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 September 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 September 30, 1994, 31,031,332.
__________
PART I. FINANCIAL INFORMATION 2.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
Sep. 30, 1994 Dec. 31, 1993
______________ _____________
(Unaudited)
ASSETS (Thousands of Dollars)
Current Assets
Cash and cash equivalents $ 10,662 $ 5,284
Accounts receivables, less allowances,
(1994-$6,881; 1993-$6,292) 262,614 223,097
Inventories -- Note 4 326,229 299,783
Deferred income taxes 54,007 58,220
__________ __________
Total Current Assets 653,512 586,384
Property, Plant and Equipment 2,218,507 2,147,649
Less allowances for depreciation 1,192,062 1,122,985
__________ __________
1,026,445 1,024,664
Cost in excess of net assets of acquired business,
less amortization of (1994-$11,174; 1993-$9,242) 91,893 93,825
Deferred income taxes 52,745 52,902
Other assets 32,431 31,944
__________ __________
$1,857,026 $1,789,719
LIABILITIES ========== ==========
Current Liabilities
Accounts payable and other liabilities $ 205,382 $ 221,265
Short-term debt and commercial paper 121,412 95,318
Accrued expenses 139,193 115,830
__________ __________
Total Current Liabilities 465,987 432,413
Non-Current Liabilities
Long-term debt -- Note 5 181,006 181,158
Accrued pension cost 107,553 117,396
Accrued postretirement benefits cost 384,323 373,440
__________ __________
672,882 671,994
Shareholders' Equity -- Note 6
Common stock 306,158 300,762
Earnings invested in the business 422,048 402,566
Cumulative foreign currency translation
adjustments (10,049) (18,016)
__________ __________
Total Shareholders' Equity 718,157 685,312
__________ __________
$1,857,026 $1,789,719
========== ==========
3.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Nine Months Ended Three Months Ended
September 30 September 30
________________ _________________
1994 1993 1994 1993
____ ____ ____ ____
(Thousands of dollars
except per share data)
Net sales $1,426,872 $1,269,256 $466,344 $405,538
Cost of product sold 1,121,927 1,007,037 365,728 329,981
_________ _________ ________ ________
Gross Profit 304,945 262,219 100,616 75,557
Selling, administrative and
general expenses 211,905 208,001 70,744 67,584
________ ________ ________ ________
Operating Income 93,040 54,218 29,872 7,973
Interest expense (19,293) (23,210) (5,130) (7,501)
Other - net (2,628) (9,142) (2,554) (3,102)
_________ _________ _________ _________
Other Income (Expense) (21,921) (32,352) (7,684) (10,603)
Income Before Income Taxes 71,119 21,866 22,188 (2,630)
Provision for Income taxes --
Note 3 28,447 9,574 7,896 (2,184)
________ ________ ________ ________
Income before cumulative
effect of accounting changes 42,672 12,292 14,292 (446)
Cumulative effect of
accounting changes on prior
years (net of income tax
benefit of $132,971) 0 (254,263) 0 0
_________ __________ ________ ________
Net Income (Loss) $ 42,672 $(241,971) $ 14,292 $ (446)
========= ========== ======== =========
Income (Loss) Per Share (*)
Income before cumulative
effect of accounting
changes $ 1.38 $ .40 $ .46 $ (.01)
Cumulative effect of
accounting changes 0 (8.30) 0 0
_______ ______ ______ ______
Net Income (Loss) Per Share $ 1.38 $(7.90) $ .46 $ (.01)
======= ====== ====== ======
Dividends per share $ .75 $ .75 $ .25 $ .25
====== ====== ====== ======
(*) Based on average number of shares outstanding during each nine months
(1994 - 30,921,919; 1993 - 30,644,567) and each three months (1994 -
30,987,827; 1993 - 30,625,787).
4.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30
_____________________
1994 1993
_________ ________
Cash Provided (Used) (Thousands of Dollars)
Operating Activities
Net income (loss)................................... $ 42,672 $(241,971)
Adjustments to reconcile net income
to net cash provided by operating activities:
Cumulative effect of accounting changes......... 0 254,263
Depreciation and amortization................... 88,985 89,523
Provisions (credit) for deferred income taxes... 1,485 (12,427)
Common stock issued in lieu of cash to
employee benefit plans........................ 1,492 3,373
Changes in operating assets and liabilities:
Accounts receivable........................... (35,756) (23,769)
Inventories and other assets.................. (23,327) 2,403
Accounts payable and accrued expenses......... 5,493 7,383
Foreign currency translation.................. (99) 227
_________ ________
Net Cash Provided by
Operating Activities 80,945 79,005
Investing Activities
Purchases of property, plant and equipment - net.... (79,351) (58,302)
Financing Activities
Cash dividends paid to shareholders................. (19,284) (18,775)
Payments on long-term debt ......................... (259) (2,699)
Short-term debt activity - net...................... 23,053 2,358
_________ ________
Net Cash Provided (Used)
in Financing Activities 3,510 (19,116)
Effect of exchange rate changes on cash............... 274 (339)
Increase in Cash and Cash Equivalents................. 5,378 1,248
Cash and Cash Equivalents at Beginning of Period...... 5,284 7,863
_________ ________
Cash and Cash Equivalents at End of Period............ $ 10,662 $ 9,111
========= ========
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 5.
September 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:
Nine Months Ended Three Months Ended
September 30 September 30
_________________ __________________
1994 1993 1994 1993
____ ____ ____ ____
(Thousands of Dollars)
U.S.:
Federal 20,283 6,303 6,231 (2,845)
State & Local 1,843 547 (382) (232)
Foreign 6,321 2,724 2,047 893
______ _____ _____ ______
28,447 9,574 7,896 (2,184)
====== ===== ===== =======
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:
9/30/94 12/31/93
_______ ________
(Thousands of Dollars)
Finished products $ 84,721 $ 84,471
Work in process and raw materials 202,739 175,920
Manufacturing supplies 38,769 39,392
_________ _________
$ 326,229 $ 299,783
========= =========
NOTE 5 -- Long-Term Debt
Long-term debt was as follows:
9/30/94 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 weekly interest rate is tied to
the bank's tax exempt weekly interest rate.
The rate at September 30, 1994 is 3.75%. 8,000 8,000
State of Ohio Air Quality and Water Development
Revenue Refunding Bonds, maturing on
June 1, 2001. The variable weekly
interest rate is tied to the bank's tax
exempt weekly interest rate. The rate at
September 30, 1994 is 3.75% 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 1,495 1,740
________ ________
181,195 181,440
Less Current Maturities 189 282
________ ________
$181,006 $181,158
======== ========
7.
NOTE 6 -- Shareholder's Equity
The following details capital stock as of the dates indicated.
Sept. 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 - 31,031,886 shares;
1993 - 30,842,952 shares;
Stated capital 53,064 53,064
Other paid-in capital 253,115 247,699
Less cost of Common Stock in treasury
(1994 - 553 shares; 1993 - 40 shares) 21 1
_________ _________
$ 306,158 $ 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 42,672 42,672
Dividends Paid - $.75 per share (23,190) (23,190)
Purchased 58 shares of
treasury stock and issued
188,934 shares of common stock
in connection with various
employee benefit plans and
dividend reinvestment plan 5,416 (20) 5,396
Foreign currency translation
adjustment 7,967 7,967
_______ ________ ________ ________ ________ _________
Balance September 30, 1994 $53,064 $253,115 $(21) $422,048 $(10,049) $ 718,157
======= ======== ====== ======== ======== =========
8.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Targeted marketing programs along with systematic, aggressive cost-reduction
initiatives resulted in year-to-year sales and earnings gains for both the
quarter and nine months ended September 30, 1994. The company achieved
volume gains in virtually all of its markets, including Europe which has
begun emerging from a deep recession. Price increases remained modest. The
company's focus on continuous improvement has helped to reduce costs, improve
productivity and enhance its market position worldwide. Progress in these
areas has already strengthened the company's ability to serve customers and
is laying the groundwork for greater such improvements during the next few
years when more efficiencies are realized from accelerated continuous
improvement initiatives in the company's plants.
Net sales for the third quarter were $466.3 million, up 15% from $405.5
million a year earlier. Gross profit for the quarter was $100.6 million
(21.6% of net sales) compared to $75.6 million (18.6% of net sales) a year
earlier. The higher sales volume and a more favorable product mix along with
improved capacity utilization and labor productivity contributed to the
improved margin. This improvement was offset in part by higher costs for
steel scrap and increased employment costs. Gross profit for the third
quarter of 1993 also included income for LIFO inventory reductions in the
Bearing Business.
Selling, administrative, and general expenses were $70.7 million (15.2
percent of net sales) in the third quarter of 1994 compared to $67.6 million
(16.7 percent of net sales) in 1993. The increase in expense relates in part
to certain performance plans which are based on the company's profitability.
Savings resulting from the company's efforts to streamline administrative
activities continue to exceed expectations. Excluding inflation and costs
related to new strategic initiatives, the company remains on track to achieve
its goal of appreciably reducing its 1991 administrative cost structure.
The company continues to be 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.
The program is expected to eliminate approximately 2,200 positions by the end
of 1997 based on 1993 levels of plant operations. Annual savings expected to
result from this program will help to improve profitability and increase the
company's return on invested capital. Progress is continuing in these cost
reduction efforts at the company's manufacturing operations throughout the
world. The company expects to realize benefits from the program beginning in
1995 with over half of the savings in place by the end of 1996. The results
from ideas approved thus far have been greater than expected.
Bearing Business net sales increased by 16.2% to $317.3 million in the third
quarter of 1994 compared to $273.1 million in the year-earlier period.
Growth in automotive, industrial and railroad sales helped to increase volume
in nearly all of the company's locations throughout the world. Of particular
note is that sales volume in Europe for the third quarter of 1994 has
increased by about 17% compared to the same period a year ago. The business
also experienced modest price gains. Bearing Business gross profit as a
9.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Cont.)
Results of Operations (Cont.)
percent of net sales was higher in the third quarter of 1994 versus the same
quarter in 1993. The increase in sales and higher productivity contributed
positively to the third quarter 1994 gross profit. These gains were offset
in part by higher employment costs related primarily to the higher level of
production activity, which has added to overtime and caused the shift of some
products to less efficient processes. The Bearing Business opened its 21st
century bearing plant in Asheboro, North Carolina, during the third quarter
of 1994 and experienced some costs associated with its start-up.
In the Steel Business, net sales in the third quarter increased 12.5% to $149
million compared to $132.4 million in the year-earlier period. The Steel
Business experienced strong demand for its products during the third quarter
and continues to set production records. Steel Business gross profit
increased in the third quarter as the effects of the higher volume and a
favorable sales mix more than offset higher employment costs and higher raw
material costs related to the purchase of steel scrap. Some price increases
have been achieved in the third quarter which have helped to offset the
effects of the higher employment and scrap costs.
Interest expense was lower in the third quarter of 1994 compared to the
similar period in 1993 due primarily to the lower level of borrowing, and the
lower inflationary impact on interest for loans outstanding at the company's
subsidiary in Brazil.
The corporate effective tax rate for the three months and nine months ended
September 30, 1994 is lower primarily due to proportionally lower earnings in
certain non-U.S. operating units with higher tax rates and reduced non-U.S.
losses without current tax benefits.
Financial Condition
Total assets increased by $67.3 million from December 31, 1993, primarily as
a result of increased accounts receivable and inventory. The $39.5 million
increase in accounts receivable relates directly to the increase in sales.
The number of days sales in receivables at the end of the third quarter 1994
was basically unchanged compared to year-end 1993. The $26.4 million
increase in inventories relates to the higher level of production activity in
the third quarter of 1994. The number of days supply in inventory at
September 30, 1994 decreased slightly compared to year-end 1993.
Accounts payable and other liabilities decreased as a result of spending
against the impairment and restructuring reserves established in December
1993. The increase in accrued expenses during the first nine months of 1994
resulted primarily from an increase in the company's planned 1995 pension
contribution. Income taxes payable were higher as a result of the higher
income levels. Debt to total capital of 29.6% at September 30, 1994,
remained basically unchanged from 28.7% at year-end 1993.
Purchases of property, plant and equipment - net were $27.3 million and $79.4
million in the third quarter and first nine months of 1994 respectively.
10.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Cont.)
Financial Condition (Cont.)
This compares to $17.7 million and $58.3 million during the same periods in
1993. The higher level of spending during 1994 relates primarily to the
company's 21st century bearing project in Asheboro, North Carolina.
The $41 million provision for restructuring that was recorded in the fourth
quarter of 1991 has essentially been consumed. Additional expenditures were
charged against the reserve in the third quarter of 1994. A nominal dollar
amount remains, which is expected to 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
has spent approximately $9 million or 32% of the $28 million. Of the $3
million reserve established for additional administrative streamlining,
approximately $1.0 million or 33% has been consumed. In addition, the
company is incurring on-going costs related to the implementation of the
restructuring program including training, systems development, and capital
expenditures.
The company is in the process of making further modifications to its
unsecured, $300 million revolving credit agreement to take advantage of some
market pricing opportunities as a means of reducing costs. The credit will
consist of a $200 million five-year term portion and a $100 million 364-day
term portion which may be rolled over annually at prevailing market prices.
In addition, the modified agreement includes the replacement of the net worth
covenant with a more flexible debt to total capital ratio. The agreement
will become effective on November 15, 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.
As noted above, during the third quarter the company started limited
operations at its new Asheboro, North Carolina Bearing Plant. The plant
incorporates the most advanced technologies, processes and work practices to
serve customers more effectively and was completed ahead of schedule and
under budget.
On November 4, 1994, the Board of Directors declared a quarterly cash
dividend of $.25 per share, which is payable December 9, 1994, to
shareholders of record at the close of business on November 21, 1994.
11.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The company is currently involved in negotiations with the Ohio
Attorney General's office regarding alleged violations of the
company's NPDES water discharge permits at its Canton, Ohio
location. The company believes it has substantial defenses to the
violations alleged by the Attorney General, and that the matter
will ultimately be settled for an amount which will not be material
to its financial condition or results of operations.
In August, 1994, the company's Latrobe Steel Company subsidiary was
served with a complaint filed by seven former employees. Each of
the employees had been terminated from employment in late 1993 as
part of the company's administrative streamlining efforts. The
plaintiffs' claims include discrimination on account of age and/or
disability status, wrongful termination in violation of public
policy, breach of contract and promissory estoppel. The relief
requested includes reinstatement, back pay, front pay, liquidated
damages, attorneys' fees and compensatory and punitive damages
under the Americans With Disabilities Act and Pennsylvania law.
The company has denied all of the plaintiffs' allegations and
believes that it has valid defenses to the plaintiffs' claims. The
case is currently in the early stages of discovery. At this time,
the company believes that the ultimate resolution of this matter
will not be material to its financial condition or results of
operations.
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
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 November 14, 1994 BY /s/ J. F. Toot, Jr.
________________________ ______________________________
J. F. Toot, Jr., Director;
President and Chief Executive
Officer
Date November 14, 1994 BY /s/ G. E. Little
________________________ ______________________________
G. E. Little
Vice President - Finance