The Timken Company Reports Profitable 1999 Year and Fourth Quarter
20 January 2000
The Timken Company Reports Profitable 1999 Year and Fourth Quarter
CANTON, Ohio, Jan. 20 -- The Timken Company
maintained profitability in 1999 and offset longer-than-expected weaknesses in
many markets and regions of the world. Although sales and earnings were down
from a year ago, successful growth initiatives, ongoing rationalizations, and
a strong automotive market keyed results.
(Photo: http://www.newscom.com/cgi-bin/prnh/19991012/TKRLOGO )
"New products, entry into new markets and continuous improvement
initiatives implemented in recent years softened the impact of significant
global weakness in many of our markets throughout 1999," said W. R. Timken,
Jr., chairman and chief executive officer. "In response to weak markets and
prices, we cut back in many areas. We made selective capital expenditures,
primarily for business growth, and achieved the third highest sales and cash
flow in company history. The year ended stronger than it began, but many
markets remain soft, and we will continue our belt-tightening to improve
performance in 2000."
For the year, sales were $2.5 billion, down from a record $2.68 billion in
1998. Net income was $62.6 million, down from 1998's $114.5 million.
Earnings per share, fully diluted, for 1999 were $1.01 versus $1.82 in 1998.
Limiting performance were lower production levels, which resulted in
proportionately higher unabsorbed fixed costs and a less favorable sales mix.
In the fourth quarter, sales were $631.9 million, down from $653.9 million
in 1998. Net income for the quarter was $21.3 million versus $13.1 million in
the year-ago fourth quarter. Weak performance in the company's European
operations, less favorable product mix and lower sales volume were offset
partially by productivity gains in the Steel Business' manufacturing
operations and lower raw materials costs. Largely as a result of lowering
production costs, we were able to make a $7.5 million after-tax LIFO inventory
adjustment. Earnings per diluted share for the quarter were $0.35 versus
$0.21 in the corresponding period. (See note at end of release which details
effects of 1998 fourth quarter pre-tax expenses on comparisons with 1999
results.)
Selling and administrative costs were up slightly, primarily due to the
acquisitions of Timken India and Timken Desford Steel, and staffing for new
customer-focused technology and design centers, which are developing new
products such as truck package bearings.
The company significantly improved cash generation during 1999 by managing
effectively its working capital, especially through efficient inventory
management. Inventory days for the year were lower than the record low
achieved in 1998. Capital spending in 1999 was reduced by about 30 percent
from 1998. After funding capital expenditures and covering financing costs,
cash generated in 1999 was used to fund acquisitions, reduce debt by
$19.5 million and repurchase 800,000 shares of the company's stock under the
1998 common stock purchase plan.
The company reached an early, five-year labor agreement with the United
Steelworkers of America, covering hourly associates at its Canton, Wooster and
Columbus, Ohio, plants. The new labor agreement extends through September 26,
2005, and is the third consecutive early agreement.
Also in the fourth quarter, the board of directors elected James W.
Griffith president and chief operating officer. He will lead a previously
announced companywide reorganization, which should be completed in the first
half of 2000. "The new organization will revolve around six dedicated
business units serving global markets in aerospace, alloy steel, automotive,
industrial, precision steel components and rail," said Mr. Griffith. "We have
in place a strong leadership team for this new organization. They are a
performance-focused team that is particularly well-suited to succeeding in a
challenging, ever-changing environment."
Bearings' Results
In Bearings, global industrial weakness lowered net sales for the year to
$1.76 billion, down from 1998's $1.8 billion. For the fourth quarter, sales
were $446 million, compared to $450 million in the year-ago period. As a
result of excess bearing industry capacity in Asia, there was downward
pressure on prices.
Earnings before interest and taxes (EBIT) for the year were $80.6 million
versus $133.3 million in 1998. For the quarter, EBIT was $12.4 million versus
$18.4 million a year ago.
Countering the strength in global automotive markets was the continued
weakness in industrial, North American rail, aerospace and distribution
markets. These weaknesses resulted in lower production levels and a less
favorable product mix. These factors, along with substantial inventory
reductions and exchange rate changes, contributed to weaker performance in the
company's European operations.
Steel's Results
Net sales, including intersegment sales, for 1999 were $947 million, down
from $1.1 billion the year earlier. For the fourth quarter, this figure was
$239.9 million versus $242.4 million in 1998's corresponding period.
Earnings before interest and taxes (EBIT) for the year were $44 million
compared to $73.8 million in 1998. Improved productivity and lower raw
material costs were not sufficient to entirely offset weakened demand for the
year. As with Bearings, Steel contended with pricing pressure during 1999.
For the quarter, EBIT jumped to $23 million compared with $3.8 million a year
earlier. An improved mix, higher operating levels and the above-mentioned
LIFO adjustment made the fourth quarter the year's strongest.
Note: In the fourth quarter of 1998, the company recorded pre-tax
expenses of $21.4 million related to capacity rationalizations and continuous
improvement initiatives. Otherwise, 1998 earnings per share would have been
$2.08. In the fourth quarter of 1998, net income would have been $29.2
million and earnings per share would have been $0.47. Bearings' EBIT for the
year and fourth quarter 1998 would have been $152.3 million and $37.4 million,
respectively, had it not been for the pre-tax expense. Steel's 1998 EBIT
would have been $76.2 million and its 1998 fourth quarter EBIT $6.2 million.
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 nearly 21,000 people
worldwide.
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, changes in customer demand and possible revocation of the company's
anti-dumping orders. Additional factors are described in the company's 1998
annual report, page 17, in the 1998 10-K and in the 10-Q's filed in 1999. The
company undertakes no obligation to update any forward-looking statement.
CONSOLIDATED STATEMENT OF INCOME
(Thousands of
U.S. dollars,
except share
data) 4Q 99 4Q 98 3Q 99 2Q 99 1Q 99
Net sales $631,862 $653,865 $601,703 $636,099 $625,370
Cost of
products
sold 501,695 531,291 485,362 516,498 498,811
Gross
Profit $130,167 $122,574 $116,341 $119,601 $126,559
Selling,
administrative
& general
expenses 93,639 93,327 89,160 87,781 89,330
Operating
Income $36,528 $29,247 $27,181 $31,820 $37,229
Other income
(expense) (1,169) (3,257) (2,306) (2,748) (3,415)
Earnings
Before
Interest
and Taxes
(EBIT) $35,359 $25,990 $24,875 $29,072 $33,814
Interest
expense (6,847) (7,393) (6,853) (6,869) (6,656)
Interest
income 1,344 526 604 721 427
Income Before
Income
Taxes $29,856 $19,123 $18,626 $22,924 $27,585
Provision
for income
taxes 8,517 5,984 6,184 10,660 11,006
Net Income $21,339 $13,139 $12,442 $12,264 $16,579
Earnings Per
Share $0.35 $0.21 $0.20 $0.20 $0.27
Earnings Per
Share-
assuming
dilution $0.35 $0.21 $0.20 $0.20 $0.27
Average
Shares
Out-
standing 61,572,124 61,938,470 61,929,197 61,906,626 61,859,612
Average
Shares
Outstanding
-assuming
dilution 61,823,990 62,151,475 62,122,909 62,224,795 62,018,468
BUSINESS SEGMENTS
(Thousands of
U.S.
dollars) 4Q 99 4Q 98 3Q 99 2Q 99 1Q 99
Bearings
Net sales
to external
customers $446,036 $450,063 $423,680 $451,438 $438,717
Earnings before
interest
and taxes
(EBIT) * $12,447 $18,446 $24,782 $20,070 $23,249
EBIT Margin 2.8% 4.1% 5.8% 4.4% 5.3%
Steel
Net sales to
external
customers $185,826 $203,802 $178,023 $184,661 $186,653
Intersegment
sales 54,086 38,554 54,141 48,265 55,378
Total net
sales $239,912 $242,356 $232,164 $232,926 $242,031
Earnings before
interest and
taxes
(EBIT) * $22,994 $3,801 $2,766 $7,250 $11,029
EBIT Margin 9.6% 1.6% 1.2% 3.1% 4.6%
*Bearings and Steel EBIT do not equal Consolidated EBIT due to
intersegment adjustments which are eliminated upon consolidation.
CONSOLIDATED STATEMENT OF INCOME
(Thousands of U.S.
dollars, except
share data) Year 1999 Year 1998
Net sales $2,495,034 $2,679,841
Cost of products sold 2,002,366 2,098,186
Gross Profit $492,668 $581,655
Selling, administrative
& general expenses 359,910 356,672
Operating Income $132,758 $224,983
Other income (expense) (9,638) (16,117)
Earnings Before
Interest and Taxes
(EBIT) $123,120 $208,866
Interest expense (27,225) (26,502)
Interest income 3,096 2,986
Income Before Income Taxes $98,991 $185,350
Provision for income taxes 36,367 70,813
Net Income $62,624 $114,537
Earnings Per Share $1.01 $1.84
Earnings Per Share-
assuming dilution $1.01 $1.82
Average Shares Outstanding 61,795,162 62,244,097
Average Shares Outstanding
-assuming dilution 62,025,813 62,809,769
BUSINESS SEGMENTS
(Thousands of U.S. dollars) Year 1999 Year 1998
Bearings
Net sales to external
customers $1,759,871 $1,797,745
Earnings before
interest and taxes
(EBIT) * $80,548 $133,318
EBIT Margin 4.6% 7.4%
Steel
Net sales to external
customers $735,163 $882,096
Intersegment sales 211,870 200,912
Total net sales $947,033 $1,083,008
Earnings before interest
and taxes (EBIT) * $44,039 $73,825
EBIT Margin 4.7% 6.8%
*Bearings and Steel EBIT do not equal Consolidated EBIT due to
intersegment adjustments which are eliminated upon consolidation.
CONSOLIDATED
BALANCE SHEET
(Thousands of Dec 31 Sept 30 June 30 Mar 31 Dec 31
U.S. dollars) 1999 1999 1999 1999 1998
ASSETS
Cash & cash
equivalents $7,906 $18,379 $19,577 $11,012 $320
Accounts
receivable 339,326 358,873 356,619 373,814 350,483
Deferred income
taxes 39,706 39,276 43,712 41,444 42,288
Inventories 446,588 422,908 415,637 456,220 457,246
Total Current
Assets $833,526 $839,436 $835,545 $882,490 $850,337
Property,
plant &
equipment 1,381,474 1,373,079 1,369,316 1,368,014 1,349,539
Deferred
income
taxes 0 13,641 27,209 25,079 20,409
Other assets 226,318 233,131 239,446 248,400 229,746
Total
Assets $2,441,318 $2,459,287 $2,471,516 $2,523,983 $2,450,031
LIABILITIES
Accounts payable
& other
liabilities $236,602 $210,609 $220,990 $226,176 $221,823
Short-term
debt &
commercial
paper 122,547 178,730 148,169 183,865 144,312
Accrued
expenses 198,512 117,744 149,357 149,845 124,288
Total Current
Liabili-
ties $557,661 $507,083 $518,516 $559,886 $490,423
Long-term
debt 327,343 327,645 327,978 327,076 325,086
Accrued
pension
cost 76,005 138,273 146,654 155,524 149,366
Accrued
postretirement
benefits 394,084 393,977 393,710 391,897 390,804
Deferred
income taxes 8,526 0 0 0 0
Other non-
current
liabilities 34,097 36,165 36,626 38,994 38,271
Total
Liabili-
ties $1,397,716 $1,403,143 $1,423,484 $1,473,377 $1,393,950
SHAREHOLDERS'
EQUITY 1,043,602 1,056,144 1,048,032 1,050,606 1,056,081
Total
Liabilities
and Shareholders'
Equity $2,441,318 $2,459,287 $2,471,516 $2,523,983 $2,450,031