Timken Reports Strong Third-Quarter 2019 Results; Updates Full-Year Outlook

Conference Call:           

Thursday, Oct. 31, 2019

9:00 a.m. Eastern Time

Live Dial-In: 800-239-9838

or 323-794-2551

(Call in 10 minutes prior to be included.)

Conference ID: Timken's 3Q Earnings Call

Conference Call Replay:  

Replay Dial-In available through

Nov. 14, 2019:

888-203-1112 or 719-457-0820

Replay Passcode: 7778692

Live Webcast:                

http://investors.timken.com

The Timken Company

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in millions, except per share data)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

Net sales

$

914.0

$

881.3

$

2,893.7

$

2,670.7

Cost of products sold

636.5

628.0

2,007.9

1,885.1

Gross Profit

277.5

253.3

885.8

785.6

Selling, general & administrative expenses

148.0

142.0

459.4

432.4

Impairment and restructuring charges

1.6

2.6

3.5

3.1

127.9

108.7

422.9

350.1

Non-service pension and other postretirement (expense) income

(14.4)

(3.2)

(14.1)

2.5

Other income, net

5.8

3.7

10.5

7.3

Earnings Before Interest and Taxes (EBIT) ⁽¹⁾

119.3

109.2

419.3

359.9

Interest expense, net

(17.1)

(11.9)

(52.0)

(31.7)

Income Before Income Taxes

102.2

97.3

367.3

328.2

Provision for income taxes

35.5

25.0

110.4

83.5

Net Income

66.7

72.3

256.9

244.7

Less: Net income attributable to noncontrolling interest

2.5

0.7

8.3

1.9

Net Income Attributable to The Timken Company

$

64.2

$

71.6

$

248.6

$

242.8

Net Income per Common Share Attributable to The Timken Company Common Shareholders

 Basic Earnings per share

$

0.85

$

0.93

$

3.28

$

3.14

 Diluted Earnings per share

$

0.84

$

0.91

$

3.23

$

3.09

Average Shares Outstanding

75,628,410

76,903,395

75,864,544

77,332,209

Average Shares Outstanding - assuming dilution

76,592,694

78,428,105

76,902,426

78,645,503

⁽¹⁾ EBIT is a non-GAAP measure defined as operating income plus other income (expense). EBIT is an important financial measure used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. Management believes that reporting EBIT is useful to investors as this measure is representative of the Company's core operations.

BUSINESS SEGMENTS

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

(Dollars in millions)

2019

2018

2019

2018

Mobile Industries

Net sales

$

455.1

$

464.2

$

1,448.8

$

1,441.8

Earnings before interest and taxes (EBIT) ⁽¹⁾

$

52.0

$

50.6

$

172.5

$

156.2

EBIT Margin ⁽¹⁾

11.4

%

10.9

%

11.9

%

10.8

%

Process Industries

Net sales

$

458.9

$

417.1

$

1,444.9

$

1,228.9

Earnings before interest and taxes (EBIT) ⁽¹⁾

$

95.6

$

81.8

$

304.8

$

254.0

EBIT Margin ⁽¹⁾

20.8

%

19.6

%

21.1

%

20.7

%

Corporate expense

$

(11.4)

$

(17.9)

$

(41.1)

$

(47.2)

Corporate pension and other postretirement benefit related charges ⁽²⁾

(16.9)

(5.3)

(16.9)

(3.1)

Consolidated

Net sales

$

914.0

$

881.3

$

2,893.7

$

2,670.7

Earnings before interest and taxes (EBIT) ⁽¹⁾

$

119.3

$

109.2

$

419.3

$

359.9

EBIT Margin ⁽¹⁾

13.1

%

12.4

%

14.5

%

13.5

%

⁽¹⁾ EBIT is a non-GAAP measure defined as operating income plus other income (expense). EBIT Margin is a non-GAAP measure defined as EBIT as a percentage of net sales. EBIT and EBIT Margin are important financial measures used in the management of the business, including decisions concerning the allocation of resources and assessment of performance.  Management believes that reporting EBIT and EBIT Margin is useful to investors as these measures are representative of the core operations of the segments and Company, respectively.

⁽²⁾ Corporate pension and other postretirement benefit related charges represent actuarial (gains) and losses that resulted from the remeasurement of plan assets and obligations as a result of changes in assumptions. The Company recognizes actuarial (gains) and losses 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 third quarter 2019 Form 10-Q for additional discussion.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(Unaudited)

September 30,
2019

December 31,
2018

ASSETS

Cash, cash equivalents and restricted cash

$

181.9

$

133.1

Accounts receivable, net

548.3

546.6

Unbilled receivables

151.6

116.6

Inventories, net

805.3

835.7

Other current assets

120.3

105.2

Total Current Assets

1,807.4

1,737.2

Property, plant and equipment, net

906.8

912.1

Operating lease assets ⁽¹⁾

115.0

—

Goodwill and other intangible assets

1,657.5

1,693.7

Non-current pension assets

11.8

6.2

Non-current other postretirement benefit assets

23.5

—

Other assets

43.3

96.0

Total Assets

$

4,565.3

$

4,445.2

LIABILITIES

Accounts payable

$

265.2

$

273.2

Short-term debt, including current portion of long-term debt

96.6

43.0

Short-term operating lease liabilities ⁽¹⁾

28.0

—

Income taxes

23.2

23.5

Accrued expenses

291.6

345.9

Total Current Liabilities

704.6

685.6

Long-term debt

1,553.5

1,638.6

Accrued pension benefits

167.8

161.3

Accrued postretirement benefits

36.9

108.7

Long-term operating lease liabilities ⁽¹⁾

72.3

—

Other non-current liabilities

212.7

208.3

Total Liabilities

2,747.8

2,802.5

EQUITY

The Timken Company shareholders' equity

1,744.8

1,579.6

Noncontrolling Interest

72.7

63.1

Total Equity

1,817.5

1,642.7

Total Liabilities and Equity

$

4,565.3

$

4,445.2

⁽¹⁾ Due to the adoption of the new leasing standard, the Company recognized operating lease assets and corresponding operating lease liabilities on the Consolidated Balance Sheet. In conjunction with the adoption of the new leasing standard, the Company reclassified $15.3 million of lease assets related to purchase accounting adjustments from the ABC Bearings Limited ("ABC Bearings") acquisition from Other assets to Operating lease assets. These assets do not have material corresponding lease liabilities.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

(Dollars in millions)

2019

2018

2019

2018

Cash Provided by (Used in)

OPERATING ACTIVITIES

Net Income

$

66.7

$

72.3

$

256.9

$

244.7

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

39.2

35.1

120.4

105.9

Stock-based compensation expense

5.8

7.7

20.7

25.5

Pension and other postretirement expense

17.4

6.9

23.2

8.5

Pension and other postretirement benefit contributions and payments

(28.2)

(3.6)

(37.1)

(12.4)

Operating lease expense

9.0

—

27.7

—

Operating lease payments

(9.1)

—

(26.8)

—

Changes in operating assets and liabilities:

Accounts receivable

29.5

20.7

(6.4)

(65.7)

Unbilled receivables

1.6

(9.8)

(35.0)

(37.6)

Inventories

21.2

(14.4)

37.8

(94.3)

Accounts payable

(20.8)

(1.5)

(7.4)

(9.9)

Accrued expenses

16.4

12.6

(28.7)

10.2

Income taxes

8.3

5.4

10.7

1.7

(12.1)

5.8

(1.2)

18.4

Net Cash Provided by Operating Activities

$

144.9

$

137.2

$

354.8

$

195.0

INVESTING ACTIVITIES

Capital expenditures

$

(43.7)

$

(23.2)

$

(82.9)

$

(62.8)

Acquisitions, net of cash received

0.3

(765.4)

(82.7)

(765.4)

Proceeds from divestitures

—

14.0

—

14.0

Other, net

1.0

0.3

3.4

3.9

Net Cash Used in Investing Activities

$

(42.4)

$

(774.3)

$

(162.2)

$

(810.3)

FINANCING ACTIVITIES

Cash dividends paid to shareholders

$

(21.2)

$

(21.5)

$

(63.8)

$

(64.2)

Purchase of treasury shares

(32.5)

(13.4)

(56.1)

(63.0)

Proceeds from exercise of stock options

1.0

2.1

9.9

12.7

Payments related to tax withholding for stock-based compensation

(1.2)

(0.4)

(9.3)

(5.4)

Net proceeds from (payments on) credit facilities

2.0

(4.4)

41.8

41.4

Net (payments on) proceeds from long-term debt

(28.3)

688.2

(57.7)

738.0

Other, net

(0.3)

(1.2)

(2.2)

(2.2)

Net Cash (Used in) Provided by Financing Activities

$

(80.5)

$

649.4

$

(137.4)

$

657.3

Effect of exchange rate changes on cash

(7.5)

(3.9)

(6.4)

(12.4)

Increase in Cash, Cash Equivalents and Restricted Cash

$

14.5

$

8.4

$

48.8

$

29.6

Cash, Cash Equivalents and Restricted Cash at Beginning of Period

167.4

146.6

133.1

125.4

Cash, Cash Equivalents and Restricted Cash at End of Period

$

181.9

$

155.0

$

181.9

$

155.0

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
September 30,

Nine Months Ended
September 30,

2019

EPS

2018

EPS

2019

EPS

2018

EPS

Net Income Attributable to The Timken Company

$

64.2

$

0.84

$

71.6

$

0.91

$

248.6

$

3.23

$

242.8

$

3.09

Adjustments: ⁽¹⁾

 Impairment, restructuring and reorganization charges ⁽²⁾

$

2.3

$

3.1

$

4.5

$

4.5

 Property loss and related expenses ⁽³⁾

0.7

—

6.5

—

 Acquisition-related charges ⁽⁴⁾

2.9

8.8

10.8

9.0

 Brazil legal matter ⁽⁵⁾

—

—

3.3

—

 Gain on sale of real estate ⁽⁶⁾

—

—

(1.7)

—

 Corporate pension and other postretirement benefit related charges ⁽⁷⁾

16.9

5.3

16.9

3.1

 Loss on divestiture ⁽⁸⁾

—

0.6

—

0.6

 Tax indemnification and related items

—

0.3

0.5

0.6

 Noncontrolling interest of above adjustments

0.1

(0.6)

(0.1)

(0.6)

 Provision for income taxes ⁽⁹⁾

0.3

(6.2)

0.2

(9.9)

    Total Adjustments:

23.2

0.30

11.3

0.15

40.9

0.52

7.3

0.09

Adjusted Net Income Attributable to The Timken Company

$

87.4

$

1.14

$

82.9

$

1.06

$

289.5

$

3.75

$

250.1

$

3.18

⁽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 and (iii) severance related to cost reduction initiatives. 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⁾ Represents property loss and related expenses during the year (net of insurance proceeds) resulting from property loss that occurred during the first quarter of 2019 at one of the Company's warehouses in Knoxville, Tennessee and during the third quarter of 2019 at one of the Company's warehouses in Yantai, China.

⁽⁴⁾ Acquisition-related charges in 2019 primarily related to the Rollon S.p.A. ("Rollon"), The Diamond Chain Company ("Diamond Chain"), and BEKA Lubrication ("BEKA") acquisitions, including transaction costs and inventory step-up impact.

⁽⁵⁾ The Brazil legal matter represents expense recorded to establish a liability associated with an investigation into alleged antitrust violations in the bearing industry that was initiated in October 2014. Refer to the Contingencies footnote within the third quarter 2019 Form 10-Q for additional discussion.

⁽⁶⁾ The gain on sale of real estate related to the sale of a manufacturing facility in Pulaski, Tennessee during the first quarter of 2019. This amount was recorded in other income.

⁽⁷⁾ Corporate pension and other postretirement benefit related charges represent actuarial (gains) and losses that resulted from the remeasurement of plan assets and obligations as a result of changes in assumptions. The Company recognizes actuarial (gains) and losses 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 third quarter 2019 Form 10-Q for additional discussion.

⁽⁸⁾ Loss on divestiture relates to the sale of the Groeneveld Information Technology Holding B.V. (the "ICT Business"), located in Gorinchem, Netherlands.

⁽⁹⁾ 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 EBIT to GAAP Net Income, and EBIT and EBITDA Margin, After Adjustments, to Net Income as a Percentage of Sales, and EBIT 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 and taxes (EBIT) 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 EBIT. Management also believes that non-GAAP measures of adjusted EBIT, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBIT margin and adjusted 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
September 30,

Nine Months Ended
September 30,

2019

Percentage
to
Net Sales

2018

Percentage
to
Net Sales

2019

Percentage
to
Net Sales

2018

Percentage
to
Net Sales

Net Income

$

66.7

7.3

%

$

72.3

8.2

%

$

256.9

8.9

%

$

244.7

9.2

%

Provision for income taxes

35.5

3.9

%

25.0

2.8

%

110.4

3.8

%

83.5

3.1

%

Interest expense

18.2

2.0

%

12.5

1.4

%

55.5

1.9

%

33.2

1.3

%

Interest income

(1.1)

(0.1)

%

(0.6)

—

%

(3.5)

(0.1)

%

(1.5)

(0.1)

%

Consolidated EBIT

$

119.3

13.1

%

$

109.2

12.4

%

$

419.3

14.5

%

$

359.9

13.5

%

Adjustments:

 Impairment, restructuring and reorganization charges ⁽¹⁾

$

2.3

0.3

%

$

3.1

0.3

%

$

4.5

0.2

%

$

4.5

0.2

%

 Property loss and related expenses ⁽²⁾

0.7

—

%

—

—

%

6.5

0.2

%

—

—

%

 Acquisition-related charges ⁽³⁾

2.9

0.3

%

8.8

1.0

%

10.8

0.4

%

9.0

0.3

%

 Brazil legal matter ⁽⁴⁾

—

—

%

—

—

%

3.3

0.1

%

—

—

%

 Gain on sale of real estate ⁽⁵⁾

—

—

%

—

—

%

(1.7)

(0.1)

%

—

—

%

 Corporate pension and other postretirement benefit related charges ⁽⁶⁾

16.9

1.8

%

5.3

0.6

%

16.9

0.6

%

3.1

0.1

%

 Tax indemnification and related items

—

—

%

0.3

—

%

0.5

—

%

0.6

—

%

 Loss on divestiture ⁽⁷⁾

—

—

%

0.6

0.1

%

—

—

%

0.6

—

%

   Total Adjustments

22.8

2.4

%

18.1

2.0

%

40.8

1.4

%

17.8

0.6

%

Adjusted EBIT

$

142.1

15.5

%

$

127.3

14.4

%

$

460.1

15.9

%

$

377.7

14.1

%

Depreciation and amortization

39.2

4.3

%

35.1

4.0

%

120.4

4.2

%

105.9

4.0

%

Adjusted EBITDA

$

181.3

19.8

%

$

162.4

18.4

%

$

580.5

20.1

%

$

483.6

18.1

%

⁽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 and (iii) severance related to cost reduction initiatives. 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⁾  Represents property loss and related expenses during the year (net of insurance proceeds) resulting from property loss that occurred during the first quarter of 2019 at one of the Company's warehouses in Knoxville, Tennessee and during the third quarter of 2019 at one of the Company's warehouses in Yantai, China.

⁽³⁾ Acquisition-related charges in 2019 primarily related to the Rollon, Diamond Chain, and BEKA acquisitions, including transaction costs and inventory step-up impact.

⁽⁴⁾ The Brazil legal matter represents expense recorded to establish a liability associated with an investigation into alleged antitrust violations in the bearing industry that was initiated in October 2014. Refer to the Contingencies footnote within the third quarter 2019 Form 10-Q for additional discussion.

⁽⁵⁾ The gain on sale of real estate related to the sale of a manufacturing facility in Pulaski, Tennessee during the first quarter of 2019. This amount was recorded in other income.

⁽⁶⁾ Corporate pension and other postretirement benefit related charges represent actuarial (gains) and losses that resulted from the remeasurement of plan assets and obligations as a result of changes in assumptions. The Company recognizes actuarial (gains) and losses in connection with the annual remeasurement in the fourth quarter, or if specific events trigger a remeasurement.

⁽⁷⁾ Loss on divestiture relates to the sale of the ICT Business, located in Gorinchem, Netherlands.

Reconciliation of segment EBIT Margin, After Adjustments, to segment EBIT as a Percentage of Sales and segment EBIT, After Adjustments, to segment EBIT:

(Unaudited)

The following reconciliation is provided as additional relevant information about the Company's Mobile Industries and Process Industries segment performance deemed useful to investors. Management believes that non-GAAP measures of adjusted EBIT and adjusted EBIT 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.

Mobile Industries

(Dollars in millions)

Three Months
Ended
September 30,
2019

Percentage to Net Sales

Three Months Ended
September 30, 2018

Percentage to Net Sales

Nine Months
Ended
September 30,
2019

Percentage to Net Sales

Nine Months
Ended
September 30,
2018

Percentage to Net Sales

Earnings before interest and taxes (EBIT)

$

52.0

11.4

%

$

50.6

10.9

%

$

172.5

11.9

%

$

156.2

10.8

%

 Impairment, restructuring and
   reorganization charges ⁽¹⁾

1.0

0.2

%

0.9

0.2

%

2.1

0.1

%

2.0

0.1

%

 Loss on divestiture ⁽²⁾

—

—

%

0.6

0.1

%

—

—

%

0.6

0.1

%

 Gain on sale of real estate ⁽³⁾

—

—

%

—

—

%

(1.7)

(0.1)

%

—

—

%

 Property loss and related expenses ⁽⁴⁾

0.8

0.2

%

—

—

%

6.5

0.5

%

—

—

%

 Acquisition-related charges ⁽⁵⁾

—

—

%

0.4

0.1

%

0.1

—

%

0.4

—

%

Adjusted EBIT

$

53.8

11.8

%

$

52.5

11.3

%

$

179.5

12.4

%

$

159.2

11.0

%

Process Industries

(Dollars in millions)

Three Months
Ended
September 30,
2019

Percentage to Net Sales

Three Months
Ended
September 30,
2018

Percentage to Net Sales

Nine Months
Ended
September 30,
2019

Percentage to Net Sales

Nine Months
Ended
September 30,
2018

Percentage to Net Sales

Earnings before interest and taxes (EBIT)

$

95.6

20.8

%

$

81.8

19.6

%

$

304.8

21.1

%

$

254.0

20.7

%

 Impairment, restructuring and
   reorganization charges ⁽¹⁾

1.2

0.3

%

0.8

0.2

%

2.4

0.1

%

1.0

0.1

%

 Acquisition-related charges ⁽⁵⁾

1.5

0.3

%

1.4

0.3

%

7.9

0.6

%

1.4

0.1

%

Adjusted EBIT

$

98.3

21.4

%

$

84.0

20.1

%

$

315.1

21.8

%

$

256.4

20.9

%

⁽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 and (iii) severance related to cost reduction initiatives. 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⁾ Loss on divestiture relates to the sale of the ICT Business, located in Gorinchem, Netherlands.

⁽³⁾ The gain on sale of real estate related to the sale of a manufacturing facility in Pulaski, Tennessee during the first quarter of 2019. This amount was recorded in other income.

⁽⁴⁾  Represents property loss and related expenses during the year (net of insurance proceeds) resulting from property loss that occurred during the first quarter of 2019 at one of the Company's warehouses in Knoxville, Tennessee and during the third quarter of 2019 at one of the Company's warehouses in Yantai, China.

⁽⁵⁾ Acquisition-related charges in 2019 primarily related to the inventory step-up impact for the Rollon and Diamond Chain acquisitions.

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, cash equivalents and restricted cash plus total shareholders' equity. Management believes Net Debt, the Ratio of Net Debt to Capital, Adjusted EBITDA (see below), 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.

(Dollars in millions)

September 30,
2019

December 31,
2018

Short-term debt, including current portion of long-term debt

$

96.6

$

43.0

Long-term debt

1,553.5

1,638.6

 Total Debt

$

1,650.1

$

1,681.6

Less: Cash, cash equivalents and restricted cash

(181.9)

(133.1)

Net Debt

$

1,468.2

$

1,548.5

Total Equity

$

1,817.5

$

1,642.7

Ratio of Net Debt to Capital

44.7

%

48.5

%

Adjusted EBITDA for the Twelve Months Ended

$

743.4

$

646.5

Ratio of Net Debt to Adjusted EBITDA

2.0

2.4

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
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

Net cash provided by operating activities

$

144.9

$

137.2

$

354.8

$

195.0

Less: capital expenditures

(43.7)

(23.2)

(82.9)

(62.8)

Free cash flow

$

101.2

$

114.0

$

271.9

$

132.2

Reconciliation of EBIT, EBIT, After Adjustments, and 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 and taxes (EBIT) 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 EBIT. Management also believes that non-GAAP measures of adjusted EBIT and adjusted EBITDA 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)

Twelve Months Ended
September 30, 2019

Twelve Months Ended
December 31, 2018

Net Income

$

317.7

$

305.5

Provision for income taxes

129.5

102.6

Interest expense

74.0

51.7

Interest income

(4.1)

(2.1)

Consolidated EBIT

$

517.1

$

457.7

Adjustments:

 Impairment, restructuring and reorganization charges ⁽¹⁾

$

7.1

$

7.1

 Acquisition-related charges ⁽²⁾

22.4

20.6

 Brazil legal matter ⁽³⁾

3.3

—

 Gain on sale of real estate ⁽⁴⁾

(1.7)

—

 Loss on divestiture ⁽⁵⁾

0.2

0.8

 Corporate pension and other postretirement benefit related charges ⁽⁶⁾

26.6

12.8

 Property loss and related expenses ⁽⁷⁾

6.5

—

 Tax indemnification and related items

1.4