1.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended March 31, 2000.
Commission File No. 1-1169
THE TIMKEN COMPANY
Exact name of registrant as specified in its charter
Ohio 34-0577130
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
1835 Dueber Avenue, S.W., Canton, Ohio 44706-2798
Address of principal executive offices Zip Code
(330) 438-3000
Registrant's telephone number, including area code
Not Applicable
Former name, former address and former fiscal year if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days.
YES X NO
___ ___
Common shares outstanding at March 31, 2000, 60,964,527.
PART I. FINANCIAL INFORMATION 2.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
Mar. 31 Dec. 31
2000 1999
ASSETS ---------- ----------
Current Assets (Thousands of dollars)
Cash and cash equivalents........................... $ 9,620 $ 7,906
Accounts receivable, less allowances,
(2000-$9,792; 1999-$9,497).......................... 394,033 339,326
Deferred income taxes............................... 39,901 39,706
Inventories (Note 2) ............................... 478,387 446,588
---------- ----------
Total Current Assets...................... 921,941 833,526
Property, Plant and Equipment....................... 2,893,828 2,912,733
Less allowances for depreciation................... 1,544,049 1,531,259
---------- ----------
1,349,779 1,381,474
Costs in excess of net assets of acquired business,
less amortization, (2000-$36,570; 1999-$34,879)..... 156,270 153,847
Other assets........................................ 64,292 72,471
---------- ----------
Total Assets.................................. $2,492,282 $2,441,318
========== ==========
LIABILITIES
Current Liabilities
Accounts payable and other liabilities.............. $ 241,101 $ 236,602
Short-term debt and commercial paper................ 141,288 122,547
Accrued expenses.................................... 205,823 198,512
---------- ----------
Total Current Liabilities................. 588,212 557,661
Noncurrent Liabilities
Long-term debt (Note 3) ............................ 326,302 327,343
Accrued pension cost................................ 101,456 76,005
Accrued postretirement benefits cost................ 395,531 394,084
Deferred income taxes............................... 5,453 6,147
Other noncurrent liabilities........................ 32,643 34,097
---------- ----------
Total Noncurrent Liabilities.............. 861,385 837,676
Shareholders' Equity (Note 4)
Common stock........................................ 269,708 273,199
Earnings invested in the business................... 841,954 836,916
Accumulated other comprehensive income.............. (68,977) (64,134)
---------- ----------
Total Shareholders' Equity................ 1,042,685 1,045,981
Total Liabilities and Shareholders' Equity.... $2,492,282 $2,441,318
========== ==========
PART I. FINANCIAL INFORMATION Continued 3.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
Mar. 31 Mar. 31
2000 1999
---------- ----------
(Thousands of dollars, except per share data)
Net sales......................................... $ 685,791 $ 625,370
Cost of products sold............................. 540,826 498,811
---------- ----------
Gross Profit................................... 144,965 126,559
Selling, administrative and general expenses...... 94,145 89,330
Impairment and restructuring charges (Note 5)..... 14,759 -0-
---------- ----------
Operating Income............................... 36,061 37,229
Interest expense.................................. (7,222) (6,656)
Interest income................................... 549 427
Other income (expense)............................ (2,655) (3,415)
---------- ----------
Income Before Income Taxes..................... 26,733 27,585
Provision for income taxes (Note 6)............... 10,693 11,006
---------- ----------
Net Income..................................... $ 16,040 $ 16,579
========== ==========
Earnings Per Share * .......................... $0.26 $0.27
Earnings Per Share - assuming dilution **..... $0.26 $0.27
Dividends Per Share............................ $0.18 $0.18
========== ==========
* Average shares outstanding..................... 61,099,962 61,859,612
** Average shares outstanding - assuming dilution. 61,237,143 62,018,468
PART I. FINANCIAL INFORMATION Continued 4.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
Cash Provided (Used) Mar. 31 Mar. 31
2000 1999
------- -------
OPERATING ACTIVITIES (Thousands of dollars)
Net Income............................................. $16,040 $16,579
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 38,221 36,597
Provision (credit) for deferred income taxes.......... 85 (5,724)
Stock issued in lieu of cash to employee benefit plans 300 2,972
Impairment and restructuring charges.................. 14,759 -0-
Changes in operating assets and liabilities:
Accounts receivable.................................. (57,277) (21,820)
Inventories.......................................... (34,968) (2,807)
Other assets......................................... 1,011 (10,196)
Accounts payable and accrued expenses................ 37,694 37,210
Foreign currency translation......................... (167) 2,623
------- -------
Net Cash Provided by Operating Activities........... 15,698 55,434
INVESTING ACTIVITIES
Purchases of property, plant and equipment - net...... (20,061) (46,599)
Acquisitions.......................................... -0- (27,923)
------- -------
Net Cash Used by Investing Activities............... (20,061) (74,522)
FINANCING ACTIVITIES
Cash dividends paid to shareholders................... (11,002) (11,138)
Purchase of Treasury Shares........................... (3,791) (339)
Payments on long-term debt............................ (964) (78)
Proceeds from issuance of long-term debt.............. 27 1,819
Short-term debt activity - net........................ 22,190 39,763
------- -------
Net Cash Provided by Financing Activities........... 6,460 30,027
Effect of exchange rate changes on cash................ (383) (247)
Increase in Cash and Cash Equivalents.................. 1,714 10,692
Cash and Cash Equivalents at Beginning of Period....... 7,906 320
------- -------
Cash and Cash Equivalents at End of Period............. $ 9,620 $11,012
======= =======
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 5.
Note 1 -- Basis of Presentation
The accompanying consolidated condensed financial statements (unaudited) for
the Timken Company (the "company") have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) and disclosures considered necessary
for a fair presentation have been included. For further information, refer to
the consolidated financial statements and footnotes included in the company's
annual report on Form 10-K for the year ended December 31, 1999.
3/31/00 12/31/99
Note 2 -- Inventories -------- ---------
(Thousands of dollars)
Finished products $176,276 $172,682
Work-in-process and raw materials 247,418 235,251
Manufacturing supplies 54,693 38,655
-------- --------
$478,387 $446,588
======== ========
Note 3 -- Long-term Debt 3/31/00 12/31/99
-------- ---------
(Thousands of dollars)
State of Ohio Pollution Control Revenue Refunding Bonds,
maturing on July 1, 2003. The variable interest
rate is tied to the bank's tax exempt weekly interest
rate. The rate at March 31, 2000 is 3.95%. $17,000 $17,000
State of Ohio Water Development Revenue Refunding
Bond, maturing on May 1, 2007. The variable interest
rate is tied to the bank's tax exempt weekly interest
rate. The rate at March 31, 2000 is 3.90%. 8,000 8,000
State of Ohio Air Quality and Water Development Revenue
Refunding Bonds, maturing on June 1, 2001. The
variable interest rate is tied to the bank's tax
exempt weekly interest rate. The rate at
March 31, 2000 is 3.90%. 21,700 21,700
State of Ohio Water Development Authority Solid Waste
Revenue Bonds, maturing on July 2, 2032. The
variable interest rate is tied to the bank's tax
exempt weekly interest rate. The rate at
March 31, 2000 is 3.95%. 24,000 24,000
Fixed Rate Medium-Term Notes, Series A, due at various
dates through May, 2028 with interest rates ranging
from 6.20% to 7.76%. 252,000 252,000
Other 8,974 9,957
-------- --------
331,674 332,657
Less: Current Maturities 5,372 5,314
-------- --------
$326,302 $327,343
======== ========
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited)
Continued 6.
Note 4 -- Shareholders' Equity 3/31/00 12/31/99
-------- --------
Class I and Class II serial preferred stock (Thousands of dollars)
without par value:
Authorized -- 10,000,000 shares each class
Issued - none $ 0 $ 0
Common Stock without par value:
Authorized -- 200,000,000 shares
Issued (including shares in treasury)
2000 - 63,082,626 shares
1999 - 63,082,626 shares
Stated Capital 53,064 53,064
Other paid-in capital 258,587 258,287
Less cost of Common Stock in treasury
2000 - 1,963,008 shares
1999 - 1,886,537 shares 41,943 38,152
-------- --------
$269,708 $273,199
======== ========
An analysis of the change in capital and earnings invested in the business is as follows:
Common Stock Earnings Accumulated
Other Invested Other
Stated Paid-In in the Comprehensive Treasury
Capital Capital Business Income Stock Total
------- -------- -------- ---------- -------- ----------
(Thousands of dollars)
Balance December 31, 1999 $53,064 $258,287 $836,916 ($64,134) ($38,152) $1,045,981
Net Income 16,040 16,040
Foreign currency translation adjustment (4,843) (4,843)
----------
Total comprehensive income 11,197
Dividends - $.18 per share (11,002) (11,002)
Stock Options, employee benefit and dividend
reinvestment plans: 300 (3,791) (3,491)
Treasury - (issued)/acquired 231,561 shares -0-
------- -------- -------- ---------- -------- ----------
Balance March 31, 2000 $53,064 $258,587 $841,954 ($68,977) ($41,943) $1,042,685
======= ======== ======== ========== ======== ==========
The total comprehensive income for the three months ended March 31, 1999 was $3,030,000.
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 7.
Continued
Note 5 -- Impairment and Restructuring Charges
In March 2000, the company announced an acceleration of its global
restucturing to position itself for profitable growth, streamline
operations, reduce costs and improve European profitability. This
restructuring is expected to save the company approximately $35 million
annually before taxes by the end of 2001. Implementation, employee
severance and non-cash impairment charges of $55 million before taxes are
expected to be recorded over the next one to two years. Of this amount,
approximately $35 million is anticipated as impairment and restructuring
charges, and the remaining $20 million will be classified as either
cost of products sold or selling, administrative and general expense.
In the first quarter 2000, the company recorded impairment and
restructuring charges of $14.8 million before taxes which was related to
the global restructuring acceleration. The charges reflected costs
associated with abandoned acquisition, affiliation and divestiture efforts
as well as the consolidation of certain operations in the company's
worldwide steel operations. In addition, approximately $1.7 million of
the charges relates to the severance costs associated with the termination
of 78 positions in the company's European distribution network. No
payments have been made through the end of the first quarter.
Key elements of the charges by industry are as follows (in thousands of
dollars):
Bearing Steel Total
Restructuring: -------- --------- ---------
Separation costs - operations $ 1,661 $ -0- $ 1,661
Exit costs 34 -0- 34
-------- --------- ---------
$ 1,695 $ -0- $ 1,695
Impaired assets:
Property, plant and equipment -0- 8,880 8,880
Abandoned acquisitions 214 3,970 4,184
-------- --------- ---------
$ 214 $ 12,850 $ 13,064
-------- --------- ---------
$ 1,909 $ 12,850 $ 14,759
======== ========= =========
Note 6 -- Income Tax Provision Three Months Ended
Mar. 31 Mar. 31
2000 1999
-------- --------
U.S. (Thousands of dollars)
Federal $ 6,931 $ 9,106
State & Local 505 1,035
Foreign 3,257 865
------- -------
$10,693 $11,006
======= =======
Taxes provided exceed the U.S. statutory rate primarily due to state and
local taxes and losses without current tax benefits.
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 8.
Continued
Note 7 -- Segment Information
(Thousands of Dollars) Three Months Ended
Mar. 31 Mar. 31
Bearings 2000 1999
-------- --------
Net sales to external customers $470,374 $438,717
Depreciation and amortization 21,287 20,486
Earnings before interest and taxes 32,133 23,249
Interest expense (5,534) (5,080)
Interest income 612 448
Steel
Net sales to external customers 215,418 186,653
Intersegment sales 55,582 55,378
Depreciation and amortization 16,934 16,111
Earnings before interest and taxes 2,791 11,029
Interest expense (2,662) (2,316)
Interest income 911 719
Profit Before Taxes
Total EBIT for reportable segments 34,924 34,278
Interest expense (7,222) (6,656)
Interest income 549 427
Intersegment adjustments (1,518) (464)
Income before income taxes 26,733 27,585
9.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
The Timken Company reported net sales of $685.8 million for the first
quarter of 2000, up 9.7% from $625.4 million in 1999's first quarter.
Net income declined 3.2% to $16 million compared to $16.6 million in the
first quarter of 1999. In this first quarter of 2000, the company incurred
total pretax charges of $16.8 million related to the company's global
restructuring announced in March. Excluding these charges, net income
for the first quarter of 2000 was $26.1 million. Sales and net income,
excluding these charges, were at their highest levels since the
second quarter of 1998.
The increase in sales volume resulted in part from investments the company
made during the last few years in facilities to produce a new range of
products, which are beginning to reach the market. In addition, international
markets improved, especially industrial markets that were weakened by the
Asian financial crisis. The U.S. and European automotive industries also
remained strong.
Gross profit was approximately $145 million (21.1% of net sales) in the first
quarter of 2000, compared to $126.6 million (20.2% of net sales) in 1999's
first quarter. Continued strength in the automotive industry, increased
demand for industrial products worldwide and improvement in international
markets contributed to the increase.
Selling, administrative and general expenses were $94.1 million (13.7% of net
sales) in the first quarter of 2000, compared to $89.3 million (14.3% of net
sales) in 1999. The amount reserved for performance-based pay was higher in
the first quarter 2000 due to the company's increased level of earnings.
Also contributing to the dollar increase was the inclusion of Timken India
in consolidated results for the first quarter of 2000 as well as continued
funding of growth initiatives and reorganization costs.
In March 2000, the company announced an acceleration of its global
restructuring to position itself for profitable growth, streamline operations,
reduce costs and improve European profitability. This restructuring is
expected to save the company approximately $35 million annually before
taxes by the end of 2001 and will result in the elimination of 600 positions
worldwide. Implementation, employee severance and non-cash impairment
charges of $55 million before taxes are expected to be recorded over the next
one to two years. The restructuring was undertaken in order to accelerate
the drive to improve competitiveness and further position the company for
profitable worldwide growth. It will, in conjunction with the reorganization
initiated late in 1999, support the company's transformation to a global
business. It is an extension of actions begun during the second half of 1998
and during 1999 that included rationalization of plants and businesses to
reduce asset intensity and assure world competitiveness.
The Western European restructuring will refocus the company's bearing
manufacturing facility in Duston, England to specialize and fuel
10.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
growth in advanced automotive bearings, roller production and formed products,
reflecting current strong automotive demand. In addition, the company will
shift manufacturing to facilities in Poland and Romania in order to achieve
high quality and productivity at lower costs. The company will also
consolidate the European distribution operations as well as reduce production
costs in European steel operations and redefine the company's operations in
Asia. The domestic restructuring includes the write-off of certain assets,
primarily in the company's steel business as well as the reorientation of
facilities and business systems around the global segments.
As a part of the restructuring, additional streamlining of the management
structure, which results from the reorganization into global units,
will be undertaken. The management streamlining is expected to
reduce administrative costs by about $15 million annually before taxes,
one half of which will be reinvested in growth initiatives in new products,
strengthening customer engineering and project management, and creating more
focused, entrepreneurial business entities. The new management structure is
expected to facilitate the company's ability to bring new products and
services to the market faster and more effectively.
The first quarter 2000 special charges of $16.8 million were related to the
global restructuring acceleration. Included in these special charges was an
impairment charge of approximately $13.1 million, the majority of which
occurred in the company's steel business. The impairment charge reflected
costs associated with abandoned acquisition, affiliation and divestiture
efforts as well as consolidation of certain operations in the company's
worldwide steel operations. The company also recorded charges of approximately
$1.7 million related to its efforts to consolidate the distribution effort in
Europe. The majority of this charge relates to severance costs
associated with the termination of 78 positions in the European distribution
network. Finally, the company recorded $2.0 million of consulting costs,
classified as selling, administrative and general expenses, related to
the company's realignment of businesses into global units.
"Other income (expense)" reflects lower expense in the first quarter of 2000
due primarily to higher foreign currency exchange losses recorded in the
first quarter of 1999.
Bearings
Bearings' net sales were $470.4 million in the first quarter of 2000,
up 7.2% compared to $438.7 million one year ago. Recovering North American
industrial demand, modest strengthening in Asia and Europe and continued
strong demand in North American automotive industry all combined to drive
Bearings' net sales to a record level in this first quarter of 2000.
North American automotive sales were up 11% compared to the first quarter
of 1999 due primarily to higher sales in the light and heavy truck
segments. Sales in Latin America were higher by 28% and sales in Asia
Pacific increased by 19%. North American industrial bearing
11.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
sales, including original equipment and aftermarket, were up by 6%, ending
the downward trend the company experienced over the past four quarters.
Improved international economic conditions contributed to higher
construction, mining, and farm equipment production. Aerospace sales
declined by 10%. Railroad sales also declined by 25%. First quarter
sales in Europe were higher by 6% compared to a year ago.
Bearings' earnings before interest and income taxes (EBIT) for the first
quarter was $32.1 million, compared to $23.2 million in the first quarter
of 1999. This was the highest EBIT since the second quarter of 1998.
Excluding Bearing's portion of the impairment and restructuring charge,
Bearings' EBIT was $35.6 million, up 53% from 1999's first quarter.
Contributing to this increase was improved plant performance resulting
from higher manufacturing volumes and on-going efforts to reduce
manufacturing costs. Bearings' restructuring activities in England and
Western Europe are expected to reduce costs and improve European profitability
in the future.
Bearings' selling and administrative expenses in the first quarter of
2000 were higher than the year-ago quarter due in part to the addition
of Timken India Limited, in which the company acquired a majority interest
in March 1999. Continued funding of growth initiatives, an increase in the
amount reserved for performance-based compensation plans and reorganization
costs also added to first quarter costs.
Steel
Steel's net sales, including intersegment sales, were $271 million in the
first quarter of 2000, an increase of 12% over the $242 million recorded
a year earlier. Sales in the first quarter of 2000 were the strongest since
the second quarter of 1998. Shipments were higher in all segments except
aerospace. As a result, the company increased prices in the first quarter
and announced further price increases effective for the second quarter.
Sales to oil country and service center customers grew faster than
anticipated as a result of higher demand caused by a reduction in customer
inventories. Oil country sales increased by about 200% compared to the
year-ago quarter while service center sales increased by more than 90%.
Industrial sales increased by about 10%. Sales to external bearing customers
were up by about 15%. For automotive customers, first quarter sales of
precision steel components were higher by 19%; however, alloy steel
automotive sales were relatively flat compared to a year ago. Aerospace
sales declined by 12% compared to 1999's first quarter. Demand for steel
products appears strong as the industries the company serves are improving
and the Asian crisis is passing.
Steel's EBIT was $2.8 million in the first quarter of 2000 compared to
$11 million in 1999's first quarter. First quarter 2000 included impairment
and restructuring charges related primarily to asset impairment and costs
associated with abandonment of acquisition, affiliation and
divestiture efforts. Excluding Steel's portion of the
12.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
impairment and restructuring charge, Steel's EBIT was $16.1 million, up 46%
from 1999's first quarter. Higher sales volume, price increases and savings
generated by cost reductions implemented in the first quarter more than
offset higher scrap and alloy prices.
Financial Condition
- -------------------
Total assets as shown on the Consolidated Condensed Balance Sheets increased
by $51 million from December 31, 1999. Inventory balances at the end of the
first quarter were higher by $31.8 million compared to year-end 1999 levels.
The number of days' supply in inventory increased by four days to 112 days
at March 31, 2000, compared to 108 days at December 31, 1999. Bearings'
inventory increased by about three days; Steel's inventory increased by about
five days. Accounts receivable increased by almost $55 million
reflecting the higher level of sales. The number of days' sales in
receivables at March 31, 2000, decreased by 1 day compared to
December 31, 1999.
As shown on the Consolidated Condensed Statement of Cash Flows, the increase
in inventories required $35 million of cash during the first three months
of 2000. The increase in accounts receivable used $57.3 million of cash.
Cash was provided as a result of a $37.7 million increase in accounts
payable and accrued expenses due primarily to higher reserves for pension
liabilities as well as amounts reserved for performance-based pay during
this first quarter of 2000. Purchases of property, plant and
equipment-net used $20.1 million of cash in the first three months of
2000, compared to $46.6 million for the same period in 1999, reflecting
lower capital spending. Company investments continue to support activities
consistent with the company's strategies to achieve industry leadership,
improve the core businesses, and increase growth and profitability
The 31% debt-to-total-capital ratio at March 31, 2000 was slightly higher
than the 30.1% at year-end 1999. Debt increased by $16.5 million during
the first three months of 2000 to $466.4 million at March 31, 2000.
In addition to capital expenditures, cash was used to pay dividends
to shareholders, to fund working capital and to buy back shares of common
stock as authorized under the company's 1998 common stock purchase
plan. Short-term borrowing and issuance of medium-term notes will meet
future cash needs that exceed cash generated from operations. Total
shareholders' equity decreased by $3.3 million since December 31, 1999
due to payment of $11 million in dividends and the buyback of
shares of the company's common stock. The $16 million increase in
equity from the first quarter's net income was also offset by a
$4.8 million foreign currency translation adjustment.
13.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Other Information
- -----------------
The industry's antidumping duty orders covering imports of tapered
roller bearings from Japan, China, Hungary and Romania are currently
in the process of being reviewed by U.S. government agencies to
determine whether dumping and injury to the domestic industry are
likely to continue or recur if the orders were to be revoked. These
reviews commenced in April 1999, and should conclude by the end of
the second quarter 2000. The company is actively participating in the
proceedings. If the U.S. government determines that dumping and injury
are likely to continue or recur, the antidumping duty finding and orders
will continue in place for another five years. If, however, a
determination is made that injury to the domestic industry is unlikely
to continue or recur with respect to any of the four countries covered,
the finding or order will be revoked with respect to that country. If,
following the revocation of such an order, injurious dumping does continue
or recur, contrary to the finding of the government, the improved conditions
of trade of tapered roller bearings in the U.S., which resulted from the
existing orders, would 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.
Assets and liabilities of subsidiaries, other than Timken Romania which
is considered to operate in a highly inflationary economy, 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 quarter. 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 Timken Romania are included in the results of
operations.
Foreign currency exchange losses included in the company's operating results
for the first quarter of 2000 totaled $0.5 million compared to $6.5 million
in the first quarter of 1999. The January 1999 devaluation of the Brazilian
Real contributed to 1999's foreign currency losses; however, the
company's operations in France and the United Kingdom recorded the most
significant translation losses. Also, in the first quarter of 2000 the
company recorded a foreign currency translation adjustment of $4.8 million,
which reduced other comprehensive income, compared to a reduction
of $13.5 million in the year-ago period.
In January 2000, the company announced that distribution facilities
would be moved from existing warehousing and shipping facilities in Germany,
England, France and Italy to a central warehouse in Strasbourg, France,
which will be operated by an external service provider. This initiative
is expected to reduce employment at the facilities by approximately 78
positions.
Also in January 2000, members of the United Steelworkers of America,
which represents the company's workers in the Canton, Columbus and
14.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Wooster facilities, ratified a new five-year agreement. This new contract
will extend through September 26, 2005, and is the third consecutive early
agreement reached by the company.
In the third quarter of 1999, the company announced it would explore
strategic alternatives for its specialty steel subsidiary, Timken Latrobe
Steel. In February 2000, the company determined it would retain Timken
Latrobe Steel as a separate business within the company's Steel business.
During the first quarter of 2000, the company purchased 237,300 shares
of its common stock to be held in treasury as authorized under the
company's 1998 common stock purchase plan. To date, 2.9 million shares
of the 4 million shares authorized have been purchased pursuant to
the plan. The authorization to purchase shares under the 1998 plan
expires December 31, 2001.
On April 18, 2000, the board of directors declared a quarterly cash
dividend of 18 cents per share payable June 5, 2000, to shareholders
of record at the close of business on May 19, 2000. This is the
312th consecutive dividend paid on the common stock of the company.
Also on April 18, 2000, the shareholders of the company elected Mrs.
Jacqueline F. Woods to the board of directors for a three-year term
expiring at the 2003 annual meeting. Mrs. Woods, 52, has served as
president of Ameritech Ohio, a subsidiary of SBC Communications Inc.,
since 1993. In addition, Stanley C. Gault, John M. Timken, Jr. and
W. R. Timken, Jr. were re-elected as directors for three-year terms
to expire at the 2003 annual meeting.
In April 2000, Rail Bearing Service, a subsidiary of the company,
announced a consolidation of their Knoxville, Tennessee facilities.
The three reconditioning locations and office have been consolidated
into one newly constructed facility.
The statements set forth in this document that are not historical
in nature are 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, whether conditions of fair trade continue
in the U.S. market, and the possible revocation in the U.S.
of the anti-dumping duty orders on tapered roller bearings,
on which a decision is to be reached by the U.S. government
by the end of June 2000.
15.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 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 affect the company's ability or costs to raise
capital, have an impact on the overall performance of the
company's pension fund investments and/or cause changes in the
economy which affect customer demand.
16.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
(1) The Board of Directors recommended the four individuals set
forth below be elected Directors in Class III at the 2000
Annual Meeting of Shareholders of The Timken Company held on
April 18, 2000, to serve a term of three years expiring at the
Annual Meeting in 2003 (or until their respective successors
elected and qualified). The first three individuals had been
previously elected as Directors by the shareholders and were
re-elected at the 2000 meeting.
Affirmative Withheld
Stanley C. Gault 55,322,161 1,575,240
John M. Timken, Jr. 54,611,517 2,285,884
W. R. Timken, Jr. 55,352,468 1,544,933
Jacqueline F. Woods 55,024,184 1,873,217
(2) Shareholders approved The Timken Company Long-Term Incentive
Plan As Amended And Restated As Of December 16, 1999.
Affirmative Negative Abstain
49,975,536 5,920,575 1,001,290
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
10 The Timken Company Long-Term Incentive Plan As Amended And
Restated As Of December 16, 1999, and approved by share-
holders April 18, 2000 was filed as Appendix A to Proxy
Statement dated February 23, 2000, and is incorporated
herein by reference.
10.1 The Timken Company Director Deferred Compensation Plan
effective as of February 4, 2000.
17.
10.2 The form of The Timken Company Nonqualified Stock Option
Agreement for nontransferable options as adopted on
April 18, 2000.
10.3 The form of The Timken Company Nonqualified Stock Option
Agreement for transferable options as adopted on
April 18, 2000.
10.4 The form of The Timken Company Nonqualified Stock Option
Agreement for special award options as adopted on
April 18, 2000.
10.5 The form of The Timken Company Deferred Shares Agreement
as adopted on April 18, 2000.
10.6 Amendment to Employee Excess Benefits Agreement
11 Computation of Per Share Earnings
12 Computation of Ratio of Earnings to Fixed Charges
Item 6. Exhibits and Reports on Form 8-K cont.
27 Financial Data Schedule
The company did not file any reports on Form 8-K during the three
months ended March 31, 2000.
18.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
The Timken Company
_______________________________
Date May 12, 2000 BY /s/ W. R. Timken, Jr.
________________________ _______________________________
W. R. Timken, Jr.,
Director and Chairman;
Chief Executive Officer
Date May 12, 2000 BY /s/ G. E. Little
________________________ _______________________________
G. E. Little
Senior Vice President - Finance