The Timken Company Reports Third Quarter Results
18 October 1999
The Timken Company Reports Third Quarter Results
CANTON, Ohio, Oct. 18 -- Persistent global market weakness
and continuing soft demand for higher margin products affected third quarter
sales and earnings, The Timken Company reported. While automotive
markets were strong, industrial and energy markets remained depressed. The
third quarter normally is the weakest of the year, due to customer demand
patterns.
"In recent weeks, we have been seeing some encouraging improvement in
order levels and sales, particularly in our European and Asia Pacific bearing
operations and in our Alloy Steel business," said W. R. Timken, Jr., chairman,
president and chief executive officer. "We are operating at higher production
levels in the fourth quarter, which will give us higher rates of absorption of
fixed costs. In addition to working to increase sales of higher margin
products, we continue to take a range of actions to position the company for
near-term growth and improved profitability. Examples include our increased
ownership of Timken India, which has been performing well, and the recently
announced study of strategic alternatives for our Latrobe Steel subsidiary.
We also are integrating Timken Desford Steel in Europe, which the company
acquired late last year. More rationalization of operations and growth
initiatives are coming."
For the third quarter, net sales were $601.7 million, slightly below
1998's third quarter of $616.8 million. For the first nine months of 1999,
net sales were $1.863 billion, trailing the record $2.026 billion in 1998's
corresponding period.
Third quarter net income totaled $12.4 million versus $13.6 million in the
year-earlier period. For the first nine months, net income was $41.3 million,
compared to $101.4 million a year ago. This disparity was due largely to a
very strong first half in 1998.
For the quarter, earnings per share, assuming dilution, were $0.20
compared to $0.22 the previous year. For the first nine months, earnings per
share, assuming dilution, were $0.66 compared to $1.61 in 1998.
Selling, general and administrative expenses for the third quarter 1999
were substantially lower, after taking into account the adjustment for
performance-based pay taken in the third quarter of 1998. "This is true,
despite the normal administrative expenses resulting from Timken India and
Timken Desford Steel - acquisitions completed during the last ten months - now
being consolidated with the company," said Mr. Timken. "Despite aggressive
expense reductions, the company continues to pursue strategic growth
initiatives."
Bearings' Results
In Bearings, third quarter net sales were $423.7 million, up from $415.1
million in 1998's third quarter. For the first nine months, net sales were
$1.314 billion, down slightly from $1.348 billion in 1998. While railroad and
industrial markets, including aerospace, were weak, automotive markets were
strong. In the third quarter, European and Asia Pacific markets showed some
signs of improvement from the low activity levels during the first half of the
year.
Earnings before interest and taxes (EBIT) in the third quarter were $24.8
million, similar to 1998's third quarter. For the first nine months, EBIT was
$68.1 million versus $114.9 million in 1998. The decline in EBIT was largely
due to Bearings' actions taken in the first half of 1999 to reduce inventory
in response to lower demand, and a less favorable product mix.
Steel's Results
Net sales, including intersegment sales, in the third quarter totaled
$232.2 million compared to $250.8 million in the year-earlier period. For the
nine months, net sales were $707.1 million, down 16 percent from last year's
$840.7 million. All markets were down except automotive.
Earnings before interest and taxes (EBIT) for the third quarter were $2.8
million compared to $4.6 million in 1998's third period. For the first nine
months, EBIT was $21 million, down from last year's $70 million. Lower raw
material costs did not offset weakened demand in most markets, manufacturing
inefficiencies related to lower production levels, and a less favorable
product mix.
The company announced in the third quarter that it is exploring strategic
alternatives for its specialty steel subsidiary, Latrobe Steel Company,
including strategic alliances, acquisitions and divestiture.
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 1998 sales of more than U.S. $2.6 billion.
NOTE: Certain statements in this news release are or could be construed as
forward-looking. Factors that could cause actual results to differ materially
from these forward-looking statements include the ability to achieve the
benefits from the company's ongoing continuous improvement and rationalization
programs, and changes in customer demand. Additional factors are described in
the company's 1998 annual report, page 17, and in the 1998 10-K. The company
undertakes no obligation to update any forward-looking statement.
CONSOLIDATED STATEMENT OF INCOME
(Thousands of U.S. dollars, except share data)
3Q 99 3Q 98 2Q 99 1Q 99
Net sales $601,703 $616,848 $636,099 $625,370
Cost of products
sold 485,362 496,875 516,498 498,811
Gross Profit $116,341 $119,973 $119,601 $126,559
Selling,
administrative
& general
expenses 89,160 85,304 87,781 89,330
Operating Income $27,181 $34,669 $31,820 $37,229
Other income (expense) (2,306) (4,304) (2,748) (3,415)
Earnings Before
Interest and Taxes
(EBIT) $24,875 $30,365 $29,072 $33,814
Interest expense (6,853) (6,639) (6,869) (6,656)
Interest income 604 1,531 721 427
Income Before Income
Taxes $18,626 $25,257 $22,924 $27,585
Provision for income
taxes 6,184 11,684 10,660 11,006
Net Income $12,442 $13,573 $12,264 $16,579
Earnings Per Share $0.20 $0.22 $0.20 $0.27
Earnings Per Share
- assuming dilution $0.20 $0.22 $0.20 $0.27
Average Shares
Outstanding 61,929,197 62,303,033 61,906,626 61,859,612
Average Shares
Outstanding-
assuming dilution 62,122,909 62,536,641 62,224,795 62,018,468
BUSINESS SEGMENTS
(Thousands of U.S. dollars)
3Q 99 3Q 98 2Q 99 1Q 99
Bearings
Net sales to external
customers $423,680 $415,109 $451,438 $438,717
Earnings before
interest and
taxes (EBIT) * $24,782 $24,860 $20,070 $23,249
EBIT Margin 5.8% 6.0% 4.4% 5.3%
Steel
Net sales to external
customers $178,023 $201,738 $184,661 $186,653
Intersegment sales 54,141 49,038 48,265 55,378
Total net sales $232,164 $250,776 $232,926 $242,031
Earnings before
interest and taxes
(EBIT) * $2,766 $4,581 $7,250 $11,029
EBIT Margin 1.2% 1.8% 3.1% 4.6%
CONSOLIDATED STATEMENT OF INCOME
(Thousands of U.S. dollars, except share data)
4Q 98 Nine Months 99 Nine Months 98
Net sales $653,865 $1,863,172 $2,025,976
Cost of products sold 531,291 1,500,671 1,566,895
Gross Profit $122,574 $362,501 $459,081
Selling,
administrative
& general
expenses 93,327 266,271 263,345
Operating Income $29,247 $96,230 $195,736
Other income (expense) (3,257) (8,469) (12,860)
Earnings Before
Interest and Taxes
(EBIT) $25,990 $87,761 $182,876
Interest expense (7,393) (20,378) (19,109)
Interest income 526 1,752 2,460
Income Before Income
Taxes $19,123 $69,135 $166,227
Provision for income
taxes 5,984 27,850 64,829
Net Income $13,139 $41,285 $101,398
Earnings Per Share $0.21 $0.67 $1.63
Earnings Per Share
- assuming dilution $0.21 $0.66 $1.61
Average Shares
Outstanding 61,938,470 61,897,876 62,353,218
Average Shares
Outstanding -
assuming dilution 62,151,475 62,121,455 63,036,445
BUSINESS SEGMENTS
(Thousands of U.S. dollars)
4Q 98 Nine Months 99 Nine Months 98
Bearings
Net sales to external
customers $450,063 $1,313,835 $1,347,681
Earnings before
interest and taxes
(EBIT) * $18,446 $68,101 $114,872
EBIT Margin 4.1% 5.2% 8.5%
Steel
Net sales to external
customers $203,802 $549,337 $678,294
Intersegment sales 38,554 157,784 162,358
Total net sales $242,356 $707,121 $840,652
Earnings before
interest and taxes
(EBIT) * $3,801 $21,045 $70,024
EBIT Margin 1.6% 3.0% 8.3%
* Bearings and Steel EBIT do not equal Consolidated EBIT due to intersegment
adjustments which are eliminated upon consolidation.
CONSOLIDATED BALANCE SHEET
(Thousands of U.S. dollars)
Sept 30 June 30 Mar 31 Dec 31 Sept 30
1999 1999 1999 1998 1998
ASSETS
Cash & cash
equivalents $18,379 $19,577 $11,012 $320 $18,906
Accounts
receivable 358,873 356,619 373,814 350,483 357,527
Deferred income
taxes 39,276 43,712 41,444 42,288 43,990
Inventories 422,908 415,637 456,220 457,246 510,629
Total Current
Assets $839,436 $835,545 $882,490 $850,337 $931,052
Property, plant
& equipment 1,373,079 1,369,316 1,368,014 1,349,539 1,300,752
Deferred income
taxes 13,641 27,209 25,079 20,409 10,917
Other assets 233,131 239,446 248,400 229,746 223,978
Total Assets $2,459,287 $2,471,516 $2,523,983 $2,450,031 $2,466,699
LIABILITIES
Accounts payable
& other
liabilities $210,609 $220,990 $226,176 $221,823 $224,374
Short-term debt
& commercial
paper 178,730 148,169 183,865 144,312 138,668
Accrued expenses 117,744 149,357 149,845 124,288 136,210
Total Current
Liabilities $507,083 $518,516 $559,886 $490,423 $499,252
Long-term debt 327,645 327,978 327,076 325,086 340,179
Accrued pension
cost 138,273 146,654 155,524 149,366 126,051
Accrued
postretirement
benefits 393,977 393,710 391,897 390,804 391,031
Other non-current
liabilities 36,165 36,626 38,994 38,271 45,908
Total
Liabilities $1,403,143 $1,423,484 $1,473,377 $1,393,950 $1,402,421
SHAREHOLDERS'
EQUITY 1,056,144 1,048,032 1,050,606 1,056,081 1,064,278
Total
Liabilities
and Shareholders'
Equity $2,459,287 $2,471,516 $2,523,983 $2,450,031 $2,466,699