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, 1998.
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, 1998, 62,337,673.
PART I. FINANCIAL INFORMATION 2.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
June 30 Dec. 31
1998 1997
ASSETS ---------- ----------
Current Assets (Thousands of dollars)
Cash and cash equivalents......................... $22,103 $9,824
Accounts receivable, less allowances,
(1998-$7,816; 1997-$7,003)........................ 383,431 357,423
Deferred income taxes............................. 46,780 42,071
Inventories (Note 2) ............................. 488,058 445,853
---------- ----------
Total Current Assets.................... 940,372 855,171
Property, Plant and Equipment..................... 2,766,076 2,677,786
Less allowances for depreciation................. 1,486,667 1,457,270
---------- ----------
1,279,409 1,220,516
Costs in excess of net assets of acquired business,
less amortization, (1998-$26,113; 1997-$23,448)... 149,898 139,409
Deferred income taxes............................. 19,807 26,605
Other assets...................................... 80,285 84,849
---------- ----------
Total Assets................................ $2,469,771 $2,326,550
========== ==========
LIABILITIES
Current Liabilities
Accounts payable and other liabilities............ $239,706 $253,033
Short-term debt and commercial paper.............. 118,738 156,585
Accrued expenses.................................. 143,599 157,343
---------- ----------
Total Current Liabilities............... 502,043 566,961
Noncurrent Liabilities
Long-term debt (Note 3) .......................... 339,759 202,846
Accrued pension cost.............................. 124,719 103,061
Accrued postretirement benefits cost.............. 390,242 389,749
Other noncurrent liabilities...................... 49,417 31,857
---------- ----------
Total Noncurrent Liabilities............ 904,137 727,513
Shareholders' Equity (Note 4)
Common stock...................................... 296,184 321,069
Earnings invested in the business................. 814,396 749,033
Accumulated other comprehensive income............ (46,989) (38,026)
---------- ----------
Total Shareholders' Equity.............. 1,063,591 1,032,076
Total Liabilities and Shareholders' Equity.. $2,469,771 $2,326,550
========== ==========
PART I. FINANCIAL INFORMATION Continued 3.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended Three Months Ended
June 30 June 30 June 30 June 30
1998 1997 1998 1997
--------- --------- ------- -------
(Thousands of dollars, except per share data)
Net sales............................................. $1,409,128 $1,316,587 $701,747 $676,003
Cost of product sold.................................. 1,070,020 999,578 537,005 510,423
--------- --------- ------- -------
Gross Profit....................................... 339,108 317,009 164,742 165,580
Selling, administrative and general expenses.......... 178,041 163,245 89,900 84,842
--------- --------- ------- -------
Operating Income................................... 161,067 153,764 74,842 80,738
Interest expense...................................... (12,470) (11,053) (6,607) (5,588)
Other income (expense)................................ (7,627) (1,718) (6,773) (1,149)
--------- --------- ------- -------
Income Before Income Taxes......................... 140,970 140,993 61,462 74,001
Provision for Income Taxes (Note 5)................... 53,145 54,987 22,773 29,061
--------- --------- ------- -------
Net Income......................................... $87,825 $86,006 $38,689 $44,940
========= ========= ======= =======
Earnings Per Share * .............................. $1.41 $1.37 $0.62 $0.72
Earnings Per Share - assuming dilution **......... $1.39 $1.35 $0.61 $0.70
Dividends Per Share................................ $0.36 $0.33 $0.18 $0.165
* Per average shares outstanding..................... 62,379,675 62,616,397 62,213,764 62,751,517
** Per average shares outstanding - assuming dilution. 63,287,712 63,810,385 63,179,905 64,198,860
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
1998 1997
------- -------
OPERATING ACTIVITIES (Thousands of dollars)
Net Income............................................. $87,825 $86,006
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 69,003 66,753
Credit for deferred income taxes...................... (383) (7,184)
Stock issued in lieu of cash to employee benefit plans 18,989 12,496
Changes in operating assets and liabilities:
Accounts receivable.................................. (27,541) (54,081)
Inventories and other assets......................... (55,230) (17,147)
Accounts payable and accrued expenses................ 18,662 21,913
Foreign currency translation......................... 1,034 (305)
------- -------
Net Cash Provided by Operating Activities 112,359 108,451
INVESTING ACTIVITIES
Purchases of property, plant and equipment - net...... (133,107) (70,687)
Purchase of subsidiaries.............................. 0 (36,515)
------- -------
Net Cash Used by Investing Activities............... (133,107) (107,202)
FINANCING ACTIVITIES
Cash dividends paid to shareholders................... (22,462) (17,915)
Purchase of Treasury Shares........................... (43,875) (9,361)
Payments on long-term debt............................ (23,190) (125)
Proceeds from issuance of long-term debt.............. 138,272 0
Short-term debt activity - net........................ (15,645) 31,189
------- -------
Net Cash Provided by Financing Activities........... 33,100 3,788
Effect of exchange rate changes on cash................ (73) (473)
Increase in Cash and Cash Equivalents.................. 12,279 4,564
Cash and Cash Equivalents at Beginning of Period....... 9,824 5,342
------- -------
Cash and Cash Equivalents at End of Period............. $22,103 $9,906
======= =======
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 5.
Note 1 -- Basis of Presentation
The accompanying consolidated condensed financial statements (unaudited) for
The Timken Company (the "company") 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, 1997.
Certain amounts for 1997 have been reclassified to conform with the 1998
presentation.
6/30/98 12/31/97
Note 2 -- Inventories ------- --------
(Thousands of dollars)
Finished products $156,476 $144,621
Work-in-process and raw materials 294,116 264,784
Manufacturing supplies 37,466 36,448
------- -------
$488,058 $445,853
======= =======
Note 3 -- Long-term Debt 6/30/98 12/31/97
------- --------
(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, 1998 is 3.60%. 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, 1998 is 3.60%. 21,700 21,700
State of Ohio Water Development Authority Solid Waste
Revenue Bonds, maturing on July 2, 2032. The
variable interest rate is tied to the bank's
tax exempt weekly interest rate. The rate at
June 30, 1998 is 3.55%. 24,000 24,000
Fixed Rate Medium-Term Notes, Series A, due at
various dates through May, 2028 with
interest rates ranging from 6.20% to 9.10%. 267,000 153,000
Other 3,854 2,766
------- -------
341,554 226,466
Less: Current Maturities 1,795 23,620
------- -------
$339,759 $202,846
======= =======
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 6.
Continued
Note 4 -- Shareholders' Equity 6/30/98 12/31/97
------- --------
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 -- 200,000,000 shares
Issued (including shares in treasury)
1998 - 63,082,626 shares
1997 - 63,082,626 shares
Stated Capital 53,064 53,064
Other paid-in capital 268,488 273,873
Less cost of Common Stock in treasury
1998 - 744,953 shares
1997 - 202,627 shares 25,368 5,868
-------- --------
$296,184 $321,069
======== ========
An analysis of the change in capital and earnings invested in the business is as follows:
Common Stock Earnings Accumulated
Other Invested Other
Stated Paid-In in the Comprehensive Treasury
Capital Capital Business Income Stock Total
------- -------- -------- ---------- --------- ----------
(Thousands of dollars)
Balance December 31, 1997 $53,064 $273,873 $749,033 ($38,026) ($5,868) $1,032,076
Net Income 87,825 87,825
Foreign currency translation adjustment (8,963) (8,963)
------
Total comprehensive income 78,862
Dividends - $.36 per share (22,462) (22,462)
Stock Options, employee benefit and dividend
reinvestment plans: (5,385) (19,500) (24,885)
Treasury -(issued)/acquired (213,831) shares
------- -------- -------- ---------- --------- ----------
Balance June 30, 1998 $53,064 $268,488 $814,396 ($46,989) ($25,368) $1,063,591
======= ======== ======== ========== ========= ==========
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 7.
Continued
Note 5 -- Income Tax Provision Six Months Ended Three Months Ended
June 30 June 30 June 30 June 30
1998 1997 1998 1997
------- ------- ------- -------
U.S. (Thousands of dollars)
Federal $41,530 $40,693 $17,404 $21,244
State & Local 5,170 7,424 2,186 4,201
Foreign 6,445 6,870 3,183 3,616
------- ------- ------- -------
$53,145 $54,987 $22,773 $29,061
======= ======= ======= =======
Taxes provided exceed the U.S. statutory rate primarily due to state and
local taxes and losses without current tax benefits.
8.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The Timken Company reported increased sales for the second
quarter and first six months of 1998. Net sales for the second
quarter were $701.7 million, an increase of 3.8% above 1997's
second quarter sales of $676 million. Demand for the company's
products remained strong in North America, Europe and Latin
America; however, the company experienced some softening of
demand in certain market segments. The General Motors strike
reduced sales in June and continued to impact sales in the third
quarter.
Gross profit was $164.7 million (23.5% of net sales) in the
second quarter of 1998, compared to $165.6 million (24.5% of net
sales) in 1997's second quarter. The decline in gross profit in
the second quarter of 1998 was due in part to lower-margin sales,
steel plant start-up costs and operational complications stemming
from electrical power outages in the company's Ohio steel plants.
Plant utilization throughout the company remained high with the
majority of its facilities running at full levels; however,
electrical power outages temporarily suspended operations at the
company's Faircrest Steel Plant in late June. Also, during July,
a transformer malfunction at the Faircrest plant and another
power outage curtailed melt operations and will affect third
quarter operations.
Selling, administrative, and general expenses were $89.9 million
(12.8% of net sales) in the second quarter of 1998 compared to
$84.8 million (12.6% of net sales) in 1997. As a percent of net
sales, the company maintained a level of spending comparable to
last year's despite higher targeted spending related to
initiatives to increase the growth rate of the company, increased
new product development costs and higher expense related to
improvements in computer systems.
Interest expense was $1 million higher in the second quarter of
1998 compared to the year-ago period. This increase resulted
from the higher average level of debt outstanding during the
second quarter.
The increase in other expense relates primarily to the disposal
of certain fixed assets resulting from a company-initiated
internal fixed asset review that is conducted approximately every
five years. The review was begun in the second quarter and is
expected to be completed in the third quarter. "Other income
(expense)" also includes foreign currency losses related to the
company's newly acquired Romanian subsidiary.
Bearing Business net sales were $469.8 million in the second
quarter of 1998, up 5.6% over the $444.9 million recorded in the
year-earlier period. North American automotive and heavy- and
light-truck bearing sales were strong, accounting for over 65% of
the sales increase, despite the effect of the General Motors
9.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
strike, which reduced bearing sales in June. Sales to rail car
manufacturers were up more than 50%. European economic activity
is encouraging; however, the company's increase in sales in
Europe, excluding recent acquisitions, represented less than 5%
of the quarter-to-quarter increase. The company's recent
acquisitions accounted for approximately 24% of the increase in
bearing sales volume. Industrial and aftermarket sales in Europe
were weaker. Sales in Latin America in the second quarter
continued at a good pace but remained relatively constant with
the year-earlier period. The economic problems in Asia have begun
to affect other markets around the world. Sales to the company's
Asia Pacific customers in the second quarter of 1998 were down by
more than $8 million compared to the year-ago quarter. The
sustained trend of economic problems in Asia is of concern,
particularly as the continuing weakness of Asian currencies
begins to affect the ability of U.S. companies to compete
effectively in those markets.
Bearing Business operating income was down 3.4% in the second
quarter of 1998 to $45.6 million from $47.2 million in 1997's
second period. A less favorable sales mix and actions taken to
control inventories contributed to the reduction in operating
income. In addition, lower bearing sales in Asia Pacific markets
hurt operating income by about $4 million in the second quarter.
The Bearing Business also experienced increased manufacturing
costs related to the sourcing of certain products from higher
cost capacity outside the U.S. This is expected to have a short-
term impact on profits and should improve in the last half of the
year.
In May, the company completed the acquisition of Bearing Repair
Specialists, an industrial bearing repair business in South Bend,
Indiana. Bearing Repair Specialists reconditions or modifies a
wide variety of bearing types for industrial customers in the
United States and Canada. The newly acquired facility, which
employs 25 people and consists of approximately 40,000 square
feet, will operate as a new plant in the company's U.S. bearing
operations.
In April 1998, the company announced plans for a $12 million
expansion at its Altavista Bearing Plant in Virginia. Growing
demand in light truck and sport utility vehicle markets prompted
the plant's third expansion since it was built in 1991. The new
investment will increase production capacity at the plant by
about twenty-five percent.
Steel Business net sales were $231.9 million in the second
quarter of 1998 compared to $231.1 million recorded a year
earlier. Demand remains strong in the automotive and industrial
segments; however, manufacturers and distributors in the oil and
service center markets are adjusting inventories, which is
softening demand for some products. The effect of the General
Motors strike on the second quarter was minimal as capacity was
10.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
shifted from General Motors' orders to other customers. The
order book for Timken steel looks promising through year-end,
providing the General Motors strike impact is not prolonged.
Steel Business operating income in the second quarter of 1998 was
$29.3 million, down 12.5% from $33.5 million in last year's
corresponding period. The decrease was due in part to a less
favorable sales mix and electricity supply interruptions which
increased electrical costs by about $1 million and resulted in
$1.5 million of lost sales in the second quarter of 1998. In
addition, the Steel Business incurred expense of over $5 million
related to the startup of its new $55 million rolling mill at the
Harrison Steel Plant in Canton, Ohio, and its new $15 million
profile ring mill at the Parts Business's Tryon Peak Plant in
North Carolina. The General Motors strike began affecting
operating performance late in June. The startup of the new
rolling mill has gone exceptionally well and product from the new
mill has exceeded expectations with regard to straightness and
surface quality. The Steel Business expects that these planned
increased costs will be offset in the last half of the year by
manufacturing cost reductions achieved as a result of the new
equipment.
In July, the Steel Business experienced a transformer malfunction
which halted melting operations at its Faircrest plant for
seventeen days. As a result, the company's melting capacity will
be reduced by about 10% in the third quarter of 1998. The impact
of the equipment failure was minimized by moving up maintenance
shutdowns scheduled later in the year and by aggressively
reducing in-process inventory that was higher than desired.
Melting operations were also shut down for six hours during one
day in July due to an electricity supply interruption that was
precipitated by unusually hot summer weather. Third quarter
operating results will be affected by the General Motors strike
and additional planned start-up costs related to its new Harrison
Steel Plant rolling mill. The company estimates the total effect
of these events on operating income will be approximately $15
million in the third quarter.
On April 22, 1998, the company announced tentative plans for a
new $110 million steel tube mill that would expand its tubing
product line. Plans are contingent upon completion of
discussions with all key constituents. The facility would
include state-of-the-art piercing, rolling and finishing
operations designed to complement the company's existing piercing
mills by expanding the wall thickness and size offerings. Timken
seamless tubing is used in applications in many industries,
including automotive, bearing and oil country. The location of
the facility has not been determined. The company has met
several times with representatives of the local, district and
international offices of the United Steelworkers of America, AFL-
CIO, to develop a labor agreement to place the Canton area in the
running as a potential site for the company's proposed tube mill.
11.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
The discussions have not resulted in a mutually acceptable
agreement. It is still possible for the company and union to
reach an agreement that would keep Canton on the short list of
potential sites. But there are no further discussions scheduled
at this time.
Financial Condition
Total assets increased by $143.2 million from December 31, 1997.
The increase resulted in part from higher accounts receivable and
inventories required to support the higher demand levels, and
increased investment in property, plant and equipment. The $27.5
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, 1998, was about one day lower than the
year-end 1997 level. Inventories and other assets increased by
$55.2 million compared to year-end 1997. The increase in
inventories relates in part to the higher level of activity. The
number of days supply in inventory increased by about 5 days over
the 112 days' inventory at December 31, 1997. Bearing Business
inventory at June 30, 1998, remained relatively constant with
year-end 1997 levels. The Steel Business added to inventory in
order to maintain an uninterrupted supply of products to
customers during the start-up of its new rolling mill. Steel
inventory was increased also to help offset the potential impact
of a work stoppage at its Latrobe Steel subsidiary that
ultimately lasted for only three days in May.
The decline in accrued expenses from $157.3 million at year-end
1997 to $143.6 million at the end of the second quarter resulted
primarily from the June payment of income taxes.
Debt increased to $458.5 million at the end of the second quarter
of 1998 compared to $359.4 million at year-end 1997. During the
six months ended June 30, 1998, cash was required to fund working
capital and capital expansion and improvement needs, as well as
for the purchase of shares under its previously announced 1996
and 1998 common stock purchase plans. Any future cash needs that
exceed cash generated from operations will be met by short-term
borrowing and issuance of medium-term notes.
On April 24, 1998, the company's registration statement to
register $300 million of medium-term notes was declared effective
by the Securities and Exchange Commission. On May 8, 1998, the
company issued $100 million of 30-year notes, maturing on May 8,
2028, pursuant to this shelf registration. The notes have a
coupon rate of 6.875%.
The 30.1% debt to total capital ratio at June 30, 1998, was
higher than the 25.8% at year-end 1997. Debt increased by $99.1
million during the first six months of 1998; total shareholders'
equity increased by $31.5 million. The increase in debt was
12.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
required to meet the company's working capital needs, its capital
expansion and improvement needs, and to help fund its purchase of
shares under the 1996 and 1998 common stock purchase plans.
"Purchases of property, plant and equipment - net" during the six
months ended June 30, 1998, were $133.1 million compared to $70.7
million one year earlier. The company continues to invest in
activities consistent with the strategies it is pursuing to
achieve industry leadership positions. Further capital
investments in technologies in the company's plants throughout
the world and new acquisitions provide Timken with the
opportunity to improve the company's competitiveness and meet the
needs of its growing base of customers.
Other Information
The Timken Company has approached being year 2000 compliant using
a defined methodology that includes assessment and inventory,
strategy definition, remediation, test, integration and
implementation components. This program encompasses all Timken
business systems, manufacturing and distribution systems,
technical architecture, end-user computing, and the
company's supplier base. Additionally, the company's
corporate information systems department has instituted
a corporate level reporting and tracking process that encompasses
all Timken year 2000 project efforts world-wide. Through the use
of this methodology over the past two years, the company is well
into its year 2000 conversion effort. Current project plans call
for Timken to have all of its critical systems year 2000
compliant by the last quarter of 1998. Although the company
plans to meet this projected completion date, it can provide
no assurances that all of its year 2000 efforts will be
successful. The costs associated with Timken's total year
2000 conversion efforts will not have a material effect on the
company's financial position, results of operations or cash
flows. The company's financial results are also dependent on the
ability of its customers, suppliers and the government to become
year 2000 compliant. The company has implemented a structured
plan to communicate with its customers and suppliers on this
issue in an effort to minimize any potential year 2000 compliance
impact; however, it is not possible to guarantee their
compliance. The company will be finalizing all financial and
operating contingency plans during the first half of 1999.
On August 7, 1998, the Board of Directors declared a quarterly
cash dividend of 18 cents per share payable September 8, 1998, to
shareholders of record at the close of business on August 21,
1998.
On April 21, 1998, the company announced board approval of the
1998 common stock purchase plan. The company's 1996 common stock
purchase plan had authorized the company to buy back, in the open
market, up to two million shares of common stock to be held as
13.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
treasury shares and used for benefit plans. The company has
purchased all of the two million shares authorized under the 1996
common stock purchase plan. The company's 1998 common stock
purchase plan authorizes the company to buy, in the open market
on the New York Stock Exchange or otherwise in connection with
privately negotiated transactions, at prevailing market prices,
up to four million shares of common stock, which are to be held
as treasury shares and used for specific purposes. The company
may exercise this authorization until December 31, 2001. Shares
of common stock purchased pursuant to the 1998 common stock
purchase plan can be used as follows: to fund qualified employee
benefit plans maintained by the company and its direct and
indirect wholly owned domestic subsidiaries; to satisfy the
company's obligations under its equity-based incentive plans;
for use in making future acquisitions; and to deliver shares
under existing and future equity-based compensation arrangements
to associates and directors of the company and to associates of
direct and indirect subsidiaries of the company.
Based on the Brazilian three-year cumulative inflation rate being
below 100% and the company's evaluation of the Brazilian economy,
in January 1998 the company began to consider Brazil a non-
hyperinflated economy. The initial adjustment of $6 million to
revalue Brazilian assets at current exchange rates was reflected
as a reduction of other comprehensive income in the first quarter
of 1998. Prospectively, exchange gains or losses on the
conversion of net assets also will be reflected in other
comprehensive income. Because of the trading relationship
between the company and its Mexican subsidiary, the functional
currency used for Mexico is the U.S. dollar. Accordingly, the
evaluation of the economy in Mexico as hyperinflated does not
impact the company's accounting for this subsidiary. The
company's recently acquired Romanian subsidiary is considered to
be operating in a highly inflationary economy and therefore,
foreign currency gains and losses resulting from transactions and
the translation of financial statements are included in the
results of operations.
Effective in the first quarter 1998, the company adopted the
American Institute of Certified Public Accountants Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This SOP
offers new guidance concerning the capitalization and/or
expensing of costs associated with developing or obtaining
internal use software. The adoption of this SOP did not have a
material effect on the company's financial position, results of
operations or cash flows.
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:
14.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
a) changes in world economic conditions. This includes, but is
not limited to, the potential instability of governments and
legal systems in countries in which the company conducts
business, significant changes in currency valuations, the
implementation of the Euro and the effects of year 2000
compliance.
b) changes in customer demand on sales and product mix. This
includes the effect of customer strikes and the impact of
changes in industrial business cycles.
c) competitive factors, including changes in market penetration
and the introduction of new products by existing and new
competitors.
d) changes in operating costs. This includes the effect of
changes in the company's manufacturing processes; changes in
costs associated with varying levels of operations; changes
resulting from inventory management initiatives and
different levels of customer demands; the effects of
unplanned work stoppages; changes in the cost of labor and
benefits; and the cost and availability of raw materials and
energy.
e) the success of the company's operating plans, including its
ability to achieve the benefits from its on-going continuous
improvement programs, its ability, along with that of its
customers and suppliers, to update computer systems to be
year 2000 compliant; its ability to integrate acquisitions
into company operations, the ability of recently acquired
companies to achieve satisfactory operating results and the
company's ability to maintain appropriate relations with
unions that represent company associates in certain
locations in order to avoid disruptions of business.
f) unanticipated litigation, claims or assessments. This
includes, but is not limited to, claims or problems related
to product warranty and environmental issues.
g) changes in worldwide financial markets to the extent they
affect the company's ability or costs to raise capital,
have an impact on the overall performance of the company's
pension fund investments and cause changes in the economy
which affect customer demand.
15.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
4 Credit Agreement dated as of July 10, 1998 among
The Timken Company, as Borrower, Various Financial
Institutions, as Banks, and Keybank National
Association, as Agent
11 Computation of Per Share Earnings
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
16.
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, 1998 BY /s/ W. R. Timken, Jr.
________________________ _______________________________
W. R. Timken, Jr.,
Director and Chairman;
President and Chief Executive
Officer
Date August 13, 1998 BY /s/ G. E. Little
________________________ _______________________________
G. E. Little
Senior Vice President - Finance