Exhibit 13
financial summary
| 2000 | 1999 |
(Thousands of dollars, except per share data) |
Net sales
Impairment and restructuring charges
Income before income taxes
Provision for income taxes
Net income
Earnings per share
Earnings per share - assuming dilution
Dividends per share | $ 2,643,008
27,754
70,597
24,709
$ 45,888
$ .76
$ .76
$ .72 | $ 2,495,034
-
98,991
36,367
$ 62,624
$ 1.01
$ 1.01
$ .72 |
quarterly financial data
2000
| Net
Sales | Gross
Profit | Impairment &
Restructuring | Net
Income | Earnings per Share(1) | Dividends
per Share |
| Basic | Diluted |
(Thousands of dollars, except per share data) |
Q1
Q2
Q3
Q4 | $ 685,791
693,263
632,243
631,711 | $ 144,965
142,476
109,545
103,887 | $ 14,759
3,322
3,453
6,220 | $ 16,040
21,240
7,685
923 | $ .26
.35
.13
.02 | $ .26
.35
.13
.02 | $ .18
.18
.18
.18 |
|
| $ 2,643,008 | $ 500,873 | $ 27,754 | $ 45,888 | $ .76 | $ .76 | $ .72 |
1999 |
(Thousands of dollars, except per share data) |
Q1
Q2
Q3
Q4 | $ 625,370
636,099
601,703
631,862 | $ 126,559
119,601
116,341
130,167 | $ -
-
-
- | $ 16,579
12,264
12,442
21,339 | $ .27
.20
.20
.35 | $ .27
.20
.20
.35 | $ .18
$ .18
$ .18
$ .18 |
|
| $ 2,495,034 | $ 492,668 | $ - | $ 62,624 | $ 1.01 | $ 1.01 | $ .72 |
(1) Annual earnings per share do not equal the sum of the individual quarters due to differences in the average number of shares outstanding during the respective periods.
2000 Stock Prices
| 1999 Stock Prices
|
| High | Low | High | Low |
|
|
$ 20 3/16
20 13/16
20 1/2
15 13/16 | $ 14
15 1/2
13 9/16
12 5/8 | $ 22 3/16
25 13/16
19 11/16
20 9/16 | $ 16 1/8
15 15/16
15 3/4
15 5/8 |
consolidated Statement of Income
| Year Ended December 31 |
| 2000 | 1999 | 1998 |
(Thousands of dollars, except per share data) |
Net sales
Cost of products sold
| $ 2,643,008
2,142,135
| $ 2,495,034
2,002,366
| $ 2,679,841
2,098,186 |
|
- Gross Profit
Selling, administrative and general expenses
Impairment and restructuring charges
| 500,873
367,499
27,754
| 492,668
359,910
-0-
| 581,655
356,672
-0- |
|
- Operating Income
Interest expense
Interest income
Other expense
| 105,620
(31,922)
3,479
(6,580)
| 132,758
(27,225)
3,096
(9,638)
| 224,983
(26,502)
2,986
(16,117) |
|
- Income Before Income Taxes
Provision for income taxes
| 70,597
24,709
| 98,991
36,367
| 185,350
70,813 |
|
- Net Income
| $ 45,888 | $ 62,624 | $ 114,537 |
|
- Earnings Per Share
|
$ 0.76 |
$ 1.01 |
$ 1.84 |
|
- Earnings Per Share - Assuming Dilution
| $ 0.76 | $ 1.01 | $ 1.82 |
See accompanying Notes to Consolidated Financial Statements on pages 29 through 38.
MD&A summary
| 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 special charges. In 2000, net sales were the second highest in the company’s history at $2.643 billion compared to $2.495 billion in 1999. Through the end of 2000, the company recorded $38.9 million in pretax charges for impairment, restructuring and reorganization to streamline operations, reduce costs and realign businesses with global industries. Excluding these charges, after-tax earnings in 2000 were $74.6 million. Including these charges, earnings were $45.9 million, down from $62.6 million a year ago. Debt increased to $514.6 million at the end of 2000, from $449.9 million in 1999, as the company increased working capital, funded growth initiatives and repurchased shares of its common stock. Strong automotive demand and recovery of North American industrial markets boosted sales of bearing products in the first half of 2000, but weaker automotive demand slowed sales in the second half. Demand for industrial products slowed and Asia Pacific and European markets weakened in the last three months of 2000, while aerospace demand continued to strengthen. Net sales of steel products increased during 2000, but profitability in the steel businesses was hurt by the Euro's devaluation, higher energy prices and inventory corrections late in the year. In 2000, the company rationalized operations, improved operating efficiencies and created alliances to expand product offerings and market reach. As a result of the restructuring, the company reduced its workforce by 612 positions by the end of 2000. In the first quarter, the company announced plans to refocus bearing manufacturing in Duston, England, to specialize in products for the automotive industry and shift manufacturing of | other products to facilities in Eastern Europe and the United States. A consolidation of European distribution operations was also launched. In the second quarter, operations of three rail bearing reconditioning facilities were consolidated into one new facility in Knoxville, Tennessee. The closing of another rail bearing reconditioning facility in Little Rock, Arkansas, was announced in December. In the third quarter, the company entered into a joint venture to bring advanced technology to the rail industry with a "smart" top-of-rail lubrication system that is designed to reduce fuel costs and improve productivity. In the fourth quarter, the company agreed to sell the flat-ground tool steel business of Timken Latrobe Steel – Europe in Sheffield, England, to a group of private investors, and it refocused its high-speed steel business in the United Kingdom as part of Timken Desford Steel. The completion of this sale is expected by the end of the first quarter, 2001. Three initiatives and an acquisition aimed at accelerating growth in specific markets were announced during the first part of January 2001. The company entered into a joint venture with another bearing manufacturer to produce forged and turned steel rings in Brazil, which is expected to reduce costs and create a local, high-quality source for these bearing components. The company entered into an e-business joint venture with three other manufacturing companies to provide North American distributors of industrial products with Web-based access and integrated logistics for premium brands. The company also joined these three companies and a fourth manufacturing company in forming a joint venture to provide e-business services for European distributors. It also acquired a manufacturer of dental handpiece repair equipment, and announced a buyout of its joint-venture partner in Yantai Timken Company Limited. |
20
Management’s Discussion and Analysis of the Statement of Income
2000 compared to 1999
| Net sales were $2.643 billion, 5.9% above 1999’s $2.495 billion. Although sales increased during 2000 as compared to 1999, they were lower in the second half of 2000 than the first half. North American light vehicle demand remained steady through October 2000, but began to decline during the fourth quarter and fell sharply in December as manufacturers lowered production and worked down inventories. Heavy truck demand weakened significantly in the second half of 2000. Industrial markets, which began recovering in 1999’s fourth quarter, have stagnated or shown slight weakening during the second half of 2000. Also, while the Euro strengthened in late 2000, its earlier devaluation against the U.S. dollar and British pound enabled European producers, especially steel manufacturers, to export into North America with lower prices, which has put more pressure on prices and operating margins. In addition, the Euro’s earlier depressed value substantially eroded margins on products manufactured in the U.S. and the United Kingdom and sold throughout the rest of Europe. The North American rail industry has been weak since mid-1999, while aerospace and super precision markets have strengthened slightly in the second half of 2000. Latin America remained strong during 2000, but it showed some signs of weakening in the last few months. Sales in Asia Pacific were up slightly over 1999’s levels. Gross profit in 2000 was $500.9 million (19.0% of net sales), up from $492.7 million (19.7% of net sales). Gross profit in 2000 would have been higher except for $4.1 million in reorganization costs related to the company’s global restructuring and reorganization. The stronger performance in 2000 was driven by changes in sales mix, with growth in higher margin industrial sales offsetting weakening automotive sales. Additionally, higher manufacturing volumes and cost improvements made during the year offset higher contract wage and benefit costs in the U.S. In March 2000, the company announced an acceleration of its global restructuring to position itself for profitable growth, to streamline operations, to reduce costs and to improve European profitability. These initiatives also are to improve competitiveness and transform the company into global business units. Implementation, employee severance and non-cash impairment charges of $55 million are expected through the first quarter of 2001, with $38.9 million recorded during 2000. The originally announced $35 million in annual savings has been revised to $29 million. This reduction is primarily driven by the cancellation of certain tax initiatives and problems experienced in the consolidation of European distribution operations. Of the $38.9 million of charges recorded by the company in 2000, about $16.8 million related to non-cash asset impairment and abandoned acquisition expenses. Severance expenses accounted for $11.0 million, and reorganization implementation | costs were $11.1 million. The company had originally announced that 600 positions would be eliminated worldwide. Through the 2000 year-end, the workforce has been reduced by 612 positions. The impairment charges of $16.8 million were primarily the result of the consolidation of Steel business operations. The Steel business consolidation was in three areas: small bar finish equipment related to the exit of the small bar business; the write-off of excess equipment as a result of the successful operation of the new bar mill; and the idling of rotoroll equipment as a result of product rationalization between the Wooster Steel plant and Timken Desford Steel. Also included were $4.0 million related to abandoned acquisition, affiliation and divestiture efforts by the Steel business. Additionally, $2.1 million in impairment charges related to bearing operations. Projects undertaken by the Bearings business to shift manufacturing, consolidate European distribution and streamline management structure accounted for $10.3 million of the $11.0 million in severance. A key component of the manufacturing shift is the company’s bearing manufacturing facility in Duston, England. It will be refocused to specialize and fuel growth in advanced automotive bearings, roller production and formed products and to transfer manufacturing to lower cost facilities in Romania, Poland and the United States. During 2000, the company reduced staff in Duston by 102, incurring separation costs of $2.8 million. An additional 54 position reductions are expected in 2001. In China, as announced in January 2001, the company is buying out its Chinese joint-venture partner in Yantai Timken Company, Limited, to obtain total management control, achieve greater productivity and efficiency, and grow export sales. To achieve efficiencies, Yantai Timken completed a labor management program, which reduced the workforce by 403 associates. The severance costs incurred were $2.4 million. Consolidation of the European distribution operation was undertaken in 2000 to reduce logistics costs through greater distribution efficiencies. However, operational issues resulted in the suspension of the project; currently, an intense review is in progress to re-evaluate the implementation. Relocation of the Haan, Germany, warehouse to France occurred in 2000, and restructuring costs include $1.1 million for the separation expenses of 47 operative associates. Additional consolidation of warehousing and shipping facilities have been delayed; accordingly, $0.8 million of severance charges were reversed in the fourth quarter of 2000. |
Management’s Discussion and Analysis of the Statement of Income (Continued)
| The company’s reorganization into global business units drove the streamlining of the management structure. Severance costs of $4.0 million in the Bearings business and $0.7 million in Steel were recorded in 2000 related to 60 administrative staff reductions. Reorganization and implementation expenses of $11.1 million represent professional fees, relocation expenses, and the write-off of obsolete inventory. Cash expenditures relating to the restructuring efforts in 2000 amounted to $8.0 million and were paid from operations. Additional cash expenditures of $3.0 million in 2001 are anticipated to pay out severance liabilities at December 31, 2000. Operating income decreased to $105.6 million in 2000 compared to $132.8 million in 1999. Operating income in 2000 would have been higher, except for $27.8 million in restructuring costs as well as $11.1 million in reorganization costs. Selling, administrative and general expenses increased to $367.5 million (13.9% of net sales) in 2000 as compared to $359.9 million (14.4% of net sales) in 1999, largely because of reorganization costs, which totaled $7.0 million. As a percentage of sales, selling, administrative and general expenses decreased in 2000. Other expense decreased in 2000 as a result of lower foreign currency exchange losses in 2000. The company’s subsidiary in Romania operates in a highly inflationary economy. During 2000, translational losses relating to Timken Romania declined by $5.0 million. Other expense in 1999 was higher, primarily as a result of the January 1999 devaluation of the Brazilian real and transaction losses recorded by the company’s operations in France and the United Kingdom. Taxes in 2000 represented 35.0% of income before taxes compared to 36.7% in 1999. The lower effective tax rate in 2000 was due primarily to use of foreign and state tax credits, as well as benefits derived from settlement of federal income tax issues and amended foreign sales corporation income tax returns. Bearings’ net sales in 2000 were $1.763 billion, about even with $1.760 billion in 1999. Global Automotive sales decreased by approximately 5%, while global Industrial sales increased by 11%. In the first half of 2000, net sales benefited from | continued automotive demand for sport utility vehicles and strong production levels in the light and heavy truck industry, as well as recovery of the North American industrial sector (original equipment and aftermarket). However, in the second half of 2000, demand for cars and trucks weakened and recovery in the industrial sector stalled. Sales for the global Rail business were down 12% compared to 1999. Although Aerospace and Super Precision sales declined 3% from 1999, the business unit experienced strengthening sales during the second half of 2000. Emerging Markets’ sales increased 12% as compared to 1999. The company anticipates that the global light vehicle industry will remain sluggish during the first part of 2001, but it should improve as the year progresses. Additionally, the company anticipates heavy truck demand in 2001 will be comparable to second half 2000 levels. The Industrial business in Europe is expected to have moderate growth, while North American rail sales are expected to remain weak in 2001. The Aerospace and Super Precision business, which showed signs of recovery in 2000, is expected to show modest growth in 2001. Excluding $21.1 million in restructuring, impairment and reorganization charges, Bearings’ earnings before interest and income taxes (EBIT) in 2000 increased 24% to $100.0 million, compared to $80.5 million in 1999. Including those charges, Bearings’ EBIT was $78.9 million, down 2% from 1999. Bearings’ EBIT in 2000 was positively impacted in the first half by the profitable changes in the sales mix, with the growth in higher margin industrial sales as well as increased aftermarket business fueled by the recovery in Latin America and North America. In addition, higher manufacturing volumes in 2000 compared to 1999 and cost improvements made during the year offset the effect of higher contract wage and benefit costs in the U.S. Selling, administrative and general expenses were higher in 2000, primarily due to $5.6 million in reorganization expenses. Steel’s net sales, including intersegment sales, increased in 2000 by 13.6% to $1.076 billion versus $947 million in 1999. They included Precision Steel Components sales, which were $166.7 million in 2000. Sales to external customers increased about 10%. In 2000, sales to the automotive industry increased, primarily as a result of 18% sales growth in Precision Steel Components. Automotive demand weakened in the fourth quarter of 2000. Softer automotive demand is expected to continue in early 2001, with some improvements expected |
22
 |
| throughout the year. Industrial steel sales strengthened significantly during the year. This reflects increased demand in the North American industrial sector throughout the year. Sales to the aerospace industry increased by about 16%. Sales to oil country customers more than doubled in 2000 because of higher energy prices, which caused an increase in active drilling rigs. Although sales to service centers approached 1998 levels after experiencing a decline in 1999, a slight weakening was noted late in 2000 as customers continued to adjust excess inventories. Steel’s net sales were negatively impacted by the Euro’s devaluation throughout much of 2000. This enabled European and other overseas producers to export into North America at lower prices, exerting downward pressure on pricing and operating margins. Although price increases were announced in the first half of 2000, they affected only a small percentage of the total business and were not enough to offset these pricing pressures. The company expects overall demand for steel products in 2001 to be stable, with slight increases in the industrial and aerospace sectors. Late in 2000, the automotive and service center industries began inventory corrections. Excluding $17.8 million in restructuring, impairment and reorganization charges, Steel’s EBIT in 2000 decreased about 16% to $37.1 million, compared to $44.0 million in 1999. Including restructuring, impairment and reorganization charges, Steel’s EBIT was $19.3 million, a decrease of 56%. Adjusting Steel’s EBIT in 1999 for the favorable LIFO impact of $10 million, EBIT in 2000 would have decreased 43%. Due to pressure from imports, alloy steel had to lower prices to maintain penetration in certain markets, which resulted in lower margins in 2000. In addition, Steel EBIT was negatively impacted in the second half of the year by higher energy costs, especially in the last quarter of 2000, as well as low capacity utilization and inventory reductions. Energy costs increased by more than $0.5 million per month during the fourth quarter. This was primarily attributed to higher natural gas prices. Higher energy costs are expected to continue in early 2001. A portion of these energy cost increases were reflected in higher prices for non-contract customers. Although Steel’s inventory reduction during 2000 resulted in fewer days’ supply compared to year-end 1999, it reduced profitability due to lower manufacturing volumes. Selling, administrative and general expenses were higher in 2000 as a result of $1.4 million in reorganization expenses. | 1999 compared to 1998
Net sales decreased in 1999 by 6.9% to $2.495 billion. Although the North American automotive industry continued to show strength, industrial sales, including original equipment and aftermarket, were down significantly, as were sales in rail and aerospace. Steel’s oil country and service center businesses remained weak. Asia Pacific region sales continued to improve throughout the year from 1998’s extremely depressed levels. Sales in Europe were well below 1998’s levels; however, markets there showed some signs of improvement during the last half of the year. Sales from Timken Desford Steel and Timken India Limited, acquired in December 1998 and consolidated in March 1999, respectively, added about $54 million to 1999’s sales. Gross profit decreased 15.3% from $581.7 million (21.7% of net sales) in 1998 to $492.7 million (19.7% of net sales) in 1999. Lower sales volumes (particularly of industrial and aftermarket products), a less favorable product mix, weakening prices and lower production levels resulting in higher unabsorbed fixed costs contributed to the decline in profits. These factors, along with substantial inventory reductions and exchange rate changes, contributed to weaker performance in the company’s European operations. Gross profit in 1998 included approximately $15.0 million of expense related to unusual occurrences and $15.4 million related to structural changes and cost-reduction initiatives. Operating income also declined in 1999. Selling, administrative and general expenses were up slightly from $356.7 million (13.3% of net sales) in 1998 to $359.9 million (14.4% of net sales) in 1999. Excluding the $6.0 million of expense recorded in 1998 related to severance costs and abandoned potential business opportunities, the year-to-year change in expenses would have reflected an increase of 2.6%. Normal administrative expenses for Timken Desford Steel and Timken India Limited, acquisitions completed during 1999, account for most of the year-to-year increase. Other expense decreased in 1999 as a result of the company recording $7.4 million of expense in 1998 for the disposal of certain fixed assets related to a company-initiated internal fixed asset review conducted approximately every five years. Taxes represented 36.7% of income before taxes compared to 38.2% in 1998. The company’s effective tax rate in 1999 was lower due primarily to greater utilization of foreign and state tax credits. |
consolidated Balance Sheet
| December 31 |
| 2000 | 1999 |
|
(Thousands of dollars)
ASSETS
Current Assets
Cash and cash equivalents
Accounts receivable, less allowances: 2000–$11,259; 1999–$9,497
Deferred income taxes
Inventories:
Manufacturing supplies
Work in process and raw materials
Finished products
| $ 10,927
354,972
43,094
40,515
247,806
201,228
| $ 7,906
339,326
39,706
38,655
235,251
172,682 |
|
- Total Inventories
| 489,549 | 446,588 |
|
- Total Current Assets
Property, Plant and Equipment
Land and buildings
Machinery and equipment
| 898,542
489,254
2,485,125 | 833,526
483,810
2,428,923 |
|
| Less allowances for depreciation | 2,974,379
1,610,607 | 2,912,733
1,531,259 |
|
- Property, Plant and Equipment-Net
| 1,363,772 | 1,381,474 |
|
Other Assets
Costs in excess of net assets of acquired businesses, less
accumulated amortization: 2000–$41,228; 1999–$34,879
Intangible pension asset
Miscellaneous receivables and other assets
Deferred charges and prepaid expenses
| 151,487
88,405
43,974
17,925
| 153,847
840
43,668
27,963 |
|
- Total Other Assets
| 301,791 | 226,318 |
|
| Total Assets | $ 2,564,105 | $ 2,441,318 |
Management’s Discussion and Analysis of the Balance Sheet
| Maintaining a strong balance sheet and strong credit ratings are important objectives for the company. During 2000, the company maintained a single A rating on its long-term debt by two rating agencies. Total assets increased by $122.8 million. This increase is a function of changes in working capital and accounting for pensions throughout the year. Accounts receivable increased by $15.6 million since December 31, 1999. Bearings’ and Steel’s number of days’ sales in receivables increased four and six days, respectively, compared to December 31, 1999. The increase is due primarily to the temporary slowing of customer payments in December. The increase in inventories between years was $43.0 million. Although the number of days’ supply in inventory for the | consolidated company was comparable to last year, Bearings’ increased by approximately ten days while Steel’s decreased approximately 14 days from December 31, 1999. The increase in Bearings’ inventories was primarily a result of reduced shipments in December and temporary buildup of industrial customer inventory for anticipated increase in demand. Steel’s inventories decreased due to concerted efforts to bring inventories more in line with customer demand. The company uses the LIFO method of accounting for approximately 77% of its inventories. Under this method, the cost of products sold approximates current costs and, therefore, reduces distortion in reporting due to inflation. Depreciation charged to operations is based on historical cost and is significantly less than if it were based on replacement value. |
24
|
| December 31 |
| 2000 | 1999 |
|
(Thousands of dollars)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Commercial paper
Short-term debt
Accounts payable and other liabilities
Salaries, wages and benefits
Income taxes
Current portion of long-term debt
| $ 76,930
105,519
239,182
137,320
1,527
26,974
| $ 35,937
81,296
236,602
120,295
5,627
5,314 |
|
- Total Current Liabilities
Non-Current Liabilities
Long-term debt
Accrued pension cost
Accrued postretirement benefits cost
Deferred income taxes
Other non-current liabilities
| 587,452
305,181
237,952
394,097
11,742
22,999
| 485,071
327,343
148,595
394,084
6,147
34,097 |
|
- Total Non-Current Liabilities
| 971,971 | 910,266 |
Shareholders’ Equity
Class I and II Serial Preferred Stock without par value:
Authorized–10,000,000 shares each class, none issued
Common stock without par value:
Authorized–200,000,000 shares
Issued (including shares in treasury) 63,082,626 shares
Stated capital
Other paid-in capital
Earnings invested in the business
Accumulated other comprehensive income
Treasury shares at cost (2000 – 3,117,469 shares; 1999 – 1,886,537 shares) | -0-
53,064
256,873
839,242
(84,913)
(59,584)
| -0-
53,064
258,287
836,916
(64,134)
(38,152) |
|
- Total Shareholders’ Equity
| 1,004,682 | 1,045,981 |
|
| Total Liabilities and Shareholders’ Equity | $ 2,564,105 | $ 2,441,318 |
See accompanying Notes to Consolidated Financial Statements on pages 29 through 38.
| The intangible pension asset increased by $87.6 million from December 31, 1999. In 2000, the company recorded $86.8 million in additional pension liability, which is included in accrued pension cost and is offset by the intangible pension asset. The increase in the pension liability is due to improvements to the U.S. bargaining unit contract ratified in 2000. The 33.9% debt-to-total-capital ratio was higher than the 30.1% at the end of 1999. Debt increased by $64.7 million for the year, from $449.9 million at the end of 1999 to $514.6 million at December 31, 2000. The increase in debt was used primarily | to fund increases to working capital and fund capital expenditures. Capital spending in 2000 was slightly lower than 1999’s spending levels, which was curtailed to conserve cash. Shareholders’ equity decreased primarily as a result of the repurchase of common shares under the company’s 1998 common stock purchase plan, payment of dividends to shareholders, which remained at $0.72 per share for the year, and foreign currency translation adjustments related to the company’s foreign units. |
consolidated Statement of Cash Flows
| Year Ended December 31 |
| 2000 | 1999 | 1998 |
|
(Thousands of dollars)
CASH PROVIDED (USED)
Operating Activities
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Deferred income tax provision
Common stock issued in lieu of cash to benefit plans
Non-cash portion of impairment and restructuring charges
Changes in operating assets and liabilities:
- Accounts receivable
- Inventories
- Other assets
- Accounts payable and accrued expenses
- Foreign currency translation (gain) loss
| $ 45,888
151,047
10,585
1,303
16,813
(22,536)
(52,566)
(172)
4,046
(1,296) | $ 62,624
149,949
20,760
467
-0-
12,390
6,551
13,307
13,291
(1,921) | $ 114,537
139,833
6,935
46,396
-0-
13,037
2,478
(5,046)
(27,223)
919 |
|
- Net Cash Provided by Operating Activities
Investing Activities
Purchases of property, plant and equipment–net
Acquisitions
| 153,112
(152,506)
- | 277,418
(164,872)
(29,240) | 291,866
(237,835)
(41,667) |
|
- Net Cash Used by Investing Activities
Financing Activities
Cash dividends paid to shareholders
Purchases of treasury shares
Proceeds from issuance of long-term debt
Payments on long-term debt
Short-term debt activity–net
| (152,506)
(43,562)
(24,149)
3,478
(3,595)
70,865
| (194,112)
(44,502)
(14,271)
4,076
(20,867)
(411)
| (279,502)
(44,776)
(80,462)
139,666
(23,333)
(12,918) |
|
- Net Cash Provided (Used) by Financing Activities
Effect of exchange rate changes on cash
| 3,037
(622) | (75,975)
255 | (21,823)
(45) |
|
- Increase (Decrease) In Cash and Cash Equivalents
Cash and cash equivalents at beginning of year
| 3,021
7,906 | 7,586
320 | (9,504)
9,824 |
|
- Cash and Cash Equivalents at End of Year
| $ 10,927 | $ 7,906 | $ 320 |
See accompanying Notes to Consolidated Financial Statements on pages 29 through 38.
Management’s Discussion and Analysis of the Statement of Cash Flows
2000 compared to 1999
Cash and cash equivalents increased $3.0 million in 2000. Net cash provided by operating activities in 2000 was $153.1 million compared to $277.4 million in 1999. Cash generated from income in 2000 was used to fund working capital changes and capital expenditures. Accounts receivable used $22.5 million in cash. The increase in inventories required $52.6 million of cash during 2000. Cash was provided by a $4.0 million increase in accounts payable and accrued expenses, which resulted primarily from increases in amounts payable to suppliers.Purchases of property, plant and equipment – net during the twelve months ended December 31, 2000, were $152.5 million compared to $164.9 million in 1999. The company continued to support activities consistent with its strategies to fund growth initiatives and improve the core businesses. | The company also used funds during the year to repurchase shares of the company’s common stock and, by November 3, 2000, completed the 1998 common stock purchase plan. During 2000, the company acquired 1,354,000 shares to be held in treasury as authorized under the 1998 plan. Also in November, the company announced board approval of a new 2000 common stock purchase plan. The 2000 common stock purchase plan authorizes the company to buy in the open market or in privately negotiated transactions up to 4 million shares of common stock, which are to be held as treasury shares and used for specified purposes. The company may exercise this authorization until December 31, 2006. The company expects that any cash requirements in excess of cash generated from operating activities (such as those which may be required for potential future acquisitions and affiliations as well as cash contributions to the company’s pension plans) could be met by short-term borrowing and issuance of medium-term notes. |
26
Management’s Discussion and Analysis of Other Information
| In the second quarter of 2000, the U.S. International Trade Commission (ITC) voted to revoke the industry’s antidumping orders on imports of tapered roller bearings from Japan, Romania and Hungary. The ITC determined that revocation of the antidumping duty orders on tapered roller bearings from those countries was not likely to lead to continuation or recurrence of material injury to the domestic industry within a reasonably foreseeable time. The ITC upheld the antidumping duty order against China. The company has filed an appeal of the ITC’s decision regarding Japan. If, following the revocation of the orders and contrary to the ITC’s finding, injurious dumping from these countries continues or recurs, the improved conditions of trade of tapered roller bearings in the U.S., which resulted from the orders, could deteriorate. If injurious dumping does occur, such dumping could have a material adverse effect on the company’s business, financial condition or results of operations. The company would explore alternatives to remedy this material adverse effect as the law provides for expedited investigations in cases where an order was revoked as a result of this review. The ITC separately extended the antidumping duty orders on ball bearings from Germany, France, Japan and several other countries. These extended orders should continue to provide the company’s Aerospace business with fair competition for these products in the U.S. In 2000, the company decreased its discount rate for U.S.-based pension and postretirement benefit plans from 8.25% to 8.0% to reflect the decrease in year-end interest rates. The company also increased its health care cost trend rate assumptions for its postretirement benefit plans effective on 2001 expense. The expected long-term return on plan assets was increased from 9.25% to 9.5% to be consistent with the expected long-term market returns. Primarily due to plan amendments, the combined expense for U.S.-based pension and postretirement benefits plans is expected to increase by about $24 million in 2001. Changes in short-term interest rates related to three separate funding sources impact the company’s earnings. These sources are commercial paper issued in the United States, floating rate tax-exempt U.S. municipal bonds with a weekly reset mode and short-term bank borrowings at international subsidiaries. If the market rates for short-term borrowings changed by 1% around the globe, the impact would be a change in interest expense of $2.2 million with the corresponding change in income before taxes of the same amount. The company determined this amount by considering the impact of hypothetical interest rates on the company’s borrowing cost, year-end debt balances by category and an estimated impact on the tax-exempt municipal bonds’ interest rates. Fluctuations in the value of the U.S. dollar compared to foreign currencies, predominately in European countries, also impact the company’s earnings. The greatest risk relates to product shipped between the company’s European operations and the United | States. Foreign currency forward contracts and options are used to hedge these intracompany transactions. Additionally, hedges are used to cover third-party purchases of product and equipment. As of December 31, 2000, there were $10.9 million of hedges in place. A uniform 10% revaluing of the dollar against all currencies would have resulted in a change of $0.2 million on these hedges. In addition to the direct impact of the hedged amounts, changes in exchange rates also affect the volume of sales or the foreign currency sales price, as competitors’ products become more or less attractive. The Occupational Safety and Health Administration issued a far-reaching and potentially costly final standard on ergonomics on November 14, 2000. It became effective January 13, 2001 with a compliance date for the majority of the requirements of October 14, 2001. The company is in the process of reviewing the standard and developing and/or modifying programs and procedures to comply with the standard. It is not possible at this time to develop any estimate of the cost of compliance. The company continues to protect the environment and comply with environmental protection laws. Additionally, it has invested in pollution control equipment and updated plant operational practices. In 1999, the company committed to becoming certified under the ISO 14001 environmental management system within the next several years. The company believes it has established adequate reserves to cover its environmental expenses and has a well-established environmental compliance audit program, which includes a proactive approach to bringing its domestic and international units to higher standards of environmental performance. This program measures performance against local laws as well as to standards that have been established for all units worldwide. It is difficult to assess the possible effect of compliance with future requirements that differ from existing ones. As previously reported, the company is unsure of the future financial impact to the company that could result from the United States Environmental Protection Agency’s (EPA’s) final rules to tighten the National Ambient Air Quality Standards for fine particulate and ozone. The U.S. Supreme Court is expected to rule by Spring 2001. The company and certain of its U.S. subsidiaries have been designated as potentially responsible parties (PRP’s) by the United States EPA for site investigation and remediation at certain sites under the Comprehensive Environmental Response, Compensation and Liability Act (Superfund). The claims for remediation have been asserted against numerous other entities, which are believed to be financially solvent and are expected to fulfill their proportionate share of the obligation. Management believes any ultimate liability with respect to all pending actions will not materially affect the company’s operations, cash flows or consolidated financial position. |
consolidated Statement of Shareholders’ Equity
| | Common Stock | | | |
| Total | Stated Capital | Other Paid-In Capital | Earnings Invested in the Business | Accumulated
Other
Comprehensive Income | Treasury Stock |
|
(Thousands of dollars)
Year Ended December 31, 1998
Balance at January 1, 1998
Net income
Foreign currency translation adjustments
(net of income tax of $1,315)
Minimum pension liability adjustment
(net of income tax of $2,106)
Total comprehensive income
Dividends–$0.72 per share
Purchase of 3,012,900 shares for treasury
Issuance of 1,981,065 shares from treasury(1)
|
$ 1,032,076
114,537
(8,096)
(3,594)
102,847
(44,776)
(80,462)
46,396 |
$ 53,064
|
$ 273,873
(12,717) |
$ 749,033
114,537
(44,776) |
$ (38,026)
(8,096)
(3,594) |
$ (5,868)
(80,462)
59,113 |
|
Balance at December 31, 1998
| $ 1,056,081 | $ 53,064 | $ 261,156 | $ 818,794 | $ (49,716) | $ (27,217) |
Year Ended December 31, 1999
Net income
Foreign currency translation adjustments
(net of income tax of $2,829)
Minimum pension liability adjustment
(net of income tax of $274)
Total comprehensive income
Dividends–$0.72 per share
Purchase of 804,500 shares for treasury
Issuance of 152,425 shares from treasury(1) | 62,624
(13,952)
(466)
48,206
(44,502)
(14,271)
467 | | (2,869) | 62,624
(44,502)
| (13,952)
(466)
| (14,271)
3,336 |
|
| Balance at December 31, 1999 | $ 1,045,981 | $ 53,064 | $ 258,287 | $ 836,916 | $ (64,134) | $ (38,152) |
Year Ended December 31, 2000
Net income
Foreign currency translation adjustments
(net of income tax of $1,137)
Minimum pension liability adjustment
(net of income tax of $301)
Total comprehensive income
Dividends–$0.72 per share
Purchase of 1,354,000 shares for treasury
Issuance of 123,068 shares from treasury(1) | 45,888
(21,293)
514
25,109
(43,562)
(24,149)
1,303
| | (1,414) | 45,888
(43,562)
| (21,293)
514
| (24,149)
2,717 |
|
| Balance at December 31, 2000 | $ 1,004,682 | $ 53,064 | $ 256,873 | $ 839,242 | $ (84,913) | $ (59,584) |
(1) Share activity was in conjunction with employee benefit and stock option plans. See accompanying Notes to Consolidated Financial Statements on pages 29 through 38.
28
Notes to consolidated financial statements
1 Significant Accounting Policies
| Principles of Consolidation: The consolidated financial statements include the accounts and operations of the company and its subsidiaries. All significant intercompany accounts and transactions are eliminated upon consolidation. Revenue Recognition: The company recognizes revenue when title passes to the customer, which is FOB shipping point except for certain exported goods, which is FOB destination. Revenue relating to services is recognized when services are rendered. Cash Equivalents: The company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Inventories: Inventories are valued at the lower of cost or market, with 77% valued by the last-in, first-out (LIFO) method. If all inventories had been valued at current costs, inventories would have been $140,473,000 and $142,806,000 greater at December 31, 2000 and 1999, respectively. Property, Plant and Equipment: Property, plant and equipment is valued at cost less accumulated depreciation. Provision for depreciation is computed principally by the straight-line method based upon the estimated useful lives of the assets. The useful lives are approximately 30 years for buildings, 5 to 7 years for computer software and 3 to 20 years for machinery and equipment. Costs in Excess of Net Assets of Acquired Businesses: Costs in excess of net assets of acquired businesses (goodwill) are amortized on the straight-line method over 25 years for businesses acquired after 1991 and over 40 years for those acquired before 1991. The carrying value of goodwill is reviewed for recoverability based on the undiscounted cash flows of the businesses acquired over the remaining amortization period. Should the review indicate that goodwill is not recoverable, the company’s carrying value of the goodwill would be reduced to the acquired company’s fair value. In addition, the company assesses long-lived assets for impairment under Financial Accounting Standards Board’s (FASB) Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Under those rules, goodwill associated with assets acquired in a purchase business combination is included in impairment evaluations when events or circumstances exist that indicate the carrying amount of those assets may not be recoverable. Income Taxes: Deferred income taxes are provided for the temporary differences between the financial reporting basis and tax basis of the company’s assets and liabilities. The company plans to reinvest undistributed earnings of its non-U.S. subsidiaries. The amount of undistributed earnings that is considered to be indefinitely reinvested for this purpose was approximately $34,000,000 at December 31, 2000. Accordingly, U.S. income taxes have not been provided on such earnings. | While the amount of any U.S. income taxes on these reinvested earnings – if distributed in the future – is not presently determinable, it is anticipated that they would be reduced substantially by the utilization of tax credits or deductions. Such distributions would be subject to withholding taxes. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions are reviewed and updated regularly to reflect recent experience. Foreign Currency Translation: Assets and liabilities of subsidiaries, other than those located in highly inflationary countries, are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average rates of exchange prevailing during the year. The related translation adjustments are reflected as a separate component of accumulated other comprehensive income. Foreign currency gains and losses resulting from transactions and the translation of financial statements of subsidiaries in highly inflationary countries are included in results of operations. The company recorded foreign currency exchange losses of $1,467,000 in 2000, $9,856,000 in 1999 and $1,332,000 in 1998. Earnings Per Share: Earnings per share are computed by dividing net income by the weighted-average number of common shares outstanding during the year. Earnings per share - assuming dilution are computed by dividing net income by the weighted-average number of common shares outstanding adjusted for the dilutive impact of potential common shares for options. Derivative Instruments: In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments imbedded in other contracts, and hedging activities. It requires recognition of all derivatives as either assets or liabilities on the balance sheet and measurement of those instruments at fair value. SFAS No. 133, as amended, is effective for fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." This pronouncement amended portions of SFAS No. 133 and will be applied prospectively as the cumulative effect of an accounting change with SFAS No. 133 effective January 1, 2001. The company has completed its review to determine the impact of the new standard on income and equity and has determined the adoption to be insignificant. Reclassifications: Certain amounts reported in the 1999 financial statements have been reclassified to conform to the 2000 presentation. |
Notes to consolidated financial statements
2 Impairment and Restructuring Charges
| It is the company’s policy to recognize restructuring costs in accordance with Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" and the SEC Staff Accounting Bulletin No. 100, "Restructuring and Impairment Charges." Impairment charges are recognized to write down assets to their fair value when assets that are identified have a history of negative operating results or cash flows, have limited or no future strategic use, or when it is probable that the undiscounted cash flows of an asset are less than the current net book value. In March 2000, the company initiated a global restructuring and reorganization to position itself for profitable growth, streamline operations, reduce costs and improve European profitability. Implementation, employee severance, exit costs and non-cash impairment charges of $55,000,000 are expected to be recorded by the end of the first quarter of 2001. Of the $38,870,000 in charges recorded through December 31, 2000, $27,754,000 were impairment and restructuring charges, and $11,116,000 were reorganization charges. | The company recorded $7,008,000 of reorganization charges as selling, administrative and general expenses with the remaining $4,108,000 recorded in cost of products sold. Impairment charges of $16,813,000 were primarily the result of the consolidation of the Steel business operations and included $4,000,000 related to abandoned acquisition, affiliation and divestiture efforts by the Steel business. The majority of the restructuring provision of $10,941,000 related to severance costs associated with the termination of 612 operative and administrative positions in Asia, Europe and North America. The separation costs are comprised of severance payments and outplacement benefits associated with the terminations. The consolidation of the company’s European distribution operations experienced start-up problems, which resulted in the suspension of the project in the fourth quarter and resulted in a reversal of expense in the amount of $780,000. Payments charged against the restructuring liability were $7,981,000, resulting in an accrual balance of $2,960,000 at December 31, 2000. |
Activity against the restructuring provision is summarized as follows:
|
| Separation
Costs
Operations | Separation
Costs
Administration | Exit
Costs | Total |
|
(Thousands of dollars)
Restructuring:
Current year provision
Less: Adjustments
Less: Payments
| $ 7,619
(780)
(4,640) | $ 4,055
(3,315)
| $ 47
(26)
| $ 11,721
(780)
(7,981) |
|
| Balance at December 31, 2000 | $ 2,199 | $ 740 | $ 21 | $ 2,960 |
3 Comprehensive Income
Accumulated other comprehensive income consists of the following:
| 2000 | 1999 | 1998 |
|
(Thousands of dollars)
Foreign currency translation adjustment
Minimum pension liability adjustment
| $ (78,656)
(6,257)
| $ (57,363)
(6,771)
| $ (43,411)
(6,305) |
|
| $ (84,913) | $ (64,134) | $ (49,716) |
30
4 Acquisitions
| In March 1999, the company increased its ownership of Timken India Limited (formerly Tata Timken Limited) from 40% to 80%. Prior to the additional investment, the company accounted for Timken India using the equity method. As a result of the transaction, the Timken India financial position and operating results are consolidated into the company’s financial statements. In December 1998, the company purchased Desford Steel Tubes Ltd. of Leicester, England, to form Timken Desford Steel, a manufacturer of seamless mechanical tubing for bearing, automotive, off-highway and defense applications. During 1998, the company completed the acquisition of Bearing Repair Specialists, an industrial bearing repair business that reconditions or modifies a wide variety of bearing types for industrial customers in the United States and Canada. The total cost of these acquisitions amounted to $29,240,000 in 1999 and $41,667,000 in 1998. A portion of the purchase price | has been allocated to the assets and liabilities acquired based on their fair values at the dates of acquisition. The fair value of the assets was $30,425,000 in 1999 and $50,115,000 in 1998; the fair value of liabilities assumed was $9,790,000 in 1999 and $13,026,000 in 1998. The excess of the purchase price over the fair value of the net assets acquired has been allocated to goodwill. All of the acquisitions were accounted for as purchases. The company’s consolidated financial statements include the results of operations of the acquired businesses for the period subsequent to the effective date of these acquisitions. Pro forma results of operations have not been presented because the effect of these acquisitions was not significant. In January 2001, the company announced the buyout of its Chinese joint-venture partner in Yantai Timken Company Limited. This transaction is expected to be completed in the first quarter of 2001. |
5 Earnings Per Share
The following table sets forth the reconciliation of the numerator and the denominator of earnings per share and earnings per share - assuming dilution for the years ended December 31:
| 2000 | 1999 | 1998 |
|
(Thousands of dollars, except per share data)
Numerator:
Net income for earnings per share and earnings per share - assuming
dilution – income available to common shareholders
Denominator:
Denominator for earnings per share – weighted-average shares
Effect of dilutive securities:
Stock options and awards – based on the treasury stock method
| $ 45,888
60,556,595
166,577
| $ 62,624
61,795,162
230,651
| $ 114,537
62,244,097
565,672 |
|
Denominator for earnings per share - assuming dilution – adjusted
weighted-average shares | 60,723,172 | 62,025,813 | 62,809,769 |
|
| Earnings per share | $ 0.76 | $ 1.01 | $ 1.84 |
|
| Earnings per share - assuming dilution | $ 0.76 | $ 1.01 | $ 1.82 |
Notes to consolidated financial statements
6 Financing Arrangements
Long-term debt at December 31, 2000 and 1999 was as follows:
| 2000 | 1999 |
|
(Thousands of dollars)
Fixed-rate Medium-Term Notes, Series A, due at various dates through
May 2028, with interest rates ranging from 6.20% to 7.76%
Variable-rate State of Ohio Air Quality and Water Development
Revenue Refunding Bonds, maturing on June 1, 2001
(5.00% at December 31, 2000)
Variable-rate State of Ohio Pollution Control Revenue Refunding
Bonds, maturing on July 1, 2003 (5.00% at December 31, 2000)
Variable-rate State of Ohio Water Development Revenue
Refunding Bonds, maturing May 1, 2007 (5.00% at December 31, 2000)
Variable-rate State of Ohio Water Development Authority Solid Waste
Revenue Bonds, maturing on July 2, 2032 (5.10% at December 31, 2000)
Other
| $ 252,000
21,700
17,000
8,000
24,000
9,455
| $ 252,000
21,700
17,000
8,000
24,000
9,957 |
|
Less current maturities | 332,155
26,974
| 332,657
5,314 |
|
| $ 305,181 | $ 327,343 |
| The aggregate maturities of long-term debt for the five years subsequent to December 31, 2000, are as follows: 2001– $26,974,000; 2002–$36,996,000; 2003–$18,090,000; 2004– $5,871,000; and 2005–$224,000. Interest paid in 2000, 1999 and 1998 approximated $33,000,000, $32,000,000 and $28,000,000, respectively. This differs from interest expense due to timing of payments and interest capitalized of $1,600,000 in 2000; $3,700,000 in 1999; and $4,800,000 in 1998 as a part of major capital additions. The weighted-average interest rate on commercial paper borrowings during the year was 6.5% in 2000, 5.2% in 1999 and 5.6% in 1998. The weighted-average interest rate on short-term debt during the year was 6.3% in 2000 as well as 1999, and 7.4% in 1998. At December 31, 2000, the company had available $223,000,000 through an unsecured $300,000,000 revolving | or competitive bid credit agreement with a group of banks. The agreement, which expires in June 2003, bears interest based upon any one of four rates at the company’s option–adjusted prime, Eurodollar, competitive bid Eurodollar, or the competitive bid absolute rate. Also, the company has a shelf registration filed with the Securities and Exchange Commission which, as of December 31, 2000, enables the company to issue up to an additional $200,000,000 of long-term debt securities in the public markets. The company and its subsidiaries lease a variety of real property and equipment. Rent expense under operating leases amounted to $14,719,000, $17,724,000 and $16,934,000 in 2000, 1999 and 1998, respectively. At December 31, 2000, future minimum lease payments for noncancelable operating leases totaled $61,406,000 and are payable as follows: 2001–$12,056,000; 2002–$9,714,000; 2003–$8,385,000 ; 2004–$7,008,000; 2005–$5,516,000; and $18,727,000 thereafter. |
7 Financial Instruments
| As a result of the company’s worldwide operating activities, it is exposed to changes in foreign currency exchange rates, which affect its results of operations and financial condition. The company and certain subsidiaries enter into forward exchange contracts to manage exposure to currency rate fluctuations primarily related to the purchases of inventory and equipment. The purpose of these foreign currency hedging activities is to minimize the effect of exchange rate fluctuations on business decisions and the resulting uncertainty on future financial results. At December 31, 2000 and 1999, the company had forward foreign exchange contracts, all having maturities of less than one year, with notional amounts of $10,948,000 and $27,393,000, respectively, which approximates their fair value. The forward foreign exchange contracts were primarily entered into by the company’s European subsidiaries to manage Euro, | U.S. dollar and British pound exposures. The realized and unrealized gains and losses on these contracts are deferred and included in inventory or property, plant and equipment depending on the transaction. These deferred gains and losses are recognized in earnings when the future sales occur, or through depreciation expense. The carrying value of cash and cash equivalents, accounts receivable, commercial paper, short-term borrowings and accounts payable are a reasonable estimate of their fair value due to the short-term nature of these instruments. The fair value of the company's fixed-rate debt, based on discounted cash flow analysis, was $255,000,000 and $241,000,000 at December 31, 2000 and 1999, respectively. The carrying value of this debt was $270,000,000 and $264,000,000. |
32
8 Stock Compensation Plans
| The company has elected to follow Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock options to key associates and directors. Under APB Opinion No. 25, because the exercise price of the company’s stock options equals the market price of the underlying common stock on the date of grant, no compensation expense is recognized. Under the company’s stock option plans, shares of common stock have been made available to grant at the discretion of the Compensation Committee of the Board of Directors to officers and key associates in the form of stock options, stock appreciation rights, restricted shares and deferred shares. | In addition, shares can be awarded to directors not employed by the company. The options have a ten-year term and vest in 25% increments annually beginning twelve months after the date of grant. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the company had accounted for its associate stock options under the fair value method of SFAS No. 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model. For purposes of pro forma disclosures, the estimated fair value of the options granted under the plan is amortized to expense over the options’ vesting periods. The pro forma information indicates a decrease in net income of $6,014,000 in 2000; $5,056,000 in 1999; and $3,787,000 in 1998. |
Following is the pro forma information and the related assumptions under the Black-Scholes method:
| 2000 | 1999 | 1998 |
|
(Thousands of dollars except per share data)
Pro forma net income
Earnings per share
Earnings per share - assuming dilution
Assumptions:
Risk-free interest rate
Dividend yield
Expected stock volatility
Expected life - years | $ 39,874
$ 0.66
$ 0.66
6.31%
3.01%
0.481
8
| $ 57,568
$ 0.93
$ 0.93
5.33%
2.79%
0.444
8
| $ 110,750
$ 1.78
$ 1.76
5.74%
2.78%
0.271
8 |
A summary of activity related to stock options for the above plans is as follows for the years ended December 31:
| 2000 | 1999 | 1998 |
|
| Options | Weighted-
Average
Exercise Price | Options | Weighted-
Average
Exercise Price | Options | Weighted-
Average
Exercise Price |
|
Outstanding - beginning of year
Granted
Exercised
Canceled or expired
| 4,515,676
1,356,400
(88,761)
(62,325)
| $22.90
15.88
12.96
21.28 | 3,526,301
1,186,100
(186,774)
(9,951)
| $23.73
19.45
16.72
22.13
| 3,180,136
861,900
(510,635)
(5,100)
| $20.15
33.35
17.71
21.47 |
|
| Outstanding - end of year | 5,720,990 | $21.41 | 4,515,676 | $22.90 | 3,526,301 | $23.73 |
|
| Options exercisable | 2,910,271 | | 2,171,996 | | 1,710,031 | |
| The company sponsors a performance target option plan that is contingent upon the company’s common shares reaching specified fair market values. Under the plan, no awards were issued nor was compensation expense recognized during 2000, 1999 or 1998. Exercise prices for options outstanding as of December 31, 2000, range from $12.88 to $33.75; the weighted-average remaining contractual life of these options is 7 years. The estimated weighted-average fair values of stock options granted during | 2000, 1999 and 1998 were $7.01, $8.11 and $10.19, respectively. At December 31, 2000, a total of 207,293 restricted stock rights, restricted shares or deferred shares have been awarded under the above plans and are not vested. The company distributed 100,832, 87,206 and 78,831 common shares in 2000, 1999 and 1998, respectively, as a result of awards of restricted stock rights, restricted shares and deferred shares. The number of shares available for future grants for all plans at December 31, 2000, including stock options, is 1,982,514. |
Notes to consolidated financial statements
9 Retirement and Postretirement Benefit Plans
| The company sponsors defined contribution retirement and savings plans covering substantially all associates in the United States and certain salaried associates at non-U.S. locations. The company contributes Timken Company common stock to certain plans based on formulas established in the respective plan agreements. At December 31, 2000, the plans had 12,109,175 shares of Timken Company common stock with a fair value of $183,151,000. Company contributions to the plans, including performance sharing, amounted to $14,384,000 in 2000; $14,891,000 in 1999; and $16,380,000 in 1998. The company paid dividends totaling $7,958,000 in 2000; $6,838,000 in 1999; and $5,519,000 in 1998, to plan participants holding common shares. | The company and its subsidiaries sponsor several unfunded postretirement plans that provide health care and life insurance benefits for eligible retirees and dependents. Depending on retirement date and associate classification, certain health care plans contain contributions and cost-sharing features such as deductibles and coinsurance. The remaining health care plans and the life insurance plans are noncontributory. The company and its subsidiaries sponsor a number of defined benefit pension plans, which cover many of their associates except those at certain locations who are covered by government plans. |
The following tables set forth the change in benefit obligation, change in plan assets, funded status and amounts recognized in the consolidated balance sheet of the defined benefit pension and postretirement benefits as of December 31, 2000 and 1999:
| Defined Benefit Pension Plans | Postretirement Plans |
|
| 2000 | 1999 | 2000 | 1999 |
|
(Thousands of dollars)
Change in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Amendments
Actuarial losses (gains)
Associate contributions
Acquisition
International plan exchange rate change
Benefits paid | $ 1,451,729
33,328
119,943
76,602
72,869
1,845
-0-
(14,890)
(99,467)
| $ 1,496,111
35,876
103,232
27,514
(135,485)
1,371
12,155
(3,997)
(85,048)
| $ 466,307
4,309
40,043
8,563
105,987
-0-
-0-
74
(36,459)
| $ 463,385
4,857
33,525
-0-
(833)
-0-
-0-
(109)
(34,518) |
|
|
| Benefit obligation at end of year | $ 1,641,959 | $ 1,451,729 | $ 588,824 | $ 466,307 |
|
|
Change in plan assets(1)
Fair value of plan assets at beginning of year
Actual return on plan assets
Associate contributions
Company contributions
Acquisition
International plan exchange rate change
Benefits paid | $ 1,457,453
(17,703)
1,845
56,843
-0-
(15,288)
(99,467)
| $ 1,314,158
171,566
1,371
46,673
12,155
(3,422)
(85,048)
| | |
|
|
| Fair value of plan assets at end of year | $ 1,383,683 | $ 1,457,453 | | |
|
|
Funded status
Projected benefit obligation (in excess of) or less than plan assets
Unrecognized net actuarial (gain) loss
Unrecognized net asset at transition dates, net of amortization
Unrecognized prior service cost (benefit) | $ (258,276)
(55,482)
(4,219)
168,181
| $ 5,724
(261,711)
(6,253)
115,066
| $ (588,824)
181,173
-0-
(23,077)
| $ (466,307)
78,708
-0-
(35,370) |
|
|
| Accrued benefit cost | $ (149,796) | $ (147,174) | $ (430,728) | $ (422,969) |
|
|
Amounts recognized in the consolidated balance sheet
Accrued benefit liability
Intangible asset
Minimum pension liability included in accumulated
other comprehensive income | $ (248,126)
88,405
9,925 | $ (158,754)
840
10,740 | $ (430,728)
-0-
-0- | $ (422,969)
-0-
-0- |
|
|
| Net amount recognized | $ (149,796) | $ (147,174) | $ (430,728) | $ (422,969) |
(1) Plan assets are primarily invested in listed stocks and bonds and cash equivalents.
34
Due to plan amendments, changes in plan participant demographics and lower capital market performance, the benefit obligations at December 31, 2000, exceeded the market value of plan assets for the majority of the company’s U.S. based plans. For these plans, the projected benefit obligation was $1,358,892,000; the accumulated benefit obligation was $1,303,026,000, and the fair value of plan assets was $1,100,309,000 at December 31, 2000.
The following table summarizes the assumptions used by the consulting actuary and the related benefit cost information:
| Pension Benefits | Postretirement Benefits |
|
| 2000 | 1999 | 1998 | 2000 | 1999 | 1998 |
|
Assumptions
Discount rate
Future compensation assumption
Expected long-term return on plan assets
| 8.00%
3% to 4%
9.50% | 8.25%
3% to 4%
9.25% | 7.00%
3% to 4%
9.25%
| 8.00%
| 8.25%
| 7.00%
|
Components of net periodic benefit cost
(Thousands of dollars)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Recognized net actuarial (gain) loss
Amortization of transition asset | $ 33,328
119,943
(116,302)
21,995
(556)
(1,002)
| $ 35,876
103,232
(102,148)
16,412
1,724
(1,951)
| $ 32,441
95,520
(95,083)
16,033
1,646
(2,143)
| $ 4,309
40,043
-0-
(3,730)
3,670
-0- | $ 4,857
33,525
-0-
(4,474)
3,796
-0- | $ 4,562
30,188
-0-
(4,489)
544
-0- |
|
| Net periodic benefit cost | $ 57,396 | $ 53,145 | $ 48,414 | $ 44,292 | $ 37,704 | $ 30,805 |
For measurement purposes, the company assumed a weighted-average annual rate of increase in the per capita cost (health care cost trend rate) for medical benefits of 9.00% for 2000 through 2002 declining gradually to 6.00% in 2006 and thereafter for pre-65 benefits, 6.00% for post-65 benefits for all years, and 15.00% for 2000 through 2002, declining gradually to 6.00% in 2014 and thereafter for prescription drug benefits.
The assumed health care cost trend rate has a significant effect on the amounts reported. A one percentage point increase in the assumed health care cost trend rate would increase the 2000 total service and interest cost components by $2,340,000 and would increase the postretirement benefit obligation by $27,418,000. A one percentage point decrease would provide corresponding reductions of $2,122,000 and $24,800,000, respectively.
10 Research and Development
| Expenditures committed to research and development amounted to approximately $52,000,000 in 2000; $50,000,000 in 1999; and | $48,000,000 in 1998. Such expenditures may fluctuate from year to year depending on special projects and needs. |
11 Contingencies
| The company and certain of its U.S. subsidiaries have been designated as potentially responsible parties (PRPs) by the United States Environmental Protection Agency for site investigation and remediation under the Comprehensive Environmental Response, Compensation and Liability Act (Superfund) with respect to certain sites. The claims for remediation have been asserted against numerous other entities which are believed to be financially solvent and are expected to fulfill their proportionate share of the obligation. In addition, the company is subject to various lawsuits, claims and proceedings which arise in the ordinary course of its business. The company accrues costs associated with environmental and legal matters | when they become probable and reasonably estimable. Environmental costs include compensation and related benefit costs associated with associates expected to devote significant amounts of time to the remediation effort and post-monitoring costs. Accruals are established based on the estimated undiscounted cash flows to settle the obligations and are not reduced by any potential recoveries from insurance or other indemnification claims. Management believes that any ultimate liability with respect to these actions, in excess of amounts provided, will not materially affect the company’s operations, cash flows or consolidated financial position. |
Notes to consolidated financial statements
12 Segment Information
Description of types of products and services from which each reportable segment derives its revenues
The company has two reportable segments: Bearings and Steel. The company’s Bearings business sells directly to customers in the automotive, railroad, aerospace, industrial and service replacement markets. The company’s tapered roller bearings
are used in a wide variety of products including passenger cars, trucks, railroad cars and locomotives, aircraft wheels, machine tools, rolling mills, and farm and construction equipment. Super precision bearings are used in aircraft, missile guidance systems, computer peripherals and medical instruments. Other bearing products manufactured by the company include cylindrical,
spherical, straight and ball bearings for industrial markets.Steel products include steels of intermediate alloy, vacuum processed alloys, tool steel and some carbon grades. These are available in a wide range of solid and tubular sections with a variety of finishes. The company also manufactures custom-made steel products, including precision steel components. A significant portion of the company’s steel is consumed in its bearing operations. In addition, sales are made to other anti-friction bearing companies and to aircraft, automotive, forging, tooling, oil and gas drilling industries and steel service centers. Tool steels are sold through the company’s distribution facilities. | Measurement of segment profit or loss and segment assets
The company evaluates performance and allocates resources based on return on capital and profitable growth. Specifically, the company measures segment profit or loss based on earnings before interest and income taxes (EBIT). The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are recorded at values based on market prices, which creates intercompany profit on intersegment sales or transfers.
Factors used by management to identify the enterprise’s reportable segments
The company’s reportable segments are business units that offer different products. Each reportable segment is managed separately because each manufactures and distributes distinct products with different production processes.
Geographical entities as defined here are not reflective of how the Bearings and Steel businesses are operated by the company. Europe information presented reflects shipments from European locations. The information does not include product manufactured by facilities located outside Europe and shipped directly to customers located in Europe.
|
| Geographic Financial Information | United States | Europe(1) | Other Countries | Consolidated |
|
(Thousands of dollars)
2000
Net sales
Impairment and restructuring
Income (loss) before income taxes
Non-current assets
| $ 2,062,306
18,073
84,988
1,391,080 | $ 361,649
6,645
(35,065)(1)
204,135 | $ 219,053
3,036
20,674
70,348 | $ 2,643,008
27,754
70,597
1,665,563 |
|
1999
Net sales
Impairment and restructuring
Income (loss) before income taxes
Non-current assets | $ 1,922,092
-0-
112,556
1,303,980 | $ 364,380
-0-
(28,936)
240,020 | $ 208,562
-0-
15,371
63,792 | $ 2,495,034
-0-
98,991
1,607,792 |
|
1998
Net sales
Impairment and restructuring
Income before income taxes
Non-current assets | $ 2,118,529
-0-
172,388
1,319,043 | $ 373,877
-0-
10,757
254,056 | $ 187,435
-0-
2,205
26,595 | $ 2,679,841
-0-
185,350
1,599,694 |
(1) Excluding $6,645,000 of impairment and restructuring costs and reorganization costs of $3,444,000, Europe’s
loss before income taxes equals $24,976,000.
36
|
| Segment Financial Information | 2000 | 1999 | 1998 |
|
(Thousands of dollars)
Bearings
Net sales to external customers
Depreciation and amortization
Impairment and restructuring charges
Earnings before interest and taxes
Interest expense
Interest income
Capital expenditures
Assets employed at year-end | $ 1,763,325
83,541
12,642
78,899
(25,430)
3,254
109,922
1,577,307 | $ 1,759,871
83,255
-0-
80,548
(21,817)
3,018
116,569
1,476,545
| $ 1,797,745
80,175
-0-
133,318
(22,425)
2,086
145,613
1,514,780 |
|
Steel
Net sales to external customers
Intersegment sales
Depreciation and amortization
Impairment and restructuring charges
Earnings before interest and taxes
Interest expense
Interest income
Capital expenditures
Assets employed at year-end | $ 879,683
196,500
67,506
15,112
19,349
(12,034)
5,767
52,795
986,798 | $ 735,163
211,870
66,694
-0-
44,039
(9,347)
4,017
56,653
964,773 | $ 882,096
200,911
59,658
-0-
73,825
(7,714)
4,537
113,008
935,251 |
|
Total
Net sales to external customers
Depreciation and amortization
Impairment and restructuring charges
Earnings before interest and taxes
Interest expense
Interest income
Capital expenditures
Assets employed at year-end | $ 2,643,008
151,047
27,754
98,248
(37,464)
9,021
162,717
2,564,105 | $ 2,495,034
149,949
-0-
124,587
(31,164)
7,035
173,222
2,441,318 | $ 2,679,841
139,833
-0-
207,143
(30,139)
6,623
258,621
2,450,031 |
|
Income Before Income Taxes
Total EBIT for reportable segments
Interest expense
Interest income
Intersegment adjustments | $ 98,248
(31,922)
3,479
792 | $ 124,587
(27,225)
3,096
(1,467) | $ 207,143
(26,502)
2,986
1,723 |
|
| Income before income taxes | $ 70,597 | $ 98,991 | $ 185,350 |
Segment interest expense and income include intersegment amounts. Both intersegment interest expense and income of $5,542,000, $3,939,000 and $3,637,000 incurred in 2000, 1999 and 1998, respectively, were deducted from combined segment amounts to reconcile consolidated amounts.
Notes to consolidated financial statements
13 Income Taxes
The provision (credit) for income taxes consisted of the following:
| 2000 | 1999 | 1998 |
|
| Current | Deferred | Current | Deferred | Current | Deferred |
|
(Thousands of dollars)
United States:
Federal
State and local
Foreign | $ (1,093)
1,775
13,442 | $ 13,093
(995)
(1,513) | $ 9,988
(552)
6,171 | $ 20,884
2,835
(2,959) | $ 50,056
6,212
7,610 | $ 5,173
(1,384)
3,146 |
|
| $ 14,124 | $ 10,585 | $ 15,607 | $ 20,760 | $ 63,878 | $ 6,935 |
The company made income tax payments of approximately $17,520,000 in 2000; $14,760,000 in 1999; and $62,190,000 in 1998. Taxes paid differ from current taxes provided, primarily due to the timing of payments.
The effect of temporary differences giving rise to deferred tax assets and liabilities at December 31, 2000 and 1999 was as follows:
| 2000 | 1999 |
|
(Thousands of dollars)
Deferred tax assets:
Accrued postretirement benefits cost
Accrued pension cost
Benefit accruals
Tax loss and credit carryforwards
Other–net
Valuation allowance
| $ 159,014
31,920
25,603
16,439
12,960
(18,084) | $ 156,777
27,949
24,051
15,041
17,160
(15,041) |
|
| Deferred tax liability–depreciation | 227,852
(196,500) | 225,937
(192,378) |
|
| Net deferred tax asset | $ 31,352 | $ 33,559 |
Following is the reconciliation between the provision for income taxes and the amount computed by applying U.S. federal income tax rate of 35% to income before taxes:
| 2000 | 1999 | 1998 |
|
(Thousands of dollars)
Income tax at the statutory federal rate
Adjustments:
State and local income taxes, net of federal tax benefit
Tax on foreign remittances
Non-deductible unrealized exchange losses
Foreign tax credits
Losses without current tax benefits
Settlements and claims for prior years
Valuation allowance
Other items | $ 24,709
507
1,617
587
(2,702)
5,177
(5,125)
(1,402)
1,341 | $ 34,647
1,484
1,216
1,548
(2,205)
-0-
-0-
-0-
(323) | $ 64,873
3,138
-0-
-0-
-0-
2,307
-0-
-0-
495 |
|
| Provision for income taxes | $ 24,709 | $ 36,367 | $ 70,813 |
|
| Effective income tax rate | 35% | 37% | 38% |
38
Report of Independent Auditors
To the Board of Directors and Shareholders of
The Timken Company
| We have audited the accompanying consolidated balance sheets of The Timken Company and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant | estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Timken Company and subsidiaries at December 31, 2000 and 1999 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP
Canton, Ohio
February 1, 2001 |
Forward-Looking Statements
| The statements set forth in this annual report that are not historical in nature are forward-looking. In particular the Corporate Profile on pages 16 through 18 and Management’s Discussion and Analysis on pages 20 through 27 contain numerous forward-looking statements. The company cautions readers that actual results may differ materially from those projected or implied in forward-looking statements made by or on behalf of the company due to a variety of important factors, such as: a) changes in world economic conditions. This includes, but is not limited to, the potential instability of governments and legal systems in countries in which the company conducts business and significant changes in currency valuations. b) the effects of changes in customer demand on sales, product mix and prices. This includes the effects of customer strikes, the impact of changes in industrial business cycles and whether conditions of fair trade continue in the U.S. market, in light of the ITC voting in second quarter 2000 to revoke the antidumping orders on imports of tapered roller bearings from Japan, Romania and Hungary. c) competitive factors, including changes in market penetration, the introduction of new products by existing and new competitors, and new technology that may impact the way the company’s products are sold or distributed. | d) changes in operating costs. This includes the effect of changes in the company's manufacturing processes; changes in costs associated with varying levels of operations; changes resulting from inventory management and cost reduction initiatives and different levels of customer demands; the effects of unplanned work stoppages; changes in the cost of labor and benefits; and the cost and availability of raw materials and energy. e) the success of the company's operating plans, including its ability to achieve the benefits from its global restructuring as well as its ongoing continuous improvement and rationalization programs; its ability to integrate acquisitions into company operations; the ability of recently acquired companies to achieve satisfactory operating results; its ability to maintain appropriate relations with unions that represent company associates in certain locations in order to avoid disruptions of business and its ability to successfully implement its new organizational structure. f) unanticipated litigation, claims or assessments. This includes, but is not limited to, claims or problems related to product warranty and environmental issues. g) changes in worldwide financial markets to the extent they (1) affect the company's ability or costs to raise capital, (2) have an impact on the overall performance of the company's pension fund investments and (3) cause changes in the economy which affect customer demand. |
Summary of Operations and other comparative data
(Thousands of dollars, except per share data)
| 2000 | 1999 | 1998 | 1997 |
|
Statements of Income
Net sales:
Bearings
Steel | $ 1,763,325
879,683 | $ 1,759,871
735,163 | $ 1,797,745
882,096 | $ 1,718,876
898,686 |
|
| Total net sales | 2,643,008 | 2,495,034 | 2,679,841 | 2,617,562 |
Cost of products sold
Selling, administrative and general expenses
Impairment and restructuring charges
Operating income (loss)
Earnings before interest and taxes (EBIT)
Interest expense
Income (loss) before income taxes
Provisions for income taxes (credit)
Income (loss) before cumulative effect of
accounting changes
Net income (loss) | 2,142,135
367,499
27,754
105,620
99,040
31,922
70,597
24,709
45,888
$ 45,888 | 2,002,366
359,910
-0-
132,758
123,120
27,225
98,991
36,367
62,624
$ 62,624 | 2,098,186
356,672
-0-
224,983
208,866
26,502
185,350
70,813
114,537
$ 114,537 | 2,005,374
332,419
-0-
279,769
286,766
21,432
266,592
95,173
171,419
$ 171,419 |
Balance Sheets
Inventory
Current assets
Working capital
Property, plant and equipment
(less depreciation)
Total assets
Total debt
Total liabilities
Shareholders’ equity | $ 489,549
898,542
311,090
1,363,772
2,564,105
514,064
1,559,423
$ 1,004,682 | $ 446,588
833,526
348,455
1,381,474
2,441,318
449,890
1,395,337
$ 1,045,981 | $ 457,246
850,337
359,914
1,349,539
2,450,031
469,398
1,393,950
$ 1,056,081 | $ 445,853
855,171
275,607
1,220,516
2,326,550
359,431
1,294,474
$ 1,032,076 |
Other Comparative Data
Net income (loss)/Total assets
Net income (loss)/Net sales
EBIT/Beginning invested capital (1)
Inventory days (FIFO)
Net sales per associate (2)
Capital expenditures
Depreciation and amortization
Capital expenditures/Depreciation
Dividends per share
Earnings per share (3)
Earnings per share - assuming dilution (3)
Debt to total capital
Number of associates at year-end
Number of shareholders (4) | 1.8%
1.7%
4.7%
108.5
$ 127.9
$ 162,717
$ 151,047
112.4%
$ 0.72
$ 0.76
$ 0.76
33.9%
20,474
42,661 | 2.6%
2.5%
5.6%
108.4
$ 119.1
$ 173,222
$ 149,949
120.3%
$ 0.72
$ 1.01
$ 1.01
30.1%
20,856
42,907 | 4.7%
4.3%
10.5%
109.4
$ 127.5
$ 258,621
$ 139,833
192.5%
$ 0.72
$ 1.84
$ 1.82
30.8%
21,046
45,942 | 7.4%
6.5%
16.1%
111.5
$ 130.5
$ 229,932
$ 134,431
177.3%
$ 0.66
$ 2.73
$ 2.69
25.8%
20,994
46,394 |
(1)EBIT/Beginning invested capital, a type of return on asset ratio, is used internally to measure the company’s
performance. In broad terms, invested capital is total assets minus non-interest-bearing current liabilities.
(2)Based on the average number of associates employed during the year.
40
|
| 1996 | 1995 | 1994 | 1993 | 1992 | 1991 |
|
$ 1,598,040
796,717 | $ 1,524,728
705,776 | $ 1,312,323
618,028 | $ 1,153,987
554,774 | $ 1,169,035
473,275 | $ 1,128,972
518,453 |
|
| 2,394,757 | 2,230,504 | 1,930,351 | 1,708,761 | 1,642,310 | 1,647,425 |
1,828,394
319,458
-0-
246,905
242,304
17,899
225,259
86,322
138,937
$ 138,937 | 1,723,463
304,046
-0-
202,995
197,957
19,813
180,174
67,824
112,350
$ 112,350 | 1,514,098
283,727
-0-
132,526
134,674
24,872
111,323
42,859
68,464
$ 68,464 | 1,369,711
276,928
48,000
14,122
7,843
29,619
(20,919)
(3,250)
(17,669)
$ (271,932) | 1,300,744
299,305
-0-
42,261
40,606
28,660
13,431
8,979
4,452
$ 4,452 | 1,315,290
300,274
41,000
(9,139)
(16,724)
26,673
(41,950)
(6,263)
(35,687)
$ (35,687) |
$ 419,507
793,633
265,685
1,094,329
2,071,338
302,665
1,149,110
$ 922,228 | $ 367,889
710,258
247,895
1,039,382
1,925,925
211,232
1,104,747
$ 821,178 | $ 332,304
657,180
178,5560
1,030,451
1,858,734
279,519
1,125,843
$ 732,891 | $ 299,783
586,384
153,971
1,024,664
1,789,719
276,476
1,104,407
$ 685,312 | $ 310,947
556,017
165,553
1,049,004
1,738,450
320,515
753,387
$ 985,063 | $ 320,076
562,496
148,950
1,058,872
1,759,139
273,104
740,168
$ 1,018,971 |
6.7%
5.8%
15.1%
117.5
$ 132.4
$ 155,925
$ 126,457
127.0%
$ 0.60
$ 2.21
$ 2.19
24.7%
19,130
31,813 | 5.8%
5.0%
12.6%
112.2
$ 134.2
$ 131,188
$ 123,409
109.1%
$ 0.555
$ 1.80
$ 1.78
20.5%
17,034
26,792 | 3.7%
3.5%
9.0%
118.0
$ 119.9
$ 119,656
$ 119,255
102.6%
$ 0.50
$ 1.11
$ 1.10
27.6%
16,202
49,968 | (15.2)%
(15.9)%
0.5%
122.5
$ 104.5
$ 92,940
$ 118,403
80.2%
$ 0.50
$ (0.29)
$ (0.29)
28.7%
15,985
28,767 | 0.3%
0.3%
2.5%
137.8
$ 95.3
$ 139,096
$ 114,433
124.4%
$ 0.50
$ 0.07
$ 0.07
24.5%
16,729
31,395 | (2.0)%
(2.2)%
(1.0)%
139.9
$ 90.0
$ 144,678
$ 109,252
135.6%
$ 0.50
$ (0.60)
$ (0.60)
21.1%
17,740
26,048 |
(3)Based on the average number of shares outstanding during the year and excludes the cumulative effect of accounting changes in 1993, which related to the adoption of FAS No. 106, 109 and 112.
(4)Includes an estimated count of shareholders having common stock held for their accounts by banks, brokers and trustees for benefit plans.
APPENDIX TO EXHIBIT 13
On page 1 of the printed document, three bar charts were shown which contain the following information:
| (1) | Net Sales ($ Millions) |
|---|
| 1996
1997
1998
1999
2000 | 2,395
2,618
2,680
2,495
2,643 |
| (2) | Gross Profit ($ Thousands) |
|---|
| 1996
1997
1998
1999
2000 | 566,383
612,188
581,655
492,668
500,873 |
| (3) | Inventory Days |
|---|
| 1991
1994
1997
2000 | 139.9
118.0
111.5
108.5 |
On page 37 of the printed document, three pie charts were shown that contain the following information:
| (1) | Timken Net Sales to Customers |
|---|
Bearings
Steel
| 67%
33% |
| (2) | Timken Net Sales by Geographic Area |
|---|
United States
Europe
Other | 78%
14%
8% |
| (3) | Steel Net Sales - Total |
|---|
Customers
Intersegment | 82%
18% |
On page 40 of the printed document, two bar charts were shown that contain the following information:
| (1) | Total Net Sales to Customers (Billions of dollars) |
|---|
| Bearings | Steel |
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000 | 1.129
1.169
1.154
1.312
1.525
1.598
1.719
1.798
1.760
1.763 | 0.518
0.473
0.555
0.618
0.706
0.797
0.899
0.882
0.735
0.880 |
| (2) | Return on Net Sales* |
|---|
| Operating Income (Loss) | Income(Loss) |
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000 | (0.6)%
2.6%
0.8%
6.9%
9.1%
10.3%
10.7%
8.4%
5.3%
4.0% | (2.2)%
0.3%
(1.0)%
3.5%
5.0%
5.8%
6.5%
4.3%
2.5%
1.7% |
| *Before cumulative effect of accounting changes |
On page 41 of the printed document, two bar charts were shown that contain the following information:
| (1) | Earnings* and Dividends per Share |
|---|
| Earnings Per Share | Dividends Per Share |
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000 | (0.60)
0.07
(0.29)
1.10
1.78
2.19
2.69
1.82
1.01
0.76 | 0.500
0.500
0.500
0.500
0.555
0.600
0.660
0.720
0.720
0.720 |
| *Assuming dilution and before cumulative effect of accounting changes |
| (2) | EBIT/Beginning Invested Capital |
|---|
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000 | (1.0)%
2.5%
0.5%
9.0%
12.6%
15.1%
16.1%
10.5%
5.6%
4.7% |
