The Timken Company Reports Third Quarter Results
20 October 1998
The Timken Company Reports Third Quarter Results; Takes Actions to Bolster Future Performance
CANTON, Ohio, Oct. 20 -- Unusual occurrences that spanned the
end of the second quarter and the beginning of the third as well as powerful
macro-economic forces which weakened some markets negatively impacted third
quarter results, The Timken Company reported today.
As previously reported, higher electricity costs, the Harrison Steel Plant
rolling mill startup, the General Motors strike and transformer outages in the
company's steel operations occurred during the second and third quarters and
combined to lower third quarter operating income by about $15 million. In
addition, the spreading global financial crisis has softened industrial,
agricultural, mining and oil well drilling markets. The result has been a
reduction of both sales and earnings from year-earlier record levels.
"Unexpected near-term order reductions, combined with lower manufacturing
levels to reduce inventories, impacted our economics," said W.R. Timken, Jr.,
chairman, president and chief executive officer. "We continue to take strong,
aggressive actions necessary to reduce costs, keep growing and produce ongoing
returns for our shareholders."
Special Actions
The company is moving quickly in taking a range of actions in both its
bearing and steel businesses:
* One initiative is further rationalizing operations. An example is the
closing of a bearing plant in Australia announced in September. This
will result in a reduction of 180 jobs and enable Australian Timken to
focus on sales, marketing and remanufacturing. Other facilities
identified for rationalization will include operations in the U.S.,
Europe, South America and South Africa.
* A second initiative is increasing organizational effectiveness through
ongoing continuous improvement efforts. One example is increased
efficiency resulting from installation of new software systems, and
another is the supply chain cost reduction program launched in 1997.
The company expects these cost-reduction initiatives to result in special
pre-tax expense of approximately $18 - $23 million in the fourth quarter.
"Our actions will bring production levels and capacity more in line with
current market opportunities while reducing costs," said Mr. Timken. "Recent
moves by the Federal Reserve in the direction of expansionary monetary policy
and lower interest rates are welcome though tardy. If other countries follow
suit, there will be better prospects for 1999 as the effects of these
necessary policy changes impact global economic growth."
For the third quarter, sales were $616.8 million, trailing 1997's record
third quarter of $629.9 million by 2 percent. For the first nine months of
1998, sales were a record $2.026 billion, 4 percent or $80 million higher than
the $1.946 billion reported in the year-earlier period.
Third quarter net income totaled $13.6 million, down from $37.8 million in
the year-ago period. In addition to the expense cited earlier, this includes
a $2 million loss related to the disposal of certain manufacturing equipment.
In addition, this income level reflects a reduction of $6.4 million in the
amount previously intended for performance-based pay. For the first nine
months, net income was $101.4 million or 18 percent lower than the $123.8
million reported in 1997's corresponding period.
The company continued to purchase shares under a plan approved by the
board of directors last April. Under the plan, the company is authorized to
buy back up to four million shares.
Bearing Business Results
In the Bearing Business, net sales for the quarter were $415.1 million, up
slightly from $408.8 million in the year-ago quarter. For the first nine
months, sales were $1.348 billion or 5.6 percent higher than the $1.277
billion achieved in last year's corresponding period.
Remaining strong during the third quarter were North American light and
heavy truck, locomotive and freight car markets. Sales in Europe also
continued at acceptable levels, particularly in the automotive market. The
strength of the United Kingdom's pound slowed exports from there, and markets
in Latin America are beginning to weaken.
Operating income for the third quarter increased 6.3 percent to
$26.9 million from $25.3 million in the year-earlier period. For the first
nine months, operating income totaled $122.6 million, up 5.8 percent from
$115.9 million a year earlier.
Steel Business Results
The unusual occurrences of the second and third quarters significantly
lowered Steel Business results. Near-term order erosion resulted from a
combination of customer inventory adjustments and market softening. For the
third quarter, net sales were $201.8 million, down 8.7 percent from
$221.1 million a year earlier. For the nine months, sales edged up slightly
to $678.3 million from $669.9 million.
Operating income decreased for both the third quarter and nine months.
For the quarter, operating income was $7.7 million versus $33.5 million in the
year-ago period. For the nine months, operating income was $73.1 million,
down from $96.6 million a year earlier.
Reducing performance were higher electricity costs, the Harrison mill
startup, the General Motors strike and transformer outages, which lowered
third quarter operating income by about $15 million. Lower volume, in large
part from customers working down inventories, also negatively affected
operating income.
The Timken Company (http://www.timken.com) is a leading international
manufacturer of highly engineered bearings and alloy steels with operations in
25 countries. The company employs about 21,000 people worldwide and reported
1997 sales of more than U.S. $2.6 billion.
The Timken Company and Subsidiaries
Third Quarter Second Quarter Nine Months
Consolidated Statements Ended Sept 30 Ended Jun 30 Ended Sept 30
of Income 1998 1997 1998 1998 1997
(Thousands of dollars,
except share data)
Net sales $616,848 $629,900 $701,747 $2,025,976 $1,946,487
Cost of products sold 496,875 489,298 537,005 1,566,895 1,488,876
Gross Profit $119,973 $140,602 $164,742 $459,081 $457,611
Selling, administrative
and general expenses 85,304 81,838 89,900 263,345 245,083
Operating Income $34,669 $58,764 $74,842 $195,736 $212,528
Interest expense (6,639) (5,242) (6,607) (19,109) (16,295)
Other income (expense) (2,773) 428 (6,773) (10,400) (1,290)
Income Before
Income Taxes $25,257 $53,950 $61,462 $166,227 $194,943
Provision for
income taxes 11,684 16,160 22,773 64,829 71,147
Net Income $13,573 $37,790 $38,689 $101,398 $123,796
Earnings Per Share $0.22 $0.60 $0.62 $1.63 $1.97
Earnings Per Share -
assuming dilution $0.22 $0.59 $0.61 $1.61 $1.93
Average Shares
Outstanding 62,303,033 62,977,635 62,213,764 62,353,218 62,727,242
Average Shares
Outstanding -
assuming
dilution 62,536,641 64,582,843 63,179,905 63,036,445 64,073,870
Consolidated Balance Sheets Sept 30 Dec 31 June 30
(Thousands of dollars) 1998 1997 1998
ASSETS
Cash and cash equivalents $18,906 $9,824 $22,103
Accounts receivable 357,527 357,423 383,431
Deferred income taxes 43,990 42,071 46,780
Inventories 510,629 445,853 488,058
Total Current Assets $931,052 $855,171 $940,372
Property, plant and equipment 1,300,752 1,220,516 1,279,409
Deferred income taxes 10,917 26,605 19,807
Other assets 223,978 224,258 230,183
Total Assets $2,466,699 $2,326,550 $2,469,771
LIABILITIES
Accounts payable and
other liabilities $224,374 $253,033 $239,706
Short-term debt and
commercial paper 138,668 156,585 118,738
Accrued expenses 136,210 157,343 143,599
Total Current Liabilities $499,252 $566,961 $502,043
Long-term debt 340,179 202,846 339,759
Accrued pension cost 126,051 103,061 124,719
Accrued postretirement benefits 391,031 389,749 390,242
Other non-current liabilities 45,908 31,857 49,417
Total Liabilities $1,402,421 $1,294,474 $1,406,180
SHAREHOLDERS' EQUITY 1,064,278 1,032,076 1,063,591
Total Liabilities and
Shareholders' Equity $2,466,699 $2,326,550 $2,469,771
BEARING BUSINESS SEGMENT FINANCIAL RESULTS
(Dollars in millions)
Third Quarter Second Qtr. Nine Months
Ended Sept 30 Ended June 30 Ended Sept 30
1998 1997 1998 1998 1997
Net Sales $415.1 $408.8 $469.8 $1,347.7 $1,276.6
Operating Income $26.9 $25.3 $45.6 $122.6 $115.9
Operating Margin 6.5% 6.2% 9.7% 9.1% 9.1%
STEEL BUSINESS SEGMENT FINANCIAL RESULTS
(Dollars in millions)
Third Quarter Second Qtr Nine Months
Ended Sept 30 Ended June 30 Ended Sept 30
1998 1997 1998 1998 1997
Net Sales $201.8 $221.1 $231.9 $678.3 $669.9
Operating Income $7.7 $33.5 $29.3 $73.1 $96.6
Operating Margin 3.8% 15.2% 12.6% 10.8% 14.4%