NEWS RELEASE
- -----------------------------------------------------------------------------
MEDIA CONTACT: WORLDWIDE LEADER IN BEARINGS AND STEEL
Carol A. Titus
Communications Manager
(330) 471-3757
www.timken.com/media
INVESTOR CONTACT:
Kevin R. Beck
Manager - Investor Relations
(330) 471-7181
TIMKEN ANNOUNCES THIRD QUARTER RESULTS
--------------------------------------
CANTON, OH - October 23, 2003 - The Timken Company (NYSE: TKR) today
announced results for the third quarter, which were in line with earnings
guidance.
For the quarter ended September 30, sales increased 50 percent to $938.0
million from $628.6 million a year ago, due primarily to the acquisition of The
Torrington Company. Excluding the effects of Torrington, sales were up 5
percent.
In the third quarter, the company reported a net loss of $1.3 million, or a
loss of $0.01 per diluted share. The third quarter included net expense of $0.05
per share for restructuring and integration activities related to the
acquisition of Torrington. Excluding these special items, adjusted net income
was $3.6 million or $0.04 per diluted share, within earnings guidance of $0.00
to $0.05 per share. Third-quarter performance benefited from higher revenues but
was negatively affected by a decline in North American automobile production,
continued issues impacting the performance of manufacturing in the Automotive
Group and high raw material and natural gas costs affecting the Steel Group.
- more -
Carol A. Titus 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: 330-471-3757 Telephone: 330-471-7181
Facsimile: 330-471-4118 Facsimile: 330-471-2792
THE TIMKEN COMPANY e-mail: titusc@timken.com e-mail: beckk@timken.com
----------------- ----------------
2
Excluding the effects of the company's acquisition of Torrington and
special items, Timken estimates adjusted third quarter earnings would have been
$0.11 per diluted share. For the year, the company continues to expect the
acquisition to be neutral to slightly accretive.
For the third quarter of 2002, the company reported net income of $1.8
million or $0.03 per diluted share. Excluding charges for restructuring and
reorganization, adjusted net income for the third quarter of 2002 was $10.6
million or $0.17 per diluted share.
"While we achieved sales increases in challenging markets, we recognize the
need to improve our earnings performance," said James W. Griffith, president &
CEO. "Despite reports of a strengthening economy in the U.S., we continue to
suffer the effects of slow recovery in key markets as well as higher raw
material and energy costs. We have taken steps to reduce our cost structure as
part of our ongoing operations improvement programs, and we reduced debt.
Additionally, the integration of Timken and Torrington has produced
approximately $15 million in pretax savings to date, and we expect to achieve
our target of $20 million of annualized pretax savings by year-end and $80
million by 2005."
As part of the integration of Torrington, the company recently:
[ ] Reached an agreement in principle to sell the airframe operations in
Torrington, Conn., and expects to close the transaction by year-end;
[ ] Reached an agreement to sell the assets of the Rockford, Ill., bearing
plant, which will cease operations in the fourth quarter;
[ ] Moved production from the Darlington, England, bearing plant to other
facilities and prepared to close the plant in the fourth quarter;
[ ] Strengthened the management team in Europe to speed integration activities
and to drive profitable growth in that region;
[ ] Continued integration of engineering, customer service and administrative
functions.
THE TIMKEN COMPANY
3
During the quarter the company announced changes in its Automotive Group to
drive improvements in manufacturing operations and better leverage the
combination of Timken and Torrington. The company also announced it was reducing
employment by more than 900 positions in the second half of 2003, and
approximately 540 positions have been eliminated to date.
Total debt at the end of the third quarter was $939 million, down $78
million from the second quarter.
In the third quarter, Timken contributed $101 million to its domestic
pension plans, with year-to-date cash contributions to these plans now totaling
$169 million. Also during the quarter, the company sold its interest in a needle
bearing manufacturing joint venture with NSK Ltd. for $146 million before taxes.
In October, the company completed a public offering of approximately 12.9
million shares of its common stock. This included approximately 9.4 million
shares held by Ingersoll-Rand Company, which it received as part of the purchase
price for Torrington, and 3.5 million shares sold by Timken. The company used
the net proceeds of approximately $55 million from the sale of the 3.5 million
shares to further reduce debt.
"Our debt reduction actions underscore our commitment to maintain a strong
balance sheet," said Mr. Griffith. "We will continue to take actions to increase
profitability and to generate cash through improved working capital management,
focused capital expenditures and asset dispositions."
In the first nine months, sales were $2.8 billion, compared with $1.9
billion in 2002. The company reported earnings of $0.17 per diluted share for
the first nine months of 2003 versus earnings of $0.04 in 2002. The first nine
months of 2002 included a goodwill impairment write-off of $0.21 per diluted
share for the cumulative effect of a change in accounting principle.
THE TIMKEN COMPANY
4
Excluding special items, the company had adjusted earnings of $0.40 per
diluted share for the first nine months versus $0.68 in 2002. Excluding the
effects of the Torrington acquisition and special items, sales for the first
nine months were $2.0 billion, up 7 percent over 2002, and adjusted earnings
were $0.51 per diluted share.
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 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
For the third quarter, Automotive Group sales were $346.8 million, compared
with $184.7 million a year ago, with most of the increase due to the Torrington
acquisition and new product introductions.
The Automotive Group recorded a third-quarter loss of $8.5 million before
interest and taxes versus a loss of $4.1 million a year ago. Excluding
Torrington, third quarter sales were $194.8 million, and the Automotive Group
recorded a loss of $4.8 million before interest and taxes.
Automotive Group performance reflected growth in its traditional Timken(R)
tapered roller bearing business, offset by lower sales in the former
Torrington(R) needle bearing business. Demand for Timken tapered roller bearing
products grew approximately 5 percent over the prior year, despite an estimated
2 percent decline in North American light truck production and an 11 percent
drop in medium and heavy truck production. The growth in Timken product sales
was fueled by new product introductions for light trucks. Torrington product
sales were negatively
THE TIMKEN COMPANY
5
impacted by an estimated 20 percent decline in passenger car production by the
Big 3 automobile makers, compared with the prior year. Automotive results also
were negatively affected by new process start-up costs associated with Advanced
Green Components, a manufacturing joint venture to produce hot-forged,
cold-forged and machined rings used in bearing manufacture. During the quarter,
the Automotive Group continued to sharpen its focus on aggressive implementation
of plans and tactics to improve manufacturing performance.
For the first nine months, Automotive Group sales were $1.0 billion,
compared with $564.1 million in the same period in 2002. Earnings before
interest and taxes (EBIT) were $7.4 million, compared with $3.4 million in 2002.
Excluding the effects of the Torrington acquisition, the Automotive Group had
sales of $610.9 million and a loss of $2.6 million in the first nine months of
2003.
INDUSTRIAL GROUP RESULTS
Industrial Group sales in the third quarter were $386.5 million, compared
with $239.7 million in 2002. The sales increase reflected the addition of
Torrington, the effect of currency translation and growth in certain markets.
EBIT was $35.1 million, compared with $24.3 million a year earlier.
Excluding Torrington, sales were $262.4 million and EBIT was $31.5 million. The
Industrial Group benefited from continued growth in the automotive distribution
business, improved performance in the rail business and in Europe, exiting of
low-margin business and manufacturing cost reductions. Continuing weakness in
industrial markets and high levels of distributor inventories for Torrington
industrial products dampened the positive impact of these factors. The company
continues to work with its distributors in managing inventory levels.
For the first nine months, Industrial Group sales were $1.1 billion,
compared with $724.1 million a year earlier. EBIT for the first nine months was
$83.5 million versus $55.3 million in
THE TIMKEN COMPANY
6
2002. Excluding the effect of Torrington, sales for the first nine months of
2003 were $773.0 million and EBIT was $79.1 million.
STEEL GROUP RESULTS
For the third quarter, Steel Group sales were $236.6 million, down from
$246.8 million a year ago. Steel demand continues to be weak with no signs of a
general industrial economic recovery.
The group recorded a loss of $5.6 million before interest and taxes,
compared with EBIT of $5.6 million in the third quarter of 2002. Margins were
negatively affected by high raw material and natural gas costs, lower sales,
changes in product mix and lower capacity utilization. During the quarter,
operations were curtailed intermittently to control labor costs and inventory
levels, in response to lower demand. The Steel Group also implemented price
increases and surcharges to recover a portion of raw material costs.
For the first nine months, Steel Group sales were $769.2 million, compared
with $740.6 million in the same period a year ago. The Group recorded a loss of
$1.8 million for the first nine months, compared with EBIT of $32.3 million in
the same period a year ago.
OUTLOOK
The company reaffirms its earnings guidance for the full year of 2003 of
$0.45 to $0.60 per diluted share, excluding special items.
"We are continuing to strengthen the company through new business
development, operations improvements, aggressive cost management and debt
reduction," said Mr. Griffith. "These steps will provide a solid footing for the
long-anticipated upturn in our key markets. Yet even without an economic
recovery, we believe that our current actions will have a positive impact on our
performance in the coming year."
THE TIMKEN COMPANY
7
The company will host a conference call for investors and analysts today to
discuss financial results.
Conference Call: Thursday, October 23
11 a.m. - Noon 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: 2764988
Live Webcast: www.timken.com.
The Timken Company (www.timken.com) is a leading international
manufacturer of highly engineered bearings, alloy and specialty steels and
components, and a provider of related products and services. Following its
February 2003 acquisition of The Torrington Company, Timken employed 28,000
people worldwide with operations in 29 countries. In 2002, the combined
companies had sales of approximately $3.8 billion.
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. 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, 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 and June 30, 2003. The Company undertakes no
obligation to update or revise any forward-looking statement.
###
THE TIMKEN COMPANY
8
CONSOLIDATED STATEMENT OF INCOME AS REPORTED
- ----------------------------------------------------------------------------------------------------------------------------------
(THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA) 3Q 03 3Q 02 Nine Months 03 Nine Months 02
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales $938,012 $628,591 $2,766,272 $1,905,177
Cost of products sold 790,161 515,271 2,319,787 1,543,833
Integration/Reorganization expenses - cost of products sold 241 2,058 10,540 7,139
- ----------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT $147,610 $111,262 $435,945 $354,205
Selling, administrative & general expenses (SG&A) 123,601 84,999 350,537 259,212
Integration/Reorganization expenses - SG&A 4,853 2,383 18,385 7,167
Impairment and restructuring 1,883 7,703 2,736 24,986
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME $17,273 $16,177 $64,287 $62,840
Other expense (6,485) (3,415) (8,380) (12,490)
Special charges - other income (expense) (974) - 2,197 -
- ----------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES (EBIT) $9,814 $12,762 $58,104 $50,350
Interest expense (12,369) (8,072) (35,644) (23,996)
Interest income 430 294 848 991
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ($2,125) $4,984 $23,308 $27,345
Provision for income taxes (850) 3,147 9,323 12,360
-------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE ($1,275) $1,837 $13,985 $14,985
Cumulative effect of change in accounting
principle (net of income tax benefit of $7,786) - - - (12,702)
-------------------------------------------------------------------
NET INCOME (LOSS) ($1,275) $1,837 $13,985 $2,283
===================================================================
EARNINGS PER SHARE:
INCOME BEFORE ACCOUNTING CHANGE ($0.01) $0.03 $0.17 $0.25
CUMULATIVE EFFECT OF ACCOUNTING CHANGE $0.00 $0.00 $0.00 ($0.21)
-------------------------------------------------------------------
EARNINGS PER SHARE ($0.01) $0.03 $0.17 $0.04
===================================================================
EARNINGS PER SHARE-ASSUMING DILUTION:
INCOME BEFORE ACCOUNTING CHANGE ($0.01) $0.03 $0.17 $0.25
CUMULATIVE EFFECT OF ACCOUNTING CHANGE $0.00 $0.00 $0.00 ($0.21)
-------------------------------------------------------------------
EARNINGS PER SHARE-ASSUMING DILUTION ($0.01) $0.03 $0.17 $0.04
===================================================================
Average Shares Outstanding 85,568,394 61,091,924 81,109,433 60,459,277
Average Shares Outstanding-assuming dilution 85,568,394 (4) 61,430,256 81,285,394 60,998,543
==================================================================================================================================
CONSOLIDATED STATEMENT OF INCOME ADJUSTED (1)
- ---------------------------------------------------------------------------------------------------------------------------------
(THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA) 3Q 03 3Q 02 Nine Months 03 Nine Months 02
- ---------------------------------------------------------------------------------------------------------------------------------
Net sales $938,012 $628,591 $2,766,272 $1,905,177
Cost of products sold 790,161 515,271 2,319,787 1,543,833
Integration/Reorganization expenses - cost of products sold - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT $147,851 $113,320 $446,485 $361,344
Selling, administrative & general expenses (SG&A) 123,601 84,999 350,537 259,212
Integration/Reorganization expenses - SG&A - - - -
Impairment and restructuring - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME $24,250 $28,321 $95,948 $102,132
Other expense (6,485) (3,415) (8,380) (12,490)
Special charges - other income (expense) - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES (EBIT) $17,765 $24,906 $87,568 $89,642
Interest expense (12,369) (8,072) (35,644) (23,996)
Interest income 430 294 848 991
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $5,826 $17,128 $52,772 $66,637
Provision for income taxes 2,214 6,497 20,053 25,338
-------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE $3,612 $10,631 $32,719 $41,299
Cumulative effect of change in accounting
principle (net of income tax benefit of $7,786) - - - -
-------------------------------------------------------------------
NET INCOME (LOSS) $3,612 $10,631 $32,719 $41,299
===================================================================
EARNINGS PER SHARE:
INCOME BEFORE ACCOUNTING CHANGE $0.04 $0.17 $0.40 $0.68
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - - - -
-------------------------------------------------------------------
EARNINGS PER SHARE $0.04 $0.17 $0.40 $0.68
===================================================================
EARNINGS PER SHARE-ASSUMING DILUTION:
INCOME BEFORE ACCOUNTING CHANGE $0.04 $0.17 $0.40 $0.68
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - - - -
-------------------------------------------------------------------
EARNINGS PER SHARE-ASSUMING DILUTION $0.04 $0.17 $0.40 $0.68
===================================================================
Average Shares Outstanding 85,568,394 61,091,924 81,109,433 60,459,277
Average Shares Outstanding-assuming dilution 85,687,410 61,430,256 81,285,394 60,998,543
=================================================================================================================================
BUSINESS SEGMENTS
- ----------------------------------------------------------------------------------------------------------------------------------
(THOUSANDS OF U.S. DOLLARS) 3Q 03 3Q 02 NINE MONTHS 03 Nine Months 02
- ----------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE GROUP (3)
- --------------------
Net sales to external customers $346,804 $184,671 $1,021,458 $564,122
Impairment and restructuring - - - -
Integration/Reorganization expenses - - - -
Earnings before interest and taxes (EBIT) * (2) ($8,459) ($4,078) $7,398 $3,416
EBIT Margin -2.4% -2.2% 0.7% 0.6%
INDUSTRIAL GROUP (3)
- --------------------
Net sales to external customers $386,407 $239,697 $1,080,951 $724,117
Intersegment sales 136 - 481 -
-------------------------------------------------------------------
Total net sales $386,543 $239,697 $1,081,432 $724,117
Impairment and restructuring - - - -
Integration/Reorganization expenses - - - -
Earnings before interest and taxes (EBIT) * (2) $35,100 $24,271 $83,489 $55,341
EBIT Margin 9.1% 10.1% 7.7% 7.6%
STEEL GROUP
- -----------
Net sales to external customers $204,801 $204,223 $663,863 $616,938
Intersegment sales 31,815 42,623 105,371 123,655
-------------------------------------------------------------------
Total net sales $236,616 $246,846 $769,234 $740,593
Impairment and restructuring - - - -
Integration/Reorganization expenses - - - -
Earnings before interest and taxes (EBIT) * (2) ($5,609) $5,592 ($1,826) $32,279
EBIT Margin -2.4% 2.3% -0.2% 4.4%
* 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
and integration/reorganization charges for all quarters shown, special
charges and cumulative effect of change in accounting principle recognized
in 2002 and 2003.
(2) EBIT is defined as operating income (loss) 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 Aftermarket and
Emerging Markets' results.
(4) The addition of 119,016 shares would result in antidilution.
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.
9
-----------------------------------------------------
3Q 03 3Q 02
- -----------------------------------------------------------------------------------------------------------------------
(THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA) $ EPS $ EPS
- -----------------------------------------------------------------------------------------------------------------------
Net income ($1,275) ($0.01) $1,837 $0.03
Integration expense - inventory write-up - cost of products sold - - - -
Reorganization expense - cost of products sold 241 0.00 2,058 0.03
Integration/Reorganization expenses - SG&A 4,853 0.06 2,383 0.04
Impairment and restructuring 1,883 0.02 7,703 0.12
Special charges - other income (expense)
LOSS (GAIN) ON SALE OF ASSETS - - -
CDSOA REPAYMENT (3) - - - -
ACQUISITION-RELATED UNREALIZED CURRENCY EXCHANGE GAINS - - - -
PRIOR RESTRUCTURING ACCRUAL REVERSAL 974 0.01 - -
Tax effect of special items (3,064) (0.04) (3,350) (0.05)
Cumulative effect of change in accounting principle - - - -
------------------------------------------------------
Adjusted net income $3,612 $0.04 $10,631 $0.17
Impact of Torrington acquisition (4) 3,385 $0.07
-----------------
Adjusted net income, excluding Torrington acquisition $6,997 $0.11
Average shares outstanding, assuming dilution 85,687,410
Impact of Torrington acquisition (4) (22,024,449)
----------------
Adjusted average shares outstanding - assuming dilution 63,662,961
------------------------------------------------------
NINE MONTHS 03 Nine Months 02
- -------------------------------------------------------------------------------------------------------------------------
(THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA) $ EPS $ EPS
- -------------------------------------------------------------------------------------------------------------------------
Net income $13,985 $0.17 $2,283 $0.04
Integration expense - inventory write-up - cost of products sold 6,897 (1) 0.08 - -
Reorganization expense - cost of products sold 3,643 (2) 0.04 7,139 0.12
Integration/Reorganization expenses - SG&A 18,385 0.23 7,167 0.12
Impairment and restructuring 2,736 0.03 24,986 0.40
Special charges - other income (expense)
LOSS (GAIN) ON SALE OF ASSETS (3,107) (0.04) - -
CDSOA REPAYMENT (3) 2,808 0.04 - -
ACQUISITION-RELATED UNREALIZED CURRENCY EXCHANGE GAINS (1,930) (0.02) - -
PRIOR RESTRUCTURING ACCRUAL REVERSAL 32 0.00 - -
Tax effect of special items (10,730) (0.13) (12,978) (0.21)
Cumulative effect of change in accounting principle - - 12,702 0.21
--------------------------------------------------------
Adjusted net income $32,719 $0.40 $41,299 $0.68
Impact of Torrington acquisition (4) (272) $0.11
----------
Adjusted net income, excluding Torrington acquisition $32,447 $0.51
Average shares outstanding, assuming dilution 81,285,394
Impact of Torrington acquisition (4) (17,658,534)
----------
Adjusted average shares outstanding - assuming dilution 63,626,860
(1) Represents a one-time inventory write-up related to purchase price
accounting.
(2) Costs associated with the Duston, England plant closure.
(3) One-time repayment of CDSOA funds in 2003, due to a miscalculation by the
U.S. Treasury Department of funds received in 2002.
(4) Impact of Torrington acquisition includes acquisition earnings, financing
and synergies.
RECONCILIATION OF 3Q 03 TIMKEN COMPANY AND IMPACT OF TORRINGTON ACQUISITION FOR
BUSINESS SEGMENTS
3Q 03 ADJUSTED (5) NINE MONTHS 03 ADJUSTED (5)
-------------------------------------- -------------------------------------
IMPACT OF IMPACT OF
TIMKEN TORRINGTON TIMKEN TIMKEN TIMKEN TIMKEN
COMPANY ACQUISITION STANDALONE COMPANY ACQUISITION STANDALONE
--------------------------------------- --------------------------------------
AUTOMOTIVE GROUP
- ----------------
Net sales to external customers $346,804 $152,035 $194,769 $1,021,458 $410,552 $610,906
EBIT ($8,459) ($3,651) ($4,808) $7,398 $10,031 ($2,633)
EBIT Margin -2.4% -2.4% -2.5% 0.7% 2.4% -0.4%
INDUSTRIAL GROUP
- ----------------
Net sales to external customers $386,407 $124,119 $262,288 $1,080,951 $308,454 $772,497
Intersegment sales 136 - 136 481 - 481
--------------------------------------- --------------------------------------
Total net sales $386,543 $124,119 $262,424 $1,081,432 $308,454 $772,978
EBIT $35,100 $3,574 $31,526 $83,489 $4,415 $79,074
EBIT Margin 9.1% 2.9% 12.0% 7.7% 1.4% 10.2%
STEEL GROUP
- -----------
Net sales to external customers $204,801 - $204,801 $663,863 - $663,863
Intersegment sales 31,815 - 31,815 105,371 - 105,371
--------------------------------------- --------------------------------------
Total net sales $236,616 - $236,616 $769,234 - $769,234
EBIT ($5,609) - ($5,609) ($1,826) - ($1,826)
EBIT Margin -2.4% - -2.4% -0.2% - -0.2%
CONSOLIDATED
- ------------
Net sales to external customers $938,012 $276,154 $661,858 $2,766,272 $719,006 $2,047,266
Total EBIT for reportable segments $21,032 (77) $21,109 $89,061 14,446 $74,615
Intersegment adjustments (3,267) - (3,267) (1,493) - (1,493)
--------------------------------------- --------------------------------------
Total EBIT $17,765 ($77) $17,842 $87,568 $14,446 $73,122
EBIT Margin 1.9% 0.0% 2.7% 3.2% 2.0% 3.6%
(5) "Adjusted" statements exclude the impact of impairment and restructuring
and integration/reorganization expenses and special items for all quarters
shown.
RECONCILIATION OF TOTAL DEBT AS OF SEPTEMBER 30, 2003
Short-term debt and commercial paper $240,971
Long-term debt 698,464
--------
Total Debt as of September 30, 2003 $939,435
========
RECONCILIATION OF OUTLOOK INFORMATION
Expected net income per diluted share for the full year excludes 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 2003 and if so, in what amount. If we do receive any CDSOA payments,
they will be received in the fourth quarter.
10
- -----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS For the three months ended For the nine months ended
SEP 30 SEP 30 SEP 30 SEP 30
(THOUSANDS OF U.S. DOLLARS) 2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED (USED)
OPERATING ACTIVITIES
Net Income ($1,275) $1,837 $13,985 $2,283
Adjustments to reconcile net income to net cash provided
by operating activities:
Cumulative effect of accounting change - - - 12,702
Depreciation and amortization 57,060 37,101 146,012 110,956
Loss (Gain) on disposals of property, plant and equipment 1,306 (4,916) (648) (8,855)
Provision for deferred income taxes (1,258) (476) 2,634 23,557
Stock issued in lieu of cash to employee benefit plans 21 (788) 2,301 4,628
Changes in impairment and restructuring charges - net - (4,297) - (13,368)
Changes in operating assets and liabilities:
Accounts receivable (18,360) 5,075 (57,524) (64,254)
Inventories 5,713 (11,757) (13,036) (35,222)
Other assets (1,905) 10,538 (6,068) (6,766)
Accounts payable and accrued expenses (77,797) 18,851 (76,383) 46,094
Foreign currency translation (2,070) 4,714 (11,793) 8,446
-----------------------------------------------------------------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES ($38,565) $55,882 ($520) $80,201
INVESTING ACTIVITIES
Capital expenditures ($29,095) ($19,243) ($80,802) ($54,140)
Proceeds from disposals of property, plant and equipment 1,500 3,778 13,578 9,504
Other 176 7,159 (878) 19,642
Proceeds from disposals of equity investments 146,335 - 146,335 -
Acquisitions (4,953) - (723,905) (6,751)
-----------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES $113,963 ($8,306) ($645,672) ($31,745)
FINANCING ACTIVITIES
Cash dividends paid to shareholders ($11,124) ($7,841) (30,500) (23,481)
Issuance of common stock for acquisition - - 180,010 -
Accounts receivable securitization financing borrowings - - 125,000 -
Accounts receivable securitization financing payments (2,000) - (2,000) -
Payments on long-term debt (103,159) (35,145) (152,381) (36,872)
Proceeds from issuance of long-term debt - (304) 424,957 -
Short-term debt activity - net 25,881 1,356 54,421 14,462
-----------------------------------------------------------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES ($90,402) (41,934) $599,507 ($45,891)
Effect of exchange rate changes on cash $602 76 2,678 855
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (14,402) 5,718 (44,007) 3,420
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $52,445 $31,094 $82,050 $33,392
-----------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $38,043 $36,812 $38,043 $36,812
=================================================================
11
- ------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET Sep 30 Dec 31
(THOUSANDS OF U.S. DOLLARS) 2003 2002
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Cash & cash equivalents $38,043 $82,050
Accounts receivable 618,866 361,316
Deferred income taxes 35,194 36,003
Inventories 740,958 488,923
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS $1,433,061 $968,292
Property, plant & equipment 1,626,285 1,226,244
Goodwill 206,831 129,943
Other assets 595,880 423,877
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $3,862,057 $2,748,356
==================================================================================================================
LIABILITIES
Accounts payable & other liabilities 472,175 $296,543
Short-term debt & commercial paper 240,971 111,134
Accrued expenses 402,559 226,393
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES $1,115,705 $634,070
Long-term debt 698,464 350,085
Accrued pension cost 559,031 723,188
Accrued postretirement benefits cost 497,334 411,304
Other non-current liabilities 30,060 20,623
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $2,900,594 $2,139,270
SHAREHOLDERS' EQUITY 961,463 609,086
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,862,057 $2,748,356
=================================================================================================================