The Timken Company Reports Sales and Earnings Up in 2000
18 January 2001
The Timken Company Reports Sales and Earnings Up in 2000; Fourth Quarter Reflects Weaker Global Markets
Three Growth Initiatives Announced in January
CANTON, Ohio, Jan. 18 Despite a slowing global economy and
weakening of North American automotive markets, The Timken Company
reported solid increases in sales and earnings in 2000, excluding
restructuring, impairment and reorganization charges.
"While our businesses made impressive gains in the first half of 2000,
slowing demand checked our momentum in the second half," said W.R. Timken,
Jr., chairman and chief executive officer. "Still, we were able to make good
progress as we continued the company's transformation to a more globally
focused, high-performance organization. The combination of the restructuring
launched in the first quarter, the introduction of new products and services
and numerous continuous improvement initiatives strengthened the company. In
2001, we will continue that process by vigorously driving further
improvements." Through the end of 2000, the company recorded $38.9 million in
pretax restructuring, impairment and reorganization charges, and it is on
schedule to meet the $55 million in pretax charges estimated for
restructuring, impairment and reorganization through the first quarter of
2001.
For the year, net sales were the second highest in the company's history
at $2.6 billion, up 6 percent from $2.5 billion in 1999. Net income,
excluding pretax restructuring, impairment and reorganization charges,
increased 19 percent to $74.6 million from $62.6 million a year ago. Earnings
per diluted share before these charges were $1.22 for 2000, compared to $1.01
per diluted share in 1999. Including the charges, net income for 2000 was
$45.9 million or $0.76 per diluted share.
"For the year, our Bearing segment had increased operating profit,
reflecting significant improvements in operating efficiency, despite slowing
sales in the second half. Meanwhile, the Steel business improved its
penetration in targeted markets, and its performance was quite strong relative
to the overall North American steel industry. Steel's sales were up, but its
operating profit was negatively affected by pricing pressures, product mix and
inventory reductions," Mr. Timken said.
The company's fourth quarter results were affected both by substantial
slowing of North American automotive demand and weakening of several other
global segments. While North American automotive demand had remained steady
through October, it began declining during the fourth quarter and fell sharply
in December with automotive build rates decreasing some 20 percent as
manufacturers lowered production and worked down inventories. Also, while the
Euro strengthened somewhat late in the quarter, its earlier depressed value
against U.S. and British currencies continued to hurt margins of the company's
export products to Continental Europe and exacerbated pricing pressures in
North American steel markets. "Automotive production is expected to remain
weak in the first half, and this will affect our automotive, alloy steel and
precision steel components businesses to differing degrees in the first part
of the year. We anticipate some strengthening in global automotive markets
later in the year," Mr. Timken said. "It's important to bear in mind the
difference between one-time demand reductions reflecting inventory
corrections, versus a slowdown in consumer demand."
Sales in the fourth quarter of 2000 were even compared to a year ago.
Fourth quarter net income was $11.4 million, or $0.19 per diluted share,
excluding $11.3 million in pretax restructuring, impairment and reorganization
charges. This compares with net income of $21.3 million, or $0.35 per diluted
share, in the fourth quarter of 1999 -- that year's strongest quarter due to a
positive $7.5 million after-tax LIFO inventory adjustment. LIFO inventory
adjustments in the fourth quarter of 2000 were not significant. Including the
pretax restructuring, impairment and reorganization charges, net income in the
fourth quarter of 2000 was $0.9 million, or $0.02 per diluted share.
Year-end debt was $515 million, down slightly from the third quarter. For
the year, borrowing was up $65 million, as the company funded growth
initiatives, repurchased some of its stock and increased working capital.
"The company remains committed to a strong capital structure," said Mr.
Timken.
In January 2001, the company announced several initiatives aimed at
accelerating its global transformation. Timken entered into a joint venture
with SKF to produce bearing components in Brazil, which should reduce costs
and create a local high-quality source for these components. The company also
reached an agreement to buy out its joint-venture partner in China. The
company plans to operate Yantai Timken as a wholly owned subsidiary,
facilitating more rapid technology transfer and building its export potential.
In addition, Timken announced with Rockwell Automation, SKF and INA an
e-business joint venture to provide web-based market resources and integrated
logistics for North American distributors and also joined with these companies
as well as Sandvik Group to provide e-business services for European
distributors. These initiatives will build upon the acquisitions the company
has made in recent years, which are now contributing positively to corporate
performance.
Bearings' Results
Bearings' gains in the first half of 2000, which resulted from strong
automotive demand and recovery of industrial markets in North America, were
countered in the second half by weaker demand for cars and trucks. For the
year, Bearings had net sales of $1.8 billion, equal to 1999 sales. For the
fourth quarter of 2000, sales decreased to $412.4 million from $446.0 million
in the year-ago period. In addition to a decline in automotive markets, the
fourth quarter also reflected weakening in Asia Pacific and Europe. Aerospace
markets strengthened slightly. While sales in North American industrial
markets were higher than a year ago, these markets weakened during the
quarter.
Excluding restructuring, impairment and reorganization charges of
$21.1 million, earnings before interest and taxes (EBIT) for 2000 were
$100.0 million, compared to $80.5 million a year earlier. The increase
resulted from improved performance in the industrial business and increased
profitability in India and Central and Eastern Europe. Including the
restructuring, impairment and reorganization charges, EBIT was $78.9 million
in 2000.
For the fourth quarter of 2000, Bearings' EBIT was $20.4 million,
excluding restructuring, impairment and reorganization charges of
$7.6 million. This compares with EBIT of $12.4 million in the fourth quarter
of 1999. Including the charges, Bearings' fourth quarter EBIT in 2000 was
$12.8 million. Excluding restructuring, impairment and reorganization
charges, Bearing EBIT margin was 4.9 percent, which was higher than both the
third quarter of 2000 and the fourth quarter of 1999.
Steel's Results
Reflecting strong demand in the first half of the year in nearly all steel
markets, net sales for 2000, including intersegment sales, reached
$1.1 billion, up from $947.0 million a year ago. The weaker Euro in 2000,
however, increased pricing pressures from low-priced imports and eroded
Steel's margins in both North America and Great Britain. Earnings before
interest and taxes (EBIT) for 2000, excluding restructuring, impairment and
reorganization charges, were $37.1 million, compared to $44.0 million in 1999.
Continued improvements in manufacturing costs, including strong labor
productivity levels, contributed to profitability, despite weaker volumes in
the second half. Including $17.8 million in restructuring, impairment and
reorganization charges, Steel EBIT for 2000 was $19.3 million.
During the fourth quarter, demand in North American automotive markets
declined and service center markets weakened, reflecting excess inventories.
This was offset by increased aerospace demand and continued strength in oil
country markets. European markets also remained stable. In the fourth
quarter sales were $258.3 million, up from $239.9 million a year earlier.
Higher energy costs, low capacity utilization, inventory reduction and
continued pressure from the weak Euro, resulted in a loss in the Steel
business in the fourth quarter of 2000. Excluding restructuring, impairment
and reorganization charges of $3.7 million, Steel had a loss in the quarter of
$4.4 million before interest and taxes. Inventory reduction of $18.1 million
in the fourth quarter led to positive cash flow, but it reduced profitability
due to lower manufacturing volumes. Including restructuring, impairment and
reorganization charges, Steel had a loss of $8.2 million. This compares with
EBIT of $23.0 million in the very strong 1999 fourth quarter, which included a
$10 million pretax LIFO inventory adjustment.
CONSOLIDATED STATEMENT OF INCOME
(Thousands of U.S. dollars, except
share data) 4Q 00 4Q 99 3Q 00
Net sales $631,711 $631,862 $632,243
Cost of products sold 527,824 501,695 522,698
Gross Profit $103,887 $130,167 $109,545
Selling, administrative & general
expenses 93,319 93,639 88,920
Impairment and restructuring 6,220 0 3,453
Operating Income $4,348 $36,528 $17,172
Other income (expense) 1,048 (1,169) (1,388)
Earnings Before Interest and Taxes
(EBIT) $5,396 $35,359 $15,784
Interest expense (9,148) (6,847) (8,081)
Interest income 635 1,344 1,735
Income Before Income Taxes ($3,117) $29,856 $9,438
Provision for income taxes (4,040) 8,517 1,753
Net Income $923 $21,339 $7,685
Earnings Per Share $0.02 $0.35 $0.13
Earnings Per Share-assuming
dilution $0.02 $0.35 $0.13
Average Shares Outstanding 59,980,285 61,572,124 60,283,189
Average Shares Outstanding-assuming
dilution 60,103,733 61,823,990 60,422,761
CONSOLIDATED STATEMENT OF INCOME
(Thousands of U.S. dollars, except
share data) 2Q 00 1Q 00
Net sales $693,263 $685,791
Cost of products sold 550,787 540,826
Gross Profit $142,476 $144,965
Selling, administrative & general
expenses 91,115 94,145
Impairment and restructuring 3,322 14,759
Operating Income $48,039 $36,061
Other income (expense) (3,585) (2,655)
Earnings Before Interest and
Taxes (EBIT) $44,454 $33,406
Interest expense (7,471) (7,222)
Interest income 560 549
Income Before Income Taxes $37,543 $26,733
Provision for income taxes 16,303 10,693
Net Income $21,240 $16,040
Earnings Per Share $0.35 $0.26
Earnings Per Share-assuming
dilution $0.35 $0.26
Average Shares Outstanding 60,837,740 61,099,962
Average Shares Outstanding-assuming
dilution 61,103,848 61,237,143
CONSOLIDATED STATEMENT OF INCOME
(Thousands of U.S. dollars, except
share data) Year 2000 Year 1999
Net sales $2,643,008 $2,495,034
Cost of products sold 2,142,135 2,002,366
Gross Profit $500,873 $492,668
Selling, administrative & general
expenses 367,499 359,910
Impairment and restructuring 27,754 0
Operating Income $105,620 $132,758
Other income (expense) (6,580) (9,638)
Earnings Before Interest and
Taxes (EBIT) $99,040 $123,120
Interest expense (31,922) (27,225)
Interest income 3,479 3,096
Income Before Income Taxes $70,597 $98,991
Provision for income taxes 24,709 36,367
Net Income $45,888 $62,624
Earnings Per Share $0.76 $1.01
Earnings Per Share-assuming
dilution $0.76 $1.01
Average Shares Outstanding 60,556,595 61,795,162
Average Shares Outstanding-assuming
dilution 60,723,172 62,025,813
BUSINESS SEGMENTS
(Thousands of U.S. dollars) 4Q 00 4Q 99 3Q 00
Bearings
Net sales to external customers $412,412 $446,036 $414,495
Impairment and restructuring 4,358 0 3,150
Earnings before interest and taxes
(EBIT) * $12,826 $12,447 $7,304
EBIT Margin 3.1% 2.8% 1.8%
Steel
Net sales to external customers $219,299 $185,826 $217,748
Intersegment sales 38,969 54,086 50,617
Total net sales $258,268 $239,912 $268,365
Impairment and restructuring 1,862 0 303
Earnings before interest and taxes
(EBIT) * -$8,179 $22,994 $8,002
EBIT Margin -3.2% 9.6% 3.0%
* Bearings and Steel EBIT do not equal Consolidated EBIT due to
intersegment adjustments which are eliminated upon consolidation.
BUSINESS SEGMENTS
(Thousands of U.S. dollars) 2Q 00 1Q 00
Bearings
Net sales to external customers $466,034 $470,374
Impairment and restructuring 3,225 1,909
Earnings before interest and taxes
(EBIT) * $26,636 $32,133
EBIT Margin 5.7% 6.8%
Steel
Net sales to external customers $227,229 $215,417
Intersegment sales 51,332 55,582
Total net sales $278,561 $270,999
Impairment and restructuring 97 12,850
Earnings before interest and taxes
(EBIT) * $16,735 $2,791
EBIT Margin 6.0% 1.0%
* Bearings and Steel EBIT do not equal Consolidated EBIT due to
intersegment adjustments which are eliminated upon consolidation.
BUSINESS SEGMENTS
(Thousands of U.S. dollars) Year 2000 Year 1999
Bearings
Net sales to external customers $1,763,315 $1,759,871
Impairment and restructuring 12,642 0
Earnings before interest and taxes
(EBIT) * $78,899 $80,548
EBIT Margin 4.5% 4.6%
Steel
Net sales to external customers $879,693 $735,163
Intersegment sales 196,500 211,870
Total net sales $1,076,193 $947,033
Impairment and restructuring 15,112 0
Earnings before interest and taxes
(EBIT) * $19,349 $44,039
EBIT Margin 1.8% 4.7%
* Bearings and Steel EBIT do not equal Consolidated EBIT due to
intersegment adjustments which are eliminated upon consolidation.
CONSOLIDATED BALANCE SHEET Dec 31 Sept 30 June 30
(Thousands of U.S. dollars) 2000 2000 2000
ASSETS
Cash & cash equivalents $10,927 $18,921 $6,450
Accounts receivable 354,972 380,111 406,157
Deferred income taxes 43,094 35,421 38,929
Inventories 489,549 500,599 484,376
Total Current Assets $898,542 $935,052 $935,912
Property, plant & equipment 1,363,772 1,335,307 1,344,491
Deferred income taxes 0 0 0
Other assets 301,791 218,765 229,569
Total Assets $2,564,105 $2,489,124 $2,509,972
LIABILITIES
Accounts payable & other liabilities $239,182 $233,743 $248,285
Short-term debt & commercial paper 209,423 212,693 181,620
Accrued expenses 138,847 164,325 176,514
Total Current Liabilities $587,452 $610,761 $606,419
Long-term debt 305,181 305,624 305,908
Accrued pension cost 237,952 128,892 115,087
Accrued postretirement benefits 394,097 398,039 396,705
Deferred income taxes 11,742 3,780 19,279
Other non-current liabilities 22,999 29,258 31,343
Total Liabilities $1,559,423 $1,476,354 $1,474,741
SHAREHOLDERS' EQUITY 1,004,682 1,012,770 1,035,231
Total Liabilities and
Shareholders' Equity $2,564,105 $2,489,124 $2,509,972
CONSOLIDATED BALANCE SHEET Mar 31 Dec 31
(Thousands of U.S. dollars) 2000 1999
ASSETS
Cash & cash equivalents $9,620 $7,906
Accounts receivable 394,033 339,326
Deferred income taxes 39,901 39,706
Inventories 478,387 446,588
Total Current Assets $921,941 $833,526
Property, plant & equipment 1,349,779 1,381,474
Deferred income taxes 0 0
Other assets 220,562 226,318
Total Assets $2,492,282 $2,441,318
LIABILITIES
Accounts payable & other liabilities $241,101 $236,602
Short-term debt & commercial paper 141,288 122,547
Accrued expenses 205,823 198,512
Total Current Liabilities $588,212 $557,661
Long-term debt 326,302 327,343
Accrued pension cost 101,456 76,005
Accrued postretirement benefits 395,531 394,084
Deferred income taxes 5,453 6,147
Other non-current liabilities 32,643 34,097
Total Liabilities $1,449,597 $1,395,337
SHAREHOLDERS' EQUITY 1,042,685 1,045,981
Total Liabilities and
Shareholders' Equity $2,492,282 $2,441,318