Exhibit 99.1
Slide 1 | Good morning. | |||
As you’ve seen on the cover of our annual report, we believe The Timken Company has boundless opportunities in a fast-paced world. | ||||
That speed is propelled by customers. For every improvement, every innovation we make, our customers wantmore. | ||||
Slide 2 | They continue to move at an ever-faster pace, looking to establish a competitive edge in their markets. For automakers, it’s components that boost fuel efficiency. | |||
Slide 3 | For helicopter manufacturers, it’ssolutionsthat improve turnaround time for maintenance. For all our customers, it’s anything that can help lower their costs. | |||
As fast as we move to stay a step ahead, our competitors are doing the same. And these competitors are not just down the block. Or around the country. | ||||
Slide 4 | They’re all over theworld. Which creates a fiercely competitive marketplace — in a global environment. | |||
Slide 5 | To thrive in today’s fast-paced world to build a platform for profitable growth that creates value for customers and shareholders alike—we have aligned our strategies around three key themes: | |||
• | Customer-driven innovation; | |||
• | A focus on performance; and | |||
• | An adaptive management capability. |
Slide 6 | This is what your Timken Company looks like today. | |||
• | Sales of nearly $4 billion. | |||
• | Almost 30% of sales are to customers outside the U.S. | |||
• | We have nearly 26,000 associates and our products are used in literally every country in the world. | |||
• | We have ten technical centers strategically placed around the globe. | |||
• | Our manufacturing footprint spans more than 80 Timken plants – in 16 countries. | |||
• | Our products are sold and distributed through more than 100 global sales offices, design centers and distribution warehouses. We are a much different company than we were a year ago. And the main reason is Torrington. This $840 million acquisition has been the most significant step in our company’s history, instantly increasing our size nearly 50%. We are now in a stronger position to provide integrated modules and advanced solutions around the world. | |||
Slide 7 | We are already benefiting from significant cost savings in bringing these two industry leaders together. In 2003, we achieved $28 million in cost savings, mainly by leveraging the purchasing power of our larger company. We are on-track for achieving our cost-savings goal of $80 million by the end of 2005. | |||
Slide 8 | You often hear that corporate cultures can either make or break an acquisition. The Timken and Torrington cultures have been in-step since the beginning. We share a similar heritage and brand promise. Both companies have demonstrated traditions of quality and innovation. And both have earned the respect of their customers through acollaborative, customer-centric approach to identifying and implementing solutions. |
Slide 9 | 2003 was a year of remarkable change for Timken. | |||
We introduced new product innovations adding $174 million, in sales, in difficult market conditions. | ||||
A few examples: | ||||
• | The StatusCheck™ wireless condition monitoring system, which moves us into new opportunities beyond the bearing. | |||
• | A new line of industrial lubricants which expands our friction-management solutions. | |||
• | And on the Automotive side, first application of our sensorized hub technology on a transplant truck in the Nissan Titan. | |||
Slide 10 | We expanded, with a 30% growth in sales in China, where we will shortly open our fourth manufacturing facility next month. | |||
China’s growing economy also has resulted in more opportunities for us to import products into that country. | ||||
Reinforcing Tim’s comments on the importance of global manufacturing, we imported more than $13 million into China in 2003, compared to the less than $1 million Timken China exported to the U.S. | ||||
Slide 11 | The grand opening of the Advanced Green Components joint venture in Winchester, Kentucky, allows for significant cost savings with minimal capital investment. By using a cold-forming process to make bearings, we save both material and machining time. | |||
Slide 12 | And we ended the year with a debt-to-capital ratio of 40%, which is below the level at the end of 2002...much less our 50% peak just after the Torrington acquisition. |
Slide 13 | We reported record sales in 2003, up 49%: | |||
If you exclude Torrington, sales still rose 8%, with increases in all three units. | ||||
Unfortunately, profits did not respond proportionally. Earnings of $0.67 per share were 23% lower than the previous year, but benefited from the Torrington acquisition, which was accretive to our earnings. | ||||
While we were disappointed in this level of performance, the year ended with signs of improvement. We expect much better results for 2004 | ||||
Slide 14 | We have taken action—turning problems into opportunities in 2004. | |||
In 2003, profitability in automotive manufacturing was challenged. | ||||
We began to see improved manufacturing productivity in the fourth quarter of the year, and will see a rebound throughout 2004. | ||||
In January, we welcomed Jacqui Dedo as Automotive Group president. Jacqui has an impressive track record of achievement in the global automotive industry. And she will drive the strategy for profitable growth in our Automotive business. | ||||
Slide 15 | In 2003, Industrial markets continued to be sluggish, but we grew sales and improved our margins. | |||
In 2004, we’re seeing signs of a market recovery which will provide a much needed boost to our revenues. |
Slide 16 | In 2003, steel costs rose significantly: | |||
• | scrap more than doubled; | |||
• | nickel reached a 14-year high; | |||
• | natural gas prices rose 50%. | |||
In late 2003, we implemented a new surcharge mechanism and price increases. | ||||
This new mechanism is working and will improve Steel earnings in 2004. | ||||
Slide 17 | We will announce our first quarter performance on Thursday, which will limit my freedom to discuss it today. | |||
What Icantell you today is that we’re confident that we’re moving in the right direction. | ||||
In fact, three weeks ago we raised our earnings outlook for both the first quarter and the full year. | ||||
Our revised outlook is based on the fact that the actions we have taken are working — and that we’re seeing an earlier-than-expected recovery in our end markets. | ||||
We are well positioned for the upturn—thanks to our rationalization efforts and the Torrington acquisition. | ||||
The first quarter has already seen a flurry of activity¼ | ||||
Slide 18 | This month, Timken was named to the Fortune 500. The last time we were included on the list was 1995, when it was comprised of only industrial companies. | |||
Slide 19 | In the rail industry, our bearings were selected for Spain’s new Talgo high-speed trains, which are capable of traveling over 200 miles per hour; and we were also for Moscow’s passenger trains. |
Slide 20 | Our products are also literallyoutof this world—with application on both of NASA’s Mars Rovers. | |||
Slide 21 | Timken has been named the sole supplier of bearings for the Rolls-Royce Model 250 aircraft engines. More than 15,000 of these engines are currently in service around the world. | |||
Slide 22 | We also have signed an agreement to supply steel gear blanks for the new 6-speed automatic transmission being developed by General Motors for the Malibu and other GM models. | |||
Slide 23 | And online, we’ve extended new product brands to Mexican distributors via the Timken store at PTplace.com And this is just the first quarter of the year. But even with all the progress we’re making, our transformationmust—continue. | |||
Slide 24 | Strong economic performance is how 104-year-old companies earn the right to thrive in their second century. | |||
Wemustgenerate funds to invest back into the business in order to serve our customers – and thereby protect the jobs of our associates. | ||||
Themeasureof that ability is earning our cost of capital...and our earnings in 2003 were onlyhalfof that level. | ||||
Our management team is committed to bringing our earning level above our cost of capital on a regular basis. | ||||
That will require continued change; change that is painful at times, but change that is necessary to assure the success of the company.....success that we measure by the value we provide to our shareholders. |
Slide 25 | And so my message to you this morning is an optimistic one - tempered by the competitive pressures of our global economy. | |||
The opportunities for the new Timken are truly boundless as we continue to create customer value through innovation...and as we create shareholder value by driving a sustainable competitive advantage. | ||||
As our products and services move beyond bearings and steel — our playing field just keeps growing. | ||||
With applications for: | ||||
• | the automotive industry. | |||
• | Agriculture. | |||
• | Construction. | |||
• | Mining. | |||
• | Paper. | |||
• | Power generation. | |||
• | Aerospace. | |||
• | Rail. | |||
• | Medical. | |||
Virtually any industry in which anything moves. | ||||
That’s what we mean by boundless opportunities. | ||||
Slide 26 | And we will succeed in turning those opportunities intoprofitabilityby: | |||
• | Customer-driven innovation; | |||
• | A focus on performance; and | |||
• | An adaptive management capability. |
Slide 27 | Thank you for your confidence and support in 2003. We aredeterminedto make 2004 a better year for customers and shareholders alike. Thank you. | |||
This concludes our annual meeting presentations. We will be happy to take any questions you may have. |
Reconciliation of Non-GAAP Measures to GAAP Measures
Set forth below is a reconciliation of certain non-GAAP financial information noted in the preceding presentation.
Debt to total capital ratio equals total debt divided by total debt plus shareholders’ equity.
December 31, | March 31, | June 30, | September 30, | December 31, | ||||||||||||||||
2002 | 2003 | 2003 | 2003 | 2003 | ||||||||||||||||
Short-term debt & commercial paper | 111,134 | 218,632 | 272,884 | 240,971 | 121,194 | |||||||||||||||
Long-term debt | 350,085 | 778,066 | 744,523 | 698,464 | 613,446 | |||||||||||||||
Total Debt | 461,219 | 996,698 | 1,017,407 | 939,435 | 734,640 | |||||||||||||||
SHAREHOLDERS’ EQUITY | 609,086 | 941,342 | 970,926 | 961,463 | 1,089,627 | |||||||||||||||
Debt/Capital | 43.1 | % | 51.4 | % | 51.2 | % | 49.4 | % | 40.3 | % |