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, 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 June 30, 1996, 31,525,125.
PART I. FINANCIAL INFORMATION 2.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
June 30 Dec. 31
1996 1995
ASSETS ------ ------
Current Assets
Cash and cash equivalents......................... $6,869 $7,262
Accounts receivable, less allowances,
(1996-$7,481; 1995-$6,632)........................ 326,535 284,924
Deferred income taxes............................. 52,686 50,183
Inventories (Note 2) ............................. 413,866 367,889
------ ------
Total Current Assets.................... 799,956 710,258
Property, Plant and Equipment..................... 2,411,167 2,337,450
Less allowances for depreciation................. 1,352,414 1,298,068
------ ------
1,058,753 1,039,382
Costs in excess of net assets of acquired business,
less amortization, (1996-$16,655; 1995-$14,985)... 114,162 102,854
Deferred income taxes............................. 30,710 31,176
Other assets...................................... 51,725 42,255
------ ------
Total Assets................................ $2,055,306 $1,925,925
====== ======
LIABILITIES
Current Liabilities
Accounts payable and other liabilities............ $235,751 $229,096
Short-term debt and commercial paper.............. 101,656 60,078
Accrued expenses.................................. 192,913 173,189
------ ------
Total Current Liabilities............... 530,320 462,363
Noncurrent Liabilities
Long-term debt (Note 3) .......................... 151,012 151,154
Accrued pension cost.............................. 102,823 97,524
Accrued postretirement benefits cost.............. 396,551 393,706
------ ------
650,386 642,384
Shareholders' Equity (Note 4)
Common stock...................................... 324,794 317,455
Earnings invested in the business................. 567,064 517,802
Cumulative foreign currency translation adjustment (17,258) (14,079)
------ ------
Total Shareholders' Equity.............. 874,600 821,178
Total Liabilities and Shareholders' Equity.. $2,055,306 $1,925,925
====== ======
PART I. FINANCIAL INFORMATION 3.
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
1996 1995 1996 1995
------ ------ ------ ------
(Thousands of dollars, except per share data)
Net sales....................................... $1,197,507 $1,154,696 $601,553 $585,797
Cost of product sold............................ 915,903 882,728 459,164 452,655
------ ------ ------ ------
Gross Profit................................. 281,604 271,968 142,389 133,142
Selling, administrative and general expenses.... 157,134 148,422 78,217 74,783
------ ------ ------ ------
Operating Income............................. 124,470 123,546 64,172 58,359
Interest expense................................ (7,734) (10,381) (4,059) (4,945)
Other - net..................................... (5,061) (7,148) (2,281) (3,313)
------ ------ ------ ------
Other Income (Expense)....................... (12,795) (17,529) (6,340) (8,258)
Income Before Income Taxes................... 111,675 106,017 57,832 50,101
Provision for Income Taxes (Note 5)............. 43,553 40,498 23,308 18,858
------ ------ ------ ------
Net Income................................... $68,122 $65,519 $34,524 $31,243
====== ====== ====== ======
Net Income Per Share * ...................... $2.17 $2.11 $1.10 $1.00
====== ====== ====== ======
Dividends Per Share.......................... $0.60 $0.54 $0.30 $0.27
====== ====== ====== ======
* Per average shares outstanding................ 31,433,288 31,117,222 31,480,612 31,155,318
PART I. FINANCIAL INFORMATION Continued 4.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
Cash Provided (Used) June 30 June 30
1996 1995
------ ------
OPERATING ACTIVITIES (Thousands of dollars)
Net Income.............................................. $68,122 $65,519
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................... 62,268 62,034
Provision (credit) for deferred income taxes........... (1,141) 2,088
Stock issued in lieu of cash to employee benefit plans. 3,240 3,182
Changes in operating assets and liabilities:
Accounts receivable................................... (38,513) (53,234)
Inventories and other assets.......................... (41,645) (39,832)
Accounts payable and accrued expenses................. 29,687 40,285
Foreign currency translation.......................... (267) 1,271
------ ------
Net Cash Provided (Used) by Operating Activities..... 81,751 81,313
INVESTING ACTIVITIES
Purchases of property, plant and equipment - net....... (71,323) (57,939)
Purchase of subsidiaries............................... (39,249) 0
------ ------
Net Cash Provided (Used) by Investing Activities..... (110,572) (57,939)
FINANCING ACTIVITIES
Cash dividends paid to shareholders.................... (14,761) (14,668)
Payments on long-term debt............................. (126) (102)
Short-term debt activity - net......................... 43,389 (13,851)
------ ------
Net Cash Provided (Used) by Financing Activities..... 28,502 (28,621)
Effect of exchange rate changes on cash................. (74) (308)
Increase or (Decrease) in Cash and Cash Equivalents..... (393) (5,555)
Cash and Cash Equivalents at Beginning of Period........ 7,262 12,121
------ ------
Cash and Cash Equivalents at End of Period.............. $6,869 $6,566
====== ======
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.
6/30/96 12/31/95
Note 2 -- Inventories ------ ------
(Thousands of dollars)
Finished products $139,859 $130,894
Work-in-process and raw materials 232,539 195,126
Manufacturing supplies 41,468 41,869
------ ------
$413,866 $367,889
====== ======
Note 3 -- Long-term Debt 6/30/96 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 June 30, 1996 is 3.35%. 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, 1996
is 3.35% 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 1,695 1,768
------ ------
151,395 151,468
Less: Current Maturities 383 314
------ ------
$151,012 $151,154
====== ======
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 6.
Continued
Note 4 -- Shareholders' Equity 06/30/96 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 - 31,525,269 shares
1995 - 31,354,307 shares
Stated Capital 53,064 53,064
Other paid-in capital 271,736 264,567
Less cost of Common Stock in treasury
1996 - 144 shares
1995 - 4444 shares 6 176
------ ------
$324,794 $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 68,122 68,122
Dividends paid - $.60 per share (18,860) (18,860)
Employee benefit and dividend reinvestment plans: 7,169 170 7,339
Treasury - issued/acquired 4,300 shares
Common Stock - issued 170,962 shares
Foreign currency translation adjustment (3,179) (3,179)
------ ------ ------ ------ ------ ------
Balance June 30, 1996 $53,064 $271,736 $567,064 ($17,258) ($6) $874,600
====== ====== ====== ====== ====== ======
PART I. NOTES TO FINANCIAL STATEMENTS 7.
(Unaudited) Continued
Note 5 -- Income Tax Provision Six Months Ended Three Months Ended
June 30 June 30 June 30 June 30
1996 1995 1996 1995
------ ------ ------ ------
U.S. (Thousands of dollars)
Federal $33,824 $28,325 $18,465 $13,322
State & Local 5,522 4,693 2,752 2,190
Foreign 4,207 7,480 2,091 3,346
------ ------ ------ ------
$43,553 $40,498 $23,308 $18,858
====== ====== ====== ======
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
The Timken Company achieved higher sales and earnings for both the
second quarter and the six months ended June 30, 1996.
Net sales for the second quarter were $601.6 million, up 2.7% from
1995's second quarter record level of $585.8 million. During the
first half and second quarter ended June 30, The Timken Company
achieved record sales levels despite slower economic growth in
markets where the company competes in both the United States and
Europe. Sales in Mexico continued to strengthen during the second
quarter and exports from the U.S. remained strong. The company also
achieved growth in sales in its computer disk drive, aerospace and
specialty alloy steel markets.
Gross profit for the quarter was $142.4 million (23.7% of net sales)
compared to $133.1 million (22.7% of net sales) in the same period a
year ago. Although the company realized cost savings from
continuous improvement efforts in its manufacturing processes, these
benefits were offset in part by higher raw material and higher
natural gas costs. Increased overtime and training costs also hurt
second quarter profits.
Selling, administrative, and general expenses were $78.2 million
(13% of net sales) in the second quarter of 1996 compared to $74.8
million (12.8% of net sales) in 1995. The company experienced
higher expense in the second quarter and first six months of 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 higher expense in the second
quarter of 1996 also resulted from the company's recent acquisitions
and the development of improved scheduling and product and process
costing systems. 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 were $403.5 million in the second quarter
of 1996 compared to $399.8 million in the year-earlier period. Car
production in the U.S. rebounded after the settlement of the General
Motors Corporation work stoppage which helped the bearing automotive
sales. Light truck and sport utility vehicle sales remained strong.
The business also experienced an increase in exports from the U.S.
9.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Sales in Mexico continued to strengthen during the second quarter and
exceeded sales in the same period a year ago by more than 50%. Sales
in the U.S. railroad market were weak as were sales from Europe and
Brazil.
Bearing Business operating income was $36 million in 1996's second
quarter, up from the $34.2 million reported in the second quarter of
1995. Although the bearing business is somewhat behind schedule in
meeting its targeted continuous improvement savings, improvements in
manufacturing processes have allowed the business to achieve
production levels needed to meet higher demand at significantly lower
levels of manning than would have previously been required. The
Bearing Business also experienced some improvements in product mix
which contributed to increased income. Bearing Business profits were
adversely affected by higher overtime and training costs required
primarily to meet increased demand for its larger diameter products.
Steel Business sales of $198 million were 6.5% higher than the $186
million recorded a year earlier, due primarily to an increase in
specialty steel sales at the company's Latrobe Steel Company
Subsidiary. Operating income in the second quarter of 1996 was $28.2
million, up from the $24.1 million in the year-earlier period. The
Steel Business achieved an increase in profits primarily as a result
of the higher sales and continuous improvement efforts in its
manufacturing processes. The business overcame significantly higher
scrap and natural gas costs and higher costs related to the
development of new business systems.
Interest expense was lower in the second 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 $129.4 million from December 31, 1995,
primarily as a result of increased accounts receivable and
inventories. The $38.5 million increase in accounts receivable, as
reflected in the Consolidated Condensed Statements of Cash Flows,
relates primarily to the increase in sales. The number of days'
sales in receivables at June 30, 1996, was lower than the year-end
1995 level. Inventories and other assets increased by $41.6 million
10.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
compared to year-end 1995. The increase in inventories relates
primarily to the higher level of activity; however the number of
days' supply in inventory at the end of the second quarter was higher
than the previous year-end level. The company expects to reduce its
days' supply in inventory by year-end.
The increase in accounts payable and accrued expenses relates to the
increased level of activity, higher pension and postretirement
benefits cost and higher income taxes. Debt of $252.7 million at
the end of the second quarter of 1996 was higher compared to $211.2
million at year-end 1995. Cash was required primarily to fund the
purchase of property, plant and equipment, to cover the increase in
working capital and to finance the company's acquisitions. Any
future increase in cash needs will be met by added short-term
borrowing and issuance of medium-term notes.
The ratio of debt to total capital of 22.4% was higher than the
20.5% at year-end 1995 due primarily to the higher debt level.
Purchases of property, plant and equipment - net in the second
quarter of 1996 were $71.3 million compared to $57.9 million one year
earlier. The company continues to invest in activities consistent
with the strategies it is pursuing to achieve an industry leadership
position. Further capital investments in technologies in the
company's plants throughout the world and new acquisitions provide
Timken with the opportunity to accelerate growth and strengthen its
position in new and existing markets.
The company is continuing in its effort to accelerate continuous
improvement in its manufacturing plants worldwide. The Steel
Business is on track to achieve the results expected from this effort
as announced in 1993. The Bearing Business is achieving savings but
is somewhat behind the planned savings schedule. The savings from
this effort, which is the company's number one priority, are expected
to offset inflation and higher costs associated with new production
initiatives. Separation costs associated with layoffs resulting from
the implementation of cost saving initiatives are being charged to
accounting reserves that were established in 1993.
During the second quarter, the company acquired the assets of Ohio
Alloy Steels, Inc., a tool steel service center which is based in
Youngstown, Ohio. The company, which began operations on
11.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
May 2, 1996, will function as a subsidiary of Latrobe Steel
Company, a Timken Company subsidiary since 1975. The new
distribution business will be dedicated to strengthening Latrobe's
tool steel distribution and customer service capabilities. In
June, the company began operation of its Yantai-Timken joint
venture in China. Timken has 60% ownership in the new company,
Yantai Timken Company Limited, which manufactures tapered roller
bearings. The company is located in Yantai Shandong Province, on
the northeast coast of China near the Yellow Sea.
On June 27, 1996, the company announced that it entered into a
definitive agreement with Houghton & Richards, Inc. (H & R) to
acquire the assets of its tool steel service center headquartered
in Marlborough, Massachusetts. H & R will operate as a subsidiary
of Latrobe Steel Company. This acquisition will expand the scope
of Latrobe's products and services to tool steel customers and
will enhance its tool steel distribution network.
In the second quarter, the company announced that its board of
directors authorized the company to purchase up to two million of
its own shares over the next 30 months. The company has already
begun to buy back shares. The timing of future purchases and the
number of shares to be purchased will depend upon prevailing share
market prices and trading volumes. Shares that are acquired will
be held as treasury shares and will be available for general
corporate purposes.
On August 2, 1996, the Board of Directors declared a quarterly cash
dividend of $.30 per share payable September 3, 1996, to
shareholders of record at the close of business on August 16, 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.
12.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
- - 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.
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 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' original claims of wrongful termination in
violation of public policy, breach of contract and
promissory estoppel were dismissed. Plaintiffs' remaining
claims include discrimination on account of age and/or
disability status. 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.
14.
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
27 Article 5
15.
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 13, 1996 BY /s/ J. F. Toot, Jr.
________________________ _______________________________
J. F. Toot, Jr., Director;
President and Chief
Executive Officer
Date August 13, 1996 BY /s/ G. E. Little
________________________ _______________________________
G. E. Little
Vice President - Finance