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, 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 September 30, 1995, 31,287,961.
PART I. FINANCIAL INFORMATION 2.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
Sep. 30 Dec. 31
1995 1994
ASSETS ------ ------
Current Assets (Thousands of dollars)
Cash and cash equivalents......................... $9,506 $12,121
Accounts receivable, less allowances,
(1995-$7,147; 1994-$6,268)........................ 297,645 263,533
Deferred income taxes............................. 42,381 49,222
Inventories (Note 2) ............................. 381,935 332,304
------ ------
Total Current Assets.................... 731,467 657,180
Property, Plant and Equipment..................... 2,310,114 2,230,004
Less allowances for depreciation................. 1,279,190 1,199,553
------ ------
1,030,924 1,030,451
Costs in excess of net assets of acquired business,
less amortization, (1995-$14,129; 1994-$11,818)... 101,556 91,249
Deferred income taxes............................. 44,600 45,395
Other assets...................................... 46,700 34,459
------ ------
Total Assets................................ $1,955,247 $1,858,734
====== ======
LIABILITIES
Current Liabilities
Accounts payable and other liabilities............ $216,892 $216,568
Short-term debt and commercial paper.............. 134,367 128,612
Accrued expenses.................................. 166,203 133,444
------ ------
Total Current Liabilities............... 517,462 478,624
Noncurrent Liabilities
Long-term debt (Note 3) .......................... 151,162 150,907
Accrued pension cost.............................. 90,233 109,644
Accrued postretirement benefits cost.............. 392,916 386,668
------ ------
634,311 647,219
Shareholders' Equity (Note 4)
Common stock...................................... 315,336 307,060
Earnings invested in the business................. 499,387 440,083
Cumulative foreign currency translation adjustment (11,249) (14,252)
------ ------
Total Shareholders' Equity.............. 803,474 732,891
Total Liabilities and Shareholders' Equity.. $1,955,247 $1,858,734
====== ======
PART I. FINANCIAL INFORMATION 3.
Continued
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended Three Months Ended
Sep. 30 Sep. 30 Sep. 30 Sep. 30
1995 1994 1995 1994
------ ------ ------ ------
(Thousands of dollars, except per share data)
Net sales....................................... $1,674,159 $1,426,872 $519,463 $466,344
Cost of product sold............................ 1,286,640 1,121,927 403,912 365,728
------ ------ ------ ------
Gross Profit................................. 387,519 304,945 115,551 100,616
Selling, administrative and general expenses.... 225,974 211,905 77,552 70,744
------ ------ ------ ------
Operating Income............................. 161,545 93,040 37,999 29,872
Interest expense................................ (15,162) (19,293) (4,781) (5,130)
Other - net..................................... (9,575) (2,628) (2,427) (2,554)
------ ------ ------ ------
Other Income (Expense)....................... (24,737) (21,921) (7,208) (7,684)
Income Before Income Taxes................... 136,808 71,119 30,791 22,188
Provision for Income Taxes (Note 5)............. 52,261 28,447 11,763 7,896
------ ------ ------ ------
Net Income................................... $84,547 $42,672 $19,028 $14,292
======== ======== ======== ========
Net Income Per Share * ...................... $2.71 $1.38 $0.61 $0.46
======== ======== ======== ========
Dividends Per Share.......................... $0.81 $0.75 $0.27 $0.25
======== ======== ======== ========
* Per average shares outstanding................ 31,159,689 30,921,919 31,244,711 30,987,827
PART I. FINANCIAL INFORMATION Continued 4.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
Cash Provided (Used) Sep. 30 Sep. 30
1995 1994
------ ------
OPERATING ACTIVITIES (Thousands of dollars)
Net Income.............................................. $84,547 $42,672
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................... 92,756 88,985
Provision (credit) for deferred income taxes........... 5,790 1,485
Stock issued in lieu of cash to employee benefit plans. 4,383 1,492
Changes in operating assets and liabilities:
Accounts receivable................................... (32,058) (35,756)
Inventories and other assets.......................... (72,561) (23,327)
Accounts payable and accrued expenses................. 22,469 5,493
Foreign currency translation.......................... (22) (99)
------ ------
Net Cash Provided (Used) by Operating Activities..... 105,304 80,945
INVESTING ACTIVITIES
Purchases of property, plant and equipment - net....... (89,313) (79,351)
FINANCING ACTIVITIES
Cash dividends paid to shareholders.................... (21,493) (19,284)
Payments on long-term debt............................. 269 (259)
Short-term debt activity - net......................... 2,755 23,053
------ ------
Net Cash Provided (Used) by Financing Activities..... (18,469) 3,510
Effect of exchange rate changes on cash................. (137) 274
Increase or (Decrease) in Cash and Cash Equivalents..... (2,615) 5,378
Cash and Cash Equivalents at Beginning of Period........ 12,121 5,284
------ ------
Cash and Cash Equivalents at End of Period.............. $9,506 $10,662
====== ======
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 5.
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.
9/30/95 12/31/94
Note 2 -- Inventories ------ ------
(Thousands of dollars)
Finished products $122,724 $94,162
Work-in-process and raw materials 217,647 198,161
Manufacturing supplies 41,564 39,981
------ ------
$381,935 $332,304
====== ======
Note 3 -- Long-term Debt 9/30/95 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 September 30, 1995 is 4.20%. 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 September 30, 1995
is 4.20% 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 1,742 1,430
------ ------
181,442 181,130
Less: Current Maturities 30,280 30,223
------ ------
$151,162 $150,907
====== ======
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 6.
Continued
Note 4 -- Shareholders' Equity 09/30/95 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 - 31,288,420 shares
1994 - 31,061,538 shares
Stated Capital 53,064 53,064
Other paid-in capital 262,293 254,002
Less cost of Common Stock in treasury
1995 - 459 shares
1994 - 180 shares 21 6
------ ------
$315,336 $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 84,547 84,547
Dividends paid - $.81 per share (25,243) (25,243)
Employee benefit and dividend reinvestment plans: 8,291 (15) 8,276
Treasury - issued/acquired 279 shares
Common Stock - issued 226,882 shares
Foreign currency translation adjustment 3,003 3,003
------ ------ ------ ------ ------ ------
Balance September 30, 1995 $53,064 $262,293 $499,387 ($11,249) ($21) $803,474
====== ====== ====== ====== ====== ======
PART I. NOTES TO FINANCIAL STATEMENTS 7.
(Unaudited) Continued
Note 5 -- Income Tax Provision Nine Months Ended Three Months Ended
Sep. 30 Sep. 30 Sep. 30 Sep. 30
1995 1994 1995 1994
------ ------ ------ ------
U.S. (Thousands of dollars)
Federal $35,684 $20,283 $7,359 $6,231
State & Local 6,604 1,843 1,911 (382)
Foreign 9,973 6,321 2,493 2,047
------ ------ ------ ------
$52,261 $28,447 $11,763 $7,896
====== ====== ====== ======
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
Continuing strong demand for the company's products, rising
productivity, and slightly improved pricing contributed to strong
increases in sales and profits for the quarter ended September 30,
1995. Sales and earnings for the first nine months set all-time
company records.
Although the company's performance was impacted somewhat by a
softening in the U.S. economy, particularly in the automotive
market, strong worldwide demand combined with the intense efforts of
the company's associates produced solid results. Sales in Mexico
remain light as a result of the unfavorable economic conditions
there. A slowdown has also occurred in Brazil; however, the company
has redirected excess production capacity at its manufacturing
facility there to meet the high demands in other parts of the world.
The company continues to operate near capacity in most of its
plants.
Higher overtime and training costs associated with increased
customer demand also slowed earnings growth in the third quarter.
The company expects this pattern to continue through the remainder
of 1995. Initiatives to reduce structural costs and improve
productivity remain on track.
Net sales for the third quarter were $519.5 million, up 11.4% from
$466.3 million a year earlier. The company increased sales in
virtually all of its markets except Mexico and Brazil. Gross profit
for the quarter was $115.6 million (22.2% of net sales) compared to
$100.6 million (21.6% of net sales) in the same period a year ago.
The higher sales volume and improved prices contributed to the
increase in profits. Gains resulting from efforts to reduce costs,
increase productivity, and improve capacity utilization were offset
in part by higher overtime and training costs incurred to meet
increased customer demand.
Selling, administrative, and general expenses were $77.6 million
(14.9% of net sales) in the third quarter of 1995 compared to $70.7
million (15.2% of net sales) in 1994. The company continues to
focus on continuous improvement in its administrative functions with
the intent of increasing overall effectiveness and efficiency.
Bearing Business net sales increased by 10.8% to $351.5 million in
the third quarter of 1995 compared to $317.3 million in the year-
9.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Results of Operations (Cont.)
earlier period. Bearing Business operating income was $33.4 million
in the 1995's third quarter, up 53.9% over the $21.7 million reported
in the third quarter of 1994. The business recognized income in the
third quarter from a write-up related to the annual taking of
physical inventory which improved profitability. In addition, strong
volume, improved sales mix, and better pricing also occurred. These
gains were offset by higher employment costs related to the higher
level of activity, which continues to require higher than normal
training, overtime and the shift of some products to less efficient
processes.
Steel Business sales of $168 million were 12.8% higher than the $149
million recorded a year earlier. Operating income in 1995's third
quarter was $4.6 million, down from the $8.2 million in the year-
earlier period. An inventory write-down, including an adjustment
from the annual taking of its physical inventory, reduced earnings.
Although the Steel Business experienced higher sales volume, profits
were adversely affected by sharply higher scrap prices.
Interest expense was slightly lower in the third quarter of 1995
compared to the year-ago period. Interest expense for the first nine
months of 1995 is also lower primarily due to the lower interest on
loans outstanding at the company's subsidiary in Brazil. Other
expense - net for the first nine months of 1995 was high in
comparison to the same period in 1994 primarily due to a favorable
currency translation adjustment in 1994 that related to the company's
subsidiary in Brazil.
Financial Condition
Total assets increased by $96.5 million from December 31, 1994,
primarily as a result of increased accounts receivable and
inventories. The $32.1 million increase in accounts receivable, as
reflected in the Consolidated Statements of Cash Flows, relates
primarily to the increase in sales. The $72.6 million increase in
inventories and other assets relates primarily to the higher level of
production activity. The number of days' sales in receivables and
the number of days' supply in inventory at the end of the third
quarter were basically unchanged compared to the previous year-end
levels.
The increase in accounts payable and accrued expenses relates to the
increased level of activity, higher pension expense and higher
10.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Financial Condition (Cont.)
income taxes payable related to the company's increased
profitability. In spite of substantially higher working capital
needs, the increase in debt was limited to a nominal amount. The
company continues to expect that debt will be reduced significantly
in 1995. The ratio of debt to total capital of 26.2% was lower than
the 27.6% at year-end 1994 primarily due to the increase in equity
that resulted from higher earnings.
Purchases of property, plant and equipment - net in the third quarter
of 1995 were $31.4 million compared to $27.3 million one year
earlier. The company is continuing to invest in 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
relates to the company's first quarter 1995 acquisition of Rail
Bearing Service, Inc.
The company continues to make excellent progress in its program
to accelerate continuous improvement in its manufacturing plants
worldwide and to strengthen 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 as part of a restructuring charge.
Incremental costs for engineering, employee training and other
manufacturing-related activities are expected to exceed $50
million during the implementation phase of the project. Such
costs will be reflected 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 continuing at virtually
every manufacturing site worldwide. Most facilities are in the
process of implementing cost saving ideas that were generated in the
initial phase of the program. Since the inception of the program,
the company has spent and charged to operations
11.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Financial Condition (Cont.)
approximately $7.9 million (of the projected $50 million) on
manufacturing-related costs involved with implementing completed
cost saving ideas. Approximately $1.7 million of these costs
were charged to operations in the third quarter 1995. In
addition, the company has spent approximately $21 million (of the
projected $100 million) on capital expenditures related to the
implementation of completed cost saving ideas, of which
approximately $2 million was spent in the third quarter of 1995.
A net positive cash flow from completed ideas of approximately
$16 million has been realized since the inception of the program
in 1994, with approximately $11 million being realized in 1995.
In addition, the continuous improvement ideas implemented as a
part of this program have also contributed to the increased
capacity needed to meet the high customer demand.
Of the $28 million reserve established in 1993 for certain
implementation costs, $14.2 million remained at December 31,
1994. In the third quarter of 1995, the company charged $2.0
million to the reserve which consisted mainly of consulting fees
paid to a third party for the cost reduction methodology and
specialized expertise in this area. Other charges to the reserve
in the third quarter 1995 related to employee separation and
equipment relocation costs. To-date, there have been
approximately 40 layoffs resulting from the implementation of
cost savings ideas. Management believes that the remaining
reserve of approximately $10 million is sufficient to cover
future cash expenditures which relate primarily to separation
costs.
In 1993, the company also provided $3 million for administrative
streamlining of which $1.8 million remained at December 31, 1994.
In the third quarter of 1995, approximately $0.2 million was
charged against the reserve, bringing year-to-date spending to
$0.5 million. The company believes that the $1.3 million reserve
balance at September 30, 1995, is adequate to cover future
expenditures.
During the third quarter, the company finalized revisions to its
unsecured, $300 million revolving credit agreement. The
modifications included a pricing change which will reduce the
company's fees and borrowing rates. The term of the credit
agreement was extended from August 31, 1999, to August 31, 2000.
12.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Financial Condition (Cont.)
In addition, the existing $100 million 364-day term portion of
the credit agreement was terminated on August 31, 1995, and
incorporated as part of the 5-year term portion of the revised
$300 million agreement.
Other Information
During the third quarter, the company's Bearing Business
introduced a new family of custom-designed products -- SpexxTM
Performance Bearings. The product line includes both tapered and
cylindrical bearings that provide cost-effective options to
customers with particular lower volume needs. Customers can
match such needs as high corrosion resistance or maximum fatigue
life with specific SpexxTM performance attributes. The new
bearings serve a wide range of industrial applications and
incorporate the most advanced manufacturing technology in the
bearing industry.
On November 3, 1995, the Board of Directors declared a quarterly
cash dividend of $.30 per share payable December 4, 1995, to
shareholders of record at the close of business on November 17,
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.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
14.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
4 Fourth Amended Agreement dated August 15,
1995, to the amended and restated credit
agreement as amended February 23, 1993, May
31, 1994, and November 15, 1994, between
Timken and certain banks.
10 The form of Deferred Compensation Agreement
entered into with Joseph F. Toot, Jr. and
W. R. Timken, Jr.
10.1 The Timken Company 1996 Deferred Compensation
Plan for officers and other key employees.
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 November 10, 1995 BY /s/ J. F. Toot, Jr.
________________________ _______________________________
J. F. Toot, Jr., Director;
President and Chief
Executive Officer
Date November 10, 1995 BY /s/ G. E. Little
________________________ _______________________________
G. E. Little
Vice President - Finance