Exhibit 99.1
NEWS RELEASE
- -------------------------------------------------------------------------------
WORLDWIDE LEADER IN BEARINGS AND STEEL
MEDIA CONTACT:
Denise L. Bowler
Manager - Communications Planning & Integration
(330) 471-3485
www.timken.com/media
INVESTOR CONTACT:
Kevin R. Beck
Manager - Investor Relations
(330) 471-7181
THE TIMKEN COMPANY ANNOUNCES RESULTS
FOR 2003 AND FOURTH QUARTER
CANTON, OH - January 22, 2004 - The Timken Company (NYSE: TKR) today
reported record 2003 sales of $3.8 billion, a 49 percent increase from the prior
year. Excluding the impact of the February 2003 acquisition of The Torrington
Company, sales grew approximately 8 percent, including 3 percent related to
foreign currency translation. Timken achieved 2003 net income of $36.5 million
or $0.44 per diluted share, compared with $38.7 million or $0.62 per diluted
share for the prior year. Adjusted 2003 net income was $56.0 million or $0.67
per diluted share compared to $53.3 million or $0.87 per diluted share in 2002,
excluding the impact of special items discussed below and the cumulative effect
of change in accounting principle in 2002.
In commenting on 2003 results, James W. Griffith, president and CEO, said:
"2003 was a pivotal year for The Timken Company. Our $840 million strategic
acquisition of Torrington was accretive to earnings and added $1 billion in new
sales. We leveraged our balance sheet higher to purchase Torrington with debt
peaking at more
- more -
Denise L. Bowler Kevin R. Beck
Mail Code: GNW-37 Mail Code: GNE-26
1835 Dueber Avenue, S.W. 1835 Dueber Avenue, S.W.
P.O. Box 6932 P.O. Box 6928
Canton, OH 44706-0932 U.S.A. Canton, Ohio 44706-0928 U.S.A.
Telephone: 330-471-3485 Telephone: 330-471-7181
Facsimile: 330-471-4118 Facsimile: 330-471-2792
e-mail: denise.bowler@timken.com e-mail: kevin.beck@timken.com
------------------------ ---------------------
THE TIMKEN COMPANY
than $1 billion during the year, but we have since reduced this
level by nearly $300 million. While we were disappointed in our 2003 earnings
performance, the year ended with signs of improvement. We will continue to focus
on returns to our shareholders by providing better value to our customers, as we
grow opportunities and synergies created by the acquisition. Our actions in 2003
set the course for improved performance and created a solid foundation for our
future."
During 2003, the company:
- Acquired the Torrington Company -- the largest acquisition in Timken
history-- and completed the first phase of integration. For 2003, the
company achieved pretax integration cost savings of $28 million -- $8
million above the stated target for the year -- primarily by
leveraging the combined purchasing spend of the two companies and
reducing employment.
- Reduced debt following the Torrington acquisition. Year-end debt was
$735 million, or 40 percent of total capitalization.
- Raised $375 million in proceeds, before expenses, from equity
offerings totaling 25.5 million common shares, including 9.4 million
shares issued for $140 million of the purchase price for Torrington.
- Divested non-strategic assets, generating gross proceeds of $170
million.
- Closed two industrial plants and rationalized production across
automotive plants.
- Generated cash of $31 million in the Steel Group, despite a difficult
economic environment.
- Began construction of the company's fourth bearing plant in China
through a joint venture.
The 2003 reported income includes the following special pretax items that
are excluded from
2
THE TIMKEN COMPANY
adjusted results.
- $66 million of income received under the Continued Dumping and Subsidy
Offset Act (CDSOA), which requires that tariffs collected on dumped
imports be directed to the industries harmed.
- Restructuring, integration, reorganization and certain other charges
in 2003 of $49 million, principally due to costs of integrating the
Torrington acquisition.
- Non-recurring, non-cash impairment charge of $46 million in the fourth
quarter relating to PEL Technologies, a joint venture investment of
our Steel Group.
FOURTH QUARTER RESULTS
----------------------
For the quarter ended December 31, 2003, sales were a record $1.0 billion,
an increase of 58 percent from a year ago. Excluding the impact of Torrington,
sales grew approximately 10 percent, including 4 percent related to foreign
currency translation.
Fourth quarter 2003 net income was $22.5 million, or $0.25 per diluted
share. Excluding special items, the company reported adjusted fourth quarter net
income of $23.3 million or $0.26 per diluted share versus $12.0 million or $0.19
per diluted share a year ago. Excluding the impact of Torrington, fourth quarter
earnings per diluted share were $0.01.
Fourth quarter performance was driven by the Torrington acquisition.
Torrington's fourth quarter results reflect seasonally strong volume, product
mix, cost savings and the positive impact of acquisition and timing-related
accrual adjustments.
The segment results that follow exclude special charges for all periods.
They also reflect for all periods a reorganization of the Automotive and
Industrial Groups that occurred in the first quarter of 2003. Automotive
distribution operations are now reported as part of the Industrial Group.
Additionally, company sales to emerging markets -- principally in central and
eastern
3
THE TIMKEN COMPANY
Europe and Asia-- previously were reported as part of the Industrial
Group. Emerging market sales to automotive original equipment manufacturers are
now included in the Automotive Group.
AUTOMOTIVE GROUP RESULTS
------------------------
In 2003, Automotive Group sales increased 86 percent to $1.4 billion due
primarily to the Torrington acquisition. Excluding Torrington, Timken sales grew
9 percent, which included recent new product launches at Ford and Nissan for the
light truck market.
Automotive Group earnings before interest and taxes (EBIT) in 2003 were
$15.7 million compared with $11.1 million in 2002, with the increase in earnings
due to the addition of Torrington. Excluding the Torrington acquisition, the
Automotive Group reported sales in 2003 of $822.1 million and a loss of $7.7
million.
Automotive Group results reflected significantly higher costs in 2003 due
to problems in executing the restructuring of automotive plants. This impacted
both Timken and Torrington operations globally. The Automotive Group began to
see some improvement from the rationalization initiatives in the fourth quarter.
The Automotive Group announced in the second half of 2003 that it would
reduce manufacturing expenses, including workforce reductions of more than 700
positions, to achieve the benefits of rationalization programs and adjust to
reduced demand. During the second half, workforce reductions exceeded 750.
In the fourth quarter of 2003, the Automotive Group recorded sales of
$374.6 million, nearly twice the sales recorded a year ago. Fourth quarter 2003
sales increased primarily due to the Torrington acquisition but also benefited
from 12 percent growth in the traditional Timken business.
4
THE TIMKEN COMPANY
Automotive Group EBIT was $8.3 million in the fourth quarter of 2003
compared with $7.7 million for the same period a year ago. Excluding Torrington,
the Group incurred a loss in the 2003 fourth quarter of $5.1 million. Despite
benefiting from increased sales, the Group incurred expenses in the 2003 fourth
quarter associated with the manufacturing cost reductions as well as
expenditures related to new ventures to grow the business.
INDUSTRIAL GROUP RESULTS
------------------------
Industrial Group 2003 sales increased 54 percent from the prior year to
$1.5 billion. The sales increase reflected the acquisition of Torrington and the
favorable effect of foreign currency. Many markets served by the Industrial
Group remained relatively flat during the year.
Industrial Group 2003 EBIT was $128.0 million, compared with $73.0 million
in 2002. The increase reflected the addition of Torrington, the effect of the
company's continued manufacturing improvement initiatives and improved European
results. Excluding the impact of Torrington, the Industrial Group had 2003 EBIT
of $94.8 million on sales of $1.0 billion.
Industrial Group sales in the 2003 fourth quarter increased 69 percent to
$418.2 million from the prior year, reflecting the addition of Torrington and
the favorable effect of foreign currency. Fourth quarter EBIT was $44.5 million,
compared with $17.7 million a year earlier. Excluding Torrington, fourth quarter
sales were $270.3 million and EBIT was $15.8 million.
Fourth quarter results reflected strong distribution sales and improving
industrial order activity in the heavy industries, power transmission,
off-highway and consumer markets.
STEEL GROUP RESULTS
-------------------
Despite challenging market conditions, Steel Group 2003 sales, including
inter-segment sales, were $1.0 billion, up 5 percent from 2002. The increase
reflected penetration gains in industrial markets and increased demand from
automotive and industrial customers. The group
5
THE TIMKEN COMPANY
recorded a loss of $6.0 million in 2003 versus EBIT of $32.5 million in 2002.
Steel Group performance in 2003 was negatively impacted by extremely high costs
for scrap steel, natural gas and alloys.
Steel Group sales, including inter-segment sales, were $257.3 million in
the fourth quarter of 2003, an increase of 7 percent from the prior year. The
sales improvement resulted from increased demand from automotive and industrial
customers. Inter-segment sales were lower due to the raw material conversion in
bearing processes from tubing to forged components.
The group recorded a 2003 fourth quarter loss of $4.2 million before
interest and taxes, compared with EBIT of $0.2 million a year ago. Performance
was negatively affected by high raw material and energy costs and lower
inter-segment sales, which could not be fully offset by higher external sales,
implementation of new raw material surcharges, price increases and higher
production levels.
OUTLOOK
-------
We expect improved performance in 2004 across all three segments. We
currently expect earnings per diluted share, excluding special items to be $0.85
to $1.00 for the year and $0.15 to $0.20 for the first quarter. North American
industrial markets are expected to grow slowly from low 2003 levels, while
strong growth is expected in emerging markets. North American automotive
production is expected to be up slightly. Medium and heavy truck production
should strengthen further, and better Automotive Group profitability is expected
with continued manufacturing improvements. Steel profitability is expected to be
challenged by continued high raw material and energy costs and lower
inter-segment sales.
Mr. Griffith said: "We are encouraged by our solid finish in 2003, and we
are looking forward to building on this foundation in 2004."
The company will host a conference call for investors and analysts today to
discuss financial
6
THE TIMKEN COMPANY
results.
Conference Call: Thursday, January 22, 2004
11 a.m. Eastern Time
All Callers: Live Dial-In: 706-634-0975
(Call in 10 minutes prior to be included)
Replay Dial-In: 706-645-9291
Replay Passcode: 4536689
Live Webcast: www.timken.com
--------------
The Timken Company (www.timken.com) is a leading global manufacturer of
highly engineered bearings and alloy steels and a provider of related products
and services with operations in 29 countries. The company recorded 2003 sales of
$3.8 billion and employed approximately 26,000 at year-end.
Certain statements in this news release (including statements regarding
the Company's forecasts, beliefs and expectations) that are not historical in
nature are "forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995. In particular, the statements
contained in the paragraph under the heading "Outlook" are forward-looking. The
Company cautions that actual results may differ materially from those projected
or implied in forward-looking statements due to a variety of important factors,
including: uncertainties in both timing and amount, if any, of actual benefits
realized through the integration of Torrington with Timken's operations and the
timing and amount of the resources required to achieve those results; risks
associated with diversion of management's attention from operations during the
integration process; risks associated with the greater level of debt associated
with the acquisition; and the impact on operations of general economic
conditions, higher raw material and energy costs, the cyclicality of the
Company's business, fluctuations in customer demand and the Company's ability to
achieve the benefits of its ongoing programs, including the implementation of
its manufacturing transformation and rationalization activities. These and
additional factors are described in greater detail in the Company's Prospectus
Supplements dated February 11, 2003 and October 15, 2003 relating to the
offerings of the Company's common stock, in the Company's Annual Report on Form
10-K for the year ended December 31, 2002, in the Company's 2002 Annual Report,
page 47, and in the Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, June 30 and September 30, 2003. The Company undertakes no
obligation to update or revise any forward-looking statement.
###
7
THE TIMKEN COMPANY
CONSOLIDATED STATEMENT OF INCOME AS REPORTED
- --------------------------------------------------------------------------------------------------------------------
(Thousands of U.S. dollars, except share data) 4Q 03 4Q 02 YEAR 2003 Year 2002
- --------------------------------------------------------------------------------------------------------------------
Net sales $1,021,825 $644,898 $3,788,097 $2,550,075
Cost of products sold 833,274 528,123 3,153,061 2,071,956
Integration/Reorganization (income) expenses -
cost of products sold (7,126) 1,403 3,414 8,542
- --------------------------------------------------------------------------------------------------------------------
GROSS PROFIT $195,677 $115,372 $631,622 $469,577
Selling, administrative & general expenses (SG&A) 133,185 89,751 483,721 348,963
Integration/Reorganization expenses - SG&A 12,114 2,736 30,500 9,903
Impairment and restructuring 16,418 7,157 19,154 32,143
- --------------------------------------------------------------------------------------------------------------------
OPERATING INCOME $33,960 $15,728 $98,247 $78,568
Other expense (5,309) (898) (13,689) (13,388)
Special charges - other income 21,325 50,202 23,522 50,202
- --------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES (EBIT) $49,976 $65,032 $108,080 $115,382
Interest expense (12,757) (7,544) (48,401) (31,540)
Interest income 275 685 1,123 1,676
- --------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $37,494 $58,173 $60,802 $85,518
Provision for income taxes 14,998 21,707 24,321 34,067
----------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE $22,496 $36,466 $36,481 $51,451
Cumulative effect of change in accounting
principle (net of income tax benefit of $7,786) -- 0 -- (12,702)
----------------------------------------------------------
NET INCOME $22,496 $36,466 $36,481 $38,749
==========================================================
EARNINGS PER SHARE:
INCOME BEFORE ACCOUNTING CHANGE $0.26 $0.58 $0.44 $0.84
CUMULATIVE EFFECT OF ACCOUNTING CHANGE $0.00 $0.00 $0.00 ($0.21)
----------------------------------------------------------
EARNINGS PER SHARE $0.26 $0.58 $0.44 $0.63
==========================================================
EARNINGS PER SHARE-ASSUMING DILUTION:
INCOME BEFORE ACCOUNTING CHANGE $0.25 $0.57 $0.44 $0.83
CUMULATIVE EFFECT OF ACCOUNTING CHANGE $0.00 $0.00 $0.00 ($0.21)
----------------------------------------------------------
EARNINGS PER SHARE-ASSUMING DILUTION $0.25 $0.57 $0.44 $0.62
==========================================================
Average Shares Outstanding 88,191,613 63,346,740 82,945,174 61,128,005
Average Shares Outstanding-assuming dilution 88,520,320 63,758,276 83,159,321 61,635,339
====================================================================================================================
ADJUSTED(1)
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4Q 03 4Q 02 YEAR 2003 Year 2002
- --------------------------------------------------------------------------------------------------------------------
Net sales $1,021,825 $644,898 $3,788,097 $2,550,075
Cost of products sold 833,274 528,123 3,153,061 2,071,956
Integration/Reorganization (income) expenses -
cost of products sold -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
GROSS PROFIT $188,551 $116,775 $635,036 $478,119
Selling, administrative & general expenses (SG&A) 133,185 89,751 483,721 348,963
Integration/Reorganization expenses - SG&A -- -- -- --
Impairment and restructuring -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
OPERATING INCOME $55,366 $27,024 $151,315 $129,156
Other expense (5,309) (898) (13,689) (13,388)
Special charges - other income -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES (EBIT) $50,057 $26,126 $137,626 $115,768
Interest expense (12,757) (7,544) (48,401) (31,540)
Interest income 275 685 1,123 1,676
- --------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $37,575 $19,267 $90,348 $85,904
Provision for income taxes 14,279 7,220 34,332 32,558
----------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE $23,297 $12,047 $56,016 $53,346
Cumulative effect of change in accounting
principle (net of income tax benefit of $7,786) -- -- -- --
----------------------------------------------------------
NET INCOME $23,297 $12,047 $56,016 $53,346
==========================================================
EARNINGS PER SHARE:
INCOME BEFORE ACCOUNTING CHANGE $0.26 $0.19 $0.68 $0.87
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- -- -- --
----------------------------------------------------------
EARNINGS PER SHARE $0.26 $0.19 $0.68 $0.87
==========================================================
EARNINGS PER SHARE-ASSUMING DILUTION:
INCOME BEFORE ACCOUNTING CHANGE $0.26 $0.19 $0.67 $0.87
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- -- -- --
----------------------------------------------------------
EARNINGS PER SHARE-ASSUMING DILUTION $0.26 $0.19 $0.67 $0.87
==========================================================
Average Shares Outstanding 88,191,613 63,346,740 82,945,174 61,128,005
Average Shares Outstanding-assuming dilution 88,520,320 63,758,276 83,159,321 61,635,339
====================================================================================================================
BUSINESS SEGMENTS
- ------------------------------------------------------------------------------------------------------------
(THOUSANDS OF U.S. DOLLARS) 4Q 03 4Q 02 YEAR 2003 Year 2002
- ------------------------------------------------------------------------------------------------------------
AUTOMOTIVE GROUP (3)
Net sales to external customers $374,646 $188,641 $1,396,104 $752,763
Impairment and restructuring -- -- -- --
Integration/Reorganization expenses -- -- -- --
Earnings before interest and taxes (EBIT) * (2) $8,287 $7,680 $15,685 $11,096
EBIT Margin 2.2% 4.1% 1.1% 1.5%
INDUSTRIAL GROUP (3)
Net sales to external customers $417,881 $247,417 $1,498,832 $971,534
Intersegment sales 356 -- 837 --
-------------------------------------------------------
Total net sales $418,237 $247,417 $1,499,669 $971,534
Impairment and restructuring -- -- -- --
Integration/Reorganization expenses -- -- -- --
Earnings before interest and taxes (EBIT) * (2) $44,542 $17,699 $128,031 $73,040
EBIT Margin 10.6% 7.2% 8.5% 7.5%
STEEL GROUP
Net sales to external customers $229,298 $208,840 $893,161 $825,778
Intersegment sales 27,985 31,845 133,356 155,500
-------------------------------------------------------
Total net sales $257,283 $240,685 $1,026,517 $981,278
Impairment and restructuring -- -- -- --
Integration/Special expenses -- -- -- --
Earnings before interest and taxes (EBIT) * (2) ($4,217) $241 ($6,043) $32,520
EBIT Margin -1.6% 0.1% -0.6% 3.3%
*Automotive Bearings, Industrial Bearings and Steel EBIT do not equal
Consolidated EBIT due to intersegment adjustments which are eliminated upon
consolidation.
(1) "Adjusted" statements exclude the impact of impairment and restructuring,
integration/reorganization and special charges for all periods shown, and
cumulative effect of change in accounting principle recognized in 2002.
(2) EBIT is defined as operating income plus other income (expense). EBIT Margin
is EBIT as a percentage of net sales. EBIT and EBIT margin on a segment basis
exclude certain special items set forth above. EBIT and EBIT Margin are
important financial measures used in the management of the business, including
decisions concerning the allocation of resources and assessment of performance.
Management believes that reporting EBIT and EBIT Margin best reflect the
performance of our business segments, and EBIT disclosures are responsive to
investors.
(3) Automotive Group and Industrial Group 2002 segment results have been
adjusted for the 2003 reclassification of Automotive Distribution and Emerging
Markets' results.
RECONCILIATION OF TOTAL DEBT AS OF DECEMBER 31, 2003
Short-term debt and commercial paper $121,194
Long-term debt 613,446
--------------
Total Debt as of December 31, 2003 $734,640
==============
RECONCILIATION OF GAAP NET INCOME AND EPS - BASIC AND DILUTED AS PREVIOUSLY
DISCLOSED.
This reconciliation is provided as additional relevant information about the
company's performance. Management believes adjusted net income and adjusted
earnings per share are more representative of the company's performance, and
therefore useful to investors. Management also believes that it is appropriate
to compare GAAP net income to adjusted net income in light of special items
related to impairment and restructuring and integration/reorganization costs,
one-time gains/losses on sales of assets, Continued Dumping and Subsidy Offset
Act (CDSOA) receipts and payments and cumulative effect of change in accounting
principle.
--------------------------------------------
4Q 03 4Q 02
- --------------------------------------------------------------------------------------------------------------------
(THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA) $ EPS $ EPS
- --------------------------------------------------------------------------------------------------------------------
Net income $22,496 $0.25 $36,466 $0.57
Integration expense - inventory write-up - cost of products sold -- -- -- --
Integration expense - cost of products sold 2,460 0.03 -- --
Re-design of employee benefit plans (7,040) (0.08) -- --
Reorganization expense - cost of products sold 325 0.00 1,403 0.02
Integration/Reorganization expenses - SG&A 9,243 0.10 2,736 0.05
Impairment and restructuring 16,418 0.19 7,157 0.11
Special charges - other income (expense) --
LOSS (GAIN) ON SALE OF ASSETS 1,111 0.01 -- --
CDSOA RECEIPTS, NET OF EXPENSES (68,367) (0.77) (50,202) (0.79)
CDSOA REPAYMENT -- -- -- --
ACQUISITION-RELATED UNREALIZED CURRENCY EXCHANGE GAINS 201 0.00 -- --
IMPAIRMENT CHARGE FOR INVESTMENT IN PEL 45,730 0.52 -- --
Tax effect of special items 720 0.01 14,487 0.23
Cumulative effect of change in accounting principle -- -- -- --
------------------------------------------------
Adjusted net income $23,297 $0.26 $12,047 $0.19
Impact of Torrington acquisition (7) (22,780) ($0.25)
----------
Adjusted net income, excluding Torrington acquisition $517 $0.01
Average shares outstanding, assuming dilution 88,520,320
----------
Impact of Torrington acquisition (7) 24,857,359
Adjusted average shares outstanding - assuming dilution 63,662,961
--------------------------------------------------
YEAR 2003 Year 2002
- ------------------------------------------------------------------------------------------------------------------------
(THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA) $ EPS $ EPS
- ------------------------------------------------------------------------------------------------------------------------
Net income $36,481 $0.44 $38,749 $0.62
Integration expense - inventory write-up - cost of products sold 6,897 (1) 0.08 -- --
Integration expense - cost of products sold 2,460 0.03 -- --
Re-design of employee benefit plans (7,040)(2) (0.08) -- --
Reorganization expense - cost of products sold 3,968 (3) 0.05 8,542 0.14
Integration/Reorganization expenses - SG&A 27,628 0.32 9,903 0.16
Impairment and restructuring 19,154 0.23 32,143 0.53
Special charges - other income (expense) --
LOSS (GAIN) ON SALE OF ASSETS (1,996) (0.02) -- --
CDSOA RECEIPTS, NET OF EXPENSES (68,367)(4) (0.82) (50,202) (0.81)
CDSOA REPAYMENT 2,808 (5) 0.03 -- --
ACQUISITION-RELATED UNREALIZED CURRENCY EXCHANGE GAINS (1,696) (0.02) -- --
IMPAIRMENT CHARGE FOR INVESTMENT IN PEL 45,730 (6) 0.55 -- --
Tax effect of special items (10,011) (0.12) 1,509 0.02
Cumulative effect of change in accounting principle -- -- 12,702 .021
---------------------------------------------------
Adjusted net income $56,016 $0.67 $53,346 $0.87
Impact of Torrington acquisition (7) (23,053) ($0.15)
----------
Adjusted net income, excluding Torrington acquisition $32,963 $0.52
Average shares outstanding, assuming dilution 83,159,321
Impact of Torrington acquisition (7) 19,532,461
----------
Adjusted average shares outstanding - assuming dilution 63,626,860
(1) Represents a one-time inventory write-up related to purchase price
accounting.
(2) Timken made amendments to certain employee benefit plans which resulted in a
net curtailment gain.
(3) Costs associated with the Duston, England plant closure.
(4) CDSOA receipts are reported net of applicable expenses.
(5) One-time repayment of CDSOA funds in 2003, due to a miscalculation by the
U.S. Treasury Department of funds received in 2002.
(6) In the fourth quarter of 2003, Timken concluded that its investment in a
joint venture, PEL, was impaired. Timken wrote off its investment and recorded
the PEL debt that Timken guaranteed.
(7) Impact of Torrington acquisition includes acquisition earnings, financing
and synergies.
RECONCILIATION OF 4Q 03 TIMKEN COMPANY AND IMPACT OF TORRINGTON ACQUISITION FOR
BUSINESS SEGMENTS
4Q 03 ADJUSTED (8) YEAR 2003 ADJUSTED (8)
------------------------------------------ ------------------------------------------
IMPACT OF IMPACT OF
TIMKEN TORRINGTON TIMLEN TIMKEN TORRINGTON TIMKEN
COMPANY ACQUISITION STANDALONE COMPANY ACQUISTION STANDALONE
------------------------------------------ ------------------------------------------
AUTOMOTIVE GROUP
Net sales to external customers $374,646 $163,497 $211,149 $1,396,104 $574,049 $822,055
EBIT $8,287 $13,345 ($5,058) $15,685 $23,369 ($7,684)
EBIT Margin 2.2% 8.2% -2.4% 1.1% 4.1% -0.9%
INDUSTRIAL GROUP
Net sales to external customers $417,881 $147,899 $269,982 $1,498,832 $456,353 $1,042,479
Intersegment sales 356 -- 356 837 -- 837
------------------------------------------ ------------------------------------------
Total net sales $418,237 $147,899 $270,338 $1,499,669 $456,353 $1,043,316
EBIT $44,542 $28,778 $15,764 $128,031 $33,194 $94,837
EBIT Margin 10.6% 19.5% 5.8% 8.5% 7.3% 9.1%
STEEL GROUP
Net sales to external customers $229,298 -- $229,298 $893,161 -- $893,161
Intersegment sales 27,985 -- 27,985 133,356 -- 133,356
------------------------------------------ ------------------------------------------
Total net sales $257,283 -- $257,283 $1,026,517 -- $1,026,517
EBIT ($4,217) -- ($4,217) ($6,043) -- ($6,043)
EBIT Margin -1.6% -- -1.6% -0.6% -- -0.6%
CONSOLIDATED
Net sales to external customers $1,021,825 $311,396 $710,429 $3,788,097 $1,030,402 $2,757,695
Total EBIT for reportable segments $48,612 42,123 $6,489 $137,673 56,563 $81,110
Intersegment adjustments 1,445 -- 1,445 (47) -- (47)
------------------------------------------ ------------------------------------------
Total EBIT $50,057 $42,123 $7,934 $137,626 $56,563 $81,063
EBIT Margin 4.9% 13.5% 1.1% 3.6% 5.5% 2.9%
(8) "Adjusted" statements exclude the impact of impairment and restructuring and
integration/reorganization expenses and special items for all periods shown.
RECONCILIATION OF OUTLOOK INFORMATION -
Expected net income per diluted share for the full year and the first quarter
exclude special items. Examples of such special items include impairment and
restructuring, integration/reorganization expenses and payments under the CDSOA.
It is not possible at this time to identify the potential amount or significance
of these special items. We cannot predict whether we will receive any payments
under the CDSOA in 2004 and if so, in what amount. If we do receive any CDSOA
payments, they will be received in the fourth quarter.
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS For the three months ended Year ended
DEC 31 DEC 31 DEC 31 DEC 31
(THOUSANDS OF U.S. DOLLARS) 2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED (USED)
OPERATING ACTIVITIES
Net Income $22,496 $36,466 $36,481 $38,749
Adjustments to reconcile net income to net cash provided
by operating activities:
Cumulative effect of accounting change -- -- -- 12,702
Depreciation and amortization 62,839 35,579 208,851 146,535
Loss on disposals of property, plant and equipment 5,592 14,759 4,944 5,904
Provision (benefit) for deferred income taxes 10,681 (6,307) 13,315 17,250
Stock issued in lieu of cash 443 589 2,744 5,217
Changes in impairment and restructuring charges - net 10,237 (196) 10,237 (13,564)
Impairment charges in joint venture 45,730 45,730 0
Changes in operating assets and liabilities:
Accounts receivable 29,773 20,575 (27,751) (43,679)
Inventories 46,449 (15,389) 33,413 (50,611)
Other assets (13,441) 3,568 (19,509) (3,198)
Accounts payable and accrued expenses (21,293) 34,667 (97,676) 80,761
Foreign currency translation 3,648 1,591 (8,145) 10,037
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NET CASH PROVIDED BY OPERATING ACTIVITIES $203,154 $125,902 $202,634 $206,103
INVESTING ACTIVITIES
Capital expenditures ($46,259) ($36,533) ($127,061) ($90,673)
Proceeds from disposals of property, plant and equipment 18,743 3,112 32,321 12,616
Other 11,663 (14,246) 10,785 5,396
Proceeds from disposals of equity investments 0 -- 146,335 --
Acquisitions (1,215) -- (725,120) (6,751)
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NET CASH (USED) BY INVESTING ACTIVITIES ($17,068) ($47,667) ($662,740) ($79,412)
FINANCING ACTIVITIES
Cash dividends paid to shareholders ($11,578) ($8,232) ($42,078) ($31,713)
Issuance of common stock for acquisition -- -- 180,010 --
Issuance of common stock 54,985 54,985 --
Accounts receivable securitization financing borrowings 2,000 -- 127,000 --
Accounts receivable securitization financing payments (125,000) -- (127,000) --
Payments on long-term debt (90,084) (424) (242,465) (37,296)
Proceeds from issuance of long-term debt -- -- 424,957 --
Short-term debt activity - net (27,985) (25,960) 26,436 (11,498)
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NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES ($197,662) ($34,616) $401,845 ($80,507)
Effect of exchange rate changes on cash $2,159 $1,619 $4,837 $2,474
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,417) 45,238 (53,424) 48,658
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $38,043 $36,812 $82,050 $33,392
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $28,626 $82,050 $28,626 $82,050
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CONSOLIDATED BALANCE SHEET DEC 31 Dec 31
(THOUSANDS OF U.S. DOLLARS) 2003 2002
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ASSETS
Cash & cash equivalents $ 28,626 $ 82,050
Accounts receivable 602,262 361,316
Deferred income taxes 50,271 36,003
Inventories 695,946 488,923
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TOTAL CURRENT ASSETS $1,377,105 $ 968,292
Property, plant & equipment 1,608,594 1,226,244
Goodwill 173,099 129,943
Other assets 530,991 423,877
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TOTAL ASSETS $3,689,789 $2,748,356
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LIABILITIES
Accounts payable & other liabilities $ 425,157 $ 296,543
Short-term debt & commercial paper 121,194 111,134
Accrued expenses 508,205 226,393
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TOTAL CURRENT LIABILITIES $1,054,556 $ 634,070
Long-term debt 613,446 350,085
Accrued pension cost 424,414 723,188
Accrued postretirement benefits cost 476,966 411,304
Other non-current liabilities 30,780 20,623
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TOTAL LIABILITIES $2,600,162 $2,139,270
SHAREHOLDERS' EQUITY 1,089,627 609,086
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,689,789 $2,748,356
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