Timken Announces Record First Quarter Sales
Record Quarterly Sales of $1.1 billion
Strong Earnings Improvement Over Last Year's First Quarter
CANTON, Ohio, April 22 -- The Timken Company today reported record sales of $1.1 billion for the first quarter of 2004, an increase of 31 percent from the prior year. Adjusted to include pro forma results for Torrington for the full first quarter of 2003, sales were up 11 percent. Sales were higher across all three business groups, Automotive, Industrial and Steel, compared to the first quarter of 2003. Timken completed its $840 million strategic acquisition of The Torrington Company on February 18, 2003.
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Timken reported $0.32 per diluted share, more than double the $0.15 per diluted share from a year ago. Excluding special items, adjusted earnings per share were $0.31, or 63 percent higher than the $0.19 last year. This compared favorably to previous company estimates of $0.25 to $0.30 per diluted share, excluding special items. Special items in 2004 totaled $0.7 million of pretax income, with $7.7 million of income received under the Continued Dumping and Subsidy Offset Act (CDSOA) virtually offset by integration expenses related to Torrington. In the first quarter of 2003, special items were $3.6 million of pretax expense.
"We have seen a broad-based improvement across our three business groups," said James W. Griffith, president and CEO. "Improving markets, coupled with actions taken in 2003 to strengthen the businesses, are hitting the bottom line."
Stronger demand in industrial markets benefited both the Industrial and Steel Groups. "We are in a good position to leverage this economic upturn," Mr. Griffith said. "Changes to surcharge mechanisms were effective in partially offsetting unprecedented increases in scrap steel prices and allowed the Steel Group to return to profitability. Automotive Group margins were better than last year, reflecting stronger volume and manufacturing improvements."
"We are reporting record sales, but are still well below record earning levels," said Mr. Griffith. "We are encouraged by the growing strength of the global economy, but still face an increasingly competitive environment, and we will continue to take aggressive action to improve performance."
For the quarter, the company achieved pretax integration savings of $17 million, driven by leveraging the combined purchasing of Torrington and Timken. The company is on track to achieve its target of $80 million of pretax integration savings during 2005.
Total debt at March 31, 2004 was $812.3 million, 42.3 percent of capital. Debt was higher than the 2003 year-end level of $734.6 million due to cash contributions to domestic pension plans and seasonal working capital. The company expects its leverage to be lower at the end of this year compared to last year.
Automotive Group Results
For the first quarter, Automotive Group sales were $415.6 million, up 39 percent from $298.1 million in the first quarter of last year. Including pro forma results for Torrington, sales were up 8 percent.
Strong demand in North American light truck and medium/heavy truck sectors drove the sales increase. Light truck production was up approximately 3 percent, due to recent product introductions, while medium/heavy truck production was up approximately 36 percent. Partially offsetting this increase was a 6 percent decrease in passenger car production.
Earnings before interest and taxes (EBIT) were $18.3 million, compared to $8.9 million last year. EBIT margin of 4.4 percent improved from 3.0 percent a year ago. The EBIT improvement was the result of leveraging strong sales, combined with manufacturing integration cost savings. Cost-saving actions included a workforce reduction in excess of 750 positions during the second half of 2003, improved European operations and integration activities.
Industrial Group Results
For the first quarter, Industrial Group sales were $410.6 million, up 35 percent from $305.2 million last year. Including pro forma results for Torrington, sales were up 11 percent. Most market segments saw double-digit sales percentage increases over last year's levels. Distribution sales showed some improvement due to strengthening end markets, while distributors reduced inventory levels of some of the company's products.
EBIT was $35.8 million, compared to $17.8 million last year. EBIT margin of 8.7 percent improved from 5.8 percent a year ago. The increase was attributed to improved volume, integration and other cost reduction initiatives.
Steel Group Results
For the first quarter, Steel Group sales were $309.3 million, up 12 percent from $275.8 million last year. Strong demand from both automotive and industrial customers drove record shipments. In addition, top-line growth benefited from surcharges to offset rising raw material costs.
EBIT was $2.7 million, compared to $6.5 million last year. EBIT margin of 0.9 percent was below the 2.4 percent EBIT margin a year ago. The group had record sales for the quarter along with record high raw material costs. A significant portion of these costs is being recovered with recent surcharge provisions and price increases. This was the first profitable quarter since the second quarter of 2003. Productivity improvements and volume also contributed positively.
Outlook
The company continues to expect improved performance in 2004 across all three segments. The company expects earnings per diluted share, excluding special items, to be $0.27 to $0.32 for the second quarter and $1.00 to $1.10 for the year.
North American light vehicle production is expected to be up slightly and medium/heavy truck production should continue to be very strong relative to last year. Automotive Group profitability is expected to continue to be better than 2003, as the benefits of cost reduction efforts impact performance. The company continues to see growing demand in global industrial markets, which should favorably impact results. Steel Group profitability is expected to be challenged by continued high raw material and energy costs, but improved volume coupled with surcharge mechanisms and price increases should allow the Group to remain profitable for the year.
Conference Call Information
The company will host a conference call for investors and analysts today to discuss financial results.
Conference Call: Thursday, April 22, 2004
10 a.m. Eastern Time
All Callers: Live Dial-In: (706) 634-0975
(Call in 10 minutes prior to be included)
Replay Dial-In: (706) 645-9291
Replay Passcode: 6388595
Live Web cast: www.timken.com
The Timken Company ; ( www.timken.com ) is a leading global manufacturer of highly engineered bearings and alloy steels and a provider of related products and services with operations in 27 countries. A Fortune 500 company, Timken recorded 2003 sales of $3.8 billion and employed approximately 26,000 at year-end.
Media Contact: Denise L. Bowler, Manager - - Communications Planning and Integration, (330) 471-3485, or www.timken.com/media .
Investor Contact: Kevin R. Beck, Manager - Investor Relations, (330) 471-7181
CONSOLIDATED STATEMENT OF INCOME
AS REPORTED ADJUSTED(A)
(Thousands of U.S. dollars,
except share data)
1Q 04 1Q 03 1Q 04 1Q 03
Net sales $1,098,785 $838,007 $1,098,785 $838,007
Cost of products sold(B) 894,886 696,557 894,886 696,557
Integration/Reorganization
expenses - cost of
products sold 1,376 3,688 - -
Gross Profit $202,523 $137,762 $203,899 $141,450
Selling, administrative &
general expenses (SG&A)(B) 138,715 107,392 138,715 107,392
Integration/Reorganization
expenses - SG&A 3,988 5,375 - -
Impairment and
restructuring 730 - - -
Operating Income $59,090 $24,995 $65,184 $34,058
Other expense (8,820) (1,593) (8,820) (1,593)
Special items - other
income 6,795 5,447 - -
Earnings Before
Interest and Taxes
(EBIT)(C) $57,065 $28,849 $56,364 $32,465
Interest expense, net (11,145) (9,951) (11,145) (9,951)
Income Before Income
Taxes $45,920 $18,898 $45,219 $22,514
Provision for income taxes 17,450 7,559 17,183 8,555
Net Income $28,470 $11,339 $28,036 $13,959
Earnings Per Share $0.32 $0.15 $0.31 $0.19
Earnings Per Share-
assuming dilution $0.32 $0.15 $0.31 $0.19
Average Shares
Outstanding 89,265,382 74,444,132 89,265,382 74,444,132
Average Shares
Outstanding-assuming
dilution 90,137,140 74,613,170 90,137,140 74,613,170
(A) "Adjusted" statements exclude the impact of impairment and
restructuring, integration/reorganization and special charges for all
periods shown.
(B) First quarter 2003 results include a reclassification of $7,496 from
cost of products sold to selling, administrative and general expenses
for Torrington engineering and research and development expenses to be
consistent with Timken's cost classification methodology.
BUSINESS SEGMENTS
(Thousands of U.S. dollars) 1Q 04 1Q 03
Automotive Group
Net sales to external customers $415,602 $298,129
Adjusted earnings before interest and
taxes (EBIT)*(C) $18,323 $8,868
Adjusted EBIT Margin(C) 4.4% 3.0%
Industrial Group
Net sales to external customers $410,269 $304,963
Intersegment sales 289 192
Total net sales $410,558 $305,155
Adjusted earnings before interest and
taxes (EBIT)*(C) $35,766 $17,810
Adjusted EBIT Margin(C) 8.7% 5.8%
Steel Group
Net sales to external customers $272,914 $234,915
Intersegment sales 36,417 40,864
Total net sales $309,331 $275,779
Adjusted earnings before interest and
taxes (EBIT)*(C) $2,724 $6,530
Adjusted EBIT Margin(C) 0.9% 2.4%
* Automotive Bearings, Industrial Bearings and Steel EBIT do not equal
Consolidated EBIT due to intersegment adjustments which are eliminated
upon consolidation.
(C) 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 our business segments, and EBIT disclosures are
responsive to investors.
Reconciliation of Total Debt and the Ratio of Total Debt to Capital:
Mar 31, 2004 Dec 31, 2003
Short-term debt $188,123 $121,194
Long-term debt 624,141 613,446
Total Debt $812,264 $734,640
Total debt $812,264 $734,640
Shareholders' equity 1,107,036 1,089,627
Total debt + shareholders' equity
(Capital) $1,919,300 $1,824,267
Ratio of Total Debt to Capital 42.3% 40.3%
Reconciliation of GAAP net income and EPS - Basic and Diluted as
previously disclosed.
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
integration/reorganization costs, one-time gains/losses on sales
of assets, Continued Dumping and Subsidy Offset Act (CDSOA) receipts and
payments.
1Q 04 1Q 03
(Thousands of U.S. dollars, except
share data) $ EPS $ EPS
Net income $28,470 $0.32 $11,339 $0.15
Pre-tax special items:
Integration expense - cost of
products sold 1,376 0.02 3,688 0.05
Integration expenses - SG&A 3,988 0.04 5,375 0.07
Impairment and restructuring 730 0.01 - -
Special items - other (income)
expense:
CDSOA receipts, net of expenses (7,743)(D) (0.09) - -
Adoption of FIN 46 for investment
in PEL 948 (E) 0.01 - -
Gain on sale of land - - (5,447) (0.07)
Tax effect of special items 267 0.00 (996) (0.01)
Adjusted net income $28,036 $0.31 $13,959 $0.19
(D) CDSOA receipts are reported net of applicable expenses.
(E) In the first quarter of 2004, Timken adopted Interpretation No. 46,
"Consolidation of Variable Interest Entities, an interpretation of
Accounting Research Bulletin No. 51" (FIN 46). Timken concluded that
its investment in a joint venture, PEL, was subject to the provisions
of FIN 46 and that Timken was the primary beneficiary of PEL.
Accordingly, Timken consolidated PEL effective March 31, 2004, which
resulted in a charge to earnings related to the cumulative effect of
change in accounting principle.
Calculation of Timken Company Q1 2003 Pro forma Net Sales
1Q 04 1Q 03
Timken Impact of
Timken Company, Torrington Timken
Company, As As Acquisi- Company,
Reported Reported tion(F) Pro forma
Automotive Group
Net sales to external customers $415,602 $298,129 $87,721 $385,850
Industrial Group
Net sales to external customers $410,269 $304,963 $63,522 $368,485
Intersegment sales 289 192 - 192
Total net sales $410,558 $305,155 $63,522 $368,677
Steel Group
Net sales to external customers $272,914 $234,915 - $234,915
Intersegment sales 36,417 40,864 - 40,864
Total net sales $309,331 $275,779 - $275,779
Consolidated
Net sales to external customers $1,098,785 $838,007 $151,243 $989,250
(F) Impact of Torrington Acquisition represents Torrington sales for 2003
prior to the acquisition. Timken sales to Torrington prior to the
acquisition have been excluded. This is consistent with the
methodology used to calculate pro forma financial results in 2003.
Allocation of net sales within the business groups was calculated
using the ratio of first quarter 2003 net sales subsequent to the
acquisition. Management believes this comparison is helpful for
investors to evaluate first quarter 2004 sales compared to the
first quarter 2003, as if Timken had acquired Torrington on
January 1, 2003.
Reconciliation of Outlook Information -
Expected net income per diluted share for the full year and the second
quarter exclude special items. Examples of such special items include
impairment and restructuring, integration/reorganization expenses and
payments under the CDSOA. It is not possible at this time to identify the
potential amount or significance of these special items. We cannot
predict whether we will receive any additional payments under the
CDSOA in 2004 and if so, in what amount. If we do receive any additional
CDSOA payments, they will most likely be received in the fourth quarter.
CONSOLIDATED BALANCE SHEET Mar 31 Dec 31
(Thousands of U.S. dollars) 2004 2003
ASSETS
Cash & cash equivalents $35,015 $28,626
Accounts receivable 691,167 602,262
Deferred income taxes 50,033 50,271
Inventories 718,183 695,946
Total Current Assets $1,494,398 $1,377,105
Property, plant & equipment 1,583,229 1,608,594
Goodwill 202,853 173,099
Other assets 545,154 530,991
Total Assets $3,825,634 $3,689,789
LIABILITIES
Accounts payable & other liabilities $511,902 $425,157
Short-term debt 188,123 121,194
Accrued expenses 509,436 508,205
Total Current Liabilities $1,209,461 $1,054,556
Long-term debt 624,141 613,446
Accrued pension cost 368,622 424,414
Accrued postretirement benefits cost 482,028 476,966
Other non-current liabilities 34,346 30,780
Total Liabilities $2,718,598 $2,600,162
SHAREHOLDERS' EQUITY 1,107,036 1,089,627
Total Liabilities and
Shareholders' Equity $3,825,634 $3,689,789
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended
Mar 31 Mar 31
(Thousands of U.S. dollars) 2004 2003
Cash Provided (Used)
OPERATING ACTIVITIES
Net Income $28,470 $11,339
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 53,928 41,265
Other 4,872 (7,119)
Changes in operating assets and
liabilities:
Accounts receivable (87,328) (54,614)
Inventories (15,767) (22,463)
Other assets (6,046) (10,201)
Accounts payable and accrued expenses (3,283) 53,973
Foreign currency translation 1,476 (1,859)
Net Cash (Used) Provided by
Operating Activities ($23,678) $10,321
INVESTING ACTIVITIES
Capital expenditures ($24,449) ($22,998)
Other (2,099) 7,831
Acquisitions (1,549) (718,952)
Net Cash Used by Investing Activities ($28,097) ($734,119)
FINANCING ACTIVITIES
Cash dividends paid to shareholders ($11,614) ($8,252)
Issuance of common stock for acquisition - 180,220
Net borrowings on credit facilities 67,749 512,490
Net Cash Provided by Financing
Activities $56,135 $684,458
Effect of exchange rate changes on cash $2,029 $577
Increase (decrease) in Cash and Cash
Equivalents 6,389 (38,763)
Cash and Cash Equivalents at
Beginning of Period $28,626 $82,050
Cash and Cash Equivalents at End of Period $35,015 $43,287