1.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended March 31, 1996.
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
(330) 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 March 31, 1996, 31,452,753.
PART I. FINANCIAL INFORMATION 2.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
Mar. 31 Dec. 31
1996 1995
ASSETS ------ ------
Current Assets
Cash and cash equivalents......................... $864 $7,262
Accounts receivable, less allowances,
(1996-$6,996; 1995-$6,632)........................ 320,583 284,924
Deferred income taxes............................. 54,040 50,183
Inventories (Note 2) ............................. 395,362 367,889
------ ------
Total Current Assets.................... 770,849 710,258
Property, Plant and Equipment..................... 2,364,061 2,337,450
Less allowances for depreciation................. 1,324,352 1,298,068
------ ------
1,039,709 1,039,382
Costs in excess of net assets of acquired business,
less amortization, (1996-$15,777; 1995-$14,985)... 102,062 102,854
Deferred income taxes............................. 30,374 31,176
Other assets...................................... 44,717 42,255
------ ------
Total Assets................................ $1,987,711 $1,925,925
====== ======
LIABILITIES
Current Liabilities
Accounts payable and other liabilities............ $234,330 $229,096
Short-term debt and commercial paper.............. 62,068 60,078
Accrued expenses.................................. 191,528 173,189
------ ------
Total Current Liabilities............... 487,926 462,363
Noncurrent Liabilities
Long-term debt (Note 3) .......................... 151,108 151,154
Accrued pension cost.............................. 105,331 97,524
Accrued postretirement benefits cost.............. 394,893 393,706
------ ------
651,332 642,384
Shareholders' Equity (Note 4)
Common stock...................................... 321,944 317,455
Earnings invested in the business................. 541,981 517,802
Cumulative foreign currency translation adjustment (15,472) (14,079)
------ ------
Total Shareholders' Equity.............. 848,453 821,178
Total Liabilities and Shareholders' Equity.. $1,987,711 $1,925,925
====== ======
PART I. FINANCIAL INFORMATION 3.
Continued
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
Mar. 31 Mar. 31
1996 1995
-------- --------
(Thousands of dollars, except per share data)
Net sales....................................... $595,954 $568,899
Cost of product sold............................ 456,739 430,073
------ ------
Gross Profit................................. 139,215 138,826
Selling, administrative and general expenses.... 78,917 73,639
------ ------
Operating Income............................. 60,298 65,187
Interest expense................................ (3,675) (5,436)
Other - net..................................... (2,780) (3,835)
------ ------
Other Income (Expense)....................... (6,455) (9,271)
Income Before Income Taxes................... 53,843 55,916
Provision for Income Taxes (Note 5)............. 20,245 21,640
------ ------
Net Income................................... $33,598 $34,276
====== ======
Net Income Per Share * ...................... $1.07 $1.10
====== ======
Dividends Per Share.......................... $0.30 $0.27
====== ======
* Per average shares outstanding................ 31,390,830 31,076,704
PART I. FINANCIAL INFORMATION Continued 4.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
Cash Provided (Used) Mar. 31 Mar. 31
1996 1995
------ ------
OPERATING ACTIVITIES (Thousands of dollars)
Net Income.............................................. $33,598 $34,278
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................... 30,891 30,810
Provision (credit) for deferred income taxes........... (2,322) 73
Stock issued in lieu of cash to employee benefit plans. 2,298 1,635
Changes in operating assets and liabilities:
Accounts receivable................................... (36,744) (42,538)
Inventories and other assets.......................... (28,929) (39,430)
Accounts payable and accrued expenses................. 31,657 37,807
Foreign currency translation.......................... (48) 1,185
------ ------
Net Cash Provided (Used) by Operating Activities..... 30,401 23,820
INVESTING ACTIVITIES
Purchases of property, plant and equipment - net....... (32,598) (28,722)
FINANCING ACTIVITIES
Cash dividends paid to shareholders.................... (7,227) (7,376)
Payments on long-term debt............................. (34) (48)
Short-term debt activity - net......................... 3,000 2,953
------ ------
Net Cash Provided (Used) by Financing Activities..... (4,261) (4,471)
Effect of exchange rate changes on cash................. 60 (183)
Increase or (Decrease) in Cash and Cash Equivalents..... (6,398) (9,556)
Cash and Cash Equivalents at Beginning of Period........ 7,262 12,121
------ ------
Cash and Cash Equivalents at End of Period.............. $864 $2,565
====== ======
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, 1995.
3/31/96 12/31/95
Note 2 -- Inventories ------ ------
(Thousands of dollars)
Finished products $143,844 $130,894
Work-in-process and raw materials 209,977 195,126
Manufacturing supplies 41,541 41,869
------ ------
$395,362 $367,889
====== ======
Note 3 -- Long-term Debt 3/31/96 12/31/95
------ ------
(Thousands of dollars)
7-1/2% State of Ohio Pollution Control
Revenue Refunding Bonds, maturing on
January 1, 2002 $17,000 $17,000
State of Ohio Water Development Revenue
Refunding Bond, maturing on May 1, 2007.
The variable interest rate is tied to the
bank's tax exempt weekly interest rate.
The rate at March 31, 1996 is 3.10%. 8,000 8,000
State of Ohio Air Quality and Water Development
Revenue Refunding Bonds, maturing on
June 1, 2001. The variable interest rate
is tied to the bank's tax exempt weekly
interest rate. The rate at March 31, 1996
is 3.10% 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% 103,000 103,000
Other 1,786 1,768
------ ------
151,486 151,468
Less: Current Maturities 378 314
------ ------
$151,108 $151,154
====== ======
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 6.
Continued
Note 4 -- Shareholders' Equity 03/31/96 12/31/95
------ ------
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)
1996 - 31,452,939 shares
1995 - 31,354,307 shares
Stated Capital 53,064 53,064
Other paid-in capital 268,889 264,567
Less cost of Common Stock in treasury
1996 - 186 shares
1995 - 4444 shares 9 176
------ ------
$321,944 $317,455
====== ======
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 Translation Treasury
Capital Capital Business Adjustment Stock Total
------ ------ ------ ------ ------ ------
(Thousands of dollars)
Balance December 31, 1995 $53,064 $264,567 $517,802 ($14,079) ($176) $821,178
Net Income 33,598 33,598
Dividends paid - $.30 per share (9,419) (9,419)
Employee benefit and dividend reinvestment plans: 4,322 167 4,489
Treasury - issued/acquired 4,258 shares
Common Stock - issued 98,632 shares
Foreign currency translation adjustment (1,393) (1,393)
------ ------ ------ ------ ------ ------
Balance March 31, 1996 $53,064 $268,889 $541,981 ($15,472) ($9) $848,453
====== ====== ====== ====== ====== ======
PART I. NOTES TO FINANCIAL STATEMENTS 7.
(Unaudited) Continued
Note 5 -- Income Tax Provision Three Months Ended
Mar. 31 Mar. 31
1996 1995
------ ------
U.S. (Thousands of dollars)
Federal $15,359 $15,003
State & Local 2,770 2,503
Foreign 2,116 4,134
------ ------
$20,245 $21,640
====== ======
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
Net sales for the first quarter were $596 million, up 4.8% from
1995's first quarter record level of $568.9 million. During the
first quarter of 1996 The Timken Company continued to experience
strong demand for its products despite some weakness in some sectors
in both the U.S. and Europe. Sales to the U.S. automotive and
railroad segments were off somewhat, but the company achieved growth
in sales to the general industrial and aerospace segments as well as
in Europe. Sales in Mexico during the first quarter 1996 were also
higher than the same period a year ago.
Gross profit for the quarter was $139.2 million (23.4% of net sales)
compared to $138.8 million (24.4% of net sales) in the same period a
year ago. The effects on profit of higher sales volume and improved
prices were more than offset by higher raw materials and energy
costs, the effects of the General Motors Corporation work stoppage,
and the harsh winter weather in North America. Profits were also
affected by higher pension expense in the first quarter of 1996
resulting from a December 1995 reduction in the company's discount
rate for U.S.-based pension and postretirement benefit plans from
8.25% to 7.25%, and changes in other actuarial assumptions used in
its calculation of future pension and postretirement medical
expense.
Selling, administrative, and general expenses were $78.9 million
(13.2% of net sales) in the first quarter of 1996 compared to $73.6
million (12.9% of net sales) in 1995. The company experienced
higher expense in the first quarter 1996 due in part to the
company's new pay-for-performance plan for salaried associates that
was implemented in the fourth quarter of 1995. This new
compensation plan increases the linkage between company performance
and pay. The company continues to focus on continuous improvement
in its administrative functions with the intent of improving its
performance for customers and shareholders.
Bearing Business net sales increased by 3.2% to $407.5 million in the
first quarter of 1996 compared to $395 million in the year-earlier
period. Sales in the railroad segment were weak. Lower car
production in the U.S. compounded by the General Motors Corporation
work stoppage had an adverse effect on automotive sales; however,
light truck and sport utility vehicle sales remained strong. Bearing
9.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Business operating income was $40.4 million in the 1996's first
quarter, down from the $41.8 million reported in the first quarter of
1995. Although the Bearing Business experienced some improvements in
price and product mix, profits were adversely affected by higher
energy and the aforementioned employee benefit related costs.
Steel Business sales of $188.5 million were 8.4% higher than the
$173.9 million recorded a year earlier, due primarily to an increase
in steel bar sales. The General Motors Corporation work stoppage
limited steel tube shipments in the first quarter. Operating income
in the first quarter of 1996 was $19.9 million, down from the $23.4
million in the year-earlier period. Higher raw material and energy
costs, a less favorable product mix, harsh winter weather in January
and higher employee benefit related costs contributed to the decline
in profitability.
Interest expense was lower in the first quarter of 1996 compared to
the year-ago period resulting primarily from the company's lower
average outstanding debt.
Financial Condition
Total assets increased by $61.8 million from December 31, 1995,
primarily as a result of increased accounts receivable and
inventories. The $36.7 million increase in accounts receivable, as
reflected in the Consolidated Statements of Cash Flows, relates
primarily to the increase in sales. The number of days' sales in
receivables at March 31, 1996 was lower than the year-end 1995 level.
The $28.9 million increase in inventories and other assets relates
primarily to the higher level of production activity; however the
number of days' supply in inventory at the end of the first quarter
was higher than the previous year-end level.
The increase in accounts payable and accrued expenses relates to the
increased level of activity, higher pension and postretirement
medical expenses and higher income taxes. Debt of $213.2 million at
the end of the first quarter of 1996 was basically unchanged
compared to $211.2 million at year-end 1995. The ratio of debt to
total capital of 20.1% was slightly lower than the 20.5% at year-end
1995.
10.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Purchases of property, plant and equipment - net in the first
quarter of 1996 were $32.6 million compared to $28.7 million one year
earlier. The company continues to invest in activities consistent
with the strategies it is pursuing to achieve an industry leadership
position. New acquisitions and further capital investments in
technologies in the company's plants throughout the world provide
Timken with the opportunity to accelerate growth and strengthen its
position in new and existing markets.
The company continues to make good progress in its efforts, announced
in 1993, to accelerate significantly continuous improvement in its
manufacturing plants worldwide. The total annual cost reduction in
the company's manufacturing cost structure is expected to be at least
$200 million based on 1993 volume levels. The company's current
expectations are that up to 50% of this annual savings level will be
realized in 1996. This improvement in manufacturing costs will be
offset to some degree by inflation and higher costs associated with
new production initiatives. As a result of the implementation of
cost saving ideas, approximately 65 employees were laid off in the
first quarter of 1996 throughout the company's worldwide
manufacturing plants. Any separation costs associated with these
layoffs were charged to accounting reserves established in December
1993. At this point in time, management believes that the layoff
reserves remaining are adequate to cover future layoffs.
Other Information
During the first quarter of 1996, Timken acquired the bearing assets
of a business known as FLT Prema Milmet S.A. in Sosnowiec, Poland.
This subsidiary will be called Timken Polska Sp.z o.o. and will
serve mainly the automotive, agricultural and industrial machinery
markets in Central Europe.
In March, Timken and Shandong Yantai Bearing Factory entered into
a joint venture to produce bearings in China. The new company,
Yantai Timken Company Limited, will be located in Yantai Shandong
Province, on the northeast coast of China near the Yellow Sea.
Operations at the new company are expected to commence late in
the second quarter of 1996.
Also during the first quarter, the company entered into a definitive
agreement to acquire the assets of Ohio Alloy Steels, Inc., a
11.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
privately owned company established in 1971 to service specialty
steel customers. The transaction was finalized on May 2, 1996, at
which time operations of the new company began. Ohio Alloy Steels
will function as a subsidiary of the Latrobe Steel Company, which
has been a Timken Company subsidiary since 1975.
On April 16, 1996, the Board of Directors declared a quarterly cash
dividend of $.30 per share payable June 3,1996, to shareholders of
record at the close of business on May 17, 1996.
Some of the statements set forth in this document that are not
historical in nature are forward-looking statements. The company
cautions readers that actual results may differ materially from
those projected or implied in forward-looking statements made by
or on behalf of the company due to a variety of important
factors, such as:
- - changes in world economic conditions, including the
potential instability of governments and legal systems in
countries in which the company conducts business,
significant changes in currency valuations, and the impact
of industrial business cycles.
- - changes in customer demand on sales and product mix,
including the impact of customer strikes.
- - competitive factors, including changes in market penetration
and the introduction of new products by existing and new
competitors.
- - changes in operating costs as they relate to changes in the
company's manufacturing processes; higher cost associated
with increasing output to meet higher customer demands; the
effects of weather; unplanned work stoppages; and changes in
the cost of labor, health care and retirement benefits, raw
material, and energy.
- - the success of the company's operating plans, including its
ability to achieve the total benefits of its accelerated
continuous improvement program.
- - unanticipated product warranty and environmental claims or
problems.
12.
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 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 plaintiff's allegations
and believes that it has valid defenses to the plaintiffs'
claims. Discovery in this matter has been completed. In
April 1995, the company filed a motion to sever the trials
of each of the individual plaintiffs. The motion was
granted, and the cases will be tried seriatim. The trials
were expected to begin in March 1996 but the company
continues to be "on call" awaiting notification by the
court that it is ready to start the trials. 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.
13.
Item 4. Submission of Matters to a Vote of Security Holders
(1) Shareholders approved The Timken Company Long-Term
Incentive Plan, as amended and restated on
December 20, 1995.
Affirmative Negative
22,383,533 4,877,564
(2) Shareholders approved the adoption of an amendment to
Article Fourth of the Company's Amended Articles of
Incorporation to increase authorized Common Stock from
100,000,000 shares without par value to
200,000,000 shares without par value.
Affirmative Negative
23,832,008 3,373,898
(3) The Board of Directors recommended the four
individuals set forth below be elected Directors in Class II
at the 1996 Annual Meeting of Shareholders of The Timken
Company held on April 16, 1996, to serve for a term of
three years expiring at the Annual Meeting in 1999
(or until their respective successors are elected
and qualified). Mr. Mahoney and Mr. Toot had been
previously elected as Directors by the shareholders and
were re-elected at the 1996 meeting.
Affirmative Withheld
J. Clayburn La Force, Jr. 27,180,528 267,856
Robert W. Mahoney 27,186,176 262,208
Jay A Precourt 27,188,335 260,049
Joseph F. Toot, Jr. 27,117,676 330,708
Item 5. Other Information
Not applicable.
14.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
(3) (i) Amended Articles of Incorporation of The
Timken Company (Effective April 16, 1996) were
filed with Form S-8 dated April 16, 1996, and
are incorporated herein by reference.
10 The Timken Company Long-Term Incentive Plan
for officers and other key employees as
amended and restated as of December 20, 1995 and
approved by shareholders on April 16, 1996, was
filed as Appendix A to Proxy Statement dated
March 6, 1996, and is incorporated herein
by reference.
10.1 Form of The Timken Company Nonqualified Stock
Option Agreement for nontransferable options as
adopted on April 16, 1996.
10.2 Form of The Timken Company Nonqualified Stock
Option Agreement for transferable options as
adopted on April 16, 1996.
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 May 14, 1996 BY /s/ J. F. Toot, Jr.
________________________ _______________________________
J. F. Toot, Jr., Director;
President and Chief
Executive Officer
Date May 14, 1996 BY /s/ G. E. Little
________________________ _______________________________
G. E. Little
Vice President - Finance