 5,241 $ 135,825 $ (8,245 ) $ 307,095 The Timken Company Net Income per Common Share Attributable to The Timken Company Common Shareholders: (Loss) Earnings Per Share $ (0.20 ) $ 1.28 $ (0.56 ) $ 2.89 $ 0.08 $ 1.34 $ 0.22 $ 2.92 -Continuing Operations (Loss) Earnings Per Share (0.32 ) 0.07 (0.62 ) 0.27 (0.03 ) 0.07 (0.31 ) 0.27 -Discontinued Operations Earnings Per $ (0.52 ) $ 1.35 $ (1.18 ) $ 3.16 $ 0.05 $ 1.41 $ (0.09 ) $ 3.19 Share Diluted (Loss) Earnings Per Share $ (0.20 ) $ 1.28 $ (0.56 ) $ 2.87 $ 0.08 $ 1.34 $ 0.22 $ 2.91 -Continuing Operations Diluted (Loss) Earnings Per Share (0.32 ) 0.07 (0.62 ) 0.27 (0.03 ) 0.06 (0.31 ) 0.27 -Discontinued Operations Earnings Per $ (0.52 ) $ 1.35 $ (1.18 ) $ 3.14 $ 0.05 $ 1.40 $ (0.09 ) $ 3.18 Share Average Shares 96,176,091 95,878,978 96,111,847 95,574,420 96,176,091 95,878,978 96,111,847 95,574,420 Outstanding Average Shares Outstanding - 96,176,091 96,103,130 96,111,847 95,968,659 96,176,091 96,103,130 96,111,847 95,968,659 assuming dilution
BUSINESS SEGMENTS (Dollars in thousands) Q3 2009 Q3 2008 Nine Months Nine Months (Unaudited) 2009 2008 Mobile Industries Segment Net sales to external $ 327,572 $ 426,489 $ 920,384 $ 1,397,565 customers Adjusted (loss) earnings before $ 13,745 $ 8,684 $ (601 ) $ 43,387 interest and taxes (EBIT) (2) Adjusted EBIT Margin 4.2 % 2.0 % -0.1 % 3.1 % (2) Process Industries Segment Net sales to external $ 186,392 $ 316,904 $ 616,885 $ 895,622 customers Intergroup sales 577 972 2,199 2,251 Total net sales $ 186,969 $ 317,876 $ 619,084 $ 897,873 Adjusted earnings before interest and $ 16,081 $ 73,296 $ 94,626 $ 180,929 taxes (EBIT) (2) Adjusted EBIT Margin 8.6 % 23.1 % 15.3 % 20.2 % (2) Aerospace and Defense Segment Net sales to external $ 100,272 $ 104,711 $ 318,767 $ 302,208 customers Adjusted earnings before interest and $ 19,114 $ 9,819 $ 55,955 $ 24,036 taxes (EBIT) (2) Adjusted EBIT Margin 19.1 % 9.4 % 17.6 % 8.0 % (2) Total Bearings and Power Transmission Group Net sales to external $ 614,236 $ 848,104 $ 1,856,036 $ 2,595,395 customers Intergroup sales 577 972 2,199 2,251 Total net sales $ 614,813 $ 849,076 $ 1,858,235 $ 2,597,646 Adjusted earnings before interest and $ 48,940 $ 91,799 $ 149,980 $ 248,352 taxes (EBIT) (2) Adjusted EBIT Margin 8.0 % 10.8 % 8.1 % 9.6 % (2) Steel Group Net sales to external $ 149,408 $ 488,248 $ 510,985 $ 1,347,453 customers Intergroup sales 8,539 48,291 30,365 133,002 Total net sales $ 157,947 $ 536,539 $ 541,350 $ 1,480,455 Adjusted (loss) earnings before $ (20,266 ) $ 133,802 $ (60,435 ) $ 267,499 interest and taxes (EBIT) (2) Adjusted EBIT Margin -12.8 % 24.9 % -11.2 % 18.1 % (2) Unallocated corporate $ (10,310 ) $ (19,024 ) $ (35,802 ) $ (54,724 ) expense Intergroup eliminations expense $ 3,510 $ (1,021 ) $ 6,261 $ (5,384 ) (income) (4) Consolidated Net sales to external $ 763,644 $ 1,336,352 $ 2,367,021 $ 3,942,848 customers Adjusted earnings before interest and $ 21,874 $ 205,556 $ 60,004 $ 455,743 taxes (EBIT) (2) Adjusted EBIT Margin 2.9 % 15.4 % 2.5 % 11.6 % (2)
(1) "Adjusted" statements exclude the impact of impairment and restructuring, manufacturing rationalization/reorganization and special charges and credits for all periods shown. (2) EBIT is defined as operating income plus other income (expense). EBIT Margin is EBIT as a percentage of net sales. EBIT and EBIT margin on a segment basis exclude certain special items set forth above. 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 best reflect the performance of the company's business segments and EBIT disclosures are responsive to investors. (3) Discontinued Operations relate to the announced sale of the Needle Roller Bearings (NRB) operations to JTEKT Corporation that is projected to close in December 2009. (4) Intergroup eliminations represent intergroup profit or loss between the Steel Group and the Bearings and Power Transmission Group.
Reconciliation of GAAP net income attributable to the Timken Co. and EPS - diluted This reconciliation is provided as additional relevant information about the company's performance. Management believes adjusted net income and adjusted earnings per share are more representative of the company's performance and therefore useful to investors. Management also believes that it is appropriate to compare GAAP net income to adjusted net income in light of special items related to impairment and restructuring and manufacturing rationalization/reorganization costs, Continued Dumping and Subsidy Offset Act (CDSOA) receipts, and gain/loss on the sale of non-strategic assets.
Third Quarter Nine Months
2009 2008 2009 2008
(Dollars in thousands, except $ EPS (5) $ EPS $ EPS (5) $ EPS (5)
per share data) (Unaudited) (5)
Net (loss) income attributable $ (50,128 ) $ (0.52 ) $ 130,413 $ 1.35 $ (113,775 ) $ (1.18 ) $ 303,821 $ 3.14
to The Timken Company
Pre-tax special items:
Manufacturing
rationalization/reorganization
expenses - 960 0.01 322 - 3,590 0.04 1,760 0.02
cost of products sold
Manufacturing
rationalization/reorganization 528 0.01 (370 ) - 1,638 0.02 1,687 0.02
expenses - SG&A
Impairment and restructuring 19,613 0.20 2,379 0.02 84,074 0.87 7,442 0.08
Special items - other income 2,587 0.03 558 0.01 608 0.01 (19,987 ) (0.21 )
Provision for income taxes (6) 3,129 0.03 2,467 0.03 (8,513 ) (0.09 ) 12,146 0.13
Special items, loss from
discontinued operations 28,553 0.30 56 - 30,282 0.32 226 -
net of income taxes (3)
Less: net loss attributable to (1 ) - - - (6,149 ) (0.06 ) - -
noncontrolling interest
Adjusted net (loss) income
attributable to The Timken $ 5,241 $ 0.05 $ 135,825 $ 1.40 $ (8,245 ) $ (0.09 ) $ 307,095 $ 3.18
Company
(5) EPS amounts may not sum due to rounding
differences.
(6) Provision for income taxes includes adjustments to remove the income taxes associated with pre-tax special items and the
impact of discrete tax items recorded during
the period(s), and to reflect one overall effective tax rate on Adjusted pre-tax income.
Reconciliation of Outlook Information Expected earnings per diluted share for the 2009 full year excludes special items. Examples of such special items include impairment and restructuring, manufacturing rationalization/ reorganization expenses, gain/loss on the sale of non-strategic assets and payments under the CDSOA. It is not possible at this time to identify the potential amount or significance of these special items. Management cannot predict whether the company will receive any additional payments under the CDSOA in 2009 and if so, in what amount. If the company does receive any CDSOA payments, they will most likely be received in the fourth quarter. Reconciliation of GAAP income from continuing operations and EPS - diluted. This reconciliation is provided as additional relevant information about the company's performance. Management believes adjusted income from continuing operations and adjusted earnings per share are more representative of the company's performance and therefore useful to investors. Management also believes that it is appropriate to compare GAAP income from continuing operations to adjusted income from continuing operations in light of special items related to impairment and restructuring and manufacturing rationalization/reorganization costs, Continued Dumping and Subsidy Offset Act (CDSOA) receipts, and gain/loss on the sale of non-strategic assets.
Third Quarter Nine Months
2009 2008 2009 2008
(Dollars in thousands, except $ EPS (5) $ EPS $ EPS (5) $ EPS (5)
per share data) (Unaudited) (5)
(Loss) Income from continuing $ (18,901 ) $ (0.20 ) $ 124,971 $ 1.30 $ (58,740 ) $ (0.61 ) $ 280,682 $ 2.92
operations
Pre-tax special items:
Manufacturing
rationalization/reorganization
expenses - 960 0.01 322 - 3,590 0.04 1,760 0.02
cost of products sold
Manufacturing
rationalization/reorganization 528 0.01 (370 ) - 1,638 0.02 1,687 0.02
expenses - SG&A
Impairment and restructuring 19,613 0.20 2,379 0.02 84,074 0.87 7,442 0.08
Special items - other expense 2,587 0.03 558 0.01 608 0.01 (19,987 ) (0.21 )
(income)
Provision for income taxes (7) 3,129 0.03 2,467 0.03 (8,513 ) (0.09 ) 12,146 0.13
Adjusted income from $ 7,916 $ 0.08 $ 130,327 $ 1.36 $ 22,657 $ 0.24 $ 283,730 $ 2.96
continuing operations
(5) EPS amounts may not sum due to rounding
differences.
(7) Provision for income taxes includes the tax effect of pre-tax special items on our effective tax rate, as well as the
impact of discrete tax items recorded during the respective periods.
Reconciliation of GAAP income from continuing operations before income taxes This reconciliation is provided as additional relevant information about the company's performance. Management believes Consolidated adjusted earnings before interest and taxes (EBIT) and Total Bearings and Power Transmission Group adjusted EBIT are more representative of the company's performance and therefore useful to investors. Management also believes that it is appropriate to compare GAAP Income from Continuing Operations before Income Taxes to Consolidated adjusted EBIT in light of special items related to impairment and restructuring and manufacturing rationalization/reorganization costs, Continued Dumping and Subsidy Offset Act (CDSOA) receipts, and gain/loss on the sale of non-strategic assets.
Third Quarter Nine Months
2009 2008 2009 2008
(Thousands of U.S. dollars) $ $ $ $
(Unaudited)
(Loss) Income from continuing $ (11,785 ) $ 193,092 $ (55,840 ) $ 435,760
operations before income taxes
Pre-tax reconciling items:
Interest expense 10,319 11,002 27,187 33,374
Interest income (348 ) (1,427 ) (1,253 ) (4,293 )
Manufacturing
rationalization/reorganization
expenses - 960 322 3,590 1,760
cost of products sold
Manufacturing
rationalization/reorganization 528 (370 ) 1,638 1,687
expenses - SG&A
Impairment and restructuring 19,613 2,379 84,074 7,442
Special items - other income 2,587 558 608 (19,987 )
Consolidated adjusted earnings
before interest and taxes $ 21,874 $ 205,556 $ 60,004 $ 455,743
(EBIT)
Steel Group adjusted earnings
(loss) before
interest and taxes (EBIT) 20,266 (133,802 ) 60,435 (267,499 )
Unallocated corporate expense 10,310 19,024 35,802 54,724
Intergroup eliminations (3,510 ) 1,021 (6,261 ) 5,384
expense
Total Bearings and Power
Transmission Group
adjusted earnings before $ 48,940 $ 91,799 $ 149,980 $ 248,352
interest and taxes (EBIT)
Reconciliation of Total Debt to Net Debt and the Ratio of Net Debt to Capital: (Dollars in thousands) (Unaudited) Sept 30, 2009 Dec. 31, 2008 Short-term debt $ 331,860 $ 108,590 Long-term debt 469,057 515,250 Total Debt 800,917 623,840 Less: Cash and cash equivalents (8) (631,036 ) (133,383 ) Net Debt $ 169,881 $ 490,457 Shareholders' equity $ 1,590,973 $ 1,663,038 Ratio of Total Debt to Capital 33.5 % 27.3 % Ratio of Net Debt to Capital (Leverage) 9.6 % 22.8 %
This reconciliation is provided as additional relevant information about The Timken Company's financial position. Capital is defined as total debt plus shareholders' equity. Management believes Net Debt is more indicative of Timken's financial position, due to the amount of cash and cash equivalents. (8) Cash and cash equivalents at September 30, 2009 includes restricted cash of $248.2 million to be used to redeem $250.0 million in bonds maturing on February 15, 2010.
CONDENSED CONSOLIDATED BALANCE SHEET Sept 30, Dec 31, (Dollars in thousands) (Unaudited) 2009 2008 ASSETS Cash & cash equivalents $ 382,878 $ 133,383 Restricted cash 248,158 - Accounts receivable 458,393 575,915 Inventories 716,948 1,000,493 Current assets, discontinued operations 364,494 182,861 Other current assets 145,826 140,813 Total Current Assets 2,316,697 2,033,465 Property, plant & equipment 1,425,960 1,516,972 Goodwill 222,225 221,435 Non-current assets, discontinued operations - 269,625 Other assets 493,139 494,553 Total Assets $ 4,458,021 $ 4,536,050 LIABILITIES Accounts payable & other liabilities $ 352,558 $ 423,523 Short-term debt 331,860 108,590 Income taxes 5,060 27,598 Current liabilities, discontinued operations 51,530 21,512 Accrued expenses 147,848 217,090 Total Current Liabilities 888,856 798,313 Long-term debt 469,057 515,250 Accrued pension cost 779,196 823,550 Accrued postretirement benefits cost 611,743 613,045 Non-current liabilities, discontinued operations - 30,329 Other non-current liabilities 118,196 92,525 Total Liabilities 2,867,048 2,873,012 EQUITY Timken Company shareholders' equity 1,572,834 1,640,244 Noncontrolling interest 18,139 22,794 Total Equity 1,590,973 1,663,038 Total Liabilities and Equity $ 4,458,021 $ 4,536,050
CONDENSED CONSOLIDATED For the three months ended For the nine months ended
STATEMENT OF CASH FLOWS
Sept 30, Sept 30, Sept 30, Sept 30,
(Dollars in thousands) 2009 2008 2009 2008
(Unaudited)
Cash Provided (Used)
OPERATING ACTIVITIES
Net (loss) income
attributable to the $ (50,128 ) $ 130,413 $ (113,775 ) $ 303,821
Timken Company
Net loss (income) from 30,803 (6,539 ) 59,912 (26,099 )
discontinued operations
Net (loss) income
attributable to 424 1,097 (4,877 ) 2,960
noncontrolling interest
Adjustments to reconcile
net income to net cash
provided
by operating activities:
Depreciation and 48,990 53,445 150,835 154,965
amortization
Pension and other 29,379 19,847 77,092 62,342
postretirement expense
Pension and other
postretirement benefit (54,519 ) (14,898 ) (89,216 ) (55,783 )
payments
Accounts receivable (14,716 ) 46,545 128,359 (81,248 )
Inventories 107,463 (110,497 ) 311,517 (213,384 )
Accounts payable and 54,028 46,052 (169,367 ) 97,129
accrued expenses
Other (3,741 ) 4,271 35,291 6,064
Net Cash Provided by
Operating Activities - 147,983 169,736 385,771 250,767
Continuing Operations
Net Cash Provided by
Operating Activities - 22,888 48,406 38,544 58,089
Discontinued Operations
Net Cash Provided by 170,871 218,142 424,315 308,856
Operating Activities
INVESTING ACTIVITIES
Capital expenditures (27,663 ) (55,868 ) (80,953 ) (176,250 )
Other 1,739 5,942 7,173 34,079
Acquisitions - (272 ) (353 ) (57,178 )
Net Cash Used by
Investing Activities - (25,924 ) (50,198 ) (74,133 ) (199,349 )
Continuing Operations
Net Cash Used by
Investing Activities - (548 ) (2,996 ) (1,534 ) (10,063 )
Discontinued Operations
Net Cash Used by (26,472 ) (53,194 ) (75,667 ) (209,412 )
Investing Activities
FINANCING ACTIVITIES
Cash dividends paid to (8,470 ) (17,374 ) (34,608 ) (50,083 )
shareholders
Net proceeds from common 654 1,171 654 16,879
share activity
Net borrowings
(payments) on credit 205,993 (106,678 ) 163,634 20,462
facilities
Increase in restricted (248,158 ) - (248,158 ) -
cash
Net Cash Used by (49,981 ) (122,881 ) (118,478 ) (12,742 )
Financing Activities
Effect of exchange rate 11,374 (20,405 ) 19,325 (14,483 )
changes on cash
Increase in Cash and 105,792 21,662 249,495 72,219
Cash Equivalents
Cash and Cash
Equivalents at Beginning 277,086 93,441 133,383 42,884
of Period
Cash and Cash
Equivalents at End of $ 382,878 $ 115,103 $ 382,878 $ 115,103
Period
Source: The Timken Company
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