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 June 30, 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 June 30, 1994, 30,963,948.
__________
PART I. FINANCIAL INFORMATION 2.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, 1994 Dec. 31, 1993
______________ _____________
(Unaudited)
ASSETS (Thousands of Dollars)
Current Assets
Cash and cash equivalents $ 3,998 $ 5,284
Accounts receivables, less allowances,
(1994-$6,693; 1993-$6,292) 267,314 223,097
Inventories -- Note 4 311,970 299,783
Deferred income taxes 58,962 58,220
__________ __________
Total Current Assets 642,244 586,384
Property, Plant and Equipment 2,191,306 2,147,649
Less allowances for depreciation 1,167,138 1,122,985
__________ __________
1,024,168 1,024,664
Cost in excess of net assets of acquired business,
less amortization of (1994-$10,530; 1993-$9,242) 92,537 93,825
Deferred income taxes 57,121 52,902
Other assets 31,837 31,944
__________ __________
$1,847,907 $1,789,719
LIABILITIES ========== ==========
Current Liabilities
Accounts payable and other liabilities $ 227,180 $ 221,265
Short-term debt and commercial paper 98,408 95,318
Accrued expenses 126,782 115,830
__________ __________
Total Current Liabilities 452,370 432,413
Non-Current Liabilities
Long-term debt -- Note 5 181,059 181,158
Accrued pension cost 126,430 117,396
Accrued postretirement benefits cost 382,108 373,440
__________ __________
689,597 671,994
Shareholders' Equity -- Note 6
Common stock 303,929 300,762
Earnings invested in the business 415,501 402,566
Cumulative foreign currency translation
adjustments (13,490) (18,016)
__________ __________
Total Shareholders' Equity 705,940 685,312
__________ __________
$1,847,907 $1,789,719
========== ==========
3.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended Three Months Ended
June 30 June 30
________________ _________________
1994 1993 1994 1993
____ ____ ____ ____
(Thousands of dollars
except per share data)
Net sales $960,528 $863,718 $494,046 $441,241
Cost of product sold 756,199 677,056 381,159 341,891
________ ________ ________ ________
Gross Profit 204,329 186,662 112,887 99,350
Selling, administrative and
general expenses 141,161 140,417 70,832 70,686
________ ________ ________ ________
Operating Income 63,168 46,245 42,055 28,664
Interest expense (14,163) (15,709) (6,780) (7,624)
Other - net (74) (6,040) 19 (2,772)
_________ _________ _________ _________
Other Income (Expense) (14,237) (21,749) (6,761) (10,396)
Income Before Income Taxes 48,931 24,496 35,294 18,268
Provision for Income taxes --
Note 3 20,551 11,758 14,660 8,712
________ ________ ________ ________
Income before cumulative
effect of accounting changes 28,380 12,738 20,634 9,556
Cumulative effect of
accounting changes on prior
years (net of income tax
benefit of $132,971) 0 (254,263) 0 0
_________ __________ ________ ________
Net Income (Loss) $ 28,380 $(241,525) $ 20,634 $ 9,556
========== ======== ======== ========
Income (Loss) Per Share (*)
Income before cumulative
effect of accounting
changes $ .92 $ .42 $ .67 $ .31
Cumulative effect of
accounting changes 0 (8.31) 0 0
_______ ______ ______ ______
Net Income (Loss) Per Share $ .92 $(7.89) $ .67 $ .31
======= ====== ====== ======
Dividends per share $ .50 $ .50 $ .25 $ .25
====== ====== ====== ======
(*) Based on average number of shares outstanding during each six months
(1994 - 30,890,262; 1993 - 30,607,058) and each three months (1994 -
30,922,092; 1993 - 30,655,879).
4.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30
_____________________
1994 1993
_________ ________
Cash Provided (Used) (Thousands of Dollars)
Operating Activities
Net income (loss)................................... $ 28,380 $(241,525)
Adjustments to reconcile net income
to net cash provided by operating activities:
Cumulative effect of accounting changes......... 0 254,263
Depreciation and amortization................... 59,183 60,195
Provisions (credit) for deferred income taxes... (6,896) (5,869)
Common stock issued in lieu of cash to
employee benefit plans........................ 581 2,829
Changes in operating assets and liabilities:
Accounts receivable........................... (41,739) (36,615)
Inventories and other assets.................. (10,322) 2,170
Accounts payable and accrued expenses......... 33,766 23,391
Foreign currency translation.................. (140) 171
_________ ________
Net Cash Provided by
Operating Activities 62,813 59,010
Investing Activities
Purchases of property, plant and equipment - net.... (52,038) (40,607)
Financing Activities
Cash dividends paid to shareholders................. (12,859) (12,387)
Payments on long-term debt ......................... (136) (1,725)
Short-term debt activity - net...................... 883 (8,053)
_________ ________
Net Cash Provided (Used)
in Financing Activities (12,112) (22,165)
Effect of exchange rate changes on cash............... 51 (114)
Increase or (Decrease) in Cash and Cash Equivalents... (1,286) (3,876)
Cash and Cash Equivalents at Beginning of Period...... 5,284 7,863
_________ ________
Cash and Cash Equivalents at End of Period............ $ 3,998 $ 3,987
========= ========
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 5.
June 30, 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 ($8.31 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:
Six Months Ended Three Months Ended
June 30 June 30
________________ __________________
1994 1993 1994 1993
____ ____ ____ ____
(Thousands of Dollars)
U.S.:
Federal 14,052 9,148 11,626 6,688
State & Local 2,225 779 1,946 628
Foreign 4,274 1,831 1,088 1,396
______ ______ ______ _____
20,551 11,758 14,660 8,712
====== ====== ====== =====
Taxes provided exceed the U.S. statutory rate due to higher tax rates in
certain non-U.S. operating units, the tax effect of non-deductible expenses,
certain non-U.S. losses without current tax benefits, and state and local
taxes.
6.
NOTE 4 -- Inventories
The following details inventories as of the dates indicated:
6/30/94 12/31/93
_______ ________
(Thousands of Dollars)
Finished products $ 79,221 $ 84,471
Work in process and raw materials 193,286 175,920
Manufacturing supplies 39,463 39,392
_________ _________
$ 311,970 $ 299,783
========= =========
NOTE 5 -- Long-Term Debt
Long-term debt was as follows:
6/30/94 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 June 30, 1994 is 2.20%. 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 June 30,
1994 is 2.20% 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 1,616 1,740
________ ________
181,316 181,440
Less Current Maturities 257 282
________ ________
$181,059 $181,158
======== ========
7.
NOTE 6 -- Shareholder's Equity
The following details capital stock as of the dates indicated.
June 30, 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 - 30,964,047 shares;
1993 - 30,842,952 shares;
Stated capital 53,064 53,064
Other paid-in capital 250,868 247,699
Less cost of Common Stock in treasury
(1994 - 98 shares; 1993 - 40 shares) 3 1
_________ _________
$ 303,929 $ 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 28,380 28,380
Dividends Paid - $.50 per share (15,445) (15,445)
Purchased 58 shares of
treasury stock and issued
121,095 shares of common stock
in connection with various
employee benefit plans and
dividend reinvestment plan 3,169 (2) 3,167
Foreign currency translation
adjustment 4,526 4,526
_______ ________ ________ ________ ________ _________
Balance June 30, 1994 $53,064 $250,868 $ (3) $415,501 $(13,490) $ 705,940
======= ======== ====== ======== ======== =========
8.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Strong market positions, strengthening economic conditions, and continuous
improvement in all operations resulted in sizable year-to-year sales and
earnings gains for both the quarter and half ended June 30, 1994. The
company achieved volume gains in all of its markets and modest price
increases in most. Economic recovery in Europe has been slower than
expected--marked by downward pressure on prices--but now is beginning to gain
positive momentum. Continuous improvement by our associates in operations
around the world has contributed positively toward the second quarter's
improved earnings.
Net sales for the second quarter were $494 million, up 12% from $441.2
million a year earlier. Gross profit for the quarter was $112.9 million
(22.8% of net sales) compared to $99.4 million (22.5% of net sales) a year
earlier. Although gross profit increased in the second quarter of 1994,
gross profit as a percent of net sales remained basically unchanged from the
year-earlier period. The gains resulting from greater sales volume and
improved productivity were offset by higher costs for steel scrap and
increased employment costs.
Selling, administrative, and general expenses were $70.8 million (14.3
percent of net sales) in the second quarter of 1994 compared to $70.7 million
(16 percent of net sales) in 1993. With higher activity levels in the second
quarter and first six months of 1994, selling, administrative, and general
expenses were held to levels comparable to 1993's first half, reflecting
successful efforts by the company's associates to contain costs. The company
expects to meet its goal of a reduced administrative cost structure by
mid-1995.
The company is encouraged by the initial results of the program launched 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. Progress is continuing in
these cost reduction efforts at the company's manufacturing operations
throughout the world and the company expects to realize benefits from the
program in 1995 with over half of the savings in place by the end of 1996.
Bearing Business net sales increased by 11.7% to $337.1 million in the second
quarter of 1994 compared to $301.9 million in the year-earlier period.
Strong demand in the United States, particularly in the automotive and
railroad markets, led to increased volume. The business also experienced
modest price gains. Bearing Business gross profit as a percent of net sales
declined in the second quarter of 1994 versus the same quarter in 1993. The
increase in sales which had a positive impact on the second quarter 1994
gross profit was largely offset by higher employment costs and expenses
associated with the business' 21st century bearing project.
In the Steel Business, net sales in the second quarter increased 12.7% to
$337.1 million compared to $301.9 million in the year-earlier period. The
Steel Business experienced strong demand for its products during the second
quarter and continues to set production records. Steel Business gross profit
9.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Cont.)
Results of Operations (Cont.)
increased in the second quarter as the effects of the higher volume,
productivity gains, and a favorable sales mix more than offset higher
employment costs and higher raw material costs related to the purchase of
steel scrap. Purchased scrap prices, which earlier in the year had risen to
record levels, moderated but remained higher than year-ago levels. As a
result of recent activity in the scrap market, the company believes that
scrap prices will escalate through year-end. The Steel Business has been
able to recoup a portion of this increased cost through scrap surcharges and
modest price gains.
Interest expense was lower in the second quarter of 1994 compared to the
similar period in 1993 due primarily to lower debt levels. Other income and
expense for the three and six months ended June 30, 1994, reflected less
expense than 1993 due primarily to a more favorable currency translation
adjustment related to the company's subsidiary in Brazil.
During the second quarter of 1994, the company achieved a new high in
quarterly sales as well as solid earnings improvement. The company believes
that the progress made in this most recent quarter is encouraging and
provides additional evidence that the company is moving toward necessary
financial performance levels. Furthermore, the company is encouraged by its
strong order picture and good capacity utilization.
Financial Condition
Total assets increased by $58.2 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 at the end of the second
quarter 1994 was basically unchanged compared to year-end 1993. The $12.2
million increase in inventories related to the higher level of production
activity in the second quarter or 1994. The number of days supply in
inventory at June 30, 1994, decreased slightly compared to year-end 1993.
The increase in accrued expenses during the first six months of 1994 resulted
primarily from an increase in income taxes payable due to the higher income
levels.
Debt to total capital of 28.4% at June 30, 1994, remained basically unchanged
from 28.7% at year-end 1993.
The company spent $27.1 million on purchases of property, plant, and
equipment in the second quarter of 1994 compared to $24.7 million during the
same period in 1993. Spending for the first six months of 1994 was $54.3
million or approximately 32% higher than the $41.2 million spent during the
same time period a year earlier. The higher level of spending in the first
six 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. Additional expenditures were
10.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Cont.)
Financial Condition (Cont.)
charged against the reserve in the second quarter of 1994; however, a nominal
dollar amount still remains. It is expected that the remaining reserve
balance will be consumed by year-end 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 $6.1 million or 22% 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
company is incurring on-going costs relating to the implementation of this
program including training, systems development, and capital expenditures.
During the second quarter, the company finalized the revisions to its
unsecured, $300 million revolving credit agreement. The modifications
included an extension of the agreement term from August 1996 to August 1997
and a modification to the net worth covenant. The credit amount, borrowing
rates, and fees contained in the current agreement remained the same.
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.
In June 1994, the company's Steel Business announced a new steel product line
called Dynametal Performance Steels. The company's metallurgical researchers
developed this new family of performance steels to help automotive and
component manufacturers balance machinability and productivity in their
manufacturing operations with component performance. These new steels
provide excellent machining characteristics and were designed as a suitable,
environmentally friendly replacement for medium carbon leaded steels and cast
iron components. No capital investment will be required. The company
believes that the Steel Business' aggressive move into this market represents
part of the company's continuing strategy to improve the company's financial
performance by focusing its energies and production on higher-value
engineered steel bars and tubes.
On August 5, 1994, the Board of Directors declared a quarterly cash dividend
of $.25 per share, which is payable September 9, 1994, to shareholders of
record at the close of business on August 19, 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
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
4 Second Amendment Agreement dated May 31, 1994, to the
amended restated credit agreement as amended
February 23, 1993, between Timken and certain banks.
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 August 11, 1994 BY /s/ J. F. Toot, Jr.
________________________ ______________________________
J. F. Toot, Jr., Director;
President and Chief Executive
Officer
Date August 11, 1994 BY /s/ G. E. Little
________________________ ______________________________
G. E. Little
Vice President - Finance