Slide 1: 4Q 2015 Earnings Investor Presentation
4Q 2015 Earnings Investor Presentation February 3, 2016
Slide 2: 4Q 2015 Earnings Conference Call Detail
2 4Q 2015 EARNINGS CONFERENCE CALL DETAIL Conference Call: Wednesday, Feb. 3, 2016 9:00 a.m. Eastern Time Live Dial-In: 888-240-1251 or 913-981-5544 (Call in 10 minutes prior to be included) Conference ID: Timken Earnings Call Conference Call Replay: Replay Dial-In available through Feb. 17, 2016 88
Slide 3: Forward-Looking Statements Safe Harbor and Non-GAAP Financial Information
3 FORWARD-LOOKING STATEMENTS SAFE HARBOR AND NON-GAAP FINANCIAL INFORMATION Certain statements in this presentation (including statements regarding the company's forecasts, beliefs, estimates and expectations) that are not historical in nature are "forward-looking" statements within the meaning of t
Slide 4: 4Q 2015 Summary
4 4Q 2015 SUMMARY • Sales of $714 million decreased 6% from prior year, or down just under 2% excluding currency Process Industries sales down 10%; down 6% excluding currency Mobile Industries sales down 2%; up over 2% excluding currency • GAAP net loss per share from continuing operations of $0
Slide 5: Quarterly Sales Trend Year-over-Year
5 QUARTERLY SALES TREND YEAR-OVER-YEAR -2% 0% 8% 4% 3% -3% -5% -2% -6% -4% -2% 0% 2% 4% 6% 8% 10% 1Q-2014 2Q-2014 3Q-2014 4Q-2014 1Q-2015 2Q-2015 3Q-2015 4Q-2015 All periods exclude currency impact, but include acquisitions See Appendix for reconciliation of net sales excluding the impact of currenc
Slide 6: 2015: A Year of Strong Execution
6 Timken performing well despite tough markets Despite challenging markets and a strong U.S. dollar, we advanced our major initiatives: • Outgrowth Advanced initiatives with new applications, new products and additional sales and engineering resources • Operational Excellence Drove $60M in cost
Slide 7: Improving Cost Structure - SG&A
7 IMPROVING COST STRUCTURE - SG&A $542.5 $494.3 $475.0 $400 $430 $460 $490 $520 $550 2014A 2015A 2016E* ($M) Percent of Sales 17.6% 17.2% 17.3% *Based on current forecast as of February 3, 2016. •2015 decline reflects: cost-reduction initiatives lower compensation expense benefit of currency
Slide 8: Accelerating Organic Growth
8 ACCELERATING ORGANIC GROWTH Our multi-year global initiative to accelerate organic growth in bearings and win in the marketplace: • Increase and accelerate product and application development • Enhance and expand our best-in-class collaborative technical sales model • Increase global penetration
Slide 9: 2016 Market Outlook and Drivers
9 2016 MARKET OUTLOOK AND DRIVERS Markets Market Drivers/Timken Dynamics Timken Automotive Gaining share in NA light truck Wind Market flat to down, share gains Construction Defense Military marine strong, aero down General Industrial Heavy Truck US OE down, aftermarket/ROW stable Agriculture Belts
Slide 10: 2016 Outlook Highlights
10 2016 OUTLOOK HIGHLIGHTS Net Sales $2.7B to $2.8B Organic -5 to -6% • Weaker end-market demand, partially offset by 1-2% outgrowth Inorganic +3% • Belts acquisition, partially offset by impact of Aero PMA sale in 2015 Currency -2% • Based on 12/31/15 rates Total -4 to -5% GAAP EPS $1.35 to $1.45 •
Slide 11: Financial Review
Financial Review
Slide 12: 4Q 2015 Financial Highlights - Sales
12 4Q-2015 Excluding vs. impact Region 4Q-2014 of currency NA -4% -3% EMEA -6% 6% APAC -9% -4% LatAm -19% -4% Geographic Sales Comparison4Q 2015 FINANCIAL HIGHLIGHTS - SALES • Sales of $714 million, down 6.3% from a year ago Excluding currency impact of ~4.6%, sales declined ~1.7% Decline driven
Slide 13: 4Q 2015 Financial Highlights - Adjusted EBIT
13 4Q 2015 FINANCIAL HIGHLIGHTS - ADJUSTED EBIT 4Q-15 4Q-14 $714.4 $762.2 $ B/(W) Sales % B/(W) $(47.8) (6.3)% 190.9 220.8 Gross Profit 119.0 131.7 SG&A 33.0 Pension settlement charges $49.9 EBIT ($M) % of sales 16.7% 17.3% % of sales 26.7% 29.0% (230) bps 60 bps See Appendix for reconciliation of E
Slide 14: 4Q 2015 Earnings Comparison
14 4Q 2015 EARNINGS COMPARISON • Adjusted EBIT of $79.1 million or 11.1% of sales compares with $88.8 million or 11.7% of sales in the same period a year ago Driven by the impact of lower volume and currency, partially offset by favorable material and operating costs and lower SG&A expenses Certai
Slide 15: 4Q 2015 Net Income and Diluted EPS
15 4Q 2015 NET INCOME AND DILUTED EPS 4Q-15 $(35.7) $(0.44) Net (Loss) Income from Continuing Operations - Fixed asset write-off Net Income, after adjustments $49.0 $0.59 $M EPS 4Q-14 $41.2 $0.46 $57.9 $0.65 EPS Adjusted tax rate: Quarter 31% 29% - Impairment & restructuring charges 3.1 5.9 0.04 • E
Slide 16: Mobile Industries
16 MOBILE INDUSTRIES Heavy Truck Automotive Aerospace Rail ($M) 2015 2014 Change Sales $380.3 $389.5 $(9.2) EBIT $58.9* $22.4 $36.5 Margin 15.5%* 5.8% 970 bps Adjusted(1): EBIT $36.2 $28.6 $7.6 Margin 9.5% 7.3% 220 bps 4Q YOY Commentary 4Q Performance • Sales down 2.4%; excluding currency, sales up
Slide 17: Process Industries
17 PROCESS INDUSTRIES Original Equipment Aftermarket ($M) 2015 2014 Change Sales $334.1 $372.7 $(38.6) EBIT $45.2 $79.7 $(34.5) Margin 13.5% 21.4% (790) bps Adjusted(1): EBIT $55.7 $79.4 $(23.7) Margin 16.7% 21.3% (460) bps 4Q YOY Commentary 4Q Performance • Sales down 10.4%; excluding currency, sal
Slide 18: 4Q 2015 Cash Flow Overview
18 4Q 2015 CASH FLOW OVERVIEW 4Q-15 4Q-14 $(35.4) $41.6 Income from Continuing Operations $128.5 $108.7 Cash from operations (9.7) 48.4 Change in working capital (trade) (152.9) (21.0) Income taxes 33.0 37.2 Depreciation & amortization $88.0 $69.0 Free cash flow 245.1 Pension/OPEB expense, net of co
Slide 19: Capital Allocation
19 $46 $236 $528 0% 10% 20% 30% 40% $0 $185 $370 $555 $740 2013 2014 2015 2016 Capital Expenditures Dividend Share Repurchases Acquisitions Framework: Capital Structure Cash $130 Debt 658 Net Debt 528 Equity 1,357 Net Capital $1,885 Leverage Total Debt/Capital 33% Net Debt/Capital 28% ($M) Balance S
Slide 20: Pension Strategy & De-Risking Update
20 PENSION STRATEGY & DE-RISKING UPDATE In 2015, we continued to de-risk our fully funded pension plans and took strategic actions to reduce our gross liability Gross Pension Liability Reduced by ~50% in 2015 • Moved to liability-driven investment strategy to protect fully funded status in our US an
Slide 21: 2016 Full-Year Outlook
21 2016 FULL-YEAR OUTLOOK (1) Adjusted net income divided by free cash flow. Adjusted net income excludes pension settlement charges and restructuring charges. Free cash flow is defined as net cash provided by operating activities (includes pension contributions) minus capital expenditures. Net Sale
Slide 22: 2016 Adjusted Outlook – Walk from 2015
22 2016 ADJUSTED OUTLOOK – WALK FROM 2015 See Appendix for reconciliation of adjusted 2015 EPS to its most directly comparable GAAP equivalent. 2016 Adjusted EPS Guidance Range: $1.90 - $2.00 Positives: ● Market outgrowth of 1 to 2% ● Cost reductions of ~$60M vs. 2015 Material, mfg. and SG&A SG&
Slide 23: What to Expect in 2016
23 • Emphasis on outgrowing our markets • Drive further margin enhancement/competitiveness initiatives Operational excellence SG&A efficiency Investments in the business • Continued focus on capital allocation WHAT TO EXPECT IN 2016
Slide 24: Appendix
T I M KEN Stronger. By Design. ~ kt Stee] Appendix
Slide 25: 2015 Geographic Sales vs. 2014
25 2015 GEOGRAPHIC SALES VS. 2014 Argentina U.S. Mexico Brazil Australia China Spain France India South Africa Poland Italy U.K. Romania Russia Czech Republic Germany Indonesia Taiwan Thailand Singapore Japan South Korea Vietnam Turkey U.A.E. Canada LatAm -13% (+1% excluding impact of currency) NA -
Slide 26: GAAP Reconciliation: Net Income & EPS
26 GAAP RECONCILIATION: NET INCOME & EPS (Unaudited) (Dollars in millions, except share data) 2015 EPS 2014 EPS 2015 EPS (Loss) Income from Continuing Operations (35.4)$ 41.6$ (68.0)$ Less: Net Income Attributable to Noncontrolling Interest 0.3 0.4 2.8 Net (Loss) Income from Continuing Operations at
Slide 27: GAAP Reconciliation: Consolidated EBIT & EBIT Margin
27 GAAP RECONCILIATION: CONSOLIDATED EBIT & EBIT MARGIN (Unaudited) (Dollars in millions, except share data) 2015 Percentage to Net Sales 2014 Percentage to Net Sales Net (Loss) Income (35.4)$ (5.0)% 46.9$ 6.2 % Income from discontinued operations, net of income taxes — —% (5.3) (0.7)% (Benefit) pro
Slide 28: GAAP Reconciliation: Net Debt
28 GAAP RECONCILIATION: NET DEBT (Unaudited) (Dollars in millions) December 31, 2015 December 31, 2014 December 31, 2013 Short-term debt, including current portion of long-term debt 77.1$ 8.0$ 269.3$ Long-term debt 580.6 522.1 176.4 Total Debt 657.7$ 530.1$ 445.7$ Less: Cash, cash equivalents and re
Slide 29: GAAP Reconciliation: Free Cash Flow
29 GAAP RECONCILIATION: FREE CASH FLOW (Unaudited) (Dollars in millions) 2015 2014 2015 2014 Net cash provided by operating activities from continuing operations 128.5$ 108.7$ 374.8$ 281.5$ Less: capital expenditures (40.5) (39.7) (105.6) (126.8) Free cash flow 88.0$ 69.0$ 269.2$ 154.7$ Three Months
Slide 30: GAAP Reconciliation: Net Sales
30 GAAP RECONCILIATION: NET SALES (Unaudited) (Dollars in millions) March 31, 2013 June 30, 2013 September 30, 2013 December 31, 2013 Net Sales 763.2$ 791.2$ 731.5$ 749.5$ Add back: Currency Impact 7.2 (2.6) 2.2 3.5 Net Sales Excluding the Impact from Currency 770.4$ 788.6$ 733.7$ 753.0$ March 31, 2
Slide 31: GAAP Reconciliation: Segment EBIT & EBIT Margin
31 GAAP RECONCILIATION: SEGMENT EBIT & EBIT MARGIN (Unaudited) Mobile Industries (Dollars in millions) Three Months Ended December 31, 2015 Percentage to Net Sales Three Months Ended December 31, 2014 Percentage to Net Sales Earnings before interest and taxes (EBIT) 58.9$ 15.5% 22.4$ 5.8 % Impairmen