1.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended June 30, 1999.
Commission File No. 1-1169
THE TIMKEN COMPANY
Exact name of registrant as specified in its charter
Ohio 34-0577130
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
1835 Dueber Avenue, S.W., Canton, Ohio 44706-2798
Address of principal executive offices Zip Code
(330) 438-3000
Registrant's telephone number, including area code
Not Applicable
Former name, former address and former fiscal year if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days.
YES X NO
___ ___
Common shares outstanding at June 30, 1999, 61,926,353.
PART I. FINANCIAL INFORMATION 2.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
June 30 Dec. 31
1999 1998
ASSETS ---------- ----------
Current Assets (Thousands of dollars)
Cash and cash equivalents........................... $19,577 $320
Accounts receivable, less allowances,
(1999-$9,542; 1998-$7,949).......................... 356,619 350,483
Deferred income taxes............................... 43,712 42,288
Inventories (Note 2) ............................... 415,637 457,246
---------- ----------
Total Current Assets...................... 835,545 850,337
Property, Plant and Equipment....................... 2,851,275 2,789,131
Less allowances for depreciation................... 1,481,959 1,439,592
---------- ----------
1,369,316 1,349,539
Costs in excess of net assets of acquired business,
less amortization, (1999-$31,790; 1998-$28,936)..... 155,159 150,140
Deferred income taxes............................... 27,209 20,409
Other assets........................................ 84,287 79,606
---------- ----------
Total Assets.................................. $2,471,516 $2,450,031
========== ==========
LIABILITIES
Current Liabilities
Accounts payable and other liabilities.............. $220,990 $221,823
Short-term debt and commercial paper................ 148,169 144,312
Accrued expenses.................................... 149,357 124,288
---------- ----------
Total Current Liabilities................. 518,516 490,423
Noncurrent Liabilities
Long-term debt (Note 3) ............................ 327,978 325,086
Accrued pension cost................................ 146,654 149,366
Accrued postretirement benefits cost................ 393,710 390,804
Other noncurrent liabilities........................ 36,626 38,271
---------- ----------
Total Noncurrent Liabilities.............. 904,968 903,527
Shareholders' Equity (Note 4)
Common stock........................................ 290,058 287,003
Earnings invested in the business................... 825,353 818,794
Accumulated other comprehensive income.............. (67,379) (49,716)
---------- ----------
Total Shareholders' Equity................ 1,048,032 1,056,081
Total Liabilities and Shareholders' Equity.... $2,471,516 $2,450,031
========== ==========
<TABLE>
PART I. FINANCIAL INFORMATION Continued 3.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended Three Months Ended
June 30 June 30 June 30 June 30
1999 1998 1999 1998
---------- ---------- -------- --------
(Thousands of dollars, except per share data)
<S> <C> <C> <C> <C>
Net sales................................................... $1,261,469 $1,409,128 $636,099 $701,747
Cost of product sold........................................ 1,015,309 1,070,020 516,498 537,005
---------- ---------- -------- --------
Gross Profit............................................. 246,160 339,108 119,601 164,742
Selling, administrative and general expenses................ 177,111 178,041 87,781 89,900
---------- ---------- -------- --------
Operating Income......................................... 69,049 161,067 31,820 74,842
Interest expense............................................ (13,525) (12,470) (6,869) (6,607)
Interest income............................................. 1,148 929 721 478
Other income (expense)...................................... (6,163) (8,556) (2,748) (7,251)
---------- ---------- -------- --------
Income Before Income Taxes............................... 50,509 140,970 22,924 61,462
Provision for income taxes (Note 5)......................... 21,666 53,145 10,660 22,773
---------- ---------- -------- --------
Net Income............................................... $28,843 $87,825 $12,264 $38,689
========== ========== ======== ========
Earnings Per Share * .................................... $0.47 $1.41 $0.20 $0.62
Earnings Per Share - assuming dilution **............... $0.46 $1.39 $0.20 $0.61
Dividends Per Share...................................... $0.36 $0.36 $0.18 $0.18
========== ========== ======== ========
* Per average shares outstanding........................... 61,884,046 62,379,675 61,906,626 62,213,764
** Per average shares outstanding - assuming dilution....... 62,122,559 63,287,712 62,224,795 63,179,905
</TABLE>
PART I. FINANCIAL INFORMATION Continued 4.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
Cash Provided (Used) June 30 June 30
1999 1998
------- -------
OPERATING ACTIVITIES (Thousands of dollars)
Net Income............................................. $28,843 $87,825
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 73,652 69,003
Credit for deferred income taxes...................... (10,904) (383)
Stock issued in lieu of cash to employee benefit plans 3,394 18,989
Changes in operating assets and liabilities:
Accounts receivable.................................. (6,300) (27,541)
Inventories.......................................... 36,541 (45,619)
Other assets......................................... (3,309) (9,611)
Accounts payable and accrued expenses................ 23,660 18,662
Foreign currency translation......................... 2,823 1,034
------- -------
Net Cash Provided by Operating Activities........... 148,400 112,359
INVESTING ACTIVITIES
Purchases of property, plant and equipment - net...... (88,065) (133,107)
Acquisitions.......................................... (27,939) 0
------- -------
Net Cash Used by Investing Activities...............(116,004) (133,107)
FINANCING ACTIVITIES
Cash dividends paid to shareholders................... (22,284) (22,462)
Purchase of Treasury Shares........................... (339) (43,875)
Payments on long-term debt............................ (279) (23,190)
Proceeds from issuance of long-term debt.............. 2,723 138,272
Short-term debt activity - net........................ 7,570 (15,645)
------- -------
Net Cash (Used) Provided by Financing Activities.... (12,609) 33,100
Effect of exchange rate changes on cash................ (530) (73)
Increase in Cash and Cash Equivalents.................. 19,257 12,279
Cash and Cash Equivalents at Beginning of Period....... 320 9,824
------- -------
Cash and Cash Equivalents at End of Period............. $19,577 $22,103
======= =======
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 5.
Note 1 -- Basis of Presentation
The accompanying consolidated condensed financial statements (unaudited) for
the Timken Company (the "company") have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) and disclosures considered necessary
for a fair presentation have been included. For further information, refer to
the consolidated financial statements and footnotes included in the company's
annual report on Form 10-K for the year ended December 31, 1998.
6/30/99 12/31/98
Note 2 -- Inventories -------- ---------
(Thousands of dollars)
Finished products $162,479 $183,950
Work-in-process and raw materials 212,473 229,397
Manufacturing supplies 40,685 43,899
-------- --------
$415,637 $457,246
======== ========
Note 3 -- Long-term Debt 6/30/99 12/31/98
-------- ---------
(Thousands of dollars)
State of Ohio Pollution Control Revenue Refunding Bonds,
maturing on July 1, 2003. The variable interest
rate is tied to the bank's tax exempt weekly interest
rate. The rate at June 30, 1999 is 3.65%. $17,000 $17,000
State of Ohio Water Development Revenue Refunding
Bond, maturing on May 1, 2007. The variable interest
rate is tied to the bank's tax exempt weekly interest
rate. The rate at June 30, 1999 is 3.50%. 8,000 8,000
State of Ohio Air Quality and Water Development Revenue
Refunding Bonds, maturing on June 1, 2001. The
variable interest rate is tied to the bank's tax
exempt weekly interest rate. The rate at
June 30, 1999 is 3.50%. 21,700 21,700
State of Ohio Water Development Authority Solid Waste
Revenue Bonds, maturing on July 2, 2032. The
variable interest rate is tied to the bank's tax
exempt weekly interest rate. The rate at
June 30, 1999 is 3.55%. 24,000 24,000
Fixed Rate Medium-Term Notes, Series A, due at various
dates through May, 2028 with interest rates ranging
from 6.20% to 7.76%. 267,000 267,000
Other 12,687 5,105
-------- --------
350,387 342,805
Less: Current Maturities 22,409 17,719
-------- --------
$327,978 $325,086
======== ========
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited)
Continued 6.
Note 4 -- Shareholders' Equity 6/30/99 12/31/98
-------- --------
Class I and Class II serial preferred stock (Thousands of dollars)
without par value:
Authorized -- 10,000,000 shares each class
Issued - none $0 $0
Common Stock without par value:
Authorized -- 200,000,000 shares
Issued (including shares in treasury)
1999 - 63,082,626 shares
1998 - 63,082,626 shares
Stated Capital 53,064 53,064
Other paid-in capital 262,380 261,156
Less cost of Common Stock in treasury
1999 - 1,156,272 shares
1998 - 1,234,462 shares 25,386 27,217
-------- --------
$290,058 $287,003
======== ========
<TABLE>
An analysis of the change in capital and earnings invested in the business is as follows:
Common Stock Earnings Accumulated
Other Invested Other
Stated Paid-In in the Comprehensive Treasury
Capital Capital Business Income Stock Total
------- -------- -------- ---------- -------- ----------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1998 $53,064 $261,156 $818,794 ($49,716) ($27,217) $1,056,081
Net Income 28,843 28,843
Foreign currency translation adjustment (17,663) (17,663)
----------
Total comprehensive income 11,180
Dividends - $.36 per share (22,284) (22,284)
Stock Options, employee benefit and dividend
reinvestment plans: 1,224 1,831 3,055
Treasury - (issued)/acquired (78,190) shares
------- -------- -------- ---------- -------- ----------
Balance June 30, 1999 $53,064 $262,380 $825,353 ($67,379) ($25,386) $1,048,032
======= ======== ======== ========== ======== ==========
</TABLE>
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 7.
Continued
Note 5 -- Income Tax Provision Six Months Ended Three Months Ended
June 30 June 30 June 30 June 30
1999 1998 1999 1998
------- ------- ------- -------
U.S. (Thousands of dollars)
Federal $17,455 $41,530 $8,349 $17,404
State & Local 1,421 5,170 386 2,186
Foreign 2,790 6,445 1,925 3,183
------- ------- ------- -------
$21,666 $53,145 $10,660 $22,773
======= ======= ======= =======
Taxes provided exceed the U.S. statutory rate primarily due to state and
local taxes and losses without current tax benefits. These unfavorable
permanent differences had a greater percentage impact on the company's
effective tax rate due to lower earnings.
Note 6 -- Segment Information
(Thousands of Dollars) Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
Bearings 1999 1998 1999 1998
-------- -------- -------- --------
Net sales to external customers $451,438 $469,793 $890,155 $932,572
Depreciation and amortization 20,517 20,398 41,003 39,685
Earnings before interest and taxes 20,070 41,264 43,319 90,012
Interest expense (5,423) (5,607) (10,503) (10,545)
Interest income 755 451 1,203 909
Steel
Net sales to external customers 184,661 231,954 371,314 476,556
Intersegment sales 48,265 56,643 103,643 113,320
Depreciation and amortization 16,538 14,835 32,649 29,318
Earnings before interest and taxes 7,250 27,837 18,279 65,443
Interest expense (2,252) (1,832) (4,568) (3,462)
Interest income 773 859 1,492 1,557
Profit Before Taxes
Total EBIT for reportable segments 27,320 69,101 61,598 155,455
Interest expense (6,869) (6,607) (13,525) (12,470)
Interest income 721 478 1,148 929
Intersegment adjustments 1,752 (1,510) 1,288 (2,944)
Income before income taxes 22,924 61,462 50,509 140,970
<PAGE>
8.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
The Timken Company reported net sales of $636.1 million for the
second quarter of 1999, down 9.4% from $701.7 million in 1998's
second quarter. Net income declined by 68.2% to $12.3 million
compared to $38.7 million in the second quarter of 1998.
The continuing global market weakness that hit most durable goods
manufacturers a year ago continued to negatively impact sales and
earnings for the second quarter and first half of 1999. With the
exception of automotive sales, demand for the company's bearing
and steel products was dramatically lower in all markets as
customers continued to reduce inventories. The most significant
decline was in Steel's oil country and service center markets and
Bearings' industrial original equipment, rail and aftermarket
distribution markets. The company continued to experience soft
demand in Europe and Latin America. In North America, light and
heavy truck markets remained strong and Asia Pacific markets
continued to show some improvement from very low levels.
Gross profit was $119.6 million (18.8% of net sales) in the
second quarter of 1999, compared to $164.7 million (23.5% of net
sales) in 1998's second quarter. Lower sales in more profitable
aftermarket and industrial market segments combined with lower
plant operating levels contributed to the decline. The company's
U.S. bearing plants operated at about 10% below second quarter
1998 levels while steel and European bearing plant operations
were down by about 25%. A net favorable settlement of various
litigation and a reduction in the amount previously reserved for
performance-based pay contributed to second quarter gross profit.
The effect of these items was basically offset by inventory write-
offs, an increase in the amount reserved for sales and use taxes
relating to the audit of a prior year and associate severance
costs.
Selling, administrative, and general expenses were $87.8 million
(13.8% of net sales) in the second quarter of 1999, down $2.1
million compared to $89.9 million (12.8% of net sales) recorded
in the year-ago quarter. This reduction in expense resulted
primarily from a reduction in the amount previously reserved for
performance-based pay and the company's continued emphasis on
implementing structural changes in administrative areas to reduce
cost. Second quarter 1999 expenses would have been lower except
for some associate severance costs and the inclusion of selling
and administrative expenses for Timken Desford Steel and Timken
India Limited, acquired in December 1998 and March 1999,
respectively.
The company is continuing to implement cost cutting initiatives
in administrative and manufacturing areas and has taken
aggressive actions in Bearings and Steel to improve
competitiveness and to produce on-going returns for its
shareholders. In the fourth quarter 1998, the company recorded
<PAGE>
9.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
expense of $21.4 million related to these actions. A portion
of this expense related to the elimination of 515 positions by
December 31, 1999. To date, 390 positions have been eliminated,
with separation cash payments of $6.9 million being made to
terminated associates. At this point, the expenses recorded
in the fourth quarter 1998 are deemed sufficient to cover the
remaining costs associated with the improvement initiatives.
The closing of the company's manufacturing operations at its
Australian Timken facilities in Ballarat has been completed.
Costs associated with the closing were included in the
$21.4 million recorded in the fourth quarter 1998.
"Other income (expense)" reflects lower expense compared to the
1998's second quarter. Expense in the second quarter of 1998
was higher due primarily to the disposal of certain fixed assets
resulting from a company-initiated internal fixed asset review
that is conducted approximately every five years.
Bearings
Bearings' net sales were $451.4 million in the second quarter
of 1999, down 3.9% from the $469.8 million recorded in the year-
earlier period. Sales to North American automotive markets
increased by 17% compared to the year-ago quarter as the strong
levels of activity in light and heavy truck production continued
into the second quarter of 1999.
Second quarter sales into North American locomotive and freight
car markets declined by 11% compared to the previous year's
quarter. Industrial bearing sales, including original equipment
and aftermarket, declined by 20% compared to the second quarter
1998. Continued global weakness in agricultural and heavy
industrial markets, including construction, oil exploration and
mining, negatively impacted bearing sales.
Demand in Latin America and Europe remains soft as a result of
the continued broad-based market weakness. Second quarter sales
in Europe were off by 9% compared to a year ago and sales in
Latin American countries were down 20%. Asia Pacific markets
continue to show some signs of strengthening from 1998's
depressed levels. The Bearings business is accelerating plans
to rationalize operations worldwide to offset lower demand
levels and to continue improving operating efficiency.
Bearings' earnings before interest and income taxes (EBIT)
for the second quarter 1999 was $20.1 million compared to
$41.3 million in the year-earlier period. Lower sales in
industrial original equipment and aftermarket distribution
segments in North America and Europe combined with some price
erosion contributed to the decline in profits. Reduced
manufacturing schedules necessitated by the lower demand and
aggressive actions to reduce inventory also hurt EBIT in the
current year's second quarter. Selling and administrative
<PAGE>
10.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
expenses were down slightly from the second quarter of last
year. Expenses were lower as a result of continued emphasis
on controlling day-to-day expenses and a reduction in the amount
reserved for performance-based pay. Offsetting these reductions
were Bearings' portion of the increase in the amount reserved for
sales and use taxes and the addition of administrative expenses
for Timken India Limited, acquired in March 1999.
Steel
Steel's net sales, including intersegment sales, were
$232.9 million in the second quarter of 1999, down 19.3% from
the $288.6 million recorded a year earlier. The reduction in
demand that began late in the second quarter of 1998 continued
into the second quarter 1999. Sales were lower in almost all
markets as recovery of steel markets has been slower than
expected. Oil country and service center markets remain markedly
depressed. Sales into oil country markets declined by more than
80% compared to the year-ago quarter. Similarly, service center
sales were 60% below last year's second quarter as distributors
continued to reduce excess inventories. Based on the fact that
orders have begun to stabilize, the company continues to believe
that the bottom of this inventory correction may have been
reached. Industrial sales were off by about 25% while sales to
external bearing customers dropped by about 29%. Tool steel and
aerospace sales also declined by 11% and 37%, respectively.
Precision steel component sales to automotive customers were up
by about 22% in the second quarter. Overall, alloy steel
automotive demand was about flat compared to the second quarter
1998 levels and continues to provide the main source of
consistent demand for the Steel business. The company believes
that demand for steel products in the last half of 1999 will
remain relatively flat compared to current levels. Steel sales
in the second quarter of 1999 include sales from Timken Desford
Steel acquired in the fourth quarter of 1998.
Steel's EBIT was $7.3 million in the second quarter of 1999
compared to $27.8 million in 1998's second quarter. Lower sales
and production volumes and the shift in mix to lower margin
automotive sales contributed to lower second quarter profits.
Steel also experienced some price erosion in the second quarter.
Lower purchased scrap prices helped to offset in part higher
costs associated with manufacturing inefficiencies that resulted
from lower volume. Steel has implemented a series of cost
improvement actions aimed at improving efficiency and
profitability such as the alignment of its work force to match
lower volumes and the acceleration of plans to streamline rolling
processes. In addition, staffing reductions in administrative
areas have helped to reduce selling and administrative expenses
despite the addition of Timken Desford Steel. The second phase
of Steel's administrative cost reductions began in the second
quarter and resulted in recording some associate severance costs.
<PAGE>
11.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Financial Condition
- -------------------
Total assets as shown on the Consolidated Condensed Balance
Sheets increased by $21.5 million from December 31, 1998.
Assets increased by approximately $50 million resulting from
the consolidation of Timken India Limited (formerly Tata Timken
Limited) assets into the company's balance sheet. Prior to the
March 1999 increase in ownership to 80%, the company's investment
in Timken India was accounted for using the equity method.
Inventory balances at the end of the second quarter were
substantially lower than year-end 1998 levels. The number of
days' supply in inventory decreased by 4 days to 105 days at
June 30, 1999, compared to 109 days at December 31, 1998.
Bearings' inventory (including Timken India) decreased by about
12 days. Steel's inventory increased by about 9 days primarily
to accommodate planned schedule reductions at various operations
throughout the steel plants.
As shown on the Consolidated Condensed Statement of Cash Flows,
the change in inventories provided $36.5 million of cash during
the first six months of 1999. Although accounts receivable have
increased by $6.3 million since year-end, the number of days'
sales in receivables at June 30, 1999, was basically unchanged
from December 31, 1998, as sales in last two months of the second
quarter 1999 were higher than those in the last two months of
the fourth quarter 1998. Cash was provided by a $23.7 million
increase in accounts payable and accrued expenses related
primarily to higher retirement and postretirement benefit
liabilities. Purchases of property, plant and equipment used
$88.1 million of cash in the first six months of 1999, about 34%
below the $133 million spent during the same period in 1998. The
company's capital expenditures for 1999 are expected to remain at
about 30% below 1998's spending as the company continues to limit
capital spending as a means to conserve cash in response to the
business environment. Growth initiatives were continued as the
company invested approximately $28 million in March to acquire
the additional 40% ownership in Timken India Limited. Company
investments continue to support activities consistent with
strategies it is pursuing to achieve industry leadership.
Further capital investments in technologies within the company's
plants throughout the world and new acquisitions provide Timken
with the opportunity to improve the company's competitiveness and
meet the needs of its growing base of customers.
The 31.2% debt-to-total-capital ratio at June 30, 1999, was
slightly higher than the 30.8% at year-end 1998. Debt increased
by $6.7 million during the first half of 1999 to $476.1 million
at June 30, 1999. Included in that increase is $9.8 million of
debt assumed with the March 1999 acquisition of Timken India
Limited. Compared to the debt levels at the end of the first
quarter, the company reduced debt in the second quarter of 1999
by $34.8 million resulting primarily from aggressive efforts
<PAGE>
12.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
to reduce inventory and limit capital expenditures.
Any future cash needs that exceed cash generated from operations
will be met by short-term borrowing and issuance of medium-term
notes. Total shareholders' equity decreased by $8 million since
year-end 1998. The $28.8 million increase in equity resulting
from the first six month's net income was more than offset by a
$17.7 million foreign currency translation adjustment and the
payment of $22.3 million in dividends.
Other Information
- -----------------
The Timken Company has approached year 2000 compliance using a
defined methodology that includes inventory and assessment,
remediation, test, integration, implementation and contingency
plan components. Begun in 1996, this program encompasses Timken
worldwide business systems and operations, manufacturing and
distribution systems, technical architecture, end-user computing
and the company's supplier and customer base. Additionally, the
company's corporate information systems department has instituted
a corporate level reporting and tracking process that monitors
all Timken year 2000 project efforts worldwide. Critical
business computer information technology (IT) systems were year
2000 ready as of January 1999. Critical non-IT manufacturing and
business support personal end-user systems year 2000 readiness
was achieved in the second quarter of 1999. Systems testing and
testing with our customers and suppliers will continue throughout
1999 to ensure the continued compliance of our critical systems.
Although the company has met its completion dates, it can provide
no assurances that all of its year 2000 efforts will be
successful.
The company expects that the total costs associated with its year
2000 conversion efforts will not have a material effect on its
financial position, results of operations or cash flows. Between
1996 and 1999, overall costs of the year 2000 project, including
internal and external resources as well as hardware and software,
are expected to approximate $15 million. As of June of 1999, the
company spent $12.5 million in support of these efforts. Its
year 2000 efforts have had minimal impact on its other
information technology programs.
The company's financial results are also dependent on the ability
of customers, suppliers and governments to become year 2000
compliant. The company is making concerted efforts to understand
the year 2000 status of its customers and third parties
including, without limitation, electric utilities, water
utilities, communications carriers, transportation providers,
governmental entities, vendors and other general service
suppliers. The company has implemented a structured plan to
communicate and evaluate year 2000 compliance of its customers
and suppliers. This plan includes surveys, audits, meetings and
<PAGE>
13.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
other applicable methods. The company has evaluated its critical
suppliers and has developed appropriate contingency plans. These
efforts are to minimize any potential year 2000 compliance
impact; however, it is not possible to guarantee compliance.
The company has developed financial and operating contingency
plans for facilities worldwide as of June 1999. These plans,
which will be finalized by August 1999, will continue to be
refined, tested and reviewed during the remainder of 1999.
The company is also in the process of identifying fourth quarter
1999 and first quarter 2000 operating support strategies, which
include staffing requirements, communication procedures,
installation requirements, and event management activities, to
minimize the impact of potential disruptions. Failure of the
company or any third party with whom the company has a material
relationship to achieve year 2000 compliance could have a
material adverse effect on the company's business, financial
condition or results of operations or involve safety risk.
Assets and liabilities of subsidiaries, other than Timken Romania
which is considered to operate in a highly inflationary economy,
are translated at the rate of exchange in effect on the balance
sheet date; income and expenses are translated at the average
rates of exchange prevailing during the quarter. Related
translation adjustments are reflected as a separate component of
accumulated other comprehensive income. Foreign currency gains
and losses resulting from transactions and the translation of
financial statements of Timken Romania are included in the
results of operations.
Foreign currency exchange losses included in the company's
operating results for the first six months ended June 30, 1999,
amounted to $7.1 million compared to $0.7 million in the year-ago
period. In addition, the company recorded a foreign currency
translation adjustment of $17.7 million that reduced other
comprehensive income compared to a reduction of $9 million in the
first half of 1998. Weakening currencies in most of the
countries in which the company operates caused the losses. The
January 1999 devaluation of the Brazilian Real contributed to
1999's foreign currency losses; however, the company's operations
in France and the United Kingdom recorded the most significant
translation losses.
On August 6, 1999, the Board of Directors declared a qarterly
cash dividend of 18 cents per share payable September 7, 1999,
to shareholders of record at the close of business on August 20,
1999. This is the 309th consecutive dividend paid on the common
stock of the company.
The statements set forth in this document that are not historical
in nature are forward-looking statements. The company cautions
readers that actual results may differ materially from those
projected or implied in forward-looking statements made by or
on behalf of the company due to a variety of important factors,
such as:
<PAGE>
14.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
a) changes in world economic conditions. This includes, but is
not limited to, the potential instability of governments and
legal systems in countries in which the company conducts
business, significant changes in currency valuations and the
effects of year 2000 compliance.
b) changes in customer demand on sales and product mix. This
includes the effect of customer strikes and the impact of
changes in industrial business cycles.
c) competitive factors, including changes in market penetration
and the introduction of new products by existing and new
competitors.
d) changes in operating costs. This includes the effect of
changes in the company's manufacturing processes; changes in
costs associated with varying levels of operations; changes
resulting from inventory management and cost reduction
initiatives and different levels of customer demands; the
effects of unplanned work stoppages; changes in the cost of
labor and benefits; and the cost and availability of raw
materials and energy.
e) the success of the company's operating plans, including its
ability to achieve the benefits from its on-going continuous
improvement programs, its ability, along with that of its
customers and suppliers, to update computer systems to be
year 2000 compliant; its ability to integrate acquisitions
into company operations, the ability of recently acquired
companies to achieve satisfactory operating results and the
company's ability to maintain appropriate relations with
unions that represent company associates in certain
locations in order to avoid disruptions of business.
f) unanticipated litigation, claims or assessments. This
includes, but is not limited to, claims or problems related
to product warranty and environmental issues.
g) changes in worldwide financial markets to the extent they
affect the company's ability or costs to raise capital,
have an impact on the overall performance of the company's
pension fund investments and cause changes in the economy
which affect customer demand.
<PAGE>
15.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
11 Computation of Per Share Earnings
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
The company did not file any reports on Form 8-K during the three
months ended June 30, 1999.
16.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
The Timken Company
_______________________________
Date August 12, 1999 BY /s/ W. R. Timken, Jr.
________________________ _______________________________
W. R. Timken, Jr.,
Director and Chairman;
President and Chief Executive
Officer
Date August 12, 1999 BY /s/ G. E. Little
________________________ _______________________________
G. E. Little
Senior Vice President - Finance
<TABLE>
Exhibit 11 - COMPUTATION OF PER SHARE EARNINGS
(Thousands of dollars, except per share data)
<CAPTION>
Six Months Ended June 30 Three Months Ended June 30
1999 1998 1999 1998
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
BASIC
Average shares outstanding 61,884,046 62,379,675 61,906,626 62,213,764
Net income $28,843 $87,825 $12,264 $38,689
Per share amount $0.47 $1.41 $0.20 $0.62
===== ===== ===== =====
DILUTED
Average shares outstanding 61,884,046 62,379,675 61,906,626 62,213,764
Effect of dilutive securities based on the
treasury stock method using the average
market price if higher than the exercise
price 238,513 908,037 318,169 966,141
---------- ---------- ---------- ----------
62,122,559 63,287,712 62,224,795 63,179,905
Net income $28,843 $87,825 $12,264 $38,689
Per share amount $0.46 $1.39 $0.20 $0.61
===== ===== ===== =====
</TABLE>
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended
June 30 June 30
1999 1998
-------- --------
(Thousands of Dollars)
Income before income taxes,
extraordinary item and cumulative
effect of accounting changes $22,924 $61,462
Amortization of capitalized interest 608 610
Interest expense 6,869 6,607
Interest portion of rental expense 532 613
-------- --------
Earnings $30,933 $69,292
======== ========
Interest $ 7,825 $ 8,019
Interest portion of rental expense 532 613
-------- --------
Fixed Charges $ 8,357 $ 8,632
======== ========
Ratio of Earnings to Fixed Charges 3.70 8.03
======== ========
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 19,577
<SECURITIES> 0
<RECEIVABLES> 366,162
<ALLOWANCES> 9,542
<INVENTORY> 415,637
<CURRENT-ASSETS> 835,545
<PP&E> 2,851,275
<DEPRECIATION> 1,481,959
<TOTAL-ASSETS> 2,471,516
<CURRENT-LIABILITIES> 518,516
<BONDS> 327,978
0
0
<COMMON> 290,058
<OTHER-SE> 757,974
<TOTAL-LIABILITY-AND-EQUITY> 2,471,516
<SALES> 1,261,469
<TOTAL-REVENUES> 1,261,469
<CGS> 1,015,309
<TOTAL-COSTS> 1,015,309
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,525
<INCOME-PRETAX> 50,509
<INCOME-TAX> 21,666
<INCOME-CONTINUING> 28,843
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,843
<EPS-BASIC> 0.47
<EPS-DILUTED> 0.46
</TABLE>
