The Timken Company Reports Improved Fourth Quarter and 2002 Results
CANTON, Ohio, Jan. 22 Improved fourth quarter
performance versus 2001 capped a strong year for The Timken Company
, which today reported increased sales and earnings for both the
quarter and the full year.
Net income for the 2002 fourth quarter was $36.5 million or $0.57 per
diluted share versus $1.2 million or $0.02 per diluted share in the fourth
quarter a year ago, when the economy was particularly weak. Sales were
$644.9 million, 12 percent above the $573.6 million recorded a year ago,
despite a 2002 fourth quarter decline in U.S. industrial production and a
still sluggish U.S. and global economy. However, strong automotive markets in
North America, the impact of our manufacturing strategy initiative and the
benefits of the higher Continued Dumping and Subsidy Offset Act (CDSOA)
payment improved results in the fourth quarter.
Excluding CDSOA income, restructuring and reorganization costs and
adjustments for goodwill amortization, the company reported fourth quarter
earnings of $12 million or $0.19 per diluted share versus a loss of
$11.4 million or $0.19 per diluted share a year ago.
"While improved volumes related to a strong automotive industry helped
sales growth, the transformation in all three of our company's business
segments also contributed significantly to the bottom line," said James W.
Griffith, president and CEO. "A continued emphasis on reducing costs,
creating a network of focused factories and successfully introducing new
products and services resulted in strengthened profitability despite a
struggling economy."
For the year 2002, Timken reported sales of $2.6 billion, a 4 percent
increase from 2001. The company had income before the cumulative effect of an
accounting change of $51.4 million or $0.83 per diluted share in 2002 versus a
loss of $41.7 million or $0.69 per diluted share in 2001. Including a
goodwill impairment write-off of $12.7 million after taxes in the third
quarter reflecting the cumulative effect of an accounting change, the company
had net income of $38.7 million or $0.62 per diluted share in 2002.
Excluding CDSOA income, restructuring and reorganization costs,
adjustments for goodwill amortization and the cumulative effect of the
accounting change, the company reported net income of $53.3 million or
$0.87 per diluted share versus $0.7 million or $0.01 per diluted share a year
ago.
In 2002 and 2001, the company received payments resulting from the CDSOA,
which requires that tariffs collected on dumped imports be directed to the
industries harmed. This special payment (net of expenses) was $50.2 million
in 2002 versus $29.6 million in 2001. Despite World Trade Organization
objections to the CDSOA payments, the company continues to believe the U.S.
law is appropriate and justified. Payments under CDSOA are made to eligible
domestic producers only when dumping continues after an anti-dumping order is
issued.
Timken's manufacturing strategy and salaried workforce reduction
initiatives announced in 2001 have met the $80 million annual rate of savings
projection targeted for 2002. The company expects to reach the $120 million
of annual savings projected for the end of 2004 from these initiatives.
Restructuring and reorganization costs associated with these initiatives were
completed in 2002. The cumulative program costs of $107.4 million were
within the range announced in the second quarter of 2001.
Net debt at the end of 2002 was $379.2 million, down $84.4 million from
$463.6 million at the end of 2001. This reduction resulted from improved
profitability, prudent capital spending and the CDSOA payment.
As part of the company's long-term pension funding strategy, in 2002
Timken contributed $106.4 million to its domestic pension plans, $54.5 million
of which was company common stock. As a result of a negative 6 percent return
on the company's domestic pension investments and a reduction in its discount
rate from 7.5 to 6.6 percent, Timken recorded a $401.6 million minimum pension
liability increase. This reduced shareholders' equity by $254.3 million and
increased deferred tax assets by $147.3 million. As a result of declines in
the financial markets, the company is changing its assumption for expected
rate of return on plan assets from 9.5 to 8.75 percent for 2003. This change,
along with the lower discount rate, will result in an increase in 2003 pretax
pension expense of approximately $25 million.
The company's announced plan to acquire Torrington is proceeding as
expected. Timken received U.S. antitrust approval for the acquisition under
the Hart-Scott-Rodino Act in December. The transaction is expected to close
during the first quarter of 2003, pending additional regulatory clearances
outside the United States, successful completion of debt and equity financings
and customary closing conditions. A dedicated team is in place, planning for
the Torrington integration. In connection with the Torrington acquisition,
the company believes it can achieve pretax savings of approximately $80
million by the end of 2005 before implementation costs. This includes pretax
savings of approximately $20 million by the end of the first year following
the acquisition. Timken also expects to utilize cash resources of
approximately $130 million for integration and implementation activities over
the next four years.
The following segment results exclude CDSOA income, restructuring and
reorganization costs and goodwill amortization.
Automotive Bearings' Results
Automotive fourth quarter EBIT was $11.6 million on sales of
$210.8 million, compared to a loss of $2.0 million on sales of $185.3 million
a year ago. Cost control, improved volumes, new product sales and a year-end
LIFO adjustment contributed to Automotive's performance. Partially offsetting
these positive items were increased costs due to manufacturing inefficiencies,
including those associated with servicing high product demand levels during
the Duston, England, plant closing. For the year sales were $840.8 million
versus $751.0 million last year. EBIT was $32.6 million versus a loss of
$11.4 million in 2001. This resulted from strong markets, particularly in
North America, coupled with sales on seven new vehicle platforms and the
positive impact of the manufacturing strategy initiatives. Closing the Duston
plant will contribute to improvements in the cost structure and asset
utilization of the Automotive Business.
Industrial Bearings' Results
Fourth quarter Industrial EBIT was $13.8 million on sales of
$225.3 million compared to EBIT of $5.7 million on sales of $204.2 million for
the same period in 2001. Soft markets and reduced demand created challenges
for the Industrial Business throughout 2002. However, the manufacturing
transformation positively impacted the business by reducing costs and
improving productivity, offsetting weak markets. In 2002, Industrial won new
business and introduced a broader line of products and services to meet
distributor needs. For the year, sales were $883.5 million with EBIT of
$51.5 million versus $882.3 million in sales and $43.4 million in EBIT last
year.
Steel Business Results
The Steel Business reported fourth quarter EBIT of $0.2 million on sales
of $240.7 million, which includes intersegment sales of $31.8 million. This
compares with a loss of $6.3 million on fourth quarter sales of $216.1 million
in 2001. Continued strong sales to the automotive industry and modest
increases to industrial customers were tempered by weaknesses in the aerospace
specialty steel business. EBIT was hurt by raw material costs and holiday
shutdowns and a year-end LIFO adjustment. For the year Steel's sales,
including intersegment sales, increased 2 percent to $981.3 million compared
to $960.4 million in 2001. EBIT in 2002 was $32.5 million, up from
$13.4 million in 2001. Despite the modest increase in sales in 2002, the
Steel Business more than doubled EBIT with tight cost control and improved
productivity.
Outlook
The Timken Company continues to be concerned about the health of the
economy, but is positioned to continue improving financial performance in
2003. We believe that output in the global automotive industry will be softer
in 2003, while industrial markets should see some modest recovery over the
course of the year. The company expects to continue to benefit from
initiatives to reduce costs and from new product and service offerings that
will improve profitability. We also expect that the Torrington acquisition,
when completed, will provide additional opportunities to leverage financial
performance.
The Timken Company (http://www.timken.com/) is a leading
international manufacturer of highly engineered bearings, alloy and specialty
steels and components, as well as a provider of related products and services.
With operations in 24 countries, the company employs about 18,000 people
worldwide.
CONSOLIDATED STATEMENT OF OPERATIONS AS REPORTED
(Thousands of U.S. dollars,
except share data) 4Q 02 4Q 01 Year 2002 Year 2001
Net sales $644,898 $573,575 $2,550,075 $2,447,178
Cost of products sold 528,123 488,646 2,071,956 $2,032,685
Goodwill amortization -- 1,447 -- 6,060
Reorganization expenses -
cost of products sold 1,403 2,810 8,542 7,713
Gross Profit $115,372 $80,672 $469,577 $400,720
Selling, administrative &
general expenses (SG&A) 89,751 84,802 348,963 358,778
Reorganization expenses -
SG&A 2,736 2,226 9,903 4,905
Impairment and restructuring 7,157 5,284 32,143 54,689
Operating Income
(Loss) $15,728 ($11,640) $78,568 ($17,652)
Receipt of Continued
Dumping & Subsidy Offset
Act (CDSOA) payment (2) 50,202 $29,555 50,202 $29,555
Other expense (898) (2,123) (13,388) (7,494)
Earnings Before
Interest and Taxes
(EBIT) $65,032 $15,792 $115,382 $4,409
Interest expense (7,544) (7,588) (31,540) (33,401)
Interest income 685 439 1,676 2,109
Income (Loss) Before
Income Taxes and
Cumulative Effect of
Change in Accounting
Principle $58,173 $8,643 $85,518 ($26,883)
Provision for income taxes 21,707 7,425 34,067 14,783
Income (Loss) Before
Cumulative Effect of
Change in Accounting
Principle $36,466 $1,218 $51,451 ($41,666)
Cumulative effect of
change in accounting
principle (net of income
tax benefit of $7,786) -- -- (12,702) --
Net Income (Loss) $36,466 $1,218 $38,749 ($41,666)
Earnings Per Share:
Income (loss) before
accounting change $0.58 $0.02 $0.84 ($0.69)
Cumulative effect of
accounting change -- -- ($0.21) --
Earnings Per Share $0.58 $0.02 $0.63 ($0.69)
Earnings Per Share-
assuming dilution:
Income (loss) before
accounting change $0.57 $0.02 $0.83 ($0.69)
Cumulative effect of
accounting change -- -- ($0.21) --
Earnings Per Share-
assuming dilution $0.57 $0.02 $0.62 ($0.69)
Average Shares Outstanding 63,346,740 59,841,185 61,128,005 59,947,568
Average Shares
Outstanding-assuming
dilution 63,758,276 59,954,790 61,635,339 59,947,568
BUSINESS SEGMENTS
(Thousands of U.S.
dollars) 4Q 02 4Q 01 Year 2002 Year 2001
Automotive Bearings
Net sales to external
customers $210,754 $185,268 $840,763 $751,029
Impairment and
restructuring 1,981 3,412 18,992 27,270
Reorganization expenses 2,052 2,467 9,730 3,747
Goodwill amortization -- (31) -- 37
Receipt of Continued
Dumping & Subsidy Offset
Act (CDSOA) payment (2) 10,829 2,501 10,829 2,501
Earnings before interest
and taxes (EBIT) * $18,359 ($5,382) $14,715 ($39,939)
EBIT Margin 8.7% -2.9% 1.8% -5.3%
Industrial Bearings
Net sales to external
customers $225,304 $204,238 $883,534 $882,279
Impairment and
restructuring 2,087 1,328 9,313 25,671
Reorganization expenses 2,087 2,569 8,715 7,848
Goodwill amortization -- 1,168 -- 4,781
Receipt of Continued
Dumping & Subsidy Offset
Act (CDSOA) payment (2) 39,373 27,054 39,373 27,054
Earnings before interest
and taxes (EBIT) * $49,015 $27,722 $72,872 $32,144
EBIT Margin 21.8% 13.6% 8.2% 3.6%
Steel
Net sales to external
customers $208,840 $184,069 $825,778 $813,870
Intersegment sales 31,845 32,008 155,500 146,492
Total net sales $240,685 $216,077 $981,278 $960,362
Impairment and restructuring 3,089 544 3,838 1,748
Reorganization expenses -- -- -- 1,023
Goodwill amortization -- 310 -- 1,242
Earnings before interest
and taxes (EBIT) * ($2,848) ($7,177) $28,682 $9,345
EBIT Margin -1.2% -3.3% 2.9% 1.0%
CONSOLIDATED STATEMENT OF
OPERATIONS ADJUSTED (1)
(Thousands of U.S. dollars,
except share data) 4Q 02 4Q 01 Year 2002 Year 2001
Net sales $644,898 $573,575 $2,550,075 $2,447,178
Cost of products sold 528,123 488,646 2,071,956 2,032,685
Goodwill amortization -- -- -- --
Reorganization expenses -
cost of products sold -- -- -- --
Gross Profit $116,775 $84,929 $478,119 $414,493
Selling, administrative &
general expenses (SG&A) 89,751 84,802 348,963 358,778
Reorganization expenses -
SG&A -- -- -- --
Impairment and restructuring -- -- -- --
Operating Income (Loss) $27,024 $127 $129,156 $55,715
Receipt of Continued
Dumping & Subsidy Offset
Act (CDSOA) payment (2) -- -- -- --
Other expense (898) (2,123) (13,388) (7,494)
Earnings Before
Interest and Taxes
(EBIT) $26,126 ($1,996) $115,768 $48,221
Interest expense (7,544) (7,588) (31,540) (33,401)
Interest income 685 439 1,676 2,109
Income (Loss) Before
Income Taxes and
Cumulative Effect of
Change in Accounting
Principle $19,267 ($9,145) $85,904 $16,929
Provision for income taxes 7,220 2,225 32,558 16,243
Income (Loss) Before
Cumulative Effect of
Change in Accounting
Principle $12,047 ($11,370) $53,346 $686
Cumulative effect of change
in accounting principle
(net of income tax
benefit of $7,786) -- -- -- --
Net Income (Loss) $12,047 ($11,370) $53,346 $686
Earnings Per Share:
Income (loss) before
accounting change $0.19 ($0.19) $0.87 $0.01
Cumulative effect of
accounting change -- -- -- --
Earnings Per Share $0.19 ($0.19) $0.87 $0.01
Earnings Per Share-
assuming dilution:
Income (loss) before
accounting change $0.19 ($0.19) $0.87 $0.01
Cumulative effect of
accounting change -- -- -- --
Earnings Per Share-
assuming dilution $0.19 ($0.19) $0.87 $0.01
Average Shares Outstanding 63,346,740 59,841,185 61,128,005 59,947,568
Average Shares
Outstanding-assuming
dilution 63,758,276 59,954,790 61,635,339 59,947,568
BUSINESS SEGMENTS
(Thousands of U.S.
dollars) 4Q 02 4Q 01 Year 2002 Year 2001
Automotive Bearings
Net sales to external
customers $210,754 $185,268 $840,763 $751,029
Impairment and
restructuring -- -- -- --
Reorganization expenses -- -- -- --
Goodwill amortization -- -- -- --
Receipt of Continued
Dumping & Subsidy Offset
Act (CDSOA) payment (2)
Earnings before interest
and taxes (EBIT) * $11,563 ($2,035) $32,608 ($11,386)
EBIT Margin 5.5% -1.1% 3.9% -1.5%
Industrial Bearings
Net sales to external
customers $225,304 $204,238 $883,534 $882,279
Impairment and
restructuring -- -- -- --
Reorganization expenses -- -- -- --
Goodwill amortization -- -- -- --
Receipt of Continued
Dumping & Subsidy Offset
Act (CDSOA) payment (2)
Earnings before interest
and taxes (EBIT) * $13,816 $5,733 $51,527 $43,390
EBIT Margin 6.1% 2.8% 5.8% 4.9%
Steel
Net sales to external
customers $208,840 $184,069 $825,778 $813,870
Intersegment sales 31,845 32,008 155,500 146,492
Total net sales $240,685 $216,077 $981,278 $960,362
Impairment and
restructuring -- -- -- --
Reorganization expenses -- -- -- --
Goodwill amortization -- -- -- --
Earnings before interest
and taxes (EBIT) * $241 ($6,323) $32,520 $13,358
EBIT Margin 0.1% -2.9% 3.3% 1.4%
* Automotive Bearings, Industrial Bearings and Steel EBIT do not equal
Consolidated EBIT due to intersegment adjustments which are eliminated
upon consolidation.
(1) "Adjusted" statements exclude the impact of restructuring and
reorganization charges for all quarters shown, elimination of goodwill
amortization in 2001, cumulative effect of change in
accounting principle recognized in 2002 and receipt of CDSOA payment.
(2) The receipt of the CDSOA payment is net of expenses.
CONSOLIDATED STATEMENT OF CASH For the three For the twelve
FLOWS months ended months ended
Dec 31 Dec 31 Dec 31 Dec 31
(Thousands of U.S. dollars) 2002 2001 2002 2001
Cash Provided (Used)
OPERATING ACTIVITIES
Net Income (Loss) $36,466 $1,218 $38,749 ($41,666)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Cumulative effect of accounting
change -- -- 12,702 --
Depreciation and amortization 35,579 38,452 146,535 152,467
(Credit) provision for deferred
income taxes (6,307) 30,209 17,250 23,013
Stock issued in lieu of cash to
employee benefit plans 589 122 5,217 1,441
Non-cash impact of impairment
and restructuring charges (196) 1,488 (13,564) 41,832
Changes in operating assets and
liabilities:
Accounts receivable 20,575 65,612 (43,679) 44,803
Inventories (15,389) 29,244 (50,611) 51,247
Other assets 3,568 9,400 (3,198) (16,897)
Accounts payable and accrued
expenses 34,667 (22,710) 80,761 (72,483)
Foreign currency translation 1,591 (8,687) 10,037 (3,886)
Net Cash Provided by
Operating Activities $111,143 $144,348 $200,199 $179,871
INVESTING ACTIVITIES
Purchases of property, plant and
equipment, net ($32,908) ($24,545) ($66,757) ($86,377)
Acquisitions -- (11,787) (6,751) (12,957)
Net Cash Used by Investing
Activities ($32,908) ($36,332) ($73,508) ($99,334)
FINANCING ACTIVITIES
Cash dividends paid to
shareholders ($8,232) ($7,778) ($31,713) ($40,166)
Purchase of treasury shares -- (136) -- (2,931)
Payments on long-term debt (424) (689) (37,296) (2,176)
Proceeds from issuance of long-
term debt -- 4,656 -- 80,766
Short-term debt activity - net (25,960) (95,808) (11,498) (90,980)
Net Cash Used by Financing
Activities ($34,616) ($99,755) ($80,507) ($55,487)
Effect of exchange rate
changes on cash 1,619 (784) 2,474 (2,585)
Increase in Cash and Cash
Equivalents $45,238 $7,477 $48,658 $22,465
Cash and Cash Equivalents at
Beginning of Period 36,812 25,915 33,392 10,927
Cash and Cash Equivalents at End
of Period $82,050 $33,392 $82,050 $33,392
CONSOLIDATED BALANCE SHEET Dec 31 Dec 31
(Thousands of U.S. dollars) 2002 2001
ASSETS
Cash & cash equivalents $82,050 $33,392
Accounts receivable 361,316 307,759
Refundable income taxes -- 15,103
Deferred income taxes 36,003 42,895
Inventories 488,923 429,231
Total Current Assets $968,292 $828,380
Property, plant & equipment 1,226,244 1,305,345
Other assets 553,820 399,359
Total Assets $2,748,356 $2,533,084
LIABILITIES
Accounts payable & other liabilities $296,543 $258,001
Short-term debt & commercial paper 111,134 128,864
Accrued expenses 226,393 254,291
Total Current Liabilities $634,070 $641,156
Long-term debt 350,085 368,151
Accrued pension cost 723,188 317,297
Accrued postretirement benefits 411,304 406,568
Other non-current liabilities 20,623 18,177
Total Liabilities $2,139,270 $1,751,349
SHAREHOLDERS' EQUITY 609,086 781,735
Total Liabilities and
Shareholders' Equity $2,748,356 $2,533,084