1.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1995.
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)
Registrant's telephone number, including area code (216) 438-3000
______________
Not Applicable
____________________________________________________________________________
Former name, former address and former fiscal year if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
____ ____
Common shares outstanding at March 31, 1995, 31,107,535.
__________
<PAGE>
PART I. FINANCIAL INFORMATION 2.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
Mar. 31, 1995 Dec. 31, 1994
______________ _____________
(Unaudited)
ASSETS (Thousands of Dollars)
Current Assets
Cash and cash equivalents $ 2,565 $ 12,121
Accounts receivable, less allowances,
(1995-$6,610; 1994-$6,268) 309,199 263,533
Inventories -- Note 3 355,494 332,304
Deferred income taxes 48,418 49,222
__________ __________
Total Current Assets 715,676 657,180
Property, Plant and Equipment 2,268,443 2,230,004
Less allowances for depreciation 1,231,538 1,199,553
__________ __________
1,036,905 1,030,451
Costs in excess of net assets of acquired business,
less amortization of (1995-$12,607; 1994-$11,818) 102,685 91,249
Deferred income taxes 43,511 45,395
Other assets 41,149 34,459
__________ __________
$1,939,926 $1,858,734
LIABILITIES ========== ==========
Current Liabilities
Accounts payable and other liabilities $ 226,344 $ 216,568
Short-term debt and commercial paper 135,575 128,612
Accrued expenses 161,800 133,444
__________ __________
Total Current Liabilities 523,719 478,624
Non-Current Liabilities
Long-term debt -- Note 4 150,857 150,907
Accrued pension cost 111,432 109,644
Accrued postretirement benefits cost 388,724 386,668
__________ __________
651,013 647,219
Shareholders' Equity -- Note 5
Common stock 309,710 307,060
Earnings invested in the business 465,968 440,083
Cumulative foreign currency translation
adjustments (10,484) (14,252)
__________ __________
Total Shareholders' Equity 765,194 732,891
__________ __________
$1,939,926 $1,858,734
========== ==========
<PAGE>
3.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31
___________________
1995 1994
____ ____
(Thousands of dollars
except per share data)
Net sales $568,899 $ 466,482
Cost of product sold 430,073 375,040
________ ________
Gross Profit 138,826 91,442
Selling, administrative, and general expenses 73,639 70,329
________ ________
Operating Income 65,187 21,113
Interest expense (5,436) (7,383)
Other - net (3,835) (93)
_________ _________
Other Income (Expense) (9,271) (7,476)
Income Before Income Taxes 55,916 13,637
Provision for Income Taxes -- Note 2 21,640 5,891
_________ _________
Net Income $ 34,276 $ 7,746
========= ==========
Net Income Per Share (*) $1.10 $ .25
===== =====
Dividends per share $ .27 $ .25
===== =====
(*) Based on average number of shares outstanding during each three months
(1995 - 31,076,704; 1994 - 30,860,158).
<PAGE>
4.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31
_____________________
1995 1994
_________ _________
Cash Provided (Used) (Thousands of Dollars)
Operating Activities
Net income ......................................... $ 34,278 $ 7,746
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization................... 30,810 29,405
Provisions (credit) for deferred income taxes... 73 (3,871)
Stock issued in lieu of cash to employee
benefit plans................................. 1,635 204
Changes in operating assets and liabilities:
Accounts receivable........................... (42,538) (26,408)
Inventories and other assets.................. (39,430) (452)
Accounts payable and accrued expenses......... 37,807 19,991
Foreign currency translation.................. 1,185 65
_________ _________
Net Cash Provided by
Operating Activities 23,820 26,680
Investing Activities
Purchases of property, plant and equipment - net.... (28,722) (26,008)
Financing Activities
Cash dividends paid to shareholders................. (7,376) (6,425)
Payments on long-term debt ......................... (48) (67)
Short-term debt activity - net...................... 2,953 10,110
__________ _________
Net Cash Provided (Used)
in Financing Activities (4,471) 3,618
Effect of exchange rate changes on cash............... (183) 14
Increase or (Decrease) in Cash and Cash Equivalents... (9,556) 4,304
Cash and Cash Equivalents at Beginning of Period...... 12,121 5,284
_______ _______
Cash and Cash Equivalents at End of Period............ $ 2,565 $ 9,588
======= =======
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 5.
March 31, 1995
NOTE 1 -- Basis of Presentation
The accompanying unaudited condensed consolidated financial statements 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, 1994.
NOTE 2 -- Income Taxes
The provision for income taxes consisted of the following:
Three Months Ended
March 31
__________________
1995 1994
____ ____
(Thousands of Dollars)
U.S.:
Federal 15,003 2,426
State & Local 2,503 279
Foreign 4,134 3,186
______ _____
21,640 5,891
===== =====
Taxes provided exceed the U.S. statutory rate primarily due to state and
local taxes.
<PAGE>
6.
NOTE 3 -- Inventories
The following details inventories as of the dates indicated:
3/31/95 12/31/94
_______ ________
(Thousands of Dollars)
Finished products $ 102,888 $ 94,162
Work in process and raw materials 211,543 198,161
Manufacturing supplies 41,063 39,981
_________ _________
$ 355,494 $ 332,304
========= =========
NOTE 4 -- Long-Term Debt
Long-term debt was as follows:
3/31/95 12/31/94
_______ ________
(Thousands of Dollars)
7-1/2% State of Ohio Pollution Control Revenue
Refunding Bonds, maturing on January 1,
2002 $ 17,000 $ 17,000
State of Ohio Water Development Revenue Refunding
Bond, maturing on May 1, 2007. The
variable interest rate is tied to the
bank's tax exempt weekly interest rate.
The rate at March 31, 1995 is 4.15%. 8,000 8,000
State of Ohio Air Quality and Water Development
Revenue Refunding Bonds, maturing on
June 1, 2001. The variable interest rate
is tied to the bank's tax exempt weekly
interest rate. The rate at March 31,
1995 is 4.15% 21,700 21,700
Fixed Rate Medium-Term Notes, Series A, due at
various dates through September, 2002, with
interest rates ranging from 7.20% to 9.25% 133,000 133,000
Other 1,383 1,430
________ ________
181,083 181,130
Less Current Maturities 30,226 30,223
________ ________
$150,857 $150,907
======== ========
<PAGE>
7.
NOTE 5 -- Shareholders' Equity
The following details capital stock as of the dates indicated.
Mar. 31, 1995 Dec. 31, 1994
______________ _____________
(Unaudited)
(Thousands of Dollars)
Class I and Class II serial preferred stock
without par value:
Authorized -- 10,000,000 shares each class
Issued - none $ 0 $ 0
Common stock without par value
Authorized -- 100,000,000 shares
Issued (including shares in treasury)
1995 - 31,116,643 shares;
1994 - 31,061,538 shares;
Stated capital 53,064 53,064
Other paid-in capital 256,852 254,002
Less cost of Common Stock in treasury
(1995 - 9,108 shares; 1994 - 180 shares) 206 6
_________ _________
$ 309,710 $ 307,060
========= =========
<TABLE>
An analysis of the change in capital and earnings invested in the business is as follows:
<CAPTION>
Common Stock
____________________________ Foreign
Other Earnings Currency
Stated Paid in Treasury Invested in Translation
Capital Capital Stock the Business Adjustment Total
_______ _______ ________ ____________ ___________ _____
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 $53,064 $254,002 $ (6) $ 440,083 $(14,252) $ 732,891
Net income 34,276 34,276
Dividends Paid - $.27 per share (8,391) (8,391)
Issued/acquired 8,928 shares of
treasury stock and issued
55,105 shares of common stock
in connection with various
employee benefit plans and
dividend reinvestment plan 2,850 (200) 2,650
Foreign currency translation
adjustment 3,768 3,768
_______ ________ ________ _________ _________ _________
Balance March 31, 1995 $53,064 $256,852 $ (206) $ 465,968 $(10,484) $ 765,194
======= ======== ======== ========= ========= =========
</TABLE>
<PAGE>
8.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
As a result of expanding worldwide demand and continuing productivity
improvements, the company achieved record quarterly sales and earnings
for the first quarter of 1995. The first quarter results have reinforced the
optimism expressed in the company's 1994 Annual Report that 1995 will be a
year of continued strong performance.
The company's success has resulted from its continued focus on products,
plants, performance and people. Stronger emphasis has been placed on
developing new products and modernizing existing ones to meet customer needs.
As a result, the company has been successful in expanding markets and gaining
market penetration. The emphasis on plants is evidenced by a concentration
on advancement and innovation. Performance improvements have resulted from
an unswerving commitment to productivity, reduction of costs, improved
quality, and dedication to customer services in conjunction with the
company's program to accelerate continuous improvement. The concentration on
people is reflected by the on-going sensitivity to the importance of
innovative efforts at the individual level, which contributes to the success
of the company's continuous improvement of customer satisfaction and
shareholder value.
Net sales for the first quarter were $568.9 million, up 22% from $466.5
million a year earlier. The company increased sales in all geographic
markets except Mexico where sales have fallen due to the peso devaluation and
resulting economic contraction. Gross profit for the quarter was $138.8
million (24.4% of net sales) compared to $91.4 million (19.6% of net sales)
in the same period a year ago. The higher sales volume along with improved
prices and a more favorable product mix contributed to the increase in
profits. The company also realized gains resulting from its efforts to
reduce costs, increase productivity, and improve capacity utilization.
Selling, administrative, and general expenses were $73.6 million (12.9% of
net sales) in the first quarter of 1995 compared to $70.3 million (15.1% of
net sales) in 1994. The company's administrative streamlining program
initiated in the fourth quarter of 1991 has essentially been completed.
Administrative cost savings and the related reduction in worldwide salaried
employment levels that were expected to result from the program have been
met. The company continues to focus on making improvements in its
administrative functions with the intent of increasing overall effectiveness
and efficiency.
Bearing Business net sales increased by 24.4% to $395 million in the first
quarter of 1995 compared to $317.6 million in the year-earlier period.
Bearing sales in the U.S. increased in all market segments, including the
long-depressed aerospace market which showed some improvement. The company's
European sales were up considerably as a result of Europe's continued
emergence from the recession. Bearing Business operating income nearly
tripled, totaling $41.8 million in the first quarter versus $15 million in
1994's first period. This increase in profit resulted primarily from the
increase in sales volume, improved prices, and a more favorable product mix.
Gains resulting from improved productivity were partially offset by higher
<PAGE>
9.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Cont.)
Results of Operations (Cont.)
employment costs related to the higher level of activity, which continues to
add to overtime and requires the shift of some products to less efficient
processes.
Steel Business sales of $173.9 million were 16.8% higher than the $148.9
million recorded a year earlier. Operating income in 1995's first quarter
was $23.4 million, up from $6.1 million in the year-earlier period.
Continued strong demand, better market position, improved product mix, higher
productivity and improved prices collectively contributed to this improved
performance level. In addition, the normal to mild winter weather in the
first quarter of 1995 enabled the business to avoid weather-induced
production interruptions that had occurred in the same period one year
earlier. Scrap prices were down slightly from a year ago but continued at
persistently high levels.
Interest expense was lower in the first quarter of 1995 primarily due to the
lower inflationary impact on interest for loans outstanding at the company's
subsidiary in Brazil. Other expense - net was high in comparison to 1994's
first quarter as 1994 reflected a favorable currency translation adjustment
related to the company's subsidiary in Brazil.
Financial Condition
Total assets increased by $81.2 million from December 31, 1994, primarily as
a result of increased accounts receivable and inventories. The $42.5 million
increase in accounts receivable, as reflected in the Consolidated Statements
of Cash Flows, relates primarily to the increase in sales. The $39.4 million
increase in inventories and other assets relates primarily to the higher
level of production activity in the first quarter 1995. The number of days'
sales in receivables and the number days' supply in inventory at March 31,
1995, were basically unchanged compared to the previous year-end levels. The
increase in accounts payable and accrued expenses relates to the higher level
of activity and increased profitability that resulted in higher income taxes
payable. In spite of the substantially higher working capital needs, the
company was able to limit the increase in debt to a nominal amount. The
company continues to expect that debt will be reduced during 1995. The ratio
of debt to total capital of 27.2% was basically unchanged from 27.6% at
year-end 1994.
Purchases of property, plant and equipment - net in the first quarter of 1995
were $28.7 million compared to $26 million a year earlier. The company is
continuing to invest in the most advanced and innovative technologies in its
plants throughout the world.
The increase in costs in excess of acquired business primarily related to the
company's first quarter 1995 acquisition of Rail Bearing Service, Inc. Rail
Bearing Service remanufactures Timken bearings used in the railroad industry.
<PAGE>
10.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Cont.)
Financial Condition (Cont.)
The company continues to make excellent progress in the program to accelerate
continuous improvement in its manufacturing plants worldwide and to increase
its long-term competitive position. The program announced in December 1993,
seeks to reduce the company's manufacturing cost structure by about 15% based
on 1993 volume levels, which equals about $200 million on an annual basis.
Certain costs to implement the program, approximately $28 million, were
charged to operations in 1993. Incremental costs for engineering, employee
training and other manufacturing-related activities are expected to exceed
$50 million during the implementation phase of this project. Such costs will
be recognized in the company's financial statements when incurred and will be
paid from operations. Incremental capital expenditures relating to the
program will be about $100 million and will result in increased depreciation
in future years.
The manufacturing improvement program has now started at virtually every
company manufacturing site worldwide. The company is on track to realize the
anticipated savings resulting from the program. To date, the company spent
and charged to operations approximately $4.5 million on manufacturing-related
costs involved with implementing cost saving ideas. Approximately $1.6
million of these costs were charged to operations in the first quarter of
1995. To date, the company has also expended about $13 million on capital
expenditures to implement cost saving ideas related to the program of which
approximately $6 million was spent in the first quarter of 1995. The cash
expenditures for the incremental implementation costs and the capital
expenditures have been offset by the savings realized to date by the program.
Of the $28 million reserve established in December 1993, for certain
implementation costs, $14.2 million remained at December 31, 1994. In the
first quarter, 1995, the company had cash outlays of approximately $1.5
million that was charged to the reserve. Most of the cash outlays relate to
the payment of consulting fees to a third party for their cost reduction
methodology and specialized expertise in this area. Management believes that
the remaining manufacturing provision of $12.7 million is sufficient to
cover future cash expenditures for separation costs and consulting fees.
In 1993, the company also provided $3 million for administrative
streamlining. In the first quarter of 1995, $0.2 million was charged against
the $1.8 million reserve that remained at December 31, 1994. The March 31,
1995 reserve balance of $1.6 million is believed to be adequate to cover
future expenditures.
Other Information
On April 18, 1995, the company announced the following senior management
changes:
Peter J. Ashton, executive vice president and president - bearings,
retired after 42 years of service with the company. Mr. Ashton had
been an officer since 1980 and had served on the company's Board of
Directors since 1983.
<PAGE>
11.
Other Information (Cont.)
Robert L. Leibensperger, currently vice president - technology, was
elected to the position of executive vice president and president -
bearings. Mr. Leibensperger has been an officer since 1986.
Thomas W. Strouble, currently vice president - sales and marketing
- bearings - North America, was elected to the position of vice
president - technology and elected an officer of the company.
During the first quarter, the company broke ground for the expansion of its
Altavista, Virginia, Bearing Plant which produces SENSOR-PAC(TM) anti-lock
braking system "smart bearings."
Also during the first quarter, the Steel Business announced the opening of a
new facility in Columbus, North Carolina that will be part of the
fast-growing Steel Parts Business.
The company has determined that the effect of amendments to the Clean Air Act
of 1990 on its utility suppliers will increase its costs of electricity by
less than $2 million annually, beginning in the second quarter of 1995. The
company had disclosed previously, in its 1994 Annual Report, that it
estimated the potential increase in electricity costs could be in the range
of $4 million to $5 million annually.
On April 18, 1995, the Board of Directors declared a quarterly cash dividend
of $.27 per share, which is payable on June 5, 1995, to shareholders of
record at the close of business on May 19, 1995.
<PAGE>
12.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The company is currently involved in negotiations with the Ohio
Attorney General's office regarding alleged violations of the
company's NPDES water discharge permits at its Canton, Ohio
location. The company believes it has substantial defenses to the
violations alleged by the Attorney General, and that the matter
will ultimately be settled for an amount that will not be material
to its financial condition or results of operations.
In August 1994, the company's Latrobe Steel Company subsidiary was
served with a complaint by seven former employees. Each of the
employees had been terminated from employment in late 1993 as part
of the company's administrative streamlining efforts. The
plaintiffs' claims include discrimination on account of age and/or
disability status, wrongful termination in violation of public
policy, breach of contract and promissory estoppel. The relief
requested includes reinstatement, back pay, front pay, liquidated
damages, attorneys' fees and compensatory and punitive damages
under the Americans With Disabilities Act and Pennsylvania law.
The company has denied all of the plaintiff's allegations and
believes that it has valid defenses to the plaintiffs' claims.
Discovery in the case is now completed, and a motion for summary
judgment has been filed by the company. The company believes that
the ultimate resolution of this matter will not be material to its
financial condition or results of operations.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Board of Directors recommended the three individuals set forth
below be elected Directors in Class I at the 1995 Annual Meeting of
Shareholders of The Timken Company held on April 18, 1995, to serve
for a term of three years expiring at the Annual Meeting in 1998
(or until their respective successors are elected and qualified).
All of the nominees which had been previously elected as a Director
by the shareholders, were re-elected at the 1995 meeting.
Affirmative Withheld
___________ ________
Robert Anderson 27,738,225 232,549
Ward J. Timken 27,763,573 207,201
Charles H. West 27,760,822 209,952
<PAGE>
13.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
11 Computation of Per Share Earnings
27 Article 5
(b). Reports on Form 8-K
On January 24, 1995, the company filed a Form 8-K regarding
the acquisition of substantially all of the assets and
assumption of certain of the liabilities of Rail Bearing
Service, Inc., (RBS), a Virginia corporation. RBS sells and
services bearings and related parts for use in railroad
rolling stock and other equipment. No financial statements
were filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Timken Company
______________________________
Date May 12, 1995 BY /s/ J. F. Toot, Jr.
________________________ ______________________________
J. F. Toot, Jr., Director;
President and Chief Executive
Officer
Date May 12, 1995 BY /s/ G. E. Little
________________________ ______________________________
G. E. Little
Vice President - Finance
<PAGE>
<PAGE>
STOCK OPTION CALCULATION - EARNINGS PER SHARE
COMPUTATION OF PER SHARE EARNINGS
Three Months Ended March 31
1995 1994
(Thousands of dollars, except per share data)
PRIMARY
Average shares outstanding 31,076,704 30,860,158
Net effect of stock
options - based on the
treasury stock method using
average market price (1) (1)
-------------- ---------------
TOTAL 31,076,704 30,860,158
Net income (loss) $34,276 $7,746
Per-share amount $1.10 $0.25
FULLY DILUTED
Average shares outstanding 31,076,704 30,860,158
Net effect of dilutive stock
options - based on the
treasury stock method using
the average quarterly market
price, if higher than exercise
price 149,901 150,257
-------------- ---------------
TOTAL 31,226,605 31,010,415
============== ===============
Net income (loss) $34,276 $7,746
Per-share amount $1.10 $0.25
(1) Incremental number of shares excluded from calculation since they do not
have a dilutive effect.
Exhibit 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
company's consolidated Balance Sheet and Profit & Loss financial statements
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 2,565
<SECURITIES> 0
<RECEIVABLES> 315,809
<ALLOWANCES> 6,610
<INVENTORY> 355,494
<CURRENT-ASSETS> 715,676
<PP&E> 2,268,443
<DEPRECIATION> 1,231,538
<TOTAL-ASSETS> 1,939,926
<CURRENT-LIABILITIES> 523,719
<BONDS> 150,857
<COMMON> 309,819
0
0
<OTHER-SE> 455,375
<TOTAL-LIABILITY-AND-EQUITY> 1,939,926
<SALES> 568,899
<TOTAL-REVENUES> 568,899
<CGS> 430,073
<TOTAL-COSTS> 430,073
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,436
<INCOME-PRETAX> 55,916
<INCOME-TAX> 21,640
<INCOME-CONTINUING> 34,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,276
<EPS-PRIMARY> 1.100
<EPS-DILUTED> 1.100
</TABLE>
