The Timken Company Reports Solid 1998 Performance
21 January 1999
The Timken Company Reports Solid 1998 Performance; Takes Fourth Quarter Actions To Combat Weaker Second Half
CANTON, Ohio, Jan. 21 -- Earnings for 1998 were
$114.5 million -- the third highest earnings total in company history -- and
sales finished above 1997's record, The Timken Company reported
today. Difficult global market conditions and concerted actions to lower
inventories, decrease employment costs and trim excess capacity combined to
lower earnings for both 1998 and the fourth quarter.
For the year, sales were $2.68 billion, up slightly from $2.62 billion in
1997. The $114.5 million net income was down from a record $171.4 million in
1997. Earnings per share, fully diluted, for 1998 totaled $1.82. However,
they would have been $2.08 had it not been for fourth quarter pre-tax expenses
totaling $21.4 million. Those expenses were taken primarily in connection with
capacity rationalizations and continuous improvement initiatives designed to
lower both production and administrative costs. In 1997, fully diluted
earnings per share were $2.69.
Job eliminations and layoffs associated with the pre-tax expenses and
related actions will total more than 500. In addition, during the second half
of 1998, 400 layoffs occurred because of weakened market conditions.
Approximately $19 million of the expense was related to actions taken in the
company's Bearing Business operations in Australia, South Africa, Europe,
Latin America and the United States. The balance was related to measures
taken in the Steel Business. The company expects to realize savings that
would offset the expense within about 18 months.
In the fourth quarter, sales were $653.9 million, down from $671.1 million
in the year-ago period. Net income for the quarter was $13.1 million and
fully diluted earnings per share were $.21. Excluding the pre-tax expenses,
earnings for the quarter would have been $29.2 million or $.47 per share. In
1997's fourth quarter, earnings were $47.6 million or $.74 per share.
Inventory, which had increased in the first nine months of the year, was
cut by $53.4 million during the fourth quarter.
"In 1998, we had to deal with powerful macroeconomic forces that spread
and persisted," said W.R. Timken, Jr., chairman, president and chief executive
officer. "At the same time, we had to contend with occurrences such as
prolonged transformer outages, a lengthy customer strike and significant plant
startup costs. The overall result was a disappointing financial performance.
During the second half of the year, we moved decisively to lower inventories,
increase cash flow and reduce employment. We don't expect a repeat of last
year's substantial, unusual negative occurrences. We are determined to keep
growing profitably and producing strong returns for shareholders. As we head
into 1999, we are in a strong competitive position in both the world bearing
and alloy steel industries."
Bearing Business Results
In the Bearing Business, net sales for the year were $1.8 billion, a
modest increase from 1997's $1.72 billion. For the fourth quarter, sales were
$450 million, up slightly from $442.3 million in the year-earlier period.
North American markets for light and heavy trucks and locomotives and freight
cars remained strong. However, U.S. markets for certain industrial products
remained weak, and demand in Asia stayed at a low ebb.
Operating income for 1998 totaled $144 million compared to $156.3 million
in 1997. For the fourth quarter, operating income was $21.4 million.
Excluding the pre-tax expense, operating income would have been $40.4 million,
same as in the year-ago period.
In the fourth quarter, the company introduced the Timken(R) IsoClass(TM)
brand of metric tapered roller bearings. This product line gives the company
a much stronger position in the metric market that accounts for nearly half of
worldwide tapered roller bearing consumption.
Steel Business Results
The Steel Business was unable to completely offset the negative impact of
weaker markets and the negative occurrences noted above. In 1998, the Steel
Business started a $55 million rolling mill which strengthens its position in
the market for continuous-cast intermediate-sized alloy bars.
Net sales for 1998 were $882.1 million, down from $898.7 million in 1997.
For the fourth quarter, sales were $203.8 million, down from $228.8 million in
1997's final quarter.
Operating income for 1998 totaled $81 million compared to $123.4 million
in 1997. For the fourth quarter, operating income was $7.9 million.
Excluding the pre-tax expense, operating income would have been $10.3 million
versus $26.8 million in the year-earlier period. This decrease includes a
curtailing of operations to 70 percent of capacity for several weeks. This
action was necessary to bring inventories into line with market conditions and
reduce expenditures.
During the fourth quarter, the company acquired Desford Steel Tubes in
England. Now named Timken Desford Steel, the unit achieved 1997 sales of $80
million in seamless mechanical tubing.
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.
CONSOLIDATED BALANCE SHEET
(Thousands of U.S. dollars)
Dec 31 Sept 30 June 30 Mar 31 Dec 31
1998 1998 1998 1998 1997
ASSETS
Cash & cash
equivalents $320 $18,906 $22,103 $15,985 $9,824
Accounts
receivable 350,483 357,527 383,431 395,105 357,423
Deferred income
taxes 42,288 43,990 46,780 49,389 42,071
Inventories 457,246 510,629 488,058 480,106 445,853
Total Current
Assets $850,337 $931,052 $940,372 $940,585 $855,171
Property, plant
& equipment 1,349,539 1,300,752 1,279,409 1,244,802 1,220,516
Deferred income
taxes 20,409 10,917 19,807 15,645 26,605
Other assets 229,746 223,978 230,183 224,000 224,258
Total Assets $2,450,031 $2,466,699 $2,469,771 $2,425,032 $2,326,550
LIABILITIES
Accounts payable
& other
liabilities $221,823 $224,374 $239,706 $234,116 $253,033
Short-term debt
& commercial
paper 144,312 138,668 118,738 204,869 156,585
Accrued expenses 124,288 136,210 143,599 170,587 157,343
Total Current
Liabilities $490,423 $499,252 $502,043 $609,572 $566,961
Long-term debt 325,086 340,179 339,759 239,814 202,846
Accrued pension
cost 149,366 126,051 124,719 112,225 103,061
Accrued
postretirement
benefits 390,804 391,031 390,242 390,161 389,749
Other non-current
liabilities 38,271 45,908 49,417 35,140 31,857
Total
Liabilities $1,393,950 $1,402,421 $1,406,180 $1,386,912 $1,294,474
SHAREHOLDERS'
EQUITY $1,056,081 $1,064,278 $1,063,591 $1,038,120 $1,032,076
Total
Liabilities
and
Shareholders'
Equity $2,450,031 $2,466,699 $2,469,771 $2,425,032 $2,326,550
CONSOLIDATED STATEMENT OF INCOME
(Thousands of U.S. dollars, except share data)
4Q 98 4Q 97 3Q 98 2Q 98 1Q 98
Net sales $653,865 $671,075 $616,848 $701,747 $707,381
Cost of products
sold 531,291 516,498 496,875 537,005 533,015
Gross
Profit $122,574 $154,577 $119,973 $164,742 $174,366
Selling,
administrative
& general
expenses 93,327 87,336 85,304 89,900 88,141
Operating
Income $29,247 $67,241 $34,669 $74,842 $86,225
Interest expense (7,393) (5,137) (6,639) (6,607) (5,863)
Other income
(expense) (2,731) 9,545 (2,773) (6,773) (854)
Income Before
Income
Taxes $19,123 $71,649 $25,257 $61,462 $79,508
Provision for
income taxes 5,984 24,026 11,684 22,773 30,372
Net Income $13,139 $47,623 $13,573 $38,689 $49,136
Earnings
Per Share $0.21 $0.76 $0.22 $0.62 $0.79
Earnings Per
Share -
assuming
dilution $0.21 $0.74 $0.22 $0.61 $0.78
Average
Shares
Outstanding 61,938,470 62,982,762 62,303,033 62,213,764 62,481,627
Average Shares
Outstanding -
assuming
dilution 62,151,475 63,943,257 62,536,641 63,179,905 63,331,559
BUSINESS SEGMENT
(Millions of U.S. Dollars)
Bearing 4Q 98 4Q 97 3Q 98 2Q 98 1Q 98
Net Sales $450.0 $442.3 $415.1 $469.8 $462.8
Operating Income $21.4 $40.4 $26.9 $45.6 $50.1
Operating Margin 4.8% 9.1% 6.5% 9.7% 10.8%
Steel 4Q 98 4Q 97 3Q 98 2Q 98 1Q 98
Net Sales $203.8 $228.8 $201.8 $231.9 $244.6
Operating Income $7.9 $26.8 $7.7 $29.3 $36.1
Operating Margin 3.9% 11.7% 3.8% 12.6% 14.8%
CONSOLIDATED STATEMENT OF INCOME
(Thousands of U.S. dollars, except share data)
Year 1998 Year 1997
Net sales $2,679,841 $2,617,562
Cost of products sold 2,098,186 2,005,374
Gross Profit $581,655 $612,188
Selling, administrative
& general expenses 356,672 332,419
Operating Income $224,983 $279,769
Interest expense (26,502) (21,432)
Other income (expense) (13,131) 8,255
Income Before Income Taxes $185,350 $266,592
Provision for income taxes 70,813 95,173
Net Income $114,537 $171,419
Earnings Per Share $1.84 $2.73
Earnings Per Share
- assuming dilution $1.82 $2.69
Average Shares Outstanding 62,244,097 62,786,387
Average Shares Outstanding
- assuming dilution 62,809,769 63,804,134
BUSINESS SEGMENT
(Millions of U.S. Dollars)
Bearing Year 1998 Year 1997
Net Sales $1,797.7 $1,718.9
Operating Income $144.0 $156.3
Operating Margin 8.0% 9.1%
Steel Year 1998 Year 1997
Net Sales $882.1 $898.7
Operating Income $81.0 $123.4
Operating Margin 9.2% 13.7%