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, 1995.
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
(216) 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 June 30, 1995, 31,202,512.
2.
PART I. FINANCIAL INFORMATION
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
June 30 Dec. 31
1995 1994
ASSETS ------ ------
Current Assets (Thousands of dollars)
Cash and cash equivalents......................... $6,566 $12,121
Accounts receivable, less allowances,
(1995-$6,886; 1994-$6,268)........................ 319,533 263,533
Deferred income taxes............................. 47,177 49,222
Inventories (Note 2) ............................. 357,235 332,304
------ ------
Total Current Assets.................... 730,511 657,180
Property, Plant and Equipment..................... 2,294,088 2,230,004
Less allowances for depreciation................. 1,259,899 1,199,553
------ ------
1,034,189 1,030,451
Costs in excess of net assets of acquired business,
less amortization, (1995-$13,352; 1994-$11,818)... 102,027 91,249
Deferred income taxes............................. 43,030 45,395
Other assets...................................... 39,190 34,459
------ ------
Total Assets................................ $1,948,947 $1,858,734
====== ======
LIABILITIES
Current Liabilities
Accounts payable and other liabilities............ $234,539 $216,568
Short-term debt and commercial paper.............. 118,449 128,612
Accrued expenses.................................. 154,543 133,444
------ ------
Total Current Liabilities............... 507,531 478,624
Noncurrent Liabilities
Long-term debt (Note 3) .......................... 150,797 150,907
Accrued pension cost.............................. 108,798 109,644
Accrued postretirement benefits cost.............. 392,034 386,668
------ ------
651,629 647,219
Shareholders' Equity (Note 4)
Common stock...................................... 312,381 307,060
Earnings invested in the business................. 488,795 440,083
Cumulative foreign currency translation adjustment (11,389) (14,252)
------ ------
Total Shareholders' Equity.............. 789,787 732,891
Total Liabilities and Shareholders' Equity.. $1,948,947 $1,858,734
====== ======
3.
PART I. FINANCIAL INFORMATION
Continued
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended Three Months Ended
June 30 June 30 June 30 June 30
1995 1994 1995 1994
------ ------ ------ ------
(Thousands of dollars, except per share data)
Net sales....................................... $1,154,696 $960,528 $585,797 $494,046
Cost of product sold............................ 882,728 756,199 452,655 381,159
------ ------ ------ ------
Gross Profit................................. 271,968 204,329 133,142 112,887
Selling, administrative and general expenses.... 148,422 141,161 74,783 70,832
------ ------ ------ ------
Operating Income............................. 123,546 63,168 58,359 42,055
Interest expense................................ (10,381) (14,163) (4,945) (6,780)
Other - net..................................... (7,148) (74) (3,313) 19
------ ------ ------ ------
Other Income (Expense)....................... (17,529) (14,237) (8,258) (6,761)
Income Before Income Taxes................... 106,017 48,931 50,101 35,294
Provision for Income Taxes (Note 5)............. 40,498 20,551 18,858 14,660
------ ------ ------ ------
Net Income................................... $65,519 $28,380 $31,243 $20,634
====== ====== ====== ======
Net Income Per Share * ...................... $2.11 $0.92 $1.00 $0.67
====== ====== ====== ======
Dividends Per Share.......................... $0.54 $0.50 $0.27 $0.25
====== ====== ====== ======
* Per average shares outstanding................ 31,117,222 30,890,262 31,155,318 30,922,092
4.
PART I. FINANCIAL INFORMATION Continued
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
Cash Provided (Used) June 30 June 30
1995 1994
------ ------
OPERATING ACTIVITIES (Thousands of dollars)
Net Income.............................................. $65,519 $28,380
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................... 62,034 59,183
Provision (credit) for deferred income taxes........... 2,088 (6,896)
Stock issued in lieu of cash to employee benefit plans. 3,182 581
Changes in operating assets and liabilities:
Accounts receivable................................... (53,234) (41,739)
Inventories and other assets.......................... (39,832) (10,322)
Accounts payable and accrued expenses................. 40,285 33,766
Foreign currency translation.......................... 1,271 (140)
------ ------
Net Cash Provided (Used) by Operating Activities..... 81,313 62,813
INVESTING ACTIVITIES
Purchases of property, plant and equipment - net....... (57,939) (52,038)
FINANCING ACTIVITIES
Cash dividends paid to shareholders.................... (14,668) (12,859)
Payments on long-term debt............................. (102) (136)
Short-term debt activity - net......................... (13,851) 883
------ ------
Net Cash Provided (Used) by Financing Activities..... (28,621) (12,112)
Effect of exchange rate changes on cash................. (308) 51
Increase or (Decrease) in Cash and Cash Equivalents..... (5,555) (1,286)
Cash and Cash Equivalents at Beginning of Period........ 12,121 5,284
------ ------
Cash and Cash Equivalents at End of Period.............. $6,566 $3,998
====== ======
5.
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited)
Note 1 -- Basis of Presentation
The accompanying consolidated condensed financial statements (unaudited) 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, 1994.
6/30/95 12/31/94
Note 2 -- Inventories ------ ------
(Thousands of dollars)
Finished products $106,788 $94,162
Work-in-process and raw materials 209,361 198,161
Manufacturing supplies 41,086 39,981
------ ------
$357,235 $332,304
====== ======
Note 3 -- Long-term Debt 6/30/95 12/31/94
------ ------
(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, 1995 is 4.00%. 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, 1995
is 4.00% 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 1,313 1,430
------ ------
181,013 181,130
Less: Current Maturities 30,216 30,223
------ ------
$150,797 $150,907
====== ======
6.
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited)
Continued
Note 4 -- Shareholders' Equity 06/30/95 12/31/94
------ ------
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 -- 100,000,000 shares
Issued (including shares in treasury)
1995 - 31,204,303 shares
1994 - 31,061,538 shares
Stated Capital 53,064 53,064
Other paid-in capital 259,397 254,002
Less cost of Common Stock in treasury
1995 - 1,791 shares
1994 - 180 shares 80 6
------ ------
$312,381 $307,060
====== ======
An analysis of the change in capital and earnings invested in the business is as follows:
Common Stock
-------------------- Earnings Foreign
Other Invested Currency
Stated Paid-In in the TranslationTreasury
Capital Capital Business Adjustment Stock Total
------ ------ ------ ------ ------ ------
(Thousands of dollars)
Balance December 31, 1994 $53,064 $254,002 $440,083 ($14,252) ($6) $732,891
Net Income 65,519 65,519
Dividends paid - $.54 per share (16,807) (16,807)
Employee benefit and dividend reinvestment plans: 5,395 (74) 5,321
Treasury - issued/acquired 1,611 shares
Common Stock - issued 142,524 shares
Foreign currency translation adjustment 2,863 2,863
------ ------ ------ ------ ------ ------
Balance June 30, 1995 $53,064 $259,397 $488,795 ($11,389) ($80) $789,787
====== ====== ====== ====== ====== ======
7.
PART I. NOTES TO FINANCIAL STATEMENTS
(Unaudited) Continued
Note 5 -- Income Tax Provision Six Months Ended Three Months Ended
June 30 June 30 June 30 June 30
1995 1994 1995 1994
------ ------ ------ ------
U.S. (Thousands of dollars)
Federal $28,325 $14,052 $13,322 $11,626
State & Local 4,693 2,225 2,190 1,946
Foreign 7,480 4,274 3,346 1,088
------ ------ ------ ------
$40,498 $20,551 $18,858 $14,660
====== ====== ====== ======
Taxes provided exceed the U.S. statutory rate primarily due to
state and local taxes.
8.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
As a result of continuing market expansion, increasing
productivity and slightly improved pricing, the company achieved
sales and earnings records for the first half of 1995 as well as
a new sales high for the quarter ended June 30. This performance
is indicative of the company's dedication to building momentum
for additional success in the 1990s.
Although the company has benefited from expanding demand
throughout the world, the results for the first half and second
quarter reflect the company's good management of its facilities
and the dedication and hard work of its associates. The company
continues to make progress on its accelerated continuous
improvement program in its worldwide manufacturing facilities, an
aggressive cost-cutting effort. In addition, product enrichment,
a combination of new products and innovatively redesigning
existing products, has been an important contributor to the
company's sales growth. All of these factors have helped the
company to meet global demand, increase market penetration and
sell in many more markets throughout the world.
Net sales for the second quarter of 1995 were $585.8 million, up
18.6% from $494 million a year earlier. The company increased sales
in all major markets, including soft markets such as aerospace and
oil and gas. Sales were also higher in most geographic markets
except Mexico where sales have fallen due to the peso devaluation
and resulting economic contraction. Gross profit for the quarter
was $133.1 million (22.7% of net sales) compared to $112.9 million
(22.8% of net sales) in the same period a year ago. The higher
sales volume along with improved prices and increasing productivity
contributed to the higher profits. This improvement was offset in
part by costs related to the company's efforts to serve its
customers' needs which continue to require overtime and the shift of
some products to less efficient processes. Training costs were also
higher in the second quarter of 1995.
Selling, administrative and general expenses were $74.8 million
(12.8% of net sales) in the second quarter of 1995 compared to $70.8
million (14.3% of net sales) in 1994. Despite sharply higher sales
and attendant supporting costs, selling, administrative and general
expenses in the second quarter of 1995 were lower as a percent of
sales when compared to the year-ago period. The company continues to
focus on making improvements in its administrative functions with the
intent of increasing overall effectiveness and efficiency.
9.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Results of Operations (Cont.)
Management believes that success in this area will continue to be a
significant component of the company's strengthened international
leadership.
Bearing Business net sales increased by 18.6% to $399.8 million in
the second quarter of 1995 compared to $337 million in the year-
earlier period. Bearing sales were up in all industries the company
serves and in most geographic markets, excluding Mexico. Bearing
Business operating income rose 60.6% to $34.2 million from $21.3
million in 1994's second quarter. This increase in profit resulted
primarily from the higher sales volume, increasing productivity and
improved prices. Results would have been better except for costs
associated with stretching to meet high customer demand.
Steel Business sales of $186 million were 18.5% higher than the $157
million recorded a year earlier. Operating income in 1995's second
quarter was $24.1 million, up $3.3 million from the year-earlier
period. Higher sales volume, cost reductions and improved pricing
all led to the increase in profitability.
Interest expense was lower in the second quarter of 1995 primarily
due to the lower inflationary impact on interest for loans
outstanding at the company's subsidiary in Brazil. Other expense -
net was higher in 1995's second quarter. The second quarter 1994
amount reflected a favorable currency translation adjustment related
to the company's subsidiary in Brazil.
Financial Condition
Total assets increased by $90.2 million from December 31, 1994,
primarily as a result of increased accounts receivable and
inventories. The $53.2 million increase in accounts receivable, as
reflected in the Consolidated Statements of Cash Flows, relates
primarily to the increase in sales. The $39.8 million increase in
inventories and other assets relates primarily to the higher level of
production activity in the first quarter 1995. The number of days'
sales in receivables and the number of days' supply in inventory at
June 30, 1995, were slightly lower compared to the previous year-end
levels. The increase in accounts payable and accrued expenses
relates to the higher level of activity.
In spite of the substantially higher working capital needs, the
company was able to decrease debt in the second quarter. The company
10.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Financial Condition (Cont.)
believes that a strong balance sheet is extremely important for its
type of business - a manufacturing enterprise with a strong
leadership position - and expects to achieve a substantially reduced
debt level by the end of 1995. The ratio of debt to total capital of
25.4% was lower than the 27.6% at year-end 1994. Both the company's
lower debt level and the increase in shareholders' equity, resulting
primarily from higher earnings, account for the improvement in the
ratio.
Purchases of property, plant and equipment - net in the second
quarter of 1995 were $29.2 million compared to $26 million a year
earlier. The company is continuing to invest in the most advanced
and innovative technologies in its plants throughout the world.
Capital investments within existing plants have allowed the company
to increase capacity needed to meet the higher customer demand for
its products.
The increase in costs in excess of acquired business primarily
related to the company's first quarter 1995 acquisition of Rail
Bearing Service, Inc.
The company continues to make excellent progress in the program to
accelerate continuous improvement in its manufacturing plants
worldwide and to increase its long-term competitive position. The
program, announced in December 1993, seeks to reduce the company's
manufacturing cost structure by about 15% based on 1993 volume
levels. Total net savings resulting from the program are expected
to be at least $200 million on an annual basis. Certain costs to
implement the program, approximately $28 million, were charged to
operations in 1993. Incremental costs for engineering, employee
training and other manufacturing-related activities are expected to
exceed $50 million during the implementation phase of this project.
Such costs will be recognized in the company's financial statements
when incurred and will be paid from operations. Incremental capital
expenditures relating to the program will be about $100 million and
will result in increased depreciation in future years.
The manufacturing improvement program is in progress at virtually
every company manufacturing site worldwide. The company is on track
to realize the anticipated savings resulting from the program.
Since inception of the formal program in 1994, the company has spent
and charged to operations approximately $6.2 million on
manufacturing-related costs involved with implementing cost saving
11.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Financial Condition (Cont.)
ideas. Approximately $1.7 million of these costs were charged to
operations in the second quarter of 1995. In addition, the company
has also expended about $19 million on capital expenditures to
implement cost saving ideas related to the program of which
approximately $6 million was spent in the second quarter of 1995.
The estimated savings from the program realized to-date have more
than offset the cash expenditures for the incremental implementation
costs and capital expenditures. Net positive cash flow of
approximately $13 million has been realized since the inception of
the program in 1994, with approximately $8 million being realized in
1995. Continuous improvement ideas implemented as part of this
program have also contributed to increased capacity needed to meet
the higher customer demand.
Of the $28 million reserve established in December 1993, for certain
implementation costs, $14.2 million remained at December 31, 1994.
In the second quarter of 1995, the company had cash outlays of
approximately $0.7 million that were charged to the reserve. Most
of the cash outlays relate to the payment of consulting fees to a
third party for their cost reduction methodology and specialized
expertise in this area. Management believes that the remaining
manufacturing provision of $12.0 million is sufficient to cover
future cash expenditures for separation costs and consulting fees.
In 1993, the company also provided $3 million for administrative
streamlining. In the second quarter of 1995, $0.1 million was
charged against the $1.8 million reserve that remained at December
31, 1994. The June 30, 1995, reserve balance of $1.5 million is
believed to be adequate to cover future expenditures.
The company is in the process of making modifications to its
unsecured, $300 million revolving credit agreement. The changes
will be effective August 31, 1995, and will basically involve a
pricing change which will reduce the company's fees and borrowing
rates. The term of the $300 million credit agreement will be
extended from August 31, 1999, to August 31, 2000. The existing 364-
day credit agreement of $100 million will be terminated on August
31, 1995, as part of the change.
Other Information
At a June 4, 1995, meeting of the Board of Directors, Martin D.
Walker was elected a director of The Timken Company, and at its
12.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Other Information (Cont.)
August 4, 1995, meeting was elected to the Audit Committee.
Mr. Walker has served as chairman and chief executive officer
of M. A. Hanna Company in Cleveland, Ohio, since he joined the
company in 1986. He brings more than 40 years of experience in
business and manufacturing to the company's Board of Directors.
On August 4, 1995, the Board of Directors declared a quarterly cash
dividend of $.27 per share, which is payable on September 5, 1995,
to shareholders of record at the close of business on August 18,
1995.
13.
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 that 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 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 plaintiff's allegations
and believes that it has valid defenses to the plaintiffs'
claims. Discovery in the case is now completed, and a
motion for summary judgment has been filed by the company.
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.
14.
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
27 Article 5
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, 1995 BY /s/ J. F. Toot, Jr.
________________________ _______________________________
J. F. Toot, Jr., Director;
President and Chief
Executive Officer
Date August 11, 1995 BY /s/ G. E. Little
________________________ _______________________________
G. E. Little
Vice President - Finance