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, 1994.
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)
Registrant's telephone number, including area code (216) 438-3000
______________
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, 1994, 30,897,163.
__________
PART I. FINANCIAL INFORMATION 2.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
Mar. 31, 1994 Dec. 31, 1993
______________ _____________
(Unaudited)
ASSETS (Thousands of Dollars)
Current Assets
Cash and cash equivalents $ 9,588 $ 5,284
Accounts receivables, less allowances,
(1994-$6,333; 1993-$6,292) 250,098 223,097
Inventories -- Note 4 300,150 299,783
Deferred income taxes 59,508 58,220
__________ __________
Total Current Assets 619,344 586,384
Property, Plant and Equipment 2,161,545 2,147,649
Less allowances for depreciation 1,139,326 1,122,985
__________ __________
1,022,219 1,024,664
Cost in excess of net assets of acquired business,
less amortization of (1994-$9,886; 1993-$9,242) 93,181 93,825
Deferred income taxes 54,915 52,902
Other assets 31,953 31,944
__________ __________
$1,821,612 $1,789,719
LIABILITIES ========== ==========
Current Liabilities
Accounts payable and other liabilities $ 217,069 $ 221,265
Short-term debt and commercial paper 106,272 95,318
Accrued expenses 125,216 115,830
__________ __________
Total Current Liabilities 448,557 432,413
Non-Current Liabilities
Long-term debt -- Note 5 181,109 181,158
Accrued pension cost 125,510 117,396
Accrued postretirement benefits cost 378,753 373,440
__________ __________
685,372 671,994
Shareholders' Equity -- Note 6
Common stock 302,256 300,762
Earnings invested in the business 402,597 402,566
Cumulative foreign currency translation
adjustments (17,170) (18,016)
__________ __________
Total Shareholders' Equity 687,683 685,312
__________ __________
$1,821,612 $1,789,719
========== ==========
3.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31
___________________
1994 1993
____ ____
(Thousands of dollars
except per share data)
Net sales $466,482 $ 422,477
Cost of product sold 375,040 335,165
________ ________
Gross Profit 91,442 87,312
Selling, administrative, and general expenses 70,329 69,731
________ ________
Operating Income 21,113 17,581
Interest expense (7,383) (8,085)
Other - net (93) (3,268)
_________ _________
Other Income (Expense) (7,476) (11,353)
Income Before Income Taxes 13,637 6,228
Provision for Income Taxes -- Note 3 5,891 3,046
_________ _________
Income before cumulative effect of
accounting changes 7,746 3,182
Cumulative effect of accounting changes
on prior years (net of income tax
benefit of $132,971) 0 (254,263)
_________ __________
Net Income (Loss) $ 7,746 $(251,081)
========= ==========
Income (Loss) Per Share (*)
Income before cumulative effect of
accounting changes $ .25 $ .10
Cumulative effect of accounting changes 0 (8.32)
________ __________
Net Income (Loss) Per Share $ .25 $ (8.22)
======== ==========
Dividends per share $ .25 $ .25
======== =========
(*) Based on average number of shares outstanding during each three months
(1994 - 30,860,158; 1993 - 30,562,890).
4.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31
_____________________
1994 1993
_________ _________
Cash Provided (Used) (Thousands of Dollars)
Operating Activities
Net income (loss)................................... $ 7,746 $(251,081)
Adjustments to reconcile net income
to net cash provided by operating activities:
Cumulative effect of accounting changes......... 0 254,263
Depreciation and amortization................... 29,405 30,079
Provisions (credit) for deferred income taxes... (3,871) (4,801)
Common stock issued in lieu of cash to
employee benefit plans........................ 204 1,657
Changes in operating assets and liabilities:
Accounts receivable........................... (26,408) (25,020)
Inventories and other assets.................. (452) 4,966
Accounts payable and accrued expenses......... 19,991 18,208
Foreign currency translation.................. 65 (13)
_________ _________
Net Cash Provided by
Operating Activities 26,680 28,258
Investing Activities
Purchases of property, plant and equipment - net.... (26,008) (16,073)
Financing Activities
Cash dividends paid to shareholders................. (6,425) (6,187)
Payments on long-term debt ......................... (67) (866)
Short-term debt activity - net...................... 10,110 (12,029)
__________ _________
Net Cash Provided (Used)
in Financing Activities 3,618 (19,082)
Effect of exchange rate changes on cash............... 14 51
Increase or (Decrease) in Cash and Cash Equivalents... 4,304 (6,846)
Cash and Cash Equivalents at Beginning of Period...... 5,284 7,863
_______ _______
Cash and Cash Equivalents at End of Period............ $ 9,588 $ 1,017
======= =======
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 5.
March 31, 1994
NOTE 1 -- Basis of Presentation
The accompanying unaudited condensed consolidated financial statements 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, 1993.
NOTE 2 -- Accounting Changes
Effective January 1, 1993, the company and its subsidiaries adopted
Statements of Financial Accounting Standards (FAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," No. 109,
"Accounting for Income Taxes," and No. 112, "Employers' Accounting for
Postemployment Benefits."
The adoption of the above referenced accounting standards resulted in a
one-time, non-cash charge to operations of $254,263,000 ($8.30 per share) for
the cumulative effect of the change in accounting principles for periods
prior to 1993. The charge relates primarily to the adoption of FAS No. 106.
NOTE 3 -- Income Taxes
The provision for income taxes consisted of the following:
Three Months Ended
March 31
__________________
1994 1993
____ ____
(Thousands of Dollars)
U.S.:
Federal 2,426 2,460
State & Local 279 151
Foreign 3,186 435
_____ _____
5,891 3,046
===== =====
Taxes provided exceed the U.S. statutory rate due to the higher tax rates in
non-U.S. operating units, the tax effect of non-deductible expenses
(predominantly amortization of costs in excess of net assets of acquired
business), losses without current tax benefits, and state and local taxes.
6.
NOTE 4 -- Inventories
The following details inventories as of the dates indicated:
3/31/94 12/31/93
_______ ________
(Thousands of Dollars)
Finished products $ 83,037 $ 84,471
Work in process and raw materials 181,146 175,920
Manufacturing supplies 35,967 39,392
_________ _________
$ 300,150 $ 299,783
========= =========
NOTE 5 -- Long-Term Debt
Long-term debt was as follows:
3/31/94 12/31/93
_______ ________
(Thousands of Dollars)
7-1/2% State of Ohio Pollution Control Revenue
Refunding Bonds, maturing on January 1,
2002 $ 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, 1994 is 2.25%. 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,
1994 is 2.25% 21,700 21,700
Fixed Rate Medium-Term Notes, Series A, due at
various dates through September, 2002, with
interest rates ranging from 7.20% to 9.25% 133,000 133,000
Other 1,678 1,740
________ ________
181,378 181,440
Less Current Maturities 269 282
________ ________
$181,109 $181,158
======== ========
7.
NOTE 6 -- Shareholders' Equity
The following details capital stock as of the dates indicated.
Mar. 31, 1994 Dec. 31, 1993
______________ _____________
(Unaudited)
(Thousands of Dollars)
Class I and Class II serial preferred stock
without par value:
Authorized -- 10,000,000 shares each class
Issued - none $ 0 $ 0
Common stock without par value
Authorized -- 100,000,000 shares
Issued (including shares in treasury)
1994 - 30,904,725 shares;
1993 - 30,842,952 shares;
Stated capital 53,064 53,064
Other paid-in capital 249,469 247,699
Less cost of Common Stock in treasury
(1994 - 7,562 shares; 1993 - 40 shares) 277 1
_________ _________
$ 302,256 $ 300,762
========= =========
An analysis of the change in capital and earnings invested in the business is as follows:
Common Stock
____________________________ Foreign
Other Earnings Currency
Stated Paid in Treasury Invested in Translation
Capital Capital Stock the Business Adjustment Total
_______ _______ ________ ____________ ___________ _____
(Thousands of Dollars)
Balance December 31, 1993 $53,064 $247,699 $ (1) $ 402,566 $(18,016) $ 685,312
Net income 7,746 7,746
Dividends Paid - $.25 per share (7,715) (7,715)
Purchased 7,522 shares of
treasury stock and issued
61,773 shares of common stock
in connection with various
employee benefit plans and
dividend reinvestment plan 1,770 (276) 1,494
Foreign currency translation
adjustment 846 846
_______ ________ ________ _________ _________ _________
Balance Mar. 31, 1994 $53,064 $249,469 $ (277) $ 402,597 $(17,170) $ 687,683
======= ======== ======== ========= ========= =========
8.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
As a result of stronger demand in many market segments along with the
recovering European economy, the company achieved record quarterly sales and
improved earnings for the first quarter of 1994. In addition to sales growth
in the U.S., the company experienced volume gains in Australia, South
America, and South Africa, as well as modest increases in Europe. On-going
efforts on the part of Timken Company associates around the world to improve
the company's cost structure, as well as its efficiency and effectiveness,
have also contributed positively toward the first quarter's improved
earnings.
Net sales for the first quarter increased to $466.5 million, up more than 10%
from $422.5 million a year earlier. Gross profit for the quarter was $91.4
million (19.6% of net sales) compared to $87.3 million (20.7% of net sales) a
year earlier. The gains resulting from greater sales volume were exceeded by
escalating costs for steel scrap and one-time costs related to extraordinary
winter weather.
Selling, administrative, and general expenses were $70.3 million (15.1
percent of net sales) in the first quarter of 1994 compared to $69.7 million
(16.5 percent of net sales) in 1993. The company continues to make progress
in its administrative streamlining effort and expects to meet its goal of
removing $60 million from the 1991 administrative cost structure by mid-1995.
Selling, administrative, and general expenses may not reflect all of this
reduction due to inflation and the possible initiation of programs designed
to expand the company's business. With higher activity levels in the first
quarter of 1994, the company was able to contain its selling, administrative,
and general expenses to levels comparable to 1993's first quarter through
systematic efforts to reduce costs and structural changes made to the
company's administrative activities. The company launched a similar effort
with manufacturing associates in December 1993 with the goal of reducing
operating costs significantly, improving productivity, and strengthening
already high levels of product quality and customer service.
The company adopted three new accounting standards in the first quarter of
1993: FAS No. 106, "Employer's Accounting for Postretirement Benefits Other
Than Pensions"; No. 109, "Accounting for Income Taxes"; and No. 112,
"Employer's Accounting for Postemployment Benefits." The cumulative effect
of these non-cash charges reduced 1993 net income by $254.3 million, most of
which was related to FAS No. 106.
Bearing Business sales increased by 10.2% to $317.6 million in the first
quarter of 1994 compared to $288.3 million in the year-earlier period. This
increase resulted from modest price increases in some markets and stronger
global demand. Led by continued growth in automotive markets, the Bearing
Business experienced sales volume gains in many of its markets; however,
sales in the aerospace, defense, and energy segments remain weak. Bearing
Business gross profit increased in the first quarter of 1994 resulting
primarily from the increase in sales volume.
Steel Business sales of $148.9 million in 1994's first quarter were 11%
higher than the $134.2 million realized in the first quarter of 1993. The
Steel Business continues to set production records; however, gross profit
9.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Cont.)
Results of Operations (Cont.)
declined as the effects of the higher volume and a favorable sales mix were
more than offset by higher costs related to unusually harsh weather
conditions and escalating costs for steel scrap. Scrap costs in the first
quarter of 1994 were roughly $34 per ton higher than in the first quarter of
1993. The Steel Business has been able to recoup a portion of this increased
cost through scrap surcharges.
Interest expense was slightly lower in the first quarter of 1994 compared to
the similar period in 1993 due primarily to a lower level of borrowing.
Other income and expense for the three months ended March 31, 1994, reflected
less expense than 1993 due primarily to a more favorable currency translation
adjustment related to the company's subsidiary in Brazil.
The company has experienced significant growth for the first time since 1990
and is confident of growing demand for its products. In spite of some weak
industries in the U.S. and weak economies in the world market, the company is
encouraged by the direction of its first quarter's results and foresees
continued market growth in Europe and the U.S. during 1994.
Financial Condition
Total assets increased by $31.9 million from December 31, 1993, primarily as
a result of increased accounts receivable related directly to the increase in
sales. The number of days sales in receivables as of the end of the first
quarter 1994 reflect a slight decrease compared to year-end 1993. The
increase in accrued expenses that occurred in the first quarter of 1994
resulted primarily from an increase in income taxes payable due to the higher
first quarter income.
Debt to total capital of 29.5% at March 31, 1994, remained basically
unchanged from 28.7% at year-end 1993.
The company spent $27.2 million on purchases of property, plant, and
equipment in the first quarter of 1994 compared to $16.5 million during the
same time period a year earlier. The higher level of spending in the first
three months of 1994 relates primarily to the company's 21st century bearing
project in Asheboro, North Carolina on which work was resumed during the
second quarter of 1993.
The $41 million provision for restructuring that was recorded in the fourth
quarter of 1991 has essentially been consumed. A nominal amount remains
which is expected to be consumed by the end of the second quarter of 1994.
The program that the company initiated in December 1993 to accelerate
significantly continuous improvement in its manufacturing plants worldwide,
is progressing according to plan. Approximately $28 million of the $48
million impairment and restructuring charge recorded in 1993 was related to
this program and will require future cash expenditures. To-date, the company
spent approximately $4.3 million or 15% of the $28 million. The company
believes that the reserves established for impairment and restructuring
activities are adequate to cover anticipated expenditures. In addition, the
10.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Cont.)
Financial Condition (Cont.)
company is incurring on-going costs relating to the implementation of this
program including training, systems development, and capital expenditures.
The company is reviewing possible changes to its unsecured, $300 million
revolving credit agreement. The potential modifications would include an
extension of the agreement term from August 1996 to August 1997. The credit
amount, borrowing rates, and fees contained in the current agreement would
remain the same. The company intends to finalize the revised credit
agreement during the second quarter 1994.
Other Information
Consistent with past practice, the carrying value of costs in excess of net
assets of acquired business ("goodwill") is reviewed if the facts and
circumstances suggest that it may be impaired. If this review indicates that
goodwill may not be recoverable, as determined based on the undiscounted cash
flows of the business acquired over the remaining amortization period, the
company's carrying value of the goodwill will be reduced by the estimated
shortfall of the cash flows. No reduction of goodwill for impairment has
been necessary in 1994 or in previous years.
On April 19, 1994, the Board of Directors declared a quarterly cash dividend
of $.25 per share, which is payable June 10, 1994, to shareholders of record
at the close of business on May 20, 1994.
11.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which
the company or any of its subsidiaries is a party or of which any
of their property is subject.
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
The Board of Directors recommended the four individuals set forth
below be elected Directors in Class III at the 1994 Annual Meeting
of Shareholders of The Timken Company held on April 19, 1994, to
serve for a term of three years expiring at the Annual Meeting in
1997 (or until their respective successors are elected and
qualified). All of the nominees which had been previously elected
as a Director by the shareholders, were re-elected at the 1994
meeting.
Affirmative Withheld
___________ ________
Stanley C. Gault 28,729,737 198,327
John M. Timken, Jr. 28,712,561 215,503
W. R. Timken, Jr. 28,733,619 194,445
Alton W. Whitehouse 28,716,219 211,845
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
11 Computation of Per Share Earnings
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 11, 1994 BY /S/ J. F. TOOT, JR.
________________________ ______________________________
J. F. Toot, Jr., Director;
President and Chief Executive
Officer
Date May 11, 1994 BY /S/ G. E. LITTLE
________________________ ______________________________
G. E. Little
Vice President - Finance